MIDDLEBURG, Va., July 30 /PRNewswire-FirstCall/ -- Middleburg Financial Corporation (the "Company"), , parent company of Middleburg Bank (the "Bank"), today reported its financial results for the second quarter of 2010.
Second Quarter 2010 Highlights: -- Net income of $723,548 for the quarter; -- Diluted earnings per share of $0.10 for the quarter; -- Net interest margin of 3.67% for the quarter; -- Total asset growth of $85.0 million or 8.7% for the six month period; -- Total loans increased by $9.9 million or 1.6% for the six month period; -- Total deposit growth of $53.4 million or 6.6% for six month period; -- Provision for loan losses decreased 18.4% relative to the quarter ended June 30, 2009; and -- Tier I capital ratio of 13.33%, leverage ratio of 10.58%
"Despite continued challenges in the economy, Middleburg Financial Corporation delivered net income of $723,548 in the second quarter of 2010," said Gary R. Shook, President and Chief Executive Officer. "The increase in non performing assets in the quarter was related to previously identified loans and was expected as we continue to work through the collection process for these loans. Looking ahead, we foresee a continuation of problem loans throughout this year, which will continue to impact earnings," added Mr. Shook.
Net Interest Income and Net Interest Margin
Net interest income was $8.4 million during the three months ended June 30, 2010, a decrease of 14.9% relative to the quarter ended June 30, 2009. The average yield on earning assets was 5.22% for the quarter ended June 30, 2010 while the average cost of interest bearing liabilities was 1.82% for the same period representing a decrease of 124 basis points and 69 basis points, respectively, from the quarter ended June 30, 2009. The net interest margin for the three months ended June 30, 2010 was 3.67% compared to 4.36% for the quarter ended June 30, 2009.
The Company's net interest margin is not a measurement under accounting principles generally accepted in the United States, but it is a common measure used by the financial services industry to determine how profitably earning assets are funded. The Company's net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non-taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. Details on the calculation of the net interest margin are included in the "Key Statistics" table.
Asset Quality and Provision for Loan Losses
The provision for loan losses was $1.3 million for the quarter ended June 30, 2010, compared to $1.6 million for the quarter ended June 30, 2009, a decline of 18.4%. The Company increased its allowance for loan losses ("ALLL") $890,000 or 9.6% during the first six months of 2010. The ALLL at June 30, 2010 was $10.1 million representing 1.54% of total portfolio loans outstanding versus 1.43% of total portfolio loans at December 31, 2009. The pace of problem loans is as expected. The Company deemed it prudent to increase its ratio of allowance for loan losses to total loans as a result of continued economic uncertainty and an increase in non-performing assets.
Non-performing assets increased from $17.2 million or 1.8% of total assets at December 31, 2009 to $26.7 million or 2.5% of total assets as of June 30, 2010. The increase was primarily due to an increase in delinquent loans over 90 days and non-accrual loans. Given the continued economic uncertainties, it is possible that we could experience further increases in non-performing assets.
Non-Interest Income
Non-interest income decreased by $72,000 or 1.2% to $6.1 million when comparing the quarter ended June 30, 2010 to the quarter ended June 30, 2009. Increases in trust and investment advisory fees and gains on sales of mortgage loans were offset by net securities losses. Trust and Investment advisory service fees earned by Middleburg Trust Company ("MTC") and Middleburg Investment Advisors ("MIA") increased $83,000 or 10.5% to $875,000 and gains on mortgage loan sales increased $466,000 or 13.8% to $3.8 million when comparing the quarter ended June 30, 2010 to the quarter ended June 30, 2009. Additionally, fees related to mortgage loan sales increased $184,000 or 63% to $476,000 from the quarter ended June 30, 2009 to the quarter ended June 30, 2010. Net securities losses were $134,000 during the quarter ended June 30, 2010 compared to net securities gains of $661,000 during the quarter ended June 30, 2009. The net securities losses during the quarter ended June 30, 2010 included $97,000 of other than temporary impairment losses related to two securities previously identified as impaired under generally accepted accounting principles. Southern Trust Mortgage, our majority owned subsidiary, originated $188.7 million in mortgage loans during the quarter ended June 30, 2010 compared to $316.9 million originated during the quarter ended June 30, 2009. Mortgage loans originated for the six months ended June 30, 2010 was $337.7 million versus $587.7 million for the six months ended June 30, 2009.
The revenues and expenses of Southern Trust Mortgage for the three and six month periods ended June 30, 2010 are reflected in the Company's financial statements on a consolidated basis following generally accepted accounting principles in the United States. The outstanding equity interest not held by the Company is reported on the Company's balance sheet as "Non-controlling interest in consolidated subsidiary" and the earnings or loss attributable to the non-controlling interest is reported on the Company's income statement as "Net (income) / loss attributable to non-controlling interest."
Trust and investment advisory fees are based primarily upon the market value of the accounts under administration/management. Total consolidated assets under administration by MTC and MIA were at $1.1 billion at June 30, 2010, an increase of 8.9% relative to June 30, 2009. The Bank holds a large portion of its investment portfolio in custody with MTC. MTC's assets under administration were $821.1 million at June 30, 2010 versus $661.3 million at June 30, 2009 representing an increase of 24.2%. MIA's assets under administration were $312.6 million at June 30, 2010 versus $379.6 million at June 30, 2009 representing a decrease of 17.7%.
Non-Interest Expense
Non-interest expense in the second quarter of 2010 decreased $753,000, down 5.8% relative to the quarter ended June 30, 2009.
Salaries and employee benefit expenses in the second quarter of 2010 decreased by $213,000 relative to the quarter ended June 30, 2009, primarily due to a decrease in mortgage loan originations and the related commission expense. Expenses and losses related to other real estate owned decreased $354,000 or 54.5% for the quarter ended June 30, 2010 compared to the same quarter in 2009. Other operating expenses increased by $201,000 or 14.9% during the second quarter of 2010 relative to the second quarter of 2009 due to increases in various other expense categories.
Total Consolidated Assets
Total assets at June 30, 2010 were $1.1 billion, an increase of $85.0 million or 8.7% over December 31, 2009.
Total portfolio loans, net of allowance for loan losses, increased by $9.1 million, or 1.4% when comparing June 30, 2010 to December 31, 2009. The investment portfolio was at $200.8 million at June 30, 2010, an increase of $28.1 million or 16.3% compared to December 31, 2009. Mortgages held for resale increased $17.4 million or 38.7% from December 31, 2009 to June 30, 2010. Cash and due from bank balances increased by $2.4 million or 13.1% from December 31, 2009 to June 30, 2010.
Deposits and Other Borrowings
Total deposits were at $859.1 million at June 30, 2010, up $53.4 million or 6.6% from December 31, 2009, primarily due to a continued increase in savings and non-interest bearing demand deposits. Time deposits, including brokered deposits increased $14.5 million or 4.8% from December 31, 2009 to June 30, 2010. Brokered deposits were $105.4 million at June 30, 2010, up $29.2 million or 38.3% from December 31, 2009. Long term borrowings from the FHLB were $52.9 million at June 30, 2010, up $17.9 million from December 31, 2009. The increase in brokered deposits and borrowings was related to the funding of commercial loans and the purchase of investment securities.
Equity
Total shareholders' equity at June 30, 2010 was $105.3 million, compared to shareholders' equity of $103.4 million as of December 31, 2009. Retained earnings at June 30, 2010 were at $42.9 million compared to $42.7 million at December 31, 2009. The book value of the Company's common stock at June 30, 2010 was $14.84 per share. As of June 30, 2010, the Tier 1 risk-based capital ratio was 13.33%, the total risk-based capital ratio was 14.58% and the leverage ratio was 10.58%
Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, and other filings with the Securities and Exchange Commission.
About Middleburg Financial Corporation
Middleburg Financial Corporation is headquartered in Middleburg, Virginia and has two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. Middleburg Bank serves communities in Virginia with financial centers in Ashburn, Leesburg, Marshall, Middleburg, Purcellville, Reston, Warrenton and Williamsburg. Middleburg Investment Group owns Middleburg Trust Company and Middleburg Investment Advisors, Inc. Middleburg Trust Company is headquartered in Richmond, Virginia with offices in Williamsburg and Middleburg. Middleburg Investment Advisors, Inc. is an SEC registered investment advisor located in Alexandria, Virginia. Middleburg Financial Corporation is also the majority owner of Southern Trust Mortgage, which is based in Virginia Beach and provides mortgages through 17 offices in 11 states.
Middleburg Financial Corporation and Subsidiaries Consolidated Statements of Income (In Thousands, Except Per Share Data) Unaudited Unaudited --------- --------- For the Six For the Three Months Months Ended June 30, Ended June 30, 2010 2009 2010 2009 ---- ---- ---- ---- Interest and Dividend Income Interest and fees on loans $20,829 $25,820 $10,384 $12,870 Interest on securities available for sale Taxable 2,028 2,463 1,090 1,202 Exempt from federal income taxes 1,293 1,474 600 746 Dividends 43 36 22 18 Interest on federal funds sold and other 63 58 28 24 --- --- --- Total interest and dividend income $24,256 $29,851 $12,124 $14,860 ------- ------- ------- ------- Interest Expense Interest on deposits $6,251 $8,115 $3,077 $3,959 Interest on securities sold under agreements to repurchase 80 25 60 3 Interest on short- term borrowings 111 467 67 191 Interest on long- term debt 926 1,650 488 797 --- ----- --- Total interest expense $7,368 $10,257 $3,692 $4,950 ------ ------- ------ ------ Net interest income $16,888 $19,594 $8,432 $9,910 Provision for loan losses 2,220 2,620 1,291 1,583 ----- ----- ----- ----- Net interest income after provision for loan losses $14,668 $16,974 $7,141 $8,327 ------- ------- ------ ------ Other Income Trust and investment advisory fee income $1,690 $1,589 $875 $792 Service charges on deposit accounts 909 945 468 490 Net gains (losses) on securities available for sale 469 1,070 (37) 661 Total other-than- temporary impairment loss on securities (248) (179) (97) - Commissions on investment sales 311 257 167 172 Bank owned life insurance 255 257 130 130 Gain on loans held for sale 6,474 6,170 3,844 3,378 Fees on loans held for sale 834 527 476 292 Other service charges, commissions and fees 256 297 143 158 Other operating income 179 183 88 56 --- --- --- Total other income $11,129 $11,116 $6,057 $6,129 ------- ------- ------ ------ Other Expense Salaries and employee benefits $14,381 $14,930 $7,457 $7,670 Net occupancy expense of premises 3,094 2,950 1,490 1,565 Other taxes 397 290 201 145 Advertising 428 365 248 216 Computer operations 668 661 340 360 Other real estate owned 505 1,460 295 649 Audits and examinations 277 310 162 108 Legal fees 306 299 167 176 FDIC insurance 1,153 1,057 352 777 Other operating expenses 3,000 2,529 1,554 1,353 ----- ----- ----- Total other expense $24,209 $24,851 $12,266 $13,019 ------- ------- ------- ------- Income before income taxes $1,588 $3,239 $932 $1,437 Income tax expense 162 161 75 21 --- Net income $1,426 $3,078 $857 $1,416 Less: Net (income) / loss attributable to non-controlling interest 112 (1,281) (133) (603) ---- Net income attributable to Middleburg Financial Corporation $1,538 $1,797 $724 $813 ====== ====== ==== ==== Amortization of discount on preferred stock - 32 - 19 Dividend on preferred stock - 464 - 278 Net income available to common shareholders $1,538 $1,301 $724 $516 ====== ====== ==== ==== Net income per common share, basic $0.22 $0.28 $0.10 $0.11 Net income per common share, diluted $0.22 $0.28 0.10 $0.11 Dividends per share $0.20 $0.38 0.10 $0.19 See Accompanying Notes to Consolidated Financial Statements Middleburg Financial Corporation Consolidated Balance Sheets (In Thousands, Except for Share Data) (Unaudited) December June 30, 31, 2010 2009 ---- ---- Assets: Cash and due from banks $20,776 $18,365 Interest-bearing deposits in banks 50,448 24,845 Securities available for sale 200,786 172,699 Loans held for sale 62,442 45,010 Restricted securities, at cost 6,225 6,225 Loans, net of allowance for loan losses of $10,075 in 2010 and $9,185 in 2009 644,181 635,094 Premises and equipment, net 23,264 23,506 Goodwill and identified intangibles 6,446 6,531 Other real estate owned, net of valuation allowance of $873 in 2010 and $1,121 in 2009. 8,257 6,511 Prepaid federal deposit insurance 5,837 6,923 Accrued interest receivable and other assets 32,690 30,665 ------ ------ Total assets $1,061,352 $976,374 ========== ======== Liabilities and Shareholders' Equity: Liabilities: Deposits: Non-interest bearing demand deposits $121,504 $106,459 Savings and interest-bearing demand deposits 421,584 397,720 Time deposits 315,967 301,469 ------- ------- Total deposits $859,055 $805,648 Securities sold under agreements to repurchase 23,213 17,199 Short-term borrowings 8,851 3,538 Long-term debt 52,912 35,000 Subordinated notes 5,155 5,155 Accrued interest and other liabilities 6,874 6,475 Commitments and contingent liabilities - - Total liabilities $956,060 $873,015 -------- -------- Shareholders' Equity: Common stock, par value $2.50 share, authorized 20,000,000 shares issued and outstanding at June 30, 2010 - 6,914,687 shares issued and outstanding at December 31, 2009 - 6,909,293 shares $17,286 $17,273 Capital surplus 42,883 42,807 Retained earnings 42,859 42,706 Accumulated other comprehensive (loss), net (434) (2,474) Total Middleburg Financial Corporation shareholders' equity $102,594 $100,312 -------- -------- Non-controlling interest in consolidated subsidiary 2,698 3,047 Total shareholders' equity $105,292 $103,359 -------- -------- Total liabilities and shareholders' equity $1,061,352 $976,374 ========== ======== MIDDLEBURG FINANCIAL CORPORATION KEY STATISTICS (Unaudited. Dollars in thousands except per share data) For the Three Months Ended -------------------------- June 30 Mar 31, Dec 31, Sep 30, 2010 2010 2009 2009 ---- ---- ---- ---- Net Income (dollars in thousands) $724 $814 $1,114 $610 Earnings per share, basic $0.10 $0.12 $0.07 $0.05 Earnings per share, diluted $0.10 $0.12 $0.07 $0.05 Dividend per share $0.10 $0.10 $0.10 $0.10 Return on average total assets 0.28% 0.33% 0.35% 0.29% Return on average total equity 2.85% 3.25% 2.82% 2.51% Dividend payout ratio 100.00% 84.90% 142.86% 200.00% Non-Interest income as a percent of total revenue 34.05% 28.00% 29.37% 23.60% Net interest margin(1) 3.67% 3.94% 3.83% 4.13% Yield on average earning assets 5.22% 5.58% 5.61% 6.08% Yield on average interest-bearing liabilities 1.82% 1.93% 2.16% 2.35% Net interest spread 3.40% 3.65% 3.45% 3.73% Non-interest income to average assets (3) 2.39% 1.93% 2.10% 1.71% Non-interest expense to average assets (3) 4.73% 4.90% 4.74% 4.71% Efficiency ratio -QTD (2) 81.78% 87.85% 83.48% 84.26% (1) The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. The Company's net interest margin is a common measure used by the financial service industry to determine how profitably earning assets are funded. Because the Company earns a fair amount of non taxable interest income due to the mix of securities in its investment security portfolio, net interest income for the ratio is calculated on a tax equivalent basis as described above. (2) The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing non interest expense by the sum of tax equivalent net interest income and non interest income excluding gains and losses on the investment portfolio. The tax rate utilized is 34%. The Company calculates this ratio in order to evaluate its overhead structure or how effectively it is operating. An increase in the ratio from period to period indicates the Company is losing a larger percentage of its income to expenses. (3) Ratios are computed by dividing annualized income and expense amounts by quarterly average assets. MIDDLEBURG FINANCIAL CORPORATION SELECTED FINANCIAL DATA BY QUARTER (Unaudited. Dollars in thousands except per share data) 2Q10 1Q10 4Q09 3Q09 ---- ---- ---- ---- BALANCE SHEET RATIOS Net loans to deposits 74.99% 78.32% 78.83% 81.67% Average interest- earning assets to average-interest bearing liabilities 117.69% 117.51% 121.36% 120.32% PER SHARE DATA (1) Dividends $0.10 $0.10 $0.10 $0.10 Book value $14.84 $14.65 $14.52 $14.61 Tangible book value $13.91 $13.71 $13.57 $13.65 SHARE PRICE DATA Closing price $13.91 $15.06 $14.59 $13.05 Diluted earnings multiple (1) 34.78 31.38 52.11 65.25 Book value multiple (2) 0.94 1.03 1.00 0.89 COMMON STOCK DATA Outstanding shares at end of period 6,914,687 6,909,293 6,909,293 6,901,843 Weighted average shares O/S Basic -QTD 6,911,744 6,909,293 5,635,687 5,208,624 Weighted average shares O/S, diluted -QTD 6,924,338 6,912,173 6,906,429 6,267,267 CAPITAL RATIOS (1) Capital to Assets - Common shareholders 9.67% 9.94% 10.27% 12.27% Total risk based capital ratio 14.58% 15.02% 15.06% 18.22% Tier 1 risk based capital ratio 13.33% 13.77% 13.86% 16.97% Leverage ratio 10.58% 10.71% 10.40% 12.50% CREDIT QUALITY Net charge-offs to average loans 0.15% 0.04% 0.18% 0.17% Total non-performing loans to total loans 2.81% 2.00% 1.48% 1.57% Total non-performing assets to total assets 2.51% 1.88% 1.64% 1.88% Non-accrual loans to: total loans 1.87% 1.46% 1.34% 1.38% total assets 1.15% 0.94% 0.88% 0.90% Allowance for loan losses to: total loans 1.54% 1.50% 1.43% 1.41% non-performing assets 37.80% 51.43% 53.00% 49.21% non-accrual loans 82.51% 102.67% 104.11% 102.43% NON-PERFORMING ASSETS: Loans delinquent over 90 days $6,188 $3,544 $908 $1,206 Non-accrual loans 12,211 9,613 8,608 9,008 Other real estate owned and repossessed assets 8,257 6,034 6,511 8,537 Total non-performing assets $26,656 $19,191 $16,027 $18,751 ------- ------- ------- ------- NET LOAN CHARGE-OFFS: Loans charged off $1,142 $291 $1,280 $1,216 (Recoveries) (56) (47) (48) (49) Net charge-offs $1,086 $244 $1,232 $1,167 ------ ---- ------ ------ PROVISION FOR LOAN LOSSES $1,291 $929 $967 $964 ------ ---- ---- ---- ALLOWANCE FOR LOAN LOSS SUMMARY Balance at the beginning of period $9,870 $9,185 $9,227 $9,430 Provision 1,291 929 967 964 Net charge-offs / (recoveries) 1,086 244 1,009 1,167 ----- --- ----- ----- Balance at the end of period $10,075 $9,870 $9,185 $9,227 ------- ------ ------ ------ (1) The diluted earnings multiple is calculated by dividing the period's closing market price per share by the annualized diluted earnings per share for the period. The diluted earnings multiple is a measure of how much an investor may be willing to pay for $1.00 of the Company's earnings. (2) The book value multiple (or price to book ratio) is calculated by dividing the period's closing market price per share by the period's book value per share. The book value multiple is a measure used to compare the Company's market value per share to its book value per share. Middleburg Financial Corporation Average Balances, Income and Expenses, Yields and Rates ------------------------------------------------------- Three Months Ended June 30, ---------------------------- 2010 ---- Average Income/ Yield/ Rate Balance Expense (2) ------- ------- ----- (Dollars in thousands) Assets : Securities: Taxable $142,279 $1,112 3.13% Tax-exempt (1) 56,248 909 6.48% Total securities $198,527 $2,021 4.08% Loans Taxable $709,042 $10,383 5.87% Tax-exempt (1) - - - --- Total loans $709,042 $10,383 5.87% Federal funds sold - - - Interest on money market investments - - - Interest bearing deposits in other financial institutions 47,566 28 0.24% ------ --- Total earning assets $955,135 $12,432 5.22% Less: allowances for credit losses (9,956) Total nonearning assets 92,346 ------ Total assets $1,037,525 ========== Liabilities: Interest-bearing deposits: Checking $286,485 $579 0.81% Regular savings 77,173 188 0.98% Money market savings 51,683 107 0.83% Time deposits: $100,000 and over 158,698 1,141 2.88% Under $100,000 151,141 1,062 2.82% ------- ----- Total interest-bearing deposits $725,180 $3,077 1.70% Short-term borrowings 6,030 67 4.46% Securities sold under agreements to repurchase 24,977 60 0.98% Long-term debt 55,375 488 3.53% Federal funds purchased 35 - 0.00% --- --- Total interest-bearing liabilities $811,597 $3,692 1.82% Non-interest bearing liabilities Demand deposits 114,953 Other liabilities 6,328 Total liabilities $932,878 Non-controlling interest 2,671 Shareholders' equity 101,976 Total liabilities and shareholders' equity $1,037,525 ========== Net interest income $8,740 ====== Interest rate spread 3.40% Interest expense as a percent of average earning assets 1.55% Net interest margin 3.67% 2009 ---- Average Income/ Yield/ Rate Balance Expense (2) ------- ------- ----- (Dollars in thousands) Assets : Securities: Taxable $100,118 $1,221 4.89% Tax-exempt (1) 65,100 1,131 6.97% Total securities $165,218 $2,352 5.71% Loans Taxable $727,690 $12,870 7.34% Tax-exempt (1) 1 - 0.00% --- Total loans $727,691 $12,870 7.34% Federal funds sold 31,720 14 0.18% Interest on money market investments - - - Interest bearing deposits in other financial institutions 21,876 9 0.17% ------ --- Total earning assets $946,505 $15,245 6.79% Less: allowances for credit losses (8,499) Total nonearning assets 81,352 ------ Total assets $1,019,358 ========== Liabilities: Interest-bearing deposits: Checking $247,303 $783 1.27% Regular savings 54,980 176 1.28% Money market savings 39,190 103 1.05% Time deposits: $100,000 and over 132,288 1,046 3.17% Under $100,000 200,553 1,851 3.70% ------- ----- Total interest-bearing deposits $674,314 $3,959 2.35% Short-term borrowings 21,003 191 3.65% Securities sold under agreements to repurchase 20,559 3 0.06% Long-term debt 79,155 797 4.04% Federal funds purchased - - - --- --- Total interest-bearing liabilities $795,031 $4,950 2.50% Non-interest bearing liabilities Demand deposits 110,153 Other liabilities 10,828 Total liabilities $916,012 Non-controlling interest 2,851 Shareholders' equity 100,495 Total liabilities and shareholders' equity $1,019,358 ========== Net interest income $10,295 ======= Interest rate spread 3.96% Interest expense as a percent of average earning assets 2.10% Net interest margin 4.36% (1) Income and yields are reported on tax equivalent basis assuming a federal tax rate of 34%. (2) All yields and rates have been annualized on a 365 day year.
Middleburg Financial Corporation
CONTACT: Gary R. Shook, President & CEO, +1-540-687-4801,
pres@middleburgbank.com, Raj Mehra, EVP & CFO, +1-540-687-4816,
Cfo@midleburgbank.com, or Jeffrey H. Culver, EVP & COO, +1-703-737-3470,
coo@middleburgbank.com
Web Site: http://www.middleburgbank.com/
