MIDDLEBURG, Va., July 20 /PRNewswire-FirstCall/ -- Middleburg Financial Corporation reported asset growth of 6.7% since June 30, 2006, leading to total consolidated assets of $822.3 million at June 30, 2007. The net loan portfolio had a year over year increase of 12.0%, reaching $618.2 million at June 30, 2007. Net income was $4.0 million, or $0.87 per diluted share, for the six months ended June 30, 2007. This represents a 3.3% decrease from $4.2 million, or $1.06 per diluted share, for the six months ended June 30, 2006. For the three months ended June 30, 2007, net income was $1.9 million, or $0.41 per diluted share. This is a 11.3% decrease from $2.1 million, or $0.54 per diluted share, for the three months ended June 30, 2006. The decreases in net income resulted from the decrease in net interest margin and increases in non interest expenses, and the decreases in earnings per share also reflected an increase in the weighted average diluted shares outstanding at June 30, 2007. The increase in weighted average diluted shares outstanding resulted from the July 2006 issuance of 676,552 shares of the Company's common stock in an underwritten public offering. The annualized return on average assets and return on average equity were 1.01% and 10.07%, respectively, for the six months ended June 30, 2007.
"The economy and length of the interest rate cycle continues to challenge the industry. It also tests our resolve to maintain our long-term focus on asset/liability management and our balance sheet," stated Joseph L. Boling, Chairman and CEO. "While I am pleased with our continued growth and focus on our long-term strategy, I am disappointed with our year over year performance. However, we will continue to focus on our strategy, knowing that, as the interest rate curve improves, we will be positioned to take advantage of our continuing market opportunities.
"In the interim, we will continue to subscribe to a lowest cost philosophy with respect to funding our needs. As such, we may allow our investment portfolio to further decrease and may also continue to utilize FHLB advances and other wholesale avenues to fuel our growth.
"In the near term, we will continue to look at every opportunity for improved earnings as long as it fits with our long term strategy. We have maintained strong credit quality in both Middleburg Bank and in our mortgage partnership with Southern Trust Mortgage. Our levels of non-interest income continue to improve and we feel good about our earnings diversity. The financial service industry is in evolution, and we believe we are ahead of the curve."
The components of net income per diluted share are summarized below:
For the Six Months Ended
June 30,
2007 2006
Diluted Diluted
Earnings Earnings
Net Per Net Per
Income Share Income Share
Core Banking $3,573,980 $0.78 $3,640,022 $0.93
Mortgage 201,095 0.04 284,266 0.07
Wealth Management 235,983 0.05 225,784 0.06
$4,011,058 $0.87 $4,150,072 $1.06
For the Three Months Ended
June 30,
2007 2006
Diluted Diluted
Earnings Earnings
Net Per Net Per
Income Share Income Share
Core Banking $1,573,921 $0.34 $1,796,635 $0.46
Mortgage 166,974 0.04 216,276 0.06
Wealth Management 124,631 0.03 89,322 0.02
$1,865,526 $0.41 $2,102,233 $0.54
Core operations have been impacted by a declining net interest margin resulting from the Company's increased interest costs. Earnings from mortgage banking have been affected by slightly narrowed margins resulting from shifts in the mix of retail and wholesale loan volume and operational expenses related to hiring two large volume producers in the Virginia market.
Net earnings of 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 its subsidiaries, Middleburg Trust Company (MTC), a trust subsidiary, and Middleburg Investment Advisors, Inc. (MIA), a registered investment advisor focused on fixed income investments, and through Middleburg Bank Investment Sales, which is a division of Middleburg Bank. For these operations, much of the 39.5% year over year increase in net earnings for the three months ended June 30, 2007 is related to the increase in gross fees generated by MTC.
Net Interest Income and Net Interest Margin
The net interest margin declined from 4.00% for the six months ended June 30, 2006 to 3.91% for the six months ended June 30, 2007. The net interest margin declined from 3.96% for the three months ended June 30, 2006 to 3.80% for the three months ended June 30, 2006. The decline in the net interest margin was attributable to the steady rise in interest costs resulting from the Company's change in funding mix. The Company has relied upon higher cost deposits and borrowed money to fund the 2007 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 remained relatively unchanged at $13.0 million for the six months ended June 30, 2006 and 2007. Interest income increased 9.3% while interest expense increased 20.8% when comparing the six months ended June 30, 2007 to the same period ended June 30, 2006. The significant increase in interest expense resulted from the increase in both the average amount of time deposits and short term funding when comparing the six months ended June 30, 2007 to the same period in 2006. Interest income from loans increased $2.2 million or 12.0% when comparing the six months ended June 30, 2007 to the six months ended June 30, 2006. The yield on the loan portfolio increased by 18 basis points from June 30, 2006 to June 30, 2007, and the average balance of net loans increased $49.0 million during that same period.
Net interest income for the quarter ended June 30, 2007 was $6.8 million, reflecting a slight increase from $6.7 million for the same period in 2006. Interest income for the quarter ended June 30, 2007 increased 8.4% or $950,000 when compared to the quarter ended June 30, 2006. Interest expense increased 19.4% when comparing the quarter ended June 30, 2006 to the same time period in 2007.
Interest income from the investment portfolio decreased $151,000 from the six months ended June 30, 2006 to the same period in 2007, while the tax equivalent yield on the investment portfolio increased 44 basis points over that same time period. The average balance of the investment portfolio decreased $16.5 million or 11.1% from June 30, 2006 to June 30, 2007.
Non Interest Income
Non interest income increased 1.5% from the six month period ended June 30, 2006 to $4.4 million for the six months ended June 30, 2007. Non interest income increased 4.4% from the quarter ended June 30, 2006 to the same period in 2007.
Trust and investment advisory fees earned by MTC and MIA increased $160,000 or 7.7% to $2.2 million for the six months ended June 30, 2007, compared to $2.1 million for the same time period in 2006. 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 increased $31.4 million or 3.0% and remain at $1.1 billion at June 30, 2007. MTC continues to increase assets under administration within the Company's Northern Virginia footprint, Loudoun and Fauquier Counties, where the Company's business model has been fully executed and MTC's trust officer works in several of the Company's financial service centers. MTC's assets under administration in Northern Virginia at June 30, 2007 grew by $45.3 million or 27.9% from $196.9 million under administration at June 30, 2006 to $207.7 million at June 30, 2007. MIA's asset under administration increased $1.7 million or 0.3% when comparing June 30, 2006 to June 30, 2007. Most of the increase in MTC's and MIA's managed assets resulted from growth in new accounts.
Service charges on deposits increased $72,000 or 7.9% to $982,000 for the six months ended June 30, 2007, compared to $910,000 for the same time period in 2006. The increase is related mostly to increases in overdraft fees.
Investment sales fees decreased 24.9% to $270,000 for the six months ended June 30, 2007, compared to $360,000 for the same time period in 2006. At June 30, 2007, the Company employed three financial consultants, including a financial consultant hired during April 2007. The Company employed three financial consultants for the first six months of 2006, but only two from July 2006 to April 2007.
Equity in earnings from affiliate, which reflects the 41.8% ownership interest in Southern Trust Mortgage, LLC (STM), decreased 29.3% or $126,000 from $431,000 for the six months ended June 30, 2006 to $305,000 for the same time period in 2007. STM closed $459.1 million in loans for the six months ended June 30, 2007 with 54.9% of its production attributable to purchase money financings. For the six months ended June 30, 2006, STM closed $442.5 million in loans with 61.9% of its production attributable to purchase money financings. Mortgage banking operations were negatively impacted by slightly narrowed margins resulting from shifts in the mix of retail and wholesale loan volume and operational expenses such as sign-on bonuses and commission draws related to hiring two large volume producers in the Virginia market.
Income earned from the Bank's $11.3 million investment in Bank Owned Life Insurance (BOLI) contributed $220,000 to total other income for the six months ended June 30, 2007 and $213,000 for the same time period in 2006. The Company purchased $10.8 million in BOLI in 2004 and $485,000 in 2007 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, increased $30,000 or 9.7% from the six months ended June 30, 2006 to the same time period in 2007. This increase was driven by increases in loan processing fees. The Company had increased its fees related to loan documentation services.
Non Interest Expense
Non interest expense increased $443,000 or 3.9% to $11.9 million for the six months ended June 30, 2007, compared to $11.4 million for the same time period in 2006. Non interest expense increased 4.6% or $271,000 from the quarter ended June 30, 2006 to the same time period in 2007.
Salary and employee benefit expense increased 1.2% or $82,000 from the six months ended June 30, 2006 to the same time period in 2007. Net occupancy and equipment expense increased by $87,000 or 5.7% to $1.6 million for the six months ended June 30, 2007 compared to $1.5 million for the same time period in 2006. Various categories of occupancy expense experienced year over year increases at June 30, 2007, including utility, rental and repairs and maintenance expenses.
Other taxes, which is comprised of mostly bank franchise tax, increased 25.8% from the six months ended June 30, 2006 to $315,000 for the same period in 2007. The Virginia bank franchise tax assessment is equal to one percent of a bank's net capital, as defined by the Commonwealth of Virginia. With the issuance of 676,552 shares of its common stock in an underwritten public offering in July 2006, the Company increased its capital level by $19.7 million and subsequently transferred $19.0 million to the banking subsidiary, resulting in the increase in bank franchise tax for the six months ended June 30, 2007.
Computer operations expense increased $78,000 or 16.7% for the six months ended June 30, 2007 compared to the same time period in 2006. Most of this increase is related to increased maintenance costs of in-house core operating systems resulting mostly from the Company's growth.
Other operating expenses increased 5.6% or $131,000 to $2.5 million for the six months ended June 30, 2007 from $2.3 million for the same time period in 2006. The increase resulted mostly from increases in audit fees and other miscellaneous expenses.
Total Consolidated Assets
Total assets increased 6.7% to $822.3 million at June 30, 2007 from $771.0 million at June 30, 2006. Total loans, net of allowance for loan losses, increased 12.0% or $66.4 million to $618.2 million at June 30, 2007 from $551.8 million at June 30, 2006. 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 that it has added to the loan portfolio. A solid local economy, the relationship with STM, and the 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 loan growth experienced. At June 30, 2007, the tax equivalent yield on the loan portfolio was 7.03%.
Although non performing loans increased from June 30, 2006 to June 30, 2007, credit quality remained exceptional. Non-performing loans increased to $1.3 million at June 30, 2007 from $255,000 at June 30, 2006. The increase related to three secured real estate loans. The Company anticipates minimal loss on these assets. Non performing loans were 0.21% of total loans outstanding at June 30, 2007. Total loans past due 90 days or more increased to $23,000 at June 30, 2007 from $1,000 at June 30, 2006. The loan loss provision was $559,000 for the six months ended June 30, 2007. The allowance for loan losses was $6.1 million or 0.98% of total loans outstanding at June 30, 2007. Net charge offs were $31,000 for the six months ended June 30, 2007, compared to $53,000 for the six months ended June 30, 2006. 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 $17.5 million or 12.0% to $128.5 million at June 30, 2007 compared to $145.9 million at June 30, 2006. During 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. At June 30, 2007, the tax equivalent yield on the investment portfolio was 5.79%.
Deposits and Other Borrowings
Total deposits, which includes brokered deposits, decreased 0.1% to $560.9 million at June 30, 2007 from $561.6 million at June 30, 2006. Total retail deposits, which excludes brokered deposits, decreased 4.7% from $536.4 million at June 30, 2006 to $511.0 million at June 30, 2007. At June 30, 2007, three of the Company's financial service centers had total average deposits in excess of $85.0 million.
During the second quarters of 2006 and 2007, the Company issued $11.3 million and $26.8 million in brokered certificates of deposit, respectively. At June 30, 2007, $49.9 million of the brokered certificates remained outstanding. The Company had $25.2 million in brokered certificates of deposits at June 30, 2006.
Securities sold under agreements to repurchase with commercial checking account clients increased by $2.3 million or 6.3% from June 30, 2006 to $39.3 million at June 30, 2007. Federal Home Loan Bank advances and overnight borrowings increased $33.4 million or 33.7% to $132.4 million at June 30, 2007 from $99.0 million at June 30, 2006. The increased FHLB borrowings were utilized to subsidize part of the $66.4 million in year over year net loan growth.
Equity
Stockholders' equity increased 43.8% from $54.7 million at June 30, 2006 to $78.6 million at June 30, 2007. The book value of the Company at June 30, 2007 was $17.45 per common share. Total common shares outstanding were 4,505,605 at June 30, 2007.
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.
On June 29, 2007, the board of directors declared a $0.19 per common share cash dividend for shareholders of record as of July 13, 2007 and payable on July 27, 2007.
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, 2006, 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 Bank serves Loudoun, Fairfax, and Fauquier Counties in Virginia with seven financial service centers. Middleburg Investment Group owns Middleburg Trust Company and Middleburg Investment Advisors, Inc. 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 Six Months
Ended June 30, %
2007 2006 Change
INTEREST INCOME
Interest and fees on loans $20,575 $18,374 12.0%
Interest on investment
securities 3,430 3,581 -4.2%
Interest on short term
investments - - 0.0%
TOTAL INTEREST INCOME $24,005 $21,955 9.3%
INTEREST EXPENSE
Interest on deposits $7,023 $5,166 35.9%
Interest on borrowings 3,397 3,461 -1.8%
TOTAL INTEREST EXPENSE $10,420 $8,627 20.8%
NET INTEREST INCOME $13,585 $13,328 1.9%
PROVISION FOR LOAN LOSSES 559 363 53.9%
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $13,026 $12,965 0.5%
NON INTEREST INCOME
Trust and investment
advisory fee income $2,235 $2,075 7.7%
Service charges on deposits 982 910 7.9%
Net gains on securities
available for sale - 1 -100.0%
Commissions on investment
sales 270 360 -24.9%
Equity in earnings from
affiliate 305 431 -29.3%
Bank owned life insurance 220 213 3.3%
Other service charges,
commissions and fees 343 313 9.7%
Other operating income 54 40 33.8%
TOTAL NON INTEREST INCOME $4,409 $4,343 1.5%
NON INTEREST EXPENSE
Salaries and employee
benefits $6,906 $6,824 1.2%
Net occupancy expense of
premises 1,618 1,531 5.7%
Other taxes 315 250 25.8%
Computer operations 546 468 16.7%
Other operating expenses 2,473 2,342 5.6%
TOTAL NON INTEREST EXPENSE $11,858 $11,415 3.9%
INCOME BEFORE TAXES $5,577 $5,893 -5.4%
Income tax expense 1,566 1,743 -10.2%
NET INCOME $4,011 $4,150 -3.3%
MIDDLEBURG FINANCIAL CORPORATION
SUMMARY INCOME STATEMENT
(Unaudited, dollars in thousands)
For the Three Months Ended
2Q07 1Q07 4Q06 3Q06 2Q06
INTEREST INCOME
Interest and fees
on loans $10,592 $9,983 $9,944 $9,843 $9,508
Interest on investment
securities 1,660 1,770 1,806 1,850 1,794
Interest on short
term investments - - - - -
TOTAL INTEREST INCOME $12,252 $11,753 $11,751 $11,692 $11,302
INTEREST EXPENSE
Interest on deposits $3,505 $3,518 $3,374 $3,154 $2,641
Interest on borrowings 1,971 1,426 1,580 1,753 1,945
TOTAL INTEREST EXPENSE $5,476 $4,944 $4,953 $4,907 $4,586
NET INTEREST INCOME $6,776 $6,809 $6,797 $6,785 $6,716
PROVISION FOR LOAN LOSSES 407 152 82 55 113
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $6,369 $6,657 $6,716 $6,731 $6,603
NON INTEREST INCOME
Trust and investment
advisory fee income $1,130 $1,105 $1,054 $985 $1,004
Service charges on
deposits 516 466 488 471 474
Net (losses) gains
on securities available
for sale - - (305) - 1
Commissions on
investment sales 143 127 93 102 167
Equity in earnings
from affiliate 253 52 (109) 358 328
Bank owned life insurance 111 109 112 111 109
Other service charges,
commissions and fees 173 170 155 140 153
Other operating income 26 28 72 46 16
TOTAL NON INTEREST INCOME $2,352 $2,057 $1,560 $2,213 $2,252
NON INTEREST EXPENSE
Salaries and
employee benefits $3,566 $3,340 $3,495 $3,371 $3,347
Net occupancy
expense of premises 801 817 750 743 790
Other taxes 159 156 125 125 125
Computer operations 288 258 257 257 235
Other operating expenses 1,325 1,148 1,579 1,094 1,371
TOTAL NON INTEREST EXPENSE $6,139 $5,719 $6,206 $5,590 $5,868
INCOME BEFORE TAXES $2,582 $2,995 $2,069 $3,353 $2,988
Income tax expense 717 849 537 1,019 885
NET INCOME $1,865 $2,146 $1,532 $2,335 $2,102
MIDDLEBURG FINANCIAL CORPORATION
BALANCE SHEET
(dollars in thousands)
Unaudited Unaudited Audited Unaudited Unaudited
06/30/ 03/31/ 12/31/ 09/30/ 06/30/
2007 2007 2006 2006 2006
Assets:
Cash and due from
banks $16,028 $15,668 $18,391 $14,624 $17,551
Interest-bearing
balances in banks 48 394 164 273 563
Securities at fair
value 128,460 134,048 135,435 144,540 145,910
Loans, net of
allowance for loan
losses 618,237 579,604 564,750 557,803 551,825
Bank premises and
equipment, net 19,156 18,884 18,429 18,214 18,402
Other assets 40,347 39,169 35,136 37,099 36,772
Total assets $822,276 $787,767 $772,305 $772,553 $771,024
Liabilities and
Shareholders' Equity:
Liabilities:
Deposits:
Non-interest
bearing demand
deposits $121,799 $117,684 $128,300 $123,508 $140,019
Savings and
interest-bearing
demand deposits 235,993 259,856 250,747 249,246 256,182
Time deposits 203,113 179,293 191,551 187,235 165,367
Total
deposits $560,905 $556,833 $570,598 $559,989 $561,568
Federal funds
purchased - - - - -
Securities sold under
agreements to
repurchase 39,261 39,922 38,474 32,906 36,939
Federal Home Loan
Bank advances 97,400 64,000 34,000 26,700 44,000
Long-term debt 35,000 35,000 40,000 55,000 55,000
Trust preferred
capital notes 5,155 5,155 5,155 15,465 15,465
Other liabilities 5,921 7,527 6,179 4,894 3,372
Commitment and
contingent
liabilities - - - - -
Total
liabilities $743,642 $708,437 $694,406 $694,954 $716,344
Shareholders' Equity:
Common stock, par
value $2.50 per share $11,264 $11,264 $11,264 $11,264 $9,523
Capital surplus 23,532 23,519 23,503 23,667 5,459
Retained earnings 46,438 45,429 44,139 43,463 41,984
Accumulated other
comprehensive income
(loss), net (2,600) (882) (1,008) (796) (2,285)
Total
share-
holders'
equity $78,634 $79,330 $77,898 $77,598 $54,681
Total liabilities and
shareholders' equity $822,276 $787,767 $772,305 $772,553 $771,024
MIDDLEBURG FINANCIAL CORPORATION
KEY STATISTICS For the Three Months Ended
2Q07 1Q07 4Q06 3Q06 2Q06
Net Income (dollars in
thousands) $1,865 $2,146 $1,532 $2,335 $2,102
Earnings per share, basic $0.41 $0.48 $0.34 $0.53 $0.55
Earnings per share, diluted $0.41 $0.47 $0.33 $0.52 $0.54
Return on average total
assets 0.93% 1.09% 0.92% 1.21% 1.11%
Return on average total
equity 9.35% 10.70% 9.21% 12.47% 15.17%
Dividend payout ratio 45.89% 39.90% 55.87% 35.75% 34.43%
Fee revenue as a percent of
total revenue 16.11% 14.89% 11.72% 15.91% 16.62%
Net interest margin(1) 3.80% 4.02% 3.94% 3.93% 3.96%
Yield on average earning
assets 6.77% 6.83% 6.72% 6.69% 6.59%
Yield on average interest-
bearing liabilities 3.65% 3.50% 3.49% 3.46% 3.21%
Net interest spread 3.11% 3.33% 3.23% 3.24% 3.38%
Tax equivalent adjustment to
net interest income
(dollars in thousands) $248 $250 $216 $195 $191
Non-interest income to
average assets 1.19% 1.07% 0.80% 1.15% 1.18%
Non-interest expense to
average assets 3.12% 2.99% 3.20% 2.91% 3.09%
Efficiency ratio(2) 65.08% 62.35% 69.46% 60.42% 63.71%
(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 June 30, 2007 and 2006, net interest income on a tax
equivalent basis was $7.0 million and $6.9 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 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%. For the
quarters ended June 30, 2007 and 2006, tax equivalent net interest
income was $7.0 million and $6.9 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
June 30, 2007 and 2006, was $2.3 million. 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
2Q07 1Q07
BALANCE SHEET RATIOS
Loans to deposits 111.28% 111.53%
Average interest-earning
assets to
average-interest
bearing liabilities 123.85% 124.49%
PER SHARE DATA
Dividends $0.19 $0.19
Book value 17.45 17.61
Tangible book value 16.26 16.39
SHARE PRICE DATA
Closing price $32.50 $32.80
Diluted earnings multiple 1.90 1.90
Book value multiple 1.86 1.86
COMMON STOCK DATA
Outstanding shares at end
of period 4,505,605 4,505,605
Weighted average shares
outstanding 4,505,605 4,505,605
Weighted average shares
outstanding, diluted 4,588,336 4,590,450
CAPITAL RATIOS
Total equity to total
assets 9.56% 10.07%
Total risk based capital
ratio 13.16% 13.63%
Tier 1 risk based capital
ratio 12.23% 12.71%
Leverage ratio 10.12% 10.35%
CREDIT QUALITY
Net charge-offs to average
loans 0.01% 0.00%
Total non-performing loans
to total loans 0.21% 0.00%
Total non-performing
assets to total assets
Non-accrual loans to:
total loans 0.21% 0.00%
total assets 0.16% 0.00%
Allowance for loan losses
to:
total loans 0.98% 0.98%
non-performing loans 464.01% 0.00%
non-accrual loans 464.01% 0.00%
NON-PERFORMING ASSETS:
(dollars in thousands)
Loans delinquent over
90 days $23 $22
Non-accrual loans 1,317 -
NET LOAN CHARGE-OFFS (RECOVERIES):
(dollars in thousands)
Loans charged off $37 $26
(Recoveries) (12) (20)
Net charge-offs
(recoveries) 25 6
PROVISION FOR LOAN LOSSES (dollars in
thousands) $407 $152
ALLOWANCE FOR LOAN LOSS SUMMARY
(dollars in thousands)
Balance at the beginning
of period $5,728 $5,582
Provision 407 152
Net charge-offs
(recoveries) 25 6
Balance at the end of
period 6,110 5,728
MIDDLEBURG FINANCIAL CORPORATION
SELECTED FINANCIAL DATA BY QUARTER
4Q06 3Q06 2Q06
BALANCE SHEET RATIOS
Loans to deposits 105.25% 100.59% 99.24%
Average interest-earning
assets to average-interest
bearing liabilities 123.82% 123.22% 122.27%
PER SHARE DATA
Dividends $0.19 $0.19 $0.19
Book value 17.29 17.22 14.36
Tangible book value 16.06 15.97 12.85
SHARE PRICE DATA
Closing price $36.99 $34.05 $30.83
Diluted earnings multiple 2.00 1.80 2.31
Book value multiple 2.14 1.98 2.15
COMMON STOCK DATA
Outstanding shares at end of
period 4,505,605 4,505,605 3,809,053
Weighted average shares
outstanding 4,505,605 4,394,724 3,809,053
Weighted average shares
outstanding, diluted 4,596,195 4,482,970 3,899,198
CAPITAL RATIOS
Total equity to total assets 10.09% 10.04% 7.09%
Total risk based capital
ratio 13.70% 15.20% 11.74%
Tier 1 risk based capital
ratio 12.79% 14.30% 10.85%
Leverage ratio 10.26% 11.52% 8.75%
CREDIT QUALITY
Net charge-offs to average
loans 0.00% 0.00% 0.01%
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% 0.00% 0.05%
total assets 0.00% 0.00% 0.03%
Allowance for loan losses
to:
total loans 0.98% 0.98% 0.98%
non-performing loans 0.00% 0.00% 2130.08%
non-accrual loans 0.00% 0.00% 2138.43%
NON-PERFORMING ASSETS:
(dollars in thousands)
Loans delinquent over 90
days $19 $- $1
Non-accrual loans - - 255
NET LOAN CHARGE-OFFS (RECOVERIES):
(dollars in thousands)
Loans charged off $16 $14 $36
(Recoveries) (4) (19) (6)
Net charge-offs (recoveries) 13 (5) 30
PROVISION FOR LOAN LOSSES (dollars in
thousands) $82 $55 $113
ALLOWANCE FOR LOAN LOSS SUMMARY
(dollars in thousands)
Balance at the beginning of
period $5,513 $5,453 $5,370
Provision 82 55 113
Net charge-offs (recoveries) 13 (5) 30
Balance at the end of period 5,582 5,513 5,453
(1) The diluted earnings multiple (or price earnings ratio) is calculated
by dividing the period's closing market price per share by total
equity per weighted average shares outstanding, diluted 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.
Average Balances, Income and Expenses, Yields and Rates
Three Months Ended June 30,
2007 2006
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
(Dollars in thousands)
Assets :
Securities:
Taxable $87,917 $1,122 5.12% $116,889 $1,414 4.85%
Tax-exempt (1)(2) 41,385 725 7.03% 30,460 561 7.39%
Total securities $129,302 $1,847 5.73% $147,349 $1,975 5.38%
Loans
Taxable $606,661 $10,591 7.00% $550,695 $9,506 6.92%
Tax-exempt (1) 56 2 14.32% 95 2 8.44%
Total loans $606,717 $10,593 7.00% $550,790 $9,508 6.92%
Federal funds sold 3,737 48 5.15% 862 9 4.19%
Interest on money
market investments - - - - - -
Interest bearing
deposits in
other financial
institutions 906 12 5.31% 191 2 4.20%
Total earning
assets $740,662 $12,500 6.77% $699,192 $11,494 6.59%
Less: allowances
for credit losses (5,866) (5,387)
Total nonearning
assets 69,582 68,872
Total assets $804,378 $762,677
Liabilities:
Interest-bearing deposits:
Checking $148,602 $869 2.35% $143,506 $807 2.26%
Regular savings 52,503 249 1.90% 55,776 230 1.65%
Money market savings 54,559 147 1.08% 69,603 166 0.96%
Time deposits:
$100,000 and over 116,406 1,424 4.91% 78,846 851 4.33%
Under $100,000 76,734 816 4.27% 62,780 588 3.76%
Total interest
-bearing deposits $448,804 $3,505 3.13% $410,511 $2,642 2.58%
Federal Home Loan
Bank advances 71,424 1,029 5.78% 50,964 668 5.26%
Securities sold
under agreements
to repurchase 40,062 443 4.44% 39,506 406 4.12%
Long-term debt 40,155 492 4.91% 70,465 858 4.88%
Federal funds purchased 515 7 5.45% 894 12 5.38%
Total interest
-bearing
liabilities $600,960 $5,476 3.65% $572,340 $4,586 3.21%
Non-interest bearing
liabilities
Demand deposits 117,810 131,603
Other liabilities 5,600 3,608
Total liabilities $724,370 $707,551
Shareholders' equity 80,008 55,126
Total liabilities
and shareholders'
equity $804,378 $762,677
Net interest income $7,024 $6,908
Interest rate spread 3.11% 3.38%
Interest expense as a percent of
average earning assets 2.96% 2.63%
Net interest margin 3.80% 3.96%
(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
Six Months Ended June 30,
2007 2006
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
(Dollars in thousands)
Assets :
Securities:
Taxable $90,632 $2,346 5.22% $117,781 $2,818 4.82%
Tax-exempt (1) (2) 41,284 1,462 7.14% 30,678 1,124 7.39%
Total securities $131,916 $3,808 5.82% $148,459 $3,942 5.35%
Loans
Taxable $590,063 $20,573 7.03% $541,039 $18,371 6.85%
Tax-exempt (1) 38 2 10.61% 98 4 8.23%
Total loans $590,101 $20,575 7.03% $541,137 $18,375 6.85%
Federal funds sold 4,042 102 5.09% 797 17 4.30%
Interest on money market
investments - - - - - -
Interest bearing deposits in
other financial
institutions 738 18 4.92% 150 4 5.38%
Total earning
assets $726,797 $24,503 6.80% $690,543 $22,338 6.52%
Less: allowances for
credit losses (5,738) (5,275)
Total nonearning
assets 69,053 68,520
Total assets $790,112 $753,788
Liabilities:
Interest-bearing deposits:
Checking $147,360 $1,787 2.45% $145,935 $1,620 2.24%
Regular savings 51,766 480 1.87% 57,637 483 1.69%
Money market savings 57,315 309 1.09% 71,885 339 0.95%
Time deposits:
$100,000 and over 122,266 3,006 4.96% 79,525 1,627 4.13%
Under $100,000 69,828 1,441 4.16% 61,240 1,097 3.61%
Total interest
-bearing
deposits $448,535 $7,023 3.16% $416,222 $5,166 2.50%
Federal Home Loan
Bank advances 54,017 1,455 5.43% 39,624 1,001 5.09%
Securities sold under
agreements to
repurchase 42,814 949 4.47% 37,507 729 3.92%
Long-term debt 40,956 978 4.82% 70,493 1,708 4.89%
Federal funds purchased 517 15 5.85% 918 23 5.05%
Total interest
-bearing
liabilities $586,839 $10,420 3.58% $564,764 $8,627 3.08%
Non-interest bearing
liabilities
Demand deposits 117,655 130,370
Other liabilities 6,122 3,571
Total liabilities $710,616 $698,705
Shareholders' equity 79,496 55,083
Total liabilities and
shareholders'
equity $790,112 $753,788
Net interest income $14,083 $13,711
Interest rate spread 3.22% 3.44%
Interest expense as a percent of
average earning assets 2.89% 2.52%
Net interest margin 3.91% 4.00%
(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
FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED
(dollars in thousands)
6/30/ 3/31/ 12/31/ 9/30/ 6/30/
2007 2007 2006 2006 2006
GAAP measures:
Interest Income - Loans $20,575 $9,983 $38,161 $28,217 $18,374
Interest Income
- Investments & Other 3,430 1,770 7,237 5,431 3,581
Interest Expense - Deposits 7,023 3,518 11,694 8,320 5,166
Interest Expense
- Other Borrowings 3,397 1,426 6,794 5,214 3,461
Total Net Interest Income $13,585 $6,809 $26,910 $20,114 $13,328
Plus:
NON-GAAP measures:
Tax Benefit Realized on
Non- Taxable Interest Income
- Loans $- $- $2 $1 $1
Tax Benefit Realized on
Non- Taxable Interest Income
- Municipal Securities 498 250 792 577 382
Tax Benefit Realized on
Non- Taxable Interest Income
- Corporate Securities - - - - -
Total Tax Benefit Realized on
Non- Taxable Interest Income $498 $250 $794 $578 $383
Total Tax Equivalent
Net Interest Income $14,083 $7,059 $27,704 $20,692 $13,711
FOR THE THREE MONTH PERIOD ENDED
(dollars in thousands)
6/30/ 3/31/ 12/31/ 9/30/ 6/30/
2007 2007 2006 2006 2006
GAAP measures:
Interest Income - Loans $10,592 $9,983 $9,944 $9,843 $9,507
Interest Income
- Investments & Other 1,660 1,770 1,806 1,850 1,795
Less: Interest Expense
- Deposits 3,505 3,518 3,374 3,154 2,641
Less: Interest Expense
- Other Borrowings 1,971 1,426 1,580 1,753 1,944
Total Net Interest Income $6,776 $6,809 $6,796 $6,786 $6,717
Plus:
NON-GAAP measures:
Tax Benefit Realized on
Non- Taxable Interest Income
- Loans $- $- $1 $- $-
Tax Benefit Realized on
Non- Taxable Interest Income
- Municipal Securities 248 250 215 195 191
Tax Benefit Realized on
Non- Taxable Interest Income
- Corporate Securities - - - - -
Total Tax Benefit Realized on
Non- Taxable Interest Income $248 $250 $216 $195 $191
Total Tax Equivalent
Net Interest Income $7,024 $7,059 $7,012 $6,982 $6,908
