MIDDLEBURG FINANCIAL CORP. 
By Fourth Quarter and 2008 Highlights:
-- Net income of $491,000 for the quarter and $2.6 million for the year
-- Quarter-to-date diluted earnings per share of $0.11
-- Year-to-date diluted earnings per share of $0.56
-- Net interest margin of 4.00% for the quarter and year
-- Maintained level of allowance for loan losses at 1.4%
-- Total deposit growth of $49.5 million or 7.1% for the quarter and $156.0
million or 26.5% for the year
-- Tier I capital of 10.2%, leverage ratio of 8.4%
"While we continue to experience an unprecedented economic cycle in the financial services sector and beyond, we are gratified that Middleburg Financial Corporation continues to be profitable, highly liquid and well capitalized," commented
Net Interest Income and Net Interest Margin
With improved loan growth and an increase in average loan yield of four basis points during the three months ended
Interest income from the investment portfolio decreased
Total interest expense for the three months ended
The net interest margin decreased from 4.09% for the quarter ended
The Company's net interest margin is not a measurement under accounting principles generally accepted in
Asset Quality and Provision for Loan Losses
Provisions for loan losses were
Non performing assets increased from
Loans greater than 90 days past due decreased from
The following table reflects asset quality and provision for loan loss details for the Bank and Southern Trust Mortgage:
2008
December 31, September 30, June 30, March 31,
Loans 90+ days past due
Middleburg Bank $540 $2,857 $1,444 $-
Southern Trust
Mortgage 577 1,461 1,294 1,231
Non accrual loans
Middleburg Bank $5,555 $2,966 $3,391 $5,125
Southern Trust
Mortgage 1,340 3,725 3,476 4,326
Other Real Estate Owned
Middleburg Bank $4,586 $4,696 $3,277 $2,427
Southern Trust
Mortgage 3,026 2,114 1,634 439
Allowance for loan losses
Middleburg Bank $8,056 $7,884 $7,889 $7,206
Southern Trust
Mortgage 1,989 1,997 1,863 1,471
Non-Interest Income
Including investment losses, consolidated non-interest income decreased by
Trust and investment advisory fees earned by Middleburg Trust Company ("MTC") and Middleburg Investment Advisors ("MIA") decreased 12.6% or
Service charges on deposits decreased by
Equity in earnings from affiliates has been reclassified in 2008 due to the consolidation of Southern Trust Mortgage. The revenues and expenses of Southern Trust Mortgage for each of the three month periods ended
Southern Trust Mortgage closed
Income earned from the Bank's
Other service charges, including fees from loans, mortgages held for sale and other service fees, decreased
Non-Interest Expense
Non-interest expense increased
Salaries and employee benefit expenses increased
Net occupancy expense was relatively unchanged when comparing the quarter ended
Advertising and marketing expense increased
Other operating expenses increased
Total Consolidated Assets
Total assets increased
Total loans, net of allowance for loan losses, increased by
Although Southern Trust Mortgage's 2008 fourth quarter production was lower than that for the third quarter, mortgages held for sale increased 9.9% or
Premises and equipment, net of depreciation, increased 11.4% to
Deposits and Other Borrowings
Total deposits, which include brokered deposits, increased 7.1% to
Short term borrowings, which include overnight advances with the Federal Home Loan Bank of
Equity
Shareholders' equity at
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
Middleburg Financial Corporation is headquartered in
MIDDLEBURG FINANCIAL CORPORATION
SUMMARY INCOME STATEMENT
(Unaudited, dollars in thousands)
For the Three Months Ended
December September June 30, March 31,
31, 30,
INTEREST INCOME
Interest and fees on
loans $12,036 $11,968 $11,925 $12,159
Interest on investment
securities 2,004 2,049 1,963 1,818
TOTAL INTEREST INCOME $14,040 $14,017 $13,888 $13,977
INTEREST EXPENSE
Interest on deposits 4,263 3,793 $3,490 $3,946
Interest on borrowings 1,314 1,658 1,951 2,304
TOTAL INTEREST EXPENSE $5,577 $5,451 $5,441 $6,250
NET INTEREST INCOME $8,463 $8,566 $8,447 $7,727
PROVISION FOR LOAN LOSSES 985 318 2,307 2,064
NET INTEREST INCOME AFTER
PROVISION
FOR LOAN LOSSES $7,478 $8,248 $6,140 $5,663
NON INTEREST INCOME
Trust and investment
advisory fee income $828 $947 $978 $984
Service charges on
deposits 440 504 505 473
Gain on the sale of loans 1,795 2,274 2,321 2,266
Net (losses) gains on
securities available for
sale 131 (785) (367) 108
Commissions on investment
sales 95 94 127 117
Equity earnings in
unconsolidated
subsidiaries 56 78 77 105
Bank owned life insurance 110 114 131 114
Other service charges,
commissions and fees 355 558 490 582
Other operating income 44 192 10 53
TOTAL NON INTEREST INCOME $3,854 $3,976 $4,272 $4,802
NON INTEREST EXPENSE
Salaries and employee
benefits $6,360 $5,964 $6,467 $6,585
Net occupancy expense of
premises 1,500 1,502 1,431 1,393
Other taxes 160 161 161 160
Computer operations 299 268 276 267
Advertising and marketing 373 136 279 129
Other operating expenses 2,533 2,013 1,796 1,973
TOTAL NON INTEREST
EXPENSE $11,225 $10,044 $10,410 $10,507
INCOME BEFORE TAXES $107 $2,180 $2 $(42)
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY 405 29 292 31
Income tax expense
(benefit) 21 654 (67) (164)
NET INCOME $491 $1,555 $361 $153
MIDDLEBURG FINANCIAL CORPORATION
BALANCE SHEET
(dollars in thousands) Unaudited Unaudited Unaudited Unaudited
12/31/08 9/30/2008 6/30/2008 3/31/2008
Assets:
Cash and due from banks $23,980 $23,747 $23,564 $23,962
Interest-bearing
balances in banks 2,400 560 2,417 642
Federal funds sold 9,000 5,100 11,500 2,500
Securities at fair value 181,312 155,859 155,350 157,221
Loans, net of allowance
for loan losses 662,375 649,975 650,723 650,593
Mortgages held for resale 40,276 36,661 42,112 31,061
Premises and equipment,
net 22,987 23,036 22,270 21,647
Other assets 42,861 42,353 40,457 35,480
Total assets $985,191 $937,291 $948,393 $923,106
Liabilities and Shareholders'
Equity:
Liabilities:
Deposits:
Non-interest bearing
demand deposits $110,537 $116,467 $117,304 $124,062
Savings and
interest-bearing
demand deposits 300,006 305,061 293,293 261,518
Time deposits 334,239 273,787 249,631 210,447
Total deposits $744,782 $695,315 $660,228 $596,027
Securities sold under
agreements to repurchase 22,678 25,285 51,044 53,097
Short term borrowings 40,944 38,526 43,610 73,726
Long-term debt 84,000 89,000 104,000 104,000
Trust preferred
capital notes 5,155 5,155 5,155 5,155
Other liabilities 9,636 7,865 8,477 10,046
Total liabilities $907,195 $861,146 $872,514 $842,051
Minority interest in
consolidated subsidiary 2,319 2,742 2,794 4,123
Shareholders' Equity:
Common stock, par value
$2.50 per share 11,336 11,322 11,317 11,317
Capital surplus 23,967 23,885 23,847 23,836
Retained earnings 43,555 43,070 42,376 42,876
Accumulated other
comprehensive
income (loss), net (3,181) (4,874) (4,455) (1,097)
Total
shareholders'
equity $75,677 $73,403 $73,085 $76,932
Total liabilities and
shareholders' equity $985,191 $937,291 $948,393 $923,106
MIDDLEBURG FINANCIAL CORPORATION
KEY STATISTICS For the Three Months Ended
December 31, September 30, June 30, March 31,
Net Income (dollars in
thousands) $491 $1,555 $361 $153
Earnings per share, basic $0.11 $0.34 $0.08 $0.03
Earnings per share,
diluted $0.11 $0.34 $0.08 $0.03
Return on average total
assets 0.21% 0.66% 0.23% 0.53%
Return on average total
equity 2.66% 8.42% 2.81% 5.86%
Dividend payout ratio 0.00% 55.88% 237.50% 633.33%
Fee revenue as a percent
of total revenue(1) 20.96% 25.35% 35.45% 37.79%
Net interest margin(2) 4.00% 4.09% 4.03% 3.91%
Yield on average earning
assets 6.53% 6.62% 6.55% 6.98%
Yield on average
interest-bearing
liabilities 2.94% 2.94% 2.99% 3.73%
Net interest spread 3.59% 3.67% 3.56% 3.25%
Tax equivalent adjustment
to net interest income
(dollars in thousands)
Non-interest income to
average assets 1.56% 2.03% 1.99% 2.09%
Non-interest expense to
average assets 4.71% 4.27% 4.46% 4.75%
Efficiency ratio(3) 89.21% 73.64% 78.15% 82.58%
(1) Excludes gains and losses on securities available for sale
(2) The net interest margin is calculated by dividing tax equivalent
net interest income by total average earning assets. Tax equivalent
net interest income is calculated by grossing up interest income for
the amounts that are non taxable (i.e., municipal income) then
subtracting interest expense. The tax rate utilized is 34%. For the
quarters ended December 31, 2008, September 30, 2008, June 30, 2008
and March 31, 2008 net interest income on a tax equivalent basis was
$8.8 million, $8.8 million, $8.7 million and $8.0 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.
(3) 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 December 31, 2008, September 30,
2008, June 30, 2008 and March 31, 2008, tax equivalent net interest
income was $8.8 million, $8.8 million, $8.7 million and $8.0
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 December 31, 2008, September 30,
2008, June 30, 2008 and March 31, 2008, was $3.7 million, $4.8
million, $4.6 million and $4.7 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
4Q08 3Q08 2Q08 1Q08
BALANCE SHEET RATIOS
Loans to deposits 90.28% 94.89% 100.04% 110.61%
Average interest-earning
assets to average-interest
bearing liabilities 116.07% 116.73% 118.78% 121.52%
PER SHARE DATA
Dividends $0.00 $0.19 $0.19 $0.19
Book value $16.71 $16.21 $16.14 $17.04
Tangible book value $15.21 $14.70 $14.61 $15.57
SHARE PRICE DATA
Closing price $14.59 $17.49 $19.21 $24.17
Diluted earnings multiple(1) 0.88 1.08 1.20 1.43
Book value multiple(2) 0.87 1.08 1.19 1.42
COMMON STOCK DATA
Outstanding shares at end
of period 4,534,317 4,528,817 4,526,817 4,526,817
Weighted average shares
outstanding 4,528,108 4,528,476 4,526,817 4,526,383
Weighted average shares
outstanding, diluted 4,545,468 4,551,843 4,561,879 4,558,907
CAPITAL RATIOS
Total equity to total assets 7.68% 7.83% 7.71% 8.33%
Total risk based capital
ratio 11.59% 11.77% 11.32% 11.45%
Tier 1 risk based capital
ratio 10.34% 10.52% 10.08% 10.29%
Leverage ratio 8.40% 8.51% 8.17% 8.82%
CREDIT QUALITY
Net charge-offs to
average loans 0.11% 0.03% 0.18% 0.27%
Total non-performing
loans to total loans 1.02% 1.01% 1.04% 1.45%
Total non-performing
assets to total assets 1.47% 1.45% 1.24% 1.35%
Non-accrual loans to:
total loans 1.02% 1.01% 1.04% 1.45%
total assets 0.70% 0.71% 0.72% 1.03%
Allowance for loan losses to:
total loans 1.40% 1.40% 1.40% 1.32%
non-performing assets 69.27% 72.56% 82.81% 69.84%
non-accrual loans 145.79% 147.03% 142.01% 90.85%
NON-PERFORMING ASSETS:
(dollars in thousands)
Loans delinquent over 90
days $1,117 $4,318 $2,738 $1,231
Non-accrual loans 6,890 6,691 6,867 9,551
Other real estate owned
and repossessed assets 7,612 6,867 4,910 2,874
NET LOAN CHARGE-OFFS
(RECOVERIES):
(dollars in thousands)
Loans charged off $794 $239 $1,240 $1,786
(Recoveries) (16) (7) (8) (7)
Net charge-offs (recoveries) 778 232 1,232 1,779
PROVISION FOR LOAN LOSSES
(dollars in thousands) $985 $318 $2,307 $2,064
ALLOWANCE FOR LOAN LOSS
SUMMARY
(dollars in thousands)
Balance at the beginning
of period $9,838 $9,752 $8,677 $7,093
STM allowance at
beginning of period - - - 1,299
Provision 985 318 2,307 2,064
Net charge-offs (recoveries) 778 232 1,232 1,779
Balance at the end of
period 10,045 9,838 9,752 8,677
(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.
Middleburg Financial Corporation
Average Balances, Income and Expenses, Yields and Rates
Three Months Ended December 31,
2008 2007
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
(Dollars in thousands)
Assets :
Securities:
Taxable $111,809 $1,291 4.59% $108,949 $1,422 5.19%
Tax-exempt(1)(2) 54,139 991 7.28% 47,244 831 7.00%
Total
securities $165,948 $2,282 5.47% $156,193 $2,253 5.74%
Loans
Taxable $694,132 $12,036 6.90% $695,866 $11,967 6.84%
Tax-exempt(1) 5 - 0.00% 7 - 0.00%
Total loans $694,137 $12,036 6.90% $695,873 $11,967 6.84%
Federal funds sold 10,790 18 0.66% 6,903 34 1.96%
Interest on
money market
investments - - - - - -
Interest bearing
deposits in other
financial
institutions 4,452 41 3.66% 3,648 45 4.91%
Total earning
assets $875,327 $14,377 6.53% $862,617 $14,299 6.59%
Less: allowances
for credit losses (10,057) (9,805)
Total nonearning
assets 82,952 82,080
Total assets $948,222 $934,892
Liabilities:
Interest-bearing
deposits:
Checking $207,411 $944 1.81% $210,527 $1,116 2.11%
Regular savings 49,461 187 1.50% 52,514 210 1.59%
Money market
savings 37,009 117 1.26% 39,639 124 1.24%
Time deposits:
$100,000
and over 120,034 1,081 3.58% 122,972 1,082 3.50%
Under
$100,000 194,513 1,933 3.95% 131,979 1,261 3.80%
Total
interest-
bearing
deposits $608,428 $4,262 2.79% $557,631 $3,793 2.71%
Short-term
borrowings 29,162 277 3.78% 45,881 413 3.58%
Securities sold
under agreements
to repurchase 24,457 47 0.76% 30,533 137 1.79%
Long-term debt 92,090 990 4.28% 101,981 1,105 4.31%
Federal funds
purchased 31 - 0.00% 474 3 2.52%
Total
interest-bearing
liabilities $754,168 $5,576 2.94% $736,500 $5,451 2.94%
Non-interest
bearing liabilities
Demand deposits 112,013 114,456
Other
liabilities 6,142 7,702
Total liabilities $872,323 $858,658
Non-controlling
interest 2,418 2,771
Shareholders' equity 73,481 73,463
Total liabilities
and shareholders'
equity $948,222 $934,892
Net interest income $8,801 $8,848
Interest rate spread 3.59% 3.65%
Interest expense
as a percent of
average earning
assets 2.53% 2.51%
Net interest margin 4.00% 4.08%
Return on average
assets 0.86% 0.66%
Return on average
equity 11.08% 8.42%
(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 366 day year.
Middleburg Financial Corporation
Average Balances, Income and Expenses, Yields and Rates
Twelve Months Ended December 31,
2008 2007
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
(Dollars in thousands)
Assets :
Securities:
Taxable $108,482 $5,348 4.93% $86,776 $4,524 5.21%
Tax-exempt(1)(2) 47,975 3,306 6.89% 41,524 2,947 7.10%
Total securities $156,457 $8,654 5.53% $128,300 $7,471 5.82%
Loans
Taxable $689,210 $48,087 6.98% $615,198 $42,958 6.98%
Tax-exempt(1) 9 1 11.11% 27 3 11.11%
Total loans $689,219 $48,088 6.98% $615,225 $42,961 6.98%
Federal funds sold 7,604 139 1.83% 3,195 159 4.98%
Interest on money market
investments - - - - - -
Interest bearing deposits
in other financial
institutions 4,097 165 4.03% 730 39 5.34%
Total earning
assets $857,377 $57,046 6.65% $747,450 $50,630 6.77%
Less: allowances for
credit losses (9,251) (6,005)
Total nonearning assets 77,029 70,433
Total assets $925,155 $811,878
Liabilities:
Interest-bearing
deposits:
Checking $188,886 $3,755 1.99% $140,045 $3,427 2.45%
Regular savings 53,223 939 1.76% 52,167 1,021 1.96%
Money market savings 39,267 465 1.18% 54,558 618 1.13%
Time deposits:
$100,000 and over 127,398 5,021 3.94% 118,964 5,958 5.01%
Under $100,000 128,781 5,311 4.12% 86,083 3,773 4.38%
Total
interest-bearing
deposits $537,555 $15,491 2.88% $451,817 $14,797 3.27%
Short-term borrowings 44,983 1,988 4.42% 51,659 2,825 5.47%
Securities sold under
agreements to
repurchase 40,924 831 2.03% 43,769 1,868 4.27%
Long-term debt 100,308 4,398 4.38% 60,018 2,926 4.88%
Federal Funds Purchased 397 11 2.77% 447 25 5.59%
Total
interest-bearing
liabilities $724,167 $22,719 3.14% $607,710 $22,441 3.69%
Non-interest bearing
liabilities
Demand Deposits 114,466 117,942
Other liabilities 7,328 6,128
Total liabilities $845,961 $731,780
Non-controlling interest 3,232 -
Shareholders' equity 75,961 80,098
Total liabilities and
shareholders' equity $925,154 $811,878
Net interest income $34,327 $28,189
Interest rate spread 3.52% 3.08%
Interest expense as a
percent of average
earning assets 2.65% 3.00%
Net interest margin 4.00% 3.77%
Return on average assets 0.28% 0.38%
Return on average equity 3.37% 3.83%
(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 366 day year.
MIDDLEBURG FINANCIAL CORPORATION
RECONCILIATION OF NET INTEREST INCOME TO
TAX EQUIVALENT NET INTEREST INCOME
FOR THE YEAR-TO-DATE PERIOD ENDED
(dollars in thousands) 12/31/2008 9/30/2008 6/30/2008 3/31/2008
GAAP measures:
Interest Income - Loans $48,088 $36,052 $24,084 $12,159
Interest Income - Investments
& Other 7,834 5,830 3,781 1,818
Interest Expense - Deposits 15,492 11,230 7,436 3,946
Interest Expense - Other
Borrowings 7,227 5,912 4,255 2,304
Total Net Interest Income $33,203 $24,740 $16,174 $7,727
Plus:
NON-GAAP measures:
Tax Benefit Realized on
Non-Taxable Interest Income -
Loans $- $- $- $-
Tax Benefit Realized on
Non-Taxable Interest Income -
Municipal Securities 1,125 787 505 246
Tax Benefit Realized on
Non-Taxable Interest Income -
Corporate Securities - - - -
Total Tax Benefit Realized on
Non- Taxable Interest Income $1,125 $787 $505 $246
Total Tax Equivalent Net
Interest Income $34,327 $25,527 $16,679 $7,973
FOR THE THREE MONTH PERIOD ENDED
(dollars in thousands) 12/31/2008 9/30/2008 6/30/2008 3/31/2008
GAAP measures:
Interest Income - Loans $12,036 $11,967 $11,926 $12,159
Interest Income - Investments
& Other 2,004 2,049 1,963 1,818
Less: Interest Expense - Deposits 4,263 3,793 3,491 3,946
Less: Interest Expense - Other
Borrowings 1,314 1,657 1,951 2,304
Total Net Interest Income $8,463 $8,566 $8,447 $7,727
Plus:
NON-GAAP measures:
Tax Benefit Realized on
Non-Taxable Interest Income -
Loans $- $- $- $-
Tax Benefit Realized on
Non-Taxable Interest Income -
Municipal Securities 338 282 259 246
Tax Benefit Realized on
Non-Taxable Interest Income -
Corporate Securities - - - -
Total Tax Benefit Realized on
Non- Taxable Interest Income $338 $282 $259 $246
Total Tax Equivalent Net
Interest Income $8,801 $8,848 $8,706 $7,973
SOURCE Middleburg Financial Corporation
