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Middlefield Banc Corp. Reports Continued Strong Earnings and 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: October 29, 2010

Middlefield Banc Corp. (Pink Sheets:  MBCN), parent of The Middlefield Banking Company and Emerald Bank, today announced results for the quarter and nine months ended September 30, 2010.

  • Net income of $463,000, up 117.4% from the third quarter of 2009.
  • Total assets increased $78.4 million, or 14.0%, from December 31, 2009.
  • Net interest income in a year-to-year comparison grew $2.9 million or 27.8%.
  • Total deposits stood at $563.5 million, an increase of 15.7% for the nine month period.
  • Diluted earnings per common share for the quarter were $0.29.
  • Tangible book value per share at September 30, 2010 stood at $23.44.

The company reported that earnings for the third quarter ended September 30, 2010, were $463,000 compared to earnings of $213,000 for the same period in the prior year.  Earnings per diluted share for the 2010 quarter were $0.29, while those reported for the 2009 period were $0.14.

Net income for the nine months ended September 30, 2010 was $1.8 million, a $546,000, or 42.8% increase from the $1.3 million earned during the same period of 2009.  Year-to-date diluted earnings per share were $1.16 in 2010 compared to $0.83 in 2009.

During the 2010 third quarter, net interest income increased $830,000 from the third quarter of 2009.  The provision for loan losses in the third quarter of 2010 stood at $1.2 million, which was $120,000 less than the same period of 2009.  Total non-interest expense increased $703,000, while non-interest income during the third quarter of 2010 was $5,000 above that reported in the same period of 2009.   

Annualized returns on average equity ("ROE") and average assets ("ROA") for the 2010 third quarter were 4.54% and 0.29%, respectively, compared with 2.34% and 0.17% for the third quarter of 2009.  The nine month period ending September 30, 2010 saw ROE and ROA of 6.31% and 0.41%, respectively.  The comparable period 2009 results were 4.72% and 0.35%.

"We are pleased to report continued strong financial results for the third quarter and year-to-date periods, especially in light of an economic environment that continues to be extremely challenging," stated Thomas G. Caldwell, President and Chief Executive Officer, "We have continued to enhance our profitability by following solid banking fundamentals.  Our results demonstrate solid performance on many fronts, including continued core deposit growth, an expanded net interest margin, and additions to our capital base."

"Because of the uncertainty associated with the magnitude and timing of the economic recovery, we believe it prudent to continue to position our balance sheet to better absorb potential credit losses.  We have also taken the opportunity to add staff and processes to address problem credits.  These efforts have begun to bear fruit in the third quarter and should lead to a decline in non-performing assets in the near term."

"Our focus remains on delivering excellent customer service, offering a dynamic suite of products, and maximizing value for our shareholders," Caldwell concluded.

Asset Quality

For the nine months ended September 30, 2010, the provision for loan losses increased 33.8% to $2.4 million, which compares to the $1.8 million for the same period of 2009.  For the three month period ended September 30, 2010, the provision for loan losses was $1.2 million.  During the same period of 2009, the provision was $1.3 million.  "To address credit quality issues, we believe it only prudent to continue with a higher than historic level of loan loss provision," stated Donald L. Stacy, Chief Financial Officer of Middlefield Banc Corp. "Our asset quality numbers are a reflection of the economic uncertainty that continues on a national scale.  This continued weakness remains a concern and warrants measures to provide for the sound operation of our company."

Stacy continued, "We are, however, finding that our problem credits have been properly identified as the increase in our non-performing assets has stabilized.  Expectations are that an improvement in our asset quality numbers will be seen through 2011." 

The following table summarizes asset quality and reserve coverage ratios.

Asset Quality History
(dollars in thousands)
 
  9/30/2010     6/30/2010     3/31/2010     12/31/2009     9/30/2009
  
Nonperforming loans    $ 20,983    $ 20,053    $ 18,143    $ 16,285    $ 14,368
  
Real estate owned   2,016   1,886   2,175   2,164   1,775
  
Nonperforming assets $ 22,999 $ 21,939 $ 20,318 $ 18,450 $ 16,143
  
Allowance for loan losses $ 5,971 $ 5,834 $ 5,279 $ 4,937 $ 4,422
  
Ratios:
Nonperforming loans to total loans 5.75% 5.50% 5.04% 4.61% 4.15%
 
Nonperforming assets to total assets 3.61% 3.61% 3.42% 3.30% 3.12%
 
Allowance for loan losses to total loans 1.63% 1.60% 1.47% 1.40% 1.28%
 
Allowance for loan losses to nonperforming loans 28.46% 29.09% 29.10% 30.31% 30.78%

 

The increased loan loss provision has significantly outpaced loan charge-offs. Net charge-offs for the third quarter of 2010 was 0.30% of average loans, while the ratio for the first nine months of 2010 was 0.37%.  The ratio of the allowance for loan losses to total loans stood at 1.63% at September 30, 2010, compared to the 1.40% reported at December 31, 2009, and 1.28% at September 30, 2009.  Based upon the evaluation of the allowance for loan losses, it is the belief of management that, as of September 30, 2010, the allowance for loan losses was adequate and reflects probable incurred losses within the portfolio. 

Net Interest Income

Net Interest Income totaled $13.3 million for the first nine months of 2010.  This represents an increase of 27.8% from the $10.4 million reported for the comparable period of 2009.  The improvement in net interest income was primarily generated by an increase in both average earning assets and net interest margin.  Interest income on investment securities increased $1.6 million while the company experienced a decrease in interest expense on deposits of $527,000.  Continued action by the Federal Open Market Committee to hold interest rates at historic low levels has provided the company the opportunity to continue to lower funding costs.  The pricing environment for new loans remains highly competitive within the company's markets.  Interest earnings on loans did increase $641,000 from the year ago period.  This increase in earnings on loans was achieved in spite of the level on non-performing loans. 

For the three month period ended September 30, 2010 compared to the same period of 2009, Middlefield's net interest income was up 21.9%, or $830,000.  The positive variance was based on an increase of $541,000 from the investment portfolio and an increase of $149,000 from the loan portfolio coupled with a decrease in interest expense of $110,000.   

The net interest margin for the first nine months of 2010 was 3.39%, representing an increase from the 2009 same period result of 3.31%.  The yield on earning assets dropped 59 basis points, while the cost of interest-bearing liabilities experienced a decrease of 78 basis points. 

Non-Interest Income and Operating Expenses

Non-interest income increased $5,000 for the three-month period of 2010 from the comparable 2009 period.  A gain on investment securities and slightly increased earnings on bank-owned life insurance served to offset a decrease in service charges on deposit accounts.  The lower service charges on deposit accounts are attributable to Federal regulatory changes to overdraft rules.  For the first nine months of 2010, deposit services charges were $73,000 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 $3.7 million for the third quarter of 2010 was 23.1%, or $703,000 higher than the third quarter of 2009.  Increases in salaries and employee benefits of $147,000 are primarily attributable to staff additions, as well as an increase in health insurance costs.  An increase in the FDIC deposit insurance assessment of $111,000, recognition of higher losses on other real estate owned of $408,000, and an increase of $213,000 related to delinquent loans, foreclosures, and maintaining OREO properties were the primary contributors to higher 2010 non-interest expenses.    

For the nine month period of 2010, total operating costs were $1.8 million above those of the 2009 comparable period.  Contributing to the increase were salaries and employee benefits (up $463,000), equipment expense related to an upgrade in the computer network in April 2010 (up $133,000), loss on sale of OREO (up $567,000), and increased other expenses (up $578,000).  The higher other expense figure includes $443,000 directly related to loan quality issues, of which $319,000 were in loan and other real estate owned expense in the company's non-bank subsidiary, EMORECO, Inc.    

Balance Sheet Growth

The company's total assets as of September 30, 2010 stood at $637.1 million, an increase of 14.0% over the $558.7 million in total assets reported at December 31, 2009.  Net loans at September 30, 2010, were $359.2 million, up $10.6 million, or 3.0%, over the $348.7 million reported at December 31, 2009.  Total deposits at the end of the third quarter 2010 were $563.5 million, or 15.7% 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 $195.1 million at September 30, 2010.  This figure represented growth within that portfolio of $58.4 million from the prior year-end.  Stockholders' equity at September 30, 2010, was $41.7 million.  Book value per share as of September 30, 2010, was $26.31.

Dividends 

During the third 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 $637.1 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
September 30, 2010 and 2009 and December 31, 2009
(Dollar amounts in thousands)
   
     (unaudited)         (unaudited)   
September 30,   December 31,   September 30,
Balance Sheet (period end) 2010   2009 2009
                       
Assets
Cash and due from banks $ 13,645   $ 12,909   $ 11,143
Federal funds sold   37,701   28,123     19,534
Interest-bearing deposits in other institutions   124   121     121
Cash and cash equivalents 51,470   41,153     30,798
Investment securities available for sale 195,101   136,711   116,880
Loans:   365,219     353,597     345,919      
Less:  reserve for loan losses   5,971     4,937     4,422      
Net loans   359,248   348,660     341,497      
Premises and equipment   8,222     8,394     8,257      
Goodwill   4,559     4,559     4,559      
Bank-owned life insurance   7,911     7,706     7,638      
Accrued interest receivable and other assets   10,578     11,475     8,317      
Total Assets $ 637,089 $ 558,658   $ 517,946      
                       
    September 30,     December 31,   September 30,      
    2010     2009     2009      
Liabilities and Stockholders' Equity                      
Non-interest bearing demand deposits $ 55,448   $ 44,387   $ 40,964      
Interest bearing demand deposits   44,232     38,111     34,877      
Money market accounts   71,097     56,451     42,079      
Savings deposits   141,693     107,358     99,322      
Time deposits   251,021     240,799     230,687      
Total Deposits   563,491     487,106     447,929      
Short-term borrowings   7,762     6,800     1,668      
Federal funds purchased   0     0     0      
Other borrowings   22,035     25,865     28,772      
Other liabilities   2,111     2,180     2,098      
Total Liabilities   595,399     521,951     480,467      
                       
Common equity   28,315     27,919     27,760      
Retained earnings   15,558     14,960     14,861      
Accumulated other comprehensive income   4,551     562     1,592      
Treasury stock   (6,734)     (6,734)     (6,734)      
Total Stockholders' Equity   41,690   36,707   37,479      
                       
Total Liabilities and Stockholders' Equity $ 637,089   $ 558,658   $ 517,946      
                       
  
MIDDLEFIELD BANC CORP.
Consolidated Selected Financial Highlights
September 30, 2010 and 2009
(Dollar amounts in thousands)
(unaudited)
      
  For the Three Months Ended   For the Nine Months Ended
  September 30,   September 30,
    2010     2009     2010     2009
INTEREST INCOME                      
Interest and fees on loans $ 5,325   $ 5,176   $ 15,721   $ 15,080
Interest-bearing deposits in other institutions   3     2     10     12
Federal funds sold   15     4     38     11
Investment securities                      
Taxable interest   1,290     976     3,832     2,753
Tax-exempt interest   702     475     1,941     1,375
Dividends on stock   33     15     82     46
Total interest income   7,368     6,648     21,624     19,277
INTEREST EXPENSE                      
Deposits   2,391     2,501     7,249     7,776
Short term borrowings   66     5     186     15
Other borrowings   147     222     520     717
Trust preferred securities   148     134     412     399
Total interest expense   2,752     2,862     8,367     8,907
NET INTEREST INCOME   4,616     3,786     13,257     10,370
                       
Provision for loan losses   1,226     1,346     2,355     1,760
NET INTEREST INCOME AFTER PROVISION                      
FOR LOAN LOSSES   3,390     2,440     10,902     8,610
NONINTEREST INCOME                      
Service charges on deposits   473     488     1,321     1,394
Earnings on bank-owned life insurance   72     0     204     0
Other income   132     68     419     197
Net securities gains (losses)     18     134       45     359
Total non-interest income   695     690     1,989     1,950
NONINTEREST EXPENSE                      
Salaries and employee benefits   1,543     1,396     4,767     4,304
Occupancy expense   224     215     717     691
Equipment expense   156     152     558     425
Data processing costs   160     224     575     692
Ohio state franchise tax   134     123     404     370
Federal deposit insurance expense   197     86     589     529
Professional fees   110     159     490     444
Loss on sale of other real estate owned   536     128     750     183
Other operating expense   682     556     2,278     1,700
Total non-interest expense   3,742     3,039     11,128     9,338
Income before income taxes   343 91 1,763 1,222
Provision for income taxes   (120)     (122)     (60)     (55)
NET INCOME $ 463   $ 213   $ 1,823   $ 1,277
                       
  
  For the Three
Months Ended
September 30,
For the Nine
Months Ended
September 30,
    2010     2009     2010     2009
Per common share data                      
Net income per common share - basic $ 0.29   $ 0.14   $ 1.16   $ 0.83
Net income per common share - diluted $ 0.29   $ 0.14   $ 1.16   $ 0.83
Dividends declared $   0.26   $ 0.26   $ 0.78   $ 0.78
Book value per share(period end) $ 26.31   $ 24.07   $ 26.31   $ 24.07
Tangible book value per share (period end) $ 23.44   $ 21.15   $ 23.44   $ 21.15
Dividend payout ratio   88.55%     188.77%     67.22%     94.18%
Average shares outstanding - basic   1,578,832     1,551,056     1,571,762     1,543,577
Average shares outstanding -diluted   1,578,832     1,551,069     1,572,726     1,544,677
Period ending shares outstanding   1,584,281     1,556,774     1,584,281     1,556,774
   
Selected Ratios                      
Return on average assets   0.29%     0.17%     0.41%     0.35%
Return on average equity   4.54%     2.34%     6.31%     4.72%
Yield on earning assets   5.26%     5.92%     5.38%     5.97%
Cost of interest bearing liabilities   2.08%     2.72%     2.19%     2.97%
Net interest spread   3.19%     3.20%     3.19%     3.00%
Net interest margin   3.39%   3.46%     3.39%     3.31%
Efficiency (1)   65.97%     64.39%     68.50%     71.68%
Equity to assets at period end   6.54%     7.24%     6.54%     7.24%
                       
(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.
                    
  
    September 30,     September 30,            
Asset quality dataAsset Quality Data   2010     2009            
(Dollar amounts in thousands)                  
  
Non-accrual loans $ 18,681   $ 11,313            
90 day past due and accruing   2,302     3,055            
Non-performing loans   20,983     14,368            
Other real estate owned   2,016     1,775            
Non-performing assets $ 22,999    $ 16,143            
                       
                       
Allowance for loan losses $ 5,971   $ 4,422    
Allowance for loan losses/total loans   1.63%   1.28%      
Net charge-offs:                      
  Quarter-to-date $ 1,089   $   592    
  Year-to-date   1,321       895        
Net charge-offs to average loans              
  Quarter-to-date   0.30%     0.17%            
  Year-to-date   0.37%     0.27%            
Non-performing loans/total loans   5.75%     4.15%        
Allowance for loan losses/non-performing loans   28.46%     30.78%