Middlefield Banc Corp. Reports 2018 First Half Financial Results

Middlefield Banc Corp. MBCN today reported financial results for the 2018 first half and second quarter ended June 30, 2018.

2018 First Half Financial Highlights versus 2017 First Half (unless noted):

• Net income was up 23.8% to $5.7 million
• Earnings per diluted share increased 9.3% to $1.76 per share, despite a 13.5% increase in the average number of diluted shares outstanding
• For the 2018 second quarter, return on average equity was 10.08%, compared to 9.34% for the quarter ended June 30, 2017
• For the 2018 second quarter, return on average tangible common equity⁽¹⁾ was 11.77%, compared to 11.30% for the quarter ended June 30, 2017
• Book value per share was up 4.0% to $37.95 per share
• Tangible book value⁽¹⁾ per share was up 5.6% to $32.49 per share
• Total net loans increased 8.7% to $936.2 million
• Total interest income improved 14.1% to $24.1 million
• Noninterest expense was up only 3.1%
• Equity to assets remains strong at 10.52%

"Record profitability helped increase our return on average equity ("ROAE") to over 10% during the second quarter, after several capital raises and the Liberty acquisition temporarily reduced our ROAE to the high single digits," stated Thomas G. Caldwell, President and Chief Executive Officer. "During the quarter, we had approximately $38 million of loans payoff, which included a $6 million loan that was previously classified as a troubled debt restructuring ("TDR"). In spite of this impact, our loan portfolio has increased nearly 9% compared to the same period a year ago. Our pipeline of potential new loans remains robust, but we have started to see other lenders within our markets become more aggressive on pricing and less restrictive on covenants and standards. It is important to note that Middlefield will remain focused on our lending standards by appropriately managing credit risk and controlling growth."

"As we enter the second half of the year, we are excited by our opportunities to grow our franchise and create further value for our shareholders. I am encouraged by positive economic trends throughout both of our regions and recent announcements of significant new development projects close to our Central Ohio offices. During the third quarter we anticipate the grand opening of our Powell location. Our Central Ohio branch strategy is well positioned to capitalize on this fast growing and compelling region," Mr. Caldwell concluded.

Income Statement

For the 2018 first half, net interest income increased 9.5% to $19.7 million, compared to $18.0 million for the same period last year. Year-to-date, the net interest margin was 3.79%, compared to 3.82% for the same period last year. Net interest income for the 2018 second quarter was $9.8 million, compared to $9.3 million for the 2017 second quarter. The 6.1% increase in net interest income for the 2018 second quarter was largely a result of a 13.3% increase in interest and fees on loans. The net interest margin for the 2018 second quarter was 3.76%, compared to 3.80% for the same period of 2017.

For the 2018 first half, noninterest income was $1.8 million, compared to $2.5 million for the same period last year. Noninterest income for the 2018 second quarter was $1.0 million, compared to just under $1.0 million for the same period last year.

For the 2018 first half, noninterest expense increased 3.1% to $14.4 million, compared to $14.0 million for the same period last year. Operating costs in the 2018 second quarter increased 5.4% to $7.1 million from $6.7 million for the 2017 second quarter. Noninterest expense for the 2017 first half included $694,000 of additional one-time operating expenses as a result of the Liberty acquisition.

"Asset quality improved during the second quarter due to a significant decrease in nonperforming loans as a result of a payoff of a TDR classified loan and a reduction in nonaccrual loans," said Donald L. Stacy, Chief Financial Officer. "As a result, our nonperforming loans to total loans was 1.21%, which is the lowest level in five quarters. Competition for deposits remains elevated and we are working on strategies to bring in low-cost deposits while reducing short-term borrowings. I am pleased with the 20.7% increase in noninterest-bearing deposits over the past 12 months. Our loan-to-deposit ratio was 101.2% at June 30, 2018, compared to 102.5% at June 30, 2017, and 98.7% at March 31, 2018, while our net-loan-to-asset ratio was 80.3% at June 30, 2018, compared to 80.4% at June 30, 2017, and 83.6% at March 31, 2018. We continue to believe we will improve operating leverage and funding costs throughout the remainder of the year, which should translate in continued earnings growth and improved profitability."

Balance Sheet

Total assets at June 30, 2018, increased 8.9% to approximately $1.2 billion from $1.1 billion at June 30, 2017. Net loans at June 30, 2018, were $936.2 million, compared to $861.3 million at June 30, 2017, and $916.0 million at December 31, 2017. The 8.7% year-over-year improvement in net loans was across almost all loan categories and was primarily a result of a 12.4% increase in commercial mortgage loans, a 4.0% increase in residential mortgage loans, a 5.0% increase in commercial and industrial loans, a 28.3% increase in real estate construction loans, partially offset by a 9.0% decline in consumer installment loans.

Total deposits at June 30, 2018, was $932.2 million, compared to $846.8 million at June 30, 2017. The 10.1% increase in deposits was a result of higher noninterest-bearing demand, savings, and time deposits, offset by lower money market deposits. The investment portfolio, which is entirely classified as available for sale, was $100.0 million June 30, 2018, compared with $105.0 million at June 30, 2017.

Stockholders' Equity and Dividends

At the end of the 2018 second quarter, shareholders' equity increased 4.7% to $122.7 million compared to $117.2 million at June 30, 2017. On a per share basis, shareholders' equity at June 30, 2018, was $37.95 compared to $36.49 at the same period last year. Tangible stockholders' equity⁽¹⁾ increased 6.3% to $105.1 million for the 2018 second quarter, compared to $98.8 million at June 30, 2017. On a per-share basis, tangible stockholders' equity⁽¹⁾ was $32.49 at June 30, 2018, compared to $30.77 at June 30, 2017.

Through the first six months of 2018, the company declared cash dividends of $0.61 per share, compared to $0.54 per share for the same period last year. The dividend payout ratio for the 2018 six-month period was 34.5% compared to 35.2% for the same period last year.

At June 30, 2018, the company had an equity to assets leverage ratio of 10.52%, compared to 10.94% at June 30, 2017.

Asset Quality

The provision for loan losses for the 2018 second quarter was $210,000 versus $170,000 for the same period last year. Nonperforming assets at June 30, 2018, were $11.6 million, compared to $17.1 million at June 30, 2017. Net charge-offs for the 2018 second quarter were $259,000, or 0.11% of average loans, annualized, compared to $285,000, or 0.13% of average loans, annualized at June 30, 2017.

Year-to-date net charge-offs were $108,000, or 0.02% of average loans, annualized compared to $328,000, or 0.08% of average loans, annualized for the same period last year. The allowance for loan losses at June 30, 2018, stood at $7.5 million, or 0.79% of total loans, compared to $6.6 million or 0.76% of total loans at June 30, 2017.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is the bank holding company of The Middlefield Banking Company with total assets of $1.2 billion at June 30, 2018. 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.

⁽¹⁾This press release includes disclosure of Middlefield Banc Corp.'s tangible book value per share and return on average tangible equity, which are financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Middlefield Banc Corp. believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Middlefield Banc Corp.'s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP. The reconciliations of non-GAAP financial measures are included in the tables following Consolidated Financial Highlights below.

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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