Management's discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Union Bankshares Corporation and its subsidiaries (collectively the "Company"). This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report, as well as the Company's Annual Report on Form 10-K and management's discussion and analysis for the year ended December 31, 2008. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the three and six month periods ended June 30, 2009 and 2008 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate" or other statements concerning opinions or judgments of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, mergers and acquisitions, technology, and consumer spending and savings habits. The Company does not update any forward-looking statements that may be made from time to time by or on behalf of the Company.

CRITICAL ACCOUNTING POLICIES

General

The accounting and reporting policies of the Company and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America ("GAAP") and conform to general practices within the banking industry. The Company's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position and/or results of operations.

The more critical accounting and reporting policies include the Company's accounting for the allowance for loan losses and mergers and acquisitions. The Company's accounting policies are fundamental to understanding the Company's consolidated financial position and consolidated results of operations. Accordingly, the Company's significant accounting policies are discussed in detail in Note 1 "Summary of Significant Accounting Policies" in the "Notes to the Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

The following is a summary of the Company's critical accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standard ("SFAS") No. 5, Accounting for Contingencies ("SFAS No. 5"), which requires that losses be accrued when occurrence is probable and can be reasonably estimated and
(ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS No. 114"), as amended, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

The Company's allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either SFAS No. 5 or SFAS No. 114. Management's estimate of each SFAS No. 5 component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.

The Company adopted SFAS No. 114, which has been amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures ("SFAS No. 118"). SFAS No. 114, as amended, requires that the impairment of loans that have been separately identified for evaluation is to be measured based on the present value of expected future cash flows or, alternatively, the observable market price of the loans or the fair value of the collateral. However, for those loans that are collateral dependent (that is, if repayment of those loans is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment is to be based on the net realizable value of the collateral. SFAS No. 114, as amended, also requires certain disclosures about investments in impaired loans and the allowance for loan losses and interest income recognized on impaired loans.

Reserves for commercial loans are determined by applying estimated loss factors to the portfolio based on historical loss experience and management's evaluation and "risk grading" of the commercial loan portfolio. Reserves are provided for noncommercial loan categories using historical loss factors applied to the total outstanding loan balance of each loan category. Additionally, environmental factors based on national and local economic conditions, as well as portfolio-specific attributes, are considered in estimating the allowance for loan losses.

While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

Mergers and Acquisitions

The Company's merger and acquisition strategy focuses on high-growth areas with strong market demographics and targets organizations that have a comparable corporate culture, strong performance and good asset quality, among other factors.

Beginning January 1, 2009, business combinations must be accounted for under SFAS No. 141(R), Business Combinations ("SFAS No. 141(R)") using the acquisition method of accounting. The

Company has accounted for its previous business combinations under the purchase method of accounting, a cost allocation process which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, the Company will continue to rely on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Under the acquisition method of accounting, the Company will identify the acquirer and the closing date and apply applicable recognition principles and conditions. Costs that the Company expects, but is not obligated to incur in the future, to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree's employees are not liabilities at the acquisition date. The Company will not recognize these costs as part of applying the acquisition method. Instead, the Company will recognize these costs in its post-combination financial statements in accordance with other applicable GAAP.

Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples for the Company include systems conversions, integration planning consultants and advertising costs. The Company will account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. These acquisition-related costs are included within the Consolidated Statements of Income classified within the noninterest expense caption.

BUSINESS OVERVIEW

Union Bankshares Corporation is one of the largest community banking organizations based in Virginia, providing full service banking to the Northern, Central, Rappahannock, Tidewater and Northern Neck regions of Virginia through its bank subsidiaries, Union Bank and Trust Company (42 locations in the counties of Albemarle, Caroline, Chesterfield, Fairfax, Fluvanna, Hanover, Henrico, King George, King William, Nelson, Spotsylvania, Stafford, Westmoreland, and the cities of Fredericksburg, Williamsburg, Newport News, Grafton and Charlottesville); Northern Neck State Bank (9 locations in the counties of Richmond, Westmoreland, Essex, Northumberland and Lancaster); and Rappahannock National Bank (7 locations in Washington, Front Royal, Middleburg, Warrenton and Winchester). Union Bank and Trust Company's loan production office in Manassas was open through the first quarter of 2009 but was closed in early April 2009. Union Investment Services, Inc. provides full brokerage services; Union Mortgage Group, Inc. provides a full line of mortgage products; and Union Insurance Group, LLC offers various lines of insurance products. Union Bank and Trust Company also owns a non-controlling interest in Johnson Mortgage Company, LLC.

On March 14, 2008, the Company completed the previously announced merger of its affiliate Prosperity Bank & Trust Company into Union Bank and Trust Company ("Union Bank").

On October 31, 2008, the Company completed the previously announced merger of its affiliate Bay Community Bank into Union Bank.

On March 30, 2009, the Company and First Market Bank, FSB announced the signing of an agreement, as amended on June 19, 2009, pursuant to which the Company will acquire First Market Bank, FSB in an all stock transaction valued at approximately $105.4 million (based on the preannouncement stock price of $14.23 as of March 27, 2009 for the Company's common stock). First Market Bank, FSB, a privately held federally chartered savings bank with more than $1.3 billion in assets, operates 39 branches throughout central Virginia with 31 locations in the greater Richmond metropolitan area. Upon completion of the transaction, expected to occur before year end, the Company will become the largest Virginia based community banking organization with approximately 97 branch locations and total assets of over $4.0 billion.

Additional information is available on the Company's website at www.ubsh.com. The shares of the Company are traded on the NASDAQ Global Select Market under the symbol "UBSH."

RESULTS OF OPERATIONS

Net Income

Net income for the second quarter ended June 30, 2009 was $953 thousand, down $3.4 million from $4.3 million for the same period a year ago. The decrease was primarily driven by an increase in the provision for loan losses, increased Federal Deposit Insurance Corporation ("FDIC") insurance assessments and a decline in net interest income. These factors were partially offset by increased profitability in the mortgage segment. The Company also incurred acquisition costs related to the announced merger with First Market Bank, FSB, expected to be consummated by year end.

Net income available to common shareholders, which deducts from net income the dividends and discount accretion on preferred stock, was $91 thousand for the quarter ended June 30, 2009. This decline represents a decrease in earnings per common share, on a diluted basis of $0.31, from $0.32 to $0.01 from the prior year's same quarter. Before dividends and discount accretion on preferred stock, return on average common equity for the three months ended June 30, 2009 was 1.39%, while return on average assets was 0.15%, compared to 8.10% and 0.74%, respectively, for the same period in 2008.

On a linked quarter basis, net income of $953 thousand for the quarter ended June 30, 2009 declined $800 thousand from $1.7 million for the first quarter ended March 31, 2009. Net income available to common shareholders, which deducts from net income the dividends and discount accretion on preferred stock, was $91 thousand for the current quarter compared to $985 thousand from the most recent quarter. This represents a decline in earnings per share, on a diluted basis, of $0.06, from $0.07 to $0.01. The second quarter results were largely attributable to increased provision for loan losses and increased FDIC insurance assessments, partially offset by increased net interest income and income from the mortgage segment. Continued historically low interest rates helped drive increased profitability in the mortgage segment during the quarter.

As a supplement to U. S. GAAP, the Company also uses certain alternate financial measures to review its operating performance. Diluted earnings per share on a cash basis for the quarter ended June 30, 2009 was $0.09 as compared to $0.35 for the same quarter a year ago and $0.15 for the quarter ended March 31, 2009. Additionally, cash basis return on average tangible common equity for the quarter ended June 30, 2009 was 3.29% as compared to 12.64% in the prior year's same quarter and 5.42% for the quarter ended March 31, 2009.

Net Interest Income

The decline in the target Federal funds rate since last year (from 2.00% to a range of 0% to 0.25%) continued to put significant pressure on the Company's net interest margin and related net interest income during the second quarter. The asset sensitive positioning of the Company's balance sheet combined with the previously mentioned interest rate declines have caused interest-earning assets to reprice faster than the Company's interest-bearing deposits. While this positioning is expected to benefit the Company when interest rates (e.g., Prime rate, Federal funds rate) begin to rise, it will continue to negatively impact the margin in the interim.

For the six months ended June 30, 2009, the Federal Open Market Committee ("FOMC") maintained the target range for the Federal funds rate at 0% to 0.25% and expects that the Federal funds rate will likely remain exceptionally low for an extended period. Additionally, the FOMC agreed to continue

using liquidity and asset-purchase programs to support the financial markets and to stimulate the economy. The Company should benefit from an exceptionally low Federal funds rate through lower borrowing costs and transaction deposit rates, which are generally priced off the short-end of the yield curve.

For the three months ended June 30, 2009, net interest income, on a tax-equivalent basis, decreased $996 thousand, or 4.8%, to $19.6 million compared to the same period last year. This decrease was attributable to the decline in interest-earning asset yields outpacing the decline in costs of interest-bearing liabilities, resulting in a reduction in the net interest margin of 62 basis points, from 3.92% to 3.30%. Yields on interest-earning assets declined 95 basis points, driven predominately by lower loan yields and excess liquidity at the Federal Reserve Bank yielding only 0.25%. Costs of interest-bearing liabilities declined only 33 basis points over the same time, principally as a result of lower costs on certificates of deposit and lower Federal Home Loan Bank of Atlanta ("FHLB") advances.

Average money market volumes increased $235 million from this same time last year, of which approximately $181 million relates to new volume resulting from the Company's money market promotion. The money market promotion provided customers, who opened these accounts, a 3% yield through June 30, 2009. Following expiration of the offer, yields for these money market deposits adjusted to the Company's regular money market rates, which at the time were 1.60% or lower. Compared to June 30, 2008, liquidity generated by this promotion allowed the Company to reduce reliance on other borrowings by approximately $56.5 million, and not to reissue any brokered certificates of deposit which had totaled approximately $40 million. It is expected that the repricing of these money market accounts will positively impact the net interest margin beginning in the third quarter.

On a linked quarter basis, tax-equivalent net interest income increased $1.0 million, or 5.5%, to $19.6 million. The tax-equivalent net interest margin increased 8 basis points to 3.30% from 3.22% for the most recent quarter. The net interest margin increase was partially attributable to a steeper decline in costs on interest-bearing liabilities as compared to the yields of interest-earning assets. Yields on interest-earning assets declined 6 basis points to 5.53% while the costs of interest-bearing liabilities declined 14 basis points to 2.63%. The decline in interest-earning asset yields was attributable to lower investment security yields, reduced loan demand and, to a lesser extent, an increase in nonaccrual loans. Excess funds, not utilized due to lower loan demand, have been deployed into taxable investment securities, having yields lower than loans, but greater than alternative Fed Funds sold or Federal Reserve Bank investment options. Improvements in the cost of funds were principally a result of declining costs on certificates of deposit and money market savings accounts.

For the six months ended June 30, 2009, tax-equivalent net interest income decreased $2.3 million, or 5.5%, to $38.3 million. The tax-equivalent net interest margin decreased 63 basis points to 3.26% from 3.89% compared to the prior year. The net interest margin decrease was partially attributable to a steeper decline in yields on interest-earning assets as compared to the costs of interest-bearing liabilities. Yields on interest-earning assets declined 112 basis points to 5.56% while the costs of interest-bearing liabilities declined only 53 basis points to 2.70%. The decline in interest-earning asset yields was attributable to lower yields and volume of loans in a declining rate environment, and to a lesser extent, an increase in nonaccrual loans. The decline in the cost of interest-bearing liabilities was attributable to declines in the cost of certificates of deposit, lower volumes and costs of FHLB advances, partially offset by increased volumes in promotional money market savings accounts.

On September 29, 2008, because of significant disruption and uncertainty in the financial markets, the Company borrowed $50 million in an FHLB advance at a rate of 3.52% with a maturity of September 28, 2009. Also, during the fourth quarter of 2008, the FOMC lowered the Federal funds target from 2.0% to a range of 0% to 0.25%. At that time, the Company considered the FHLB advance to be a contingency plan against unforeseen and unprecedented market movements. The earnings spread between the advance and the corresponding short-term investment yield was negative and consequently has had an unfavorable impact on the Company's net interest margin. The repayment of this advance during the third quarter is expected to favorably impact the net interest margin.

AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT
BASIS)



                                                                                        For The Three Months Ended June 30,
                                                         2009                                          2008                                          2007
                                                          Interest                                      Interest                                      Interest
                                          Average         Income /     Yield /          Average         Income /     Yield /          Average         Income /     Yield /
                                          Balance          Expense     Rate (1)         Balance          Expense     Rate (1)         Balance          Expense     Rate (1)
                                                                                              (Dollars in thousands)
Assets:
Securities:
Taxable                                 $   258,950       $   2,630        4.07 %     $   177,859       $   2,289        5.18 %     $   169,359       $   2,174        5.15 %
Tax-exempt                                  121,400           2,192        7.24 %         109,375           1,959        7.20 %          97,521           1,760        7.24 %

Total securities                            380,350           4,822        5.08 %         287,234           4,248        5.95 %         266,880           3,934        5.91 %
Loans, net (2)                            1,871,142          27,462        5.89 %       1,794,443          29,408        6.59 %       1,612,164          31,401        7.81 %
Loans held for sale                          51,522             580        4.52 %          31,021             449        5.82 %          22,332             359        6.45 %
Federal funds sold                              304              -         0.17 %             240               1        2.16 %           1,802             122        5.49 %
Money market investments                        104              -         0.00 %             152              -         0.01 %             146               1        1.72 %
Interest-bearing deposits in other
banks                                        84,408              60        0.29 %             951               5        2.29 %             901              12        5.21 %
Other interest-bearing deposits               2,598              -         0.00 %           2,598              16        2.42 %           2,598              35        5.39 %

Total earning assets                      2,390,428          32,924        5.53 %       2,116,639          34,127        6.48 %       1,906,823          35,864        7.54 %

Allowance for loan losses                   (28,249 )                                     (20,746 )                                     (18,306 )
Total non-earning assets                    251,820                                       249,805                                       242,636

Total assets                            $ 2,613,999                                   $ 2,345,698                                   $ 2,131,153


Liabilities and Stockholders'
Equity:
Interest-bearing deposits:
Checking                                $   203,276              86        0.17 %     $   228,009             362        0.64 %     $   208,068             334        0.64 %
Money market savings                        442,436           2,636        2.39 %         207,603           1,149        2.23 %         154,105             885        2.30 %
Regular savings                             100,309              97        0.39 %         103,047             140        0.54 %         104,743             200        0.76 %
Certificates of deposit:
$100,000 and over                           475,200           3,962        3.34 %         439,298           4,348        3.98 %         448,728           5,535        4.95 %
Under $100,000                              489,752           4,006        3.28 %         483,611           4,677        3.89 %         451,845           5,086        4.51 %

Total interest-bearing deposits           1,710,973          10,787        2.53 %       1,461,568          10,676        2.94 %       1,367,489          12,040        3.53 %
Other borrowings                            315,517           2,486        3.18 %         372,073           2,804        3.03 %         256,380           3,868        6.05 %

Total interest-bearing liabilities        2,026,490          13,273        2.63 %       1,833,641          13,480        2.96 %       1,623,869          15,908        3.93 %


Noninterest-bearing liabilities:
Demand deposits                             291,175                                       277,298                                       285,414
Other liabilities                            20,540                                        19,536                                        17,499

Total liabilities                         2,338,205                                     2,130,475                                     1,926,782
Stockholders' equity                        275,794                                       215,223                                       204,371

Total liabilities and stockholders'
equity                                  $ 2,613,999                                   $ 2,345,698                                   $ 2,131,153


Net interest income                                       $  19,651                                     $  20,647                                     $  19,956


Interest rate spread (3)                                                   2.90 %                                        3.52 %                                        3.61 %
Interest expense as a percent of
average earning assets                                                     2.23 %                                        2.56 %                                        3.35 %
Net interest margin                                                        3.30 %                                        3.92 %                                        4.20 %

(1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.

. . .