Middlefield Banc Corp. Reports 2019 Nine Month Financial Results

Middlefield Banc Corp. (NASDAQ: MBCN) today reported financial results for the three and nine months ended September 30, 2019.

2019 Nine Month Financial Highlights (on a year-over-year basis unless noted):

• Net income increased 6.3% to $9.6 million
• Earnings per diluted share increased 5.8% to $2.94 per share
• Tangible book value⁽¹⁾ per share was up 12.1% to $36.96 per share
• Return on average tangible common equity⁽¹⁾ was 10.93%, compared to 11.36%
• Total net loans increased 2.8% to $992.3 million
• Net interest income improved 3.6% to $31.1 million
• Total noninterest income improved 28.5% to $3.5 million
• Noninterest expense was up only 5.4%
• Equity to assets remains strong at 10.61%
• Repurchased 49,416 shares at an average purchase price of $45.07 per share

"I am pleased with our third quarter and nine-month financial results, despite continued industry wide challenges including slowing loan growth and compressing net interest margin. During this period, we remain focused on our long-term strategic plan and value creation. Stability in our net interest margin, the significant year-over-year growth in noninterest income, controlled expense growth, and stable asset quality demonstrate the successful execution of our value-oriented strategies. In addition, according to the FDIC's annual market share study, Middlefield successfully increased its market share within the state of Ohio as our annual increase in deposits was one of the strongest from June 2018 to June 2019. According to the FDIC's annual study, we now rank as the 27^th largest bank and one of the largest community banks in the State."

"Year-to-date, we have invested $2.2 million to repurchase 49,416 shares of our common stock, while declaring $2.7 million of dividends through our quarterly dividend payments. In addition, Middlefield's Board recently declared a two-for-one stock split that will be effective on November 8, 2019 and will increase the number of shares outstanding to approximately 6.4 million shares. We are also investing in our platform and continue to attract, develop, and retain experienced bankers that are committed to supporting the success of our local communities. All of these efforts, combined with our profit focused strategic plan, demonstrate Middlefield's focus on creating long-term, sustainable value for shareholders," concluded Mr. Caldwell.

Income Statement

For the 2019 nine months, net interest income increased 3.6% to $31.1 million, compared to $30.0 million for the same period last year. Year-to-date, the net interest margin was 3.69%, compared to 3.77% for the same period last year. Net interest income for the 2019 third quarter was $10.6 million, compared to $10.3 million for the 2018 third quarter. The 3.2% increase in net interest income for the 2019 third quarter was largely a result of an increase in interest and fees on loans. The net interest margin for the 2019 third quarter was 3.72%, compared to 3.72% for the same period of 2018.

For the 2019 nine months, noninterest income increased 28.5% to $3.5 million, compared to $2.8 million for the same period last year. Noninterest income for the 2019 third quarter increased 16.6% to $1.1 million, compared to $0.9 million for the same period last year.

For the 2019 nine months, noninterest expense increased 5.4% to $22.7 million, compared to $21.5 million for the same period last year. Noninterest expense in the 2019 third quarter increased 8.2% to $7.7 million from $7.1 million for the 2018 third quarter.

"Competition for both loans and deposits within many of our markets remains high and we have seen aggressive pricing dynamics from some of our competitors," said Donald L. Stacy, Chief Financial Officer. "While this is likely to impact near-term loan and deposit growth, we remain focused on managing risk and pricing on loans, while prudently controlling our funding costs on deposits. Our loans to deposits ratio was 96.6% at September 30, 2019, compared to 96.0% at September 30, 2018, while our equity to assets increased 19 basis points over the past three months to 10.61%. In addition, I am encouraged by our growth in tangible book value⁽¹⁾ which has increased 12.1% to a record $36.96 per share. Our strong asset quality, ample liquidity, and compelling capitalization continues to provide us with the flexibility to pursue our growth opportunities, while supporting our business through various economic cycles."

Balance Sheet

Total assets at September 30, 2019, increased 6.2% to $1.28 billion from over $1.21 billion at September 30, 2018. Net loans at September 30, 2019, were $992.3 million, compared to $965.5 million at September 30, 2018, and $984.7 million at December 31, 2018. The 2.8% year-over-year improvement in net loans was primarily a result of a 1.9% increase in commercial mortgage loans, a 5.5% increase in residential mortgage loans, and a 17.7% increase in real estate construction loans, partially offset by a 7.8% decline in commercial and industrial loans and a 13.8% decline in consumer installment loans.

Total deposits at September 30, 2019, were $1.03 billion, compared to $1.01 billion at September 30, 2018. The 2.0% year-over-year increase in deposits was primarily a result of higher interest-bearing demand and time deposits, offset by decreases in money market and savings accounts. The investment portfolio, which is entirely classified as available for sale, was $105.0 million at September 30, 2019, compared with $99.7 million at September 30, 2018.

Stockholders' Equity and Dividends

At the end of the 2019 third quarter, shareholders' equity increased 9.4% to $135.9 million compared to $124.2 million at September 30, 2018. On a per share basis, shareholders' equity at September 30, 2019, increased 10.3% to $42.32 from $38.38 for the same period last year. Tangible stockholders' equity⁽¹⁾ increased 11.3% to $118.7 million for the 2019 third quarter, compared to $106.7 million at September 30, 2018. On a per-share basis, tangible stockholders' equity⁽¹⁾ increased 12.1% to $36.96 at September 30, 2019, from $32.96 at September 30, 2018.

Through the first nine months of 2019, the company declared cash dividends of $0.84 per share, compared to $0.89 per share for the same period last year, which included a one-time special cash dividend on $0.05 per share. The dividend payout ratio for the 2019 nine-month period was 28.4% compared to 31.9% for the same period last year.

At September 30, 2019, the company had an equity to assets leverage ratio of 10.61%, compared to 10.30% at September 30, 2018.

Asset Quality

The provision for loan losses for the 2019 third quarter was $80,000 versus $210,000 for the same period last year. Nonperforming assets at September 30, 2019, were $10.1 million, compared to $7.5 million at September 30, 2018. Net charge-offs for the 2019 third quarter were $383,000, or 0.15% of average loans, annualized, compared to $218,000, or 0.09% of average loans, annualized at September 30, 2018.

Underwriting standards continue to be maintained in the face of competitive pressures and potential problem credits are being proactively addressed resulting in some exits that have enhanced the overall health of the loan portfolio.

Year-to-date net charge-offs were $857,000, or 0.11% of average loans, annualized compared to $326,000, or 0.05% of average loans, annualized for the same period last year. The allowance for loan losses at September 30, 2019, stood at $7.0 million, or 0.70% of total loans, compared to $7.5 million or 0.77% of total loans at September 30, 2018.

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 $1.28 billion at September 30, 2019. The bank operates 15 full-service banking centers and an LPL Financial® brokerage office serving Beachwood, Chardon, Cortland, Dublin, Garrettsville, Mantua, Middlefield, Newbury, Orwell, 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) 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.