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Middleburg Financial Corporation Announces Fourth Quarter Earnings and 2008 Earnings
Posted by: gurufocus (IP Logged)
Date: January 30, 2009 10:01PM

Press Release: Middleburg Financial Corporation Announces Fourth Quarter Earnings and 2008 Earnings

MIDDLEBURG, Va., Jan. 30 /PRNewswire-FirstCall/ -- Middleburg Financial Corporation (the "Company"), (Nasdaq: MBRG), parent company of Middleburg Bank (the "Bank"), today reported its financial results for the fourth quarter of 2008 and the year ended 2008.

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 Joseph L. Boling, chairman and chief executive officer of Middleburg Financial Corporation. He continued, saying "With our closing today on $22 million in funds available to healthy financial institutions through the Treasury Capital Purchase Program, Middleburg has taken prudent steps to ensure that the health and capitalization of our company will not be compromised due to an extended economic downturn. Moreover, we will use these funds to continue making loans in our markets throughout this cycle."

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 December 31, 2008, interest income from loans increased $68,000 or 0.6% when comparing the quarter ended December 31, 2008 to the quarter ended September 30, 2008.

Interest income from the investment portfolio decreased $45,000 from the three months ended September 30, 2008 to the three months ended December 31, 2008. Interest income from the investment portfolio increased $1.2 million from the year ended December 31, 2007 to the same period in 2008. The average balance of the investment portfolio increased $17.3 million from September 30, 2008. During the three months ended December 31, 2008, the Company increased its cash liquidity position through investments in federal funds sold as a precaution against the economic uncertainties and the resulting volatility that occurred in the markets. Accordingly, the yields on these investments were lower than the Company could attain in other less liquid investments.

Total interest expense for the three months ended December 31, 2008 increased $126,000 when compared to the three months ended September 30, 2008. Interest expense increased 1.2% or $278,000 from the year ended December 31, 2007 to $22.7 million for the year ended December 31, 2008. Although interest expense on borrowings decreased, demand among local competitors for deposits remained high thereby keeping the acquisition costs of deposits elevated and increasing the corresponding interest expense. The average cost of interest bearing liabilities of 2.94% was unchanged during the quarter ended December 31, 2008, when compared to the prior quarter. The average balance of interest bearing liabilities increased $17.7 million during the quarter ended December 31, 2008.

The net interest margin decreased from 4.09% for the quarter ended September 30, 2008 to 4.00% for the quarter ended December 31, 2008. The decrease in the net interest margin was mostly attributable to the decreased yield of interest earning assets.

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 footnote (2) following the "Key Statistics" table below.

Asset Quality and Provision for Loan Losses

Provisions for loan losses were $985,000 for the three months ended December 31, 2008, compared to $318,000 for the quarter ended September 30, 2008. Provisions for loan losses were $5.7 million for the year ended December 31, 2008, compared to $1.8 million for the same period in 2007. The consolidation of Southern Trust Mortgage contributed $2.0 million to the provision for loan losses. While the Company experienced an increase in total loans during 2008 and has recognized certain loans for charge-off, given the level of problem loans, continued uncertainty in the economy, and the current nationwide credit crisis, the Company deemed it prudent to maintain its allowance for loan losses.

Non performing assets increased from $13.6 million or 1.4% of total assets at September 30, 2008 to $14.5 million or 1.5% of total assets at December 31, 2008. This rise was mostly a result of the increase in other real estate owned. During the fourth quarter of 2008, the Southern Trust Mortgage foreclosed upon real estate assets valued at $912,000. The majority of past due non-real estate loans have been charged off and 83.6% of remaining past due loans are secured by consumer real estate. In the fourth quarter of 2007, the Company developed a problem loan committee to monitor past due loans, identify potential problem credits, and develop action plans to work through these loans as promptly as possible. As noted previously, in the second quarter of 2008, a large relationship was added to the list of problem loans reviewed by this committee. This loan is well secured and performing, and excluding this credit, the level of total problem loans has remained relatively flat since the third quarter of 2007. Given the current economic environment, it is anticipated there could be an increase in non performing loans, but it is not believed the increase will be as dramatic as that experienced in the first half of 2008.

Loans greater than 90 days past due decreased from $4.3 million at September 30, 2008 to $1.1 million at December 31, 2008. The Company realized $778,000 in net charge-offs for the quarter ended December 31, 2008 versus $232,000 for the prior quarter. Additional past dues and credit losses are expected due to the current economic forecast, but the increase is not anticipated to be as significant as those experienced in recent quarters.

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 $122,000 or 3.1% when comparing the quarter ended December 31, 2008 to the quarter ended September 30, 2008. Non-interest income increased $9.2 million or 119.5% when comparing the year ended December 31, 2008 to the same period in 2007. The increase was driven by the consolidation of Southern Trust Mortgage.

Trust and investment advisory fees earned by Middleburg Trust Company ("MTC") and Middleburg Investment Advisors ("MIA") decreased 12.6% or $119,000 when comparing the quarter ended December 31, 2008 to the quarter ended September 30, 2008 and decreased 14.2% or $618,000 when comparing the year ended December 31, 2008 to December 31, 2007. Trust and investment advisory fees are based primarily upon the market value of the accounts under administration/management. For the quarter ended December 31, 2008, MTC's consolidated gross fees decreased 17.7% or $88,000 when compared to the quarter ended September 30, 2008. MIA's consolidated gross fees decreased by 6.8% or $30,000 when comparing the three months ended September 30, 2008 to the three months ended December 31, 2008. Total consolidated assets under administration by MTC and MIA were at $893.7 million at December 31, 2008, a decrease of $260.4 million or 22.6% from the $1.2 billion under administration at December 31, 2007. The Bank holds a large portion of its investment portfolio in custody with MTC. MTC's assets under administration were $485.1 million at December 31, 2008 and $602.3 million at December 31, 2007. MIA's assets under administration were $408.6 million at December 31, 2008 and $551.8 million at December 31, 2007.

Service charges on deposits decreased by $64,000 or 12.7% from the quarter ended September 30, 2008 to the quarter ended December 31, 2008. The decrease is primarily related to overdrafts fees and ATM/Debit card fees which were $29,000 and $33,000 less, respectively, for the three months ended December 31, 2008 when compared to September 30, 2008. Commissions on investment sales was relatively unchanged from the quarter ended September 30, 2008 to the quarter ended December 31, 2008.

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 March 31, June 30, September 30 and December 31, 2008 are reflected in the Company's financial statements on a consolidated basis, with the outstanding interest not held by the Company reported as "Minority Interest in Consolidated Subsidiary." Accordingly, annual fees on mortgages held for sale of $1.4 million, which were generated by Southern Trust Mortgage during each three month period ended March 31, June 30, September 30 and December 31, 2008, are being reported as part of consolidated other operating income. For the three month periods ended March 31, June 30, September 30 and December 31, 2008, the $105,000, $77,000, $78,000 and $56,000, respectively, of Equity Earnings on Unconsolidated Subsidiaries represents Southern Trust Mortgage's equity earnings from its unconsolidated affiliates.

Southern Trust Mortgage closed $145.7 million in loans for the three months ended December 31, 2008 and $181.6 million in loans for the three months ended September 30, 2008. Southern Trust Mortgage earnings were negatively impacted by provisions made for the allowance for loan losses. Southern Trust Mortgage made $688,000 in provisions for its allowance for loan losses during the three months ended December 31, 2008 and $185,000 in provisions for its allowance for the three months ended September 30, 2008.

Income earned from the Bank's $11.3 million investment in Bank Owned Life Insurance (BOLI) was $110,000 and $114,000 for the quarters ended December 31, 2008 and September 30, 2008, respectively. The Company purchased $10.8 million in BOLI in 2004 and $485,000 in BOLI in 2007 to help subsidize increasing employee benefit costs and expenses related to the restructure of its supplemental retirement plans.

Other service charges, including fees from loans, mortgages held for sale and other service fees, decreased $203,000 or 36.4% when comparing the three months ended December 31, 2008 to the three months ended September 30, 2008.

Non-Interest Expense

Non-interest expense increased $1.2 million or 11.8% from the quarter ended September 30, 2008 to the quarter ended December 31, 2008. Non-interest expense increased $12.7 or 43.2% from the year ended December 31, 2007 to the year ended December 31, 2008. The increase was primarily due to the consolidation of Southern Trust Mortgage.

Salaries and employee benefit expenses increased $396,000 or 6.6% when comparing the quarter ended September 30, 2008 to the quarter ended December 31, 2008. The increase, when compared to the prior quarter, is the result of the reversal of the previously accrued incentive expense in the third quarter of 2008. The reversal in the quarter ended September 30, 2008 resulted in lower salary and employee benefit expenses when compared to previous periods. Salaries and employee benefit expense increased $11.8 million from the year ended December 31, 2007 to $25.4 million for the year ended December 31, 2008. The consolidation of Southern Trust Mortgage resulted in an additional $10.5 million of salaries and employee benefit expense.

Net occupancy expense was relatively unchanged when comparing the quarter ended September 30, 2008 to the quarter ended December 31, 2008. Net occupancy expense increased from $3.3 million for the year ended December 31, 2007 to $5.8 million for the year ended December 31, 2008. The increase is driven by the additional rent expense associated with the Company's relocation of the Ashburn and Fort Evans financial service centers in 2008 and the consolidation of Southern Trust Mortgage. As growth efforts continue to progress, the Company anticipates higher levels of occupancy expense to be incurred.

Advertising and marketing expense increased $237,000 when comparing the quarter ended September 30, 2008 to the quarter ended December 31, 2008. Although the Company maintained a level of regular advertising, the Company's media plan was lighter during the summer months.

Other operating expenses increased $520,000 or 25.8% when comparing the quarter ended September 30, 2008 to the quarter ended December 31, 2008. The increase resulted from increases in various other expense categories including accounting fees, educational expenses, FDIC deposit insurance and expenses associated with other real estate owned.

Total Consolidated Assets

Total assets increased $47.9 million or 5.1% to $985.2 million at December 31, 2008 from $937.3 million at September 30, 2008. Total assets increased $143.8 million or 17.1% December 31, 2007 to December 31, 2008. The investment portfolio increased $25.4 million or 16.3% to $181.3 million at December 31, 2008 compared to $155.9 million at September 30, 2008. The investment portfolio increased $52.2 million or 40.4% from December 31, 2007 to December 31, 2008. At December 31, 2008, the tax equivalent yield on the investment portfolio was 5.47%.

Total loans, net of allowance for loan losses, increased by $12.4 million when comparing September 30, 2008 to December 31, 2008. Considering the current interest rate and competitive market environment, the Company has been diligent about maintaining its credit quality and thereby cautious about the growth it has permitted in the loan portfolio.

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 $3.6 million when comparing the December 31, 2008 balance to that at September 30, 2008. Production during the month of December was markedly improved from the previous four months.

Premises and equipment, net of depreciation, increased 11.4% to $23.0 million at December 31, 2008 from $20.6 million at December 31, 2007. The increase was driven by the relocations of the Ashburn financial service center in February 2008 and the Fort Evans financial service center in July 2008.

Deposits and Other Borrowings

Total deposits, which include brokered deposits, increased 7.1% to $744.8 million at December 31, 2008 from $695.3 million at September 30, 2008. Brokered deposits were $107.5 million at December 31, 2008 and September 30, 2008, respectively. Total deposits increased 26.5% to $744.8 million at December 31, 2008 from $588.8 million at December 31, 2007. Purchases of brokered deposits and a CD promotional campaign in the fourth quarter of 2008 drove the increase.

Short term borrowings, which include overnight advances with the Federal Home Loan Bank of Atlanta, were $40.9 million at December 31, 2008 and $38.5 million at September 30, 2008. Short-term borrowings were comprised of $40.9 million and $38.5 million due to the consolidation of Southern Trust Mortgage at December 31, 2008 and September 30, 2008, respectively. Southern Trust Mortgage has a long standing line of credit with its correspondent bank that is primarily used to fund its mortgages held for sale.

Equity

Shareholders' equity at December 31, 2008 and December 31, 2007 was $75.7 million and $77.9 million, respectively. The book value of the Company at December 31, 2008 was $16.71 per common share. Total common shares outstanding were 4,534,317 at December 31, 2008.

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, 2007, 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.

Source: PRNewsWire



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