Middlefield Banc Corp. Reports 2017 Full Year and Fourth Quarter Financial Results

Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the three and twelve months ended December 31, 2017.

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

• Net income increased 47.4% to $9.5 million
• Earnings per diluted share increased 2.3% to $3.10 per share, which includes a 43.7% increase in the average number of diluted shares outstanding
• Return on average tangible common equity was 10.15%, compared to 10.01%
• Total loans increased 51.6% to $923.2 million
• Nonperforming assets to total assets declined to 1.23% from 1.65%
• Net interest income improved 44.7% to $37.3 million
• Equity to assets was 10.83%, compared to 9.77%

“We continued to enhance our operating and financial platform during 2017, which will be the base of our long-term success going forward,” stated Thomas G. Caldwell, President and Chief Executive Officer. During the year, we successfully integrated the Liberty Bank N.A. merger, and significantly grew our loan portfolio, which included a $44.7 million increase during the past three months. We ended the year with record total assets and net income, despite one-time merger related expenses, and the write down in our deferred tax asset.”

“Middlefield’s community-oriented banking values and customer-centric approach is helping us differentiate the Bank within our Northeast and Central Ohio markets. To this end, I am pleased with the growth we are achieving in Central Ohio. In 12 months and ahead of schedule, Middlefield’s Sunbury location that was opened during the 2016 fourth quarter has become profitable. We expect Middlefield’s brand will continue to grow throughout Central Ohio, and we anticipate opening our fourth Central Ohio location in Powell during 2018.”

Mr. Caldwell concluded, “Our core Northeast Ohio and growing Central Ohio markets, both offer significant expansion opportunities and we believe we are well positioned to increase Middlefield’s market share throughout our footprint. Within the organization, we remain committed to providing our communities with a customer-centric, community-oriented banking approach. As we look to the new year, we are optimistic 2018 will be another good year for the Bank.”

Net income for the twelve months ended December 31, 2017, was $9.5 million, or $3.10 per diluted share, compared to net income for the twelve months ended December 31, 2016, of $6.4 million, or $3.03 per diluted share. Net income for the 2017 fourth quarter was $2.4 million, or $0.73 per diluted share, compared to net income for the 2016 fourth quarter of $1.7 million, or $0.73 per diluted share.

Annualized returns on average equity (“ROE”) and average assets (“ROA”) were 8.52% and 0.88%, respectively, for the 2017 twelve-month period, compared with 9.33% and 0.85% for the same period last year. ROE and ROA for the 2017 fourth quarter were 7.72% and 0.86%, respectively, compared with 9.02% and 0.85% for the 2016 fourth quarter.

Return on average tangible common equity⁽¹⁾ was 10.15% for the 2017 twelve-month period, compared with 10.01%. Return on average tangible common equity⁽¹⁾ for the 2017 fourth quarter was 9.05%, compared to 9.69% for the 2016 fourth quarter.

As a result of the Tax Cut and Jobs Act that was signed into law on December 22, 2017, during the 2017 fourth quarter, the Company had a write down to its deferred tax asset of $547 thousand. This one-time, non-cash item impacted 2017 fourth quarter and twelve-month earnings by $0.18 per diluted share. In addition, during the 2017 fourth quarter and twelve-month period, the Company incurred one-time merger related costs associated with the Liberty merger of $28 thousand, and $1.1 million, respectively.

Income Statement

Net interest income for the 2017 twelve-month period increased 44.7% to $37.3 million, compared to $25.8 million for the same period last year. The net interest margin for the 2017 twelve-month period was 3.82%, compared to 3.79% for the same period last year. Net interest income for the 2017 fourth quarter was $9.8 million, compared to $6.7 million for the 2016 fourth quarter. The net interest margin for the 2017 fourth quarter was 3.84%, compared to 3.84% for the same period of 2016. The 45.3% increase in net interest income for the 2017 fourth quarter was largely a result of a 56.2% increase in interest and fees on loans.

For the 2017 full year, noninterest income increased 22.7% to $4.9 million, compared to $4.0 million for the same period last year. Noninterest income for the 2017 fourth quarter was up 2.0% to $918 thousand, compared to the fourth quarter of 2016.

Noninterest expense for the 2017 full year increased 31.7% to $27.5 million, compared to $20.9 million last year. For the 2017 fourth quarter, noninterest expense increased 25.4% to $6.2 million, compared to $5.0 million for the same period last year.

“Asset quality remains strong despite the significant increase in assets we have experienced as a result of year-over-year organic loan growth and the contribution of Liberty’s loan portfolio. At December 31, 2017, nonperforming assets to total assets declined to 1.23%, from 1.65% for the same period last year,” said Donald L. Stacy, Chief Financial Officer. “Economic activity within our local economies remains stable, while conservative underwriting practices, and proactive risk management continues to help improve loan quality. During 2017, Middlefield incurred $1.1 million of nonrecurring merger related expenses. 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 throughout 2018.”

Balance Sheet

Total assets at December 31, 2017, increased 40.4% to $1.11 billion, from $787.8 million at December 31, 2016. Net loans at December 31, 2017, were $916.0 million, compared to $602.5 million at December 31, 2016. The 52.0% 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 75.5%, residential mortgage loans increased 17.5%, commercial and industrial loans increased 67.2%, real estate construction loans increased 98.3%, and consumer installment loans increased 318.3%.

Total deposits at December 31, 2017, increased 39.4% to $878.2 million from $629.9 million at December 31, 2016. The company continued to proactively manage its cost of funds. The investment portfolio, which is entirely classified as available for sale, was $95.3 million at December 31, 2017, compared with $114.4 million at December 31, 2016.

Stockholders’ Equity, Dividends and Shares Outstanding

At December 31, 2017, stockholders’ equity was $119.9 million, an increase of 55.7% from $77.0 million at December 31, 2016. Tangible stockholders’ equity⁽¹⁾ at December 31, 2017 was $102.0 million, an increase of 41.0% from $72.4 million at December 31, 2016. On a per share basis, tangible stockholders’ equity was $31.71 at December 31, 2017, compared to $32.10 at December 31, 2016. The 1.2% 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. For 2017, the company paid cash dividends of $1.08 per share. The dividend payout ratio for 2017 was 35.52%, compared to 36.18% last year.

At December 31, 2017, the company had an equity to assets leverage ratio of 10.83%, compared to 9.77% at December 31, 2016.

Asset Quality

The provision for loan losses was $430 thousand for the 2017 fourth quarter, compared to $255 thousand for the 2016 fourth quarter. Nonperforming assets at December 31, 2017, were $13.6 million, compared to $13.0 million at December 31, 2016. Net charge-offs for the 2017 fourth quarter were $92 thousand, or 0.04% of average loans, annualized, compared to a net recovery of $9 thousand, or (0.01)% of average loans, annualized for the same 2016 period. For 2017, net charge-offs were $453 thousand, or 0.05% of average loans compared to $357 thousand, or 0.06% of average loans for 2016. The allowance for loan losses at December 31, 2017, stood at $7.2 million, or 0.78% of total loans, compared to $6.6 million, or 1.08% of total loans at December 31, 2016.

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is a bank holding company with total assets of $1.11 billion at December 31, 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.

(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)
(2017 unaudited)
			December 31,				September 30,				June 30,				March 31,				December 31,
Balance Sheets (period end)			2017				2017				2017				2017				2016
ASSETS
Cash and due from banks		$	39,886			$	47,731			$	37,971			$	61,364			$	31,395
Federal funds sold			-				1,200				1,600				1,000				1,100
Cash and cash equivalents			39,886				48,931				39,571				62,364				32,495
Investment securities available for sale, at fair value			95,283				98,334				104,951				110,452				114,376
Loans held for sale			463				5,930				9,791				9,462				634
Loans			923,213				878,541				867,864				837,158				609,140
Less allowance for loan and lease losses			7,190				6,852				6,605				6,720				6,598
Net loans			916,023				871,689				861,259				830,438				602,542
Premises and equipment, net			11,853				11,768				11,511				11,481				11,203
Goodwill			15,071				15,299				15,435				15,646				4,559
Core deposit intangibles			2,749				2,848				2,948				3,051				36
Bank-owned life insurance			15,652				15,542				15,432				15,334				13,540
Other real estate owned			212				557				650				1,634				934
Accrued interest and other assets			9,144				9,928				9,528				9,605				7,502
TOTAL ASSETS		$	1,106,336			$	1,080,826			$	1,071,076			$	1,069,467			$	787,821
			December 31,				September 30,				June 30,				March 31,				December 31,
			2017				2017				2017				2017				2016
LIABILITIES
Deposits:
Noninterest-bearing demand		$	192,438			$	181,550			$	172,199			$	162,614			$	133,630
Interest-bearing demand			83,990				91,184				87,084				94,605				59,560
Money market			150,277				161,101				160,858				162,843				74,940
Savings			208,502				212,371				181,259				183,845				172,370
Time			242,987				251,449				245,383				243,944				189,434
Total deposits			878,194				897,655				846,783				847,851				629,934
Short-term borrowings			74,707				20,274				63,388				76,213				68,359
Other borrowings			29,065				39,273				39,346				39,388				9,437
Accrued interest and other liabilities			4,507				5,130				4,357				6,700				3,131
TOTAL LIABILITIES			986,473				962,332				953,874				970,152				710,861
STOCKHOLDERS' EQUITY
Common equity			84,859				84,722				84,587				69,123				47,943
Retained earnings			47,431				45,913				44,318				42,678				41,334
Accumulated other comprehensive income			1,091				1,377				1,815				1,032				1,201
Treasury stock			(13,518	)			(13,518	)			(13,518	)			(13,518	)			(13,518	)
TOTAL STOCKHOLDERS' EQUITY			119,863				118,494				117,202				99,315				76,960
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,106,336			$	1,080,826			$	1,071,076			$	1,069,467			$	787,821

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands)
(2017 unaudited)
			For the Three Months Ended																	For the Twelve Months Ended
			December 31,				September 30,			June 30,			March 31,			December 31,				December 31,			December 31,
Statements of Income			2017				2017			2017			2017			2016				2017			2016
INTEREST AND DIVIDEND INCOME
Interest and fees on loans		$	10,696			$	10,443		$	9,916		$	9,180		$	6,849			$	40,235		$	25,798
Interest-bearing deposits in other institutions			80				107			92			49			11				328			53
Federal funds sold			6				5			1			3			4				15			20
Investment securities:
Taxable interest			162				159			223			218			241				762			1,106
Tax-exempt interest			560				579			630			637			686				2,406			2,913
Dividends on stock			60				37			40			112			30				249			104
Total interest and dividend income			11,564				11,330			10,902			10,199			7,821				43,995			29,994
INTEREST EXPENSE
Deposits			1,530				1,468			1,227			1,125			953				5,350			3,618
Short-term borrowings			101				202			273			177			34				753			322
Other borrowings			131				148			125			140			86				544			250
Total interest expense			1,762				1,818			1,625			1,442			1,073				6,647			4,190
NET INTEREST INCOME			9,802				9,512			9,277			8,757			6,748				37,348			25,804
Provision for loan losses			430				280			170			165			255				1,045			570
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			9,372				9,232			9,107			8,592			6,493				36,303			25,234
NONINTEREST INCOME
Service charges on deposit accounts			478				479			449			469			497				1,875			1,940
Investment securities gains, net			-				398			-			488			-				886			303
Earnings on bank-owned life insurance			115				109			98			109			106				431			403
Gains on sale of loans			106				255			231			234			97				826			419
Other income			219				200			211			211			200				841			894
Total noninterest income			918				1,441			989			1,511			900				4,859			3,959
NONINTEREST EXPENSE
Salaries and employee benefits			3,134				3,725			3,203			3,696			2,509				13,758			10,249
Occupancy expense			449				476			433			488			319				1,846			1,252
Equipment expense			261				242			266			281			291				1,050			991
Data processing costs			416				468			588			320			407				1,792			1,335
Ohio state franchise tax			186				186			186			186			184				744			632
Federal deposit insurance expense			165				165			135			68			42				533			438
Professional fees			522				434			423			373			384				1,752			1,441
Net (gain) loss on other real estate owned			(58	)			18			15			55			(366	)			30			(119	)
Advertising expenses			161				248			164			248			130				821			734
Core deposit intangible amortization			98				101			103			72			10				374			40
Merger expense			28				338			307			387			-				1,060			-
Other expense			855				896			881			1,093			1,047				3,725			3,879
Total noninterest expense			6,217				7,297			6,704			7,267			4,957				27,485			20,872
Income before income taxes			4,073				3,376			3,392			2,836			2,436				13,677			8,321
Income taxes			1,687				914			885			736			776				4,222			1,905
NET INCOME		$	2,386			$	2,462		$	2,507		$	2,100		$	1,660			$	9,455		$	6,416

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
(Dollar amounts in thousands, except per share amounts)
			For the Three Months Ended															For the Twelve Months Ended
			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
			2017			2017			2017			2017			2016			2017			2016
Per common share data
Net income per common share - basic		$	0.73		$	0.77		$	0.84		$	0.78		$	0.74		$	3.12		$	3.04
Net income per common share - diluted		$	0.73		$	0.76		$	0.83		$	0.78		$	0.73		$	3.10		$	3.03
Dividends declared per share		$	0.27		$	0.27		$	0.27		$	0.27		$	0.27		$	1.08		$	1.08
Book value per share (period end)		$	37.25		$	36.86		$	36.49		$	35.42		$	34.14		$	37.25		$	34.14
Tangible book value per share (period end) (2) (3)		$	31.71		$	31.21		$	30.77		$	28.76		$	32.10		$	31.71		$	32.10
Dividend payout ratio			36.38%			35.22%			34.58%			36.00%			36.63%			35.52%			36.18%
Dividends declared		$	868		$	867		$	867		$	756		$	608		$	3,358		$	2,318
Dividend yield			2.24%			2.34%			2.14%			2.39%			2.79%			2.24%			2.79%
Average shares outstanding - basic			3,215,300			3,212,335			3,000,451			2,679,816			2,251,412			3,028,950			2,107,857
Average shares outstanding - diluted			3,231,791			3,223,753			3,014,140			2,692,015			2,264,712			3,045,779			2,119,214
Period ending shares outstanding			3,217,716			3,214,737			3,211,748			2,803,557			2,254,253			3,217,716			2,254,253
Selected ratios
Return on average assets			0.86%			0.90%			0.94%			0.84%			0.85%			0.88%			0.85%
Return on average equity			7.72%			8.12%			9.34%			8.73%			9.02%			8.52%			9.33%
Return on average tangible common equity (2) (4)			9.05%			9.57%			11.30%			10.49%			9.69%			10.15%			10.01%
Yield on earning assets			4.51%			4.52%			4.45%			4.45%			4.43%			4.48%			4.37%
Cost of interest bearing liabilities			0.89%			0.92%			0.83%			0.78%			0.77%			0.86%			0.75%
Net interest spread			3.62%			3.60%			3.62%			3.67%			3.66%			3.63%			3.61%
Net interest margin			3.84%			3.81%			3.80%			3.84%			3.84%			3.82%			3.79%
Efficiency (1)			55.58%			63.96%			63.30%			68.58%			62.54%			62.40%			66.63%
Equity to assets at period end			10.83%			10.96%			10.94%			9.29%			9.77%			10.83%			9.77%

(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
			December 31,			September 30,			June 30,			March 31,			December 31,
End of Period Loan Balances			2017			2017			2017			2017			2016
Commercial and industrial		$	101,346		$	99,314		$	97,160		$	91,777		$	60,630
Real estate - construction			47,017			40,760			35,571			29,238			23,709
Real estate - mortgage:
Residential			318,157			316,191			308,519			300,508			270,830
Commercial			437,947			403,135			406,670			395,102			249,490
Consumer installment			18,746			19,141			19,944			20,533			4,481
Total		$	923,213		$	878,541		$	867,864		$	837,158		$	609,140
			December 31,			September 30,			June 30,			March 31,			December 31,
Asset quality data			2017			2017			2017			2017			2016
(Dollar amounts in thousands)
Nonaccrual loans		$	8,433		$	8,525		$	10,213		$	6,545		$	5,892
Troubled debt restructuring			4,982			5,608			5,990			5,515			6,151
90 day past due and accruing			-			268			199			35			-
Nonperforming loans			13,415			14,401			16,402			12,095			12,043
Other real estate owned			212			557			650			1,634			934
Nonperforming assets		$	13,627		$	14,958		$	17,052		$	13,729		$	12,977
Allowance for loan losses		$	7,190		$	6,852		$	6,605		$	6,720		$	6,598
Allowance for loan losses/total loans			0.78%			0.78%			0.76%			0.80%			1.08%
Net charge-offs (recoveries):
Quarter-to-date		$	92		$	33		$	285		$	43		$	(9)
Year-to-date		$	453		$	361		$	328		$	43		$	357
Net charge-offs to average loans, annualized
Quarter-to-date			0.04%			0.02%			0.13%			0.02%			-0.01%
Year-to-date			0.05%			0.06%			0.08%			0.02%			0.06%
Nonperforming loans/total loans			1.45%			1.64%			1.89%			1.44%			1.98%
Allowance for loan losses/nonperforming loans			53.60%			47.58%			40.27%			55.56%			54.79%
Nonperforming assets/total assets			1.23%			1.38%			1.59%			1.28%			1.65%
Reconciliation of Common Stockholders' Equity to Tangible Common Equity			For the Three Months Ended															For the Twelve Months Ended
			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
			2017			2017			2017			2017			2016			2017			2016
Stockholders' Equity		$	119,863		$	118,494		$	117,202		$	99,315		$	76,960		$	119,863		$	76,960
Less Goodwill and other intangibles			17,820			18,147			18,383			18,697			4,595			17,820			4,595
Tangible Common Equity		$	102,043		$	100,347		$	98,819		$	80,618		$	72,365		$	102,043		$	72,365
Average Stockholders' Equity		$	122,586		$	120,310		$	107,615		$	97,585		$	72,979		$	110,966		$	68,741
Less Average Goodwill and other intangibles			17,987			18,251			18,633			16,402			5,004			17,818			4,615
Average Tangible Common Equity		$	104,599		$	102,059		$	88,982		$	81,183		$	67,975		$	93,148		$	64,126

View source version on businesswire.com: http://www.businesswire.com/news/home/20180123006152/en/