Middlefield Banc Corp. Reports 2015 Second Quarter Financial Results

Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the 2015 second quarter ended June 30, 2015.

2015 Second-Quarter Financial Highlights Include (on a year-over-year basis unless noted):

• Net interest income increased 3.2% to $6.1 million.
• Noninterest income grew 12.3% to approximately $1.0 million.
• Noninterest expenses increased 13.5%.
• Net income decreased 6.6% to $1.5 million, or $0.73 per diluted share.
• Tangible stockholders’ equity increased 10.4%.
• Total net loans increased 9.8%.
• Nonperforming assets declined to $10.1 million from $12.9 million.
• Tier 1 capital ratio strengthened to 9.56% from 9.31%.
• Quarterly dividend increased 3.8%.

“We ended the 2015 second quarter with assets over $700 million for the first time,” stated Thomas G. Caldwell, President and Chief Executive Officer. “We crossed the $600 million threshold in 2010 and this growth reflects our ability to provide our communities with the financial products and services they need. To this end, we remain committed to investing in our organization. These investments will temporarily impact our net income by increasing our noninterest expenses, but we believe will improve our competitiveness by enhancing our lending resources, information technology services, and back office and call-center support.”

Net income for the 2015 second quarter was $1.5 million, or $0.73 per diluted share, compared to net income for the 2014 second quarter of $1.6 million, or $0.79 per diluted share. Net income for the six months ended June 30, 2015 was $3.1 million, or $1.52 per diluted share, compared to net income for the six months ended June 30, 2014 of $3.4 million, or $1.65 per diluted share.

Annualized returns on average equity (“ROE”) and average assets (“ROA”) for the 2015 second quarter were 9.54% and 0.85%, respectively, compared with 11.58% and 0.96% for the 2014 second quarter. ROE and ROA were 9.92% and 0.91%, respectively, for the 2015 six month period, compared with 12.33% and 1.02% for the same period last year.

Mr. Caldwell continued: “Business activities gained momentum as the second quarter progressed and we are starting the third quarter with a solid pipeline of potential loans. Our communities continue to show modest economic expansion and, with a strong market presence, we are well positioned to serve this growth. While our secondary mortgage program started off at a slower rate than we initially thought, we are beginning to see improvements. On May 11, 2015 the Board of Directors increased the quarterly cash dividend by 3.8% to $0.27 per share, reflecting management and the board’s commitment to return value to shareholders and their optimism about our current and future business trends.”

Income Statement

Net interest income for the 2015 second quarter was $6.1 million, compared to $5.9 million for the 2014 second quarter. The 3.2% increase in net interest income for the 2015 second quarter was a result of a reduction in funding costs, primarily due to a 5.9% decline in deposit expenses. For the 2015 first half, net interest income increased 3.3% to $12.2 million, compared to $11.8 million for the same period last year. The net interest margin for the 2015 second quarter was 3.83%, compared to 4.04% for the same period of 2014. Year-to-date, the net interest margin was 3.92%, compared to 4.12% for the same period last year.

Noninterest income for the 2015 second quarter increased 12.3% to $1.0 million, primarily a result of a $0.1 million gain on the sale of loans reported in the quarter. For the 2015 first half, noninterest income increased 11.8% to $1.8 million, compared to $1.6 million for the same period last year.

Noninterest expense for the 2015 second quarter was $5.2 million, an increase of $0.6 million from the 2014 second quarter. For the 2015 first half, noninterest expense increased 13.6% to $10.0 million, compared to $8.8 million for the same period last year.

“Our asset quality and liquidity continue to improve,” said Donald L. Stacy, Chief Financial Officer. “Nonperforming assets declined further from the prior quarter and the year-over-year period to $10.1 million. This was the lowest level recorded since 2008. At June 30, 2015, the bank had $22.7 million in cash and cash equivalents on our balance sheet and our net loans to total deposits were 78.0%. As budgeted, we continued to experience higher operating costs which impacted profitability in the second quarter and year-to-date as we add staff and invest in growth producing initiatives. The investments we made last year to improve the way customers interact with the bank are taking hold as mobile banking is experiencing a high rate of acceptance with our customers. We continued to manage our costs of interest-bearing liabilities, which declined five basis points in the 2015 second quarter compared with the prior year period, which helped offset some of the increase in operating expenses.”

Balance Sheet

Total assets at June 30, 2015 increased 4.1% to a record $705.5 million, from $677.5 million at December 31, 2014. Net loans at June 30, 2015 were $486.5 million, compared to $463.7 million at December 31, 2014. The 4.9% year-to-date improvement in net loans was a result of loan growth in both residential and commercial mortgages, which have increased 5.2% and 19.6%, respectively year-to-date. This was offset by a 9.6% reduction in commercial and industrial loans, and a 45.1% decline in construction loans.

Total deposits at June 30, 2015 increased 6.4% to $623.5 million from $586.1 million at December 31, 2014. The company continues to proactively manage its cost of funds and control deposit growth. The investment portfolio, which is entirely classified as available for sale, stood at $157.6 million at June 30, 2015, compared to $154.3 million at December 31, 2014.

Stockholders’ Equity and Dividends

Tangible stockholders’ equity increased to $60.2 million for the 2015 second quarter, compared to $54.5 million at June 30, 2014. On a per share basis, tangible stockholders’ equity increased to $29.16 at June 30, 2015 from $26.67 for the same period a year ago. 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. Through the first six months of 2015, the company paid cash dividends of $0.53 per share, which was an increase of 1.9% over the same period last year, and increased its payout ratio to 34.7% from 31.4% for the first half of 2014.

At June 30, 2015, the company had a Tier 1 leverage ratio of 9.56%, up from 9.31% at June 30, 2014.

Asset Quality

There was no provision necessary for loan losses for the 2015 second quarter compared with a $0.1 million expense for the 2014 second quarter. Nonperforming assets at June 30, 2015 were $10.1 million, compared to $12.9 million at June 30, 2014. Net charge-offs for the 2015 second quarter were $0.1 million, or 0.08% of average loans, annualized compared to less than $0.1 million, or 0.01% of average loans, annualized for the same period last year. Year-to-date net charge-offs were $0.6 million, or 0.25% of average loans, annualized compared to $0.2 million, or 0.1% of average loans, annualized for the same period last year. The allowance for loan losses at June 30, 2015 stood at $6.3 million, or 1.29% of total loans, compared to $7.1 million or 1.58% of total loans at June 30, 2014.

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 $705.5 million at June 30, 2015. 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.

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