U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
[ ] Transition Report under 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) |
Registrant’s telephone number, including area code (703) 777-6327
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.
Yes | X | No |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes | No | X |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
1,852,682 shares of common stock, par value $5.00 per share,
outstanding as of May 7, 2003
MIDDLEBURG FINANCIAL CORPORATION
INDEX
Part I. Financial Information
Page No.
Item 1.
Financial Statements
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
Consolidated Statements of Changes in Shareholders’ Equity
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15
Item 4. Controls and Procedures
16
Part II. Other Information
Item 1.
Legal Proceedings
17
Item 2.
Change in Securities and Use of Proceeds
17
Item 3.
Defaults upon Senior Securities
17
Item 4.
Submission of Matters to a Vote of Security Holders
17
Item 5.
Other Information
17
Item 6.
Exhibits and Reports on Form 8-K
17
Signatures
18
2
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
MIDDLEBURG FINANCIAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except Share Data)
(Unaudited) | ||||
March | December 31, | |||
2003 | 2002 | |||
Assets | ||||
Cash and due from banks | $ 13,784 | $ 8,338 | ||
Interest-bearing balances in banks | 119 | 274 | ||
Temporary investments: | ||||
Other money market investments | 866 | 911 | ||
Securities (fair value: March 31, 2003, | ||||
$166,791 , December 31, 2002, $163,957 ) | 166,524 | 163,673 | ||
Loans held for sale | 16,299 | 17,489 | ||
Loans, net of allowance for loan losses of $2,357 in 2003 | ||||
and $2,307 in 2002 | 220,323 | 209,800 | ||
Bank premises and equipment, net | 11,903 | 11,814 | ||
Other assets | 12,613 | 12,675 | ||
| ||||
Total assets | $ 442,431 | $ 424,974 | ||
Liabilities and Shareholders' Equity | ||||
Liabilities: | ||||
Deposits: | ||||
Non-interest bearing demand deposits | $ 97,647 | $ 90,413 | ||
Savings and interest-bearing demand deposits | 141,633 | 138,661 | ||
Time deposits | 98,100 | 99,829 | ||
Total deposits | $ 337,380 | $ 328,903 | ||
Securities sold under agreements to | ||||
repurchase | 6,621 | 8,924 | ||
Federal Home Loan Bank Advances | 11,000 | - | ||
Long-term debt | 31,480 | 31,545 | ||
Trust preferred debt | 10,000 | 10,000 | ||
Other liabilities | 4,125 | 4,192 | ||
Total liabilities | $ 400,606 | $ 383,564 | ||
Shareholders' Equity: | ||||
Common stock, par value $5.00 per | ||||
share, authorized 10,000,000 shares; | ||||
issued and outstanding 1,852,682 shares | $ 9,263 | $ 9,263 | ||
Capital surplus | 3,644 | 3,644 | ||
Retained earnings | 26,620 | 25,184 | ||
Accumulated other comprehensive income | 2,298 | 3,319 | ||
Total shareholders' equity | $ 41,825 | $ 41,410 | ||
Total liabilities and shareholders' equity | $ 442,431 | $ 424,974 | ||
See Accompanying Notes to Consolidated Financial Statements.
3
MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
Unaudited | |||
For the Three Months | |||
Ended March 31, | |||
2003 | 2002 | ||
Interest Income | |||
Interest and fees on loans | $ 4,024 | $ 3,979 | |
Interest on investment securities | |||
Taxable | - | 1 | |
Exempt from federal income taxes | 53 | 66 | |
Interest on securities available for sale | |||
Taxable | 1,510 | 1,234 | |
Exempt from federal income taxes | 389 | 399 | |
Dividends | 65 | 71 | |
Interest on federal funds sold and other | 10 | 23 | |
Total interest income | $ 6,051 | $ 5,773 | |
Interest Expense | |||
Interest on deposits | $ 882 | $ 1,100 | |
Interest on long-term debt | 493 | 436 | |
Interest on short-term borrowings | 78 | 81 | |
Total interest expense | $ 1,453 | $ 1,617 | |
Net interest income | $ 4,598 | $ 4,156 | |
Provision for loan losses | 75 | 75 | |
Net interest income after provision | |||
for loan losses | $ 4,523 | $ 4,081 | |
Other Income | |||
Trust and investment advisory fee income | $ 846 | $ 319 | |
Service charges on deposit accounts | 593 | 351 | |
Net gains (losses) on securities | |||
available for sale | 295 | (80) | |
Fees on loans held for resale | 634 | 343 | |
Commissions on investment sales | 303 | 140 | |
Other operating income | - | 31 | |
Total other income | $ 2,671 | $ 1,104 | |
Other Expense | |||
Advertising | $ 62 | $ 98 | |
Salaries and employee benefits | 2,640 | 1,943 | |
Net occupancy expense of premises | 579 | 346 | |
Other operating expenses | 1,038 | 741 | |
Total other expense | $ 4,319 | $ 3,128 | |
| |||
Income before income taxes | $ 2,875 | $ 2,057 | |
Income taxes | 865 | 543 | |
Net income | $ 2,010 | $ 1,514 | |
|
|
| |
Earnings per weighted average share: | |||
Net income per share, basic | $ 1.09 | $ 0.86 | |
Net income per share, diluted | $ 1.07 | $ 0.84 | |
Dividends per share | $ 0.31 | $ 0.30 | |
See Accompanying Notes to Consolidated Financial Statements.
4
MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months ended March 31, 2003 and 2002
(In Thousands)
(Unaudited)
Accumulated | |||||||||||
Other | |||||||||||
Common | Capital | Retained | Comprehensive | Comprehensive | |||||||
Stock | Surplus | Earnings | Income (Loss) | Income | Total | ||||||
Balances - December 31, 2001 | $ 8,761 | $ 741 | $ 21,084 | $ (248) | $ - | $ 30,338 | |||||
Comprehensive Income | |||||||||||
Net income | 1,514 | 1,514 | $ 1,514 | ||||||||
Issuance of common shares in stock | |||||||||||
option plan (300 shares) | 2 | 6 | 8 | ||||||||
Other comprehensive income | |||||||||||
net of tax: | |||||||||||
Unrealized holding losses arising during the | |||||||||||
period (net of tax $236) | (461) | ||||||||||
Reclassification adjustment for | |||||||||||
losses realized in net income (net of tax $27) | 53 | ||||||||||
Other comprehensive income (net of tax $209) | (408) | (408) | (408) | ||||||||
Total comprehensive income | $ 1,106 | ||||||||||
Cash dividends declared | (545) | (545) | |||||||||
Balances - March 31, 2002 | $ 8,763 | $ 747 | $ 22,053 | $ (656) | $ 30,907 | ||||||
Balances - December 31, 2002 | $ 9,263 | $ 3,644 | $ 25,184 | $ 3,319 | $ 41,410 | ||||||
Comprehensive Income | |||||||||||
Net income | 2,010 | 2,010 | 2,010 | ||||||||
Other comprehensive income | |||||||||||
net of tax: | |||||||||||
Unrealized holding losses arising during the | |||||||||||
period (net of tax $424) | (826) | ||||||||||
Reclassification adjustment for | |||||||||||
gains realized in net income (net of tax $100) | (195) | ||||||||||
Other comprehensive income (net of tax $524) | (1,021) | (1,021) | (1,021) | ||||||||
Total comprehensive income | $ 989 | ||||||||||
Cash dividends declared | (574) | (574) | |||||||||
Balances - March 31, 2002 | $ 9,263 | $ 3,644 | $ 26,620 | $ 2,298 | $ 41,825 | ||||||
See Accompanying Notes to Consolidated Financial Statements.
5
MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
Unaudited
| |||
For the Three Months Ended | |||
March 31, | March 31, | ||
2003 | 2002 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | |||
Net income | $ 2,010 | $ 1,514 | |
Adjustments to reconcile net income to net cash provided by operating activities | |||
Provision for loan losses | 75 | 75 | |
Depreciation and amortization | 387 | 222 | |
Net (gains) losses on securities available for sale | (295) | 80 | |
Net (gains) losses on sales of equipment | - | (15) | |
Discount accretion and premium amortization on securities, net | 21 | (25) | |
Originations of loans held for sale | (37,592) | (22,513) | |
Proceeds from sales of loans held for sale | 38,782 | 24,017 | |
Decrease in other assets | 486 | 188 | |
(Decrease) increase in other liabilities | (85) | 428 | |
Net cash provided by operating activities | $ 3,789 | $ 3,971 | |
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Proceeds from maturity, principal paydowns and calls on investment securities | $ 524 | $ 591 | |
Proceeds from maturity, principal paydowns and | |||
calls of securities available for sale | 9,571 | 3,262 | |
Proceeds from sale of securities available for sale | 12,287 | 9,328 | |
Purchase of securities available for sale | (26,504) | (15,144) | |
Net (increase) in loans | (10,598) | (8,131) | |
Proceeds from sale of bank premises and equipment | - | 20 | |
Purchases of bank premises and equipment | (376) | (560) | |
Net cash (used in) investing activities | $ (15,096) | $ (10,634) | |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
Net increase in demand deposits, NOW accounts, and savings accounts | $ 10,206 | $ 6,541 | |
Net (decrease) increase in certificates of deposits | (1,729) | 2,828 | |
Proceeds from Federal Home Loan Bank advances | 23,000 | 27,000 | |
Payment on Federal Home Loan Bank advances | (12,000) | (32,000) | |
Payments on long-term debt | (65) | (65) | |
Cash dividends paid | (556) | (438) | |
Issuance of common stock | - | 8 | |
(Decrease) increase in securities sold under agreements to repurchase | (2,303) | 1,531 | |
Net cash provided by financing activities | $ 16,553 | $ 5,405 | |
Increase (decrease) in cash and cash equivalents | $ 5,246 | $ (1,258) | |
CASH AND CASH EQUIVALENTS | |||
Beginning | $ 9,523 | $ 12,975 | |
Ending | $ 14,769 | $ 11,717 | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||
Cash payments for: | |||
Interest | 1,447 | 1,343 | |
Income taxes | - | - | |
SUPPLEMENTAL DISCLOSURES FOR NON-CASH | |||
INVESTING AND FINANCING ACTIVITIES | |||
Net change in the unrealized gain on securities available for sale | (1,545) | (617) | |
See Accompanying Notes to Consolidated Financial Statements.
6
MIDDLEBURG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
Note 1. General
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 as of March 31, 2003 and the results of operations and changes in cash flows for the three months ended March 31, 2003 and 2002. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of Middleburg Financial Corporation (the “Company”) for the year ended December 31, 2002 (the “2002 Form 10-K”). The results of operations for the three-month periods ended March 31, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year.
Note 2. Stock –Based Employee Compensation Plan
At March 31, 2003, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
March 31, | |||
2003 | 2002 | ||
Net income, as reported | $ 2,010 | $ 1,514 | |
Deduct: Total stock-based employee | |||
compensation expense determined under | |||
fair value based method for all awards | (33) | (31) | |
Pro forma net income | $ 1,977 | $ 1,483 | |
Earnings per share: | |||
Basic - as reported | $ 1.09 | $ 0.86 | |
Basic - pro forma | 1.07 | 0.85 | |
Diluted - as reported | 1.07 | 0.84 | |
Diluted - pro-forma | 1.05 | 0.82 | |
7
Note 3.
Securities
Securities being held to maturity as of March 31, 2003 are summarized as follows:
|
| Gross |
| Gross |
|