Middlefield Banc Corp. Reports 2019 First Quarter Financial Results

Middlefield Banc Corp. MBCN today reported financial results for the 2019 first quarter ended March 31, 2019.

2019 First Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• Net income increased 15.6% to a first quarter record of $3.0 million
• Earnings per diluted share increased 15.0% to a first quarter record of $0.92 per share
• Return on average equity increased 63 basis points to 9.36%
• Return on average tangible common equity⁽¹⁾ increased 57 basis points to 10.80%
• Total loans up 7.7% to a record $1.0 billion, and were up 5.1% (annualized) from the 2018 fourth quarter
• Net interest income improved 3.5% to $10.3 million
• Noninterest income up 41.2% to $1.1 million
• Noninterest expenses up only 2.1%

"The solid start to 2019 demonstrates strong momentum in our business and favorable economic trends throughout both our Central and Northeast Ohio markets," stated Thomas G. Caldwell, President and Chief Executive Officer. "We achieved record first quarter financial results including loans, assets, and earnings and I am pleased with the 41.2% increase in noninterest income during the quarter. Diversifying our income streams is an important focus in 2019 and we expect further growth throughout the year as we implement strategies to improve noninterest income."

Mr. Caldwell continued, "I am encouraged by our potential as we increase our scale, leverage our fixed costs, and drive profitable growth in 2019 and beyond. Middlefield's Board of Directors recently approved a 150,000 share buyback, which reflects our optimism and dedication to return value to shareholders."

Income Statement

Net interest income for the 2019 first quarter was $10.3 million, compared to $9.9 million for the 2018 first quarter. The 3.5% increase in net interest income for the 2019 first quarter was primarily a result of a 13.2% increase in interest and fees on loans. The net interest margin for the 2019 first quarter was 3.70%, compared to 3.82% for the same period of 2018. The yield on earning assets increased 28 basis points to 4.85% for the quarter ended March 31, 2019, from 4.57% for the quarter ended March 31, 2018. The cost of interest-bearing liabilities increased 49 basis points to 1.52% for the quarter ended March 31, 2019, from 1.03% for the quarter ended March 31, 2018.

Noninterest income for the 2019 first quarter was $1.1 million, compared to $0.8 million for the same period last year. The 41.2% increase in noninterest income was primarily due to higher investment services and recoveries on purchased student loans.

Noninterest expense for the 2019 first quarter was $7.5 million, a 2.1% increase from the 2018 first quarter. Salaries and benefits expense increased $145,000, or 3.6%, during the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018, primarily as a result of increased staffing during the past twelve months, including executive management and new branch personnel.

"Asset quality remains stable as a result of conservative underwriting standards, balanced portfolio composition, and steady economic trends in both of our Ohio markets," said Donald L. Stacy, Chief Financial Officer. "Asset quality was negatively affected by one large credit of $3.2 million in the Central Ohio market. The issue is isolated to this particular borrower and it is not indicative of a trend in the market, portfolio or an issue in underwriting. Aside from this issue, the asset quality trends of the portfolio continue to improve and the bank has provided sufficient dollars to cover any potential loss with this credit. In addition, we remain focused on attracting new deposits, and total deposits increased 10.1% over the prior year period and 9.6% annualized over the past three months. Our loans to deposits ratio was 95.9% at March 31, 2019, compared to 97.9% at March 31, 2018. While our deposit beta has increased over the past 12 months, we believe we are reaching a period of stabilization in our net interest margin over the coming quarters."

Balance Sheet

Total assets at March 31, 2019, increased 15.7% to a record $1.28 billion, compared to March 31, 2018. The Company adopted ASC 842 on January 1, 2019. As a result, for the 2019 first quarter premises and equipment, net, was $15.7 million, an increase of $2.7 million or 21.1%, compared to the 2018 fourth quarter. Similarly, accrued interest receivable and other assets was $13.3 million, an increase of $3.6 million or 37.0%, compared to the 2018 fourth quarter.

Net loans at March 31, 2019, increased 7.8% to $997.3 million, compared to $924.8 million at March 31, 2018. The year-over-year improvement in net loans was primarily a result of a 12.4% increase in commercial mortgage loans, a 7.5% increase in residential mortgage loans, a 19.2% increase in real estate construction loans, offset by a 12.7% decline in consumer installment loans and a 14.1% decline in commercial and industrial loans.

Total deposits at March 31, 2019, was $1.04 billion, compared to $944.6 million at March 31, 2018. The 10.1% increase in deposits was primarily a result of higher time and money market deposits. The investment portfolio, classified as available for sale, was $98.1 million at March 31, 2019, compared with $91.3 million at March 31, 2018.

Stockholders' Equity and Dividends

At the end of the 2019 first quarter, stockholders' equity increased 9.6% to $131.7 million compared to $120.2 million at March 31, 2018. On a per share basis, shareholders' equity at March 31, 2019, was $40.44 compared to $37.28, an increase of 8.5%, over the same period last year.

Tangible stockholders' equity⁽¹⁾ increased 11.6% to $114.3 million for the 2019 first quarter, compared to $102.4 million at March 31, 2018. On a per-share basis, tangible stockholders' equity⁽¹⁾ was $35.11 at March 31, 2019, compared to $31.78, an increase of 10.5%, at March 31, 2018.

During the 2019 first quarter, the Company paid cash dividends of $0.28 per share, which represented a payout ratio of 30.2%.

At March 31, 2019, the Company had an equity to assets leverage ratio of 10.28%, compared to 10.86% at March 31, 2018.

Asset Quality

The provision for loan losses was $240,000 for the 2019 first quarter, compared to $210,000 for the same period a year ago. Nonperforming assets at March 31, 2019, were $10.6 million, compared to $9.0 million at March 31, 2018. Net charge-offs were $462,000, or 0.19% of average loans, annualized, during the 2019 first quarter, compared to net recoveries of $151,000, or 0.06% of average loans, annualized, at March 31, 2018. The allowance for loan losses at March 31, 2019, stood at $7.2 million, or 0.72% of total loans, compared to $7.6 million or 0.81% of total loans at March 31, 2018.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is the bank holding company of The Middlefield Banking Company with total assets of $1.28 billion at March 31, 2019. 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.

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