Middleburg Financial Corporation Announces 2010 First Quarter Earnings

News provided by

Middleburg Financial Corporation

Apr 30, 2010, 05:57 ET

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

First Quarter 2010 Highlights:

  • Net income of $813,844 for the quarter;
  • Diluted earnings per share of $0.12 for the quarter;
  • Net interest margin of 3.94% for the quarter;
  • Total asset growth of $42.3 million or 4.3% for the quarter;
  • Total loans increased by $13.8 million or 2.1% for the quarter;
  • Total deposit growth of $22.7 million or 2.7% for the quarter;
  • Provision for loan losses decreased 3.5% relative to the previous quarter; and
  • Tier I capital ratio of 13.8%, leverage ratio of 10.7%.

"Based on the first quarter of 2010 we are cautiously optimistic," said Gary R. Shook, president of Middleburg Financial Corporation.  "There is evidence that loan and deposit growth is accelerating and we are seeing growth in our wealth management business as well.  We attribute much of this growth to improved economic conditions in our primary markets.  However, we foresee a continuation of problem loans throughout this year, which will continue to impact earnings."  

Net Interest Income and Net Interest Margin

Net interest income was $8.5 million during the three months ended March 31, 2010, a decrease of 3.0% relative to the quarter ended December 31, 2009. The average yield on earning assets was 5.58% for the quarter ended March 31, 2010, down 62 basis points relative to the quarter ended December 31, 2009.  We reduced our costs for deposits as well as for borrowings in the first quarter of 2010. The average cost of interest bearing liabilities during the quarter decreased to 1.93%, down 40.0 basis points relative to the quarter ended December 31, 2009.  

The net interest margin for the three months ended March 31, 2010 was 3.94% compared to 4.17% for the quarter ended December 31, 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

Provisions for loan losses were $929,000 for the quarter ended March 31, 2010, compared to $967,000 for the quarter ended December 31, 2009, a decline of 3.9%.  Even with this decrease, Company was able to increase its allowance for loan losses by $643,000 or from 1.33% of total loans to 1.50% of total loans. The pace of problem loans is as expected, however, given the continued uncertainty in the economy, the Company deemed it prudent to increase its ratio of allowance for loan losses to total loans.

Non performing assets increased from $17.2 million or 1.8% of total assets at December 31, 2009 to $19.0 million or 1.9% of total assets as of March 31, 2010. Given the current economic environment, it is anticipated there could be an increase in non performing loans, but we do not believe that  the increase will be as dramatic as that experienced in 2009.

Non-Interest Income

Non-interest income decreased by $670,000 or 11.7% to $5.07 million when comparing the quarter ended March 31, 2010 to the quarter ended December 31, 2009, largely driven by decreases in gains on sales of mortgage loans originated by Southern Trust Mortgage, our majority owned subsidiary, and gains on sales of securities.  Southern Trust Mortgage closed $149 million in mortgage loans in the quarter ended March 31, 2010, down 31% from the quarter ended December 31, 2009. Gain on sale of mortgage loans was $2.6 million for the quarter ended March 31, 2010, a decrease of 20% compared to the quarter ended December 31, 2009.  

The revenues and expenses of Southern Trust Mortgage for the three month period ended March 31,  2010 are reflected in the Company's financial statements on a consolidated basis, with the outstanding interest not held by the Company reported as "Non-controlling Interest Net (Income) Loss."

Trust and investment advisory fees earned by Middleburg Trust Company ("MTC") and Middleburg Investment Advisors ("MIA") were relatively unchanged when comparing the quarter ended March 31, 2010 to the quarter ended December 31, 2009 and increased 2.3% when compared to the quarter ended March 31, 2009.  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 $1.2 billion at March 31, 2010, an increase of 8.1% relative to December 31, 2009 and an increase of 44.5% relative to March 31, 2009.  The Bank holds a large portion of its investment portfolio in custody with MTC.  MTC's assets under administration were $854.8 million at March 31, 2010 and $771.5 million at December 31, 2009.  MIA's assets under administration were $318.7 million at March 31, 2010 and $313.5 million at December 31, 2009.  

Non-Interest Expense

Non-interest expense in the first quarter of 2010 decreased $163,000, down 1.4% relative to the quarter ended December 31, 2009.

Salaries and employee benefit expenses in the first quarter of 2010 increased by $737,000 relative to the quarter ended December 31, 2009, primarily due to incentive accrual for 2010 and benefit payouts. Other operating expenses in the first quarter of 2010 decreased by $1.0 million, down 27.0% relative to the previous quarter due to decreases in various other expense categories including professional fees and expenses associated with other real estate owned.

Total Consolidated Assets

Total assets at March 31, 2010 were $1.0 billion, an increase of $42.2 million or 4.3% during the quarter.

Total loans, net of allowance for loan losses, increased by $12.9 million, or 2.0% when comparing March 31, 2010 to December 31, 2009.  The investment portfolio was at $186 million at March 31, 2010, an increase of $7 million or 3.9% compared to December 31, 2009. Mortgages held for resale decreased $2.2 million or 4.8% from December 31, 2009 to March 31, 2010. Cash and due and interest-bearing balances at banks increased by $25.7 million or 59.4% from December 31, 2009 to March 31, 2010.

Deposits and Other Borrowings

Total deposits were at $827.4 million at March 31, 2010, up $21.7 million or 2.7% from December 31, 2009, primarily due to an increase in savings and non-interest bearing demand deposits. Time deposits, including brokered deposits decreased $3.0 million or 4.6% when comparing December 31, 2009 to March 31, 2010. The Company has been paying off brokered deposits as they mature. Brokered deposits were $62.0 million at March 31, 2010, down $3.0 million or 40.0% from the year prior. Long term borrowings from the FHLB were $47.9 million at March 31, 2010, up $12.9 million from December 31, 2009.  The increase in borrowings was related to the funding of commercial loans.

Equity

Total shareholders' equity at March 31, 2010 was $103.9 million, compared to shareholders' equity of $103.4 million as of December 31, 2009. Retained earnings at March 31, 2010 were at $42.8 million compared to $42.7 million at December 31, 2009. The book value of the Company at March 31, 2010 was $14.65 per common share.  As of March 31, 2010, the Tier 1 risk-based capital ratio was 13.77%, the total risk-based capital ratio was 15.02% and the leverage ratio was 10.71%.

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.  

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 eight 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 and Williamsburg. Middleburg Investment Advisors, Inc. is an SEC registered investment advisor located in Alexandria, Virginia.

MIDDLEBURG FINANCIAL CORPORATION









SUMMARY INCOME STATEMENT









( Unaudited, dollars in thousands)












For the Three Months Ended



Mar 31, 2010

Dec. 31, 2009

Sep. 30, 2009

Jun. 30, 2009

Mar. 31, 2009












INTEREST INCOME










Interest and fees on loans

$       10,445

$        11,041

$        11,973

$        12,870

$        12,950

Interest on investment securities

1,687

1,883

1,998

1,990

2,041












TOTAL INTEREST INCOME

$       12,132

$        12,924

$        13,971

$        14,860

$        14,991












INTEREST EXPENSE










Interest on deposits

$         3,174

$          3,633

$          3,866

$          3,959

$          4,156

Interest on borrowings

502

577

749

991

1,151












TOTAL INTEREST EXPENSE

$         3,676

$          4,210

$          4,615

$          4,950

$          5,307












NET INTEREST INCOME

$         8,456

$          8,714

$          9,356

$          9,910

$          9,684












PROVISION FOR LOAN LOSSES

929

967

964

1,583

1,037












NET INTEREST INCOME AFTER PROVISION










FOR LOAN LOSSES

$         7,527

$          7,747

$          8,392

$          8,327

$          8,647












NON INTEREST INCOME










Trust and investment advisory fee income

$            815

$             816

$             813

$             792

$             797

Service charges on deposits

441

486

474

490

455

Gain on the sale of loans

2,630

3,283

2,407

3,378

2,792

Net (losses) gains on securities available for sale including OTTI adjustments

355

365

(258)

661

230

Commissions on investment sales

144

175

148

172

85

Equity earnings in unconsolidated subsidiaries

37

40

23

92

111

Bank owned life insurance

125

109

123

130

127

Other service charges, commissions and fees

471

429

298

450

374

Other operating income

54

36

29

(36)

16












TOTAL NON INTEREST INCOME

$         5,072

$          5,739

$          4,057

$          6,129

$          4,987












NON INTEREST EXPENSE










Salaries and employee benefits

$         6,924

$          6,187

$          6,925

$          7,670

$          7,260

Net occupancy expense of premises

1,604

1,500

1,455

1,566

1,384

Other taxes

196

149

148

145

145

Computer operations

328

344

285

360

301

Advertising and marketing

180

211

184

216

149

Other operating expenses

2,711

3,715

2,908

3,062

2,593












TOTAL NON INTEREST EXPENSE

$       11,943

$        12,106

$        11,905

$        13,019

$        11,832












INCOME BEFORE TAXES

$            656

$          1,380

$             544

$          1,437

$          1,802

Income tax expense (benefit)

87

(5)

(92)

21

140












NET INCOME


$            569

$          1,385

$             636

$          1,416

$          1,662

NONCONTROLLING INTEREST NET (INCOME) LOSS

245

(270)

(26)

(603)

(678)

MIDDLEBURG FINANCIAL CORPORATION NET INCOME

$            814

$          1,115

$             610

$             813

$             984

MIDDLEBURG FINANCIAL CORPORATION








BALANCE SHEET








(dollars in thousands)

Unaudited

Audited

Unaudited

Unaudited

Unaudited

3/31/2010

12/31/2009

9/30/2009

6/30/2009

3/31/2009










Assets:








Cash and due from banks

$      20,333

$   18,365

$    80,646

$      39,721

$    21,059

Interest-bearing balances in banks

48,568

24,845

2,214

2,958

1,725

Federal funds sold

-

-

-

54,600

24,500

Securities at fair value

185,978

178,924

168,049

162,355

165,921

Loans, net of allowance for loan losses

648,009

635,094

643,293

642,883

650,600

Mortgages held for resale

42,836

45,010

36,826

74,346

66,439

Bank premises and equipment, net

23,152

23,506

22,848

22,722

22,920

Other assets

49,752

50,630

43,902

44,975

45,099










Total assets

$ 1,018,628

$ 976,374

$  997,777

$ 1,044,560

$  998,263










Liabilities:








Deposits:








Non-interest bearing demand deposits

$    117,146

$ 106,459

$  105,648

$    124,472

$  113,131

Savings and interest-bearing demand deposits

412,185

397,720

380,527

347,561

329,042

Time deposits

298,057

301,469

301,453

338,100

331,075

Total deposits

$    827,388

$ 805,648

$  787,628

$    810,133

$  773,248










Securities sold under agreements to repurchase

24,286

17,199

19,808

19,505

18,989

Short term borrowings

3,390

3,538

7,112

21,278

15,340

Long-term debt

47,912

35,000

43,000

74,000

74,000

Trust preferred capital notes

5,155

5,155

5,155

5,155

5,155

Other liabilities

6,606

6,475

9,853

10,981

10,832

Total liabilities

$    914,737

$ 873,015

$  872,556

$    941,052

$  897,564










Shareholders' Equity:










Middleburg Financial Corporation shareholders' equity:








Preferred stock, par value $1,000.00 per share

$              -

$           -

$    21,597

$      21,603

$    21,584

Common stock, par value $2.50 per share

17,273

17,273

17,255

12,483

11,826

Capital surplus

42,826

42,807

42,703

28,310

26,083

Retained earnings

42,828

42,706

43,076

43,235

43,665

Accumulated other comprehensive income (loss), net

(1,703)

(2,474)

(2,203)

(5,156)

(5,026)

Total Middleburg Financial Corporation shareholders' equity

101,224

100,312

122,428

100,475

98,132

Non-controlling interest in consolidated subsidiary

2,666

3,047

2,793

3,033

2,567










Total shareholders' equity

$    103,890

$ 103,359

$  125,221

$    103,508

$  100,699

Total liabilities and shareholders' equity

$ 1,018,627

$ 976,374

$  997,777

$ 1,044,560

$  998,263

MIDDLEBURG FINANCIAL CORPORATION







KEY STATISTICS

For the Three Months Ended



Mar 31, 2010

Dec 31, 2009

Sep 30, 2009

Jun 30, 2009











Net Income (dollars in thousands)

$             814

$         1,114

$            610

$            813

Earnings per share, basic

$            0.12

$           0.07

$           0.05

$           0.11

Earnings per share, diluted

$            0.12

$           0.07

$           0.05

$           0.11

Dividend per share

$            0.10

$           0.10

$           0.10

$           0.19











Return on average total assets

0.33%

0.35%

0.29%

0.19%

Return on average total equity

3.25%

2.82%

2.51%

1.88%

Dividend payout ratio

84.90%

142.86%

200.00%

172.73%

Fee revenue as a percent of total revenue

28.00%

29.37%

23.60%

26.90%











Net interest margin(1)

3.94%

3.83%

4.13%

4.36%

Yield on average earning assets

5.58%

5.61%

6.08%

6.46%

Yield on average interest-bearing liabilities

1.93%

2.16%

2.35%

2.50%

Net interest spread

3.65%

3.45%

3.73%

3.96%











Non-interest income to average assets

1.93%

2.10%

1.71%

2.15%

Non-interest expense to average assets

4.90%

4.74%

4.71%

5.12%











Efficiency ratio(2)

87.85%

83.48%

84.26%

82.25%

(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.  

MIDDLEBURG FINANCIAL CORPORATION







SELECTED FINANCIAL DATA BY QUARTER










1Q10

4Q09

3Q09

2Q09

BALANCE SHEET RATIOS








Net loans to deposits


78.32%

78.83%

81.67%

79.36%

Average interest-earning assets to








   average-interest bearing liabilities

117.51%

121.36%

120.32%

119.05%

PER SHARE DATA








Dividends

$        0.10

$        0.10

$        0.10

$        0.19

Book value


$      14.65

$      14.52

$      14.61

$      15.80

Tangible book value


$      13.71

$      13.57

$      13.65

$      14.47

SHARE PRICE DATA










Closing price

$      15.06

$      14.59

$      13.05

$      13.76

Diluted earnings multiple(1)

1.03

0.97

0.67

0.66

Book value multiple(2)

1.03

1.00

0.89

0.87

COMMON STOCK DATA








Outstanding shares at end of period

6,909,293

6,909,293

6,901,843

4,993,245

Weighted average shares outstanding


6,909,293

5,635,687

5,208,624

4,675,849

Weighted average shares outstanding, diluted

6,912,173

6,906,429

6,267,267

4,822,365

CAPITAL RATIOS










Total parent equity to total assets

9.94%

10.59%

12.27%

9.62%

Total risk based capital ratio

15.02%

15.06%

18.22%

14.73%

Tier 1 risk based capital ratio

13.77%

13.86%

16.97%

13.54%

Leverage ratio

10.71%

10.40%

12.50%

10.58%

CREDIT QUALITY








Net charge-offs to average loans

0.04%

0.18%

0.17%

0.26%

Total non-performing loans to total loans

2.00%

1.48%

1.57%

1.99%

Total non-performing assets to total assets

1.87%

1.64%

1.88%

1.96%

Non-accrual loans to:








     total loans

1.46%

1.34%

1.38%

1.99%

     total assets

0.94%

0.88%

0.90%

1.24%

Allowance for loan losses to:








     total loans

1.50%

1.33%

1.41%

1.45%

    non-performing assets

51.88%

53.00%

49.21%

46.14%

    non-accrual loans

102.67%

104.11%

102.43%

72.62%

NON-PERFORMING ASSETS:







(dollars in thousands)








   Loans delinquent over 90 days

$      3,544

$         908

$      1,206

$            -

   Non-accrual loans    

9,613

8,608

9,008

12,985

   Other real estate owned and repossessed assets

5,869

6,511

8,537

7,455

Total non-performing assets


19,026

16,027

18,751

20,440

NET LOAN CHARGE-OFFS (RECOVERIES):







(dollars in thousands)








   Loans charged off

$         291

$      1,280

$      1,216

$      1,866

   (Recoveries)

(47)

(48)

(49)

(6)

Net charge-offs


$         244

$      1,232

$      1,167

$      1,860

PROVISION FOR LOAN LOSSES (dollars in thousands)

$         929

$         967

$         964

$      1,583

ALLOWANCE FOR LOAN LOSS SUMMARY







(dollars in thousands)








Balance at the beginning of period

$      9,185

$      9,227

$      9,430

$      9,707

Provision

929

967

964

1,583

Net charge-offs (recoveries)

244

1,009

1,167

1,860

Balance at the end of period

$      9,870

$      9,185

$      9,227

$      9,430

(1) The diluted earnings multiple 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 March 31,




2010




2009


Average


Income/


Yield/

Average


Income/


Yield/

Balance


Expense


Rate  (2)

Balance


Expense


Rate  (2)

(Dollars in thousands)

Assets :










Securities:










  Taxable

$    119,744

$            959

3.25%

$    115,468

$         1,279

4.49%

  Tax-exempt (1)

63,929

1,050

6.66%

62,031

1,103

7.21%

      Total securities

$    183,673

$         2,009

4.44%

$    177,499

$         2,382

5.44%

Loans












  Taxable

$    678,854

$       10,445

6.24%

$    715,438

$       12,950

7.34%

  Tax-exempt  (1)

-

-

-

3

-

0.00%

      Total loans

$    678,854

$       10,445

6.24%

$    715,441

$       12,950

7.34%

Federal funds sold

-

-

-

21,201

12

0.23%

Interest on money market investments

-

-

-

-

-

-

Interest bearing deposits in










     other financial institutions

44,677

35

0.32%

3,541

22

2.52%

      Total earning assets

$    907,204

$       12,489

5.58%

$    917,682

$       15,366

6.79%

Less: allowances for credit losses

(9,104)




(9,843)



Total nonearning assets

90,757




91,382



Total assets

$    988,857




$    999,221















Liabilities:










Interest-bearing deposits:










   Checking

$    279,655

$            601

0.87%

$    224,570

$            811

1.46%

   Regular savings

70,393

183

1.05%

51,960

184

1.44%

   Money market savings

50,957

115

0.92%

35,876

109

1.23%

   Time deposits:










      $100,000 and over

161,447

1,152

2.89%

130,201

1,119

3.49%

      Under $100,000

136,953

1,123

3.33%

205,424

1,933

3.82%

      Total interest-bearing deposits

$    699,405

$         3,174

1.84%

$    648,031

$         4,156

2.60%












Short-term borrowings

4,843

44

3.68%

31,735

276

3.53%

Securities sold under agreements to repurchase

21,644

20

0.37%

23,099

22

0.39%

Long-term debt

46,136

438

3.85%

84,377

853

4.10%

Federal funds purchased

-

-

-

-

-

-

   Total interest-bearing liabilities

$    772,028

$         3,676

1.93%

$    787,242

$         5,307

2.73%

Non-interest bearing liabilities










   Demand deposits

105,994




107,326



   Other liabilities

6,562




10,462



Total liabilities

$    884,584




$    905,030



Non-controlling interest

2,725




2,316



Shareholders' equity

101,548




91,875



Total liabilities and shareholders' equity

$    988,857




$    999,221















Net interest income

$         8,813




$       10,059













Interest rate spread



3.65%




4.06%












Interest expense as a percent of average earning assets



1.64%




2.35%

Net interest margin



3.94%




4.45%

Return on average assets



0.33%




0.40%

Return on average equity



3.25%




4.24%












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

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

SOURCE Middleburg Financial Corporation

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