At September 30, 2007, the carrying value of Middleburg Bank’s 41.8% ownership interest in Southern Trust Mortgage was approximately $9.7 million. As previously disclosed, the company engaged an independent firm to assist with valuing Middleburg Bank’s investment in Southern Trust Mortgage in order to determine whether or not there has been impairment.
The impairment of value primarily results from earnings declines associated with the slowdown in loan production volume and the increases to loan loss reserves. As a result, for the quarter ending December 31, 2007, the company expects to record a non-cash impairment charge of approximately $5 million for the impairment of the carrying value assigned to Southern Trust Mortgage.
The company also announced that it expects to guarantee up to $15 million of Southern Trust Mortgage’s bank debt. Southern Trust Mortgage’s warehouse lender has informed Southern Trust Mortgage that it will not continue to permit Southern Trust Mortgage to carry ineligible loans on its line of credit. The company expects that its guarantee of those loans will enable Southern Trust Mortgage to continue to carry those loans on its line of credit in order that the loans or the real estate securing the loans can be disposed of in an orderly manner.
Joseph Boling, chairman and CEO of Middleburg Financial, said: While we are positive in our long term view of Southern Trust Mortgage, its management, production channels and long term prospects for providing the company an attractive revenue stream, from a financial reporting standpoint taking this write down at this juncture was the conservative and prudent action to take.
