10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2020

 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

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, Without Par Value	MBCN	The NASDAQ Stock Market, LLC      (NASDAQ Capital Market)

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

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

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

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
Emerging growth company ☐

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

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

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

Outstanding at May 6, 2020:  6,369,467

1

MIDDLEFIELD BANC CORP.

INDEX

Part I – Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheet as of March 31, 2020 and December 31, 2019	3
	Consolidated Statement of Income for the Three Months ended March 31, 2020 and 2019	4
	Consolidated Statement of Comprehensive Income for the Three Months ended March 31, 2020 and 2019	5
	Consolidated Statement of Changes in Stockholders' Equity for the Three Months March 31, 2020 and 2019	6
	Consolidated Statement of Cash Flows for the Three Months ended March 31, 2020 and 2019	7
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	41
Part II – Other Information
Item 1.	Legal Proceedings	42
Item 1a.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults by the Company on its Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	44
Item 6.	Exhibits and Reports on Form 8-K	44
Signatures		49
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,
	2020			2019
ASSETS
Cash and due from banks	$	53,533		$	35,113
Federal funds sold		1,800			-
Cash and cash equivalents		55,333			35,113
Equity securities, at fair value		550			710
Investment securities available for sale, at fair value		102,959			105,733
Loans held for sale		513			1,220
Loans:
Commercial real estate:
Owner occupied		113,272			102,386
Non-owner occupied		292,775			302,180
Multifamily		52,276			62,028
Residential real estate		233,900			234,798
Commercial and industrial		106,797			89,527
Home equity lines of credit		114,933			112,248
Construction and other		71,186			66,680
Consumer installment		12,861			14,411
Total loans		998,000			984,258
Less: allowance for loan and lease losses		9,244			6,768
Net loans		988,756			977,490
Premises and equipment, net		17,653			17,874
Goodwill		15,071			15,071
Core deposit intangibles		1,973			2,056
Bank-owned life insurance		16,618			16,511
Accrued interest receivable and other assets		14,513			10,697
TOTAL ASSETS	$	1,213,939		$	1,182,475
LIABILITIES
Deposits:
Noninterest-bearing demand	$	206,372		$	191,370
Interest-bearing demand		125,184			107,844
Money market		156,556			160,826
Savings		175,468			192,003
Time		340,130			368,800
Total deposits		1,003,710			1,020,843
Short-term borrowings:
Federal funds purchased		-			75
Federal Home Loan Bank advances		60,000			5,000
Total short-term borrowings		60,000			5,075
Other borrowings		12,662			12,750
Accrued interest payable and other liabilities		4,880			6,032
TOTAL LIABILITIES		1,081,252			1,044,700
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 7,298,829 and 7,294,792 shares issued; 6,369,467 and 6,423,630 shares outstanding		86,722			86,617
Retained earnings		65,140			65,063
Accumulated other comprehensive (loss) income		(2,237	)		1,842
Treasury stock, at cost; 929,362 and 871,162 shares		(16,938	)		(15,747	)
TOTAL STOCKHOLDERS' EQUITY		132,687			137,775
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,213,939		$	1,182,475

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,
	2020			2019
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	12,078		$	12,488
Interest-earning deposits in other institutions		94			187
Federal funds sold		21			7
Investment securities:
Taxable interest		157			179
Tax-exempt interest		629			565
Dividends on stock		30			58
Total interest and dividend income		13,009			13,484
INTEREST EXPENSE
Deposits		2,865			2,945
Short-term borrowings		35			213
Other borrowings		76			96
Total interest expense		2,976			3,254
NET INTEREST INCOME		10,033			10,230
Provision for loan losses		2,740			240
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		7,293			9,990
NONINTEREST INCOME
Service charges on deposit accounts		553			508
(Loss) gain on equity securities		(160	)		58
Earnings on bank-owned life insurance		107			105
Gain on sale of loans		114			59
Other income		460			402
Total noninterest income		1,074			1,132
NONINTEREST EXPENSE
Salaries and employee benefits		3,524			4,124
Occupancy expense		550			553
Equipment expense		273			235
Data processing costs		666			465
Ohio state franchise tax		268			259
Federal deposit insurance expense		123			130
Professional fees		349			431
Advertising expense		209			203
Software amortization expense		141			145
Core deposit intangible amortization		83			85
Other expense		1,066			870
Total noninterest expense		7,252			7,500
Income before income taxes		1,115			3,622
Income taxes		74			611
NET INCOME	$	1,041		$	3,011
EARNINGS PER SHARE
Basic	$	0.16		$	0.46
Diluted	$	0.16		$	0.46

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,
	2020			2019
Net income	$	1,041		$	3,011
Other comprehensive (loss) income:
Net unrealized holding (loss) gain on available-for-sale investment securities		(5,163	)		1,006
Tax effect		1,084			(211	)
Total other comprehensive (loss) income		(4,079	)		795
Comprehensive (loss) income	$	(3,038	)	$	3,806

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 Stock				Retained			Comprehensive			Treasury			Stockholders'
	Shares		Amount		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2019		7,294,792	$	86,617	$	65,063		$	1,842		$	(15,747	)	$	137,775
Net income						1,041									1,041
Other comprehensive loss									(4,079	)					(4,079	)
Stock-based compensation, net		4,037		105											105
Treasury shares acquired (58,200 shares)												(1,191	)		(1,191	)
Cash dividends ($0.15 per share)						(964	)								(964	)
Balance, March 31, 2020		7,298,829	$	86,722	$	65,140		$	(2,237	)	$	(16,938	)	$	132,687

								Accumulated
								Other						Total
	Common Stock				Retained			Comprehensive			Treasury			Stockholders'
	Shares		Amount		Earnings			Income (Loss)			Stock			Equity
Balance, December 31, 2018		7,260,994	$	85,925	$	56,037		$	(154	)	$	(13,518	)	$	128,290
Net income						3,011									3,011
Other comprehensive income									795						795
Dividend reinvestment and purchase plan		9,044		196											196
Stock-based compensation, net		15,032		316											316
Cash dividends ($0.14 per share)						(909	)								(909	)
Balance, March 31, 2019		7,285,070	$	86,437	$	58,139		$	641		$	(13,518	)	$	131,699

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,
	2020			2019
OPERATING ACTIVITIES
Net income	$	1,041		$	3,011
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,740			240
Loss (gain) on equity securities		160			(58	)
Depreciation and amortization of premises and equipment, net		306			259
Software amortization expense		141			145
Financing lease amortization expense		99			69
Amortization of premium and discount on investment securities, net		84			94
Accretion of deferred loan fees, net		(255	)		(259	)
Amortization of core deposit intangibles		83			85
Stock-based compensation (income) expense, net		(302	)		186
Restricted stock cash portion		-			(44	)
Origination of loans held for sale		(3,232	)		(2,556	)
Proceeds from sale of loans		4,053			1,960
Gain on sale of loans		(114	)		(37	)
Earnings on bank-owned life insurance		(107	)		(105	)
Deferred income tax		(308	)		295
Net gain on other real estate owned		-			(43	)
Increase in accrued interest receivable		(195	)		(200	)
Increase in accrued interest payable		63			192
Other, net		(1,277	)		(2,553	)
Net cash provided by operating activities		2,980			681
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from repayments and maturities		2,779			3,799
Purchases		(5,252	)		(2,679	)
Increase in loans, net		(14,052	)		(12,616	)
Proceeds from the sale of other real estate owned		-			225
Purchase of premises and equipment		(184	)		(295	)
Purchase of restricted stock		(1,600	)		-
Net cash used in investing activities		(18,309	)		(11,566	)
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(17,133	)		24,164
Increase in short-term borrowings, net		54,925			602
Net repayment of other borrowings		(88	)		(56	)
Proceeds from dividend reinvestment and purchase plan		-			196
Repurchase of treasury shares		(1,191	)		-
Cash dividends		(964	)		(909	)
Net cash provided by financing activities		35,549			23,997
Increase in cash and cash equivalents		20,220			13,112
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		35,113			107,933
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	55,333		$	121,045

See accompanying notes to unaudited consolidated financial statements.

7

	Three Months Ended
	March 31,
	2020		2019
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	2,913	$	3,062
Noncash operating transactions:
Operating lease assets added to other, net	$	-	$	(2,101	)
Operating lease liabilities added to other, net		-		2,101
Noncash investing transactions:
Transfers from loans to other real estate owned	$	301	$	38
Finance lease assets added to premises and equipment		-		(2,771	)
Noncash financing transactions:
Finance lease liabilities added to borrowed funds	$	-	$	2,771

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. The consolidated financial statements also include the accounts of MBC’s subsidiary, Middlefield Investments, Inc. (MI), established March 13, 2019. All significant inter-company items have been eliminated.

The unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2019.  The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented.  The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.  

Recently Issued Accounting Pronouncements

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. 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. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management will continue to monitor model output throughout the deferral period.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In January 2020, the FASB issued ASU 2020-2, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

9

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

Reclassification of Comparative Amounts

Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did not affect net income or retained earnings.

10

NOTE 2 – REVENUE RECOGNITION

In accordance with ASC Topic 606, 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. These revenue sources cumulatively comprise 91.8% 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 customer requests or activities 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 (“OREO”) – 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 and the payment terms, that the contract has a true commercial substance and that amounts due from the buyer are 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	2020			2019
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	190		$	248
ATM banking fees		210			194
Service charges and other fees		153			66
(Loss) gain on equity securities (a)		(160	)		58
Earnings on bank-owned life insurance (a)		107			105
Gain on sale of loans (a)		114			59
Revenue from investment services		131			138
Other income		329			264
Total noninterest income	$	1,074		$	1,132
Net gain on other real estate owned	$	-		$	43

(a) Not within scope of ASC 606

11

NOTE 3 - STOCK-BASED COMPENSATION

The Company had no nonvested stock options outstanding as of March 31, 2020 and 2019.

Stock option activity during the three months ended March 31, 2020 is as follows:

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2020		14,500		$	8.78
Exercised		(1,000	)		8.78
Outstanding, March 31, 2020		13,500		$	8.78
Exercisable, March 31, 2020		13,500		$	8.78

The following table presents the activity during the three months ended March 31, 2020 related to awards of restricted stock:

			Weighted-
			average
			Grant Date Fair
	Units		Value Per Unit
Nonvested at January 1, 2020		61,040	$	21.73
Granted		23,648		26.09
Nonvested at March 31, 2020		84,688	$	22.94
Expected to vest as of March 31, 2020		1,000	$	22.65

The Company recognizes restricted stock forfeitures in the period they occur.

Share-based compensation expense of ($408,000) and $90,000 was recognized for the three-month periods ended March 31, 2020 and 2019, respectively. The expense recorded as of March 31, 2020 is the result of the decrease in the market valuations of the plans. Vesting of shares under the plan is contingent on a combination of service period and a performance condition tied to the total shareholder return on the Company’s stock. Due to the change in market conditions during the quarter ended March 31, 2020, there was a significant decrease in the probability of the achievement of the performance condition which resulted in a decrease in the liability related to the Plan and a reversal of compensation expense. Since the shares of restricted stock are historically paid out at the vesting date in a combination of shares and cash, the Company has recorded a liability related to this plan which totals $287,000 and $236,000 at March 31, 2020 and 2019, respectively. When the shares vest, the amount distributed in shares is transferred to common stock and the remainder is distributed in cash.

Total unrecognized stock compensation cost related to nonvested share-based compensation on restricted stock as of March 31, 2020 totals $219,000, of which $94,000 is estimated for the rest of 2020, $88,000 for 2021, $34,000 for 2022, and $4,000 for 2023.

12

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 and restricted stock 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,
	2020			2019
Weighted-average common shares issued		7,298,740			7,270,608
Average treasury stock shares		(881,631	)		(772,330	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		6,417,109			6,498,278
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		12,334			12,290
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		6,429,443			6,510,568

Options to purchase 13,500 shares of common stock at $8.78 per share, were outstanding during the three months ended March 31, 2020. Also outstanding were 84,688 shares of restricted stock. None of the outstanding options or restricted stock were anti-dilutive.

Options to purchase 14,900 shares of common stock at $8.78 per share, were outstanding during the three months ended March 31, 2019. Also outstanding were 61,334 shares of restricted stock. None of the outstanding options or restricted stock were anti-dilutive.

When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by the Company. As of March 31, 2020, the Company held 929,362 of the Company’s shares, which is an increase of 58,200 for the three months ended March 31, 2020, from the 871,162 shares held as of December 31, 2019.

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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 establishes 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.

This hierarchy requires the use of observable market data when available.

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, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,221	$	-	$	4,221
Obligations of states and political subdivisions		-		81,256		-		81,256
Mortgage-backed securities in government-sponsored entities		-		17,482		-		17,482
Total debt securities		-		102,959		-		102,959
Equity securities in financial institutions		550		-		-		550
Total	$	550	$	102,959	$	-	$	103,509

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,126	$	-	$	4,126
Obligations of states and political subdivisions		-		82,977		-		82,977
Mortgage-backed securities in government-sponsored entities		-		18,630		-		18,630
Total debt securities		-		105,733		-		105,733
Equity securities in financial institutions		710		-		-		710
Total	$	710	$	105,733	$	-	$	106,443

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.

14

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 at initial foreclosure or subsequent to the initial measurement. No such devaluation occurred in the three months ended March 31, 2020.

			March 31, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	4,566	$	4,566

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	5,166	$	5,166

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 above 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 above table as it is not currently being carried at its fair value. The fair values in the above table exclude estimated selling costs of $2.0 million and $2.1 million as of March 31, 2020 and December 31, 2019, respectively.

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)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
March 31, 2020
Impaired loans	$	4,566	Appraisal of collateral (1)	Appraisal adjustments (2)	35.4%	to	49.5%	(36.2%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
December 31, 2019
Impaired loans	$	5,166	Appraisal of collateral (1)	Appraisal adjustments (2)	40.3%	to	47.4%	(41.8%)

(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.

15

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

	March 31, 2020
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	55,333	$	55,333	$	-	$	-	$	55,333
Loans held for sale		513		-		513		-		513
Net loans		988,756		-		-		983,780		983,780
Bank-owned life insurance		16,618		16,618		-		-		16,618
Federal Home Loan Bank stock		5,448		5,448		-		-		5,448
Accrued interest receivable		3,666		3,666		-		-		3,666
Financial liabilities:
Deposits	$	1,003,710	$	663,580	$	-	$	346,386	$	1,009,966
Short-term borrowings		60,000		60,000		-		-		60,000
Other borrowings		12,662		-		-		12,706		12,706
Accrued interest payable		980		980		-		-		980

	December 31, 2019
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	35,113	$	35,113	$	-	$	-	$	35,113
Loans held for sale		1,220		-		1,220		-		1,220
Net loans		977,490		-		-		974,213		974,213
Bank-owned life insurance		16,511		16,511		-		-		16,511
Federal Home Loan Bank stock		3,848		3,848		-		-		3,848
Accrued interest receivable		3,471		3,471		-		-		3,471
Financial liabilities:
Deposits	$	1,020,843	$	652,043	$	-	$	371,193	$	1,023,236
Short-term borrowings		5,075		5,075		-		-		5,075
Other borrowings		12,750		-		-		12,783		12,783
Accrued interest payable		917		917		-		-		917

All financial instruments included in the above tables, with the exception of net loans, deposits, and other borrowings, are carried at cost, which approximates the fair value of the instrument.

16

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) (“AOCI”) by component net of tax for the three months ended March 31, 2020 and 2019, respectively:

(Dollars in thousands)	Unrealized gains/(losses) on available-for-sale securities (a)
Balance as of December 31, 2018	$	(154	)
Other comprehensive income		795
Balance at March 31, 2019	$	641
Balance as of December 31, 2019	$	1,842
Other comprehensive (loss)		(4,079	)
Balance at March 31, 2020	$	(2,237	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

There were no other reclassifications of amounts from accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019.

NOTE 7 – INVESTMENT AND EQUITY SECURITIES

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

	March 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	221	$	-		$	4,221
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		84,343		236		(3,824	)		80,755
Mortgage-backed securities in government-sponsored entities		16,947		549		(14	)		17,482
Total	$	105,790	$	1,007	$	(3,838	)	$	102,959

	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	126	$	-		$	4,126
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		80,436		2,065		(25	)		82,476
Mortgage-backed securities in government-sponsored entities		18,465		274		(109	)		18,630
Total	$	103,401	$	2,466	$	(134	)	$	105,733

17

The Company recognized net (loss) gains on equity investments of ($160,000) and $58,000, respectively, for the three months ended March 31, 2020 and 2019. No net gains or losses on sold equity securities were realized during these periods.

The amortized cost and fair value of debt securities at March 31, 2020, 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	$	42	$	42
Due after one year through five years		1,316		1,328
Due after five years through ten years		17,965		18,255
Due after ten years		86,467		83,334
Total	$	105,790	$	102,959

There were no securities sold during the three months ended March 31, 2020 and 2019, respectively.

Investment securities with an approximate carrying value of $53.1 million and $55.6 million at March 31, 2020 and December 31, 2019, respectively, were pledged to secure deposits and for 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, 2020
	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
Obligations of states and political subdivisions:
Tax-exempt	$	51,663	$	(3,824	)	$	-	$	-		$	51,663	$	(3,824	)
Mortgage-backed securities in government-sponsored entities		-		-			2,539		(14	)		2,539		(14	)
Total	$	51,663	$	(3,824	)	$	2,539	$	(14	)	$	54,202	$	(3,838	)

	December 31, 2019
	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
Obligations of states and political subdivisions:
Tax-exempt	$	4,324	$	(25	)	$	-	$	-		$	4,324	$	(25	)
Mortgage-backed securities in government-sponsored entities		1,409		(2	)		8,223		(107	)		9,632		(109	)
Total	$	5,733	$	(27	)	$	8,223	$	(107	)	$	13,956	$	(134	)

There were 86 securities considered temporarily impaired at March 31, 2020.

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.

18

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 96% of the total available-for-sale portfolio as of March 31, 2020 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 the 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, 2020 and 2019, 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, 2020 or December 31, 2019 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.

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

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties. The Company also serves the central Ohio market with offices in Dublin, Sunbury, Westerville, Powell, and Plain City, 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 payments received on nonaccrual loans are applied against the unpaid principal balance until accrual status is restored.

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.

19

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

March 31, 2020
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,432	$	109,840	$	113,272
Non-owner occupied		7,043		285,732		292,775
Multifamily		-		52,276		52,276
Residential real estate		1,152		232,748		233,900
Commercial and industrial		911		105,886		106,797
Home equity lines of credit		347		114,586		114,933
Construction and other		-		71,186		71,186
Consumer installment		1		12,860		12,861
Total	$	12,886	$	985,114	$	998,000

December 31, 2019
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,474	$	98,912	$	102,386
Non-owner occupied		7,084		295,096		302,180
Multifamily		-		62,028		62,028
Residential real estate		1,278		233,520		234,798
Commercial and industrial		882		88,645		89,527
Home equity lines of credit		351		111,897		112,248
Construction and other		-		66,680		66,680
Consumer installment		1		14,410		14,411
Total	$	13,070	$	971,188	$	984,258

The amounts above include net deferred loan origination costs of $1.3 million at March 31, 2020 and December 31, 2019.

March 31, 2020
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	53	$	1,046	$	1,099
Non-owner occupied		1,095		3,269		4,364
Multifamily		-		386		386
Residential real estate		25		1,139		1,164
Commercial and industrial		3		713		716
Home equity lines of credit		40		1,200		1,240
Construction and other		-		254		254
Consumer installment		-		21		21
Total	$	1,216	$	8,028	$	9,244

20

December 31, 2019
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	45	$	756	$	801
Non-owner occupied		582		2,800		3,382
Multifamily		-		340		340
Residential real estate		28		698		726
Commercial and industrial		3		453		456
Home equity lines of credit		2		930		932
Construction and other		-		103		103
Consumer installment		-		28		28
Total	$	660	$	6,108	$	6,768

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”) which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Home Equity Lines of Credit (“HELOC”), Construction and Other (“COO”), and Consumer Installment Loans. The commercial real estate loan segments consist of loans made for the purpose of financing the activities of commercial real estate owners and operators. The residential real estate and HELOC loan segments consist of loans made for the purpose of financing the activities of residential homeowners. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. 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 the Commercial Real Estate, Residential Real Estate, C&I, HELOC, and Construction and other portfolios were partially offset by a decrease in the allowance for the Consumer Installment portfolios.

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. 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, 2020
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,749	$	1,749	$	-
Non-owner occupied		2,773		2,773		-
Residential real estate		636		699		-
Commercial and industrial		791		1,512		-
Home equity lines of credit		179		189		-
Consumer installment		1		1		-
Total	$	6,129	$	6,923	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,683	$	1,693	$	53
Non-owner occupied		4,270		4,270		1,095
Residential real estate		516		567		25
Commercial and industrial		120		120		3
Home equity lines of credit		168		168		40
Total	$	6,757	$	6,818	$	1,216
Total:
Commercial real estate:
Owner occupied	$	3,432	$	3,442	$	53
Non-owner occupied		7,043		7,043		1,095
Residential real estate		1,152		1,266		25
Commercial and industrial		911		1,632		3
Home equity lines of credit		347		357		40
Consumer installment		1		1		-
Total	$	12,886	$	13,741	$	1,216

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December 31, 2019
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,772	$	1,772	$	-
Non-owner occupied		3,845		3,845		-
Residential real estate		759		829		-
Commercial and industrial		747		1,524		-
Home equity lines of credit		220		228		-
Consumer installment		1		1		-
Total	$	7,344	$	8,199	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,702	$	1,713	$	45
Non-owner occupied		3,239		3,239		582
Residential real estate		519		569		28
Commercial and industrial		135		135		3
Home equity lines of credit		131		131		2
Total	$	5,726	$	5,787	$	660
Total:
Commercial real estate:
Owner occupied	$	3,474	$	3,485	$	45
Non-owner occupied		7,084		7,084		582
Residential real estate		1,278		1,398		28
Commercial and industrial		882		1,659		3
Home equity lines of credit		351		359		2
Consumer installment		1		1		-
Total	$	13,070	$	13,986	$	660

The tables above include troubled debt restructuring totaling $3.6 million as of March 31, 2020 and December 31, 2019. The amounts allocated within the allowance for losses for troubled debt restructurings was $70,000 and $33,000 at March 31, 2020 and December 31, 2019, respectively.

23

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, 2020				For the Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate:
Owner occupied	$	3,453	$	33	$	4,235	$	46
Non-owner occupied		7,064		49		5,057		52
Residential real estate		1,215		11		1,795		11
Commercial and industrial		897		10		2,198		30
Home equity lines of credit		349		2		118		1
Construction and other		-		-		1,620		45
Consumer installment		1		-		2		-
Total	$	12,979	$	105	$	15,025	$	185

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 have potential weaknesses, 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 payment delinquency, 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.  The Credit Department performs an annual review of all commercial relationships with loan balances of $500,000 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 criticized relationships greater than $150,000.  Detailed reviews, including plans for resolution, are performed on criticized loans on at least 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 related to deterioration in the cash flow of the business that may result in the liquidation of the business assets securing the loan. 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.

24

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):

			Special						Total
March 31, 2020	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	106,356	$	3,938	$	2,978	$	-	$	113,272
Non-owner occupied		275,603		3,375		13,797		-		292,775
Multifamily		40,685		-		11,591		-		52,276
Residential real estate		231,140		414		2,346		-		233,900
Commercial and industrial		101,055		3,956		1,786		-		106,797
Home equity lines of credit		113,675		-		1,258		-		114,933
Construction and other		71,186		-		-		-		71,186
Consumer installment		12,853		-		8		-		12,861
Total	$	952,553	$	11,683	$	33,764	$	-	$	998,000

			Special						Total
December 31, 2019	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	95,518	$	3,951	$	2,917	$	-	$	102,386
Non-owner occupied		292,192		3,038		6,950		-		302,180
Multifamily		62,028		-		-		-		62,028
Residential real estate		231,633		420		2,745		-		234,798
Commercial and industrial		84,136		3,619		1,772		-		89,527
Home equity lines of credit		111,354		-		894		-		112,248
Construction and other		66,680		-		-		-		66,680
Consumer installment		14,398		-		13		-		14,411
Total	$	957,939	$	11,028	$	15,291	$	-	$	984,258

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 are nonaccrual loans including nonaccrual troubled debt restructurings (“TDR”), loans 90 days or more past due, 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.

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The following tables present the aging of the recorded investment in past-due loans by class of loans (in thousands):

			30-59 Days		60-89 Days		90 Days+		Total		Total
March 31, 2020	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	112,222	$	-	$	-	$	1,050	$	1,050	$	113,272
Non-owner occupied		282,603		6,885		48		3,239		10,172		292,775
Multifamily		52,276		-		-		-		-		52,276
Residential real estate		230,471		2,577		462		390		3,429		233,900
Commercial and industrial		106,157		329		118		193		640		106,797
Home equity lines of credit		114,611		101		156		65		322		114,933
Construction and other		71,005		181		-		-		181		71,186
Consumer installment		12,576		37		22		226		285		12,861
Total	$	981,921	$	10,110	$	806	$	5,163	$	16,079	$	998,000

			30-59 Days		60-89 Days		90 Days+		Total		Total
December 31, 2019	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	101,264	$	64	$	-	$	1,058	$	1,122	$	102,386
Non-owner occupied		298,941		-		-		3,239		3,239		302,180
Multifamily		62,028		-		-		-		-		62,028
Residential real estate		232,518		1,439		34		807		2,280		234,798
Commercial and industrial		88,965		190		66		306		562		89,527
Home equity lines of credit		111,792		274		29		153		456		112,248
Construction and other		66,680		-		-		-		-		66,680
Consumer installment		13,378		622		216		195		1,033		14,411
Total	$	975,566	$	2,589	$	345	$	5,758	$	8,692	$	984,258

The following tables present the recorded investment in nonaccrual loans and loans past due over 89 days and still on accrual by class of loans (in thousands):

			90+ Days Past Due
March 31, 2020	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,175	$	-
Non-owner occupied		3,287		-
Residential real estate		2,180		-
Commercial and industrial		835		-
Home equity lines of credit		699		-
Consumer installment		229		-
Total	$	8,405	$	-

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			90+ Days Past Due
December 31, 2019	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,162	$	-
Non-owner occupied		3,289		-
Residential real estate		2,576		-
Commercial and industrial		946		-
Home equity lines of credit		709		-
Consumer installment		197		-
Total	$	8,879	$	-

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $100,000 for the three months ended March 31, 2020 and $342,000 for the year ended December 31, 2019.

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 Statement 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 call 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 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.

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The following tables summarize the primary segments of the loan portfolio and the activity within those segments (in thousands):

	Allowance for Loan and Lease Losses
	Balance									Balance
	December 31, 2019		Charge-offs			Recoveries		Provision		March 31, 2020
Loans:
Commercial real estate:
Owner occupied	$	801	$	-		$	3	$	295	$	1,099
Non-owner occupied		3,382		-			74		908		4,364
Multifamily		340		-			-		46		386
Residential real estate		726		(46	)		29		455		1,164
Commercial and industrial		456		(61	)		109		212		716
Home equity lines of credit		932		(13	)		3		318		1,240
Construction and other		103		-			17		134		254
Consumer installment		28		(388	)		9		372		21
Total	$	6,768	$	(508	)	$	244	$	2,740	$	9,244

	Allowance for Loan and Lease Losses
	Balance										Balance
	December 31, 2018		Charge-offs			Recoveries		Provision			March 31, 2019
Loans:
Commercial real estate:
Owner occupied	$	1,315	$	(32	)	$	1	$	(454	)	$	830
Non-owner occupied		2,862		-			-		(5	)		2,857
Multifamily		474		-			-		18			492
Residential real estate		761		-			10		2			773
Commercial and industrial		969		(347	)		16		(52	)		586
Home equity lines of credit		820		(91	)		4		99			832
Construction and other		100		-			23		625			748
Consumer installment		127		(47	)		1		7			88
Total	$	7,428	$	(517	)	$	55	$	240		$	7,206

The provision fluctuations during the three-month period ended March 31, 2020 allocated to all loan categories are from an increase in qualitative factors, resulting in a $1.8 million increase, due to economic uncertainty. The provision also increased for the non-owner occupied portfolio because of the increase of a specific reserve for one relationship of $510,000 during the period.

The provision fluctuations during the three-month period ended March 31, 2019 allocated to:

● commercial and industrial loans are due to the charge-off of a large relationship of $336,000 from a previous reserve of $358,000.

● construction and other loans are due to the addition of a large loan requiring a reserve of $661,000.

● owner occupied commercial real estate loans are due to the payoff of one relationship that had a previous reserve balance of $435,000.

TDR describes loans on which the bank has granted concessions for reasons related to the customer’s financial difficulties. Such concessions may include one or more of the following:

● reduction in the interest rate to below market rates

● extension of repayment requirements beyond normal terms

● reduction of the principal amount owed

● reduction of accrued interest due

● acceptance of other assets in full or partial payment of a debt

In each case, the concession is made due to deterioration in the borrower’s financial condition, and the new terms are less stringent than those required on a new loan with similar risk.

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On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.

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

	For the Three Months Ended
	March 31, 2020
	Number of Contracts						Pre-Modification		Post-Modification
Troubled Debt Restructurings	Term Modification		Other		Total		Outstanding Recorded Investment		Outstanding Recorded Investment
Residential real estate		2		-		2	$	42	$	42
Commercial and industrial		1		-		1		95		95

There were no troubled debt restructurings during the three months ended March 31, 2019. 

There were no subsequent defaults of troubled debt restructurings for the three months ended March 31, 2020 and March 31, 2019.

NOTE 9 – STOCK SPLIT DISCLOSURE

On October 9, 2019, the Board of Directors of Middlefield Banc Corp. authorized a two-for-one stock split. Each shareholder of record at the close of business on October 25, 2019, received one additional share for every outstanding share held on the record date. The additional shares were paid on November 8, 2019. As a result, all share and earnings per share information have been retroactively adjusted to reflect the stock split.

With respect to the March 31, 2020 and 2019 financial statements, the effect of the stock split on March 31, 2019 amounts was recognized retroactively in the stockholders’ equity accounts in the Consolidated Balance Sheets, and in all share data in the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations. The effect of the stock split on per share amounts and weighted average common shares outstanding for the three months ended March 31, 2019 is as follows:

	For the three months ended
	March 31, 2019
Restated net income per common share - basic	$	0.46
Restated net income per common share - diluted	$	0.46
Restated weighted-average common shares issued		7,270,608
Restated average treasury stock shares		772,330
Restated average shares outstanding - basic		6,498,278
Restated stock options and restricted stock		12,290
Restated average shares outstanding - diluted		6,510,568
Restated period ending shares outstanding		6,512,740
Restated treasury shares outstanding		772,330

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NOTE 10 – RISKS AND UNCERTAINTIES

COVID-19 Update

The following table provides information with respect to our commercial loans by type at March 31, 2020.

At Risk

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		337	$	142,725		14.30	%
Retail		220		197,073		19.75	%
Restaurant/food service/bar		48		16,868		1.69	%
Hospitality and tourism		32		45,225		4.53	%
Self-storage facility		29		25,622		2.57	%
Other		121		14,218		1.42	%
Total		787	$	441,731		44.26	%

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).

As a qualified SBA lender, we were automatically authorized to originate PPP loans.

An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly payroll costs; or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

As of May 3, 2020, we approved 1,048 applications for up to $138.1 million of loans under the PPP.

Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. Middlefield Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the bank regarding PPP loans, regarding the process and procedures used in processing applications for the PPP. If any such litigation is filed against Middlefield Bank and is not resolved in a manner favorable to Middlefield Bank, it may result in significant financial liability or adversely affect Middlefield Bank’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

Middlefield Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by Middlefield Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by Middlefield Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from Middlefield Bank.

Owner-Occupied Residential Mortgage & Consumer Loans. For residential mortgage and consumer loans, CARES Act Section 4013 forbearance agreements are available to qualified borrowers. As of May 1, 2020, we received inquiries from 59 loan borrowers with aggregate outstanding loan balances of $7.8 million concerning the availability of some form of payment relief. Of these requests, there are no borrowers related to single-family non-owner-occupied loans. Due to the widespread impact of the State of Ohio Stay At Home order, we expect that additional residential loan borrowers will seek loan forbearance or loan modification agreements in the second quarter of 2020.

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Deferrals

As of May 1, 2020, we received requests to modify 606 loans aggregating $333.2 million. As of April 21, 2020, we modified 252 loans aggregating $147.0 million primarily consisting of the deferral of principal and interest payments and the extension of the maturity date. The remaining modifications are in process and are expected to be completed.

Details with respect to actual loan modifications are as follows:

COVID-19 Loan Forbearance Programs. Section 4013 of the CARES Act provides that banks may elect not to categorize a loan modification as a TDR if the loan modification is (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020, under the National Emergencies Act terminates, or (B) December 31, 2020. According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory agencies on April 7, 2020, short-term loan modifications not otherwise eligible under Section 4013 that are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 8 of the financial statements for additional disclosure of TDRs at March 31, 2020.

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		9	$	2,297		0.23	%
Office		9		1,776		0.18	%
Retail		41		52,443		5.25	%
Restaurant/food service/bar		8		3,320		0.33	%
Hospitality and tourism		8		4,638		0.46	%
Other		113		42,547		4.26	%
Total		188	$	107,021		10.71	%

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

The following management’s discussion and analysis (MD&A) provide 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 report on Form 10-Q contains 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 vital infrastructure and the potential impact of the COVID-19 pandemic. All forward-looking statements included in this 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, 2020 quarter at $1.21 billion, an increase of $31.5 million from December 31, 2019. For the same time period, cash and cash equivalents increased $20.2 million, or 57.6%, while net loans increased $11.3 million, or 1.2%. Total liabilities increased $36.6 million or 3.5%, while stockholders’ equity decreased $5.1 million, or 3.7%.

Cash and cash equivalents. Cash and cash equivalents increased $20.2 million, or 57.6%, to $55.3 million at March 31, 2020 from $35.1 million at December 31, 2019. 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.    

The Company will continue to hold elevated levels of cash and cash equivalents to meet the demands of customers during the economic downturn. The Company monitors cash and cash equivalents on a daily basis to ensure adequate liquidity positions are maintained. As of March 31, 2020, no material fluctuations in cash were noted.    

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Investment securities. Investment securities available for sale on March 31, 2020 totaled $103.0 million, a decrease of $2.8 million, or 2.6%, from $105.7 million at December 31, 2019. During this period, the Company recorded repayments, calls, and maturities of $2.8 million and a net unrealized holding loss through AOCI of $5.2 million. Securities purchased were $5.3 million, and there were no sales of securities for the three months ended March 31, 2020. The Company recorded $160,000 in losses on equity securities as of March 31, 2020 on the Company’s Consolidated Statement of Income and Consolidated Statement of Cash Flows. The loss on equity securities is the result of remeasurements of fair value of the equity securities held during this three-month period. Included in the Company’s available-for-sale investment securities as of March 31, 2020 is an investment in the subordinated debt of an Ohio-based community bank in the amount of $4.0 million at an annual interest rate of 6%.

Periodically, management reviews the entire municipal bond portfolio to assess credit quality. Each security held in this portfolio is assessed on attributes that have historically influenced default incidence in the municipal market, such as: sector, security, impairment filing, timeliness of disclosure, external credit assessment(s), credit spread, state, vintage, and underwriter. Municipal bonds compose 79% of the overall portfolio. While these investments have historically proven to have extremely low credit risk, the current economic environment may pose a threat to the cash flows of these governmental entities. The March 31, 2020 review shows portfolio credit quality to be strong with 99.5% of the portfolio having an assigned investment-grade rating or secured by an escrow of US government or agency securities. 80% of the portfolio is either pre-refunded or rated in the broad rating categories of AA or AAA. While not included in the assessment of the credit quality of portfolio holdings, 17.6% benefit from a bond insurance policy, which provides an additional layer of payment support for the securities.

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, home equity lines of credit, and commercial real estate loans used to finance properties that are used in the borrowers’ businesses, or to finance investor-owned rental properties, and, to a lesser extent, construction and consumer loans. The portfolio is well disbursed, geographically, with the five branches in the central Ohio market comprising 24.8% of the Company’s total loans. Net loans receivable increased $11.3 million, or 1.2%, to $988.8 million as of March 31, 2020 from $977.5 million at December 31, 2019. Included in the total increase for loans receivable were increases in the commercial and industrial, owner occupied, construction and other, and home equity lines of credit portfolios of $17.3 million, or 19.3%, $10.9 million, or 10.6%, $4.5 million, or 6.8%, and $2.7 million, or 2.4%, respectively. This increase is net of decreases in the residential real estate, consumer installment, non-owner occupied, and multifamily portfolios of $898,000, or 0.4%, $1.6 million, or 10.8%, $9.4 million, or 3.1%, and $9.8 million, or 15.7%, respectively.

The Company’s Mortgage Banking operation generates loans for sale to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Loans held for sale on March 31, 2020 totaled $513,000, a decrease of $707,000, or 58.0%, from December 31, 2019. This decrease is the result of fewer saleable loans being held at quarter end. The Company recorded proceeds from the sale of $4.1 million of these loans for $114,000 in gains on sale of loans as of March 31, 2020 on the Company’s Consolidated Statement of Cash Flows.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. At March 31, 2020 non-owner-occupied commercial real estate loans (including construction, land and land development loans) represent 310.7% of total risk-based capital. Construction, land and land development loans represent 51.0% of total risk-based capital. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, and strong underwriting criteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company has an extensive capital planning policy, which includes proforma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well-capitalized ratios.

The Company monitors daily fluctuations in unused commitments as a means of identifying potentially material drawdowns on existing lines of credit. At March 31, 2020, unused line of credit commitments increased $3.2 million from December 31, 2019.

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Allowance for Loan and Lease Losses and Asset Quality. The allowance for loan and lease losses increased $2.5 million, or 36.6%, to $9.2 million at March 31, 2020 from $6.8 million at December 31, 2019. For the three months ended March 31, 2020, net loan charge-offs totaled $264,000, or 0.11% of average loans, compared to net charge-offs of $462,000, or 0.19% of average loans, for the same period in 2019. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $2.7 million in the three-month period ended March 31, 2020. The ratio of the allowance for loan and lease losses to nonperforming loans was 109.98% for the three-month period ended March 31, 2020, compared to 68.81% for the same period in the prior year. This is due to an increase in impaired loans and the allowance being adjusted to address the economic slowdown at March 31, 2020. See additional discussions on the provision for loan losses section below.

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, 2020. 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.

Goodwill. The Company considers the negative economic impact resulting from the COVID-19 shutdowns to be a triggering event necessitating a mid-cycle analysis for impairment. Based on the analysis performed as of March 31, 2020, the Company determined that goodwill was not impaired.

Nonperforming assets. Nonperforming assets include nonaccrual loans, loans 90 days or more past due, 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.

	Asset Quality History
(Dollar amounts in thousands)	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Nonperforming loans	$	8,405		$	8,879		$	10,053		$	10,729		$	10,472
Other real estate owned		456			155			89			89			126
Nonperforming assets	$	8,861		$	9,034		$	10,142		$	10,818		$	10,598
Allowance for loan and lease losses		9,244			6,768			7,001			7,304			7,206
Ratios:
Nonperforming loans to total loans		0.84	%		0.90	%		1.01	%		1.07	%		1.04	%
Nonperforming assets to total assets		0.73	%		0.76	%		0.79	%		0.84	%		0.83	%
Allowance for loan and lease losses to total loans		0.93	%		0.69	%		0.70	%		0.73	%		0.72	%
Allowance for loan and lease losses to nonperforming loans		109.98	%		76.22	%		69.64	%		68.08	%		68.81	%

Nonperforming loans exclude TDRs that are performing in accordance with their terms over a prescribed period of time. 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 26 TDRs accruing interest with a balance of $2.9 million as of March 31, 2020. A TDR that yields a market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as a 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 $7.4 million as of March 31, 2020, a decrease of $451,000 from $7.8 million at December 31, 2019.

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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, 2020, 87.9% were secured by real estate. Although this does not insure against all losses, real estate typically provides for at least partial recovery, even in a distressed-sale and declining-value environment. The Company’s objective is to minimize the future loss exposure of the Company.

The allowance for loan and lease losses to total loans ratio increased from 0.69% as of December 31, 2019 to 0.93% as of March 31, 2020.

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $1.00 billion or 95.4% of the Company’s total average funding sources at March 31, 2020. Total deposits decreased $17.1 million, or 1.7%, at March 31, 2020 from $1.02 billion at December 31, 2019. The total decrease in deposits is the net of increases in interest-bearing demand deposits, and noninterest-bearing demand deposits of $17.3 million, or 16.1%, and $15.0 million, or 7.8%, respectively, and decreases in money market deposits, savings, and time deposits of $4.3 million, or 2.7%, $16.5 million, or 8.6%, and $28.7 million, or 7.8%, respectively, at March 31, 2020. The Company uses certain non-core funding instruments in order to grow the balance sheet and maintain liquidity. These deposits, either from a broker or a listing service, were $25.1 million at March 31, 2020, as compared to $117.1 million at December 31, 2019.

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, and federal funds purchased. Short-term borrowings increased $54.9 million to $60.0 million as of March 31, 2020 as a result of a strategic shift to reprice funding at lower rates. Other borrowings decreased $88,000, or 0.7%, to $12.7 million as of March 31, 2020 from $12.8 million as of December 31, 2019.

Stockholders’ equity. Stockholders’ equity decreased $5.1 million, or 3.7%, to $132.7 million at March 31, 2020 from $137.8 million at December 31, 2019. This decrease was the result of decreases in AOCI of $4.1 million, dividends paid of $964,000, and an increase in treasury stock of $1.2 million, or 7.6% to $16.9 million as of March 31, 2020, from $15.7 million as of December 31, 2019. The change in AOCI is due to fair value adjustments of available-for-sale securities, and the change in treasury stock is due to the Company repurchasing 58,200 of its outstanding shares during the three months ended March 31, 2020.

The Company suspended its stock repurchase program as a result of the economic slowdown and the focus on capital preservation. The suspension will continue until economic clarity arises and the Company is certain it is the best use of capital.

RESULTS OF OPERATIONS

General. Net income for the three months ended March 31, 2020, was $1.0 million, a $2.0 million, or 65.4%, decrease from the amount earned during the same period in 2019. Diluted earnings per share for the quarter decreased to $0.16, compared to $0.46 from the same period in 2019.

The Company’s annualized return on average assets (“ROA”) and return on average equity (“ROE”) for the quarter were 0.35% and 3.01%, respectively, compared with 1.01% and 9.36% for the same period in 2019.

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management 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. Management’s goal is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.

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Net interest income for the three months ended March 31, 2020 totaled $10.0 million, a decrease of 1.9% from that reported in the comparable period of 2019. The net interest margin was 3.63% for the first quarter of 2020, a decrease from the 3.69% reported for the same quarter of 2019. The decline in the net interest margin is attributable to a 12 basis point decrease in loans receivable yield combined with an average balance decline of $16.3 million in the same category. The Company’s net interest margin may be subject to further decline as a result of the abrupt decrease in interest rates during the first quarter of 2020, the reduced interest income on floating-rate commercial loans, and the business disruptions caused by the COVID-19 pandemic. As the Company is in an asset-sensitive position, reductions in market interest rates have a negative impact on margin as the Company’s interest-earning assets reprice faster than its interest-bearing liabilities. Much of our asset-sensitivity is due to commercial and consumer loans that have variable interest rates. Both loan types have floor rates. The benefit of these floors will become more evident in future quarters if the Federal Reserve maintains short-term interest rates at the low level established in March 2020. Yields on interest-earning deposits with other banks decreased 86 basis points leading to a $107,000 decline in interest income. The $475,000 decrease in interest income was partially offset by a $278,000 decrease in interest expense.

Interest and dividend income. Interest and dividend income decreased $475,000, or 3.5%, for the three months ended March 31, 2020, compared to the same period in the prior year. This is mainly attributable to a decrease in interest and fees on loans of $410,000.

Interest and fees earned on loans receivable decreased $410,000, or 3.3%, for the three months ended March 31, 2020, compared to the same period in the prior year. This is attributable to a decrease in average loan balances of $16.3 million, accompanied by a 12 basis point decrease in the average yield to 4.95%.

Net interest earned on securities increased by $42,000 for the three months ended March 31, 2020 when compared to the same period in the prior year. The average balance of investment securities increased $8.4 million, or 8.6%, while the 3.62% yield on the investment portfolio decreased by 10 basis points, from 3.72%, for the same period in the prior year.

Interest expense. Interest expense decreased $278,000, or 8.5%, for the three months ended March 31, 2020, compared to the same period in the prior year. The decrease is attributable to decreases in the average balances of money market deposits and short-term borrowings of $36.2 million, or 18.7%, and $20.6 million, or 58.2%, respectively. It is further attributable to a 31 basis point decrease in savings cost. This decrease was partially offset by an increase in the average balances of certificates of deposits of $53.6 million, or 16.7%.

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 $2.7 million was recorded for the quarter ended March 31, 2020, an increase of $2.5 million from the quarter ended March 31, 2019. The Company remains confident in the conservative and disciplined approach to credit and risk management, however, the economic challenges caused by the COVID-19 crisis has an immediate impact on credit quality.

Macroeconomic trends have yet to fully capture the impact of the COVID-19 crisis, but underlying economic weaknesses existed on March 31, 2020. While management expects remaining 2020 provisions to be higher than historical levels, we do not anticipate provisions to be at the level seen in the first quarter.

At March 31, 2020, we considered the effect of the economic shutdown to combat COVID-19 on our borrowers and local economy. Although stimulus and mitigation efforts are expected to reduce the impact, we believe a 20 basis point downgrade to the economic qualitative factor was warranted. Most of the increased provision is the result of increases to the current economic condition’s qualitative factors. The impact of those increases for the three months ended March 31, 2020 is (in thousands):

Commercial real estate:
Owner occupied	$	197
Non-owner occupied		515
Multifamily		87
Residential real estate		453
Commercial and industrial		206
Home equity lines of credit		228
Construction and other		142
Consumer installment		8
Total	$	1,836

Nonperforming loans were $8.4 million, or 0.84%, of total loans at March 31, 2020 compared with $10.5 million, or 1.04%, at March 31, 2019. For the three months ended March 31, 2020, net loan charge-offs totaled $264,000, or 0.11% of average loans, compared to net charge-offs of $462,000, or 0.19% of average loans, for the first quarter of 2019.

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 Noninterest income. Noninterest income decreased $58,000, or 5.1%, for the three months ended March 31, 2020 over the comparable 2019 period. This decrease was the result of a loss on equity securities of $160,000 (see Note 7), which was partially offset by an increase in gains on sale of loans and in other income of $55,000, or 93.2%, and $58,000, or 14.4%, respectively. The increase in gains on sale of loans is due to an increase in saleable loans being sold during the quarter, and the increase in other income is due to an increase in recoveries on student loans.

Noninterest expense. Noninterest expense of $7.3 million for the first quarter 2020 was 3.3%, or $248,000, lower than the first quarter of 2019. Data processing costs and other expense increased $201,000, or 43.2%, and $196,000, or 22.5%, respectively. These increases were offset by a decrease in salaries and employee benefits of $600,000, or 14.5%. The increase in data processing costs is due to new and increased costs of processing agreements, and the increase in other expense is due to increases in miscellaneous loan expenses, sundry gains and losses, and no offsetting gains on sales of OREO properties. The decrease in salary expense is due to the valuation adjustment for share-based compensation liability (see Note 3), as well as a decrease in profit sharing expense recorded.

Provision for income taxes. The Company recognized $74,000 in income tax expense, which reflected an effective tax rate of 6.6% for the three months ended March 31, 2020, as compared to $611,000 with an effective tax rate of 16.9% for the comparable 2019 period.

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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 and loans (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,
	2020							2019
	Average				Average			Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable (3)	$	984,034	$	12,078		4.95	%	$	1,000,343	$	12,488		5.07	%
Investment securities (3)		105,894		786		3.62	%		97,484		744		3.72	%
Interest-earning deposits with other banks (4)		41,717		145		1.40	%		45,283		252		2.26	%
Total interest-earning assets		1,131,645		13,009		4.69	%		1,143,110		13,484		4.84	%
Noninterest-earning assets		65,003							60,576
Total assets	$	1,196,648						$	1,203,686
Interest-bearing liabilities:
Interest-bearing demand deposits	$	113,691	$	119		0.42	%	$	96,402	$	72		0.30	%
Money market deposits		158,008		552		1.41	%		194,236		755		1.58	%
Savings deposits		183,137		226		0.50	%		207,848		417		0.81	%
Certificates of deposit		373,866		1,968		2.12	%		320,243		1,701		2.15	%
Short-term borrowings		14,808		35		0.95	%		35,390		213		2.44	%
Other borrowings		12,703		76		2.41	%		13,447		96		2.90	%
Total interest-bearing liabilities		856,213		2,976		1.40	%		867,566		3,254		1.52	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		195,411							198,286
Other liabilities		5,816							7,384
Stockholders' equity		139,208							130,450
Total liabilities and stockholders' equity	$	1,196,648						$	1,203,686
Net interest income			$	10,033						$	10,230
Interest rate spread (1)						3.29	%						3.32	%
Net interest margin (2)						3.63	%						3.69	%
Ratio of average interest-earning assets to average interest-bearing liabilities						132.17	%						131.76	%

(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 and loans were $189 and  $170 for the three months ended March 31, 2020 and 2019, respectively.

(4) Includes dividends received on restricted stock.  

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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, 2020 and 2019, 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.

	2020 versus 2019
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	(206	)	$	(204	)	$	(410	)
Investment securities		78			(36	)		42
Interest-earning deposits with other banks		(20	)		(87	)		(107	)
Total interest-earning assets		(148	)		(327	)		(475	)
Interest-bearing liabilities:
Interest-bearing demand deposits		13			34			47
Money market deposits		(142	)		(61	)		(203	)
Savings deposits		(50	)		(141	)		(191	)
Certificates of deposit		287			(20	)		267
Short-term borrowings		(125	)		(53	)		(178	)
Other borrowings		(5	)		(15	)		(20	)
Total interest-bearing liabilities		(22	)		(256	)		(278	)
Net interest income	$	(126	)	$	(71	)	$	(197	)

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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. The Company offers a line of retail deposit products created to more closely align with customer expectations while expanding the Company’s core funding base. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, the ability to borrow funds under line of credit agreements with correspondent banks and 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.

At March 31, 2020, additional borrowing capacity at the FHLB was $222.4 million, as compared to $273.4 million at December 31, 2020. This decrease was the result of shifting funding sources from wholesale to FHLB, as the former grew more expensive in the first quarter of the year. For the three months ended March 31, 2020, wholesale funding decreased $92.0 million. The Company has additional assets to collateralize with the FHLB if the need for increased capacity arises. The Company also has the option of borrowing from the Federal Reserve discount window with any assets not currently pledged elsewhere. Management believes that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided Middlefield Bank with strong liquidity as of March 31, 2020. Management plans to continually monitor liquidity in future periods to look for signs of stress resulting from the COVID-19 pandemic.

For the three months ended March 31, 2020, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment and software, the provision for loan losses, net amortization of securities, earnings on bank-owned life insurance, accretion of net deferred loan fees, 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 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 implementation of the capital ratio buffer began January 1, 2016 at the 0.625% level and has been fully phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% 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.

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Middlefield Bank and the Company met each of the well-capitalized ratio guidelines at March 31, 2020. The following table indicates the capital ratios for Middlefield Bank and Company at March 31, 2020 and December 31, 2019.

	As of March 31, 2020
	Leverage			Tier 1 Risk Based			Common Equity Tier 1			Total Risk Based
The Middlefield Banking Company		10.53	%		12.18	%		12.18	%		13.09	%
Middlefield Banc Corp.		10.22	%		12.38	%		11.59	%		13.29	%
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, 2019
	Leverage			Tier 1 Risk Based			Common Equity Tier 1			Total Risk Based
The Middlefield Banking Company		10.35	%		12.12	%		12.12	%		12.79	%
Middlefield Banc Corp.		10.23	%		12.56	%		11.77	%		13.23	%
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	%

While we believe that Middlefield Bank is well prepared to weather the COVID-19 global pandemic, Middlefield Bank’s regulatory capital ratios could be adversely affected by credit losses and other adverse consequences associated with the pandemic.

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 enable 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.

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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.

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, 2020 and December 31, 2019 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, 2020 and December 31, 2019 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, 2020 and December 31, 2019 for portfolio equity:  

	March 31, 2020						December 31, 2019
Change in Rates	% Change in NII			% Change in EVE			% Change in NII			% Change in EVE
+200bp		(0.50	)%		4.80	%		0.20	%		6.20	%
-100bp		0.90	%		(13.70	)%		(0.60	)%		(9.40	)%

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, 2020, have remained unchanged from December 31, 2019.

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 Company’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 Company 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.

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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

From time to time, the Company and MBC may be involved in litigation relating to claims arising out of their normal course of business. Currently, the Company and MBC are not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to their financial condition or results of operations.

Item 1a. Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the novel COVID-19 outbreak could adversely affect our financial condition and results of operations. 

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 26 million people have filed claims for unemployment. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are encouraging lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and issued guidance providing relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

42

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

● demand for our products and services may decline, making it difficult to increase our assets and income;

● if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, nonperforming assets, and foreclosures may increase, resulting in increased loan charge-offs and additions to loan loss reserves and reduced income;

● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

● our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

● as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

● a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

● we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

● Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs for bank failures.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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

              Details of repurchases of Company common stock during the first quarter of 2020 are included in the following table:

2020 period	Total shares				Total shares purchased as part of a publicly announced		Maximum number of shares that may yet be purchased
In thousands, except per share data	purchased		Average price paid per share		program (a)		under the program
January 1-31		-	$	-		-		100,584
February 1-29		-	$	-		-		100,584
March 1-31		58,200	$	20.41		58,200		42,384
Total		58,200	$	20.41

(a) On April 16, 2019, the Company announced that the Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to 150,000 shares of its common stock in the open market or in privately negotiated transactions, subject to market and other conditions (the “Program”). The Program was suspended effective March 26, 2020.

Item 3.    Defaults by the Company on its Senior Securities

None

Item 4.    Mine Safety Disclosures

N/A

43

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, 2020

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
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*	Change in Control Agreement between Middlefield Banc Corp. and Thomas G. Caldwell	Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019

44

10.3*	Change in Control Agreement between Middlefield Banc Corp. and James R. Heslop, II	Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
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*	Change in Control Agreement between Middlefield Banc Corp. and Charles O. Moore	Incorporated by reference to Exhibit 10.4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
10.4.3*	Change in Control Agreement between Middlefield Banc Corp. and Donald L. Stacy	Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
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
10.4.5*	Change in Control Agreement between Middlefield Banc Corp. and Michael L. Allen	Incorporated by reference to Exhibit 10.4.5 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on November 5, 2019
10.4.6*	Change in Control Agreement between Middlefield Banc Corp. and John D. Lane	Incorporated by reference to Exhibit 10.4.6 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on November 5, 2019
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]
10.1	[reserved]

45

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
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 March 12, 2019

46

10.22.1	[reserved]
10.23**	Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.24**	Amended Executive Deferred Compensation Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.25**	Amended Executive Deferred Compensation Agreement with Donald L. Stacy	Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.26**	Executive Variable Benefit Deferred Compensation Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.26 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.27**	Executive Variable Benefit Deferred Compensation Agreement with Donald L. Stacy	Incorporated by reference to Exhibit 10.27 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.28**	Executive Deferred Compensation Agreement with Charles O. Moore	Incorporated by reference to Exhibit 10.28 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
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
10.30**	Executive Deferred Compensation Agreement with Michael L. Allen	Incorporated by reference to Exhibit 10.30 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on May 7, 2019
10.31**	Executive Deferred Compensation Agreement with John D. Lane	Incorporated by reference to Exhibit 10.31 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on May 7, 2019
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

47

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

** management contract or compensatory plan or arrangement, a schedule has been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided on a supplemental basis to the Securities and Exchange Commission upon request

*** 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

48

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 6, 2020	By: /s/Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer
Date: May 6, 2020	By: /s/Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

49

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 6, 2020	/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 6, 2020	/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, 2020 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 6, 2020

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

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, 2020	Mar. 31, 2019
Average recorded investment	$ 12,979	$ 15,025
Interest income recognized	105	185
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Average recorded investment	3,453	4,235
Interest income recognized	33	46
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Average recorded investment	7,064	5,057
Interest income recognized	49	52
Residential Portfolio Segment [Member]
Average recorded investment	1,215	1,795
Interest income recognized	11	11
Commercial And Industrial [Member]
Average recorded investment	897	2,198
Interest income recognized	10	30
Home Equity Lines of Credit [Member]
Average recorded investment	349	118
Interest income recognized	2	1
Construction and Other [Member]
Average recorded investment		1,620
Interest income recognized		45
Consumer Portfolio Segment [Member]
Average recorded investment	1	2
Interest income recognized

XML

Note 8 - Loans and Related Allowance for Loan and Lease Losses - Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019
Number of contracts		0
Residential Portfolio Segment [Member]
Number of contracts	2
Pre-modification outstanding recorded investment	$ 42
Post-modification outstanding recorded investment	$ 42
Commercial And Industrial [Member]
Number of contracts	1
Pre-modification outstanding recorded investment	$ 95
Post-modification outstanding recorded investment	$ 95
Extended Maturity [Member] | Residential Portfolio Segment [Member]
Number of contracts	2
Extended Maturity [Member] | Commercial And Industrial [Member]
Number of contracts	1
Other Restructurings [Member] | Residential Portfolio Segment [Member]
Number of contracts
Other Restructurings [Member] | Commercial And Industrial [Member]
Number of contracts

XML

Note 10 - Risks and Uncertainties - Loans at Risk (Details) - Commercial Portfolio Segment [Member] - COVID-19 [Member] $ in Thousands	Mar. 31, 2020 USD ($)
Number of loans at risk	787
Balance of loans at risk	$ 441,731
% of total loans at risk	44.26%
Residential Non-owner Occupied Loan [Member]
Number of loans at risk	337
Balance of loans at risk	$ 142,725
% of total loans at risk	14.30%
Retail Loan [Member]
Number of loans at risk	220
Balance of loans at risk	$ 197,073
% of total loans at risk	19.75%
Restaurant/food service/bar Loan [Member]
Number of loans at risk	48
Balance of loans at risk	$ 16,868
% of total loans at risk	1.69%
Hospitality and Tourism Loan [Member]
Number of loans at risk	32
Balance of loans at risk	$ 45,225
% of total loans at risk	4.53%
Self-storage Facility Loan [Member]
Number of loans at risk	29
Balance of loans at risk	$ 25,622
% of total loans at risk	2.57%
Other Loans [Member]
Number of loans at risk	121
Balance of loans at risk	$ 14,218
% of total loans at risk	1.42%

XML

Note 5 - Fair Value Measurements - Additional Quantitative Information About Assets Measured at Fair Value on Non-recurring Basis (Details) - Fair Value, Nonrecurring [Member] - Fair Value, Inputs, Level 3 [Member] - Appraisal of Collateral [Member] $ in Thousands		Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Impaired loans, fair value estimate	[1]	$ 4,566	$ 5,166
Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	0.354	0.403
Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	0.495	0.474
Weighted Average [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, discount rate	[2]	0.362	0.418

[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.

XML

Note 4 - Earnings Per Share - Shares Used in Calculation of Earnings Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Weighted-average common shares issued (in shares)	7,298,740	7,270,608
Average treasury stock shares (in shares)	(881,631)	(772,330)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share (in shares)	6,417,109	6,498,278
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share (in shares)	12,334	12,290
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share (in shares)	6,429,443	6,510,568

XML

Note 3 - Stock-based Compensation (Details Textual) - USD ($) shares in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance (in shares)	0	0
Share-based Payment Arrangement, Expense	$ (408,000)	$ 90,000
Deferred Compensation Share-based Arrangements, Liability, Current and Noncurrent	287,000	$ 236,000
Restricted Stock [Member]
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount	$ 219,000
Restricted Stock [Member] | Forecast [Member]
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount			$ 4,000	$ 34,000	$ 88,000	$ 94,000

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Retained Earnings [Member]
Cash dividends per share (in dollars per share)	$ 0.15	$ 0.14
Treasury acquired, shares (in shares)	58,200

XML

Note 4 - Earnings Per Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

NO

TE

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 and restricted stock 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,
	2020			2019
Weighted-average common shares issued		7,298,740			7,270,608
Average treasury stock shares		(881,631	)		(772,330	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		6,417,109			6,498,278
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		12,334			12,290
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		6,429,443			6,510,568

Options to purchase

13,500

shares of common stock at

$8.78

per share, were outstanding during the

three

months ended

March 31, 2020.

Also outstanding were

84,688

shares of restricted stock.

None

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

Options to purchase

14,900

shares of common stock at

$8.78

per share, were outstanding during the

three

months ended

March 31, 2019.

Also outstanding were

61,334

shares of restricted stock.

None

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

When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by the Company. As of

March 31, 2020,

the Company held

929,362

of the Company’s shares, which is an increase of

58,200

for the

three

months ended

March 31, 2020,

from the

871,162

shares held as of

December 31, 2019.

XML

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

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

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

NOTE

8

-

LOANS AND RELATED

ALLOWANCE FOR LOAN AND LEASE LOSSES

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties. The Company also serves the central Ohio market with offices in Dublin, Sunbury, Westerville, Powell, and Plain City, 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 payments received on nonaccrual loans are applied against the unpaid principal balance until accrual status is restored.

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):

March 31, 2020
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,432	$	109,840	$	113,272
Non-owner occupied		7,043		285,732		292,775
Multifamily		-		52,276		52,276
Residential real estate		1,152		232,748		233,900
Commercial and industrial		911		105,886		106,797
Home equity lines of credit		347		114,586		114,933
Construction and other		-		71,186		71,186
Consumer installment		1		12,860		12,861
Total	$	12,886	$	985,114	$	998,000

December 31, 2019
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,474	$	98,912	$	102,386
Non-owner occupied		7,084		295,096		302,180
Multifamily		-		62,028		62,028
Residential real estate		1,278		233,520		234,798
Commercial and industrial		882		88,645		89,527
Home equity lines of credit		351		111,897		112,248
Construction and other		-		66,680		66,680
Consumer installment		1		14,410		14,411
Total	$	13,070	$	971,188	$	984,258

The amounts above include net deferred loan origination costs of

$1.3

million at

March 31, 2020

and

December 31, 2019.

March 31, 2020
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	53	$	1,046	$	1,099
Non-owner occupied		1,095		3,269		4,364
Multifamily		-		386		386
Residential real estate		25		1,139		1,164
Commercial and industrial		3		713		716
Home equity lines of credit		40		1,200		1,240
Construction and other		-		254		254
Consumer installment		-		21		21
Total	$	1,216	$	8,028	$	9,244

December 31, 2019
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	45	$	756	$	801
Non-owner occupied		582		2,800		3,382
Multifamily		-		340		340
Residential real estate		28		698		726
Commercial and industrial		3		453		456
Home equity lines of credit		2		930		932
Construction and other		-		103		103
Consumer installment		-		28		28
Total	$	660	$	6,108	$	6,768

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”) which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Home Equity Lines of Credit (“HELOC”), Construction and Other (“COO”), and Consumer Installment Loans. The commercial real estate loan segments consist of loans made for the purpose of financing the activities of commercial real estate owners and operators. The residential real estate and HELOC loan segments consist of loans made for the purpose of financing the activities of residential homeowners. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. 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 the Commercial Real Estate, Residential Real Estate, C&I, HELOC, and Construction and other portfolios were partially offset by a decrease in the allowance for the Consumer Installment portfolios.

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. 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, 2020
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,749	$	1,749	$	-
Non-owner occupied		2,773		2,773		-
Residential real estate		636		699		-
Commercial and industrial		791		1,512		-
Home equity lines of credit		179		189		-
Consumer installment		1		1		-
Total	$	6,129	$	6,923	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,683	$	1,693	$	53
Non-owner occupied		4,270		4,270		1,095
Residential real estate		516		567		25
Commercial and industrial		120		120		3
Home equity lines of credit		168		168		40
Total	$	6,757	$	6,818	$	1,216
Total:
Commercial real estate:
Owner occupied	$	3,432	$	3,442	$	53
Non-owner occupied		7,043		7,043		1,095
Residential real estate		1,152		1,266		25
Commercial and industrial		911		1,632		3
Home equity lines of credit		347		357		40
Consumer installment		1		1		-
Total	$	12,886	$	13,741	$	1,216

December 31, 2019
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,772	$	1,772	$	-
Non-owner occupied		3,845		3,845		-
Residential real estate		759		829		-
Commercial and industrial		747		1,524		-
Home equity lines of credit		220		228		-
Consumer installment		1		1		-
Total	$	7,344	$	8,199	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,702	$	1,713	$	45
Non-owner occupied		3,239		3,239		582
Residential real estate		519		569		28
Commercial and industrial		135		135		3
Home equity lines of credit		131		131		2
Total	$	5,726	$	5,787	$	660
Total:
Commercial real estate:
Owner occupied	$	3,474	$	3,485	$	45
Non-owner occupied		7,084		7,084		582
Residential real estate		1,278		1,398		28
Commercial and industrial		882		1,659		3
Home equity lines of credit		351		359		2
Consumer installment		1		1		-
Total	$	13,070	$	13,986	$	660

The tables above include troubled debt restructuring totaling

$3.6

million as of

March 31, 2020

and

December 31, 2019.

The amounts allocated within the allowance for losses for troubled debt restructurings was

$70,000

and

$33,000

at

March 31, 2020

and

December 31, 2019,

respectively.

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, 2020				For the Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate:
Owner occupied	$	3,453	$	33	$	4,235	$	46
Non-owner occupied		7,064		49		5,057		52
Residential real estate		1,215		11		1,795		11
Commercial and industrial		897		10		2,198		30
Home equity lines of credit		349		2		118		1
Construction and other		-		-		1,620		45
Consumer installment		1		-		2		-
Total	$	12,979	$	105	$	15,025	$	185

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 have potential weaknesses, 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 payment delinquency, 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.  The Credit Department performs an annual review of all commercial relationships with loan balances of

$500,000

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 criticized relationships greater than

$150,000.

  Detailed reviews, including plans for resolution, are performed on criticized loans on at least 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 related to deterioration in the cash flow of the business that

may

result in the liquidation of the business assets securing the loan. 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):

			Special						Total
March 31, 2020	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	106,356	$	3,938	$	2,978	$	-	$	113,272
Non-owner occupied		275,603		3,375		13,797		-		292,775
Multifamily		40,685		-		11,591		-		52,276
Residential real estate		231,140		414		2,346		-		233,900
Commercial and industrial		101,055		3,956		1,786		-		106,797
Home equity lines of credit		113,675		-		1,258		-		114,933
Construction and other		71,186		-		-		-		71,186
Consumer installment		12,853		-		8		-		12,861
Total	$	952,553	$	11,683	$	33,764	$	-	$	998,000

			Special						Total
December 31, 2019	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	95,518	$	3,951	$	2,917	$	-	$	102,386
Non-owner occupied		292,192		3,038		6,950		-		302,180
Multifamily		62,028		-		-		-		62,028
Residential real estate		231,633		420		2,745		-		234,798
Commercial and industrial		84,136		3,619		1,772		-		89,527
Home equity lines of credit		111,354		-		894		-		112,248
Construction and other		66,680		-		-		-		66,680
Consumer installment		14,398		-		13		-		14,411
Total	$	957,939	$	11,028	$	15,291	$	-	$	984,258

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 are nonaccrual loans including nonaccrual troubled debt restructurings (“TDR”), loans

90

days or more past due, 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 aging of the recorded investment in past-due loans by class of loans (in thousands):

			30-59 Days		60-89 Days		90 Days+		Total		Total
March 31, 2020	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	112,222	$	-	$	-	$	1,050	$	1,050	$	113,272
Non-owner occupied		282,603		6,885		48		3,239		10,172		292,775
Multifamily		52,276		-		-		-		-		52,276
Residential real estate		230,471		2,577		462		390		3,429		233,900
Commercial and industrial		106,157		329		118		193		640		106,797
Home equity lines of credit		114,611		101		156		65		322		114,933
Construction and other		71,005		181		-		-		181		71,186
Consumer installment		12,576		37		22		226		285		12,861
Total	$	981,921	$	10,110	$	806	$	5,163	$	16,079	$	998,000

			30-59 Days		60-89 Days		90 Days+		Total		Total
December 31, 2019	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	101,264	$	64	$	-	$	1,058	$	1,122	$	102,386
Non-owner occupied		298,941		-		-		3,239		3,239		302,180
Multifamily		62,028		-		-		-		-		62,028
Residential real estate		232,518		1,439		34		807		2,280		234,798
Commercial and industrial		88,965		190		66		306		562		89,527
Home equity lines of credit		111,792		274		29		153		456		112,248
Construction and other		66,680		-		-		-		-		66,680
Consumer installment		13,378		622		216		195		1,033		14,411
Total	$	975,566	$	2,589	$	345	$	5,758	$	8,692	$	984,258

The following tables present the recorded investment in nonaccrual loans and loans past due over

89

days and still on accrual by class of loans (in thousands):

			90+ Days Past Due
March 31, 2020	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,175	$	-
Non-owner occupied		3,287		-
Residential real estate		2,180		-
Commercial and industrial		835		-
Home equity lines of credit		699		-
Consumer installment		229		-
Total	$	8,405	$	-

			90+ Days Past Due
December 31, 2019	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,162	$	-
Non-owner occupied		3,289		-
Residential real estate		2,576		-
Commercial and industrial		946		-
Home equity lines of credit		709		-
Consumer installment		197		-
Total	$	8,879	$	-

Interest income that would have been recorded had these loans

not

been placed on nonaccrual status was

$100,000

for the

three

months ended

March 31, 2020

and

$342,000

for the year ended

December 31, 2019.

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 Statement 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 call 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 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 and the activity within those segments (in thousands):

	Allowance for Loan and Lease Losses
	Balance									Balance
	December 31, 2019		Charge-offs			Recoveries		Provision		March 31, 2020
Loans:
Commercial real estate:
Owner occupied	$	801	$	-		$	3	$	295	$	1,099
Non-owner occupied		3,382		-			74		908		4,364
Multifamily		340		-			-		46		386
Residential real estate		726		(46	)		29		455		1,164
Commercial and industrial		456		(61	)		109		212		716
Home equity lines of credit		932		(13	)		3		318		1,240
Construction and other		103		-			17		134		254
Consumer installment		28		(388	)		9		372		21
Total	$	6,768	$	(508	)	$	244	$	2,740	$	9,244

	Allowance for Loan and Lease Losses
	Balance										Balance
	December 31, 2018		Charge-offs			Recoveries		Provision			March 31, 2019
Loans:
Commercial real estate:
Owner occupied	$	1,315	$	(32	)	$	1	$	(454	)	$	830
Non-owner occupied		2,862		-			-		(5	)		2,857
Multifamily		474		-			-		18			492
Residential real estate		761		-			10		2			773
Commercial and industrial		969		(347	)		16		(52	)		586
Home equity lines of credit		820		(91	)		4		99			832
Construction and other		100		-			23		625			748
Consumer installment		127		(47	)		1		7			88
Total	$	7,428	$	(517	)	$	55	$	240		$	7,206

The provision fluctuations during the

three

-month period ended

March 31, 2020

allocated to all loan categories are from an increase in qualitative factors, resulting in a

$1.8

million increase, due to economic uncertainty. The provision also increased for the non-owner occupied portfolio because of the increase of a specific reserve for

one

relationship of

$510,000

during the period.

The provision fluctuations during the

three

-month period ended

March 31, 2019

allocated to:

● commercial and industrial loans are due to the charge-off of a large relationship of $336,000 from a previous reserve of $358,000.

● construction and other loans are due to the addition of a large loan requiring a reserve of $661,000.

● owner occupied commercial real estate loans are due to the payoff of one relationship that had a previous reserve balance of $435,000.

TDR describes loans on which the bank has granted concessions for reasons related to the customer’s financial difficulties. Such concessions

may

include

one

or more of the following:

● reduction in the interest rate to below market rates

● extension of repayment requirements beyond normal terms

● reduction of the principal amount owed

● reduction of accrued interest due

● acceptance of other assets in full or partial payment of a debt

In each case, the concession is made due to deterioration in the borrower’s financial condition, and the new terms are less stringent than those required on a new loan with similar risk.

On

April 7, 2020,

federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-

19

pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is

not

experiencing financial difficulty if short-term modifications are made in response to COVID-

19,

such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than

30

days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-

19

to borrowers who were current prior to any relief are

not

TDRs.

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

	For the Three Months Ended
	March 31, 2020
	Number of Contracts						Pre-Modification		Post-Modification
Troubled Debt Restructurings	Term Modification		Other		Total		Outstanding Recorded Investment		Outstanding Recorded Investment
Residential real estate		2		-		2	$	42	$	42
Commercial and industrial		1		-		1		95		95

There were

no

troubled debt restructurings during the

three

months ended

March 31, 2019. 

There were

no

subsequent defaults of troubled debt restructurings for the

three

months ended

March 31, 2020

and

March 31, 2019.

XML

Consolidated Balance Sheet (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Mar. 31, 2020	Dec. 31, 2019
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)	7,298,829	7,294,792
Common stock, shares outstanding (in shares)	6,369,467	6,423,630
Treasury stock, shares (in shares)	929,362	871,162

XML

Note 2 - Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

Noninterest Income	2020			2019
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	190		$	248
ATM banking fees		210			194
Service charges and other fees		153			66
(Loss) gain on equity securities (a)		(160	)		58
Earnings on bank-owned life insurance (a)		107			105
Gain on sale of loans (a)		114			59
Revenue from investment services		131			138
Other income		329			264
Total noninterest income	$	1,074		$	1,132
Net gain on other real estate owned	$	-		$	43

XML

Note 6 - Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

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

(Dollars in thousands)	Unrealized gains/(losses) on available-for-sale securities (a)
Balance as of December 31, 2018	$	(154	)
Other comprehensive income		795
Balance at March 31, 2019	$	641
Balance as of December 31, 2019	$	1,842
Other comprehensive (loss)		(4,079	)
Balance at March 31, 2020	$	(2,237	)

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Note 10 - Risks and Uncertainties (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Unusual Risks and Uncertainties [Table Text Block]

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		337	$	142,725		14.30	%
Retail		220		197,073		19.75	%
Restaurant/food service/bar		48		16,868		1.69	%
Hospitality and tourism		32		45,225		4.53	%
Self-storage facility		29		25,622		2.57	%
Other		121		14,218		1.42	%
Total		787	$	441,731		44.26	%

Schedule of Payment Deferrals on Financing Receivable [Table Text Block]

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		9	$	2,297		0.23	%
Office		9		1,776		0.18	%
Retail		41		52,443		5.25	%
Restaurant/food service/bar		8		3,320		0.33	%
Hospitality and tourism		8		4,638		0.46	%
Other		113		42,547		4.26	%
Total		188	$	107,021		10.71	%

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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, 2020	Dec. 31, 2019
Recorded investment, with no related allowance	$ 6,129	$ 7,344
Unpaid principal balance, with no related allowance	6,923	8,199
Recorded investment, with related allowance	6,757	5,726
Unpaid principal balance, with related allowance	6,818	5,787
Related allowance	1,216	660
Recorded investment	12,886	13,070
Unpaid principal balance	13,741	13,986
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Recorded investment, with no related allowance	1,749	1,772
Unpaid principal balance, with no related allowance	1,749	1,772
Recorded investment, with related allowance	1,683	1,702
Unpaid principal balance, with related allowance	1,693	1,713
Related allowance	53	45
Recorded investment	3,432	3,474
Unpaid principal balance	3,442	3,485
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Recorded investment, with no related allowance	2,773	3,845
Unpaid principal balance, with no related allowance	2,773	3,845
Recorded investment, with related allowance	4,270	3,239
Unpaid principal balance, with related allowance	4,270	3,239
Related allowance	1,095	582
Recorded investment	7,043	7,084
Unpaid principal balance	7,043	7,084
Residential Portfolio Segment [Member]
Recorded investment, with no related allowance	636	759
Unpaid principal balance, with no related allowance	699	829
Recorded investment, with related allowance	516	519
Unpaid principal balance, with related allowance	567	569
Related allowance	25	28
Recorded investment	1,152	1,278
Unpaid principal balance	1,266	1,398
Commercial And Industrial [Member]
Recorded investment, with no related allowance	791	747
Unpaid principal balance, with no related allowance	1,512	1,524
Recorded investment, with related allowance	120	135
Unpaid principal balance, with related allowance	120	135
Related allowance	3	3
Recorded investment	911	882
Unpaid principal balance	1,632	1,659
Home Equity Lines of Credit [Member]
Recorded investment, with no related allowance	179	220
Unpaid principal balance, with no related allowance	189	228
Recorded investment, with related allowance	168	131
Unpaid principal balance, with related allowance	168	131
Related allowance	40	2
Recorded investment	347	351
Unpaid principal balance	357	359
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance	1	1
Unpaid principal balance, with no related allowance	1	1
Related allowance
Recorded investment	1	1
Unpaid principal balance	$ 1	$ 1

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Note 7 - Investment and Equity Securities - Gross Unrealized Losses and Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Less than Twelve Months, Fair Value	$ 51,663	$ 5,733
Less than Twelve Months, Gross Unrealized Losses	(3,824)	(27)
Twelve Months or Greater, Fair Value	2,539	8,223
Twelve Months or Greater, Gross Unrealized Losses	(14)	(107)
Total, Fair Value	54,202	13,956
Total, Gross Unrealized Losses	(3,838)	(134)
Nontaxable Municipal Bonds [Member]
Less than Twelve Months, Fair Value	51,663	4,324
Less than Twelve Months, Gross Unrealized Losses	(3,824)	(25)
Twelve Months or Greater, Fair Value
Twelve Months or Greater, Gross Unrealized Losses
Total, Fair Value	51,663	4,324
Total, Gross Unrealized Losses	(3,824)	(25)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Less than Twelve Months, Fair Value		1,409
Less than Twelve Months, Gross Unrealized Losses		(2)
Twelve Months or Greater, Fair Value	2,539	8,223
Twelve Months or Greater, Gross Unrealized Losses	(14)	(107)
Total, Fair Value	2,539	9,632
Total, Gross Unrealized Losses	$ (14)	$ (109)

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Note 6 - Accumulated Other Comprehensive Income (Loss) - Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Balance		$ 137,775	$ 128,290
Other comprehensive income (loss)		(4,079)	795
Balance		132,687	131,699
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Balance	[1]	1,842	(154)
Other comprehensive income (loss)	[1]	(4,079)	795
Balance	[1]	$ (2,237)	$ 641

[1] All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

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Note 2 - Revenue Recognition (Details Textual)	3 Months Ended
	Mar. 31, 2020
Revenue from Interest Income and Noninterest Income, Percent	91.80%

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Note 3 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2020		14,500		$	8.78
Exercised		(1,000	)		8.78
Outstanding, March 31, 2020		13,500		$	8.78
Exercisable, March 31, 2020		13,500		$	8.78

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

			Weighted-
			average
			Grant Date Fair
	Units		Value Per Unit
Nonvested at January 1, 2020		61,040	$	21.73
Granted		23,648		26.09
Nonvested at March 31, 2020		84,688	$	22.94
Expected to vest as of March 31, 2020		1,000	$	22.65

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Note 7 - Investment and Equity Securities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

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

	March 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	221	$	-		$	4,221
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		84,343		236		(3,824	)		80,755
Mortgage-backed securities in government-sponsored entities		16,947		549		(14	)		17,482
Total	$	105,790	$	1,007	$	(3,838	)	$	102,959

	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	126	$	-		$	4,126
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		80,436		2,065		(25	)		82,476
Mortgage-backed securities in government-sponsored entities		18,465		274		(109	)		18,630
Total	$	103,401	$	2,466	$	(134	)	$	105,733

Investments Classified by Contractual Maturity Date [Table Text Block]

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	42	$	42
Due after one year through five years		1,316		1,328
Due after five years through ten years		17,965		18,255
Due after ten years		86,467		83,334
Total	$	105,790	$	102,959

Schedule of Unrealized Loss on Investments [Table Text Block]

	March 31, 2020
	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
Obligations of states and political subdivisions:
Tax-exempt	$	51,663	$	(3,824	)	$	-	$	-		$	51,663	$	(3,824	)
Mortgage-backed securities in government-sponsored entities		-		-			2,539		(14	)		2,539		(14	)
Total	$	51,663	$	(3,824	)	$	2,539	$	(14	)	$	54,202	$	(3,838	)

	December 31, 2019
	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
Obligations of states and political subdivisions:
Tax-exempt	$	4,324	$	(25	)	$	-	$	-		$	4,324	$	(25	)
Mortgage-backed securities in government-sponsored entities		1,409		(2	)		8,223		(107	)		9,632		(109	)
Total	$	5,733	$	(27	)	$	8,223	$	(107	)	$	13,956	$	(134	)

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Note 7 - Investment and Equity Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Due in one year or less, amortized costs	$ 42
Due in one year or less, fair value	42
Due after one year through five years, amortized costs	1,316
Due after one year through five years, fair value	1,328
Due after five years through ten years, amortized costs	17,965
Due after five years through ten years, fair value	18,255
Due after ten years, amortized costs	86,467
Due after ten years, fair value	83,334
Amortized costs	105,790	$ 103,401
Fair Value	$ 102,959	$ 105,733

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Note 5 - Fair Value Measurements - Estimated Fair Value of the Company's Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Reported Value Measurement [Member]
Financial assets:
Cash and cash equivalents	$ 55,333	$ 35,113
Loans held for sale	513	1,220
Net loans	988,756	977,490
Bank-owned life insurance	16,618	16,511
Federal Home Loan Bank stock	5,448	3,848
Accrued interest receivable	3,666	3,471
Financial liabilities:
Deposits	1,003,710	1,020,843
Short-term borrowings	60,000	5,075
Other borrowings	12,662	12,750
Accrued interest payable	980	917
Estimate of Fair Value Measurement [Member]
Financial assets:
Cash and cash equivalents	55,333	35,113
Loans held for sale	513	1,220
Net loans	983,780	974,213
Bank-owned life insurance	16,618	16,511
Federal Home Loan Bank stock	5,448	3,848
Accrued interest receivable	3,666	3,471
Financial liabilities:
Deposits	1,009,966	1,023,236
Short-term borrowings	60,000	5,075
Other borrowings	12,706	12,783
Accrued interest payable	980	917
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	55,333	35,113
Loans held for sale
Net loans
Bank-owned life insurance	16,618	16,511
Federal Home Loan Bank stock	5,448	3,848
Accrued interest receivable	3,666	3,471
Financial liabilities:
Deposits	663,580	652,043
Short-term borrowings	60,000	5,075
Other borrowings
Accrued interest payable	980	917
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents
Loans held for sale	513	1,220
Net loans
Bank-owned life insurance
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Deposits
Short-term borrowings
Other borrowings
Accrued interest payable
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents
Loans held for sale
Net loans	983,780	974,213
Bank-owned life insurance
Federal Home Loan Bank stock
Accrued interest receivable
Financial liabilities:
Deposits	346,386	371,193
Short-term borrowings
Other borrowings	12,706	12,783
Accrued interest payable

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Note 8 - Loans and Related Allowance for Loan and Lease Losses - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Dec. 31, 2019
Individually evaluated for impairment			$ 1,216	$ 660
Collectively evaluated for impairment			8,028	6,108
Less: allowance for loan and lease losses	$ 6,768	$ 7,206	9,244	6,768
Beginning balance	6,768	7,428
Charge-offs	(508)	(517)
Recoveries	244	55
Provision	2,740	240
Ending balance	9,244	7,206
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Individually evaluated for impairment			53	45
Collectively evaluated for impairment			1,046	756
Less: allowance for loan and lease losses	801	830	1,099	801
Beginning balance	801	1,315
Charge-offs		(32)
Recoveries	3	1
Provision	295	(454)
Ending balance	1,099	830
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Individually evaluated for impairment			1,095	582
Collectively evaluated for impairment			3,269	2,800
Less: allowance for loan and lease losses	3,382	2,857	4,364	3,382
Beginning balance	3,382	2,862
Charge-offs
Recoveries	74
Provision	908	(5)
Ending balance	4,364	2,857
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			386	340
Less: allowance for loan and lease losses	340	492	386	340
Beginning balance	340	474
Charge-offs
Recoveries
Provision	46	18
Ending balance	386	492
Residential Portfolio Segment [Member]
Individually evaluated for impairment			25	28
Collectively evaluated for impairment			1,139	698
Less: allowance for loan and lease losses	726	773	1,164	726
Beginning balance	726	761
Charge-offs	(46)
Recoveries	29	10
Provision	455	2
Ending balance	1,164	773
Commercial And Industrial [Member]
Individually evaluated for impairment			3	3
Collectively evaluated for impairment			713	453
Less: allowance for loan and lease losses	456	586	716	456
Beginning balance	456	969
Charge-offs	(61)	(347)
Recoveries	109	16
Provision	212	(52)
Ending balance	716	586
Home Equity Lines of Credit [Member]
Individually evaluated for impairment			40	2
Collectively evaluated for impairment			1,200	930
Less: allowance for loan and lease losses	932	832	1,240	932
Beginning balance	932	820
Charge-offs	(13)	(91)
Recoveries	3	4
Provision	318	99
Ending balance	1,240	832
Construction and Other [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			254	103
Less: allowance for loan and lease losses	103	748	254	103
Beginning balance	103	100
Charge-offs
Recoveries	17	23
Provision	134	625
Ending balance	254	748
Consumer Portfolio Segment [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			21	28
Less: allowance for loan and lease losses	28	88	$ 21	$ 28
Beginning balance	28	127
Charge-offs	(388)	(47)
Recoveries	9	1
Provision	372	7
Ending balance	$ 21	$ 88

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Note 10 - Risks and Uncertainties - Summary of Payment Deferrals (Details) - Subsequent Event [Member] $ in Thousands	Apr. 21, 2020 USD ($)
Number of Loans	252
Balance	$ 147,000
Commercial Portfolio Segment [Member]
Number of Loans	188
Balance	$ 107,021
% of Total Loans	10.71%
Commercial Portfolio Segment [Member] | Residential Non-owner Occupied Loan [Member]
Number of Loans	9
Balance	$ 2,297
% of Total Loans	0.23%
Commercial Portfolio Segment [Member] | Office Loan [Member]
Number of Loans	9
Balance	$ 1,776
% of Total Loans	0.18%
Commercial Portfolio Segment [Member] | Retail Loan [Member]
Number of Loans	41
Balance	$ 52,443
% of Total Loans	5.25%
Commercial Portfolio Segment [Member] | Restaurant/food service/bar Loan [Member]
Number of Loans	8
Balance	$ 3,320
% of Total Loans	0.33%
Commercial Portfolio Segment [Member] | Hospitality and Tourism Loan [Member]
Number of Loans	8
Balance	$ 4,638
% of Total Loans	0.46%
Commercial Portfolio Segment [Member] | Other Loans [Member]
Number of Loans	113
Balance	$ 42,547
% of Total Loans	4.26%

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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, 2020	Dec. 31, 2019
Loans	$ 998,000	$ 984,258
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans	113,272	102,386
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans	292,775	302,180
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans	52,276	62,028
Residential Portfolio Segment [Member]
Loans	233,900	234,798
Commercial And Industrial [Member]
Loans	106,797	89,527
Home Equity Lines of Credit [Member]
Loans	114,933	112,248
Construction and Other [Member]
Loans	71,186	66,680
Consumer Portfolio Segment [Member]
Loans	12,861	14,411
Pass [Member]
Loans	952,553	957,939
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans	106,356	95,518
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans	275,603	292,192
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans	40,685	62,028
Pass [Member] | Residential Portfolio Segment [Member]
Loans	231,140	231,633
Pass [Member] | Commercial And Industrial [Member]
Loans	101,055	84,136
Pass [Member] | Home Equity Lines of Credit [Member]
Loans	113,675	111,354
Pass [Member] | Construction and Other [Member]
Loans	71,186	66,680
Pass [Member] | Consumer Portfolio Segment [Member]
Loans	12,853	14,398
Special Mention [Member]
Loans	11,683	11,028
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans	3,938	3,951
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans	3,375	3,038
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans
Special Mention [Member] | Residential Portfolio Segment [Member]
Loans	414	420
Special Mention [Member] | Commercial And Industrial [Member]
Loans	3,956	3,619
Special Mention [Member] | Home Equity Lines of Credit [Member]
Loans
Special Mention [Member] | Construction and Other [Member]
Loans
Substandard [Member]
Loans	33,764	15,291
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans	2,978	2,917
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans	13,797	6,950
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans	11,591
Substandard [Member] | Residential Portfolio Segment [Member]
Loans	2,346	2,745
Substandard [Member] | Commercial And Industrial [Member]
Loans	1,786	1,772
Substandard [Member] | Home Equity Lines of Credit [Member]
Loans	1,258	894
Substandard [Member] | Construction and Other [Member]
Loans
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans	8	13
Doubtful [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans
Doubtful [Member] | Residential Portfolio Segment [Member]
Loans
Doubtful [Member] | Commercial And Industrial [Member]
Loans
Doubtful [Member] | Home Equity Lines of Credit [Member]
Loans
Doubtful [Member] | Construction and Other [Member]
Loans

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Note 9 - Stock Split Disclosure (Details Textual)	Oct. 09, 2019
Stockholders' Equity Note, Stock Split, Conversion Ratio	2

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Note 4 - Earnings Per Share (Details Textual) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)	13,500	14,900	14,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share)	$ 8.78	$ 8.78	$ 8.78
Treasury Stock, Shares, Ending Balance (in shares)	929,362	772,330	871,162
Treasury Stock, Shares, Acquired (in shares)	58,200
Employee Stock Option and Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	0	0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)	84,688	61,334	61,040

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Note 2 - Revenue Recognition - Disaggregation of Revenue (Details) - USD ($)		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Gain on equity securities	[1]	$ (160,000)	$ 58,000
Earnings on bank-owned life insurance	[1]	107,000	105,000
Gain on sale of loans	[1]	114,000	59,000
Revenue from investment services		131,000	138,000
Other income		329,000	264,000
Total noninterest income		1,074,000	1,132,000
Net gain on other real estate owned			43,000
Overdraft Fees [Member]
Noninterest income revenue		190,000	248,000
ATM Banking Fees [Member]
Noninterest income revenue		210,000	194,000
Service Charge and Other Fees [Member]
Noninterest income revenue		$ 153,000	$ 66,000

[1] Not within scope of ASC 606

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Note 5 - Fair Value Measurements - Assets Measured on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Impaired loans	$ 12,886	$ 13,070
Fair Value, Nonrecurring [Member]
Impaired loans	4,566	5,166
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans	$ 4,566	$ 5,166

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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
Balance (in shares) at Dec. 31, 2018	7,260,994,000
Balance at Dec. 31, 2018	$ 85,925	$ 56,037	$ (154)	$ (13,518)	$ 128,290
Net income		3,011			3,011
Other comprehensive income (loss)			795		795
Stock-based compensation, net (in shares)	15,032,000
Stock-based compensation, net	$ 316				316
Cash dividends		(909)			(909)
Dividend reinvestment and purchase plan (in shares)	9,044,000
Dividend reinvestment and purchase plan	$ 196				$ 196
Balance (in shares) at Mar. 31, 2019	7,285,070,000				6,512,740
Balance at Mar. 31, 2019	$ 86,437	58,139	641	(13,518)	$ 131,699
Balance (in shares) at Dec. 31, 2019	7,294,792				6,423,630
Balance at Dec. 31, 2019	$ 86,617	65,063	1,842	(15,747)	$ 137,775
Net income		1,041			1,041
Other comprehensive income (loss)			(4,079)		(4,079)
Stock-based compensation, net (in shares)	4,037
Stock-based compensation, net	$ 105				105
Treasury shares acquired				(1,191)	(1,191)
Cash dividends		(964)			$ (964)
Balance (in shares) at Mar. 31, 2020	7,298,829				6,369,467
Balance at Mar. 31, 2020	$ 86,722	$ 65,140	$ (2,237)	$ (16,938)	$ 132,687

XML

Note 5 - Fair Value Measurements

3 Months Ended

Mar. 31, 2020

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 establishes 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.

This hierarchy requires the use of observable market data when available.

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, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,221	$	-	$	4,221
Obligations of states and political subdivisions		-		81,256		-		81,256
Mortgage-backed securities in government-sponsored entities		-		17,482		-		17,482
Total debt securities		-		102,959		-		102,959
Equity securities in financial institutions		550		-		-		550
Total	$	550	$	102,959	$	-	$	103,509

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,126	$	-	$	4,126
Obligations of states and political subdivisions		-		82,977		-		82,977
Mortgage-backed securities in government-sponsored entities		-		18,630		-		18,630
Total debt securities		-		105,733		-		105,733
Equity securities in financial institutions		710		-		-		710
Total	$	710	$	105,733	$	-	$	106,443

Investment

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.

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 at initial foreclosure or subsequent to the initial measurement.

No

such devaluation occurred in the

three

months ended

March 31, 2020.

			March 31, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	4,566	$	4,566

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	5,166	$	5,166

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 above 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 above table as it is

not

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

$2.0

million and

$2.1

million as of

March 31, 2020

and

December 31, 2019,

respectively.

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)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
March 31, 2020
Impaired loans	$	4,566	Appraisal of collateral (1)	Appraisal adjustments (2)	35.4%	to	49.5%	(36.2%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
December 31, 2019
Impaired loans	$	5,166	Appraisal of collateral (1)	Appraisal adjustments (2)	40.3%	to	47.4%	(41.8%)

( 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.

The estimated fair value of the Company’s financial instruments

not

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

	March 31, 2020
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	55,333	$	55,333	$	-	$	-	$	55,333
Loans held for sale		513		-		513		-		513
Net loans		988,756		-		-		983,780		983,780
Bank-owned life insurance		16,618		16,618		-		-		16,618
Federal Home Loan Bank stock		5,448		5,448		-		-		5,448
Accrued interest receivable		3,666		3,666		-		-		3,666
Financial liabilities:
Deposits	$	1,003,710	$	663,580	$	-	$	346,386	$	1,009,966
Short-term borrowings		60,000		60,000		-		-		60,000
Other borrowings		12,662		-		-		12,706		12,706
Accrued interest payable		980		980		-		-		980

	December 31, 2019
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	35,113	$	35,113	$	-	$	-	$	35,113
Loans held for sale		1,220		-		1,220		-		1,220
Net loans		977,490		-		-		974,213		974,213
Bank-owned life insurance		16,511		16,511		-		-		16,511
Federal Home Loan Bank stock		3,848		3,848		-		-		3,848
Accrued interest receivable		3,471		3,471		-		-		3,471
Financial liabilities:
Deposits	$	1,020,843	$	652,043	$	-	$	371,193	$	1,023,236
Short-term borrowings		5,075		5,075		-		-		5,075
Other borrowings		12,750		-		-		12,783		12,783
Accrued interest payable		917		917		-		-		917

All financial instruments included in the above tables, with the exception of net loans, deposits, and other borrowings, are carried at cost, which approximates the fair value of the instrument.

XML

Note 9 - Stock Split Disclosure

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Stock Split Disclosure [Text Block]

NOTE

9

–

STOCK SPLIT DISCLOSURE

On

October 9, 2019,

the Board of Directors of Middlefield Banc Corp. authorized a

two

-for-

one

stock split. Each shareholder of record at the close of business on

October 25, 2019,

received

one

additional share for every outstanding share held on the record date. The additional shares were paid on

November 8, 2019.

As a result, all share and earnings per share information have been retroactively adjusted to reflect the stock split.

With respect to the

March 31, 2020

and

2019

financial statements, the effect of the stock split on

March 31, 2019

amounts was recognized retroactively in the stockholders’ equity accounts in the Consolidated Balance Sheets, and in all share data in the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations. The effect of the stock split on per share amounts and weighted average common shares outstanding for the

three

months ended

March 31, 2019

is as follows:

	For the three months ended
	March 31, 2019
Restated net income per common share - basic	$	0.46
Restated net income per common share - diluted	$	0.46
Restated weighted-average common shares issued		7,270,608
Restated average treasury stock shares		772,330
Restated average shares outstanding - basic		6,498,278
Restated stock options and restricted stock		12,290
Restated average shares outstanding - diluted		6,510,568
Restated period ending shares outstanding		6,512,740
Restated treasury shares outstanding		772,330

XML

Consolidated Balance Sheet (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 53,533	$ 35,113
Federal funds sold	1,800
Cash and cash equivalents	55,333	35,113
Equity securities, at fair value	550	710
Investment securities available for sale, at fair value	102,959	105,733
Loans held for sale	513	1,220
Loans:
Loans	998,000	984,258
Less: allowance for loan and lease losses	9,244	6,768
Net loans	988,756	977,490
Premises and equipment, net	17,653	17,874
Goodwill	15,071	15,071
Core deposit intangibles	1,973	2,056
Bank-owned life insurance	16,618	16,511
Accrued interest receivable and other assets	14,513	10,697
TOTAL ASSETS	1,213,939	1,182,475
LIABILITIES
Noninterest-bearing demand	206,372	191,370
Interest-bearing demand	125,184	107,844
Money market	156,556	160,826
Savings	175,468	192,003
Time	340,130	368,800
Total deposits	1,003,710	1,020,843
Short-term borrowings:
Federal funds purchased		75
Federal Home Loan Bank advances	60,000	5,000
Total short-term borrowings	60,000	5,075
Other borrowings	12,662	12,750
Accrued interest payable and other liabilities	4,880	6,032
TOTAL LIABILITIES	1,081,252	1,044,700
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 7,298,829 and 7,294,792 shares issued; 6,369,467 and 6,423,630 shares outstanding	86,722	86,617
Retained earnings	65,140	65,063
Accumulated other comprehensive (loss) income	(2,237)	1,842
Treasury stock, at cost; 929,362 and 871,162 shares	(16,938)	(15,747)
TOTAL STOCKHOLDERS' EQUITY	132,687	137,775
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	1,213,939	1,182,475
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans:
Loans	113,272	102,386
Less: allowance for loan and lease losses	1,099	801
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans:
Loans	292,775	302,180
Less: allowance for loan and lease losses	4,364	3,382
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans:
Loans	52,276	62,028
Less: allowance for loan and lease losses	386	340
Residential Portfolio Segment [Member]
Loans:
Loans	233,900	234,798
Less: allowance for loan and lease losses	1,164	726
Commercial And Industrial [Member]
Loans:
Loans	106,797	89,527
Less: allowance for loan and lease losses	716	456
Home Equity Lines of Credit [Member]
Loans:
Loans	114,933	112,248
Less: allowance for loan and lease losses	1,240	932
Construction and Other [Member]
Loans:
Loans	71,186	66,680
Less: allowance for loan and lease losses	254	103
Consumer Portfolio Segment [Member]
Loans:
Loans	12,861	14,411
Less: allowance for loan and lease losses	$ 21	$ 28

XML

Note 5 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

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

			March 31, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,221	$	-	$	4,221
Obligations of states and political subdivisions		-		81,256		-		81,256
Mortgage-backed securities in government-sponsored entities		-		17,482		-		17,482
Total debt securities		-		102,959		-		102,959
Equity securities in financial institutions		550		-		-		550
Total	$	550	$	102,959	$	-	$	103,509

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Subordinated debt	$	-	$	4,126	$	-	$	4,126
Obligations of states and political subdivisions		-		82,977		-		82,977
Mortgage-backed securities in government-sponsored entities		-		18,630		-		18,630
Total debt securities		-		105,733		-		105,733
Equity securities in financial institutions		710		-		-		710
Total	$	710	$	105,733	$	-	$	106,443

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

			March 31, 2020
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	4,566	$	4,566

			December 31, 2019
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	5,166	$	5,166

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

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
March 31, 2020
Impaired loans	$	4,566	Appraisal of collateral (1)	Appraisal adjustments (2)	35.4%	to	49.5%	(36.2%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)					Range (Weighted
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Average)
December 31, 2019
Impaired loans	$	5,166	Appraisal of collateral (1)	Appraisal adjustments (2)	40.3%	to	47.4%	(41.8%)

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

	March 31, 2020
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	55,333	$	55,333	$	-	$	-	$	55,333
Loans held for sale		513		-		513		-		513
Net loans		988,756		-		-		983,780		983,780
Bank-owned life insurance		16,618		16,618		-		-		16,618
Federal Home Loan Bank stock		5,448		5,448		-		-		5,448
Accrued interest receivable		3,666		3,666		-		-		3,666
Financial liabilities:
Deposits	$	1,003,710	$	663,580	$	-	$	346,386	$	1,009,966
Short-term borrowings		60,000		60,000		-		-		60,000
Other borrowings		12,662		-		-		12,706		12,706
Accrued interest payable		980		980		-		-		980

	December 31, 2019
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	35,113	$	35,113	$	-	$	-	$	35,113
Loans held for sale		1,220		-		1,220		-		1,220
Net loans		977,490		-		-		974,213		974,213
Bank-owned life insurance		16,511		16,511		-		-		16,511
Federal Home Loan Bank stock		3,848		3,848		-		-		3,848
Accrued interest receivable		3,471		3,471		-		-		3,471
Financial liabilities:
Deposits	$	1,020,843	$	652,043	$	-	$	371,193	$	1,023,236
Short-term borrowings		5,075		5,075		-		-		5,075
Other borrowings		12,750		-		-		12,783		12,783
Accrued interest payable		917		917		-		-		917

XML

Note 9 - Stock Split Disclosure (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Effect of Stock Split [Table Text Block]

	For the three months ended
	March 31, 2019
Restated net income per common share - basic	$	0.46
Restated net income per common share - diluted	$	0.46
Restated weighted-average common shares issued		7,270,608
Restated average treasury stock shares		772,330
Restated average shares outstanding - basic		6,498,278
Restated stock options and restricted stock		12,290
Restated average shares outstanding - diluted		6,510,568
Restated period ending shares outstanding		6,512,740
Restated treasury shares outstanding		772,330

XML

Note 8 - Loans and Related Allowance for Loan and Lease Losses (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Loans and Leases Receivable, Deferred Income, Total	$ 1,300,000		$ 1,300,000
Financing Receivable, Troubled Debt Restructuring	3,600,000		1,300,000
Financing Receivable, Allowance for Credit Loss, Writeoff	$ 70,000		33,000
Number of Days Past Due (Day)	90 days
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	$ 100,000		342,000
Provision for Loan and Lease Losses, Total	2,740,000	$ 240,000
Allowance for Loan and Lease Losses, Write-offs	508,000	517,000
Loans and Leases Receivable, Allowance, Ending Balance	$ 9,244,000	$ 7,206,000	6,768,000	$ 7,428,000
Financing Receivable, Modifications, Number of Contracts		0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0	0
Commercial And Industrial [Member]
Provision for Loan and Lease Losses, Total	$ 212,000	$ (52,000)
Allowance for Loan and Lease Losses, Write-offs	61,000	347,000
Loans and Leases Receivable, Allowance, Ending Balance	$ 716,000	586,000	456,000	969,000
Financing Receivable, Modifications, Number of Contracts	1
Construction and Other [Member]
Provision for Loan and Lease Losses, Total	$ 134,000	625,000
Allowance for Loan and Lease Losses, Write-offs
Loans and Leases Receivable, Allowance, Ending Balance	254,000	748,000	$ 103,000	$ 100,000
Threshold For Loans Evaluated For Impairment [Member]
Loans and Leases Receivable, before Fees, Gross	500,000
Threshold For Loans Evaluated For Impairment [Member] | Outside Consultant [Member]
Loans and Leases Receivable, before Fees, Gross	250,000
Threshold For Loans Evaluated For Impairment [Member] | Criticized Relationships [Member]
Financing Receivable, before Allowance for Credit Loss, Total	150,000
Provision Fluctuation [Member]
Provision for Loan and Lease Losses, Total	1,800,000
Provision Fluctuation [Member] | Commercial And Industrial [Member]
Allowance for Loan and Lease Losses, Write-offs		336,000
Loans and Leases Receivable, Allowance, Ending Balance		358,000
Provision Fluctuation [Member] | Construction and Other [Member]
Allowance for Loan and Lease Losses, Period Increase (Decrease), Total		661,000
Provision Fluctuation [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Allowance, Ending Balance		$ 435,000
Increase in Specific Reserve [Member]
Provision for Loan and Lease Losses, Total	$ 510,000

XML

Note 7 - Investment and Equity Securities (Details Textual) - USD ($)		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	[1]	$ (160,000)	$ 58,000
Equity Securities, FV-NI, Realized Gain (Loss), Total		0	0
Proceeds from Sale of Debt Securities, Available-for-sale		0	0
Security Owned and Pledged as Collateral, Fair Value, Total		$ 53,100,000		$ 55,600,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total		86
Available-for-sale Securities, Percentage of Portfolio		96.00%
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held, Ending Balance		$ 0	$ 0

[1] Not within scope of ASC 606

XML

Note 8 - Loans and Related Allowance for Loan and Lease Losses - Nonaccrual Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans, current balance	$ 8,405	$ 8,879
Loans, past due	0
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans, current balance	1,175	1,162
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans, current balance	3,287	3,289
Loans, past due
Residential Portfolio Segment [Member]
Loans, current balance	2,180	2,576
Loans, past due
Commercial And Industrial [Member]
Loans, current balance	835	946
Loans, past due	0
Home Equity Lines of Credit [Member]
Loans, current balance	699	709
Loans, past due
Consumer Portfolio Segment [Member]
Loans, current balance	229	197
Loans, past due	$ 0

XML

Note 10 - Risks and Uncertainties (Details Textual) - Subsequent Event [Member] $ in Millions	May 03, 2020 USD ($)	May 01, 2020 USD ($)	Apr. 21, 2020 USD ($)
Payroll Protection Plan, Number of Loan Applications Approved	1,048
Payment Protection Plan, Amount to be Funded	$ 138.1
Financing Receivable, Number of Payment Deferrals		606
Financing Receivable, Deferred Payments		$ 333.2
Financing Receivable, Number of Principal and Interest Payments and Extension of Maturity Date Payment Deferrals			252
Financing Receivable, Principal and Interest Payments and Extension of Maturity Date Payment Deferrals			$ 147.0
Residential Mortgage and Consumer [Member]
Financing Receivable, Number of Payment Deferrals		59
Financing Receivable, Deferred Payments		$ 7.8

XML

Consolidated Statement of Income (Unaudited) - USD ($)		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
INTEREST AND DIVIDEND INCOME
Interest and fees on loans		$ 12,078,000	$ 12,488,000
Interest-earning deposits in other institutions		94,000	187,000
Federal funds sold		21,000	7,000
Investment securities:
Taxable interest		157,000	179,000
Tax-exempt interest		629,000	565,000
Dividends on stock		30,000	58,000
Total interest and dividend income		13,009,000	13,484,000
INTEREST EXPENSE
Deposits		2,865,000	2,945,000
Short-term borrowings		35,000	213,000
Other borrowings		76,000	96,000
Total interest expense		2,976,000	3,254,000
NET INTEREST INCOME		10,033,000	10,230,000
Provision for loan losses		2,740,000	240,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		7,293,000	9,990,000
NONINTEREST INCOME
(Loss) gain on equity securities	[1]	(160,000)	58,000
Earnings on bank-owned life insurance	[1]	107,000	105,000
Gain on sale of loans	[1]	114,000	59,000
Total noninterest income		1,074,000	1,132,000
NONINTEREST EXPENSE
Salaries and employee benefits		3,524,000	4,124,000
Occupancy expense		550,000	553,000
Equipment expense		273,000	235,000
Data processing costs		666,000	465,000
Ohio state franchise tax		268,000	259,000
Federal deposit insurance expense		123,000	130,000
Professional fees		349,000	431,000
Advertising expense		209,000	203,000
Software amortization expense		141,000	145,000
Core deposit intangible amortization		83,000	85,000
Other expense		1,066,000	870,000
Total noninterest expense		7,252,000	7,500,000
Income before income taxes		1,115,000	3,622,000
Income taxes		74,000	611,000
NET INCOME		$ 1,041,000	$ 3,011,000
EARNINGS PER SHARE
Basic (in dollars per share)		$ 0.16	$ 0.46
Diluted (in dollars per share)		$ 0.16	$ 0.46
Deposit Account [Member]
NONINTEREST INCOME
Noninterest income revenue		$ 553,000	$ 508,000
Financial Service, Other [Member]
NONINTEREST INCOME
Noninterest income revenue		$ 460,000	$ 402,000

[1] Not within scope of ASC 606

XML

Note 3 - Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

NOTE

3

-

STOCK-BASED COMPENSATION

The Company had

no

nonvested stock options outstanding as of

March 31, 2020

and

2019.

Stock option activity during the

three

months ended

March 31, 2020

is as follows:

				Weighted-
				average
				Exercise Price
	Shares			Per Share
Outstanding, January 1, 2020		14,500		$	8.78
Exercised		(1,000	)		8.78
Outstanding, March 31, 2020		13,500		$	8.78
Exercisable, March 31, 2020		13,500		$	8.78

The following table presents the activity during the

three

months ended

March 31, 2020

related to awards of restricted stock:

			Weighted-
			average
			Grant Date Fair
	Units		Value Per Unit
Nonvested at January 1, 2020		61,040	$	21.73
Granted		23,648		26.09
Nonvested at March 31, 2020		84,688	$	22.94
Expected to vest as of March 31, 2020		1,000	$	22.65

The Company recognizes restricted stock forfeitures in the period they occur.

Share-based compensation expense of (

$408,000

) and

$90,000

was recognized for the

three

-month periods ended

March 31, 2020

and

2019,

respectively. The expense recorded as of

March 31, 2020

is the result of the decrease in the market valuations of the plans. Vesting of shares under the plan is contingent on a combination of service period and a performance condition tied to the total shareholder return on the Company’s stock. Due to the change in market conditions during the quarter ended

March 31, 2020,

there was a significant decrease in the probability of the achievement of the performance condition which resulted in a decrease in the liability related to the Plan and a reversal of compensation expense. Since the shares of restricted stock are historically paid out at the vesting date in a combination of shares and cash, the Company has recorded a liability related to this plan which totals

$287,000

and

$236,000

at

March 31, 2020

and

2019,

respectively. When the shares vest, the amount distributed in shares is transferred to common stock and the remainder is distributed in cash.

Total unrecognized stock compensation cost related to nonvested share-based compensation on restricted stock as of

March 31, 2020

totals

$219,000,

of which

$94,000

is estimated for the rest of

2020,

$88,000

for

2021,

$34,000

for

2022,

and

$4,000

for

2023.

XML

Note 7 - Investment and Equity Securities

3 Months Ended

Mar. 31, 2020

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 available for sale are as follows:

	March 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	221	$	-		$	4,221
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		84,343		236		(3,824	)		80,755
Mortgage-backed securities in government-sponsored entities		16,947		549		(14	)		17,482
Total	$	105,790	$	1,007	$	(3,838	)	$	102,959

	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	4,000	$	126	$	-		$	4,126
Obligations of states and political subdivisions:
Taxable		500		1		-			501
Tax-exempt		80,436		2,065		(25	)		82,476
Mortgage-backed securities in government-sponsored entities		18,465		274		(109	)		18,630
Total	$	103,401	$	2,466	$	(134	)	$	105,733

The Company recognized net (loss) gains on equity investments of (

$160,000

) and

$58,000,

respectively, for the

three

months ended

March 31, 2020

and

2019.

No

net gains or losses on sold equity securities were realized during these periods.

The amortized cost and fair value of debt securities at

March 31, 2020,

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	$	42	$	42
Due after one year through five years		1,316		1,328
Due after five years through ten years		17,965		18,255
Due after ten years		86,467		83,334
Total	$	105,790	$	102,959

There were

no

securities sold during the

three

months ended

March 31, 2020

and

2019,

respectively.

Investment securities with an approximate carrying value of

$53.1

million and

$55.6

million at

March 31, 2020

and

December 31, 2019,

respectively, were pledged to secure deposits and for 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, 2020
	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
Obligations of states and political subdivisions:
Tax-exempt	$	51,663	$	(3,824	)	$	-	$	-		$	51,663	$	(3,824	)
Mortgage-backed securities in government-sponsored entities		-		-			2,539		(14	)		2,539		(14	)
Total	$	51,663	$	(3,824	)	$	2,539	$	(14	)	$	54,202	$	(3,838	)

	December 31, 2019
	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
Obligations of states and political subdivisions:
Tax-exempt	$	4,324	$	(25	)	$	-	$	-		$	4,324	$	(25	)
Mortgage-backed securities in government-sponsored entities		1,409		(2	)		8,223		(107	)		9,632		(109	)
Total	$	5,733	$	(27	)	$	8,223	$	(107	)	$	13,956	$	(134	)

There were

86

securities considered temporarily impaired at

March 31, 2020.

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

96%

of the total available-for-sale portfolio as of

March 31, 2020

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 the 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, 2020

and

2019,

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, 2020

or

December 31, 2019

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

Consolidated Statement of Cash Flows (Unaudited) - USD ($)		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
OPERATING ACTIVITIES
Net income		$ 1,041,000	$ 3,011,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,740,000	240,000
Loss (gain) on equity securities	[1]	160,000	(58,000)
Depreciation and amortization of premises and equipment, net		306,000	259,000
Software amortization expense		141,000	145,000
Financing lease amortization expense		99,000	69,000
Amortization of premium and discount on investment securities, net		84,000	94,000
Accretion of deferred loan fees, net		(255,000)	(259,000)
Amortization of core deposit intangibles		83,000	85,000
Stock-based compensation (income) expense, net		(302,000)	186,000
Restricted stock cash portion			(44,000)
Origination of loans held for sale		(3,232,000)	(2,556,000)
Proceeds from sale of loans		4,053,000	1,960,000
Gain on sale of loans		(114,000)	(37,000)
Earnings on bank-owned life insurance	[1]	(107,000)	(105,000)
Deferred income tax		(308,000)	295,000
Net gain on other real estate owned			(43,000)
Increase in accrued interest receivable		(195,000)	(200,000)
Increase in accrued interest payable		63,000	192,000
Other, net		(1,277,000)	(2,553,000)
Net cash provided by operating activities		2,980,000	681,000
INVESTING ACTIVITIES
Proceeds from repayments and maturities		2,779,000	3,799,000
Purchases		(5,252,000)	(2,679,000)
Increase in loans, net		(14,052,000)	(12,616,000)
Proceeds from the sale of other real estate owned			225,000
Purchase of premises and equipment		(184,000)	(295,000)
Purchase of restricted stock		(1,600,000)
Net cash used in investing activities		(18,309,000)	(11,566,000)
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(17,133,000)	24,164,000
Increase in short-term borrowings, net		54,925,000	602,000
Net repayment of other borrowings		(88,000)	(56,000)
Proceeds from dividend reinvestment and purchase plan			196,000
Repurchase of treasury shares		(1,191,000)
Cash dividends		(964,000)	(909,000)
Net cash provided by financing activities		35,549,000	23,997,000
Increase in cash and cash equivalents		20,220,000	13,112,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		35,113,000	107,933,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		55,333,000	121,045,000
Cash paid during the year for:
Interest on deposits and borrowings		2,913,000	3,062,000
Noncash operating transactions:
Operating lease assets added to other, net			(2,101,000)
Operating lease liabilities added to other, net			2,101,000
Noncash investing transactions:
Transfers from loans to other real estate owned		301,000	38,000
Finance lease assets added to premises and equipment			(2,771,000)
Noncash financing transactions:
Finance lease liabilities added to borrowed funds			$ 2,771,000

[1] Not within scope of ASC 606

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instrument

s

(“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. 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. In

November 2019,

the FASB issued ASU

2019

-

10,

Financial Instruments ‒ Credit Losses (Topic

326

), Derivatives and Hedging (Topic

815

), and Leases (Topic

842

)

. This Update defers the effective date of ASU

2016

-

13

for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years. The CECL model has been completed and implemented as of

January 1, 2020 (

See Note

8

).

In

November 2019,

the FASB issued ASU

2019

-

11,

Codification Improvements to Topic

326,

Financial Instruments – Credit Losses

, to clarify its new credit impairment guidance in ASC

326,

based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU

2019

-

10.

This Update has

not

had a significant impact on the Company’s financial position or results of operations.

In

January 2020,

the FASB issued ASU

2020

-

2,

Financial Instruments – Credit Losses (Topic

326

) and Leases (Topic

842

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

No.

119

and Update to SEC Section on Effective Date Related to Accounting Standards Update

No.

2016

-

02,

Leases (Topic

842

),

February 2020

, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin

No.

119,

related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. This Amendment has

not

had a significant impact on the Company’s financial position or results of operations.

In

March 2020,

the FASB issued ASU

2020

-

3

,

Codification Improvements to Financial Instruments.

This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in

2016.

The ASU includes

seven

issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are

not

expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC

825,

Financial Instruments

, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic

842

should be the contractual term used to measure expected credit losses under Topic

326.

Amendments related to ASU

2019

-

04

are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is

not

permitted before an entity’s adoption of ASU

2016

-

01.

Amendments related to ASU

2016

-

13

for entities that have

not

yet adopted that guidance are effective upon adoption of the amendments in ASU

2016

-

13.

Early adoption is

not

permitted before an entity’s adoption of ASU

2016

-

13.

Amendments related to ASU

2016

-

13

for entities that have adopted that guidance are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those years. Other amendments are effective upon issuance of this ASU. This Update has

not

had a significant impact on the Company’s financial position or results of operations.

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassification of Comparative Amounts

Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did

not

affect net income or retained earnings.

XML

Note 5 - Fair Value Measurements (Details Textual) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Estimated Selling Costs of Impaired Loans	$ 2.0	$ 2.1

XML

Note 3 - Stock-based Compensation - Stock Option Activity (Details)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Outstanding (in shares) | shares	14,500
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 8.78
Exercised (in shares) | shares	(1,000)
Exercised, weighted average exercise price (in dollars per share) | $ / shares	$ 8.78
Outstanding (in shares) | shares	13,500
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 8.78
Exercisable (in shares) | shares	13,500
Exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 8.78

XML

Note 8 - Loans and Related Allowance for Loan and Lease Losses - Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans, current balance	$ 981,921	$ 975,566
Loans, past due	16,079	8,692
Loans	998,000	984,258
Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	10,110	2,589
Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	806	345
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	5,163	5,758
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Loans, current balance	112,222	101,264
Loans, past due	1,050	1,122
Loans	113,272	102,386
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due		64
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	1,050	1,058
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Loans, current balance	282,603	298,941
Loans, past due	10,172	3,239
Loans	292,775	302,180
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	6,885
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	48
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	3,239	3,239
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Loans, current balance	52,276	62,028
Loans, past due
Loans	52,276	62,028
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Residential Portfolio Segment [Member]
Loans, current balance	230,471	232,518
Loans, past due	3,429	2,280
Loans	233,900	234,798
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	2,577	1,439
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	462	34
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	390	807
Commercial And Industrial [Member]
Loans, current balance	106,157	88,965
Loans, past due	640	562
Loans	106,797	89,527
Commercial And Industrial [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	329	190
Commercial And Industrial [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	118	66
Commercial And Industrial [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	193	306
Home Equity Lines of Credit [Member]
Loans, current balance	114,611	111,792
Loans, past due	322	456
Loans	114,933	112,248
Home Equity Lines of Credit [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	101	274
Home Equity Lines of Credit [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	156	29
Home Equity Lines of Credit [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	65	153
Construction and Other [Member]
Loans, current balance	71,005	66,680
Loans, past due	181
Loans	71,186	66,680
Construction and Other [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	181
Construction and Other [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due
Construction and Other [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Consumer Portfolio Segment [Member]
Loans, current balance	12,576	13,378
Loans, past due	285	1,033
Loans	12,861	14,411
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	37	622
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	22	216
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	$ 226	$ 195

XML

Note 9 - Stock Split Disclosure - Effect of Stock Split (Details) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Restated net income per common share - basic (in dollars per share)	$ 0.16	$ 0.46
Restated net income per common share - diluted (in dollars per share)	$ 0.16	$ 0.46
Restated weighted-average common shares issued (in shares)	7,298,740	7,270,608
Restated average treasury stock shares (in shares)	881,631	772,330
Restated average shares outstanding - basic (in shares)	6,417,109	6,498,278
Restated stock options and restricted stock (in shares)	12,334	12,290
Restated average shares outstanding - diluted (in shares)	6,429,443	6,510,568
Restated period ending shares outstanding (in shares)	6,369,467	6,512,740	6,423,630
Restated treasury shares outstanding (in shares)	929,362	772,330	871,162

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2020

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. The consolidated financial statements also include the accounts of MBC’s subsidiary, Middlefield Investments, Inc. (MI), established

March 13, 2019.

All significant inter-company items have been eliminated.

The unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

  Accordingly, they do

not

include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form

10

-K for the year ended

December 

31,

2019.

  The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented.  The results of operations for the interim periods disclosed herein are

not

necessarily indicative of the results that

may

be expected for a full year.  

Recently Issued Accounting Pronouncements

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instrument

s

(“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. 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. In

November 2019,

the FASB issued ASU

2019

-

10,

Financial Instruments ‒ Credit Losses (Topic

326

), Derivatives and Hedging (Topic

815

), and Leases (Topic

842

)

. This Update defers the effective date of ASU

2016

-

13

for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years. Management will continue to monitor model output throughout the deferral period.

In

November 2019,

the FASB issued ASU

2019

-

11,

Codification Improvements to Topic

326,

Financial Instruments – Credit Losses

, to clarify its new credit impairment guidance in ASC

326,

based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU

2019

-

10.

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

In

January 2020,

the FASB issued ASU

2020

-

2,

Financial Instruments – Credit Losses (Topic

326

) and Leases (Topic

842

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

No.

119

and Update to SEC Section on Effective Date Related to Accounting Standards Update

No.

2016

-

02,

Leases (Topic

842

),

February 2020

, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin

No.

119,

related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In

March 2020,

the FASB issued ASU

2020

-

3

,

Codification Improvements to Financial Instruments.

This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in

2016.

The ASU includes

seven

issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are

not

expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC

825,

Financial Instruments

, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic

842

should be the contractual term used to measure expected credit losses under Topic

326.

Amendments related to ASU

2019

-

04

are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is

not

permitted before an entity’s adoption of ASU

2016

-

01.

Amendments related to ASU

2016

-

13

for entities that have

not

yet adopted that guidance are effective upon adoption of the amendments in ASU

2016

-

13.

Early adoption is

not

permitted before an entity’s adoption of ASU

2016

-

13.

Amendments related to ASU

2016

-

13

for entities that have adopted that guidance are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

Reclassification of Comparative Amounts

Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did

not

affect net income or retained earnings.

XML

Note 10 - Risks and Uncertainties

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Risks and Uncertainties [Text Block]

NOTE

1

0

–

RISKS AND UNCERTAINTIES

COVID-

19

Update

The following table provides information with respect to our commercial loans by type at

March 31, 2020.

At Risk

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		337	$	142,725		14.30	%
Retail		220		197,073		19.75	%
Restaurant/food service/bar		48		16,868		1.69	%
Hospitality and tourism		32		45,225		4.53	%
Self-storage facility		29		25,622		2.57	%
Other		121		14,218		1.42	%
Total		787	$	441,731		44.26	%

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on

March 27, 2020,

and provides over

$2.0

trillion in emergency economic relief to individuals and businesses impacted by the COVID-

19

pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new

7

(a) loan program called the Paycheck Protection Program (“PPP”).

As a qualified SBA lender, we were automatically authorized to originate PPP loans.

An eligible business can apply for a PPP loan up to the greater of: (

1

)

2.5

times its average monthly payroll costs; or (

2

)

$10.0

million. PPP loans will have: (a) an interest rate of

1.0%,

(b) a

two

-year loan term to maturity; and (c) principal and interest payments deferred for

six

months from the date of disbursement. The SBA will guarantee

100%

of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and

75%

of the loan proceeds are used for payroll expenses, with the remaining

25%

of the loan proceeds used for other qualifying expenses.

As of

May 3, 2020,

we approved

1,048

applications for up to

$138.1

million of loans under the PPP.

Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. Middlefield Bank

may

be exposed to the risk of similar litigation, from both customers and non-customers that approached the bank regarding PPP loans, regarding the process and procedures used in processing applications for the PPP. If any such litigation is filed against Middlefield Bank and is

not

resolved in a manner favorable to Middlefield Bank, it

may

result in significant financial liability or adversely affect Middlefield Bank’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

Middlefield Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by Middlefield Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which

may

or

may

not

be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by Middlefield Bank, the SBA

may

deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from Middlefield Bank.

Owner-Occupied Residential Mortgage & Consumer Loans.

For residential mortgage and consumer loans, CARES Act Section

4013

forbearance agreements are available to qualified borrowers. As of

May 1, 2020,

we received inquiries from

59

loan borrowers with aggregate outstanding loan balances of

$7.8

million concerning the availability of some form of payment relief. Of these requests, there are

no

borrowers related to single-family non-owner-occupied loans. Due to the widespread impact of the State of Ohio Stay At Home order, we expect that additional residential loan borrowers will seek loan forbearance or loan modification agreements in the

second

quarter of

2020.

Deferrals

As of

May 1, 2020,

we received requests to modify

606

loans aggregating

$333.2

million. As of

April 21, 2020,

we modified

252

loans aggregating

$147.0

million primarily consisting of the deferral of principal and interest payments and the extension of the maturity date. The remaining modifications are in process and are expected to be completed.

Details with respect to actual loan modifications are as follows:

COVID-

19

Loan Forbearance Programs.

Section

4013

of the CARES Act provides that banks

may

elect

not

to categorize a loan modification as a TDR if the loan modification is (

1

) related to COVID-

19;

(

2

) executed on a loan that was

not

more than

30

days past due as of

December 31, 2019;

and (

3

) executed between

March 1, 2020,

and the earlier of (A)

60

days after the date on which the national emergency concerning the novel coronavirus disease (

COVID–19

) outbreak declared by the President on

March 13, 2020,

under the National Emergencies Act terminates, or (B)

December 31, 2020.

According to the

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)

issued by the federal bank regulatory agencies on

April 7, 2020,

short-term loan modifications

not

otherwise eligible under Section

4013

that are made on a good faith basis in response to COVID-

19

to borrowers who were current prior to any relief are

not

TDRs. This includes short-term (e.g.,

six

months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note

8

of the financial statements for additional disclosure of TDRs at

March 31, 2020.

Type	Number of Loans		Balance (in thousands)		% of Total Loans
Residential non-owner occupied		9	$	2,297		0.23	%
Office		9		1,776		0.18	%
Retail		41		52,443		5.25	%
Restaurant/food service/bar		8		3,320		0.33	%
Hospitality and tourism		8		4,638		0.46	%
Other		113		42,547		4.26	%
Total		188	$	107,021		10.71	%

XML

Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income	$ 1,041	$ 3,011
Other comprehensive (loss) income:
Net unrealized holding (loss) gain on available-for-sale investment securities	(5,163)	1,006
Tax effect	1,084	(211)
Total other comprehensive (loss) income	(4,079)	795
Comprehensive (loss) income	$ (3,038)	$ 3,806

XML

Note 2 - Revenue Recognition

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE

2

–

REVENUE RECOGNITION

In accordance with ASC Topic

606,

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.

These revenue sources cumulatively comprise

91.8%

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 customer requests or activities 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

(

“

OREO

”

)

– 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 and the payment terms, that the contract has a true commercial substance and that amounts due from the buyer are 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	2020			2019
(Dollar amounts in thousands)
Service charges on deposit accounts:
Overdraft fees	$	190		$	248
ATM banking fees		210			194
Service charges and other fees		153			66
(Loss) gain on equity securities (a)		(160	)		58
Earnings on bank-owned life insurance (a)		107			105
Gain on sale of loans (a)		114			59
Revenue from investment services		131			138
Other income		329			264
Total noninterest income	$	1,074		$	1,132
Net gain on other real estate owned	$	-		$	43

(a)

Not

within scope of ASC

606

XML

Note 6 - Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

NOTE

6

– ACCUMULATED OTHER COMPREHENSIVE INCOME

(LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) (“AOCI”) by component net of tax for the

three

months ended

March 31, 2020

and

2019,

respectively:

(Dollars in thousands)	Unrealized gains/(losses) on available-for-sale securities (a)
Balance as of December 31, 2018	$	(154	)
Other comprehensive income		795
Balance at March 31, 2019	$	641
Balance as of December 31, 2019	$	1,842
Other comprehensive (loss)		(4,079	)
Balance at March 31, 2020	$	(2,237	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

There were

no

other reclassifications of amounts from accumulated other comprehensive income (loss) for the

three

months ended

March 31, 2020

and

2019.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 06, 2020
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 Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		6,369,467
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock, Without Par Value

XML

Note 5 - Fair Value Measurements - Assets Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total debt securities	$ 102,959	$ 105,733
Equity securities in financial institutions	550	710
Investment securities available for sale, at fair value	102,959	105,733
Subordinated Debt Securities [Member]
Total debt securities	4,221	4,126
Investment securities available for sale, at fair value	4,221	4,126
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Total debt securities	17,482	18,630
Investment securities available for sale, at fair value	17,482	18,630
Fair Value, Recurring [Member]
Total debt securities	102,959	105,733
Equity securities in financial institutions	550	710
Total	103,509	106,443
Investment securities available for sale, at fair value	102,959	105,733
Fair Value, Recurring [Member] | Subordinated Debt Securities [Member]
Total debt securities	4,221	4,126
Investment securities available for sale, at fair value	4,221	4,126
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Total debt securities	81,256	82,977
Investment securities available for sale, at fair value	81,256	82,977
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Total debt securities	17,482	18,630
Investment securities available for sale, at fair value	17,482	18,630
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total debt securities
Equity securities in financial institutions	550	710
Total	550	710
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Subordinated Debt Securities [Member]
Total debt securities
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US States and Political Subdivisions Debt Securities [Member]
Total debt securities
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Total debt securities
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total debt securities	102,959	105,733
Equity securities in financial institutions
Total	102,959	105,733
Investment securities available for sale, at fair value	102,959	105,733
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Subordinated Debt Securities [Member]
Total debt securities	4,221	4,126
Investment securities available for sale, at fair value	4,221	4,126
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US States and Political Subdivisions Debt Securities [Member]
Total debt securities	81,256	82,977
Investment securities available for sale, at fair value	81,256	82,977
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Total debt securities	17,482	18,630
Investment securities available for sale, at fair value	17,482	18,630
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total debt securities
Equity securities in financial institutions
Total
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Subordinated Debt Securities [Member]
Total debt securities
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | US States and Political Subdivisions Debt Securities [Member]
Total debt securities
Investment securities available for sale, at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Total debt securities
Investment securities available for sale, at fair value

XML

Note 3 - Stock-based Compensation - Activity Related to Restricted Stock Units Awarded (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Nonvested (in shares) | shares	61,040
Nonvested, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 21.73
Granted (in shares) | shares	23,648
Granted, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 26.09
Nonvested (in shares) | shares	84,688
Nonvested, weighted average grant date fair value per share (in dollars per share) | $ / shares	$ 22.94
Expected to vest as of March 31, 2020 (in shares) | shares	1,000
Expected to vest as of March 31, 2020 (in dollars per share) | $ / shares	$ 22.65

XML

Note 4 - Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

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

	For the Three
	Months Ended
	March 31,
	2020			2019
Weighted-average common shares issued		7,298,740			7,270,608
Average treasury stock shares		(881,631	)		(772,330	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		6,417,109			6,498,278
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share		12,334			12,290
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		6,429,443			6,510,568

XML

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

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule Of Financing Receivable By Segment [Table Text Block]

March 31, 2020
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,432	$	109,840	$	113,272
Non-owner occupied		7,043		285,732		292,775
Multifamily		-		52,276		52,276
Residential real estate		1,152		232,748		233,900
Commercial and industrial		911		105,886		106,797
Home equity lines of credit		347		114,586		114,933
Construction and other		-		71,186		71,186
Consumer installment		1		12,860		12,861
Total	$	12,886	$	985,114	$	998,000

December 31, 2019
Impairment Evaluation
	Individually		Collectively		Total Loans
Loans:
Commercial real estate:
Owner occupied	$	3,474	$	98,912	$	102,386
Non-owner occupied		7,084		295,096		302,180
Multifamily		-		62,028		62,028
Residential real estate		1,278		233,520		234,798
Commercial and industrial		882		88,645		89,527
Home equity lines of credit		351		111,897		112,248
Construction and other		-		66,680		66,680
Consumer installment		1		14,410		14,411
Total	$	13,070	$	971,188	$	984,258

Financing Receivable, Current, Allowance for Credit Loss [Table Text Block]

March 31, 2020
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	53	$	1,046	$	1,099
Non-owner occupied		1,095		3,269		4,364
Multifamily		-		386		386
Residential real estate		25		1,139		1,164
Commercial and industrial		3		713		716
Home equity lines of credit		40		1,200		1,240
Construction and other		-		254		254
Consumer installment		-		21		21
Total	$	1,216	$	8,028	$	9,244

December 31, 2019
Ending Allowance Balance Attributable to Loans:
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total Allocation
Loans:
Commercial real estate:
Owner occupied	$	45	$	756	$	801
Non-owner occupied		582		2,800		3,382
Multifamily		-		340		340
Residential real estate		28		698		726
Commercial and industrial		3		453		456
Home equity lines of credit		2		930		932
Construction and other		-		103		103
Consumer installment		-		28		28
Total	$	660	$	6,108	$	6,768

	Allowance for Loan and Lease Losses
	Balance									Balance
	December 31, 2019		Charge-offs			Recoveries		Provision		March 31, 2020
Loans:
Commercial real estate:
Owner occupied	$	801	$	-		$	3	$	295	$	1,099
Non-owner occupied		3,382		-			74		908		4,364
Multifamily		340		-			-		46		386
Residential real estate		726		(46	)		29		455		1,164
Commercial and industrial		456		(61	)		109		212		716
Home equity lines of credit		932		(13	)		3		318		1,240
Construction and other		103		-			17		134		254
Consumer installment		28		(388	)		9		372		21
Total	$	6,768	$	(508	)	$	244	$	2,740	$	9,244

	Allowance for Loan and Lease Losses
	Balance										Balance
	December 31, 2018		Charge-offs			Recoveries		Provision			March 31, 2019
Loans:
Commercial real estate:
Owner occupied	$	1,315	$	(32	)	$	1	$	(454	)	$	830
Non-owner occupied		2,862		-			-		(5	)		2,857
Multifamily		474		-			-		18			492
Residential real estate		761		-			10		2			773
Commercial and industrial		969		(347	)		16		(52	)		586
Home equity lines of credit		820		(91	)		4		99			832
Construction and other		100		-			23		625			748
Consumer installment		127		(47	)		1		7			88
Total	$	7,428	$	(517	)	$	55	$	240		$	7,206

Impaired Financing Receivables [Table Text Block]

March 31, 2020
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,749	$	1,749	$	-
Non-owner occupied		2,773		2,773		-
Residential real estate		636		699		-
Commercial and industrial		791		1,512		-
Home equity lines of credit		179		189		-
Consumer installment		1		1		-
Total	$	6,129	$	6,923	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,683	$	1,693	$	53
Non-owner occupied		4,270		4,270		1,095
Residential real estate		516		567		25
Commercial and industrial		120		120		3
Home equity lines of credit		168		168		40
Total	$	6,757	$	6,818	$	1,216
Total:
Commercial real estate:
Owner occupied	$	3,432	$	3,442	$	53
Non-owner occupied		7,043		7,043		1,095
Residential real estate		1,152		1,266		25
Commercial and industrial		911		1,632		3
Home equity lines of credit		347		357		40
Consumer installment		1		1		-
Total	$	12,886	$	13,741	$	1,216

December 31, 2019
Impaired Loans
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate:
Owner occupied	$	1,772	$	1,772	$	-
Non-owner occupied		3,845		3,845		-
Residential real estate		759		829		-
Commercial and industrial		747		1,524		-
Home equity lines of credit		220		228		-
Consumer installment		1		1		-
Total	$	7,344	$	8,199	$	-
With an allowance recorded:
Commercial real estate:
Owner occupied	$	1,702	$	1,713	$	45
Non-owner occupied		3,239		3,239		582
Residential real estate		519		569		28
Commercial and industrial		135		135		3
Home equity lines of credit		131		131		2
Total	$	5,726	$	5,787	$	660
Total:
Commercial real estate:
Owner occupied	$	3,474	$	3,485	$	45
Non-owner occupied		7,084		7,084		582
Residential real estate		1,278		1,398		28
Commercial and industrial		882		1,659		3
Home equity lines of credit		351		359		2
Consumer installment		1		1		-
Total	$	13,070	$	13,986	$	660

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

	For the Three Months Ended March 31, 2020				For the Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate:
Owner occupied	$	3,453	$	33	$	4,235	$	46
Non-owner occupied		7,064		49		5,057		52
Residential real estate		1,215		11		1,795		11
Commercial and industrial		897		10		2,198		30
Home equity lines of credit		349		2		118		1
Construction and other		-		-		1,620		45
Consumer installment		1		-		2		-
Total	$	12,979	$	105	$	15,025	$	185

Financing Receivable Credit Quality Indicators [Table Text Block]

			Special						Total
March 31, 2020	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	106,356	$	3,938	$	2,978	$	-	$	113,272
Non-owner occupied		275,603		3,375		13,797		-		292,775
Multifamily		40,685		-		11,591		-		52,276
Residential real estate		231,140		414		2,346		-		233,900
Commercial and industrial		101,055		3,956		1,786		-		106,797
Home equity lines of credit		113,675		-		1,258		-		114,933
Construction and other		71,186		-		-		-		71,186
Consumer installment		12,853		-		8		-		12,861
Total	$	952,553	$	11,683	$	33,764	$	-	$	998,000

			Special						Total
December 31, 2019	Pass		Mention		Substandard		Doubtful		Loans
Commercial real estate:
Owner occupied	$	95,518	$	3,951	$	2,917	$	-	$	102,386
Non-owner occupied		292,192		3,038		6,950		-		302,180
Multifamily		62,028		-		-		-		62,028
Residential real estate		231,633		420		2,745		-		234,798
Commercial and industrial		84,136		3,619		1,772		-		89,527
Home equity lines of credit		111,354		-		894		-		112,248
Construction and other		66,680		-		-		-		66,680
Consumer installment		14,398		-		13		-		14,411
Total	$	957,939	$	11,028	$	15,291	$	-	$	984,258

Financing Receivable, Past Due [Table Text Block]

			30-59 Days		60-89 Days		90 Days+		Total		Total
March 31, 2020	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	112,222	$	-	$	-	$	1,050	$	1,050	$	113,272
Non-owner occupied		282,603		6,885		48		3,239		10,172		292,775
Multifamily		52,276		-		-		-		-		52,276
Residential real estate		230,471		2,577		462		390		3,429		233,900
Commercial and industrial		106,157		329		118		193		640		106,797
Home equity lines of credit		114,611		101		156		65		322		114,933
Construction and other		71,005		181		-		-		181		71,186
Consumer installment		12,576		37		22		226		285		12,861
Total	$	981,921	$	10,110	$	806	$	5,163	$	16,079	$	998,000

			30-59 Days		60-89 Days		90 Days+		Total		Total
December 31, 2019	Current		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate:
Owner occupied	$	101,264	$	64	$	-	$	1,058	$	1,122	$	102,386
Non-owner occupied		298,941		-		-		3,239		3,239		302,180
Multifamily		62,028		-		-		-		-		62,028
Residential real estate		232,518		1,439		34		807		2,280		234,798
Commercial and industrial		88,965		190		66		306		562		89,527
Home equity lines of credit		111,792		274		29		153		456		112,248
Construction and other		66,680		-		-		-		-		66,680
Consumer installment		13,378		622		216		195		1,033		14,411
Total	$	975,566	$	2,589	$	345	$	5,758	$	8,692	$	984,258

Financing Receivable, Nonaccrual [Table Text Block]

			90+ Days Past Due
March 31, 2020	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,175	$	-
Non-owner occupied		3,287		-
Residential real estate		2,180		-
Commercial and industrial		835		-
Home equity lines of credit		699		-
Consumer installment		229		-
Total	$	8,405	$	-

			90+ Days Past Due
December 31, 2019	Nonaccrual		and Accruing
Commercial real estate:
Owner occupied	$	1,162	$	-
Non-owner occupied		3,289		-
Residential real estate		2,576		-
Commercial and industrial		946		-
Home equity lines of credit		709		-
Consumer installment		197		-
Total	$	8,879	$	-

Financing Receivable, Troubled Debt Restructuring [Table Text Block]

	For the Three Months Ended
	March 31, 2020
	Number of Contracts						Pre-Modification		Post-Modification
Troubled Debt Restructurings	Term Modification		Other		Total		Outstanding Recorded Investment		Outstanding Recorded Investment
Residential real estate		2		-		2	$	42	$	42
Commercial and industrial		1		-		1		95		95

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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, 2020	Dec. 31, 2019
Individually evaluated for impairment	$ 12,886	$ 13,070
Collectively evaluated for impairment	985,114	971,188
Total loans	998,000	984,258
Commercial Real Estate Portfolio Segment [Member] | Owner Occupied Loan [Member]
Individually evaluated for impairment	3,432	3,474
Collectively evaluated for impairment	109,840	98,912
Total loans	113,272	102,386
Commercial Real Estate Portfolio Segment [Member] | Non-owner occupied Loan [Member]
Individually evaluated for impairment	7,043	7,084
Collectively evaluated for impairment	285,732	295,096
Total loans	292,775	302,180
Commercial Real Estate Portfolio Segment [Member] | Multifamily Loan [Member]
Individually evaluated for impairment
Collectively evaluated for impairment	52,276	62,028
Total loans	52,276	62,028
Residential Portfolio Segment [Member]
Individually evaluated for impairment	1,152	1,278
Collectively evaluated for impairment	232,748	233,520
Total loans	233,900	234,798
Commercial And Industrial [Member]
Individually evaluated for impairment	911	882
Collectively evaluated for impairment	105,886	88,645
Total loans	106,797	89,527
Home Equity Lines of Credit [Member]
Individually evaluated for impairment	347	351
Collectively evaluated for impairment	114,586	111,897
Total loans	114,933	112,248
Construction and Other [Member]
Individually evaluated for impairment
Collectively evaluated for impairment	71,186	66,680
Total loans	71,186	66,680
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	1	1
Collectively evaluated for impairment	12,860	14,410
Total loans	$ 12,861	$ 14,411

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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, 2020	Dec. 31, 2019
Amortized cost	$ 105,790	$ 103,401
Gross unrealized gains	1,007	2,466
Gross unrealized losses	(3,838)	(134)
Investment securities available for sale, at fair value	102,959	105,733
Subordinated Debt Securities [Member]
Amortized cost	4,000	4,000
Gross unrealized gains	221	126
Gross unrealized losses
Investment securities available for sale, at fair value	4,221	4,126
Taxable Municipal Bonds [Member]
Amortized cost	500	500
Gross unrealized gains	1	1
Gross unrealized losses
Investment securities available for sale, at fair value	501	501
Nontaxable Municipal Bonds [Member]
Amortized cost	84,343	80,436
Gross unrealized gains	236	2,065
Gross unrealized losses	(3,824)	(25)
Investment securities available for sale, at fair value	80,755	82,476
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Amortized cost	16,947	18,465
Gross unrealized gains	549	274
Gross unrealized losses	(14)	(109)
Investment securities available for sale, at fair value	$ 17,482	$ 18,630