UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2012
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission File Number: 0-24159
MIDDLEBURG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
|
Virginia
(State or other jurisdiction of
incorporation or organization)
|
54-1696103
(I.R.S. Employer
Identification No.)
|
|
111 West Washington Street
Middleburg, Virginia
(Address of principal executive offices)
|
20117
(Zip Code)
|
(703) 777-6327
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer £
|
|
Accelerated filer R
|
|
|
Non-accelerated filer £ (Do not check if a smaller reporting company)
|
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Smaller reporting company £
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 7,055,290 shares of Common Stock as of July 31, 2012.
MIDDLEBURG FINANCIAL CORPORATION
INDEX
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Page No.
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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9 |
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31 |
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48 |
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49 |
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49 |
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49 |
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49 |
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49 |
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49 |
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49 |
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50 |
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51 |
PART I. FINANCIAL INFORMATION
|
MIDDLEBURG FINANCIAL CORPORATION
|
|
|
|
|
|
(In thousands, except for share and per share data)
|
|
| |
|
(Unaudited) |
|
|
|
| |
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June 30, |
|
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December 31, |
| |
|
2012 |
|
|
2012 |
|
ASSETS
|
|
|
|
|
|
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Cash and due from banks
|
|
$ |
5,934 |
|
|
$ |
6,163 |
|
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Interest-bearing deposits with other institutions
|
|
|
72,877 |
|
|
|
45,107 |
|
|
Total cash and cash equivalents
|
|
|
78,811 |
|
|
|
51,270 |
|
|
Securities available for sale
|
|
|
314,530 |
|
|
|
308,242 |
|
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Loans held for sale
|
|
|
67,965 |
|
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|
92,514 |
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Restricted securities, at cost
|
|
|
7,167 |
|
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7,117 |
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Loans receivable, net of allowance for loan losses of $14,969 at June 30, 2012 and $14,623 at December 31, 2011
|
|
|
670,941 |
|
|
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656,770 |
|
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Premises and equipment, net
|
|
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21,021 |
|
|
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21,306 |
|
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Goodwill and identified intangibles
|
|
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6,103 |
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6,189 |
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Other real estate owned, net of valuation allowance of $1,982 at June 30, 2012 and $1,522 at December 31, 2011
|
|
|
13,335 |
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|
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8,535 |
|
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Prepaid federal deposit insurance
|
|
|
3,510 |
|
|
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3,993 |
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Accrued interest receivable and other assets
|
|
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35,467 |
|
|
|
36,924 |
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TOTAL ASSETS
|
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$ |
1,218,850 |
|
|
$ |
1,192,860 |
|
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LIABILITIES
|
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Deposits:
|
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Non-interest-bearing demand deposits
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$ |
154,838 |
|
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$ |
143,398 |
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Savings and interest-bearing demand deposits
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509,291 |
|
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460,576 |
|
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Time deposits
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311,156 |
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325,895 |
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Total deposits
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975,285 |
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929,869 |
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Securities sold under agreements to repurchase
|
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33,034 |
|
|
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31,686 |
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Short-term borrowings
|
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|
8,393 |
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28,331 |
|
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FHLB borrowings
|
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|
77,912 |
|
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82,912 |
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Subordinated notes
|
|
|
5,155 |
|
|
|
5,155 |
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Accrued interest payable and other liabilities
|
|
|
7,066 |
|
|
|
6,894 |
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Commitments and contingent liabilities
|
|
|
— |
|
|
|
— |
|
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TOTAL LIABILITIES
|
|
|
1,106,845 |
|
|
|
1,084,847 |
|
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SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
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Common stock ($2.50 par value; 20,000,000 shares authorized, 7,052,554 and 6,996,932 issued and outstanding at June 30, 2012 and December 31, 2011, respectively)
|
|
|
17,364 |
|
|
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17,331 |
|
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Capital surplus
|
|
|
43,616 |
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43,498 |
|
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Retained earnings
|
|
|
43,805 |
|
|
|
41,157 |
|
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Accumulated other comprehensive income
|
|
|
5,100 |
|
|
|
3,926 |
|
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Total Middleburg Financial Corporation shareholders' equity
|
|
|
109,885 |
|
|
|
105,912 |
|
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Non-controlling interest in consolidated subsidiary
|
|
|
2,120 |
|
|
|
2,101 |
|
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TOTAL SHAREHOLDERS' EQUITY
|
|
|
112,005 |
|
|
|
108,013 |
|
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
1,218,850 |
|
|
$ |
1,192,860 |
|
See accompanying notes to the consolidated financial statements.
|
MIDDLEBURG FINANCIAL CORPORATION
|
|
|
|
(In thousands, except for per share data)
|
| |
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Unaudited
|
|
Unaudited
|
| |
|
For the Three Months
|
|
For the Six Months
|
| |
|
Ended June 30,
|
|
Ended June 30,
|
| |
|
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2012
|
|
2011
|
|
2012
|
|
2011
|
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INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
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Interest and fees on loans
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$
|
9,616
|
|
|
$
|
9,731
|
|
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$
|
19,547
|
|
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$
|
19,466
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Interest and dividends on securities available for sale
|
|
|
|
|
|
|
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Taxable
|
|
1,704
|
|
|
1,751
|
|
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3,439
|
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|
3,150
|
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Tax-exempt
|
|
596
|
|
|
604
|
|
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1,203
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1,165
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Dividends
|
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45
|
|
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36
|
|
|
89
|
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72
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Interest on deposits in banks and federal funds sold
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25
|
|
|
33
|
|
|
49
|
|
|
60
|
|
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Total interest and dividend income
|
|
11,986
|
|
|
12,155
|
|
|
24,327
|
|
|
23,913
|
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INTEREST EXPENSE
|
|
|
|
|
|
|
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Interest on deposits
|
|
1,846
|
|
|
2,332
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|
|
3,739
|
|
|
4,640
|
|
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Interest on securities sold under agreements to repurchase
|
|
84
|
|
|
69
|
|
|
167
|
|
|
125
|
|
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Interest on short-term borrowings
|
|
89
|
|
|
53
|
|
|
237
|
|
|
116
|
|
|
Interest on FHLB borrowings and other debt
|
|
287
|
|
|
306
|
|
|
584
|
|
|
602
|
|
|
Total interest expense
|
|
2,306
|
|
|
2,760
|
|
|
4,727
|
|
|
5,483
|
|
|
NET INTEREST INCOME
|
|
9,680
|
|
|
9,395
|
|
|
19,600
|
|
|
18,430
|
|
|
Provision for loan losses
|
|
730
|
|
|
1,087
|
|
|
1,522
|
|
|
1,541
|
|
|
NET INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
FOR LOAN LOSSES
|
|
8,950
|
|
|
8,308
|
|
|
18,078
|
|
|
16,889
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
538
|
|
|
526
|
|
|
1,068
|
|
|
1,015
|
|
|
Trust services income
|
|
979
|
|
|
983
|
|
|
1,900
|
|
|
1,850
|
|
|
Gains on loans held for sale
|
|
5,053
|
|
|
3,938
|
|
|
8,822
|
|
|
6,785
|
|
|
Gains on securities available for sale, net
|
|
148
|
|
|
87
|
|
|
288
|
|
|
122
|
|
|
Total other-than-temporary impairment losses
|
|
(36
|
)
|
|
—
|
|
|
(46
|
)
|
|
(17
|
)
|
|
Portion of loss recognized in other comprehensive income
|
|
36
|
|
|
—
|
|
|
46
|
|
|
16
|
|
|
Net impairment losses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Commissions on investment sales
|
|
125
|
|
|
185
|
|
|
272
|
|
|
365
|
|
|
Fees on mortgages held for sale
|
|
64
|
|
|
87
|
|
|
106
|
|
|
241
|
|
|
Other service charges, commissions and fees
|
|
121
|
|
|
134
|
|
|
271
|
|
|
249
|
|
|
Bank-owned life insurance
|
|
123
|
|
|
139
|
|
|
245
|
|
|
262
|
|
|
Other operating income (loss)
|
|
(2
|
)
|
|
(55
|
)
|
|
12
|
|
|
105
|
|
|
Total noninterest income
|
|
7,149
|
|
|
6,024
|
|
|
12,984
|
|
|
10,993
|
|
|
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
Salaries and employees' benefits
|
|
7,506
|
|
|
7,813
|
|
|
14,863
|
|
|
15,129
|
|
|
Net occupancy and equipment expense
|
|
1,755
|
|
|
1,640
|
|
|
3,533
|
|
|
3,316
|
|
|
Advertising
|
|
447
|
|
|
285
|
|
|
747
|
|
|
441
|
|
|
Computer operations
|
|
394
|
|
|
343
|
|
|
779
|
|
|
708
|
|
|
Other real estate owned
|
|
874
|
|
|
606
|
|
|
1,160
|
|
|
950
|
|
|
Other taxes
|
|
205
|
|
|
205
|
|
|
408
|
|
|
402
|
|
|
Federal deposit insurance expense
|
|
261
|
|
|
358
|
|
|
519
|
|
|
765
|
|
|
Other operating expenses
|
|
1,869
|
|
|
1,703
|
|
|
4,616
|
|
|
3,478
|
|
|
Total noninterest expense
|
|
13,311
|
|
|
12,953
|
|
|
26,625
|
|
|
25,189
|
|
|
Income before income taxes
|
|
2,788
|
|
|
1,379
|
|
|
4,437
|
|
|
2,693
|
|
|
Income tax expense
|
|
598
|
|
|
301
|
|
|
1,014
|
|
|
618
|
|
|
NET INCOME
|
|
2,190
|
|
|
1,078
|
|
|
3,423
|
|
|
2,075
|
|
|
Net (income) loss attributable to noncontrolling interest
|
|
(421
|
)
|
|
121
|
|
|
(72
|
)
|
|
351
|
|
|
Net income attributable to Middleburg Financial Corporation
|
|
$
|
1,769
|
|
|
$
|
1,199
|
|
|
$
|
3,351
|
|
|
$
|
2,426
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.17
|
|
|
$
|
0.48
|
|
|
$
|
0.35
|
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.17
|
|
|
$
|
0.48
|
|
|
$
|
0.35
|
|
|
Dividends per common share
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
See accompanying notes to the consolidated financial statements.
|
MIDDLEBURG FINANCIAL CORPORATION
|
|
|
|
(In thousands)
|
| |
|
Unaudited
|
|
Unaudited
|
| |
|
For the Three Months
|
|
For the Six Months
|
| |
|
Ended June 30,
|
|
Ended June 30,
|
| |
|
2012
|
|
2011
|
|
2012
|
|
2011
|
| |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2,190 |
|
|
$ |
1,078 |
|
|
$ |
3,423 |
|
|
$ |
2,075 |
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period (net of tax of $389, $1,828, $748 and $2,093 respectively for the periods presented)
|
|
|
756 |
|
|
|
3,549 |
|
|
|
1,451 |
|
|
|
4,063 |
|
|
Reclassification adjustment for gains included in net income (net of tax of $50, $30, $98, and $42 respectively for the periods presented)
|
|
|
(98 |
) |
|
|
(57 |
) |
|
|
(190 |
) |
|
|
(80 |
) |
|
Unrealized losses on securities for which other-than-temporary impairment has been recognized in earnings (net of tax)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Unrealized (loss) on interest rate swap (net of tax of $72, $54, $45, and $33 respectively for the periods presented)
|
|
|
(140 |
) |
|
|
(104 |
) |
|
|
(87 |
) |
|
|
(64 |
) |
|
Total other comprehensive income
|
|
|
518 |
|
|
|
3,388 |
|
|
|
1,174 |
|
|
|
3,920 |
|
|
Total comprehensive income
|
|
|
2,708 |
|
|
|
4,466 |
|
|
|
4,597 |
|
|
|
5,995 |
|
|
Comprehensive (income) loss attributable to non-controlling interest
|
|
|
(421 |
) |
|
|
121 |
|
|
|
(72 |
) |
|
|
351 |
|
|
Comprehensive income attributable to Middleburg Financial Corporation
|
|
$ |
2,287 |
|
|
$ |
4,587 |
|
|
$ |
4,525 |
|
|
$ |
6,346 |
|
See accompanying notes to the consolidated financial statements.
|
Middleburg Financial Corporation
|
|
|
|
For the Six Months Ended June 30, 2012 and 2011
|
|
(In Thousands, Except Share Data)
|
|
(Unaudited)
|
| |
|
|
|
|
|
|
| |
|
Middleburg Financial Corporation Shareholders
|
|
|
|
|
| |
|
Common Stock
|
|
Capital Surplus
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Noncontrolling Interest
|
|
Total
|
|
Balances - December 31, 2010
|
|
$ |
17,314 |
|
|
$ |
43,058 |
|
|
$ |
37,593 |
|
|
$ |
(1,012 |
) |
|
$ |
3,040 |
|
|
$ |
99,993 |
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
2,426 |
|
|
|
|
|
|
|
(351 |
) |
|
|
2,075 |
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,920 |
|
|
|
|
|
|
|
3,920 |
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(697 |
) |
|
|
|
|
|
|
|
|
|
|
(697 |
) |
|
Vesting of restricted stock awards (7,922 shares)
|
|
|
19 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Cancellation of restricted stock (946 shares)
|
|
|
(2 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592 |
) |
|
|
(592 |
) |
|
Share-based compensation
|
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123 |
|
|
Balances - June 30, 2011
|
|
$ |
17,331 |
|
|
$ |
43,150 |
|
|
$ |
39,322 |
|
|
$ |
2,908 |
|
|
$ |
2,097 |
|
|
$ |
104,808 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2011
|
|
$ |
17,331 |
|
|
$ |
43,498 |
|
|
$ |
41,157 |
|
|
$ |
3,926 |
|
|
$ |
2,101 |
|
|
$ |
108,013 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
3,351 |
|
|
|
|
|
|
|
72 |
|
|
|
3,423 |
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,174 |
|
|
|
|
|
|
|
1,174 |
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(703 |
) |
|
|
|
|
|
|
|
|
|
|
(703 |
) |
|
Vesting of restricted stock awards (12,432 shares)
|
|
|
33 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Cancellation of restricted stock (2,736 shares)
|
|
|
— |
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
|
|
(53 |
) |
|
Share-based compensation
|
|
|
|
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194 |
|
|
Balances - June 30, 2012
|
|
$ |
17,364 |
|
|
$ |
43,616 |
|
|
$ |
43,805 |
|
|
$ |
5,100 |
|
|
$ |
2,120 |
|
|
$ |
112,005 |
|
See accompanying notes to the consolidated financial statements.
|
MIDDLEBURG FINANCIAL CORPORATION
|
|
|
|
(In Thousands)
|
| |
|
Unaudited
|
| |
|
For the six months ended
|
| |
|
June 30, 2012
|
|
June 30, 2011
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
Net income
|
|
$ |
3,423 |
|
|
$ |
2,075 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
957 |
|
|
|
930 |
|
|
Equity in (undistributed earnings) of affiliate
|
|
|
(4 |
) |
|
|
(20 |
) |
|
Provision for loan losses
|
|
|
1,522 |
|
|
|
1,541 |
|
|
Net (gain) on securities available for sale
|
|
|
(288 |
) |
|
|
(122 |
) |
|
Other than temporary impairment loss
|
|
|
— |
|
|
|
1 |
|
|
Net loss on disposal of assets
|
|
|
7 |
|
|
|
39 |
|
|
Premium amortization on securities, net
|
|
|
1,790 |
|
|
|
1,344 |
|
|
Origination of loans held for sale
|
|
|
(444,613 |
) |
|
|
(289,532 |
) |
|
Proceeds from sales of loans held for sale
|
|
|
477,984 |
|
|
|
306,989 |
|
|
Net (gains) on mortgages held for sale
|
|
|
(8,822 |
) |
|
|
(6,785 |
) |
|
Share-based compensation
|
|
|
194 |
|
|
|
123 |
|
|
Net loss on sale of other real estate owned
|
|
|
24 |
|
|
|
233 |
|
|
Valuation adjustment on other real estate owned
|
|
|
460 |
|
|
|
350 |
|
|
Decrease in prepaid FDIC insurance
|
|
|
483 |
|
|
|
700 |
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in other assets
|
|
|
622 |
|
|
|
(767 |
) |
|
Increase in other liabilities
|
|
|
172 |
|
|
|
86 |
|
|
Net cash provided by operating activities
|
|
$ |
33,911 |
|
|
$ |
17,185 |
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from maturity, principal paydowns and calls of securities available for sale
|
|
$ |
41,046 |
|
|
$ |
27,868 |
|
|
Proceeds from sale of securities available for sale
|
|
|
15,986 |
|
|
|
15,860 |
|
|
Purchase of securities available for sale
|
|
|
(62,912 |
) |
|
|
(80,266 |
) |
|
Purchase of restricted stock
|
|
|
(50 |
) |
|
|
(636 |
) |
|
Purchases of bank premises and equipment
|
|
|
(534 |
) |
|
|
(694 |
) |
|
Net (increase) in loans
|
|
|
(21,805 |
) |
|
|
(20,530 |
) |
|
Proceeds from sale of other real estate owned
|
|
|
829 |
|
|
|
1,108 |
|
|
Net cash (used in) investing activities
|
|
$ |
(27,440 |
) |
|
$ |
(57,233 |
) |
See Accompanying Notes to Consolidated Financial Statements.
|
MIDDLEBURG FINANCIAL CORPORATION
|
|
Consolidated Statements of Cash Flows
|
|
(Continued)
|
|
(In Thousands)
|
| |
|
For the three months ended
|
| |
|
June 30, 2012
|
|
June 30, 2011
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
Net increase in non-interest-bearing and interest-bearing demand deposits and savings accounts
|
|
$ |
60,155 |
|
|
$ |
24,503 |
|
|
Net (decrease) increase in certificates of deposit
|
|
|
(14,739 |
) |
|
|
(6,324 |
) |
|
Increase in securities sold under agreements
|
|
|
|
|
|
|
|
|
|
to repurchase
|
|
|
1,348 |
|
|
|
9,648 |
|
|
Proceeds from short-term borrowings
|
|
|
58,882 |
|
|
|
39,749 |
|
|
Payments on short-term borrowings
|
|
|
(78,820 |
) |
|
|
(47,377 |
) |
|
Proceeds from FHLB borrowings
|
|
|
62,912 |
|
|
|
40,000 |
|
|
Payments on FHLB borrowings
|
|
|
(67,912 |
) |
|
|
(25,000 |
) |
|
Distributions to non-controlling interest
|
|
|
(53 |
) |
|
|
(592 |
) |
|
Payment of dividends on common stock
|
|
|
(703 |
) |
|
|
(697 |
) |
|
Net cash provided by financing activities
|
|
$ |
21,070 |
|
|
$ |
33,910 |
|
|
Increase (decrease) in cash and and cash equivalents
|
|
|
27,541 |
|
|
|
(6,138 |
) |
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
51,270 |
|
|
|
64,724 |
|
|
Ending
|
|
$ |
78,811 |
|
|
$ |
58,586 |
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
4,893 |
|
|
$ |
5,418 |
|
|
Income taxes
|
|
$ |
850 |
|
|
$ |
100 |
|
|
Supplemental Disclosure of Non-cash Transactions
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale
|
|
$ |
1,910 |
|
|
$ |
6,033 |
|
|
Change in market value of interest rate swap
|
|
$ |
(131 |
) |
|
$ |
(97 |
) |
|
Transfer of loans to other real estate owned
|
|
$ |
6,261 |
|
|
$ |
625 |
|
|
Loans originated from sale of other real estate owned
|
|
$ |
149 |
|
|
$ |
533 |
|
See accompanying notes to the consolidated financial statements.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2012 and December 31, 2011, the results of operations and comprehensive income for the three and six months ended June 30, 2012 and 2011, and changes in shareholders’ equity and cash flows for the six months ended June 30,
2012 and 2011, in accordance with accounting principles generally accepted in the United States of America. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”) of Middleburg Financial Corporation (the “Company”). The results of operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year.
In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has concluded there were no additional material subsequent events to be disclosed.
Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation. Commissions paid on the origination of mortgages held for sale and commissions paid on investments sales have been netted against the related revenue amounts for these sources of revenue for both 2012 and 2011. Management considers the net presentation to more accurately reflect the net contribution to consolidated net income of the mortgage and wealth management segments.
|
Note 2.
|
Stock–Based Compensation Plan
|
As of June 30, 2012, the Company sponsored one stock-based compensation plan (the 2006 Equity Compensation Plan), which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards and stock units. The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006 and has succeeded the Company’s 1997 Stock Incentive Plan. Under the plan, the Company may grant stock-based compensation to its directors, officers, employees and other persons the Company determines have contributed to the profits or growth of the
Company. The Company may grant awards of up to 255,000 shares of common stock under the 2006 Equity Compensation Plan.
The Company recognized $194,000 for stock-based compensation expenses for the six months ended June 30, 2012.
The following table summarizes stock options awarded under the 2006 Equity Compensation Plan and remaining un-exercised options under the 1997 Stock Incentive Plan at the end of the reporting period.
| |
June 30, 2012
|
| |
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at beginning of year
|
160,171
|
|
$
|
20.40
|
|
|
|
|
Granted
|
—
|
|
—
|
|
|
|
|
Exercised
|
—
|
|
—
|
|
|
|
|
Forfeited
|
(78,000 |
) |
(23.64
|
)
|
|
|
|
Outstanding at end of period
|
82,171
|
|
$
|
(17.32
|
)
|
|
$
|
—
|
|
As of the end of the reporting period, 79,671 options were vested and exercisable representing 22,000 shares issued under the original 1997 plan and 57,671 vested options under the 2006 Plan. As of June 30, 2012 no outstanding options were unvested from the original 1997 plan and 2,500 outstanding options were not vested under the 2006 plan. At June 30, 2012 the weighted average exercise price of these stock options was greater than the average market price during the period. The weighted average remaining contractual term for options outstanding and exercisable at
June 30, 2012 was 5.1 years. As of June 30,
2012 there was $2,000 of total unrecognized compensation expense related to stock option awards under the 2006 Equity Compensation Plan.
The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan at the end of the reportable period.
| |
June 30, 2012
|
| |
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at beginning of year
|
86,220
|
|
$
|
14.79
|
|
|
|
|
Granted
|
49,475
|
|
16.86
|
|
|
|
|
Vested
|
(12,432 |
) |
(13.28
|
)
|
|
|
|
Forfeited
|
(2,808 |
) |
(14.59
|
)
|
|
|
|
Non-vested at end of period
|
120,455
|
|
$
|
15.66
|
|
|
$
|
2,047,735
|
|
The weighted average remaining contractual term for non-vested restricted stock at June 30, 2012 was 4.4 years. As of June 30, 2012, there was approximately $1,591,000 of total unrecognized compensation expense related to non-vested restricted stock awards under the 2006 Equity Compensation Plan.
Amortized costs and fair values of securities available for sale at June 30, 2012 are summarized as follows:
| |
June 30, 2012
|
| |
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
| |
(In Thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
$
|
8,764
|
|
|
$
|
374
|
|
|
$
|
—
|
|
|
$
|
9,138
|
|
|
Obligations of states and
|
|
|
|
|
|
|
|
|
political subdivisions
|
69,061
|
|
|
3,546
|
|
|
(4
|
)
|
|
72,603
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Agency
|
168,363
|
|
|
5,728
|
|
|
(281
|
)
|
|
173,810
|
|
|
Non-agency
|
49,246
|
|
|
383
|
|
|
(534
|
)
|
|
49,095
|
|
|
Corporate preferred stock
|
68
|
|
|
—
|
|
|
(14
|
)
|
|
54
|
|
|
Corporate securities
|
10,611
|
|
|
8
|
|
|
(900
|
)
|
|
9,719
|
|
|
Trust-preferred securities
|
244
|
|
|
—
|
|
|
(133
|
)
|
|
111
|
|
|
Total
|
$
|
306,357
|
|
|
$
|
10,039
|
|
|
$
|
(1,866
|
)
|
|
$
|
314,530
|
|
Amortized costs and fair values of securities available for sale at December 31, 2011 are summarized as follows:
| |
|
December 31, 2011
|
| |
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
| |
|
(In Thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
9,068
|
|
|
$
|
293
|
|
|
$
|
(18
|
)
|
|
$
|
9,343
|
|
|
Obligations of states and
|
|
|
|
|
|
|
|
|
|
political subdivisions
|
|
65,090
|
|
|
2,503
|
|
|
(51
|
)
|
|
67,542
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
Agency
|
|
181,797
|
|
|
5,482
|
|
|
(209
|
)
|
|
187,070
|
|
|
Non-agency
|
|
34,847
|
|
|
157
|
|
|
(1,002
|
)
|
|
34,002
|
|
|
Corporate preferred stock
|
|
68
|
|
|
—
|
|
|
(28
|
)
|
|
40
|
|
|
Corporate securities
|
|
10,612
|
|
|
5
|
|
|
(641
|
)
|
|
9,976
|
|
|
Trust-preferred securities
|
|
497
|
|
|
—
|
|
|
(228
|
)
|
|
269
|
|
|
Total
|
|
$
|
301,979
|
|
|
$
|
8,440
|
|
|
$
|
(2,177
|
)
|
|
$
|
308,242
|
|
The amortized cost and fair value of securities available for sale as of June 30, 2012, by contractual maturity are shown below. Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.
| |
|
June 30, 2012
|
| |
|
Amortized
Cost
|
|
Fair
Value
|
| |
|
(In thousands)
|
|
Due in one year or less
|
|
$
|
4,013
|
|
|
$
|
4,040
|
|
|
Due after one year through
|
|
|
|
|
|
five years
|
|
18,524
|
|
|
18,547
|
|
|
Due after five years through
|
|
|
|
|
|
ten years
|
|
34,031
|
|
|
35,696
|
|
|
Due after ten years
|
|
31,868
|
|
|
33,177
|
|
|
Mortgage-backed securities
|
|
217,609
|
|
|
222,905
|
|
|
Corporate preferred stock
|
|
68
|
|
|
54
|
|
|
Trust preferred securities
|
|
244
|
|
|
111
|
|
|
Total
|
|
$
|
306,357
|
|
|
$
|
314,530
|
|
Proceeds from the sale of securities during the six months ended June 30, 2012 were $16.0 million and net gains of $288,000 were realized on those sales. The tax expense applicable to the net realized gains amounted to $98,000. Additionally, no loss on securities with other than temporary impairment was recognized during the six months ended June 30, 2012.
The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $148.3 million at June 30, 2012.
At June 30, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:
| |
|
June 30, 2012
|
| |
|
|
|
(In thousands)
|
|
|
| |
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
| |
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
U.S. government agencies
|
|
$
|
375
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
—
|
|
|
Obligations of states and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions
|
|
1,937
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
1,937
|
|
|
(4
|
)
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
18,601
|
|
|
(281
|
)
|
|
—
|
|
|
—
|
|
|
18,601
|
|
|
(281
|
)
|
|
Non-agency
|
|
18,007
|
|
|
(264
|
)
|
|
8,374
|
|
|
(270
|
)
|
|
26,381
|
|
|
(534
|
)
|
|
Corporate preferred stock
|
|
—
|
|
|
—
|
|
|
25
|
|
|
(14
|
)
|
|
25
|
|
|
(14
|
)
|
|
Corporate securities
|
|
3,164
|
|
|
(336
|
)
|
|
6,407
|
|
|
(564
|
)
|
|
9,571
|
|
|
(900
|
)
|
|
Trust-preferred securities
|
|
—
|
|
|
—
|
|
|
111
|
|
|
(133
|
)
|
|
111
|
|
|
(133
|
)
|
|
Total
|
|
$
|
42,084
|
|
|
$
|
(885
|
)
|
|
$
|
14,942
|
|
|
$
|
(981
|
)
|
|
$
|
57,026
|
|
|
$
|
(1,866
|
)
|
At December 31, 2011, investments in an unrealized loss position that were temporarily impaired are as follows:
| |
|
December 31, 2011
|
| |
|
|
|
(In thousands)
|
|
|
| |
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
| |
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Gross
Unrealized Losses
|
|
U.S. government agencies
|
|
$
|
2,045
|
|
|
$
|
(18
|
)
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
2,071
|
|
|
$
|
(18
|
)
|
|
Obligations of states and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions
|
|
43
|
|
|
—
|
|
|
2,243
|
|
|
(51
|
)
|
|
2,286
|
|
|
(51
|
)
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
22,768
|
|
|
(209
|
)
|
|
—
|
|
|
—
|
|
|
22,768
|
|
|
(209
|
)
|
|
Non-agency
|
|
15,345
|
|
|
(465
|
)
|
|
5,989
|
|
|
(537
|
)
|
|
21,334
|
|
|
(1,002
|
)
|
|
Corporate preferred stock
|
|
—
|
|
|
—
|
|
|
11
|
|
|
(28
|
)
|
|
11
|
|
|
(28
|
)
|
|
Corporate securities
|
|
7,775
|
|
|
(227
|
)
|
|
2,057
|
|
|
(414
|
)
|
|
9,832
|
|
|
(641
|
)
|
|
Trust-preferred securities
|
|
—
|
|
|
—
|
|
|
269
|
|
|
(228
|
)
|
|
269
|
|
|
(228
|
)
|
|
Total
|
|
$
|
47,976
|
|
|
$
|
(2,634
|
)
|
|
$
|
10,595
|
|
|
$
|
(1,258
|
)
|
|
$
|
58,571
|
|
|
$
|
(2,177
|
)
|
A total of 51 securities have been identified by the Company as temporarily impaired at June 30, 2012. Of the 51 securities, 50 are investment grade and 1 is speculative grade. Agency, non-agency mortgage-backed securities, and corporate debt securities make up the majority of temporarily impaired securities at June 30, 2012. The speculative grade security is an asset backed security that is collateralized by trust preferred issuances of financial
institutions. Market prices change daily and are affected by conditions beyond the control of the Company. Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered. No such sales are anticipated or required as of June 30, 2012. Investment decisions reflect the strategic asset/liability objectives of the Company.
Trust preferred securities
As of June 30, 2012, the company holds one trust preferred security in its portfolio, Trust Preferred IV. This security was evaluated within the scope of ASC 320 Investments – Debt and Equity Securities for potential impairment. The Company reviewed currently available information in estimating the future cash flows of this security to determine whether there has
been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Company considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various note classes. Current estimates of cash flows are based on the most recent trustee report, announcements of deferrals or defaults, expected future default rates and other relevant market information.
The trust preferred security in the Company’s portfolio has a floating rate coupon. In performing the present value analysis of expected cash flows, we incorporate expected deferral and default rates. The deferral/default assumptions for this pooled trust preferred security was developed by reviewing the underlying collateral or issuing banks. The present value of expected future cash flows is discounted at the effective purchase yield, which in the case of the floating rate securities is equal to the credit spread at time of purchase plus the current 3-month LIBOR rate. We then compare the present value to the current book value for
purposes of determining if there is an other-than-temporary impairment (“OTTI”). The discount rate used to determine OTTI is the effective purchase yield or the credit spread at the time of purchase plus the 3-month LIBOR rate.
The Company reviewed the list of issuers underlying the trust preferred security as of June 30, 2012, and ranked each bank in order of expectations for future defaults and deferrals. We reviewed data on each bank such as earnings, capital ratios, credit metrics and loan loss reserves. We then assigned a default rate to each ranking, then the default rates were applied to each bank that was performing as of the reporting date. Finally, we summed the defaults and divided by the total remaining performing collateral in each pool. For Trust Preferred IV, the expected default rate was 50 basis points.
In connection with the preparation of the financial statements included in this Form 10-Q and using the evaluation procedures described above, the Company concluded that there were no securities with other-than-temporary impairment within its portfolio as of June 30, 2012. Accordingly, during the six months ended June 30, 2012, no credit related impairment losses were recognized by the Company compared to $1,000 recognized for the six months ended June 30, 2011.
The Company previously held trust preferred securities in its portfolio that were identified as other-than-temporarily impaired. These securities were sold during the quarter ended June 30, 2012 with a recognized net loss of approximately $142,000. Additionally, these securities incurred cumulative OTTI credit losses recognized in prior period earnings of approximately $2.4 million through December 31, 2011. No additional write-downs were necessary prior to the sale of the securities during the second quarter of 2012.
The following table provides further information on the Company’s trust preferred security that is not considered other-than-temporarily impaired as of June 30, 2012 (in thousands):
|
Security
|
|
Tranche Level
|
|
Current
Moody's Rating
|
|
Par Value
|
|
Book Value
|
|
Fair Value
|
|
Cumulative
Other
Comprehensive Loss
|
|
Institutions Performing
|
|
(1)
Excess Subord.
|
|
Deferrals/ Defaults
|
|
Expected
Default Rate
|
|
Expected Recovery
|
|
Lag Years
|
|
Trust Preferred IV
|
|
Mez
|
|
Ca
|
|
$244
|
|
$244
|
|
$111
|
|
$133
|
|
4
|
|
19.71%
|
|
27.10%
|
|
0.50%
|
|
15%
|
|
2
|
| |
|
|
|
|
|
$244
|
|
$244
|
|
$111
|
|
$133
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excess subordination. See explanation in text below table.
The preceding table presents data on the excess subordination existing in the trust preferred issuance included in the Company’s investment portfolio. Excess subordination is the difference between the remaining performing collateral and the amount of bonds outstanding that are senior to the class owned by the Company. Negative excess subordination indicates that there is not enough performing collateral in the pool to cover the outstanding balance of all classes senior to the classes owned by the Company.
The credit deferral/default assumptions utilized in the Company’s OTTI analysis methodology and included in the above table considers specific collateral underlying each trust preferred security.
At June 30, 2012, the Company concluded that no adverse change in cash flows occurred during the quarter and did not consider any portfolio securities to be other-than-temporarily impaired. Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity; and, for debt securities related to corporate securities, determined that there was no other adverse change in the cash flows as viewed by a market participant, the Company does not consider the investments in these
assets to be other than temporarily impaired at June 30, 2012. However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future.
The Company segregates its loan portfolio into three primary loan segments: Real Estate Loans, Commercial Loans, and Consumer Loans. Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans. Other real estate loans include commercial real estate loans. The consolidated loan portfolio was composed of the following on the dates indicated:
| |
|
June 30, 2012
|
|
December 31, 2011
|
| |
|
Outstanding
Balance
|
|
|
Percent of
Total Portfolio
|
|
Outstanding
Balance
|
|
|
Percent of
Total Portfolio
|
| |
|
(In Thousands)
|
|
|
|
|
(In Thousands)
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$ |
49,390 |
|
|
|
7.2 |
% |
|
$ |
42,208 |
|
|
|
6.3 |
% |
|
Secured by farmland
|
|
|
9,450 |
|
|
|
1.4 |
% |
|
|
10,047 |
|
|
|
1.5 |
% |
|
Secured by 1-4 family residential
|
|
|
252,775 |
|
|
|
36.9 |
% |
|
|
236,760 |
|
|
|
35.3 |
% |
|
Other real estate loans
|
|
|
263,124 |
|
|
|
38.4 |
% |
|
|
275,428 |
|
|
|
41.0 |
% |
|
Commercial loans
|
|
|
98,681 |
|
|
|
14.4 |
% |
|
|
94,427 |
|
|
|
14.1 |
% |
|
Consumer loans
|
|
|
12,490 |
|
|
|
1.8 |
% |
|
|
12,523 |
|
|
|
1.8 |
% |
| |
|
|
685,910 |
|
|
|
100.0 |
% |
|
|
671,393 |
|
|
|
100.0 |
% |
|
Less allowance for loan losses
|
|
|
14,969 |
|
|
|
|
|
|
|
14,623 |
|
|
|
|
|
|
Net loans
|
|
$ |
670,941 |
|
|
|
|
|
|
$ |
656,770 |
|
|
|
|
|
Loans presented in the table above exclude loans held for sale. The Company had $68.0 million and $92.5 million in mortgages held for sale at June 30, 2012 and December 31, 2011, respectively.
The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of June 30, 2012 and December 31, 2011.
| |
|
June 30, 2012
|
| |
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
| |
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
90 Days
Or Greater
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$ |
143 |
|
|
$ |
1,914 |
|
|
$ |
1,972 |
|
|
$ |
4,029 |
|
|
$ |
45,361 |
|
|
$ |
49,390 |
|
|
Secured by farmland
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,450 |
|
|
|
9,450 |
|
|
Secured by 1-4 family residential
|
|
|
805 |
|
|
|
1,661 |
|
|
|
3,131 |
|
|
|
5,597 |
|
|
|
247,178 |
|
|
|
252,775 |
|
|
Other real estate loans
|
|
|
371 |
|
|
|
1,061 |
|
|
|
6,439 |
|
|
|
7,871 |
|
|
|
255,253 |
|
|
|
263,124 |
|
|
Commercial loans
|
|
|
355 |
|
|
|
— |
|
|
|
1,987 |
|
|
|
2,342 |
|
|
|
96,339 |
|
|
|
98,681 |
|
|
Consumer loans
|
|
|
119 |
|
|
|
— |
|
|
|
51 |
|
|
|
170 |
|
|
|
12,320 |
|
|
|
12,490 |
|
|
Total
|
|
$ |
1,793 |
|
|
$ |
4,636 |
|
|
$ |
13,580 |
|
|
$ |
20,009 |
|
|
$ |
665,901 |
|
|
$ |
685,910 |
|
| |
|
December 31, 2011
|
| |
|
|
|
|
|
(In thousands)
|
|
|
|
|
| |
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days
Or Greater
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
696
|
|
|
$
|
—
|
|
|
$
|
3,285
|
|
|
$
|
3,981
|
|
|
$
|
38,227
|
|
|
$
|
42,208
|
|
|
Secured by farmland
|
|
415
|
|
|
—
|
|
|
—
|
|
|
415
|
|
|
9,632
|
|
|
10,047
|
|
|
Secured by 1-4 family residential
|
|
2,036
|
|
|
1,721
|
|
|
7,639
|
|
|
11,396
|
|
|
225,364
|
|
|
236,760
|
|
|
Other real estate loans
|
|
6,079
|
|
|
1,736
|
|
|
1,466
|
|
|
9,281
|
|
|
266,147
|
|
|
275,428
|
|
|
Commercial loans
|
|
1,751
|
|
|
121
|
|
|
315
|
|
|
2,187
|
|
|
92,240
|
|
|
94,427
|
|
|
Consumer loans
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
12,500
|
|
|
12,523
|
|
|
Total
|
|
$
|
11,000
|
|
|
$
|
3,578
|
|
|
$
|
12,705
|
|
|
$
|
27,283
|
|
|
$
|
644,110
|
|
|
$
|
671,393
|
|
The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of June 30, 2012 and December 31, 2011:
| |
|
June 30, 2012
|
|
December 31, 2011
|
| |
|
Nonaccrual
|
|
Past due 90
days or more
and still accruing
|
|
Nonaccrual
|
|
Past due 90
days or more
and still accruing
|
| |
|
(In Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
1,954
|
|
|
$
|
94
|
|
|
$
|
3,804
|
|
|
$
|
86
|
|
|
Secured by 1-4 family residential
|
|
7,939
|
|
|
441
|
|
|
11,839
|
|
|
1,097
|
|
|
Other real estate loans
|
|
6,929
|
|
|
739
|
|
|
7,567
|
|
|
—
|
|
|
Commercial loans
|
|
1,980
|
|
|
46
|
|
|
2,136
|
|
|
50
|
|
|
Consumer loans
|
|
—
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
18,802
|
|
|
$
|
1,371
|
|
|
$
|
25,346
|
|
|
$
|
1,233
|
|
If interest on non-accrual loans had been accrued, such income would have approximated $553,000 for the six months ended June 30, 2012 and $1.5 million for the year ended December 31, 2011.
The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio. Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, “Doubtful” and “Loss”.
Special Mention: Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.
Substandard: Loans classified as substandard have a well-defined weakness that jeopardizes the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.
Doubtful: Loans classified as doubtful have a very high possibility of loss. However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status can be determined.
Loss: Loans are classified as loss when they are deemed uncollectable and are charged off immediately.
The following tables present a summary of loan classifications by class of loan as of June 30, 2012 and December 31, 2011:
| |
June 30, 2012
|
| |
|
|
|
|
(In Thousands)
|
|
|
|
|
| |
Real Estate
Construction
|
|
Real Estate
Secured by
Farmland
|
|
Real Estate
Secured by 1-4
Family Residential
|
|
Other Real
Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
Pass
|
$
|
27,570
|
|
|
$
|
8,640
|
|
|
$
|
227,475
|
|
|
$
|
221,577
|
|
|
$
|
92,571
|
|
|
$
|
12,125
|
|
|
$
|
589,958
|
|
|
Special Mention
|
15,818
|
|
|
199
|
|
|
10,917
|
|
|
24,623
|
|
|
3,135
|
|
|
78
|
|
|
54,770
|
|
|
Substandard
|
6,002
|
|
|
611
|
|
|
12,895
|
|
|
16,666
|
|
|
2,833
|
|
|
287
|
|
|
39,294
|
|
|
Doubtful
|
—
|
|
|
—
|
|
|
1,488
|
|
|
258
|
|
|
142
|
|
|
—
|
|
|
1,888
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Ending Balance
|
$
|
49,390
|
|
|
$
|
9,450
|
|
|
$
|
252,775
|
|
|
$
|
263,124
|
|
|
$
|
98,681
|
|
|
$
|
12,490
|
|
|
$
|
685,910
|
|
| |
December 31, 2011
|
| |
|
|
|
|
(In thousands)
|
|
|
|
|
| |
Real Estate
Construction
|
|
Real Estate
Secured by
Farmland
|
|
Real Estate
Secured by 1-4
Family Residential
|
|
Other Real
Estate Loans
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
Pass
|
$
|
22,250
|
|
|
$
|
9,235
|
|
|
$
|
207,332
|
|
|
$
|
239,156
|
|
|
$
|
87,731
|
|
|
$
|
12,448
|
|
|
$
|
578,152
|
|
|
Special Mention
|
5,764
|
|
|
199
|
|
|
10,773
|
|
|
23,434
|
|
|
4,127
|
|
|
61
|
|
|
44,358
|
|
|
Substandard
|
13,163
|
|
|
613
|
|
|
17,062
|
|
|
12,592
|
|
|
2,374
|
|
|
14
|
|
|
45,818
|
|
|
Doubtful
|
1,031
|
|
|
—
|
|
|
1,593
|
|
|
246
|
|
|
195
|
|
|
—
|
|
|
3,065
|
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Ending Balance
|
$
|
42,208
|
|
|
$
|
10,047
|
|
|
$
|
236,760
|
|
|
$
|
275,428
|
|
|
$
|
94,427
|
|
|
$
|
12,523
|
|
|
$
|
671,393
|
|
The following table presents loans identified as impaired by class of loan as of and for the six months ended June 30, 2012:
| |
|
June 30, 2012
|
| |
|
|
|
|
(In thousands)
|
|
|
| |
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$ |
1,617 |
|
|
$ |
2,168 |
|
|
$ |
— |
|
|
$ |
2,041 |
|
|
$ |
— |
|
|
Secured by farmland
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Secured by 1-4 family residential
|
|
|
2,374 |
|
|
|
2,764 |
|
|
|
— |
|
|
|
2,075 |
|
|
|
18 |
|
|
Other real estate loans
|
|
|
4,578 |
|
|
|
4,947 |
|
|
|
— |
|
|
|
4,550 |
|
|
|
113 |
|
|
Commercial loans
|
|
|
1,789 |
|
|
|
1,789 |
|
|
|
— |
|
|
|
1,770 |
|
|
|
— |
|
|
Consumer loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total with no related allowance
|
|
|
10,358 |
|
|
|
11,668 |
|
|
|
— |
|
|
|
10,436 |
|
|
|
131 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
337 |
|
|
|
368 |
|
|
|
126 |
|
|
|
339 |
|
|
|
— |
|
|
Secured by farmland
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Secured by 1-4 family residential
|
|
|
6,858 |
|
|
|
7,731 |
|
|
|
2,398 |
|
|
|
7,065 |
|
|
|
17 |
|
|
Other real estate loans
|
|
|
5,145 |
|
|
|
5,188 |
|
|
|
1,049 |
|
|
|
5,188 |
|
|
|
51 |
|
|
Commercial loans
|
|
|
438 |
|
|
|
459 |
|
|
|
325 |
|
|
|
446 |
|
|
|
14 |
|
|
Consumer loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total with a related allowance
|
|
|
12,778 |
|
|
|
13,746 |
|
|
|
3,898 |
|
|
|
13,038 |
|
|
|
82 |
|
|
Total
|
|
$ |
23,136 |
|
|
$ |
25,414 |
|
|
$ |
3,898 |
|
|
$ |
23,474 |
|
|
$ |
213 |
|
The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2011:
| |
|
December 31, 2011
|
| |
|
|
|
|
(In thousands)
|
|
|
| |
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$ |
2,992 |
|
|
$ |
3,652 |
|
|
$ |
— |
|
|
$ |
3,948 |
|
|
$ |
— |
|
|
Secured by farmland
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
3,978 |
|
|
|
4,656 |
|
|
|
— |
|
|
|
4,424 |
|
|
|
7 |
|
|
Other real estate loans
|
|
|
4,732 |
|
|
|
4,775 |
|
|
|
— |
|
|
|
5,729 |
|
|
|
95 |
|
|
Commercial loans
|
|
|
1,751 |
|
|
|
1,751 |
|
|
|
— |
|
|
|
1,735 |
|
|
|
— |
|
|
Consumer loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total with no related allowance
|
|
|
13,453 |
|
|
|
14,834 |
|
|
|
— |
|
|
|
15,836 |
|
|
|
102 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
812 |
|
|
|
842 |
|
|
|
328 |
|
|
|
812 |
|
|
|
— |
|
|
Secured by farmland
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
8,697 |
|
|
|
10,417 |
|
|
|
3,076 |
|
|
|
9,047 |
|
|
|
17 |
|
|
Other real estate loans
|
|
|
5,581 |
|
|
|
5,581 |
|
|
|
1,192 |
| |