Middlefield Banc Corp.
11/13/2025 | Press release | Distributed by Public on 11/13/2025 07:22
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on a variety of estimates and assumptions. The estimates and assumptions involve judgments about a number of things, including future economic, competitive, cybersecurity, and financial market conditions, conflicts around the world, and future business decisions. These matters are inherently subject to significant business, economic, and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company's control. Although the Company believes its estimates and assumptions are reasonable, actual results could vary materially from those shown. The inclusion of forward-looking information does not constitute a representation by the Company or any other person that the indicated results will be achieved. Investors are cautioned not to place undue reliance on forward-looking information.
These forward-looking statements may involve significant risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results in these forward-looking statements.
CHANGES IN FINANCIAL CONDITION
Overview
These comments should be read in conjunction with the Company's consolidated financial statements and accompanying notes appearing elsewhere herein.
This discussion contains certain performance measures determined by methods other than under GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company's performance. These measures are useful when evaluating the underlying performance and efficiency of the Company's operations and Consolidated Balance Sheet. The Company's management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods, and demonstrate the effects of significant gains and charges in the current period. The Company's management believes that investors may use these non-GAAP financial measures to evaluate the Company's financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include tangible book value per common share, return on average tangible common equity, and pre-tax, pre-provision income. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company's management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.
2025 Nine-Month Financial Highlights (on a year-over-year basis):
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● |
Third quarter diluted earnings increased to $0.65 per share, driving year-to-date earnings of $2.01 per share | |
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● |
Pre-tax, pre-provision earnings(1) increased 37.3% to $6.8 million |
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● |
Net interest margin expanded 33 basis points to 3.79% |
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● |
Total loans increased $102.5 million, or 6.8% to a record $1.61 billion |
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| ● | Total assets increased $121.3 million, or 6.5% to a record $1.98 billion | |
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● |
Book value increased 6.1% to $27.71 from $26.11 per share, while tangible book value(1) increased 8.4% to $22.62 from $20.87 per share |
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For the Three Months Ended |
For the Nine Months Ended |
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September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
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2025 |
2025 |
2025 |
2024 |
2024 |
2025 |
2024 |
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Per common share data |
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Net income per common share - basic |
$ | 0.66 | $ | 0.76 | $ | 0.60 | $ | 0.60 | $ | 0.29 | $ | 2.02 | $ | 1.32 | ||||||||||||||
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Net income per common share - diluted |
$ | 0.65 | $ | 0.76 | $ | 0.60 | $ | 0.60 | $ | 0.29 | $ | 2.01 | $ | 1.32 | ||||||||||||||
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Dividends declared per share |
$ | 0.21 | $ | 0.21 | $ | 0.21 | $ | 0.20 | $ | 0.20 | $ | 0.63 | $ | 0.60 | ||||||||||||||
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Book value per share (period end) |
$ | 27.71 | $ | 26.74 | $ | 26.46 | $ | 26.08 | $ | 26.11 | $ | 27.71 | $ | 26.11 | ||||||||||||||
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Tangible book value per share (period end) (1) (2) |
$ | 22.62 | $ | 21.60 | $ | 21.29 | $ | 20.88 | $ | 20.87 | $ | 22.62 | $ | 20.87 | ||||||||||||||
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Dividends declared |
$ | 1,698 | $ | 1,697 | $ | 1,697 | $ | 1,616 | $ | 1,615 | $ | 5,092 | $ | 4,841 | ||||||||||||||
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Dividend yield |
2.78 | % | 2.80 | % | 3.05 | % | 2.84 | % | 2.76 | % | 2.81 | % | 2.78 | % | ||||||||||||||
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Dividend payout ratio |
31.92 | % | 27.56 | % | 35.13 | % | 33.33 | % | 69.02 | % | 31.23 | % | 45.37 | % | ||||||||||||||
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Average shares outstanding - basic |
8,084,658 | 8,081,193 | 8,078,805 | 8,071,905 | 8,071,032 | 8,081,573 | 8,076,440 | |||||||||||||||||||||
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Average shares outstanding - diluted |
8,147,495 | 8,113,572 | 8,097,545 | 8,092,357 | 8,086,872 | 8,130,213 | 8,092,280 | |||||||||||||||||||||
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Period ending shares outstanding |
8,086,886 | 8,081,193 | 8,081,193 | 8,073,708 | 8,071,032 | 8,086,886 | 8,071,032 | |||||||||||||||||||||
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Selected ratios |
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Return on average assets (Annualized) |
1.08 | % | 1.29 | % | 1.04 | % | 1.04 | % | 0.50 | % | 1.14 | % | 0.77 | % | ||||||||||||||
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Return on average equity (Annualized) |
9.62 | % | 11.53 | % | 9.22 | % | 9.19 | % | 4.45 | % | 10.12 | % | 6.90 | % | ||||||||||||||
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Return on average tangible common equity (1) (3) |
11.86 | % | 14.31 | % | 11.48 | % | 11.50 | % | 5.58 | % | 12.54 | % | 8.68 | % | ||||||||||||||
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Efficiency (4) |
63.73 | % | 64.49 | % | 65.22 | % | 65.05 | % | 67.93 | % | 64.45 | % | 68.19 | % | ||||||||||||||
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Equity to assets at period end |
11.33 | % | 11.23 | % | 11.32 | % | 11.36 | % | 11.34 | % | 11.33 | % | 11.34 | % | ||||||||||||||
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Noninterest expense to average assets |
0.67 | % | 0.72 | % | 0.65 | % | 0.63 | % | 0.66 | % | 2.04 | % | 1.94 | % | ||||||||||||||
| (1) See section "GAAP to Non-GAAP Reconciliations" for the reconciliation of GAAP performance measures to non-GAAP measures. |
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(2) Calculated by dividing tangible common equity by shares outstanding. |
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(3) Calculated by dividing annualized net income for each period by average tangible common equity. |
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(4) The efficiency ratio is calculated by dividing noninterest expense less amortization of intangibles by the sum of net interest income on a fully taxable-equivalent basis plus noninterest income. |
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For the Three Months Ended |
For the Nine Months Ended |
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September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
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Yields |
2025 |
2025 |
2025 |
2024 |
2024 |
2025 |
2024 |
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Interest-earning assets: |
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Loans receivable (1) |
6.30 | % | 6.40 | % | 6.17 | % | 6.12 | % | 6.19 | % | 6.29 | % | 6.19 | % | ||||||||||||||
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Investment securities (1) (2) |
3.69 | % | 3.64 | % | 3.69 | % | 3.63 | % | 3.62 | % | 3.67 | % | 3.60 | % | ||||||||||||||
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Interest-earning deposits with other banks |
3.52 | % | 4.13 | % | 3.57 | % | 4.23 | % | 4.27 | % | 3.72 | % | 4.58 | % | ||||||||||||||
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Total interest-earning assets |
5.93 | % | 6.03 | % | 5.81 | % | 5.78 | % | 5.84 | % | 5.93 | % | 5.85 | % | ||||||||||||||
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Deposits: |
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Interest-bearing demand deposits |
2.27 | % | 2.27 | % | 2.13 | % | 2.07 | % | 2.16 | % | 2.29 | % | 1.99 | % | ||||||||||||||
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Money market deposits |
3.43 | % | 3.53 | % | 3.38 | % | 3.81 | % | 3.93 | % | 3.45 | % | 3.90 | % | ||||||||||||||
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Savings deposits |
0.95 | % | 0.86 | % | 0.82 | % | 0.75 | % | 0.71 | % | 0.87 | % | 0.64 | % | ||||||||||||||
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Certificates of deposit |
3.74 | % | 3.66 | % | 3.93 | % | 4.21 | % | 4.49 | % | 3.77 | % | 4.37 | % | ||||||||||||||
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Total interest-bearing deposits |
2.91 | % | 2.90 | % | 2.82 | % | 3.05 | % | 3.17 | % | 2.90 | % | 3.07 | % | ||||||||||||||
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Non-Deposit Funding: |
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Borrowings |
4.53 | % | 4.54 | % | 4.58 | % | 4.93 | % | 5.54 | % | 4.55 | % | 5.58 | % | ||||||||||||||
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Total interest-bearing liabilities |
3.03 | % | 3.01 | % | 3.01 | % | 3.21 | % | 3.41 | % | 3.03 | % | 3.37 | % | ||||||||||||||
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Cost of deposits |
2.20 | % | 2.21 | % | 2.10 | % | 2.24 | % | 2.33 | % | 2.17 | % | 2.24 | % | ||||||||||||||
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Cost of funds |
2.33 | % | 2.34 | % | 2.30 | % | 2.41 | % | 2.58 | % | 2.32 | % | 2.54 | % | ||||||||||||||
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Net interest margin (3) |
3.79 | % | 3.88 | % | 3.69 | % | 3.56 | % | 3.46 | % | 3.79 | % | 3.51 | % | ||||||||||||||
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(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were determined using an effective tax rate of 21%. |
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(2) Yield is calculated on the basis of amortized cost. |
| (3) Net interest margin represents net interest income as a percentage of average interest-earning assets. |
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For the Three Months Ended |
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September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
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Asset quality data |
2025 |
2025 |
2025 |
2024 |
2024 |
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(Dollar amounts in thousands, unaudited) |
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Nonperforming assets (1) |
$ | 29,928 | $ | 25,052 | $ | 29,550 | $ | 29,984 | $ | 30,078 | ||||||||||
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Allowance for credit losses |
$ | 23,029 | $ | 22,335 | $ | 22,401 | $ | 22,447 | $ | 22,526 | ||||||||||
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Allowance for credit losses/total loans |
1.43 | % | 1.41 | % | 1.44 | % | 1.48 | % | 1.50 | % | ||||||||||
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Net charge-offs (recoveries): |
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Quarter-to-date |
$ | (107 | ) | $ | (18 | ) | $ | (209 | ) | $ | 151 | $ | 1,382 | |||||||
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Year-to-date |
(334 | ) | (227 | ) | (209 | ) | 1,436 | 1,285 | ||||||||||||
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Net charge-offs (recoveries) to average loans, annualized: |
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Quarter-to-date |
(0.03 | %) | (0.00 | %) | (0.06 | %) | 0.04 | % | 0.36 | % | ||||||||||
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Year-to-date |
(0.03 | %) | (0.03 | %) | (0.06 | %) | 0.10 | % | 0.11 | % | ||||||||||
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Nonperforming loans/total loans |
1.86 | % | 1.58 | % | 1.91 | % | 1.97 | % | 2.00 | % | ||||||||||
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Allowance for credit losses/nonperforming loans |
76.95 | % | 89.15 | % | 75.81 | % | 74.86 | % | 74.89 | % | ||||||||||
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Nonperforming assets/total assets |
1.51 | % | 1.30 | % | 1.56 | % | 1.62 | % | 1.62 | % | ||||||||||
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(1) Nonperforming assets consist of nonperforming loans. |
GAAP to Non-GAAP Reconciliations
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Reconciliation of Common Stockholders' Equity to Tangible Common Equity |
For the Three Months Ended |
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(Dollar amounts in thousands, unaudited) |
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
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2025 |
2025 |
2025 |
2024 |
2024 |
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Stockholders' equity |
$ | 224,120 | $ | 216,052 | $ | 213,793 | $ | 210,562 | $ | 210,705 | ||||||||||
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Less goodwill and other intangibles |
41,218 | 41,468 | 41,718 | 41,967 | 42,225 | |||||||||||||||
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Tangible common equity |
$ | 182,902 | $ | 174,584 | $ | 172,075 | $ | 168,595 | $ | 168,480 | ||||||||||
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Shares outstanding |
8,086,886 | 8,081,193 | 8,081,193 | 8,073,708 | 8,071,032 | |||||||||||||||
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Tangible book value per share |
$ | 22.62 | $ | 21.60 | $ | 21.29 | $ | 20.88 | $ | 20.87 | ||||||||||
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Reconciliation of Average Equity to Return on Average Tangible Common Equity |
For the Three Months Ended |
For the Nine Months Ended |
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| (Dollar amounts in thousands, unaudited) |
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
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2025 |
2025 |
2025 |
2024 |
2024 |
2025 |
2024 |
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Average stockholders' equity |
$ | 219,278 | $ | 214,144 | $ | 212,465 | $ | 209,864 | $ | 209,096 | $ | 215,395 | $ | 206,691 | ||||||||||||||
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Less average goodwill and other intangibles |
41,340 | 41,589 | 41,839 | 42,092 | 42,350 | 41,589 | 42,512 | |||||||||||||||||||||
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Average tangible common equity |
$ | 177,938 | $ | 172,555 | $ | 170,626 | $ | 167,772 | $ | 166,746 | $ | 173,806 | $ | 164,179 | ||||||||||||||
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Net income |
$ | 5,320 | $ | 6,157 | $ | 4,830 | $ | 4,848 | $ | 2,340 | $ | 16,307 | $ | 10,671 | ||||||||||||||
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Return on average tangible common equity (annualized) |
11.86 | % | 14.31 | % | 11.48 | % | 11.50 | % | 5.58 | % | 12.54 | % | 8.68 | % | ||||||||||||||
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Reconciliation of Pre-Tax Pre-Provision Income (PTPP) |
For the Three Months Ended |
For the Nine Months Ended |
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| (Dollar amounts in thousands, unaudited) |
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
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2025 |
2025 |
2025 |
2024 |
2024 |
2025 |
2024 |
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Net income |
$ | 5,320 | $ | 6,157 | $ | 4,830 | $ | 4,848 | $ | 2,340 | $ | 16,307 | $ | 10,671 | ||||||||||||||
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Add income taxes |
1,079 | 1,213 | 924 | 995 | 371 | 3,216 | 1,830 | |||||||||||||||||||||
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Add provision for (recovery of) credit losses |
392 | (506 | ) | 95 | (177 | ) | 2,234 | (19 | ) | 2,185 | ||||||||||||||||||
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PTPP |
$ | 6,791 | $ | 6,864 | $ | 5,849 | $ | 5,666 | $ | 4,945 | $ | 19,504 | $ | 14,686 | ||||||||||||||
Financial Condition
General. The Company's total assets on September 30, 2025 were $1.98 billion, an increase of $125.5 million from December 31, 2024. For the same period, total loans increased by $87.4 million, cash and cash equivalents increased by $47.9 million, and investment securities available for sale decreased by $9.9 million. The Company's total liabilities on September 30, 2025 were $1.75 billion, an increase of $112.0 million from December 31, 2024. For the same period, total deposits increased by $176.6 million. Stockholders' equity increased by $13.6 million, or 6.4%.
Cash and cash equivalents. Cash and cash equivalents increased $47.9 million to $103.7 million on September 30, 2025, from $55.8 million on December 31, 2024. The increase in cash and cash equivalents is primarily due to an increase in deposits and partially offset by an increase in loans and a decrease in Federal Home Loan Bank advances. Deposits from customers into savings and checking accounts, loan and securities repayments, and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases, and repayments of borrowed and brokered funds.
Investment securities. Management's objective in structuring the portfolio is to maintain liquidity while providing an acceptable rate of return without sacrificing asset quality. Securities available for sale on September 30, 2025, totaled $155.9 million, a decrease of $9.9 million, or 6.0%, from $165.8 million on December 31, 2024. There were no purchases or sales of securities for the nine months ended September 30, 2025. During this period, the Company recorded repayments, calls, and maturities of $11.0 million and a decrease in the net unrealized losses of $1.5 million.
On September 30, 2025, the Company held $23.6 million at fair value of subordinated debt in other banks, as compared to $32.5 million on December 31, 2024. The average yield on this portfolio was 5.32% for the nine-month period ended September 30, 2025, as compared to 5.19% for the 12-month period ended December 31, 2024.
Periodically, management reviews the entire municipal bond portfolio to assess credit quality. Each security held in this portfolio is assessed on attributes that have historically influenced default incidences in the municipal market, such as sector, security, impairment filing, timeliness of disclosure, external credit assessment(s), credit spread, state, vintage, and underwriter. Municipal bonds compose 79.8% of the overall portfolio. These investments have historically proven to have extremely low credit risk.
Loans. The loan portfolio consists primarily of single-family mortgage loans used to purchase or refinance personal residences located within the Company's market area, commercial and industrial loans, home equity lines of credit, and commercial real estate loans used to finance properties that are used in the borrowers' businesses, or to finance investor-owned rental properties, and, to a lesser extent, construction and consumer loans. The portfolio is well dispersed geographically. Total loans increased $87.4 million, or 5.8%, to $1.61 billion as of September 30, 2025 from $1.52 billion as of December 31, 2024. The increase in the owner occupied and commercial and industrial loan portfolios is due to an increased focus on these segments. The decrease in the non-owner occupied loan segment is the result of rebalancing the commercial real estate portfolio. The following table summarizes fluctuation within the primary segments of the loan portfolio:
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September 30, |
December 31, |
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(Dollar amounts in thousands) |
2025 | 2024 | $ change | % change | % of loans | |||||||||||||||
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Commercial real estate: |
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Owner occupied |
$ | 221,600 | $ | 181,447 | $ | 40,153 | 22.13 | % | 13.79 | % | ||||||||||
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Non-owner occupied |
390,354 | 412,291 | (21,937 | ) | (5.32 | %) | 24.29 | % | ||||||||||||
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Multifamily |
88,899 | 89,849 | (950 | ) | (1.06 | %) | 5.53 | % | ||||||||||||
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Residential real estate |
366,307 | 353,442 | 12,865 | 3.64 | % | 22.79 | % | |||||||||||||
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Commercial and industrial |
269,422 | 229,034 | 40,388 | 17.63 | % | 16.78 | % | |||||||||||||
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Home equity lines of credit |
159,805 | 143,379 | 16,426 | 11.46 | % | 9.94 | % | |||||||||||||
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Construction and other |
104,843 | 103,608 | 1,235 | 1.19 | % | 6.52 | % | |||||||||||||
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Consumer installment |
5,794 | 6,564 | (770 | ) | (11.73 | %) | 0.36 | % | ||||||||||||
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Total loans |
1,607,024 | 1,519,614 | 87,410 | 5.75 | % | 100.00 | % | |||||||||||||
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Less: Allowance for credit losses |
(23,029 | ) | (22,447 | ) | 582 | 2.59 | % | |||||||||||||
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Net loans |
$ | 1,583,995 | $ | 1,497,167 | $ | 86,828 | 5.80 | % | ||||||||||||
The Company's Mortgage Banking operation generates loans for sale to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the FHLB. There was one loan held for sale of $209,000 at September 30, 2025, and no loans held for sale at December 31, 2024. The Company recorded gains on the sale of these loans totaling $221,000 based on proceeds of $7.1 million for the nine months ended September 30, 2025.
Commercial real estate loans represent the Company's largest loan segment and consist of term loans secured by a mortgage lien on real property and include both owner occupied and non-owner occupied loans as well as multifamily loans. The Company originates fixed and adjustable rate commercial real estate loans to new and existing customers located within its primary markets; however, the property may be located outside of our primary lending areas. As of September 30, 2025, approximately 92% of the properties related to the commercial real estate loans were located in the state of Ohio. Commercial real estate loans are typically originated with maturity dates of less than 20 years with repricing every 5 years. Management believes that the segment is well diversified.
The following table breaks down the Company's commercial real estate portfolio by category and provides the weighted average loan-to-value for each category as of September 30, 2025:
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Percent of |
Percent of |
Weighted Average |
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(Dollar amounts in thousands) |
Balance |
CRE Portfolio |
Loan Portfolio |
Loan-to-Value |
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Multi-Family |
$ | 88,899 | 12.7 | % | 5.5 | % | 64.6 | % | ||||||||
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Owner Occupied |
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Real Estate and Rental and Leasing |
73,969 | 10.6 | % | 4.6 | % | 59.1 | % | |||||||||
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Other Services (except Public Administration) |
41,291 | 5.9 | % | 2.6 | % | 58.2 | % | |||||||||
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Manufacturing |
22,991 | 3.3 | % | 1.4 | % | 50.4 | % | |||||||||
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Educational Services |
11,762 | 1.7 | % | 0.7 | % | 49.7 | % | |||||||||
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Accommodation and Food Services |
11,441 | 1.6 | % | 0.7 | % | 47.4 | % | |||||||||
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Other |
60,146 | 8.5 | % | 3.7 | % | 53.0 | % | |||||||||
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Total Owner Occupied |
$ | 221,600 | 31.6 | % | 13.7 | % | ||||||||||
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Non-Owner Occupied |
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Real Estate and Rental and Leasing |
324,180 | 46.3 | % | 20.2 | % | 54.2 | % | |||||||||
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Accommodation and Food Services |
38,132 | 5.4 | % | 2.4 | % | 58.0 | % | |||||||||
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Health Care and Social Assistance |
19,100 | 2.7 | % | 1.2 | % | 56.8 | % | |||||||||
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Manufacturing |
3,903 | 0.6 | % | 0.2 | % | 44.4 | % | |||||||||
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Other |
5,039 | 0.7 | % | 0.3 | % | 62.9 | % | |||||||||
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Total Non-Owner Occupied |
$ | 390,354 | 55.7 | % | 24.3 | % | ||||||||||
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Total CRE |
$ | 700,853 | 100.0 | % | 43.5 | % | ||||||||||
The federal banking regulators have issued guidance for those institutions that are deemed to have concentrations in commercial real estate lending. According to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions that have (1) total reported loans for construction, land development, and other land acquisitions that represent 100% or more of an institution's total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions that are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management concerning their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a material percentage of its loan portfolio in commercial real estate loans. On September 30, 2025, commercial real estate loans (including construction, land, and land development loans) represented 260.8% of total risk-based capital, and growth in that segment over the past 36 months was 16.6%, which is less than the 50% threshold laid out in the regulatory guidance. Construction, land, and land development loans represent 46.7% of total risk-based capital. Based on the regulatory guidance, the Company does not have a concentration in commercial real estate lending as of September 30, 2025.
Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria for its commercial real estate portfolio. The Board of Directors has adopted limits on both aggregate and industry-specific concentration levels, including limits specific to commercial real loans. The underwriting and risk rating of all loans is completed by a team that is independent of the individuals originating the loans. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes in cash flows due to interest rate increases and declines in net operating income. The primary risk elements with respect to our commercial real estate loans are the financial condition of the borrower, sufficiency of the valued collateral, and timeliness of scheduled loan payments, and these loans may be negatively impacted by changes in the real estate markets or in the general economy. We have a policy that requires a periodic review of financial statements from commercial loan customers and have a disciplined and formalized review of the existence of collateral and its value. Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital and may adversely affect shareholder returns. The Company has an extensive capital planning policy, which includes pro forma projections, including stress testing, in which the Board of Directors has established internal minimum targets for regulatory capital ratios that are more than well-capitalized ratios as defined by regulatory requirements.
Nonperforming loans in the commercial real estate segment were $25.6 million at September 30, 2025. The allowance for credit losses for this segment totaled $9.0 million at September 30, 2025, representing an allowance for credit losses to loans ratio of 1.29% specific to the commercial real estate segment.
Our residential real estate loans totaled $366.3 million, or 22.8% of total loans, at September 30, 2025. The Bank grants real estate loans primarily within its designated lending areas, consisting of the communities surrounding branch offices in Ashtabula, Geauga, Portage, Summit, Cuyahoga, Lake, Trumbull, Madison, Delaware, Franklin, Union, Logan, and Hardin counties in Ohio. At September 30, 2025, approximately 99% of the properties related to our residential real estate loans were located in Ohio. Management believes our knowledge of these markets and our relative connectedness to the consumer borrowers we serve outweighs the geographic concentration risks. Our credit policy requires minimum credit scores, evidence of stable income, and maximum loan-to-values when underwriting residential real estate loans. The evaluation of our retail credit portfolio is defined in our credit policy and incorporates the Uniform Real Credit Classification and Account Management Policy as prescribed by federal regulatory authorities. Nonperforming loans in the residential real estate segment were $2.1 million at September 30, 2025. The allowance for credit losses for this segment totaled $6.0 million at September 30, 2025, representing an allowance for credit losses to loans ratio of 1.63% specific to the residential real estate segment.
The Company opted not to phase in, over three years, the effects of the initial CECL entry to equity for the implementation of ASC 326, recorded on January 1, 2023. As of September 30, 2025, management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject.
The Company monitors fluctuations in unused commitments as a means of identifying potential material drawdowns on existing lines of credit. On September 30, 2025, unused line of credit commitments totaled $407.4 million, which is a decrease of $55.3 million, or 12.0%, from December 31, 2024. The commercial unused line of credit commitments were $239.2 million as of September 30, 2025, compared to $308.8 million on December 31, 2024. The decrease is the result of draws on existing construction loans during the period.
Allowance for Credit Losses and Asset Quality. The ACL increased by $582,000, or 2.6%, to $23.0 million on September 30, 2025, from $22.4 million on December 31, 2024. For the nine months ended September 30, 2025, net loan recoveries totaled $334,000, or 0.03% of average loans, annualized, compared to net charge-offs totaling $1.3 million or (0.11%) of average loans, annualized, for the same period in 2024. The portion of the recovery of credit losses associated with loans was a provision of $248,000 for the nine months ended September 30, 2025. The ratio of the ACL to nonperforming loans was 76.9% as of September 30, 2025, compared to 74.9% for the same period in the prior year. The ACL to total loans ratio decreased to 1.43% as of September 30, 2025, compared to 1.50% as of September 30, 2024. The decrease in the ACL as a percentage of total loans was mainly from changes in portfolio activity, updated appraisals for individually analyzed loans, updated assumptions during the first quarter of 2025, and the economic outlook.
Management analyzes the adequacy of the ACL regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values, and changes in the amount and composition of the loan portfolio. The ACL is a significant estimate that is particularly susceptible to changes in the near term. Risks that may impact our loan portfolio include the weakened economic outlook exacerbated by the continued uncertainty characterized by inflation, interest rates, tariffs, and the federal government shutdown that started as of midnight on September 30, 2025. Geopolitical events, both within the U.S. and globally, with weakening growth prospects raise the potential for adverse impacts on the U.S. economy. The direct impacts of the pandemic and related economic disruptions, the market liquidity events in 2023, and persistently high inflation, which previously dominated our risk analysis, have lessened. Changes in interest rates could potentially impact the valuations of assets that collateralize our loans. The Company is concerned about the impact of tighter credit conditions on the economy and the effect that may have on future economic growth. Management's analysis includes a review of all loans designated as individually analyzed, historical loan loss experience, the estimated fair value of the underlying collateral, economic conditions, current interest rates, trends in the borrower's industry, and other factors that management believes warrant recognition in providing for an appropriate allowance for credit losses. Future additions or reductions to the allowance for credit losses will be dependent on these factors. Additionally, the Company uses an outside party to conduct an independent review of commercial and commercial real estate loans that is designed to validate management conclusions of risk ratings and the appropriateness of the allowance allocated to these loans. The Company uses the results of this review to help determine the effectiveness of policies and procedures and to assess the adequacy of the allowance for credit losses allocated to these types of loans. Management believes the ACL is appropriately stated as of September 30, 2025. Based on the variables involved and management's judgments about uncertain outcomes, the determination of the allowance for credit losses is considered a critical accounting policy.
The following table illustrates the net charge-offs to average loans ratio for each loan category for each reported period:
|
For the Three Months Ended September 30, |
||||||||||||||||||||||||
|
2025 |
2024 |
|||||||||||||||||||||||
|
(Dollar amounts in thousands) |
Average Loan Balance | Net recoveries (charge-offs) | Net recoveries (charge-offs) to average loans | Average Loan Balance | Net recoveries (charge-offs) | Net recoveries (charge-offs) to average loans | ||||||||||||||||||
|
Commercial real estate: |
||||||||||||||||||||||||
|
Owner occupied |
$ | 210,599 | $ | 92 | 0.17 | % | $ | 185,850 | $ | (45 | ) | (0.10 | %) | |||||||||||
|
Non-owner occupied |
400,501 | - | 0.00 | % | 398,094 | (1,341 | ) | (1.35 | %) | |||||||||||||||
|
Multifamily |
84,793 | - | 0.00 | % | 91,262 | - | 0.00 | % | ||||||||||||||||
|
Residential real estate |
364,316 | 17 | 0.02 | % | 342,890 | - | 0.00 | % | ||||||||||||||||
|
Commercial and industrial |
265,331 | (41 | ) | (0.06 | %) | 224,892 | (26 | ) | (0.05 | %) | ||||||||||||||
|
Home equity lines of credit |
159,167 | - | 0.00 | % | 134,977 | - | 0.00 | % | ||||||||||||||||
|
Construction and other |
114,993 | - | 0.00 | % | 122,560 | - | 0.00 | % | ||||||||||||||||
|
Consumer installment |
6,033 | 39 | 2.59 | % | 6,993 | 30 | 1.72 | % | ||||||||||||||||
|
Total |
$ | 1,605,733 | $ | 107 | 0.03 | % | $ | 1,507,518 | $ | (1,382 | ) | (0.37 | %) | |||||||||||
|
For the Nine Months Ended September 30, |
||||||||||||||||||||||||
|
2025 |
2024 |
|||||||||||||||||||||||
|
(Dollar amounts in thousands) |
Average Loan Balance | Net recoveries (charge-offs) | Net recoveries (charge-offs) to average loans | Average Loan Balance | Net recoveries (charge-offs) | Net recoveries (charge-offs) to average loans | ||||||||||||||||||
|
Commercial real estate: |
||||||||||||||||||||||||
|
Owner occupied |
$ | 202,777 | $ | 105 | 0.07 | % | $ | 185,989 | $ | (34 | ) | (0.02 | %) | |||||||||||
|
Non-owner occupied |
403,818 | (11 | ) | (0.00 | %) | 405,591 | (1,341 | ) | (0.44 | %) | ||||||||||||||
|
Multifamily |
89,930 | - | 0.00 | % | 88,920 | - | 0.00 | % | ||||||||||||||||
|
Residential real estate |
362,112 | 52 | 0.02 | % | 338,320 | - | 0.00 | % | ||||||||||||||||
|
Commercial and industrial |
250,778 | 124 | 0.07 | % | 217,996 | (11 | ) | (0.01 | %) | |||||||||||||||
|
Home equity lines of credit |
152,535 | 4 | 0.00 | % | 133,190 | (6 | ) | (0.01 | %) | |||||||||||||||
|
Construction and other |
104,874 | - | 0.00 | % | 118,685 | - | 0.00 | % | ||||||||||||||||
|
Consumer installment |
6,217 | 60 | 1.29 | % | 7,144 | 107 | 2.00 | % | ||||||||||||||||
|
Total |
$ | 1,573,040 | $ | 334 | 0.03 | % | $ | 1,495,834 | $ | (1,285 | ) | (0.11 | %) | |||||||||||
Nonperforming assets. Nonperforming assets include nonaccrual loans, loans 90 days or more past due, other real estate owned, and repossessed assets. Real estate owned is written down to fair value at its initial recording and continually monitored for changes in fair value. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about the collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower's financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against the principal until doubt about collectability ceases.
Nonperforming loans at September 30, 2025, were $29.9 million, compared to $30.0 million at December 31, 2024. Three commercial real estate loans were moved to nonaccrual during 2024. One of the loans paid off in the second quarter of 2025, and the balance of the remaining two loans as of September 30, 2025, was $15.1 million. These loans are adequately secured and individually analyzed within the ACL calculation as of September 30, 2025. Management believes these relationships do not indicate a trend in the markets served, the portfolio, or underwriting standards. A major factor in determining the appropriateness of the ACL is the type of collateral that secures the loans. Nonperforming loans secured by real estate totaled $28.9 million and $29.7 million as of September 30, 2025 and December 31, 2024, respectively. Of the total nonperforming loans on September 30, 2025, 96.5% were secured by real estate. Although this does not insure against all losses, real estate typically provides for at least partial recovery, even in a distressed sale and declining-value environment. The objective of the Company is to minimize future loss exposure.
Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $1.62 billion or 93.3% of the Company's total average funding sources at September 30, 2025. Total deposits increased $176.6 million on September 30, 2025, when compared to $1.45 billion on December 31, 2024. The following table summarizes fluctuation within the primary segments of the deposit portfolio:
|
September 30, |
December 31, |
|||||||||||||||
|
(Dollar amounts in thousands) |
2025 | 2024 | $ change | % change | ||||||||||||
|
Noninterest-bearing demand |
$ | 410,612 | $ | 377,875 | $ | 32,737 | 8.66 | % | ||||||||
|
Interest-bearing demand |
232,452 | 208,291 | 24,161 | 11.60 | % | |||||||||||
|
Money market |
528,246 | 414,074 | 114,172 | 27.57 | % | |||||||||||
|
Savings |
180,547 | 197,749 | (17,202 | ) | (8.70 | %) | ||||||||||
|
Time |
270,445 | 247,704 | 22,741 | 9.18 | % | |||||||||||
|
Total deposits |
$ | 1,622,302 | $ | 1,445,693 | $ | 176,609 | 12.22 | % | ||||||||
The Company uses specific non-core funding instruments to grow the balance sheet and maintain liquidity. These deposits, either from a broker or a listing service, were $108.6 million on September 30, 2025 and $35.1 million on December 31, 2024 and are included in time and interest-bearing demand deposits on the Consolidated Balance Sheet.
Deposit balances in excess of the $250,000 FDIC-insured limit totaled approximately $545.7 million, or 33.6% of total deposits, at September 30, 2025 and approximately $447.2 million, or 30.9% of total deposits, at December 31, 2024.
Public fund deposits from state and political subdivisions in the U.S. compared to total deposits were $193.8 million, or 11.9% at September 30, 2025 and $167.9 million, or 11.6% at December 31, 2024.
Borrowed funds. The Company uses short-term and long-term borrowings as another source of funding for asset growth and liquidity needs. These borrowings primarily include advances from the FHLB and FRB discount window, subordinated debt, short-term borrowings from other banks, and federal funds purchased. FHLB advances decreased by $66.4 million to $106.0 million as of September 30, 2025, compared to $172.4 million at December 31, 2024. Other borrowings were relatively unchanged at $11.5 million as of September 30, 2025 and $11.7 million on December 31, 2024.
Stockholders' equity. Stockholders' equity increased $13.6 million, or 6.4%, to $224.1 million at September 30, 2025 from $210.6 million at December 31, 2024. This increase was primarily the result of $16.3 million in net income. These changes were partially offset by $5.1 million of cash dividends paid.
The Company's tangible book value per share, which is a non-GAAP financial measure, was $22.62 at September 30, 2025 compared to $20.87 at September 30, 2024 and $20.88 at December 31, 2024. Tangible equity has been impacted by the changes in stockholders' equity described in the previous paragraph, including the unrealized losses of the Company's available-for-sale investment securities portfolio. Net unrealized losses from available-for-sale investment securities were $23.9 million as of September 30, 2025, compared to net unrealized losses of $20.9 million at September 30, 2024, and net unrealized losses of $25.4 million at December 31, 2024.
RESULTS OF OPERATIONS
General. Net income for the three months ended September 30, 2025, was $5.3 million, a $3.0 million, or 127.4%, increase from the amount earned during the same period in 2024. Diluted earnings per share for the quarter were $0.65 for the three months ended September 30, 2025 and $0.29 for the same period in 2024. Net income for the nine months ended September 30, 2025, was $16.3 million, a $5.6 million, or 52.8%, increase from the amount earned during the same period in 2024. Diluted earnings per share for the quarter were $2.01 for the nine months ended September 30, 2025 and $1.32 for the same period in 2024.
Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management reviews and periodically adjusts the mix of interest-earning assets and interest-bearing liabilities, to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company's net interest income. Management's goal is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.
Net interest income for the three months ended September 30, 2025, totaled $17.6 million, an increase of 16.5% from that reported in the comparable period of 2024. The net interest margin was 3.79% for the three months ended September 30, 2025, an increase of 33 basis points for the same period of 2024. The increase in the net interest margin is attributable to a decrease of 75 basis points paid on certificates of deposit, a decrease of 50 basis points paid on money market deposits, an increase in the average balance of loans of $98.2 million, and a decrease in the average balance of FHLB advances of $31.5 million, coupled with a decrease of 108 basis points in the average cost of those advances. The increase was partially offset by an increase in the average balance of money market deposits of $117.2 million. Additionally, the Federal Reserve decreased the target federal funds interest rate by a total of 100 basis points from September through December 2024, which impacted the comparability of the net interest margin between the three months ended September 30, 2025, and September 30, 2024.
Net interest income for the nine months ended September 30, 2025, totaled $51.1 million, an increase of 13.2% from that reported in the comparable period of 2024. The net interest margin was 3.79% for the nine months ended September 30, 2025, an increase of 28 basis points for the same period of 2024. The increase in the net interest margin is attributable to a decrease of 60 basis points paid on certificates of deposit, a decrease in the average balance of certificates of deposit of $36.5 million, an increase in the average balance of loans of $77.2 million, and a decrease in the average balance of FHLB advances of $38.9 million, coupled with a decrease of 105 basis points in the average cost of those advances. The increase was partially offset by an increase in the average balance of money market deposits of $142.9 million. Additionally, the net interest margin has been impacted by a decrease in the target federal funds interest rate as described in the previous paragraph.
The Company is currently in a slightly liability-sensitive position and expects to remain so for the next 18-month outlook period. A decrease in rates should lead to a minimal expansion of net interest margin as the Company's interest-bearing liabilities reprice faster than its interest-bearing assets. As part of the Company's strategy, floor rates are used to protect the Company's net interest margin in a declining interest rate environment. As of September 30, 2025, nearly all loan contracts with floor rates exceed their contractual floor rates. Please refer to Item 3, Quantitative and Qualitative Disclosures about Market Risk, for further discussion on asset and liability management and interest rate sensitivity.
Interest and dividend income. Interest and dividend income increased $2.0 million, or 7.8%, for the three months ended September 30, 2025, compared to the same period in the prior year. This is mainly attributable to a $2.0 million increase in interest and fees on loans, which is due to an increase in the average balance of loans of $98.2 million, or 6.5%, along with an 11-basis point increase in the yield on the loan portfolio to 6.30% for the three months ended September 30, 2025, when compared to the same period in the prior year. The average balance of investment securities decreased by $3.5 million, or 1.8%, while the 3.69% yield on the investment portfolio increased by 7 basis points, from 3.62%, for the same period in the prior year. The yield for the investment portfolio is based on amortized cost.
Interest and dividend income increased $4.5 million, or 5.9%, for the nine months ended September 30, 2025, compared to the same period in the prior year. This is mainly attributable to a $4.7 million increase in interest and fees on loans, which is due to an increase in the average balance of loans of $77.2 million, or 5.2%, along with a 10-basis point increase in the yield on the loan portfolio to 6.29% for the nine months ended September 30, 2025, when compared to the same period in the prior year. The average balance of investment securities decreased by $1.2 million, or less than 0.01%, while the 3.67% yield on the investment portfolio increased by 7 basis points, from 3.60%, for the same period in the prior year. The yield for the investment portfolio is based on amortized cost.
Interest expense. Interest expense decreased by $497,000, or 4.7%, for the three months ended September 30, 2025, compared to the same period in the prior year. This decrease in interest expense is primarily attributable to a decrease in short-term borrowing expense of $657,000 as a result of the Bank paying down FHLB advances and a decrease of 108 basis points on the rate paid on those advances. The increase in deposit expense of $180,000 is attributable to an increase in the average balance of interest-bearing deposits of $117.9 million, or 10.7% which is slightly offset by a 25-basis point decrease in the rates paid on deposits.
Interest expense decreased by $1.5 million, or 4.8%, for the nine months ended September 30, 2025, compared to the same period in the prior year. This decrease in interest expense is primarily attributable to a decrease in short-term borrowing expense of $2.4 million as a result of the Bank paying down FHLB advances and a decrease of 105 basis points on the rate paid on those advances. The increase in deposit expense of $965,000 is attributable to an increase in the average balance of interest-bearing deposits of $108.7 million, or 10.1%, which is slightly offset by a 17-basis point decrease in the rates paid on deposits.
Provision for (recovery of) credit losses. The provision for (recovery of) credit losses represents the charge to income necessary to adjust the ACL to an amount that represents management's assessment of the estimated probable incurred credit losses inherent in the loan portfolio, including unfunded commitments. Each quarter, management reviews the loan portfolio for estimated probable expected credit losses. Based on this review, a provision of credit losses of $392,000 was recorded for the three months ended September 30, 2025, compared to a provision for credit losses of $2.2 million for the same period in the prior year. The provision for credit losses for the 2025 third quarter consisted of a provision for credit losses on loans of $587,000 and a reduction in the provision for credit losses for unfunded commitments of $195,000. The decrease in the provision for credit losses was due to fewer charge-offs during the third quarter of 2025 than in the third quarter of 2024.
A recovery of credit losses of $19,000 was recorded for the nine months ended September 30, 2024 compared to a provision for credit losses of $2.2 million for the same period in the prior year. The recovery of credit losses for the nine months ended September 30, 2025, consisted of a provision for credit losses on loans of $248,000 and a reduction in the provision for credit losses for unfunded commitments of $267,000. The change in the provision for (recovery of) credit losses was the result of fewer charge-offs recorded during the nine months ended September 30, 2025, than during the comparable period in 2024.
Noninterest income. Noninterest income increased by $581,000, or 33.3% for the three months ended September 30, 2025, over the comparable 2024 period. The increase was primarily due to derivative fee income earned during the third quarter of 2025.
Noninterest income increased by $2.0 million, or 38.6%, for the nine months ended September 30, 2025, over the comparable 2024 period. This increase was primarily the result of a one-time, non-cash gain of $1.2 million on the exchange of real estate. In April 2025, the Company completed an exchange of real estate with the City of Westerville, Ohio for a parcel of land that had a fair value of $1.5 million. In exchange, Middlefield transferred land and a building with related furnishings associated with its current branch located in Westerville, Ohio. The transferred branch had a net book value of $221,000.
Noninterest expense. Noninterest expense of $13.1 million for the third quarter of 2025 was 10.3%, or $1.2 million higher than the third quarter of 2024, primarily due to a $682,000 increase in salaries and employee benefits.
Noninterest expense of $38.9 million for the nine months ended September 30, 2025 was 9.0% or $3.2 million higher than the nine months ended September 30, 2024, primarily due to a $1.5 million increase in salaries and employee benefits and a $711,000 loss associated with recording a separate property located in Westerville, Ohio as held for sale during the second period of 2025.
Provision for income taxes. The Company recognized $1.1 million in income tax expense for the three months ended September 30, 2025, which reflected an effective tax rate of 16.9%, as compared to $371,000 in income tax expense with an effective tax rate of 13.7% for the comparable 2024 period.
The Company recognized $3.2 million in income tax expense for the nine months ended September 30, 2025, which reflected an effective tax rate of 16.5% as compared to $1.8 million in income tax expense with an effective tax rate of 14.6% for the comparable 2024 period.
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spreads and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages, the average loan balances include nonaccrual loans and exclude the allowance for credit losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities (tax-exempt for federal income tax purposes) and loans are shown on a fully tax-equivalent basis utilizing a federal tax rate of 21%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.
|
For the Three Months Ended September 30, |
||||||||||||||||||||||||
|
2025 |
2024 |
|||||||||||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||||||||||
|
(Dollars in thousands) |
Balance |
Interest |
Yield/Cost |
Balance |
Interest |
Yield/Cost |
||||||||||||||||||
|
Interest-earning assets: |
||||||||||||||||||||||||
|
Loans receivable ⁽¹⁾ |
$ | 1,605,733 | $ | 25,485 | 6.30 | % | $ | 1,507,518 | $ | 23,441 | 6.19 | % | ||||||||||||
|
Investment securities ⁽²⁾ |
188,211 | 1,496 | 3.69 | % | 191,748 | 1,490 | 3.62 | % | ||||||||||||||||
|
Interest-earning deposits with other banks ⁽³⁾ |
70,727 | 627 | 3.52 | % | 63,580 | 682 | 4.27 | % | ||||||||||||||||
|
Total interest-earning assets |
$ | 1,864,671 | $ | 27,608 | 5.93 | % | $ | 1,762,846 | $ | 25,613 | 5.84 | % | ||||||||||||
|
Noninterest-earning assets |
83,217 | 88,644 | ||||||||||||||||||||||
|
Total assets |
$ | 1,947,888 | $ | 1,851,490 | ||||||||||||||||||||
|
Interest-bearing liabilities: |
||||||||||||||||||||||||
|
Interest-bearing demand deposits |
$ | 233,106 | 1,331 | 2.27 | % | $ | 217,124 | 1,181 | 2.16 | % | ||||||||||||||
|
Money market deposits |
479,785 | 4,143 | 3.43 | % | 362,545 | 3,583 | 3.93 | % | ||||||||||||||||
|
Savings deposits |
184,146 | 440 | 0.95 | % | 198,775 | 357 | 0.71 | % | ||||||||||||||||
|
Certificates of deposit |
324,516 | 3,058 | 3.74 | % | 325,240 | 3,671 | 4.49 | % | ||||||||||||||||
|
Short-term borrowings |
82,306 | 918 | 4.43 | % | 113,812 | 1,575 | 5.51 | % | ||||||||||||||||
|
Other borrowings |
11,532 | 153 | 5.26 | % | 11,739 | 173 | 5.86 | % | ||||||||||||||||
|
Total interest-bearing liabilities |
$ | 1,315,391 | $ | 10,043 | 3.03 | % | $ | 1,229,235 | $ | 10,540 | 3.41 | % | ||||||||||||
|
Noninterest-bearing liabilities: |
||||||||||||||||||||||||
|
Noninterest-bearing demand deposits |
$ | 398,307 | $ | 396,456 | ||||||||||||||||||||
|
Other liabilities |
14,912 | 16,703 | ||||||||||||||||||||||
|
Stockholders' equity |
219,278 | 209,096 | ||||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ | 1,947,888 | $ | 1,851,490 | ||||||||||||||||||||
|
Net interest income |
$ | 17,565 | $ | 15,073 | ||||||||||||||||||||
|
Interest rate spread ⁽⁴⁾ |
2.90 | % | 2.43 | % | ||||||||||||||||||||
|
Net interest margin ⁽⁵⁾ |
3.79 | % | 3.46 | % | ||||||||||||||||||||
|
Ratio of average interest-earning assets to average interest-bearing liabilities |
141.76 | % | 143.41 | % | ||||||||||||||||||||
|
(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $271 and $281 for the three months ended September 30, 2025 and 2024, respectively. |
| (2) Yield is calculated on the basis of amortized cost. |
|
(3) Includes dividends received on restricted stock. |
|
(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
|
(5) Net interest margin represents net interest income as a percentage of average interest-earning assets. |
Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three-month periods ended September 30, 2025, and 2024, in terms of (1) changes in the volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company's interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate), and changes attributable to the combined impact of volume/rate (change in rate multiplied by the change in volume). The changes attributable to the combined impact of volume/rate are allocated consistently between the volume and rate variances.
|
2025 versus 2024 |
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|
Increase (decrease) due to |
||||||||||||
|
(Dollars in thousands) |
Volume |
Rate |
Total |
|||||||||
|
Interest-earning assets: |
||||||||||||
|
Loans receivable |
$ | 1,532 | $ | 512 | $ | 2,044 | ||||||
|
Investment securities |
(32 | ) | 38 | 6 | ||||||||
|
Interest-earning deposits with other banks |
77 | (132 | ) | (55 | ) | |||||||
|
Total interest-earning assets |
$ | 1,577 | $ | 418 | $ | 1,995 | ||||||
|
Interest-bearing liabilities: |
||||||||||||
|
Interest-bearing demand deposits |
$ | 87 | $ | 63 | $ | 150 | ||||||
|
Money market deposits |
1,161 | (601 | ) | 560 | ||||||||
|
Savings deposits |
(26 | ) | 109 | 83 | ||||||||
|
Certificates of deposit |
(8 | ) | (605 | ) | (613 | ) | ||||||
|
Short-term borrowings |
(438 | ) | (219 | ) | (657 | ) | ||||||
|
Other borrowings |
(3 | ) | (17 | ) | (20 | ) | ||||||
|
Total interest-bearing liabilities |
$ | 773 | $ | (1,270 | ) | $ | (497 | ) | ||||
|
Net interest income |
$ | 804 | $ | 1,688 | $ | 2,492 | ||||||
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spreads and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages, the average loan balances include nonaccrual loans and exclude the allowance for credit losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities (tax-exempt for federal income tax purposes) and loans are shown on a fully tax-equivalent basis utilizing a federal tax rate of 21%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.
|
For the Nine Months Ended September 30, |
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|
2025 |
2024 |
|||||||||||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||||||||||
|
(Dollars in thousands) |
Balance |
Interest |
Yield/Cost |
Balance |
Interest |
Yield/Cost |
||||||||||||||||||
|
Interest-earning assets: |
||||||||||||||||||||||||
|
Loans receivable ⁽¹⁾ |
$ | 1,573,040 | $ | 73,994 | 6.29 | % | $ | 1,495,834 | $ | 69,258 | 6.19 | % | ||||||||||||
|
Investment securities ⁽²⁾ |
190,609 | 4,472 | 3.67 | % | 191,784 | 4,400 | 3.60 | % | ||||||||||||||||
|
Interest-earning deposits with other banks ⁽³⁾ |
66,466 | 1,851 | 3.72 | % | 63,203 | 2,166 | 4.58 | % | ||||||||||||||||
|
Total interest-earning assets |
$ | 1,830,115 | $ | 80,317 | 5.93 | % | $ | 1,750,821 | $ | 75,824 | 5.85 | % | ||||||||||||
|
Noninterest-earning assets |
82,392 | 88,408 | ||||||||||||||||||||||
|
Total assets |
$ | 1,912,507 | $ | 1,839,229 | ||||||||||||||||||||
|
Interest-bearing liabilities: |
||||||||||||||||||||||||
|
Interest-bearing demand deposits |
$ | 223,719 | 3,839 | 2.29 | % | $ | 212,699 | $ | 3,167 | 1.99 | % | |||||||||||||
|
Money market deposits |
475,919 | 12,272 | 3.45 | % | 332,987 | 9,730 | 3.90 | % | ||||||||||||||||
|
Savings deposits |
188,692 | 1,232 | 0.87 | % | 197,477 | 951 | 0.64 | % | ||||||||||||||||
|
Certificates of deposit |
294,416 | 8,303 | 3.77 | % | 330,884 | 10,833 | 4.37 | % | ||||||||||||||||
|
Short-term borrowings |
93,403 | 3,135 | 4.49 | % | 132,275 | 5,488 | 5.54 | % | ||||||||||||||||
|
Other borrowings |
11,586 | 436 | 5.03 | % | 11,790 | 530 | 6.00 | % | ||||||||||||||||
|
Total interest-bearing liabilities |
$ | 1,287,735 | $ | 29,217 | 3.03 | % | $ | 1,218,112 | $ | 30,699 | 3.37 | % | ||||||||||||
|
Noninterest-bearing liabilities: |
||||||||||||||||||||||||
|
Noninterest-bearing demand deposits |
$ | 395,385 | $ | 397,764 | ||||||||||||||||||||
|
Other liabilities |
13,992 | 16,662 | ||||||||||||||||||||||
|
Stockholders' equity |
215,395 | 206,691 | ||||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ | 1,912,507 | $ | 1,839,229 | ||||||||||||||||||||
|
Net interest income |
$ | 51,100 | $ | 45,125 | ||||||||||||||||||||
|
Interest rate spread ⁽⁴⁾ |
2.90 | % | 2.48 | % | ||||||||||||||||||||
|
Net interest margin ⁽⁵⁾ |
3.79 | % | 3.51 | % | ||||||||||||||||||||
|
Ratio of average interest-earning assets to average interest-bearing liabilities |
142.12 | % | 143.73 | % | ||||||||||||||||||||
|
(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $809 and $851 for the nine months ended September 30, 2025 and 2024, respectively. |
| (2) Yield is calculated on the basis of amortized cost. |
|
(3) Includes dividends received on restricted stock. |
|
(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
|
(5) Net interest margin represents net interest income as a percentage of average interest-earning assets. |
Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the nine-month periods ended September 30, 2025, and 2024, in terms of (1) changes in the volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company's interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate), and changes attributable to the combined impact of volume/rate (change in rate multiplied by the change in volume). The changes attributable to the combined impact of volume/rate are allocated consistently between the volume and rate variances.
|
2025 versus 2024 |
||||||||||||
|
Increase (decrease) due to |
||||||||||||
|
(Dollars in thousands) |
Volume |
Rate |
Total |
|||||||||
|
Interest-earning assets: |
||||||||||||
|
Loans receivable |
$ | 3,574 | $ | 1,162 | $ | 4,736 | ||||||
|
Investment securities |
(32 | ) | 104 | 72 | ||||||||
|
Interest-earning deposits with other banks |
112 | (427 | ) | (315 | ) | |||||||
|
Total interest-earning assets |
$ | 3,654 | $ | 839 | $ | 4,493 | ||||||
|
Interest-bearing liabilities: |
||||||||||||
|
Interest-bearing demand deposits |
$ | 164 | $ | 508 | $ | 672 | ||||||
|
Money market deposits |
4,169 | (1,627 | ) | 2,542 | ||||||||
|
Savings deposits |
(42 | ) | 323 | 281 | ||||||||
|
Certificates of deposit |
(1,192 | ) | (1,338 | ) | (2,530 | ) | ||||||
|
Short-term borrowings |
(1,611 | ) | (742 | ) | (2,353 | ) | ||||||
|
Other borrowings |
(9 | ) | (85 | ) | (94 | ) | ||||||
|
Total interest-bearing liabilities |
$ | 1,479 | $ | (2,961 | ) | $ | (1,482 | ) | ||||
|
Net interest income |
$ | 2,175 | $ | 3,800 | $ | 5,975 | ||||||
LIQUIDITY
Management's objective in managing liquidity is to continue meeting the cash flow needs of banking customers, such as new or increased borrowings or deposit withdrawals, as well as the Company's financial commitments, while doing so at a reasonable cost and in a timely manner. The principal sources of liquidity are customer deposits, loan repayments, maturing investment securities available for sale, and federal funds sold, which generate cash that the Company deposits with banks. While investment securities available for sale are generally considered as a source of cash, in the current interest rate environment, it is unlikely that any of these securities would be sold for funding needs. The Company offers a line of retail deposit products created to align with customer expectations while expanding the Company's core funding base. The Company's goal is to obtain the majority of its funding from customer deposits, which are generated principally through development of long-term customer relationships. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, the ability to borrow funds under line of credit agreements with correspondent banks and borrowing agreements with the FHLB and Federal Reserve Bank, the purchase of brokered deposits, and the adjustment of interest rates to obtain deposits.
At September 30, 2025, the additional borrowing capacity at the FHLB was $394.1 million, as compared to $381.7 million on December 31, 2024. The Company's maximum borrowing capacity at the FHLB was $525.1 million at September 30, 2025. During the third quarter of 2024, the Company was approved for a Borrower in Custody ("BIC") Arrangement to pledge certain loan portfolios, and therefore, the Company also has the option of borrowing from the Federal Reserve discount window. The borrowing capacity with the Federal Reserve discount window was $132.6 million at September 30, 2025. Given the flexibility of borrowing structure options with the FHLB, if the Company needed additional liquidity, the FHLB capacity would likely be used before other funding mechanisms.
At September 30, 2025, total net available liquidity was $864.8 million, compared to $859.0 million at December 31, 2025. This accounted for 53.3% of total deposits at September 30, 2025, compared to 59.4% at December 31, 2025. At September 30, 2025, these liquidity sources exceeded the amount of the Company's uninsured deposit balances. Management believes that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided the Bank with strong liquidity as of September 30, 2025. Although the Company currently exhibits strong liquidity, management will continue to monitor liquidity in future periods.
For the nine months ended September 30, 2025, the adjustments to reconcile net income to net cash provided by operating activities consisted mainly of origination of and proceeds from the sale of loans held for sale, non-cash gain on exchange of real estate, earnings on bank-owned life insurance, net stock-based compensation, and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the Consolidated Statement of Cash Flows.
INFLATION
Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following US GAAP. US GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for investment securities available for sale, individually analyzed loans, and other real estate owned that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.
Management believes that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the inflation rate. It should be noted that interest rates and inflation do affect each other but do not always move in correlation with each other. Please refer to Item 3, Quantitative and Qualitative Disclosures about Market Risk, for further discussion on interest rate risk.
REGULATORY MATTERS
The Company is subject to the regulatory requirements of the Federal Reserve System as a bank holding company. The bank subsidiary is subject to regulations of the Federal Deposit Insurance Corporation ("FDIC") and the Ohio Division of Financial Institutions.
The Federal Reserve Board and the FDIC have extensive authority to prevent and remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.
REGULATORY CAPITAL REQUIREMENTS
Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts, and bank and thrift holding companies. The net unrealized gain or loss on available-for-sale securities is generally not included in computing regulatory capital. To avoid limitations on capital distributions, including dividend payments, the Bank and the Company must each hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. Within the tabular presentation that follows is the adequately capitalized ratio plus a 2.50% capital conservation buffer.
The Bank and the Company met each of the well-capitalized ratio guidelines as of September 30, 2025. The following table indicates the capital ratios for the Bank and the Company as of September 30, 2025, and December 31, 2024, as well as the capital category threshold ratios for a well-capitalized, adequately capitalized plus the capital conservation buffer institution.
|
As of September 30, 2025 |
||||||||||||||||
|
Leverage |
Tier 1 Risk Based | Common Equity Tier 1 |
Total Risk Based |
|||||||||||||
|
The Middlefield Banking Company |
10.62 | % | 12.11 | % | 12.11 | % | 13.37 | % | ||||||||
|
Middlefield Banc Corp. |
11.00 | % | 12.41 | % | 11.94 | % | 13.66 | % | ||||||||
|
Adequately capitalized ratio |
4.00 | % | 6.00 | % | 4.50 | % | 8.00 | % | ||||||||
|
Adequately capitalized ratio plus fully phased-in capital conservation buffer |
4.00 | % | 8.50 | % | 7.00 | % | 10.50 | % | ||||||||
|
Well-capitalized ratio (Bank only) |
5.00 | % | 8.00 | % | 6.50 | % | 10.00 | % | ||||||||
|
As of December 31, 2024 |
||||||||||||||||
|
Leverage |
Tier 1 Risk Based | Common Equity Tier 1 |
Total Risk Based |
|||||||||||||
|
The Middlefield Banking Company |
10.70 | % | 11.99 | % | 11.99 | % | 13.24 | % | ||||||||
|
Middlefield Banc Corp. |
10.86 | % | 12.28 | % | 11.78 | % | 13.54 | % | ||||||||
|
Adequately capitalized ratio |
4.00 | % | 6.00 | % | 4.50 | % | 8.00 | % | ||||||||
|
Adequately capitalized ratio plus fully phased-in capital conservation buffer |
4.00 | % | 8.50 | % | 7.00 | % | 10.50 | % | ||||||||
|
Well-capitalized ratio (Bank only) |
5.00 | % | 8.00 | % | 6.50 | % | 10.00 | % | ||||||||
Middlefield Banc Corp. published this content on November 13, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 13, 2025 at 13:23 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]