Middlefield Banc Corp. Reports Third Quarter 2008 Earnings

Middlefield Banc Corp. 2008 Press Releases

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Contact Info: James R. Heslop, 2nd
Middlefield Banc Corp.
Executive Vice President/Chief Operating Officer
440.632.1666 Ext. 3219
Date: October 21, 2008

MIDDLEFIELD, OHIO  Middlefield Banc Corp. (Pink Sheets:  MBCN) today reported consolidated net income for the third quarter of 2008 totaled $704,448, or 18.2% less than the $860,944 reported for the same period in 2007.  Diluted earnings per share for the third quarter of 2008 were $0.46, a 13.2% decrease from 2007's third quarter diluted earnings per share of $0.53.

Annualized returns on average equity ("ROE") and average assets ("ROA") for the quarter were 8.77% and 0.63%, respectively, compared with 10.06% and 0.83% for the third quarter of 2007.

For the nine months ended September 30, 2008, the company reported net income of $2,224,473, or $1.44 per diluted share. For the same period of 2007, net income was $2,512,550, or $1.59 per diluted share. ROE and ROA were 8.78% and 0.66%, respectively, for the nine-month period.  Comparable results for the 2007 nine-month period were 10.16% and 0.87%, respectively.

Thomas G. Caldwell, President and Chief Executive Officer, commented on the 2008 financial results, "During an historic time of turmoil in the financial markets, our conservatively positioned balance sheet has provided us with a stable level of earnings.  Our company has no exposure to Fannie Mae or Freddie Mac preferred stock, subprime mortgages, or any of the large financial firms that have failed or received government assistance.  Our focus, as it has been for 107 years, is on the local communities that we are privileged to serve on a daily basis. We are fortunate to have ample liquidity and, unlike some financial institutions, continue to actively seek lending opportunities. We firmly believe that we have the financial flexibility to positively contribute during this time of economic uncertainty."

The company's total assets ended the third quarter of 2008 at $454.1 million, an increase of 4.6% over the $434.3 million in total assets reported at December 31, 2007.  Net loans at September 30, 2008, were $316.5 million, up $10.4 million, or 3.4%, over the $306.1 million reported at December 31, 2007. Total deposits at September 30, 2008, were $380.0 million, or 4.7% greater than the deposit level of $362.9 million at December 31, 2007.

Highlights for the third quarter of 2008 include:

  • Net interest income was $3.15 million, an increase of 8.4% from the $2.91 million reported for the comparable period of 2007. The net interest margin was 3.20% for the third quarter of 2008, up from the 3.15% reported for the same quarter of 2007.  The increase in the net interest margin has been limited due to higher deposit costs and competitive pricing on lending opportunities associated with the current interest rate environment.  Deposit growth at the banks has primarily been in products such as time deposits and money market accounts, which generally carry higher interest costs than other deposit alternatives. The company has also grown its investment portfolio, which, while conservative, has produced a lower earnings yield than could be found in loan growth.
     
  • Non-interest income increased $26,400 for the third three-month period of 2008 over the comparable 2007 period.  This increase of 4.0% was primarily the result of a gain recognized on investment securities.  Service charges on deposit accounts decreased $1,200, with other non-interest income being $3,500 lower. Earnings on bank-owned life insurance were $5,400 higher during the third quarter of 2008 than the same period of 2007.
     
  • Non-interest expense for the third quarter of 2008 was 12.9%, or $312,600, higher than the third quarter of 2007.  Increases in salary and employee benefits of $101,400 were largely attributable to increased staffing, including the opening of the Cortland banking office, normal wage adjustments, and an additional payroll in the third quarter of 2008 that did not exist in 2007. Other expense items contributing to the overall increase were costs associated with compliance with Section 404 of the Sarbanes-Oxley Act, primarily centered in audit and legal functions, higher fees associated with the increased level of ATM/Debit card usage, amortization of the core deposit intangible associated with acquisitions made by the company, and higher postage. Significantly increasing were FDIC premiums, with further increases anticipated as that agency works to meet statutory minimums.
     
  • Total deposit growth for the first nine months of 2008 was $17.0 million. Time deposits increased $12.5 million, while money market accounts and interest bearing demand accounts grew $4.1 million and $7.8 million, respectively. Savings deposits decreased $7.1 million during the period.  Net loans at September 30, 2008, stood at $316.5 million. This increase of $10.4 million was attributable to growth in the commercial and home equity loan portfolio segments.  The investment portfolio, which is entirely classified as available for sale, stood at $96.4 million at September 30, 2008.  This figure represented growth within that portfolio of $10.4 million during the nine-month period.
     
  • Provision for loan losses was $187,000 for the 2008 third quarter. This figure includes an additional provision of $122,000 above plan, in recognition of a limited number of real estate secured loans at Emerald Bank. The provision is maintained at a level to absorb management's estimate of probable inherent credit losses within the company's loan portfolio.  At September 30, 2008, the allowance for loan losses as a percentage of total loans was 1.13%, which was above the 1.01% reported at September 30, 2007. The ratio of non-performing loans to total loans stood at 2.11% at September 30, 2008. This was an increase from the 1.24% reported as of September 30, 2007. Loans classified as non-accrual at September 30, 2008, were $3.42 million, which was up from the $2.10 million reported at September 30, 2007.  Loans past due 90 days and still accruing interest, as of September 30, 2008, were $3.33 million.  Additionally, the company held $1.11 million in other real estate owned, primarily at its Emerald Bank affiliate.
     
  • Stockholders' equity at September 30, 2008, was $33.4 million, or 7.35% of total assets.  Book value per share as of September 30, 2008 was $21.83.
     
  • In the first nine months of 2008, Middlefield paid cash dividends of $0.77 per share.  This represents an increase of 11.6% over the cash dividends paid during the same period of 2007.  The 2007 cash dividend amount has been adjusted to reflect the 5% stock dividend paid by the company during the fourth quarter of 2007.

"Our level of non-interest expense, as we have reported earlier, has been impacted by our continued growth in both our northeastern Ohio and central Ohio markets.  Our Cortland, Ohio, office opened in mid-June and has experienced a very positive reception.  Additionally, we continue to work towards our acquisition of a banking office in Westerville, Ohio, which should occur in early November of this year," noted Donald L. Stacy, Chief Financial Officer and Treasurer of Middlefield Banc Corp.

"While the level of charge-offs has been modest to this point, we expect that additional losses will be recognized during the fourth quarter.  Although these losses and the level of delinquency remains above our historical norms, we should remain at or below peer ranges," Stacy concluded.

Middlefield Banc Corp. is a financial holding company headquartered in Middlefield, Ohio.  Its subsidiary, The Middlefield Banking Company, operates full service banking centers and a LPL Financial brokerage office serving Chardon, Cortland, Garrettsville, Mantua, Middlefield, Newbury, and Orwell.  Emerald Bank operates a full service office in Dublin, Ohio.  Further information is available at www.middlefieldbank.com and www.emeraldbank.com

This announcement contains forward-looking statements that involve risk and uncertainties, including changes in general economic and financial market conditions and the Company's ability to execute its business plans.  Although management believes the expectations reflected in such statements are reasonable, actual results may differ materially.

MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
September 30, 2008 and 2007 and December 31, 2007
   
  (unaudited)           (unaudited)
Balance Sheet (period end)      September 30,      December 31,     September 30,
2008     2007 2007
Assets
Cash and due from banks $ 8,263,756 $ 9,072,972 $ 7,732,190
Federal funds sold 4,570,826 8,631,963 4,525,161
Interest-bearing deposits in other institutions 112,215 110,387 564,831
Cash and cash equivalents 12,946,798 17,815,322 12,822,182
Investment securities available for sale 96,371,351 85,967,764 81,367,463
Investment securities held to maturity (estimated -     -     119,899
market value of $120,545 at September 30, 2007)
Loans: 320,151,943 309,445,922 307,026,362
Less:  reserve for loan losses 3,613,857 3,299,276 3,112,669
Net loans 316,538,086 306,146,646 303,913,693
Premises and equipment 8,018,503 7,044,685 6,996,275
Goodwill 4,371,207 4,371,206 5,439,066
Bank-owned life insurance 7,371,180 7,153,381 7,082,906
Accrued interest receivable and other assets 8,450,811 5,774,052 5,750,920
Total Assets $ 454,067,936    $ 434,273,056    $ 423,492,404
   
 September 30,  December 31,  September 30,
2008     2007 2007
Liabilities and Stockholders' Equity
Non-interest bearing demand deposits $ 40,929,373 $ 41,348,219 $ 42,109,757
Interest bearing demand deposits 27,409,745 19,566,035 20,294,998
Money market accounts 26,831,740 22,684,041 24,406,099
Savings deposits 69,835,964 76,895,857 79,468,128
Time deposits 214,957,328 202,423,848 186,471,126
  Total Deposits 379,964,150 362,918,000 352,750,108
Short-term borrowings 1,693,699 1,510,607 2,512,582
Federal funds purchased -    - -
Other borrowings 36,687,924 32,395,319 31,102,006
Other liabilities 2,340,455 2,487,746 2,281,561
Total Liabilities 420,686,229 399,311,672 388,646,257
Common equity 27,159,602 26,650,123 23,632,830
Retained earnings 14,793,600 13,746,956 16,137,862
Accumulated other comprehensive income (1,837,888) (52,969) (632,343)
Treasury stock (6,733,607) (5,382,726) (4,292,202)
Total Stockholders' Equity 33,381,707 34,961,384 34,846,147
Total Liabilities and Stockholders' Equity $ 454,067,936 $ 434,273,056 $ 423,492,404
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
September 30, 2008 and 2007
(unaudited, dollars in thousands, except per share amounts)
  
For the Three Months Ended For the Nine Months Ended
September 30,   September 30,
  2008

  2007   2008

  2007
INTEREST INCOME            
Interest and fees on loans $ 5,425,266 $ 5,604,206 $ 16,273,630 $ 15,449,822
Interest-bearing deposits in other institutions 1,949 22,159 10,790 127,772
Federal funds sold 22,181 122,029 124,467 383,464
Investment securities
Taxable interest 622,184 323,806 1,793,645 844,454
Tax-exempt interest 449,351 468,552 1,360,226 1,310,932
Dividends on FHLB Stock 29,514 32,426 88,526 84,193
Total interest income 6,550,445 6,573,178 19,651,284 18,200,637
INTEREST EXPENSE        
Deposits 2,948,998 3,176,508 9,381,666 8,360,623
Short term borrowings 17,610 35,750 34,793 75,420
Other borrowings 432,055 453,853 1,254,040 1,368,738
Total interest expense 3,398,663 3,666,111 10,670,499 9,804,781
NET INTEREST INCOME 3,151,782 2,907,067 8,980,785 8,395,856
Provision for loan losses 187,000 60,000 357,000 174,391
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,964,782 2,847,067 8,623,785 8,221,465
NONINTEREST INCOME
Service charges on deposits 493,228 494,456 1,417,789 1,427,458
Investment securities gains, net   25,758 - 34,508 -
Earnings on bank-owned life insurance 75,336 69,909 217,798 210,162
Other income 85,925 89,445 284,820 286,061
Total non-interest income 680,247 653,810 1,954,915 1,923,681
NONINTEREST EXPENSE
Salaries and employee benefits 1,322,026 1,220,646 3,643,199 3,365,646
Occupancy expense 203,298 184,078 643,884 551,586
Equipment expense 150,334 139,197 435,770 393,411
Data processing costs 193,033 186,213 591,098 498,932
Ohio state franchise tax 117,000 109,673 351,000 313,873
Other operating expense 743,890 577,126 2,159,276 1,888,020
Total non-interest expense 2,729,581 2,416,933 7,824,227 7,011,468
Income before income taxes 915,448 1,083,944 2,754,473 3,133,678
Provision for income taxes 211,000 223,000 530,000 621,128
NET INCOME $ 704,448 $ 860,944 $ 2,224,473 $ 2,512,550
   
Per common share data
Net income per common share - basic $ 0.46 $ 0.54 $ 1.45 $ 1.61
Net income per common share - diluted $ 0.46 $ 0.53 $ 1.44 $ 1.59
Dividends declared $ 0.260 $ 0.233 $ 0.770 $ 0.690
Book value per share(period end) $ 21.83 $ 22.11 $ 21.83 $ 22.11
Tangible book value per share (period end) $ 18.97 $ 18.66 $ 18.97 $ 18.66
Dividend payout ratio 56.19% 42.64% 52.95% 42.21%
Average shares outstanding - basic 1,523,044 1,590,839 1,533,741 1,559,061
Average shares outstanding - diluted 1,525,716 1,610,307 1,547,528 1,580,414
Period ending shares outstanding 1,529,292 1,553,863 1,529,292 1,553,863
   
Selected ratios
Return on average assets 0.63% 0.83% 0.66% 0.87%
Return on tangible assets (1) 0.63% 0.84% 0.67% 0.88%
Return on average equity 8.77% 10.06% 8.78% 10.16%
Return on tangible equity (2) 10.15% 11.96% 10.09% 12.16%
Yield on earning assets 6.42% 6.81% 6.48% 6.84%
Cost of interest bearing liabilities 3.62% 4.28% 3.85% 4.21%
Net interest spread 2.80% 2.54% 2.64% 2.64%
Net interest margin 3.20% 3.15% 3.08% 3.29%
Efficiency (3) 67.17% 63.57% 67.24% 63.77%
Equity to assets at period end 7.35% 8.23% 7.35% 8.23%
  
  1. Return on tangible assets is calculated by dividing net income less amortization of intangibles by average assets less average intangibles.
  2. Return on tangible equity is calculated by dividing net income less amortization of intangibles by average equity less average intangibles.
  3. 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 2008     2007
                 
Non-accrual loans $ 3,421,782 $ 2,103,001
90 day past due and accruing 3,327,162 1,689,404
Non-performing loans 6,748,944 3,792,405
Other real estate owned 1,107,547    -
Non-performing assets $ 7,856,491 $ 3,792,405
       
       
Allowance for loan losses $ 3,613,857 $ 3,112,669
Allowance for loan losses/total loans 1.13% 1.01%
Net charge-offs:
Quarter-to-date $ 8,137 $ 231,303
Year-to-date 42,421 347,023
Net charge-offs to average loans
Quarter-to-date 0.00% 0.08%
Year-to-date 0.01% 0.12%
Non-performing loans/total loans 2.11% 1.24%
Allowance for loan losses/non-performing assets 46.00% 82.08%