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.

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