Middlefield Banc Corp. Reports Continued Strong Earnings and Asset Growth

MIDDLEFIELD, Ohio, Oct. 29  /PRNewswire-FirstCall/ -- Middlefield Banc Corp. (Pink Sheets: MBCN), parent of The Middlefield Banking Company and Emerald Bank, today announced results for the quarter and nine months ended September 30, 2010.

  • Net income of $463,000, up 117.4% from the third quarter of 2009.
  • Total assets increased $78.4 million, or 14.0%, from December 31, 2009.
  • Net interest income in a year-to-year comparison grew $2.9 million or 27.8%.
  • Total deposits stood at $563.5 million, an increase of 15.7% for the nine month period.
  • Diluted earnings per common share for the quarter were $0.29.
  • Tangible book value per share at September 30, 2010 stood at $23.44.

The company reported that earnings for the third quarter ended September 30, 2010, were $463,000 compared to earnings of $213,000 for the same period in the prior year.  Earnings per diluted share for the 2010 quarter were $0.29, while those reported for the 2009 period were $0.14.

Net income for the nine months ended September 30, 2010 was $1.8 million, a $546,000, or 42.8% increase from the $1.3 million earned during the same period of 2009.  Year-to-date diluted earnings per share were $1.16 in 2010 compared to $0.83 in 2009.

During the 2010 third quarter, net interest income increased $830,000 from the third quarter of 2009.  The provision for loan losses in the third quarter of 2010 stood at $1.2 million, which was $120,000 less than the same period of 2009.  Total non-interest expense increased $703,000, while non-interest income during the third quarter of 2010 was $5,000 above that reported in the same period of 2009.    

Annualized returns on average equity ("ROE") and average assets ("ROA") for the 2010 third quarter were 4.54% and 0.29%, respectively, compared with 2.34% and 0.17% for the third quarter of 2009.  The nine month period ending September 30, 2010 saw ROE and ROA of 6.31% and 0.41%, respectively.  The comparable period 2009 results were 4.72% and 0.35%.

"We are pleased to report continued strong financial results for the third quarter and year-to-date periods, especially in light of an economic environment that continues to be extremely challenging," stated Thomas G. Caldwell, President and Chief Executive Officer, "We have continued to enhance our profitability by following solid banking fundamentals.  Our results demonstrate solid performance on many fronts, including continued core deposit growth, an expanded net interest margin, and additions to our capital base."

"Because of the uncertainty associated with the magnitude and timing of the economic recovery, we believe it prudent to continue to position our balance sheet to better absorb potential credit losses.  We have also taken the opportunity to add staff and processes to address problem credits.  These efforts have begun to bear fruit in the third quarter and should lead to a decline in non-performing assets in the near term."

"Our focus remains on delivering excellent customer service, offering a dynamic suite of products, and maximizing value for our shareholders," Caldwell concluded.

Asset Quality

For the nine months ended September 30, 2010, the provision for loan losses increased 33.8% to $2.4 million, which compares to the $1.8 million for the same period of 2009.  For the three month period ended September 30, 2010, the provision for loan losses was $1.2 million.  During the same period of 2009, the provision was $1.3 million.  "To address credit quality issues, we believe it only prudent to continue with a higher than historic level of loan loss provision," stated Donald L. Stacy, Chief Financial Officer of Middlefield Banc Corp. "Our asset quality numbers are a reflection of the economic uncertainty that continues on a national scale.  This continued weakness remains a concern and warrants measures to provide for the sound operation of our company."

Stacy continued, "We are, however, finding that our problem credits have been properly identified as the increase in our non-performing assets has stabilized.  Expectations are that an improvement in our asset quality numbers will be seen through 2011."  

The following table summarizes asset quality and reserve coverage ratios.



Asset Quality History



















(dollars in thousands)




















9/30/2010



6/30/2010



3/31/2010



12/31/2009



9/30/2009

















Nonperforming loans


$

20,983


$

20,053


$

18,143


$

16,285


$

14,368

Real estate owned



2,016



1,886



2,175



2,164



1,775

















Nonperforming assets


$

22,999


$

21,939


$

20,318


$

18,450


$

16,143

















Allowance for loan losses


$

5,971


$

5,834


$

5,279


$

4,937


$

4,422

















Ratios:
















Nonperforming loans to total loans



5.75%



5.50%



5.04%



4.61%



4.15%

Nonperforming assets to total
















 assets



3.61%



3.61%



3.42%



3.30%



3.12%

Allowance for loan losses to total
















 loans



1.63%



1.60%



1.47%



1.40%



1.28%

Allowance for loan losses to
















 nonperforming loans



28.46%



29.09%



29.10%



30.31%



30.78%



The increased loan loss provision has significantly outpaced loan charge-offs. Net charge-offs for the third quarter of 2010 was 0.30% of average loans, while the ratio for the first nine months of 2010 was 0.37%.  The ratio of the allowance for loan losses to total loans stood at 1.63% at September 30, 2010, compared to the 1.40% reported at December 31, 2009, and 1.28% at September 30, 2009.  Based upon the evaluation of the allowance for loan losses, it is the belief of management that, as of September 30, 2010, the allowance for loan losses was adequate and reflects probable incurred losses within the portfolio.  

Net Interest Income

Net Interest Income totaled $13.3 million for the first nine months of 2010.  This represents an increase of 27.8% from the $10.4 million reported for the comparable period of 2009.  The improvement in net interest income was primarily generated by an increase in both average earning assets and net interest margin.  Interest income on investment securities increased $1.6 million while the company experienced a decrease in interest expense on deposits of $527,000.  Continued action by the Federal Open Market Committee to hold interest rates at historic low levels has provided the company the opportunity to continue to lower funding costs.  The pricing environment for new loans remains highly competitive within the company's markets.  Interest earnings on loans did increase $641,000 from the year ago period.  This increase in earnings on loans was achieved in spite of the level on non-performing loans.  

For the three month period ended September 30, 2010 compared to the same period of 2009, Middlefield's net interest income was up 21.9%, or $830,000.  The positive variance was based on an increase of $541,000 from the investment portfolio and an increase of $149,000 from the loan portfolio coupled with a decrease in interest expense of $110,000.    

The net interest margin for the first nine months of 2010 was 3.39%, representing an increase from the 2009 same period result of 3.31%.  The yield on earning assets dropped 59 basis points, while the cost of interest-bearing liabilities experienced a decrease of 78 basis points.  

Non-Interest Income and Operating Expenses

Non-interest income increased $5,000 for the three-month period of 2010 from the comparable 2009 period.  A gain on investment securities and slightly increased earnings on bank-owned life insurance served to offset a decrease in service charges on deposit accounts.  The lower service charges on deposit accounts are attributable to Federal regulatory changes to overdraft rules.  For the first nine months of 2010, deposit services charges were $73,000 below the same period of 2009.  This was offset by an increase in investment services income as well as the collection of rents on OREO properties.      

Non-interest expense of $3.7 million for the third quarter of 2010 was 23.1%, or $703,000 higher than the third quarter of 2009.  Increases in salaries and employee benefits of $147,000 are primarily attributable to staff additions, as well as an increase in health insurance costs.  An increase in the FDIC deposit insurance assessment of $111,000, recognition of higher losses on other real estate owned of $408,000, and an increase of $213,000 related to delinquent loans, foreclosures, and maintaining OREO properties were the primary contributors to higher 2010 non-interest expenses.      

For the nine month period of 2010, total operating costs were $1.8 million above those of the 2009 comparable period.  Contributing to the increase were salaries and employee benefits (up $463,000), equipment expense related to an upgrade in the computer network in April 2010 (up $133,000), loss on sale of OREO (up $567,000), and increased other expenses (up $578,000).  The higher other expense figure includes $443,000 directly related to loan quality issues, of which $319,000 were in loan and other real estate owned expense in the company's non-bank subsidiary, EMORECO, Inc.

Balance Sheet Growth

The company's total assets as of September 30, 2010 stood at $637.1 million, an increase of 14.0% over the $558.7 million in total assets reported at December 31, 2009.  Net loans at September 30, 2010, were $359.2 million, up $10.6 million, or 3.0%, over the $348.7 million reported at December 31, 2009.  Total deposits at the end of the third quarter 2010 were $563.5 million, or 15.7% greater than the deposit level of $487.1 million at December 31, 2009.  

The investment portfolio, which is entirely classified as available for sale, stood at $195.1 million at September 30, 2010.  This figure represented growth within that portfolio of $58.4 million from the prior year-end.  Stockholders' equity at September 30, 2010, was $41.7 million.  Book value per share as of September 30, 2010, was $26.31.

Dividends    

During the third quarter of both 2010 and 2009, Middlefield paid cash dividends of $0.26 per share.

Middlefield Banc Corp. headquartered in Middlefield, Ohio is a multi-bank holding company with total assets of $637.1 million.  The company's lead bank, The Middlefield Banking Company, operates full service banking centers and a UVEST Financial Services® brokerage office serving Chardon, Cortland, Garrettsville, Mantua, Middlefield, Newbury, and Orwell.  The company also serves the central Ohio market through its Emerald Bank subsidiary, with offices in Dublin and Westerville, Ohio.  Additional information is available at www.middlefieldbank.com and www.emeraldbank.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.    

MIDDLEFIELD BANC CORP.

Consolidated Selected Financial Highlights


September 30, 2010 and 2009 and December 31, 2009












(unaudited)






(unaudited)

Balance Sheet (period end)


September 30,



December 31,



September 30,

(Dollar amounts in thousands)


2010



2009



2009










Assets









Cash and due from banks

$

13,645


$

12,909


$

11,143

Federal funds sold


37,701



28,123



19,534

Interest-bearing deposits in other institutions


124



121



121

  Cash and cash equivalents


51,470



41,153



30,798

Investment securities available for sale


195,101



136,711



116,880

Loans:


365,219



353,597



345,919

Less:  reserve for loan losses


5,971



4,937



4,422

     Net loans


359,248



348,660



341,497

Premises and equipment


8,222



8,394



8,257

Goodwill


4,559



4,559



4,559

Bank-owned life insurance


7,911



7,706



7,638

Accrued interest receivable and other assets


10,578



11,475



8,317

Total Assets

$

637,089


$

558,658


$

517,946












September 30,



December 31,



September 30,



2010



2009



2009

Liabilities and Stockholders' Equity









Non-interest bearing demand deposits

$

55,448


$

44,387


$

40,964

Interest bearing demand deposits


44,232



38,111



34,877

Money market accounts


71,097



56,451



42,079

Savings deposits


141,693



107,358



99,322

Time deposits


251,021



240,799



230,687

  Total Deposits


563,491



487,106



447,929

Short-term borrowings


7,762



6,800



1,668

Federal funds purchased


0



0



0

Other borrowings


22,035



25,865



28,772

Other liabilities


2,111



2,180



2,098

  Total Liabilities


595,399



521,951



480,467










Common equity


28,315



27,919



27,760

Retained earnings


15,558



14,960



14,861

Accumulated other comprehensive income


4,551



562



1,592

Treasury stock


(6,734)



(6,734)



(6,734)

  Total Stockholders' Equity


41,690



36,707



37,479










Total Liabilities and Stockholders' Equity

$

637,089


$

558,658


$

517,946















MIDDLEFIELD BANC CORP.

Consolidated Selected Financial Highlights

September 30, 2010 and 2009

(Dollar amounts in thousands)

(unaudited)


For the Three Months Ended


For the Nine Months Ended


September 30,


September 30,



2010



2009



2010



2009

INTEREST INCOME












  Interest and fees on loans

$

5,325


$

5,176


$

15,721


$

15,080

  Interest-bearing deposits in other institutions


3



2



10



12

  Federal funds sold


15



4



38



11

  Investment securities












     Taxable interest


1,290



976



3,832



2,753

     Tax-exempt interest


702



475



1,941



1,375

  Dividends on stock


33



15



82



46

     Total interest income


7,368



6,648



21,624



19,277

INTEREST EXPENSE












  Deposits


2,391



2,501



7,249



7,776

  Short term borrowings


66



5



186



15

  Other borrowings


147



222



520



717

  Trust preferred securities


148



134



412



399

     Total interest expense


2,752



2,862



8,367



8,907

NET INTEREST INCOME


4,616



3,786



13,257



10,370













Provision for loan losses


1,226



1,346



2,355



1,760

NET INTEREST INCOME AFTER PROVISION












  FOR LOAN LOSSES


3,390



2,440



10,902



8,610

NONINTEREST INCOME












  Service charges on deposits


473



488



1,321



1,394

  Earnings on bank-owned life insurance


72



0



204



0

  Other income


132



68



419



197

  Net securities gains (losses)


18



134



45



359

     Total non-interest income


695



690



1,989



1,950

NONINTEREST EXPENSE












  Salaries and employee benefits


1,543



1,396



4,767



4,304

  Occupancy expense


224



215



717



691

  Equipment expense


156



152



558



425

  Data processing costs


160



224



575



692

  Ohio state franchise tax


134



123



404



370

  Federal deposit insurance expense


197



86



589



529

  Professional fees


110



159



490



444

  Loss on sale of other real estate owned


536



128



750



183

  Other operating expense


682



556



2,278



1,700

     Total non-interest expense


3,742



3,039



11,128



9,338

Income before income taxes


343



91



1,763



1,222

Provision for income taxes


(120)



(122)



(60)



(55)

NET INCOME

$

463


$

213


$

1,823


$

1,277
















For the Three Months Ended


For the Nine Months Ended


September 30,


September 30,


2010


2009


2010


2009

Per common share data












Net income per common share - basic

$

0.29


$

0.14


$

1.16


$

0.83

Net income per common share - diluted

$

0.29


$

0.14


$

1.16


$

0.83

Dividends declared

$

0.26


$

0.26


$

0.78


$

0.78

Book value per share(period end)

$

26.31


$

24.07


$

26.31


$

24.07

Tangible book value per share (period end)

$

23.44


$

21.15


$

23.44


$

21.15

Dividend payout ratio


88.55%



188.77%



67.22%



94.18%

Average shares outstanding - basic


1,578,832



1,551,056



1,571,762



1,543,577

Average shares outstanding -diluted


1,578,832



1,551,069



1,572,726



1,544,677

Period ending shares outstanding


1,584,281



1,556,774



1,584,281



1,556,774













Selected ratios












Return on average assets


0.29%



0.17%



0.41%



0.35%

Return on average equity


4.54%



2.34%



6.31%



4.72%

Yield on earning assets


5.26%



5.92%



5.38%



5.97%

Cost of interest bearing liabilities


2.08%



2.72%



2.19%



2.97%

Net interest spread


3.19%



3.20%



3.19%



3.00%

Net interest margin


3.39%



3.46%



3.39%



3.31%

Efficiency (1)


65.97%



64.39%



68.50%



71.68%

Equity to assets at period end


6.54%



7.24%



6.54%



7.24%


(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.





September 30,



September 30,

Asset quality data


2010



2009

(Dollar amounts in thousands)




Non-accrual loans

$

18,681


$

11,313

90 day past due and accruing


2,302



3,055

Non-performing loans


20,983



14,368

Other real estate owned


2,016



1,775

Non-performing assets

$

22,999


$

16,143













Allowance for loan losses

$

5,971


$

4,422

Allowance for loan losses/total loans


1.63%



1.28%

Net charge-offs:






  Quarter-to-date

$

1,089


$

592

  Year-to-date


1,321



895

Net charge-offs to average loans






  Quarter-to-date


0.30%



0.17%

  Year-to-date


0.37%



0.27%

Non-performing loans/total loans


5.75%



4.15%

Allowance for loan losses/non-performing loans


28.46%



30.78%



Contact:

James R. Heslop, 2nd


Executive Vice President/Chief Operating Officer


(440) 632-1666 Ext. 3219


jheslop@middlefieldbank.com



SOURCE Middlefield Banc Corp.



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