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Middlefield Banc Corp. Reports 2017 Third Quarter and Nine Month Financial Results

MIDDLEFIELD, Ohio--(BUSINESS WIRE)-- Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the three and nine months ended September 30, 2017.

2017 Nine Month Financial Highlights (on a year-over-year basis unless noted):

  • Net income increased 48.6% to $7.1 million
  • Earnings per diluted share increased 3.0% to $2.37 per share, which includes a 44.0% increase in the average number of diluted shares outstanding
  • Total loans increased 49.8% to $878.5 million
  • Nonperforming assets to total assets declined to 1.17% from 1.25%
  • Organic total net loans increased 16.1%
  • Net interest income improved 44.6% to $27.5 million
  • Tier 1 leverage ratio remains strong at 10.06%

“The continued strength in our operating and financial results are due to the successful integration of the Liberty Bank N.A. merger, organic loan growth of 16.1%, and the continued focus on increasing profitability by controlling costs, managing risk, and diversifying our revenues,” stated Thomas G. Caldwell, President and Chief Executive Officer. “I am pleased we have been able to grow our margin throughout the year by proactively managing our cost of funds and growing our yield, despite rising rates and a highly competitive banking environment. Middlefield’s community-oriented banking values and customer-centric approach is helping differentiate us within our markets. As a result, our pipeline of new loans in both our Northeast and Central Ohio markets remains robust, and we are excited about Middlefield’s long-term growth opportunities within each of these markets.”

Net income for the nine months ended September 30, 2017 was $7.1 million, or $2.37 per diluted share, compared to net income for the nine months ended September 30, 2016 of $4.8 million, or $2.30 per diluted share. Net income for the 2017 third quarter was $2.5 million, or $0.76 per diluted share, compared to net income for the 2016 third quarter of $1.3 million, or $0.60 per diluted share.

Annualized returns on average equity (“ROE”) and average assets (“ROA”) were 8.82% and 0.89%, respectively, for the 2017 nine-month period, compared with 9.07% and 0.85% for the same period last year. ROE and ROA for the 2017 third quarter were 8.12% and 0.90%, respectively, compared with 6.84% and 0.69% for the 2016 third quarter.

Income Statement

Net interest income for the 2017 nine-month period increased 44.6% to $27.5 million, compared to $19.1 million for the same period last year. Year-to-date, the net interest margin was 3.82%, compared to 3.78% for the same period last year. Net interest income for the 2017 third quarter was $9.5 million, compared to $6.4 million for the 2016 third quarter. The net interest margin for the 2017 third quarter was 3.81%, compared to 3.68% for the same period of 2016. The 48.8% increase in net interest income for the 2017 third quarter was largely a result of a 61.7% increase in interest and fees on loans.

For the 2017 nine months, noninterest income increased 28.8% to $3.9 million, compared to $3.1 million for the same period last year. Noninterest income for the 2017 third quarter was up 47.5% to $1.4 million resulting from an increase of gains on the sale of investment securities and loans, partially offset by lower fees on deposit accounts and other income.

Noninterest expense for the 2017 nine-month period increased 33.6% to $21.3 million, compared to $15.9 million for the same period last year. For the 2017 third quarter, noninterest expense increased 28.9% to $7.3 million, compared to $5.7 million for the same period last year. During the 2017 third quarter, noninterest expense had $338,000 of one-time merger costs associated with the Liberty merger, and year-to-date the company had one-time merger related costs of approximately $1.0 million.

“Asset quality remains strong despite the significant increase in assets we have experienced as a result of strong year-over-year organic loan growth and the contribution of Liberty’s loan portfolio. At September 30, 2017, nonperforming assets to total assets declined to 1.17%, from 1.25% for the same period last year,” said Donald L. Stacy, Chief Financial Officer. “Stable economic activity within our local economies, conservative underwriting practices, and proactive risk management are helping improve loan quality. During the 2017 nine-month period, Middlefield has incurred $1.0 million of nonrecurring merger related expenses. We expect a small amount of additional merger related expenses will continue in the fourth quarter, and as we enter 2018, we do not anticipate any additional costs associated with the Liberty merger. As a result, given our current cost structure and outlook, we believe profitability should improve during the 2017 fourth quarter and throughout 2018.”

Balance Sheet

Total assets at September 30, 2017, increased 41.8% to $1.08 billion, from $762.3 million at September 30, 2016. Net loans at September 30, 2017, were $871.7 million, compared to $580.0 million at September 30, 2016. The 50.3% year-over-year increase in total net loans was across all loan categories, and was a result of organic growth and the contribution of the Liberty merger. Specifically, commercial mortgage loans increased 64.1%, residential mortgage loans increased 22.1%, commercial and industrial loans increased 67.3%, real estate construction loans increased 131.2%, and consumer installment loans increased 304.5%.

Total deposits at September 30, 2017 increased 40.4% to $897.7 million from $639.3 million at September 30, 2016. The company continued to proactively manage its cost of funds and control deposit growth. The investment portfolio, which is entirely classified as available for sale, was $98.3 million at September 30, 2017, compared with $123.1 million at September 30, 2016.

Stockholders’ Equity, Dividends and Shares Outstanding

At September 30, 2017, tangible stockholders’ equity was $100.3 million, an increase of 36.4% from $73.6 million at September 30, 2016. On a per share basis, tangible stockholders’ equity was $31.21 at September 30, 2017, compared to $32.70 at September 30, 2016. The 4.6% decline in tangible book value per share, reflects the increase in the number of shares outstanding as a result of the private placement of stock that closed in May 2017. Through the first nine months of 2017, the company paid cash dividends of $0.81 per share. The dividend payout ratio for the 2017 nine-month period was 35.22%, compared to 35.95% for the same period last year.

At September 30, 2017, the company had a Tier 1 leverage ratio of 10.06%, compared to 10.10% at September 30, 2016.

Asset Quality

The provision for loan losses was $0.3 million for the 2017 third quarter, compared to $0.1 million for the 2016 third quarter. Nonperforming assets at September 30, 2017, were $12.6 million, compared to $9.5 million at September 30, 2016. Net charge-offs for the 2017 third quarter were $33 thousand, or 0.02% of average loans, annualized, compared to $0.1 million, or 0.09% of average loans, annualized for the same 2016 period. Year-to-date net charge-offs were $0.4 million, or 0.06% of average loans, annualized compared to $0.4 million, or 0.09% of average loans, annualized for the same period last year. The allowance for loan losses at September 30, 2017, stood at $6.9 million, or 0.78% of total loans, compared to $6.3 million or 1.08% of total loans at September 30, 2016.

The following table provides a summary of asset quality and reserve coverage ratios.

Asset Quality History
(dollars in thousands)
9/30/2017 9/30/2016 12/31/2016 12/31/2015 12/31/2014
Nonperforming loans $ 12,058 $ 8,329 $ 7,075 $ 10,263 $ 9,048
Real estate owned $ 557 $ 1,205 $ 934 $ 1,412 $ 2,590
Nonperforming assets $ 12,615 $ 9,534 $ 8,009 $ 11,675 $ 11,638
Allowance for loan losses $ 6,852 $ 6,334 $ 6,598 $ 6,385 $ 6,846

Ratios:

Nonperforming loans to total loans

1.37

%

1.42

%

1.16

%

1.92

%

1.92

%

Nonperforming assets to total assets

1.17

%

1.25

%

1.02

%

1.59

%

1.72

%

Allowance for loan losses to total loans

0.78

%

1.08

%

1.08

%

1.20

%

1.45

%

Allowance for loan losses to nonperforming loans

56.83

%

76.05

%

93.26

%

62.21

%

75.66

%

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is a bank holding company with total assets of $1.08 billion at September 30, 2017. 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.

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
September 30, 2017 and 2016
(Dollar amounts in thousands)
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 10,443 $ 6,459 $ 29,539 $ 18,949
Interest-bearing deposits in other institutions 107 15 248 42
Federal funds sold 5 7 9 16
Investment securities:
Taxable interest 159 235 600 865
Tax-exempt interest 579 687 1,846 2,227
Dividends on stock 37 17 189 74
Total interest and dividend income 11,330 7,420 32,431 22,173
INTEREST EXPENSE
Deposits 1,468 921 3,820 2,665
Short-term borrowings 202 49 652 288
Other borrowings 148 56 413 164
Total interest expense 1,818 1,026 4,885 3,117
NET INTEREST INCOME 9,512 6,394 27,546 19,056
Provision for loan losses 280 105 615 315

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

9,232 6,289 26,931 18,741
NONINTEREST INCOME
Service charges on deposit accounts 479 505 1,397 1,443
Investment securities gains, net 398 - 886 303
Earnings on bank-owned life insurance 109 101 316 297
Gains on sale of loans 255 129 720 322
Other income 200 242 622 694
Total noninterest income 1,441 977 3,941 3,059
NONINTEREST EXPENSE
Salaries and employee benefits 3,725 2,677 10,624 7,740
Occupancy expense 476 306 1,397 933
Equipment expense 242 221 789 700
Data processing costs 468 334 1,376 928
Ohio state franchise tax 186 186 558 448
Federal deposit insurance expense 165 132 368 396
Professional fees 434 547 1,230 1,057
Net loss on other real estate owned 18 48 88 247
Advertising expense 248 206 660 604
Directors fees 112 102 352 330
Core deposit intangible amortization 101 10 276 30
Appraiser fees 97 114 303 334
ATM fees 36 102 140 296
Merger expense 338 - 1,032 -
Other expense 651 677 2,075 1,872
Total noninterest expense 7,297 5,662 21,268 15,915
Income before income taxes 3,376 1,604 9,604 5,885
Income taxes 914 261 2,535 1,129
NET INCOME $ 2,462 $ 1,343 $ 7,069 $ 4,756
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
September 30, 2017 and 2016 and December 31, 2016
Balance Sheet (period end) September 30, December 31, September 30,
(Dollar amounts in thousands) 2017 2016 2016
(unaudited) (unaudited)
ASSETS
Cash and due from banks $ 47,731 $ 31,395 $ 21,976
Federal funds sold 1,200 1,100 1,300
Cash and cash equivalents 48,931 32,495 23,276
Investment securities available for sale, at fair value 98,334 114,376 123,054
Loans held for sale 5,930 634 880
Loans 878,541 609,140 586,329
Less allowance for loan and lease losses 6,852 6,598 6,334
Net loans 871,689 602,542 579,995
Premises and equipment, net 11,768 11,203 9,921
Goodwill 15,298 4,559 4,559
Core deposit intangibles 2,848 36 46
Bank-owned life insurance 15,542 13,540 13,438
Other real estate owned 557 934 1,205
Accrued interest and other assets 9,929 7,502 5,884
TOTAL ASSETS $ 1,080,826 $ 787,821 $ 762,258
September 30, December 31, September 30,
2017 2016 2016
LIABILITIES
Deposits:
Noninterest-bearing demand $ 181,550 $ 133,630 $ 136,320
Interest-bearing demand 91,184 59,560 67,061
Money market 161,101 74,940 77,774
Savings 212,371 172,370 173,272
Time 251,449 189,434 184,915
Total deposits 897,655 629,934 639,342
Short-term borrowings 20,274 68,359 32,803
Other borrowings 39,273 9,437 9,713
Accrued interest and other liabilities 5,130 3,131 2,208
TOTAL LIABILITIES 962,332 710,861 684,066
STOCKHOLDERS' EQUITY
Common equity 84,722 47,943 47,812
Retained earnings 45,913 41,334 40,282
Accumulated other comprehensive income 1,377 1,201 3,616
Treasury stock (13,518) (13,518) (13,518)
TOTAL STOCKHOLDERS' EQUITY 118,494 76,960 78,192
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,080,826 $ 787,821 $ 762,258
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Per common share data
Net income per common share - basic $ 0.77 $ 0.60 $ 2.38 $ 2.31
Net income per common share - diluted $ 0.76 $ 0.60 $ 2.37 $ 2.30
Dividends declared $ 0.27 $ 0.27 $ 0.81 $ 0.81
Book value per share (period end) $ 36.86 $ 34.74 $ 36.86 $ 34.74
Tangible book value per share (period end) $ 31.21 $ 32.70 $ 31.21 $ 32.70
Dividend payout ratio 35.22% 45.12% 35.22% 35.95%
Average shares outstanding - basic 3,212,335 2,247,587 2,966,151 2,059,656
Average shares outstanding - diluted 3,227,645 2,256,230 2,978,743 2,068,532
Period ending shares outstanding 3,214,737 2,250,665 3,214,737 2,250,665
Selected ratios
Return on average assets 0.90% 0.69% 0.89% 0.85%
Return on average equity 8.12% 6.84% 8.82% 9.07%
Yield on earning assets 4.52% 4.24% 4.47% 4.36%
Cost of interest bearing liabilities 0.92% 0.74% 0.84% 0.75%
Net interest spread 3.60% 3.50% 3.63% 3.61%
Net interest margin 3.81% 3.68% 3.82% 3.78%
Efficiency 64.85% 73.29% 65.57% 68.42%
Tier 1 capital to average assets 10.06% 10.10% 10.06% 10.10%
September 30, September 30,
Loan Portfolio 2017 2016
(Dollar amounts in thousands)
Commercial and industrial $ 99,314 $ 59,376
Real estate - construction 40,760 17,633
Real estate - mortgage:
Residential 316,191 258,952
Commercial 403,135 245,636
Consumer installment 19,141 4,732
$ 878,541 $ 586,329
September 30, September 30,
Asset quality data 2017 2016
(Dollar amounts in thousands)
Nonaccrual loans $ 8,525 $ 6,490
Troubled debt restructuring 2,211 1,839
Nonperforming loans 12,058 8,329
Other real estate owned 557 1,205
Nonperforming assets $ 12,615 $ 9,534
Allowance for loan and lease losses $ 6,852 $ 6,334
Allowance for loan and lease losses/total loans 0.78% 1.08%
Net charge-offs:
Quarter-to-date 33 137
Year-to-date 361 366
Net charge-offs to average loans, annualized
Quarter-to-date 0.02% 0.09%
Year-to-date 0.06% 0.09%
Nonperforming loans/total loans 1.37% 1.42%
Allowance for loan and lease losses/nonperforming loans 56.83% 76.05%

View source version on businesswire.com: http://www.businesswire.com/news/home/20171024006513/en/

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

Source: Middlefield Banc Corp.