Middlefield Banc Corp. Reports Record Earnings for 2018 Third Quarter and Nine Month Financial Results

MIDDLEFIELD, Ohio--()--Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the three and nine months ended September 30, 2018.

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

  • Net income increased 27.4% to $9.0 million
  • Earnings per diluted share increased 17.3% to $2.78 per share, despite an 8.8% increase in the average number of diluted shares outstanding
  • For the 2018 third quarter, return on average equity was 10.33%, compared to 8.12% for the quarter ended September 30, 2017
  • For the 2018 third quarter, return on average tangible common equity(1) was 12.00%, compared to 9.57% for the quarter ended September 30, 2017
  • Book value per share was up 4.1% to $38.38 per share
  • Tangible book value(1) per share was up 5.6% to $32.96 per share
  • Total net loans increased 10.8% to $965.5 million
  • Total interest income improved 13.8% to $36.9 million
  • Noninterest expense was up only 1.1%
  • Equity to assets remains strong at 10.30%

“Earnings per diluted share were a quarterly record during the third quarter. Middlefield also ended the third quarter with record loans and deposits, and we experienced a significant expansion in returns on average assets, equity, and tangible common equity,” stated Thomas G. Caldwell, President and Chief Executive Officer. “Our efficiency ratio continues to improve despite additional operating expenses associated with our new Powell, Ohio office that opened in September. Our recently opened Sunbury and Powell offices are well positioned to capitalize on favorable trends in the Central Ohio market and we are encouraged with the performance of these new locations. The economic landscape in both of our Ohio markets remains stable, supporting strong loan growth and performance.

“Three years ago, we implemented a strategic plan that focused on creating continued value for our shareholders by profitably growing our business. Middlefield’s third quarter results reflect the favorable execution of this strategic plan and the trends are encouraging. As we start the process to update our strategic plan, we are excited by the direction we are headed and the opportunities we have to grow our franchise. Middlefield’s financial results have strengthened throughout the year and we believe we are well positioned to end 2018 with record full-year results,” concluded Mr. Caldwell.

Income Statement

For the 2018 nine months, net interest income increased 8.9% to $30.0 million, compared to $27.5 million for the same period last year. Year-to-date, the net interest margin was 3.77%, compared to 3.82% for the same period last year. Net interest income for the 2018 third quarter was $10.3 million, compared to $9.5 million for the 2017 third quarter. The 7.8% increase in net interest income for the 2018 third quarter was largely a result of a 13.2% increase in interest and fees on loans. The net interest margin for the 2018 third quarter was 3.72%, compared to 3.81% for the same period of 2017.

For the 2018 nine months, noninterest income was $2.8 million, compared to $3.9 million for the same period last year. Noninterest income for the 2018 third quarter was $0.9 million, compared to $1.4 million for the same period last year.

For the 2018 nine months, noninterest expense increased 1.1% to $21.5 million, compared to $21.3 million for the same period last year. Operating costs in the 2018 third quarter decreased 2.8% to $7.1 million from $7.3 million for the 2017 third quarter. Noninterest expense for the 2017 nine months included $1.0 million of additional one-time operating expenses as a result of the Liberty acquisition.

“Asset quality continues to improve and during the first three quarters Middlefield’s nonperforming assets have declined 27.9%, compared to the 10.7% increase in loans,” said Donald L. Stacy, Chief Financial Officer. “As a result, our nonperforming loans to total loans was 1.08%, which is the lowest level in six quarters. While competition for new deposits remains elevated, our strategies to drive deposit growth were successful and we ended the quarter with over $1.0 billion in deposits for the first time in our history. Over the past three months Middlefield’s total deposits increased by $81.5 million or 8.7%. Our loan-to-deposit ratio was 96.0% at September 30, 2018, compared to 97.9% at September 30, 2017, and 101.2% at June 30, 2018. We continue to believe we will improve operating leverage throughout the remainder of the year, which should translate to continued earnings growth and improved profitability.”

Balance Sheet

Total assets at September 30, 2018, increased 11.6% to over $1.2 billion from approximately $1.1 billion at September 30, 2017. Net loans at September 30, 2018, were $965.5 million, compared to $871.7 million at September 30, 2017, and $916.0 million at December 31, 2017. The 10.8% year-over-year improvement in net loans was across almost all loan categories and was primarily a result of a 20.0% increase in commercial mortgage loans, a 4.2% increase in residential mortgage loans, and a 20.0% increase in real estate construction loans, partially offset by a 6.2% decrease in commercial and industrial loans, 7.8% decline in consumer installment loans.

Total deposits at September 30, 2018, were $1.0 billion, compared to $897.7 million at September 30, 2017. The 12.9% year-over-year increase in deposits was primarily a result of higher noninterest-bearing demand, money market, savings, and time deposits. The investment portfolio, which is entirely classified as available for sale, was $99.7 million September 30, 2018, compared with $98.3 million at September 30, 2017.

Stockholders’ Equity and Dividends

At the end of the 2018 third quarter, shareholders’ equity increased 4.8% to $124.2 million compared to $118.5 million at September 30, 2017. On a per share basis, shareholders’ equity at September 30, 2018, was $38.38 compared to $36.86 at the same period last year. Tangible stockholders’ equity(1) increased 6.3% to $106.7 million for the 2018 third quarter, compared to $100.3 million at September 30, 2017. On a per-share basis, tangible stockholders’ equity(1) was $32.96 at September 30, 2018, compared to $31.21 at September 30, 2017.

Through the first nine months of 2018, the company declared cash dividends of $0.89 per share, compared to $0.81 per share for the same period last year. The dividend payout ratio for the 2018 nine-month period was 31.9% compared to 35.2% for the same period last year.

At September 30, 2018, the company had an equity to assets leverage ratio of 10.30%, compared to 10.96% at September 30, 2017.

Asset Quality

The provision for loan losses for the 2018 third quarter was $210,000 versus $280,000 for the same period last year. Nonperforming assets at September 30, 2018, were $10.8 million, compared to $15.0 million at September 30, 2017. Net charge-offs for the 2018 third quarter were $218,000, or 0.09% of average loans, annualized, compared to $33,000, or 0.02% of average loans, annualized at September 30, 2017.

Year-to-date net charge-offs were $326,000, or 0.05% of average loans, annualized compared to $361,000, or 0.06% of average loans, annualized for the same period last year. The allowance for loan losses at September 30, 2018, stood at $7.5 million, or 0.77% of total loans, compared to $6.9 million or 0.78% of total loans at September 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 September 30, 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)
September 30, June 30, March 31, December 31, September 30,
Balance Sheets (period end) 2018 2018 2018 2017 2017
ASSETS
Cash and due from banks $ 81,951 $ 42,451 $ 33,258 $ 39,886 $ 47,731
Federal funds sold - 28,795 - - 1,200
Cash and cash equivalents 81,951 71,246 33,258 39,886 48,931
Equity securities, at fair value 671 656 643 - -
Investment securities available for sale, at fair value 99,717 100,028 91,262 95,283 98,334
Loans held for sale 925 1,132 937 463 5,930
Loans 972,968 943,674 932,374 923,213 878,541
Less allowance for loan and lease losses 7,494 7,502 7,551 7,190 6,852
Net loans 965,474 936,172 924,823 916,023 871,689
Premises and equipment, net 13,002 12,978 12,225 11,853 11,768
Goodwill 15,071 15,071 15,071 15,071 15,299
Core deposit intangibles 2,484 2,571 2,658 2,749 2,848
Bank-owned life insurance 15,970 15,862 15,764 15,652 15,542
Other real estate owned 257 181 212 212 557
Accrued interest receivable and other assets 10,806 10,182 9,911 9,144 9,928
TOTAL ASSETS $ 1,206,328 $ 1,166,079 $ 1,106,764 $ 1,106,336 $ 1,080,826
 
September 30, June 30, March 31, December 31, September 30,
2018 2018 2018 2017 2017
LIABILITIES
Deposits:
Noninterest-bearing demand $ 205,357 $ 207,791 $ 194,203 $ 192,438 $ 181,550
Interest-bearing demand 96,565 92,116 96,659 83,990 91,184
Money market 191,261 137,572 149,359 150,277 161,101
Savings 224,704 204,408 221,851 208,502 212,371
Time 295,874 290,359 282,501 242,987 251,449
Total deposits 1,013,761 932,246 944,573 878,194 897,655
Short-term borrowings 55,304 87,833 18,671 74,707 20,274
Other borrowings 8,956 18,996 19,028 29,065 39,273
Accrued interest payable and other liabilities 4,074 4,288 4,340 4,507 5,130
TOTAL LIABILITIES 1,082,095 1,043,363 986,612 986,473 962,332
STOCKHOLDERS' EQUITY
Common equity 85,687 85,544 85,116 84,859 84,722
Retained earnings 53,520 51,121 48,927 47,431 45,913
Accumulated other comprehensive (loss) income (1,456) (431) (373) 1,091 1,377
Treasury stock (13,518) (13,518) (13,518) (13,518) (13,518)
TOTAL STOCKHOLDERS' EQUITY 124,233 122,716 120,152 119,863 118,494
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,206,328 $ 1,166,079 $ 1,106,764 $ 1,106,336 $ 1,080,826
 
 
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
For the Three Months Ended   For the Nine Months Ended
September 30,   June 30,   March 31,   December 31,   September 30, September 30,   September 30,
Statements of Income 2018   2018   2018   2017   2017 2018 2017
 
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 11,821 $ 11,234 $ 11,054 $ 10,696 $ 10,443 $ 34,109 $ 29,539
Interest-earning deposits in other institutions 178 115 119 80 107 412 248
Federal funds sold 8 7 14 6 5 29 9
Investment securities:
Taxable interest 167 170 169 162 159 506 600
Tax-exempt interest 598 550 525 560 579 1,673 1,846
Dividends on stock 57 53 59 60 37 169 189
Total interest and dividend income 12,829 12,129 11,940 11,564 11,330 36,898 32,431
INTEREST EXPENSE
Deposits 2,178 1,973 1,640 1,530 1,468 5,803 3,820
Short-term borrowings 296 192 276 101 202 764 652
Other borrowings 104 118 122 131 148 344 413
Total interest expense 2,578 2,283 2,038 1,762 1,818 6,911 4,885
 
NET INTEREST INCOME 10,251 9,846 9,902 9,802 9,512 29,987 27,546
 

Provision for loan losses

210 210 210 430 280 630 615
 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

10,041 9,636 9,692 9,372 9,232 29,357 26,931
NONINTEREST INCOME
Service charges on deposit accounts 491 472 453 478 479 1,416 1,397
Investment securities gains on sale, net - - - - 398 - 886
Gain on equity securities 15 13 18 - - 46 -
Earnings on bank-owned life insurance 108 98 112 115 109 318 316
Gains on sale of loans 43 117 4 106 255 164 720
Other income 291 305 199 219 200 807 622
Total noninterest income 948 1,005 786 918 1,441 2,751 3,941
 
NONINTEREST EXPENSE
Salaries and employee benefits 3,839 3,866 3,979 3,134 3,725 11,684 10,624
Occupancy expense 460 472 536 449 476 1,468 1,397
Equipment expense 262 201 233 261 242 696 789
Data processing costs 481 402 477 416 468 1,360 1,376
Ohio state franchise tax 244 244 115 186 186 603 558
Federal deposit insurance expense 150 150 150 165 165 450 368
Professional fees 346 327 445 522 434 1,118 1,230
Advertising expense 236 230 228 161 248 694 660
Software amortization expense 155 155 150 134 118 460 280
Core deposit intangible amortization 87 87 91 98 101 265 276
Merger expense - - - 28 338 - 1,032
Other expense 832 929 941 663 796 2,702 2,678
Total noninterest expense 7,092 7,063 7,345 6,217 7,297 21,500 21,268
 
Income before income taxes 3,897 3,578 3,133 4,073 3,376 10,608 9,604
Income taxes 593 481 528 1,687 914 1,602 2,535
 
NET INCOME $ 3,304 $ 3,097 $ 2,605 $ 2,386 $ 2,462 $ 9,006 $ 7,069
 
 
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands, except per share and share amounts)
           
For the Three Months Ended For the Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
2018 2018 2018 2017 2017 2018 2017
Per common share data
Net income per common share - basic $ 1.02 $ 0.96 $ 0.81 $ 0.73 $ 0.77 $ 2.79 $ 2.38
Net income per common share - diluted $ 1.02 $ 0.96 $ 0.80 $ 0.73 $ 0.76 $ 2.78 $ 2.37
Dividends declared per share $ 0.28 $ 0.28 $ 0.33 $ 0.27 $ 0.27 $ 0.89 $ 0.81
Book value per share (period end) $ 38.38 $ 37.95 $ 37.28 $ 37.25 $ 36.86 $ 38.38 $ 36.86
Tangible book value per share (period end) (2) (3) $ 32.96 $ 32.49 $ 31.78 $ 31.71 $ 31.21 $ 32.96 $ 31.21
Dividends declared $ 905 $ 903 $ 1,063 $ 868 $ 867 $ 2,871 $ 2,490
Dividend yield 2.36% 2.21% 2.69% 2.24% 2.34% 2.53% 2.35%
Dividend payout ratio 27.39% 29.16% 40.81% 36.38% 35.22% 31.88% 35.22%
Average shares outstanding - basic 3,234,393 3,225,726 3,220,262 3,215,300 3,212,335 3,226,845 2,966,151
Average shares outstanding - diluted 3,248,326 3,240,329 3,238,069 3,231,791 3,223,753 3,242,299 2,978,743
Period ending shares outstanding 3,236,689 3,233,678 3,222,984 3,217,716 3,214,737 3,236,689 3,214,737
 
Selected ratios
Return on average assets 1.13% 1.11% 0.94% 0.86% 0.90% 1.06% 0.89%
Return on average equity 10.33% 10.08% 8.73% 7.72% 8.12% 9.73% 8.82%
Return on average tangible common equity (2) (4) 12.00% 11.77% 10.23% 9.05% 9.57% 11.36% 10.58%
Yield on earning assets 4.65% 4.61% 4.57% 4.51% 4.52% 4.62% 4.47%
Cost of interest bearing liabilities 1.25% 1.16% 1.03% 0.89% 0.92% 1.15% 0.84%
Net interest spread 3.40% 3.45% 3.54% 3.62% 3.60% 3.47% 3.63%
Net interest margin 3.72% 3.76% 3.82% 3.84% 3.81% 3.77% 3.82%
Efficiency (1) 61.65% 63.43% 67.00% 55.58% 63.96% 63.96% 64.71%
Equity to assets at period end 10.30% 10.52% 10.86% 10.83% 10.96% 10.30% 10.96%
 

(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

September 30,   June 30,   March 31,   December 31,   September 30,
End of Period Loan Balances 2018   2018   2018   2017   2017
Commercial and industrial $ 93,144 $ 101,975 $ 99,809 $ 101,346 $ 99,314
Real estate - construction 48,901 45,647 48,687 47,017 40,760
Real estate - mortgage:
Residential 329,609 320,858 316,856 318,157 316,191
Commercial 483,675 457,050 448,766 437,947 403,135
Consumer installment 17,639 18,144 18,256 18,746 19,141
Total $ 972,968 $ 943,674 $ 932,374 $ 923,213 $ 878,541
 
September 30, June 30, March 31, December 31, September 30,
Asset quality data 2018 2018 2018 2017 2017
(Dollar amounts in thousands)
Non-accrual loans $ 7,288 $ 8,357 $ 8,747 $ 8,433 $ 8,525
Troubled debt restructuring 3,241 3,051 9,071 4,982 5,608
90 day past due and accruing - 15 - - 268
Nonperforming loans 10,529 11,423 17,818 13,415 14,401
Other real estate owned 257 181 212 212 557
Nonperforming assets $ 10,786 $ 11,604 $ 18,030 $ 13,627 $ 14,958
 
Allowance for loan losses $ 7,494 $ 7,502 $ 7,551 $ 7,190 $ 6,852
Allowance for loan losses/total loans 0.77% 0.79% 0.81% 0.78% 0.78%
Net charge-offs (recoveries):
Quarter-to-date $ 218 $ 259 $ (151) $ 92 $ 33
Year-to-date 326 108 (151) 453 361
Net charge-offs to average loans, annualized:
Quarter-to-date 0.09% 0.11% -0.06% 0.04% 0.02%
Year-to-date 0.05% 0.02% -0.06% 0.05% 0.06%
 
Nonperforming loans/total loans 1.08% 1.21% 1.91% 1.45% 1.64%
Allowance for loan losses/nonperforming loans 71.17% 65.67% 42.38% 53.60% 47.58%
Nonperforming assets/total assets 0.89% 1.00% 1.63% 1.23% 1.38%
 
         
Reconciliation of Common Stockholders' Equity to Tangible Common Equity For the Three Months Ended For the Nine Months Ended
(Dollar amounts in thousands) September 30, June 30,   March 31, December 31, September 30, September 30, September 30,
2018   2018   2018   2017   2017   2018   2017
 
Stockholders' Equity $ 124,233 $ 122,716 $ 120,152 $ 119,863 $ 118,494 $ 124,233 $ 118,494
Less Goodwill and other intangibles 17,555 17,642 17,729 17,820 18,147 17,555 18,147
Tangible Common Equity $ 106,678 $ 105,074 $ 102,423 $ 102,043 $ 100,347 $ 106,678 $ 100,347
 
Average Stockholders' Equity $ 126,865 $ 123,228 $ 121,001 $ 122,586 $ 120,310 $ 123,698 $ 107,112
Less Average Goodwill and other intangibles 17,597 17,683 17,773 17,987 18,251 17,685 17,762
Average Tangible Common Equity $ 109,268 $ 105,545 $ 103,228 $ 104,599 $ 102,059 $ 106,013 $ 89,350
 

Contacts

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

Contacts

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