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StellarOne Corporation (Nasdaq: STEL) (StellarOne), which opearted as the former First National Bank (FNB) with branches across the New River Valley, reported first quarter 2008 earnings of $2.1 million Wednesday morning (April 30), down 48.1% from $4.0 million for the first quarter of 2007. Net income per diluted share was $.14, down 62.2% from $.37 for the same period in 2007. StellarOne's earnings for the first quarter of 2008 produced an annualized return on average assets (ROA) of .40% and an annualized return on average equity (ROE) of 3.81%, compared to prior year ratios of 1.01% and 10.77%, respectively.
Excluding the net-of-tax effects of nonrecurring merger expenses of $2.4 million associated with the consummation of the merger of equals transaction between Virginia Financial Group, Inc. (VFG) and FNB Corporation (FNB), earnings would have been $4.5 million or $.30 per diluted share, an increase in earnings of $443 thousand or 11.0% and decrease in earnings per share of $.07 or 18.9% over first quarter 2007. ROA and ROE would have been .85% and 8.14%, respectively. StellarOne's operating results include a full quarter of results for the former VFG, but only the last thirty-three days of the period for the former FNB, representing the period after consummation of the merger from February 28, 2008 to March 31, 2008. Historical 2007 data contained herein reflects only the results of the former VFG prior to merger. O. R. Barham, Jr., President and CEO, commented, "As anticipated, earnings were impacted by nonrecurring merger expenses associated with the consummation of our merger. The timing of our closing also impacted earnings by limiting the amount of contribution from the former FNB operations for the quarter. Business conditions continue to be challenging, with the Federal Open Market Committee of the Federal Reserve Board of Governors lowering the target Fed Funds rate 200 basis points during the quarter, creating short-term margin compression for StellarOne and most financial institutions in general. The real estate market continues to be soft, although we did not see significant additional deterioration during the first quarter. Business activity continues to be decent in most of our markets. While our combined level of nonperforming assets as compared to prior periods is higher than our historical levels, we have been in a workout situation with most of these credit relationships and real estate owned for the past nine months and we believe that we are making good progress in decisive valuation and resolution of these assets. We are confident in our ability to effectively evaluate the risk within our remaining portfolio and manage our way through this credit cycle." Financial Performance Net Interest Income Net interest income amounted to $17.5 million for the first quarter of 2008, up $3.2 million or 22.0% compared with $14.4 million for the same quarter in 2007. Growth in average earning assets of $439.2 million or 29.4% associated with the VFG/FNB merger was the primary contributor to this increase. The net interest margin for the first quarter of 2008 was 3.75%, down twenty-three basis points sequentially compared to 3.98% for the fourth quarter of 2007, and down thirty basis points when compared to 4.05% for the first quarter of 2007. Further declines in the targeted Federal funds rate and increases in nonperforming assets continue to negatively impact the net interest margin. Asset yields fell sequentially, with an average yield on assets of 6.46% for the first quarter of 2008, compared to 6.78% for the fourth quarter of 2007 and 6.92% for the first quarter of 2007. Average cost of interest bearing deposits decreased to 3.23% for the first quarter of 2008, as compared to 3.41% for the fourth quarter of 2007 and 3.51% for the first quarter of 2007. Average cost of borrowings, consisting predominately of FHLB advances and commercial paper, amounted to 3.96% for the first quarter of 2008, compared to 3.41% for the fourth quarter of 2007. Non-Interest Income Total non-interest income was $5.2 million for the first quarter of 2008, up $1.3 million or 34.9% compared with $3.8 million for the first quarter of 2007 and up $196 thousand or 3.9% sequentially compared with $5.0 million for the fourth quarter of 2007. Retail banking fee income increased $824 thousand or 47.3% to $2.6 million, compared to $1.7 million in the first quarter of 2007. Mortgage banking revenue amounted to $871 thousand, an increase of $272 thousand or 45.4%, as compared to $599 thousand for the first quarter of 2007, and up sequentially $278 thousand or 46.9% from the fourth quarter of 2007. Revenues from trust and brokerage for the first quarter were $1.2 million, up $133 thousand or 12.3% compared to $1.1 million in the first quarter of 2007, and up sequentially $208 thousand or 20.6% from the fourth quarter of 2007. Each of these increase reflect in part the effect of incremental revenues of FNB for a thirty-three day period during the first quarter. Fiduciary and brokerage assets under management were $842 million at March 31, 2008, representing an increase of $247 million or 41.5% from $595 million at December 31, 2007. Loss on sale of foreclosed assets amounted to $500 thousand for the first quarter of 2008, representing the write-down of a residential development to a carrying value of $2.4 million based on comparable sales in the market. This property is now under contract for sale and should close in the second quarter.
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