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Middlefield Banc Corp. Reports Strong Second Quarter Earnings and Continued Asset Growth

Middlefield Banc Corp. 2010 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 29, 2010

MIDDLEFIELD, OHIO, July 29, 2010 Middlefield Banc Corp. (Pink Sheets:  MBCN), parent of The Middlefield Banking Company and Emerald Bank, today announced the following results for the quarter ended June 30, 2010.

  • Net income of $715,000, up 55.1% from the second quarter of 2009
  • Total assets increased $12.9 million, or 2.2%, from March 31, 2010
  • Net interest income in a year-to-year comparison grew $1.2 million or 36.0%.
  • Total deposits stood at $533.1 million, an increase of 2.1% for the quarter.
  • Net loans grew $4.5 million during the quarter, ending up 1.3%.
  • Diluted earnings per common share for the quarter were $0.45

The company reported that earnings for the second quarter ended June 30, 2010, were $715,000 compared to earnings of $461,000 for the same period in the prior year.  Earnings per diluted share for the 2010 quarter were $0.45, while those reported for the 2009 period were $0.30.

Net income for the six months ended June 30, 2010 was $1,360,000, a $296,000, or 27.8% increase from the $1,064,000 earned during the same period of 2009.  Year-to-date diluted earnings per share were $0.87 in 2010 compared to $0.69 in 2009.

During the 2010 second quarter, net interest income increased $1,215,000 from the second quarter of 2009.  This was offset by a $430,000 higher provision for loan losses, and an increase in other total non-interest expense of $525,000.  Non-interest income during the second quarter of 2010 was $49,000 above that reported in the same period of 2009.    

Annualized returns on average equity ("ROE") and average assets ("ROA") for the 2010 second quarter were 7.48% and 0.47%, respectively, compared with 5.22% and 0.39% for the second quarter of 2009.  The six month period ending June 30, 2010 saw ROE and ROA of 7.27% and 0.46%, respectively.  The comparable period 2009 results were 6.04% and 0.45%.

"In the second quarter, Middlefield Banc Corp. again delivered a strong financial performance in an economic environment that continues to be extremely challenging," stated Thomas G. Caldwell, President and Chief Executive Officer, "The results for the quarter continued to demonstrate solid performance on many fronts, including continued core deposit growth, an expanded net interest margin, and additions to our capital base."

"We continue to evaluate the level of loan loss reserve.  With uncertainty regarding the magnitude and timing of the economic recovery, we have chosen to position our balance sheet to better absorb potential credit losses.  While we have added staff and processes to address problem credits, we will continue to closely monitor progress at least into the middle of next year."

"Our focus remains sharply on sound, fundamental banking practices designed to deliver excellence in customer service.  By so doing, we will work to ensure an increase in value to our shareholders," Caldwell concluded.

Asset Quality

The provision for loan losses for the three month period ended June 30, 2010 increased 165% to $690,000 compared to the $260,000 for the comparable period of 2009.  "While there has been some stabilization within our markets, our credit quality continues to be negatively impacted by the economic downturn.  Sustainable economic activity within our markets is key for a return to more normal levels of nonperforming assets and our provision expense," said Donald L. Stacy, Chief Financial Officer of Middlefield Banc Corp.  "We continue to experience credit issues associated with owner-occupied residential properties in our northeastern Ohio markets, while our central Ohio market has seen delinquency tied to non-owner occupied residential properties. "

Stacy continued, "We anticipate continuing to provide a higher than historic level of loan loss provision to address credit quality issues.  It is only prudent, in light of these on-going economic issues and heightened regulatory scrutiny, to operate with overall higher levels of general loan loss reserves." 

The following table summarizes asset quality and reserve coverage ratios.

Asset Quality History
                         
    (dollars in thousands)
                         
      06/30/2010     3/31/2010     12/31/2009     6/30/2009
                         
Nonperforming loans    $ 20,053    $ 18,143    $ 16,285    $ 14,023
Real estate owned     1,886     2,175     2,164     1,967
                         
Nonperforming assets   $ 21,939   $ 20,318   $ 18,450   $ 15,991
                         
Allowance for loan losses   $ 5,834   $ 5,279   $ 4,937   $ 3,668
                         
Ratios:                        
Nonperforming loans to total loans     5.50%     5.04%     4.61%     4.18%
Nonperforming assets to total                        
  assets     3.61%     3.42%     3.30%     3.33%
Allowance for loan losses to total                        
  loans     1.60%     1.47%     1.40%     1.09%
Allowance for loan losses to                        
  nonperforming loans     29.09%     29.10%     30.31%     26.16%
                         

 

The increased loan loss provision, which has significantly outpaced loan charge-offs, has strengthened the allowance for loan losses.  The ratio of the allowance for loan losses to total loans increased to 1.60% of total loans at June 30, 2010, compared to the 1.40% reported at December 31, 2009, and 1.09% at June 30, 2009. 

Net Interest Income

Net Interest Income, the core of the company's earnings, totaled $8.64 million for the first six months of 2010.  This represents an increase of 31.2% from the $6.58 million reported for the comparable period of 2009.  The improvement in net interest income was primarily generated by an increase in interest income on investment securities of $1.10 million, coupled with a decrease in interest expense on deposits of $0.41 million.  With the monetary policy of the Federal Reserve calling for stable historically low rates, the company has been able to continue to hold deposit rates significantly lower than the prior year.  Despite modest growth in the loan portfolio, combined with the fact that the pricing environment for new loans remains highly competitive, interest earnings on loans did increase 5%, or $0.49 million, over the year earlier results.  This increase in earnings on loans was achieved in spite of an increase in the total of non-performing loans.

For the three month period ended June 30, 2010 compared to the same period of 2009, Middlefield's net interest income was up 36%, or $1.21 million.  The strong results were based in an increase of $0.61 million from the investment portfolio and an increase of $0.39 million from the loan portfolio coupled with a decrease in deposit costs of $0.19 million.    

The first half net interest margin of 3.39% represented an increase from the 2009 first half result of 3.23%.  The yield on earning assets dropped 57 basis points, while the cost of interest-bearing liabilities experienced a decrease of 86 basis points.  Similarly, for the second quarter of 2010, the net interest margin of 3.49% exceeded the 3.28% reported for the second quarter of 2009.

Non-Interest Income and Operating Expenses

Non-interest income increased $49,000 for the three-month period of 2010 from the comparable 2009 period.  Higher revenue from investment services, along with rents collected on Other Real Estate Owned (OREO) properties partially offset a decrease in service charges on deposit accounts.  The lower deposit service charges were fueled by Federal regulatory changes to overdraft rules.  For the first six months of 2010, deposit services charges were $58,000 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 $3.83 million for the second quarter of 2010 was 15.9%, or $525,000 higher than the second quarter of 2009.  Increases in salaries and employee benefits of $176,000 are primarily attributable to staff additions in accounting and special assets, as well as an increase in health insurance costs.  Equipment expense was $54,000 higher in the 2010 quarter than for the 2009 period.  The company's two affiliate banks migrated to a new core data processing provider in late April and incurred additional expense related to the change in data processing provider.  The company experienced a decrease in the FDIC deposit insurance assessment of $81,000.  During the second quarter of 2009, the FDIC imposed a special assessment which was of a one-time nature.  Other expenses were $377,000 higher in the 2010 period than in the same quarter of 2009.  Costs associated with maintaining OREO properties accounted for $180,000 of the increase, with costs involved with increased collection activities contributing another $125,000.     

For the six month period of 2010, total operating costs were $1.09 million above those of the 2009 comparable period.  Contributing to the increase were salaries and employee benefits (up $316,000), equipment expense (up $129,000), loss on sale of OREO (up $159,000), and increased other expenses (up $452,000).  The drivers of these increases were the same as noted above.  Contained within the increased level of other expenses were $220,000 of increased loan related expenses and $70,000 of increased OREO-related expenses.       

Balance Sheet Growth

The company's total assets as of June 30, 2010 stood at $606.9 million, an increase of 8.6% over the $558.7 million in total assets reported at December 31, 2009.  Net loans at June 30, 2010, were $358.9 million, up $10.3 million, or 2.9%, over the $348.7 million reported at December 31, 2009.  Total deposits at the end of the second quarter 2010 were $533.1 million, or 9.4% 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 $179.0 million at June 30, 2010.  This figure represented growth within that portfolio of $42.2 million from the prior year-end.  Stockholders' equity at June 30, 2010, was $39.6 million.  Book value per share as of June 30, 2010, was $25.10.

Dividends   

During the second 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 $606.9 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 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
June 30, 2010 and 2009 and December 31, 2009
                   
      (unaudited)           (unaudited)      
Balance Sheet (period end)      June 30,      December 31,      June 30,       
(Dollar amounts in thousands)     2010     2009     2009      
                         
Assets                        
Cash and due from banks   $ 15,065   $ 12,909   $ 9,170      
Federal funds sold     22,152     28,123     7,530      
Interest-bearing deposits in other institutions     124     121     120      
   Cash and cash equivalents     37,341     41,153     16,820      
Investment securities available for sale     178,963     136,711     101,635      
Loans:     364,762     353,597     335,513      
Less:  reserve for loan losses     5,834     4,937     3,668      
      Net loans     358,928     348,660     331,845      
Premises and equipment     8,360     8,394     8,301      
Goodwill     4,559     4,559     4,559      
Bank-owned life insurance     7,839     7,706     7,569      
Accrued interest receivable and other assets     10,949     11,475     8,990      
Total Assets   $ 606,939   $ 558,658   $ 479,719      
                         
      June 30,     December 31,     June 30,      
      2010     2009     2009      
Liabilities and Stockholders' Equity                        
Non-interest bearing demand deposits   $ 51,118   $ 44,387   $ 41,512      
Interest bearing demand deposits     40,055     38,111     30,733      
Money market accounts     65,275     56,451     34,704      
Savings deposits     131,818     107,358     87,206      
Time deposits     244,829     240,799     216,345      
   Total Deposits     533,095     487,106     410,500      
Short-term borrowings     7,201     6,800     1,238      
Other borrowings     25,040     25,865     30,105      
Accrued interest and other liabilities     1,995     2,180     2,198      
   Total Liabilities     567,331     521,951     444,041      
                         
Common equity     28,201     27,919     27,618      
Retained earnings     15,504     14,960     15,050      
Accumulated other comprehensive income     2,637     562     (256)      
Treasury stock     (6,734)     (6,734)     (6,734)      
   Total Stockholders' Equity     39,608     36,707     35,678      
                         
Total Liabilities and Stockholders' Equity   $ 606,939   $ 558,658   $ 479,719      
                         
                         
                         
                       
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
June 30, 2010 and 2009
(Dollar amounts in thousands)
  
      (unaudited)     (unaudited)     (unaudited)     (unaudited)
    For the Three Months Ended   For the Six Months Ended
      June 30,     June 30,
      2010     2009     2010     2009
INTEREST INCOME                        
   Interest and fees on loans   $ 5,299   $ 4,906   $ 10,396   $ 9,904
   Interest-bearing deposits in other institutions     3     3     7     10
   Federal funds sold     12     3     23     7
   Investment securities                        
      Taxable interest     1,339     924     2,542     1,777
      Tax-exempt interest     647     454     1,239     900
   Dividends on FHLB Stock     32     15     49     31
      Total interest income     7,332     6,305     14,256     12,629
INTEREST EXPENSE                        
   Deposits     2,373     2,559     4,858     5,275
   Short term borrowings     62     4     120     10
   Other borrowings     183     238     373     495
   Trust preferred securities     128     133     264     265
      Total interest expense     2,746     2,934     5,615     6,045
                         
NET INTEREST INCOME     4,586     3,371     8,641     6,584
                         
Provision for loan losses     690     260     1,129     414
NET INTEREST INCOME AFTER PROVISION                      
   FOR LOAN LOSSES     3,896     3,111     7,512     6,170
NONINTEREST INCOME                        
   Service charges on deposits     433     467     848     906
   Earnings on bank-owned life insurance     65     60     132     129
   Other income     169     109     287     225
   Net securities gains (losses)     18      -     27      -
      Total non-interest income     685     636     1,294     1,260
NONINTEREST EXPENSE                        
   Salaries and employee benefits     1,713     1,537     3,224     2,908
   Occupancy expense     217     221     493     476
   Equipment expense     204     150     402     273
   Data processing costs     172     219     415     468
   Ohio state franchise tax     134     124     270     247
   FDIC assessment     190     271     392     443
   Professional fees     188     132     380     285
   Loss on sale of other real estate owned     39     55     214     55
   Other operating expense     971     594     1,596     1,144
      Total non-interest expense     3,828     3,303     7,386     6,299
                         
Income before income taxes     753     444     1,420     1,131
Provision for income taxes     38     (17)     60     67
NET INCOME   $ 715   $ 461   $ 1,360   $ 1,064
                         
                               
      (unaudited)     (unaudited)     (unaudited)     (unaudited)
    For the Three Months Ended   For the Six Months Ended
      June 30,     June 30,
      2010     2009     2010     2009
Per common share data                        
Net income per common share - basic   $ 0.46   $ 0.30   $ 0.87   $ 0.69
Net income per common share - diluted   $ 0.45   $ 0.30   $ 0.87   $ 0.69
Dividends declared   $ 0.26   $ 0.26   $ 0.52   $ 0.52
Book value per share(period end)   $ 25.10   $ 23.02   $ 25.10   $ 23.02
Tangible book value per share (period end)   $ 22.21   $ 20.08   $ 22.21   $ 20.08
Dividend payout ratio     57.06%     86.97%     60.00%     75.20%
Average shares outstanding - basic     1,570,852     1,541,960     1,568,168     1,539,814
Average shares outstanding -diluted     1,572,084     1,543,538     1,569,742     1,541,405
Period ending shares outstanding     1,577,771     1,549,852     1,577,771     1,549,852
                         
Selected ratios                        
Return on average assets     0.47%     0.39%     0.46%     0.45%
Return on average equity     7.48%     5.22%     7.27%     6.04%
Yield on earning assets     5.44%     5.96%     5.44%     6.01%
Cost of interest bearing liabilities     2.15%     2.97%     2.25%     3.11%
Net interest spread     3.29%     2.98%     3.19%     2.90%
Net interest margin     3.49%     3.28%     3.39%     3.23%
Efficiency (1)     68.30%     77.89%     69.86%     75.82%
Equity to assets at period end     6.53%     7.44%     6.53%     7.44%
                         
(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     2010     2009            
(Dollar amounts in thousands)                        
Non-accrual loans   $ 19,817    $ 12,703            
90 days past due and accruing     236     1,320            
Non-performing loans     20,053       14,023            
Other real estate owned     1,886     1,967            
Non-performing assets   $ 21,939     $ 15,990            
                         
                         
Allowance for loan losses   $ 5,834   $ 3,668            
Allowance for loan losses/total loans     1.60%     1.09%            
Net charge-offs:                        
   Quarter-to-date   $ 135   $ 212            
   Year-to-date     232     303            
Net charge-offs to average loans                        
   Quarter-to-date     0.04%     0.06%            
   Year-to-date     0.06%     0.09%            
Non-performing loans/total loans     5.50%     4.18%            
Allowance for loan losses/non-performing loans     29.09%     26.16%