Middlefield Banc Corp. Reports Second 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: July 15, 2008

MIDDLEFIELD, OHIO  Middlefield Banc Corp. (Pink Sheets:  MBCN) today reported that net income for the second quarter of 2008 totaled $783,029, or 12.9% less than the $899,231 reported for the same period in 2007.  Diluted earnings per share for the second quarter of 2008 were $0.51, an 8.9% decrease from 2007's second quarter diluted earnings per share of $0.56.

Results from the first half of 2008 reflect a net income of $1,520,025, an 8.0% decrease compared to $1,651,606 for the first six months of 2007.  Diluted earnings per share for the first half of 2008 were $0.98, or 7.5% less than diluted earnings per share of $1.06 for the first six months of 2007.

Return on average equity for the three months ended June 30, 2008, was 9.11% compared to 10.55% for the same period in 2007. Return on average assets was 0.70% for the three months ended June 30, 2008.  Return on average assets was 0.91% for the three months ended June 30, 2007.  For the six months ended June 30, 2008, the returns on average equity and average assets were 8.86% and 0.69%, respectively.  The comparable period results from 2007 were 10.21% and 0.90%.

President and Chief Executive Officer Thomas G. Caldwell commented, "We are fully aware that there is difficulty in the current economic environment and that the possibility of a strong positive shift in the near term is not likely.  These general conditions, on both a local and a national level, have had a negative impact upon our performance.  Nevertheless, we believe that our financial results for the second quarter 2008 reflect the resiliency with which we have worked to address these issues."

Mr. Caldwell continued, "Our balance sheet growth during the second quarter of 2008 was at a more moderate level. However, we are pleased to report that our net interest margin has leveled and is, in fact, higher than for the first quarter of this year.  While we have never been a participant in the subprime lending arena, we have, nonetheless, felt the impact of the overall housing malaise.  We continue to be very active in taking steps to address the issues confronting us and those within the industry as a whole. While we expect credit conditions to continue to deteriorate in the near term, our efforts to work closely with borrowers to address the difficulties that they are experiencing remain steadfast."

"As we had reported earlier, our expansion into the Central Ohio market combined with that which we have undertaken in our northeastern Ohio markets has had a negative impact on our level of noninterest expense.  During June, our full service banking office opened in Cortland, Ohio. Additional progress continues to be made as we work to close on our previously announced acquisition of a banking office in Westerville, Ohio.  Along with our electronic banking products, we believe that expansion into these markets will have long-term positive effects on our delivery system."

The company's total assets ended the second quarter of 2008 at $447.4 million, an increase of 3.0% over the $434.3 million in total assets reported at December 31, 2007.  Net loans at June 30, 2008, were $315.9 million, up $9.8 million, or 3.2%, over the $306.1 million reported at December 31, 2007. Total deposits at June 30, 2008, were $374.1 million, or 3.1% greater than the deposit level of $362.9 million at December 31, 2007.

Highlights for the second quarter of 2008 include:

  • Net interest income was $3.01 million, an increase of 4.6% from the $2.88 million reported for the comparable period of 2007. The net interest margin was 3.09% for the second quarter of 2008, down from the 3.31% reported for the same quarter of 2007.  The decline in the net interest margin is primarily attributable 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 decreased $20,000 for the second three-month period of 2008 over the comparable 2007 period.  This decrease of 3.1% was primarily the result of lower service charge revenue associated with deposit accounts. The primary factor was a decline in fees associated with the courtesy overdraft program, which was partially offset by expanded ATM/Debit card usage, and an increase in revenue from investment services.  Additionally, earnings on bank-owned life insurance were $4,000 higher during the second quarter of 2008 than the same period of 2007.
     
  • Non-interest expense for the second quarter of 2008 was 11.1%, or $258,000, higher than the second quarter of 2007.  Increases in salary and employee benefits of $87,000 were largely attributable to increased staffing, including additions in anticipation of the opening of the Cortland banking office, the increase in cost of health insurance, as well as normal wage adjustments. 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 and FDIC premiums resulting from increased fee levels charged by those service providers. Data processing costs for the second quarter of 2008 were $27,000 above the level for the same period of 2007.  This increase was a direct result of the growth of the company and the products/services offered.
     
  • Total deposit growth for the first six months of 2008 was $11.2 million. Time deposits increased $8.2 million, while money market accounts and interest bearing demand accounts grew $2.2 million and $3.9 million, respectively. Savings deposits decreased $4.9 million during the period.  Net loans at June 30, 2008, stood at $315.9 million. This increase of $9.8 million was fueled by growth in the commercial and home equity loan portfolio segments.  The investment portfolio, which is entirely classified as available for sale, stood at $93.8 million at June 30, 2008.  This figure represented growth within that portfolio of $7.8 million during the period.
     
  • Provision for loan losses was $95,000 for the 2008-second quarter, which was in line with the company's plan.  The provision is maintained at a level to absorb management's estimate of probable inherent credit losses within the bank's loan portfolio. At June 30, 2008, the allowance for loan losses as a percentage of total loans was 1.08%, which was nearly equal to the 1.09% reported at June 30, 2007. The ratio of non-performing loans to total loans stood at 2.04% at June 30, 2008.  This was an increase from the 1.21% reported as of June 30, 2007.  Loans classified as non-accrual at June 30, 2008, were $3.97 million, which was up from the $1.69 million reported at June 30, 2007. Loans past due 90 days and still accruing interest, as of June 30, 2008, were $2.56 million, or $0.59 million more than the prior year figure.  Additionally, the company held $0.91 million in other real estate owned at its Emerald Bank affiliate.
     
  • Stockholders' equity at June 30, 2008, was $33.6 million, or 7.52% of total assets. Book value as of June 30, 2008 was $22.09 per share.  
      
  • In the first six months of 2008, Middlefield paid a cash dividend of $0.51 per share.  This represents an increase of 11.6% over the cash dividend 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 earnings to this point in 2008 are reflective of the overall difficulties being experienced by most of the financial institutions within our market.  The actions taken by the Federal Reserve to dramatically lower interest rates by 325 basis points since September 2007 has worked to lower the yield on our loan portfolio as a significant percentage of that portfolio is tied to the Prime Interest Rate.  Furthermore, we have found that our competition, after initially dropping deposit pricing, has now become aggressive in their efforts to grow their balance sheets. This has the potential to have a negative impact on our net interest margin going forward as we work to attract new client relationships," commented Donald L. Stacy, Chief Financial Officer and Treasurer of Middlefield Banc Corp.

Stacy continued, "We are also experiencing what is, for us, a higher than normal level of problem loans. While being well secured, we are expending an increased level of effort to effect full collection. Losses will be above recent historic levels, but should remain well within peer ranges."

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.  Its Emerald Bank subsidiary, acquired in 2007, maintains a full service banking 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
                 
June 30, 2008 and 2007 and December 31, 2007
  
    (unaudited)           (unaudited)
Balance Sheet (period end)   June 30,     December 31,     June 30,
    2008     2007     2007
Assets                
Cash and due from banks $ 9,502,382   $ 9,072,972   $ 7,590,873
Federal funds sold   790,062     8,631,963     4,299,341
Interest-bearing deposits in other institutions   110,387     110,387     559,550
   Cash and cash equivalents   10,402,831     17,815,322     12,449,764
Investment securities available for sale   93,797,174     85,967,764     71,874,997
Investment securities held to maturity (estimated   0     0     119,899
   market value of $130,579 at June 30, 2007)                
Loans:   319,350,603     309,445,922     302,528,037
Less:  reserve for loan losses   3,434,993     3,299,276     3,283,975
      Net loans   315,915,610     306,146,646     299,244,062
Premises and equipment   7,974,133     7,044,685     6,910,163
Goodwill   4,371,207     4,371,206     3,224,264
Bank-owned life insurance   7,295,844     7,153,381     7,012,996
Accrued interest receivable and other assets   7,597,413     5,774,052     5,571,474
Total Assets $ 447,354,212     434,273,056     406,407,619
                 
    June 30,     December 31,   June 30,
    2008     2007     2007
Liabilities and Stockholders' Equity                
Non-interest bearing demand deposits $ 43,132,291   $ 41,348,219   $ 41,348,568
Interest bearing demand deposits   23,501,076     19,566,035     13,128,166
Money market accounts   24,849,884     22,684,041     27,511,193
Savings deposits   71,953,596     76,895,857     73,077,850
Time deposits   210,651,595     202,423,848     171,792,572
   Total Deposits   374,088,442     362,918,000     326,858,349
Short-term borrowings   1,402,320     1,510,607     5,768,056
Federal funds purchased   4,310,000     0     0
Other borrowings   31,656,317     32,395,319     37,225,371
Other liabilities   2,262,658     2,487,746     2,084,045
   Total Liabilities   413,719,737     399,311,672     371,935,821
                 
Common equity   26,900,738     26,650,123     23,521,438
Retained earnings   14,594,769     13,746,956     15,644,003
Accumulated other comprehensive income   (1,127,425)     (52,969)     (1,288,586)
Treasury stock   (6,733,607)     (5,382,726)     (3,405,057)
   Total Stockholders' Equity   33,634,475     34,961,384     34,471,798
                 
Total Liabilities and Stockholders' Equity $ 447,354,212   $ 434,273,056   $ 406,407,619
                 
                 
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
June 30, 2008 and 2007
(unaudited, dollars in thousands, except per share amounts)
                       
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
    2008     2007     2008     2007
INTEREST INCOME                      
   Interest and fees on loans $ 5,393,090   $ 5,315,387   $ 10,848,364   $ 9,845,616
   Interest-bearing deposits
       in other institutions
  3,638     49,724     8,841     105,613
   Federal funds sold   22,982     130,200     102,286     261,435
   Investment securities                      
      Taxable interest   615,132     254,534     1,180,211     520,648
      Tax-exempt interest   456,932     459,595     910,875     842,380
   Dividends on FHLB Stock   29,612     26,272     59,012     51,767
      Total interest income   6,521,386     6,235,712     13,109,589     11,627,459
INTEREST EXPENSE                      
   Deposits   3,098,688     2,869,444     6,432,668     5,184,115
   Short term borrowings   7,288     20,455     17,183     39,670
   Other borrowings   407,874     469,473     821,985     914,885
      Total interest expense   3,513,850     3,359,372     7,271,836     6,138,670
NET INTEREST INCOME   3,007,536     2,876,340     5,837,753     5,488,789
Provision for loan losses   95,000     69,391     170,000     114,391
NET INTEREST INCOME AFTER                      
   PROVISION FOR LOAN LOSSES   2,912,536     2,806,949     5,667,753     5,374,398
NONINTEREST INCOME                      
   Service charges on deposits   459,033     481,055     924,561     933,002
   Earnings on bank-owned life insurance   72,374     68,174     142,462     140,253
   Other income   97,060     99,014     198,895     196,616
   Net securities gains (losses)   0     0     0     0
      Total non-interest income   628,467     648,243     1,265,918     1,269,871
NONINTEREST EXPENSE                      
   Salaries and employee benefits   1,126,754     1,040,092     2,321,173     2,145,000
   Occupancy expense   209,403     198,278     440,586     367,508
   Equipment expense   139,326     132,423     285,436     254,214
   Data processing costs   188,785     161,471     398,065     312,719
   Ohio state franchise tax   117,000     108,200     234,000     204,200
   Other operating expense   797,706     680,369     1,415,386     1,310,894
      Total non-interest expense   2,578,974     2,320,833     5,094,646     4,594,535
Income before income taxes   962,029     1,134,359     1,839,025     2,049,734
Provision for income taxes   179,000     235,128     319,000     398,128
NET INCOME $ 783,029   $ 899,231   $ 1,520,025   $ 1,651,606
                       
Per common share data                      
Net income per common share - basic $ 0.51   $ 0.57   $ 0.99   $ 1.07
Net income per common share - diluted $ 0.51   $ 0.56   $ 0.98   $ 1.06
Dividends declared $ 0.260   $ 0.224   $ 0.510   $ 0.457
Book value per share(period end) $ 22.09   $ 22.66   $ 22.09   $ 22.66
Tangible book value per share (period end) $ 19.22   $ 20.54   $ 19.22   $ 20.54
Dividend payout ratio   36.41%     40.50%     44.22%     41.99%
Average shares outstanding - basic   1,530,255     1,583,468     1,539,149     1,543,044
Average shares outstanding -diluted   1,548,607     1,604,931     1,558,494     1,565,023
Period ending shares outstanding   1,522,390     1,521,470     1,522,390     1,521,470
                       
Selected ratios                      
Return on average assets   0.70%     0.91%     0.68%     0.89%
Return on average equity   9.11%     10.55%     8.86%     10.21%
Yield on earning assets   6.45%     6.89%     6.52%     6.84%
Cost of interest bearing liabilities   3.80%     4.25%     3.96%     4.16%
Net interest spread   2.64%     2.64%     2.68%     2.68%
Net interest margin   3.09%     3.31%     3.03%     3.36%
Efficiency (1)   66.62%     61.70%     67.28%     63.89%
Equity to assets at period end   7.52%     8.48%     7.52%     8.48%
                       
(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.
                       
       June 30,     June 30,            
Asset quality data   2008     2007            
                       
Non-accrual loans $      3,971,595    $      1,690,646            
90 day past due and accruing        2,558,056          1,966,754            
Non-performing loans        6,529,651            3,657,400            
Other real estate owned           910,966                        -            
Non-performing assets $      7,440,617     $      3,657,400            
                       
                       
Allowance for loan losses $ 3,434,993   $ 3,283,975            
Allowance for loan losses/total loans   1.08%     1.09%            
Net charge-offs:                      
   Quarter-to-date $ 11   $ 10            
   Year-to-date   34     116            
Net charge-offs to average loans                      
   Quarter-to-date   0.00%     0.00%            
   Year-to-date   0.01%     0.04%            
Non-performing loans/total loans   2.04%     1.21%            
Allowance for loan losses/
non-performing assets
  46.17%     89.79%