Middlefield Banc Corp. Reports 2018 First Half Financial Results

MIDDLEFIELD, Ohio--()--Middlefield Banc Corp. (NASDAQ: 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.

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) 2018 2018 2017 2017 2017
ASSETS
Cash and due from banks $ 42,451 $ 33,258 $ 39,886 $ 47,731 $ 37,971
Federal funds sold 28,795   -   -   1,200   1,600  
Cash and cash equivalents 71,246 33,258 39,886 48,931 39,571
Equity securities, at fair value 656 643 - - -
Investment securities available for sale, at fair value 100,028 91,262 95,283 98,334 104,951
Loans held for sale 1,132 937 463 5,930 9,791
Loans 943,674 932,374 923,213 878,541 867,864
Less allowance for loan and lease losses 7,502   7,551   7,190   6,852   6,605  
Net loans 936,172 924,823 916,023 871,689 861,259
Premises and equipment, net 12,978 12,225 11,853 11,768 11,511
Goodwill 15,071 15,071 15,071 15,299 15,435
Core deposit intangibles 2,571 2,658 2,749 2,848 2,948
Bank-owned life insurance 15,862 15,764 15,652 15,542 15,432
Other real estate owned 181 212 212 557 650
Accrued interest receivable and other assets 10,182   9,911   9,144   9,928   9,528  
TOTAL ASSETS $ 1,166,079   $ 1,106,764   $ 1,106,336   $ 1,080,826   $ 1,071,076  
 
June 30, March 31, December 31, September 30, June 30,
2018 2018 2017 2017 2017
LIABILITIES
Deposits:
Noninterest-bearing demand $ 207,791 $ 194,203 $ 192,438 $ 181,550 $ 172,199
Interest-bearing demand 92,116 96,659 83,990 91,184 87,084
Money market 137,572 149,359 150,277 161,101 160,858
Savings 204,408 221,851 208,502 212,371 181,259
Time 290,359   282,501   242,987   251,449   245,383  
Total deposits 932,246 944,573 878,194 897,655 846,783
Short-term borrowings 87,833 18,671 74,707 20,274 63,388
Other borrowings 18,996 19,028 29,065 39,273 39,346
Accrued interest payable and other liabilities 4,288   4,340   4,507   5,130   4,357  
TOTAL LIABILITIES 1,043,363   986,612   986,473   962,332   953,874  
STOCKHOLDERS' EQUITY
Common equity 85,544 85,116 84,859 84,722 84,587
Retained earnings 51,121 48,927 47,431 45,913 44,318
Accumulated other comprehensive (loss) income (431 ) (373 ) 1,091 1,377 1,815
Treasury stock (13,518 ) (13,518 ) (13,518 ) (13,518 ) (13,518 )
TOTAL STOCKHOLDERS' EQUITY 122,716   120,152   119,863   118,494   117,202  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,166,079   $ 1,106,764   $ 1,106,336   $ 1,080,826   $ 1,071,076  
 
 
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 2018 2018 2017 2017 2017 2018 2017
 
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 11,234 $ 11,054 $ 10,696 $ 10,443 $ 9,916 $ 22,288 $ 19,096
Interest-bearing deposits in other institutions 115 119 80 107 92 234 141
Federal funds sold 7 14 6 5 1 21 4
Investment securities:
Taxable interest 170 169 162 159 223 339 441
Tax-exempt interest 550 525 560 579 630 1,075 1,267
Dividends on stock 53 59 60 37 40 112 152
Total interest and dividend income 12,129 11,940 11,564 11,330 10,902 24,069 21,101
INTEREST EXPENSE
Deposits 1,973 1,640 1,530 1,468 1,227 3,613 2,352
Short-term borrowings 192 276 101 202 273 468 450
Other borrowings 118 122 131 148 125 240 265
Total interest expense 2,283 2,038 1,762 1,818 1,625 4,321 3,067
 
NET INTEREST INCOME 9,846 9,902 9,802 9,512 9,277 19,748 18,034
 
Provision for loan losses 210 210 430 280 170 420 335
 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

9,636 9,692 9,372 9,232 9,107 19,328 17,699
NONINTEREST INCOME
Service charges on deposit accounts 472 453 478 479 449 925 918
Investment securities gains on sale, net - - - 398 - - 488
Gain on equity securities 13 18 - - - 31 -
Earnings on bank-owned life insurance 98 112 115 109 98 210 207
Gains on sale of loans 117 4 106 255 231 121 465
Other income 305 199 219 200 211 504 422
Total noninterest income 1,005 786 918 1,441 989 1,791 2,500
 
NONINTEREST EXPENSE
Salaries and employee benefits 3,866 3,979 3,134 3,725 3,203 7,845 6,899
Occupancy expense 472 536 449 476 433 1,008 921
Equipment expense 201 233 261 242 266 434 547
Data processing costs 402 477 416 468 588 879 908
Ohio state franchise tax 244 115 186 186 186 359 372
Federal deposit insurance expense 150 150 165 165 135 300 203
Professional fees 327 445 522 434 423 772 796
Advertising expense 230 228 161 248 164 458 412
Software amortization expense 155 150 134 118 80 305 162
Core deposit intangible amortization 87 91 98 101 103 178 175
Merger expense - - 28 338 307 - 694
Other expense 929 941 663 796 816 1,870 1,882
Total noninterest expense 7,063 7,345 6,217 7,297 6,704 14,408 13,971
 
Income before income taxes 3,578 3,133 4,073 3,376 3,392 6,711 6,228
Income taxes 481 528 1,687 914 885 1,009 1,621
 
NET INCOME $ 3,097 $ 2,605 $ 2,386 $ 2,462 $ 2,507 $ 5,702 $ 4,607
 
             
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,
2018 2018 2017 2017 2017 2018 2017
Per common share data
Net income per common share - basic $ 0.96 $ 0.81 $ 0.73 $ 0.77 $ 0.84 $ 1.77 $ 1.62
Net income per common share - diluted $ 0.96 $ 0.80 $ 0.73 $ 0.76 $ 0.83 $ 1.76 $ 1.61
Dividends declared per share $ 0.28 $ 0.33 $ 0.27 $ 0.27 $ 0.27 $ 0.61 $ 0.54
Book value per share (period end) $ 37.95 $ 37.28 $ 37.25 $ 36.86 $ 36.49 $ 37.95 $ 36.49
Tangible book value per share (period end) (2) (3) $ 32.49 $ 31.78 $ 31.71 $ 31.21 $ 30.77 $ 32.49 $ 30.77
Dividends declared $ 903 $ 1,063 $ 868 $ 867 $ 867 $ 1,966 $ 1,623
Dividend yield 2.21% 2.69% 2.24% 2.34% 2.14% 2.43% 2.16%
Dividend payout ratio 29.16% 40.81% 36.38% 35.22% 34.58% 34.48% 35.23%
Average shares outstanding - basic 3,225,726 3,220,262 3,215,300 3,212,335 3,000,451 3,223,009 2,841,019
Average shares outstanding - diluted 3,240,329 3,238,069 3,231,791 3,223,753 3,014,140 3,238,236 2,854,158
Period ending shares outstanding 3,233,678 3,222,984 3,217,716 3,214,737 3,211,748 3,233,678 3,211,748
 
Selected ratios
Return on average assets 1.11% 0.94% 0.86% 0.90% 0.94% 1.03% 0.89%
Return on average equity 10.08% 8.73% 7.72% 8.12% 9.34% 9.42% 9.05%
Return on average tangible common equity (2) (4) 11.77% 10.23% 9.05% 9.57% 11.30% 11.02% 10.91%
Yield on earning assets 4.61% 4.57% 4.51% 4.52% 4.45% 4.60% 4.45%
Cost of interest bearing liabilities 1.16% 1.03% 0.89% 0.92% 0.83% 1.10% 0.80%
Net interest spread 3.45% 3.54% 3.62% 3.60% 3.62% 3.50% 3.65%
Net interest margin 3.76% 3.82% 3.84% 3.81% 3.80% 3.79% 3.82%
Efficiency (1) 63.43% 67.00% 55.58% 63.96% 63.30% 65.20% 65.94%
Equity to assets at period end 10.52% 10.86% 10.83% 10.96% 10.94% 10.52% 10.94%
 

(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

     
For the Three Months Ended
June 30,   March 31,   December 31, September 30, June 30,
End of Period Loan Balances 2018 2018 2017 2017 2017
Commercial and industrial $ 101,975 $ 99,809 $ 101,346 $ 99,314 $ 97,160
Real estate - construction 45,647 48,687 47,017 40,760 35,571
Real estate - mortgage:
Residential 320,858 316,856 318,157 316,191 308,519
Commercial 457,050 448,766 437,947 403,135 406,670
Consumer installment 18,144 18,256 18,746 19,141 19,944
Total $ 943,674 $ 932,374 $ 923,213 $ 878,541 $ 867,864
 
June 30, March 31, December 31, September 30, June 30,
Asset quality data 2018 2018 2017 2017 2017
(Dollar amounts in thousands)
Non-accrual loans $ 8,357 $ 8,747 $ 8,433 $ 8,525 $ 10,213
Troubled debt restructuring 3,051 9,071 4,982 5,608 5,990
90 day past due and accruing 15 - - 268 199
Nonperforming loans 11,423 17,818 13,415 14,401 16,402
Other real estate owned 181 212 212 557 650
Nonperforming assets $ 11,604 $ 18,030 $ 13,627 $ 14,958 $ 17,052
 
Allowance for loan losses $ 7,502 $ 7,551 $ 7,190 $ 6,852 $ 6,605
Allowance for loan losses/total loans 0.79% 0.81% 0.78% 0.78% 0.76%
Net charge-offs (recoveries):
Quarter-to-date $ 259 $ (151) $ 92 $ 33 $ 285
Year-to-date 108 (151) 453 361 328
Net charge-offs (recoveries) to average loans, annualized:
Quarter-to-date 0.11% (-0.06)% 0.04% 0.02% 0.13%
Year-to-date 0.02% (-0.06)% 0.05% 0.06% 0.08%
 
Nonperforming loans/total loans 1.21% 1.91% 1.45% 1.64% 1.89%
Allowance for loan losses/nonperforming loans 65.67% 42.38% 53.60% 47.58% 40.27%
Nonperforming assets/total assets 1.00% 1.63% 1.23% 1.38% 1.59%
 
       
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,
2018 2018 2017 2017 2017 2018 2017
 
Stockholders' Equity $ 122,716 $ 120,152 $ 119,863 $ 118,494 $ 117,202 $ 122,716 $ 117,202
Less Goodwill and other intangibles 17,642 17,729 17,820 18,147 18,383 17,642 18,383
Tangible Common Equity $ 105,074 $ 102,423 $ 102,043 $ 100,347 $ 98,819 $ 105,074 $ 98,819
 
Average Stockholders' Equity $ 123,228 $ 121,001 $ 122,586 $ 120,310 $ 107,615 $ 122,115 $ 102,675
Less Average Goodwill and other intangibles 17,683 17,773 17,987 18,251 18,633 17,728 17,518
Average Tangible Common Equity $ 105,545 $ 103,228 $ 104,599 $ 102,059 $ 88,982 $ 104,387 $ 85,157
 

Contacts

Middlefield Banc Corp.
Company Contact:
Thomas G. Caldwell,440-632-1666 Ext. 3200
President/Chief Executive Officer
tcaldwell@middlefieldbank.com
or
SM Berger & Company, Inc.
Investor and Media Contact:
Andrew M. Berger, 216-464-6400
Managing Director
andrew@smberger.com

Contacts

Middlefield Banc Corp.
Company Contact:
Thomas G. Caldwell,440-632-1666 Ext. 3200
President/Chief Executive Officer
tcaldwell@middlefieldbank.com
or
SM Berger & Company, Inc.
Investor and Media Contact:
Andrew M. Berger, 216-464-6400
Managing Director
andrew@smberger.com