UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________

FORM 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 30, 2015
___________

MIDDLEBURG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction
of incorporation)
0-24159
(Commission File Number)
54-1696103
(I.R.S. Employer
Identification No.)
 
 
 
111 West Washington Street
Middleburg, Virginia
(Address of principal executive offices)
 
20117
(Zip Code)

Registrant’s telephone number, including area code: (703) 777-6327

Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02.    Results of Operations and Financial Condition.

On October 30, 2015, Middleburg Financial Corporation (the “Company”) issued a press release reporting its financial results for the period ended September 30, 2015. A copy of the press release is being furnished as Exhibit 99.1 to this report and is incorporated by reference into this Item 2.02.


Item 8.01.     Other Events.

On October 30, 2015, the Company announced the declaration of a cash dividend of $0.13 per share to shareholders of record on November 13, 2015, payable on November 27, 2015.


Item 9.01.    Financial Statements and Exhibits.

(d)              Exhibits.
                             

Exhibit No.
Description
99.1
Press release dated October 30, 2015.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
MIDDLEBURG FINANCIAL CORPORATION
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date: October 30, 2015
 
By:
/s/ Gary R. Shook
 
 
 
 
Gary R. Shook
 
 
 
 
President and Chief Executive Officer
 
 
 
   




EXHIBIT INDEX
 
Exhibit No.
Description
99.1
Press release dated October 30, 2015




Exhibit 99.1

E A R N I N G S R E L E A S E


Press Contacts:     Gary R. Shook, President & CEO            540-687-4801 or    
pres@middleburgbank.com

Raj Mehra, EVP & CFO                540-687-4816 or
cfo@middleburgbank.com
                                        
Jeffrey H. Culver, EVP & COO            703-737-3470 or    
coo@middleburgbank.com

MIDDLEBURG FINANCIAL CORPORATION ANNOUNCES THIRD QUARTER 2015 RESULTS

MIDDLEBURG, VA. – October 30, 2015 – Middleburg Financial Corporation (the “Company”) (Nasdaq: MBRG), today announced net income of $2.32 million, or $0.32 per diluted share, for the quarter ended September 30, 2015.

Gary R. Shook, president and CEO commented: "The third quarter reflected the results of management's methodical approach to a return to higher performance.  The increased loan growth seen this year has continued through the third quarter with loan pipelines remaining strong as we move into the fourth quarter of 2015.  The net interest margin showed signs of stabilizing during the quarter which bodes well for net interest income going forward. Continued improvement in asset quality has allowed the Company greater flexibility with the adjustment of reserve levels.  Record corporate annual earnings of $8.2 million, achieved in 2003, are now within our sight as we move toward year's end.  Finally, we were again gratified to be rated as a Five Star Bank by BauerFinancial, Inc."

Third Quarter 2015 Highlights:
•
Net income increased to $2.32 million or $0.32 per diluted share, higher by 9.43% compared to $2.12 million or $0.30 per diluted share for the third quarter of 2014. Net income for the nine months ended September 30, 2015 was $7.05 million or $0.98 per diluted share compared to $5.95 million or $0.84 per diluted share for the same period in 2014.
•
Net interest margin increased to 3.28%, higher by 4 basis points ("bp") compared to the previous quarter and lower by 8 bp compared to the third quarter of 2014.
•
Cost of funds declined to 37 bp, a decrease of 1 bp compared to the previous quarter and 8 bp lower than the third quarter of 2014.
•
Total revenue increased to $12.01 million for the third quarter of 2015, higher by 2.26% compared to the previous quarter and an increase of 1.59% compared to the third quarter of 2014.
•
Net interest income increased to $9.66 million, higher by 3.72% compared to the previous quarter and 1.19% higher than the third quarter of 2014. Net interest income was $28.60 million for the nine months ended September 30, 2015, a decrease of 0.57% from net interest income reported for the same period for 2014.
•
Non-interest income declined by 3.33% compared to the previous quarter and was higher by3.25% compared to the third quarter of 2014.
•
Non-interest expense increased slightly to $9.27 million, higher by 2.16% compared to the previous quarter and higher by 10.52% compared to the third quarter of 2014. Non-interest expense for the nine months ended September 30, 2015 fell by 13.91% compared to the nine months ended September 30, 2014, primarily due to the sale of the Company's majority interest in Southern Trust Mortgage in the second quarter of 2014.
•
The efficiency ratio improved to 73.30%, compared to 74.88% for the previous quarter and 68.82% for the third quarter of 2014. The year to date efficiency ratio of 72.11% compared to 74.41% for the same period in 2014.
•
Total assets were $1.26 billion, an increase of 3.14% since December 31, 2014.
•
Total deposits were $1.03 billion, an increase of 4.38% since December 31, 2014.
•
Loan momentum increased with loans held-for-investment growing to $780.87 million as of September 30, 2015 compared to $754.85 million on December 31, 2014 and $728.75 million on September 30, 2014, representing an annualized growth rate of 4.6% for 2015 through the end of the third quarter and a 7.1% growth rate comparing calendar quarters.

Page 1


•
The allowance for loan losses declined by $494,000 compared to the previous quarter as a result of net charge-offs of $62,000 and a recovery of the provision for loan losses of $432,000. The allowance for loan losses was 1.46% of total loans compared to 1.54% for the previous quarter and 1.56% at year-end 2014.
•
Capital ratios continue to be strong: Total Risk-Based Capital Ratio of 18.25%, Tier 1 Risk-Based Capital Ratio of 16.99%, Common Equity Tier 1 Ratio of 16.31% and Tier 1 Leverage Ratio of 9.84% at September 30, 2015.

TOTAL REVENUE
Total revenue was $12.01 million for the third quarter of 2015, higher by 2.26% compared to the previous quarter and an increase of 1.59% compared to the third quarter of 2014.

Net Interest Income
The Company recorded net interest income of $9.66 million for the third quarter of 2015, an increase of 3.72% compared to the previous quarter and higher by 1.19% compared to the quarter ended September 30, 2014. The net interest margin was 3.28%, higher by 4 bp compared to the previous quarter and 8 bp lower than the quarter ended September 30, 2014.

The following factors contributed to the increase in net interest margin during the third quarter of 2015, compared to the previous quarter:
•
Yields on earning assets increased by 4 bp compared to the previous quarter, primarily due to a 9 bp increase in yields on investments.
•
Yields on investment securities increased as we added securities with reduced prepayment sensitivity and premium amortization slowed during the quarter.
•
A combination of robust loan growth and reduced payoff activity resulted in no change to loan yields compared to the previous quarter.
•
Cost of funds was 37 bp, lower by 1 bp compared to the previous quarter.

The following table analyzes changes in net interest income comparing the third quarter of 2015 to the previous quarter and to the quarter ended September 30, 2014.
 
 
Quarters Ended (Annualized)
(Dollars in thousands)
 
September 30, 2015 vs. June 30, 2015 Increase (Decrease) Due to Changes in:
 
September 30, 2015 vs. September 30, 2014 Increase (Decrease) Due to Changes in:
 
 
Volume
 
Rate
 
Total
 
Volume
 
Rate
 
Total
Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
$
114

 
$
485

 
$
599

 
$
923

 
$
(280
)
 
$
643

Tax-exempt (1)
 
3

 
(35
)
 
(32
)
 
(179
)
 
(372
)
 
(551
)
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
541

 
304

 
845

 
3,107

 
(3,619
)
 
(512
)
Tax-exempt (1)
 
—

 
—

 
—

 
(1
)
 
(3
)
 
(4
)
Interest on deposits with other banks and federal funds sold
 
(10
)
 
(22
)
 
(32
)
 
(88
)
 
(23
)
 
(111
)
Total earning assets
 
$
648

 
$
732

 
$
1,380

 
$
3,762

 
$
(4,297
)
 
$
(535
)
Interest-Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Checking
 
$
(4
)
 
$
16

 
$
12

 
$
(18
)
 
$
70

 
$
52

Regular savings
 
3

 
1

 
4

 
12

 
—

 
12

Money market savings
 
—

 
4

 
4

 
(11
)
 
3

 
(8
)
Time deposits:
 
 
 
 
 
 
 
 
 
 
 
 
$100,000 and over
 
166

 
(24
)
 
142

 
204

 
(105
)
 
99

Under $100,000
 
(38
)
 
(9
)
 
(47
)
 
(298
)
 
(166
)
 
(464
)
Total interest-bearing deposits
 
$
127

 
$
(12
)
 
$
115

 
$
(111
)
 
$
(198
)
 
$
(309
)
Securities sold under agreements to repurchase
 
(1
)
 
(59
)
 
(60
)
 
(67
)
 
(247
)
 
(314
)
FHLB borrowings and other debt
 
(63
)
 
27

 
(36
)
 
137

 
(311
)
 
(174
)
Total interest-bearing liabilities
 
$
63

 
$
(44
)
 
$
19

 
$
(41
)
 
$
(756
)
 
$
(797
)
Change in net interest income
 
$
585

 
$
776

 
$
1,361

 
$
3,803

 
$
(3,541
)
 
$
262



Page 2


Comparing the third quarter of 2015 to the previous quarter, the table shows the increase in interest income for investments was largely driven by rate changes, as premium amortization slowed causing yields to increase. The increase in interest income from loans was mostly due to volume as higher loan balances helped stabilize loan yields during the quarter.

Non-Interest Income
Non-interest income decreased by 3.33% compared to the previous quarter and increased by 3.25% compared to the quarter ended September 30, 2014.

•
Total revenue generated by our wealth management group, Middleburg Investment Group ("MIG") was $1.17 million for the quarter ended September 30, 2015, a decrease of 6.03% compared to the previous quarter and higher by 4.38% compared to the quarter ended September 30, 2014. The decline in fee income during the third quarter of 2015 was largely due to changes in market value of assets under administration during the quarter. Fee income is based primarily upon the market value of assets under administration which were $1.91 billion at September 30, 2015, $1.87 billion at December 31, 2014 and $1.78 billion at September 30, 2014.
•
Other operating income was $266,000 for the quarter ended September 30, 2015, an increase of 19.28% compared to the previous quarter and higher by 75.00% compared to the quarter ended September 30, 2014. Most of the increase in other operating income during the periods stem from rental income received and prepayment penalties on certain investment securities.

NON-INTEREST EXPENSE
Non-interest expense increased slightly by 2.16% compared to the previous quarter and by 10.52% compared to the the quarter ended September 30, 2014. Principal categories of non-interest expense that changed were the following:

•
Salaries and employee benefit expenses decreased by 2.97% when compared to the previous quarter and increased by 8.85% when compared to the quarter ended September 30, 2014. The decline in salary and benefit expenses compared to the previous quarter was primarily due to lower incentive accruals as we aligned compensation to the achievement of growth targets. The increase in salary and benefit expenses compared to the third quarter of 2014 resulted from staffing changes related to our mortgage division.
•
Costs related to other real estate owned (OREO) increased, primarily driven by a valuation adjustment for one property resulting from an updated appraisal received during the current quarter.
•
Other operating expenses increased by 8.41% compared to the previous quarter and by 14.83% compared to the same period in 2014. Most of the increase in other expenses in the third quarter of 2015 was due to expenses related to a fraud loss and advisory fees that were non-recurring in nature.

ASSET QUALITY

While total non performing assets increased in the first nine months of 2015, the increase was primarily due to the restructuring of two loans that are part of a single relationship. During the second quarter of 2015, two loans from a single relationship totaling $9.93 million underwent a restructuring and one of the loans was downgraded that quarter, which resulted in total nonperforming assets increasing to $26.07 million at September 30, 2015 compared to $19.45 million at December 31, 2014. This also increased troubled debt restructurings ("TDR's") to $15.94 million at September 30, 2015 compared to $6.90 million at December 31, 2014. While this loan was restructured and downgraded during 2015, the Company had properly classified this loan as impaired at December 31, 2014. The loan is also an accruing TDR.

With the exception of the increase in TDR's discussed earlier, there were declines in past due, nonaccrual and loans risk rated as special mention, substandard, doubtful or loss during the nine months ended September 30, 2015.
•
Total past due loans have declined 36.21% to $3.09 million as of September 30, 2015 from $4.85 million as of December 31, 2014.
•
Nonaccrual loans have declined 11.23% to $8.83 million as of September 30, 2015 from $9.94 million as of December 31, 2014.
•
Loans that were risk rated as special mention, substandard, doubtful, and loss declined by 23.46% to $42.12 million as of September 30, 2015 from $55.03 million as of December 31, 2014.

In a continuing effort to enhance asset quality, the Company also sold $1.02 million of nonperforming loans in the second quarter of 2015.

The improvement in asset quality resulted in the allowance for loans losses declining to $11.40 million or 1.46% of total loans at September 30, 2015 compared to $11.79 million or 1.56% of total loans at December 31, 2014.

Page 3



CONSOLIDATED ASSETS
Total consolidated assets increased to September 30, 2015 were $1.26 billion, higher by 3.14% since December 31, 2014. Changes in major asset categories were as follows:

•
Cash balances and deposits with other banks decreased by $15.24 million compared to December 31, 2014.
•
The Company deployed some of its excess liquidity into growing its securities portfolio which increased by $24.52 million compared to December 31, 2014.
•
Loan momentum increased with loans held-for-investment growing to $780.87 million as of September 30, 2015 compared to $754.85 million on December 31, 2014, an increase of $26.02 million from December 31, 2014. Gross loans were $728.75 million on September 30, 2014. This represents an annualized growth rate of 4.6% for 2015 through the end of the third quarter and a 7.1% growth rate comparing calendar quarters. Our mortgage division contributed $4.66 million and $6.06 million to total loan growth during the three and nine month periods ended September 30, 2015, respectively.

CONSOLIDATED LIABILITIES
Total consolidated liabilities at September 30, 2015 were $1.13 billion, an increase of 3.09% compared to December 31, 2014. Deposit growth continues to be strong with total deposits increasing by $43.27 million from December 31, 2014 to $1.03 billion as of September 30, 2015. Federal Home Loan Bank borrowings increased by $5.00 million from December 31, 2014 to $60.00 million at September 30, 2015.

SHAREHOLDERS' EQUITY AND CAPITAL
Shareholders’ equity at September 30, 2015 was $126.41 million, compared to $122.03 million at December 31, 2014. Retained earnings at September 30, 2015 were $60.54 million compared to $55.85 million at December 31, 2014. The book value of the Company’s common stock at September 30, 2015 was $17.65 per share versus $17.11 per share at December 31, 2014.

The Company’s capital ratios remain well above regulatory minimum capital ratios as of September 30, 2015:

•
Tier 1 Leverage ratio was 9.84%, 5.84% over the regulatory minimum of 4.00%.
•
Common Equity Tier 1 Ratio was 16.31%, 9.31% over the regulatory minimum of 7.00%.
•
Tier 1 Risk-Based Capital Ratio was 16.99%, 8.49% over the regulatory minimum of 8.50%.
•
Total Risk Based Capital Ratio was 18.25%, 7.75% over the regulatory minimum of 10.50%.

Caution about Forward Looking Statements

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, 2014, and other filings with the Securities and Exchange Commission.

About Middleburg Financial Corporation

Middleburg Financial Corporation is headquartered in Middleburg, Virginia and has two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. Middleburg Bank serves communities in Virginia with financial centers in Ashburn, Gainesville, Leesburg, Marshall, Middleburg, Purcellville, Reston, Richmond, Warrenton and Williamsburg. Middleburg Investment Group owns Middleburg Trust Company, which is headquartered in Richmond, Virginia with offices in Middleburg, Alexandria and Williamsburg.



Page 4




MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except for share and per share data)
 
 
 
 
 
 
 
(Unaudited)
 
 
 
September 30,
2015
 
June 30,
2015
 
December 31, 2014
ASSETS
 
 
 
 
 
Cash and due from banks
$
6,498

 
$
5,001

 
$
7,396

Interest bearing deposits with other banks
33,281

 
44,406

 
47,626

Total cash and cash equivalents
39,779

 
49,407

 
55,022

Securities held to maturity, fair value of $1,375, $1,374 and $1,397, respectively
1,500

 
1,500

 
1,500

Securities available for sale, at fair value
372,779

 
351,990

 
348,263

Restricted securities, at cost
5,349

 
5,774

 
5,279

Loans, net of allowance for loan losses of $11,400, $11,894 and $11,786, respectively
769,467

 
761,196

 
743,060

Premises and equipment, net
19,787

 
19,888

 
18,104

Goodwill and identified intangibles, net
3,679

 
3,722

 
3,807

Other real estate owned, net of valuation allowance of $890, $663 and $755, respectively
3,871

 
3,402

 
4,051

Bank owned life insurance
23,107

 
22,940

 
22,617

Accrued interest receivable and other assets
21,972

 
22,166

 
21,154

TOTAL ASSETS
$
1,261,290

 
$
1,241,985

 
$
1,222,857

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
Deposits:
 
 
 
 
 
Non-interest bearing demand deposits
$
242,890

 
$
235,246

 
$
216,912

Savings and interest bearing demand deposits
539,972

 
526,985

 
523,230

Time deposits
249,491

 
243,221

 
248,938

Total deposits
1,032,353

 
1,005,452

 
989,080

Securities sold under agreements to repurchase
24,468

 
24,049

 
38,551

Federal Home Loan Bank borrowings
60,000

 
70,000

 
55,000

Subordinated notes
5,155

 
5,155

 
5,155

Accrued interest payable and other liabilities
12,902

 
12,539

 
13,037

TOTAL LIABILITIES
1,134,878

 
1,117,195

 
1,100,823

Commitments and contingent liabilities
 
 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
 
 
Common stock ($2.50 par value; 20,000,000 shares authorized, 7,162,716, 7,163,255 and 7,131,643, issued and outstanding, respectively)
17,522

 
17,521

 
17,494

Capital surplus
45,224

 
45,063

 
44,892

Retained earnings
60,542

 
59,152

 
55,854

Accumulated other comprehensive income
3,124

 
3,054

 
3,794

TOTAL SHAREHOLDERS' EQUITY
126,412

 
124,790

 
122,034

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,261,290

 
$
1,241,985

 
$
1,222,857



Page 5


MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except for per share data)
 
(Unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
8,227

 
$
8,357

 
$
24,484

 
$
25,656

Interest and dividends on securities
 
 
 
 
 
 
 
Taxable
1,938

 
1,763

 
5,636

 
5,173

Tax-exempt
444

 
535

 
1,354

 
1,656

Dividends
71

 
84

 
196

 
230

Interest on deposits with other banks and federal funds sold
23

 
51

 
84

 
123

Total interest and dividend income
10,703

 
10,790

 
31,754

 
32,838

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
877

 
955

 
2,580

 
2,952

Interest on securities sold under agreements to repurchase
2

 
81

 
64

 
243

Interest on FHLB borrowings and other debt
165

 
209

 
507

 
876

Total interest expense
1,044

 
1,245

 
3,151

 
4,071

NET INTEREST INCOME
9,659

 
9,545

 
28,603

 
28,767

(Recovery of) provision for loan losses
(432
)
 
550

 
(407
)
 
1,510

NET INTEREST INCOME AFTER (RECOVERY OF) PROVISION FOR LOAN LOSSES
10,091

 
8,995

 
29,010

 
27,257

NON-INTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
622

 
635

 
1,792

 
1,815

Trust services income
1,168

 
1,119

 
3,629

 
3,224

Gains on sales of loans held for sale
—

 
1

 
3

 
4,859

Gains on sales of securities available for sale, net
—

 
12

 
138

 
141

Commissions on investment sales
132

 
193

 
415

 
479

Bank owned life insurance
166

 
168

 
489

 
494

Gain on sale of majority interest in consolidated subsidiary
—

 
—

 
—

 
24

Other operating income
266

 
152

 
1,331

 
1,399

Total non-interest income
2,354

 
2,280

 
7,797

 
12,435

NON-INTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
4,834

 
4,441

 
14,664

 
17,467

Occupancy and equipment
1,248

 
1,262

 
3,813

 
4,841

Advertising
98

 
136

 
332

 
430

Computer operations
524

 
439

 
1,536

 
1,408

Other real estate owned
193

 
(33
)
 
285

 
145

Other taxes
230

 
220

 
684

 
637

Federal deposit insurance
188

 
220

 
583

 
687

Other operating expenses
1,959

 
1,706

 
5,355

 
6,042

Total non-interest expense
9,274

 
8,391

 
27,252

 
31,657

Income before income taxes
3,171

 
2,884

 
9,555

 
8,035

Income tax expense
850

 
763

 
2,506

 
2,179

NET INCOME
2,321

 
2,121

 
7,049

 
5,856

Net loss attributable to non-controlling interest
—

 
—

 
—

 
98

Net income attributable to Middleburg Financial Corporation
$
2,321

 
$
2,121

 
$
7,049

 
$
5,954

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.30

 
$
0.99

 
$
0.84

Diluted
$
0.32

 
$
0.30

 
$
0.98

 
$
0.84

Dividends per common share
$
0.13

 
$
0.10

 
$
0.33

 
$
0.24




Page 6


MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Quarterly Summary Statements of Income
(Unaudited, Dollars In thousands, except for per share data)
 
For the Three Months Ended
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
December 31,
2014
 
September 30,
2014
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
8,227

 
$
8,014

 
$
8,243

 
$
8,176

 
$
8,357

Interest and dividends on securities
 
 
 
 
 
 
 
 
 
Taxable
1,938

 
1,792

 
1,906

 
1,728

 
1,763

Tax-exempt
444

 
449

 
461

 
481

 
535

Dividends
71

 
66

 
59

 
64

 
84

Interest on deposits with other banks and federal funds sold
23

 
31

 
30

 
38

 
51

Total interest and dividend income
10,703

 
10,352

 
10,699

 
10,487

 
10,790

INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Interest on deposits
877

 
848

 
855

 
933

 
955

Interest on securities sold under agreements to repurchase
2

 
17

 
45

 
79

 
81

Interest on FHLB borrowings and other debt
165

 
174

 
168

 
160

 
209

Total interest expense
1,044

 
1,039

 
1,068

 
1,172

 
1,245

NET INTEREST INCOME
9,659

 
9,313

 
9,631

 
9,315

 
9,545

(Recovery of) provision for loan losses
(432
)
 
(425
)
 
450

 
450

 
550

NET INTEREST INCOME AFTER (RECOVERY OF) PROVISION FOR LOAN LOSSES
10,091

 
9,738

 
9,181

 
8,865

 
8,995

NON-INTEREST INCOME
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
622

 
612

 
558

 
606

 
635

Trust services income
1,168

 
1,243

 
1,218

 
1,138

 
1,119

Gains on sales of loans held for sale
—

 
3

 
—

 
1

 
1

Gains on sales of securities available for sale, net
—

 
37

 
101

 
45

 
12

Commissions on investment sales
132

 
154

 
129

 
132

 
193

Bank owned life insurance
166

 
163

 
160

 
168

 
168

Other operating income
266

 
223

 
842

 
260

 
152

Total non-interest income
2,354

 
2,435

 
3,008

 
2,350

 
2,280

NON-INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
4,834

 
4,982

 
4,848

 
5,134

 
4,441

Occupancy and equipment
1,248

 
1,226

 
1,339

 
1,336

 
1,262

Advertising
98

 
101

 
133

 
(65
)
 
136

Computer operations
524

 
522

 
490

 
485

 
439

Other real estate owned
193

 
25

 
67

 
110

 
(33
)
Other taxes
230

 
231

 
223

 
212

 
220

Federal deposit insurance
188

 
184

 
211

 
212

 
220

Other operating expenses
1,959

 
1,807

 
1,589

 
1,999

 
1,706

Total non-interest expense
9,274

 
9,078

 
8,900

 
9,423

 
8,391

Income before income taxes
3,171

 
3,095

 
3,289

 
1,792

 
2,884

Income tax expense
850

 
815

 
841

 
162

 
763

NET INCOME
$
2,321

 
$
2,280

 
$
2,448

 
$
1,630

 
$
2,121

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.32

 
$
0.34

 
$
0.23

 
$
0.30

Diluted
$
0.32

 
$
0.32

 
$
0.34

 
$
0.23

 
$
0.30

Dividends per common share
$
0.13

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.10


Page 7


MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Financial Data by Quarter
(Unaudited, Dollars in thousands, except for per share data)
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
2015
 
2015
 
2015
 
2014
 
2014
BALANCE SHEET RATIOS
 
 
 
 
 
 
 
 
 
Loans to deposits
75.64
 %
 
76.89
 %
 
74.60
%
 
76.32
%
 
73.87
%
Average interest-earning assets to average interest-bearing liabilities
135.94
 %
 
135.72
 %
 
136.04
%
 
133.54
%
 
130.14
%
INCOME STATEMENT RATIOS
 
 
 
 
 
 
 
 
 
Return on average assets (ROA)
0.73
 %
 
0.73
 %
 
0.80
%
 
0.53
%
 
0.69
%
Return on average equity (ROE)
7.33
 %
 
7.31
 %
 
8.01
%
 
5.31
%
 
7.00
%
Net interest margin (1)
3.28
 %
 
3.24
 %
 
3.40
%
 
3.31
%
 
3.36
%
Yield on average earning assets
3.63
 %
 
3.59
 %
 
3.77
%
 
3.72
%
 
3.79
%
Yield on securities
2.86
 %
 
2.77
 %
 
2.98
%
 
2.87
%
 
3.13
%
Yield on loans
4.20
 %
 
4.20
 %
 
4.45
%
 
4.42
%
 
4.54
%
Cost of funds
0.37
 %
 
0.38
 %
 
0.39
%
 
0.43
%
 
0.45
%
Efficiency ratio (5)
73.30
 %
 
74.88
 %
 
68.35
%
 
77.53
%
 
68.82
%
PER SHARE DATA
 
 
 
 
 
 
 
 
 
Dividends
$
0.13

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.10

Book value
17.65

 
17.42

 
17.51

 
17.11

 
16.97

Tangible book value (4)
17.13

 
16.90

 
16.99

 
16.58

 
16.43

SHARE PRICE DATA
 
 
 
 
 
 
 
 
 
Closing price
$
17.61

 
$
18.00

 
$
18.30

 
$
18.01

 
$
17.74

Diluted earnings multiple (2)
13.76

 
14.06

 
13.45

 
16.99

 
14.78

Book value multiple (3)
1.00

 
1.03

 
1.04

 
1.05

 
1.05

COMMON STOCK DATA
 
 
 
 
 
 
 
 
 
Outstanding shares at end of period
7,162,716

 
7,163,255

 
7,127,105

 
7,131,643

 
7,123,914

Weighted average shares O/S , basic - QTD
7,162,930

 
7,145,929

 
7,127,910

 
7,127,164

 
7,108,450

Weighted average shares O/S, diluted - QTD
7,181,183

 
7,167,165

 
7,148,702

 
7,146,140

 
7,134,262

Dividend payout ratio
40.63
 %
 
31.25
 %
 
29.41
%
 
43.48
%
 
33.33
%
CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
Capital to assets - common shareholders
10.02
 %
 
10.05
 %
 
9.86
%
 
9.98
%
 
10.01
%
Leverage ratio
9.84
 %
 
9.85
 %
 
9.76
%
 
9.90
%
 
9.71
%
Common equity tier 1 ratio
16.31
 %
 
16.35
 %
 
16.49
%
 
N/A
 
N/A
Tier 1 risk based capital ratio
16.99
 %
 
17.04
 %
 
17.20
%
 
15.70
%
 
16.04
%
Total risk based capital ratio
18.25
 %
 
18.28
 %
 
18.45
%
 
16.95
%
 
17.30
%
CREDIT QUALITY
 
 
 
 
 
 
 
 
 
Net charge-offs (recoveries) to average loans
(0.002
)%
 
(0.04
)%
 
0.03
%
 
0.46
%
 
0.09
%
Total nonperforming loans to total loans
2.71
 %
 
2.63
 %
 
1.83
%
 
1.89
%
 
1.63
%
Total nonperforming assets to total assets
2.07
 %
 
1.99
 %
 
1.46
%
 
1.59
%
 
1.50
%
Nonaccrual loans to:
 
 
 
 
 
 
 
 
 
Total loans
1.13
 %
 
1.04
 %
 
1.26
%
 
1.32
%
 
1.01
%
Total assets
0.70
 %
 
0.64
 %
 
0.76
%
 
0.81
%
 
0.61
%
Allowance for loan losses to:
 
 
 
 
 
 
 
 
 
Total loans
1.46
 %
 
1.54
 %
 
1.58
%
 
1.56
%
 
1.57
%
Nonperforming assets
43.73
 %
 
48.03
 %
 
65.23
%
 
60.59
%
 
63.18
%
Nonaccrual loans
129.15
 %
 
148.53
 %
 
124.92
%
 
118.52
%
 
155.80
%
NONPERFORMING ASSETS
 
 
 
 
 
 
 
 
 
Loans delinquent 90+ days and still accruing
$
224

 
$
173

 
$
74

 
$
30

 
$
30

Nonaccrual loans
8,827

 
8,008

 
9,625

 
9,944

 
7,332

Restructured loans (not in nonaccrual)
12,106

 
12,138

 
4,262

 
4,295

 
4,522

Other real estate owned
3,871

 
3,402

 
3,402

 
4,051

 
5,064

Repossessed assets
1,044

 
1,044

 
1,070

 
1,132

 
1,132

Total nonperforming assets
$
26,072

 
$
24,765

 
$
18,433

 
$
19,452

 
$
18,080



Page 8




(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 non taxable interest income due to the mix in its investment and loan portfolios, net interest income for the ratio is calculated on a tax equivalent basis as described above. This calculation excludes net securities gains and losses.
(2)
The diluted earnings multiple is calculated by dividing the period’s closing market price per share by the annualized diluted earnings per share 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.
(3)
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.
(4)
Tangible book value is not a measurement under accounting principles generally accepted in the United States. It is computed by subtracting identified intangible assets and goodwill from total Middleburg Financial Corporation shareholders’ equity and then dividing the result by the number of shares of common stock issued and outstanding at the end of the accounting period.
(5)
The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing non-interest expense (adjusted for amortization of intangibles, other real estate expenses, and non-recurring one-time charges) 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 in calculating tax equivalent amounts is 34%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.


Page 9



MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Average Balances, Income and Expenses, Yields and Rates
(Unaudited)
 
Three months ended September 30,
 
2015
 
2014
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate (2)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate (2)
 
(Dollars in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Securities:
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
320,684

 
$
2,009

 
2.49
%
 
$
282,860

 
$
1,847

 
2.59
%
Tax-exempt (1)
51,252

 
672

 
5.20
%
 
54,410

 
811

 
5.91
%
Total securities
$
371,936

 
$
2,681

 
2.86
%
 
$
337,270

 
$
2,658

 
3.13
%
Loans:
 
 
 
 
 
 
 
 
 
 
 
   Taxable
$
777,039

 
$
8,222

 
4.20
%
 
$
730,006

 
$
8,351

 
4.54
%
   Tax-exempt (1)
630

 
8

 
5.04
%
 
652

 
9

 
5.48
%
Total loans (3)
$
777,669

 
$
8,230

 
4.20
%
 
$
730,658

 
$
8,360

 
4.54
%
Interest on deposits with other banks and federal funds sold
46,671

 
23

 
0.20
%
 
90,463

 
51

 
0.22
%
Total earning assets
$
1,196,276

 
$
10,934

 
3.63
%
 
$
1,158,391

 
$
11,069

 
3.79
%
Less: allowance for loan losses
(11,870
)
 
 
 
 
 
(11,309
)
 
 
 
 
Total nonearning assets
77,155

 
 
 
 
 
74,477

 
 
 
 
Total assets
$
1,261,561

 
 

 
 
 
$
1,221,559

 
 

 
 
Liabilities:
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing deposits:
 

 
 

 
 
 
 

 
 

 
 
Checking
$
343,584

 
$
176

 
0.20
%
 
$
354,080

 
$
163

 
0.18
%
Regular savings
120,104

 
56

 
0.18
%
 
113,607

 
53

 
0.19
%
Money market savings
66,144

 
32

 
0.19
%
 
72,034

 
34

 
0.19
%
Time deposits:
 
 
 
 
 
 
 
 
 
 
 
$100,000 and over
148,998

 
322

 
0.86
%
 
121,274

 
297

 
0.97
%
Under $100,000
103,897

 
291

 
1.11
%
 
129,578

 
408

 
1.25
%
Total interest-bearing deposits
$
782,727

 
$
877

 
0.45
%
 
$
790,573

 
$
955

 
0.48
%
Securities sold under agreements to repurchase
28,859

 
2

 
0.03
%
 
39,142

 
81

 
0.82
%
FHLB borrowings and other debt
68,416

 
165

 
0.96
%
 
60,372

 
209

 
1.37
%
Total interest-bearing liabilities
$
880,002

 
$
1,044

 
0.47
%
 
$
890,087

 
$
1,245

 
0.55
%
Non-interest bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Demand deposits
242,983

 
 
 
 
 
200,768

 
 
 
 
Other liabilities
12,815

 
 
 
 
 
10,539

 
 
 
 
Total liabilities
$
1,135,800

 
 

 
 
 
$
1,101,394

 
 

 
 
Non-controlling interest
—

 
 
 
 
 
—

 
 
 
 
Shareholders' equity
125,761

 
 
 
 
 
120,165

 
 
 
 
Total liabilities and shareholders' equity
$
1,261,561

 
 

 
 
 
$
1,221,559

 
 

 
 
Net interest income
 

 
$
9,890

 
 
 
 

 
$
9,824

 
 
Interest rate spread
 

 
 

 
3.16
%
 
 

 
 

 
3.24
%
Cost of Funds
 

 
 

 
0.37
%
 
 

 
 

 
0.45
%
Interest expense as a percent of average earning assets
 

 
 

 
0.35
%
 
 

 
 

 
0.43
%
Net interest margin
 

 
 

 
3.28
%
 
 

 
 

 
3.36
%
(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.
(3)
Total average loans include loans on non-accrual status.


Page 10


MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
Average Balances, Income and Expenses, Yields and Rates
(Unaudited)
 
Nine months ended September 30,
 
2015
 
2014
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate (2)
 
Average
Balance
 
Income/
Expense
 
Yield/
Rate (2)
 
(Dollars in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Securities:
 
 
 
 
 
 
 
 
 
 
 
Taxable
$
315,507

 
$
5,832

 
2.47
%
 
$
278,650

 
$
5,403

 
2.59
%
Tax-exempt (1)
51,680

 
2,051

 
5.31
%
 
57,556

 
2,509

 
5.83
%
Total securities
$
367,187

 
$
7,883

 
2.87
%
 
$
336,206

 
$
7,912

 
3.15
%
Loans:
 
 
 
 
 
 
 
 
 
 
 
   Taxable
$
764,337

 
$
24,468

 
4.28
%
 
$
743,703

 
$
25,639

 
4.61
%
   Tax-exempt (1)
620

 
25

 
5.39
%
 
652

 
26

 
5.33
%
Total loans (3)
$
764,957

 
$
24,493

 
4.28
%
 
$
744,355

 
$
25,665

 
4.61
%
Interest on deposits with other banks and federal funds sold
52,858

 
84

 
0.21
%
 
73,759

 
123

 
0.22
%
Total earning assets
$
1,185,002

 
$
32,460

 
3.66
%
 
$
1,154,320

 
$
33,700

 
3.90
%
Less: allowance for loan losses
(11,894
)
 
 
 
 
 
(12,497
)
 
 
 
 
Total nonearning assets
76,703

 
 
 
 
 
78,292

 
 
 
 
Total assets
$
1,249,811

 
 

 
 
 
$
1,220,115

 
 

 
 
Liabilities:
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing deposits:
 

 
 

 
 
 
 

 
 

 
 
Checking
$
342,184

 
$
517

 
0.20
%
 
$
342,551

 
$
485

 
0.19
%
Regular savings
117,981

 
164

 
0.19
%
 
113,378

 
158

 
0.19
%
Money market savings
67,314

 
95

 
0.19
%
 
73,910

 
105

 
0.19
%
Time deposits:
 
 
 
 
 
 
 
 
 
 
 
$100,000 and over
136,980

 
900

 
0.88
%
 
125,036

 
937

 
1.00
%
Under $100,000
107,181

 
904

 
1.13
%
 
130,776

 
1,267

 
1.30
%
Total interest-bearing deposits
$
771,640

 
$
2,580

 
0.45
%
 
$
785,651

 
$
2,952

 
0.50
%
Securities sold under agreements to repurchase
30,578

 
64

 
0.28
%
 
36,682

 
243

 
0.88
%
FHLB borrowings and other debt
69,752

 
507

 
0.97
%
 
76,803

 
876

 
1.52
%
Federal funds purchased
2

 
—

 
—
%
 
1

 
—

 
—
%
Total interest-bearing liabilities
$
871,972

 
$
3,151

 
0.48
%
 
$
899,137

 
$
4,071

 
0.61
%
Non-interest bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Demand deposits
239,791

 
 
 
 
 
193,501

 
 
 
 
Other liabilities
13,126

 
 
 
 
 
9,947

 
 
 
 
Total liabilities
$
1,124,889

 
 

 
 
 
$
1,102,585

 
 

 
 
Non-controlling interest
—

 
 
 
 
 
—

 
 
 
 
Shareholders' equity
124,922

 
 
 
 
 
117,530

 
 
 
 
Total liabilities and shareholders' equity
$
1,249,811

 
 

 
 
 
$
1,220,115

 
 

 
 
Net interest income
 

 
$
29,309

 
 
 
 

 
$
29,629

 
 
Interest rate spread
 

 
 

 
3.18
%
 
 

 
 

 
3.29
%
Cost of Funds
 

 
 

 
0.38
%
 
 

 
 

 
0.50
%
Interest expense as a percent of average earning assets
 

 
 

 
0.36
%
 
 

 
 

 
0.47
%
Net interest margin
 

 
 

 
3.31
%
 
 

 
 

 
3.43
%


Page 11

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