UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-22283
StellarOne Corporation
(Exact name of registrant as specified in its charter)
Virginia | 54-1829288 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
590 Peter Jefferson Parkway Charlottesville, Virginia | 22911 |
(Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number 434-964-2211, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes x No¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ¨ No¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b – 2 of the Exchange Act). Yes ¨ No x
As of August 4, 2009 there were 22,707,529 shares of common stock, $1.00 par value per share, issued and outstanding.
1
STELLARONE CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page No. | ||
ITEM 1 | Financial Statements: | |
3 | ||
4-5 | ||
6 | ||
7 | ||
8-21 | ||
ITEM 2 | 22-33 | |
ITEM 3 | 33 | |
ITEM 4 | 34 | |
PART II - OTHER INFORMATION | ||
ITEM 1 | 35 | |
ITEM 1A | 35 | |
ITEM 2 | 35 | |
ITEM 3 | 35 | |
ITEM 4 | 35 | |
ITEM 5 | 35 | |
ITEM 6 | 36-40 |
PART I – FINANCIAL INFORMATION | ||||||||
ITEM 1. Financial statements | ||||||||
STELLARONE CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(In thousands) | ||||||||
JUNE 30 | DECEMBER 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 52,328 | $ | 66,239 | ||||
Federal funds sold | 51,339 | 3,837 | ||||||
Interest-bearing deposits in banks | 80,723 | 45,453 | ||||||
Cash and cash equivalents | 184,390 | 115,529 | ||||||
Investment securities (fair value: 2009, $353,971; 2008, $328,096) | 353,967 | 328,093 | ||||||
Mortgage loans held for sale | 51,229 | 15,847 | ||||||
Loans receivable, net of allowance for loan losses, 2009, $34,923; 2008, $30,464 | 2,206,174 | 2,234,122 | ||||||
Premises and equipment, net | 85,837 | 89,022 | ||||||
Accrued interest receivable | 9,922 | 10,230 | ||||||
Deferred income tax asset | 852 | - | ||||||
Core deposit intangibles, net | 9,393 | 10,266 | ||||||
Goodwill | 74,880 | 74,582 | ||||||
Bank owned life insurance | 29,538 | 28,903 | ||||||
Foreclosed assets | 4,121 | 4,627 | ||||||
Other assets | 46,612 | 45,293 | ||||||
Total assets | $ | 3,056,915 | $ | 2,956,514 | ||||
LIABILITIES | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 318,879 | $ | 307,621 | ||||
Interest-bearing | 2,130,459 | 2,015,487 | ||||||
Total deposits | 2,449,338 | 2,323,108 | ||||||
Short-term borrowings | 503 | 699 | ||||||
Federal Home Loan Bank advances | 170,000 | 187,700 | ||||||
Subordinated debt | 32,991 | 32,991 | ||||||
Accrued interest payable | 4,799 | 5,476 | ||||||
Deferred income tax liability | - | 1,224 | ||||||
Other liabilities | 9,578 | 10,531 | ||||||
Total liabilities | 2,667,209 | 2,561,729 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock; no par value; 5,000,000 shares authorized; no shares issued and outstanding; | - | - | ||||||
Preferred stock; $1,000 liquidation preference; 30,000 shares issued and outstanding; | 28,224 | 28,121 | ||||||
Common stock, $1 par value; 35,000,000 shares authorized; 2009: 22,652,792 shares issued and outstanding; 2008: 22,605,063 shares issued and outstanding | 22,653 | 22,605 | ||||||
Additional paid-in capital | 229,918 | 229,522 | ||||||
Retained earnings | 108,045 | 113,661 | ||||||
Accumulated other comprehensive income, net | 866 | 876 | ||||||
Total stockholders’ equity | 389,706 | 394,785 | ||||||
Total liabilities and stockholders’ equity | $ | 3,056,915 | $ | 2,956,514 |
The accompanying notes are an integral part of these consolidated financial statements.
STELLARONE CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(In thousands, except per share data) | ||||||||
THREE MONTHS ENDED | ||||||||
JUNE 30, | ||||||||
2009 | 2008 | |||||||
(unaudited) | (unaudited) | |||||||
Interest Income | ||||||||
Loans, including fees | $ | 31,694 | $ | 39,208 | ||||
Federal funds sold and deposits in other banks | 52 | 363 | ||||||
Investment securities: | ||||||||
Taxable | 2,426 | 3,147 | ||||||
Tax exempt | 972 | 995 | ||||||
Dividends | 198 | 339 | ||||||
Total interest income | 35,342 | 44,052 | ||||||
Interest Expense | ||||||||
Deposits | 11,360 | 12,458 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 3 | 5 | ||||||
Federal Home Loan Bank advances | 1,558 | 1,631 | ||||||
Subordinated debt | 338 | 466 | ||||||
Short-term borrowings | - | 159 | ||||||
Total interest expense | 13,259 | 14,719 | ||||||
Net interest income | 22,083 | 29,333 | ||||||
Provision for loan losses | 6,500 | 2,835 | ||||||
Net interest income after provision for loan losses | 15,583 | 26,498 | ||||||
Noninterest Income | ||||||||
Retail banking fees | 4,113 | 3,896 | ||||||
Commissions and fees from fiduciary activities | 744 | 1,071 | ||||||
Brokerage fee income | 245 | 318 | ||||||
Mortgage banking-related fees | 2,083 | 1,357 | ||||||
Losses on sale of foreclosed assets | (355 | ) | (260 | ) | ||||
Losses on sale of premises and equipment | (289 | ) | (21 | ) | ||||
Gains on sale of securities available for sale | 11 | 206 | ||||||
Income from bank owned life insurance | 331 | 319 | ||||||
Other operating income | 780 | 761 | ||||||
Total noninterest income | 7,663 | 7,647 | ||||||
Noninterest Expense | ||||||||
Compensation and employee benefits | 10,836 | 11,763 | ||||||
Net occupancy | 2,163 | 1,834 | ||||||
Supplies and equipment | 2,265 | 2,170 | ||||||
Amortization-intangible assets | 434 | 531 | ||||||
Marketing | 388 | 831 | ||||||
State franchise taxes | 574 | 585 | ||||||
FDIC insurance | 2,088 | 68 | ||||||
Data processing | 645 | 992 | ||||||
Professional fees | 489 | 640 | ||||||
Telecommunications | 477 | 457 | ||||||
Other operating expenses | 3,698 | 4,738 | ||||||
Total noninterest expense | 24,057 | 24,609 | ||||||
(Loss) income before income taxes | (811 | ) | 9,536 | |||||
Income tax (benefit) expense | (485 | ) | 3,396 | |||||
Net (loss) income | (326 | ) | 6,140 | |||||
Preferred stock dividends | (374 | ) | - | |||||
Accretion of preferred stock discount | (85 | ) | - | |||||
Net (loss) income available to common shareholders | $ | (785 | ) | $ | 6,140 | |||
Basic net (loss) income per common share available to common shareholders | $ | (0.03 | ) | $ | 0.27 | |||
Diluted net (loss) income per common share available to common shareholders | $ | (0.03 | ) | $ | 0.27 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
STELLARONE CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(In thousands, except per share data) | ||||||||
SIX MONTHS ENDED | ||||||||
JUNE 30, | ||||||||
2009 | 2008 | |||||||
(unaudited) | (unaudited) | |||||||
Interest Income | ||||||||
Loans, including fees | $ | 64,186 | $ | 66,469 | ||||
Federal funds sold and deposits in other banks | 84 | 563 | ||||||
Investment securities: | ||||||||
Taxable | 5,009 | 5,210 | ||||||
Tax exempt | 1,820 | 1,832 | ||||||
Dividends | 373 | 606 | ||||||
Total interest income | 71,472 | 74,680 | ||||||
Interest Expense | ||||||||
Deposits | 23,011 | 22,663 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 7 | 60 | ||||||
Federal Home Loan Bank advances | 3,121 | 3,539 | ||||||
Subordinated debt | 700 | 930 | ||||||
Short-term borrowings | - | 641 | ||||||
Total interest expense | 26,839 | 27,833 | ||||||
Net interest income | 44,633 | 46,847 | ||||||
Provision for loan losses | 14,250 | 3,787 | ||||||
Net interest income after provision for loan losses | 30,383 | 43,060 | ||||||
Noninterest Income | ||||||||
Retail banking fees | 7,824 | 6,463 | ||||||
Commissions and fees from fiduciary activities | 1,502 | 1,969 | ||||||
Brokerage fee income | 498 | 638 | ||||||
Mortgage banking-related fees | 3,507 | 2,228 | ||||||
Losses on sale of foreclosed assets | (620 | ) | (759 | ) | ||||
Losses on sale of premises and equipment | (90 | ) | (64 | ) | ||||
Gains on sale of securities available for sale | 13 | 238 | ||||||
Income from bank owned life insurance | 635 | 511 | ||||||
Other operating income | 1,371 | 1,588 | ||||||
Total noninterest income | 14,640 | 12,812 | ||||||
Noninterest Expense | ||||||||
Compensation and employee benefits | 21,362 | 22,931 | ||||||
Net occupancy | 4,254 | 2,995 | ||||||
Supplies and equipment | 4,406 | 3,710 | ||||||
Amortization-intangible assets | 872 | 691 | ||||||
Marketing | 628 | 1,248 | ||||||
State franchise taxes | 1,170 | 980 | ||||||
FDIC insurance | 3,193 | 115 | ||||||
Data processing | 1,502 | 2,076 | ||||||
Professional fees | 993 | 1,214 | ||||||
Telecommunications | 944 | 746 | ||||||
Other operating expenses | 6,956 | 6,941 | ||||||
Total noninterest expense | 46,280 | 43,647 | ||||||
(Loss) income before income taxes | (1,257 | ) | 12,225 | |||||
Income tax (benefit) expense | (1,077 | ) | 3,998 | |||||
Net (loss) income | (180 | ) | 8,227 | |||||
Preferred stock dividends | (744 | ) | - | |||||
Accretion of preferred stock discount | (159 | ) | - | |||||
Net (loss) income available to common shareholders | $ | (1,083 | ) | $ | 8,227 | |||
Basic net (loss) income per common share available to common shareholders | $ | (0.05 | ) | $ | 0.44 | |||
Diluted net (loss) income per common share available to common shareholders | $ | (0.05 | ) | $ | 0.44 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
STELLARONE CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 | ||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Comprehensive Income (Loss) | Total | ||||||||||||||||||||||
Balance, January 1, 2008 | $ | - | $ | 10,796 | $ | 34,488 | $ | 117,009 | $ | 475 | $ | 162,768 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | - | - | - | 8,227 | - | $ | 8,227 | 8,227 | ||||||||||||||||||||
Other comprehensive income net of tax: | ||||||||||||||||||||||||||||
Unrealized holding gains arising during the period (net of tax of $1,046) | - | - | - | - | - | (1,943 | ) | - | ||||||||||||||||||||
Reclassification adjustment (net of tax of $83) | - | - | - | - | - | 155 | - | |||||||||||||||||||||
Change in funded status of pension plans | - | - | - | - | - | 134 | ||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,654 | ) | (1,654 | ) | (1,654 | ) | ||||||||||||||||||
Total comprehensive income | - | - | - | - | - | $ | 6,573 | - | ||||||||||||||||||||
Cash dividends ($.32 per share) | - | - | - | (5,371 | ) | - | (5,371 | ) | ||||||||||||||||||||
Common stock issued in Merger (11,748,933 shares) | - | 11,749 | 189,382 | 201,131 | ||||||||||||||||||||||||
Stock-based compensation expense associated with Merger (23,519 shares) | - | 24 | 1,088 | - | - | 1,112 | ||||||||||||||||||||||
Stock-based compensation expense (7,018 shares) | - | 7 | 61 | 68 | ||||||||||||||||||||||||
Exercise of stock options (24,944 shares) | - | 24 | 239 | - | - | 263 | ||||||||||||||||||||||
Balance, June 30, 2008 | $ | - | $ | 22,600 | $ | 225,258 | $ | 119,865 | $ | (1,179 | ) | $ | 366,544 | |||||||||||||||
Balance, January 1, 2009 | $ | 28,121 | $ | 22,605 | $ | 229,522 | $ | 113,661 | $ | 876 | $ | 394,785 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net loss | - | - | - | (180 | ) | - | $ | (180 | ) | (180 | ) | |||||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||
Unrealized holding loss arising during the period (net of tax of $1) | - | - | - | - | - | (2 | ) | - | ||||||||||||||||||||
Reclassification adjustment (net of tax of $5) | - | - | - | - | - | (8 | ) | - | ||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (10 | ) | (10 | ) | (10 | ) | ||||||||||||||||||
Total comprehensive loss | - | - | - | - | - | $ | (190 | ) | - | |||||||||||||||||||
Cash dividends paid or accrued | ||||||||||||||||||||||||||||
Common ($.20 per share) | - | - | - | (4,533 | ) | - | (4,533 | ) | ||||||||||||||||||||
Preferred cummulative 5% | - | - | - | (744 | ) | - | (744 | ) | ||||||||||||||||||||
Accretion on preferred stock discount | 159 | - | - | (159 | ) | - | - | |||||||||||||||||||||
Preferred stock issuance costs | (56 | ) | - | - | - | - | (56 | ) | ||||||||||||||||||||
Stock-based compensation expense (18,894 shares) | - | 19 | 145 | - | - | 164 | ||||||||||||||||||||||
Exercise of stock options (28,835 shares) | - | 29 | 251 | - | - | 280 | ||||||||||||||||||||||
Balance, June 30, 2009 | $ | 28,224 | $ | 22,653 | $ | 229,918 | $ | 108,045 | $ | 866 | $ | 389,706 |
STELLARONE CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(In thousands) | ||||||||
SIX MONTHS ENDED | ||||||||
JUNE 30, | ||||||||
2009 | 2008 | |||||||
(unaudited) | (unaudited) | |||||||
Cash Flows from Operating Activities | ||||||||
Net (loss) income | $ | (180 | ) | $ | 8,227 | |||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 3,246 | 2,788 | ||||||
Amortization of intangible assets | 872 | 691 | ||||||
Amortization of purchase adjustments | - | (5,024 | ) | |||||
Provision for loan losses | 14,250 | 3,787 | ||||||
Deferred tax (benefit) expense | (2,071 | ) | 2,625 | |||||
Employee benefit plan expense | - | 105 | ||||||
Stock-based compensation expense | 164 | 1,180 | ||||||
Losses on foreclosed assets | 620 | 759 | ||||||
Losses on sale of premises and equipment | 90 | 64 | ||||||
Gains on sale of securities available for sale | (13 | ) | (238 | ) | ||||
Mortgage banking-related fees | (3,507 | ) | (2,228 | ) | ||||
Proceeds from sale of mortgage loans | 290,014 | 117,494 | ||||||
Origination of mortgage loans held for sale | (321,889 | ) | (109,851 | ) | ||||
Amortization of securities premiums and accretion of discounts, net | (1,072 | ) | 458 | |||||
Income on bank owned life insurance | (635 | ) | (511 | ) | ||||
Changes in assets and liabilities | ||||||||
Decrease in accrued interest receivable | 308 | 2,568 | ||||||
Increase in other assets | (136 | ) | (217 | ) | ||||
Decrease in accrued interest payable | (677 | ) | (1,814 | ) | ||||
Decrease in other liabilities | (1,073 | ) | (19,479 | ) | ||||
Net cash (used) provided by operating activities | $ | (21,689 | ) | $ | 1,384 | |||
Cash Flows from Investing Activities | ||||||||
Proceeds from maturities and principal payments of securities available for sale | $ | 46,739 | $ | 40,059 | ||||
Proceeds from sales and calls of securities available for sale | 19,306 | 88,343 | ||||||
Purchase of securities available for sale | (92,354 | ) | (49,876 | ) | ||||
Net increase in loans | 14,144 | 16,972 | ||||||
Proceeds from sale of premises and equipment | 637 | 1,522 | ||||||
Purchase of premises and equipment | (2,589 | ) | (6,793 | ) | ||||
Proceeds from sale of foreclosed assets | 1,120 | 2,857 | ||||||
Cash acquired in merger | - | 45,146 | ||||||
Net cash (used) provided by investing activities | $ | (12,997 | ) | $ | 138,230 | |||
Cash Flows from Financing Activities | ||||||||
Net increase in demand, money market and savings deposits | $ | 122,561 | $ | 114,083 | ||||
Net increase (decrease) in certificates of deposit | 3,799 | (54,005 | ) | |||||
Net decrease in short-term borrowings | (196 | ) | (20,850 | ) | ||||
Proceeds from Federal Home Loan Bank advances | - | 89,600 | ||||||
Principal payments on Federal Home Loan Bank advances | (17,700 | ) | (100,022 | ) | ||||
Net decrease in commercial paper | - | (68,745 | ) | |||||
Proceeds from exercise of stock options | 280 | 263 | ||||||
Payment of preferred stock issuance costs | (56 | ) | - | |||||
Cash dividends paid | (5,141 | ) | (5,371 | ) | ||||
Net cash provided (used by) financing activities | $ | 103,547 | $ | (45,047 | ) | |||
Increase in cash and cash equivalents | $ | 68,861 | $ | 94,567 | ||||
Cash and Cash Equivalents | ||||||||
Beginning | 115,529 | 41,793 | ||||||
Ending | $ | 184,390 | $ | 136,360 | ||||
Supplemental Disclosures of Cash Flow Information | ||||||||
Cash payments for: | ||||||||
Interest | $ | 27,516 | $ | 26,121 | ||||
Income taxes | - | 3,000 | ||||||
Supplemental Schedule of Noncash Activities | ||||||||
Foreclosed assets acquired in settlement of loans | $ | 1,234 | $ | 1,504 | ||||
Common stock issued in Merger | $ | - | $ | 201,131 |
The accompanying notes are an integral part of these consolidated financial statements.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | Organization |
StellarOne Corporation (the “Company”) is a Virginia bank holding company headquartered in Charlottesville, Virginia. The Company’s sole banking affiliate is StellarOne Bank headquartered in Christiansburg, Virginia. Additional subsidiaries of the Company include VFG Limited Liability Trust and FNB (VA) Statutory Trust II both of which are associated with the Company’s subordinated debt issues and are not subject to consolidation. On February 28, 2008, Virginia Financial Group, Inc (“VFG”) and FNB Corporation (“FNB”) merged and changed the surviving corporation’s name to StellarOne Corporation. The Company collapsed all of its previous affiliates into StellarOne Bank on May 27, 2008. The consolidated statements include the accounts of the Company and its wholly-owned banking subsidiary. All significant intercompany accounts have been eliminated. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position as of June 30, 2009 and December 31, 2008, the results of operations for the three and six months ended June 30, 2009 and 2008 and cash flows for the six months ended June 30, 2009 and 2008. The statements should be read in conjunction with the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The results of operations for the six month period ended June 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated subsequent events for possible recognition and / or disclosure through August 7, 2009, the date the consolidated financial statements included in this Quarterly Report on Form 10Q were issued.
2. Participation in U.S. Treasury Capital Purchase Program “CPP”
On December 19, 2008, the Company issued 30,000 shares of preferred stock to the U.S. Treasury for $30 million pursuant to the CPP. Additionally, the Company issued 302,623 common stock warrants to the U.S. Treasury as a condition to its participation in the CPP. The warrants are immediately exercisable, expire 10 years from the date of issuance and have an exercise price of $14.87 per share. Proceeds from this sale of preferred stock have been used to support general lending activities and provide liquidity for mortgage modification and builder loan programs. The CPP preferred stock is non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per annum for the first five years and 9% thereafter. The Company may redeem the preferred shares with the approval of the Federal Reserve at par value plus accrued and unpaid dividends.
As noted $1.9 million was assigned to the common stock warrants based on their relative fair value, accordingly, $28.1 million has been assigned to the Series A preferred stock and will be accreted up to the redemption amount of $30 million over the next five years.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. | Investment Securities |
A summary of the amortized cost and estimated fair value of securities with gross unrealized gains and losses is presented below.
June 30, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Estimated Fair Value | |||||||||||||||||||||||||
Securities Held to Maturity: | ||||||||||||||||||||||||||||||||
State and municipal | $ | 427 | $ | 4 | $ | - | $ | 431 | $ | 894 | $ | 3 | $ | - | $ | 897 | ||||||||||||||||
Mortgage backed securities | 23 | - | - | 23 | 26 | - | - | 26 | ||||||||||||||||||||||||
Total | $ | 450 | $ | 4 | $ | - | $ | 454 | $ | 920 | $ | 3 | $ | - | $ | 923 | ||||||||||||||||
Securities Available for Sale: | ||||||||||||||||||||||||||||||||
U. S. Government agencies | $ | 84,858 | $ | 908 | $ | (170 | ) | $ | 85,596 | $ | 68,477 | $ | 1,107 | $ | (36 | ) | $ | 69,548 | ||||||||||||||
State and municipals | 114,643 | 1,817 | (1,161 | ) | 115,299 | 86,021 | 1,031 | (287 | ) | 86,765 | ||||||||||||||||||||||
Corporate bonds | 6,576 | 201 | (7 | ) | 6,770 | 7,603 | 48 | (189 | ) | 7,462 | ||||||||||||||||||||||
Collateralized mortgage obligations | 10,288 | 91 | (359 | ) | 10,020 | 12,375 | 7 | (604 | ) | 11,778 | ||||||||||||||||||||||
Mortgage backed securities | 129,721 | 3,356 | (3 | ) | 133,074 | 145,321 | 3,587 | (59 | ) | 148,849 | ||||||||||||||||||||||
Certificates of deposit | 765 | - | - | 765 | 747 | - | - | 747 | ||||||||||||||||||||||||
Equity securities | 3,984 | 2 | (2,004 | ) | 1,982 | 3,933 | 2 | (1,920 | ) | 2,015 | ||||||||||||||||||||||
Other | 11 | - | - | 11 | 9 | - | - | 9 | ||||||||||||||||||||||||
Total | $ | 350,846 | $ | 6,375 | $ | (3,704 | ) | $ | 353,517 | $ | 324,486 | $ | 5,782 | $ | (3,095 | ) | $ | 327,173 |
The book value of securities pledged to secure deposits and for other purposes amounted to $171.2 million and $120.0 million at June 30, 2009 and December 31, 2008, respectively.
Sales of securities available for sale were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2009 | June 30, 2009 | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Proceeds from sales | $ | 13,516 | $ | 23,527 | $ | 19,306 | $ | 88,343 | ||||||||
Gross realized gains | 11 | 548 | 13 | 648 | ||||||||||||
Gross realized losses | - | (342 | ) | - | (410 | ) |
As of June 30, 2009, securities with unrealized losses segregated by length of impairment were as follows:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Description of Securities | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||
U. S. Government Agencies | $ | 21,171 | $ | 155 | $ | 2,070 | $ | 15 | $ | 23,241 | $ | 170 | ||||||||||||
Mortgage backed securities | 675 | 1 | 377 | 2 | 1,052 | 3 | ||||||||||||||||||
State and municipals | 27,236 | 1,079 | 931 | 82 | 28,167 | 1,161 | ||||||||||||||||||
Corporate bonds | - | - | 4,034 | 359 | 4,034 | 359 | ||||||||||||||||||
Collateralized mortgage obligations | - | - | 1,009 | 7 | 1,009 | 7 | ||||||||||||||||||
Subtotal debt securities | 49,082 | 1,235 | 8,421 | 465 | 57,503 | 1,700 | ||||||||||||||||||
Equity securities | - | - | 1,742 | 2,004 | 1,742 | 2,004 | ||||||||||||||||||
Total | $ | 49,082 | $ | 1,235 | $ | 10,163 | $ | 2,469 | $ | 59,245 | $ | 3,704 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.
As of June 30, 2009, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2009, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated income statement.
The amortized cost and estimated fair value of securities at June 30, 2009 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Equity securities are shown separately since they are not due at a single maturity date.
Held to Maturity | Available for Sale | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 427 | $ | 431 | $ | 24,940 | $ | 25,064 | ||||||||
Due after one year through five years | - | - | 113,432 | 115,426 | ||||||||||||
Due after five years through ten years | 23 | 23 | 69,746 | 70,420 | ||||||||||||
Due after ten years | - | - | 138,733 | 140,614 | ||||||||||||
Equity securities | - | - | 3,984 | 1,982 | ||||||||||||
Other | - | - | 11 | 11 | ||||||||||||
Total | $ | 450 | $ | 454 | $ | 350,846 | $ | 353,517 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. | Loans Receivable |
The Company’s loan portfolio is composed of the following (In thousands):
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
Real estate loans: | ||||||||
Construction and land development | $ | 344,694 | $ | 380,833 | ||||
Secured by 1-4 family residential | 720,832 | 706,727 | ||||||
Commercial and multifamily | 888,804 | 876,649 | ||||||
Commercial, financial and agricultural loans | 220,557 | 225,637 | ||||||
Consumer loans | 50,783 | 60,042 | ||||||
All other loans | 14,443 | 13,403 | ||||||
Total loans | 2,240,113 | 2,263,291 | ||||||
Deferred loan costs | 984 | 1,295 | ||||||
Allowance for loan losses | (34,923 | ) | (30,464 | ) | ||||
Net loans | $ | 2,206,174 | $ | 2,234,122 |
5. | Allowance for Loan Losses |
Activity in the allowance for loan losses is as follows (In thousands):
June 30, | December 31, | June 30, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Balance, beginning | $ | 30,464 | $ | 15,082 | $ | 15,082 | ||||||
Provisions for loan losses | 14,250 | 20,787 | 3,787 | |||||||||
Loans charged off | (11,225 | ) | (18,191 | ) | (2,526 | ) | ||||||
Recoveries | 1,434 | 1,247 | 733 | |||||||||
Net charge-offs | (9,791 | ) | (16,944 | ) | (1,793 | ) | ||||||
Allowance assumed via acquisition | - | 11,539 | 11,539 | |||||||||
Balance, ending | $ | 34,923 | $ | 30,464 | $ | 28,615 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Information about impaired loans as of the periods indicated is as follows (In thousands):
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
Impaired loans for which an allowance has been provided | $ | 43,006 | $ | 34,055 | ||||
Impaired loans for which an allowance has not been provided | 14,018 | 24,650 | ||||||
Total impaired loans | $ | 57,024 | $ | 58,705 | ||||
Allowance provided for impaired loans, included in the allowance for loan losses | $ | 12,270 | $ | 5,503 |
6. | (Loss) Earnings Per Share |
The following shows the weighted average number of shares used in computing (loss) earnings per share and the effect on weighted average number of shares of diluted potential common stock for the three month periods ended June 30, 2009 and 2008. Potential dilutive stock had no effect on (loss) income available to common stockholders for the three month period.
June 30, | June 30, | |||||||
(In thousands, except per share amounts) | 2009 | 2008 | ||||||
(unaudited) | (unaudited) | |||||||
Net (loss) income | $ | (326 | ) | $ | 6,140 | |||
Less: | ||||||||
Preferred stock dividends | (374 | ) | - | |||||
Accretion of preferred stock discount | (85 | ) | - | |||||
Net (loss) income available to common shareholders (numerator) | $ | (785 | ) | $ | 6,140 | |||
(Loss) earnings per common share | ||||||||
Weighted average common shares outstanding (denominator) | 22,641,114 | 22,585,161 | ||||||
(Loss) earnings per common share | $ | (0.03 | ) | $ | 0.27 | |||
Diluted (loss) earnings per common share | ||||||||
Weighted average common shares issued and outstanding | 22,641,114 | 22,585,161 | ||||||
Add: | ||||||||
Restricted stock | - | 16,232 | ||||||
Incentive stock options | - | 7,355 | ||||||
Stock options | - | 43,243 | ||||||
Diluted weighted average common shares outstanding (denominator) | 22,641,114 | 22,651,991 | ||||||
Diluted (loss) earnings per common share | $ | (0.03 | ) | $ | 0.27 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following shows the weighted average number of shares used in computing (loss) earnings per share and the effect on weighted average number of shares of diluted potential common stock for the six month periods ended June 30, 2009 and 2008. Potential dilutive stock had no effect on (loss) income available to common stockholders for the three month period.
June 30, | June 30, | |||||||
(In thousands, except per share amounts) | 2009 | 2008 | ||||||
(unaudited) | (unaudited) | |||||||
Net (loss) income | $ | (180 | ) | $ | 8,227 | |||
Less: | ||||||||
Preferred stock dividends | (744 | ) | - | |||||
Accretion of preferred stock discount | (159 | ) | - | |||||
Net (loss) income available to common shareholders (numerator) | $ | (1,083 | ) | $ | 8,227 | |||
(Loss) earnings per common share | ||||||||
Weighted average common shares outstanding (denominator) | 22,630,323 | 18,831,352 | ||||||
(Loss) earnings per common share | $ | (0.05 | ) | $ | 0.44 | |||
Diluted (loss) earnings per common share | ||||||||
Weighted average common shares issued and outstanding | 22,630,323 | 18,831,352 | ||||||
Add: | ||||||||
Restricted stock | - | 12,794 | ||||||
Incentive stock options | - | 8,540 | ||||||
Stock options | - | 46,669 | ||||||
Diluted weighted average common shares outstanding (denominator) | 22,630,323 | 18,899,355 | ||||||
Diluted (loss) earnings per common share | $ | (0.05 | ) | $ | 0.44 |
Due to the loss available to common shareholders during the three and six month periods in 2009 all unvested restricted stock and stock options would have been anti-dilutive and were not included in the three or six month calculations for 2009. In 2008, stock options representing 380,464 and 333,634 shares were not included in the three and six month calculations of earnings per share, respectively, as their effect would have been anti-dilutive.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. | Stock-Based Compensation |
FASB Statement No. 123 (R), “Share-Based Payment” requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.
SFAS 123 (R) also requires that new awards to employees eligible for retirement prior to the award becoming fully vested be recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. The Company had no such awards granted during the three month period.
Stock-based compensation expense included within compensation and employee benefits expense totaled $134 thousand and $259 thousand during the three and the six months ended June 30, 2009 and $55 thousand and $1.5 million during the three and six months ended June 30, 2008. An acceleration adjustment of $1.3 million related to the merger is included in compensation and employee benefit expense for the six month period ended June 30, 2008.
Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Fair value was estimated using the Black-Scholes option pricing model with the following assumptions for: option term until exercise of approximately 4.5 to 6.5 years, volatility ranging from 24.3 to 28.6%, risk-free interest rate of 1.90% to 2.68% and an expected dividend yield of 3.7% to 4.3%.
A summary of the stock option plan at June 30, 2009 and 2008 and changes during the periods ended on those dates are as follows:
2009 | 2008 | |||||||||||||||
Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | |||||||||||||
Outstanding, January 1 | 614,198 | $ | 18.58 | 239,671 | $ | 23.37 | ||||||||||
Acquired via merger | - | - | 311,606 | 14.02 | ||||||||||||
Granted | 17,392 | 12.78 | 123,061 | 18.27 | ||||||||||||
Forfeited | (4,880 | ) | - | (3,593 | ) | 21.17 | ||||||||||
Expired | - | - | (13,144 | ) | 11.79 | |||||||||||
Exercised | (28,835 | ) | 9.73 | (25,784 | ) | 10.58 | ||||||||||
Outstanding, June 30, | 597,875 | $ | 18.69 | 631,817 | $ | 18.53 | ||||||||||
Exercisable, June 30, | 482,947 | 509,656 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The aggregate intrinsic value of the options outstanding as of June 30, 2009 was $371 thousand. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the quarter ended June 30, 2009 and the exercise price, multiplied by the number of options outstanding). The aggregate intrinsic value of the options currently exercisable as of June 30, 2009 was $369 thousand. The weighted average remaining contractual life is 4.2 years for exercisable options at June 30, 2009.
The following table summarizes nonvested restricted shares outstanding as of June 30, 2009 and the related activity during the period:
Nonvested Shares | Number of Shares | Weighted-Average Grant-Date Fair Value | (In thousands) Total Intrinsic Value | |||||||||
Nonvested at January 1, 2009 | 35,401 | $ | 16.31 | $ | 598 | |||||||
Granted | 37,430 | 12.68 | ||||||||||
Vested & Exercised | (18,894 | ) | 16.25 | $ | (237 | ) | ||||||
Forfeited | (200 | ) | 15.65 | |||||||||
Nonvested at June 30, 2009 | 53,737 | $ | 13.81 | $ | 696 |
The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of June 30, 2009 that will be recognized in future periods is as follows (In thousands):
Stock Options | Nonvested Restricted Stock | Total | ||||||||||
For the remaining six months of 2009 | $ | 35 | $ | 186 | $ | 221 | ||||||
For year ended December 31, 2010 | 70 | 220 | 290 | |||||||||
For year ended December 31, 2011 | 70 | 101 | 171 | |||||||||
For year ended December 31, 2012 | 70 | 55 | 125 | |||||||||
For year ended December 31, 2013 | 24 | 44 | 68 | |||||||||
For year ended December 31, 2014 | 1 | 3 | 4 | |||||||||
Total | $ | 270 | $ | 609 | $ | 879 |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Fair Value Option and Fair Value Measurements
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position “FSP” No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. FAS 157-2 has been deferred and therefore has not been adopted. The impact of adopting FAS 157 involved adding additional disclosure information and had no direct effect on the Company’s financial statements.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard became effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.
Fair Value Measurement
Statement 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Statement 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This FSP clarifies the application of FASB Statement No. 157, “Fair Value Measurements,” in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This guidance was considered in determining the fair value of financial assets for the Company as of June 30, 2009.
Under SFAS No. 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. These levels are:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects changes in classifications between levels will be rare.
Securities: Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Loans held for sale: The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 2.
Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, “Accounting by Creditors for Impairment of a Loan”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.
Foreclosed assets: Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at net realizable value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.
Deferred compensation plans: Liabilities associated with deferred compensation plans are recorded at fair value on a recurring basis as Level 1 based on the fair value of the underlying securities. Fair value measurement is based upon the fair value of the securities as described above.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 are summarized below (In thousands).
(unaudited) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available-for-sale | $ | 353,517 | $ | 1,981 | $ | 351,536 | $ | - | ||||||||
Total assets at fair value | $ | 353,517 | $ | 1,981 | $ | 351,536 | $ | - | ||||||||
Other liabilities (1) | $ | 2,440 | $ | 2,440 | $ | - | $ | - | ||||||||
Total liabilities at fair value | $ | 2,440 | $ | 2,440 | $ | - | $ | - |
(1) Includes liabilities associated with deferred compensation plans
Assets and Liabilities Measured on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market whose fair value was recognized to be below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of June 30, 2009 are included in the table below (In thousands).
(unaudited) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Loans - impaired loans | $ | 57,024 | $ | - | $ | 36,231 | $ | 20,793 | ||||||||
Loans held for sale - mortgage | 51,229 | - | 51,229 | - | ||||||||||||
Foreclosed assets | 4,121 | - | 1,785 | 2,336 | ||||||||||||
Total assets at fair value | $ | 112,374 | $ | - | $ | 89,245 | $ | 23,129 | ||||||||
Total liabilities at fair value | $ | - | $ | - | $ | - | $ | - |
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SFAS 107, “Disclosures about Fair Value of Financial Instruments,” as amended, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the 2008 Form 10-K.
The estimated fair values of financial instruments were as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 184,390 | $ | 184,390 | $ | 115,529 | $ | 115,529 | ||||||||
Investment securities | 353,967 | 353,971 | 328,093 | 328,096 | ||||||||||||
Mortgage loans held for sale | 51,229 | 51,229 | 15,847 | 15,847 | ||||||||||||
Loans, net | 2,206,174 | 2,218,155 | 2,234,122 | 2,248,579 | ||||||||||||
Accrued interest receivable | 9,922 | 9,922 | 10,230 | 10,230 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Deposits | $ | 2,449,338 | $ | 2,465,381 | $ | 2,323,108 | $ | 2,340,791 | ||||||||
Federal funds purchased and securities sold under agreements to repurchase | 503 | 503 | 699 | 699 | ||||||||||||
Federal Home Loan Bank advances | 170,000 | 175,514 | 187,700 | 195,955 | ||||||||||||
Subordinated debt | 32,991 | 33,063 | 32,991 | 33,086 | ||||||||||||
Accrued interest payable | 4,799 | 4,799 | 5,476 | 5,476 |
9. Recent Accounting Pronouncements
In April 2009, the FASB issued FASB Staff Position FAS (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,”. This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction that is, between market participants at the measurement date under current market conditions with the assumption that the sale is not a forced liquidation or distressed sale. FSP No. FAS 157-4 is effective for fiscal years and interim periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. Adoption of this FSP did not have a significant effect on the Corporation’s consolidated financial statements.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On June 29, 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a Replacement of FASB Statement No. 162.” SFAS 168 which establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. SFAS 168 will be effective for the Company’s consolidated financial statements for periods ending after September 15, 2009. SFAS 168 is not expected have a significant effect on the Corporation’s consolidated financial statements.
On June 12, 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140.” SFAS 166 amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. SFAS 166 also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. SFAS 166 will be effective January 1, 2010 and is not expected to have a significant effect on the Corporation’s consolidatedfinancial statements.
On May 28, 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). Under SFAS 165, companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165 also requires entities to disclose the date through which subsequent events have been evaluated. SFAS 165 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of SFAS 165 for the quarter ended June 30, 2009, as required, and adoption did not have a significant effect on the Corporation’s consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and Accounting Principles Board (“APB”) 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” to require, on an interim basis, disclosures about the fair value of financial instruments for public entities, and to improve the transparency and quality of information provided to financial statement users by increasing the frequency of disclosures about fair value. The FSP applies to financial instruments within the scope of FASB Statement 107, Disclosures about Fair Value of Financial Instruments, held by publicly traded companies, as defined in AICPA Accounting Principles Board Opinion 28, Interim Financial Reporting. Previously, the disclosure was required only in annual financial statements. FSP No. FAS 107-1 and APB 28-1is effective for fiscal years and interim periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. Adoption of this FSP did not have a significant effect on the Corporation’s consolidated financial statements.
STELLARONE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In April 2009, the FASB issued proposed FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, which makes existing other-than-temporary impairment guidance pertaining to debt securities more operational and improves the presentation of other-than-temporary impairments in the financial statements. This FSP requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and any remaining portion in the other comprehensive income category of stockholders’ equity, if the entity does not intend to sell the security and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis. This FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Adoption of these FSP’s did not have a significant effect on the Corporation’s consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. Adoption of this FSP had no effect on the Corporation’s consolidated financial statements, but will be utilized to determine useful lives of intangibles associated with any future acquisitions.
In February 2008, FASB issued FSP 140-3 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” This FSP addresses the accounting for a transfer of a financial asset and a repurchasing financing. The FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those years. Adoption of this FSP did not have a significant effect on the Corporation’s consolidated financial statements.
10. Subsequent Event
On July 13, 2009, StellarOne Corporation announced that its subsidiary, StellarOne Bank, signed a purchase and assumption agreement to sell a financial service center located in Woodstock, Virginia to First Bank, with principal offices located in Strasburg, Virginia. The branch sale, which is subject to regulatory approval, includes all deposit accounts, fixed assets, and real estate. At June 30, 2009, the branch reported deposits of $15.2 million. The proposed transaction is expected to close in the fourth quarter of 2009.
STELLARONE CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides management’s analysis of the consolidated financial results of operations, financial condition, liquidity and capital resources of StellarOne Corporation (“StellarOne,” or the “Company”) and its affiliates. This discussion and analysis should be read in conjunction with the financial statements and footnotes appearing elsewhere in this report.
OVERVIEW
StellarOne Corporation is a bank holding company incorporated under the laws of the Commonwealth of Virginia. Currently, StellarOne is one of the largest independent commercial bank holding companies headquartered in the Commonwealth of Virginia. The Company’s sole banking affiliate is StellarOne Bank headquartered in Christiansburg, Virginia. Additional affiliates of the Company include VFG Limited Liability Trust and FNB (VA) Statutory Trust II both of which are associated with the Company’s subordinated debt issues and are not subject to consolidation. The Company collapsed all of its previous affiliates into StellarOne Bank on May 27, 2008. The organization has a network of fifty-nine full-service financial centers, one loan production office, and sixty-six ATMs stretching from the New River Valley, Roanoke Valley, Shenandoah Valley and Central and North Central Virginia.
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining inherent losses in our loan portfolio. Actual losses could differ significantly from the historical factors that we use.
Investment Securities
Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. The initial classification of securities is determined at the date of purchase.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated increase in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. There are a total of twenty-three (23) securities that had unrealized losses for 12 months or more as of June 30, 2009 totaling $2.5 million. StellarOne has the ability and intent to hold these securities for the time thought to be necessary to recover its cost, and does not consider them to be other-than-temporarily impaired.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have been incurred, but not realized through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The Company’s banking subsidiary conducts an analysis of the loan portfolio on a regular basis. This analysis is used in assessing the sufficiency of the allowance for loan losses and in the determination of the necessary provision for loan losses. The review process generally begins with lenders identifying problem loans to be reviewed on an individual basis for impairment. When a loan has been identified as impaired, a specific reserve may be established based on management’s calculation of the loss embedded in the individual loan. Loans meeting the criteria for impairment are segregated for analysis from performing loans within the portfolio. In addition to impairment testing, the banking subsidiary has a ten point grading system for each non-homogeneous loan in the portfolio. Loans are then grouped by loan type and, in the case of commercial and construction loans, by risk rating. Each loan type is assigned an allowance factor based on historical loss experience, economic conditions, overall portfolio quality including delinquency rates and commercial real estate loan concentrations. The total of specific reserves required for impaired classified loans and the calculated reserves by loan category are then used to compute an estimated range of losses which is then compared to the recorded allowance for loan losses. This is the methodology used to determine the sufficiency of the allowance for loan losses and the amount of the provision for loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Goodwill
The Company has adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, goodwill is no longer subject to amortization over its estimated useful life, but is subject to at least an annual assessment for impairment by applying a fair value based test. Additionally, under SFAS 142, acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful life. Branch acquisition transactions were outside the scope of SFAS 142 and, accordingly, intangible assets related to such transactions continued to amortize upon the adoption of SFAS 142. The cost of purchased deposit relationships and other intangible assets, based on independent valuation, are being amortized over their estimated lives not to exceed fifteen years. Amortization expense charged to operations was $872 thousand and $691 thousand for the six months ended June 30, 2009 and 2008, respectively.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Stock-Based Compensation
The Company has a stock-based employee compensation plan under which nonqualified stock options may be granted periodically to certain employees. The Company’s stock options typically have an exercise price equal to at least the fair value of the stock on the date of grant, and vest based on continued service with the Company for a specified period, generally five years. The Company has adopted SFAS 123 (R), which requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.
FASB Statement No. 123 (R), “Share-Based Payment” SFAS 123 (R) also requires that new awards to employees eligible for retirement prior to the award becoming fully vested be recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award.
Non-GAAP Financial Measures
This report refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income excluding gains or losses on securities, fixed assets and foreclosed assets. Additionally we refer and define core margin and noninterest income on an operating basis below in our discussions of operations. These are non-GAAP financial measures that we believe provide investors with important information regarding our operational efficiency and margin production. Such information is not in accordance with GAAP and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. The Company, in referring to its net income, is referring to income under GAAP.
Results of Operations
The Company’s loss for the second quarter of 2009 was $326 thousand, or a net loss available to common shareholders of $785 thousand, or $0.03 per diluted common share. Those results compare to net income of $6.1 million, or diluted earnings per share of $0.27 during the same period in the prior year, and a net loss to common shareholders of $298 thousand or $0.01 per diluted common share recognized for the first quarter of 2009. The results for the second quarter of 2009 were impacted by a provision for loan losses totaling $6.5 million that approximated net charge-offs of $6.9 million for the period, and compares to a provision for loan losses of $7.75 million during the first quarter of 2009 and $2.8 million for the same quarter in the prior year. Additionally, second quarter 2009 results were reduced by a special assessment from the FDIC totaling $1.3 million.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company’s loss for the six month period ended June 30, 2009 was $180 thousand, or a net loss available to common shareholders of $1.1 million, or $0.05 per diluted common share. Those results compare to net income of $8.2 million, or diluted earnings per share of $0.44 during the same period in the prior year. Similar to the three month period, the results for the fist six months of 2009 were impacted by an increased provision for loan losses totaling $14.3 million that approximated net charge-offs of $9.8 million for the period, and compares to a provision for loan losses of $3.8 million during the first six months of 2008. Additionally, the results for the six month period in 2009 were also reduced by a $3.1 million increase in total FDIC assessment expense when compared to the same period in the prior year.
Net Interest Income
Net interest income, on a tax-equivalent basis and excluding the effects of purchase accounting amortization, amounted to $22.0 million for both the first and second quarters of 2009 and compare to $25.3 million for the second quarter of 2008. The core net interest margin, adjusted to exclude the effect of purchasing accounting amortization, was 3.24% for the second quarter of 2009, compared to 3.36% for the first quarter 2009 and 3.69% for the second quarter of 2008. Including the effects of purchase accounting adjustments, the net interest margin was 3.34% for the second quarter 2009, compared to 3.52% for the first quarter 2009 and 4.37% for the second quarter of 2008.
Net interest income, on a tax-equivalent basis and excluding the effects of purchase accounting amortization, amounted to $44.0 million for the first six months of 2009 and compares to $45.8 million for first half of 2008. The core net interest margin, adjusted to exclude the effect of purchasing accounting amortization, was 3.30% for the first six months of 2009, compared to 3.94% for the first half of 2008. Including the effects of purchase accounting adjustments, the net interest margin was 3.43% for the first six months of 2009, compared to 4.08% for the first half of 2008.
The compression noted for both the three and six month periods continues to be yield driven, with the average yield on earning assets decreasing 30 basis points to 5.29% as compared to 5.59% for the first quarter of 2009 and down 122 basis points compared to the same quarter in 2008. Contributing factors include a relatively high level of fixed rate re-pricing in the loan portfolio, the impact of an increasing amount of loans in nonaccrual status and a higher level of short term liquidity in the balance sheet. The cost of interest bearing liabilities contracted 14 basis points from 2.45% during the first quarter of 2009 to 2.31% during the second quarter of 2009 and down 22 basis points compared to the same quarter in 2008, but remained much less sensitive to repricing when compared to interest earning assets. Irrespective of the effects related to the merger of equals transaction consummated in the first quarter of 2008, the comparisons of the six month periods mirror those discussed above for the quarterly results.
Factors impacting the net interest margin for the remainder of the year include the acceleration of liability repricing and improvement of cost of funds associated with reduced wholesale funding, higher amounts of CD repricing. Additionally, loan yields are expected to continue to be negatively impacted by the short-term rate reductions with loan growth remaining minimal due to market conditions, and the positive effects of amortizing the purchase adjustments will continue to lessen.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended June 30, | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||||||
Dollars in thousands | Average Balance | Interest Inc/Exp | Average Rates | Average Balance | Interest Inc/Exp | Average Rates | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans receivable, net | $ | 2,291,735 | $ | 31,801 | 5.57 | % | $ | 2,288,804 | $ | 39,329 | 6.91 | % | ||||||||||||
Investment securities | ||||||||||||||||||||||||
Taxable | 230,102 | 2,624 | 4.51 | % | 307,571 | 3,500 | 4.50 | % | ||||||||||||||||
Tax exempt | 97,122 | 1,496 | 6.09 | % | 95,604 | 1,531 | 6.34 | % | ||||||||||||||||
Total investments | 327,224 | 4,120 | 4.98 | % | 403,175 | 5,031 | 4.94 | % | ||||||||||||||||
Interest bearing deposits | 51,966 | 31 | 0.24 | % | 3,943 | 9 | 0.90 | % | ||||||||||||||||
Federal funds sold | 58,560 | 20 | 0.14 | % | 63,198 | 340 | 2.13 | % | ||||||||||||||||
437,750 | 4,171 | 3.77 | % | 470,316 | 5,380 | 4.53 | % | |||||||||||||||||
Total earning assets | 2,729,485 | $ | 35,972 | 5.29 | % | 2,759,120 | $ | 44,709 | 6.51 | % | ||||||||||||||
Total nonearning assets | 283,599 | 290,706 | ||||||||||||||||||||||
Total assets | $ | 3,013,084 | $ | 3,049,826 | ||||||||||||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
Interest checking | $ | 524,408 | $ | 1,255 | 0.96 | % | $ | 497,074 | $ | 505 | 0.41 | % | ||||||||||||
Money market | 275,534 | 1,047 | 1.52 | % | 191,406 | 817 | 1.71 | % | ||||||||||||||||
Savings | 191,788 | 420 | 0.88 | % | 211,158 | 1,755 | 3.33 | % | ||||||||||||||||
Time deposits: | ||||||||||||||||||||||||
Less than $100,000 | 794,180 | 5,926 | 2.99 | % | 769,415 | 5,664 | 2.95 | % | ||||||||||||||||
$100,000 and more | 305,297 | 2,712 | 3.56 | % | 364,876 | 3,717 | 4.09 | % | ||||||||||||||||
Total interest-bearing deposits | 2,091,207 | 11,360 | 2.18 | % | 2,033,929 | 12,458 | 2.46 | % | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 464 | 3 | 2.56 | % | 7,919 | 5 | 0.25 | % | ||||||||||||||||
Federal Home Loan Bank advances and other borrowings | 170,067 | 1,553 | 3.61 | % | 236,759 | 1,634 | 2.73 | % | ||||||||||||||||
Subordinated debt | 32,991 | 343 | 4.11 | % | 32,991 | 466 | 5.59 | % | ||||||||||||||||
Commercial paper | - | - | N/A | 23,821 | 156 | 2.59 | % | |||||||||||||||||
203,522 | 1,899 | 3.69 | % | 301,490 | 2,261 | 2.97 | % | |||||||||||||||||
Total interest-bearing liabilities | 2,294,729 | 13,259 | 2.31 | % | 2,335,419 | 14,719 | 2.53 | % | ||||||||||||||||
Total noninterest-bearing liabilities | 327,425 | 347,080 | ||||||||||||||||||||||
Total liabilities | 2,622,154 | 2,682,499 | ||||||||||||||||||||||
Stockholders' equity | 390,930 | 367,327 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 3,013,084 | $ | 3,049,826 | ||||||||||||||||||||
Net interest income (tax equivalent) | $ | 22,713 | $ | 29,990 | ||||||||||||||||||||
Average interest rate spread | 2.97 | % | 3.98 | % | ||||||||||||||||||||
Interest expense as percentage of average earning assets | 1.95 | % | 2.14 | % | ||||||||||||||||||||
Net interest margin | 3.34 | % | 4.37 | % |
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||||||
Average | Interest | Average | Average | Interest | Average | |||||||||||||||||||
Dollars in thousands | Balance | Inc/Exp | Rates | Balance | Inc/Exp | Rates | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans receivable, net | $ | 2,288,118 | $ | 64,400 | 5.69 | % | $ | 1,958,566 | $ | 66,628 | 6.84 | % | ||||||||||||
Investment securities | ||||||||||||||||||||||||
Taxable | 228,873 | 5,382 | 4.68 | % | 255,090 | 6,468 | 5.02 | % | ||||||||||||||||
Tax exempt | 90,414 | 2,801 | 6.16 | % | 89,971 | 1,838 | 4.04 | % | ||||||||||||||||
Total investments | 319,287 | 8,183 | 5.10 | % | 345,061 | 8,306 | 4.76 | % | ||||||||||||||||
Interest bearing deposits | 50,885 | 40 | 0.16 | % | 2,214 | 12 | 1.07 | % | ||||||||||||||||
Federal funds sold | 38,046 | 43 | 0.22 | % | 44,910 | 523 | 2.29 | % | ||||||||||||||||
408,218 | 8,266 | 4.03 | % | 392,185 | 8,841 | 4.46 | % | |||||||||||||||||
Total earning assets | 2,696,336 | $ | 72,666 | 5.44 | % | 2,350,751 | $ | 75,469 | 6.45 | % | ||||||||||||||
Total nonearning assets | 286,494 | 228,856 | ||||||||||||||||||||||
Total assets | $ | 2,982,830 | $ | 2,579,607 | ||||||||||||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
Interest checking | $ | 520,463 | $ | 2,652 | 1.03 | % | $ | 401,052 | $ | 898 | 0.45 | % | ||||||||||||
Money market | 255,453 | 1,877 | 1.48 | % | 161,291 | 1,482 | 1.84 | % | ||||||||||||||||
Savings | 190,103 | 830 | 0.88 | % | 169,115 | 2,796 | 3.32 | % | ||||||||||||||||
Time deposits: | ||||||||||||||||||||||||
Less than $100,000 | 778,506 | 11,986 | 3.10 | % | 641,569 | 10,962 | 3.43 | % | ||||||||||||||||
$100,000 and more | 314,643 | 5,666 | 3.63 | % | 310,141 | 6,525 | 4.22 | % | ||||||||||||||||
Total interest-bearing deposits | 2,059,168 | 23,011 | 2.25 | % | 1,683,168 | 22,663 | 2.70 | % | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 405 | 7 | 3.44 | % | 6,681 | 60 | 1.78 | % | ||||||||||||||||
Federal Home Loan Bank advances and other borrowings | 177,155 | 3,120 | 3.50 | % | 210,851 | 3,545 | 3.34 | % | ||||||||||||||||
Subordinated debt | 32,991 | 700 | 4.22 | % | 28,708 | 930 | 6.41 | % | ||||||||||||||||
Commercial paper | - | - | N/A | 49,010 | 635 | 2.56 | % | |||||||||||||||||
210,551 | 3,827 | 3.62 | % | 295,928 | 5,170 | 3.46 | % | |||||||||||||||||
Total interest-bearing liabilities | 2,269,719 | 26,838 | 2.38 | % | 1,979,096 | 27,833 | 2.81 | % | ||||||||||||||||
Total noninterest-bearing liabilities | 320,650 | 306,688 | ||||||||||||||||||||||
Total liabilities | 2,590,369 | 2,285,784 | ||||||||||||||||||||||
Stockholders' equity | 392,461 | 293,823 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,982,830 | $ | 2,579,607 | ||||||||||||||||||||
Net interest income (tax equivalent) | $ | 45,828 | $ | 47,636 | ||||||||||||||||||||
Average interest rate spread | 3.06 | % | 3.64 | % | ||||||||||||||||||||
Interest expense as percentage of average earning assets | 2.01 | % | 2.37 | % | ||||||||||||||||||||
Net interest margin | 3.43 | % | 4.08 | % |
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest Income
On an operating basis, which excludes gains and losses from sales of assets, total non-interest income amounted to $8.3 million for the second quarter of 2009, an increase of $1.3 million or 17.8% from $7.0 million for first quarter of 2009 and an increase of $574 thousand or 7.4% from $7.7 million for second quarter of 2008. Mortgage banking revenue totaled $2.1 million for the second quarter, an increase of $660 thousand or 46.4% compared to $1.4 million for the first quarter of 2009 and an increase of $726 thousand or 53.5% compared to $1.4 million for the second quarter of 2008. The increased originations are primarily a reflection of the favorable interest rate environment and have resulted in an increase in the earnings contribution from the mortgage line of business during the second quarter. Retail banking fee income amounted to $4.1 million for the second quarter, an increase of $402 thousand or 10.8% compared to $3.7 million for the first quarter of 2009 and an increase of $217 thousand or 5.6% compared to $3.9 million for the second quarter of 2008. These increases are largely a result of more NSF charge activity and a higher realization rate associated with these fees. Wealth management revenues from trust and brokerage fees for the second quarter of 2009 were $989 thousand or essentially flat compared to $1.0 million in the first quarter of 2009 and down $400 thousand or 28.8% compared to the second quarter of 2008. Revenues from this line of business remain suppressed due to lower market valuations for assets under management. Despite revenue contraction, wealth management contributed earnings to the company during both the first and second quarters of 2009. Revenues from other miscellaneous income sources for the second quarter of 2009 were $780 thousand, up $189 thousand or 32.0% compared to $591 thousand for the first quarter of 2009 and up $19 thousand or 2.5% compared to $761 thousand for the same quarter in 2008. The increase compared to the first quarter relates principally to seasonal insurance related revenues and was therefore comparative to the same period in the prior year.
On an operating basis for the six month period, which excludes gains and losses from sales of assets, total non-interest income amounted to $15.3 million for the first six months of 2009, an increase of $1.9 million or 14.5% from $13.4 million for the same period in the prior year. All increases for the six month period were influenced to some extent by the merger of equals transaction consummated in February of 2008, however, the effect was not the primary factor in any of the variances noted. Mortgage banking revenue totaled $3.5 million for the first half of 2009, an increase of $1.3 million or 57.4% compared to $2.2 million for the first half of 2008. The increased originations are primarily a reflection of the favorable interest rate environment and have resulted in an increase in the earnings contribution from the mortgage line of business during the first half of 2009. Retail banking fee income amounted to $7.8 million for the first six months of 2009, an increase of $1.4 million or 21.1% compared to $6.5 million for the first half of 2008. This increase is largely a result of more NSF charge activity, analysis fee charges and a higher realization rate associated with these fees. Wealth management revenues from trust and brokerage fees for the first six months of 2009 were $2.0 million, down $607 thousand or 23.3% compared to the same period in 2008. Revenues from this line of business remain suppressed due to lower market valuations for assets under management. Despite revenue contraction, wealth management contributed earnings to the company during the first six months of 2009. Revenues from other miscellaneous income sources for the first six months of 2009 were $1.4 million, down $217 thousand or 13.7% compared to $1.6 million for the first half of 2008. The decrease compared to the same period in the prior year relates primarily to a non-recurring Visa class B stock redemption that occurred during the first six months of 2008.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest Expense
Non-interest expense for the second quarter of 2009 amounted to $24.1 million, or up $1.9 million or 8.6% when compared to the $22.2 million for the first quarter of 2009 and down $553 thousand or 2.2% when compared to the same quarter in the prior year. A special assessment from the FDIC totaling $1.3 million, which is payable in September 2009, was accrued during the current quarter. Additionally, due to increased originations generated by a favorable interest rate environment experienced during the second quarter, mortgage commissions increased $391 thousand and $600 thousand when compared to the first quarter 2009 and the second quarter 2008, respectively. Likewise, loan operations expense increased $275 thousand and $662 thousand when compared to the first quarter 2009 and the second quarter 2008, respectively. Exclusive of these items, noninterest expense was relatively flat compared to the first quarter of 2009 and down $1.8 million or 7.3% compared to the same quarter in the prior year. StellarOne’s efficiency ratio was 77.58% for the second quarter of 2009, compared to 73.70% for the first quarter of 2009 and 65.26% for the second quarter of 2008, reflecting the increased expenses as noted for the period.
Non-interest expense for the first six months of 2009 amounted to $46.3 million, or up $2.6 million or 6.0% when compared to the $43.6 million for the first half of 2008. StellarOne’s efficiency ratio was 75.67% for the first six months of 2009, compared to 71.51% for the first half of 2009. The reasons for increases in both total expense and the related efficiency ratio for the six month period mirror those explained above for the three month period. However, the total increase in FDIC assessment expense for the six month period was $3.1 million when compared to the same period in the prior year.
Income Taxes
Income tax benefit for the second quarter of 2009 was $485 thousand resulting in an effective tax rate of 59.8% compared to $3.4 million in income tax expense, or 35.6%, for the second quarter of 2008. For the six month period ended June 30, 2009, income tax benefit amounted to $1.1 million, resulting in an effective tax rate of 85.6% compared to $4.0 million in income tax expense, or 32.7% for the same period in 2008. The significant increase in the effective tax rate for both the three and six month periods in 2009 is a result of increased provisioning that has reduced pretax earnings to a level which is proportionately much smaller in relation to our permanent differences when compared to the same period in the prior year. Pretax results near the breakeven point tend to generate substantial shifts in the effective tax rate due to comparing a lower level of earnings or losses to a relatively steady level of permanent differences. Given the current economic environment and that elevated levels of provisioning are driving the effective rate; the effective rate for both the three and six month periods of 2009 is within the estimated range of probable rates expected for the annualized period.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Quality
StellarOne’s ratio of non-performing assets as a percentage of total assets increased to 2.60% as of June 30, 2009, compared to 1.66% as of December 31, 2008 and 0.86% as of June 30, 2008. Annualized net charge-offs as a percentage of average loans receivable amounted to 1.20% for the second quarter of 2009, compared to 0.51% for the first quarter of 2009 and 0.22% for the second quarter of 2008. Net charge-offs for the second quarter totaled $6.9 million and were up $4.0 million compared to the $2.9 million in net charge-offs recognized during the first quarter of 2009 and up $5.6 million compared to the $1.3 million in net charge-offs posted during the second quarter of 2008. The primary concentration of credit issues within the portfolio continues to be the residential development and construction loan segment of our portfolio, with emphasis on a concentration at Smith Mountain Lake (SML). Of the total nonaccrual loans of $73.0 million at June 30, 2009, approximately $41.6 million are residential development and construction loans, of which approximately $25.3 million or 61% are SML related.
StellarOne recorded a provision for loan losses of $6.5 million for the second quarter of 2009, a decrease of $1.3 million compared to the first quarter of 2009. The second quarter provision compares to net charge-offs of $6.9 million for the quarter, resulting in the allowance as a percentage of total loans remaining flat at 1.56% for June 30, 2009 when compared to March 31, 2009. While there are encouraging signs in the economy and past-due levels improved for the quarter, StellarOne continues to anticipate elevated non-performing assets and net charge-off levels throughout the remainder of 2009, and will likely see some migration of nonaccrual loans to foreclosed assets.
At June 30, 2009 StellarOne had $6.9 million in loans under troubled debt restructuring terms. These restructurings occur when a loan customer has experienced or is anticipated to experience, financial difficulties in the short term. Consequently, a modification is granted to the borrower that would not otherwise be considered. These loans continue to accrue interest as long as the borrower complies with the modified loan terms and conditions and has demonstrated repayment performance under the modified agreement.
Accruing restructured loans were $5.5 million at June 30, 2009 compared to none at March 31, 2009. These loans are primarily residential real estate related and are being restructured in order to assist our customers in retaining their homes and minimize our exposure to potential losses. These loans have been restructured by either reducing the related interest rate, extending the terms or both.
The following table provides information on asset quality statistics for the periods presented (In thousands):
June 30, 2009 | December 31, 2008 | June 30, 2008 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Non-accrual loans | $ | 71,590 | $ | 44,491 | $ | 22,392 | ||||||
Troubled debt restructurings | 1,405 | - | 814 | |||||||||
Foreclosed assets | 4,121 | 4,627 | 2,260 | |||||||||
Loans past due 90 days accruing interest | 2,458 | - | 465 | |||||||||
Total non-performing assets | $ | 79,574 | $ | 49,118 | $ | 25,931 | ||||||
Nonperforming assets to total assets | 2.60 | % | 1.66 | % | 0.86 | % | ||||||
Nonperforming assets to loans and foreclosed property | 3.55 | % | 2.17 | % | 1.13 | % | ||||||
Allowance for loan losses as a percentage of loans receivable | 1.56 | % | 1.35 | % | 1.25 | % | ||||||
Allowance for loan losses as a percentage of nonperforming assets | 43.89 | % | 62.02 | % | 110.35 | % | ||||||
Annualized net charge-offs as a percentage of average loans receiveable | 1.20 | % | 0.80 | % | 0.22 | % |
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Capital Resources
The management of capital in a regulated financial services industry must properly balance return on equity to stockholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Additionally, capital management must also consider acquisition opportunities that may exist, and the resulting accounting treatment. The Company’s capital management strategies have been developed to provide attractive rates of returns to stockholders, while maintaining its “well-capitalized” position at the banking subsidiary.
The primary source of additional capital to the Company is earnings retention, which represents net income less dividends declared. Confident in its strong capital position, the Company paid or accrued $4.5 million and $744 thousand in common and preferred dividends, respectively, during the six month period ended June 30, 2009. This exceeded the net loss of $180 thousand by $5.5 million during the six month period. As previously announced, the Company has reduced its quarterly dividend from $0.16 per share to $0.04 per share, beginning with the dividend paid on May 29, 2009 in an effort to preserve capital. Management anticipates maintaining this dividend level until earnings conditions improve. On December 19, 2008, the Company issued 30,000 shares of preferred stock to the U.S. Treasury in exchange for $30 million pursuant to the U.S. Treasury CPP under TARP which further enhanced capital.
The Company and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the subsidiary banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiary to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. As of June 30, 2009, the Company and the subsidiary bank met all minimum capital adequacy requirements to which they are subject and are categorized as “well capitalized.” There are no conditions or events that management believes have changed the subsidiary bank’s well capitalized position.
The following table includes information with respect to the Company’s risk-based capital and equity levels as of June 30, 2009 (In thousands):
Corporation | Bank | |||||||
Tier 1 capital | $ | 340,224 | $ | 289,361 | ||||
Tier 2 capital | 31,624 | 31,592 | ||||||
Total risk-based capital | 371,848 | 320,953 | ||||||
Total risk-weighted assets | 2,526,583 | 2,524,052 | ||||||
Average adjusted total assets | 2,937,012 | 2,915,463 | ||||||
Capital ratios: | ||||||||
Tier 1 risk-based capital ratio | 13.47 | % | 11.46 | % | ||||
Total risk-based capital ratio | 14.72 | % | 12.72 | % | ||||
Leverage ratio (Tier 1 capital to average adjusted total assets) | 11.58 | % | 9.93 | % | ||||
Equity to assets ratio | 13.15 | % | 12.70 | % | ||||
Tangible equity to assets ratio | 10.27 | % | 9.78 | % |
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
Liquidity is identified as the ability to generate or acquire sufficient amounts of cash when needed at a reasonable cost to accommodate withdrawals, payments of debt, and increased loan demand. These events may occur daily or other short-term intervals in the normal operation of the business. Experience helps management predict time cycles in the amount of cash required. In assessing liquidity, management gives consideration to relevant factors including stability of deposits, quality of assets, economy of markets served, concentrations of business and industry, competition, and the Company’s overall financial condition. The Bank’s primary sources of liquidity are cash and the securities in our available for sale portfolio. In addition, the Bank has substantial lines of credit from its correspondent banks and access to the Federal Reserve discount window and Federal Home Loan Bank of Atlanta to support liquidity as conditions dictate.
The liquidity of the Company also represents an important aspect of liquidity management. The Company’s cash outflows consist of overhead associated with corporate expenses, executive management, finance, marketing, human resources, loan and deposit operations, information technology, audit, compliance and loan review functions. It also includes outflows associated with dividends to shareholders. The main sources of funding for the Company are the management fees and dividends it receives from its banking subsidiary, and availability of the subordinated debt security market as deemed necessary. The Company’s capital base provides the resource and ability to support the assets of the Company and provide capital for future expansion.
In the judgment of management, the Company maintains the ability to generate sufficient amounts of cash to cover normal requirements and any additional funds as needs may arise.
Off Balance Sheet Items
There have been no material changes to the off balance sheet items disclosed in “Management’s Discussion and Analysis” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.
Effects of Inflation
The effect of changing prices on financial institutions is typically different from other industries as the Company’s assets and liabilities are monetary in nature. Interest rates and thus the Company’s asset liability management is impacted by changes in inflation, but there is not a direct correlation between the two measures. Management monitors the impact of inflation on the financial markets.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
StellarOne Corporation. (the “Company”) may from time to time make written or oral statements, including statements contained in this report which may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect,” “anticipate,” “likely,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of the Company to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) continuation of the historically low short-term interest rate environment, (iii) the inability of the Company to continue to grow its loan portfolio, (iv) rapid fluctuations or unanticipated changes in interest rates, (v) the development of any new market, (vi) a merger or acquisition, (vii) any activity in the capital markets that would cause the Company to conclude that there was impairment of any asset including intangible assets, (viii) the impact of governmental restrictions on entities participating in the US Treasury Department Capital Purchase Program, (ix) the deterioration in carrying amounts of impaired assets and other real estate and (x) changes in state and Federal legislation, regulations or policies applicable to Banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy. A more detailed description of these and other risks is contained in the Company’s most recent annual report on Form 10-K. Many of such factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. StellarOne Corporation disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise.
Access to Filings
The Company provides access to its SEC filings through the corporate Website at http://www.StellarOne.com. After accessing the Website, the filings are available upon selecting Investor Relations, then the SEC Filings & Other Documents icon. Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the quantitative and qualitative market risk disclosures in the Company’s Form 10-K for the year ended December 31, 2008.
STELLARONE CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 4 – CONTROLS AND PROCEDURES
We are required to include in our periodic reports information regarding our controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We have established disclosure controls and procedures to ensure that material information related to the Company is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. Our principal executive officer and principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report and, based on their evaluation, concluded that our disclosure controls and procedures are operating effectively.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that our disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the organization to disclose material information otherwise required to be set forth in our period reports.
Our management is also responsible for establishing and maintaining adequate internal controls over financial reporting and control of our assets to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. In the normal course we review and change our internal controls to reflect changes in our business including acquisition related improvements. There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
STELLARONE CORPORATION
PART II - OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
There are no material legal proceedings to which the Company or any of its subsidiary, directors, or officers is a party or by which they, or any of them, are threatened. Any legal proceeding presently pending or threatened against StellarOne Corporation and its subsidiaries are either not material in respect to the amount in controversy or fully covered by insurance.
ITEM 1a. | RISK FACTORS. |
There have been no material changes to our risk factors as previously disclosed in Part I, Item IA of our Annual Report on Form 10K for the fiscal year ended December 31, 2008.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
The Company has a stock repurchase program authorized that is not currently active, with 210,000 shares remaining available for repurchase.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The annual meeting of stockholders of the Company was held on April 28, 2009.
The following directors were elected for terms expiring in 2012, with the following votes:
For | Withheld | |||||||
Beverley E. Dalton | 16,661,402 | 1,904,019 | ||||||
Steven D. Irvin. | 16,835,169 | 1,730,252 | ||||||
H. Wayne Parrish | 16,528,105 | 2,037,316 | ||||||
Charles W. Steger | 16,568,088 | 1,997,333 |
The amendment to the articles of incorporation to increase the number of authorized shares of common stock to 35,000,000 was approved, with the following votes:
For | Against | Abstain | |||||
15,285,334 | 3,042,491 | 237,596 |
In an advisory (non-binding) vote, of the executive compensation disclosed in the proxy statement was approved, with the following votes:
For | Against | Abstain | |||||
14,749,497 | 3,406,728 | 409,196 |
ITEM 5. | OTHER INFORMATION. |
Not applicable.
STELLARONE CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS:
(a) The following exhibits either are filed as part of this Report or are incorporated herein by reference:
Exhibit No. 2.1 | Agreement and Plan of Reorganization, dated as of July 26, 2007, between Virginia Financial Group, Inc. and FNB Corporation, incorporated by reference to Exhibit 2.1 to Form 8-K filed July 30, 2007. |
Exhibit No. 3.1 | Articles of Incorporation of StellarOne Corporation (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 28, 2008) |
Exhibit No. 3.1(a) | Articles of Amendment to the Articles of Incorporation, effective December 19, 2008, establishing Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to Form 8-K filed on December 23, 2008) |
Articles of Amendment to the Articles of Incorporation, effective June 1, 2009, changing the number of authorized shares of capital stock (filed herewith) |
Exhibit No. 3.2 | Bylaws of StellarOne Corporation, as amended and restated February 28, 2008. (incorporated by reference to Exhibit 3.2 to Form 8-K filed on February 28, 2008) |
Exhibit No. 4.1 | Warrant to purchase up to 302,623 shares of Common Stock (incorporated by reference to Exhibit 4.1 to Form 8K filed on December 23, 2008) |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STELLARONE CORPORATION
/s/ O. R. Barham, Jr. | |
O.R. Barham, Jr. | |
President and Chief Executive Officer | |
August 7, 2009 | |
/s/ Jeffrey W. Farrar | |
Jeffrey W. Farrar, CPA | |
Executive Vice President and Chief Financial Officer | |
August 7, 2009 |
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