Middlefield Banc(US:MBCN)2025-03-13 20:14Merger and Market Position - The Company completed its merger with Liberty Bancshares, Inc. on December 1, 2022, issuing 2,561,513 shares of common stock for an aggregate consideration of approximately $73.3 million [25]. - MBC's deposit market share in Geauga County is approximately 20.72%, making it the second largest market share in that county [31]. - MBC's market area includes 4.07 million people, representing over one third of Ohio's population and 41.03% of the state's GDP [30]. - The Company operates in a market area that benefits from proximity to Cleveland and Columbus, both of which are significant economic centers in Ohio [35]. Economic Environment - The Columbus metro area has experienced a population increase of 12.2% over the last decade, contributing to a strong economic environment for MBC [36]. - As of 2023, Delaware County has the highest per capita personal income in Ohio at $93,124, indicating a favorable demographic for banking services [37]. - MBC's headquarters and main banking office are located in Geauga County, which has a per capita personal income of $86,579, ranking second among Ohio's counties [34]. - The unemployment rate in Ohio is projected to increase from 3.4% in December 2023 to 4.6% in December 2024, a change of 1.2% [39]. - The average unemployment rate in MBC's twelve-county market area is lower than the state average, with a 2024 projection of 4.2% [41]. Loan Products and Portfolio - The Company offers a variety of loan products, including operational and working capital loans, residential construction loans, and consumer installment loans [27]. - As of December 31, 2024, MBC's total loan portfolio amounts to approximately $1.52 billion, with residential real estate loans making up 23.3% of this total [49]. - The commercial and commercial real estate loans total $912.6 million, representing 60.1% of the total loan portfolio as of December 31, 2024 [60]. - Home equity lines of credit increased from $127.8 million (8.6% of total loans) in 2023 to $143.4 million (9.4% of total loans) in 2024 [54]. - The Bank's lending policy allows for loans of up to 80% of the value of real estate securing a loan, with terms of up to 30 years for residential real estate loans [50]. - Approximately 63.2% of the residential mortgage loan portfolio has an adjustable rate as of December 31, 2024 [51]. - As of December 31, 2024, real estate construction loans totaled $103.6 million, representing 6.8% of the Bank's total loan portfolio [64]. - The Bank's consumer installment loan portfolio was approximately $6.6 million as of December 31, 2024, accounting for 0.4% of total loans [67]. Credit and Risk Management - The Bank's credit policy requires commercial loan applications to be supported by documentation indicating sufficient cash flow for repayment [57]. - The Bank's credit policy maintains strict guidelines for consumer loan applications, ensuring risk management in lending activities [66]. - The Bank recorded gains of $199,000 on the sale of $7.1 million in loans receivable originated for sale during the year ended December 31, 2024 [71]. - The Bank's non-accruing loans in the consumer installment loan portfolio were approximately $165,000, representing 2.5% of that portfolio as of December 31, 2024 [67]. - The Bank's commercial and commercial real estate loan portfolios had non-accruing loans of approximately $493,000, representing 0.5% as of December 31, 2024 [64]. Deposits and Funding - Total deposits increased to $1.45 billion as of December 31, 2024, compared to $1.43 billion in 2023, reflecting a growth of approximately 1.4% [87]. - The total amount of uninsured time deposits was $56.6 million, with 21.35% maturing within three months and 35.29% beyond one year [93]. - FHLB borrowings increased from $163.0 million in 2023 to $172.4 million in 2024, indicating a rise in reliance on external funding sources [94]. - The Bank's reciprocal deposits amounted to $24.5 million in 2024, down from $28.6 million in 2023, reflecting a decrease in this funding source [93]. Regulatory Environment - The Company is subject to extensive regulation by the Federal Reserve and the FDIC, which could materially affect its business and prospects [104]. - The Federal Reserve and FDIC require a minimum common equity Tier 1 capital ratio of 4.5%, Tier 1 capital ratio of 6%, and total capital ratio of 8% to risk-weighted assets [122]. - As of December 31, 2024, the Bank exceeded the regulatory requirement for the capital conservation buffer, which is 2.5% of common equity Tier 1 capital to risk-weighted assets [124]. - The company must maintain a total risk-based capital of 10.0% or greater to be classified as "well-capitalized" under prompt corrective action rules [126]. - The FDIC may restrict a bank's ability to pay dividends if it believes such payments would constitute an unsafe practice [129]. Community Reinvestment Act (CRA) Compliance - MBC's CRA performance evaluation dated December 12, 2022, states that its CRA rating is "Satisfactory" [146]. - The final rule issued on October 24, 2023, aims to strengthen CRA regulations, encouraging banks to expand access to credit in low- and moderate-income communities [146]. - The majority of the provisions in the final rule will take effect on January 1, 2026, with additional data collection requirements starting January 1, 2027 [147]. - A federal district judge in Texas has enjoined federal bank regulators from enforcing the revised CRA rules due to a lawsuit by bank trade groups [148]. - The injunction may delay the January 1, 2026, effective date for the new CRA rules until the lawsuit is resolved [149]. Cybersecurity and Compliance - The Bank dedicates significant resources to cybersecurity, including intrusion prevention and employee training programs [155]. - The Bank employs a layered defensive approach to manage cybersecurity controls, including monitoring and alerting for suspicious activities [156]. - Compliance with the Bank Secrecy Act and anti-money laundering regulations is mandatory, requiring financial institutions to maintain records and report suspicious transactions [157]. Employee and Operational Management - The Bank had 246 full-time equivalent employees as of December 31, 2024, with no employees represented by a collective bargaining group [101]. - Employee retention strategies focus on competitive wages and benefits, contributing to operational efficiency and cost management [100]. - The company's income is entirely derived from dividends received from its Bank, which is also the main source of its liquidity [118].