Middlefield Banc Corp. : Reports 2019 First Half Financial Results

Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the 2019 first half and second quarter ended June 30, 2019.

2019 First Half Financial Highlights versus 2018 First Half (unless noted):

• Net income increased 10.5% to $6.3 million
• Earnings per diluted share increased 9.7% to $1.93 per share
• Return on average equity increased 16 basis points to 9.58%
• Return on average tangible common equity(1) was 11.02%, in line with the prior year
• Book value per share was up 9.1% to $41.41 per share
• Tangible book value(1) per share was up 11.0% to $36.07 per share
• Total loans increased 5.8% to $998.2 million
• Total interest income improved 13.2% to $27.2 million

“Our second quarter financial results demonstrate the strength of our financial model as earnings per diluted share increased 5.2% from the same period a year ago to a second quarter record of $1.01 per diluted share, while our year-to-date tangible book value increased 11.0% to a record $36.07 per share,” stated Thomas G. Caldwell, President and Chief Executive Officer. “This is the first quarter in 12 quarters where our total loan portfolio contracted. While the local economies in our Central and Northeast Ohio markets remain stable, we believe businesses and consumers have become more cautious resulting in slower investments and a reduction in borrowings. We continue to focus on proactively managing risk, growing market share, and driving improvements in profitability and our second quarter and first half financial results reflect the continued successful execution of our profit focused strategic plan.”

“In addition, I am pleased with the progress we are making to diversify our income streams and grow noninterest income. Noninterest income increased 32.6% for the six months ended June 30, 2019, compared with the same period last year. We expect further improvements in noninterest income throughout the year as additional strategies are implemented.”

Income Statement

For the 2019 first half, net interest income increased 4.0% to $20.5 million, compared to $19.7 million for the same period last year. Year-to-date, the net interest margin was 3.67%, compared to 3.78% for the same period last year. Net interest income for the 2019 second quarter was $10.3 million, compared to $9.8 million for the 2018 second quarter. The 4.8% increase in net interest income for the 2019 second quarter was largely a result of a 13.5% increase in interest and fees on loans due to both an increase in the average balance of loans and an increase in the yield on loans. The net interest margin for the 2019 second quarter was 3.65%, compared to 3.74% for the same period of 2018.

For the 2019 first half, noninterest income was $2.4 million, compared to $1.8 million for the same period last year. Noninterest income for the 2019 second quarter was $1.3 million, compared to $1.0 million for the same period last year.

For the 2019 first half, noninterest expense increased 4.0% to $15.0 million, compared to $14.4 million for the same period last year. Operating costs in the 2019 second quarter increased 5.9% to $7.5 million from $7.1 million for the 2018 second quarter.

“Low quarterly charge-offs demonstrates continued strength in asset quality as a result of conservative underwriting and pricing standards, balanced portfolio composition, and stable economic trends in both of our Ohio markets,” said Donald L. Stacy, Chief Financial Officer. “While we have seen competition increase for both loans and deposits, we remain focused on managing risk and pricing on loans, while prudently managing our funding costs on deposits. Our loans to deposits ratio was 94.9% at June 30, 2019, compared to a 101.2% June 30, 2018, while our equity to assets increased 14 basis points over the past three months to 10.42%. Our strong asset quality, ample liquidity, and compelling capitalization provides us with the flexibility to pursue our growth opportunities, while supporting our business through various economic cycles.”

Balance Sheet

Total assets at June 30, 2019, increased 10.5% to approximately $1.29 billion from $1.17 billion at June 30, 2018.

Net loans at June 30, 2019, were $990.9 million, compared to $936.2 million at June 30, 2018, and $984.7 million at December 31, 2018. The 5.8% year-over-year improvement in net loans was primarily a result of an 8.6% increase in commercial mortgage loans, a 7.8% increase in residential mortgage loans, a 19.7% increase in real estate construction loans, partially offset by a 12.0% decline in consumer installment loans and a 16.1% decline in commercial and industrial loans.

Total deposits at June 30, 2019, was $1.05 billion, compared to $932.2 million at June 30, 2018. The 12.8% increase in deposits was a result of higher money market and time deposits, offset by lower noninterest-bearing demand deposits. The investment portfolio, which is entirely classified as available for sale, was $98.8 million June 30, 2019, compared with $100.0 million at June 30, 2018.

Stockholders’ Equity and Dividends

At the end of the 2019 second quarter, shareholders’ equity increased 9.4% to $134.3 million compared to $122.7 million at June 30, 2018. On a per share basis, shareholders’ equity at June 30, 2019, was $41.41 compared to $37.95 at the same period last year. Tangible stockholders’ equity⁽¹⁾ increased 11.3% to $117.0 million for the 2019 second quarter, compared to $105.1 million at June 30, 2018. On a per-share basis, tangible stockholders’ equity⁽¹⁾ was $36.07 at June 30, 2019, compared to $32.49 at June 30, 2018.

Through the first six months of 2019, the company declared cash dividends of $0.56 per share, compared to $0.61 per share for the same period last year. The dividend payout ratio for the 2019 six-month period was 28.9% compared to 34.5% for the same period last year.

At June 30, 2019, the company had an equity to assets leverage ratio of 10.42%, compared to 10.52% at June 30, 2018.

Asset Quality

The provision for loan losses for the 2019 second quarter was $110,000 versus $210,000 for the same period last year. Nonperforming assets at June 30, 2019, were $10.8 million, compared to $8.6 million at June 30, 2018. Net charge-offs for the 2019 second quarter were $12,000, or 0.00% of average loans, annualized, compared to $259,000, or 0.11% of average loans, annualized at June 30, 2018.

Underwriting standards are being maintained in the face of competitive pressures and potential problem credits are being proactively addressed resulting in some exits that has enhanced the overall health of the loan portfolio.

Year-to-date net charge-offs were $474,000, or 0.10% of average loans, annualized compared to $108,000, or 0.02% of average loans, annualized for the same period last year. The allowance for loan losses at June 30, 2019, stood at $7.3 million, or 0.73% of total loans, compared to $7.5 million or 0.79% of total loans at June 30, 2018.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is the bank holding company of The Middlefield Banking Company with total assets of $1.29 billion at June 30, 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.

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
		June 30,					March 31,					December 31,					September 30,					June 30,
Balance Sheets (period end)		2019					2019					2018					2018					2018
ASSETS
Cash and due from banks		$		133,372			$		121,045			$		107,933			$		81,951			$		42,451
Federal funds sold				2,010					-					-					-					28,795
Cash and cash equivalents				135,382					121,045					107,933					81,951					71,246
Equity securities, at fair value				660					674					616					671					656
Investment securities available for sale, at fair value				98,809					98,114					98,322					99,717					100,028
Loans held for sale				431					1,230					597					925					1,132
Loans				998,232					1,004,484					992,109					972,968					943,674
Less allowance for loan and lease losses				7,304					7,206					7,428					7,494					7,502
Net loans				990,928					997,278					984,681					965,474					936,172
Premises and equipment, net				16,788					15,741					13,003					13,002					12,978
Goodwill				15,071					15,071					15,071					15,071					15,071
Core deposit intangibles				2,227					2,312					2,397					2,484					2,571
Bank-owned life insurance				16,294					16,185					16,080					15,970					15,862
Accrued interest receivable and other assets				11,832					13,285					9,698					11,063					10,363
TOTAL ASSETS		$		1,288,422			$		1,280,935			$		1,248,398			$		1,206,328			$		1,166,079
		June 30,					March 31,					December 31,					September 30,					June 30,
		2019					2019					2018					2018					2018
LIABILITIES
Deposits:
Noninterest-bearing demand		$		198,817			$		194,298			$		203,410			$		202,580			$		205,192
Interest-bearing demand				94,266					107,246					92,104					99,342					94,715
Money market				152,885					178,668					196,685					191,261					137,572
Savings				194,505					184,662					222,954					224,704					204,408
Time				411,034					375,357					300,914					295,874					290,359
Total deposits				1,051,507					1,040,231					1,016,067					1,013,761					932,246
Short-term borrowings				85,000					91,000					90,398					55,304					87,833
Other borrowings				12,449					11,518					8,803					8,956					18,996
Accrued interest payable and other liabilities				5,206					6,487					4,840					4,074					4,288
TOTAL LIABILITIES				1,154,162					1,149,236					1,120,108					1,082,095					1,043,363
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 3,646,497 shares issued, 3,242,585 shares outstanding as of June 30, 2019				86,590					86,437					85,925					85,687					85,544
Retained earnings				60,517					58,139					56,037					53,520					51,121
Accumulated other comprehensive income (loss)				1,377					641					(154	)				(1,456	)				(431	)
Treasury stock, at cost; 403,912 shares as of June 30, 2019				(14,224	)				(13,518	)				(13,518	)				(13,518	)				(13,518	)
TOTAL STOCKHOLDERS' EQUITY				134,260					131,699					128,290					124,233					122,716
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$		1,288,422			$		1,280,935			$		1,248,398			$		1,206,328			$		1,166,079

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
		For the Three Months Ended										For the Six Months Ended
		June 30,		March 31,		December 31,		September 30,		June 30,		June 30,		June 30,
Statements of Income		2019		2019		2018		2018		2018		2019		2018
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	12,706	$	12,488	$	12,467	$	11,821	$	11,197	$	25,194	$	22,251
Interest-earning deposits in other institutions		169		187		146		178		115		356		234
Federal funds sold		25		7		17		8		7		32		21
Investment securities:
Taxable interest		214		179		182		167		170		393		339
Tax-exempt interest		553		565		589		598		550		1,118		1,075
Dividends on stock		53		58		58		57		53		111		112
Total interest and dividend income		13,720		13,484		13,459		12,829		12,092		27,204		24,032
INTEREST EXPENSE
Deposits		3,277		2,945		2,828		2,178		1,979		6,222		3,619
Short-term borrowings		79		213		78		296		192		292		468
Other borrowings		95		96		92		104		118		191		240
Total interest expense		3,451		3,254		2,998		2,578		2,289		6,705		4,327
NET INTEREST INCOME		10,269		10,230		10,461		10,251		9,803		20,499		19,705
Provision for loan losses		110		240		210		210		210		350		420
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES NONINTEREST INCOME		10,159		9,990		10,251		10,041		9,593		20,149		19,285
Service charges on deposit accounts		530		508		498		491		472		1,038		925
Investment securities gains on sale, net		190		-		-		-		-		190		-
Gain (loss) on equity securities		(14)		58		(55)		15		13		44		31
Earnings on bank-owned life insurance		109		105		110		108		98		214		210
Gains on sale of loans		98		59		67		43		154		157		158
Other income		386		402		357		291		311		788		510
Total noninterest income		1,299		1,132		977		948		1,048		2,431		1,834
NONINTEREST EXPENSE
Salaries and employee benefits		4,078		4,124		4,065		3,839		3,866		8,202		7,845
Occupancy expense		496		553		465		460		472		1,049		1,008
Equipment expense		291		235		273		262		201		526		434
Data processing costs		549		465		446		481		402		1,014		879
Ohio state franchise tax		261		259		220		244		244		520		359
Federal deposit insurance expense		100		130		100		150		150		230		300
Professional fees		403		431		364		346		327		834		772
Advertising expense		200		203		227		236		230		403		458
Software amortization expense		152		145		145		155		155		297		305
Core deposit intangible amortization		85		85		87		87		87		170		178
Other expense		867		870		851		832		929		1,737		1,870
Total noninterest expense		7,482		7,500		7,243		7,092		7,063		14,982		14,408
Income before income taxes		3,976		3,622		3,985		3,897		3,578		7,598		6,711
Income taxes		686		611		560		593		481		1,297		1,009
NET INCOME	$	3,290	$	3,011	$	3,425	$	3,304	$	3,097	$	6,301	$	5,702

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands, except per share and share amounts)
	For the Three Months Ended																									For the Six Months Ended
	June 30,					March 31,					December 31,					September 30,					June 30,					June 30,					June 30,
	2019					2019					2018					2018					2018					2019					2018
Per common share data
Net income per common share - basic	$		1.01			$		0.93			$		1.06			$		1.02			$		0.96			$		1.94			$		1.77
Net income per common share - diluted	$		1.01			$		0.92			$		1.05			$		1.02			$		0.96			$		1.93			$		1.76
Dividends declared per share	$		0.28			$		0.28			$		0.28			$		0.28			$		0.28			$		0.56			$		0.61
Book value per share (period end)	$		41.41			$		40.44			$		39.54			$		38.38			$		37.95			$		41.41			$		37.95
Tangible book value per share (period end) (2) (3)	$		36.07			$		35.11			$		34.16			$		32.96			$		32.49			$		36.07			$		32.49
Dividends declared	$		912			$		909			$		908			$		905			$		903			$		1,821			$		1,966
Dividend yield			2.74	%				2.76	%				2.62	%				2.36	%				2.21	%				2.75	%				2.43	%
Dividend payout ratio			27.72	%				30.19	%				26.51	%				27.39	%				29.16	%				28.90	%				34.48	%
Average shares outstanding - basic			3,251,254					3,249,139					3,239,180					3,234,393					3,225,726					3,250,203					3,223,009
Average shares outstanding -diluted			3,257,473					3,255,284					3,250,149					3,248,326					3,240,329					3,256,525					3,238,236
Period ending shares outstanding			3,242,585					3,256,370					3,244,332					3,236,689					3,233,678					3,242,585					3,233,678
Selected ratios
Return on average assets			1.09	%				1.01	%				1.15	%				1.13	%				1.11	%				1.05	%				1.03	%
Return on average equity			9.79	%				9.36	%				10.52	%				10.33	%				10.08	%				9.58	%				9.42	%
Return on average tangible common equity (2) (4)			11.23	%				10.80	%				12.17	%				12.00	%				11.77	%				11.02	%				11.02	%
Efficiency (1)			63.03	%				64.30	%				61.60	%				61.65	%				63.43	%				63.66	%				65.20	%
Equity to assets at period end			10.42	%				10.28	%				10.28	%				10.30	%				10.52	%				10.42	%				10.52	%
Noninterest expense to average assets			0.62	%				0.62	%				0.62	%				0.61	%				0.63	%				1.24	%				1.29	%

(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 Six Months Ended
		June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
		2019			2019			2018			2018			2018			2019			2018
Yields
Interest-earning assets:
Loans receivable (2)		5.08	%		5.07	%		5.09	%		4.89	%		4.82	%		5.07	%		4.82	%
Investment securities (2)		3.79	%		3.80	%		3.73	%		3.67	%		3.68	%		3.80	%		3.64	%
Interest-earning deposits with other banks		2.21	%		2.26	%		2.08	%		1.95	%		1.72	%		2.24	%		1.78	%
Total interest-earning assets		4.86	%		4.85	%		4.82	%		4.65	%		4.60	%		4.85	%		4.60	%
Deposits:
Interest-bearing demand deposits		0.36	%		0.30	%		0.31	%		0.30	%		0.30	%		0.33	%		0.28	%
Money market deposits		1.40	%		1.58	%		1.56	%		0.99	%		0.88	%		1.50	%		0.85	%
Savings deposits		0.69	%		0.81	%		0.85	%		0.68	%		0.57	%		0.75	%		0.54	%
Certificates of deposit		2.35	%		2.15	%		1.99	%		1.84	%		1.79	%		2.27	%		1.72	%
Total interest-bearing deposits		1.56	%		1.46	%		1.38	%		1.14	%		1.07	%		1.51	%		1.01	%
Non-Deposit Funding:
Borrowings		2.70	%		2.57	%		3.54	%		2.30	%		2.59	%		2.57	%		1.97	%
Total interest-bearing liabilities		1.59	%		1.52	%		1.43	%		1.23	%		1.16	%		1.56	%		1.09	%
Cost of deposits		1.26	%		1.17	%		1.09	%		0.89	%		0.84	%		1.22	%		0.79	%
Cost of funds (3)		1.29	%		1.24	%		1.14	%		0.98	%		0.92	%		1.27	%		0.88	%
Net interest margin (1)		3.65	%		3.70	%		3.76	%		3.72	%		3.74	%		3.67	%		3.78	%

(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%.

(3) Includes non-interest bearing funding sources in the denominator.

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands, except per share and share amounts)
		For the Three Months Ended
		June 30,			March 31,			December 31,			September 30,			June 30,
End of Period Loan Balances		2019			2019			2018			2018			2018
(Dollar amounts in thousands)
Commercial and industrial	$	85,520		$	85,756		$	83,857		$	93,144		$	101,975
Real estate - construction		54,619			58,019			56,731			48,901			45,647
Real estate - mortgage:
Residential		345,830			340,483			336,487			329,609			320,858
Commercial		496,300			504,289			498,247			483,675			457,050
Consumer installment		15,963			15,937			16,787			17,639			18,144
Total	$	998,232		$	1,004,484		$	992,109		$	972,968		$	943,674
		June 30,			March 31,			December 31,			September 30,			June 30,
Asset quality data		2019			2019			2018			2018			2018
(Dollar amounts in thousands)
Non-accrual loans	$	10,671		$	10,472		$	6,595		$	7,288		$	8,357
90 day past due and accruing		58			-			945			-			15
Non-performing loans (4)		10,729			10,472			7,540			7,288			8,372
Other real estate owned		89			126			270			257			181
Non-performing assets	$	10,818		$	10,598		$	7,810		$	7,545		$	8,553
Allowance for loan losses	$	7,304		$	7,206		$	7,428		$	7,494		$	7,502
Allowance for loan losses/total loans		0.73%			0.72%			0.75%			0.77%			0.79%
Net charge-offs:
Quarter-to-date	$	12		$	462		$	276		$	218		$	259
Year-to-date		474			462			602			326			108
Net charge-offs to average loans, annualized:
Quarter-to-date		0.00%			0.19%			0.11%			0.09%			0.11%
Year-to-date		0.10%			0.19%			0.06%			0.05%			0.02%
Nonperforming loans/total loans		1.07%			1.04%			0.76%			0.75%			0.89%
Allowance for loan losses/nonperforming loans		68.08%			68.81%			98.51%			102.83%			89.61%
Nonperforming assets/total assets		0.84%			0.83%			0.63%			0.63%			0.73%

(4) Non-performing loans exclude troubled debt restructurings that are performing in accordance with their terms over a prescribed period of time.

Reconciliation of Common Stockholders' Equity to Tangible Common Equity		For the Three Months Ended															For the Six Months Ended
(Dollar amounts in thousands)		June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
		2019			2019			2018			2018			2018			2019			2018
Stockholders' Equity	$	134,260		$	131,699		$	128,290		$	124,233		$	122,716		$	134,260		$	122,716
Less Goodwill and other intangibles		17,298			17,383			17,468			17,555			17,642			17,298			17,642
Tangible Common Equity	$	116,962		$	114,316		$	110,822		$	106,678		$	105,074		$	116,962		$	105,074
Shares outstanding		3,242,585			3,256,370			3,244,332			3,236,689			3,233,678			3,242,585			3,233,678
Tangible book value per share	$	36.07		$	35.11		$	34.16		$	32.96		$	32.49		$	36.07		$	32.49
Reconciliation of Average Equity to Return on Average Tangible Common Equity		For the Three Months Ended															For the Six Months Ended
		June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
		2019			2019			2018			2018			2018			2019			2018
Average Stockholders' Equity	$	134,836		$	130,450		$	129,208		$	126,865		$	123,228		$	132,643		$	122,115
Less Average Goodwill and other intangibles		17,339			17,422			17,510			17,597			17,683			17,381			17,728
Average Tangible Common Equity	$	117,497		$	113,028		$	111,698		$	109,268		$	105,545		$	115,262		$	104,387
Net income	$	3,290			3,011			3,425			3,304			3,097			6,301			5,702
Return on average tangible common equity (annualized)		11.23%			10.80%			12.17%			12.00%			11.77%			11.02%			11.02%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190719005170/en/