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StellarOne Reports Second Quarter Earnings Up 29.4% to $6.3 Million or $0.28 Per Diluted Share

CHARLOTTESVILLE, Va., July 25, 2013 (GLOBE NEWSWIRE) -- StellarOne Corporation (Nasdaq:STEL) ("StellarOne"), today reported second quarter 2013 net income of $6.3 million, or $0.28 net income per diluted common share. This represents a 29.4% increase over net income of $4.9 million or $0.21 per diluted common share recognized during the same quarter in the prior year, and represents a 6.9% increase over net income of $5.9 million or $0.26 per diluted share in the first quarter of 2013.

For the six months ended June 30, 2013, earnings were $12.2 million or $0.53 per diluted common share, up 17.8% compared to $10.4 million or $0.45 per diluted common share in 2012.

On June 10, 2013 StellarOne announced that it will merge with Union First Market Bankshares Corporation (Nasdaq:UBSH) (or "Union"), creating the largest community banking institution in the Commonwealth of Virginia. Under the terms of the agreement, Union will acquire StellarOne, with common shareholders of StellarOne receiving 0.9739 shares of Union common stock for each share of StellarOne. The transaction is subject to shareholder and regulatory approvals, and is expected to close on or around January 1, 2014.

"The quarter marked a significant event in our company's history with the announced merger with Union. This merger represents a tremendous opportunity to create Virginia's next great bank which will benefit our customers, shareholders and employees," said O. R. Barham, Jr., President and Chief Executive Officer. "While not indicative of future performance, the market has reacted favorably to the combination as evidenced by our stock's performance since our announcement. We have begun the process to seek required approvals from shareholders and regulators and have commenced to collaborate on integration plans."

"Our second quarter results are indicative of our commitment to continue our positive momentum as we begin to focus on integrating our fine companies. The quarterly results note improving profitability metrics and asset quality levels, loan growth coupled with strong wealth management and mortgage revenues allowed for a relatively stable net interest margin and resulting revenue growth over both the previous quarter and same quarter last year."

Second quarter financial performance highlights included:

  • Earnings were impacted by $871 thousand in merger related expenses for the quarter associated with the announced merger with Union.
  • Operating earnings for the quarter, excluding the impact of such merger costs, were $7.2 million or $0.32 per diluted share and the ROA and ROE associated with operating earnings were 0.97% and 6.83% or up from 0.67% and 4.67% when compared to the second quarter of 2012, respectively.
  • Revenue growth improved, with net revenues totaling $32.8 million, up $765 thousand or 2.4% as compared to $32.0 million for second quarter last year.
  • Pre-tax, pre-provision earnings were $9.5 million, up $720 thousand or 8.2% over the $8.8 million recognized for the second quarter last year.
  • Total loans increased 7.2% compared to the second quarter of 2012 and 1.9% compared to the first quarter of 2013 due primarily to organic loan growth in the Construction and Commercial Real Estate portfolios.
  • Nonperforming asset levels improved to $30.2 million, a decrease of $12.3 million or 29.0% from 2012, lowering the ratio of non-performing assets as a percentage of total assets to 1.0% as of June 30, 2013, compared to 1.43% as of June 30, 2012.
  • Annualized net charge-offs as a percentage of average loans receivable amounted to 0.24% for the second quarter of 2013, down from 0.28% for the first quarter of 2013 and down from 0.56% for same quarter last year.

Net Interest Margin Contracts Slightly

The net interest margin was 3.73% for the second quarter of 2013, compared to 3.78% for the first quarter of 2013 and 3.84% for the second quarter of 2012. The average yield on earning assets for the current quarter decreased 10 basis points to 4.27% on a sequential basis. Loan and investment yields contracted 15 basis points and 3 basis points, respectively, on a sequential basis. Loan yields contracted due to re-pricing within the current portfolio and reduced yields on new production. Investment yields contracted due to lower yields realized on the recent investment activity in the current low rate environment. Continued reductions in deposit costs are reflected by the 6 basis point improvement in the cost of interest bearing liabilities noted sequentially, moving from 0.72% during the first quarter of 2013 to 0.66% during the second quarter of 2013. Revenue associated with net interest income on a tax-equivalent basis remained stable at $25.0 million for the second quarter of 2013, compared to $24.9 million for the second quarter last year and $24.9 million in the first quarter of 2013.

Operating Noninterest Income Increases

On an operating basis, which excludes gains and losses from sales and impairments of securities and other assets, total non-interest income amounted to $7.8 million for the second quarter of 2013, up $397 thousand or 5.3% on a sequential basis compared to $7.4 million for the first quarter of 2013, and up $779 thousand or 11.0% compared to the second quarter last year. The sequential quarter increase in operating noninterest income stemmed largely from continued strong production volumes from our mortgage segment. The majority of the increase for the same quarter compared to the prior year is related to increases in wealth management fee income, insurance income, retail banking fees and loan swap fee income.

Mortgage banking-related fees totaled $1.9 million for the second quarter of 2013, or up $92 thousand or 5.0% compared to $1.8 million for the first quarter of 2013 and up $546 thousand, or 39.5%, compared to $1.4 million in the same quarter in 2012. Loans sold in the second quarter of 2013 totaled $76.6 million or down $2.4 million or 3.0% from the $79.0 million sold during the first quarter of 2013. The mortgage segment contributed after-tax earnings of $701 thousand for the current quarter, compared to $482 thousand last quarter, and $209 thousand for same quarter last year.

Losses on foreclosed assets were $244 thousand for the quarter, an increase of $25 thousand or 11.4% compared to $219 thousand for the same quarter in 2012. Other operating income decreased $250 thousand during the quarter due to a contraction of revenues associated with commercial lending loan swap fee income.

Retail banking fee income totaled $3.5 million for the second quarter of 2013, an increase of $404 thousand or 13.2% sequentially and increased $190 thousand or 5.8% over the same quarter in 2012. An increase in overdraft revenue led to the sequential and year over year increases while all other retail banking revenue streams remained stable when compared to both periods.

Wealth management revenues from trust and brokerage fees for the second quarter of 2013 were $1.39 million or up $161 thousand or 13.1% on a sequential quarter basis and up $207 thousand or 17.5% when compared to the second quarter of 2012. Revenue increases for both comparisons are a result of higher fee realizations and growth in assets. Fiduciary assets amounted to $539.7 million at June 30, 2013, compared to $456.6 million at December 31, 2013. After-tax earnings were $271 thousand for the quarter, compared to $135 thousand sequentially and $101 thousand for the same quarter last year.

Net Charge-Offs Decrease and Overall Asset Quality Improves

Non-performing assets totaled $30.2 million at June 30, 2013, down $7.7 million or 20.3% sequentially from $37.9 million at March 31, 2013 and down $12.3 million or 29.0% compared to $42.5 million at June 30, 2012. The ratio of non-performing assets as a percentage of total assets dropped to 1.0% as of June 30, 2013, compared to 1.36% as of March 31, 2013 and was also down when compared to 1.43% at June 30, 2012.

Net charge-offs for the second quarter of 2013 totaled $1.3 million, decreased $175 thousand or 11.9% compared to the $1.5 million for the first quarter of 2013 and down $1.6 million or 54.8% when compared to $2.9 million for the second quarter of 2012. Annualized net charge-offs as a percentage of average loans receivable amounted to 0.24% for the second quarter of 2013, down from 0.28% for the first quarter of 2013 and down from 0.56% for the second quarter of 2012. StellarOne recorded a credit to the provision for loan losses of $385 thousand for the second quarter of 2013, a decrease of $1.1 million compared to the $700 thousand charged for the first quarter of 2013 and a decrease of $1.8 million compared to the second quarter of 2012. The decreased provisioning throughout 2013 is reflective of the continued improvement in underlying credit quality metrics used in measuring the risk inherent in the loan portfolio.

The allowance as a percentage of non-performing loans was 104.7% at June 30, 2013, or higher than the 92.3% at March 31, 2013. The allowance for loan losses was $27.4 million at June 30, 2013, compared to $29.1 million at March 31, 2013. The allowance as a percentage of total loans was 1.25% at June 30, 2013, compared to 1.36% at March 31, 2013.

Foreclosed assets totaled $4.1 million at June 30, 2013, down $2.3 million or 35.9% compared to $6.4 million at March 31, 2013 and down $2.9 million or 41.6% compared to $7.0 million at June 30, 2012.

Included in the loan portfolio at June 30, 2013, are loans classified as troubled debt restructurings ("TDRs") totaling $20.6 million or 0.94% of total loans. TDRs were reduced sequentially by 10.7% or $2.4 million as compared to $23.0 million at March 31, 2013. At June 30, 2013, $18.5 million or 89.8% of total TDRs were performing under the modified terms.

Operating Expenses Increase on Merger Costs

Noninterest expenses were $23.3 million for the second quarter of 2013, up sequentially by $483 thousand or 2.1% compared to $22.8 million in the first quarter of 2013, and down $45 thousand or 0.2% compared to second quarter of 2012.

The sequential quarter increase in noninterest expense was driven by $871 thousand in merger related costs associated with pending merger with Union. Excluding the non-recurring merger costs, operating expenses would have been $22.4 million, down $389 thousand or 1.7% sequentially, and down $826 thousand or 3.6% compared to same quarter last year. Compensation and benefits were $12.0 million for the second quarter of 2013, down sequentially by $444 thousand or 3.6% compared to $12.4 million in the first quarter of 2013, and down $843 thousand or 6.6% compared to second quarter of 2012. The decrease sequentially was attributable to a reduction in incentive costs and ongoing efficiency efforts. The decrease relative to 2012 was related to $824 thousand in severance costs incurred in second quarter 2012, along with ongoing efficiency initiatives.

The efficiency ratio was 66.81% for the second quarter of 2013, compared to 69.19% for the first quarter of 2013 and 70.74% for the same quarter in 2012. The sequential quarter improvement reflects revenue growth for the quarter coupled with lower operating expenses. The year over year decrease reflects similar trends, improved revenue and operating expenses, but also reflects the impact of severance costs on the second quarter 2012 efficiency ratio.

Effective Tax Rate

The provision for income taxes was $2.9 million for the second quarter of 2013 compared to $2.3 million for the first quarter of 2013, and $1.8 million for the same quarter last year. This produced an effective tax rate for the second quarter of 2013 of 31.6% compared to 27.6% for the prior quarter and 26.6% for same quarter last year. The increase in the tax rate as compared to sequential and prior year effective tax rates was due to the impact of $758 thousand in merger costs incurred during the quarter which are non-deductible for tax purposes. For the first six months of 2013 the effective rate was 29.7%, compared to 27.2% for same period prior year.

Balance Sheet Trends

Period end loans increased $41.5 million sequentially or 1.94% compared to the first quarter of 2013, while average loans for the second quarter of 2013 were $2.16 billion, up $47.1 million or 2.23% compared to the first quarter of 2013. Average securities were $487.7 million for the second quarter, down $23.6 million or 4.6% from $511.3 million for the second quarter of 2012. Average deposits for the second quarter of 2013 were $2.5 billion or essentially flat on a sequential quarter basis compared to the first quarter of 2013. Average interest and noninterest bearing demand deposit accounts were $1.0 billion at June 30, 2013, an $18.8 million or 1.91% increase over March 31, 2013. At June 30, 2013, total period end assets were $3.0 billion, compared to $3.0 billion at March 31, 2013. Period end cash and cash equivalents were $51.7 million at June 30, 2013, a decrease of $14.8 million or 22.3% compared to $66.5 million at March 31, 2013.

Quarterly Dividend Approved

The Board of Directors of StellarOne has approved a third quarter dividend of $0.10 per share, payable on August 26, 2013 to shareholders of record on August 6, 2013. This dividend equals the $0.10 share paid in the second quarter of 2013, and represents an increase of $0.04 or 67% over the $0.06 paid in third quarter 2013.

About StellarOne

StellarOne Corporation is a traditional community bank with assets of $3.0 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.

Non-GAAP Financial Measures

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 non-interest income excluding gains on securities and losses on foreclosed assets. The report also refers to operating earnings and noninterest income, which reflects both earnings and 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.

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.

STELLARONE CORPORATION (NASDAQ: STEL)
SELECTED FINANCIAL DATA (UNAUDITED)
(Dollars in thousands, except per share data)
SUMMARY INCOME STATEMENT Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Interest income - taxable equivalent $ 28,562 $ 29,689 $ 57,325 $ 59,373
Interest expense 3,612 4,754 7,477 9,817
Net interest income - taxable equivalent 24,950 24,935 49,848 49,556
Less: taxable equivalent adjustment 678 755 1,377 1,481
Net interest income 24,272 24,180 48,471 48,075
Provision for loan and lease losses (385) 1,400 315 2,250
Net interest income after provision for loan and lease losses 24,657 22,780 48,156 45,825
Noninterest income 7,826 7,076 15,265 14,045
Noninterest expense 23,252 23,207 46,022 45,606
Income tax expense 2,914 1,768 5,171 3,882
Net income $ 6,317 $ 4,881 $ 12,228 $ 10,382
Earnings per share available to common shareholders
Basic $ 0.28 $ 0.21 $ 0.53 $ 0.45
Diluted $ 0.28 $ 0.21 $ 0.53 $ 0.45
SUMMARY AVERAGE BALANCE SHEET Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Total loans $ 2,181,889 $ 2,051,477 $ 2,161,974 $ 2,053,153
Total investment securities 487,693 511,295 496,815 486,265
Total earning assets 2,683,831 2,613,278 2,677,706 2,594,332
Total assets 3,009,479 2,937,391 3,001,180 2,917,506
Total deposits 2,462,887 2,408,473 2,457,768 2,391,180
Shareholders' equity 426,066 420,706 428,391 418,852
PERFORMANCE RATIOS Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Return on average assets 0.84% 0.67% 0.82% 0.72%
Return on average equity 5.95% 4.67% 5.76% 4.98%
Return on average realized equity (A) 6.06% 4.78% 5.87% 5.06%
Net interest margin (taxable equivalent) 3.73% 3.84% 3.75% 3.84%
Efficiency (taxable equivalent) (B) 66.81% 70.74% 67.99% 69.76%
CAPITAL MANAGEMENT June 30,
2013 2012
Tangible equity ratio 10.65% 10.60%
Tangible common equity ratio 10.65% 10.60%
Period end shares issued and outstanding 22,519,050 22,874,676
Book value per common share 18.93 18.45
Tangible book value per common share 13.70 13.26
Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Shares issued (cancelled) (59,934) 27,823 (369,926) 87,031
Average common shares issued and outstanding 22,725,727 23,089,473 22,859,821 23,076,760
Average diluted common shares issued and outstanding 22,803,128 23,089,473 22,911,637 23,076,818
Cash dividends paid per common share $ 0.10 $ 0.06 $ 0.18 $ 0.12
SUMMARY ENDING BALANCE SHEET June 30,
2013 2012
Total loans $ 2,183,426 $ 2,037,166
Total investment securities 488,925 582,813
Total earning assets 2,706,213 2,667,939
Total assets 3,014,166 2,979,866
Total deposits 2,466,847 2,446,063
Shareholders' equity 426,329 422,034
OTHER DATA
End of period full-time equivalent employees 754 772
NOTES:
(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)
CREDIT QUALITY Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Allowance for loan losses:
Beginning of period $ 29,050 $ 31,615 $ 29,824 $ 32,588
Provision for loan losses (385) 1,400 315 2,250
Charge-offs (1,842) (3,411) (3,975) (5,794)
Recoveries 543 538 1,202 1,098
Net charge-offs (1,299) (2,873) (2,773) (4,696)
End of period $ 27,366 $ 30,142 $ 27,366 $ 30,142
Accruing Troubled Debt Restructurings $ 18,463 $ 24,810
Loans greater than 90 days past due still accruing $ 535 $ 1,309
June 30,
2013 2012
Non accrual loans $ 23,987 $ 30,511
Non accrual TDR's 2,107 4,971
Total non-performing loans 26,094 35,482
Foreclosed assets 4,095 7,014
Total non-performing assets $ 30,189 $ 42,496
Nonperforming assets as a % of total assets 1.00% 1.43%
Nonperforming assets as a % of loans plus foreclosed assets 1.38% 2.08%
Allowance for loan losses as a % of total loans 1.25% 1.48%
Annualized net charge-offs as a % of average loans outstanding - 3 months 0.24% 0.56%
Annualized net charge-offs as a % of average loans outstanding - year to date 0.26% 0.46%
June 30, 2013
Loans
Outstanding
Nonaccrual
Loans
Nonaccrual
Loans to
Loans
Outstanding
Construction and land development $ 225,270 $ 6,649 2.95%
Commercial real estate:
Commercial real estate - owner occupied 368,291 1,582 0.43%
Commercial real estate - non-owner occupied 488,409 779 0.16%
Multifamily, nonresidential, farmland and junior liens 126,919 4,595 3.62%
Total commercial real estate 983,619 6,956 0.71%
Consumer real estate:
Home equity lines 237,538 2,769 1.17%
Secured by 1-4 family residential, secured by deeds of trust 482,173 8,763 1.82%
Total consumer real estate 719,711 11,532 1.60%
Commercial and industrial loans (except those secured by real estate) 207,840 945 0.45%
Consumer and other 46,986 12 0.03%
Total loans $ 2,183,426 $ 26,094 1.20%
STELLARONE CORPORATION (NASDAQ: STEL)
BALANCE SHEET (UNAUDITED)
(Dollars in thousands, except per share data)
SELECTED BALANCE SHEET DATA 6/30/2013 6/30/2012 Percent
Increase
(Decrease)
Assets
Cash and cash equivalents $ 51,693 $ 73,460 -29.63%
Investment securities, at fair value 488,925 582,813 -16.11%
Mortgage loans held for sale 28,926 20,602 40.40%
Loans:
Construction and land development 225,270 200,811 12.18%
Commercial real estate 983,619 876,693 12.20%
Consumer real estate 719,711 743,061 -3.14%
Commercial and industrial loans (except those secured by real estate) 207,840 192,369 8.04%
Consumer and other 46,986 24,232 93.90%
Total loans 2,183,426 2,037,166 7.18%
Deferred loan fees (437) (23) >100%
Allowance for loan losses (27,366) (30,142) -9.21%
Net loans 2,155,623 2,007,001 7.41%
Premises and equipment, net 74,018 72,099 2.66%
Core deposit intangibles, net 3,048 4,186 -27.19%
Goodwill 114,167 113,652 0.45%
Bank owned life insurance 45,051 43,291 4.07%
Foreclosed assets 4,095 7,014 -41.62%
Other assets 48,620 55,748 -12.79%
Total assets 3,014,166 2,979,866 1.15%
Liabilities
Deposits:
Noninterest bearing deposits 379,616 347,385 9.28%
Money market & interest checking 1,097,818 1,040,487 5.51%
Savings 313,429 313,018 0.13%
CD's and other time deposits 675,984 745,173 -9.28%
Total deposits 2,466,847 2,446,063 0.85%
Federal funds purchased and securities sold under agreements to repurchase 4,757 851 >100%
Federal Home Loan Bank advances 70,000 55,000 27.27%
Subordinated debt 32,991 32,991 0.00%
Other liabilities 13,242 22,927 -42.24%
Total liabilities 2,587,837 2,557,832 1.17%
Stockholders' equity
Common stock 22,519 22,875 -1.56%
Additional paid-in capital 265,845 271,295 -2.01%
Retained earnings 135,206 118,552 14.05%
Accumulated other comprehensive income 2,759 9,312 -70.37%
Total stockholders' equity 426,329 422,034 1.02%
Total liabilities and stockholders' equity $ 3,014,166 $ 2,979,866 1.15%
STELLARONE CORPORATION (NASDAQ: STEL)
QUARTERLY INCOME STATEMENT (UNAUDITED)
(Dollars in thousands)
Percent
For the three months ended Increase
6/30/2013 6/30/2012 (Decrease)
Interest Income
Loans, including fees $ 25,349 $ 25,879 -2.05%
Federal funds sold and deposits in other banks 11 31 -64.52%
Investment securities:
Taxable 1,364 1,719 -20.65%
Tax-exempt 1,160 1,305 -11.11%
Total interest income 27,884 28,934 -3.63%
Interest Expense
Deposits 2,850 3,996 -28.68%
Federal funds purchased and securities sold under agreements to repurchase 9 6 50.00%
Federal Home Loan Bank advances 411 409 0.49%
Subordinated debt 342 343 -0.29%
Total interest expense 3,612 4,754 -24.02%
Net interest income 24,272 24,180 0.38%
(Recovery of) provision for loan losses (385) 1,400 >100%
Net interest income after provision for loan losses 24,657 22,780 8.24%
Noninterest Income
Retail banking fees 3,455 3,265 5.82%
Fiduciary and brokerage fee income 1,389 1,182 17.51%
Mortgage banking-related fees 1,927 1,381 39.54%
Losses on mortgage indemnifications and repurchases (72) (202) -64.36%
(Losses) gains on sale of premises and equipment (14) 8 >100%
Gains on securities available for sale -- 7 -100.00%
Losses on sale / impairments of foreclosed assets (244) (219) 11.42%
Income from bank owned life insurance 438 438 0.00%
Insurance income 351 370 -5.14%
Other operating income 596 846 -29.55%
Total noninterest income 7,826 7,076 10.60%
Noninterest Expense
Compensation and employee benefits 11,979 12,822 -6.57%
Net occupancy 2,313 2,096 10.35%
Equipment 2,191 2,152 1.81%
Amortization-intangible assets 320 413 -22.52%
Marketing 293 379 -22.69%
State franchise taxes 588 559 5.19%
FDIC insurance 506 543 -6.81%
Data processing 394 334 17.96%
Professional fees 594 883 -32.73%
Telecommunications 384 410 -6.34%
Merger related costs 871 -- -100.00%
Other operating expenses 2,819 2,616 7.76%
Total noninterest expense 23,252 23,207 0.19%
Income before income taxes 9,231 6,649 38.83%
Income tax expense 2,914 1,768 64.82%
Net income $ 6,317 $ 4,881 29.42%
STELLARONE CORPORATION (NASDAQ: STEL)
YEAR TO DATE INCOME STATEMENT (UNAUDITED)
(Dollars in thousands)
Percent
For the Six Months Ended Increase
6/30/2013 6/30/2012 (Decrease)
Interest Income
Loans, including fees $ 50,765 $ 51,893 -2.17%
Federal funds sold and deposits in other banks 30 65 -53.85%
Investment securities:
Taxable 2,808 3,329 -15.65%
Tax-exempt 2,345 2,605 -9.98%
Total interest income 55,948 57,892 -3.36%
Interest Expense
Deposits 5,967 8,273 -27.87%
Federal funds purchased and securities sold under agreements to repurchase 16 13 23.08%
Federal Home Loan Bank advances 816 847 -3.66%
Subordinated debt 678 684 -0.88%
Total interest expense 7,477 9,817 -23.84%
Net interest income 48,471 48,075 0.82%
Provision for loan losses 315 2,250 -86.00%
Net interest income after provision for loan losses 48,156 45,825 5.09%
Noninterest Income
Retail banking fees 6,507 6,592 -1.29%
Fiduciary and brokerage fee income 2,617 2,410 8.59%
Mortgage banking-related fees 3,763 3,159 19.12%
Losses on mortgage indemnifications and repurchases (72) (556) -87.05%
Losses on sale of premises and equipment (24) (7) >100%
Gains on securities available for sale 6 79 -92.41%
Losses on sale / impairments of foreclosed assets (375) (670) -44.03%
Income from bank owned life insurance 869 878 -1.03%
Insurance income 650 658 -1.22%
Other operating income 1,324 1,502 -11.85%
Total noninterest income 15,265 14,045 8.69%
Noninterest Expense
Compensation and employee benefits 24,402 24,924 -2.09%
Net occupancy 4,562 4,159 9.69%
Equipment 4,280 4,369 -2.04%
Amortization-intangible assets 631 825 -23.52%
Marketing 538 628 -14.33%
State franchise taxes 1,175 1,128 4.17%
FDIC insurance 1,013 1,182 -14.30%
Data processing 809 675 19.85%
Professional fees 1,348 1,565 -13.87%
Telecommunications 757 835 -9.34%
Merger related costs 871 -- -100.00%
Other operating expenses 5,636 5,316 6.02%
Total noninterest expense 46,022 45,606 0.91%
Income before income taxes 17,399 14,264 21.98%
Income tax expense 5,171 3,882 33.20%
Net income $ 12,228 $ 10,382 17.78%
STELLARONE CORPORATION (NASDAQ: STEL)
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2013 AND 2012
(Dollars in thousands)
For the Three Months Ended June 30,
2013 2012
Dollars in thousands Average
Balance
Interest
Inc/Exp
Average
Rates
Average
Balance
Interest
Inc/Exp
Average
Rates
Assets
Loans receivable, net (1) $ 2,181,889 $ 25,403 4.67% $ 2,051,477 $ 25,931 5.08%
Investment securities
Taxable 363,335 1,364 1.49% 373,959 1,719 1.82%
Tax exempt (1) 124,358 1,784 5.68% 137,336 2,008 5.78%
Total investments 487,693 3,148 2.55% 511,295 3,727 2.88%
Federal funds sold and deposits in other banks 14,249 11 0.33% 50,506 31 0.24%
501,942 3,159 2.49% 561,801 3,758 2.64%
Total earning assets 2,683,831 $ 28,562 4.27% 2,613,278 $ 29,689 4.57%
Total nonearning assets 325,648 324,113
Total assets $ 3,009,479 $ 2,937,391
Liabilities and Stockholders' Equity
Interest-bearing deposits
Interest checking $ 624,335 $ 154 0.10% $ 592,218 $ 396 0.27%
Money market 459,774 391 0.34% 414,588 501 0.49%
Savings 315,081 76 0.10% 310,126 249 0.32%
Time deposits:
Less than $100,000 455,691 1,370 1.20% 495,670 1,785 1.45%
$100,000 and more 229,502 859 1.50% 255,600 1,065 1.68%
Total interest-bearing deposits 2,084,383 2,850 0.55% 2,068,202 3,996 0.78%
Federal funds purchased and securities sold under agreements to repurchase 4,216 9 0.84% 862 6 2.95%
Federal Home Loan Bank advances 60,143 411 2.70% 55,000 409 2.94%
Subordinated debt 32,991 342 4.10% 32,991 343 4.11%
97,350 762 3.10% 88,853 758 3.38%
Total interest-bearing liabilities 2,181,733 3,612 0.66% 2,157,055 4,754 0.89%
Total noninterest-bearing liabilities 401,680 359,630
Total liabilities 2,583,413 2,516,685
Stockholders' equity 426,066 420,706
Total liabilities and stockholders' equity $ 3,009,479 $ 2,937,391
Net interest income (tax equivalent) $ 24,950 $ 24,935
Average interest rate spread 3.60% 3.68%
Interest expense as percentage of average earning assets 0.54% 0.73%
Net interest margin 3.73% 3.84%
(1) Income and yields are reported on a taxable equivalent basis using a 35% tax rate.
STELLARONE CORPORATION (NASDAQ: STEL)
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Dollars in thousands)
For the Six Months Ended June 30,
2013 2012
Dollars in thousands Average
Balance
Interest
Inc/Exp
Average
Rates
Average
Balance
Interest
Inc/Exp
Average
Rates
Assets
Loans receivable, net (1) $ 2,161,974 $ 50,879 4.75% $ 2,053,153 $ 51,971 5.09%
Investment securities
Taxable 371,190 2,808 1.50% 348,165 3,329 1.89%
Tax exempt (1) 125,625 3,608 5.71% 138,100 4,008 5.74%
Total investments 496,815 6,416 2.57% 486,265 7,337 2.98%
Federal funds sold and deposits in other banks 18,917 30 0.32% 54,914 65 0.23%
515,732 6,446 2.49% 541,179 7,402 2.70%
Total earning assets 2,677,706 $ 57,325 4.32% 2,594,332 $ 59,373 4.60%
Total nonearning assets 323,474 323,174
Total assets $ 3,001,180 $ 2,917,506
Liabilities and Stockholders' Equity
Interest-bearing deposits
Interest checking $ 625,683 $ 354 0.11% $ 588,618 $ 791 0.27%
Money market 461,860 875 0.38% 413,664 1,045 0.51%
Savings 314,481 181 0.12% 303,249 581 0.39%
Time deposits:
Less than $100,000 457,747 2,809 1.24% 501,733 3,682 1.48%
$100,000 and more 230,193 1,748 1.53% 257,482 2,174 1.70%
Total interest-bearing deposits 2,089,964 5,967 0.58% 2,064,746 8,273 0.81%
Federal funds purchased and securities sold under agreements to repurchase 2,809 16 1.13% 848 13 2.95%
Federal Home Loan Bank advances 57,587 816 2.82% 56,181 847 2.98%
Subordinated debt 32,991 678 4.09% 32,991 684 4.10%
93,387 1,510 3.22% 90,020 1,544 3.39%
Total interest-bearing liabilities 2,183,351 7,477 0.69% 2,154,766 9,817 0.92%
Total noninterest-bearing liabilities 389,438 343,888
Total liabilities 2,572,789 2,498,654
Stockholders' equity 428,391 418,852
Total liabilities and stockholders' equity $ 3,001,180 $ 2,917,506
Net interest income (tax equivalent) $ 49,848 $ 49,556
Average interest rate spread 3.63% 3.68%
Interest expense as percentage of average earning assets �� 0.56% 0.76%
Net interest margin 3.75% 3.84%
(1) Income and yields are reported on a taxable equivalent basis using a 35% tax rate.
STELLARONE CORPORATION (NASDAQ: STEL)
SEGMENT INFORMATION (UNAUDITED)
(Dollars in thousands)
At and for the Three Months Ended June 30, 2013
Commercial
Bank
Mortgage
Banking
Wealth
Management
Other Intersegment
Elimination
Consolidated
Net interest income $ 24,121 $ 493 $ 1 $ (343) $ -- $ 24,272
Provision for loan losses (385) -- -- -- -- (385)
Noninterest income 5,774 1,855 1,389 25 (1,217) 7,826
Noninterest expense 20,955 1,347 1,003 1,164 (1,217) 23,252
Provision for income taxes 2,754 300 116 (256) -- 2,914
Net income (loss) $ 6,571 $ 701 $ 271 $ (1,226) $ -- $ 6,317
Total Assets $ 2,941,931 $ 63,034 $ 1,345 $ 464,102 $ (456,246) $ 3,014,166
Average Assets $ 2,954,009 $ 46,052 $ 987 $ 467,465 $ (459,034) $ 3,009,479
At and for the Three Months Ended June 30, 2012
Commercial
Bank
Mortgage
Banking
Wealth
Management
Other Intersegment
Elimination
Consolidated
Net interest income $ 24,384 $ 138 $ -- $ (342) $ -- $ 24,180
Provision for loan losses 1,400 -- -- -- -- 1,400
Noninterest income 6,418 1,322 1,182 (583) (1,263) 7,076
Noninterest expense 22,581 1,162 1,035 (308) (1,263) 23,207
Provision for income taxes 1,856 89 46 (223) -- 1,768
Net income (loss) $ 4,965 $ 209 $ 101 $ (394) $ -- $ 4,881
Total Assets $ 2,950,582 $ 20,915 $ 499 $ 460,078 $ (452,208) $ 2,979,866
Average Assets $ 2,913,191 $ 16,403 $ 503 $ 458,529 $ (451,235) $ 2,937,391
At and for the Six Months Ended June 30, 2013
Commercial
Bank
Mortgage
Banking
Wealth
Management
Other Intersegment
Elimination
Consolidated
Net interest income $ 48,340 $ 808 $ 1 $ (678) $ -- $ 48,471
Provision for loan losses 315 -- -- -- -- 315
Noninterest income 11,359 3,672 2,617 52 (2,435) 15,265
Noninterest expense 42,615 2,792 2,038 1,012 (2,435) 46,022
Provision for income taxes 4,807 506 174 (316) -- 5,171
Net income (loss) $ 11,962 $ 1,182 $ 406 $ (1,322) $ -- $ 12,228
Average Assets $ 2,948,718 $ 42,951 $ 840 $ 469,068 $ (460,397) $ 3,001,180
At and for the Six Months Ended June 30, 2012
Commercial
Bank
Mortgage
Banking
Wealth
Management
Other Intersegment
Elimination
Consolidated
Net interest income $ 48,381 $ 378 $ -- $ (684) $ -- $ 48,075
Provision for loan losses 2,250 -- -- -- -- 2,250
Noninterest income 12,446 2,721 2,460 (1,089) (2,493) 14,045
Noninterest expense 44,208 2,489 2,061 (659) (2,493) 45,606
Provision for income taxes 3,980 183 123 (404) -- 3,882
Net income (loss) $ 10,389 $ 427 $ 276 $ (710) $ -- $ 10,382
Average Assets $ 2,889,348 $ 20,695 $ 457 $ 456,669 $ (449,663) $ 2,917,506
STELLARONE CORPORATION (NASDAQ: STEL)
NON-GAAP RECONCILIATION (UNAUDITED)
(Dollars in thousands)
For the Three Months Ended For the Six Months Ended
June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Noninterest expense $ 23,252 $ 22,770 $ 23,207 $ 46,022 $ 45,606
Less:
Merger expense 871 -- -- 871 --
Amortization of intangible assets 320 311 413 631 825
Adjusted noninterest expense 22,061 22,459 22,794 44,520 44,781
Net interest income (tax equivalent) 24,950 24,897 24,935 49,848 49,556
Noninterest income 7,826 7,439 7,076 15,265 14,045
Less:
Gains on sale of securities available for sale -- 6 7 6 79
Losses / impairments on foreclosed assets (244) (130) (219) (375) (670)
Net revenues $ 33,020 $ 32,460 $ 32,223 $ 65,482 $ 64,192
Efficiency ratio 66.81% 69.19% 70.74% 67.99% 69.76%
For the Three Months Ended For the Six Months Ended
June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Noninterest income $ 7,826 $ 7,439 $ 7,076 $ 15,265 $ 14,045
Less:
Gains on securities available for sale -- 6 7 6 79
(Losses) gains on sale of premises and equipment (14) (10) 8 (24) (7)
Operating earnings $ 7,840 $ 7,443 $ 7,061 $ 15,283 $ 13,973
For the Three Months Ended For the Six Months Ended
June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Net income $ 6,317 $ 5,911 $ 4,881 $ 12,228 $ 10,382
Plus:
Income tax expense 2,914 2,257 1,768 5,171 3,882
Provision for loan losses (385) 700 1,400 315 2,250
Tax equivalent adjustment 678 698 755 1,377 1,481
Pre-tax pre-provision earnings $ 9,524 $ 9,566 $ 8,804 $ 19,091 $ 17,995
For the Three Months Ended
June 30, 2013 March 31, 2013 June 30, 2012
Total stockholders' equity $ 426,329 $ 428,753 $ 422,034
Less:
Core deposit intangibles, net 3,048 3,882 4,186
Goodwill 114,167 113,652 113,652
Net other intangibles 708 740 984
Tangible common equity 308,406 310,479 303,212
Total assets 3,014,166 3,013,889 2,979,866
Less:
Core deposit intangibles, net 3,048 3,882 4,186
Goodwill 114,167 113,652 113,652
Net other intangibles 708 740 984
Tangible assets $ 2,896,243 $ 2,895,615 $ 2,861,044
Tangible common equity ratio 10.65% 10.72% 10.60%

CONTACT: Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer of StellarOne Corporation (434) 964-2217 JFarrar@StellarOne.com

Source:StellarOne Corporation