MIDDLEBURG, Va., Oct. 23 /PRNewswire-FirstCall/ -- Middleburg Financial Corporation reported net income of $2.3 million, or $0.52 per diluted share, for the quarter ended September 30, 2006. This represents an increase of 11.0% or $234,000 from the $2.1 million, or $0.54 per diluted share, for quarter ended June 30, 2006. Much of this increase resulted from fewer operating expenses incurred during the quarter. When compared to the quarter ended September 30, 2005, net income for the quarter ended September 30, 2006 decreased by 3.0% or $73,000. Much of this decrease resulted from decreased earnings from mortgage operations.
Total consolidated assets were $772.6 million at September 30, 2006. Increased funding costs continue to negatively impact the net interest margin, bringing it to 3.93% for the quarter ended September 30, 2006 from 3.96% for the quarter ended June 30, 2006 and 4.05% for the quarter ended September 30, 2005. However, cost savings during the third quarter 2006 have helped to improve the Company's return on average assets and its efficiency ratio. Return on average assets was 1.21% for the quarter ended September 30, 2006 compared to 1.11% for the quarter ended June 30, 2006. Return on average assets was 1.27% for the quarter ended September 30, 2005.
The Company's efficiency ratio was 60.42% for the quarter ended September 30, 2006 compared to 63.71% and 60.12% for the quarters ended June 30, 2006 and September 30, 2005, respectively. See the "Key Statistics" table toward the end of this press release for a discussion of the calculation of the efficiency ratio, which is not a measurement under accounting principles generally accepted in the United States.
As expected with both reduced earnings from mortgage operations and the issuance of additional equity in July 2006, the Company's return on average equity considerably declined for the quarter ended September 30, 2006 when compared to the quarters ended June 30, 2006 and September 30, 2005. Return on average equity was 12.47% for the quarter ended September 30, 2006 compared to 15.29% for the quarter ended June 30, 2006. Return on average equity was 16.92% for the quarter ended September 30, 2005.
Net income for the nine months ended September 30, 2006 increased 16.8% to $6.5 million, or $1.58 per diluted share, from $5.5 million, or $1.42 per diluted share, for the same time period in 2005. The net interest margin for the nine months ended September 30, 2006 decreased 18 basis points to 3.98% from 4.16% for the nine months ended September 30, 2005. The return on average assets was 1.14% and 1.11% for the nine months ended September 30, 2006 and 2005, respectively. The return on average equity was 14.09% and 14.07% for the nine months ended September 30, 2006 and 2005, respectively. The efficiency ratios for the nine months ended September 30, 2006 and 2005 were 62.02% and 62.05%, respectively.
The components of net income per diluted share are summarized below:
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
2006 2005 2006 2005
Core Banking $ 0.45 $ 0.47 $ 1.38 $ 1.11
Mortgage 0.05 0.12 0.13 0.22
Wealth Management 0.02 0.02 0.07 0.09
$ 0.52 $ 0.62 $ 1.58 $ 1.42
Earnings from core banking operations increased 24.9% to $1.38 per diluted share when comparing the nine months ended September 30, 2006 to September 30, 2005. The increase in earnings year-to-date from core banking operations resulted from increases in interest income driven by the Company's record 2005 loan growth. However, earnings from core banking operations have been negatively impacted during 2006 by the Company's reduced loan production and the compression of the net interest margin. Considering the current interest rate and competitive market environment, the Company has been diligent about maintaining its credit quality and thereby cautious about the growth it has added to the loan portfolio.
Earnings from mortgage operations of the Company decreased 43.0% from $0.22 per diluted share for the nine months ended September 30, 2005 to $0.13 per diluted share for the nine months ended September 30, 2006. Although overall production has declined for Southern Trust Mortgage, LLC (STM), some of this decrease was attributed to narrowed margins resulting from shifts in the mix of retail and wholesale loan volume. Earnings from wealth management operations declined 22.5% to $0.07 per diluted share for the nine months ended September 30, 2006 when compared to $0.09 per diluted share for the same time period in 2005. Earnings from wealth management operations consists of net income of the Middleburg Investment Group, the non-bank subsidiary of the Company that generates revenues from trust and investment advisory activities through Middleburg Trust Company (MTC), a wholly owned trust subsidiary, Middleburg Investment Advisors, Inc. (MIA), a wholly owned registered investment advisor focused on fixed income investments, and Middleburg Bank Investment Sales, which is a division of Middleburg Bank. Much of the 22.5% decrease in net earnings was related to the decrease in net income generated by Middleburg Bank Investment Sales. Middleburg Bank Investment Sales net income decreased 64.7% when comparing the nine months ended September 30, 2005 to September 30, 2006 due to decreased sales resulting from fewer financial consultants employed during the nine months ended September 30, 2006. Additionally, the resignation of a top producer in July 2006 heavily impacted the production for the quarter ended September 30, 2006. The Company is in the process of recruiting additional financial consultants.
Net Interest Income and Net Interest Margin
The net interest margin declined from 4.16% for the nine months ended September 30, 2005 to 3.98% for the same time period in 2006. The decline in the net interest margin was mostly attributed to the steady rise in interest rates on deposits and borrowings to fund the earning asset growth.
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 footnote (1) following the "Key Statistics" table below.
Net interest income increased 6.8% when comparing the quarter ended September 30, 2006 to the same time period in 2005. Net interest income increased 11.2% from $18.1 million for the nine months ended September 30, 2005 to $20.1 million for the nine months ended September 30, 2006. Interest income increased 29.4% while interest expense increased 71.0% when comparing the nine months ended September 30, 2006 to the same time period in 2005. The significant increase in interest expense resulted from both the increase in the average amount of short and long term funding from the nine months ended September 30, 2005 to the same period in 2006 and the 200 basis point increase in the Federal Funds rate and the 100 plus basis point increase in the three month LIBOR rate during that same period.
Interest income from loans increased $2.1 million or 26.3% when comparing the quarter ended September 30, 2006 to the same time period in 2005. Interest income from loans increased $7.7 million or 37.8% when comparing the nine months ended September 30, 2006 to the same time period in September 30, 2005. While the yield on the loan portfolio increased by 59 basis points from September 30, 2005 to September 30, 2006, the majority of the increase in interest income from loans was attributable to the increased volume of the loan portfolio. Average net loans increased $76.2 million from the nine months ended September 30, 2005 to the nine months ended September 30, 2006. Interest income from the investment portfolio decreased $95,000 from the nine months ended September 30, 2005 to the same period in 2006 while the tax equivalent yield on the investment portfolio increased 50 basis points over that same time period. The average balance of the investment portfolio decreased $19.3 million or 11.6% from the nine months ended September 30, 2005 to the nine months ended September 30, 2006.
With large pay downs of short term funding afforded by the proceeds received in July 2006 from the Company's common stock offering, the Company's near term exposure to a rising rate environment has been reduced and the balance sheet shows a more asset sensitive profile. The expected decrease in net interest income could be approximately 1.17% or $27,000 in a 12-month period of rising rates of 200 basis points, based on modeling results at August 31, 2006.
Non Interest Income
Non interest income decreased $688,000 or 23.7% when comparing the quarter ended September 30, 2006 to the same time period in 2005. Non interest income decreased $585,000 or 8.2% when comparing the nine months ended September 30, 2006 to the same time period in 2005. These decreases result from both a decrease in earnings from STM and fewer gains on sales of investment securities.
Trust and investment advisory fees earned by MTC and MIA increased 0.3% or $3,000 when comparing the quarter ended September 30, 2006 to the same time period in 2005 and 5.5% or $158,000 when comparing the nine months ended September 30, 2006 to the same time period in 2005. 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 remained unchanged at $1.1 billion at September 30, 2005 and 2006.
Service charges on deposits increased 1.5% from the quarter ended September 30, 2005 to the same time period in 2006. Service charges on deposits increased $79,000 or 6.1% to $1.4 million for the nine months ended September 30, 2006, compared to $1.3 million for the same time period in 2005. In particular, ATM and Visa check card fees have increased approximately $56,000 for the nine months ended September 30, 2006 when compared to the same period in 2005.
Investment sales fees decreased 30.8% or $45,000 from the quarter ended September 30, 2005 to the same time period in 2006. Investment sales fees decreased 10.1% to $462,000 for the nine months ended September 30, 2006, compared to $513,000 for the same time period in 2005. During July 2006, one of Middleburg Investment Sales' top producers resigned from the company. Middleburg Bank owns an interest in BI Investments Group, LLC (BI), which is a consortium of 32 community banks primarily based in Virginia. This ownership interest allows the Company to use BI as its full-service broker-dealer.
Equity in earnings from affiliate, which reflects the 41.8% ownership interest in STM, decreased 49.1% or $346,000 from the quarter ended September 30, 2005 to the same time period in 2006. STM closed $238.9 million in loans for the quarter ended September 30, 2006 with 58.5% of its production attributable to purchase money financings. For the quarter ended September 30, 2005, STM closed $304.5 million in loans with 56.2% of its production attributable to purchase money financings. Equity in earnings from affiliate decreased 39.7% or $520,000 from $1.3 million for the nine months ended September 30, 2005 to $789,000 for the same time period in 2006. STM closed $681.4 million in loans for the nine months ended September 30, 2006 with 61.7% of its production attributable to purchase money financings. For the nine months ended September 30, 2005, STM closed $801.2 million in loans with 63.0% of its production attributable to purchase money financings. STM's 2006 production levels have been negatively impacted by the tightening of the housing market and the impact that the increase in mortgage rates has had on the volume of refinance loans. Additionally, narrowed margins from the shift in production mix has negatively impacted its 2006 earnings.
Income earned from the Bank's $10.8 million investment in Bank Owned Life Insurance (BOLI) contributed $111,000 and $122,000 for the quarters ended September 30, 2006 and 2005, respectively. Income earned from BOLI contributed $324,000 to total other income for the nine months ended September 30, 2006 and $354,000 for the same time period in 2005. The Company purchased BOLI in 2004 to help subsidize increasing employee benefit costs and expenses related to the restructure of its supplemental retirement plans.
Other service charges, including fees from loans and other service fees, decreased $20,000 or 12.7% from the quarter ended September 30, 2005 to the same time period in 2006. This decrease was driven mostly by reduced loan processing fees resulting from lower loan production levels during the third quarter of 2006. Other service charges increased $52,000 or 13.1% from the nine months ended September 30, 2005 to the same time period in 2006. The increase was mostly attributed to the increase related to both additional safe deposit boxes that became available for rent and an increase in the safe deposit box rental fees in mid-year 2005.
Non Interest Expense
Non interest expense increased $30,000 or 0.5% from the quarter ended September 30, 2005 to the same time period in 2006. Non interest expense increased $1.0 million for the nine months ended September 30, 2006 when compared to the same time period in 2005. Salary and employee benefit expense increased 4.4% or $141,000 for the quarter ended September 30, 2006 when compared to the same time period in 2005. This increase results mostly from increases in the cost of health insurance. Salary and employee benefit expense increased 6.9% or $634,000 from the nine months ended September 30, 2005 to the same time period in 2006. Mid year 2005, two experienced commercial lenders were hired to support business development efforts related to the Warrenton financial service center, which opened in October 2005. Additionally, various retail staff positions were added to the Company's payroll in efforts to prepare for opening of the Warrenton facility. $245,000 of the $634,000 increase in salary and employee benefit expense relates to the Company's Warrenton financial service center.
Net occupancy and equipment expense increased $37,000 or 5.3% when comparing the quarter ended September 30, 2005 to the quarter ended September 30, 2006. This increase is driven mostly by the additional depreciation expense related to the Warrenton financial service center, which opened in October 2005. Net occupancy and equipment expense increased $191,000 or 9.2% to $2.3 million for the nine months ended September 30, 2006 compared to $2.1 million for the same time period in 2005. The Company's Warrenton location accounted for $157,000 to the net increase in occupancy expenses, due mostly to additional depreciation costs related to that facility.
Other taxes, which is comprised of mostly bank franchise tax, increased 7.6% or $9,000 from the quarter ended September 30, 2005 to the same time period in 2006. Other taxes increased 7.9% to $375,000 for the nine months ended September 30, 2006. Computer operations expense increased $34,000 or 15.5% from the quarter ended September 30, 2005 to the quarter ended September 30, 2006. Computer operations expense increased $70,000 or 10.7% from the nine months ended September 30, 2005 to the same time period in 2006. These increases are related to increased maintenance costs of in-house core operating and support systems resulting mostly from the Company's growth. Additional maintenance costs have also been incurred with coverage of the Company's recently installed customer relationship management software.
Other operating expenses decreased $191,000 or 14.9% when comparing the quarter ended September 30, 2006 to the same time period in 2005. Other operating expenses decreased 2.0% or $62,000 from $3.1 million for the nine months ended September 30, 2005 to $3.0 million for the same time period in 2006. The decreases resulted from decreases in various other expense categories including advisory, legal, educational, and travel.
Total Consolidated Assets
Total assets increased 6.8% to $772.6 million at September 30, 2006 from $723.3 million at September 30, 2005. Total loans, net of allowance for loan losses, increased 13.2% or $64.9 million to $557.8 million at September 30, 2006 from $492.9 million at September 30, 2005. Considering the current interest rate and competitive market environment, the Company has been diligent about maintaining its credit quality and thereby cautious about the growth it has added to the loan portfolio. Additional staff, a solid local economy, the relationship with STM, and success of the business model, which focuses on high quality financial solutions to clients and increasing client introductions across business lines, are all believed to have contributed to the strong loan growth experienced.
At September 30, 2006, there were no non performing loans, representing a decrease of $92,000 from September 30, 2005. Total loans past due 90 days or more were less than $1,000 at September 30, 2006 and declined slightly from the $1,000 at September 30, 2005. The loan loss provision was $418,000 for the nine months ended September 30, 2006. The allowance for loan losses was $5.5 million or 0.98% of total loans outstanding at September 30, 2006. Net charge offs were $48,000 for the nine months ended September 30, 2006, compared to net charge offs of $6,000 for the same time period in 2005. Based upon internal analysis by the Company's credit administration department, which factors, among other things, the credit quality of the portfolio, the allowance for loan losses was deemed adequate at 0.98% of total loans outstanding.
The investment portfolio decreased $13.1 million or 8.3% to $144.5 million at September 30, 2006 compared to $157.6 million at September 30, 2005. During 2005 and 2006, management elected to utilize cash received from principal pay downs, maturities and calls in its investment portfolio to fund loan growth rather than re-invest into the investment portfolio. This strategy decreased the size of the investment portfolio. In anticipation of rising interest rates, the Company has also held to an investment strategy that focuses on keeping the portfolio relatively short by purchasing securities with weighted average lives that typically do not exceed three years.
Deposits and Other Borrowings
Total deposits, which includes brokered deposits, increased 7.7% to $560.3 million at September 30, 2006 from $520.1 million at September 30, 2005. Total retail deposits, which excludes brokered deposits, increased 5.7% from $506.2 million at September 30, 2005 to $535.0 million at September 30, 2006. At September 30, 2006, $25.2 million of the brokered certificates remained outstanding. The Company had $13.9 million in brokered certificates of deposits at September 30, 2005.
Securities sold under agreements to repurchase with commercial checking account clients decreased by $9.2 million or 22.0% from September 30, 2005 to $32.6 million at September 30, 2006. Federal Home Loan Bank advances and overnight borrowings decreased $6.4 million or 7.3% to $81.7 million at September 30, 2006 from $88.1 million at September 30, 2005. During the third quarter of 2006, FHLB overnight borrowings were decreased with a portion of the proceeds received by the Company from its common stock issuance.
Equity
In July 2006, the Company issued 676,552 shares of its common stock in an underwritten public offering, including the exercise of the underwriter's over-allotment option. The public price of $31.00 per share, less the underwriters' commissions and expenses of the offering, resulted in net proceeds of $19.7 million to the Company. The Company used the proceeds to increase its equity and to provide additional equity capital to the Bank to support the growth of operations.
Stockholders' equity increased 44.9% from $53.6 million at September 30, 2005 to $77.6 million at September 30, 2006. The book value of the Company at September 30, 2006 was $14.36 per common share. Total common shares outstanding were 4,505,605 at September 30, 2006.
Joseph L. Boling, Chairman and CEO stated, "We are pleased with our performance given both the pause in the real estate market and the flat yield curve. The capital we raised combined with our business model will allow us to continue our measured growth in this outstanding market."
On September 20, 2006, the board of directors declared a $0.19 per common share cash dividend for shareholders of record as of September 27, 2006 and payable on October 20, 2006.
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, 2005, and other filings with the Securities and Exchange Commission.
Middleburg Financial Corporation is headquartered in Middleburg, Virginia and has two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. Middleburg Investment Group owns Middleburg Trust Company and Middleburg Investment Advisors, Inc. Middleburg Bank serves Loudoun, Fairfax, and Fauquier Counties in Virginia with seven financial service centers. Middleburg Trust Company is headquartered in Richmond, Virginia with a branch office in Middleburg. Middleburg Investment Advisors, Inc. is a SEC registered investment advisor located in Alexandria, Virginia.
MIDDLEBURG FINANCIAL CORPORATION
SUMMARY INCOME STATEMENT
(Unaudited, dollars in thousands)
For the Nine Months
Ended September 30,
2006 2005
INTEREST INCOME
Interest and fees on loans $28,217 $20,471
Interest on investment securities 5,431 5,526
Interest on short term investments - -
TOTAL INTEREST INCOME $33,648 $25,997
INTEREST EXPENSE
Interest on deposits $8,320 $4,298
Interest on borrowings 5,214 3,616
TOTAL INTEREST EXPENSE $13,534 $7,915
NET INTEREST INCOME $20,113 $18,082
PROVISION FOR LOAN LOSSES 418 1,458
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $19,695 $16,624
NON INTEREST INCOME
Trust and investment advisory fee
income $3,060 $2,902
Service charges on deposits 1,381 1,302
Net gains on securities available for
sale 1 252
Commissions on investment sales 462 513
Equity in earnings from affiliate 789 1,309
Bank owned life insurance 324 354
Other service charges, commissions and
fees 452 400
Other operating income 87 109
TOTAL NON INTEREST INCOME $6,556 $7,141
NON INTEREST EXPENSE
Salaries and employee benefits $10,195 $9,510
Net occupancy expense of premises 2,274 2,083
Other taxes 375 347
Computer operations 726 655
Other operating expenses 3,435 3,399
TOTAL NON INTEREST EXPENSE $17,004 $15,995
INCOME BEFORE TAXES $9,248 $7,771
Income tax expense 2,762 2,216
NET INCOME $6,486 $5,555
MIDDLEBURG FINANCIAL CORPORATION
SUMMARY INCOME STATEMENT
(Unaudited, dollars in thousands)
For the Three Months Ended
3Q06 2Q06 1Q06 4Q05 3Q05
INTEREST INCOME
Interest and fees on
loans $9,843 $9,508 $8,866 $8,478 $7,793
Interest on investment
securities 1,850 1,794 1,787 1,737 1,754
Interest on short term
investments - - - - 5
TOTAL INTEREST INCOME $11,692 $11,302 $10,653 $10,215 $9,552
INTEREST EXPENSE
Interest on deposits $3,154 $2,641 $2,525 $2,226 $1,943
Interest on borrowings 1,753 1,944 1,517 1,455 1,257
TOTAL INTEREST EXPENSE $4,907 $4,585 $4,042 $3,681 $3,200
NET INTEREST INCOME $6,785 $6,717 $6,611 $6,534 $6,352
PROVISION FOR LOAN LOSSES 55 113 250 286 317
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $6,731 $6,604 $6,361 $6,248 $6,035
NON INTEREST INCOME
Trust and investment
advisory fee income $985 $1,004 $1,071 $1,038 $982
Service charges on
deposits 471 474 436 481 464
Net gains on
securities available
for sale - 1 - (176) 273
Commissions on
investment sales 102 167 193 162 147
Equity in earnings
from affiliate 358 328 103 220 704
Bank owned life
insurance 111 109 104 104 122
Other service charges,
commissions and fees 140 153 160 136 160
Other operating income 46 16 24 (85) 49
TOTAL NON INTEREST INCOME $2,213 $2,252 $2,091 $1,880 $2,901
NON INTEREST EXPENSE
Salaries and employee
benefits $3,371 $3,347 $3,477 $3,610 $3,230
Net occupancy expense
of premises 743 790 741 715 706
Other taxes 125 125 125 118 116
Computer operations 257 235 233 210 223
Other operating
expenses 1,093 1,372 970 1,273 1,284
TOTAL NON INTEREST EXPENSE $5,589 $5,869 $5,546 $5,926 $5,559
INCOME BEFORE TAXES $3,354 $2,987 $2,906 $2,202 $3,377
Income tax expense 1,019 885 858 583 968
NET INCOME $2,336 $2,102 $2,048 $1,619 $2,409
MIDDLEBURG FINANCIAL CORPORATION
BALANCE SHEET
(dollars in thousands) Unaudited Unaudited Unaudited Audited Unaudited
9/30/2006 6/30/2006 3/31/2006 12/31/2005 9/30/2005
Assets:
Cash and due from
banks $14,624 $17,551 $13,813 $15,465 $19,606
Interest-bearing
balances in banks 273 563 288 160 191
Securities at fair
value 144,540 145,910 149,967 149,591 157,612
Loans, net of
allowance for loan
losses 557,803 551,825 543,399 520,511 492,900
Bank premises and
equipment, net 18,214 18,402 18,638 18,656 17,861
Other assets 37,099 36,772 35,912 35,528 35,130
Total assets $772,553 $771,024 $762,017 $739,911 $723,300
Liabilities and
Shareholders' Equity:
Liabilities:
Deposits:
Non-interest
bearing demand
deposits $123,508 $140,019 $121,809 $128,641 $128,697
Savings and
interest-bearing
demand deposits 249,246 256,182 287,881 273,570 251,789
Time deposits 187,235 165,367 136,138 149,221 139,579
Total
deposits $559,989 $561,568 $545,828 $551,432 $520,065
Federal funds
purchased - - - - 1,050
Securities sold under
agreements to
repurchase 32,906 36,939 34,902 34,317 41,818
Federal Home Loan
Bank advances 26,700 44,000 51,275 24,100 30,600
Long-term debt 55,000 55,000 55,000 57,500 57,500
Trust preferred
capital notes 15,465 15,465 15,465 15,465 15,465
Other liabilities 4,894 3,372 5,014 3,621 3,232
Commitment and
contingent
liabilities - - - - -
Total
liabilities $694,954 $716,344 $707,484 $686,435 $669,730
Shareholders' Equity:
Common stock, par
value $2.50 per share $11,264 $9,523 $9,523 $9,515 $9,515
Capital surplus 23,667 5,459 5,459 5,431 5,376
Retained earnings 43,463 41,984 40,605 39,281 38,385
Accumulated other
comprehensive income
(loss), net (796) (2,285) (1,054) (751) 294
Total
shareholders'
equity $77,598 $54,681 $54,533 $53,476 $53,570
Total liabilities and
shareholders' equity $772,553 $771,024 $762,017 $739,911 $723,300
MIDDLEBURG FINANCIAL CORPORATION
KEY STATISTICS For the Three Months Ended
3Q06 2Q06 1Q06 4Q05 3Q05
Net Income (dollars in
thousands) $2,336 $2,102 $2,048 $1,619 $2,409
Earnings per share, basic $0.53 $0.55 $0.54 $0.43 $0.63
Earnings per share, diluted $0.52 $0.54 $0.52 $0.41 $0.62
Return on average total
assets 1.21% 1.11% 1.11% 0.89% 1.27%
Return on average total
equity 12.47% 15.29% 15.17% 12.26% 16.92%
Dividend payout ratio 35.75% 34.43% 35.33% 44.19% 30.16%
Fee revenue as a percent of
total revenue 15.91% 16.62% 16.41% 16.75% 21.58%
Net interest margin(1) 3.93% 3.96% 4.05% 3.99% 4.05%
Yield on average earning
assets 6.69% 6.59% 6.45% 6.18% 6.03%
Yield on average interest-
bearing liabilities 3.46% 3.21% 2.94% 2.68% 2.42%
Net interest spread 3.24% 3.38% 3.51% 3.50% 3.61%
Tax equivalent adjustment
to net interest income
(dollars in thousands) $195 $191 $192 $196 $205
Non-interest income to
average assets 1.14% 1.18% 1.13% 1.11% 1.47%
Non-interest expense to
average assets 2.89% 3.09% 2.93% 3.19% 3.11%
Efficiency ratio(2) 60.42% 63.71% 61.95% 65.49% 60.12%
(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%. For the quarters ended
September 30, 2006 and 2005, net interest income on a tax equivalent
basis was $7.0 million and $6.6 million, respectively. See the table
below for a reconciliation of net interest income to tax equivalent
net interest income. 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 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%. For the quarters ended September 30, 2006 and 2005,
tax equivalent net interest income was $7.0 million and $6.6 million,
respectively. See the table below for a reconciliation of net
interest income to tax equivalent net interest income. Total non
interest income, excluding gains and losses on the investment
portfolio, for the quarters ended September 30, 2006 and 2005, was
$2.2 million and $2.6 million, respectively. 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. The Company believes that the efficiency ratio is
a reasonable measure of profitability.
MIDDLEBURG FINANCIAL CORPORATION
SELECTED FINANCIAL DATA BY QUARTER
3Q06 2Q06 1Q06
BALANCE SHEET RATIOS
Loans to deposits 100.59% 99.24% 100.54%
Average interest-earning
assets to average-interest
bearing liabilities 123.22% 122.27% 122.35%
PER SHARE DATA
Dividends $0.19 $0.19 $0.19
Book value $17.22 $14.36 $14.32
Tangible book value $15.97 $12.85 $12.79
SHARE PRICE DATA
Closing price $34.05 $30.83 $35.00
Diluted earnings multiple 1.80 2.31 2.51
Book value multiple 1.98 2.15 2.44
COMMON STOCK DATA
Outstanding shares at end of
period 4,505,605 3,809,053 3,809,053
Weighted average shares
outstanding 4,394,724 3,809,053 3,807,786
Weighted average shares
outstanding, diluted 4,482,970 3,899,198 3,904,965
CAPITAL RATIOS
Total equity to total assets 10.04% 7.09% 7.16%
Total risk based capital
ratio 15.20% 11.74% 11.70%
Tier 1 risk based capital
ratio 14.30% 10.85% 10.80%
Leverage ratio 11.52% 8.75% 8.76%
CREDIT QUALITY
Net charge-offs to average
loans 0.00% 0.01% 0.00%
Total non-performing loans
to total loans 0.00% 0.00% 0.00%
Total non-performing assets
to total assets
Non-accrual loans to:
total loans 0.00% 0.05% 0.00%
total assets 0.00% 0.03% 0.00%
Allowance for loan losses
to:
total loans 0.98% 0.98% 0.98%
non-performing loans 0.00% 2130.08% 33562.50%
non-accrual loans 0.00% 2138.43% 48818.18%
NON-PERFORMING ASSETS:
(dollars in thousands)
Loans delinquent over 90
days $- $1 $5
Non-accrual loans - 255 11
NET LOAN CHARGE-OFFS (RECOVERIES):
(dollars in thousands)
Loans charged off $14 $36 $47
(Recoveries) (19) (6) (24)
Net charge-offs (recoveries) (5) 30 23
PROVISION FOR LOAN LOSSES (dollars in
thousands) $55 $113 $250
ALLOWANCE FOR LOAN LOSS SUMMARY
(dollars in thousands)
Balance at the beginning of
period $5,453 $5,370 $5,143
Provision 55 113 250
Net charge-offs (recoveries) (5) 30 23
Balance at the end of period 5,513 5,453 5,370
MIDDLEBURG FINANCIAL CORPORATION
SELECTED FINANCIAL DATA BY QUARTER
4Q05 3Q05
BALANCE SHEET RATIOS
Loans to deposits 95.31% 95.53%
Average interest-earning
assets to average-interest
bearing liabilities 123.58% 123.94%
PER SHARE DATA
Dividends $0.19 $0.19
Book value $14.07 $14.09
Tangible book value $12.50 $12.51
SHARE PRICE DATA
Closing price $30.75 $34.35
Diluted earnings multiple 2.24 2.50
Book value multiple 2.19 2.44
COMMON STOCK DATA
Outstanding shares at end
of period 3,806,053 3,806,053
Weighted average shares
outstanding 3,803,075 3,802,082
Weighted average shares
outstanding, diluted 3,906,443 3,906,146
CAPITAL RATIOS
Total equity to total
assets 7.23% 7.41%
Total risk based capital
ratio 11.79% 12.31%
Tier 1 risk based capital
ratio 10.89% 11.42%
Leverage ratio 8.60% 8.93%
CREDIT QUALITY
Net charge-offs to average
loans 0.00% 0.00%
Total non-performing loans
to total loans 0.02% 0.02%
Total non-performing
assets to total assets
Non-accrual loans to:
total loans 0.02% 0.02%
total assets 0.01% 0.01%
Allowance for loan losses
to:
total loans 0.98% 0.98%
non-performing loans 4321.85% 5236.56%
non-accrual loans 5844.32% 5293.48%
NON-PERFORMING ASSETS:
(dollars in thousands)
Loans delinquent over
90 days $31 $1
Non-accrual loans 88 92
NET LOAN CHARGE-OFFS (RECOVERIES):
(dollars in thousands)
Loans charged off $21 $15
(Recoveries) (8) (5)
Net charge-offs
(recoveries) 13 10
PROVISION FOR LOAN LOSSES (dollars in
thousands) $1,744 $1,458
ALLOWANCE FOR LOAN LOSS SUMMARY
(dollars in thousands)
Balance at the beginning
of period $4,870 $4,563
Provision 286 317
Net charge-offs
(recoveries) 13 10
Balance at the end of
period 5,143 4,870
Average Balances, Income and Expenses, Yields and Rates
Three Months Ended September 30,
2006 2005
Yield/ Yield/
Average Income/ Rate Average Income/ Rate
Balance Expense (3) Balance Expense (3)
(Dollars in thousands)
Assets :
Securities:
Taxable $113,922 $1,455 5.07% $127,872 $1,358 4.21%
Tax-exempt (1) (2) 31,337 575 7.28% 32,591 600 7.30%
Total securities $145,259 $2,030 5.54% $160,463 $1,958 4.84%
Loans
Taxable $558,223 $9,841 6.99% $481,191 $7,791 6.42%
Tax-exempt (1) 89 2 8.92% 113 2 7.02%
Total loans $558,312 $9,843 6.99% $481,304 $7,793 6.42%
Federal funds sold 738 11 5.91% 558 4 2.84%
Interest on money
market investments - - - - - -
Interest bearing
deposits in
other financial
institutions 329 4 4.82% 129 1 3.08%
Total earning
assets $704,638 $11,888 6.69% $642,454 $9,756 6.02%
Less: allowances for
credit losses (5,461) (4,670)
Total nonearning assets 68,247 65,830
Total assets $767,424 $703,614
Liabilities:
Interest-bearing
deposits:
Checking $133,169 $794 2.37% $92,444 $254 1.09%
Regular savings 52,463 230 1.74% 54,301 212 1.55%
Money market
savings 64,398 157 0.97% 93,926 189 0.80%
Time deposits:
$100,000 and
over 110,030 1,340 4.83% 82,016 683 3.30%
Under $100,000 64,209 633 3.91% 75,765 604 3.16%
Total interest-
bearing
deposits $424,269 $3,154 2.95% $398,452 $1,942 1.93%
Federal Home Loan Bank
Advances 32,190 451 5.56% 30,637 298 3.86%
Securities sold under
agreements
to repurchase 35,290 390 4.38% 34,235 238 2.76%
Long-term debt 70,465 899 5.06% 60,356 706 4.64%
Federal Funds Purchased 1,046 13 4.93% 1,004 10 3.95%
Total interest-
bearing
liabilities $563,260 $4,907 3.46% $524,684 $3,194 2.42%
Non-interest bearing
liabilities
Demand Deposits 126,106 124,673
Other liabilities 3,756 1,021
Total liabilities $693,122 $650,378
Shareholders' equity 74,302 53,236
Total liabilities and
shareholders'
equity $767,424 $703,614
Net interest income $6,981 $6,562
Interest rate spread 3.24% 3.61%
Interest expense as a
percent of
average earning
assets 2.76% 1.97%
Net interest margin 3.93% 4.05%
(1) Income and yields are reported on tax equivalent basis assuming a
federal tax rate of 34%.
(2) Income and yields include dividends on preferred bonds which are 70%
excludable for tax purposes.
(3) All yields and rates have been annualized on a 365 day year.
Average Balances, Income and Expenses, Yields and
Rates
Nine Months Ended September 30,
2006 2005
Yield/ Yield/
Average Income/ Rate Average Income/ Rate
Balance Expense (3) Balance Expense (3)
(Dollars in thousands)
Assets :
Securities:
Taxable $116,480 $4,274 4.91% $133,584 $4,299 4.30%
Tax-exempt (1) (2) 30,900 1,699 7.35% 33,124 1,830 7.39%
Total securities $147,380 $5,973 5.42% $166,708 $6,129 4.92%
Loans
Taxable $546,830 $28,213 6.90% $433,702 $20,463 6.31%
Tax-exempt (1) 95 6 8.44% 182 11 8.08%
Total loans $546,925 $28,219 6.90% $433,884 $20,474 6.31%
Federal funds sold 777 28 4.82% 532 11 2.76%
Interest on money
market investments - - - - - -
Interest bearing
deposits in
other financial
institutions 210 8 5.09% 267 5 2.50%
Total earning
assets $695,292 $34,228 6.58% $601,391 $26,619 5.92%
Less: allowances for
credit losses (5,337) (4,115)
Total nonearning
assets 68,428 63,695
Total assets $758,383 $660,971
Liabilities:
Interest-bearing
deposits:
Checking $141,633 $2,414 2.28% $85,800 $531 0.83%
Regular savings 55,893 713 1.71% 40,078 296 0.99%
Money market
savings 69,362 496 0.96% 91,794 442 0.64%
Time deposits:
$100,000 and over 89,805 2,968 4.42% 75,987 1,695 2.98%
Under $100,000 62,241 1,730 3.72% 61,710 1,334 2.89%
Total interest-
bearing
deposits $418,934 $8,321 2.66% $355,369 $4,298 1.62%
Federal Home Loan Bank
Advances 37,119 1,452 5.23% 31,400 784 3.34%
Securities sold under
agreements
to repurchase 36,760 1,119 4.07% 33,696 619 2.46%
Long-term debt 70,483 2,607 4.95% 63,569 2,185 4.60%
Federal Funds Purchased 961 36 5.01% 1,123 28 3.33%
Total interest-
bearing
liabilities $564,257 $13,535 3.21% $485,157 $7,914 2.18%
Non-interest bearing
liabilities
Demand Deposits 128,933 121,052
Other liabilities 3,633 2,376
Total liabilities $696,823 $608,585
Shareholders' equity 61,560 52,386
Total liabilities and
shareholders'
equity $758,383 $660,971
Net interest income $20,693 $18,705
Interest rate spread 3.37% 3.74%
Interest expense as a
percent of average
earning assets 2.60% 1.76%
Net interest margin 3.98% 4.16%
(1) Income and yields are reported on tax equivalent basis assuming a
federal tax rate of 34%.
(2) Income and yields include dividends on preferred bonds which are 70%
excludable for tax purposes.
(3) All yields and rates have been annualized on a 365 day year.
MIDDLEBURG FINANCIAL CORPORATION
RECONCILIATION OF NET INTEREST INCOME TO
TAX EQUIVALENT NET INTEREST INCOME
AT PERIOD END
(dollars in thousands) 9/30/06 6/30/06 3/31/06 12/31/05 9/30/05
GAAP measures:
Interest Income - Loans $28,217 $18,374 $8,867 $28,949 $20,471
Interest Income -
Investments & Other 5,431 3,581 1,786 7,263 5,526
Interest Expense - Deposits 8,320 5,166 2,525 6,525 4,298
Interest Expense - Other
Borrowings 5,214 3,461 1,517 5,071 3,617
Total Net Interest Income $20,113 $13,328 $6,611 $24,616 $18,082
Plus:
NON-GAAP measures:
Tax Benefit Realized on Non-
Taxable Interest Income -
Loans $1 $1 $1 $5 $8
Tax Benefit Realized on Non-
Taxable Interest Income -
Municipal Securities 577 382 191 807 612
Tax Benefit Realized on Non-
Taxable Interest Income -
Corporate Securities - - - 8 4
Total Tax Benefit Realized on
Non- Taxable Interest Income $578 $383 $192 $820 $624
Total Tax Equivalent Net
Interest Income $20,691 $13,711 $6,803 $25,436 $18,706
FOR THE THREE MONTH PERIOD ENDED
(dollars in thousands) 9/30/06 6/30/06 3/31/06 12/31/05 9/30/05
GAAP measures:
Interest Income - Loans $9,843 $9,507 $8,867 $8,478 $7,793
Interest Income -
Investments & Other 1,850 1,795 1,786 1,737 1,759
Less: Interest Expense -
Deposits 3,154 2,641 2,525 2,226 1,942
Less: Interest Expense -
Other Borrowings 1,753 1,944 1,517 1,455 1,258
Total Net Interest Income $6,785 $6,717 $6,611 $6,534 $6,352
Plus:
NON-GAAP measures:
Tax Benefit Realized on Non-
Taxable Interest Income -
Loans $- $- $1 $1 $1
Tax Benefit Realized on Non-
Taxable Interest Income -
Municipal Securities 195 191 191 195 202
Tax Benefit Realized on Non-
Taxable Interest Income -
Corporate Securities - - - - 2
Total Tax Benefit Realized on
Non- Taxable Interest Income $195 $191 $192 $196 $205
Total Tax Equivalent Net
Interest Income $6,981 $6,908 $6,803 $6,730 $6,557
