Bill Cimino – VP, Corporate Communications William Beale – President and CEO Rob Gorman – EVP and CFO Anthony Peay – EVP and Chief Banking Officer Jeffrey Farrar – EVP of Wealth Management, Insurance and Mortgage

Kathryn Miller – KBW William Wallace – Raymond James Bryce Rowe – Robert W. Baird & Co.

Blair Brantley – BB&T Capital Markets Laurie Hunsicker – Compass Point Research & Trading

Thank you, Michelle, and good morning everyone. We have Union President and CEO, Billy Beale and Executive Vice President and CFO, Rob Gorman, with him today.

Also joining us for the question-and-answer period are Elizabeth Bentley, EVP and Chief Retail Officer; Tony Peay, EVP and Chief Banking Officer; and Jeff Farrar, EVP of Wealth Management, Insurance and Mortgage. Please note that today’s earnings release is available to download on our investor website, investors.bankatunion.com.

Before I turn the call over to Billy, I would like to remind everyone that we will make forward-looking statements on today’s call which are subject to risks and uncertainties. A full discussion of the company’s risk factors are included in our SEC filings.

At the end of the call, we will take questions from the research analyst community. I’ll now turn the call over to Billy Beale.

Thank you, Bill. Good morning, everybody.

Thank you for dialing in. Rob’s going to go into a lot of detail on the financial performance a little bit later but I want to comment on our third quarter results, provide some additional details on the quarter, as well as give you an update of our StellarOne integration.

I will say that this quarter has a lot of noise in it. I think you will see noise in non-interest income, non-interest expense and even a little bit in net interest income.

We have tried to identify each of those sort of one-time expenses or non-operating expenses in our call report and I’m sure Rob’s going to go into a lot of detail on that but I just wanted to talk a little bit about that. I think you’re also going to hear comments that sound a lot like comments I made in the second quarter call.

Union has shown post-integration progress with our teams working together well. And we have experienced lower than expected customer attrition.

But the overall story really hasn’t dramatically changed in the last 90 days. As many of you know, we have delivered positive earnings throughout this economic downturn.

And we did that by focusing on the long term about building shareholder value over the long term and not getting too caught up in short term trends. And you can see that, and I hope through our explanations today, that we’re continuing that prudent management velocity today.

And we remain focused on building long term shareholder value through what we believe to be sustainable business practices. Third quarter.

Union delivered I think another quarter of solid financial performance despite some economic headwinds and the noise I’ve mentioned previously. If we back out $1.1 million in after-tax earnings, the company had operating earnings of $16 million or $0.35 a share.

The corporate result is derived from the community bank segment’s operating earnings of $16.7 million or $0.36 a share. The mortgage company experienced a loss of $628,000 or about $0.01 a share.

And included in our results is an after-tax OREO valuation adjustment of $4 million or $0.09 a share. That is part of the noise.

Without this adjustment, the company’s operating earnings would have been $20 million or $0.44 a share. Since it had the biggest impact on earnings, let me address the OREO valuation upfront.

During the quarter, we took a hard look at some of our long standing OREO properties. Just as a reminder, Union has maintained a velocity of moving vertical OREO quickly while holding on to raw land, partially developed land and in some cases, developed land in the belief that it was in the best interest of our shareholders to wait for the market to recover.

Given the lack of movement on some of the properties for over five years, we elected to reappraise our OREO properties. As a result, the valuation adjustment of several long-held properties – resulting in the valuation adjustments of several long-held properties.

I would point out that about half of that adjustment comes from the King Carter property which we have disclosed separately. That is the golf course community accompanied by some undeveloped commercial land and some undeveloped potentially future residential land in the northern neck of Virginia.

It was last quarter that we reported to you that we are under contract to sell the golf course and we took a $700,000 writedown on that golf course last quarter. And about half of this valuation adjustment was an adjustment on the developed lots, the undeveloped commercial property and, as I mentioned earlier, the raw land for future development.

That valuation adjustment mask what would have been a strong – which would have been a strong non-interest expense result for the quarter. And I think Rob will go into that in his comments.

Let me update you on a couple of other things. First, net loans declined during the quarter.

In looking at the macroeconomic environment, first, we continue to believe that there are some economic headwinds as tax revenues in Virginia came in well below projections. And the commonwealth has had to solve for a $2.4 billion biannual budget shortfall.

Employment in Virginia rose by only four tenths of a percent from the prior year which is lagging the national average of 1.8%. We saw some numbers yesterday I think in a Wall Street Journal article that indicated that total private sector employment in Virginia declined by 7,400.

Not a big number but certainly not the kind of trend along we’d want to see. We believe much of this is a result of the sequester taking hold.

Retail sales, housing permits, auto registrations also declined during the first half of 2014. Turning to unions specifically, while new loan production continue to meet our budgeted expectations, we are continuing to see non-contractual commercial pay downs and payoffs.

They remained at elevated levels and continue to outpace overall loan production. We also saw our consumers deleverage during the quarter.

With our consumer book declining by approximately $20 million or about a third of our decline in loans. As in the second quarter, some of the pay downs or commercial customers deleveraging by using excess cash on their balance sheets to pay down their debt.

We had one very large just south to $20 million revolver pay down. We’re also continuing to see credits moving to other banks and lenders where loan covenants are less restrictive.

And just to provide some additional color, during the third quarter, there were two large credits that move to the non-recourse market that accounted for about $25 million of the payoffs. As I had said earlier, we take a financially responsible position on loan growth and we had not traded lower yields, sacrifice credit terms or taken on excessive interest rate risk to manufacture loan volumes because we don’t believe that is in the best long-term interest of our shareholders.

We continue to emphasize core community banking values. They’re driven by prudent commercial and consumer loan growth through customer retention and development of new client’s relationships.

Related to loan growth, as we noted in prior earnings calls, we have hired several new loan officers and portfolio managers over the last two quarters. These new hires continue to get up to speed and we’ve seen some large loans closed in the first few weeks of October.

Some of these are construction loans that will take some time to be fully funded. But I believe we are emerging from the post-closing merger lull.

And our team is starting to sort itself in our markets. Turning to StellarOne, we’re now five months past the systems integration.

And our value proposition is resonating with consumers as we continue to see a strong net new household in our legacy markets and the merger related attrition from retail and commercial customers and the Stellar footprint remains well below our projections. For the year, our core net household growth across our footprint is about 2%.

I think one of the other important things to share with you is that we have delivered on each of the financial metrics that we laid out to you about 15 months ago when we announced the StellarOne acquisition. And we looked forward to delivering on improved financial performance that our shareholders expect.

We are still very much focused on achieving top tier financial performance. So let me summarize a little bit before I kick it over to Rob.

We had a good core earnings in the third quarter driven by the community bank segment, although, net loan growth remains a challenge. We took a hard look at our aged OREO inventory and took what we believe is appropriate action that will make our foreclosed properties more marketable.

And the StellarOne integration has gone well and I believe is now behind us. And Union is – I think we’re well positioned for future earnings growth going into the fourth quarter and in the 15.

And with that, I’m going to pass the conversation over to Rob Gorman.

Well, thank you, Billy, and good morning everyone. Thanks for joining us today.

I’m going to take some time to walk through the balance sheet and results of operations for the quarter. And starting with the balance sheet, total assets stood at $7.2 billion at September 30, a decrease of $113 million from June 30th levels, but an increase of $3 billion from December 31st 2013 levels reflecting the impact of the StellarOne acquisition which closed January 1st.

The decline in assets for the quarter was driven by net loan going off as Billy mentioned and lower mortgage loan sale per sale balances at the end of the quarter. Loans net of unearned income were $5.2 billion at quarter end, down $62 million while third quarter average loans declined $51 million from the second quarter due to large pay downs again as Billy mentioned earlier.

This is well below our low single digit growth estimates and we are now projecting that loan balances for the full year 2014 will be modestly down year-over-year. As Billy noted, Q3 loan production levels remained in line with our expectations.

However, both commercial and consumer loan pay downs and payoffs continue to be a headwinds net loan growth during the quarter. As of September 30th, total deposits were $5.6 billion, down $100 million from June 30 driven by CB going off and a seasonal decline in public funds.

The average deposit levels for the quarter increased $9 million or just under 1% annualized over the prior quarter. And that’s reflective of the continued core household growth in Union’s legacy markets.

It’s low as the modest deposit attrition today associated with the StellarOne customer conversion to Union during the second quarter. Turning the attention to asset quality, non-performing assets totaled $58 million comprised of $20 million in non-accruing loans and $38 million in OREO balances.

That’s September 30th. Non-performing assets as percentage of total outstanding loans declined 73 basis points from the prior year and declined 6 basis points from the prior quarter to 1.12%.

non-accrual loans balances decreased by $2.8 million in the quarter. The OREO balances declined by about $700,000 to $37.8 million due to the aforementioned OREO valuation adjustment of $6.2 million which was offset by additions related to merger related bringing it to closures and vacated operations space much of which we expect to dispose of by the end of this year and into early 2015.

Also during the quarter, the company reevaluated its OREO sales strategies in light of limited progress and selling properties in active rural real estate markets that have been held for extended periods of time. These valuation adjustments will allow the company to be aggressive in disposing of long-held OREO properties and reducing the ongoing expenses associated with managing these properties.

Several OREO properties are currently under contract to sell in the current quarter. So we expect to see those balances decline moving forward in the fourth quarter into 2015.

The allowance for loan losses increased approximately $700,000 from June 30 to $32.1 million at September 30th. The allowance is a percentage of the total loan portfolio adjusted for purchase accounting, was 1.12% at the end of the quarter, up 1 basis point from June 30th and down from 1.25% from the same quarter last.

The allowance for loan loss is at a percentage of total loan portfolio with 62 basis points at September 30th, up 2 basis points from June 30th and down from 1.13% from the prior year period. The decline from the prior year is primarily attributable to the acquisition of StellarOne.

As you know, in acquisition accounting the previously established StellarOne loan loss allowance was eliminated and replaced by the loan credit mark which is carried as a reduction to the acquired loan balances. At the end of the quarter, the non-accrual loan coverage ratio was 158% compared to 170% from the same quarter in the last year and 136% at the end of the second quarter.

The company’s capital ratios continued to be considered well-capitalized for regulatory purposes. The company’s estimated ratio of total capital to risk-weighted assets was 13.71%.

and the tier one capital ratio was 13.07 percent at September 30th. Our tangible common equity to tangible assets ratio at quarter end if 9.42%, up 19 basis points from June 30th levels and up 33 basis points from 9.09% from the same period last year.

Excess capital at the end of the third quarter amounts to approximately $98 million with the excess being defined as any balances above an 8% tangible common equity ratio. As a reminder, Union’s board of directors authorized a share repurchase program in the 1st quarter.

So purchase up to $65 million worth of the company’s common stock through December 31st 2015. As of October 17th, approximately $1.8 common shares have been repurchased at an average price of $25.01 per share, leaving approximately $20 million remaining under the two-year repurchase program authorization.

Now turning to the income statement, as Billy noted, operating earnings for the third quarter were $16 million or $0.35 per share down from $17.8 million or $0.38 per share in the prior quarter. As a recall, operating earnings exclude the impact of merger related cost was $1.1 million on an after tax basis in the quarter.

But if we exclude the impact of the OREO valuation adjustment, operating earnings would have been $20 million or $0.44 per share. On a GAAP reported basis, net income was $14.9 million for the quarter or $0.33 per share versus $14.8 million or $0.32 in the second.

Again, as Billy mentioned, the community banks segment turned in solid operating results of $16.7 million or $0.36 per share in the third quarter. And $20.7 million without the OREO adjustment.

While the mortgage segment reported a net loss of $628,000 or $0.01 per share. Operating profitability ratios for the company and the community bank segment also improved during the quarter excluding the OREO valuation adjustments.

The operating return on tangible common equity ratio returned – decreased to 9.82% from 11.1% in the prior core quarter. Without the OREO adjustment, it would have increased to 12.2%.

Operating return on tangible common equity of the community bank segment was 10.3% and adjusted for the OREO write down was 12.7%. Operating return on assets was 88 basis points, down from an operating ROA of 98 basis points in the prior quarter.

Again, excluding the OREO adjustment, ROA would have 1.1%. The operating ROA of the community bank segment was 91 basis points and 1.13% on an OREO adjusted basis.

Turning to the efficiency ratio, the operating efficiency ratio increased to 69.92% from 66.43% in the prior quarter. The operating efficiency ratio without the OREO adjusted would have been 62.6%, a decrease of 380 basis points reflective of the StellarOne merger savings impact.

For the community bank segment, the operating efficiency ratio was 67.7% and 60.1% on an OREO adjusted basis. It should be said that we remain committed to achieving top tier financial performance relative to our peers.

We continue to target an operating ROA above 1.1%, return on tangible common equity of above 13% and an efficiency ratio below 60%. As noted, we have made very significant strides towards these targets after stripping out the ORETO adjustment this quarter.

We remain confident that now the cost savings from the StellarOne acquisition are fully realized. We generate more robust loan growth and return to mortgage segments of profitability that we will consistently exceed these targets.

Tax equivalent net interest income was $66.5 million, up $700,000 from the second quarter. The third quarter reported net interest margin increased 2 basis points to 4.1% compared to 4.9% in the previous quarter.

The core net interest margin which does not include the 19 basis point impact of acquisition accounting accretion, was 3.92% but the client up 2 basis points from the prior quarter and in line with our expectations. The core margin decline was driven by lower earning asset yields in the second quarter as the investment portfolio yields were up 7 basis points primarily due to increased calls on higher yielding municipal bonds and lower reinvest rates in the quarter.

The core loan portfolio yields were up only 1 basis points to 4.68% in the quarter as we continue to be disciplined in our loan pricing. Accretion to purchase accounting adjustments for loans, CDs and borrowings related to the StellarOne acquisition at a 19 basis points to the net interest margin in the quarter.

And for your reference, actual and remaining estimated net accretion impacts reflected in the table included in our earnings release. As noted in our earnings release, we expect that the core net interest margin will decline modestly over the next several quarters as declines in earning asset yields are projected to outpace declines in interest-bearing liability rates going forward.

The provision for long losses was $1.1 million in the third quarter, an increase of $300,000 from the previous quarter and unchanged from the same period a year ago. For the quarter ended September 30th, net charge-offs were $1.1 million, up approximately $100,000 from the prior quarter, but down $1.2 million from the prior year.

Turning to non-interest income, non-interest income was relatively flat from the quarter at $16.7 million. Our customer related non-interest income declined $667,000 primarily due to declines in service charges and deposit accounts, debit card, interest rate income, weather credit fees and income from trust businesses.

Based on sales of securities of $995,000 were recorded in the quarter. This is related to the sale of Freddie Mac the preferred shares and is an increase of $569,000 from the prior quarter.

Other income increased $577,000 from the prior quarter primarily related to interest received on previously charged of loans and previously deferred incentives from contracts that we negotiated in the current quarter. [Indiscernible] on sales and mortgage loans, the net commissions declined $433,000 from the prior quarter primarily related to lower mortgage loan originations this quarter versus last.

Third quarter operating non-interest expenses excluding merger cost was $58.2 million, an increase from $54.8 million in the second quarter. If we exclude the unusual OREO valuation cost in the third quarter, non-operating interest expense would have decreased by $2.8 million to $52 million in the quarter.

We have hit our $28 million merger cost saving target on a run rate basis during the third quarter. As a reminder, the majority of the run rate expense savings related to the mix systems conversion and [indiscernible] consolidations were captured during the current quarter.

Our merger cost totaled $1.7 million during the quarter and we have now incurred approximately $25 million of the merger expense budget and we do not expect to have any material expense associated with the merger going into the fourth quarter and beyond. Finally, I’d like to add some color around the mortgage units results for the quarter.

The mortgage segment reported a net loss of $628,000 for the third quarter which was consistent with a net loss in the second quarter. Originations declined during the quarter and that impacted our ability to show any bottom line improvement.

As you know, we have been ongoing a fairly significant transformation of our mortgage company leadership and business model over the past several quarters. We believe that we now have the right management team in place and are able to focus on getting back to the high service, traditional secondary mortgage business model.

J. G.

Carter, President and CEO for the Mortgage Group has been on the job for a little more than a month, has worked diligently to return the mortgage line of business the profitability by reestablishing our production pipelines, improving back office productivity and reducing loan closing times. As noted, the net loss stabilized in the third quarter despite the originations drop as expense levels declined by 9%.

Since we were heading into seasonally low production quarters, we do not expect that mortgage business will return to profitability during the next two quarters. So to summarize, our third quarter operating results continue to illustrate the earnings capacity we envisioned the Union StellarOne combination would produce as the largest community banking institution headquartered in Virginia.

We achieved each of the financial metrics we projected with the StellarOne acquisition. And finally, please note the Union remains as committed as ever to delivering top tier financial performance in building long-term value for our shareholders.

And with that, I’ll turn it back over to Bill Cimino to open it up for questions from our analysts. Bill?

Thanks, Rob. And now we’ll have the time for a questions.

Michelle, we’re ready for our first caller.

Good morning everyone.

Good morning.

Good morning, Kathryn.

Let me first talk about the loan growth. I mean, Billy, if you can think about your market, would you say that the loan decline is coming primarily from the softening in your market that you spoke about earlier in your comments or from increased competition in your desire to stay conservative in your loan pricing and the maturities of your loans?

Kathryn, why don’t I let Tony take a shot at that and I may or may not add a postscript.

All right, great, thank you.

Hey, Katherine, how are you?

Hey, I’m great, Tony. How are you?

I’m well, thank you. I would tell you that both of those things are contributing to the loan decline.

We are getting a lot of loan looks, larger deals we’ve not necessarily gotten in the past. So the market is there to a degree.

It is highly competitive. We have some peers who are a little more aggressive than they probably should be and you may read about them down the road a few quarters.

But we have stepped through our discipline. We are addressing the opportunities we have.

We’re building strong teams of lenders. And I feel really good about where we’re going in the next quarter.

Billy mentioned sticking to our discipline. We have done that but at the same time, we’ve looked at – when we have a loan pay up unexpected, we study the reasons why it paid off, where did it go, why did it go.

And we’re also tracking all the lost opportunities on loans we’re bidding on, if you will, or pursuing. And we’re trying to understand what is happening in the marketplace and adjust accordingly.

And we’ve done some limited recourse lending which is – typically we’ve been a full recourse lender. We’ve studied the marketplace, we’ve studied the particular credit worthiness of certain of our customers and we are adjusting some of our underwriting in that marketplace to get better LTVs, better debt coverage ratios and lowering the recourse provisions there.

We’ve looked at the pricing metrics. We’ve adjusted our ROE target and our pricing model downwards some because we think this lower end is a longer term low, so a 15 ROE on our pricing model is probably aggressive and we’ve lowered that down to 13.

So we’re adjusting to the marketplace but it is – probably the biggest thing is it is highly competitive and we’ve got some much smaller community banks in a non-recourse lending which is not demand [ph] and we’re trying to stick to what we do well.

Great. That’s really helpful, Tony, thank you.

Kathryn, the only thing I would add is – it may be same thing Tony said a little different way – is there still remains probably more banks and non-banks seeking loans than there is supply which makes it competitive. And we think some people are losing their discipline on this as well.

Kathryn, one last thing. It’s no secret we’ve had some post-merger – we’ve had banks coming after our lenders.

We’ve lost no less than 14 commercial lenders in the last nine months. We have replaced all of them.

I like to think we’ve traded up in every case. So I’m optimistic about the – we didn’t rebuild, we reloaded and we’re ready to begin to produce again.

But it takes time. It takes – if the producer leaves, it’s probably 30 days doing the work to find somebody to replace them.

And then they’ve got to come in and absorb that portfolio and get up to speed and keep those customers happy and retain them while still building a book of business. So it’s probably a six- to nine-month speed bump, if you will, when we lose a producer.

All right, that’s a really helpful color, Tony. Thank you so much.

And maybe just on the OREO cost, so this is for Rob, can you talk about how the valuation writedowns or the valuations Jeff’s been saying you took this quarter, how that should translate into lower OREO cost moving forward? Do you think it’s possible to move that OREO line below the $1 million a quarter mark as we move into 2015?

Yes, Katherine. We are going through that analysis as we think we did do it during the third quarter as well and we expect that you will see declines in those called $1 million a quarter levels going into ‘15.

As I mentioned in my comments, we’ve got several properties that are under contract and will be moving out hopefully in the fourth quarter and over the first six months of the year we’ll continue to evaluate and sell properties which impact those ongoing costs. So, yes, fully expect that we’ll see those levels go down.

Okay, great, thank you.

Kathryn, okay, let me add that the biggest portion of our OREO cost is legal. And over the last 12 months, that’s been centered on four properties.

We think we have – well, one of them we resolved I guess this quarter because the numbers show that we resolved that issue and some of the resolution of that is reflected as a recovery of non-interest income in our lease. We mentioned that.

We also think that we have – are close to resolving some of the other pieces where we have expended OREO expense and it will not be a recurring or ongoing cost going into next year.

All right, thank you.

Thanks, Kathryn. And operator, we’re ready for the next caller, please.

Good morning, guys.

Good morning, Wallace.

Good morning, Wallace.

Maybe a couple of questions on credit as a follow-up. In the release, you mentioned the sharp increase in 90 plus being driven by two commercial credits.

Are those credits – or do you expect they’re going to move back to accrual or are these going to move through the process?

Tony?

I thought you were going to take that or you want me to – if you can take it, take it because I’m trying to find it. Yeah, Wallace, so we had, as we mentioned, two credits moved there.

So we’re continuing to resolve those. And I don’t have a timeframe in terms of what the resolution would be going through the process but expect that that will take some time to do.

So the expectation that you can get these paying and moving back to accrual, that’s why they’re in the 90 plus or was it that you’ve got some other stuff going on that’s driving that decision to put them in 90 plus rather than non-accrual?

No, we didn’t move them to non-accrual because we think there’s opportunity to continue accrual there, so we’ll continue to look at those credits and decide going forward whether that should move into the non-accrual status or not.

Well, in non-accrual, by definition, means that we would have a likelihood of not fully recovering principle and interest and that we were not in process of collection. And so if – Wally, I only remember one of these particular credits and it was just a commercial piece of property where we have a stubborn borrower who needs to renew this credit.

But this is sort of an exercise we go through with him about every five years. And that one should resolve itself.

We have a very low LTV on it and we have – what I want to say – class A nationally recognized tenant as the primary tenant in the property. So that one we’re not too worried about and I must admit I’m not recalling which the other one is.

Okay. Fair enough, thank you.

And then what’s this new OREO disposition strategy, first maybe if you could comment a little bit on what led you guys to decide to take a significantly more aggressive approach; and two, Billy, it sounded like in your prepared remarks you had some that hadn’t been appraised in five years, because I’m wondering if part of the strategy you’re also changing your reappraisal timeline where you’ll get appraisals more often or maybe just a little commentary around that?

I think that’s a fair question. And as I mentioned, these were rural real estate that some internally have referred too wildly as the third ring around our metropolitan areas and maybe even the one in the northern neck might be a fourth ring.

And we had not appraised those properties since we took them in to OREO. We knew they were long term holds.

We had referred in our calls, at least on a couple of them, we will probably still be dealing with them 10 years. We’re halfway into that 10 years for some of these and we have just not seen the demand for purchase that one would expect to see five years post-recovery.

And so we reappraised those. We have also changed our focus.

Our policy procedure process, if you will, is that we’ll begin reappraising every two years of all of our OREO.

Great.

Okay, thanks, Wally. And operator, we’re ready for the next caller, please.

Thanks, good morning.

Good morning, Bryce.

Good morning, Bryce.

Hey, Rob, a question for you on the operating expenses. You saw an increase in marketing, data processing and in the furniture and equipment, so on the furniture and equipment, was there some accelerated amortization there with the StellarOne branch properties moving into the investment category?

And then wondering if the marketing expenses of $2 million will remain at these levels going forward and then any commentary on the data processing would be helpful.

Yes, on the furniture and equipment, those basically increased to the – some purchases we made, some are related to the StellarOne merger as well. So those numbers are probably in line going forward, the numbers you should be thinking about.

Data processing, they’re probably up a bit. We’ve just renegotiated our core processing contract and we are expecting to see those levels come down a bit going forward.

The new contract hadn’t kicked in and we’re kind of on arrears basis related to paying those bills. So you should see those numbers come down a bit based on the renegotiated terms that we have put in place in the third quarter.

And marketing expenses, I think those have been kind of lumpy in the first nine months of the year. I think it’s probably a bit heavy in the current quarter.

We probably should dial that back, taking a look at the – over the course of the year and kind of prorate this quarter based on the total spend for the year. That’s probably the annualized spending we’ll be doing.

That’s helpful, Rob. And then just one follow-up on the OREO.

So do you guys have a property count within the OREO bucket or at least within the rural bucket that you just referred to?

Yes, I don’t know the exact number of properties. I have a list but I don’t –

Well, I think we’ve got – yes, the total is – well, at least our loan category, some of them may have multiple lots in them. It’s like 22 pieces of property but one of them, as I referred to earlier, is King Carter which is still 90 some odd developed lots and commercially zoned property and then some for future residential development.

And I don’t know whether, Bryce, you’d want to include that as 90 some odd partials or whether it’s just one property. But at least as we look at that, that’s one and our count of OREO is 20 some odd.

Okay. I mean that’s another way to look at it, Billy.

And I assume that the valuation adjustment this quarter was primarily tied to those 22 properties.

Well, 22 would be total.

Yes.

Five of them represented the more rural that we had sort of let sit in that long term whole bucket that we had reappraised. That represented a substantial portion of the charge-off.

Obviously with King Carter taking almost half of it from the charge-off – the writedown with King Carter takes almost half of it.

Okay. That’s helpful, thank you.

Thanks. Operator, we’re ready for the next question, please.

Good morning.

Good morning.

I just want to follow-up on the OREO too. You said you had some properties under contract.

Were any of those the rural stuff or they’re just more of the other properties that you have?

In terms of the five properties that Billy mentioned in the rural, they’re not related to those properties.

Okay. Okay.

[Indiscernible].

Well, the golf course is under contract but that’s I think second quarter of ‘15 is when that’s to close.

Okay. Yes, that’s a portion of the King Carter totals, right.

Okay. And then a different question.

With mortgage and you mentioned that you’re probably going to have some offers in the next couple of quarters and I know you’re still in transition somewhat. What kind of contribution do you think this company could add to the bottom line?

There’s obviously been a penny lost here and there and was a big benefit to the bottom line during boom times, what kind of benefit do you think the mortgage company could have?

Blair, this is Jeff Farrar. I would tell you that I think that we would likely see mortgage longer term having a fairly limited contribution in relation to the bank earnings, community bank segment earnings overall.

I do think that our strategy will be one where we’ll move more to a purchase portfolio type lending in conjunction with our secondary market strategy. So I do anticipate that we’ll begin to see some additional earnings contribution associated with that.

But just given the industry and given some of the headwinds that I think those are going to be around for a while, I don’t anticipate the earnings contribution to be measurable. I do think it’ll be there.

I do think it’ll contribute to earnings per share but I don’t think it’s going to be a significant component, if you will, to the overall earnings of the company. We are excited about the future.

We’ve got some headwinds that we’ll continue to work with. But I do think as we’re moving to mid-2015 we’ll start seeing some earnings contribution.

Okay. And then in terms of – for the next couple of quarters, is that loss pretty similar to what we’ve seen the last couple of quarters?

Do you think – could the loss get much worse?

Yes, I think it will be similar to what we’ve seen the last two quarters.

Yes, that’s what we’re projecting.

Okay. Thank you very much.

Thanks, Blair. And operator, we got time for one more caller, please.

Great, thanks. Thanks for taking my question.

Just to follow-up on the OREO, can you just take us back through King Carter, because I know it started way back when at $9 million and you said half of the writedown this quarter – so heading into this, it was down to $8.3 million, is that correct?

Hold on a second.

Yes.

And you said half of the writedown, half of the $6.55 million with King Carter.

That was about – yes, just about –

I think King Carter we had a year ago was $9.4 million. We wrote down $700,000 last quarter, second quarter of ‘14 –

Right.

– when we went under contract on the golf course. So that, you’re right, took it down to $8.7 million.

$8.7 million.

And then we’re telling you about half of the gross of $6 million net of $4.2 million came out of King Carter.

Okay. So that’s down to $5.1 million [ph] –

Yes.

That’s right, Laurie.

Okay. And was there any change to the golf course contract?

No.

Was there any further writedown on that? No, so that – and you said – you just mentioned that was still set to close in 2Q.

That’s going to the guy that previously managed Pinehurst.

Correct.

Okay. Okay.

And so, can you just take us through the other clump of the $3.3 million, what that related to? I guess it’s the other four properties in that rural –

Well, we have a –

Could you just give us sort of a macro?

Sure. I mean, we’ve got the round numbers, 600 acres of raw land in Fluvanna County.

We’ve got 35 acres in Orange County that had previously been approved for residential development. That approval has since expired, so it’s now agricultural land or I don’t know exactly what the zoning is, but it’s raw land without any development plan.

We’ve got one commercial lot in Richmond that we actually acquired in the First Market acquisition that was part of this writedown. And then we’ve got a multi-parcel residential development in King William County.

There’s a portion of that that is currently, if you will, under development, meaning that it had platted lots, raw cut roads. We were paving the roads.

There are homebuilders who have purchased lots from us previously. They will re-begin building and we will market the rest of those lots in that subdivision.

And then there are adjacent parcels that would have been, if you will, for that developer, phases two, three and four that we will market as – to somebody else. We will not be able to develop them ourselves.

And of those four, can you just give me the approximate balance of where they’re carried now and what the corresponding writedown was this quarter?

I don’t –

I could just chat with you offline.

Well, you can. I don’t think we’ve given that kind of detail on each and every of our 20 some odd pieces of OREO.

And not every parcel that we own had a writedown. Some of them actually appraised above our carrying value but the accounting guys do not let us write up.

They only let us write down. And so if we were able to sell those properties, then we get gains.

But I mean, you’re more than welcome to talk to us online but we had typically not disclosed piece by piece. I know there’s a lot of focus on the writedown.

I know that one of you on this line has already published something regarding the writedown. We’ve been carrying this real estate for a while.

We made a decision after not seeing the kind of movement we thought we would see five plus years later that we needed to make what we thought was a prudent business decision and write it down to reflect the proper values of it. But ongoing, I think the story is is what our operating earnings are going to be, not what the value of our OREO is.

But, yes, we can talk offline about it and –

Okay, just one sort of follow-up then. Obviously, you talked about loan growth being slower and so forth, so as you look at your stock price sitting here at 23 and you think about share buyback as a really potentially good viable option and certainly two points below what you paid, can you sort of expand your thought on using capital for that purpose?

And then sort of just one follow-up, just generally now that Stellar is completed, where you stand with M&A.

I was just going to say, a lot of our investors and a lot of our analysts have very differing opinions about whether we ought to be buying back stock or whether we ought to be paying dividends or whether we ought to be retaining stock to do acquisitions. We have internal models that we use and do valuations based on our internal models and that will drive our decisions to whether we will buyback additional stock or whether we’ll continue to increase dividends or whether we’ll retain it for M&A.

As far as the M&A environment, it has not – my comments regarding that would not have changed much since the last quarter. It’s very active.

You have seen some deals announced in Virginia. I think there are lots of conversations going on.

And we seek to participate in those conversations and have an opportunity to get ones that fit what we’re looking for, which would be traditional community banks, people with core deposits, people who have a good franchise value and ones that can be both strategic and partners for us and ones that would produce good earnings per share accretion for our shareholders. And, Rob, you got anything you’d want to add?

No, I think you’ve summarized it very well, Billy. Share repurchase, as you mentioned, we’ll continue to evaluate that.

We do have $20 million left in our authorization and we continue to evaluate that going forward in light of other capital management tools we have in place.

Great. And then just one last question.

As you think about M&A, at one point you had mentioned to me the likelihood of staying below $10 billion. Can you comment on how you view that now?

Yes. We are focused on what life would be like after $10 billion.

We understand, I believe, the financial impact on the non-interest income side of our balance sheet. We are building a risk management structure so that when we get to close to or choose to go over that $10 billion threshold that we will be prepared, the regulators will feel that we are in the appropriate place from a risk management standpoint.

And we’re continuing to focus on that but that’s really probably a conversation, an announcement that would be three, four, five years off. But we will be prepared and we’ll work to be ready for when that time comes.

Okay, thank you, gentlemen.

Great, thanks, Laurie and thanks to everyone for participating in the call. A replay of the call will be posted on the investor website fairly soon.

Thank you.