Middleburg Financial Corporation Announces 2010 Second Quarter Earnings
Middleburg Financial Corporation, parent company of Middleburg Bank, today reported its financial results for the second quarter of 2010.
MIDDLEBURG, Va., July 30 -- Middleburg Financial Corporation (the "Company"), (Nasdaq: MBRG), 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 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 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.
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.