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

Middlefield Banc Corp. 2017 Press Releases

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Company
Contact:
Thomas G. Caldwell
President/Chief Executive Officer
Middlefield Banc Corp.
(440) 632-1666 Ext. 3200
Investor and
Media Contact:
Andrew M. Berger
Managing Director
SM Berger & Company, Inc.
(216) 464-6400
Date: October 24, 2017

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%            
Central Ohio Northeast Ohio