StellarOne Corp. ( STEL )

Q2 2010 Earnings Call Transcript

July 21, 2010 11:00 am ET


Linda Caldwell – Director of Marketing

Ed Barham – President and CEO

Jeffrey Farrar – EVP and CFO


Allan Bach – Davenport & Company

Steve Moss – Janney Montgomery Scott

Avi Barak – Sandler O'Neill & Partners

Jennifer Demba – SunTrust Robinson Humphrey

Michael Rose – Raymond James Financial

Carter Bundy – Stifel Nicolaus



Good day, ladies and gentlemen, and welcome to the StellarOne Corporation earnings call. At this time, all participants are in a listen-only mode. Later we will conduct and question-and-answer session and instructions will follow at that time. (Operators instructions) As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Ms. Linda Caldwell, Director of Marketing. Please go ahead ma'am.

Linda Caldwell

Thank you, Jonathan. Today we have with us, O.R. Ed Barham, Jr., President and Chief Executive Officer of StellarOne Corporation; and, Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. Mr. Barham and Mr. Farrar will review results for the second quarter of 2010. And after we hear comments from Ed and Jeff, we will take questions from those listening.

Please note, StellarOne Corporation does not offer guidance. However, there may be statements made during the course of this call that express management’s intentions, beliefs, or expectations. Actual results may differ from those contemplated by these forward-looking statements.

Now, may I introduce our President and Chief Executive Officer, Ed Barham.

Ed Barham

Thank you, Linda, and good morning to everyone. As we have done in the past I will begin today's call with a brief overview of our company's financial results with some detail on asset quality and outlook. I will be followed by Jeff Farrar, Executive Vice President and Chief Financial Officer for StellarOne Corporation, and he will provide further remarks and further financial results in detail.

StellarOne for the second quarter 2010 earned $1.6 million on a per share basis to our common shareholder, which excludes dividends and discount accretion on preferred stock, we earned $1.1 million or $0.05 per share. This marks the third consecutive quarter of profitability for the company. StellarOne's earnings continue to be muted as we work through asset quality issues which are still largely concentrated in the residential and construction portion of our portfolio.

We continue to be active in our approach to dealing with problem credits by holding frequent auctions. This approach to dealing with troubled assets does have a negative effect on the level of current earnings as we experienced some auction shortfalls in exchange for resolution of these troubled loans.

Evidence of this practice can be seen in our historically low levels of OREO. I might add, our ability to hold frequent auctions also underlines the strength of our current earnings and capital position which allows us to take this liquidation approach.

I will provide more color to asset quality matters in a moment. Our second quarter 2010 results does compare favorably to the $785,000 loss or $0.03 loss per diluted common share for the same period 2009. Net income to common shareholders first quarter 2010, as you will recall, stood at $1.4 million or $0.06 per diluted common share. Year-to-date earnings now stand at $2.5 million or $0.11 per diluted share.

Strong non-interest income contributions from all business segments offset higher provisioning and losses on foreclosed assets, which resulted in earnings comparable to first quarter 2010. Pretax preprovision earnings amounted to $8.8 million for the second quarter. This is an increase of $42,000 or 0.5% compared to first quarter of 2010, and also an increase of $3.1 million or 54.8% compared to the same period a year ago. It should be noted that first quarter 2010’s PPPT number did include $1.1 million in gains on sale of assets. The bulk of that gain came from the sale of our Farmville branch location.

Net interest income increased sequentially as well as compared to a year ago for the same period. Our net interest income improvement was accomplished despite the fact that we continue to have a decrease in loans of roughly $35 million from first quarter. Our net interest margin increased to 3.59% for the second quarter 2010, bettering first quarter 2010 by 7 basis points and 28 basis points above the same time last year.

Net interest income on a tax equivalent basis amounted to $23.8 million for the second quarter 2010 versus $23.1 million for first quarter 2010, and $22.6 million for second quarter 2009. Our ability to increase our net interest income despite a shrinking loan portfolio was achievable due to the repricing sensitivity of interest-bearing liabilities outpacing interest earning assets.

During second quarter, we were able to reprice approximately $230 million of the CD portfolio as well as achieve a repricing on cost of funds related to checking and money market accounts. As we look further out, our ability to continue to reprice our CD portfolio appears favorable through third quarter, with some slowing in repricing opportunity in fourth quarter of this year. Jeff will give more details relative to this in a moment.

A few brief comments about operating noninterest income. Mortgage Banking revenue totaled $2.1 million second quarter 2010, or up $90,000 or 4.6% on a sequential basis. Retail Banking fee income was $4.3 million for the second quarter 2010, an increase of $374,000 or 9.6% over first quarter 2010.

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