CHARLOTTESVILLE, Va., Jan. 26, 2011 (GLOBE NEWSWIRE) -- StellarOne Corporation (Nasdaq:STEL) (StellarOne) today reported fourth quarter 2010 earnings of $2.8 million and net income available to common shareholders, which deducts from net income the dividends and discount accretion on preferred stock, of $2.4 million or $0.10 net income per diluted common share. Those results compare to net income available to common shareholders of $80 thousand or $0.00 income per diluted common share during the same quarter in the prior year. For the year, StellarOne earnings available to common shareholders were $7.9 million or $0.35 per common share, compared to a loss of $10.4 million or $0.46 per diluted common share in 2009.
"We are pleased with the continued improvement in our credit quality and earnings results, and believe our company is positioned well to see continued improvement in 2011," said O. R. Barham, Jr., President and Chief Executive Officer. "Loan activity is encouraging and there are certainly signs of an improving economy. High on our list of initiatives for 2011 will be to address repayment of our preferred stock associated with the Troubled Asset Relief Program (TARP). While there are many reasons for this, the single largest consideration is to regain the ability to increase dividends to our common shareholders as conditions improve and earnings will support."
Fourth quarter 2010 notable items include:
- Net interest income increased $1.2 million for the quarter, as the net interest margin expanded twenty-four basis points on a sequential quarter basis.
- Non-performing asset levels decreased $7.8 million on a sequential basis, lowering the ratio of non-performing assets as a percentage of total assets to 1.85% as of December 31, 2010, compared to 2.13% as of September 30, 2010.
- The accelerated resolution of problem credits resulted in higher charge-offs for the quarter, with annualized net charge-offs as a percentage of average loans outstanding of 1.43% for the fourth quarter of 2010, compared to 0.94% for the third quarter of 2010.
- Noninterest income on an operating basis decreased 10.8% due to increased write-downs of foreclosed assets and lower fee income from retail banking, while elevated mortgage banking revenues continue to be offset somewhat by losses from mortgage indemnifications. Approximately 80% of current mortgage indemnification claims were settled during the quarter.
- Pre-tax, pre-provision earnings amounted to $8.6 million for the fourth quarter of 2010, an increase of $515 thousand or 6.4% compared to the third quarter of 2010, and an increase of $5.1 million or greater than 100% when compared to the same period in the prior year.
Net Interest Margin Expands for Fifth Consecutive Quarter
Net interest income on a tax-equivalent basis amounted to $25.4 million for the fourth quarter of 2010, which compares to $24.2 million for the third quarter of 2010, and $23.5 million for the same period in the prior year. The net interest margin was 3.87% for the fourth quarter of 2010, compared to 3.63% for the third quarter of 2010, and 3.45% for the fourth quarter of 2009. The average yield on earning assets for the current quarter increased 9 basis points to 4.93% as compared to 4.84% for the third quarter of 2010, which was complemented by a 17 basis point improvement in the cost of interest-bearing liabilities, moving from 1.43% during the third quarter of 2010 to 1.26% during the fourth quarter of 2010. The re-pricing sensitivity of interest-bearing liabilities outpaced interest earning assets during the fourth quarter as approximately $199.2 million or 22.4% of the CD portfolio re-priced resulting in a decrease of 21 basis points and 29 basis points for time deposits less than $100 thousand and greater than $100 thousand, respectively. Additionally, the cost of funds associated with FHLB advances decreased 17 basis points as three higher priced advances matured near the end of the prior quarter and the cost of money market accounts was reduced sequentially by 12 basis points.
Operating Noninterest Income Decreases Sequentially
On an operating basis, which excludes gains and losses from sales and impairments of securities and other assets, total noninterest income amounted to $7.1 million for the fourth quarter of 2010, down $863 thousand or 10.8% on a sequential basis compared to $8.0 million for the third quarter of 2010, and up $1.0 million or 16.9% from $6.1 million for the same period in the prior year. The sequential quarter decrease on a consolidated basis is largely attributable to a $670 thousand increase in write-downs of foreclosed assets and a $225 thousand contraction in retail banking fees. The increase on a company-wide basis compared to the same period in the prior year was driven by a combination of a $635 thousand increase in mortgage banking fees, $325 thousand decrease in write-downs of foreclosed assets, $275 thousand increase in other operating revenues associated with pass through investments, and a $99 thousand increase in wealth management related revenues that was partially offset by a $315 thousand contraction in retail banking fees.
Mortgage banking revenue totaled $2.8 million for the fourth quarter of 2010, up $167 thousand or 6.4% compared to $2.6 million for the third quarter of 2010, and up $762 thousand or 38.0% when compared to the same quarter in 2009. The mortgage revenue increase for the fourth quarter was offset by $854 thousand in indemnification losses recognized. Approximately $504 thousand of the current quarter expense was associated with a settlement totaling $1.45 million, which extinguished all outstanding and potential mortgage repurchase and make-whole claims arising out of alleged representations and warranties breaches related to loans sold by StellarOne or its legacy companies to a primary investor prior to January 1, 2009. This settlement resolved approximately 80% of current claims outstanding with all investors and is anticipated to mitigate future off-balance sheet risk associated with repurchase and indemnifications. The business segment remained modestly profitable for both the quarter and the year despite the impact of indemnifications.
Retail banking fee income amounted to $3.9 million for the fourth quarter of 2010, a decrease of $226 thousand or 5.5% compared to $4.1 million for the third quarter of 2010. This sequential quarter decrease was attributable to a decrease of $198 thousand in consumer NSF and interchange fee income, which resulted from implementing the modifications to Regulation E that became effective during the previous quarter.
Wealth management revenues from trust and brokerage fees for the fourth quarter of 2010 were $1.2 million or up $21 thousand or 1.8% when compared to the $1.1 million realized during the third quarter of 2010, and up $99 thousand or 9.4% when compared to the fourth quarter of 2009. Higher fee realizations attributed to the revenue increase. Fiduciary assets increased sequentially to $489.7 million, compared to $457.9 million at September 30, 2010. This business segment was profitable for both the current quarter and the year.
Non-performing Asset Levels Continue Positive Trend
StellarOne's non-performing assets totaled $54.4 million at December 31, 2010, down $7.7 million or 12.4% from $62.1 million at September 30, 2010 and down $10.3 million or 15.9% compared to $64.7 million at December 31, 2009. The ratio of non-performing assets as a percentage of total assets decreased sequentially to 1.85% as of December 31, 2010, compared to 2.13% at both September 30, 2010 and December 31, 2009. Non-performing loans totaled $43.0 million at December 31, 2010, down $8.1 million or 15.9% when compared to $51.1 million at September 30, 2010 and down $16.3 million or 27.5% compared to $59.3 million at December 31, 2009. Foreclosed assets totaled $10.9 million, up $359 thousand or 3.4% compared to $10.5 million at September 30, 2010 and up $6.4 million or greater than 100% compared to December 31, 2009. Past due and matured loans between 30 and 89 days totaled $52.8 million at December 31, 2010, up $3.5 million or 7.1% compared to $49.3 million at September 30, 2010.
Annualized net charge-offs as a percentage of average loans receivable amounted to 1.43% for the fourth quarter of 2010, up compared to 0.78% for the full-year 2009 results and up sequentially from 0.94% for the third quarter of 2010. Net charge-offs for the fourth quarter of 2010 totaled $7.6 million, up $2.63 million compared to the $5.1 million realized during the third quarter of 2010 and up $3.3 million when compared to $4.4 million during the fourth quarter of 2009.
The mix of non-performing loans continues to be weighted to the residential development and construction loan segment of our portfolio. Of the total nonaccrual loans of $43.0 million at December 31, 2010, approximately $15.4 million are residential development and construction loans.
StellarOne recorded a provision for loan losses of $5.3 million for the fourth quarter of 2010, an increase of $1.8 million compared both sequentially and to the same period in the prior year. The fourth quarter 2010 provision compares to net charge-offs of $7.6 million, resulting in an allowance as a percentage of total loans of 1.79%, down thirteen basis points when compared to 1.92% as of September 30, 2010. Specific reserves within the allowance dropped $2.2 million from third quarter 2010 to fourth quarter due to the resolution of problem loans and related charge-offs taken during the current quarter. This resulted in a decrease to the allowance as a percentage of total loans while the coverage of non-performing loans increased. The allowance represents 87.6% of non-performing loans at December 31, 2010, up 9.3% when compared to 78.3% at September 30, 2010.
Efficiency Ratio Decreases Sequentially
StellarOne's efficiency ratio was 71.5% for the fourth quarter of 2010, compared to 81.3% for the fourth quarter of 2009 and 71.8% for the third quarter of 2010. The sequential quarter stability in the efficiency ratio reflects a slight increase in both noninterest expense and total revenue. Noninterest expense for the fourth quarter amounted to $24.0 million, up $291 thousand or 1.2% when compared to $23.7 million for the third quarter of 2010 and down $822 thousand or 3.3% when compared to the fourth quarter in 2009. The sequential increase was driven by increases of $116 thousand in compensation and employee benefits associated with higher mortgage production levels, $174 thousand in net occupancy costs related to more maintenance and repairs, and $143 thousand in supplies and equipment. These increases were offset by decreases in professional fees and FDIC insurance expense of $126 thousand and $147 thousand, respectively.
Capital Levels Remain Robust
StellarOne's risk-based capital ratios remain well above regulatory standards for well-capitalized banks. The period-end tangible common equity ratio was 9.79% at December 31, 2010 compared to 9.96% at September 30, 2010. Tier 1 risk-based and total risk-based capital ratios were 14.19% and 15.44%, respectively, at December 31, 2010 compared to 14.49% and 15.74% at September 30, 2010. Excluding the $30 million in preferred stock issued in connection with participation in the TARP program, StellarOne's Tier 1 risk-based common ratio was 12.83% compared to 13.19% at September 30, 2010. Shareholders' equity, excluding the preferred stock, represented 13.48% of total assets at December 31, 2010, while book value per common share was $17.43 per share.
Loan Activity Improves While Balance Sheet Remains Stable
Period end loans increased $16.1 million as compared to the third quarter, while average loans for the fourth quarter of 2010 were $2.13 billion, down approximately 0.7% when compared to $2.14 billion for the third quarter of 2010. Average securities were $367.1 million for the fourth quarter, down $30.8 million or 7.7% from $397.9 million for the third quarter of 2010. Average deposits for the fourth quarter of 2010 were $2.38 billion or flat on a sequential quarter basis. Average interest-bearing deposits decreased sequentially by approximately $7.9 million, while average non-interest-bearing deposits increased approximately $10.2 million. At December 31, 2010, total assets were $2.94 billion, compared to $2.92 billion at September 30, 2010. Cash and cash equivalents were $139.9 million at December 31, 2010, an increase of $31.0 million or 28.5% compared to $108.9 million at September 30, 2010.
About StellarOne
StellarOne Corporation is a traditional community bank, offering a full range of business and consumer banking services, including trust and wealth management services. StellarOne's sole banking affiliate, StellarOne Bank, operates 56 full-service financial centers, one loan production office, and a suite of ATMs serving the New River Valley, Roanoke Valley, Shenandoah Valley, and Central and North Central Virginia.
Earnings Webcast
To hear a live webcast of StellarOne's fourth quarter 2010 earnings conference call at 11:00 a.m. (ET) today, please visit our website at and click on the Investor Relations section for detailed instructions on how to participate. Replays of the conference call will be available from 2:00 p.m. (ET) on Wednesday, January 26, 2011 through 11:59 p.m. (ET) on Wednesday, February 2, 2011, by dialing toll free (800) 642-1687 and using passcode #38005629.
Non-GAAP Financial Measures
This report refers to the efficiency ratio, which is computed by dividing noninterest expense less amortization of intangibles, foreclosed property expense, and goodwill impairments as a percent of the sum of net interest income on a tax equivalent basis and noninterest income excluding only gains on securities. Comparison of our efficiency ratio or operating earnings with those of other companies may not be possible because other companies may calculate them differently. It also refers to operating earnings, which reflects net income adjusted for nonrecurring expenses associated with mergers, asset gains and losses or expenses that are unusual in nature. Pre-tax, pre-provision earnings, which 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 and Tier 1 common equity ratios are used by management to assess the quality of capital, and management believes that investors may find them useful in their analysis of the company. These capital measures are 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 we believe provide investors with important information regarding our 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, (vii) changes may occur in the securities markets, and (viii) the impact of governmental restrictions on entities participating in the US Treasury Department Capital Purchase Program. Please refer to StellarOne's filings with the Securities and Exchange Commission for additional information, which may be accessed at .
NOTE: Risk-based capital ratios are preliminary.
CONTACT: Jeffrey W. Farrar, Executive Vice President and CFO (434) 964-2217 jfarrar@stellarone.com