Middlefield Banc Corp. Posts Strong Growth and Third Quarter Earnings

MIDDLEFIELD, OHIO   Middlefield Banc Corp. (Pink Sheets:  MBCN), parent of The Middlefield Banking Company and Emerald Bank, today announced the following results for the third quarter ended September 30, 2009.

• Total assets increased $50.1 million, or 10.7%, from December 31, 2008
• Equity to assets stood at 7.24% following an increase in equity of $2.4 million from December 31, 2008
• Total deposits stood at $447.9 million, an increase of 13.5% from year-end 2008
• Net interest income increased $1.4 million, or 15.5% from the same nine month period of 2008
• Diluted earnings per common share for the third quarter were $0.14.

The company reported that earnings for the third quarter ended September 30, 2009, were $213,000 compared to earnings of $704,000 for the same period in the prior year.  The reduced earnings were primarily the result of provision charges to increase loan loss reserves and an increase in FDIC premiums due to higher rates for all FDIC insured banks.  The same factors contributed to a decrease in nine month earnings from $2,224,000 for the 2008 period to $1,277,000 for the 2009 nine month period.

Annualized returns on average equity ("ROE") and average assets ("ROA") for the quarter were 2.34% and 0.17%, respectively, compared with 8.77% and 0.63% for the third quarter of 2008.  ROE and ROA were 4.72% and 0.35%, respectively, for the nine-month period of 2009.  Comparable results for the 2008 nine-month period were 8.78% and 0.66%, respectively.

"We are pleased to report positive earnings for the quarter and year-to-date periods," stated Thomas G. Caldwell, President and Chief Executive Officer, "Looking forward, we remain cautiously optimistic.  Throughout the credit crisis and recession, we have continued to maintain a "well capitalized" equity position, while diversifying our asset base and improving our core liquidity.  While we continue to see continued improvement in our net interest margin, our focus remains on the successful resolution of our problem assets."

"Following our acquisition of Emerald Bank, we recognized the need for a change in that affiliate's management.  I am pleased with the effort put forth by our new management team as they continue to identify problem assets within the portfolio, while continuing to prudently grow the bank.  While the efforts have led us to take a provision expense of $1.8 million for the first nine months, we are growing comfortable that each credit within the portfolio has been properly reviewed and assessed."  

Asset Quality

The provision for loan losses for the three and nine month periods ended September 30, 2009 increased 620% and 393% to $1,346,000 and $1,760,000 compared to the $187,000 and $357,000, respectively, for the comparable periods of 2008.  "The economics of the communities that we serve are reflected in our asset quality numbers," said Donald L. Stacy, Chief Financial Officer of Middlefield Banc Corp.  "In our northeastern Ohio markets, credit issues are tied to owner occupied residential properties and are a reflection of current unemployment rates.  Our central Ohio market is reporting delinquencies tied to non-owner occupied residential properties." 

The following table summarizes asset quality and reserve coverage ratios as of the end of the last five quarters.

The increased loan loss provision, which has significantly outpaced loan charge-offs, has substantially strengthened the allowance for loan losses.  The ratio of the allowance for loan losses to total loans increased to 1.28% of total loans at September 30, 2009 compared to the 1.09% reported at June 30, 2009 and 1.13% at September 30, 2008.

Net Interest Income

Net interest income for the third quarter of 2009 increased $635,000, or 20.1%, to $3,786,000 compared to $3,152,000 in the third quarter of 2008.  The net interest margin increased 26 basis points to 3.46% compared to the 3.20% reported for the year-ago quarter.  Net interest income for the nine months ended September 30, 2009 increased by $1,390,000, or 15.5%, to $10,370,000 compared to the $8,981,000 for the first nine months of 2008.  The net interest margin for the first nine months of 2009 stood at 3.31%, a 23 basis point increase from the 3.08% reported for the nine month period of 2008.

The improvement in net interest income reflects strong core deposit growth and the implementation of new pricing strategies.  Total deposits at September 30, 2009 stood at $447.9 million, representing an increase of 13.5% from the year-end 2008 figure.  Savings account deposits accounted for growth of $30.4 million, with Money Market deposits increasing $14.2 million.

Non-Interest Income and Operating Expenses

Non-interest income remained relatively flat for both the three and nine month periods.  Service charges on deposit accounts decreased $4,500 for the three months of 2009 compared to 2008, and $23,500 for the nine month periods.  Earnings on bank-owned life insurance were lower, reflective  of the current interest rate environment.

Operating expenses increased by 11.4%, or $310,000 for the quarter and $1,515,000, or 19.4% for the nine month period, when compared to the same periods of 2008.  Expense increases in salaries and employee benefits, occupancy expense, and data processing costs are all directly related to the growth of the company.  The Middlefield Banking Company opened its Cortland office in June 2008, while Emerald Bank acquired an office in Westerville in November 2008.  Both of these actions, while expanding the company's footprint, contributed to the higher expense levels.  The premium for FDIC insurance increased 20.1% in the third quarter of 2009 over the same period of 2008 and 350.8% for the nine month period of 2009 over 2008.

Balance Sheet Growth

The company's total assets ended the third quarter of 2009 at $517.9 million, an increase of 10.7% over the $467.8 million in total assets reported at December 31, 2008.  Net loans at September 30, 2009, were $341.5 million, up $23.5 million, or 7.4%, over the $318.0 million reported at December 31, 2008.  Total deposits at September 30, 2009, were $447.9 million, or 13.5% greater than the deposit level of $394.8 million at December 31, 2008. 

The investment portfolio, which is entirely classified as available for sale, stood at $116.9 million at September 30, 2009.  This figure represented growth within that portfolio of $12.6 million during the nine-month period.  Stockholders' equity at September 30, 2009, was $37.5 million, or 7.24% of total assets.  Book value per share as of September 30, 2009 was $24.07.

Dividends   

In the first nine months of 2009, Middlefield paid cash dividends of $0.78 per share.  This represents only a slight increase over the $0.77 per share paid during the first nine months of 2008.

Middlefield Banc Corp. headquartered in Middlefield, Ohio is a multi-bank holding company with total assets of $517.9 million.  The company's lead bank, The Middlefield Banking Company, operates full service banking centers and a LPL Financial¨ 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 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.