Middlefield Banc Corp. Reports 2014 Full Year and Fourth Quarter Financial Results

Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the fourth quarter and full year ended December 31, 2014.

2014 Fourth Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• Net interest income increased 2.4% to $6.1 million.
• Noninterest income grew 57.8% to $1.0 million.
• Net income up 3.7% to $1.9 million, or $0.92 per diluted share.
• Tangible stockholders’ equity improved 4.2% from the 2014 third quarter, and 21.4% from December 31, 2013.
• Total net loans increased 8.2%.
• Nonperforming assets declined to $11.6 million from $15.0 million.
• Tier 1 capital ratio strengthened to 9.45% from 8.24%.

“I am pleased with the many operating and financial milestones we achieved in 2014,” stated Thomas G. Caldwell, President and Chief Executive Officer. “Throughout the year we focused on strategies to improve our corporate infrastructure, expand our product offerings, enhance the ways customers interact with the bank, and increase our company’s investor profile. We accomplished these initiatives while growing our business to record levels. We ended the year with record net loans outstanding, net income, and stockholders’ equity. As we work to further leverage the investments we made last year, I am optimistic favorable operating and financial momentum will continue in 2015.”

Net income for the 2014 fourth quarter was approximately $1.9 million, or $0.92 per diluted share, compared to net income for the 2013 fourth quarter of $1.8 million, or $0.90 per diluted share. Net income for the 2014 full year was $7.2 million, or $3.50 per diluted share, compared to net income for the year ended December 31, 2013 of $7.0 million, or $3.47 per diluted share.

Annualized returns on average equity (“ROE”) and average assets (“ROA”) for the 2014 fourth quarter were 11.98% and 1.10%, respectively, compared with 13.45% and 1.10% for the 2013 fourth quarter. ROE and ROA were 12.17% and 1.07%, respectively, for the 2014 full year, compared with 13.17% and 1.06% for the same period last year.

Mr. Caldwell continued: “Our new secondary mortgage offering expanded significantly in the fourth quarter and contributed $125,000 to noninterest income, which helped drive a 57.8% year-over-year increase in total noninterest income in the fourth quarter. We are optimistic growth in this product line will continue as we further expand this offering and our capabilities. During 2014, we made it easier and more convenient for customers to interact with the bank by enhancing our online capabilities and completing the roll-out of our mobile banking platform. As I have stated in previous news releases and shareholder letters, Middlefield has a strong foundation to support its long-term growth objectives and enhance shareholder value. While we continue to focus on growing our banking franchise, we will remain dedicated to conservatively managing risk and performance.”

Income Statement

Net interest income for the 2014 fourth quarter increased slightly to $6.1 million, compared to $5.9 million for the 2013 fourth quarter. For 2014, net interest income increased 3.8% to $23.8 million, compared to $22.9 million for 2013. The fourth quarter and twelve month increases in net interest income were driven by a reduction in funding costs, primarily time deposits. The net interest margin for the 2014 fourth quarter was 3.91%, compared to 3.73% for the same period of 2013. For 2014, the net interest margin was 3.94%, compared to 3.85% for the same period last year.

Noninterest income was up 57.8% for the 2014 fourth quarter and 14.1% for the 2014 twelve months. The improvement to noninterest income in the 2014 fourth quarter was primarily a result of investment gains and gains on sale of loans as a result of the company’s new secondary mortgage offering. Noninterest expense for the 2014 fourth quarter was $4.6 million, a decrease of approximately $0.2 million from the 2013 fourth quarter, primarily a result of lower operating expenses.

“Throughout 2014 we focused on prudent expense management and reducing our costs of funds, which can be seen in the seven basis point improvement we experienced in the net interest spread despite a 10 basis point reduction in the yield on earning assets. While noninterest expenses increased during the year due to higher employee, equipment, and data processing fees, expenses were down in the fourth quarter as we were successful in offsetting these higher operating costs,” said Donald L. Stacy, Chief Financial Officer. “For 2014, noninterest bearing demand deposits increased 22.8% and represented 18.0% of total deposits at December 31, 2014 versus 15.1% at December 31, 2013. The cost of interest bearing liabilities fell 18 basis points to 0.79% for 2014. We expect that higher regulatory, compliance, and technology costs will continue, but we believe our commitment to efficient cost management, high quality loans, and income diversification will more than offset these pressures.”

Balance Sheet

Total assets at December 31, 2014 increased 4.7% to $677.5 million, from $647.1 million at December 31, 2013. Net loans at December 31, 2014 were $463.8 million, compared to $428.7 million at December 31, 2013. The year-over-year improvement in net loans was a result of growth across all loan categories. Specifically, construction loans increased 18.3%, commercial and industrial loans increased 11.4%, consumer installment loans increased 10.5%, residential mortgages increased 8.4% and commercial mortgages increased 4.4%.

Total deposits at December 31, 2014 increased 3.0% to $586.1 million from $568.8 million at December 31, 2013. The slower deposit growth is due to the company’s decision to proactively manage its cost of funds. The investment portfolio, which is entirely classified as available for sale, stood at $154.3 million at December 31, 2014, compared to $157.1 million at December 31, 2013.

Stockholders’ Equity and Dividends

Tangible stockholders’ equity increased 21.4% to $59.2 million for the 2014 fourth quarter, compared to $48.8 million at December 31, 2013. On a per share basis, tangible stockholders’ equity increased 20.2% to $28.84 at December 31, 2014 from $23.99 at December 31, 2013. The increase is the result of a higher level of retained earnings and accumulated other comprehensive income, which was offset by cash dividends paid to shareholders. At December 31, 2014, the company had a Tier 1 leverage ratio of 9.46%, up from 8.24% at December 31, 2013.

During the 2014 fourth quarter, the company paid cash dividends of $0.26 per share, which equaled the amount paid in the 2013 fourth quarter. For 2014, the company paid cash dividends of $1.04 per share, which represents a dividend payout ratio of 29.54% for the full year.

Asset Quality

The provision for loan losses for the 2014 fourth quarter was $0, compared to a reversal of $0.6 million for the 2013 fourth quarter. For 2014, the provision for loan losses was $0.4 million, compared to $0.2 million for the same period last year. Net charge-offs for the 2014 twelve months were $0.6 million, or 0.13% of average loans, annualized. The allowance for loan losses at December 31, 2014 stood at $6.8 million, or 1.45% of total loans, compared to $7.0 million or 1.62% of total loans at December 31, 2013.

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

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is a bank holding company with total assets of $677.5 million at December 31, 2014. The bank operates 10 full service banking centers and an LPL Financial^® brokerage office serving Chardon, Cortland, Dublin, Garrettsville, Mantua, Middlefield, Newbury, Orwell, and Westerville. Additional information is available at www.middlefieldbank.com.

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.

(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.