Middleburg Financial Corp. :MBRG-US: Earnings Analysis: 2016 By the Numbers : March 20, 2017

Middleburg Financial Corp. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Middleburg Financial Corp. – Union Bankshares Corporation, Cardinal Financial Corporation, National Bankshares, Inc., Old Point Financial Corporation, American National Bankshares Inc., Village Bank and Trust Financial Corp., Xenith Bankshares, Inc., Bank of the James Financial Group, Inc. and Access National Corporation (UBSH-US, CFNL-US, NKSH-US, OPOF-US, AMNB-US, VBFC-US, XBKS-US, BOTJ-US and ANCX-US) that have also reported for this period.

Highlights

  • Net interest income margins narrowed from 78.71% to 78.29% compared to the same period last year.
  • Net loan assets changed 6.80% compared to same period last year and 6.80% from previous period, total deposits changed 1.18% compared to same period last year and 1.18% from previous period.
  • Year-on-year change in operating cash flow of 29.60% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 49.76 48.37 52.84 62.24 67.65
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 8.06 7.83 7.58 6.15 6.49
Earnings Growth (YOY) 2.99 3.24 23.24 -5.12 30.77
Net Margin 16.21 16.19 14.35 9.89 9.59
EPS 1.13 1.09 1.06 0.87 0.92
Return on Equity 6.45 6.38 6.4 5.3 5.76
Return on Assets 0.63 0.62 0.62 0.5 0.53

Access our Ratings and Scores for Middleburg Financial Corp.

Earnings Growth Analysis

The company’s net interest income margins showed no year-on-year improvement. In spite of this, the earnings rose, influenced primarily by the increase in net interest income after provisions margins from 73.97% to 74.56%. Loan loss provisions as a percentage of net interest income were 4.76% this period, and 6.02% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (HY YOY)
Total Deposits Growth Rate History (HY YOY)

The firm’s decline in net interest income margins came despite the relative increase in the level of net loan assets. In addition, total deposits as a percentage of equity went from 8.42% to 8.31%. On an absolute basis, net loan assets changed 6.80% compared to the same period last year and 6.80% from the previous period. Total deposits changed 1.18% compared to the same period last year and 1.18% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

MBRG-US‘s change in operating cash flow of 29.60% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 21.80% to 24.45% and (2) one-time items. The company’s pretax margins are now 21.86%, compared to 21.80% for the same period last year.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for Middleburg Financial Corp.

Company Profile

Middleburg Financial Corp. operates as a bank holding company, which engages in the provision of banking and financial services. It operates through the following segments: Commercial and Retail Banking Services; Wealth Management Services and Mortgage Banking Services. Its products include savings and checking accounts, cash management, non-profit banking, financial planning, portfolio development and management, credit cards, consumer and equity loans, safe deposit boxes, mutual funds investments, online and mobile banking, and company retirement plans. The company was founded in 1993 and is headquartered in Middleburg, VA.

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