Market Overview

Middlefield Banc Corp. Reports Record Earnings for 2018 Full Year and Fourth Quarter Financial Results

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Middlefield Banc Corp. (NASDAQ:MBCN) today reported record financial
results for the three and twelve months ended December 31, 2018.

2018 Financial Highlights (on a year-over-year basis unless
noted):

  • Net income increased 31.5% to a record $12.4 million
  • Earnings per diluted share increased 23.5% to a record $3.83 per share
  • For the 2018 fourth quarter, return on average equity was 10.52%,
    compared to 7.72% for the quarter ended December 31, 2017
  • For the 2018 fourth quarter, return on average tangible common equity(1)
    was 12.17%, compared to 9.05% for the quarter ended December 31, 2017
  • For the 2018 fourth quarter, return on average assets was 1.15%,
    compared to 0.86% for the quarter ended December 31, 2017
  • Book value per share was up 6.2% to a record $39.54 per share
  • Tangible book value(1) per share was up 7.7% to a record
    $34.16 per share
  • Total net loans increased 7.5% to a record $984.7 million
  • Total interest income improved 14.5% to $50.4 million
  • Noninterest expense was up 4.6%
  • Equity to assets remains strong at 10.28%

"Middlefield achieved multiple financial and operating records during
2018 including assets, deposits, net income and book value per share,"
stated Thomas G. Caldwell, President and Chief Executive Officer. "In
addition, I am pleased with the continued expansion of returns on
average assets, equity, and tangible common equity. Our financial
results demonstrate the continued success of our strategic growth plan
and the business platform we have created."

"As we start the new year, we remain focused on executing our growth
initiatives, while continuing to maintain strong asset quality. I am
encouraged by the prospects to improve our market share in Northeast
Ohio, especially in Cuyahoga and Summit counties. In addition, as one of
the few community banks in the Central Ohio market, we have a unique
opportunity to provide a differentiated banking experience. Over the
past two years, we have significantly increased our scale within the
Central Ohio market. I am excited by the potential of both markets and
expect the productivity of our new Powell and Sunbury locations to
increase throughout the year. As you can see, we have a lot of
opportunity and we are excited by our growth prospects in 2019 and
beyond," concluded Mr. Caldwell.

Income Statement

For the 2018 full year, net interest income increased 8.3% to $40.4
million, compared to $37.3 million for the same period last year. The
net interest margin for the 2018 twelve-month period was 3.77%, compared
to 3.82% for the same period last year. Net interest income for the 2018
fourth quarter was $10.5 million, compared to $9.8 million for the 2017
fourth quarter. The net interest margin for the 2018 fourth quarter was
3.76%, compared to 3.84% for the same period of 2017. The 6.7% increase
in net interest income for the 2018 fourth quarter was largely a result
of a 16.6% increase in interest and fees on loans.

For the 2018 full year, noninterest income was $3.7 million, compared to
$4.9 million for the same period last year. Noninterest income for the
2018 fourth quarter was $977 thousand, compared to $918 thousand for the
2017 fourth quarter.

For the 2018 full year, noninterest expense increased 4.6% to $28.7
million, compared to $27.5 million last year. For the 2018 fourth
quarter, noninterest expense was $7.2 million, compared to $6.2 million
for the same period last year.

"Asset quality continues to improve and in 2018 Middlefield's
nonperforming assets declined 20.4%, while total loans increased 7.5%,"
said Donald L. Stacy, Chief Financial Officer. "As a result,
nonperforming loans to total loans were 1.07%, which is the lowest level
in over six years. We continue to successfully drive deposit growth and
ended the quarter with $1.02 billion in deposits. Over the past twelve
months, Middlefield's total deposits increased by $137.9 million or
15.7%. Our loan-to-deposit ratio was 97.6% at December 31, 2018,
compared to 105.1% at December 31, 2017."

Mr. Stacy continues, "We improved operating leverage throughout the year
despite the increased operating cost of our new Powell location. Looking
ahead, we believe we can continue to generate an annual efficiency ratio
in the low 60% range during 2019 as our new Powell and Sunbury locations
mature and we focus on controlled growth, operating leverage and
improved profitability."

Balance Sheet

Total assets at December 31, 2018, increased 12.8% to $1.25 billion,
from $1.11 billion at December 31, 2017. Net loans at December 31, 2018,
were $984.7 million, compared to $916.0 million at December 31, 2017.
The 7.5% year-over-year increase in total net loans was a result of a
20.7% increase in real estate construction loans, a 13.8% increase in
commercial mortgage loans, and a 5.8% increase in residential mortgage
loans, partially offset by a 17.3% decrease in commercial and industrial
loans and a 10.5% decline in consumer installment loans.

Total deposits at December 31, 2018, were $1.02 billion, compared to
$878.2 million at December 31, 2017. The 15.7% year-over-year increase
in deposits was primarily a result of higher money market and time
deposits. The investment portfolio, which is entirely classified as
available for sale, was $98.3 million at December 31, 2018, compared
with $95.3 million at December 31, 2017.

Stockholders' Equity and Dividends

At December 31, 2018, stockholders' equity increased 7.0% to $128.3
million, compared to $119.9 million at December 31, 2017. On a per share
basis, shareholders' equity at December 31, 2018, was $39.54 compared to
$37.25 at the same period last year.

At December 31, 2018, tangible stockholders' equity(1)
increased 8.6% to $110.8 million, compared to $102.0 million at December
31, 2017. On a per share basis, tangible stockholders' equity(1)
was $34.16 at December 31, 2018, compared to $31.71 at December 31, 2017.

For the 2018 full year, the company declared cash dividends of $1.17 per
share, compared to $1.08 per share for the same period last year. The
dividend payout ratio for the 2018 twelve-month period was 30.4%
compared to 35.5% for the same period last year.

At December 31, 2018, the company had an equity to assets leverage ratio
of 10.28%, compared to 10.83% at December 31, 2017.

Asset Quality

The provision for loan losses for the 2018 fourth quarter was $210,000
versus $430,000 for the same period last year. Nonperforming assets at
December 31, 2018, were $10.8 million, compared to $13.6 million at
December 31, 2017. Net charge-offs for the 2018 fourth quarter were
$276,000, or 0.11% of average loans, annualized, compared to $92,000, or
0.04% of average loans, annualized at December 31, 2017.

For the 2018 twelve-month period, net charge-offs were $602,000, or
0.06% of average loans, compared to $453,000, or 0.05% of average loans
for the 2017 twelve-month period. The allowance for loan losses at
December 31, 2018, stood at $7.4 million, or 0.75% of total loans,
compared to $7.2 million or 0.78% of total loans at December 31, 2017.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is the bank
holding company of The Middlefield Banking Company with total assets of
$1.25 billion at December 31, 2018. The bank operates 15 full-service
banking centers and an LPL Financial® brokerage office serving
Beachwood, Chardon, Cortland, Dublin, Garrettsville, Mantua,
Middlefield, Newbury, Orwell, Powell, 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.

 
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
December 31,   September 30,   June 30,   March 31,   December 31,
Balance Sheets (period end) 2018 2018 2018 2018 2017
ASSETS
Cash and due from banks $ 107,933 $ 81,951 $ 42,451 $ 33,258 $ 39,886
Federal funds sold - - 28,795 - -
Cash and cash equivalents 107,933 81,951 71,246 33,258 39,886
Equity securities, at fair value 616 671 656 643 -
Investment securities available for sale, at fair value 98,322 99,717 100,028 91,262 95,283
Loans held for sale 597 925 1,132 937 463
Loans 992,109 972,968 943,674 932,374 923,213
Less allowance for loan and lease losses 7,428 7,494 7,502 7,551 7,190
Net loans 984,681 965,474 936,172 924,823 916,023
Premises and equipment, net 13,003 13,002 12,978 12,225 11,853
Goodwill 15,071 15,071 15,071 15,071 15,071
Core deposit intangibles 2,397 2,484 2,571 2,658 2,749
Bank-owned life insurance 16,080 15,970 15,862 15,764 15,652
Other real estate owned 270 257 181 212 212
Accrued interest receivable and other assets 9,428 10,806 10,182 9,911 9,144
TOTAL ASSETS $ 1,248,398 $ 1,206,328 $ 1,166,079 $ 1,106,764 $ 1,106,336
 
December 31, September 30, June 30, March 31, December 31,
2018 2018 2018 2018 2017
LIABILITIES
Deposits:
Noninterest-bearing demand $ 178,386 $ 177,833 $ 180,073 $ 166,869 $ 164,424
Interest-bearing demand 117,128 124,089 119,834 123,993 112,004
Money market 196,685 191,261 137,572 149,359 150,277
Savings 222,954 224,704 204,408 221,851 208,502
Time 300,914 295,874 290,359 282,501 242,987
Total deposits 1,016,067 1,013,761 932,246 944,573 878,194
Short-term borrowings 90,398 55,304 87,833 18,671 74,707
Other borrowings 8,803 8,956 18,996 19,028 29,065
Accrued interest payable and other liabilities 4,840 4,074 4,288 4,340 4,507
TOTAL LIABILITIES 1,120,108 1,082,095 1,043,363 986,612 986,473
STOCKHOLDERS' EQUITY
Common equity 85,925 85,687 85,544 85,116 84,859
Retained earnings 56,037 53,520 51,121 48,927 47,431
Accumulated other comprehensive (loss) income (154) (1,456) (431) (373) 1,091
Treasury stock (13,518) (13,518) (13,518) (13,518) (13,518)
TOTAL STOCKHOLDERS' EQUITY 128,290 124,233 122,716 120,152 119,863
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,248,398 $ 1,206,328 $ 1,166,079 $ 1,106,764 $ 1,106,336
 
           
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
For the Three Months Ended For the Twelve Months Ended
December 31, September 30, June 30, March 31, December 31, December 31, December 31,
Statements of Income 2018   2018   2018   2018   2017 2018 2017
 
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 12,467 $ 11,821 $ 11,234 $ 11,054 $ 10,696 $ 46,576 $ 40,235
Interest-earning deposits in other institutions 146 178 115 119 80 558 328
Federal funds sold 17 8 7 14 6 46 15
Investment securities:
Taxable interest 182 167 170 169 162 688 762
Tax-exempt interest 589 598 550 525 560 2,262 2,406
Dividends on stock 58 57 53 59 60 227 249
Total interest and dividend income 13,459 12,829 12,129 11,940 11,564 50,357 43,995
INTEREST EXPENSE
Deposits 2,828 2,178 1,973 1,640 1,530 8,631 5,350
Short-term borrowings 78 296 192 276 101 842 753
Other borrowings 92 104 118 122 131 436 544
Total interest expense 2,998 2,578 2,283 2,038 1,762 9,909 6,647
 
NET INTEREST INCOME 10,461 10,251 9,846 9,902 9,802 40,448 37,348
 
Provision for loan losses 210 210 210 210 430 840 1,045
 
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,251 10,041 9,636 9,692 9,372 39,608 36,303
NONINTEREST INCOME
Service charges on deposit accounts 498 491 472 453 478 1,914 1,875
Investment securities gains on sale, net - - - - - - 886
(Loss) gain on equity securities (55) 15 13 18 - (9) -
Earnings on bank-owned life insurance 110 108 98 112 115 428 431
Gains on sale of loans 67 43 117 4 106 231 826
Other income 357 291 305 199 219 1,164 841
Total noninterest income 977 948 1,005 786 918 3,728 4,859
 
NONINTEREST EXPENSE
Salaries and employee benefits 4,065 3,839 3,866 3,979 3,134 15,749 13,758
Occupancy expense 465 460 472 536 449 1,933 1,846
Equipment expense 273 262 201 233 261 969 1,050
Data processing costs 446 481 402 477 416 1,806 1,792
Ohio state franchise tax 220 244 244 115 186 823 744
Federal deposit insurance expense 100 150 150 150 165 550 533
Professional fees 364 346 327 445 522 1,482 1,752
Advertising expense 227 236 230 228 161 921 821
Software amortization expense 145 155 155 150 134 605 414
Core deposit intangible amortization 87 87 87 91 98 352 374
Merger expense - - - - 28 - 1,060
Other expense 851 832 929 941 663 3,553 3,341
Total noninterest expense 7,243 7,092 7,063 7,345 6,217 28,743 27,485
 
Income before income taxes 3,985 3,897 3,578 3,133 4,073 14,593 13,677
Income taxes 560 593 481 528 1,687 2,162 4,222
 
NET INCOME $ 3,425 $ 3,304 $ 3,097 $ 2,605 $ 2,386 $ 12,431 $ 9,455
 
           
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands, except per share and share amounts)
 
For the Three Months Ended For the Twelve Months Ended
December 31, September 30, June 30, March 31, December 31, December 31, December 31,
2018 2018 2018 2018 2017 2018 2017
Per common share data
Net income per common share - basic $ 1.06 $ 1.02 $ 0.96 $ 0.81 $ 0.73 $ 3.85 $ 3.12
Net income per common share - diluted $ 1.05 $ 1.02 $ 0.96 $ 0.80 $ 0.73 $ 3.83 $ 3.10
Dividends declared per share $ 0.28 $ 0.28 $ 0.28 $ 0.33 $ 0.27 $ 1.17 $ 1.08
Book value per share (period end) $ 39.54 $ 38.38 $ 37.95 $ 37.28 $ 37.25 $ 39.54 $ 37.25
Tangible book value per share (period end) (2) (3) $ 34.16 $ 32.96 $ 32.49 $ 31.78 $ 31.71 $ 34.16 $ 31.71
Dividends declared $ 908 $ 905 $ 903 $ 1,063 $ 868 $ 3,779 $ 3,358
Dividend yield 2.62% 2.36% 2.21% 2.69% 2.24% 2.76% 2.24%
Dividend payout ratio 26.51% 27.39% 29.16% 40.81% 36.38% 30.40% 35.52%
Average shares outstanding - basic 3,239,180 3,234,393 3,225,726 3,220,262 3,215,300 3,229,954 3,028,950
Average shares outstanding - diluted 3,250,149 3,248,326 3,240,329 3,238,069 3,231,791 3,243,907 3,052,585
Period ending shares outstanding 3,244,332 3,236,689 3,233,678 3,222,984 3,217,716 3,244,332 3,217,716
 
Selected ratios
Return on average assets 1.15% 1.13% 1.11% 0.94% 0.86% 1.09% 0.88%
Return on average equity 10.52% 10.33% 10.08% 8.73% 7.72% 9.94% 8.52%
Return on average tangible common equity (2) (4) 12.17% 12.00% 11.77% 10.23% 9.05% 11.57% 10.15%
Efficiency (1) 61.61% 61.65% 63.43% 67.00% 55.58% 63.29% 62.40%
Equity to assets at period end 10.28% 10.30% 10.52% 10.86% 10.83% 10.28% 10.83%
 

(1)

 

The efficiency ratio is calculated by dividing non-interest
expense less amortization of intangibles by the sum of net
interest income on a fully taxable equivalent basis plus
non-interest income

(2)

See reconciliation of non-GAAP measures below

(3)

Calculated by dividing tangible common equity by shares outstanding

(4)

Calculated by dividing annualized net income for each period by
average tangible common equity

 
                         
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
 
For the Three Months Ended For the Twelve Months Ended
December 31, September 30, June 30, March 31, December 31, December 31, December 31,
2018 2018 2018 2018 2017 2018 2017
Yields
Interest-earning assets:
Loans receivable (2) 5.09% 4.89% 4.84% 4.82% 4.70% 4.91% 4.69%
Investment securities (2) 3.73% 3.67% 3.68% 3.61% 4.12% 3.67% 4.22%
Interest-earning deposits with other banks 2.08% 1.95% 1.72% 1.85% 1.42% 1.90% 1.26%
Total interest-earning assets 4.82% 4.65% 4.61% 4.57% 4.51% 4.68% 4.48%
Deposits:
Interest-bearing demand deposits 0.25% 0.30% 0.23% 0.21% 0.25% 0.23% 0.21%
Money market deposits 1.56% 0.99% 0.87% 0.82% 0.75% 1.11% 0.62%
Savings deposits 0.85% 0.68% 0.57% 0.47% 0.41% 0.65% 0.32%
Certificates of deposit 1.99% 1.84% 1.79% 1.65% 1.51% 1.83% 1.46%
Total interest-bearing deposits 1.34% 1.11% 1.03% 0.91% 0.84% 1.11% 0.76%
Non-Deposit Funding:
Borrowings 3.54% 2.30% 2.59% 1.67% 1.14% 2.20% 1.35%
Total interest-bearing liabilities 1.39% 1.21% 1.12% 1.00% 0.87% 1.18% 0.83%
Cost of deposits 1.09% 0.90% 0.84% 0.74% 0.68% 0.90% 0.62%
Cost of funds 1.14% 0.99% 0.92% 0.83% 0.72% 0.97% 0.70%
Net interest margin (1) 3.76% 3.72% 3.76% 3.82% 3.84% 3.77% 3.82%
 

(1)

 

Net interest margin represents net interest income as a percentage
of average interest-earning assets.

(2)

Tax-equivalent adjustments to calculate the yield on tax-exempt
securities and loans were determined using an effective tax rate
of 21% for the periods ended in 2018 and 34% for the periods ended
in 2017.

 
           
For the Three Months Ended
December 31, September 30, June 30, March 31, December 31,
End of Period Loan Balances 2018   2018   2018   2018   2017
Commercial and industrial $ 83,857 $ 93,144 $ 101,975 $ 99,809 $ 101,346
Real estate - construction 56,731 48,901 45,647 48,687 47,017
Real estate - mortgage:
Residential 336,487 329,609 320,858 316,856 318,157
Commercial 498,247 483,675 457,050 448,766 437,947
Consumer installment 16,787 17,639 18,144 18,256 18,746
Total $ 992,109 $ 972,968 $ 943,674 $ 932,374 $ 923,213
 
December 31, September 30,

June 30,

March 31, December 31,
Asset quality data 2018 2018 2018 2018 2017
(Dollar amounts in thousands)
Nonaccrual loans $ 6,595 $ 7,288 $ 8,357 $ 8,747 $ 8,433
Troubled debt restructuring 3,031 3,241 3,051 9,071 4,982
90 day past due and accruing 945 - 15 - -
Nonperforming loans 10,571 10,529 11,423 17,818 13,415
Other real estate owned 270 257 181 212 212
Nonperforming assets $ 10,841 $ 10,786 $ 11,604 $ 18,030 $ 13,627
 
Allowance for loan losses $ 7,428 $ 7,494 $ 7,502 $ 7,551 $ 7,190
Allowance for loan losses/total loans 0.75% 0.77% 0.79% 0.81% 0.78%
Net charge-offs (recoveries):
Quarter-to-date $ 276 $ 218 $ 259 $ (151) $ 92
Year-to-date 602 326 108 (151) 453
Net charge-offs to average loans, annualized:
Quarter-to-date 0.11% 0.09% 0.11% -0.06% 0.04%
Year-to-date 0.06% 0.05% 0.02% -0.06% 0.05%
 
Nonperforming loans/total loans 1.07% 1.08% 1.21% 1.91% 1.45%
Allowance for loan losses/nonperforming loans 70.27% 71.17% 65.67% 42.38% 53.60%
Nonperforming assets/total assets 0.87% 0.89% 1.00% 1.63% 1.23%
 
Reconciliation of Common Stockholders' Equity to Tangible Common
Equity
For the Three Months Ended For the Twelve Months Ended
(Dollar amounts in thousands) December 31, September 30, June 30, March 31, December 31, December 31, December 31,
  2018   2018   2018   2018   2017   2018   2017
 
Stockholders' Equity $ 128,290 $ 124,233 $ 122,716 $ 120,152 $ 119,863 $ 128,290 $ 119,863
Less Goodwill and other intangibles 17,468 17,555 17,642 17,729 17,820 17,468 17,820
Tangible Common Equity $ 110,822 $ 106,678 $ 105,074 $ 102,423 $ 102,043 $ 110,822 $ 102,043
 
Average Stockholders' Equity $ 129,208 $ 126,865 $ 123,228 $ 121,001 $ 122,586 $ 125,074 $ 110,966
Less Average Goodwill and other intangibles 17,510 17,597 17,683 17,773 17,987 17,641 17,818
Average Tangible Common Equity $ 111,698 $ 109,268 $ 105,545 $ 103,228 $ 104,599 $ 107,433 $ 93,148
 
 
Reconciliation of Average Equity to Return on Average Tangible
Common Equity
For the Three Months Ended
December 31, September 30, June 30, March 31, December 31,
  2018   2018   2018   2018   2017
Stockholders' Equity $ 128,290 $ 124,233 $ 122,716 $ 120,152 $ 119,863
Less Goodwill and other intangibles 17,468 17,555 17,642 17,729 17,820
Tangible Common Equity $ 110,822 $ 106,678 $ 105,074 $ 102,423 $ 102,043
Shares outstanding 3,244,332 3,236,689 3,233,678 3,222,984 3,217,716
Tangible book value per share $ 34.16 $ 32.96 $ 32.49 $ 31.78 $ 31.71
 

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