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Middleburg Financial Corporation Announces 2010 First Quarter Earnings

Middleburg Financial Corporation, parent company of Middleburg 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 Mortgageclosed $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.
 
 

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