10-Q 1 mbcn20240930c_10q.htm FORM 10-Q mbcn20240930c_10q.htm
0000836147 Middlefield Banc Corp. false --12-31 Q3 2024 0 0 25,000,000 25,000,000 9,950,342 9,930,704 8,071,032 8,095,252 1,879,310 1,835,452 0.20 0.20 43,858 0.60 164,221 0.40 0 0 0 0 0 1.8 1.7 false false false false Not within scope of ASC 606 All amounts are net of tax. Amounts in parentheses indicate debits to AOCI. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level II versus Level III criteria. The level designation of each financial instrument is reassessed at the end of each period. Amortized cost excludes accrued interest receivable of $1.7 million for the period ending June 30, 2024. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the quarterly period ended September 30, 2024

or

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from ___________ to ___________

 

Commission File Number 001-36613

 

smlogo.jpg

Middlefield Banc Corp.

(Exact Name of Registrant as Specified in its Charter)

 

Ohio

 

34-1585111

State or Other Jurisdiction of

 

I.R.S. Employer Identification No.

Incorporation or Organization

  
   

15985 East High Street, Middlefield, Ohio

 

44062-0035

Address of Principal Executive Offices

 

Zip Code

 

 

440-632-1666

 

Registrant’s Telephone Number, Including Area Code

 

   

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, Without Par Value

MBCN

The NASDAQ Stock Market, LLC

(NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒  

Smaller reporting company ☒

Emerging growth company ☐ 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒ 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding at November 13, 2024: 8,071,032

 

 
Table of Contents

 

 
 

 MIDDLEFIELD BANC CORP.

INDEX

 

Part 1 – Financial Information

 

Item 1.

Financial Statements (unaudited)

 
 

Consolidated Balance Sheet

3
 

Consolidated Statement of Income

4
 

Consolidated Statement of Comprehensive Income (Loss)

5
 

Consolidated Statement of Changes in Stockholders’ Equity

6
 

Consolidated Statement of Cash Flows

8
 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

Item 4.

Controls and Procedures

37

PART II – Other Information

38

Item 1.

Legal Proceedings

38

Item 1a.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other information

38

Item 6.

Exhibits

39

Signatures

42

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32

  

 

2
Table of Contents

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

 

  

September 30,

  

December 31,

 
  

2024

  

2023

 
         

ASSETS

        

Cash and due from banks

 $61,851  $56,397 

Federal funds sold

  12,022   4,439 

Cash and cash equivalents

  73,873   60,836 

Investment securities available for sale, at fair value

  169,895   170,779 

Other investments

  895   955 

Loans held for sale

  249   - 

Loans:

        

Commercial real estate:

        

Owner occupied

  187,313   183,545 

Non-owner occupied

  407,159   401,580 

Multifamily

  94,798   82,506 

Residential real estate

  345,748   328,854 

Commercial and industrial

  213,172   221,508 

Home equity lines of credit

  137,761   127,818 

Construction and other

  111,550   125,105 

Consumer installment

  7,030   7,214 

Total loans

  1,504,531   1,478,130 

Less: allowance for credit losses

  22,526   21,693 

Net loans

  1,482,005   1,456,437 

Premises and equipment, net

  20,528   21,339 

Goodwill

  36,356   36,356 

Core deposit intangibles

  5,869   6,642 

Bank-owned life insurance

  35,049   34,349 

Accrued interest receivable and other assets

  32,916   35,190 

TOTAL ASSETS

 $1,857,635  $1,822,883 

LIABILITIES

        

Deposits:

        

Noninterest-bearing demand

 $390,933  $401,384 

Interest-bearing demand

  218,002   205,582 

Money market

  376,619   274,682 

Savings

  199,984   210,639 

Time

  327,231   334,315 

Total deposits

  1,512,769   1,426,602 

Federal Home Loan Bank advances

  106,000   163,000 

Other borrowings

  11,711   11,862 

Accrued interest payable and other liabilities

  16,450   15,738 

TOTAL LIABILITIES

  1,646,930   1,617,202 

STOCKHOLDERS' EQUITY

        

Common stock, no par value; 25,000,000 shares authorized, 9,950,342 and 9,930,704 shares issued; 8,071,032 and 8,095,252 shares outstanding

  161,916   161,388 

Additional paid-in capital

  108   - 

Retained earnings

  106,067   100,237 

Accumulated other comprehensive loss

  (16,477)  (16,090)

Treasury stock, at cost; 1,879,310 and 1,835,452 shares

  (40,909)  (39,854)

TOTAL STOCKHOLDERS' EQUITY

  210,705   205,681 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $1,857,635  $1,822,883 

 

See accompanying notes to unaudited consolidated financial statements.

 

3
Table of Contents

 

 

 MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  
   

2024

    

2023

    

2024

    

2023

  

INTEREST AND DIVIDEND INCOME

                                

Interest and fees on loans

   $ 23,441     $ 20,899     $ 69,258     $ 59,935  

Interest-earning deposits in other institutions

     348       300       1,171       920  

Federal funds sold

     143       266       417       678  

Investment securities:

                                

Taxable interest

     528       477       1,500       1,415  

Tax-exempt interest

     962       980       2,900       2,938  

Dividends on stock

     191       148       578       326  

Total interest and dividend income

     25,613       23,070       75,824       66,212  
                                 

INTEREST EXPENSE

                                

Deposits

     8,792       5,632       24,681       12,472  

Short-term borrowings

     1,575       1,258       5,488       3,373  

Other borrowings

     173       213       530       539  

Total interest expense

     10,540       7,103       30,699       16,384  
                                 

NET INTEREST INCOME

     15,073       15,967       45,125       49,828  
                                 

Provision for credit losses

     2,234       1,127       2,185       2,449  
                                 

NET INTEREST INCOME AFTER PROVISON FOR CREDIT LOSSES

     12,839       14,840       42,940       47,379  
                                 

NONINTEREST INCOME

                                

Service charges on deposit accounts

     959       954       2,839       2,880  

Gain (loss) on equity securities

     14       48       (65 )     (157 )

Gain on other real estate owned

     -       -       -       2  

Earnings on bank-owned life insurance

     246       207       700       627  

Gain on sale of loans

     56       45       135       74  

Revenue from investment services

     206       190       679       550  

Gross rental income

     -       110       67       290  

Other income

     262       263       944       822  

Total noninterest income

     1,743       1,817       5,299       5,088  
                                 

NONINTEREST EXPENSE

                                

Salaries and employee benefits

     6,201       5,994       18,645       17,865  

Occupancy expense

     627       699       1,780       2,054  

Equipment expense

     203       297       704       969  

Data processing and information technology costs

     1,248       1,209       3,665       3,415  

Ohio state franchise tax

     399       398       1,193       1,180  

Federal deposit insurance expense

     255       207       762       576  

Professional fees

     539       545       1,654       1,633  

Advertising expense

     283       414       1,210       1,315  

Software amortization expense

     74       24       117       73  

Core deposit intangible amortization

     257       265       773       794  

Gross other real estate owned expenses

     -       195       99       390  

Merger-related costs

     -       22       -       472  

Other expense

     1,785       1,849       5,136       5,228  

Total noninterest expense

     11,871       12,118       35,738       35,964  
                                 

Income before income taxes

     2,711       4,539       12,501       16,503  

Income taxes

     371       703       1,830       2,678  
                                 

NET INCOME

   $ 2,340     $ 3,836     $ 10,671     $ 13,825  
                                 

EARNINGS PER SHARE

                                

Basic

   $ 0.29     $ 0.47     $ 1.32     $ 1.71  

Diluted

   $ 0.29     $ 0.47     $ 1.32     $ 1.70  

 

See accompanying notes to unaudited consolidated financial statements.

 

4
Table of Contents

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands)

(Unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  
   

2024

    

2023

    

2024

    

2023

  
                                 

Net income

   $ 2,340     $ 3,836     $ 10,671     $ 13,825  
                                 

Other comprehensive income (loss):

                                

Unrealized holding gain (loss) on securities available for sale

     3,786       (7,336 )     (490 )     (5,420 )

Tax effect

     (795 )     1,540       103       1,138  
                                 

Total other comprehensive income (loss)

     2,991       (5,796 )     (387 )     (4,282 )
                                 

Comprehensive income (loss)

   $ 5,331     $ (1,960 )   $ 10,284     $ 9,543  

 

See accompanying notes to unaudited consolidated financial statements.

 

5
Table of Contents

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

 

 

                  

Accumulated

         
          

Additional

      

Other

      

Total

 
  

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Treasury

  

Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

('Loss) Income

  

Stock

  

Equity

 
                             

Balance, June 30, 2024

  9,946,454  $161,823  $-  $105,342  $(19,468) $(40,909) $206,788 
                             

Net income

              2,340           2,340 

Other comprehensive income

                  2,991       2,991 

Shares issued for stock options and grants

  3,888   93                   93 

Restricted stock grant

          108               108 

Cash dividends ($0.20 per share)

              (1,615)          (1,615)
                             

Balance, September 30, 2024

  9,950,342  $161,916  $108  $106,067  $(16,477) $(40,909) $210,705 

 

              

Accumulated

         
              

Other

      

Total

 
  

Common Stock

  

Retained

  

Comprehensive

  

Treasury

  

Stockholders'

 
  

Shares

  

Amount

  

Earnings

  

Loss

  

Stock

  

Equity

 
                         

Balance, June 30, 2023

  9,924,245  $161,211  $96,500  $(20,630) $(39,854) $197,227 
                         

Net income

          3,836           3,836 

Other comprehensive loss

              (5,796)      (5,796)

Shares issued for stock options and grants

  3,783   101               101 

Cash dividends ($0.20 per share)

          (1,619)          (1,619)
                         

Balance, September 30, 2023

  9,928,028  $161,312  $98,717  $(26,426) $(39,854) $193,749 

 

See accompanying notes to unaudited consolidated financial statements.

6
Table of Contents

 

 

                  

Accumulated

         
          

Additional

      

Other

      

Total

 
  

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Treasury

  

Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss

  

Stock

  

Equity

 
                             

Balance, December 31, 2023

  9,930,704  $161,388  $-  $100,237  $(16,090) $(39,854) $205,681 
                             

Net income

              10,671           10,671 

Other comprehensive loss

                  (387)      (387)

Shares issued for stock options and grants

  19,638   528                   528 

Restricted stock grant

          108               108 

Common shares repurchased (43,858)

                      (1,055)  (1,055)

Cash dividends ($0.60 per share)

              (4,841)          (4,841)
                             

Balance, September 30, 2024

  9,950,342  $161,916  $108  $106,067  $(16,477) $(40,909) $210,705 

 

              

Accumulated

         
              

Other

      

Total

 
  

Common Stock

  

Retained

  

Comprehensive

  

Treasury

  

Stockholders'

 
  

Shares

  

Amount

  

Earnings

  

Loss

  

Stock

  

Equity

 
                         

Balance, December 31, 2022

  9,916,466  $161,029  $94,154  $(22,144) $(35,348) $197,691 
                         

Net income

          13,825           13,825 

Other comprehensive loss

              (4,282)      (4,282)

Cumulative impact of ASC 326 adoption (CECL)

          (4,421)          (4,421)

Authorization of additional common shares

      (37)              (37)

Stock-based compensation, net

  11,562   320               320 

Common shares repurchased (164,221)

                  (4,506)  (4,506)

Cash dividends ($0.40 per share)

          (4,841)          (4,841)
                         

Balance, September 30, 2023

  9,928,028  $161,312  $98,717  $(26,426) $(39,854) $193,749 

 

See accompanying notes to unaudited consolidated financial statements.

 

7
Table of Contents

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

   

For the Nine Months Ended

  
   

September 30,

  
   

2024

    

2023

  

OPERATING ACTIVITIES

                

Net income

   $ 10,671     $ 13,825  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Provision for credit losses

     2,185       2,449  

Loss on equity securities

     65       157  

Software amortization expense

     117       73  

Amortization of premium and discount on investment securities, net

     421       453  

Amortization of core deposit intangibles

     773       794  

Depreciation, amortization, and accretion, net

     (47 )     (100 )

Stock-based compensation, net

     482       78  

Origination of loans held for sale

     (5,638 )     (4,549 )

Proceeds from sale of loans held for sale

     5,524       3,991  

Gain on sale of loans held for sale

     (135 )     (74 )

Earnings on bank-owned life insurance

     (700 )     (627 )

Deferred income tax (benefit)

     (45 )     485  

Gains on other real estate owned

     -       (2 )

Decrease (increase) in accrued interest receivable

     265       (1,002 )

Increase in accrued interest payable

     3,950       1,607  

Other, net

     (3,078 )     (2,941 )

Net cash provided by operating activities

     14,809       14,617  
                 

INVESTING ACTIVITIES

                

Investment securities available for sale:

                

Proceeds from repayments and maturities

     1,871       1,680  

Purchases

     (1,898 )     (2,000 )

Purchase of other investments

     (5 )     (200 )

Increase in loans, net

     (26,460 )     (99,059 )

Proceeds from the sale of other real estate owned

     -       31  

Proceeds from bank-owned life insurance

     -       289  

Purchase of premises and equipment

     (368 )     (1,058 )

Purchase of restricted stock

     (723 )     (5,507 )

Redemption of restricted stock

     2,691       4,237  

Net cash used in investing activities

     (24,892 )     (101,587 )
                 

FINANCING ACTIVITIES

                

Net increase in deposits

     86,167       55,157  

Net (decrease) increase in short-term borrowings

     (57,000 )     53,000  

Repayment of other borrowings

     (151 )     (147 )

Repurchase of common shares

     (1,055 )     (4,506 )

Cash dividends

     (4,841 )     (4,841 )

Net cash provided by financing activities

     23,120       98,663  
                 

Increase in cash and cash equivalents

     13,037       11,693  
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     60,836       53,809  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 73,873     $ 65,502  
                 
    For the Nine Months Ended  
    September 30,  
    2024     2023  

SUPPLEMENTAL INFORMATION

                

Cash paid during the year for:

                

Interest on deposits and borrowings

   $ 26,749     $ 14,777  

Income taxes

     2,130       2,168  
                 

Noncash investing transactions:

                

Purchased loan fair value adjustment

     -       4,462  

 

See accompanying notes to unaudited consolidated financial statements.

 

8
Table of Contents

 

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. The consolidated financial statements also include the accounts of MBC’s subsidiaries, Middlefield Investments, Inc. (“MI”) and MB Insurance Services (“MIS”). All significant inter-company items have been eliminated.

 

On March 13, 2019, MBC established MI as an operating subsidiary to hold and manage an investment portfolio. On  September 30, 2024, MI’s assets consist of a cash account, available-for-sale investment securities, and related accrued interest accounts. MI may only hold and manage investments and may not engage in any other activity without prior approval of the Ohio Division of Financial Institutions. In the first quarter of 2022, MBC established MIS as an operating subsidiary to offer retail and business customers various insurance services, including home, renters, automobile, pet, identity theft, travel, and professional liability insurance. On September 30, 2024, MIS assets consist of a cash account, a prepaid asset, and an accounts receivable. As a result of the bank merger of Liberty National Bank and MBC on December 1, 2022, Middlefield Banc Corp. acquired a 100% ownership interest in LBSI Insurance, LLC (“LBSI”), a wholly owned financial subsidiary of Liberty National Bank. LBSI did not operate after the merger, and its existence ended January 19, 2024. All significant intercompany items have been eliminated between MBC and these subsidiaries.

 

The unaudited consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of Regulation SX. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023. The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.

 

The Company’s significant accounting policies involve the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2024. However, the Company has identified critical accounting policies, and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses for the investment securities held for sale, loan portfolios, and unfunded commitments.

 

Investments 

 

Management determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

 

Investment securities classified as available for sale are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Unrealized gains or losses are reported as increases or decreases in other comprehensive income (loss), net of the deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

 

Investment securities classified as held to maturity are those securities the Bank has both the intent and ability to hold to maturity regardles