Middlefield Banc Corp. Reports 2020 Nine Month Financial Results

MIDDLEFIELD, Ohio, Oct. 21, 2020 (GLOBE NEWSWIRE) — Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the three and nine months ended September 30, 2020.
2020 Nine Month Financial Highlights (on a year-over-year basis unless noted):Net interest income up 3.3% to $32.1 millionThird quarter net interest income up 7.4% to $11.4 millionNoninterest income increased 23.9% to $4.4 millionNet income totaled $5.9 million, as the year-to-date provision for loan losses increased from $0.4 million to $7.7 million primarily due to the COVID-19 crisis and the resolution of an isolated commercial loanBook value per share was up 5.3% to a record $22.27 per shareTangible book value⁽¹⁾ per share was up 6.2% to $19.63 per shareTotal loans increased 1.3% to $1.12 billion during the quarter, from $1.11 billion at June 30, 2020Allowance for loan losses to nonperforming loans was 169.8%, compared to 69.6%Middlefield remains well capitalized with an equity to assets ratio of 10.4% at September 30, 2020
Thomas G. Caldwell, President and Chief Executive Officer, stated: “Middlefield continues to achieve favorable financial results and strong operating performance despite the continued economic impacts of the COVID-19 pandemic. Third quarter financial results benefitted from a 35.0% year-over-year improvement in our cost of funds, a 63.9% year-over-year increase in noninterest income, and an 8.5% year-over-year reduction in noninterest expense. In addition, our third quarter net interest margin increased eight basis points from June 30, 2020.”  “As you can see, we remain focused on managing items under our control, however, Middlefield is not immune from the economic challenges the COVID-19 crisis has had on our customers and communities. During the third quarter, profitability was impacted by a $4.0 million provision for loan losses as we continue increasing our allowance for loan losses primarily due to the COVID-19 pandemic and its effect on the economy, as well as the resolution of an isolated commercial loan.“We remain committed to pursuing strategies that support our long-term growth plan, prudently manage risk, and create sustainable value for our shareholders. The growth in loans and deposits over the past three months is encouraging and demonstrates our ability to provide compelling and community-oriented financial services throughout our Northeast Ohio and Central Ohio markets. We are also working to enhance our relationships with new commercial customers that we obtained through the PPP process and we are helping customers through loan forgiveness. In addition, we believe we have additional opportunities to grow noninterest income, further reduce our cost of funds, and manage noninterest expenses in the coming quarters. Our customers have demonstrated their resolve throughout this uncertain economic period, and I want to thank our employees for their dedication serving our local communities,” concluded Mr. Caldwell.Income Statement
For the 2020 nine months, net interest income increased 3.3% to $32.1 million, compared to $31.1 million for the same period last year. Year-to-date, the net interest margin was 3.56%, compared to 3.69% for the same period last year. Net interest income for the 2020 third quarter was $11.4 million, compared to $10.6 million for the 2019 third quarter. The 7.4% increase in net interest income for the 2020 third quarter was largely a result of a 35.0% decrease in total interest expense. The net interest margin for the 2020 third quarter was 3.57%, compared to 3.72% for the same period of 2019, and 3.49% at June 30, 2020.For the 2020 nine months, noninterest income increased 23.9% to $4.4 million, compared to $3.5 million for the same period last year primarily due to increased gains on sale of loans. Noninterest income for the 2020 third quarter increased 63.9% to $1.8 million, compared to $1.1 million for the same period last year.For the 2020 nine months, noninterest expense decreased 3.1% to $22.0 million, compared to $22.7 million for the same period last year. Noninterest expense in the 2020 third quarter decreased 8.5% to $7.0 million from $7.7 million for the 2019 third quarter.  Net income for the 2020 nine months ended September 30, 2020, was $5.9 million, or $0.92 per diluted share, compared to $9.6 million, or $1.47 per diluted share for the same period last year. The decline in net income for the nine months ended September 30, 2020, was primarily due to a $7.3 million increase in the year-to-date provision for loan losses as a result of the COVID-19 crisis and the resolution of an isolated commercial loan. Net income for the 2020 third quarter ended September 30, 2020, was $1.9 million, or $0.29 per diluted share, compared to $3.3 million, or $0.50 per diluted share for the same period last year. The 2020 third quarter provision for loan losses increased $3.9 million, from the prior year period.Balance Sheet
Total assets at September 30, 2020, increased 6.6% to approximately $1.36 billion from $1.28 billion at September 30, 2019. Net loans at September 30, 2020, were $1.11 billion, compared to $992.3 million at September 30, 2019, and $977.5 million at December 31, 2019. The 12.2% year-over-year improvement in net loans was primarily a result of PPP loans originated during the second and third quarters, as well as organic loan growth.Total deposits at September 30, 2020, were $1.19 billion, compared to $1.03 billion at September 30, 2019. The 15.4% increase in deposits was driven by PPP deposits and pandemic uncertainty. The investment portfolio, which is entirely classified as available for sale, was $113.0 million at September 30, 2020, compared with $105.0 million at September 30, 2019.Donald L. Stacy, Chief Financial Officer stated, “Our allowance for loan losses to total loans was 1.01% at September 30, 2020, compared to 0.70% at September 30, 2019. During the quarter, asset quality was negatively affected by one large legacy credit of $2.7 million in the Central Ohio market, which was charged-off during the quarter. The issue is isolated to this borrower and was previously disclosed in early 2019. It is not indicative of a trend in the market, portfolio or an issue in underwriting.”“Overall asset quality remains positive especially given the economic challenges and uncertainty facing many of our communities. Loans in deferral status declined 70% from $214.8 million at June 30, 2020, to $63.5 million at September 30, 2020. We are closely monitoring our loan portfolio, especially loans within at-risk categories. At September 30, 2020, no restaurant customers were seeking additional deferrals, while only half of the loans in second deferral status were within the hospitality segment. All hotel customers are long-standing customers, operate brand name properties in compelling markets, and our hotel portfolio has an average loan-to-value of 53%. Overall, the quality of our retail portfolio remains solid and appears to not be significantly impacted by the current difficult economic environment.   While our exposure to the hotel and retail sectors will impact near-term asset quality, we are comfortable with our current hotel and retail performance. We are doing everything we can to support all our customers and communities impacted by the COVID-19 crisis.”Stockholders’ Equity and Dividends
At the end of the 2020 third quarter, shareholders’ equity increased 4.5% to $142.1 million compared to $135.9 million at September 30, 2019. On a per share basis, shareholders’ equity at September 30, 2020, was $22.27 compared to $21.16 at the same period last year.Tangible stockholders’ equity⁽¹⁾ increased 5.5% to $125.2 million for the 2020 third quarter, compared to $118.7 million at September 30, 2019. On a per-share basis, tangible stockholders’ equity⁽¹⁾ was $19.63 at September 30, 2020, compared to $18.48 at September 30, 2019.For the nine-month period ended September 30, 2020, the Company declared cash dividends of $0.45 per share, compared to $0.42 per share for the same period last year.At September 30, 2020, the Company had an equity to assets leverage ratio of 10.41%, compared to 10.61% at September 30, 2019.Asset Quality
The provision for loan losses for the 2020 third quarter was $4.0 million versus $80,000 for the same period last year. Most of the increased provision is the result of increases to the economic conditions qualitative factors and higher charge-off during the quarter. Nonperforming assets at September 30, 2020, were $14.1 million, compared to $10.1 million at September 30, 2019.Net charge-offs for the 2020 third quarter were $2.9 million, or 1.01% of average loans, annualized, compared to $0.4 million, or 0.15% of average loans, annualized at September 30, 2019. This was primarily the result of resolving a large problem commercial loan that was transferred to other real estate during the quarter. Year-to-date net charge-offs were $3.1 million, or 0.39% of average loans, annualized compared to $0.9 million, or 0.11% of average loans, annualized for the same period last year.The allowance for loan losses at September 30, 2020, stood at $11.4 million, or 1.01% of total loans, compared to $7.0 million, or 0.70% of total loans at September 30, 2019.  COVID-19 Update
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and as a qualified SBA lender, we were automatically authorized to originate PPP loans. As of September 30, 2020, we approved 1,414 applications for up to $143.8 million of loans under the PPP.  As of September 30, 2020, we modified 41 loans aggregating $63.5 million primarily consisting of the deferral of principal and interest payments and the extension of the maturity date, compared to 362 loans aggregating $214.8 million at June 30, 2020.Details with respect to second deferral loan modifications are as follows:






About Middlefield Banc Corp.
Middlefield Banc Corp., headquartered in Middlefield, Ohio, is the bank holding company of The Middlefield Banking Company with total assets of $1.36 billion at September 30, 2020. The bank operates 16 full-service banking centers and an LPL Financial® brokerage office serving Beachwood, Chardon, Cortland, Dublin, Garrettsville, Mantua, Middlefield, Newbury, Orwell, Plain City, Powell, Solon, Sunbury, Twinsburg, and Westerville. The Bank also operates a Loan Production Office in Mentor, Ohio.  Additional information is available at www.middlefieldbank.bank⁽¹⁾This press release includes disclosure of Middlefield Banc Corp.’s tangible book value per share and return on average tangible equity, which are financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Middlefield Banc Corp. believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Middlefield Banc Corp.’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP. The reconciliations of non-GAAP financial measures are included in the tables following Consolidated Financial Highlights below.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) the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions; (8) changes in the securities markets; or (9) 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.