Middleburg Financial Corporation Announces Third Quarter 2012 Results

Oct 31, 2012, 14:00 ET from Middleburg Financial Corporation

MIDDLEBURG, Va., Oct. 31, 2012 /PRNewswire/ -- Middleburg Financial Corporation (the "Company") (Nasdaq: MBRG), today announced net income of $1.7 million or $0.24 per share for the third quarter of 2012.

"We are pleased with the contributions received from our subsidiary businesses, Southern Trust Mortgage and Middleburg Investment Group. Both entities as well as Middleburg Bank saw improvements in most performance metrics in the Third Quarter," commented Gary R. Shook, president and CEO of Middleburg Financial Corporation. He continued, "Additionally, we continue to find buyers for our other real estate owned properties which bodes well for future earnings. While we will continue to see bumps up and down in our non-performing assets, a consistent trend of improvement has certainly emerged over the past several quarters."

Third Quarter 2012 Highlights:

  • Net income of $1.7 million or $0.24 per diluted share, compared to $1.4 million or $0.20 per diluted share for the third quarter of 2011;
  • Net interest margin of 3.28%, compared to 3.57% for the previous quarter and 3.64% for the third quarter of 2011;
  • Gain-on-sale fee income from mortgages increased 60.2% compared to the third quarter of 2011;
  • Total revenue of $17.5  million, an increase of 14.3%  over the third quarter of 2011;
  • Total assets of $1.2 billion, an increase of 3.6% over December 31, 2011;
  • Deposits increased by $54.6 million or 5.9% since December 31, 2011;
  • Loans held-for-investment increased by $21.0 million or 3.1% since December 31, 2011;
  • Provision for loan losses decreased by 38.0% compared to third quarter of 2011; and
  • Capital ratios continue to be strong: Tangible Common Equity Ratio of 8.7%, Total Risk-Based Capital Ratio of 15.2%, Tier 1 Risk-Based Capital Ratio of 14.0%, and a Tier 1 Leverage Ratio of 8.9% at September 30, 2012.

Total Revenue

Total revenue was $17.5 million in the quarter ended September 30, 2012 representing an increase of $706,000 or 4.2% over the previous quarter and an increase of $2.2 million or 14.3% over the quarter ended September 30, 2011. Although, the lower yield environment during the quarter led to a decline in net interest income, the lower net interest income was more than offset by an increase in non-interest income, primarily stemming from our mortgage banking operations. This balance between spread and fee income enables the Company to grow revenues in challenging low yield environments.

The net interest margin for the three months ended September 30, 2012 was 3.28%, compared to 3.57% for the previous quarter, and 3.64% for the quarter ended September 30, 2011, representing a decrease of 29 basis points from the previous quarter and a decrease of 36 basis points compared to the quarter ended September 30, 2011. The drop in net interest margin for the quarter ended September 30, 2012 compared to the previous quarter was principally due to a reduction in net interest income coupled with an increase in average earning assets during the quarter.

Net interest income was $9.2 million during the three months ended September 30, 2012, which was 4.8% lower than the quarter ended June 30, 2012 and a decrease of 2.9% compared to the quarter ended September 30, 2011. The yield on average earning assets was 4.03% for the quarter ended September 30, 2012 compared to 4.40% for the previous quarter and 4.66% for the quarter ended September 30, 2011, representing a decrease of 37 basis points from the previous quarter and a decrease of 63 basis points from the quarter ended September 30, 2011. Loan yields decreased by 35 basis points while the yield for the securities portfolio decreased by 24 basis points from the previous quarter. Yields on earning assets were also pressured due to higher average balances of cash deposits at the Federal Reserve.

The decline in loan yields was primarily related to the following factors:

  • A one time reversal of accrued interest income during the quarter for certain loans that were placed on non accrual. We estimate the reduction in annualized total yield on loans for the quarter due to this one time reversal to be 9.5 basis points.
  • Balances of lower yielding held-for-sale mortgage loans increased more than did balances of commercial loans which tend to have higher yields. This lowered the overall weighted average loan yield for the quarter.
  • Accelerated premium amortizations for purchased loans due to faster prepayments during the quarter.

The decline in yield for securities was related to the following factors:

  • Lower yields on very short duration investments that were purchased during the quarter
  • Accelerated amortizations of premiums on mortgage and asset backed securities during the quarter due to faster prepayments.
  • We also sold some securities during the quarter in a continuing effort to rebalance the investment portfolio. We recognized gains on the sale of the securities but since the proceeds were not immediately reinvested back into the portfolio, the net effect was a decline in yield for the securities portfolio.

We also took actions during the third quarter to reduce our cost of funds. Rates paid on interest bearing deposits were reduced.  Furthermore, we paid off brokered time deposits that either matured or were callable during the third quarter. While those actions reduced interest expense, most of the maturities and calls of brokered time deposits occurred in the last month of the quarter. Since the rate reductions were not in effect for the entire quarter, the reduction in interest expense was somewhat muted.

Specifically, the average annualized cost of interest bearing liabilities was 0.93% for the quarter ended September 30, 2012, compared to 1.00% in the previous quarter, and 1.21% for the quarter ended September 30, 2011, representing a decrease of 7 basis points from the previous quarter and a decrease of 28 basis points from the quarter ended September 30, 2011.  Annualized costs for interest bearing retail deposits decreased by 9 basis points from the previous quarter to 0.84% from 0.93% and decreased by 34 basis points from the same quarter last year.  The decline in the annualized cost of interest bearing retail deposits from both the previous quarter and the same quarter last year was primarily due to a decrease of 8 and 36 basis points respectively in the annualized cost of interest bearing non maturity deposits.  The annualized cost of interest bearing time deposits was essentially flat from the previous quarter but decreased 20 basis points from the quarter ended September 30, 2011 to 1.70% from 1.90%. Annualized costs for wholesale borrowings (excluding brokered deposits) increased by 8 basis points to 1.52% from 1.44% from both the previous quarter and from the quarter ended September 30, 2011. The average rate on wholesale borrowings (excluding brokered deposits) increased during the quarter, even as the balances of wholesale borrowings (excluding brokered deposits) declined, as we paid off maturing short term FHLB advances. Since the rate on the short term advances was lower than the rates on the remaining longer term advances, the removal of the short term advance resulted in a higher average rate for the remaining portfolio of advances.

Cost of funds is calculated by dividing annualized total interest expense by the sum of average interest bearing liabilities and average demand deposits. Cost of funds was 0.79% for the quarter ended September 30, 2012 compared to 0.86% for the quarter ended June 30, 2012, a decrease of 7 basis points.  Cost of funds decreased 27 basis points compared to the quarter ended September 30, 2011.

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.

Non-interest income increased by $1.2 million or 16.0% when comparing the quarter ended September 30, 2012 to the previous quarter and increased by $2.5 million or 42.3% compared to the quarter ended September 30, 2011. The primary reason for the higher non-interest income for both the third quarter of 2012 and the same quarter last year was higher gain-on-sale revenues from the Company's mortgage operations.  Gains on mortgage loan sales increased by 21.4% when comparing the quarter ended September 30, 2012 to the previous quarter and by 60.2% when compared to the quarter ended September 30, 2011.  Gains on mortgage loan sales included in the accompanying statements of income are presented net of originator commissions incurred to originate the loans.  

Southern Trust Mortgage originated $251.2 million in mortgage loans during the quarter ended September 30, 2012 compared to $233.4 million originated during the previous quarter, and $212.2 million originated during the quarter ended September 30, 2011, an increase of 7.6% compared to the previous quarter and an increase of 18.4% when comparing the same calendar quarters. 

The revenues and expenses of Southern Trust Mortgage for the three month periods ended September 30, 2012 and September 30, 2011 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 sheets as "Non-controlling interest in consolidated subsidiary" and the earnings or loss attributable to the non-controlling interest is reported on the Company's statements of income as "Net (income) / loss attributable to non-controlling interest."

Total revenue generated by our wealth management group, Middleburg Investment Group ("MIG") increased to $1.2 million for the quarter ended September 30, 2012 and to $3.3 million on a year-to-date basis.  Net income generated from this group increased more than ten-fold when comparing the quarter ended September 30, 2012 to the quarter ended September 30, 2011. The increase in earnings was attributed to expense control and an increase in revenue during the period.  Middleburg Investment Group is comprised of Middleburg Trust Company, a wholly owned subsidiary of the Company and Middleburg Investment Services, which is a division of Middleburg Bank.  Fee income is based primarily upon the market value of the accounts under administration. Total consolidated assets under administration by MIG were at $1.5 billion at September 30, 2012, an increase of 15.3% relative to September 30, 2011. 

Net securities gains were $164,000 during the quarter ended September 30, 2012 compared to $148,000 during the previous quarter and $141,000 during the quarter ended September 30, 2011.

Non-Interest Expense

Total non-interest expense in the third quarter of 2012 increased by $525,000 or 3.9% versus the previous quarter and increased by $1.6 million or 13.1% compared to the quarter ended September 30, 2011.  

Salaries and employee benefit expenses decreased by $230,000 or 3.1% when comparing the third quarter of 2012 to the previous quarter. Salaries and employee benefits increased by $376,000 or 5.4% versus the third quarter of 2011. 

Expenses related to Other Real Estate Owned ("OREO") increased by $632,000 or 72.3% when comparing the third quarter of 2012 to the previous quarter and by $817,000 or 118.6% versus the quarter ended September 30, 2011.  The increase in OREO expenses during the quarter resulted primarily from valuation adjustments on two OREO properties.

Advertising expenses increased by $205,000 or 45.9% during the quarter and by $206,000 or 46.2% from the quarter ended September 30, 2011. The increase between the third quarter of 2012 and the previous quarter was timing related. Advertising expenses are a byproduct of campaigns and promotions which do not always occur uniformly throughout the year. The increase in advertising expenses between the third quarter of 2012 and the same quarter last year was primarily due to expenses related to promotions and campaigns in 2012.

The Company's efficiency ratio was 69.3% for the third quarter of 2012, compared to an efficiency ratio of 73.9% for the third quarter of 2011.  The efficiency ratio is not a measurement under accounting principles generally accepted in the United States.  The Company calculates its efficiency ratio by dividing non interest expense (adjusted for amortization of intangibles, other real estate expenses, and non-recurring one-time charges) 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 in calculating tax equivalent amounts is 34%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.  Prior to March 31, 2012, the Company did not exclude amortization of intangibles and other real estate expenses from total non-interest expense.  The efficiency ratios for the periods ended December 31, 2011 and prior and included in tables in this release have been restated for consistent presentation.

Asset Quality and Provision for Loan Losses

The provision for loan losses in the quarter ended September 30, 2012 was $635,000 compared to a provision of $730,000 in the previous quarter and a provision of $1.0 million in the quarter ended September 30, 2011, representing a decrease of 13.0% from the previous quarter and a decrease of 38.0% from the quarter ended September 30, 2011.

The Allowance for Loan and Lease Losses (ALLL) was $13.9 million representing 2.01% of total portfolio loans outstanding at September 30, 2012 and 2.18% at December 31, 2011. The decrease in the ALLL balance as a percentage of portfolio loans occurred primarily as a result of an increase in the balance of loans held for investment and the net result of loans charged off during the period versus the provision for loan losses during the period.  Loans held for investment increased approximately $21.0 million from December 31, 2011 to September 30, 2012.

Loans that were delinquent for more than 90 days and still accruing were $860,000 as of September 30, 2012 compared to $1.4 million as of June 30, 2012, representing a decrease of 37.3%.  The decrease in delinquent loans during the quarter resulted primarily from the transfer of a single large loan to Other Real Estate Owned ("OREO")

Non-accrual loans were $22.7 million at the end of the third quarter compared to $18.8 million as of June 30, 2012, representing an increase of 20.7% during the third quarter of 2012. Troubled debt restructurings that were performing as agreed were $4.3 million at the end of the third quarter, essentially unchanged from the quarter ended June 30, 2012. Other Real Estate Owned (OREO) was $11.9 million as of September 30, 2012 compared to $13.3 million as of June 30, 2012, representing a decrease of 10.5% during the third quarter. Total non-performing assets were $39.8 million or 3.2% of total assets at September 30, 2012, compared to $37.8 million or 3.1% of total assets as of June 30, 2012.  

Total Consolidated Assets

Total assets at September 30, 2012 were $1.2 billion, an increase of 1.4% from June 30, 2012 and 3.6% from December 31, 2011.

Total loans held for investment increased by $6.4 million or 0.94% in the third quarter of 2012 from the end of the second quarter.  Loans held for investment increased by $21.0 million or 3.1% from December 31, 2011.  The securities portfolio (excluding restricted stock) decreased by $6.2 million or 2.0% in the third quarter relative to the previous quarter and remained essentially flat from the December 31, 2011 balance of $308.2 million. Balances of mortgages held for sale increased by $24.5 million or 36.1% at September 30, 2012 compared to the previous quarter end balance but remained essentially flat from the December 31, 2011 balance of $92.5 million.   Cash balances and deposits at other banks decreased by 9.3% at the end of the third quarter of 2012 compared to the previous quarter end and increased $20.3 million or 39.5% from the balances at December 31, 2011.   

Deposits and Other Borrowings

Total deposits increased by $9.2 million or 0.9% from June 30, 2012 to September 30, 2012 and by $54.6 million or 5.9% from December 31, 2011.  Brokered deposits, including CDARS program funds, were $69.1 million at September 30, 2012, down 25.3% from June 30, 2012. FHLB advances were $72.9 million at September 30, 2012, compared to $77.9 million in advances at June 30, 2012.   

Equity and Capital

Shareholders' equity attributable to Middleburg Financial Corporation shareholders at September 30, 2012 was $112.5 million, compared to $109.9 million as of June 30, 2012 and $105.9 million at December 31, 2011.  Retained earnings at September 30, 2012 were $45.2 million compared to $43.8 million at June 30, 2012 and $41.2 million at December 31, 2011. The book value of the Company's common stock at September 30, 2012 was $15.96 per share versus $15.57 per share at June 30, 2012.

The Company's total risk-based capital ratio continued to increase to 15.2% as of September 30, 2012 from 14.9% at June 30, 2012 and 14.7% at December 31, 2011.  The Tier 1 risk-based capital ratio also increased from 13.5% at December 31, 2011 to 14.0% at September 30, 2012 and the Tier 1 Leverage Ratio increased to 8.9% from 8.8% at December 31, 2011.   

As depicted in the following table, the Company's risk-based capital ratios remain well above regulatory minimum capital ratios:

 

MIDDLEBURG FINANCIAL CORPORATION

Risk-Based Capital Ratios

September 30, 2012

(1)

MFC

Regulatory

Excess

Minimum

MFC

over

Requirement

Ratios

Minimum

Tier 1 Leverage Ratio

4.0%

8.9%

4.9%

Tier 1 Risk-Based Capital Ratio

4.0%

14.0%

10.0%

Total Risk-Based Capital Ratio

8.0%

15.2%

7.2%

(1) Under the regulatory framework for prompt corrective action.

 

Caution about Forward Looking Statements

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, 2011, 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, Gainesville, Leesburg, Marshall, Middleburg, Purcellville, Reston,  Richmond, Warrenton and Williamsburg. Middleburg Investment Group owns Middleburg Trust Company, which is headquartered in Richmond, Virginia with offices in Middleburg, Alexandria and Williamsburg. 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 

Consolidated Balance Sheets

(In thousands, except for share and per share data)

(Unaudited)

(Unaudited)

September 30,

June 30,

December 31,

2012

2012

2011

ASSETS

    Cash and due from banks

$

8,550

$

5,934

$

6,163

    Interest-bearing deposits with other institutions

62,973

72,877

45,107

        Total cash and cash equivalents

71,523

78,811

51,270

    Securities available for sale

308,374

314,530

308,242

    Loans held for sale

92,501

67,965

92,514

    Restricted securities, at cost

6,765

7,167

7,117

    Loans receivable, net of allowance for loan losses of $13,941 at Sept. 30, 2012, $14,969 at June 30, 2012, and $14,623 at December 31, 2011

678,423

670,941

656,770

    Premises and equipment, net

20,618

21,021

21,306

    Goodwill and identified intangibles

6,060

6,103

6,189

    Other real estate owned, net of valuation allowance of $3,138 at Sept. 30, 2012, $1,982 at June 30, 2012, and $1,522 at December 31, 2011

11,933

13,335

8,535

    Prepaid federal deposit insurance

3,266

3,510

3,993

    Accrued interest receivable and other assets

36,498

35,467

36,924

            TOTAL ASSETS

$

1,235,961

$

1,218,850

$

1,192,860

LIABILITIES

    Deposits:

        Non-interest-bearing demand deposits

$

176,522

$

154,838

$

143,398

        Savings and interest-bearing demand deposits

512,780

509,291

460,576

        Time deposits

295,145

311,156

325,895

            Total deposits

984,447

975,285

929,869

    Securities sold under agreements to repurchase

32,767

33,034

31,686

    Short-term borrowings

17,657

8,393

28,331

    FHLB borrowings

72,912

77,912

82,912

    Subordinated notes

5,155

5,155

5,155

    Accrued interest payable and other liabilities

7,590

7,066

6,894

    Commitments and contingent liabilities

-

-

-

            TOTAL LIABILITIES

1,120,528

1,106,845

1,084,847

SHAREHOLDERS' EQUITY

    Common stock ($2.50 par value; 20,000,000 shares authorized, 7,052,554, 7,052,554 and 6,996,932 issued and outstanding at Sept. 30, 2012, June 30, 2012, and December 31, 2011, respectively)

 

17,357

17,364

17,331

    Capital surplus

43,746

43,616

43,498

    Retained earnings

45,168

43,805

41,157

    Accumulated other comprehensive income 

6,264

5,100

3,926

            Total Middleburg Financial Corporation shareholders' equity

112,535

109,885

105,912

    Non-controlling interest in consolidated subsidiary

2,898

2,120

2,101

            TOTAL SHAREHOLDERS' EQUITY

115,433

112,005

108,013

            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

1,235,961

$

1,218,850

$

1,192,860

 

 

MIDDLEBURG FINANCIAL CORPORATION 

Consolidated Statements of Income

(In thousands, except for per share data)

                         Unaudited 

                  Unaudited 

For the Nine Months

For the Three Months

Ended September 30,

Ended September 30,

2012

2011

2012

2011

INTEREST AND DIVIDEND INCOME

Interest and fees on loans

$          28,565

$         29,378

$          9,189

$        9,846

Interest and dividends on securities available for sale

Taxable 

4,976

4,877

1,537

1,727

Tax-exempt

1,799

1,757

596

592

Dividends

135

108

46

36

Interest on deposits in banks and federal funds sold

88

90

39

30

    Total interest and dividend income

35,563

36,210

11,407

12,231

INTEREST EXPENSE

Interest on deposits

5,467

6,927

1,728

2,287

Interest on securities sold under agreements to repurchase

 

250

 

209

 

83

 

84

Interest on short-term borrowings

311

174

74

58

Interest on FHLB borrowings and other debt

889

914

305

312

    Total interest expense

6,917

8,224

2,190

2,741

NET INTEREST INCOME

28,646

27,986

9,217

9,490

Provision for loan losses

2,156

2,565

635

1,024

NET INTEREST INCOME AFTER PROVISION

FOR LOAN LOSSES

26,490

25,421

8,582

8,466

NONINTEREST INCOME

Service charges on deposit accounts

1,625

1,553

557

538

Trust services income

2,828

2,725

928

932

Gains on loans held for sale

15,088

8,373

6,161

3,846

Gains on securities available for sale, net

452

263

164

141

Total other-than-temporary impairment losses

(46)

(33)

-

(16)

Portion of loss recognized in other comprehensive income

 

46

 

11

 

-

 

(5)

Net other than temporary impairment losses

-

(22)

-

(21)

Commissions on investment sales

389

293

117

100

Fees on mortgages held for sale

143

325

37

84

Other service charges, commissions and fees

391

347

120

98

Bank-owned life insurance

363

385

118

123

Other operating income (expense)

194

45

116

6

    Total noninterest income

21,473

14,287

8,318

5,847

NONINTEREST EXPENSE

-

Salaries and employees' benefits

22,139

19,665

7,276

6,900

Net occupancy and equipment expense

5,265

5,016

1,732

1,700

Advertising

1,399

887

652

446

Computer operations

1,101

1,073

322

365

Other real estate owned

2,666

1,639

1,506

689

Other taxes

611

607

203

205

Federal deposit insurance expense

781

1,009

262

244

Other operating expenses

6,501

5,044

1,883

1,689

    Total noninterest expense

40,463

34,940

13,836

12,238

Income before income taxes

7,500

4,768

3,064

2,075

Income tax expense

1,578

1,072

565

454

NET INCOME

5,922

3,696

2,499

1,621

Net (income) loss attributable to non-controlling interest

(856)

128

(785)

(223)

Net income attributable to Middleburg Financial Corporation

$     5,066

$   3,824

$         1,714

$   1,398

Earnings per share:

Basic

$       0.72

$      0.55

$           0.24

$     0.20

Diluted

$       0.72

$      0.55

$           0.24

$     0.20

Dividends per common share

$       0.15

$      0.15

$           0.05

$     0.05

 

  

QUARTERLY SUMMARY STATEMENTS OF INCOME

MIDDLEBURG FINANCIAL CORPORATION

(Unaudited. Dollars in thousands except per share data)

For the Three Months Ended

Sep. 30, 2012

June 30, 2012

Mar. 31, 2012

Dec. 31, 2011

Sep. 30, 2011

Interest and Dividend Income

  Interest and fees on loans

$ 9,189

$ 9,594

$ 9,782

$ 9,839

$ 9,846

  Interest and dividends on securities available for sale

     Taxable 

1,537

1,704

1,735

1,750

1,727

     Tax Exempt

596

596

607

606

592

     Dividends

46

45

44

36

36

  Interest on deposits in banks and federal funds sold

39

25

24

20

30

      Total interest and dividend income

$11,407

$11,964

$12,192

$12,251

$12,231

Interest Expense

  Interest on deposits

$  1,728

$ 1,846

$ 1,893

$ 1,940

$   2,287

  Interest on securities sold under agreements to repurchase

84

84

83

84

84

  Interest on short-term borrowings

89

89

133

144

58

  Interest on FHLB borrowings and other debt

289

287

312

299

312

      Total interest expense

$   2,190

$  2,306

$   2,421

$   2,467

$   2,741

      Net interest income

$   9,217

$  9,658

$   9,771

$   9,784

$   9,490

Provision for loan losses

635

730

792

319

1,024

      Net interest income after provision for loan losses

$  8,582

$ 8,928

$  8,979

$  9,465

$  8,466

Non-Interest Income

 Trust services income

$  928

$  979

$  921

$  911

$   932

 Service charges on deposit accounts

557

538

530

542

538

 Net gains on securities available for sale (1)

164

148

140

197

141

 Total other-than-temporary impairment gain (loss) on securities

-

(36)

(10)

6

(16)

   Portion of (gain) loss recognized in other comprehensive income

-

36

10

(9)

(5)

 Net other-than-temporary impairment loss

-

-

-

(3)

(21)

 Commissions on investment sales (1)

117

125

147

101

100

 Bank owned life insurance

118

123

122

101

123

 Gains on loans held for sale

6,161

5,075

3,852

4,469

3,846

 Fees on mortgages held for sale

37

64

42

8

84

 Other operating income

236

119

230

220

104

       Total non-interest income

$  8,318

$  7,171

$  5,984

$  6,546

$  5,847

Non-Interest Expense

  Salaries and employee benefits (2)

$  7,276

$  7,506

$  7,357

$  8,470

$  6,900

  Net occupancy and equipment expense

1,732

1,755

1,778

1,732

1,700

  Other taxes

203

205

203

205

205

  Advertising

652

447

300

512

446

  Computer operations

322

394

385

428

365

  Other real estate owned 

1,506

874

286

925

689

  Federal deposit insurance expense

262

261

258

251

244

  Other operating expenses

1,883

1,869

2,747

2,244

1,689

       Total non-interest expense

$ 13,836

$ 13,311

$ 13,314

$ 14,767

$ 12,238

       Income before income taxes

$  3,064

$  2,788

$  1,649

$  1,244

$  2,075

       Income tax expense

565

598

416

278

454

       Net income

$  2,499

$  2,190

$  1,233

$  966

$  1,621

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

(785)

(421)

349

170

(223)

       Net income attributable to Middleburg Financial Corporation

$  1,714

$  1,769

$  1,582

$  1,136

$  1,398

Net income per common share, basic

$  0.24

$  0.25

$   0.23

$   0.16

$   0.20

Net income per common share, diluted

$  0.24

$  0.25

$   0.23

$   0.16

$   0.20

Dividends per common share

$  0.05

$  0.05

$   0.05

$   0.05

$   0.05

(1) As of March 31, 2012, amounts presented are net of commissions paid to generate these revenue sources. Prior periods have been restated to conform to this presentation.

(2) As of March 31, 2012, salaries and employee benefit expenses exclude commissions paid on mortgage loan originations and investment sales. These commissions are netted against their respective revenue amounts in the statements of income. Prior periods have been restated to reflect this presentation.

 

 

MIDDLEBURG FINANCIAL CORPORATION

KEY STATISTICS

(Unaudited. Dollars in thousands except per share data)

For the Three Months Ended

Sep 30, 2012

Jun 30, 2012

 Mar 31, 2012

Dec 31, 2011

Sep 30, 2011

 

Net income

$      1,714

$      1,769

$      1,582

$      1,136

$      1,398

Earnings per share, basic

$       0.24

$       0.25

$       0.23

$       0.16

$       0.20

Earnings per share, diluted

$       0.24

$       0.25

$       0.23

$       0.16

$       0.20

Dividend per share

$       0.05

$       0.05

$       0.05

$       0.05

$       0.05

Return on average total assets - Year to Date

0.56%

0.57%

0.54%

0.44%

0.46%

Return on average total equity - Year to Date

6.18%

6.21%

5.95%

4.87%

5.07%

Dividend payout ratio

20.53%

19.87%

22.11%

30.80%

25.00%

Non-interest  revenue to total revenue (1)

46.94%

41.97%

36.47%

38.27%

37.12%

Net interest margin (2)

3.28%

3.57%

3.69%

3.67%

3.64%

Yield on average earning assets

4.03%

4.40%

4.56%

4.55%

4.66%

Yield on average interest-bearing liabilities

0.93%

1.00%

1.06%

1.07%

1.21%

Net interest spread

3.10%

3.40%

3.50%

3.48%

3.45%

Non-interest income to average assets(3)

2.66%

2.35%

1.93%

2.10%

1.97%

Non-interest expense to average assets(3)

4.52%

4.47%

4.50%

5.03%

4.28%

Efficiency ratio - QTD (Tax Equiv)  (4)

69.27%

72.68%

77.24%

83.64%

73.92%

(1) Excludes securities gains and losses including OTTI adjustments.

(2) 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. This calculation excludes net securities gains and losses.

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

(4) The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing non-interest expense (adjusted for amortization of intangibles, other real estate expenses, and non-recurring one-time charges) 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 in calculating tax equivalent amounts is 34%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency. Prior to March 31, 2012, the Company did not exclude amortization of intangibles and other real estate expenses from total non-interest expense. The efficiency ratios for the periods ended December 31, 2011 and prior have been restated for consistency of presentation purposes.

 

 

MIDDLEBURG FINANCIAL CORPORATION

SELECTED FINANCIAL DATA BY QUARTER

(Unaudited. Dollars in thousands except per share data)

Sep. 30, 2012

June 30, 2012

 Mar. 31, 2012

Dec. 31, 2011

Sep. 30, 2011

BALANCE SHEET RATIOS

Loans to deposits (Including HFS)

79.73%

77.30%

80.21%

82.15%

81.65%

Portfolio loans to deposits

70.33%

70.33%

71.69%

72.20%

74.29%

Average interest-earning assets to

average-interest bearing liabilities

 

123.02%

 

121.73%

 

120.99%

 

121.22%

 

119.85%

PER SHARE DATA 

Dividends

$               0.05

$               0.05

$               0.05

$               0.05

$               0.05

Book value (MFC Shareholders)

$             15.96

$             15.57

$             15.40

$             15.13

$             15.04

Tangible book value (3)

$             15.10

$             14.71

$             14.52

$             14.24

$             14.15

SHARE PRICE DATA 

Closing price

$             17.76

$             17.00

$             15.71

$             14.25

$             15.00

Diluted earnings multiple  (1)

18.50

17.00

17.08

22.27

18.75

Book value multiple(2)

1.11

1.09

1.02

0.94

1.00

COMMON STOCK DATA

Outstanding shares at end of period

7,052,554

7,052,554

7,005,315

6,996,932

6,996,932

Weighted average shares O/S Basic  - QTD

7,036,536

7,030,639

6,994,858

6,996,932

6,996,932

Weighted average shares O/S, diluted - QTD

7,051,860

7,042,111

7,000,169

6,998,019

6,998,494

CAPITAL RATIOS  

Capital to Assets - Common shareholders

9.10%

9.02%

8.97%

8.88%

9.13%

Capital to Assets - with Noncontrolling Interest

9.34%

9.19%

9.11%

9.05%

9.32%

Tangible common equity ratio (4)

8.66%

8.56%

8.50%

8.40%

8.63%

Leverage ratio

8.92%

8.99%

8.89%

8.81%

8.97%

Tier 1 risk based capital ratio

13.98%

13.66%

13.57%

13.46%

12.87%

Total risk based capital ratio

15.23%

14.92%

14.83%

14.72%

14.13%

CREDIT QUALITY

Net charge-offs to average total loans

0.22%

0.08%

0.07%

0.11%

0.13%

Total non-performing loans to total portfolio loans

4.02%

3.57%

3.88%

4.53%

4.80%

Total non-performing assets to total assets

3.22%

3.10%

3.21%

3.27%

3.34%

Non-accrual loans to:

      total portfolio loans

3.28%

2.74%

3.26%

3.78%

4.51%

      total assets

1.84%

1.54%

1.85%

2.12%

2.64%

Allowance for loan losses to:

      total portfolio loans

2.01%

2.18%

2.18%

2.18%

2.24%

      non-performing assets

35.05%

39.56%

38.53%

37.53%

39.24%

      non-accrual loans

61.46%

79.61%

66.80%

57.69%

49.61%

NON-PERFORMING ASSETS:

    Loans delinquent over 90 days and still accruing

$                860

$             1,372

$                167

$             1,233

$             1,561

    Non-accrual loans    

22,683

18,802

22,247

25,346

30,485

    Restructured loans (Not in non accrual)

4,302

4,334

4,056

3,853

404

    Other real estate owned and repossessed assets

11,933

13,335

12,095

8,535

6,096

Total non-performing assets 

$           39,778

$           37,843

$           38,565

$           38,967

$           38,546

NET LOAN CHARGE-OFFS:

    Loans charged off (QTD)

$             1,817

$                694

$                700

$                893

$             1,017

    Recoveries (QTD)

(154)

(72)

(146)

(73)

(44)

Net charge-offs  (QTD)

$             1,663

$                622

$                554

$                820

$                973

PROVISION FOR LOAN LOSSES 

$                635

$                730

$                792

$                319

$             1,024

ALLOWANCE FOR LOAN LOSS SUMMARY

Balance at the beginning of period

$           14,969

$           14,861

$           14,623

$           15,124

$           15,073

Provision

635

730

792

319

1,024

Net charge-offs

(1,663)

(622)

(554)

(820)

(973)

Balance at the end of period

$           13,941

$           14,969

$           14,861

$           14,623

$           15,124

(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.

(3) Tangible book value is not a measurement under accounting principles generally accepted in the United States. It is computed by subtracting identified intangible assets and goodwill from total Middleburg Financial Corporation shareholders' equity and then dividing the result by the number of shares of common stock issued and outstanding at the end of the accounting period.

(4) The tangible common equity ratio is not a measurement under accounting principles generally accepted in the United States. It is computed by subtracting identified intangible assets and goodwill from total Middleburg Financial Corporation shareholders' equity and total assets and then dividing the adjusted shareholders' equity balance by the adjusted total asset balance.

 

 

MIDDLEBURG FINANCIAL CORPORATION

Average Balances, Income and Expenses, Yields and Rates

 Three Months Ended September 30, 

2012

2011

 Average 

 Income/ 

Yield/

 Average 

 Income/ 

Yield/

 Balance 

 Expense 

Rate  (2)

 Balance 

 Expense 

Rate  (2)

(Dollars in thousands)

Assets :

Securities:

   Taxable

$    264,234

$         1,583

2.38%

$    242,906

$         1,764

2.88%

   Tax-exempt (1)

62,175

903

5.78%

57,800

897

6.16%

       Total securities

$    326,409

$         2,486

3.03%

$    300,706

$         2,661

3.51%

       Total loans (3)

$    760,442

$         9,189

4.81%

$    724,450

$         9,912

5.43%

Interest bearing deposits in

      other financial institutions

69,802

39

0.22%

48,355

30

0.25%

       Total earning assets

$ 1,156,653

$       11,714

4.03%

$ 1,073,511

$       12,603

4.66%

Less: allowances for credit losses

(15,202)

(14,956)

Total nonearning assets

84,082

84,315

Total assets

$ 1,225,533

$ 1,142,870

Liabilities:

Interest-bearing deposits:

    Checking

$    342,360

$            299

0.35%

$    305,761

$            530

0.69%

    Regular savings

105,716

79

0.30%

99,344

175

0.70%

    Money market savings

66,859

50

0.30%

58,903

98

0.66%

    Time deposits:

       $100,000 and over

144,566

535

1.47%

137,483

593

1.71%

       Under $100,000

159,693

765

1.91%

169,087

892

2.09%

       Total interest-bearing deposits

$    819,194

$         1,728

0.84%

$    770,578

$         2,288

1.18%

Short-term borrowings

6,531

74

4.51%

5,576

58

4.13%

Securities sold under agreements

    to repurchase

34,805

84

0.96%

36,241

84

0.92%

FHLB borrowings and other debt

79,697

304

1.52%

83,067

312

1.49%

Federal funds purchased

-

-

-

239

-

0.00%

    Total interest-bearing liabilities

$    940,227

$         2,190

0.93%

$    895,701

$         2,742

1.21%

Non-interest bearing liabilities

    Demand deposits

164,261

133,365

    Other liabilities

6,600

7,376

Total liabilities

$ 1,111,088

$ 1,036,442

Non-controlling interest

2,920

2,189

Shareholders' equity

111,525

104,239

Total liabilities and shareholders'

   equity

$ 1,225,533

$ 1,142,870

Net interest income

$         9,524

$         9,861

Interest rate spread

3.10%

3.44%

Cost of Funds

0.79%

1.06%

Interest expense as a percent of

    average earning assets

0.75%

1.01%

Net interest margin

3.28%

3.64%

(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 366 day year.

(3) Total average loans include loans on non-accrual status.

 

 

MIDDLEBURG FINANCIAL CORPORATION

Average Balances, Income and Expenses, Yields and Rates

 Nine Months Ended September 30, 

2012

2011

 Average 

 Income/ 

Yield/

 Average 

 Income/ 

Yield/

 Balance 

 Expense 

Rate  (2)

 Balance 

 Expense 

Rate  (2)

(Dollars in thousands)

Assets :

Securities:

   Taxable

$    263,981

$         5,111

2.59%

$    224,461

$         4,986

2.97%

   Tax-exempt (1)

61,867

2,726

5.89%

55,739

2,662

6.39%

       Total securities

$    325,848

$         7,837

3.21%

$    280,200

$         7,648

3.65%

       Total loans (3)

$    751,943

$       28,565

5.07%

$    706,995

$       29,378

5.56%

Interest bearing deposits in

      other financial institutions

54,772

88

0.21%

45,819

89

0.26%

       Total earning assets

$ 1,132,563

$       36,490

4.30%

$ 1,033,014

$       37,115

4.80%

Less: allowances for credit losses

(15,071)

(14,816)

Total nonearning assets

83,114

91,379

Total assets

$ 1,200,606

$ 1,109,577

Liabilities:

Interest-bearing deposits:

    Checking

$    318,841

$         1,017

0.43%

$    295,782

$         1,506

0.68%

    Regular savings

105,816

290

0.37%

95,224

567

0.80%

    Money market savings

60,373

156

0.35%

59,266

293

0.66%

    Time deposits:

       $100,000 and over

142,503

1,666

1.56%

135,973

1,831

1.80%

       Under $100,000

173,559

2,338

1.80%

168,470

2,730

2.17%

       Total interest-bearing deposits

$    801,092

$         5,467

0.91%

$    754,715

$         6,927

1.23%

Short-term borrowings

9,195

311

4.52%

5,687

173

4.07%

Securities sold under agreements

    to repurchase

33,736

250

0.99%

32,859

210

0.85%

FHLB borrowings and other debt

84,965

889

1.40%

79,844

914

1.53%

    Total interest-bearing liabilities

$    928,989

$         6,917

0.99%

$    873,161

$         8,224

1.26%

Non-interest bearing liabilities

    Demand Deposits

153,069

125,979

    Other liabilities

6,557

7,081

Total liabilities

$ 1,088,615

$ 1,006,221

Non-controlling interest

2,504