Middleburg Financial Corporation Announces 2010 Second Quarter Earnings

Jul 30, 2010, 18:02 ET from Middleburg Financial Corporation

MIDDLEBURG, Va., July 30 /PRNewswire-FirstCall/ -- Middleburg Financial Corporation (the "Company"), (Nasdaq: MBRG), parent company of Middleburg Bank (the "Bank"), today reported its financial results for the second quarter of 2010.

Second Quarter 2010 Highlights:

  • Net income of $723,548 for the quarter;
  • Diluted earnings per share of $0.10 for the quarter;
  • Net interest margin of 3.67% for the quarter;
  • Total asset growth of $85.0 million or 8.7% for the six month period;
  • Total loans increased by $9.9 million or 1.6% for the six month period;
  • Total deposit growth of $53.4 million or 6.6% for six month period;
  • Provision for loan losses decreased 18.4% relative to the quarter ended June 30, 2009; and
  • Tier I capital ratio of 13.33%, leverage ratio of 10.58%

"Despite continued challenges in the economy, Middleburg Financial Corporation delivered net income of $723,548 in the second quarter of 2010," said Gary R. Shook, President and Chief Executive Officer. "The increase in non performing assets in the quarter was related to previously identified loans and was expected as we continue to work through the collection process for these loans. Looking ahead, we foresee a continuation of problem loans throughout this year, which will continue to impact earnings," added Mr. Shook.

Net Interest Income and Net Interest Margin

Net interest income was $8.4 million during the three months ended June 30, 2010, a decrease of 14.9% relative to the quarter ended June 30, 2009. The average yield on earning assets was 5.22% for the quarter ended June 30, 2010 while the average cost of interest bearing liabilities was 1.82% for the same period representing a decrease of 124 basis points and 69 basis points, respectively, from the quarter ended June 30, 2009. The net interest margin for the three months ended June 30, 2010 was 3.67% compared to 4.36% for the quarter ended June 30, 2009.

The Company's net interest margin is not a measurement under accounting principles generally accepted in the United States, but it is a common measure used by the financial services industry to determine how profitably earning assets are funded. The Company's net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non-taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. Details on the calculation of the net interest margin are included in the "Key Statistics" table.

Asset Quality and Provision for Loan Losses

The provision for loan losses was $1.3 million for the quarter ended June 30, 2010, compared to $1.6 million for the quarter ended June 30, 2009, a decline of 18.4%. The Company increased its allowance for loan losses ("ALLL") $890,000 or 9.6% during the first six months of 2010. The ALLL at June 30, 2010 was $10.1 million representing 1.54% of total portfolio loans outstanding versus 1.43% of total portfolio loans at December 31, 2009. The pace of problem loans is as expected. The Company deemed it prudent to increase its ratio of allowance for loan losses to total loans as a result of continued economic uncertainty and an increase in non-performing assets.

Non-performing assets increased from $17.2 million or 1.8% of total assets at December 31, 2009 to $26.7 million or 2.5% of total assets as of June 30, 2010. The increase was primarily due to an increase in delinquent loans over 90 days and non-accrual loans. Given the continued economic uncertainties, it is possible that we could experience further increases in non-performing assets.

Non-Interest Income

Non-interest income decreased by $72,000 or 1.2% to $6.1 million when comparing the quarter ended June 30, 2010 to the quarter ended June 30, 2009. Increases in trust and investment advisory fees and gains on sales of mortgage loans were offset by net securities losses. Trust and Investment advisory service fees earned by Middleburg Trust Company ("MTC") and Middleburg Investment Advisors ("MIA") increased $83,000 or 10.5% to $875,000 and gains on mortgage loan sales increased $466,000 or 13.8% to $3.8 million when comparing the quarter ended June 30, 2010 to the quarter ended June 30, 2009. Additionally, fees related to mortgage loan sales increased $184,000 or 63% to $476,000 from the quarter ended June 30, 2009 to the quarter ended June 30, 2010. Net securities losses were $134,000 during the quarter ended June 30, 2010 compared to net securities gains of $661,000 during the quarter ended June 30, 2009. The net securities losses during the quarter ended June 30, 2010 included $97,000 of other than temporary impairment losses related to two securities previously identified as impaired under generally accepted accounting principles. Southern Trust Mortgage, our majority owned subsidiary, originated $188.7 million in mortgage loans during the quarter ended June 30, 2010 compared to $316.9 million originated during the quarter ended June 30, 2009. Mortgage loans originated for the six months ended June 30, 2010 was $337.7 million versus $587.7 million for the six months ended June 30, 2009.

The revenues and expenses of Southern Trust Mortgage for the three and six month periods ended June 30, 2010 are reflected in the Company's financial statements on a consolidated basis following generally accepted accounting principles in the United States. The outstanding equity interest not held by the Company is reported on the Company's balance sheet as "Non-controlling interest in consolidated subsidiary" and the earnings or loss attributable to the non-controlling interest is reported on the Company's income statement as "Net (income) / loss attributable to non-controlling interest."

Trust and investment advisory fees are based primarily upon the market value of the accounts under administration/management. Total consolidated assets under administration by MTC and MIA were at $1.1 billion at June 30, 2010, an increase of 8.9% relative to June 30, 2009. The Bank holds a large portion of its investment portfolio in custody with MTC. MTC's assets under administration were $821.1 million at June 30, 2010 versus $661.3 million at June 30, 2009 representing an increase of 24.2%. MIA's assets under administration were $312.6 million at June 30, 2010 versus $379.6 million at June 30, 2009 representing a decrease of 17.7%.

Non-Interest Expense

Non-interest expense in the second quarter of 2010 decreased $753,000, down 5.8% relative to the quarter ended June 30, 2009.

Salaries and employee benefit expenses in the second quarter of 2010 decreased by $213,000 relative to the quarter ended June 30, 2009, primarily due to a decrease in mortgage loan originations and the related commission expense. Expenses and losses related to other real estate owned decreased $354,000 or 54.5% for the quarter ended June 30, 2010 compared to the same quarter in 2009. Other operating expenses increased by $201,000 or 14.9% during the second quarter of 2010 relative to the second quarter of 2009 due to increases in various other expense categories.

Total Consolidated Assets

Total assets at June 30, 2010 were $1.1 billion, an increase of $85.0 million or 8.7% over December 31, 2009.

Total portfolio loans, net of allowance for loan losses, increased by $9.1 million, or 1.4% when comparing June 30, 2010 to December 31, 2009. The investment portfolio was at $200.8 million at June 30, 2010, an increase of $28.1 million or 16.3% compared to December 31, 2009. Mortgages held for resale increased $17.4 million or 38.7% from December 31, 2009 to June 30, 2010. Cash and due from bank balances increased by $2.4 million or 13.1% from December 31, 2009 to June 30, 2010.

Deposits and Other Borrowings

Total deposits were at $859.1 million at June 30, 2010, up $53.4 million or 6.6% from December 31, 2009, primarily due to a continued increase in savings and non-interest bearing demand deposits. Time deposits, including brokered deposits increased $14.5 million or 4.8% from December 31, 2009 to June 30, 2010. Brokered deposits were $105.4 million at June 30, 2010, up $29.2 million or 38.3% from December 31, 2009. Long term borrowings from the FHLB were $52.9 million at June 30, 2010, up $17.9 million from December 31, 2009. The increase in brokered deposits and borrowings was related to the funding of commercial loans and the purchase of investment securities.

Equity

Total shareholders' equity at June 30, 2010 was $105.3 million, compared to shareholders' equity of $103.4 million as of December 31, 2009. Retained earnings at June 30, 2010 were at $42.9 million compared to $42.7 million at December 31, 2009. The book value of the Company's common stock at June 30, 2010 was $14.84 per share. As of June 30, 2010, the Tier 1 risk-based capital ratio was 13.33%, the total risk-based capital ratio was 14.58% and the leverage ratio was 10.58%

Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, and other filings with the Securities and Exchange Commission.

About Middleburg Financial Corporation

Middleburg Financial Corporation is headquartered in Middleburg, Virginia and has two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. Middleburg Bank serves communities in Virginia with financial centers in Ashburn, Leesburg, Marshall, Middleburg, Purcellville, Reston, Warrenton and Williamsburg. Middleburg Investment Group owns Middleburg Trust Company and Middleburg Investment Advisors, Inc. Middleburg Trust Company is headquartered in Richmond, Virginia with offices in Williamsburg and Middleburg. Middleburg Investment Advisors, Inc. is an SEC registered investment advisor located in Alexandria, Virginia. Middleburg Financial Corporation is also the majority owner of Southern Trust Mortgage, which is based in Virginia Beach and provides mortgages through 17 offices in 11 states.

Middleburg Financial Corporation and Subsidiaries

Consolidated Statements of Income

(In Thousands, Except Per Share Data)

Unaudited

Unaudited

For the Six Months

For the Three Months

Ended June 30,

Ended June 30,

2010

2009

2010

2009

Interest and Dividend Income

Interest and fees on loans

$ 20,829

$ 25,820

$ 10,384

$ 12,870

Interest on securities available for sale

Taxable

2,028

2,463

1,090

1,202

Exempt from federal income taxes

1,293

1,474

600

746

Dividends

43

36

22

18

Interest on federal funds sold and other

63

58

28

24

Total interest and dividend income

$ 24,256

$ 29,851

$ 12,124

$ 14,860

Interest Expense

Interest on deposits

$ 6,251

$ 8,115

$ 3,077

$ 3,959

Interest on securities sold under agreements to repurchase

80

25

60

3

Interest on short-term borrowings

111

467

67

191

Interest on long-term debt

926

1,650

488

797

Total interest expense

$ 7,368

$ 10,257

$ 3,692

$ 4,950

Net interest income

$ 16,888

$ 19,594

$ 8,432

$ 9,910

Provision for loan losses

2,220

2,620

1,291

1,583

Net interest income after provision

for loan losses

$ 14,668

$ 16,974

$ 7,141

$ 8,327

Other Income

Trust and investment advisory fee income

$ 1,690

$ 1,589

$ 875

$ 792

Service charges on deposit accounts

909

945

468

490

Net gains (losses) on securities available for sale

469

1,070

(37)

661

Total other-than-temporary impairment loss on securities

(248)

(179)

(97)

-

Commissions on investment sales

311

257

167

172

Bank owned life insurance

255

257

130

130

Gain on loans held for sale

6,474

6,170

3,844

3,378

Fees on loans held for sale

834

527

476

292

Other service charges, commissions and fees

256

297

143

158

Other operating income

179

183

88

56

Total other income

$ 11,129

$ 11,116

$ 6,057

$ 6,129

Other Expense

Salaries and employee benefits

$ 14,381

$ 14,930

$ 7,457

$ 7,670

Net occupancy expense of premises

3,094

2,950

1,490

1,565

Other taxes

397

290

201

145

Advertising

428

365

248

216

Computer operations

668

661

340

360

Other real estate owned

505

1,460

295

649

Audits and examinations

277

310

162

108

Legal fees

306

299

167

176

FDIC insurance

1,153

1,057

352

777

Other operating expenses

3,000

2,529

1,554

1,353

Total other expense

$ 24,209

$ 24,851

$ 12,266

$ 13,019

Income before income taxes

$ 1,588

$ 3,239

$ 932

$ 1,437

Income tax expense

162

161

75

21

Net income

$ 1,426

$ 3,078

$ 857

$ 1,416

Less: Net (income) / loss attributable to non-controlling interest

112

(1,281)

(133)

(603)

Net income attributable to Middleburg Financial Corporation

$ 1,538

$ 1,797

$ 724

$ 813

Amortization of discount on preferred stock

-

32

-

19

Dividend on preferred stock

-

464

-

278

Net income available to common shareholders

$ 1,538

$ 1,301

$ 724

$ 516

Net income per common share, basic

$ 0.22

$ 0.28

$ 0.10

$ 0.11

Net income per common share, diluted

$ 0.22

$ 0.28

0.10

$ 0.11

Dividends per share

$ 0.20

$ 0.38

0.10

$ 0.19

See Accompanying Notes to Consolidated Financial Statements

Middleburg Financial Corporation

Consolidated Balance Sheets

(In Thousands, Except for Share Data)

(Unaudited)

June 30,

December 31,

2010

2009

Assets:

Cash and due from banks

$ 20,776

$ 18,365

Interest-bearing deposits in banks

50,448

24,845

Securities available for sale

200,786

172,699

Loans held for sale

62,442

45,010

Restricted securities, at cost

6,225

6,225

Loans, net of allowance for loan losses of $10,075 in 2010

and $9,185 in 2009

644,181

635,094

Premises and equipment, net

23,264

23,506

Goodwill and identified intangibles

6,446

6,531

Other real estate owned, net of valuation allowance of

$873 in 2010 and $1,121 in 2009.

8,257

6,511

Prepaid federal deposit insurance

5,837

6,923

Accrued interest receivable and other assets

32,690

30,665

Total assets

$ 1,061,352

$ 976,374

Liabilities and Shareholders' Equity:

Liabilities:

Deposits:

Non-interest bearing demand deposits

$ 121,504

$ 106,459

Savings and interest-bearing demand deposits

421,584

397,720

Time deposits

315,967

301,469

Total deposits

$ 859,055

$ 805,648

Securities sold under agreements to repurchase

23,213

17,199

Short-term borrowings

8,851

3,538

Long-term debt

52,912

35,000

Subordinated notes

5,155

5,155

Accrued interest and other liabilities

6,874

6,475

Commitments and contingent liabilities

-

-

Total liabilities

$ 956,060

$ 873,015

Shareholders' Equity:

Common stock, par value $2.50 share, authorized 20,000,000 shares

issued and outstanding at June 30, 2010 - 6,914,687 shares

issued and outstanding at December 31, 2009 - 6,909,293 shares

$ 17,286

$ 17,273

Capital surplus

42,883

42,807

Retained earnings

42,859

42,706

Accumulated other comprehensive (loss), net

(434)

(2,474)

Total Middleburg Financial Corporation shareholders' equity

$ 102,594

$ 100,312

Non-controlling interest in consolidated subsidiary

2,698

3,047

Total shareholders' equity

$ 105,292

$ 103,359

Total liabilities and shareholders' equity

$ 1,061,352

$ 976,374

MIDDLEBURG FINANCIAL CORPORATION

KEY STATISTICS

(Unaudited. Dollars in thousands except per share data)

For the Three Months Ended

June 30 2010

Mar 31, 2010

Dec 31, 2009

Sep 30, 2009

Net Income (dollars in thousands)

$ 724

$ 814

$ 1,114

$ 610

Earnings per share, basic

$ 0.10

$ 0.12

$ 0.07

$ 0.05

Earnings per share, diluted

$ 0.10

$ 0.12

$ 0.07

$ 0.05

Dividend per share

$ 0.10

$ 0.10

$ 0.10

$ 0.10

Return on average total assets

0.28%

0.33%

0.35%

0.29%

Return on average total equity

2.85%

3.25%

2.82%

2.51%

Dividend payout ratio

100.00%

84.90%

142.86%

200.00%

Non-Interest income as a percent of total revenue

34.05%

28.00%

29.37%

23.60%

Net interest margin(1)

3.67%

3.94%

3.83%

4.13%

Yield on average earning assets

5.22%

5.58%

5.61%

6.08%

Yield on average interest-bearing liabilities

1.82%

1.93%

2.16%

2.35%

Net interest spread

3.40%

3.65%

3.45%

3.73%

Non-interest income to average assets (3)

2.39%

1.93%

2.10%

1.71%

Non-interest expense to average assets (3)

4.73%

4.90%

4.74%

4.71%

Efficiency ratio - QTD (2)

81.78%

87.85%

83.48%

84.26%

(1) The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. The Company's net interest margin is a common measure used by the financial service industry to determine how profitably earning assets are funded. Because the Company earns a fair amount of non taxable interest income due to the mix of securities in its investment security portfolio, net interest income for the ratio is calculated on a tax equivalent basis as described above.

(2) The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing non interest expense by the sum of tax equivalent net interest income and non interest income excluding gains and losses on the investment portfolio. The tax rate utilized is 34%. The Company calculates this ratio in order to evaluate its overhead structure or how effectively it is operating. An increase in the ratio from period to period indicates the Company is losing a larger percentage of its income to expenses.

(3) Ratios are computed by dividing annualized income and expense amounts by quarterly average assets.

MIDDLEBURG FINANCIAL CORPORATION

SELECTED FINANCIAL DATA BY QUARTER

(Unaudited. Dollars in thousands except per share data)

2Q10

1Q10

4Q09

3Q09

BALANCE SHEET RATIOS

Net loans to deposits

74.99%

78.32%

78.83%

81.67%

Average interest-earning assets to

average-interest bearing liabilities

117.69%

117.51%

121.36%

120.32%

PER SHARE DATA (1)

Dividends

$ 0.10

$ 0.10

$ 0.10

$ 0.10

Book value

$ 14.84

$ 14.65

$ 14.52

$ 14.61

Tangible book value

$ 13.91

$ 13.71

$ 13.57

$ 13.65

SHARE PRICE DATA

Closing price

$ 13.91

$ 15.06

$ 14.59

$ 13.05

Diluted earnings multiple (1)

34.78

31.38

52.11

65.25

Book value multiple (2)

0.94

1.03

1.00

0.89

COMMON STOCK DATA

Outstanding shares at end of period

6,914,687

6,909,293

6,909,293

6,901,843

Weighted average shares O/S Basic - QTD

6,911,744

6,909,293

5,635,687

5,208,624

Weighted average shares O/S, diluted - QTD

6,924,338

6,912,173

6,906,429

6,267,267

CAPITAL RATIOS (1)

Capital to Assets - Common shareholders

9.67%

9.94%

10.27%

12.27%

Total risk based capital ratio

14.58%

15.02%

15.06%

18.22%

Tier 1 risk based capital ratio

13.33%

13.77%

13.86%

16.97%

Leverage ratio

10.58%

10.71%

10.40%

12.50%

CREDIT QUALITY

Net charge-offs to average loans

0.15%

0.04%

0.18%

0.17%

Total non-performing loans to total loans

2.81%

2.00%

1.48%

1.57%

Total non-performing assets to total assets

2.51%

1.88%

1.64%

1.88%

Non-accrual loans to:

total loans

1.87%

1.46%

1.34%

1.38%

total assets

1.15%

0.94%

0.88%

0.90%

Allowance for loan losses to:

total loans

1.54%

1.50%

1.43%

1.41%

non-performing assets

37.80%

51.43%

53.00%

49.21%

non-accrual loans

82.51%

102.67%

104.11%

102.43%

NON-PERFORMING ASSETS:

Loans delinquent over 90 days

$ 6,188

$ 3,544

$ 908

$ 1,206

Non-accrual loans

12,211

9,613

8,608

9,008

Other real estate owned and repossessed assets

8,257

6,034

6,511

8,537

Total non-performing assets

$ 26,656

$ 19,191

$ 16,027

$ 18,751

NET LOAN CHARGE-OFFS:

Loans charged off

$ 1,142

$ 291

$ 1,280

$ 1,216

(Recoveries)

(56)

(47)

(48)

(49)

Net charge-offs

$ 1,086

$ 244

$ 1,232

$ 1,167

PROVISION FOR LOAN LOSSES

$ 1,291

$ 929

$ 967

$ 964

ALLOWANCE FOR LOAN LOSS SUMMARY

Balance at the beginning of period

$ 9,870

$ 9,185

$ 9,227

$ 9,430

Provision

1,291

929

967

964

Net charge-offs / (recoveries)

1,086

244

1,009

1,167

Balance at the end of period

$ 10,075

$ 9,870

$ 9,185

$ 9,227

(1) The diluted earnings multiple is calculated by dividing the period's closing market price per share by the annualized diluted earnings per share for the period. The diluted earnings multiple is a measure of how much an investor may be willing to pay for $1.00 of the Company's earnings.

(2) The book value multiple (or price to book ratio) is calculated by dividing the period's closing market price per share by the period's book value per share. The book value multiple is a measure used to compare the Company's market value per share to its book value per share.

Middleburg Financial Corporation

Average Balances, Income and Expenses, Yields and Rates

Three Months Ended June 30,

2010

2009

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate (2)

Balance

Expense

Rate (2)

(Dollars in thousands)

Assets :

Securities:

Taxable

$ 142,279

$ 1,112

3.13%

$ 100,118

$ 1,221

4.89%

Tax-exempt (1)

56,248

909

6.48%

65,100

1,131

6.97%

Total securities

$ 198,527

$ 2,021

4.08%

$ 165,218

$ 2,352

5.71%

Loans

Taxable

$ 709,042

$ 10,383

5.87%

$ 727,690

$ 12,870

7.34%

Tax-exempt (1)

-

-

-

1

-

0.00%

Total loans

$ 709,042

$ 10,383

5.87%

$ 727,691

$ 12,870

7.34%

Federal funds sold

-

-

-

31,720

14

0.18%

Interest on money market investments

-

-

-

-

-

-

Interest bearing deposits in

other financial institutions

47,566

28

0.24%

21,876

9

0.17%

Total earning assets

$ 955,135

$ 12,432

5.22%

$ 946,505

$ 15,245

6.79%

Less: allowances for credit losses

(9,956)

(8,499)

Total nonearning assets

92,346

81,352

Total assets

$ 1,037,525

$ 1,019,358

Liabilities:

Interest-bearing deposits:

Checking

$ 286,485

$ 579

0.81%

$ 247,303

$ 783

1.27%

Regular savings

77,173

188

0.98%

54,980

176

1.28%

Money market savings

51,683

107

0.83%

39,190

103

1.05%

Time deposits:

$100,000 and over

158,698

1,141

2.88%

132,288

1,046

3.17%

Under $100,000

151,141

1,062

2.82%

200,553

1,851

3.70%

Total interest-bearing deposits

$ 725,180

$ 3,077

1.70%

$ 674,314

$ 3,959

2.35%

Short-term borrowings

6,030

67

4.46%

21,003

191

3.65%

Securities sold under agreements

to repurchase

24,977

60

0.98%

20,559

3

0.06%

Long-term debt

55,375

488

3.53%

79,155

797

4.04%

Federal funds purchased

35

-

0.00%

-

-

-

Total interest-bearing liabilities

$ 811,597

$ 3,692

1.82%

$ 795,031

$ 4,950

2.50%

Non-interest bearing liabilities

Demand deposits

114,953

110,153

Other liabilities

6,328

10,828

Total liabilities

$ 932,878

$ 916,012

Non-controlling interest

2,671

2,851

Shareholders' equity

101,976

100,495

Total liabilities and shareholders'

equity

$ 1,037,525

$ 1,019,358

Net interest income

$ 8,740

$ 10,295

Interest rate spread

3.40%

3.96%

Interest expense as a percent of

average earning assets

1.55%

2.10%

Net interest margin

3.67%

4.36%

(1) Income and yields are reported on tax equivalent basis assuming a federal tax rate of 34%.

(2) All yields and rates have been annualized on a 365 day year.

SOURCE Middleburg Financial Corporation



RELATED LINKS

http://www.middleburgbank.com