Middlefield Banc Corp. Reports Continued Strong Financial Performance

MIDDLEFIELD, Ohio, Jan. 26, 2011 /PRNewswire/ -- Middlefield Banc Corp. (OTCQB: MBCN), parent of The Middlefield Banking Company and Emerald Bank, today reported financial results for the fourth quarter and full year ended December 31, 2010.

Net Income for the fourth quarter and fiscal year 2010 totaled $946,000 and $2,768,000, respectively, compared to $504,000 and $1,781,000, respectively, for the same periods in 2009.  Other notable results for the year include:

• Total assets increased $73.8 million, or 13.2%, from December 31, 2009
• Net interest income in a year-to-year comparison grew $3.9 million or 27.2%
• Total deposits stood at $565.3 million, an increase of 16.0% from year-end 2009
• Net loans grew $17.6 million during the year, ending up 5.1%
• Diluted earnings per common share for the year were $1.76.

Annualized returns on average equity ("ROE") and average assets ("ROA") for the quarter were 9.26% and 0.58%, respectively, compared with 5.42% and 0.37% for the fourth quarter of 2009.  ROE and ROA were 7.08% and 0.45%, respectively, for the twelve-month period of 2010.  Comparable results for the 2009 twelve-month period were 4.90% and 0.36%, respectively.

"It is a pleasure to report the solid earnings that our team has achieved during 2010.  Our results are a reflection of the clear focus on retaining the financial strength of our company that is a fundamental key to all we do," stated Thomas G. Caldwell, President and Chief Executive Officer, "We have seen continued improvement in our net interest margin.  While our focus remains directed to successfully resolving our asset quality issues, the stabilization of the level of non-performing assets is a positive sign."

"We are confident that the underlying core performance of our company is strong.  As we work to reduce the risk within our balance sheet, we anticipate a return to more normal levels of loan loss accruals and associated collection expenses," continued Caldwell.  "We are and have been seeking quality loan growth, which we expect will experience resurgence with an improved economic climate."  

Asset Quality

The provision for loan losses for the three and twelve month periods ended December 31, 2010 increased 49.8% and 38.9% to $1,225,000 and $3,580,000 compared to the $818,000 and $2,578,000, respectively, for the comparable periods of 2009.  "Loan demand and economic activity have been slow to recover in our markets.  While asset quality issues have stabilized, we believe that we are best served to operate with higher levels of provision to address potential credit quality issues," 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.  In contrast, our central Ohio market is reporting delinquencies tied to non-owner occupied residential properties."  

Stacy continued, "We remain confident that we have properly identified issues within our loan portfolio.  Our expectations remain that we will see an improvement in asset quality numbers throughout 2011."  

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 1.67% of total loans at December 31, 2010 compared to the 1.63% reported at September 30, 2010 and 1.40% at December 31, 2009.

Net Interest Income

Net interest income for the fourth quarter of 2010 increased $996,000, or 25.6%, to $4,893,000 compared to $3,897,000 in the fourth quarter of 2009.  The net interest margin increased 19 basis points to 3.47% compared to the 3.28% reported for the year-ago quarter.  Net interest income for the year 2010 increased by $3,881,000, or 27.2%, to $18,149,000 compared to the $14,268,000 for the full year of 2009.  The net interest margin for 2010 stood at 3.41%, an 11 basis point increase from the 3.30% reported for 2009.

The improvement in net interest income reflects strong core deposit growth and the further development of pricing strategies.  Total deposits at December 31, 2010 stood at $565.3 million, representing an increase of 16.0% from the year-end 2009 figure.  Savings account deposits accounted for growth of $39.6 million, with Money Market deposits increasing by $14.7 million.

Non-Interest Income and Operating Expenses

Non-interest income declined for both the three and twelve month periods.  Federal Reserve rules regarding overdraft charges for debit card and ATM transactions became effective on July 1, 2010.  These rules eliminated the automatic overdraft protection arrangements that had been in common use, instead requiring banks to notify and obtain the consent of customers before enrolling them in an overdraft protection plan.  Because the rules limit a bank's ability to charge fees for the payment of overdrafts for debit and ATM card transactions, these new regulations led to a decrease in service charges on deposits of $48,000 for the three months of 2010 compared to 2009, and $121,000 for the twelve-month period.  Earnings on bank-owned life insurance were slightly higher for both the three and twelve-month periods.  

Operating expenses decreased by 1.6%, or $54,000 for the quarter while increasing $1,734,000, or 13.7% for 2010 over comparable periods of 2009.  Expense increases in salaries and employee benefits were directly related to the growth of the company.  In addition to normal wage increases and an increase in health insurance costs, the company increased staffing levels in loan administration, credit analysis, and special assets.  These higher staffing levels also contributed to greater occupancy and equipment expense.  Data processing costs were lower for both the three and twelve-month periods.  During 2010 the company entered into a new contractual agreement for the provision of core processing, which carried certain financial incentives, thereby lowering overall cost.

During the twelve month period of 2010, the company recorded a loss on the sale of other real estate owned totaling $783,000.  This was $600,000 above the amount reported for 2009.  This increased level of expense is a direct result of the company's efforts to reduce its inventory of other real estate owned, thereby reducing the company's level of non-performing assets.  Additionally, while the company saw its level of other operating expense increase $833,000 in a year-to-year comparison, the company's other costs related to loan quality issues, including maintaining other real estate owned properties and collection expenses, a component of other operating expense, increased $873,000.  

Balance Sheet

The company's total assets ended 2010 at $632.4 million, an increase of 13.2% over the $558.7 million in total assets reported at December 31, 2009.  Net loans at December 31, 2010, were $366.3 million, up $17.6 million, or 5.1%, over the $348.7 million reported at December 31, 2009.  Total deposits at year-end 2010, were $565.3 million, or 16.0% 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 $201.8 million at December 31, 2010.  This figure represented growth within that portfolio of $65.1 million during the year.  

Capital

The company's regulatory capital ratios continue to remain above the "well-capitalized" levels of 6.0 percent for tier 1 capital and 10 percent for risk-based capital.  While the tier 1 leverage ratio at December 31, 2010 of 6.73% was down slightly from the 6.81% reported at September 30, 2010, the total risk-based capital ratio increased from 11.72% at September 30, 2010 to 12.80% at year-end 2010.

The following table shows the current capital position as of December 31, 2010 in both dollars and percentages, compared to the minimum amounts required per regulatory standards for "well-capitalized" institutions.

While the company's capital levels currently make the company eligible to be considered "well capitalized" for prompt corrective action purposes, management recently decided to reverse the company's trend experienced during 2010 of declining Tier 1 capital.  By December 31, 2011, management is seeking to restore Middlefield Banc Corp.'s Tier 1 leverage capital to 7.25%, and management is also seeking to increase The Middlefield Banking Company's Tier 1 leverage capital to be at least 7.25% as of December 31, 2011.  With targeted year end 2011 7.25% Tier 1 leverage capital ratios for Middlefield Banc Corp. and The Middlefield Banking Company, asset growth slowed in the fourth quarter, 2010 compared to the rate of asset growth in the preceding third quarter, 2010 and compared to the annual rate of asset growth during the first three quarters of 2010.  Management expects that the company's asset growth in 2011 will be controlled to achieve the targeted year end 2011 Tier 1 leverage capital ratios of 7.25% for Middlefield Banc Corp. and The Middlefield Banking Company.  By December 31, 2011, management also seeks to increase the total risk-based capital ratio for each of Middlefield Banc Corp. and The Middlefield Banking Company to be 12%.

Dividends    

During 2010, Middlefield paid cash dividends of $1.04 per share.  This represents an amount equal to that paid in 2009.  

Middlefield Banc Corp., headquartered in Middlefield, Ohio, is a multi-bank holding company with total assets of $632.4 million.  The company's lead bank, The Middlefield Banking Company, operates full service banking centers and a UVEST Financial Services® 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.    

SOURCE Middlefield Banc Corp.