Middlefield Banc Corp. Reports 2017 First Half Financial Results

Middlefield Banc Corp. MBCN today reported financial results for the 2017 first half and second quarter ended June 30, 2017.

2017 First Half Financial Highlights versus 2016 First Half (unless noted):

• Net income was up 35.0% to $4.6 million
• Earnings per diluted share decreased 6.9% to $1.61 per share, as a result of a 44.6% increase in the average number of diluted shares outstanding
• Total net loans increased 50.2% to $861.3 million
• Organic total net loans increased 11.0%
• Total interest income improved 43.0% to $21.1 million
• Tier 1 capital ratio remains strong at 9.95%

"Middlefield's 2017 second quarter and year-to-date financial results reflect the contribution of the Liberty Bank, N.A. acquisition, robust organic loan growth throughout our Central and Northeast Ohio markets, and stable asset quality," stated Thomas G. Caldwell, President and Chief Executive Officer. "Year-to-date, total net loans increased 11.0% organically, and over the past three months were up 3.7% organically. In addition, we ended the second quarter with a robust pipeline of potential new loans. I am encouraged by recent loan growth and demand trends, which demonstrates Middlefield's growing banking franchise and stable economic trends within our local geographies. While total net loans increased 50.2%, our asset quality remains strong as nonperforming loans to total loans has declined to 1.45% at June 30, 2017 from 1.64% for the same period last year. As a result of Middlefield's strong year-to-date performance, we expect 2017 will be another good year for the Bank."

Income Statement

For the 2017 first half, net interest income increased 42.4% to $18.0 million, compared to $12.7 million for the same period last year. Year-to-date, the net interest margin was 3.82%, compared to 3.82% for the same period last year. Net interest income for the 2017 second quarter was $9.3 million, compared to $6.3 million for the 2016 second quarter. The net interest margin for the 2017 second quarter was 3.80%, compared to 3.78% for the same period of 2016. The 46.3% increase in net interest income for the 2017 second quarter was largely a result of a 57.0% increase in interest and fees on loans.

For the 2017 first half, noninterest income was $2.5 million, compared to $2.1 million for the same period last year. Noninterest income for the 2017 second quarter was $1.0 million, compared to $1.2 million for the same period last year.

For the 2017 first half, noninterest expense increased 36.3% to $14.0 million, compared to $10.3 million for the same period last year. Operating costs in the 2017 second quarter increased 36.4% to $6.7 million from $4.9 million for the 2016 second quarter. During the 2017 second quarter, noninterest expense had approximately $307,000 of one-time merger costs associated with the Liberty merger, and year-to-date the company had one-time merger related costs of approximately $694,000.

Annualized returns on average equity ("ROE") and average assets ("ROA") for the 2017 six-month period were 9.05% and 0.89%, respectively, compared with 10.62% and 0.92% for the same period last year. For the 2017 second quarter, ROE and ROA were 9.34% and 0.94%, respectively, compared with 11.78% and 1.03% for the 2016 second quarter.

"I am pleased with the successful $16.0 million private placement we completed in the second quarter. The proceeds from this offering were used to retire $12.0 million of higher-cost borrowings, which helped Middlefield reduce its funding costs," said Donald L. Stacy, Chief Financial Officer. "Our net loans-to-assets ratio continues to increase and was 80.5% at June 30, 2017, up 400 basis points from year end, and increased 510 basis points from the same period a year ago. During the 2017 second quarter, the yield on earning assets increased to 4.45% from 4.37% for the same period a year ago, while our cost of interest-bearing liabilities increased to 0.83% from 0.77% for the same period a year ago. The net effect was a slight increase in the company's net interest spread, as well as a slight increase in net interest margin, which was 3.80% in the second quarter. We continue to expect improving profitability as a result of the company's growing loan portfolio, and achieving cost benefits from the Liberty merger."

Balance Sheet

Total assets at June 30, 2017 increased 40.8% to approximately $1,070.0 million, from $760.1 million at June 30, 2016, and $787.8 million at December 31, 2016. Net loans at June 30, 2017 were $861.3 million, compared to $573.4 million at June 30, 2016, and $602.5 million at December 31, 2016. The 50.2% year-over-year improvement in total net loans was across all loan categories, and was a result of organic growth and the contribution of the Liberty merger. Specifically, commercial mortgage loans increased 64.5%, residential mortgage loans increased 22.6%, commercial and industrial loans increased 60.7%, real estate construction loans increased 121.8%, and consumer installment loans increased 343.5%.

Total deposits at June 30, 2017 increased 34.8% to $846.8 million from $628.0 million at June 30, 2016. The company continued to proactively manage its cost of funds and control deposit growth. The investment portfolio, which is entirely classified as available for sale, was $105.0 million June 30, 2017, compared with $129.3 million at June 30, 2016.

Stockholders' Equity and Dividends

At June 30, 2017, tangible stockholders' equity was $98.8 million, an increase of 35.4% from $73.0 million at June 30, 2016. On a per-share basis, tangible stockholders' equity decreased to $30.77 at June 30, 2017 from $32.47 at June 30, 2016. Through the first six months of 2017, the company declared cash dividends of $0.54 per share. The dividend payout ratio for the 2017 six-month period was 35.2% compared to 32.4% for the same period last year.

At June 30, 2017, the company had a Tier 1 leverage ratio of 9.95%, down from 10.23% at June 30, 2016.

Asset Quality

The provision for loan losses for the 2017 second quarter was $0.2 million versus $0.1 million for the same period last year. Nonperforming assets at June 30, 2017 were $13.2 million, compared to $10.6 million at June 30, 2016. Net charge-offs for the 2017 second quarter were $0.3 million, or 0.13% of average loans, annualized, compared to $0.1 million, or 0.07% of average loans, annualized for the same 2016 period. Year-to-date net charge-offs were $0.3 million, or 0.08% of average loans, annualized compared to $0.2 million, or 0.08% of average loans, annualized for the same period last year. The allowance for loan losses at June 30, 2017 stood at $6.6 million, or 0.76% of total loans, compared to $6.4 million or 1.10% of total loans at June 30, 2016. The decline in the allowance ratio is due to the acquisition of Liberty Bank, which increased total loans.

The following table provides a summary of asset quality and reserve coverage ratios.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is a bank holding company with total assets of $1.1 billion at June 30, 2017. The bank operates 14 full-service banking centers and an LPL Financial® brokerage office serving Beachwood, Chardon, Cortland, Dublin, Garrettsville, Mantua, Middlefield, Newbury, Orwell, Solon, Sunbury, Twinsburg, and Westerville. The Bank also operates a Loan Production Office in Mentor, Ohio. Additional information is available at www.middlefieldbank.bank.

This press release of Middlefield Banc Corp. and the reports Middlefield Banc Corp. files with the Securities and Exchange Commission often contain "forward-looking statements" relating to present or future trends or factors affecting the banking industry and, specifically, the financial operations, markets and products of Middlefield Banc Corp. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause Middlefield Banc Corp.'s future results to differ materially from historical performance or projected performance. These factors include, but are not limited to: (1) a significant increase in competitive pressures among financial institutions; (2) changes in the interest rate environment that may reduce interest margins; (3) changes in prepayment speeds, charge-offs and loan loss provisions; (4) less favorable than expected general economic conditions; (5) legislative or regulatory changes that may adversely affect businesses in which Middlefield Banc Corp. is engaged; (6) technological issues which may adversely affect Middlefield Banc Corp.'s financial operations or customers; (7) changes in the securities markets; or (8) risk factors mentioned in the reports and registration statements Middlefield Banc Corp. files with the Securities and Exchange Commission. Middlefield Banc Corp. undertakes no obligation to release revisions to these forward-looking statements or to reflect events or circumstances after the date of this press release.

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