StellarOne CORP - FORM 8-K - EX-99.1 - PRESS RELEASE Q4

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8-K - EARNINGS RELEASE Q4 - StellarOne CORP	earnings_release.htm

Contact:	Jeffrey W. Farrar
	Executive Vice President and CFO
	(434) 964-2217
	jfarrar@stellarone.com

STELLARONE REPORTS ANNUAL EARNINGS OF $22.2 MILLION; FOURTH QUARTER EARNINGS UP 30.4% TO $6.2 MILLION OR $0.27 PER DILUTED COMMON SHARE

Charlottesville, VA January 24, 2013 –StellarOne Corporation (NASDAQ: STEL) (“StellarOne”), today reported fourth quarter 2012 net income available to common shareholders of $6.2 million, or $0.27 net income per diluted common share. This represents a 30.4% increase over net income of $4.8 million or $0.17 per diluted common share recognized during the same quarter in the prior year. Full year 2012 earnings available to common shareholders were $22.2 million or $0.96 per diluted common share, up 65% compared to $13.4 million or $0.59 per diluted common share in 2011.

Fourth quarter financial performance highlights included:

Revenue growth improved, with net revenues totaling $33.6 million, up $1.1 million or 3.3% as compared to $32.5 million for fourth quarter last year.

Pre-tax, pre-provision earnings were $10.6 million, up $1.7 million or 19.4% over the $8.9 million recognized for the fourth quarter last year.

Asset and loan growth improved with period end total assets of $3.02 billion and loans receivable of $2.1 billion. Period end loans receivable increased $25.0 million or 1.2% sequentially.

Asset quality metrics continue to improve, with $1.1 million in recoveries for the quarter, and foreclosed asset levels the lowest in the last eight quarters.

Nonperforming asset levels improved to $41.6 million, a decrease of $6.1 million or 12.8% from 2011, lowering the ratio of non-performing assets as a percentage of total assets to 1.38% as of December 31, 2012, compared to 1.64% as of December 31, 2011.

Annualized net charge-offs as a percentage of average loans receivable amounted to 0.28% for the fourth quarter of 2012, down from 0.42% for the third quarter of 2012 and down from 0.86% for same quarter last year.

"2012 was a rewarding year for StellarOne," said O. R. Barham, Jr., President and Chief Executive Officer. "We achieved significantly improved profitability in large part due to asset quality improvement, but also saw noninterest income grow 10.6% annually led by our mortgage line of business, with solid contributions from commercial and retail banking as well as wealth management. We continued to strengthen our talented team, and opened three strategic branch locations in Charlottesville, Richmond and Virginia Beach. Loan growth was stronger in the second half of the year, and we have some positive momentum heading into 2013.”

"We accomplished many strategic initiatives in 2012, which included an emphasis on efficiency,” said Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. “Annual operating costs for 2012 were only slightly higher than 2011, and while several of our efficiency initiatives will not reap benefits until 2013, our fourth quarter efficiency ratio represented almost 360 basis points of improvement over the same period in 2011, and improved almost 100 basis points annually in spite of muted revenue growth, an acceleration of organic growth efforts and non-recurring costs associated with efficiency efforts. Efficiency will be a continuing focus for 2013. Our net interest margin, while beginning to experience some pressure, held up better than most and remained at 3.80% for the year as compared to 2011. Lastly, we began to see improvement in balance sheet growth and operating leverage during the second half of the year.”

Net Interest Margin Contracts Slightly

The net interest margin was 3.75% for the fourth quarter of 2012, compared to 3.77% for the third quarter of 2012 and 3.79% for the fourth quarter of 2011. The continued re-pricing of the balance sheet within the low interest rate environment resulted in asset yield compression and some margin compression. The average yield on earning assets for the current quarter decreased 8 basis points to 4.37% on a sequential basis. Loan and investment yields contracted 11 basis points and 3 basis points, respectively, on a sequential basis. Loan yields contracted due to re-pricing within the current portfolio and reduced yields on new production. Investment yields contracted due to lower yields realized on the recent investment activity in the current low rate environment. Continued reductions in deposit costs are reflected by the 8 basis point improvement in the cost of interest bearing liabilities noted sequentially, moving from 0.83% during the third quarter of 2012 to 0.75% during the fourth quarter of 2012. Higher earning assets offset the margin compression experienced during the quarter as net interest income on a tax-equivalent basis remained stable at $24.9 million for the fourth quarter of 2012, compared to $25.1 million for the fourth quarter last year and $25.0 million in the third quarter of 2012.

Operating Noninterest Income Increase

On an operating basis, which excludes gains and losses from sales and impairments of securities and other assets, total non-interest income amounted to $8.9 million for the fourth quarter of 2012, up $238 thousand or 2.7% on a sequential basis compared to $8.7 million for the third quarter of 2012, and up $1.2 million or 15.5% compared to the fourth quarter last year. The sequential quarter increase in operating noninterest income stemmed largely from continued strong production volumes from our mortgage segment. The majority of the increase for the same quarter compared to the prior year is related to increases in wealth management fee income, insurance income, retail banking fees and loan swap fee income.

Mortgage banking-related fees totaled $2.6 million for the fourth quarter of 2012, or up $303 thousand or 13.0% compared to $2.3 million for the third quarter of 2012 and essentially flat when compared to the same quarter in 2011. The sequential increase is primarily volume driven and not margin related as loans sold in the fourth quarter of 2012 totaled $78.2 million or up $5.2 million or 7.4% from the $70.8 million sold during the third quarter of 2012. In addition to this revenue increase, the continued absence of significant mortgage indemnification expenses contributed to a significant improvement in earnings contribution from the mortgage segment, with after-tax earnings of $722 thousand representing $0.03 per common diluted share for the current quarter.

Losses on foreclosed assets decreased $59 thousand or 15.5% sequentially for the quarter, reflecting a $2.1 million or 27.2% decrease in foreclosed asset balances. Other operating income decreased $74 thousand during the quarter due to a contraction of $86 thousand in commercial lending loan swap fee income, falling from $412 thousand to $326 thousand.

Retail banking fee income totaled $4.0 million for the fourth quarter of 2012, an increase of $130 thousand or 3.4% sequentially and increased $98 thousand or 2.5% over the same quarter in 2011. An increase in overdraft revenue led to the sequential and year over year increases while all other retail banking revenue streams remained stable when compared to both periods.

Wealth management revenues from trust and brokerage fees for the fourth quarter of 2012 were $1.2 million or down $43 thousand or 3.3% on a sequential quarter basis and up $188 thousand or 17.8% when compared to the fourth quarter of 2011. The year over year increase is primarily due to higher brokerage fee realizations while the sequential reduction is associated with a net contraction in underlying assets. Fiduciary assets decreased sequentially by $10.3 million or 2.2% amounting to $455.3 million at December 31, 2012, compared to $465.7 million at September 30, 2012. This business segment produced over $50 million in new business for 2012.

Net Charge-Offs Decrease and Overall Asset Quality Improves

Non-performing assets totaled $41.6 million at December 31, 2012, down $1.4 million or 3.3% sequentially from $43.1 million at September 30, 2012 and down $6.1 million or 12.8% compared to $47.7 million at December 31, 2011. The ratio of non-performing assets as a percentage of total assets dropped to 1.38% as of December 31, 2012, compared to 1.46% as of September 30, 2012 and was also down when compared to 1.64% at December 31, 2011.

Net charge-offs for the fourth quarter of 2012 totaled $1.4 million, down $746 thousand or 34.2% compared to the $2.2 million for the third quarter of 2012 and down $3.0 million or 67.6% when compared to $4.4 million for the fourth quarter of 2011. Annualized net charge-offs as a percentage of average loans receivable amounted to 0.28% for the fourth quarter of 2012, down from 0.42% for the third quarter of 2012 and down from 0.86% for the fourth quarter of 2011. StellarOne recorded a provision for loan losses of $1.4 million for the fourth quarter of 2012, a decrease of $500 thousand compared to the $1.9 million recognized for the third quarter of 2012 and a decrease of $350 thousand compared to the fourth quarter of 2011. The decreased provisioning throughout 2012 is reflective of the continued improvement in underlying credit quality metrics used in measuring the risk inherent in the loan portfolio.

The allowance as a percentage of non-performing loans was 83.1% at December 31, 2012, or consistent with the 84.9% at September 30, 2012. The fourth quarter net charge offs of $1.4 million were equal to loan loss provisioning of $1.4 million, resulting in an allowance for loan losses of $29.8 million at December 31, 2012, or essentially unchanged when compared to $29.9 million at September 30, 2012. The allowance as a percentage of total loans was 1.43% at December 31, 2012, compared to 1.45% at September 30, 2012.

Foreclosed assets were at an eight quarter low and totaled $5.8 million at December 31, 2012, down $2.1 million or 27.2% compared to $7.9 million at September 30, 2012 and down $2.8 million or 32.8% compared to $8.6 million at December 31, 2011.

Included in the loan portfolio at December 31, 2012, are loans classified as troubled debt restructurings (“TDRs”) totaling $24.3 million or 1.2% of total loans. TDRs were reduced sequentially by 12.0% or $3.3 million as compared to $27.6 million at September 30, 2012. At December 31, 2012, $22.2 million or 91.4% of total TDRs were performing under the modified terms.

Operating Expenses

Noninterest expenses were $23.8 million for the fourth quarter of 2012, up sequentially by $160 thousand or 0.7% compared to $23.6 million in the third quarter of 2012, and down $691 thousand or 2.8% compared to fourth quarter of 2011.

The sequential quarter increase in noninterest expense was driven by higher professional fees, which were primarily associated with our cost save initiative and seasonal legal costs associated with workout efforts. Our compensation and benefits expense decreased $125 thousand or 1.0% on a sequential basis. The driver of this decrease was lower medical insurance and postretirement benefit expense of $258 thousand, which was offset by a $120 thousand increase in mortgage commissions and incentives. Recurring compensation and benefit expense remained level excluding mortgage commissions and incentives quarter to quarter.

The majority of the noninterest expense decrease when comparing the fourth quarter of 2012 to the same quarter in the prior year relates to a $368 thousand decrease in compensation and benefits. This decrease was caused by lower salary and benefit expense of approximately $489 thousand, which was offset by a $104 thousand increase in mortgage commissions and sales incentives. During 2012, FTE’s were reduced by 52 to 759 FTE at December 31, 2012. This includes both the FTE’s eliminated during phase one of our cost initiative and purposeful reductions managed through attrition and branch closings.

Professional fees, equipment expense and amortization of intangibles decreased when comparing the fourth quarter of 2012 to the same quarter in the prior year by $281 thousand, $235 thousand and $102 thousand, respectively. Professional fees included nonrecurring strategic planning initiatives in the prior year. Equipment expense tends to fluctuate from quarter to quarter due to the embedded maintenance component. The drop in amortization of intangibles relates to core deposit intangibles that became fully amortized during the third quarter of 2012. These decreases were somewhat offset by increased marketing and occupancy expenses of $157 thousand and $107 thousand, respectively. Both of these increases were largely attributable to the two new retail locations in Richmond and Tidewater opened during the third quarter of 2012.

The efficiency ratio was 68.25% for the fourth quarter of 2012, compared to 67.94% for the third quarter of 2012 and 71.84% for the same quarter in 2011. The sequential quarter increase in the efficiency ratio reflects higher professional costs associated with phases two and three of our cost save initiative, which were somewhat offset by slightly higher noninterest income revenues. The year over year decrease is the result of a combination of managed decreases in noninterest expense and increased revenues from noninterest income.

Effective Tax Rate

The provision for income taxes was $2.2 million for the fourth quarter of 2012 compared to $2.0 million for the third quarter of 2012. This produced an effective tax rate for the fourth quarter of 2012 of 26.5% compared to 26.0% for the prior quarter. The increase in the sequential effective tax rate was due to higher earnings relative to permanent differences and an adjustment made during the last quarter, which increased our estimated realization of pass through tax credits and suppressed the effective rate. For the year ended December 31, 2012 the effective rate was 26.8%, which is consistent with the quarter and future expectations.

Capital Ratios

Risk-based capital ratios continue to substantially exceed published regulatory standards for well-capitalized banks. The period-end tangible common equity ratio was 10.80% at December 31, 2012 compared to 10.90% at September 30, 2012. Tier 1 risk-based and total risk-based capital ratios were 15.60% and 16.85%, respectively, at December 31, 2012 compared to 15.65% and 16.90% at September 30, 2012. Shareholders’ equity represented 14.3% of total assets at December 31, 2012, while book value per common share was $18.86 per share.

Balance Sheet Trends

Period end loans increased $25.0 million sequentially or 1.2% compared to the third quarter of 2012, while average loans for the fourth quarter of 2012 were $2.08 billion, up $17.8 million or 0.9% compared to the third quarter of 2012. Period end commercial and industrial loans grew sequentially by $18.8 million or 10.2%. While loan growth picked up during the second half of 2012, soft demand, pricing competition for quality loans and increased curtailments are continued realities within our markets. Average securities were $522.0 million for the fourth quarter, down $26.3 million or 4.8% from $548.3 million for the third quarter of 2012. Average deposits for the fourth quarter of 2012 were $2.43 billion or essentially flat on a sequential quarter basis compared to the third quarter of 2012. Average interest and noninterest bearing demand deposit accounts were $968.5 million at December 31, 2012, a $21.3 million or 2.3% increase over September 30, 2012. At December 31, 2012, total period end assets were $3.02 billion, compared to $2.96 billion at September 30, 2012. Period end cash and cash equivalents were $89.9 million at December 31, 2012, an increase of $35.1 million or 64.0% compared to $54.9 million at September 30, 2012.

About StellarOne

StellarOne Corporation is a traditional community bank with assets of $3 billion offering a full range of business and consumer banking services, including trust and wealth management services. Through the activities of our sole subsidiary, StellarOne Bank, we operate over 50 full-service financial centers, two loan production offices, and over 60 ATMs serving the New River Valley, Roanoke Valley, Shenandoah Valley, Richmond, Tidewater, and Central and North Central Virginia.

Earnings Webcast

To hear a live webcast of StellarOne’s fourth quarter 2012 earnings conference call at 10:00 a.m. (EDT) on Thursday, January 24, 2013, please visit our website at www.StellarOne.com and click on the Investor Relations section for detailed instructions on how to participate. Replays of the conference call will be available from 1:00 p.m. (EDT) on Thursday, January 24, 2013 through 11:59 PM (EDT) on Thursday, January 31, 2013, by dialing toll free (855) 859 2056 and using passcode #85706355.

Non-GAAP Financial Measures

This report refers to the efficiency ratio, which is computed by calculating noninterest expense less amortization of intangibles and goodwill impairments and dividing this by the sum of net interest income on a tax equivalent basis and non-interest income excluding gains on securities and losses on foreclosed assets. The report also refers to operating noninterest income, which reflects noninterest income adjusted for non-recurring expenses associated with asset gains and losses or expenses that are unusual in nature. Comparison of our efficiency ratio and operating earnings with those of other companies may not be possible because other companies may calculate them differently. Pre-tax, pre-provision earnings, which adjusts for tax equivalent items and adds back provision and tax expense to net income, is used to demonstrate a more representative comparison of operational performance without the volatility of credit quality that is typically present in times of economic stress. The tangible common equity ratio is used by management to assess the quality of capital and management believes that investors may find it useful in their analysis of the company. This capital measure is not necessarily comparable to similar capital measures that may be presented by other companies. Such information is not in accordance with generally accepted accounting principles in the United States (“GAAP”) and should not be construed as such. These are non-GAAP financial measures that management believes provide investors with important information regarding operational efficiency. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information should not be viewed as a substitute for GAAP. StellarOne, in referring to its net income, is referring to income under GAAP.

Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, or those anticipated. When we use words such as “believes,” “expects,” “anticipates” or similar expressions, we are making forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. StellarOne wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect StellarOne’s actual results, causing actual results to differ materially from those in any forward-looking statement. These factors include: (i) expected cost savings from StellarOne’s acquisitions and dispositions, (ii) competitive pressure in the banking industry or in StellarOne’s markets may increase significantly, (iii) changes in the interest rate environment may reduce margins, (iv) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, (v) changes may occur in banking legislation and regulation, (vi) changes may occur in general business conditions, and (vii) changes may occur in the securities markets. Please refer to StellarOne’s filings with the Securities and Exchange Commission for additional information, which may be accessed at www.StellarOne.com.

NOTE: Risk-based capital ratios are preliminary.

STELLARONE CORPORATION (NASDAQ: STEL)
SELECTED FINANCIAL DATA (UNAUDITED)
(Dollars in thousands, except per share data)


SUMMARY INCOME STATEMENT	Three Months Ended December 31,						Twelve Months Ended December 31,
	2012			2011			2012			2011
Interest income - taxable equivalent	$	29,050		$	30,580		$	118,009		$	123,957
Interest expense		4,118			5,520			18,479			24,440
Net interest income - taxable equivalent		24,932			25,060			99,530			99,517
Less: taxable equivalent adjustment		729			787			2,953			3,096
Net interest income		24,203			24,273			96,577			96,421
Provision for loan and lease losses		1,400			1,750			5,550			12,700
Net interest income after provision for
Net interest income after provision for loan and lease losses		22,803			22,523			91,027			83,721
Noninterest income		9,417			8,259			34,343			31,051
Noninterest expense		23,754			24,445			95,128			94,283
Income tax expense		2,245			1,568			8,079			4,604
Net income		6,221			4,769			22,163			15,885
Dividends and accretion on preferred stock		-			(973	)		-			(2,455	)
Net income available to common shareholders	$	6,221		$	3,796		$	22,163		$	13,430

Earnings per share available to common shareholders
Basic	$	0.27		$	0.17		$	0.96		$	0.59
Diluted	$	0.27		$	0.17		$	0.96		$	0.59

SUMMARY AVERAGE BALANCE SHEET	Three Months Ended December 31,						Twelve Months Ended December 31,
		2012			2011			2012			2011
Total loans	$	2,084,741		$	2,054,650		$	2,064,552		$	2,077,067
Total investment securities		521,999			466,553			510,852			419,149
Total earning assets		2,644,993			2,626,406			2,619,544			2,616,532
Total assets		2,973,428			2,939,235			2,945,641			2,930,426
Total deposits		2,433,728			2,399,885			2,413,658			2,391,761
Shareholders' equity		431,505			432,969			423,499			428,931

PERFORMANCE RATIOS	Three Months Ended December 31,						Twelve Months Ended December 31,
		2012			2011			2012			2011
Return on average assets		0.83	%		0.64	%		0.75	%		0.54	%
Return on average equity		5.74	%		4.37	%		5.23	%		3.70	%
Return on average realized equity (A)		5.89	%		4.46	%		5.37	%		3.76	%
Net interest margin (taxable equivalent)		3.75	%		3.79	%		3.80	%		3.80	%
Efficiency (taxable equivalent) (B)		68.25	%		71.84	%		69.40	%		70.38	%

CAPITAL MANAGEMENT	December 31,
	2012			2011
Tier 1 risk-based capital ratio		15.60	%		15.17	%
Tangible equity ratio		10.80	%		10.52	%
Tangible common equity ratio		10.80	%		10.52	%
Period end shares issued and outstanding		22,889,091			22,819,000
Book value per common share		18.86			18.15
Tangible book value per common share		13.71			12.90

	Three Months Ended December 31,					Twelve Months Ended December 31,
	2012			2011		2012		2011
Shares issued (cancelled)		(450	)		3,064		78,303		43,267
Average common shares issued and outstanding		23,099,400			22,869,516		23,089,457		22,857,521
Average diluted common shares issued and outstanding		23,100,576			22,869,724		23,090,012		22,861,199
Cash dividends paid per common share	$	0.08		$	0.04	$	0.26	$	0.16

SUMMARY ENDING BALANCE SHEET	December 31,
	2012		2011
Total loans	$	2,080,068	$	2,031,131
Total investment securities		553,476		477,964
Total earning assets		2,709,183		2,610,460
Total assets		3,023,204		2,917,928
Total deposits		2,484,324		2,395,600
Shareholders' equity		431,642		414,173

OTHER DATA
End of period full-time equivalent employees		759		811

NOTES:

(A) Excludes the effect on average stockholders' equity of unrealized gains (losses) that result from changes in market values of securities and other comprehensive pension expense.

(B) Comparison of our efficiency ratio with those of other companies may not be possible, because other companies may calculate the efficiency ratio differently. See Non-GAAP reconciliation for detail.

STELLARONE CORPORATION (NASDAQ: STEL)
CREDIT QUALITY (UNAUDITED)
(Dollars in thousands)

CREDIT QUALITY	Three Months Ended December 31,						Twelve Months Ended December 31,
	2012			2011			2012			2011
Allowance for loan losses:
Beginning of period	$	29,860		$	35,268		$	32,588		$	37,649
Provision for loan losses		1,400			1,750			5,550			12,700
Charge-offs		(2,562	)		(5,045	)		(11,090	)		(19,927	)
Recoveries		1,126			615			2,776			2,166
Net charge-offs		(1,436	)		(4,430	)		(8,314	)		(17,761	)
End of period	$	29,824		$	32,588		$	29,824		$	32,588

Accruing Troubled Debt Restructurings	$	22,217	$	30,531

Loans greater than 90 days past due still accruing	$	182	$	1,516

	December 31,
	2012			2011
Non accrual loans	$	33,795		$	30,985
Non accrual TDR's		2,087			8,189
Total non-performing loans		35,882			39,174
Foreclosed assets		5,760			8,575
Total non-performing assets	$	41,642		$	47,749
Nonperforming assets as a % of total assets		1.38	%		1.64	%
Nonperforming assets as a % of loans plus
foreclosed assets		2.00	%		2.34	%
Allowance for loan losses as a % of total loans		1.43	%		1.60	%
Annualized net charge-offs as a % of average loans outstanding - 3 months		0.28	%		0.86	%
Annualized net charge-offs as a % of average loans outstanding - year to date		0.40	%		0.86	%

	December 31, 2012
	Loans Outstanding		Nonaccrual Loans		Nonaccrual Loans to Loans Outstanding
Construction and land development:
Commercial	$	149,072	$	8,330		5.59	%
Residential		45,308		1,070		2.36	%
Total construction and land development		194,380		9,400		4.84	%
Commercial real estate:
Commercial real estate - owner occupied		343,944		3,646		1.06	%
Commercial real estate - non-owner occupied		458,646		1,798		0.39	%
Farmland		12,099		71		0.59	%
Multifamily, nonresidential and junior liens		106,334		4,709		4.43	%
Total commercial real estate		921,023		10,224		1.11	%
Consumer real estate:
Home equity lines		246,806		3,721		1.51	%
Secured by 1-4 family residential, secured by first deeds of trust		447,400		11,659		2.61	%
Secured by 1-4 family residential, secured by second deeds of trust		34,690		262		0.76	%
Total consumer real estate		728,896		15,642		2.15	%
Commercial and industrial loans (except those secured by real estate)		203,840		584		0.29	%
Consumer and other:
Consumer installment loans		26,697		28		0.10	%
Deposit overdrafts		3,677		-		0.00	%
All other loans		1,555		4		0.26	%
Total consumer and other		31,929		32		0.10	%
Total loans	$	2,080,068	$	35,882		1.73	%

STELLARONE CORPORATION (NASDAQ: STEL)
BALANCE SHEET (UNAUDITED)
(Dollars in thousands, except per share data)

							Percent
							Increase
SELECTED BALANCE SHEET DATA	12/31/2012			12/31/2011			(Decrease)

Assets
Cash and cash equivalents	$	89,949		$	99,970			-10.02	%
Investment securities, at fair value		553,476			477,964			15.80	%
Mortgage loans held for sale		37,778			42,027			-10.11	%

Loans:
Construction and land development		194,380			214,667			-9.45	%
Commercial real estate		921,023			844,860			9.01	%
Consumer real estate		728,896			756,236			-3.62	%
Commercial and industrial loans (except those secured by real estate)		203,840			189,887			7.35	%
Consumer and other		31,929			25,481			25.31	%
Total loans		2,080,068			2,031,131			2.41	%
Deferred loan costs		(475	)		299		> 100		%
Allowance for loan losses		(29,824	)		(32,588	)		-8.48	%
Net loans		2,049,769			1,998,842			2.55	%

Premises and equipment, net		72,060			74,602			-3.41	%
Core deposit intangibles, net		3,462			5,011			-30.91	%
Goodwill		113,652			113,652			0.00	%
Bank owned life insurance		44,182			42,413			4.17	%
Foreclosed assets		5,760			8,575			-32.83	%
Other assets		53,116			54,872			-3.20	%

Total assets		3,023,204			2,917,928			3.61	%

Liabilities
Deposits:
Noninterest bearing deposits		362,713			310,756			16.72	%
Money market & interest checking		1,108,202			1,013,826			9.31	%
Savings		314,353			289,260			8.67	%
CD's and other time deposits		699,056			781,758			-10.58	%
Total deposits		2,484,324			2,395,600			3.70	%

Federal funds purchased and securities sold under agreements to repurchase		765			841			-9.04	%
Federal Home Loan Bank advances		55,000			60,000			-8.33	%
Subordinated debt		32,991			32,991			0.00	%
Deferred income tax liability		3,810			2,654			43.56	%
Other liabilities		14,672			11,669			25.73	%

Total liabilities		2,591,562			2,503,755			3.51	%

Stockholders' equity
Common stock		22,889			22,819			0.31	%
Additional paid-in capital		271,747			271,080			0.25	%
Retained earnings		127,099			110,940			14.57	%
Accumulated other comprehensive income		9,907			9,334			6.14	%

Total stockholders’ equity		431,642			414,173			4.22	%

Total liabilities and stockholders’ equity	$	3,023,204		$	2,917,928			3.61	%

STELLARONE CORPORATION (NASDAQ: STEL)
QUARTERLY INCOME STATEMENT (UNAUDITED)
(Dollars in thousands)
							Percent
	For the three months ended						Increase
	12/31/2012			12/31/2011			(Decrease)
Interest Income
Loans, including fees	$	25,487		$	26,634			-4.31	%
Federal funds sold and deposits in other banks		21			72			-70.83	%
Investment securities:
Taxable		1,569			1,675			-6.33	%
Tax-exempt		1,244			1,412			-11.90	%
Total interest income		28,321			29,793			-4.94	%

Interest Expense
Deposits		3,355			4,693			-28.51	%
Federal funds purchased and securities sold under agreements to repurchase		6			7			-14.29	%
Federal Home Loan Bank advances		413			477			-13.42	%
Subordinated debt		344			343			0.29	%

Total interest expense		4,118			5,520			-25.40	%

Net interest income		24,203			24,273			-0.29	%
Provision for loan losses		1,400			1,750			-20.00	%
Net interest income after provision for loan losses		22,803			22,523			1.24	%

Noninterest Income
Retail banking fees		3,974			3,876			2.53	%
Fiduciary and brokerage fee income		1,247			1,059			17.75	%
Mortgage banking-related fees		2,638			2,623			0.57	%
Losses on mortgage indemnifications and repurchases		(9	)		-			N/A
Gains on sale of premises and equipment		58			91			-36.26	%
Gains on securities available for sale		440			447			-1.57	%
Losses on sale / impairments of foreclosed assets		(440	)		(582	)		-24.40	%
Income from bank owned life insurance		446			329			35.56	%
Insurance income		197			94		> 100		%
Other operating income		866			322		> 100		%
Total noninterest income		9,417			8,259			14.02	%

Noninterest Expense
Compensation and employee benefits		12,647			13,015			-2.83	%
Net occupancy		2,212			2,105			5.08	%
Equipment		1,965			2,200			-10.68	%
Amortization-intangible assets		311			413			-24.70	%
Marketing		373			216			72.69	%
State franchise taxes		564			596			-5.37	%
FDIC insurance		562			571			-1.58	%
Data processing		787			692			13.73	%
Professional fees		735			1,016			-27.66	%
Telecommunications		405			427			-5.15	%
Other operating expenses		3,193			3,194			-0.03	%
Total noninterest expense		23,754			24,445			-2.83	%

Income before income taxes		8,466			6,337			33.60	%
Income tax expense		2,245			1,568			43.18	%
Net income	$	6,221		$	4,769			30.45	%

STELLARONE CORPORATION (NASDAQ: STEL)
YEAR TO DATE INCOME STATEMENT (UNAUDITED)
(Dollars in thousands)
							Percent
	For the Twelve Months Ended						Increase
	12/31/2012			12/31/2011			(Decrease)
Interest Income
Loans, including fees	$	103,192		$	107,999			-4.45	%
Federal funds sold and deposits in other banks		110			282			-60.99	%
Investment securities:
Taxable		6,623			7,049			-6.04	%
Tax-exempt		5,131			5,531			-7.23	%
Total interest income		115,056			120,861			-4.80	%

Interest Expense
Deposits		15,407			21,117			-27.04	%
Federal funds purchased and securities sold under agreements to repurchase		26			32			-18.75	%
Federal Home Loan Bank advances		1,674			2,158			-22.43	%
Subordinated debt		1,372			1,133			21.09	%

Total interest expense		18,479			24,440			-24.39	%

Net interest income		96,577			96,421			0.16	%
Provision for loan losses		5,550			12,700			-56.30	%
Net interest income after provision for loan losses		91,027			83,721			8.73	%

Noninterest Income
Retail banking fees		15,424			15,291			0.87	%
Fiduciary and brokerage fee income		5,202			4,946			5.18	%
Mortgage banking-related fees		8,909			8,186			8.83	%
Losses on mortgage indemnifications and repurchases		(593	)		(232	)	> 100		%
Gains on sale of premises and equipment		68			84			-19.05	%
Gains on securities available for sale		528			509			3.73	%
Losses on sale / impairments of foreclosed assets		(1,491	)		(1,564	)		-4.67	%
Income from bank owned life insurance		1,768			1,298			36.21	%
Insurance income		1,217			777			56.63	%
Other operating income		3,311			1,756			88.55	%
Total noninterest income		34,343			31,051			10.60	%

Noninterest Expense
Compensation and employee benefits		51,375			50,200			2.34	%
Net occupancy		8,593			8,259			4.04	%
Equipment		8,220			8,402			-2.17	%
Amortization-intangible assets		1,549			1,651			-6.18	%
Marketing		1,376			953			44.39	%
State franchise taxes		2,255			2,384			-5.41	%
FDIC insurance		2,235			2,679			-16.57	%
Data processing		2,929			2,721			7.64	%
Professional fees		2,886			2,889			-0.10	%
Telecommunications		1,660			1,647			0.79	%
Other operating expenses		12,050			12,498			-3.58	%
Total noninterest expense		95,128			94,283			0.90	%

Income before income taxes		30,242			20,489			47.60	%
Income tax expense		8,079			4,604			75.48	%
Net income	$	22,163		$	15,885			39.52	%

STELLARONE CORPORATION (NASDAQ: STEL)
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(Dollars in thousands)


	For the Three Months Ended December 31,
	2012							2011
	Average		Interest		Average			Average		Interest		Average
	Balance		Inc/Exp		Rates			Balance		Inc/Exp		Rates

Assets
Loans receivable, net (1)	$	2,084,741	$	25,546		4.87	%	$	2,054,650	$	26,660		5.15	%
Investment securities
Taxable		391,289		1,569		1.57	%		317,374		1,675		2.07	%
Tax exempt (1)		130,710		1,914		5.73	%		149,179		2,173		5.70	%
Total investments		521,999		3,483		2.61	%		466,553		3,848		3.23	%

Federal funds sold and deposits in other banks		38,253		21		0.21	%		105,203		72		0.27	%
		560,252		3,504		2.45	%		571,756		3,920		2.69	%

Total earning assets		2,644,993	$	29,050		4.37	%		2,626,406	$	30,580		4.62	%

Total nonearning assets		328,435							312,829

Total assets	$	2,973,428						$	2,939,235

Liabilities and Stockholders' Equity
Interest-bearing deposits
Interest checking	$	615,586	$	208		0.13	%	$	575,175	$	398		0.27	%
Money market		440,879		472		0.43	%		430,592		692		0.64	%
Savings		315,464		129		0.16	%		288,103		332		0.46	%
Time deposits:
Less than $100,000		468,561		1,574		1.34	%		524,014		2,072		1.57	%
$100,000 and more		240,329		972		1.61	%		266,344		1,199		1.79	%
Total interest-bearing deposits		2,080,819		3,355		0.64	%		2,084,228		4,693		0.89	%

Federal funds purchased and securities sold under agreements to repurchase		797		6		2.95	%		946		7		2.95	%
Federal Home Loan Bank advances		55,000		413		2.94	%		60,000		477		3.11	%
Subordinated debt		32,991		344		4.08	%		32,991		343		4.07	%

		88,788		763		3.36	%		93,937		827		3.44	%

Total interest-bearing liabilities		2,169,607		4,118		0.75	%		2,178,165		5,520		1.00	%

Total noninterest-bearing liabilities		372,316							328,101

Total liabilities		2,541,923							2,506,266
Stockholders' equity		431,505							432,969

Total liabilities and stockholders' equity	$	2,973,428						$	2,939,235


Net interest income (tax equivalent)			$	24,932						$	25,060
Average interest rate spread						3.62	%						3.62	%
Interest expense as percentage of average earning assets						0.62	%						0.83	%
Net interest margin						3.75	%						3.79	%

(1) Income and yields are reported on a taxable equivalent basis using a 35% tax rate.

STELLARONE CORPORATION (NASDAQ: STEL)
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
TWELVE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(Dollars in thousands)


	For the Twelve Months Ended December 31,
	2012							2011
	Average		Interest		Average			Average		Interest		Average
	Balance		Inc/Exp		Rates			Balance		Inc/Exp		Rates

Assets
Loans receivable, net (1)	$	2,064,552	$	103,382		5.01	%	$	2,077,067	$	108,117		5.21	%
Investment securities
Taxable		375,756		6,623		1.73	%		274,660		7,049		2.53	%
Tax exempt (1)		135,096		7,894		5.75	%		144,489		8,509		5.81	%
Total investments		510,852		14,517		2.80	%		419,149		15,558		3.66	%

Federal funds sold and deposits in other banks		44,140		110		0.24	%		120,316		282		0.23	%
		554,992		14,627		2.60	%		539,465		15,840		2.90	%

Total earning assets		2,619,544	$	118,009		4.50	%		2,616,532	$	123,957		4.74	%

Total nonearning assets		326,097							313,894

Total assets	$	2,945,641						$	2,930,426

Liabilities and Stockholders' Equity
Interest-bearing deposits
Interest checking	$	599,289	$	1,309		0.22	%	$	569,201	$	1,999		0.35	%
Money market		426,562		2,023		0.47	%		430,572		3,757		0.87	%
Savings		309,757		928		0.30	%		278,605		1,638		0.59	%
Time deposits:
Less than $100,000		489,029		6,955		1.42	%		535,813		8,781		1.64	%
$100,000 and more		251,758		4,192		1.67	%		265,778		4,942		1.86	%
Total interest-bearing deposits		2,076,395		15,407		0.74	%		2,079,969		21,117		1.02	%

Federal funds purchased and securities sold under agreements to repurchase		1,105		26		2.31	%		1,054		32		2.99	%
Federal Home Loan Bank advances		55,587		1,674		2.96	%		64,932		2,158		3.28	%
Subordinated debt		32,991		1,372		4.09	%		32,991		1,133		3.39	%

		89,683		3,072		3.37	%		98,977		3,323		3.31	%

Total interest-bearing liabilities		2,166,078		18,479		0.85	%		2,178,946		24,440		1.12	%

Total noninterest-bearing liabilities		356,064							322,549

Total liabilities		2,522,142							2,501,495
Stockholders' equity		423,499							428,931

Total liabilities and stockholders' equity	$	2,945,641						$	2,930,426


Net interest income (tax equivalent)			$	99,530						$	99,517
Average interest rate spread						3.65	%						3.62	%
Interest expense as percentage of average earning assets						0.71	%						0.93	%
Net interest margin						3.80	%						3.80	%

(1) Income and yields are reported on a taxable equivalent basis using a 35% tax rate.

STELLARONE CORPORATION (NASDAQ: STEL)
FINANCIAL INFORMATION - FOUR QUARTER TREND (UNAUDITED)
(Dollars in thousands, except per share data)

	2012
	Quarter Ended
	December 31,		September 30,		June 30,		March 31,

Interest income	$	28,321	$	28,843	$	28,934	$	28,958
Interest expense		4,118		4,544		4,754		5,063
Net interest income		24,203		24,299		24,180		23,895
Provision for loan losses		1,400		1,900		1,400		850
Total net interest income after provision		22,803		22,399		22,780		23,045
Non interest income		9,417		8,707		8,197		8,022
Non interest expense		23,754		23,594		24,328		23,452
Income before income taxes		8,466		7,512		6,649		7,615
Income tax expense		2,245		1,952		1,768		2,114
Net income	$	6,221	$	5,560	$	4,881	$	5,501
Net income per share
basic	$	0.27	$	0.24	$	0.21	$	0.24
diluted	$	0.27	$	0.24	$	0.21	$	0.24

STELLARONE CORPORATION (NASDAQ: STEL)
SEGMENT INFORMATION (UNAUDITED)
(Dollars in thousands)


At and for the Three Months Ended December 31, 2012

	Commercial		Mortgage		Wealth					Intersegment
	Bank		Banking		Management		Other			Elimination			Consolidated
Net interest income	$	24,343	$	203	$	-	$	(343	)	$	-		$	24,203
Provision for loan losses		1,400		-		-		-			-			1,400
Noninterest income		6,679		2,691		1,247		25			(1,225	)		9,417
Noninterest expense		21,867		1,863		1,129		120			(1,225	)		23,754
Provision for income taxes		2,059		309		35		(158	)		-			2,245
Net income (loss)	$	5,696	$	722	$	83	$	(280	)	$	-		$	6,221

Total Assets	$	2,976,470	$	38,075	$	602	$	469,378		$	(461,321	)	$	3,023,204
Average Assets	$	2,939,772	$	25,911	$	619	$	468,857		$	(461,731	)	$	2,973,428


At and for the Three Months Ended December 31, 2011

	Commercial		Mortgage		Wealth					Intersegment
	Bank		Banking		Management		Other			Elimination			Consolidated
Net interest income	$	24,303	$	312	$	-	$	(342	)	$	-		$	24,273
Provision for loan losses		1,750		-		-		-			-			1,750
Noninterest income		5,635		2,648		1,158		26			(1,208	)		8,259
Noninterest expense		21,913		2,217		1,104		419			(1,208	)		24,445
Provision for income taxes		1,592		223		16		(263	)		-			1,568
Net income (loss)	$	4,683	$	520	$	38	$	(472	)	$	-		$	4,769

Total Assets	$	2,868,332	$	42,894	$	415	$	451,866		$	(445,579	)	$	2,917,928
Average Assets	$	2,894,269	$	37,322	$	433	$	469,852		$	(462,641	)	$	2,939,235

At and for the Twelve Months Ended December 31, 2012

	Commercial		Mortgage		Wealth					Intersegment
	Bank		Banking		Management		Other			Elimination			Consolidated
Net interest income	$	97,206	$	742	$	-	$	(1,371	)	$	-		$	96,577
Provision for loan losses		5,550		-		-		-			-			5,550
Noninterest income		25,365		8,616		5,253		105			(4,996	)		34,343
Noninterest expense		87,846		6,878		4,493		907			(4,996	)		95,128
Provision for income taxes		7,886		744		228		(779	)		-			8,079
Net income (loss)	$	21,289	$	1,736	$	532	$	(1,394	)	$	-		$	22,163

Average Assets	$	2,916,051	$	21,924	$	508	$	461,310		$	(454,152	)	$	2,945,641


At and for the Twelve Months Ended December 31, 2011

	Commercial		Mortgage		Wealth					Intersegment
	Bank		Banking		Management		Other			Elimination			Consolidated
Net interest income	$	96,659	$	895	$	-	$	(1,133	)	$	-		$	96,421
Provision for loan losses		12,700		-		-		-			-			12,700
Noninterest income		22,562		8,122		5,045		106			(4,784	)		31,051
Noninterest expense		85,842		7,667		4,399		1,159			(4,784	)		94,283
Provision for income taxes		4,794		405		194		(789	)		-			4,604
Net income (loss)	$	15,885	$	945	$	452	$	(1,397	)	$	-		$	15,885

Average Assets	$	2,896,875	$	24,854	$	444	$	465,607		$	(457,354	)	$	2,930,426

STELLARONE CORPORATION (NASDAQ: STEL)
NON-GAAP RECONCILIATION (UNAUDITED)
(Dollars in thousands)

	For the Three Months Ended									For the Twelve Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Noninterest expense	$	23,754		$	23,594		$	24,445		$	95,128		$	94,283
Less:
Amortization of intangible assets		311			413			413			1,549			1,651
Adjusted noninterest expense		23,443			23,181			24,032			93,579			92,632

Net interest income (tax equivalent)		24,932			25,042			25,060			99,530			99,517
Noninterest income		9,417			8,707			8,259			34,343			31,051
Less:
Gains on sale of securities available for sale		440			9			447			528			509
Losses / impairments on foreclosed assets		(440	)		(381	)		(582	)		(1,491	)		(1,564	)
Net revenues	$	34,349		$	34,121		$	33,454		$	134,836		$	131,623

Efficiency ratio		68.25	%		67.94	%		71.84	%		69.40	%		70.38	%

	For the Three Months Ended									For the Twelve Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Noninterest income	$	9,417		$	8,707		$	8,259		$	34,343		$	31,051
Less:
Gains on securities available for sale		440			9			447			528			509
Gains on sale of premises and equipment		58			17			91			68			84
Operating earnings	$	8,919		$	8,681		$	7,721		$	33,747		$	30,458

	For the Three Months Ended									For the Twelve Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Net income	$	6,221		$	5,560		$	4,769		$	22,163		$	15,885
Plus:
Income tax expense		2,245			1,952			1,568			8,079			4,604
Provision for loan losses		1,400			1,900			1,750			5,550			12,700
Tax equivalent adjustment		729			743			787			2,953			3,096
Pre-tax pre-provision earnings	$	10,595		$	10,155		$	8,874		$	38,745		$	36,285

	For the Three Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011
Total stockholders' equity	$	431,642		$	428,077		$	414,173
Less:
Core deposit intangibles, net		3,462			3,773			5,011
Goodwill		113,652			113,652			113,652
Net other intangibles		787			886			1,183
Tangible common equity		313,741			309,766			294,327

Total assets		3,023,204			2,959,846			2,917,928
Less:
Core deposit intangibles, net		3,462			3,773			5,011
Goodwill		113,652			113,652			113,652
Net other intangibles		787			886			1,183
Tangible assets	$	2,905,303		$	2,841,535		$	2,798,082

Tangible common equity ratio		10.80	%		10.90	%		10.52	%

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