Business Overview and History
Middlefield Banc Corp. (MBCN) is a community bank holding company with a rich history of serving the financial needs of individuals and businesses in Ohio. Founded in 1901, the company has weathered numerous economic cycles, consistently delivering reliable financial services to its customers. Despite the challenges posed by the ever-evolving banking landscape, Middlefield Banc Corp. has demonstrated its ability to adapt and thrive, making it a compelling investment opportunity for those seeking a well-managed, community-focused financial institution.
Middlefield Banc Corp. was incorporated in 1988 under the Ohio General Corporation Law and serves as the bank holding company for its subsidiary, The Middlefield Banking Company (MBC). MBC was chartered under Ohio law in 1901 and has since grown to operate 21 full-service banking centers and a loan production office, serving customers in northeastern, central, and western Ohio.
The company's expansion has been strategic, with the 2022 merger with Liberty Bancshares, Inc. adding six full-service bank offices in Hardin, Logan, Union, and Franklin counties. This acquisition allowed Middlefield Banc Corp. to strengthen its presence in key markets and further enhance its ability to serve the diverse financial needs of its growing customer base.
Middlefield Banc Corp. offers a comprehensive suite of banking services, including checking, savings, and time deposit accounts, commercial and consumer loans, mortgage banking, and investment services. The company's focus on building long-term customer relationships and delivering personalized, high-quality service has been a key driver of its success over the decades.
As a bank holding company registered under the Bank Holding Company Act of 1956, Middlefield Banc Corp. operates in a highly regulated environment. The company's subsidiary, MBC, engages in a general commercial banking business, offering a broad range of services including negotiable order of withdrawal (NOW) accounts, money market accounts, and safe deposit facilities. In addition to traditional banking services, MBC has embraced technology to meet evolving customer needs, providing online banking and bill payment services to individuals and online cash management services to business customers.
The merger with Liberty Bancshares, Inc. in December 2022 was a significant milestone for Middlefield Banc Corp. Under the terms of the merger agreement, Liberty shareholders received 2.75 shares of Middlefield Banc Corp.'s common stock in exchange for each share of Liberty common stock they owned. This strategic move not only expanded the company's geographical footprint but also strengthened its position in the competitive Ohio banking market.
Throughout its history, Middlefield Banc Corp. has faced various challenges, including operating in a highly competitive industry and market area. The company competes with numerous financial institutions within its markets, including local, regional, and national commercial banks and credit unions. However, Middlefield has consistently worked to maintain its competitive edge through its commitment to personal service, innovation, and active involvement in the communities it serves.
Financial Strength and Performance
As of December 31, 2024, Middlefield Banc Corp. reported total assets of $1.85 billion, a 1.6% increase from the prior year. The company's loan portfolio reached a record $1.52 billion, up 2.8% year-over-year, reflecting the bank's ability to capitalize on lending opportunities within its market area.
The company's net interest income for the year ended December 31, 2024, totaled $60.7 million, a decrease of 6.9% from the previous year. This decline was primarily attributable to an increase in the average balance of interest-bearing deposits, coupled with a rise in the yield earned on those deposits. Despite this, Middlefield Banc Corp. maintained a solid net interest margin of 3.52%, demonstrating its effective asset-liability management strategies.
For the fiscal year 2024, Middlefield Banc Corp. reported annual revenue of $101.26 million and annual net income of $15.52 million. The company generated annual operating cash flow of $17.47 million and annual free cash flow of $20.35 million. In the most recent quarter (Q4 2024), the company reported revenue of $17.47 million and net income of $4.85 million, with year-over-year revenue growth of 2.9%.
Middlefield Banc Corp.'s capital position remains strong, with a total risk-based capital ratio of 13.54% and a Tier 1 risk-based capital ratio of 12.28% as of December 31, 2024. These ratios exceed the well-capitalized thresholds set by regulatory authorities, providing the company with the financial flexibility to support its growth initiatives and weather potential economic uncertainties.
The company's profitability metrics have also remained stable, with a return on average assets (ROAA) of 0.84% and a return on average equity (ROAE) of 7.48% for the year ended December 31, 2024. While these figures represent a year-over-year decline, they still demonstrate Middlefield Banc Corp.'s ability to generate consistent earnings and create value for its shareholders.
Liquidity
Middlefield Banc Corp. maintains a strong liquidity position, ensuring its ability to meet its financial obligations and support its lending activities. The company's liquidity management strategies include maintaining adequate levels of cash and cash equivalents, as well as access to various funding sources such as deposits, borrowings, and the potential sale of investment securities.
As of December 31, 2024, the company reported cash and cash equivalents of $55.79 million. Middlefield Banc Corp. has available credit lines, including a $6 million line of credit and a $10 million line of credit with other financial institutions. Additionally, the company has an additional borrowing capacity of $381.70 million from the Federal Home Loan Bank (FHLB).
The company's debt-to-equity ratio stood at 0.0552 as of December 31, 2024, indicating a relatively low level of leverage. Both the current ratio and quick ratio were 2.053, reflecting the company's strong ability to meet its short-term obligations.
Navigating Challenges with Resilience
Middlefield Banc Corp. has not been immune to the broader industry challenges faced by community banks in recent years. The company's 2024 results were impacted by factors such as increased competition, rising interest rates, and the ongoing impact of the COVID-19 pandemic on the regional economy.
In April 2023, the company experienced a cyber-attack that resulted in a temporary disruption to its computer systems. While this incident did not have a material impact on the company's business, it underscores the importance of robust cybersecurity measures in the banking industry. Middlefield Banc Corp. has since taken steps to enhance its information security protocols and mitigate the risk of future cyber threats.
Despite these headwinds, Middlefield Banc Corp. has demonstrated its resilience by maintaining a strong balance sheet, prudent risk management, and a steadfast commitment to its customers and communities. The company's management team has proactively addressed emerging challenges, adapting its strategies to ensure the bank's long-term sustainability and growth.
Loan Portfolio and Credit Quality
Middlefield Banc Corp.'s loan portfolio is well-diversified, with a focus on commercial real estate and residential real estate loans. As of December 31, 2024, commercial real estate loans, including owner-occupied, non-owner occupied, and multifamily, represented 44.9% of the total loan portfolio. Residential real estate loans, which include 1-4 family mortgages, made up 23.3% of total loans. Home equity lines of credit accounted for 9.4% of the portfolio, while commercial and industrial loans were 15.1%, and consumer installment loans were 0.4%.
The growth in the commercial real estate and residential real estate loan segments was a key driver of the 2.8% increase in total loans from December 31, 2023 to December 31, 2024. The non-owner occupied and multifamily commercial real estate loan segments grew by 2.7% and 8.9%, respectively, primarily due to construction loans that moved to permanent financing. The residential real estate loan portfolio increased by 7.5% as the company focused on expanding this segment and introduced new product offerings.
The allowance for credit losses (ACL) increased by 3.5% to $22.4 million as of December 31, 2024, reflecting the overall growth in the loan portfolio as well as changes in loss projections and economic assumptions used in the ACL model. The ratio of the ACL to total loans was 1.48% at the end of 2024, compared to 1.47% at the end of 2023. Nonperforming loans increased from $10.9 million, or 0.74% of total loans, as of December 31, 2023, to $30.0 million, or 1.97% of total loans, as of December 31, 2024, primarily due to the addition of two commercial real estate loans totaling $16.0 million that were moved to nonaccrual status during the year.
Deposit Base and Funding
Deposits, which are a significant source of funding for the company, grew by 1.3% to $1.45 billion as of December 31, 2024, compared to $1.43 billion at the end of 2023. The increase was driven by growth in money market deposits, which rose by 50.8%, partially offset by a 25.9% decline in time deposits. Noninterest-bearing demand deposits and interest-bearing demand deposits also increased by 5.9% and 1.3%, respectively.
Geographic Market Performance
Middlefield Banc Corp. primarily operates in northeastern, central, and western Ohio. The company has established a strong market presence in key areas, with particularly significant market shares in Geauga County (20.72%) and Hardin County (35.42%), which are the two largest markets for the bank. This strong regional presence has allowed the company to leverage its local expertise and community relationships to drive growth and maintain a competitive edge.
Outlook and Future Prospects
As Middlefield Banc Corp. looks ahead, the company remains cautiously optimistic about its future prospects. The integration of the Liberty Bancshares acquisition has been successful, and the company is well-positioned to capitalize on the growth opportunities within its expanded footprint.
The bank's focus on building customer relationships, diversifying its revenue streams, and maintaining a strong risk management framework are expected to serve it well in the face of ongoing industry headwinds. Additionally, Middlefield Banc Corp.'s consistent dividend payments and shareholder-friendly initiatives, such as its share repurchase program, demonstrate management's commitment to enhancing value for its investors.
While the banking industry continues to evolve, Middlefield Banc Corp. has proven its ability to adapt and thrive. With its solid financial foundation, experienced leadership, and deep community ties, the company is poised to navigate the challenges ahead and continue delivering long-term value for its stakeholders.
Conclusion
Middlefield Banc Corp. is a community bank with a rich history and a reputation for providing reliable financial services to its customers. Despite facing industry-wide challenges, the company has demonstrated its resilience, maintaining a strong balance sheet, prudent risk management, and a steadfast commitment to its communities.
As Middlefield Banc Corp. looks to the future, the company's focus on building customer relationships, diversifying its revenue streams, and maintaining a strong risk management framework positions it well to capitalize on growth opportunities and create value for its shareholders. With its solid financial foundation and experienced leadership, Middlefield Banc Corp. remains a compelling investment option for those seeking exposure to a well-managed, community-focused financial institution.