10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2018
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to ___________
Commission file number 001-36613

Middlefield Banc Corp.

(Exact Name of Registrant as Specified in its Charter)

Ohio	34-1585111
State or Other Jurisdiction of	I.R.S. Employer Identification No.
Incorporation or Organization
15985 East High Street, Middlefield, Ohio	44062-0035
Address of Principal Executive Offices	Zip Code

	440-632-1666
Registrant’s Telephone Number, Including Area Code

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes X    No ☐

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

Large accelerated filer ☐	Accelerated filer  X
Non-accelerated filer ☐  (Do not check if a smaller reporting company)	Smaller reporting company ☐
	Emerging growth company ☐

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

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

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

      Class: Common Stock, without par value

      Outstanding at May 9, 2018: 3,224,499

MIDDLEFIELD BANC CORP.

INDEX

Part I – Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017	3
	Consolidated Statement of Income for the Three Months ended March 31, 2018 and 2017	4
	Consolidated Statement of Comprehensive Income for the Three Months ended March 31, 2018 and 2017	5
	Consolidated Statement of Changes in Stockholders' Equity for the Three Months ended March 31, 2018	6
	Consolidated Statement of Cash Flows for the Three Months ended March 31, 2018 and 2017	7
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	36
Part II – Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults by the Company on its Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits and Reports on Form 8-K	37
Signatures		42
Exhibit 31.1
Exhibit 31.2
Exhibit 32

2

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

	March 31,			December 31,
	2018			2017
ASSETS
Cash and cash equivalents	$	33,258		$	39,886
Equity securities, at fair value		643			-
Investment securities available for sale, at fair value		91,262			95,283
Loans held for sale		937			463
Loans		932,374			923,213
Less allowance for loan and lease losses		7,551			7,190
Net loans		924,823			916,023
Premises and equipment, net		12,225			11,853
Goodwill		15,071			15,071
Core deposit intangibles		2,658			2,749
Bank-owned life insurance		15,764			15,652
Other real estate owned		212			212
Accrued interest receivable and other assets		9,911			9,144
TOTAL ASSETS	$	1,106,764		$	1,106,336
LIABILITIES
Deposits:
Noninterest-bearing demand	$	194,203		$	192,438
Interest-bearing demand		96,659			83,990
Money market		149,359			150,277
Savings		221,851			208,502
Time		282,501			242,987
Total deposits		944,573			878,194
Short-term borrowings		18,671			74,707
Other borrowings		19,028			29,065
Accrued interest payable and other liabilities		4,340			4,507
TOTAL LIABILITIES		986,612			986,473
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 3,609,149 and 3,603,881 shares issued; 3,222,984 and 3,217,716 shares outstanding		85,116			84,859
Retained earnings		48,927			47,431
Accumulated other comprehensive (loss) income		(373	)		1,091
Treasury stock, at cost; 386,165 shares		(13,518	)		(13,518	)
TOTAL STOCKHOLDERS' EQUITY		120,152			119,863
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,106,764		$	1,106,336

See accompanying notes to unaudited consolidated financial statements.

3

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME  

(Dollar amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2018		2017
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	11,054	$	9,180
Interest-bearing deposits in other institutions		119		49
Federal funds sold		14		3
Investment securities:
Taxable interest		169		218
Tax-exempt interest		525		637
Dividends on stock		59		112
Total interest and dividend income		11,940		10,199
INTEREST EXPENSE
Deposits		1,640		1,125
Short-term borrowings		276		177
Other borrowings		122		140
Total interest expense		2,038		1,442
NET INTEREST INCOME		9,902		8,757
Provision for loan losses		210		165
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		9,692		8,592
NONINTEREST INCOME
Service charges on deposit accounts		453		469
Investment securities gains on sale, net		-		488
Gain on equity securities		18		-
Earnings on bank-owned life insurance		112		109
Gain on sale of loans		4		234
Other income		199		211
Total noninterest income		786		1,511
NONINTEREST EXPENSE
Salaries and employee benefits		3,979		3,696
Occupancy expense		536		488
Equipment expense		233		281
Data processing costs		477		320
Ohio state franchise tax		115		186
Federal deposit insurance expense		150		68
Professional fees		445		373
Advertising expense		228		248
Core deposit intangible amortization		91		72
Merger expense		-		387
Other expense		1,091		1,148
Total noninterest expense		7,345		7,267
Income before income taxes		3,133		2,836
Income taxes		528		736
NET INCOME	$	2,605	$	2,100
EARNINGS PER SHARE
Basic	$	0.81	$	0.78
Diluted		0.80		0.78
DIVIDENDS DECLARED PER SHARE	$	0.33	$	0.27

See accompanying notes to unaudited consolidated financial statements.

4

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2018			2017
Net income	$	2,605		$	2,100
Other comprehensive loss:
Net unrealized holding (loss) gain on available-for-sale investment securities		(1,912	)		231
Tax effect		402			(78	)
Reclassification adjustment for investment securities gains included in net income		-			(488	)
Tax effect		-			166
Total other comprehensive loss		(1,510	)		(169	)
Comprehensive income	$	1,095		$	1,931

See accompanying notes to unaudited consolidated financial statements.

5

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

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

(Unaudited)

						Accumulated
						Other						Total
	Common		Retained			Comprehensive			Treasury			Stockholders'
	Stock		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2017	$	84,859	$	47,431		$	1,091		$	(13,518	)	$	119,863
Change in accounting principle for adoption of ASU 2016-01				141			(141	)					-
Change in accounting principle for adoption of ASU 2018-02				(187	)		187						-
Net income				2,605									2,605
Other comprehensive loss							(1,510	)					(1,510	)
Dividend reinvestment and purchase plan (3,278 shares)		161											161
Stock-based compensation expense (1,990 shares)		96											96
Cash dividends ($0.33 per share)				(1,063	)								(1,063	)
Balance, March 31, 2018	$	85,116	$	48,927		$	(373	)	$	(13,518	)	$	120,152

See accompanying notes to unaudited consolidated financial statements.

6

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2018			2017
OPERATING ACTIVITIES
Net income	$	2,605		$	2,100
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		210			165
Investment securities gains on sale, net		-			(488	)
Gain on equity securities		(18	)		-
Depreciation and amortization of premises and equipment, net		231			308
Amortization of premium and discount on investment securities, net		104			124
Accretion of deferred loan fees, net		(341	)		(185	)
Amortization of core deposit intangibles		91			72
Stock-based compensation expense		96			-
Origination of loans held for sale		(1,783	)		(2,321	)
Proceeds from sale of loans		1,313			1,921
Gain on sale of loans		(4	)		(100	)
Origination of student loans held for sale		-			(95,679	)
Proceeds from sale of student loans		-			93,438
Gain on sale of student loans		-			(134	)
Earnings on bank-owned life insurance		(112	)		(109	)
Deferred income tax		131			(1,116	)
Net gain loss on other real estate owned		-			(56	)
Decrease (increase) in accrued interest receivable		19			(199	)
Decrease in accrued interest payable		(5	)		(14	)
Other, net		(587	)		547
Net cash provided by (used in) operating activities		1,950			(1,726	)
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from repayments and maturities		1,380			3,544
Increase in loans, net		(8,669	)		(34,533	)
Proceeds from the sale of other real estate owned		-			333
Purchase of bank-owned life insurance		-			(4	)
Purchase of premises and equipment		(603	)		(179	)
Purchase of restricted stock		(90	)		(899	)
Redemption of restricted stock		-			795
Acquisition, net of cash paid		-			5,431
Net cash used in investing activities		(7,982	)		(25,512	)
FINANCING ACTIVITIES
Net increase in deposits		66,379			19,873
(Decrease) increase in short-term borrowings, net		(56,036	)		7,854
Repayment of other borrowings		(10,037	)		(49	)
Proceeds from other borrowings		-			30,000
Proceeds from common stock issued		-			53
Proceeds from dividend reinvestment and purchase plan		161			132
Cash dividends		(1,063	)		(756	)
Net cash (used in) provided by financing activities		(596	)		57,107
(Decrease) increase in cash and cash equivalents		(6,628	)		29,869
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		39,886			32,495
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	33,258		$	62,364

See accompanying notes to unaudited consolidated financial statements.

7

	Three Months Ended
	March 31,
	2018			2017
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	2,043		$	1,456
Noncash investing transactions:
Transfers from loans to other real estate owned	$	-		$	977
Common stock issued in business acquisition		-			20,995
Transfer of equity securities from investment securities available for sale, at fair value		(625	)		-
Acquisition of Liberty Bank
Noncash assets acquired
Loans	$	-		$	195,388
Loans held for sale		-			5,953
Premises and equipment, net		-			325
Accrued interest receivable		-			440
Bank-owned life insurance		-			1,681
Core deposit intangible		-			3,087
Other assets		-			997
Goodwill		-			10,740
Total noncash assets acquired		-			218,611
Liabilities assumed
Time deposits		-			(30,744	)
Deposits other than time deposits		-			(167,300	)
Accrued interest payable		-			(47	)
Deferred taxes		-			(1,134	)
Other liabilities		-			(2,754	)
Total liabilities assumed		-			(201,979	)
Liberty stock acquired in business combination		-			(1,068	)
Net noncash assets acquired	$	-		$	15,564
Cash and cash equivalents acquired, net	$	-		$	5,431

See accompanying notes to unaudited consolidated financial statements.

8

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Middlefield Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2017, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U.S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2017. The results of the Company’s operations for any interim period are not necessarily indicative for the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements –

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements. Management will oversee the implementation of CECL and is currently in the process of implementing a software solution to assist in the adoption of this ASU. Management plans to run the current incurred loss model and the CECL model concurrently for 12 months prior to the adoption of this guidance on January 1, 2020.

9

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Re-measuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, or 825-10, Financial Instruments—Overall. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be re-measured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944, Financial Services— Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU 2018-04, Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, ASU 2018-04 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117.

NOTE 2 – REVENUE RECOGNITION

Effective January 1, 2017, the Company adopted ASU 2014-09 Revenue from Contracts with Customers-Topic 606 and all subsequent ASUs that modified ASC 606. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods and did not require any cumulative effect adjustment for adoption.

Management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from investment security gains, gains on the sale of loans, and BOLI income, are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 93.4% of the total revenue of the Company.

The main types of noninterest income within the scope of the standard are as follows:

Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, which is completion of the requested service/transaction.

Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer is reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

10

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three months ended March 31:

Noninterest Income	2018		2017
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	193	$	192
ATM banking fees		201		114
Service charges and other fees		59		163
Investment securities gains on sale, net (a)		-		488
Equity securities, unrealized gains (a)		18		-
Earnings on bank-owned life insurance (a)		112		109
Gain on sale of loans (a)		4		234
Other income		199		211
Total noninterest income	$	786	$	1,511

(a) Not within scope of ASC 606.

NOTE 3 - STOCK-BASED COMPENSATION

The Company had no unvested stock options outstanding as of March 31, 2018 and 2017.

Stock option activity during the three months ended March 31 is as follows:

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2018		19,750		$	20.94
Exercised		(1,500	)		23.00
Outstanding, March 31, 2018		18,250		$	20.78
Exercisable, March 31, 2018		18,250		$	20.78

The following table presents the activity during the three months ended March 31, 2018 related to awards of restricted stock:

			Weighted-
			average
			Grant Date Fair
	Shares		Value Per Share
Nonvested at January 1, 2018		14,601	$	35.14
Granted		-		-
Forfeited		-		-
Nonvested at March 31, 2018		14,601	$	35.14
Expected to vest at March 31, 2018		14,601	$	35.14

11

Share-based compensation expense of $55,000 and $48,000 was recognized for the three-month periods ended March 31, 2018 and 2017, respectively.

The expected remaining compensation expense that will be recognized on restricted stock totals $199,000, of which $127,000 will be recognized in 2018 and $72,000 will be recognized in 2019.

NOTE 4 - EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	For the Three
	Months Ended
	March 31,
	2018			2017
Weighted-average common shares outstanding		3,606,427			3,065,981
Average treasury stock shares		(386,165	)		(386,165	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		3,220,262			2,679,816
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		17,807			12,199
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		3,238,069			2,692,015

Options to purchase 18,250 shares of common stock, at prices ranging from $17.55 to $23.00, were outstanding during the three months ended March 31, 2018. Also outstanding were 14,601 shares of restricted stock. None of the outstanding options or restricted stock were anti-dilutive.

Options to purchase 27,762 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three months ended March 31, 2017. Also outstanding were 15,800 shares of restricted stock. None of the outstanding options or restricted stock were anti-dilutive.

12

NOTE 5 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,305	$	-	$	8,305
Obligations of states and political subdivisions		-		65,579		-		65,579
Mortgage-backed securities in government-sponsored entities		-		17,378		-		17,378
Total debt securities		-		91,262		-		91,262
Equity securities in financial institutions		393		250		-		643
Total	$	393	$	91,512	$	-	$	91,905

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,719	$	-	$	8,719
Obligations of states and political subdivisions		-		67,429		-		67,429
Mortgage-backed securities in government-sponsored entities		-		18,510		-		18,510
Total debt securities		-		94,658		-		94,658
Equity securities in financial institutions		-		625		-		625
Total	$	-	$	95,283	$	-	$	95,283

Investment Securities Available for Sale - The Company obtains fair values from an independent pricing service which represent quoted prices for similar assets, fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Equity Securities - Equity securities that are traded on a national securities exchange are valued at their last reported sales price as of the measurement date. Equity securities traded in the over-the-counter (“OTC”) markets and listed securities for which no sale was reported on that date are generally valued at their last reported “bid” price if held long, and last reported “ask” price if sold short. To the extent equity securities are actively traded and valuation adjustments are not applied, they are categorized in Level I of the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level II of the fair value hierarchy. Equity securities are carried at fair value through net income at March 31, 2018.

13

Impaired Loans – The Company has measured impairment on collateral-dependent impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral-dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the following table as a Level III measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the following table as it is not currently being carried at its fair value. The fair values in the following table exclude estimated selling costs of $573,000 at March 31, 2018.

Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the following table. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the following table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the following table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Collateral-dependent impaired loans are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken to the property’s value subsequent to the initial measurement.

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	1,734	$	1,734

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	3,072	$	3,072
Other real estate owned		-		-		32		32

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2018
Impaired loans	$	1,734	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	100.0%	(40.58%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	3,072	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	86.1%	(13.8%)
Other real estate owned	$	32	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable, less any associated allowance.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

14

The estimated fair value of the Company’s financial instruments not recorded at fair value on a recurring basis is as follows:

	March 31, 2018
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents (1)	$	33,258	$	33,258	$	-	$	-	$	33,258
Loans held for sale		937		-		937		-		937
Net loans		924,823		-		-		916,073		916,073
Bank-owned life insurance (1)		15,764		15,764		-		-		15,764
Federal Home Loan Bank stock (1)		3,679		3,679		-		-		3,679
Accrued interest receivable (1)		3,269		3,269		-		-		3,269
Financial liabilities:
Deposits	$	944,573	$	662,072	$	-	$	279,850	$	941,922
Short-term borrowings (1)		18,671		18,671		-		-		18,671
Other borrowings		19,028		-		-		19,030		19,030
Accrued interest payable (1)		573		573		-		-		573

⁽¹⁾ This financial instrument is carried at cost at March 31, 2018, which approximates the fair value of the instrument.

	December 31, 2017
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	39,886	$	39,886	$	-	$	-	$	39,886
Loans held for sale		463		-		463		-		463
Net loans		916,023		-		-		913,323		913,323
Bank-owned life insurance		15,652		15,652		-		-		15,652
Federal Home Loan Bank stock		3,589		3,589		-		-		3,589
Accrued interest receivable		3,288		3,288		-		-		3,288
Financial liabilities:
Deposits	$	878,194	$	635,207	$	-	$	242,020	$	877,227
Short-term borrowings		74,707		74,707		-		-		74,707
Other borrowings		29,065		-		-		29,069		29,069
Accrued interest payable		578		578		-		-		578

15

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three months ended March 31, 2018 and 2017, respectively:

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2017	$	1,091
Other comprehensive (loss) before reclassification		(1,510	)
Change in accounting principle, ASC 2016-01 (b)		(141	)
Change in accounting principle, ASC 2018-02 (b)		187
Period change		(1,464	)
Balance at March 31, 2018	$	(373	)

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2016	$	1,201
Other comprehensive income before reclassification		153
Amount reclassified from accumulated other comprehensive income		(322	)
Period change		(169	)
Balance at March 31, 2017	$	1,032

(a) All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.

(b) Reclassifications are the result of the adoption of ASUs 2016-01 and 2018-02 effective for the Company beginning January 1, 2018. The reclassifications are presented within the Consolidated Statement of Changes in Stockholders’ Equity for the affected transitional periods.

The following tables present significant amounts reclassified from or to each component of accumulated other comprehensive income:

	Amounts Reclassified from Accumulated Other Comprehensive					Affected Line Item in
	Income					the Statement Where
(Dollars in thousands)	For the Three Months Ended					Net Income is
Details about other comprehensive income	March 31, 2018		March 31, 2017			Presented
Unrealized gains on available-for-sale securities (a)	$	-	$	488		Investment securities gains on sale, net
		-		(166	)	Income taxes
	$	-	$	322

(a) For unrealized gains on available-for-sale securities, amounts in parentheses indicate expenses and other amounts indicate income.

16

NOTE 7 – INVESTMENT AND EQUITY SECURITIES

The amortized cost and fair values of investment securities are as follows:

	March 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,342	$	70	$	(107	)	$	8,305
Obligations of states and political subdivisions:
Taxable		504		14		-			518
Tax-exempt		64,986		829		(754	)		65,061
Mortgage-backed securities in government-sponsored entities		17,900		66		(588	)		17,378
Total	$	91,732	$	979	$	(1,449	)	$	91,262

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,664	$	126	$	(71	)	$	8,719
Obligations of states and political subdivisions:
Taxable		504		8		-			512
Tax-exempt		65,408		1,547		(38	)		66,917
Mortgage-backed securities in government-sponsored entities		18,640		157		(287	)		18,510
Total debt securities		93,216		1,838		(396	)		94,658
Equity securities in financial institutions		415		210		-			625
Total	$	93,631	$	2,048	$	(396	)	$	95,283

The following table presents the carrying amount of the Company’s equity investments without readily determinable fair values the annual and cumulative amount of impairment, and the annual and cumulative amount of observable price changes for orderly transactions for the identical or a similar investment of the same issuer:

	2018
	Year-to-Date		Life-to-Date
Amortized cost	$	232	$	232
Impairment		-		-
Observable price changes		18		18
Carrying value	$	250	$	250

17

The following table presents the net gains and losses on the Company’s equity investments recognized in earnings during the three months ended March 31, 2018, and the portion of unrealized gains and losses for the period that relates to equity investments held at March 31, 2018.

	2018
(Dollar amounts in thousands)
Net gains recognized in equity securities during the period	$	18
Less: Net gains realized on the sale of equity securities during the period		-
Unrealized gains recognized in equity securities held at reporting date	$	18

The amortized cost and fair value of debt securities at March 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	4,252	$	4,303
Due after one year through five years		7,607		7,713
Due after five years through ten years		12,489		12,420
Due after ten years		67,384		66,826
Total	$	91,732	$	91,262

Proceeds from the sales of investment securities and the gross realized gains and losses are as follows:

	For the Three Months
(Dollar amounts in thousands)	Ended March 31,
	2018		2017
Proceeds from sales	$	-	$	-
Gross realized gains		-		488	(1)
Gross realized losses		-		-

⁽¹⁾ Prior to the acquisition of Liberty Bank, N.A., the Company had a previously held equity interest in Liberty which was re-measured at fair value on the acquisition date and resulted in a gain of $488,000, which was recorded in Equity Securities, Unrealized Gains on the consolidated Income Statement for the three months ended March 31, 2017.

Investment securities with an approximate carrying value of $61.7 million and $57.9 million at March 31, 2018 and December 31, 2017, respectively, were pledged to secure deposits and other purposes as required by law.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	March 31, 2018
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	548	$	(12	)	$	3,899	$	(95	)	$	4,447	$	(107	)
Obligations of states and political subdivisions:
Tax-exempt		25,087		(660	)		2,721		(94	)		27,808		(754	)
Mortgage-backed securities in government-sponsored entities		5,941		(203	)		8,136		(385	)		14,077		(588	)
Total	$	31,576	$	(875	)	$	14,756	$	(574	)	$	46,332	$	(1,449	)

18

	December 31, 2017
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	557	$	(4	)	$	4,036	$	(67	)	$	4,593	$	(71	)
Obligations of states and political subdivisions:
Tax-exempt		1,009		(6	)		2,784		(32	)		3,793		(38	)
Mortgage-backed securities in government-sponsored entities		5,698		(71	)		8,734		(216	)		14,432		(287	)
Total	$	7,264	$	(81	)	$	15,554	$	(315	)	$	22,818	$	(396	)

There were 82 securities considered temporarily impaired at March 31, 2018.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for 100% of the total available-for-sale portfolio as of March 31, 2018 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near-term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and, 

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the three months ended March 31, 2018 and 2017, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of March 31, 2018 or December 31, 2017 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

19

NOTE 8 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES

Major classifications of loans are summarized as follows (in thousands):

	March 31,			December 31,
	2018			2017
Commercial and industrial	$	99,809		$	101,346
Real estate - construction		48,687			47,017
Real estate - mortgage:
Residential		316,856			318,157
Commercial		448,766			437,947
Consumer installment		18,256			18,746
		932,374			923,213
Less: Allowance for loan and lease losses		(7,551	)		(7,190	)
Net loans	$	924,823		$	916,023

The amounts above include deferred loan origination costs of $1.5 million at both March 31, 2018 and December 31, 2017.

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin, Sunbury and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized on the accrual method. The 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 interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are deferred with the net amount amortized over the contractual life of the loan as an adjustment of the related loan’s yield.

The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	8,884	$	-	$	2,716	$	6,617	$	3	$	18,220
Collectively evaluated for impairment		90,925		48,687		314,140		442,149		18,253		914,154
Total loans	$	99,809	$	48,687	$	316,856	$	448,766	$	18,256	$	932,374

					Real estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	3,627	$	44	$	2,824	$	5,610	$	4	$	12,109
Collectively evaluated for impairment		97,719		46,973		315,333		432,337		18,742		911,104
Total loans	$	101,346	$	47,017	$	318,157	$	437,947	$	18,746	$	923,213

20

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	997	$	-	$	124	$	756	$	-	$	1,877
Collectively evaluated for impairment		259		92		1,658		3,567		98		5,674
Total ending allowance balance	$	1,256	$	92	$	1,782	$	4,323	$	98	$	7,551

					Real Estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	694	$	-	$	140	$	733	$	-	$	1,567
Collectively evaluated for impairment		305		313		1,620		3,303		82		5,623
Total ending allowance balance	$	999	$	313	$	1,760	$	4,036	$	82	$	7,190

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate (“CRE”), and Consumer Installment Loans. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. The increases in the allowance for loan loss for C&I, Residential, CRE, and Consumer Installment loan portfolios were partially offset by a decrease in the allowance for the Real Estate Construction portfolio.

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or the loan was modified in a troubled debt restructuring.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

21

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

March 31, 2018
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	976	$	1,173	$	-
Real estate - mortgage:
Residential		1,597		1,822		-
Commercial		1,629		1,767		-
Total	$	4,202	$	4,762	$	-
With an allowance recorded:
Commercial and industrial	$	7,908	$	8,611	$	997
Real estate - mortgage:
Residential		1,119		1,165		124
Commercial		4,988		5,169		756
Consumer installment		3		3		-
Total	$	14,018	$	14,948	$	1,877
Total:
Commercial and industrial	$	8,884	$	9,784	$	997
Real estate - mortgage:
Residential		2,716		2,987		124
Commercial		6,617		6,936		756
Consumer installment		3		3		-
Total	$	18,220	$	19,710	$	1,877

22

December 31, 2017
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	450	$	1,006	$	-
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		1,685		1,904		-
Commercial		1,870		1,984		-
Consumer installment		4		4		-
Total	$	4,053	$	4,942	$	-
With an allowance recorded:
Commercial and industrial	$	3,177	$	3,888	$	694
Real estate - mortgage:
Residential		1,139		1,179		140
Commercial		3,740		3,913		733
Total	$	8,056	$	8,980	$	1,567
Total:
Commercial and industrial	$	3,627	$	4,894	$	694
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		2,824		3,083		140
Commercial		5,610		5,897		733
Consumer installment		4		4		-
Total	$	12,109	$	13,922	$	1,567

The tables above include troubled debt restructuring totaling $9.1 million at March 31, 2018 and $5.4 million as of December 31, 2017.

The following tables present the average balance and interest income by class, recognized on impaired loans (in thousands):

	For the Three Months Ended March 31, 2018				For the Three Months Ended March 31, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial and industrial	$	5,631	$	187	$	1,372	$	84
Real estate - construction		283		-		810		-
Real estate - mortgage:
Residential		2,892		21		3,092		22
Commercial		6,719		136		7,077		88
Consumer installment		4		-		5		-
Total	$	15,529	$	344	$	12,356	$	194

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Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.  

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis with the Chief Credit Officer ultimately responsible for accurate and timely risk ratings.  The Credit Department performs an annual review of all commercial relationships with loan balances of $1,000,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

	March 31, 2018
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	87,415	$	8,955	$	3,439	$	-	$	99,809
Real estate - construction		48,687		-		-		-		48,687
Real estate - mortgage:
Residential		310,965		715		5,176		-		316,856
Commercial		434,991		8,206		5,569		-		448,766
Consumer installment		18,082		-		174		-		18,256
Total	$	900,140	$	17,876	$	14,358	$	-	$	932,374

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	December 31, 2017
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	95,621	$	1,942	$	3,783	$	-	$	101,346
Real estate - construction		46,995		-		22		-		47,017
Real estate - mortgage:
Residential		312,176		723		5,258		-		318,157
Commercial		424,225		9,164		4,558		-		437,947
Consumer installment		18,742		-		4		-		18,746
Total	$	897,759	$	11,829	$	13,625	$	-	$	923,213

The increase in the amount classified as special mention for commercial and industrial loans for the three-month period ended March 31, 2018 is due to a large relationship of $5.8 million being reclassified as a troubled debt restructuring (TDR).

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets include nonaccrual loans, TDRs, loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about 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 balance.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans (in thousands):

	March 31, 2018
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,201	$	175	$	366	$	67	$	608	$	99,809
Real estate - construction		48,647		40		-		-		40		48,687
Real estate - mortgage:
Residential		313,459		1,943		538		916		3,397		316,856
Commercial		445,861		1,652		260		993		2,905		448,766
Consumer installment		18,243		11		2		-		13		18,256
Total	$	925,411	$	3,821	$	1,166	$	1,976	$	6,963	$	932,374

	December 31, 2017
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,633	$	1,607	$	29	$	77	$	1,713	$	101,346
Real estate - construction		47,017		-		-		-		-		47,017
Real estate - mortgage:
Residential		314,866		1,977		227		1,087		3,291		318,157
Commercial		434,879		1,907		1		1,160		3,068		437,947
Consumer installment		18,736		10		-		-		10		18,746
Total	$	915,131	$	5,501	$	257	$	2,324	$	8,082	$	923,213

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The following tables present the classes of the loan portfolio summarized by nonaccrual loans (in thousands):

	March 31, 2018
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,351	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		3,934		-
Commercial		3,462		-
Consumer installment		-		-
Total	$	8,747	$	-

	December 31, 2017
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,120	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		4,002		-
Commercial		3,311		-
Consumer installment		-		-
Total	$	8,433	$	-

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $369,000 for the three months ended March 31, 2018 and $437,000 for the year ended December 31, 2017.

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level. The historical charge-off factor was calculated using the last twelve consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

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Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following tables summarize the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage		Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2017	$	999		$	313		$	1,760	$	4,036	$	82		$	7,190
Charge-offs		(9	)		-			-		-		(4	)		(13	)
Recoveries		109			17			20		-		18			164
Provision		157			(238	)		2		287		2			210
ALLL balance at March 31, 2018	$	1,256		$	92		$	1,782	$	4,323	$	98		$	7,551

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2016	$	448		$	172		$	2,818		$	3,135		$	25		$	6,598
Charge-offs		(20	)		-			(68	)		(19	)		(101	)		(208	)
Recoveries		78			17			7			-			63			165
Provision		110			(3	)		(234	)		262			30			165
ALLL balance at March 31, 2017	$	616		$	186		$	2,523		$	3,378		$	17		$	6,720

The negative provision allocated to real estate construction loans in the amount of $238,000 for the three-month period ended March 31, 2018 is due to the historical loss rate for the real estate construction pool changing to -0.127% from 0.775% for this time period in the prior year.     

The negative provision allocated to residential real estate loans in the amount of $234,000 for the three-month period ended March 31, 2017 is due to the payoff of a large residential credit during that period.

The following tables summarize troubled debt restructurings (in thousands):

	For the Three Months Ended
	March 31, 2018
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		2		-		2	$	6,977	$	6,977
Residential real estate		2		-		2		63		63

	For the Three Months Ended
	March 31, 2017
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		1		-		1	$	50	$	50
Residential real estate		2		-		2		36		36

There were no subsequent defaults of troubled debt restructurings for the three months ended March 31, 2018. One residential real estate contract with a recorded investment of $33,000 had subsequently defaulted for the three-month period ended March 31, 2017.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The MD&A should be read in conjunction with the notes and financial statements presented in this report.

The information contained or incorporated by reference in this current report on Form 10-Q contain forward-looking statements, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature, extent, and timing of government actions and reforms; and extended disruption of viral infrastructure. All forward-looking statements included in this current report on Form 10-Q are based on information available at the time of the report. Middlefield Banc Corp. assumes no obligation to update any forward-looking statement.

CHANGES IN FINANCIAL CONDITION

General. The Company’s total assets ended the March 31, 2018 quarter at $1.1 billion, an increase of $428,000 from December 31, 2017. For the same time period, cash and cash equivalents decreased $6.6 million, or 16.6% while net loans increased $8.8 million, or 1.0%. Total liabilities increased $139,000, while stockholders’ equity increased $289,000, or 0.2%.

Cash and cash equivalents. Cash and cash equivalents decreased $6.6 million or 16.6% to $33.3 million at March 31, 2018 from $39.9 million at December 31, 2017. 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, purchases of investment securities and repayments of borrowed funds.

Investment securities. Investment securities available for sale on March 31, 2018 totaled $91.3 million, a decrease of $4.0 million or 4.2% from $95.3 million at December 31, 2017. A portion of this decrease is the classification of equity securities in the amount of $643,000 on the Consolidated Balance Sheet at March 31, 2018. During this period the Company recorded repayments, calls, and maturities of $1.4 million. There were no securities purchases or sales during this period. The Company recorded $18,000 in equity securities, unrealized gains as of March 31, 2018 on the Company’s consolidated statement of income and consolidated statement of cash flows. This gain is the result of a re-measurement of fair value of the equity securities held during this three-month period.

Loans receivable. The loans receivable category 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 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. Net loans receivable increased $8.8 million or 1.0% to $924.8 million as of March 31, 2018 from $916.0 million at December 31, 2017 due to strategic growth goals. Included in the total increase for loans receivable were increases in the commercial real estate and construction portfolios or $10.8 million, or 2.5%, and $1.7 million, or 3.6%, respectively. Also included in the total increase to loans receivable were decreases in the commercial and industrial, residential, and consumer installment portfolios of $1.5 million, or 1.5%, $1.3 million, or 0.4%, and $490,000 or 2.6%, respectively.

The Company’s Mortgage Banking operation generates loans for sale to FHLMC. Loans held for sale on March 31, 2018 totaled $937,000, an increase of $474,000, or 102.4%, from December 31, 2017. This increase is the result of greater funded loans being held in the warehouse at quarter end.

Student Lending. Through its merger with Liberty Bank, N.A., on January 12, 2017, MBC acquired Liberty’s private student loan business. These loans provided qualified borrowers with the ability to finance the costs associated with obtaining a degree and to refinance their existing student loans. Pursuant to loan origination agreements with student loan originating and servicing companies, MBC made student loans to qualified students and sold those loans, without recourse and with servicing released, into the secondary market. Gains on the sales of these loans as well as interest income earned while held by MBC are included in the Consolidated Statement of Income. The lending program changed near the end of 2017, requiring the Company to expand to “in-school” lending and extending the Company’s carrying period, both of which increased the risk profile. The Company therefore has ceased the origination of new student loans.      

Allowance for Loan and Lease Losses and Asset Quality. The allowance for loan and lease losses increased $361,000 or 5.0% to $7.6 million at March 31, 2018 from $7.2 million at December 31, 2017. For the three months ended March 31, 2018, net loan recoveries totaled $151,000, or 0.06% of average loans, compared to net charge-offs of $43,000, or 0.02%, for the same period in 2017. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $210,000 in the three-month period ending March 31, 2018.

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Management analyzes the adequacy of the allowance for loan and lease losses 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 allowance for loan and lease losses is a significant estimate that is particularly susceptible to changes in the near term. Management’s analysis includes a review of all loans designated as impaired, 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 loan and lease losses. Future additions or reductions to the allowance for loan and lease 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 loan and lease losses allocated to these types of loans. Management believes the allowance for loan and lease losses is appropriately stated at March 31, 2018. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for loan and lease losses is considered a critical accounting policy.

Nonperforming assets. Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, EMORECO assets, other real estate, 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 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 principal until doubt about collectability ceases. TDRs are those loans which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The Company has 47 TDRs accruing interest with a balance of $10.6 million as of March 31, 2018. A TDR that yields market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as TDR in calendar years after the year in which the restructuring took place. To be in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. Nonperforming loans secured by real estate totaled $11.9 million as of March 31, 2018, an increase of $1.8 million from $10.1 million at December 31, 2017.

	Asset Quality History
(Dollar amounts in thousands)	3/31/2018			12/31/2017			9/30/2017			6/30/2017			3/31/2017
Nonperforming loans	$	17,818		$	13,415		$	14,401		$	16,402		$	12,095
Other real estate owned		212			212			557			650			1,634
Nonperforming assets	$	18,030		$	13,627		$	14,958		$	17,052		$	13,729
Allowance for loan and lease losses		7,551			7,190			6,852			6,605			6,720
Ratios
Nonperforming loans to total loans		1.91	%		1.45	%		1.64	%		1.89	%		1.44	%
Nonperforming assets to total assets		1.63	%		1.23	%		1.38	%		1.59	%		1.28	%
Allowance for loan and lease losses to total loans		0.81	%		0.78	%		0.78	%		0.76	%		0.80	%
Allowance for loan and lease losses to nonperforming loans		42.38	%		53.60	%		47.58	%		40.27	%		55.56	%

A major factor in determining the appropriateness of the allowance for loan and lease losses is the type of collateral which secures the loans. Of the total nonperforming loans at March 31, 2018, 66.7% were secured by real estate. Although this does not insure against all losses, the real estate typically provides for at least partial recovery, even in a distressed-sale and declining-value environment. The Company’s objective is to minimize the future loss exposure of the Company.

29

The allowance for loan and lease losses to total loans ratio increased from 0.78% as of December 31, 2017 to 0.81% as of March 31, 2018. This increase is primarily due to the increase in net recoveries, along with an increase in nonperforming loans (classified loans).

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $944.6 million or 96.2% of the Company’s total funding sources at March 31, 2018. Total deposits increased $66.4 million or 7.6% at March 31, 2018 from $878.2 million at December 31, 2017. The total increase in deposits is primarily related to increases in time, savings, interest-bearing demand, and noninterest-bearing demand deposits of $39.5 million or 16.3%, $13.3 million or 6.4%, $12.7 million or 15.1%, and $1.8 million or 0.9%, respectively. These increases were partially offset by a decrease in money market deposits of $918,000 or 0.6%, at March 31, 2018.

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 FHLB advances, junior subordinated debt, short-term borrowings from other banks, federal funds purchased, and repurchase agreements. Short-term borrowings decreased $56.0 million, or 75.0%, to $18.7 million as of March 31, 2018. Other borrowings decreased $10.0 million, or 34.5%, to $19.0 million as of March 31, 2018 from $29.1 million as of December 31, 2017. This decrease is due to the reduction of FHLB borrowings during the three-month period ending March 31, 2018, which resulted from increases in funds from deposit accounts, which allowed the company to repay a significant portion of the outstanding short-term debt.

Stockholders’ equity. Stockholders’ equity increased $289,000, or 0.2%, to $120.2 million at March 31, 2018 from $119.9 million at December 31, 2017. This growth was the result of increases in retained earnings and common stock of $1.5 million and $257,000, respectively. The change in retained earnings is due to the year-to-date net income offset by dividends paid and the change in common stock is due to regular stock grants and dividend reinvestment and purchase plan distributions. The increase in stockholders’ equity at March 31, 2018 is partially offset by a decrease in accumulated other comprehensive income (“AOCI”) of $1.5 million due to fair value adjustments of available-for-sale securities, and the adoption of accounting standard updates made effective for periods beginning after December 15, 2017, which resulted in a net reclassification of $46,000 between retained earnings and AOCI.

RESULTS OF OPERATIONS 

General. Net income for the three months ended March 31, 2018, was $2.6 million, a $505,000, or 24.0% increase from the amount earned during the same period in 2017. Diluted earnings per share for the quarter increased to $0.80, compared to $0.78 from the same period in 2017.

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the quarter were 0.94% and 8.73%, respectively, compared with 0.84% and 8.73% for the same period in 2017.

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the Company’s 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 periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order 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. Historically from an interest rate risk perspective, it has been management’s goal 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 March 31, 2018 totaled $9.9 million, an increase of 13.1% from that reported in the comparable period of 2017. The net interest margin was 3.82% for the first quarter of 2018, down from the 3.84% reported for the same quarter of 2017.

Interest and dividend income. Interest and dividend income increased $1.7 million, or 17.1%, for the three months ended March 31, 2018, compared to the same period in the prior year. This is attributable to an increase in interest and fees on loans of $1.9 million, partially offset by a decrease in interest earned on investment securities of $161,000.

Interest and fees earned on loans receivable increased $1.9 million, or 20.4%, for the three months ended March 31, 2018, compared to the same period in the prior year. This is attributable to an increase in average loan balances of $131,000, accompanied by a 17 basis point increase in the average yield to 4.82%.

Net interest earned on securities decreased by $161,000 for the three months ended March 31, 2018 when compared to the same period in the prior year. The average balance of investment securities decreased $17.7 million, or 15.9%, while the 3.61% yield on the investment portfolio decreased by 70 basis points, from 4.31%, for the same period in the prior year. The decrease in yield is mostly due to the decrease in corporate tax rates which decreased the tax equivalent adjustments used to calculate the yield on tax-exempt securities.

30

Interest expense. Interest expense increased $596,000, or 41.3%, for the three months ended March 31, 2018, compared to the same period in the prior year. The increase is attributable to increases in the average balances of savings deposits, certificates of deposits, and interest-bearing demand deposits of $36.2 million or 20.2%, $25.9 million or 11.5%, and $4.1 million or 5.0%, respectively. This increase was accompanied by increases in costs of 52, 37, and 25 basis points for the average balances of borrowings, money market deposits, and certificates of deposit, respectively.    

Provision for loan losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan and lease losses to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio. Each quarter management performs a review of estimated probable incurred credit losses in the loan portfolio. Based on this review, a provision for loan losses of $210,000 was recorded for the quarter ended March 31, 2018, an increase of $45,000, or 27.3% from the quarter ended March 31, 2017. Nonperforming loans were $17.8 million, or 1.9% of total loans at March 31, 2018 compared with $12.1 million, or 1.4% at March 31, 2017. For the three months ended March 31, 2018, net loan recoveries totaled $151,000, or 0.06% of average loans, compared to net charge-offs of $43,000, or 0.02%, for the first quarter of 2017.

Noninterest income. Noninterest income decreased $725,000 for the three months ended March 31, 2018 over the comparable 2017 period. This decrease was largely the result of decreases in net investment security gains on sale of $488,000 and gains on sales of loans of $230,000. The decrease in net investment securities gains on sale is due to the Company having liquidated its investment in Liberty stock during its acquisition in the first quarter of 2017. The decrease in gains of sales of loans is largely due to the Company ceasing the origination of student lending as of December 31, 2017.

Noninterest expense. Noninterest expense of $7.3 million for the first quarter 2018 was 1.1%, or $78,000 more than the first quarter of 2017. Salaries and employee benefits, and data processing costs increased $283,000 or 7.7%, and $157,000 or 49.1%, respectively. These increases were partially offset by a decrease in merger expenses of $387,000. The salary increase is mostly due to annual pay adjustments. Data processing costs are higher due to additional ongoing services provided.

Provision for income taxes. The Company recognized $528,000 in income tax expense, which reflected an effective tax rate of 16.9% for the three months ended March 31, 2018, as compared to $736,000 with an effective tax rate of 26.0% for the comparable 2017 period. The decrease in the provision is directly correlated to the decrease in corporate tax rates applied to the increase in net income before taxes. The decrease in the effective tax rate is also due to the decrease in corporate tax rates as compared to the prior year.

Reclassification. Certain comparative figures have been reclassified to conform to the current year presentation.

31

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 spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan and lease losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities (tax exempt for federal income tax purposes) 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 March 31,
	2018							2017
	Average				Average			Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable	$	930,325	$	11,054		4.82	%	$	799,870	$	9,180		4.65	%
Investment securities (3)		93,689		694		3.61	%		111,373		855		4.31	%
Interest-bearing deposits with other banks		42,199		192		1.85	%		49,084		164		1.36	%
Total interest-earning assets		1,066,213		11,940		4.57	%		960,327		10,199		4.45	%
Noninterest-earning assets		53,516							59,525
Total assets	$	1,119,729						$	1,019,852
Interest-bearing liabilities:
Interest-bearing demand deposits	$	86,302	$	59		0.28	%	$	82,187	$	50		0.25	%
Money market deposits		150,321		304		0.82	%		154,554		171		0.45	%
Savings deposits		215,556		251		0.47	%		179,342		123		0.28	%
Certificates of deposit		251,902		1,026		1.65	%		225,962		781		1.40	%
Borrowings		96,729		398		1.67	%		112,020		317		1.15	%
Total interest-bearing liabilities		800,810		2,038		1.03	%		754,065		1,442		0.78	%
Noninterest-bearing liabilities
Other liabilities		197,918							168,202
Stockholders' equity		121,001							97,585
Total liabilities and stockholders' equity	$	1,119,729						$	1,019,852
Net interest income			$	9,902						$	8,757
Interest rate spread (1)						3.54	%						3.67	%
Net interest margin (2)						3.82	%						3.84	%
Ratio of average interest-earning assets to average interest-bearing liabilities						133.14	%						127.35	%

(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) Tax-equivalent adjustments to calculate the yield on tax-exempt securities were $140 and $328 for the three months ended March 31, 2018 and 2017, respectively.

32

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 March 31, 2018 and 2017, in terms of: (1) changes in 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 change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances.

	2018 versus 2017
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	1,496		$	378		$	1,874
Investment securities		(188	)		27			(161	)
Interest-bearing deposits with other banks		(23	)		51			28
Total interest-earning assets		1,285			456			1,741
Interest-bearing liabilities:
Interest-bearing demand deposits		3			6			9
Money market deposits		(5	)		138			133
Savings deposits		25			103			128
Certificates of deposit		90			155			245
Borrowings		(43	)		124			81
Total interest-bearing liabilities		70			526			596
Net interest income	$	1,215		$	(70	)	$	1,145

33

LIQUIDITY

Management's objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of banking customers, such as borrowings or deposit withdrawals, as well as the Company’s own financial commitments. The principal sources of liquidity are net income, loan payments, maturing and principal reductions on securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. 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, and the ability to borrow funds under line of credit agreements with correspondent banks and a borrowing agreement with the Federal Home Loan Bank of Cincinnati and the adjustment of interest rates to obtain depositors. Management believes the Company has the capital adequacy, profitability and reputation to meet the current and projected needs of its customers.

For the three months ended March 31, 2018, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the provision for loan losses, net amortization of securities and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the Condensed Consolidated Statements of Cash Flows.

INFLATION

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

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 to 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. In order to avoid limitations on capital distributions, including dividend payments, Middlefield Bank and the Company must each hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer began on January 1, 2016 at 0.625% and increases ratably on each subsequent January 1 until it reaches 2.50% on January 1, 2019. Within the tabular presentation that follows is the adequately capitalized ratio plus capital conservation buffer that includes the fully phased-in 2.50% buffer.

34

Middlefield Bank and the Company met each of the well-capitalized ratio guidelines at March 31, 2018. The following table indicates the capital ratios for Middlefield Bank and Company at March 31, 2018 and December 31, 2017.

	As of March 31, 2018
				Tier 1 Risk			Common			Total Risk
	Leverage			Based			Equity Tier 1			Based
The Middlefield Banking Company		9.39	%		10.70	%		10.70	%		11.48	%
Middlefield Banc Corp.		10.15	%		11.55	%		10.71	%		12.34	%
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, 2017
				Tier 1 Risk			Common			Total Risk
	Leverage			Based			Equity Tier 1			Based
The Middlefield Banking Company		9.47	%		10.88	%		10.88	%		11.64	%
Middlefield Banc Corp.		10.20	%		11.64	%		10.79	%		12.41	%
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	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

ASSET AND LIABILITY MANAGEMENT

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the re-pricing or maturity of interest-earning assets and the re-pricing or maturity of interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in a strong asset/liability management process in order to insulate the Company from material and prolonged increases in interest rates.

The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors and senior management. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies.

Interest Rate Sensitivity Simulation Analysis

The Company engages an external consultant to facilitate income simulation modeling on a quarterly basis. This modeling measures interest rate risk and sensitivity. The Asset and Liability Management Committee of the Company believes the various rate scenarios of the simulation modeling enables the Company to more accurately evaluate and manage the exposure of interest rate fluctuations on net interest income, the yield curve, various loan and mortgage-backed security prepayments, and deposit decay assumptions.

Earnings simulation modeling and assumptions about the timing and volatility of cash flows are critical in net portfolio equity valuation analysis. Particularly important are the assumptions driving mortgage prepayments and expected attrition of the core deposit portfolios. These assumptions are based on the Company’s historical experience and industry standards and are applied consistently across all rate risk measures.

35

The Company has established the following guidelines for assessing interest rate risk:

Net interest income simulation (“NII”)- Projected net interest income over the next twelve months will not be reduced by more than 10% given a gradual shift (i.e., over 12-months) in interest rates of up to 200 basis points (+ or -) and assuming no balance sheet growth.

Portfolio equity simulation- Portfolio equity is the net present value of the Company’s existing assets and liabilities. The Company uses an Economic Value of Equity (“EVE”) analysis which shows the estimated changes in portfolio equity taking certain long-term shock rates into consideration. Given a 200 basis point immediate and permanent increase in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity. Given a 100 basis point immediate and permanent decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 10% of stockholders’ equity.

The following table presents the simulated impact of a 200 basis point upward or 100 basis point downward shift of market interest rates on net interest income, and the change in portfolio equity. This analysis was done assuming the interest-earning asset and interest-bearing liability levels at March 31, 2018 and December 31, 2017 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the March 31, 2018 and December 31, 2017 levels for net interest income and portfolio equity. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at March 31, 2018 and December 31, 2017 for portfolio equity:  

	March 31, 2018						December 31, 2017
Change in Rates	% Change in NII			% Change in EVE			% Change in NII			% Change in EVE
+200bp		(0.15	)%		12.00	%		(1.06	)%		13.50	%
-100bp		(2.15	)%		(18.00	)%		(2.29	)%		(21.30	)%

CRITICAL ACCOUNTING ESTIMATES

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2018, have remained unchanged from December 31, 2017.

Item 4. Controls and Procedures

Controls and Procedures Disclosure

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.

36

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1a. There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

              None

Item 3. Defaults by the Company on its Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other information

None

Item 6. Exhibits

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended March 31, 2018

Exhibit Number	Description	Location
3.1	Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended	Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006
3.2	Regulations of Middlefield Banc Corp.	Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
4	Specimen stock certificate	Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001

37

4.1	Amended and Restated Trust Agreement, dated as of December 21, 2006, between Middlefield Banc Corp., as Depositor, Wilmington Trust Company, as Property trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees	Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.2	Junior Subordinated Indenture, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.3	Guarantee Agreement, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
10.1.0*	2017 Omnibus Equity Plan	Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2017 Annual Meeting of Shareholders, Appendix A, filed on April 4, 2017
10.1.1*	2007 Omnibus Equity Plan	Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2008 Annual Meeting of Shareholders, Appendix A, filed on April 7, 2008
10.2*	Severance Agreement between Middlefield Banc Corp. and Thomas G. Caldwell, dated January 7, 2008	Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.3*	Severance Agreement between Middlefield Banc Corp. and James R. Heslop, II, dated January 7, 2008	Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4	Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000	Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.4.1*	Severance Agreement between Middlefield Banc Corp. and Teresa M. Hetrick, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.2	[reserved]
10.4.3*	Severance Agreement between Middlefield Banc Corp. and Donald L. Stacy, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

38

10.4.4*	Severance Agreement between Middlefield Banc Corp. and Alfred F. Thompson Jr., dated January 7, 2008	Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.5	[reserved]
10.6*	Amended Director Retirement Agreement with Richard T. Coyne	Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.7*	Amended Director Retirement Agreement with Frances H. Frank	Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.8*	[reserved]
10.9*	[reserved]
10.10*	Director Retirement Agreement with Donald D. Hunter	Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.11*	Director Retirement Agreement with Martin S. Paul	Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.12*	[reserved]
10.13*	[reserved]
10.14*	Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy	Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.15*	DBO Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.16*	DBO Agreement with Alfred F. Thompson Jr.	Incorporated by reference to Exhibit 10.16 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

39

10.17*	DBO Agreement with Teresa M. Hetrick	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.18 *	Executive Deferred Compensation Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.19	[reserved]
10.20*	DBO Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.21*	DBO Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.22*	Annual Incentive Plan	Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on June 12, 2012
10.22.1*	Annual Incentive Plan 2017 Award Summary	Incorporated by reference to Middlefield Banc Corp.’s Form 8-K current Report filed on March 14, 2017
10.23*	Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.24*	Amended Executive Deferred Compensation Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.25*	Amended Executive Deferred Compensation Agreement with Donald L. Stacy	Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.26*	[reserved]
10.27	[reserved]
10.28	[reserved]

40

10.29*	Form of conditional stock award under the 2007 Omnibus Equity Plan	Incorporated by reference to Exhibit 10.29 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 4, 2016
10.29.1	Form of conditional stock award under the 2017 Omnibus Equity Plan	Incorporated by reference to Exhibit 10.29 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 24, 2017
31.1	Rule 13a-14(a) certification of Chief Executive Officer	filed herewith
31.2	Rule 13a-14(a) certification of Chief Financial Officer	filed herewith
32	Rule 13a-14(b) certification	filed herewith
99.1	Form of Indemnification Agreement with directors of Middlefield Banc Corp. and with executive officers of Middlefield Banc Corp. and The Middlefield Banking Company	Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001
101.INS**	XBRL Instance	furnished herewith
101.SCH**	XBRL Taxonomy Extension Schema	furnished herewith
101.CAL**	XBRL Taxonomy Extension Calculation	furnished herewith
101.DEF**	XBRL Taxonomy Extension Definition	furnished herewith
101.LAB**	XBRL Taxonomy Extension Labels	furnished herewith
101.PRE**	XBRL Taxonomy Extension Presentation	furnished herewith

* management contract or compensatory plan or arrangement

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

41

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized.

		MIDDLEFIELD BANC CORP.
Date: May 9, 2018	By:	/s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer
Date: May 9, 2018	By:	/s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

42

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Thomas G. Caldwell, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2018	/s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Donald L. Stacy, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2018	/s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Middlefield Banc Corp. (the “Company”) on Form 10-Q for the period ending March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Thomas G. Caldwell, President, and Donald L. Stacy, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/Thomas G. Caldwell	By: /s/Donald L. Stacy
Thomas G. Caldwell	Donald L. Stacy
President and Chief Executive Officer	Principal Financial and Accounting Officer

May 9, 2018

A signed original of this written statement required by Section 906 has been provided to Middlefield Banc Corp. and will be retained by Middlefield Banc Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 09, 2018
Document Information [Line Items]
Entity Registrant Name	Middlefield Banc Corp.
Entity Central Index Key	0000836147
Trading Symbol	mbcn
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		3,224,499
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheet (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
ASSETS
Cash and cash equivalents	$ 33,258	$ 39,886
Equity securities, at fair value	643
Investment securities available for sale, at fair value	91,262	95,283
Loans held for sale	937	463
Loans	932,374	923,213
Less allowance for loan and lease losses	7,551	7,190
Net loans	924,823	916,023
Premises and equipment, net	12,225	11,853
Goodwill	15,071	15,071
Core deposit intangibles	2,658	2,749
Bank-owned life insurance	15,764	15,652
Other real estate owned	212	212
Accrued interest receivable and other assets	9,911	9,144
TOTAL ASSETS	1,106,764	1,106,336
LIABILITIES
Noninterest-bearing demand	194,203	192,438
Interest-bearing demand	96,659	83,990
Money market	149,359	150,277
Savings	221,851	208,502
Time	282,501	242,987
Total deposits	944,573	878,194
Short-term borrowings	18,671	74,707
Other borrowings	19,028	29,065
Accrued interest payable and other liabilities	4,340	4,507
TOTAL LIABILITIES	986,612	986,473
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 3,609,149 and 3,603,881 shares issued; 3,222,984 and 3,217,716 shares outstanding	85,116	84,859
Retained earnings	48,927	47,431
Accumulated other comprehensive (loss) income	(373)	1,091
Treasury stock, at cost; 386,165 shares	(13,518)	(13,518)
TOTAL STOCKHOLDERS' EQUITY	120,152	119,863
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,106,764	$ 1,106,336

XML

Consolidated Balance Sheet (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Mar. 31, 2018	Dec. 31, 2017
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	3,609,149	3,603,881
Common stock, shares outstanding (in shares)	3,222,984	3,217,716
Treasury stock, shares (in shares)	386,165	386,165

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Consolidated Statement of Income (Unaudited) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
INTEREST AND DIVIDEND INCOME
Interest and fees on loans		$ 11,054	$ 9,180
Interest-bearing deposits in other institutions		119	49
Federal funds sold		14	3
Investment securities:
Taxable interest		169	218
Tax-exempt interest		525	637
Dividends on stock		59	112
Total interest and dividend income		11,940	10,199
INTEREST EXPENSE
Deposits		1,640	1,125
Short-term borrowings		276	177
Other borrowings		122	140
Total interest expense		2,038	1,442
NET INTEREST INCOME		9,902	8,757
Provision for loan losses		210	165
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		9,692	8,592
NONINTEREST INCOME
Investment securities gains on sale, net	[1]		488
Gain on equity securities	[1]	18
Earnings on bank-owned life insurance	[1]	112	109
Gain on sale of loans	[1]	4	234
Total noninterest income		786	1,511
NONINTEREST EXPENSE
Salaries and employee benefits		3,979	3,696
Occupancy expense		536	488
Equipment expense		233	281
Data processing costs		477	320
Ohio state franchise tax		115	186
Federal deposit insurance expense		150	68
Professional fees		445	373
Advertising expense		228	248
Core deposit intangible amortization		91	72
Merger expense			387
Other expense		1,091	1,148
Total noninterest expense		7,345	7,267
Income before income taxes		3,133	2,836
Income taxes		528	736
NET INCOME		$ 2,605	$ 2,100
EARNINGS PER SHARE
Basic (in dollars per share)		$ 0.81	$ 0.78
Diluted (in dollars per share)		0.80	0.78
DIVIDENDS DECLARED PER SHARE (in dollars per share)		$ 0.33	$ 0.27
Deposit Account [Member]
NONINTEREST INCOME
Noninterest income revenue		$ 453	$ 469
Financial Service, Other [Member]
NONINTEREST INCOME
Noninterest income revenue		$ 199	$ 211

[1] Not within scope of ASC 606.

XML

Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Net income	$ 2,605	$ 2,100
Other comprehensive loss:
Net unrealized holding (loss) gain on available-for-sale investment securities	(1,912)	231
Tax effect	402	(78)
Reclassification adjustment for investment securities gains included in net income		(488)
Tax effect		166
Total other comprehensive income (loss)	(1,510)	(169)
Comprehensive income	$ 1,095	$ 1,931

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
Net income					$ 2,100
Other comprehensive loss					$ (169)
Balance (in shares) at Dec. 31, 2017	84,859				3,217,716
Balance at Dec. 31, 2017		$ 47,431	$ 1,091	$ (13,518)	$ 119,863
Change in accounting principle, ASC 2016-01		141	(141)
Change in accounting principle, ASC 2018-02		(187)	187
Net income		2,605			2,605
Other comprehensive loss			(1,510)		(1,510)
Dividend reinvestment and purchase plan, shares (in shares)	161	3,278
Dividend reinvestment and purchase plan (3,278 shares)					161
Stock-based compensation expense (1,990 shares) (in shares)	96	1,990
Stock-based compensation expense (1,990 shares)					96
Cash dividends ($0.33 per share)		(1,063)			$ (1,063)
Balance (in shares) at Mar. 31, 2018	85,116				3,222,984
Balance at Mar. 31, 2018		$ 48,927	$ (373)	$ (13,518)	$ 120,152

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Parentheticals)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Retained Earnings [Member]
Dividend reinvestment and purchase plan, shares (in shares) | shares	3,278
Stock-based compensation expense, shares (in shares) | shares	1,990
Cash dividends, per share (in dollars per share) | $ / shares	$ 0.33
Cash dividends, per share (in dollars per share) | $ / shares	$ 0.33

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Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
OPERATING ACTIVITIES
Net income		$ 2,605	$ 2,100
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		210	165
Investment securities gains on sale, net	[1]		(488)
Gain on equity securities	[1]	(18)
Depreciation and amortization of premises and equipment, net		231	308
Amortization of premium and discount on investment securities, net		104	124
Accretion of deferred loan fees, net		(341)	(185)
Amortization of core deposit intangibles		91	72
Stock-based compensation expense		96
Origination of loans held for sale		(1,783)	(2,321)
Proceeds from sale of loans		1,313	1,921
Gain on sale of loans		(4)	(100)
Origination of student loans held for sale			(95,679)
Proceeds from sale of student loans			93,438
Gain on sale of student loans			(134)
Earnings on bank-owned life insurance	[1]	(112)	(109)
Deferred income tax		131	(1,116)
Net gain loss on other real estate owned			(56)
Decrease (increase) in accrued interest receivable		19	(199)
Decrease in accrued interest payable		(5)	(14)
Other, net		(587)	547
Net cash provided by (used in) operating activities		1,950	(1,726)
INVESTING ACTIVITIES
Proceeds from repayments and maturities		1,380	3,544
Increase in loans, net		(8,669)	(34,533)
Proceeds from the sale of other real estate owned			333
Purchase of bank-owned life insurance			(4)
Purchase of premises and equipment		(603)	(179)
Purchase of restricted stock		(90)	(899)
Redemption of restricted stock			795
Acquisition, net of cash paid			5,431
Net cash used in investing activities		(7,982)	(25,512)
FINANCING ACTIVITIES
Net increase in deposits		66,379	19,873
(Decrease) increase in short-term borrowings, net		(56,036)	7,854
Repayment of other borrowings		(10,037)	(49)
Proceeds from other borrowings			30,000
Proceeds from common stock issued			53
Proceeds from dividend reinvestment and purchase plan		161	132
Cash dividends		(1,063)	(756)
Net cash (used in) provided by financing activities		(596)	57,107
(Decrease) increase in cash and cash equivalents		(6,628)	29,869
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		39,886	32,495
CASH AND CASH EQUIVALENTS AT END OF PERIOD		33,258	62,364
Cash paid during the year for:
Interest on deposits and borrowings		2,043	1,456
Noncash investing transactions:
Transfers from loans to other real estate owned			977
Common stock issued in business acquisition			20,995
Transfer of equity securities from investment securities available for sale, at fair value		(625)
Liabilities assumed
Cash and cash equivalents acquired, net			5,431
Merger of Liberty Bank, N.A. into The Middlefield Banking Company [Member]
INVESTING ACTIVITIES
Acquisition, net of cash paid			5,431
Noncash assets acquired
Loans			195,388
Loans held for sale			5,953
Premises and equipment, net			325
Accrued interest receivable			440
Bank-owned life insurance			1,681
Core deposit intangible			3,087
Other assets			997
Goodwill			10,740
Total noncash assets acquired			218,611
Liabilities assumed
Time deposits			(30,744)
Deposits other than time deposits			(167,300)
Accrued interest payable			(47)
Deferred taxes			(1,134)
Other liabilities			(2,754)
Total liabilities assumed			(201,979)
Liberty stock acquired in business combination			(1,068)
Net noncash assets acquired			15,564
Cash and cash equivalents acquired, net			$ 5,431

[1] Not within scope of ASC 606.

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Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE

1

- BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Middlefield Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form

10

-Q and Article

10

of Regulation S-

X.

In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at

December 31, 2017,

has been derived from the audited financial statements at that date but does

not

include all of the necessary informational disclosures and footnotes as required by U.S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form

10

-K for the year ended

December 31, 2017.

The results of the Company’s operations for any interim period are

not

necessarily indicative for the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements –

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as

one

in which (a) the lease term is

12

months or less and (b) there is

not

an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees

may

elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2018,

and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2019,

and for interim periods within fiscal years beginning after

December 15, 2020.

The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it

may

elect at adoption, but does

not

anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a

1

percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

(

“

CECL

”

)

, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU

2016

-

13

is effective for annual and interim periods beginning after

December 15, 2019,

and early adoption is permitted for annual and interim periods beginning after

December 15, 2018.

With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the

first

reporting period in which the guidance is adopted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements. Management will oversee the implementation of CECL and is currently in the process of implementing a software solution to assist in the adoption of this ASU. Management plans to run the current incurred loss model and the CECL model concurrently for

12

months prior to the adoption of this guidance on

January 1, 2020.

In

February 2018,

the FASB issued ASU

2018

-

03,

Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic

825

-

10

), to clarify certain aspects of the guidance issued in ASU

2016

-

01.

(

1

) An entity measuring an equity security using the measurement alternative

may

change its measurement approach to a fair value method in accordance with Topic

820,

Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic

820.

(

2

) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (

3

) Re-measuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (

4

) When the fair value option is elected for a financial liability, the guidance in paragraph

825

-

10

-

45

-

5

should be applied, regardless of whether the fair value option was elected under either Subtopic

815

-

15,

Derivatives and Hedging—Embedded Derivatives, or

825

-

10,

Financial Instruments—Overall. (

5

) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should

first

be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be re-measured into the functional currency of the reporting entity using end-of-period spot rates. (

6

) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update

2016

-

01

is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic

944,

Financial Services— Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years beginning after

June 15, 2018.

Public business entities with fiscal years beginning between

December 15, 2017,

and

June 15, 2018,

are

not

required to adopt these amendments until the interim period beginning after

June 15, 2018,

and public business entities with fiscal years beginning between

June 15, 2018,

and

December 15, 2018,

are

not

required to adopt these amendments before adopting the amendments in Update

2016

-

01.

For all other entities, the effective date is the same as the effective date in Update

2016

-

01.

All entities

may

early adopt these amendments for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, as long as they have adopted Update

2016

-

01.

The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU

2018

-

04,

Investments – Debt Securities (Topic

320

) and Regulated Operations (Topic

980

) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

117

and SEC Release

No.

33

-

9273,

ASU

2018

-

04

supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin

No.

117.

XML

Note 2 - Revenue Recognition

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE

2

–

REVENUE RECOGNITION

Effective

January 1, 2017,

the Company adopted ASU

2014

-

09

Revenue from Contracts with Customers-Topic

606

and all subsequent ASUs that modified ASC

606.

The implementation of the new standard had

no

material impact to the measurement or recognition of revenue of prior periods and did

not

require any cumulative effect adjustment for adoption.

Management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from investment security gains, gains on the sale of loans, and BOLI income, are

not

within the scope of ASC

606.

As a result,

no

changes were made during the period related to these sources of revenue, which cumulatively comprise

93.4%

of the total revenue of the Company.

The main types of noninterest income within the scope of the standard are as follows:

Servic

e charges on deposit accounts

– The Company has contracts with its deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, which is completion of the requested service/transaction.

Gains (losses) on sale of other real estate owned

– Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer is reasonable. In situations where financing terms are

not

reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the

three

months ended

March 31:

Noninterest Income	2018		2017
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	193	$	192
ATM banking fees		201		114
Service charges and other fees		59		163
Investment securities gains on sale, net (a)		-		488
Equity securities, unrealized gains (a)		18		-
Earnings on bank-owned life insurance (a)		112		109
Gain on sale of loans (a)		4		234
Other income		199		211
Total noninterest income	$	786	$	1,511

(a) Not within scope of ASC 606.

XML

Note 3 - Stock-based Compensation

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

NOTE

3

- STOCK-BASED COMPENSATION

The Company had

no

unvested stock options outstanding as of

March 31, 2018

and

2017.

Stock option activity during the

three

months ended

March 31

is as follows:

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2018		19,750		$	20.94
Exercised		(1,500	)		23.00
Outstanding, March 31, 2018		18,250		$	20.78
Exercisable, March 31, 2018		18,250		$	20.78

The following table presents the activity during the

three

months ended

March 31, 2018

related to awards of restricted stock:

			Weighted-
			average
			Grant Date Fair
	Shares		Value Per Share
Nonvested at January 1, 2018		14,601	$	35.14
Granted		-		-
Forfeited		-		-
Nonvested at March 31, 2018		14,601	$	35.14
Expected to vest at March 31, 2018		14,601	$	35.14

Share-based compensation expense of

$55,000

and

$48,000

was recognized for the

three

-month periods ended

March 31, 2018

and

2017,

respectively.

The expected remaining compensation expense that will be recognized on restricted stock totals

$199,000,

of which

$127,000

will be recognized in

2018

and

$72,000

will be recognized in

2019.

XML

Note 4 - Earnings Per Share

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

4

- EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	For the Three
	Months Ended
	March 31,
	2018			2017
Weighted-average common shares outstanding		3,606,427			3,065,981
Average treasury stock shares		(386,165	)		(386,165	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		3,220,262			2,679,816
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		17,807			12,199
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		3,238,069			2,692,015

Options to purchase

18,250

shares of common stock, at prices ranging from

$17.55

to

$23.00,

were outstanding during the

three

months ended

March 31, 2018.

Also outstanding were

14,601

shares of restricted stock.

None

of the outstanding options or restricted stock were anti-dilutive.

Options to purchase

27,762

shares of common stock, at prices ranging from

$17.55

to

$37.48,

were outstanding during the

three

months ended

March 31, 2017.

Also outstanding were

15,800

shares of restricted stock.

None

of the outstanding options or restricted stock were anti-dilutive.

XML

Note 5 - Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

5

- FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two -way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,305	$	-	$	8,305
Obligations of states and political subdivisions		-		65,579		-		65,579
Mortgage-backed securities in government-sponsored entities		-		17,378		-		17,378
Total debt securities		-		91,262		-		91,262
Equity securities in financial institutions		393		250		-		643
Total	$	393	$	91,512	$	-	$	91,905

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,719	$	-	$	8,719
Obligations of states and political subdivisions		-		67,429		-		67,429
Mortgage-backed securities in government-sponsored entities		-		18,510		-		18,510
Total debt securities		-		94,658		-		94,658
Equity securities in financial institutions		-		625		-		625
Total	$	-	$	95,283	$	-	$	95,283

I

nvestment

Securities Available for S

ale

- The Company obtains fair values from an independent pricing service which represent quoted prices for similar assets, fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Equity Securities

- Equity securities that are traded on a national securities exchange are valued at their last reported sales price as of the measurement date. Equity securities traded in the over-the-counter (“OTC”) markets and listed securities for which

no

sale was reported on that date are generally valued at their last reported “bid” price if held long, and last reported “ask” price if sold short. To the extent equity securities are actively traded and valuation adjustments are

not

applied, they are categorized in Level I of the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level II of the fair value hierarchy. Equity securities are carried at fair value through net income at

March 31, 2018.

Impaired Loans

– The Company has measured impairment on collateral-dependent impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent

third

-party appraisals of the properties. In some cases, management

may

adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral-dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the following table as a Level III measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is

not

included in the following table as it is

not

currently being carried at its fair value. The fair values in the following table exclude estimated selling costs of

$573,000

at

March 31, 2018.

Other Real Estate Owned (OREO)

– OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan,

no

charge-off or adjustment is necessary, the loan is

not

considered to be carried at fair value, and is therefore

not

included in the following table. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the following table as a Level II measurement. In some cases, management

may

adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the following table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Collateral-dependent impaired loans are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken to the property’s value subsequent to the initial measurement.

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	1,734	$	1,734

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	3,072	$	3,072
Other real estate owned		-		-		32		32

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2018
Impaired loans	$	1,734	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	100.0%	(40.58%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	3,072	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	86.1%	(13.8%)
Other real estate owned	$	32	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%

( 1 ) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable, less any associated allowance.

( 2 ) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The estimated fair value of the Company’s financial instruments

not

recorded at fair value on a recurring basis is as follows:

	March 31, 2018
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents (1)	$	33,258	$	33,258	$	-	$	-	$	33,258
Loans held for sale		937		-		937		-		937
Net loans		924,823		-		-		916,073		916,073
Bank-owned life insurance (1)		15,764		15,764		-		-		15,764
Federal Home Loan Bank stock (1)		3,679		3,679		-		-		3,679
Accrued interest receivable (1)		3,269		3,269		-		-		3,269
Financial liabilities:
Deposits	$	944,573	$	662,072	$	-	$	279,850	$	941,922
Short-term borrowings (1)		18,671		18,671		-		-		18,671
Other borrowings		19,028		-		-		19,030		19,030
Accrued interest payable (1)		573		573		-		-		573

(

1

)

This financial instrument is carried at cost at

March 31, 2018,

which approximates the fair value of the instrument.

	December 31, 2017
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	39,886	$	39,886	$	-	$	-	$	39,886
Loans held for sale		463		-		463		-		463
Net loans		916,023		-		-		913,323		913,323
Bank-owned life insurance		15,652		15,652		-		-		15,652
Federal Home Loan Bank stock		3,589		3,589		-		-		3,589
Accrued interest receivable		3,288		3,288		-		-		3,288
Financial liabilities:
Deposits	$	878,194	$	635,207	$	-	$	242,020	$	877,227
Short-term borrowings		74,707		74,707		-		-		74,707
Other borrowings		29,065		-		-		29,069		29,069
Accrued interest payable		578		578		-		-		578

XML

Note 6 - Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

NOTE

6

– ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income by component net of tax for the

three

months ended

March 31, 2018

and

2017,

respectively:

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2017	$	1,091
Other comprehensive (loss) before reclassification		(1,510	)
Change in accounting principle, ASC 2016-01 (b)		(141	)
Change in accounting principle, ASC 2018-02 (b)		187
Period change		(1,464	)
Balance at March 31, 2018	$	(373	)

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2016	$	1,201
Other comprehensive income before reclassification		153
Amount reclassified from accumulated other comprehensive income		(322	)
Period change		(169	)
Balance at March 31, 2017	$	1,032

(a) All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.

(b) Reclassifications are the result of the adoption of ASUs 2016 - 01 and 2018 - 02 effective for the Company beginning January 1, 2018. The reclassifications are presented within the Consolidated Statement of Changes in Stockholders’ Equity for the affected transitional periods.

The following tables present significant amounts reclassified from or to each component of accumulated other comprehensive income:

	Amounts Reclassified from Accumulated Other Comprehensive					Affected Line Item in
	Income					the Statement Where
(Dollars in thousands)	For the Three Months Ended					Net Income is
Details about other comprehensive income	March 31, 2018		March 31, 2017			Presented
Unrealized gains on available-for-sale securities (a)	$	-	$	488		Investment securities gains on sale, net
		-		(166	)	Income taxes
	$	-	$	322

(a) For unrealized gains on available-for-sale securities, amounts in parentheses indicate expenses and other amounts indicate income.

XML

Note 7 - Investment and Equity Securities

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE

7

–

INVESTMENT

AND EQUITY

SECURITIES

The amortized cost and fair values of investment securities are as follows:

	March 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,342	$	70	$	(107	)	$	8,305
Obligations of states and political subdivisions:
Taxable		504		14		-			518
Tax-exempt		64,986		829		(754	)		65,061
Mortgage-backed securities in government-sponsored entities		17,900		66		(588	)		17,378
Total	$	91,732	$	979	$	(1,449	)	$	91,262

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,664	$	126	$	(71	)	$	8,719
Obligations of states and political subdivisions:
Taxable		504		8		-			512
Tax-exempt		65,408		1,547		(38	)		66,917
Mortgage-backed securities in government-sponsored entities		18,640		157		(287	)		18,510
Total debt securities		93,216		1,838		(396	)		94,658
Equity securities in financial institutions		415		210		-			625
Total	$	93,631	$	2,048	$	(396	)	$	95,283

The following table presents the carrying amount of the Company’s equity investments without readily determinable fair values the annual and cumulative amount of impairment, and the annual and cumulative amount of observable price changes for orderly transactions for the identical or a similar investment of the same issuer:

	2018
	Year-to-Date		Life-to-Date
Amortized cost	$	232	$	232
Impairment		-		-
Observable price changes		18		18
Carrying value	$	250	$	250

The following table presents the net gains and losses on the Company’s equity investments recognized in earnings during the

three

months ended

March 31, 2018,

and the portion of unrealized gains and losses for the period that relates to equity investments held at

March 31, 2018.

	2018
(Dollar amounts in thousands)
Net gains recognized in equity securities during the period	$	18
Less: Net gains realized on the sale of equity securities during the period		-
Unrealized gains recognized in equity securities held at reporting date	$	18

The amortized cost and fair value of debt securities at

March 31, 2018,

by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	4,252	$	4,303
Due after one year through five years		7,607		7,713
Due after five years through ten years		12,489		12,420
Due after ten years		67,384		66,826
Total	$	91,732	$	91,262

Proceeds from the sales of investment securities and the gross realized gains and losses are as follows:

	For the Three Months
(Dollar amounts in thousands)	Ended March 31,
	2018		2017
Proceeds from sales	$	-	$	-
Gross realized gains		-		488	(1)
Gross realized losses		-		-

(

1

)

Prior to the acquisition of Liberty Bank, N.A., the Company had a previously held equity interest in Liberty which was re-measured at fair value on the acquisition date and resulted in a gain of

$488,000,

which was recorded in Equity Securities, Unrealized Gains on the consolidated Income Statement for the

three

months ended

March 31, 2017.

Investment securities with an approximate carrying value of

$61.7

million and

$57.9

million at

March 31, 2018

and

December 31, 2017,

respectively, were pledged to secure deposits and other purposes as required by law.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	March 31, 2018
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	548	$	(12	)	$	3,899	$	(95	)	$	4,447	$	(107	)
Obligations of states and political subdivisions:
Tax-exempt		25,087		(660	)		2,721		(94	)		27,808		(754	)
Mortgage-backed securities in government-sponsored entities		5,941		(203	)		8,136		(385	)		14,077		(588	)
Total	$	31,576	$	(875	)	$	14,756	$	(574	)	$	46,332	$	(1,449	)

	December 31, 2017
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	557	$	(4	)	$	4,036	$	(67	)	$	4,593	$	(71	)
Obligations of states and political subdivisions:
Tax-exempt		1,009		(6	)		2,784		(32	)		3,793		(38	)
Mortgage-backed securities in government-sponsored entities		5,698		(71	)		8,734		(216	)		14,432		(287	)
Total	$	7,264	$	(81	)	$	15,554	$	(315	)	$	22,818	$	(396	)

There were

82

securities considered temporarily impaired at

March 31, 2018.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than

not

that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does

not

expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does

not

intend to sell the underlying debt security and it is “more likely than

not”

that the Company will

not

have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for

100%

of the total available-for-sale portfolio as of

March 31, 2018

and

no

credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near-term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and, 

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the

three

months ended

March 31, 2018

and

2017,

there were

no

available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does

not

believe any individual unrealized loss as of

March 31, 2018

or

December 31, 2017

represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will

not

prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

XML

Note 8 - Loans and Related Allowance for Loan and Lease Losses

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE

8

-

LOANS AND RELATED

ALLOWANCE FOR LOAN AND LEASE LOSSES

Major classifications of loans are summarized as follows (in thousands):

	March 31,			December 31,
	2018			2017
Commercial and industrial	$	99,809		$	101,346
Real estate - construction		48,687			47,017
Real estate - mortgage:
Residential		316,856			318,157
Commercial		448,766			437,947
Consumer installment		18,256			18,746
		932,374			923,213
Less: Allowance for loan and lease losses		(7,551	)		(7,190	)
Net loans	$	924,823		$	916,023

The amounts above include deferred loan origination costs of

$1.5

million at both

March 31, 2018

and

December 31, 2017.

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin, Sunbury and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized on the accrual method. The 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 interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are deferred with the net amount amortized over the contractual life of the loan as an adjustment of the related loan’s yield.

The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	8,884	$	-	$	2,716	$	6,617	$	3	$	18,220
Collectively evaluated for impairment		90,925		48,687		314,140		442,149		18,253		914,154
Total loans	$	99,809	$	48,687	$	316,856	$	448,766	$	18,256	$	932,374

					Real estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	3,627	$	44	$	2,824	$	5,610	$	4	$	12,109
Collectively evaluated for impairment		97,719		46,973		315,333		432,337		18,742		911,104
Total loans	$	101,346	$	47,017	$	318,157	$	437,947	$	18,746	$	923,213

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	997	$	-	$	124	$	756	$	-	$	1,877
Collectively evaluated for impairment		259		92		1,658		3,567		98		5,674
Total ending allowance balance	$	1,256	$	92	$	1,782	$	4,323	$	98	$	7,551

					Real Estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	694	$	-	$	140	$	733	$	-	$	1,567
Collectively evaluated for impairment		305		313		1,620		3,303		82		5,623
Total ending allowance balance	$	999	$	313	$	1,760	$	4,036	$	82	$	7,190

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate (“CRE”), and Consumer Installment Loans. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. The increases in the allowance for loan loss for C&I, Residential, CRE, and Consumer Installment loan portfolios were partially offset by a decrease in the allowance for the Real Estate Construction portfolio.

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does

not

separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or the loan was modified in a troubled debt restructuring.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using

one

of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does

not

differ from its overall policy for interest recognition.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was

not

necessary (in thousands):

March 31, 2018
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	976	$	1,173	$	-
Real estate - mortgage:
Residential		1,597		1,822		-
Commercial		1,629		1,767		-
Total	$	4,202	$	4,762	$	-
With an allowance recorded:
Commercial and industrial	$	7,908	$	8,611	$	997
Real estate - mortgage:
Residential		1,119		1,165		124
Commercial		4,988		5,169		756
Consumer installment		3		3		-
Total	$	14,018	$	14,948	$	1,877
Total:
Commercial and industrial	$	8,884	$	9,784	$	997
Real estate - mortgage:
Residential		2,716		2,987		124
Commercial		6,617		6,936		756
Consumer installment		3		3		-
Total	$	18,220	$	19,710	$	1,877

December 31, 2017
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	450	$	1,006	$	-
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		1,685		1,904		-
Commercial		1,870		1,984		-
Consumer installment		4		4		-
Total	$	4,053	$	4,942	$	-
With an allowance recorded:
Commercial and industrial	$	3,177	$	3,888	$	694
Real estate - mortgage:
Residential		1,139		1,179		140
Commercial		3,740		3,913		733
Total	$	8,056	$	8,980	$	1,567
Total:
Commercial and industrial	$	3,627	$	4,894	$	694
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		2,824		3,083		140
Commercial		5,610		5,897		733
Consumer installment		4		4		-
Total	$	12,109	$	13,922	$	1,567

The tables above include troubled debt restructuring totaling

$9.1

million at

March 31, 2018

and

$5.4

million as of

December 31, 2017.

The following tables present the average balance and interest income by class, recognized on impaired loans (in thousands):

	For the Three Months Ended March 31, 2018				For the Three Months Ended March 31, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial and industrial	$	5,631	$	187	$	1,372	$	84
Real estate - construction		283		-		810		-
Real estate - mortgage:
Residential		2,892		21		3,092		22
Commercial		6,719		136		7,077		88
Consumer installment		4		-		5		-
Total	$	15,529	$	344	$	12,356	$	194

Management uses a

nine

-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The

first

five

categories are considered

not

criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but

not

to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are

not

corrected.  All loans greater than

90

days past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.  

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis with the Chief Credit Officer ultimately responsible for accurate and timely risk ratings.  The Credit Department performs an annual review of all commercial relationships with loan balances of

$1,000,000

or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than

$250,000

and/or criticized relationships greater than

$125,000.

  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

	March 31, 2018
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	87,415	$	8,955	$	3,439	$	-	$	99,809
Real estate - construction		48,687		-		-		-		48,687
Real estate - mortgage:
Residential		310,965		715		5,176		-		316,856
Commercial		434,991		8,206		5,569		-		448,766
Consumer installment		18,082		-		174		-		18,256
Total	$	900,140	$	17,876	$	14,358	$	-	$	932,374

	December 31, 2017
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	95,621	$	1,942	$	3,783	$	-	$	101,346
Real estate - construction		46,995		-		22		-		47,017
Real estate - mortgage:
Residential		312,176		723		5,258		-		318,157
Commercial		424,225		9,164		4,558		-		437,947
Consumer installment		18,742		-		4		-		18,746
Total	$	897,759	$	11,829	$	13,625	$	-	$	923,213

The increase in the amount classified as special mention for commercial and industrial loans for the

three

-month period ended

March 31, 2018

is due to a large relationship of

$5.8

million being reclassified as a troubled debt restructuring (TDR).

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets include nonaccrual loans, TDRs, loans

90

days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about 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 balance.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans (in thousands):

	March 31, 2018
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,201	$	175	$	366	$	67	$	608	$	99,809
Real estate - construction		48,647		40		-		-		40		48,687
Real estate - mortgage:
Residential		313,459		1,943		538		916		3,397		316,856
Commercial		445,861		1,652		260		993		2,905		448,766
Consumer installment		18,243		11		2		-		13		18,256
Total	$	925,411	$	3,821	$	1,166	$	1,976	$	6,963	$	932,374

	December 31, 2017
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,633	$	1,607	$	29	$	77	$	1,713	$	101,346
Real estate - construction		47,017		-		-		-		-		47,017
Real estate - mortgage:
Residential		314,866		1,977		227		1,087		3,291		318,157
Commercial		434,879		1,907		1		1,160		3,068		437,947
Consumer installment		18,736		10		-		-		10		18,746
Total	$	915,131	$	5,501	$	257	$	2,324	$	8,082	$	923,213

The following tables present the classes of the loan portfolio summarized by nonaccrual loans (in thousands):

	March 31, 2018
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,351	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		3,934		-
Commercial		3,462		-
Consumer installment		-		-
Total	$	8,747	$	-

	December 31, 2017
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,120	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		4,002		-
Commercial		3,311		-
Consumer installment		-		-
Total	$	8,433	$	-

Interest income that would have been recorded had these loans

not

been placed on nonaccrual status was

$369,000

for the

three

months ended

March 31, 2018

and

$437,000

for the year ended

December 31, 2017.

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section

310

-

10

-

35

for loans individually evaluated for impairment (discussed above) and ASC Subtopic

450

-

20

for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the

two

components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which

may

result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level. The historical charge-off factor was calculated using the last

twelve

consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following tables summarize the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage		Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2017	$	999		$	313		$	1,760	$	4,036	$	82		$	7,190
Charge-offs		(9	)		-			-		-		(4	)		(13	)
Recoveries		109			17			20		-		18			164
Provision		157			(238	)		2		287		2			210
ALLL balance at March 31, 2018	$	1,256		$	92		$	1,782	$	4,323	$	98		$	7,551

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2016	$	448		$	172		$	2,818		$	3,135		$	25		$	6,598
Charge-offs		(20	)		-			(68	)		(19	)		(101	)		(208	)
Recoveries		78			17			7			-			63			165
Provision		110			(3	)		(234	)		262			30			165
ALLL balance at March 31, 2017	$	616		$	186		$	2,523		$	3,378		$	17		$	6,720

The negative provision allocated to real estate construction loans in the amount of

$238,000

for the

three

-month period ended

March 31, 2018

is due to the historical loss rate for the real estate construction pool changing to -

0.127%

from

0.775%

for this time period in the prior year.     

The negative provision allocated to residential real estate loans in the amount of

$234,000

for the

three

-month period ended

March 31, 2017

is due to the payoff of a large residential credit during that period.

The following tables summarize troubled debt restructurings (in thousands):

	For the Three Months Ended
	March 31, 2018
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		2		-		2	$	6,977	$	6,977
Residential real estate		2		-		2		63		63

	For the Three Months Ended
	March 31, 2017
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		1		-		1	$	50	$	50
Residential real estate		2		-		2		36		36

There were

no

subsequent defaults of troubled debt restructurings for the

three

months ended

March 31, 2018.

One

residential real estate contract with a recorded investment of

$33,000

had subsequently defaulted for the

three

-month period ended

March 31, 2017.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements –

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as

one

in which (a) the lease term is

12

months or less and (b) there is

not

an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees

may

elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2018,

and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2019,

and for interim periods within fiscal years beginning after

December 15, 2020.

The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it

may

elect at adoption, but does

not

anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a

1

percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

(

“

CECL

”

)

, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU

2016

-

13

is effective for annual and interim periods beginning after

December 15, 2019,

and early adoption is permitted for annual and interim periods beginning after

December 15, 2018.

With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the

first

reporting period in which the guidance is adopted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements. Management will oversee the implementation of CECL and is currently in the process of implementing a software solution to assist in the adoption of this ASU. Management plans to run the current incurred loss model and the CECL model concurrently for

12

months prior to the adoption of this guidance on

January 1, 2020.

In

February 2018,

the FASB issued ASU

2018

-

03,

Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic

825

-

10

), to clarify certain aspects of the guidance issued in ASU

2016

-

01.

(

1

) An entity measuring an equity security using the measurement alternative

may

change its measurement approach to a fair value method in accordance with Topic

820,

Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic

820.

(

2

) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (

3

) Re-measuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (

4

) When the fair value option is elected for a financial liability, the guidance in paragraph

825

-

10

-

45

-

5

should be applied, regardless of whether the fair value option was elected under either Subtopic

815

-

15,

Derivatives and Hedging—Embedded Derivatives, or

825

-

10,

Financial Instruments—Overall. (

5

) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should

first

be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be re-measured into the functional currency of the reporting entity using end-of-period spot rates. (

6

) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update

2016

-

01

is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic

944,

Financial Services— Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years beginning after

June 15, 2018.

Public business entities with fiscal years beginning between

December 15, 2017,

and

June 15, 2018,

are

not

required to adopt these amendments until the interim period beginning after

June 15, 2018,

and public business entities with fiscal years beginning between

June 15, 2018,

and

December 15, 2018,

are

not

required to adopt these amendments before adopting the amendments in Update

2016

-

01.

For all other entities, the effective date is the same as the effective date in Update

2016

-

01.

All entities

may

early adopt these amendments for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years, as long as they have adopted Update

2016

-

01.

The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU

2018

-

04,

Investments – Debt Securities (Topic

320

) and Regulated Operations (Topic

980

) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

117

and SEC Release

No.

33

-

9273,

ASU

2018

-

04

supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin

No.

117.

XML

Note 2 - Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

Noninterest Income	2018		2017
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	193	$	192
ATM banking fees		201		114
Service charges and other fees		59		163
Investment securities gains on sale, net (a)		-		488
Equity securities, unrealized gains (a)		18		-
Earnings on bank-owned life insurance (a)		112		109
Gain on sale of loans (a)		4		234
Other income		199		211
Total noninterest income	$	786	$	1,511

XML

Note 3 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2018		19,750		$	20.94
Exercised		(1,500	)		23.00
Outstanding, March 31, 2018		18,250		$	20.78
Exercisable, March 31, 2018		18,250		$	20.78

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

			Weighted-
			average
			Grant Date Fair
	Shares		Value Per Share
Nonvested at January 1, 2018		14,601	$	35.14
Granted		-		-
Forfeited		-		-
Nonvested at March 31, 2018		14,601	$	35.14
Expected to vest at March 31, 2018		14,601	$	35.14

XML

Note 4 - Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	For the Three
	Months Ended
	March 31,
	2018			2017
Weighted-average common shares outstanding		3,606,427			3,065,981
Average treasury stock shares		(386,165	)		(386,165	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		3,220,262			2,679,816
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		17,807			12,199
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		3,238,069			2,692,015

XML

Note 5 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,305	$	-	$	8,305
Obligations of states and political subdivisions		-		65,579		-		65,579
Mortgage-backed securities in government-sponsored entities		-		17,378		-		17,378
Total debt securities		-		91,262		-		91,262
Equity securities in financial institutions		393		250		-		643
Total	$	393	$	91,512	$	-	$	91,905

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	8,719	$	-	$	8,719
Obligations of states and political subdivisions		-		67,429		-		67,429
Mortgage-backed securities in government-sponsored entities		-		18,510		-		18,510
Total debt securities		-		94,658		-		94,658
Equity securities in financial institutions		-		625		-		625
Total	$	-	$	95,283	$	-	$	95,283

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

			March 31, 2018
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	1,734	$	1,734

			December 31, 2017
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	3,072	$	3,072
Other real estate owned		-		-		32		32

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2018
Impaired loans	$	1,734	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	100.0%	(40.58%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	3,072	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	86.1%	(13.8%)
Other real estate owned	$	32	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%

Fair Value, by Balance Sheet Grouping [Table Text Block]

	March 31, 2018
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents (1)	$	33,258	$	33,258	$	-	$	-	$	33,258
Loans held for sale		937		-		937		-		937
Net loans		924,823		-		-		916,073		916,073
Bank-owned life insurance (1)		15,764		15,764		-		-		15,764
Federal Home Loan Bank stock (1)		3,679		3,679		-		-		3,679
Accrued interest receivable (1)		3,269		3,269		-		-		3,269
Financial liabilities:
Deposits	$	944,573	$	662,072	$	-	$	279,850	$	941,922
Short-term borrowings (1)		18,671		18,671		-		-		18,671
Other borrowings		19,028		-		-		19,030		19,030
Accrued interest payable (1)		573		573		-		-		573

	December 31, 2017
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	39,886	$	39,886	$	-	$	-	$	39,886
Loans held for sale		463		-		463		-		463
Net loans		916,023		-		-		913,323		913,323
Bank-owned life insurance		15,652		15,652		-		-		15,652
Federal Home Loan Bank stock		3,589		3,589		-		-		3,589
Accrued interest receivable		3,288		3,288		-		-		3,288
Financial liabilities:
Deposits	$	878,194	$	635,207	$	-	$	242,020	$	877,227
Short-term borrowings		74,707		74,707		-		-		74,707
Other borrowings		29,065		-		-		29,069		29,069
Accrued interest payable		578		578		-		-		578

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Note 6 - Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2017	$	1,091
Other comprehensive (loss) before reclassification		(1,510	)
Change in accounting principle, ASC 2016-01 (b)		(141	)
Change in accounting principle, ASC 2018-02 (b)		187
Period change		(1,464	)
Balance at March 31, 2018	$	(373	)

(Dollars in thousands)	Unrealized gains on available-for-sale securities (a)
Balance as of December 31, 2016	$	1,201
Other comprehensive income before reclassification		153
Amount reclassified from accumulated other comprehensive income		(322	)
Period change		(169	)
Balance at March 31, 2017	$	1,032

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

	Amounts Reclassified from Accumulated Other Comprehensive					Affected Line Item in
	Income					the Statement Where
(Dollars in thousands)	For the Three Months Ended					Net Income is
Details about other comprehensive income	March 31, 2018		March 31, 2017			Presented
Unrealized gains on available-for-sale securities (a)	$	-	$	488		Investment securities gains on sale, net
		-		(166	)	Income taxes
	$	-	$	322

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Note 7 - Investment and Equity Securities (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	March 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,342	$	70	$	(107	)	$	8,305
Obligations of states and political subdivisions:
Taxable		504		14		-			518
Tax-exempt		64,986		829		(754	)		65,061
Mortgage-backed securities in government-sponsored entities		17,900		66		(588	)		17,378
Total	$	91,732	$	979	$	(1,449	)	$	91,262

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	8,664	$	126	$	(71	)	$	8,719
Obligations of states and political subdivisions:
Taxable		504		8		-			512
Tax-exempt		65,408		1,547		(38	)		66,917
Mortgage-backed securities in government-sponsored entities		18,640		157		(287	)		18,510
Total debt securities		93,216		1,838		(396	)		94,658
Equity securities in financial institutions		415		210		-			625
Total	$	93,631	$	2,048	$	(396	)	$	95,283

Equity Securities without Readily Determinable Fair Value [Table Text Block]

	2018
	Year-to-Date		Life-to-Date
Amortized cost	$	232	$	232
Impairment		-		-
Observable price changes		18		18
Carrying value	$	250	$	250

Gain (Loss) on Securities [Table Text Block]

	2018
(Dollar amounts in thousands)
Net gains recognized in equity securities during the period	$	18
Less: Net gains realized on the sale of equity securities during the period		-
Unrealized gains recognized in equity securities held at reporting date	$	18

Investments Classified by Contractual Maturity Date [Table Text Block]

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	4,252	$	4,303
Due after one year through five years		7,607		7,713
Due after five years through ten years		12,489		12,420
Due after ten years		67,384		66,826
Total	$	91,732	$	91,262

Realized Gain (Loss) on Investments [Table Text Block]

	For the Three Months
(Dollar amounts in thousands)	Ended March 31,
	2018		2017
Proceeds from sales	$	-	$	-
Gross realized gains		-		488	(1)
Gross realized losses		-		-

Schedule of Unrealized Loss on Investments [Table Text Block]

	March 31, 2018
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	548	$	(12	)	$	3,899	$	(95	)	$	4,447	$	(107	)
Obligations of states and political subdivisions:
Tax-exempt		25,087		(660	)		2,721		(94	)		27,808		(754	)
Mortgage-backed securities in government-sponsored entities		5,941		(203	)		8,136		(385	)		14,077		(588	)
Total	$	31,576	$	(875	)	$	14,756	$	(574	)	$	46,332	$	(1,449	)

	December 31, 2017
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	557	$	(4	)	$	4,036	$	(67	)	$	4,593	$	(71	)
Obligations of states and political subdivisions:
Tax-exempt		1,009		(6	)		2,784		(32	)		3,793		(38	)
Mortgage-backed securities in government-sponsored entities		5,698		(71	)		8,734		(216	)		14,432		(287	)
Total	$	7,264	$	(81	)	$	15,554	$	(315	)	$	22,818	$	(396	)

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Note 8 - Loans and Related Allowance for Loan and Lease Losses (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	March 31,			December 31,
	2018			2017
Commercial and industrial	$	99,809		$	101,346
Real estate - construction		48,687			47,017
Real estate - mortgage:
Residential		316,856			318,157
Commercial		448,766			437,947
Consumer installment		18,256			18,746
		932,374			923,213
Less: Allowance for loan and lease losses		(7,551	)		(7,190	)
Net loans	$	924,823		$	916,023

Schedule Of Financing Receivable By Segment [Table Text Block]

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	8,884	$	-	$	2,716	$	6,617	$	3	$	18,220
Collectively evaluated for impairment		90,925		48,687		314,140		442,149		18,253		914,154
Total loans	$	99,809	$	48,687	$	316,856	$	448,766	$	18,256	$	932,374

					Real estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	3,627	$	44	$	2,824	$	5,610	$	4	$	12,109
Collectively evaluated for impairment		97,719		46,973		315,333		432,337		18,742		911,104
Total loans	$	101,346	$	47,017	$	318,157	$	437,947	$	18,746	$	923,213

Schedule of Credit Losses for Financing Receivables, Current [Table Text Block]

					Real Estate- Mortgage
March 31, 2018	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	997	$	-	$	124	$	756	$	-	$	1,877
Collectively evaluated for impairment		259		92		1,658		3,567		98		5,674
Total ending allowance balance	$	1,256	$	92	$	1,782	$	4,323	$	98	$	7,551

					Real Estate- Mortgage
December 31, 2017	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	694	$	-	$	140	$	733	$	-	$	1,567
Collectively evaluated for impairment		305		313		1,620		3,303		82		5,623
Total ending allowance balance	$	999	$	313	$	1,760	$	4,036	$	82	$	7,190

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage		Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2017	$	999		$	313		$	1,760	$	4,036	$	82		$	7,190
Charge-offs		(9	)		-			-		-		(4	)		(13	)
Recoveries		109			17			20		-		18			164
Provision		157			(238	)		2		287		2			210
ALLL balance at March 31, 2018	$	1,256		$	92		$	1,782	$	4,323	$	98		$	7,551

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2016	$	448		$	172		$	2,818		$	3,135		$	25		$	6,598
Charge-offs		(20	)		-			(68	)		(19	)		(101	)		(208	)
Recoveries		78			17			7			-			63			165
Provision		110			(3	)		(234	)		262			30			165
ALLL balance at March 31, 2017	$	616		$	186		$	2,523		$	3,378		$	17		$	6,720

Impaired Financing Receivables [Table Text Block]

March 31, 2018
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	976	$	1,173	$	-
Real estate - mortgage:
Residential		1,597		1,822		-
Commercial		1,629		1,767		-
Total	$	4,202	$	4,762	$	-
With an allowance recorded:
Commercial and industrial	$	7,908	$	8,611	$	997
Real estate - mortgage:
Residential		1,119		1,165		124
Commercial		4,988		5,169		756
Consumer installment		3		3		-
Total	$	14,018	$	14,948	$	1,877
Total:
Commercial and industrial	$	8,884	$	9,784	$	997
Real estate - mortgage:
Residential		2,716		2,987		124
Commercial		6,617		6,936		756
Consumer installment		3		3		-
Total	$	18,220	$	19,710	$	1,877

December 31, 2017
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	450	$	1,006	$	-
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		1,685		1,904		-
Commercial		1,870		1,984		-
Consumer installment		4		4		-
Total	$	4,053	$	4,942	$	-
With an allowance recorded:
Commercial and industrial	$	3,177	$	3,888	$	694
Real estate - mortgage:
Residential		1,139		1,179		140
Commercial		3,740		3,913		733
Total	$	8,056	$	8,980	$	1,567
Total:
Commercial and industrial	$	3,627	$	4,894	$	694
Real estate - construction		44		44		-
Real estate - mortgage:
Residential		2,824		3,083		140
Commercial		5,610		5,897		733
Consumer installment		4		4		-
Total	$	12,109	$	13,922	$	1,567

Schedule of Additional Information Related to Impaired Loans [Table Text Block]

	For the Three Months Ended March 31, 2018				For the Three Months Ended March 31, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial and industrial	$	5,631	$	187	$	1,372	$	84
Real estate - construction		283		-		810		-
Real estate - mortgage:
Residential		2,892		21		3,092		22
Commercial		6,719		136		7,077		88
Consumer installment		4		-		5		-
Total	$	15,529	$	344	$	12,356	$	194

Financing Receivable Credit Quality Indicators [Table Text Block]

	March 31, 2018
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	87,415	$	8,955	$	3,439	$	-	$	99,809
Real estate - construction		48,687		-		-		-		48,687
Real estate - mortgage:
Residential		310,965		715		5,176		-		316,856
Commercial		434,991		8,206		5,569		-		448,766
Consumer installment		18,082		-		174		-		18,256
Total	$	900,140	$	17,876	$	14,358	$	-	$	932,374

	December 31, 2017
			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	95,621	$	1,942	$	3,783	$	-	$	101,346
Real estate - construction		46,995		-		22		-		47,017
Real estate - mortgage:
Residential		312,176		723		5,258		-		318,157
Commercial		424,225		9,164		4,558		-		437,947
Consumer installment		18,742		-		4		-		18,746
Total	$	897,759	$	11,829	$	13,625	$	-	$	923,213

Past Due Financing Receivables [Table Text Block]

	March 31, 2018
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,201	$	175	$	366	$	67	$	608	$	99,809
Real estate - construction		48,647		40		-		-		40		48,687
Real estate - mortgage:
Residential		313,459		1,943		538		916		3,397		316,856
Commercial		445,861		1,652		260		993		2,905		448,766
Consumer installment		18,243		11		2		-		13		18,256
Total	$	925,411	$	3,821	$	1,166	$	1,976	$	6,963	$	932,374

	December 31, 2017
			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial and industrial	$	99,633	$	1,607	$	29	$	77	$	1,713	$	101,346
Real estate - construction		47,017		-		-		-		-		47,017
Real estate - mortgage:
Residential		314,866		1,977		227		1,087		3,291		318,157
Commercial		434,879		1,907		1		1,160		3,068		437,947
Consumer installment		18,736		10		-		-		10		18,746
Total	$	915,131	$	5,501	$	257	$	2,324	$	8,082	$	923,213

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

	March 31, 2018
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,351	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		3,934		-
Commercial		3,462		-
Consumer installment		-		-
Total	$	8,747	$	-

	December 31, 2017
			90+ Days Past
	Nonaccrual		Due and Accruing
Commercial and industrial	$	1,120	$	-
Real estate - construction		-		-
Real estate - mortgage:
Residential		4,002		-
Commercial		3,311		-
Consumer installment		-		-
Total	$	8,433	$	-

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	For the Three Months Ended
	March 31, 2018
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		2		-		2	$	6,977	$	6,977
Residential real estate		2		-		2		63		63

	For the Three Months Ended
	March 31, 2017
	Number of Contracts						Pre-Modification		Post-Modification
	Term						Outstanding Recorded		Outstanding Recorded
Troubled Debt Restructurings	Modification		Other		Total		Investment		Investment
Commercial and industrial		1		-		1	$	50	$	50
Residential real estate		2		-		2		36		36

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Note 2 - Revenue Recognition (Details Textual)	3 Months Ended
	Mar. 31, 2018
Revenue from Interest Income and Noninterest Income, Percent	93.40%

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Note 2 - Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Investment securities gains on sale, net	[1]		$ 488
Equity securities, unrealized gains	[1]	18
Earnings on bank-owned life insurance	[1]	112	109
Gain on sale of loans	[1]	4	234
Total noninterest income		786	1,511
Overdraft Fees [Member]
Noninterest income revenue		193	192
ATM Banking Fees [Member]
Noninterest income revenue		201	114
Service Charge and Other Fees [Member]
Noninterest income revenue		59	163
Financial Service, Other [Member]
Noninterest income revenue		$ 199	$ 211

[1] Not within scope of ASC 606.

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Note 3 - Stock-based Compensation (Details Textual) - USD ($) shares in Thousands	3 Months Ended		9 Months Ended	12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance	0	0
Allocated Share-based Compensation Expense, Total	$ 55,000	$ 48,000
Restricted Stock [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 199,000
Restricted Stock [Member] | Scenario, Forecast [Member]
Allocated Share-based Compensation Expense, Total			$ 127,000	$ 72,000

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Note 3 - Stock-based Compensation - Stock Option Activity (Details)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Outstanding (in shares) | shares	19,750
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 20.94
Exercised (in shares) | shares	(1,500)
Exercised, weighted average exercise price (in dollars per share) | $ / shares	$ 23
Outstanding (in shares) | shares	18,250
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 20.78
Exercisable (in shares) | shares	18,250
Exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 20.78

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Note 3 - Stock-based Compensation - Activity Related to Restricted Stock Units Awarded (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Nonvested, shares (in shares) | shares	14,601
Nonvested, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 35.14
Granted, shares (in shares) | shares
Granted, weighted average grant date fair value per share (in dollars per share) | $ / shares
Forfeited, shares (in shares) | shares
Forfeited, weighted average grant date fair value per share (in dollars per share) | $ / shares
Nonvested, shares (in shares) | shares	14,601
Nonvested, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 35.14
Expected to vest, shares (in shares) | shares	14,601
Expected to vest, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 35.14

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Note 4 - Earnings Per Share (Details Textual) - $ / shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	18,250	27,762	19,750
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit	$ 17.55	$ 17.55
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit	$ 23	$ 37.48
Employee Stock Option and Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	14,601	15,800	14,601

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Note 4 - Earnings Per Share - Shares Used in Calculation of Earnings Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Weighted-average common shares outstanding (in shares)	3,606,427	3,065,981
Average treasury stock shares (in shares)	(386,165)	(386,165)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share (in shares)	3,220,262	2,679,816
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share (in shares)	17,807	12,199
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share (in shares)	3,238,069	2,692,015

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Note 5 - Fair Value Measurements (Details Textual)	3 Months Ended
	Mar. 31, 2018 USD ($)
Estimated Selling Costs of Impaired Loans	$ 573,000

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Note 5 - Fair Value Measurements - Assets Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Investment securities available for sale, at fair value	$ 91,262	$ 95,283
US Government Agencies Debt Securities [Member]
Investment securities available for sale, at fair value	8,305	8,719
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Investment securities available for sale, at fair value	17,378	18,510
Debt Securities [Member]
Investment securities available for sale, at fair value		94,658
Equity Securities [Member]
Investment securities available for sale, at fair value		625
Fair Value, Measurements, Recurring [Member]
Investment securities available for sale, at fair value	91,905	95,283
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Investment securities available for sale, at fair value	8,305	8,719
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale, at fair value	65,579	67,429
Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Investment securities available for sale, at fair value	17,378	18,510
Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Investment securities available for sale, at fair value	91,262	94,658
Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Investment securities available for sale, at fair value	643	625
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Investment securities available for sale, at fair value	393
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Investment securities available for sale, at fair value	393
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Investment securities available for sale, at fair value	91,512	95,283
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Investment securities available for sale, at fair value	8,305	8,719
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale, at fair value	65,579	67,429
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Investment securities available for sale, at fair value	17,378	18,510
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Investment securities available for sale, at fair value	91,262	94,658
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Investment securities available for sale, at fair value	250	625
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Investment securities available for sale, at fair value
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Investment securities available for sale, at fair value

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Note 5 - Fair Value Measurements - Assets Measured on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Impaired loans	$ 18,220	$ 12,109
Fair Value, Measurements, Nonrecurring [Member]
Impaired loans	1,734	3,072
Other real estate owned		32
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Impaired loans
Other real estate owned
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Impaired loans
Other real estate owned
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Impaired loans	$ 1,734	3,072
Other real estate owned		$ 32

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Note 5 - Fair Value Measurements - Additional Quantitative Information About Assets Measured at Fair Value on Non-recurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - Fair Value, Inputs, Level 3 [Member] - Appraisal of Collateral [Member] $ in Thousands		Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Impaired loans, fair value estimate	[1]	$ 1,734	$ 3,072
Other real estate owned, fair value estimate	[1]		$ 32
Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	0	0
Other real estate owned, discount rate	[2]		0
Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	100	86.1
Other real estate owned, discount rate	[2]		10
Weighted Average [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	40.58	13.8

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable, less any associated allowance.

[2] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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Note 5 - Fair Value Measurements - Estimated Fair Value of the Company's Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2018		Dec. 31, 2017
Reported Value Measurement [Member]
Financial assets:
Cash and cash equivalents	$ 33,258	[1]	$ 39,886
Loans held for sale	937		463
Net loans	924,823		916,023
Bank-owned life insurance	15,764	[1]	15,652
Federal Home Loan Bank stock	3,679	[1]	3,589
Accrued interest receivable	3,269	[1]	3,288
Financial liabilities:
Deposits	944,573		878,194
Short-term borrowings	18,671	[1]	74,707
Other borrowings	19,028		29,065
Accrued interest payable	573	[1]	578
Estimate of Fair Value Measurement [Member]
Financial assets:
Cash and cash equivalents	33,258	[1]	39,886
Loans held for sale	937		463
Net loans	916,073		913,323
Bank-owned life insurance	15,764	[1]	15,652
Federal Home Loan Bank stock	3,679	[1]	3,589
Accrued interest receivable	3,269	[1]	3,288
Financial liabilities:
Deposits	941,922		877,227
Short-term borrowings	18,671	[1]	74,707
Other borrowings	19,030		29,069
Accrued interest payable	573	[1]	578
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	33,258	[1]	39,886
Loans held for sale
Net loans
Bank-owned life insurance	15,764	[1]	15,652
Federal Home Loan Bank stock	3,679	[1]	3,589
Accrued interest receivable	3,269	[1]	3,288
Financial liabilities:
Deposits	662,072		635,207
Short-term borrowings	18,671	[1]	74,707
Other borrowings
Accrued interest payable	573	[1]	578
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents		[1]
Loans held for sale	937		463
Net loans
Bank-owned life insurance		[1]
Federal Home Loan Bank stock		[1]
Accrued interest receivable		[1]
Financial liabilities:
Deposits
Short-term borrowings		[1]
Other borrowings
Accrued interest payable		[1]
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents		[1]
Loans held for sale
Net loans	916,073		913,323
Bank-owned life insurance		[1]
Federal Home Loan Bank stock		[1]
Accrued interest receivable		[1]
Financial liabilities:
Deposits	279,850		242,020
Short-term borrowings		[1]
Other borrowings	19,030		29,069
Accrued interest payable		[1]

[1] This financial instrument is carried at cost at March 31, 2018, which approximates the fair value of the instrument.

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Note 6 - Accumulated Other Comprehensive Income - Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Balance		$ 119,863
Change in accounting principle, ASC 2016-01
Change in accounting principle, ASC 2018-02
Total other comprehensive income (loss)		(1,510)	$ (169)
Balance		120,152
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Balance	[1]	1,091	1,201
Other comprehensive income (loss) before reclassification	[1]	(1,510)	153
Change in accounting principle, ASC 2016-01	[1],[2]	(141)
Change in accounting principle, ASC 2018-02	[1],[2]	187
Total other comprehensive income (loss)	[1]	(1,464)	(169)
Balance	[1]	$ (373)	1,032
Amount reclassified from accumulated other comprehensive income	[1]		$ (322)

[1] All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive income.

[2] Reclassifications are the result of the adoption of ASUs 2016-01 and 2018-02 effective for the Company beginning January 1, 2018. The reclassifications are presented within the Consolidated Statement of Changes in Stockholders' Equity for the affected transitional periods.

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Note 6 - Accumulated Other Comprehensive Income - Significant Amounts Reclassified Out of Each Component of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018		Mar. 31, 2017
Investment securities gains on sale, net	[1]			$ 488
Income taxes			[1]	(166)
Net of tax			[1]	$ 322

[1] For unrealized gains on available-for-sale securities, amounts in parentheses indicate expenses and other amounts indicate income.

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Note 7 - Investment and Equity Securities (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Security Owned and Pledged as Collateral, Fair Value, Total	$ 61,700,000		$ 57,900,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	82
Available-for-sale Securities, Percentage of Portfolio	100.00%
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held, Ending Balance	$ 0
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0	$ 0
Merger of Liberty Bank, N.A. into The Middlefield Banking Company [Member]
Business Combination, Step Acquisition, Equity Interest in Acquiree, Remeasurement Gain		$ 488,000

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Note 7 - Investment and Equity Securities - Amortized Cost and Fair Values of Securities Available for Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Amortized cost	$ 91,732	$ 93,631
Gross unrealized gains	979	2,048
Gross unrealized losses	(1,449)	(396)
Investment securities available for sale, at fair value	91,262	95,283
US Government Agencies Debt Securities [Member]
Amortized cost	8,342	8,664
Gross unrealized gains	70	126
Gross unrealized losses	(107)	(71)
Investment securities available for sale, at fair value	8,305	8,719
Taxable Municipal Bonds [Member]
Amortized cost	504	504
Gross unrealized gains	14	8
Gross unrealized losses
Investment securities available for sale, at fair value	518	512
Nontaxable Municipal Bonds [Member]
Amortized cost	64,986	65,408
Gross unrealized gains	829	1,547
Gross unrealized losses	(754)	(38)
Investment securities available for sale, at fair value	65,061	66,917
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Amortized cost	17,900	18,640
Gross unrealized gains	66	157
Gross unrealized losses	(588)	(287)
Investment securities available for sale, at fair value	$ 17,378	18,510
Debt Securities [Member]
Amortized cost		93,216
Gross unrealized gains		1,838
Gross unrealized losses		(396)
Investment securities available for sale, at fair value		94,658
Equity Securities [Member]
Amortized cost		415
Gross unrealized gains		210
Gross unrealized losses
Investment securities available for sale, at fair value		$ 625

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Note 7 - Investment and Equity Securities - Equity Investments Without Readily Determinable Fair Values (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Amortized cost, annual	$ 232
Amortized cost, cumulative	232
Impairment, annual
Impairment, cumulative
Observable price changes, annual	18
Observable price changes, cumulative	18
Carrying value, annual	250
Carrying value, cumulative	$ 250

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Note 7 - Investment and Equity Securities - Gains and Losses Recognized in Net Income on Equity Securities (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Net gains recognized in equity securities during the period		$ 18
Less: Net gains realized on the sale of equity securities during the period
Unrealized gains recognized in equity securities held at reporting date	[1]	$ 18

[1] Not within scope of ASC 606.

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Note 7 - Investment and Equity Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (Details) $ in Thousands	Mar. 31, 2018 USD ($)
Due in one year or less, amortized costs	$ 4,252
Due in one year or less, fair value	4,303
Due after one year through five years, amortized costs	7,607
Due after one year through five years, fair value	7,713
Due after five years through ten years, amortized costs	12,489
Due after five years through ten years, fair value	12,420
Due after ten years, amortized costs	67,384
Due after ten years, fair value	66,826
Amortized costs	91,732
Fair Value	$ 91,262

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Note 7 - Investment and Equity Securities - Sales of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018		Mar. 31, 2017
Proceeds from sales
Gross realized gains		[1]	488
Gross realized losses

[1] Prior to the acquisition of Liberty Bank, N.A., the Company had a previously held equity interest in Liberty which was re-measured at fair value on the acquisition date and resulted in a gain of $488,000, which was recorded in Equity Securities, Unrealized Gains on the consolidated Income Statement for the three months ended March 31, 2017.

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Note 7 - Investment and Equity Securities - Gross Unrealized Losses and Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Less than Twelve Months, Fair Value	$ 31,576	$ 7,264
Less than Twelve Months, Gross Unrealized Losses	(875)	(81)
Twelve Months or Greater, Fair Value	14,756	15,554
Twelve Months or Greater, Gross Unrealized Losses	(574)	(315)
Total, Fair Value	46,332	22,818
Total, Gross Unrealized Losses	(1,449)	(396)
US Government Agencies Debt Securities [Member]
Less than Twelve Months, Fair Value	548	557
Less than Twelve Months, Gross Unrealized Losses	(12)	(4)
Twelve Months or Greater, Fair Value	3,899	4,036
Twelve Months or Greater, Gross Unrealized Losses	(95)	(67)
Total, Fair Value	4,447	4,593
Total, Gross Unrealized Losses	(107)	(71)
Nontaxable Municipal Bonds [Member]
Less than Twelve Months, Fair Value	25,087	1,009
Less than Twelve Months, Gross Unrealized Losses	(660)	(6)
Twelve Months or Greater, Fair Value	2,721	2,784
Twelve Months or Greater, Gross Unrealized Losses	(94)	(32)
Total, Fair Value	27,808	3,793
Total, Gross Unrealized Losses	(754)	(38)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Less than Twelve Months, Fair Value	5,941	5,698
Less than Twelve Months, Gross Unrealized Losses	(203)	(71)
Twelve Months or Greater, Fair Value	8,136	8,734
Twelve Months or Greater, Gross Unrealized Losses	(385)	(216)
Total, Fair Value	14,077	14,432
Total, Gross Unrealized Losses	$ (588)	$ (287)

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Note 8 - Loans and Related Allowance for Loan and Lease Losses (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Loans and Leases Receivable, Deferred Income, Total	$ 1,500,000		$ 1.50
Financing Receivable, Modifications, Recorded Investment	9,100,000		$ 5,400,000
Number of Days Past Due			90 days
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	369,000		$ 437,000
Provision for Loan, Lease, and Other Losses, Total	$ 210,000	$ 165,000
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0
Commercial And Industrial [Member]
Provision for Loan, Lease, and Other Losses, Total	$ 157,000	110,000
Commercial And Industrial [Member] | Special Mention [Member]
Financing Receivable, Modifications, Recorded Investment	5,800,000
Real Estate Construction Porfolio Segment [Member]
Provision for Loan, Lease, and Other Losses, Total	$ (238,000)	$ (3,000)
Loans and Leases Receivable, Historical Loss Rate	0.775%	(0.127%)
Residential Loan [Member] | Real Estate Mortgage Portfolio Segment [Member]
Provision for Loan, Lease, and Other Losses, Total	$ 2,000	$ (234,000)
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment		$ 33,000
Threshold For Loans Evaluated For Impairment [Member]
Loans and Leases Receivable, before Fees, Gross, Total	1,000,000
Outside Consultant [Member] | Threshold For Loans Evaluated For Impairment [Member]
Loans and Leases Receivable, before Fees, Gross, Total	250,000
Criticized Relationships [Member] | Threshold For Loans Evaluated For Impairment [Member]
Financing Receivable, Gross	$ 125,000

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Major Classifications of Net Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Financing Receivable Gross	$ 932,374	$ 923,213
Less: Allowance for loan and lease losses	(7,551)	(7,190)	$ (6,720)	$ (6,598)
Net loans	924,823	916,023
Commercial And Industrial [Member]
Financing Receivable Gross	99,809	101,346
Less: Allowance for loan and lease losses	(1,256)	(999)	(616)	(448)
Real Estate Construction Porfolio Segment [Member]
Financing Receivable Gross	48,687	47,017
Less: Allowance for loan and lease losses	(92)	(313)	(186)	(172)
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Financing Receivable Gross	316,856	318,157
Less: Allowance for loan and lease losses	(1,782)	(1,760)	(2,523)	(2,818)
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Financing Receivable Gross	448,766	437,947
Less: Allowance for loan and lease losses	(4,323)	(4,036)	(3,378)	(3,135)
Consumer Portfolio Segment [Member]
Financing Receivable Gross	18,256	18,746
Less: Allowance for loan and lease losses	$ (98)	$ (82)	$ (17)	$ (25)

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Primary Segments of the Loan Portfolio (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Individually evaluated for impairment	$ 18,220	$ 12,109
Collectively evaluated for impairment	914,154	911,104
Total loans	932,374	923,213
Commercial And Industrial [Member]
Individually evaluated for impairment	8,884	3,627
Collectively evaluated for impairment	90,925	97,719
Total loans	99,809	101,346
Real Estate Construction Porfolio Segment [Member]
Individually evaluated for impairment		44
Collectively evaluated for impairment	48,687	46,973
Total loans	48,687	47,017
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Individually evaluated for impairment	2,716	2,824
Collectively evaluated for impairment	314,140	315,333
Total loans	316,856	318,157
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Individually evaluated for impairment	6,617	5,610
Collectively evaluated for impairment	442,149	432,337
Total loans	448,766	437,947
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	3	4
Collectively evaluated for impairment	18,253	18,742
Total loans	$ 18,256	$ 18,746

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Allowance for Loan Losses (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Dec. 31, 2017
Individually evaluated for impairment			$ 1,877,000	$ 1,567,000
Collectively evaluated for impairment			5,674,000	5,623,000
Total ending allowance balance	$ 7,551,000	$ 6,598,000	7,551,000	7,190,000
ALLL balance, period start	7,190,000	6,598,000
Charge-offs	(13,000)	(208,000)
Recoveries	164,000	165,000
Provision for Loan, Lease, and Other Losses, Total	210,000	165,000
ALLL balance, period end	7,551,000	6,720,000
Commercial And Industrial [Member]
Individually evaluated for impairment			997,000	694,000
Collectively evaluated for impairment			259,000	305,000
Total ending allowance balance	1,256,000	448,000	1,256,000	999,000
ALLL balance, period start	999,000	448,000
Charge-offs	(9,000)	(20,000)
Recoveries	109,000	78,000
Provision for Loan, Lease, and Other Losses, Total	157,000	110,000
ALLL balance, period end	1,256,000	616,000
Real Estate Construction Porfolio Segment [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			92,000	313,000
Total ending allowance balance	92,000	172,000	92,000	313,000
ALLL balance, period start	313,000	172,000
Charge-offs
Recoveries	17,000	17,000
Provision for Loan, Lease, and Other Losses, Total	(238,000)	(3,000)
ALLL balance, period end	92,000	186,000
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Individually evaluated for impairment			124,000	140,000
Collectively evaluated for impairment			1,658,000	1,620,000
Total ending allowance balance	1,782,000	2,818,000	1,782,000	1,760,000
ALLL balance, period start	1,760,000	2,818,000
Charge-offs		(68,000)
Recoveries	20,000	7,000
Provision for Loan, Lease, and Other Losses, Total	2,000	(234,000)
ALLL balance, period end	1,782,000	2,523,000
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Individually evaluated for impairment			756,000	733,000
Collectively evaluated for impairment			3,567,000	3,303,000
Total ending allowance balance	4,323,000	3,135,000	4,323,000	4,036,000
ALLL balance, period start	4,036,000	3,135,000
Charge-offs		(19,000)
Recoveries
Provision for Loan, Lease, and Other Losses, Total	287,000	262,000
ALLL balance, period end	4,323,000	3,378,000
Consumer Portfolio Segment [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			98,000	82,000
Total ending allowance balance	98,000	25,000	$ 98,000	$ 82,000
ALLL balance, period start	82,000	25,000
Charge-offs	(4,000)	(101,000)
Recoveries	18,000	63,000
Provision for Loan, Lease, and Other Losses, Total	2,000	30,000
ALLL balance, period end	$ 98,000	$ 17,000

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Impaired Loans by Class (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Recorded investment, with no related allowance	$ 4,202	$ 4,053
Unpaid principal balance, with no related allowance	4,762	4,942
Recorded investment, with related allowance	14,018	8,056
Unpaid principal balance, with related allowance	14,948	8,980
Related allowance	1,877	1,567
Recorded investment	18,220	12,109
Unpaid principal balance	19,710	13,922
Commercial Loans [Member]
Recorded investment, with related allowance	4,988
Unpaid principal balance, with related allowance	5,169
Related allowance	756
Commercial And Industrial [Member]
Recorded investment, with no related allowance	976	450
Unpaid principal balance, with no related allowance	1,173	1,006
Recorded investment, with related allowance	7,908	3,177
Unpaid principal balance, with related allowance	8,611	3,888
Related allowance	997	694
Recorded investment	8,884	3,627
Unpaid principal balance	9,784	4,894
Real Estate Construction Porfolio Segment [Member]
Recorded investment, with no related allowance		44
Unpaid principal balance, with no related allowance		44
Related allowance
Recorded investment		44
Unpaid principal balance		44
Real Estate Construction Porfolio Segment [Member] | Residential Loan [Member]
Recorded investment, with related allowance	1,119
Unpaid principal balance, with related allowance	1,165
Related allowance	124
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Recorded investment, with no related allowance	1,597	1,685
Unpaid principal balance, with no related allowance	1,822	1,904
Recorded investment, with related allowance		1,139
Unpaid principal balance, with related allowance		1,179
Related allowance	124	140
Recorded investment	2,716	2,824
Unpaid principal balance	2,987	3,083
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Recorded investment, with no related allowance	1,629	1,870
Unpaid principal balance, with no related allowance	1,767	1,984
Recorded investment, with related allowance		3,740
Unpaid principal balance, with related allowance		3,913
Related allowance	756	733
Recorded investment	6,617	5,610
Unpaid principal balance	6,936	5,897
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance		4
Unpaid principal balance, with no related allowance		4
Recorded investment, with related allowance	3
Unpaid principal balance, with related allowance	3
Related allowance
Recorded investment	3	4
Unpaid principal balance	$ 3	$ 4

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Additional Information on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Average recorded investment	$ 15,529	$ 12,356
Interest income recognized	344	194
Commercial And Industrial [Member]
Average recorded investment	5,631	1,372
Interest income recognized	187	84
Real Estate Construction Porfolio Segment [Member]
Average recorded investment	283	810
Interest income recognized
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Average recorded investment	2,892	3,092
Interest income recognized	21	22
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Average recorded investment	6,719	7,077
Interest income recognized	136	88
Consumer Portfolio Segment [Member]
Average recorded investment	4	5
Interest income recognized

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Classes of the Loan Portfolio Summarized by Credit Quality (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Loans, total	$ 932,374	$ 923,213
Commercial And Industrial [Member]
Loans, total	99,809	101,346
Real Estate Construction Porfolio Segment [Member]
Loans, total	48,687	47,017
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	316,856	318,157
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	448,766	437,947
Consumer Portfolio Segment [Member]
Loans, total	18,256	18,746
Pass [Member]
Loans, total	900,140	897,759
Pass [Member] | Commercial And Industrial [Member]
Loans, total	87,415	95,621
Pass [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total	48,687	46,995
Pass [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	310,965	312,176
Pass [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	434,991	424,225
Pass [Member] | Consumer Portfolio Segment [Member]
Loans, total	18,082	18,742
Special Mention [Member]
Loans, total	17,876	11,829
Special Mention [Member] | Commercial And Industrial [Member]
Loans, total	8,955	1,942
Special Mention [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total
Special Mention [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	715	723
Special Mention [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	8,206	9,164
Substandard [Member]
Loans, total	14,358	13,625
Substandard [Member] | Commercial And Industrial [Member]
Loans, total	3,439	3,783
Substandard [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total		22
Substandard [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	5,176	5,258
Substandard [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	5,569	4,558
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans, total	174	$ 4
Doubtful [Member]
Loans, total
Doubtful [Member] | Commercial And Industrial [Member]
Loans, total
Doubtful [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total
Doubtful [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total
Doubtful [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Past Due Financing Receivables (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Loans, current balance	$ 925,411	$ 915,131
Loans, past due	6,963	8,082
Loans, total	932,374	923,213
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	3,821	5,501
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	1,166	257
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,976	2,324
Commercial And Industrial [Member]
Loans, current balance	99,201	99,633
Loans, past due	608	1,713
Loans, total	99,809	101,346
Commercial And Industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	175	1,607
Commercial And Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	366	29
Commercial And Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	67	77
Real Estate Construction Porfolio Segment [Member]
Loans, current balance	48,647	47,017
Loans, past due	40	0
Loans, total	48,687	47,017
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	40	0
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	0	0
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, current balance	313,459	314,866
Loans, past due	3,397	3,291
Loans, total	316,856	318,157
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, current balance	445,861	434,879
Loans, past due	2,905	3,068
Loans, total	448,766	437,947
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	1,943	1,977
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due	1,652	1,907
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	538	227
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due	260	1
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	916	1,087
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due	993	1,160
Consumer Portfolio Segment [Member]
Loans, current balance	18,243	18,736
Loans, past due	13	10
Loans, total	18,256	18,746
Consumer Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	11	10
Consumer Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	2	0
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	$ 0	$ 0

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Classes of the Loan Portfolio Summarized by Nonaccrual Loans and Still Accruing (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Loans, nonacrrual status	$ 8,747	$ 8,433
Loans, 90+ days past due and accruing	0	0
Commercial And Industrial [Member]
Loans, nonacrrual status	1,351	1,120
Loans, 90+ days past due and accruing	0	0
Real Estate Construction Porfolio Segment [Member]
Loans, nonacrrual status		0
Loans, 90+ days past due and accruing	0	0
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, nonacrrual status	3,934	4,002
Loans, 90+ days past due and accruing	0	0
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, nonacrrual status	3,462	3,311
Loans, 90+ days past due and accruing	0	0
Consumer Portfolio Segment [Member]
Loans, nonacrrual status		0
Loans, 90+ days past due and accruing	$ 0	$ 0

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Commercial And Industrial [Member]
Number of contracts	2	1
Pre-modification outstanding recorded investment	$ 6,977	$ 50
Post-modification outstanding recorded investment	$ 6,977	$ 50
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts	2	2
Pre-modification outstanding recorded investment	$ 63	$ 36
Post-modification outstanding recorded investment	$ 63	$ 36
Extended Maturity [Member] | Commercial And Industrial [Member]
Number of contracts	2	1
Extended Maturity [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts	2	2
Other Restructurings [Member] | Commercial And Industrial [Member]
Number of contracts
Other Restructurings [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts