CHARLOTTESVILLE, Va., April 25, 2013 (GLOBE NEWSWIRE) -- StellarOne Corporation (Nasdaq:STEL) ("StellarOne"), today reported first quarter 2013 net income of $5.9 million, or $0.26 net income per diluted share. This represents a 7.5% increase over net income of $5.5 million or $0.24 per diluted share recognized during the same quarter in the prior year.
In addition, the Board of Directors of StellarOne has approved a second quarter dividend of $0.10 per share payable on May 28, 2013 to shareholders of record on May 7, 2013. This dividend represents an increase of $0.02 or 25% over the $0.08 per share paid in first quarter of 2013, and an increase of $0.04 or 66.7% over the $0.06 paid in second quarter 2012.
"We are pleased with our start in 2013, with improving metrics around organic loan growth and asset quality," said O. R. Barham, Jr., President and Chief Executive Officer. "Loan growth and improved funding costs allowed for a stable net interest margin and revenue growth over last year. Operating expenses remained in line despite operating costs associated with opening new branches and other strategic investments in the business that will yield pay-offs in the future. Our focus throughout the year will be on improving our sales experience and cross-sell capabilities through our multiple lines of business and multiple channels to continue driving growth. We successfully completed our branch acquisition in Midlothian, expanding the StellarOne brand in the Richmond market, and have opened a third branch in the West End of Richmond this month. "
First Quarter 2013 Performance Highlights
-
Average loans grew $57.1 million or 2.7% on a sequential basis and are up $87.0 million or 4.2% compared to the same quarter in the prior year.
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Revenue growth improved, with net revenues totaling $31.6 million, up $774 thousand or 2.5% as compared to $30.9 million for first quarter last year.
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Pre-tax, pre-provision earnings were $9.6 million, up $376 thousand or 4.1 % over the $9.2 million recognized for the first quarter last year.
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Nonperforming asset levels improved to $37.9 million, a decrease of $3.8 million or 9.1% from December 31, 2012, lowering the ratio of non-performing assets as a percentage of total assets to 1.26% as of March 31, 2013, compared to 1.38% as of December 31, 2012.
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Annualized net charge-offs as a percentage of average loans receivable amounted to 0.28% for the first quarter of 2013, flat to the fourth quarter of 2012 and down from 0.35% for same quarter last year.
- Approximately 372,000 shares were repurchased during the first quarter of 2013, with approximately 1.1 million shares remaining authorized for repurchase under the current share repurchase plan.
| Earnings Highlights | |||||
| Change | Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands, except per share data | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| Interest income - taxable equivalent | $ 28,761 | $ 29,050 | $ 29,684 | $ (289) | $ (923) |
| Interest expense | 3,864 | 4,118 | 5,062 | (254) | (1,198) |
| Net interest income - taxable equivalent | 24,897 | 24,932 | 24,622 | (35) | 275 |
| Less: taxable equivalent adjustment | 698 | 729 | 726 | (31) | (28) |
| Net interest income | 24,199 | 24,203 | 23,896 | (4) | 303 |
| Provision for loan losses | 700 | 1,400 | 850 | (700) | (150) |
| Net interest income after provision for loan losses | 23,499 | 22,803 | 23,046 | 696 | 453 |
| Noninterest income | 7,439 | 8,068 | 6,968 | (629) | 471 |
| Noninterest expense | 22,770 | 22,405 | 22,400 | 365 | 370 |
| Income tax expense | 2,257 | 2,245 | 2,114 | 12 | 143 |
| Net income available to common shareholders | $ 5,911 | $ 6,221 | $ 5,500 | $ (310) | $ 411 |
| Earnings per share available to common shareholders | |||||
| Basic | $ 0.26 | $ 0.27 | $ 0.24 | $ (0.01) | $ 0.02 |
| Diluted | $ 0.26 | $ 0.27 | $ 0.24 | $ (0.01) | $ 0.02 |
| Net Interest Margin | |||||||
| Change | Change | ||||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |||
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 | ||
| Average interest-earning assets | $ 2,671,513 | $ 2,644,993 | $ 2,575,389 | $ 26,520 | $ 96,124 | ||
| Interest income (tax equivalent) | $ 28,761 | $ 29,050 | $ 29,684 | $ (289) | $ (923) | ||
| Yield on interest-earning assets | 4.37% | 4.37% | 4.64% | 0 | bps | (27) | bps |
| Average interest-bearing liabilities | $ 2,184,987 | $ 2,169,607 | $ 2,152,479 | $ 15,380 | $ 32,508 | ||
| Interest expense | $ 3,864 | $ 4,118 | $ 5,062 | $ (254) | $ (1,198) | ||
| Cost of interest-bearing liabilities | 0.72% | 0.75% | 0.94% | (3) | bps | (27) | bps |
| Cost of borrowings | 3.34% | 3.36% | 3.41% | (2) | bps | (7) | bps |
| Net interest income (tax equivalent) | $ 24,897 | $ 24,932 | $ 24,622 | $ (35) | $ 275 | ||
| Net interest margin | 3.78% | 3.75% | 3.85% | 3 | bps | (7) | bps |
First Quarter 2013 compared to Fourth Quarter 2012
The expansion in net interest margin on a sequential basis was driven by a 3 basis point reduction in the cost of interest bearing liabilities and stable asset yields. The yield on assets was slightly elevated due to higher loan fee amortization associated with loan payoffs during the current quarter. Loan yields contracted 5 basis points due to re-pricing within the current portfolio and reduced yields on stronger new loan production. Investment yields contracted 3 basis points sequentially due to maturities and pay-downs of higher yielding investments. The cost of interest bearing liabilities improved 3 basis points sequentially, moving from 0.75% during the fourth quarter of 2012 to 0.72% during the first quarter of 2013. Significant improvements in the cost of interest-bearing liabilities were realized during 2012; however, we anticipate the improvement in 2013 to be more muted and consistent with the sequential shift. Higher earning assets offset the contraction in loan yields and the effect of the shorter period as net interest income on a tax-equivalent basis remained stable at $24.9 million on a sequential basis.
First Quarter 2013 compared to First Quarter 2012
The net interest margin compressed 7 basis points when compared to the first quarter of 2012. Loan and investment yields contracted 28 basis points and 52 basis points, respectively, on a year over year basis. Similar to the sequential quarter contractions, these were also due to the current low rate environment. These contractions were somewhat offset by the 22 basis point improvement in the cost of interest bearing liabilities noted year over year. Higher earning assets offset the margin compression as net interest income on a tax-equivalent basis increased $275 thousand to $24.9 million for the first quarter of 2013, compared to $24.6 million for the first quarter last year.
| Noninterest Income | |||||
| % Change | % Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| Retail banking fees | $ 3,051 | $ 3,370 | $ 3,327 | -9.5% | -8.3% |
| Fiduciary and brokerage fee income | 1,228 | 1,129 | 1,228 | 8.8% | 0.0% |
| Mortgage banking-related fees | 1,835 | 2,096 | 1,777 | -12.5% | 3.3% |
| Losses on mortgage indemnifications and repurchases | -- | (9) | (354) | -100.0% | -100.0% |
| (Losses) gains on sale of premises and equipment | (10) | 58 | (16) | >100% | -37.5% |
| Gains on securities available for sale | 6 | 440 | 73 | -98.6% | -91.8% |
| Losses on sale / impairments of foreclosed assets | (130) | (440) | (452) | -70.5% | -71.2% |
| Income from bank owned life insurance | 432 | 446 | 440 | -3.1% | -1.8% |
| Insurance income | 299 | 125 | 288 | >100% | 3.8% |
| Other operating income | 728 | 853 | 657 | -14.7% | 10.8% |
| Total noninterest income | $ 7,439 | $ 8,068 | $ 6,968 | -7.8% | 6.8% |
First Quarter 2013 compared to Fourth Quarter 2012
On an operating basis, which excludes gains and losses from sales and impairments of securities and other assets, total non-interest income amounted to $7.4 million for the first quarter of 2013, down $127 thousand or 1.7% on a sequential basis compared to $7.6 million for the fourth quarter of 2012. The sequential quarter decrease in operating noninterest income was attributable to decreases in retail banking fees and mortgage banking fees of $319 thousand and $261 thousand, respectively. These contractions were partially offset by a $310 thousand reduction in losses on foreclosed assets, a $174 thousand seasonal increase in insurance income and a $99 thousand increase in fiduciary and brokerage fee income.
The decrease in retail banking fees was driven by a $316 thousand decrease in overdraft revenues, which is considered normal seasonal contraction when comparing the first quarter to the fourth quarter. The contraction in mortgage banking related fees was primarily margin related due to product mix as loans sold in the first quarter of 2013 totaled $76.8 million or down $1.4 million or only 1.8% from the $78.2 million sold during the fourth quarter of 2012.
The wealth management segment saw growth in both fees from brokerage fee income, which was up $83 thousand or 33.6% and from fiduciary activities, which were up $15 thousand or 1.7%. Fiduciary assets increased sequentially by $127.7 million or 28.0% amounting to $583.0 million at March 31, 2013, compared to $455.3 million at December 31, 2012. This business segment produced over $105 million in new assets under management during the first quarter of 2013.
Losses and write-downs on foreclosed assets decreased as the portfolio increased $629 thousand or 10.9% during the quarter, as approximately $1.4 million of properties were added and $699 thousand were sold. Other operating income decreased $125 thousand during the quarter due to a contraction in commercial lending loan swap fee income.
First Quarter 2013 compared to First Quarter 2012
On an operating basis total non-interest income was up $532 thousand or 7.7% compared to $6.9 million for the first quarter of 2012. The increase in operating noninterest income was attributable to a $354 thousand decrease in losses on mortgage indemnifications, a $322 thousand decrease in losses on foreclosed assets, a $73 thousand increase in other income and a $58 thousand increase in mortgage banking related fees. These were partially offset by a $276 thousand contraction in retail banking fees.
The decrease in losses on sale/impairments of foreclosed assets is reflective of the downward trending balance in foreclosed assets. This balance decreased $447 thousand or 6.5% when compared to the first quarter of 2012.
Mortgage banking-related fees increased primarily due to volume and not margin as loans sold in the first quarter of 2013 totaled $76.8 million or up $24.8 million or 47.7% from the $52.0 million sold during the first quarter of 2012. The increase in other operating income was a result of higher commercial lending loan swap fee revenues when compared to the first quarter of 2012.
The decrease in retail banking fees of $276 thousand was driven by a $185 thousand decrease in overdraft revenues and a $92 thousand decrease in interchange fees. The decrease in overdraft revenues is due to decreased volume, while the decrease in interchange income is primarily due to decreased margin related to recently enacted legislation.
| Noninterest Expense | |||||
| % Change | % Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| Noninterest Expense | |||||
| Compensation and employee benefits | $ 12,423 | $ 11,994 | $ 12,102 | 3.6% | 2.7% |
| Net occupancy | 2,250 | 2,212 | 2,063 | 1.7% | 9.1% |
| Equipment | 2,089 | 1,965 | 2,218 | 6.3% | -5.8% |
| Amortization-intangible assets | 311 | 311 | 413 | 0.0% | -24.7% |
| Marketing | 245 | 373 | 249 | -34.3% | -1.6% |
| State franchise taxes | 587 | 564 | 568 | 4.1% | 3.4% |
| FDIC insurance | 506 | 562 | 639 | -10.0% | -20.8% |
| Data processing | 414 | 410 | 341 | 1.0% | 21.4% |
| Professional fees | 754 | 735 | 681 | 2.6% | 10.7% |
| Telecommunications | 373 | 405 | 425 | -7.9% | -12.2% |
| Other operating expenses | 2,818 | 2,874 | 2,701 | -2.0% | 4.3% |
| Total noninterest expense | $ 22,770 | $ 22,405 | $ 22,400 | 1.6% | 1.7% |
First Quarter 2013 compared to Fourth Quarter 2012
Noninterest expenses were up sequentially by $365 thousand or 1.6%. This increase was driven by a $429 thousand increase in compensation and benefits expense associated with seasonal increases in incentive costs and related benefits. Equipment expense increased $124 thousand on higher maintenance costs. These increases were somewhat offset by decreased marketing, FDIC insurance and telecommunications expenses of $128 thousand, $56 thousand and $32 thousand, respectively.
Professional fees remained elevated due to $316 thousand of nonrecurring costs associated with strategic initiatives involving succession planning, efficiency initiatives and evaluation of certain strategic opportunities.
First Quarter 2013 compared to First Quarter 2012
Noninterest expenses were up year over year by $370 thousand or 1.7%. The majority of the noninterest expense increase when comparing the first quarter of 2013 to the same quarter in the prior year relates to a $321 thousand increase in compensation and benefits. The primary driver of the increase relates to increased incentive costs incurred during the current quarter.
Net occupancy, professional fees, and data processing increased when comparing the first quarter of 2013 to the same quarter in the prior year by $187 thousand, $73 thousand and $73 thousand, respectively. Net occupancy increases were driven by our additional financial centers; professional fees including the aforementioned nonrecurring costs in the current year; and the increase in data processing reflects additional transaction volume and technology investments. These increases were somewhat offset by decreased amortization of intangible assets and FDIC insurance expenses of $102 thousand and $133 thousand, respectively.
The efficiency ratio was 69.19% for the first quarter of 2013, compared to 66.95% for the fourth quarter of 2012 and 68.78% for the first quarter of 2012. The sequential quarter increase in the efficiency ratio reflects lower noninterest income revenues coupled with higher compensation costs associated with incentives and nonrecurring professional costs. The incentive cost also drove the year over year increase, which was partially offset by slightly higher noninterest income revenues.
| Asset Quality | |||||
| Change | Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| Allowance for loan losses: | |||||
| Beginning of period | $ 29,824 | $ 29,860 | $ 32,588 | $ (36) | $ (2,764) |
| Provision for loan losses | 700 | 1,400 | 850 | (700) | (150) |
| Charge-offs | (2,133) | (2,562) | (2,383) | 429 | 250 |
| Recoveries | 659 | 1,126 | 560 | (467) | 99 |
| Net charge-offs | (1,474) | (1,436) | (1,823) | (38) | 349 |
| End of period | $ 29,050 | $ 29,824 | $ 31,615 | $ (774) | $ (2,565) |
| Accruing Troubled Debt Restructurings | $ 21,082 | $ 22,217 | $ 28,646 | $ (1,135) | $ (7,564) |
| Loans greater than 90 days past due still accruing | $ 525 | $ 182 | $ 563 | $ 343 | $ (38) |
| Non accrual loans | $ 29,518 | $ 33,795 | $ 31,558 | $ (4,277) | $ (2,040) |
| Non accrual TDR's | $ 1,960 | 2,087 | $ 6,134 | (127) | (4,174) |
| Total non-performing loans | 31,478 | 35,882 | 37,692 | (4,404) | (6,214) |
| Foreclosed assets | 6,389 | 5,760 | 6,836 | 629 | (447) |
| Total non-performing assets | $ 37,867 | $ 41,642 | $ 44,528 | $ (3,775) | $ (6,661) |
| Nonperforming assets as a % of total assets | 1.26% | 1.38% | 1.52% | -0.12% | -0.27% |
| Nonperforming assets as a % of loans plus foreclosed assets | 1.76% | 2.00% | 2.18% | -0.23% | -0.42% |
| Allowance for loan losses as a % of total loans | 1.36% | 1.43% | 1.55% | -0.08% | -0.20% |
| Annualized net charge-offs as a % of average loans outstanding | 0.28% | 0.28% | 0.35% | 0.00% | -0.08% |
First Quarter 2013 compared to Fourth Quarter 2012
Nonperforming asset levels decreased 9.1% on a sequential basis and 15.0% when compared to the same quarter in the prior year. We continue to see improvement in the market conditions throughout our footprint and believe our efforts to manage problem credits is driving the reductions noted in nonaccrual loans and nonperforming troubled debt restructurings ("TDR's"). The decreased provisioning in the first quarter of 2013 directly correlated to the continued improvement in underlying credit quality metrics used in measuring the risk inherent in the loan portfolio.
Our allowance to nonperforming loans coverage ratio is at its highest level since the second quarter of 2011. This metric was 92.3% at March 31, 2013, increasing from 83.1% at December 31, 2012 and 83.9% at March 31, 2012. The first quarter net charge offs of $1.5 million outpaced loan loss provisioning of $700 thousand, resulting in an allowance for loan losses of $29.1 million at March 31, 2013, or lower when compared to $29.8 million at December 31, 2012 and $31.6 million at March 31, 2012. The allowance as a percentage of total loans was 1.36% at March 31, 2013, compared to 1.43% at December 31, 2012 and 1.55% at March 31, 2012.
Foreclosed assets on a sequential basis ticked up slightly from an eight quarter low at December 31, 2012. This was due the net effect of $1.4 million in nonperforming loans migrating to foreclosed assets and $699 thousand of properties being sold during the quarter. We continue to manage properties out of the portfolio at a moderate pace while maintaining reasonable price points relative to market.
Included in the loan portfolio at March 31, 2013 were loans classified as TDR's totaling $23.0 million, which is down $1.3 million or 5.2% from $24.3 million at December 31, 2012. At March 31, 2013, $21.1 million or 91.5% of total TDRs were performing under the modified terms.
| Capital | |||||
| 2013 | 2012 | ||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |
| Tier 1 risk-based capital ratio | 15.22% | 15.61% | 15.65% | 15.53% | 15.47% |
| Tangible equity ratio | 10.72% | 10.80% | 10.90% | 10.60% | 10.64% |
| Tangible common equity ratio | 10.72% | 10.80% | 10.90% | 10.60% | 10.64% |
| Period end shares issued and oustanding | 22,569,918 | 22,889,091 | 22,881,857 | 22,874,676 | 22,858,900 |
| Book value per common share | $ 19.00 | $ 18.86 | $ 18.71 | $ 18.45 | $ 18.28 |
| Tangible book value per common share | $ 13.76 | $ 13.71 | $ 13.54 | $ 13.26 | $ 13.06 |
| Shares (cancelled) issued | (290,484) | (450) | (8,278) | 27,823 | 59,208 |
| Average common shares issued and outstanding | 23,048,095 | 23,099,400 | 23,104,631 | 23,089,473 | 23,064,048 |
| Average diluted common shares issued and outstanding | 23,048,578 | 23,100,576 | 23,105,549 | 23,089,473 | 23,064,164 |
| Cash dividends paid per common share | $ 0.08 | $ 0.08 | $ 0.06 | $ 0.06 | $ 0.06 |
Risk-based capital ratios continue to substantially exceed published regulatory standards for well-capitalized banks.
| Balance Sheet Trends | |||||
| % Change | % Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| SUMMARY AVERAGE BALANCE SHEETS | |||||
| Total loans | $ 2,141,838 | $ 2,084,741 | $ 2,054,830 | 2.7% | 4.2% |
| Total investment securities | 506,038 | 521,999 | 461,236 | -3.1% | 9.7% |
| Total earning assets | 2,671,513 | 2,644,993 | 2,575,389 | 1.0% | 3.7% |
| Total assets | 2,992,789 | 2,973,428 | 2,897,624 | 0.7% | 3.3% |
| Total deposits | 2,452,592 | 2,433,728 | 2,373,887 | 0.8% | 3.3% |
| Shareholders' equity | 431,506 | 431,505 | 416,998 | 0.0% | 3.5% |
| SUMMARY ENDING BALANCE SHEETS | |||||
| Total loans | $ 2,141,931 | $ 2,080,068 | $ 2,034,440 | 3.0% | 5.3% |
| Total investment securities | 510,323 | 553,476 | 524,020 | -7.8% | -2.6% |
| Total earning assets | 2,758,011 | 2,709,183 | 2,621,833 | 1.8% | 5.2% |
| Total assets | 3,013,889 | 3,023,204 | 2,925,914 | -0.3% | 3.0% |
| Total deposits | 2,476,005 | 2,484,324 | 2,401,917 | -0.3% | 3.1% |
| Shareholders' equity | 428,753 | 431,642 | 417,920 | -0.7% | 2.6% |
First Quarter 2013 compared to Fourth Quarter 2012
Period end loans grew $61.9 million or 3.0% on a sequential basis and are up $107.5 million or 5.3% compared to the same quarter in the prior year. Loan growth during the first quarter of 2013 was primarily commercial real estate driven, but growth was noted in just about every loan category. This category also accounts for most of the growth noted since the first quarter of 2012. Additionally, loans totaling $11.9 million were purchased during the first quarter in conjunction with the purchase of our Robious Road financial center. While loan growth in the first quarter of 2013 was improved, pricing competition continues to be high for quality loans and elevated curtailments continue across our footprint. Investment securities continue to trend down as maturing cash flows from the investment portfolio are being utilized to fund loan growth. While total assets contracted slightly, we improved the mix of earning assets and its ratio to nonearning assets.
| Segments | |||||
| % Change | % Change | ||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |
| Dollars in thousands | 2013 | 2012 | 2012 | Q4 12 | Q1 12 |
| Net Income | |||||
| Commercial Banking | $ 5,390 | $ 5,696 | $ 5,425 | -5.4% | -0.7% |
| Mortgage Banking | 482 | 722 | 221 | -33.2% | 118.1% |
| Wealth Management | 135 | 83 | 175 | 62.7% | -22.9% |
| Other | (96) | (280) | (321) | -65.7% | -70.1% |
| Consolidated | $ 5,911 | $ 6,221 | $ 5,500 | -5.0% | 7.5% |
First Quarter 2013 compared to Fourth Quarter 2012
The first quarter of 2013 saw decreased contributions from both the Commercial Banking and Mortgage Banking segments on a sequential quarter basis. These were driven by increased incentives paid out in our commercial lending group and reduced margins on mortgage production, respectively. Wealth management net income increased based on strong growth in assets under management and higher brokerage fee income realized through increased volume.
First Quarter 2013 compared to First Quarter 2012
The year over year increase in consolidated net income was attributable to the strong contribution from the Mortgage Banking segment, which was volume related. The Commercial Banking segment saw little contraction in net income due to strong loan growth which offset the contractions in both net interest margin and noninterest income. Wealth management net income decreased largely due to some nonrecurring revenues associated with a vendor conversion that were recognized during the first quarter of 2012.
Income Taxes
The provision for income taxes was $2.3 million for the first quarter of 2013 compared to $2.2 million for the fourth quarter of 2012. This resulted in an effective tax rate of 27.6% for the first quarter of 2013 compared to 26.8% for the year ended December 31, 2012. The increase in the effective tax rate was due to higher earnings relative to permanent differences. The effective rate of 27.6% applied to the first quarter is anticipated to be our annual effective rate for 2013.
Earnings Webcast
To hear a live webcast of StellarOne's first quarter 2013 earnings conference call at 10:00 a.m. Eastern Time on Thursday, April 25, 2013, please visit our website at www.StellarOne.com and click on the Investor Relations section for detailed instructions on how to participate. Replays of the conference call will be available from 1:00 p.m. Eastern Time on Thursday, April 25, 2013 through 11:59 PM Eastern Time on Wednesday, May 1, 2013, by dialing toll free (855) 859 2056 and using passcode #31550077.
About StellarOne
StellarOne Corporation is a traditional community bank with assets of $3.01 billion offering a full range of business and consumer banking services, including trust and wealth management services. Through the activities of our sole subsidiary, StellarOne Bank, we operate over 50 full-service financial centers, two loan production offices, and over 60 ATMs serving the New River Valley, Roanoke Valley, Shenandoah Valley, Richmond, Tidewater, and Central and North Central Virginia.
Forward-Looking Statements
In addition to historical information, this press release contains forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, or those anticipated. When we use words such as "believes," "expects," "anticipates" or similar expressions, we are making forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date thereof. StellarOne wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect StellarOne's actual results, causing actual results to differ materially from those in any forward-looking statement. These factors include: (i) expected cost savings from StellarOne's acquisitions and dispositions, (ii) competitive pressure in the banking industry or in StellarOne's markets may increase significantly, (iii) changes in the interest rate environment may reduce margins, (iv) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, (v) changes may occur in banking legislation and regulation, (vi) changes may occur in general business conditions, and (vii) changes may occur in the securities markets. Please refer to StellarOne's filings with the Securities and Exchange Commission for additional information, which may be accessed at www.StellarOne.com.
NOTE: Risk-based capital ratios are preliminary.
Additional Financial Data
| STELLARONE CORPORATION (NASDAQ: STEL) | ||
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||
| (Dollars in thousands) | ||
| As of March 31, | ||
| 2013 | 2012 | |
| Assets | ||
| Cash and due from banks | $ 42,296 | $ 39,170 |
| Federal funds sold | 52 | 42 |
| Interest-bearing deposits in banks | 24,161 | 45,961 |
| Cash and cash equivalents | 66,509 | 85,173 |
| Investment securities, at fair value | 510,323 | 524,020 |
| Mortgage loans held for sale | 30,036 | 17,058 |
| Loans receivable, net of allowance for loan losses, 2013, $29,050; 2012, $31,615 | 2,112,441 | 2,003,137 |
| Premises and equipment, net | 73,778 | 72,602 |
| Accrued interest receivable | 8,865 | 8,961 |
| Core deposit intangibles, net | 3,882 | 4,599 |
| Goodwill | 113,652 | 113,652 |
| Bank owned life insurance | 44,613 | 42,853 |
| Foreclosed assets | 6,389 | 6,836 |
| Other assets | 43,401 | 47,023 |
| Total assets | $ 3,013,889 | $ 2,925,914 |
| Liabilities | ||
| Deposits: | ||
| Noninterest-bearing | $ 372,864 | $ 338,237 |
| Interest-bearing | 2,103,141 | 2,063,680 |
| Total deposits | 2,476,005 | 2,401,917 |
| Federal Home Loan Bank advances | 55,000 | 55,000 |
| Subordinated debt | 32,991 | 32,991 |
| Accrued interest payable | 1,548 | 1,913 |
| Deferred income tax liability | 2,662 | 3,037 |
| Other liabilities | 16,930 | 13,136 |
| Total liabilities | 2,585,136 | 2,507,994 |
| Stockholders' Equity | ||
| Preferred stock; no par value; 5,000,000 shares authorized; no shares issued and outstanding; | -- | -- |
| Common stock; $1 par value; 35,000,000 shares authorized; 2013: 22,569,918 shares issued and outstanding; 2012: 22,858,900 shares issued and outstanding. | 22,570 | 22,859 |
| Additional paid-in capital | 266,596 | 271,050 |
| Retained earnings | 131,161 | 115,056 |
| Accumulated other comprehensive income | 8,426 | 8,955 |
| Total stockholders' equity | 428,753 | 417,920 |
| Total liabilities and stockholders' equity | $ 3,013,889 | $ 2,925,914 |
| STELLARONE CORPORATION (NASDAQ: STEL) | ||
| QUARTERLY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||
| (Dollars in thousands) | ||
| Three Months Ended | ||
| March 31, | ||
| 2013 | 2012 | |
| Interest Income | ||
| Loans, including fees | $ 25,416 | $ 26,014 |
| Federal funds sold and deposits in other banks | 18 | 34 |
| Investment securities: | ||
| Taxable | 1,444 | 1,610 |
| Tax-exempt | 1,185 | 1,300 |
| Total interest income | 28,063 | 28,958 |
| Interest Expense | ||
| Deposits | 3,117 | 4,277 |
| Federal funds purchased and securities sold under agreements to repurchase | 7 | 6 |
| Federal Home Loan Bank advances | 404 | 438 |
| Subordinated debt | 336 | 341 |
| Total interest expense | 3,864 | 5,062 |
| Net interest income | 24,199 | 23,896 |
| Provision for loan losses | 700 | 850 |
| Net interest income after provision for loan losses | 23,499 | 23,046 |
| Noninterest Income | ||
| Retail banking fees | 3,051 | 3,327 |
| Fiduciary and brokerage fee income | 1,228 | 1,228 |
| Mortgage banking-related fees | 1,835 | 1,777 |
| Losses on mortgage indemnifications and repurchases | -- | (354) |
| Losses on sale of premises and equipment | (10) | (16) |
| Gains on sale of securities available for sale | 6 | 73 |
| Losses on sale / impairments of foreclosed assets | (130) | (452) |
| Income from bank owned life insurance | 432 | 440 |
| Insurance income | 299 | 288 |
| Other operating income | 728 | 657 |
| Total noninterest income | 7,439 | 6,968 |
| Noninterest Expense | ||
| Compensation and employee benefits | 12,423 | 12,102 |
| Net occupancy | 2,250 | 2,063 |
| Equipment | 2,089 | 2,218 |
| Amortization of intangible assets | 311 | 413 |
| Marketing | 245 | 249 |
| State franchise taxes | 587 | 568 |
| FDIC insurance | 506 | 639 |
| Data processing | 414 | 341 |
| Professional fees | 754 | 681 |
| Telecommunications | 373 | 425 |
| Other operating expenses | 2,818 | 2,701 |
| Total noninterest expense | 22,770 | 22,400 |
| Income before income taxes | 8,168 | 7,614 |
| Income tax expense | 2,257 | 2,114 |
| Net income | $ 5,911 | $ 5,500 |
| Basic net income per common share available to common shareholders | $ 0.26 | $ 0.24 |
| Diluted net income per common share available to common shareholders | $ 0.26 | $ 0.24 |
| STELLARONE CORPORATION (NASDAQ: STEL) | ||||||
| CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED) | ||||||
| THREE MONTHS ENDED MARCH 31, 2013 AND 2012 | ||||||
| (Dollars in thousands) | ||||||
| Q1 | Q1 | |||||
| 2013 | 2012 | |||||
| Average | Interest | Average | Average | Interest | Average | |
| Balance | Inc/Exp | Rates | Balance | Inc/Exp | Rates | |
| Assets | ||||||
| Loans receivable, net (1) | $ 2,141,838 | $ 25,476 | 4.82% | $ 2,054,830 | $ 26,040 | 5.10% |
| Investment securities | ||||||
| Taxable | 379,131 | 1,444 | 1.52% | 322,372 | 1,610 | 1.98% |
| Tax exempt (1) | 126,907 | 1,823 | 5.75% | 138,864 | 2,000 | 5.70% |
| Total investments | 506,038 | 3,267 | 2.58% | 461,236 | 3,610 | 3.10% |
| Federal funds sold and deposits in other banks | 23,637 | 18 | 0.30% | 59,323 | 34 | 0.23% |
| 529,675 | 3,285 | 2.48% | 520,559 | 3,644 | 2.77% | |
| Total earning assets | 2,671,513 | $ 28,761 | 4.37% | 2,575,389 | $ 29,684 | 4.64% |
| Total nonearning assets | 321,276 | 322,235 | ||||
| Total assets | $ 2,992,789 | $ 2,897,624 | ||||
| Liabilities and Stockholders' Equity | ||||||
| Interest-bearing deposits | ||||||
| Interest checking | $ 627,046 | $ 200 | 0.13% | $ 585,017 | $ 396 | 0.27% |
| Money market | 463,969 | 484 | 0.42% | 412,739 | 544 | 0.53% |
| Savings | 313,875 | 105 | 0.14% | 296,373 | 332 | 0.45% |
| Time deposits: | ||||||
| Less than $100,000 | 459,826 | 1,438 | 1.27% | 507,797 | 1,896 | 1.50% |
| $100,000 and more | 230,892 | 890 | 1.56% | 259,364 | 1,109 | 1.72% |
| Total interest-bearing deposits | 2,095,608 | 3,117 | 0.60% | 2,061,290 | 4,277 | 0.83% |
| Federal funds purchased and securities sold under agreements to repurchase | 1,388 | 7 | 2.02% | 835 | 6 | 2.95% |
| Federal Home Loan Bank advances | 55,000 | 404 | 2.94% | 57,363 | 438 | 3.02% |
| Subordinated debt | 32,991 | 336 | 4.07% | 32,991 | 341 | 4.09% |
| 89,379 | 747 | 3.34% | 91,189 | 785 | 3.41% | |
| Total interest-bearing liabilities | 2,184,987 | 3,864 | 0.72% | 2,152,479 | 5,062 | 0.94% |
| Total noninterest-bearing liabilities | 376,296 | 328,147 | ||||
| Total liabilities | 2,561,283 | 2,480,626 | ||||
| Stockholders' equity | 431,506 | 416,998 | ||||
| Total liabilities and stockholders' equity | $ 2,992,789 | $ 2,897,624 | ||||
| Net interest income (tax equivalent) | $ 24,897 | $ 24,622 | ||||
| Average interest rate spread | 3.65% | 3.70% | ||||
| Interest expense as percentage of average earning assets | 0.59% | 0.79% | ||||
| Net interest margin | 3.78% | 3.85% | ||||
| (1) Income and yields are reported on a taxable equivalent basis using a 35% tax rate. | ||||||
| STELLARONE CORPORATION (NASDAQ: STEL) | ||||
| FINANCIAL INFORMATION - FOUR QUARTER TREND (UNAUDITED) | ||||
| (Dollars in thousands, except per share data) | ||||
| 2013 | 2012 | |||
| Quarter Ended | ||||
| March 31, | December 31, | September 30, | June 30, | |
| Interest income | $ 28,063 | $ 28,321 | $ 28,843 | $ 28,934 |
| Interest expense | 3,864 | 4,118 | 4,544 | 4,754 |
| Net interest income | 24,199 | 24,203 | 24,299 | 24,180 |
| Provision for loan losses | 700 | 1,400 | 1,900 | 1,400 |
| Total net interest income after provision | 23,499 | 22,803 | 22,399 | 22,780 |
| Non interest income | 7,439 | 8,068 | 7,401 | 7,076 |
| Non interest expense | 22,770 | 22,405 | 22,288 | 23,207 |
| Income before income taxes | 8,168 | 8,466 | 7,512 | 6,649 |
| Income tax expense | 2,257 | 2,245 | 1,952 | 1,768 |
| Net income | $ 5,911 | $ 6,221 | $ 5,560 | $ 4,881 |
| Net income per share | ||||
| basic | $ 0.26 | $ 0.27 | $ 0.24 | $ 0.21 |
| diluted | $ 0.26 | $ 0.27 | $ 0.24 | $ 0.21 |
| STELLARONE CORPORATION (NASDAQ: STEL) | ||||||
| SEGMENT INFORMATION (UNAUDITED) | ||||||
| (Dollars in thousands) | ||||||
| At and for the Three Months Ended March 31, 2013 | ||||||
| Commercial | Mortgage | Wealth | Intersegment | |||
| Bank | Banking | Management | Other | Elimination | Consolidated | |
| Net interest income | $ 24,218 | $ 316 | $ -- | $ (335) | $ -- | $ 24,199 |
| Provision for loan losses | 700 | -- | -- | -- | -- | 700 |
| Noninterest income | 5,585 | 1,817 | 1,228 | 26 | (1,217) | 7,439 |
| Noninterest expense | 21,660 | 1,445 | 1,035 | (153) | (1,217) | 22,770 |
| Provision for income taxes | 2,053 | 206 | 58 | (60) | -- | 2,257 |
| Net income (loss) | $ 5,390 | $ 482 | $ 135 | $ (96) | $ -- | $ 5,911 |
| Total Assets | $ 2,960,541 | $ 44,874 | $ 629 | $ 467,166 | $ (459,321) | $ 3,013,889 |
| Average Assets | $ 2,945,276 | $ 39,816 | $ 615 | $ 468,857 | $ (461,775) | $ 2,992,789 |
| At and for the Three Months Ended March 31, 2012 | ||||||
| Commercial | Mortgage | Wealth | Intersegment | |||
| Bank | Banking | Management | Other | Elimination | Consolidated | |
| Net interest income | $ 23,992 | $ 245 | $ -- | $ (341) | $ -- | $ 23,896 |
| Provision for loan losses | 850 | -- | -- | -- | -- | 850 |
| Noninterest income | 5,496 | 1,398 | 1,278 | 27 | (1,231) | 6,968 |
| Noninterest expense | 21,090 | 1,327 | 1,026 | 188 | (1,231) | 22,400 |
| Provision for income taxes | 2,123 | 95 | 77 | (181) | -- | 2,114 |
| Net income (loss) | $ 5,425 | $ 221 | $ 175 | $ (321) | $ -- | $ 5,500 |
| Total Assets | $ 2,900,980 | $ 17,383 | $ 506 | $ 455,548 | $ (448,503) | $ 2,925,914 |
| Average Assets | $ 2,865,457 | $ 24,988 | $ 461 | $ 454,809 | $ (448,091) | $ 2,897,624 |
| STELLARONE CORPORATION (NASDAQ: STEL) | |||||||
| SELECTED FINANCIAL DATA (UNAUDITED) | |||||||
| (Dollars in thousands, except per share data) | |||||||
| Change | Change | ||||||
| Q1 | Q4 | Q1 | Q1 13 vs. | Q1 13 vs. | |||
| 2013 | 2012 | 2012 | Q4 12 | Q1 12 | |||
| Performance Ratios | |||||||
| Return on average assets | 0.80% | 0.83% | 0.76% | -0.03% | 0.04% | ||
| Return on average equity | 5.56% | 5.74% | 5.30% | -0.18% | 0.26% | ||
| Return on average realized equity (A) | 5.67% | 5.89% | 5.45% | -0.22% | 0.22% | ||
| Net interest margin (taxable equivalent) | 3.78% | 3.75% | 3.85% | 0.03% | -0.07% | ||
| Efficiency (taxable equivalent) (B) | 69.19% | 66.95% | 68.78% | 2.24% | 0.41% | ||
| (A) Excludes the effect on average stockholders' equity of unrealized gains (losses) that result from changes in market values of securities and other comprehensive pension expense. | |||||||
| (B) Comparison of our efficiency ratio with those of other companies may not be possible, because other companies may calculate the efficiency ratio differently. See Non-GAAP reconciliation for detail. | |||||||
|
STELLARONE CORPORATION (NASDAQ: STEL) CREDIT QUALITY (UNAUDITED) (Dollars in thousands) |
|||
| March 31, 2013 | |||
|
Loans Outstanding |
Nonaccrual Loans |
Nonaccrual Loans to Loans Outstanding |
|
| Construction and land development: | |||
| Commercial | $ 164,801 | $ 7,962 | 4.83% |
| Residential | 44,166 | 186 | 0.42% |
| Total construction and land development | 208,967 | 8,148 | 3.90% |
| Commercial real estate: | |||
| Commercial real estate - owner occupied | 351,433 | 1,655 | 0.47% |
| Commercial real estate - non-owner occupied | 480,615 | 1,133 | 0.24% |
| Farmland | 10,894 | 127 | 1.17% |
| Multifamily, nonresidential and junior liens | 113,381 | 4,996 | 4.41% |
| Total commercial real estate | 956,323 | 7,911 | 0.83% |
| Consumer real estate: | |||
| Home equity lines | 241,625 | 3,148 | 1.30% |
| Secured by 1-4 family residential, secured by first deeds of trust | 455,397 | 10,544 | 2.32% |
| Secured by 1-4 family residential, secured by second deeds of trust | 34,659 | 516 | 1.49% |
| Total consumer real estate | 731,681 | 14,208 | 1.94% |
| Commercial and industrial loans (except those secured by real estate) | 205,877 | 1,195 | 0.58% |
| Consumer and other: | |||
| Consumer installment loans | 37,056 | 13 | 0.04% |
| Deposit overdrafts | 644 | -- | 0.00% |
| All other loans | 1,383 | 3 | 0.22% |
| Total consumer and other | 39,083 | 16 | 0.04% |
| Total loans | $ 2,141,931 | $ 31,478 | 1.47% |
| STELLARONE CORPORATION (NASDAQ: STEL) |
| RECLASSIFICATIONS (UNAUDITED) |
During the first quarter of 2013 we modified the reporting of commissions paid on both the origination of mortgage loans held for sale and the generation of fiduciary fee income. Mortgage banking-related fees and fiduciary and brokerage fee income are now being reported net of associated commission expense in noninterest income. Previously both of these commission expense items were reported in the compensation and employee benefits line item on the consolidated income statement.
In addition, debit card interchange costs and net demand deposit charge-offs have been reclassified from the data processing and other operating expenses line items to retail banking fees, respectively. Also, insurance related expenses have been reclassified from other operating expenses to insurance income.
Management considers the net presentation to more accurately reflect income derived from our retail banking activities and the net contribution of the mortgage banking and wealth management segments to the consolidated financial results. This is also more consistent with the presentation commonly utilized within our industry. These changes had no impact on previously reported earnings and the following table illustrates the impact on our efficiency ratio:
| For the Three Months Ended | |||
| March 31, 2013 | December 31, 2012 | March 31, 2012 | |
| Efficiency ratio prior to reclassification | 70.29% | 68.25% | 69.77% |
| Impact of reclassification | -1.10% | -1.30% | -0.99% |
| Efficiency ratio as reported | 69.19% | 66.95% | 68.78% |
| Non-GAAP Financial Measures | |||
| Dollars in thousands | For the Three Months Ended | ||
| March 31, 2013 | December 31, 2012 | March 31, 2012 | |
| Noninterest expense | $ 22,770 | $ 22,405 | $ 22,400 |
| Less: | |||
| Amortization of intangible assets | 311 | 311 | 413 |
| Adjusted noninterest expense | 22,459 | 22,094 | 21,987 |
| Net interest income (tax equivalent) | 24,897 | 24,932 | 24,622 |
| Noninterest income | 7,439 | 8,068 | 6,968 |
| Less: | |||
| Gains on sale of securities available for sale | 6 | 440 | 73 |
| Losses / impairments on foreclosed assets | (130) | (440) | (452) |
| Net revenues | $ 32,460 | $ 33,000 | $ 31,969 |
| Efficiency ratio | 69.19% | 66.95% | 68.78% |
| For the Three Months Ended | |||
| March 31, 2013 | December 31, 2012 | March 31, 2012 | |
| Net income | $ 5,911 | $ 6,221 | $ 5,500 |
| Plus: | |||
| Income tax expense | 2,257 | 2,245 | 2,114 |
| Provision for loan losses | 700 | 1,400 | 850 |
| Tax equivalent adjustment | 698 | 729 | 726 |
| Pre-tax pre-provision earnings | $ 9,566 | $ 10,595 | $ 9,190 |
| For the Three Months Ended | |||
| March 31, 2013 | December 31, 2012 | March 31, 2012 | |
| Total stockholders' equity | $ 428,753 | $ 431,642 | $ 417,920 |
| Less: | |||
| Core deposit intangibles, net | 3,882 | 3,462 | 4,599 |
| Goodwill | 113,652 | 113,652 | 113,652 |
| Net other intangibles | 740 | 787 | 1,084 |
| Tangible common equity | 310,479 | 313,741 | 298,585 |
| Total assets | 3,013,889 | 3,023,204 | 2,925,914 |
| Less: | |||
| Core deposit intangibles, net | 3,882 | 3,462 | 4,599 |
| Goodwill | 113,652 | 113,652 | 113,652 |
| Net other intangibles | 740 | 787 | 1,084 |
| Tangible assets | $ 2,895,615 | $ 2,905,303 | $ 2,806,579 |
| Tangible common equity ratio | 10.72% | 10.80% | 10.64% |
This report refers to the efficiency ratio, which is computed by calculating noninterest expense less amortization of intangibles and goodwill impairments and dividing this by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains on securities and losses on foreclosed assets. The report also refers to operating noninterest income, which reflects noninterest income adjusted for non-recurring expenses associated with asset gains and losses or expenses that are unusual in nature. Comparison of our efficiency ratio and operating earnings with those of other companies may not be possible because other companies may calculate them differently. Pre-tax, pre-provision earnings, which adjusts for tax equivalent items and adds back provision and tax expense to net income, is used to demonstrate a more representative comparison of operational performance without the volatility of credit quality that is typically present in times of economic stress. The tangible common equity ratio is used by management to assess the quality of capital and management believes that investors may find it useful in their analysis of the company. This capital measure is not necessarily comparable to similar capital measures that may be presented by other companies. Such information is not in accordance with generally accepted accounting principles in the United States ("GAAP") and should not be construed as such. These are non-GAAP financial measures that management believes provide investors with important information regarding operational efficiency. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information should not be viewed as a substitute for GAAP. StellarOne, in referring to its net income, is referring to income under GAAP.