UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(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, |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________ |
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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 | |||||||||
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| 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
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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. |
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Large accelerated filer ☐ | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company ☒ | ||
Emerging growth company ☐ |
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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 5, 2021: 6,333,481
MIDDLEFIELD BANC CORP.
INDEX
Part I – Financial Information | |||
Item 1. | Financial Statements (unaudited) | ||
Consolidated Balance Sheet as of March 31, | 3 | ||
Consolidated Statement of Income for the Three Months ended March 31, | 4 | ||
Consolidated Statement of Comprehensive Income for the Three Months ended March 31, | 5 | ||
Consolidated Statement of Changes in Stockholders' Equity for the Three Months ended March 31, | 6 | ||
Consolidated Statement of Cash Flows for the Three Months ended March 31, | 7 | ||
Notes to Unaudited Consolidated Financial Statements | 9 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
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Item 4. | Controls and Procedures |
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Part II – Other Information | |||
Item 1. | Legal Proceedings |
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Item 1a. | Risk Factors |
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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 |
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Item 6. | Exhibits and Reports on Form 8-K | 44 | |
Signatures | 49 | ||
Exhibit 31.1 | 50 | ||
Exhibit 31.2 | 51 | ||
Exhibit 32 | 52 |
MIDDLEFIELD BANC CORP.
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except share data)
(Unaudited)
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and due from banks | $ | 53,533 | $ | 35,113 | $ | 93,037 | $ | 92,874 | ||||||||
Federal funds sold | 1,800 | - | 7,436 | 19,543 | ||||||||||||
Cash and cash equivalents | 55,333 | 35,113 | 100,473 | 112,417 | ||||||||||||
Equity securities, at fair value | 550 | 710 | 690 | 609 | ||||||||||||
Investment securities available for sale, at fair value | 102,959 | 105,733 | 123,218 | 114,360 | ||||||||||||
Loans held for sale | 513 | 1,220 | 1,260 | 878 | ||||||||||||
Loans: | ||||||||||||||||
Commercial real estate: | ||||||||||||||||
Owner occupied | 113,272 | 102,386 | 104,379 | 103,121 | ||||||||||||
Non-owner occupied | 292,775 | 302,180 | 304,623 | 309,424 | ||||||||||||
Multifamily | 52,276 | 62,028 | 39,015 | 39,562 | ||||||||||||
Residential real estate | 233,900 | 234,798 | 228,052 | 233,995 | ||||||||||||
Commercial and industrial | 106,797 | 89,527 | 242,651 | 232,044 | ||||||||||||
Home equity lines of credit | 114,933 | 112,248 | 111,474 | 112,543 | ||||||||||||
Construction and other | 71,186 | 66,680 | 64,960 | 63,573 | ||||||||||||
Consumer installment | 12,861 | 14,411 | 9,046 | 9,823 | ||||||||||||
Total loans | 998,000 | 984,258 | 1,104,200 | 1,104,085 | ||||||||||||
Less: allowance for loan and lease losses | 9,244 | 6,768 | 14,122 | 13,459 | ||||||||||||
Net loans | 988,756 | 977,490 | 1,090,078 | 1,090,626 | ||||||||||||
Premises and equipment, net | 17,653 | 17,874 | 18,002 | 18,333 | ||||||||||||
Goodwill | 15,071 | 15,071 | 15,071 | 15,071 | ||||||||||||
Core deposit intangibles | 1,973 | 2,056 | 1,644 | 1,724 | ||||||||||||
Bank-owned life insurance | 16,618 | 16,511 | 16,740 | 16,938 | ||||||||||||
Other real estate owned | 7,372 | 7,387 | ||||||||||||||
Accrued interest receivable and other assets | 14,513 | 10,697 | 13,545 | 13,636 | ||||||||||||
TOTAL ASSETS | $ | 1,213,939 | $ | 1,182,475 | $ | 1,388,093 | $ | 1,391,979 | ||||||||
LIABILITIES | ||||||||||||||||
Deposits: | ||||||||||||||||
Noninterest-bearing demand | $ | 206,372 | $ | 191,370 | $ | 317,224 | $ | 291,347 | ||||||||
Interest-bearing demand | 125,184 | 107,844 | 215,684 | 195,722 | ||||||||||||
Money market | 156,556 | 160,826 | 187,204 | 198,493 | ||||||||||||
Savings | 175,468 | 192,003 | 259,973 | 243,888 | ||||||||||||
Time | 340,130 | 368,800 | 245,342 | 295,750 | ||||||||||||
Total deposits | 1,003,710 | 1,020,843 | 1,225,427 | 1,225,200 | ||||||||||||
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 | 13,095 | 17,038 | ||||||||||||
Accrued interest payable and other liabilities | 4,880 | 6,032 | 4,901 | 5,931 | ||||||||||||
TOTAL LIABILITIES | 1,081,252 | 1,044,700 | 1,243,423 | 1,248,169 | ||||||||||||
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 | ||||||||||||||
Common stock, no par value; 10,000,000 shares authorized, 7,323,487 and 7,308,685 shares issued; 6,344,657 and 6,379,323 shares outstanding | 87,073 | 86,886 | ||||||||||||||
Retained earnings | 65,140 | 65,063 | 72,729 | 69,578 | ||||||||||||
Accumulated other comprehensive (loss) income | (2,237 | ) | 1,842 | |||||||||||||
Treasury stock, at cost; 929,362 and 871,162 shares | (16,938 | ) | (15,747 | ) | ||||||||||||
Accumulated other comprehensive income | 2,917 | 4,284 | ||||||||||||||
Treasury stock, at cost; 978,830 and 929,362 shares | (18,049 | ) | (16,938 | ) | ||||||||||||
TOTAL STOCKHOLDERS' EQUITY | 132,687 | 137,775 | 144,670 | 143,810 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,213,939 | $ | 1,182,475 | $ | 1,388,093 | $ | 1,391,979 |
See accompanying notes to unaudited consolidated financial statements.
MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF INCOME
(Dollar amounts in thousands, except per share data)
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
INTEREST AND DIVIDEND INCOME | ||||||||||||||||
Interest and fees on loans | $ | 12,078 | $ | 12,488 | $ | 12,167 | $ | 12,078 | ||||||||
Interest-earning deposits in other institutions | 94 | 187 | 18 | 94 | ||||||||||||
Federal funds sold | 21 | 7 | 0 | 21 | ||||||||||||
Investment securities: | ||||||||||||||||
Taxable interest | 157 | 179 | 370 | 157 | ||||||||||||
Tax-exempt interest | 629 | 565 | 558 | 629 | ||||||||||||
Dividends on stock | 30 | 58 | 29 | 30 | ||||||||||||
Total interest and dividend income | 13,009 | 13,484 | 13,142 | 13,009 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Deposits | 2,865 | 2,945 | 1,205 | 2,865 | ||||||||||||
Short-term borrowings | 35 | 213 | 0 | 35 | ||||||||||||
Other borrowings | 76 | 96 | 39 | 76 | ||||||||||||
Total interest expense | 2,976 | 3,254 | 1,244 | 2,976 | ||||||||||||
NET INTEREST INCOME | 10,033 | 10,230 | 11,898 | 10,033 | ||||||||||||
Provision for loan losses | 2,740 | 240 | 700 | 2,740 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 7,293 | 9,990 | 11,198 | 7,293 | ||||||||||||
NONINTEREST INCOME | ||||||||||||||||
Service charges on deposit accounts | 553 | 508 | 787 | 553 | ||||||||||||
(Loss) gain on equity securities | (160 | ) | 58 | |||||||||||||
Gain (loss) on equity securities | 81 | (160 | ) | |||||||||||||
Earnings on bank-owned life insurance | 107 | 105 | 226 | 107 | ||||||||||||
Gain on sale of loans | 114 | 59 | 592 | 114 | ||||||||||||
Other income | 460 | 402 | 532 | 460 | ||||||||||||
Total noninterest income | 1,074 | 1,132 | 2,218 | 1,074 | ||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||
Salaries and employee benefits | 3,524 | 4,124 | 4,254 | 3,584 | ||||||||||||
Occupancy expense | 550 | 553 | 600 | 550 | ||||||||||||
Equipment expense | 273 | 235 | 357 | 273 | ||||||||||||
Data processing costs | 666 | 465 | 786 | 666 | ||||||||||||
Ohio state franchise tax | 268 | 259 | 286 | 268 | ||||||||||||
Federal deposit insurance expense | 123 | 130 | 144 | 123 | ||||||||||||
Professional fees | 349 | 431 | 419 | 349 | ||||||||||||
Net loss on other real estate owned | 46 | 1 | ||||||||||||||
Advertising expense | 209 | 203 | 221 | 209 | ||||||||||||
Software amortization expense | 141 | 145 | 80 | 141 | ||||||||||||
Core deposit intangible amortization | 83 | 85 | 80 | 83 | ||||||||||||
Other expense | 1,066 | 870 | 1,080 | 1,005 | ||||||||||||
Total noninterest expense | 7,252 | 7,500 | 8,353 | 7,252 | ||||||||||||
Income before income taxes | 1,115 | 3,622 | 5,063 | 1,115 | ||||||||||||
Income taxes | 74 | 611 | 896 | 74 | ||||||||||||
NET INCOME | $ | 1,041 | $ | 3,011 | $ | 4,167 | $ | 1,041 | ||||||||
EARNINGS PER SHARE | ||||||||||||||||
Basic | $ | 0.16 | $ | 0.46 | $ | 0.65 | $ | 0.16 | ||||||||
Diluted | $ | 0.16 | $ | 0.46 | $ | 0.65 | $ | 0.16 |
See accompanying notes to unaudited consolidated financial statements.
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 |
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Net income | $ | 4,167 | $ | 1,041 | ||||
Other comprehensive loss: | ||||||||
Net unrealized holding loss on available-for-sale investment securities | (1,730 | ) | (5,163 | ) | ||||
Tax effect | 363 | 1,084 | ||||||
Total other comprehensive loss | (1,367 | ) | (4,079 | ) | ||||
Comprehensive income (loss) | $ | 2,800 | $ | (3,038 | ) |
See accompanying notes to unaudited consolidated financial statements.
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 | Stock | Equity | |||||||||||||||||||
Balance, December 31, 2020 | 7,308,685 | $ | 86,886 | $ | 69,578 | $ | 4,284 | $ | (16,938 | ) | $ | 143,810 | ||||||||||||
Net income | 4,167 | 4,167 | ||||||||||||||||||||||
Other comprehensive loss | (1,367 | ) | (1,367 | ) | ||||||||||||||||||||
Stock options exercised | 10,650 | 94 | 94 | |||||||||||||||||||||
Stock-based compensation, net | 4,152 | 93 | 93 | |||||||||||||||||||||
Treasury shares acquired (49,468) | (1,111 | ) | (1,111 | ) | ||||||||||||||||||||
Cash dividends ($0.16 per share) | (1,016 | ) | (1,016 | ) | ||||||||||||||||||||
Balance, March 31, 2021 | 7,323,487 | $ | 87,073 | $ | 72,729 | $ | 2,917 | $ | (18,049 | ) | $ | 144,670 |
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 |
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) | (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 |
See accompanying notes to unaudited consolidated financial statements.
MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 1,041 | $ | 3,011 | $ | 4,167 | $ | 1,041 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Provision for loan losses | 2,740 | 240 | 700 | 2,740 | ||||||||||||
Loss (gain) on equity securities | 160 | (58 | ) | |||||||||||||
(Gain) loss on equity securities | (81 | ) | 160 | |||||||||||||
Depreciation and amortization of premises and equipment, net | 306 | 259 | 371 | 306 | ||||||||||||
Software amortization expense | 141 | 145 | 80 | 141 | ||||||||||||
Financing lease amortization expense | 99 | 69 | 78 | 99 | ||||||||||||
Amortization of premium and discount on investment securities, net | 84 | 94 | 80 | 84 | ||||||||||||
Accretion of deferred loan fees, net | (255 | ) | (259 | ) | (1,394 | ) | (255 | ) | ||||||||
Amortization of core deposit intangibles | 83 | 85 | 80 | 83 | ||||||||||||
Stock-based compensation (income) expense, net | (302 | ) | 186 | |||||||||||||
Restricted stock cash portion | - | (44 | ) | |||||||||||||
Stock-based compensation income, net | 0 | (302 | ) | |||||||||||||
Origination of loans held for sale | (3,232 | ) | (2,556 | ) | (12,458 | ) | (3,232 | ) | ||||||||
Proceeds from sale of loans | 4,053 | 1,960 | 12,668 | 4,053 | ||||||||||||
Gain on sale of loans | (114 | ) | (37 | ) | (592 | ) | (114 | ) | ||||||||
Earnings on bank-owned life insurance | (107 | ) | (105 | ) | (226 | ) | (107 | ) | ||||||||
Deferred income tax | (308 | ) | 295 | (32 | ) | (308 | ) | |||||||||
Net gain on other real estate owned | - | (43 | ) | |||||||||||||
Increase in accrued interest receivable | (195 | ) | (200 | ) | ||||||||||||
Increase in accrued interest payable | 63 | 192 | ||||||||||||||
Loss on other real estate owned | 20 | 0 | ||||||||||||||
Decrease (increase) in accrued interest receivable | 353 | (195 | ) | |||||||||||||
(Decrease) increase in accrued interest payable | (135 | ) | 63 | |||||||||||||
Other, net | (1,277 | ) | (2,553 | ) | (910 | ) | (1,277 | ) | ||||||||
Net cash provided by operating activities | 2,980 | 681 | 2,769 | 2,980 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Investment securities available for sale: | ||||||||||||||||
Proceeds from repayments and maturities | 2,779 | 3,799 | 3,576 | 2,779 | ||||||||||||
Purchases | (5,252 | ) | (2,679 | ) | (14,244 | ) | (5,252 | ) | ||||||||
Increase in loans, net | (14,052 | ) | (12,616 | ) | ||||||||||||
Decrease (increase) in loans, net | 1,179 | (14,052 | ) | |||||||||||||
Proceeds from the sale of other real estate owned | - | 225 | 58 | 0 | ||||||||||||
Purchase of premises and equipment | (184 | ) | (295 | ) | ||||||||||||
Proceeds from bank-owned life insurance | 424 | 0 | ||||||||||||||
Net purchase of premises and equipment | (51 | ) | (184 | ) | ||||||||||||
Purchase of restricted stock | (1,600 | ) | - | 0 | (1,600 | ) | ||||||||||
Redemption of restricted stock | 161 | 0 | ||||||||||||||
Net cash used in investing activities | (18,309 | ) | (11,566 | ) | (8,897 | ) | (18,309 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Net (decrease) increase in deposits | (17,133 | ) | 24,164 | |||||||||||||
Net increase (decrease) in deposits | 227 | (17,133 | ) | |||||||||||||
Increase in short-term borrowings, net | 54,925 | 602 | 0 | 54,925 | ||||||||||||
Net repayment of other borrowings | (88 | ) | (56 | ) | ||||||||||||
Proceeds from dividend reinvestment and purchase plan | - | 196 | ||||||||||||||
Repayment of other borrowings | (4,010 | ) | (88 | ) | ||||||||||||
Stock options exercised | 94 | 0 | ||||||||||||||
Repurchase of treasury shares | (1,191 | ) | - | (1,111 | ) | (1,191 | ) | |||||||||
Cash dividends | (964 | ) | (909 | ) | (1,016 | ) | (964 | ) | ||||||||
Net cash provided by financing activities | 35,549 | 23,997 | ||||||||||||||
Net cash (used in) provided by financing activities | (5,816 | ) | 35,549 | |||||||||||||
Increase in cash and cash equivalents | 20,220 | 13,112 | ||||||||||||||
(Decrease) increase in cash and cash equivalents | (11,944 | ) | 20,220 | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 35,113 | 107,933 | 112,417 | 35,113 | ||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 55,333 | $ | 121,045 | $ | 100,473 | $ | 55,333 |
See accompanying notes to unaudited consolidated financial statements.
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||
Cash paid during the year for: | ||||||||||||||||
Interest on deposits and borrowings | $ | 2,913 | $ | 3,062 | $ | 1,379 | $ | 2,913 | ||||||||
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 | $ | 63 | $ | 301 | ||||||||
Finance lease assets added to premises and equipment | - | (2,771 | ) | (67 | ) | 0 | ||||||||||
Noncash financing transactions: | ||||||||||||||||
Finance lease liabilities added to borrowed funds | $ | - | $ | 2,771 | ||||||||||||
Finance lease liabilities added to other borrowings funds | $ | 67 | $ | 0 |
See accompanying notes to unaudited consolidated financial statements.
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-Q10-Q and Article 10 of Regulation S-X.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-K10-K for the year ended December 31, 2019.2020. 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.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments(“CECL”)Instruments, 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 effectedaffected 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 theis 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. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. Management will continue to monitor model output throughout the deferral period.
In November 2019,CECL Adoption. The Company continues to monitor the FASB issued ASU 2019-11, Codification Improvementsopportunity to early adopt ASC Topic 326, Financial Instruments – Credit Losses, which replaces the current incurred loss approach for measuring credit losses with an expected loss model ("CECL"). CECL applies to clarify its newfinancial assets subject to credit impairmentlosses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance is expected to result in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included inan increase of the allowance for credit losses, an increase in the allowance for these financial assets; an accounting policy election canunfunded commitments, and a reduction of retained earnings. Incurred loss will be made to adjustused until the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions insteadtax benefits associated with increased reserves are maximized. Management may consider early adoption of the prepayment assumptions applicable immediately priorCECL, which would have no initial impact 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.income statement.
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.
NOTE 2 – REVENUE RECOGNITION
In accordance with ASC Topic 606,Revenue from Contracts with Customers (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%92.2% 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.
GainsNet 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 31,31:
Noninterest Income | 2020 | 2019 | 2021 | 2020 | ||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||
Service charges on deposit accounts: | ||||||||||||||||
Overdraft fees | $ | 190 | $ | 248 | $ | 168 | $ | 190 | ||||||||
ATM banking fees | 210 | 194 | 312 | 210 | ||||||||||||
Service charges and other fees | 153 | 66 | 307 | 153 | ||||||||||||
(Loss) gain on equity securities (a) | (160 | ) | 58 | |||||||||||||
Gain (loss) on equity securities (a) | 81 | (160 | ) | |||||||||||||
Earnings on bank-owned life insurance (a) | 107 | 105 | 226 | 107 | ||||||||||||
Gain on sale of loans (a) | 114 | 59 | 592 | 114 | ||||||||||||
Revenue from investment services | 131 | 138 | 127 | 131 | ||||||||||||
Other income | 329 | 264 | 405 | 329 | ||||||||||||
Total noninterest income | $ | 1,074 | $ | 1,132 | $ | 2,218 | $ | 1,074 | ||||||||
Net gain on other real estate owned | $ | - | $ | 43 | ||||||||||||
Net loss on other real estate owned | $ | 46 | $ | 1 |
(a) Not within scope of ASC 606 |
NOTE 3 - STOCK-BASED COMPENSATION
The Company had no0 nonvested stock options outstanding as of March 31, 2020 2021 and 2019.2020.
Stock option activity during the three months ended March 31, 2020 2021 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 |
Weighted- | ||||||||
average | ||||||||
Exercise Price | ||||||||
Shares | Per Share | |||||||
Outstanding, January 1, 2021 | 12,150 | $ | 8.78 | |||||
Exercised | (12,150 | ) | 8.78 | |||||
Outstanding, March 31, 2021 | 0 | 0 | ||||||
Exercisable, March 31, 2021 | 0 | 0 |
The following table presents the activity during the three months ended March 31, 2020 2021 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 |
Weighted- | ||||||||
average | ||||||||
Grant Date Fair | ||||||||
Units | Value Per Unit | |||||||
Nonvested at January 1, 2021 | 67,634 | $ | 23.51 | |||||
Granted | 29,866 | 22.50 | ||||||
Nonvested at March 31, 2021 | 97,500 | $ | 23.20 | |||||
Expected to vest as of March 31, 2021 | 58,749 | $ | 23.00 |
The Company recognizes restricted stock forfeitures in the period they occur.
Share-based compensation expense (recovery) of $0 and ($408,000) and $90,000 was recognized for the three-monththree-month periods ended March 31, 2021 and 2020, respectively. The expense recovery recorded as of March 31, 2020 and 2019, respectively. The expense recorded as of March 31, 2020 is the result of the decrease in the market valuationsvaluation 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 Planplan 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 $581,000 and $287,000 and $236,000 at March 31, 2020 2021 and 2019,2020, 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 2021 totals $219,000,$736,000, of which $94,000$301,000 is estimated for the rest of 2020, $88,0002021, $259,000 for 2021, $34,0002022, $155,000 for 2022,2023, and $4,000$21,000 for 2023.2024.
NOTE 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 | For the Three | |||||||||||||||
Months Ended | Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Weighted-average common shares issued | 7,298,740 | 7,270,608 | 7,315,574 | 7,298,740 | ||||||||||||
Average treasury stock shares | (881,631 | ) | (772,330 | ) | (951,442 | ) | (881,631 | ) | ||||||||
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share | 6,417,109 | 6,498,278 | 6,364,132 | 6,417,109 | ||||||||||||
Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share | 12,334 | 12,290 | 14,361 | 12,334 | ||||||||||||
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share | 6,429,443 | 6,510,568 | 6,378,493 | 6,429,443 |
Outstanding at March 31, 2021 were 97,500 shares of restricted stock, 89,069 shares of which were anti-dilutive. There were 0 options to purchase shares of common stock outstanding as of March 31, 2021.
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, 2021, the Company held 929,362978,830 of the Company’s shares, which is an increase of 58,200 for the three months ended March 31, 2020,49,468 from the 871,162929,362 shares held as of December 31, 2019.2020.
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 |
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 | March 31, 2021 | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | ||||||||||||||||||||||||
Assets measured on a recurring basis: | ||||||||||||||||||||||||||||||||
Subordinated debt | $ | - | $ | 4,221 | $ | - | $ | 4,221 | $ | 0 | $ | 16,836 | $ | 9,450 | $ | 26,286 | ||||||||||||||||
Obligations of states and political subdivisions | - | 81,256 | - | 81,256 | 0 | 83,220 | 0 | 83,220 | ||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | - | 17,482 | - | 17,482 | 0 | 13,712 | 0 | 13,712 | ||||||||||||||||||||||||
Total debt securities | - | 102,959 | - | 102,959 | 0 | 113,768 | 9,450 | 123,218 | ||||||||||||||||||||||||
Equity securities in financial institutions | 550 | - | - | 550 | 690 | 0 | 0 | 690 | ||||||||||||||||||||||||
Total | $ | 550 | $ | 102,959 | $ | - | $ | 103,509 | $ | 690 | $ | 113,768 | $ | 9,450 | $ | 123,908 |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | ||||||||||||||||||||||||
Assets measured on a recurring basis: | ||||||||||||||||||||||||||||||||
Subordinated debt | $ | - | $ | 4,126 | $ | - | $ | 4,126 | $ | 0 | $ | 14,047 | $ | 7,250 | $ | 21,297 | ||||||||||||||||
Obligations of states and political subdivisions | - | 82,977 | - | 82,977 | 0 | 78,302 | 0 | 78,302 | ||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | - | 18,630 | - | 18,630 | 0 | 14,761 | 0 | 14,761 | ||||||||||||||||||||||||
Total debt securities | - | 105,733 | - | 105,733 | 0 | 107,110 | 7,250 | 114,360 | ||||||||||||||||||||||||
Equity securities in financial institutions | 710 | - | - | 710 | 609 | 0 | 0 | 609 | ||||||||||||||||||||||||
Total | $ | 710 | $ | 105,733 | $ | - | $ | 106,443 | $ | 609 | $ | 107,110 | $ | 7,250 | $ | 114,969 |
Investment Securities Available for SaleSale - 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). Securities for which the pricing service is unable to calculate a market price are reported at book value and are classified under the Level III measurement.
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 nonrecurringnon-recurring 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 induring the three months ended March 31, 2020.2021.
March 31, 2020 | March 31, 2021 | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | ||||||||||||||||||||||||
Assets measured on a non-recurring basis: | ||||||||||||||||||||||||||||||||
Impaired loans | $ | - | $ | - | $ | 4,566 | $ | 4,566 | $ | 0 | $ | 0 | $ | 4,303 | $ | 4,303 | ||||||||||||||||
Other real estate owned | 0 | 0 | 6,992 | 6,992 |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | ||||||||||||||||||||||||
Assets measured on a non-recurring basis: | ||||||||||||||||||||||||||||||||
Impaired loans | $ | - | $ | - | $ | 5,166 | $ | 5,166 | $ | 0 | $ | 0 | $ | 4,111 | $ | 4,111 | ||||||||||||||||
Other real estate owned | 0 | 0 | 6,992 | 6,992 |
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-partythird-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$911,000 and $2.1 million$838,000 as of March 31, 2020 2021 and December 31, 2019, 2020, respectively.
Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the above table. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.
The following tables present additional quantitative information about assets measured at fair value on a nonrecurringnon-recurring basis and for which the Company uses Level III inputs to determine fair value:
Quantitative Information about Level III Fair Value Measurements | Quantitative Information about Level III Fair Value Measurements | |||||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | (Dollar amounts in thousands) |
|
| Range (Weighted | Range (Weighted | |||||||||||||||||||||||||||||
Fair Value Estimate | Valuation Techniques | Unobservable Input | Average) | Fair Value Estimate | Valuation Techniques | Unobservable Input | Average) | |||||||||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||||||||||
Impaired loans | $ | 4,566 | Appraisal of collateral (1) | Appraisal adjustments (2) | 35.4% | to | 49.5% | (36.2%) | $ | 4,303 | Appraisal of collateral (1) | Appraisal adjustments (2) | 14.5 | % | to | 76.1 | % | (35.9 | %) | |||||||||||||||
Other real estate owned | $ | 6,992 | Appraisal of collateral (1) | Appraisal adjustments (2) | 19.9 | % |
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%) |
Quantitative Information about Level III Fair Value Measurements | ||||||||||||||||||||||
(Dollar amounts in thousands) | Range (Weighted | |||||||||||||||||||||
Fair Value Estimate | Valuation Techniques | Unobservable Input | Average) | |||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||
Impaired loans | $ | 4,111 | Appraisal of collateral (1) | Appraisal adjustments (2) | 17.6 | % | to | 48.5 | % | (22.7 | %) | |||||||||||
Other real estate owned | $ | 6,992 | Appraisal of collateral (1) | Appraisal adjustments (2) | 19.9 | % |
| 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. |
| 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 |
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 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
Carrying | Total | Carrying | Total | |||||||||||||||||||||||||||||||||||||
Value | Level I | Level II | Level III | Fair Value | Value | Level I | Level II | Level III | Fair Value | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | (Dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 55,333 | $ | 55,333 | $ | - | $ | - | $ | 55,333 | $ | 100,473 | $ | 100,473 | $ | 0 | $ | 0 | $ | 100,473 | ||||||||||||||||||||
Loans held for sale | 513 | - | 513 | - | 513 | 1,260 | 0 | 1,260 | 0 | 1,260 | ||||||||||||||||||||||||||||||
Net loans | 988,756 | - | - | 983,780 | 983,780 | 1,090,078 | 0 | 0 | 1,085,490 | 1,085,490 | ||||||||||||||||||||||||||||||
Bank-owned life insurance | 16,618 | 16,618 | - | - | 16,618 | 16,740 | 16,740 | 0 | 0 | 16,740 | ||||||||||||||||||||||||||||||
Federal Home Loan Bank stock | 5,448 | 5,448 | - | - | 5,448 | 4,896 | 4,896 | 0 | 0 | 4,896 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 3,666 | 3,666 | - | - | 3,666 | 4,857 | 4,857 | 0 | 0 | 4,857 | ||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 1,003,710 | $ | 663,580 | $ | - | $ | 346,386 | $ | 1,009,966 | $ | 1,225,427 | $ | 980,085 | $ | 0 | $ | 248,293 | $ | 1,228,378 | ||||||||||||||||||||
Short-term borrowings | 60,000 | 60,000 | - | - | 60,000 | |||||||||||||||||||||||||||||||||||
Other borrowings | 12,662 | - | - | 12,706 | 12,706 | 13,095 | 0 | 0 | 13,095 | 13,095 | ||||||||||||||||||||||||||||||
Accrued interest payable | 980 | 980 | - | - | 980 | 445 | 445 | 0 | 0 | 445 |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
Carrying | Total | Carrying | Total | |||||||||||||||||||||||||||||||||||||
Value | Level I | Level II | Level III | Fair Value | Value | Level I | Level II | Level III | Fair Value | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | (Dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 35,113 | $ | 35,113 | $ | - | $ | - | $ | 35,113 | $ | 112,417 | $ | 112,417 | $ | 0 | $ | 0 | $ | 112,417 | ||||||||||||||||||||
Loans held for sale | 1,220 | - | 1,220 | - | 1,220 | 878 | 0 | 878 | 0 | 878 | ||||||||||||||||||||||||||||||
Net loans | 977,490 | - | - | 974,213 | 974,213 | 1,090,626 | 0 | 0 | 1,089,573 | 1,089,573 | ||||||||||||||||||||||||||||||
Bank-owned life insurance | 16,511 | 16,511 | - | - | 16,511 | 16,938 | 16,938 | 0 | 0 | 16,938 | ||||||||||||||||||||||||||||||
Federal Home Loan Bank stock | 3,848 | 3,848 | - | - | 3,848 | 5,057 | 5,057 | 0 | 0 | 5,057 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 3,471 | 3,471 | - | - | 3,471 | 5,210 | 5,210 | 0 | 0 | 5,210 | ||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 1,020,843 | $ | 652,043 | $ | - | $ | 371,193 | $ | 1,023,236 | $ | 1,225,200 | $ | 929,450 | $ | 0 | $ | 299,651 | $ | 1,229,101 | ||||||||||||||||||||
Short-term borrowings | 5,075 | 5,075 | - | - | 5,075 | |||||||||||||||||||||||||||||||||||
Other borrowings | 12,750 | - | - | 12,783 | 12,783 | 17,038 | 0 | 0 | 15,250 | 15,250 | ||||||||||||||||||||||||||||||
Accrued interest payable | 917 | 917 | - | - | 917 | 580 | 580 | 0 | 0 | 580 |
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.instruments.
NOTE 6–6 – 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 2021 and 2019,2020, 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 | ) |
(Dollars in thousands) | Unrealized gains/(losses) on available-for-sale securities (a) | |||
Balance as of December 31, 2020 | $ | 4,284 | ||
Other comprehensive loss | (1,367 | ) | ||
Balance at March 31, 2021 | $ | 2,917 | ||
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 no0 other reclassifications of amounts from accumulated other comprehensive income (loss) for the three months ended March 31, 2020 2021, and 2019.2020.
NOTE 77– INVESTMENT AND EQUITY SECURITIES
The amortized cost and fair values of investment securities available for sale are as follows:
March 31, 2020 | March 31, 2021 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
(Dollar amounts in thousands) | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
Subordinated debt | $ | 4,000 | $ | 221 | $ | - | $ | 4,221 | $ | 26,200 | $ | 196 | $ | (110 | ) | $ | 26,286 | |||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||
Taxable | 500 | 1 | - | 501 | 500 | 2 | 0 | 502 | ||||||||||||||||||||||||
Tax-exempt | 84,343 | 236 | (3,824 | ) | 80,755 | 79,515 | 3,327 | (124 | ) | 82,718 | ||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 16,947 | 549 | (14 | ) | 17,482 | 13,310 | 473 | (71 | ) | 13,712 | ||||||||||||||||||||||
Total | $ | 105,790 | $ | 1,007 | $ | (3,838 | ) | $ | 102,959 | $ | 119,525 | $ | 3,998 | $ | (305 | ) | $ | 123,218 |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
(Dollar amounts in thousands) | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
Subordinated debt | $ | 4,000 | $ | 126 | $ | - | $ | 4,126 | $ | 21,050 | $ | 254 | $ | (7 | ) | $ | 21,297 | |||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||
Taxable | 500 | 1 | - | 501 | 500 | 2 | 0 | 502 | ||||||||||||||||||||||||
Tax-exempt | 80,436 | 2,065 | (25 | ) | 82,476 | 73,157 | 4,643 | 0 | 77,800 | |||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 18,465 | 274 | (109 | ) | 18,630 | 14,230 | 536 | (5 | ) | 14,761 | ||||||||||||||||||||||
Total | $ | 103,401 | $ | 2,466 | $ | (134 | ) | $ | 105,733 | $ | 108,937 | $ | 5,435 | $ | (12 | ) | $ | 114,360 |
Equity securities totaled $690,000 and $609,000 at March 31, 2021 and December 31, 2020, respectively.
The Company recognized a net gain (loss) gains on equity investments of $81,000 and ($160,000) and $58,000, respectively, for the three months ended March 31, 2020 2021 and 2019. No2020, respectively. NaN net gains or losses on sold equity securities were realized from sales during these periods.
The amortized cost and fair value of debt securities at March 31, 2020, 2021, 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 | Amortized | Fair | |||||||||||||
(Dollar amounts in thousands) | Cost | Value | Cost | Value | ||||||||||||
Due in one year or less | $ | 42 | $ | 42 | $ | 1,554 | $ | 1,565 | ||||||||
Due after one year through five years | 1,316 | 1,328 | 2,192 | 2,224 | ||||||||||||
Due after five years through ten years | 17,965 | 18,255 | 31,968 | 32,241 | ||||||||||||
Due after ten years | 86,467 | 83,334 | 83,811 | 87,188 | ||||||||||||
Total | $ | 105,790 | $ | 102,959 | $ | 119,525 | $ | 123,218 |
There were no0 securities sold during the three months ended March 31, 2020 2021, and 2019,2020, respectively.
Investment securities with an approximate carrying value of $53.1$67.8 million and $55.6$71.1 million at March 31, 2020 2021 and December 31, 2019, 2020, respectively, were pledged to secure deposits and for other purposes as required by law.
The following tables showtable shows 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 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | Less than Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||||||||||||||||||
Subordinated debt | $ | 7,540 | $ | (110 | ) | 0 | 0 | $ | 7,540 | $ | (110 | ) | ||||||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax-exempt | $ | 51,663 | $ | (3,824 | ) | $ | - | $ | - | $ | 51,663 | $ | (3,824 | ) | 3,507 | (124 | ) | 0 | 0 | 3,507 | (124 | ) | ||||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | - | - | 2,539 | (14 | ) | 2,539 | (14 | ) | 2,634 | (71 | ) | 0 | 0 | 2,634 | (71 | ) | ||||||||||||||||||||||||||||||||
Total | $ | 51,663 | $ | (3,824 | ) | $ | 2,539 | $ | (14 | ) | $ | 54,202 | $ | (3,838 | ) | $ | 13,681 | $ | (305 | ) | $ | 0 | $ | 0 | $ | 13,681 | $ | (305 | ) |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | Less than Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax-exempt | $ | 4,324 | $ | (25 | ) | $ | - | $ | - | $ | 4,324 | $ | (25 | ) | ||||||||||||||||||||||||||||||||||
Subordinated debt | $ | 4,243 | $ | (7 | ) | $ | 0 | $ | 0 | $ | 4,243 | $ | (7 | ) | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 1,409 | (2 | ) | 8,223 | (107 | ) | 9,632 | (109 | ) | 2,748 | (5 | ) | 0 | 0 | 2,748 | (5 | ) | |||||||||||||||||||||||||||||||
Total | $ | 5,733 | $ | (27 | ) | $ | 8,223 | $ | (107 | ) | $ | 13,956 | $ | (134 | ) | $ | 6,991 | $ | (12 | ) | $ | 0 | $ | 0 | $ | 6,991 | $ | (12 | ) |
There were 8619 securities considered temporarily impaired at March 31, 2020.2021.
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%79% of the total available-for-sale portfolio as of March 31, 2020 2021 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; | |
• |
| |
• |
| |
| 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 2021 and 2019,2020, there were no0 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 2021 or December 31, 2019 2020 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, Powell, Sunbury, and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest 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 | ||||||||||||||||||||||||
March 31, 2021 | March 31, 2021 | |||||||||||||||||||||||
Impairment Evaluation | Impairment Evaluation | Impairment Evaluation | ||||||||||||||||||||||
Individually | Collectively | Total Loans | Individually | Collectively | Total Loans | |||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 3,432 | $ | 109,840 | $ | 113,272 | $ | 1,518 | $ | 102,861 | $ | 104,379 | ||||||||||||
Non-owner occupied | 7,043 | 285,732 | 292,775 | 4,857 | 299,766 | 304,623 | ||||||||||||||||||
Multifamily | - | 52,276 | 52,276 | 0 | 39,015 | 39,015 | ||||||||||||||||||
Residential real estate | 1,152 | 232,748 | 233,900 | 1,237 | 226,815 | 228,052 | ||||||||||||||||||
Commercial and industrial | 911 | 105,886 | 106,797 | 1,005 | 241,646 | 242,651 | ||||||||||||||||||
Home equity lines of credit | 347 | 114,586 | 114,933 | 240 | 111,234 | 111,474 | ||||||||||||||||||
Construction and other | - | 71,186 | 71,186 | 0 | 64,960 | 64,960 | ||||||||||||||||||
Consumer installment | 1 | 12,860 | 12,861 | 0 | 9,046 | 9,046 | ||||||||||||||||||
Total | $ | 12,886 | $ | 985,114 | $ | 998,000 | $ | 8,857 | $ | 1,095,343 | $ | 1,104,200 |
December 31, 2019 | ||||||||||||||||||||||||
December 31, 2020 | December 31, 2020 | |||||||||||||||||||||||
Impairment Evaluation | Impairment Evaluation | Impairment Evaluation | ||||||||||||||||||||||
Individually | Collectively | Total Loans | Individually | Collectively | Total Loans | |||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 3,474 | $ | 98,912 | $ | 102,386 | $ | 1,565 | $ | 101,556 | $ | 103,121 | ||||||||||||
Non-owner occupied | 7,084 | 295,096 | 302,180 | 4,123 | 305,301 | 309,424 | ||||||||||||||||||
Multifamily | - | 62,028 | 62,028 | 0 | 39,562 | 39,562 | ||||||||||||||||||
Residential real estate | 1,278 | 233,520 | 234,798 | 1,319 | 232,676 | 233,995 | ||||||||||||||||||
Commercial and industrial | 882 | 88,645 | 89,527 | 834 | 231,210 | 232,044 | ||||||||||||||||||
Home equity lines of credit | 351 | 111,897 | 112,248 | 246 | 112,297 | 112,543 | ||||||||||||||||||
Construction and other | - | 66,680 | 66,680 | 0 | 63,573 | 63,573 | ||||||||||||||||||
Consumer installment | 1 | 14,410 | 14,411 | 0 | 9,823 | 9,823 | ||||||||||||||||||
Total | $ | 13,070 | $ | 971,188 | $ | 984,258 | $ | 8,087 | $ | 1,095,998 | $ | 1,104,085 |
The commercial and industrial loan portfolio as of March 31, 2021 includes $126.9 million in loans issued through the Paycheck Protection Program (“PPP”) (see Note 9). Although the SBA guarantees PPP loans if certain criteria are met, minimal risk still exists in the portfolio. Therefore, a 0.4% qualitative adjustment, equaling $508,000 is reserved for loss.
The amounts above include net deferred loan origination costsfees of $1.3$4.0 million and $4.4 million at March 31, 2020 2021 and December 31, 2019.2020, respectively. The net deferred loan origination fees at March 31, 2021 include $2.3 million of unearned deferred fees from PPP loans.
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 |
March 31, 2021 | ||||||||||||
Ending Allowance Balance by Impairment Evaluation: | ||||||||||||
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total Allocation | ||||||||||
Loans: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 10 | $ | 1,417 | $ | 1,427 | ||||||
Non-owner occupied | 673 | 6,575 | 7,248 | |||||||||
Multifamily | 0 | 488 | 488 | |||||||||
Residential real estate | 18 | 1,729 | 1,747 | |||||||||
Commercial and industrial | 305 | 1,135 | 1,440 | |||||||||
Home equity lines of credit | 20 | 1,310 | 1,330 | |||||||||
Construction and other | 0 | 424 | 424 | |||||||||
Consumer installment | 0 | 18 | 18 | |||||||||
Total | $ | 1,026 | $ | 13,096 | $ | 14,122 |
December 31, 2019 | ||||||||||||||||||||||||
Ending Allowance Balance Attributable to Loans: | ||||||||||||||||||||||||
December 31, 2020 | December 31, 2020 | |||||||||||||||||||||||
Ending Allowance Balance by Impairment Evaluation: | Ending Allowance Balance by Impairment Evaluation: | |||||||||||||||||||||||
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total Allocation | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total Allocation | |||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 45 | $ | 756 | $ | 801 | $ | 10 | $ | 1,332 | $ | 1,342 | ||||||||||||
Non-owner occupied | 582 | 2,800 | 3,382 | 371 | 6,446 | 6,817 | ||||||||||||||||||
Multifamily | - | 340 | 340 | 0 | 461 | 461 | ||||||||||||||||||
Residential real estate | 28 | 698 | 726 | 20 | 1,663 | 1,683 | ||||||||||||||||||
Commercial and industrial | 3 | 453 | 456 | 48 | 1,305 | 1,353 | ||||||||||||||||||
Home equity lines of credit | 2 | 930 | 932 | 41 | 1,364 | 1,405 | ||||||||||||||||||
Construction and other | - | 103 | 103 | 0 | 378 | 378 | ||||||||||||||||||
Consumer installment | - | 28 | 28 | 0 | 20 | 20 | ||||||||||||||||||
Total | $ | 660 | $ | 6,108 | $ | 6,768 | $ | 490 | $ | 12,969 | $ | 13,459 |
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”Construction”), 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. Although PPP loans are included with C&I loans, the nature of PPP loans differs considerably from the rest of the category. Loans funded through the PPP program are fully guaranteed by the U.S. government. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. 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,CRE, RRE, 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 | ||||||||||||||||||||||||
March 31, 2021 | March 31, 2021 | |||||||||||||||||||||||
Impaired Loans | Impaired Loans | Impaired Loans | ||||||||||||||||||||||
Unpaid | ||||||||||||||||||||||||
Recorded | Principal | Related | ||||||||||||||||||||||
Investment | Balance | Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 1,749 | $ | 1,749 | $ | - | $ | 1,080 | $ | 1,113 | $ | - | ||||||||||||
Non-owner occupied | 2,773 | 2,773 | - | 1,383 | 1,383 | - | ||||||||||||||||||
Residential real estate | 636 | 699 | - | 861 | 885 | - | ||||||||||||||||||
Commercial and industrial | 791 | 1,512 | - | 44 | 549 | - | ||||||||||||||||||
Home equity lines of credit | 179 | 189 | - | 75 | 89 | - | ||||||||||||||||||
Consumer installment | 1 | 1 | - | |||||||||||||||||||||
Total | $ | 6,129 | $ | 6,923 | $ | - | $ | 3,443 | $ | 4,019 | $ | - | ||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 1,683 | $ | 1,693 | $ | 53 | $ | 438 | $ | 438 | $ | 10 | ||||||||||||
Non-owner occupied | 4,270 | 4,270 | 1,095 | 3,474 | 3,748 | 673 | ||||||||||||||||||
Residential real estate | 516 | 567 | 25 | 376 | 376 | 18 | ||||||||||||||||||
Commercial and industrial | 120 | 120 | 3 | 961 | 967 | 305 | ||||||||||||||||||
Home equity lines of credit | 168 | 168 | 40 | 165 | 165 | 20 | ||||||||||||||||||
Total | $ | 6,757 | $ | 6,818 | $ | 1,216 | $ | 5,414 | $ | 5,694 | $ | 1,026 | ||||||||||||
Total: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 3,432 | $ | 3,442 | $ | 53 | $ | 1,518 | $ | 1,551 | $ | 10 | ||||||||||||
Non-owner occupied | 7,043 | 7,043 | 1,095 | 4,857 | 5,131 | 673 | ||||||||||||||||||
Residential real estate | 1,152 | 1,266 | 25 | 1,237 | 1,261 | 18 | ||||||||||||||||||
Commercial and industrial | 911 | 1,632 | 3 | 1,005 | 1,516 | 305 | ||||||||||||||||||
Home equity lines of credit | 347 | 357 | 40 | 240 | 254 | 20 | ||||||||||||||||||
Consumer installment | 1 | 1 | - | |||||||||||||||||||||
Total | $ | 12,886 | $ | 13,741 | $ | 1,216 | $ | 8,857 | $ | 9,713 | $ | 1,026 |
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 |
December 31, 2020 | ||||||||||||
Impaired Loans | ||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 1,118 | $ | 1,142 | $ | - | ||||||
Non-owner occupied | 801 | 801 | - | |||||||||
Residential real estate | 941 | 1,013 | - | |||||||||
Commercial and industrial | 561 | 1,056 | - | |||||||||
Home equity lines of credit | 80 | 92 | - | |||||||||
Total | $ | 3,501 | $ | 4,104 | $ | - | ||||||
With an allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 447 | $ | 447 | $ | 10 | ||||||
Non-owner occupied | 3,322 | 3,596 | 371 | |||||||||
Residential real estate | 378 | 378 | 20 | |||||||||
Commercial and industrial | 273 | 276 | 48 | |||||||||
Home equity lines of credit | 166 | 166 | 41 | |||||||||
Total | $ | 4,586 | $ | 4,863 | $ | 490 | ||||||
Total: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 1,565 | $ | 1,589 | $ | 10 | ||||||
Non-owner occupied | 4,123 | 4,397 | 371 | |||||||||
Residential real estate | 1,319 | 1,391 | 20 | |||||||||
Commercial and industrial | 834 | 1,332 | 48 | |||||||||
Home equity lines of credit | 246 | 258 | 41 | |||||||||
Total | $ | 8,087 | $ | 8,967 | $ | 490 |
The tables above include troubled debt restructuring totaling $3.6$2.8 million and $2.9 million as of March 31, 2020 2021 and December 31, 2019.2020, respectively. The amounts allocated within the allowance for losses for troubled debt restructurings was $70,000 and $33,000$45,000 at March 31, 2020 2021 and December 31, 2019, 2020, 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 | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Owner occupied | $ | 3,453 | $ | 33 | $ | 4,235 | $ | 46 | $ | 1,542 | $ | 16 | $ | 3,453 | $ | 33 | ||||||||||||||||
Non-owner occupied | 7,064 | 49 | 5,057 | 52 | 4,490 | 44 | 7,064 | 49 | ||||||||||||||||||||||||
Residential real estate | 1,215 | 11 | 1,795 | 11 | 1,278 | 11 | 1,215 | 11 | ||||||||||||||||||||||||
Commercial and industrial | 897 | 10 | 2,198 | 30 | 920 | 7 | 897 | 10 | ||||||||||||||||||||||||
Home equity lines of credit | 349 | 2 | 118 | 1 | 243 | 2 | 349 | 2 | ||||||||||||||||||||||||
Construction and other | - | - | 1,620 | 45 | ||||||||||||||||||||||||||||
Consumer installment | 1 | - | 2 | - | 0 | 0 | 1 | 0 | ||||||||||||||||||||||||
Total | $ | 12,979 | $ | 105 | $ | 15,025 | $ | 185 | $ | 8,473 | $ | 80 | $ | 12,979 | $ | 105 |
Management uses a nine-pointnine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The firstfive 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 quality 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.uncertainties. 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 | Special | Total | |||||||||||||||||||||||||||||||||||||
March 31, 2020 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||||||||||||||||||||||
March 31, 2021 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 106,356 | $ | 3,938 | $ | 2,978 | $ | - | $ | 113,272 | $ | 92,129 | $ | 6,548 | $ | 5,702 | $ | 0 | $ | 104,379 | ||||||||||||||||||||
Non-owner occupied | 275,603 | 3,375 | 13,797 | - | 292,775 | 254,299 | 959 | 49,365 | 0 | 304,623 | ||||||||||||||||||||||||||||||
Multifamily | 40,685 | - | 11,591 | - | 52,276 | 39,015 | 0 | 0 | 0 | 39,015 | ||||||||||||||||||||||||||||||
Residential real estate | 231,140 | 414 | 2,346 | - | 233,900 | 225,004 | 260 | 2,788 | 0 | 228,052 | ||||||||||||||||||||||||||||||
Commercial and industrial | 101,055 | 3,956 | 1,786 | - | 106,797 | 237,857 | 1,873 | 2,921 | 0 | 242,651 | ||||||||||||||||||||||||||||||
Home equity lines of credit | 113,675 | - | 1,258 | - | 114,933 | 110,157 | 0 | 1,317 | 0 | 111,474 | ||||||||||||||||||||||||||||||
Construction and other | 71,186 | - | - | - | 71,186 | 52,968 | 6,501 | 5,491 | 0 | 64,960 | ||||||||||||||||||||||||||||||
Consumer installment | 12,853 | - | 8 | - | 12,861 | 9,041 | 0 | 5 | 0 | 9,046 | ||||||||||||||||||||||||||||||
Total | $ | 952,553 | $ | 11,683 | $ | 33,764 | $ | - | $ | 998,000 | $ | 1,020,470 | $ | 16,141 | $ | 67,589 | $ | 0 | $ | 1,104,200 |
Special | Total | Special | Total | |||||||||||||||||||||||||||||||||||||
December 31, 2019 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||||||||||||||||||||||
December 31, 2020 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 95,518 | $ | 3,951 | $ | 2,917 | $ | - | $ | 102,386 | $ | 93,939 | $ | 7,084 | $ | 2,098 | $ | 0 | $ | 103,121 | ||||||||||||||||||||
Non-owner occupied | 292,192 | 3,038 | 6,950 | - | 302,180 | 258,974 | 983 | 49,467 | 0 | 309,424 | ||||||||||||||||||||||||||||||
Multifamily | 62,028 | - | - | - | 62,028 | 39,562 | 0 | 0 | 0 | 39,562 | ||||||||||||||||||||||||||||||
Residential real estate | 231,633 | 420 | 2,745 | - | 234,798 | 230,944 | 265 | 2,786 | 0 | 233,995 | ||||||||||||||||||||||||||||||
Commercial and industrial | 84,136 | 3,619 | 1,772 | - | 89,527 | 227,765 | 1,800 | 2,479 | 0 | 232,044 | ||||||||||||||||||||||||||||||
Home equity lines of credit | 111,354 | - | 894 | - | 112,248 | 111,208 | 0 | 1,335 | 0 | 112,543 | ||||||||||||||||||||||||||||||
Construction and other | 66,680 | - | - | - | 66,680 | 58,082 | 0 | 5,491 | 0 | 63,573 | ||||||||||||||||||||||||||||||
Consumer installment | 14,398 | - | 13 | - | 14,411 | 9,816 | 0 | 7 | 0 | 9,823 | ||||||||||||||||||||||||||||||
Total | $ | 957,939 | $ | 11,028 | $ | 15,291 | $ | - | $ | 984,258 | $ | 1,030,290 | $ | 10,132 | $ | 63,663 | $ | 0 | $ | 1,104,085 |
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 | 30-59 Days | 60-89 Days | 90 Days+ | Total | Total | |||||||||||||||||||||||||||||||||||||||
March 31, 2020 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||||||||||||||||||||||||||
March 31, 2021 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 112,222 | $ | - | $ | - | $ | 1,050 | $ | 1,050 | $ | 113,272 | $ | 104,379 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 104,379 | ||||||||||||||||||||||||
Non-owner occupied | 282,603 | 6,885 | 48 | 3,239 | 10,172 | 292,775 | 302,271 | 0 | 798 | 1,554 | 2,352 | 304,623 | ||||||||||||||||||||||||||||||||||||
Multifamily | 52,276 | - | - | - | - | 52,276 | 39,015 | 0 | 0 | 0 | 0 | 39,015 | ||||||||||||||||||||||||||||||||||||
Residential real estate | 230,471 | 2,577 | 462 | 390 | 3,429 | 233,900 | 226,110 | 1,403 | 89 | 450 | 1,942 | 228,052 | ||||||||||||||||||||||||||||||||||||
Commercial and industrial | 106,157 | 329 | 118 | 193 | 640 | 106,797 | 242,347 | 179 | 27 | 98 | 304 | 242,651 | ||||||||||||||||||||||||||||||||||||
Home equity lines of credit | 114,611 | 101 | 156 | 65 | 322 | 114,933 | 111,375 | 49 | 0 | 50 | 99 | 111,474 | ||||||||||||||||||||||||||||||||||||
Construction and other | 71,005 | 181 | - | - | 181 | 71,186 | 64,960 | 0 | 0 | 0 | 0 | 64,960 | ||||||||||||||||||||||||||||||||||||
Consumer installment | 12,576 | 37 | 22 | 226 | 285 | 12,861 | 8,794 | 26 | 10 | 216 | 252 | 9,046 | ||||||||||||||||||||||||||||||||||||
Total | $ | 981,921 | $ | 10,110 | $ | 806 | $ | 5,163 | $ | 16,079 | $ | 998,000 | $ | 1,099,251 | $ | 1,657 | $ | 924 | $ | 2,368 | $ | 4,949 | $ | 1,104,200 |
30-59 Days | 60-89 Days | 90 Days+ | Total | Total | 30-59 Days | 60-89 Days | 90 Days+ | Total | Total | |||||||||||||||||||||||||||||||||||||||
December 31, 2019 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 101,264 | $ | 64 | $ | - | $ | 1,058 | $ | 1,122 | $ | 102,386 | $ | 102,587 | $ | 418 | $ | 0 | $ | 116 | $ | 534 | $ | 103,121 | ||||||||||||||||||||||||
Non-owner occupied | 298,941 | - | - | 3,239 | 3,239 | 302,180 | 305,613 | 1,844 | 1,373 | 594 | 3,811 | 309,424 | ||||||||||||||||||||||||||||||||||||
Multifamily | 62,028 | - | - | - | - | 62,028 | 39,562 | 0 | 0 | 0 | 0 | 39,562 | ||||||||||||||||||||||||||||||||||||
Residential real estate | 232,518 | 1,439 | 34 | 807 | 2,280 | 234,798 | 230,996 | 2,364 | 95 | 540 | 2,999 | 233,995 | ||||||||||||||||||||||||||||||||||||
Commercial and industrial | 88,965 | 190 | 66 | 306 | 562 | 89,527 | 231,534 | 260 | 219 | 31 | 510 | 232,044 | ||||||||||||||||||||||||||||||||||||
Home equity lines of credit | 111,792 | 274 | 29 | 153 | 456 | 112,248 | 112,325 | 120 | 0 | 98 | 218 | 112,543 | ||||||||||||||||||||||||||||||||||||
Construction and other | 66,680 | - | - | - | - | 66,680 | 63,529 | 44 | 0 | 0 | 44 | 63,573 | ||||||||||||||||||||||||||||||||||||
Consumer installment | 13,378 | 622 | 216 | 195 | 1,033 | 14,411 | 9,424 | 71 | 108 | 220 | 399 | 9,823 | ||||||||||||||||||||||||||||||||||||
Total | $ | 975,566 | $ | 2,589 | $ | 345 | $ | 5,758 | $ | 8,692 | $ | 984,258 | $ | 1,095,570 | $ | 5,121 | $ | 1,795 | $ | 1,599 | $ | 8,515 | $ | 1,104,085 |
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 | 90+ Days Past Due | |||||||||||||||
March 31, 2020 | Nonaccrual | and Accruing | ||||||||||||||
March 31, 2021 | Nonaccrual | and Accruing | ||||||||||||||
Commercial real estate: | ||||||||||||||||
Owner occupied | $ | 1,175 | $ | - | $ | 498 | $ | 0 | ||||||||
Non-owner occupied | 3,287 | - | 4,699 | 0 | ||||||||||||
Residential real estate | 2,180 | - | 2,494 | 0 | ||||||||||||
Commercial and industrial | 835 | - | 644 | 0 | ||||||||||||
Home equity lines of credit | 699 | - | 404 | 0 | ||||||||||||
Consumer installment | 229 | - | 219 | 0 | ||||||||||||
Total | $ | 8,405 | $ | - | $ | 8,958 | $ | 0 |
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 | $ | - |
90+ Days Past Due | ||||||||
December 31, 2020 | Nonaccrual | and Accruing | ||||||
Commercial real estate: | ||||||||
Owner occupied | $ | 458 | $ | 0 | ||||
Non-owner occupied | 3,758 | 0 | ||||||
Residential real estate | 2,487 | 0 | ||||||
Commercial and industrial | 509 | 0 | ||||||
Home equity lines of credit | 422 | 0 | ||||||
Consumer installment | 224 | 0 | ||||||
Total | $ | 7,858 | $ | 0 |
Interest income that would have been recorded had these loans not been placed on nonaccrual status was $100,000$124,000 for the three months ended March 31, 2020 2021 and $342,000$126,000 for the year ended December 31, 2019.2020.
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 310-10-35310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20450-20 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 ALLL within the primary segments of the loan portfolio and the activity within those segments (in thousands):
For the three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
Allowance for Loan and Lease Losses | Allowance for Loan and Lease Losses | |||||||||||||||||||||||||||||||||||||||
Balance | Balance | Balance | Balance | |||||||||||||||||||||||||||||||||||||
December 31, 2019 | Charge-offs | Recoveries | Provision | March 31, 2020 | December 31, 2020 | Charge-offs | Recoveries | Provision | March 31, 2021 | |||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 801 | $ | - | $ | 3 | $ | 295 | $ | 1,099 | $ | 1,342 | $ | 0 | $ | 1 | $ | 84 | $ | 1,427 | ||||||||||||||||||||
Non-owner occupied | 3,382 | - | 74 | 908 | 4,364 | 6,817 | 0 | 0 | 431 | 7,248 | ||||||||||||||||||||||||||||||
Multifamily | 340 | - | - | 46 | 386 | 461 | 0 | 0 | 27 | 488 | ||||||||||||||||||||||||||||||
Residential real estate | 726 | (46 | ) | 29 | 455 | 1,164 | 1,683 | (27 | ) | 2 | 89 | 1,747 | ||||||||||||||||||||||||||||
Commercial and industrial | 456 | (61 | ) | 109 | 212 | 716 | 1,353 | 0 | 19 | 68 | 1,440 | |||||||||||||||||||||||||||||
Home equity lines of credit | 932 | (13 | ) | 3 | 318 | 1,240 | 1,405 | 0 | 8 | (83 | ) | 1,330 | ||||||||||||||||||||||||||||
Construction and other | 103 | - | 17 | 134 | 254 | 378 | 0 | 6 | 40 | 424 | ||||||||||||||||||||||||||||||
Consumer installment | 28 | (388 | ) | 9 | 372 | 21 | 20 | (74 | ) | 28 | 44 | 18 | ||||||||||||||||||||||||||||
Total | $ | 6,768 | $ | (508 | ) | $ | 244 | $ | 2,740 | $ | 9,244 | $ | 13,459 | $ | (101 | ) | $ | 64 | $ | 700 | $ | 14,122 |
For the three months ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
Allowance for Loan and Lease Losses | Allowance for Loan and Lease Losses | |||||||||||||||||||||||||||||||||||||||
Balance | Balance | Balance | Balance | |||||||||||||||||||||||||||||||||||||
December 31, 2018 | Charge-offs | Recoveries | Provision | March 31, 2019 | December 31, 2019 | Charge-offs | Recoveries | Provision | March 31, 2020 | |||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||
Owner occupied | $ | 1,315 | $ | (32 | ) | $ | 1 | $ | (454 | ) | $ | 830 | $ | 801 | $ | 0 | $ | 3 | $ | 295 | $ | 1,099 | ||||||||||||||||||
Non-owner occupied | 2,862 | - | - | (5 | ) | 2,857 | 3,382 | 0 | 74 | 908 | 4,364 | |||||||||||||||||||||||||||||
Multifamily | 474 | - | - | 18 | 492 | 340 | 0 | 0 | 46 | 386 | ||||||||||||||||||||||||||||||
Residential real estate | 761 | - | 10 | 2 | 773 | 726 | (46 | ) | 29 | 455 | 1,164 | |||||||||||||||||||||||||||||
Commercial and industrial | 969 | (347 | ) | 16 | (52 | ) | 586 | 456 | (61 | ) | 109 | 212 | 716 | |||||||||||||||||||||||||||
Home equity lines of credit | 820 | (91 | ) | 4 | 99 | 832 | 932 | (13 | ) | 3 | 318 | 1,240 | ||||||||||||||||||||||||||||
Construction and other | 100 | - | 23 | 625 | 748 | 103 | 0 | 17 | 134 | 254 | ||||||||||||||||||||||||||||||
Consumer installment | 127 | (47 | ) | 1 | 7 | 88 | 28 | (388 | ) | 9 | 372 | 21 | ||||||||||||||||||||||||||||
Total | $ | 7,428 | $ | (517 | ) | $ | 55 | $ | 240 | $ | 7,206 | $ | 6,768 | $ | (508 | ) | $ | 244 | $ | 2,740 | $ | 9,244 |
The provision fluctuations during the three-monththree-month period ended March 31, 2021 allocated to:
● | commercial real estate portfolios are due to an increase in substandard rate credits related to the hospitality industry. |
● | commercial and industrial loans are due to growth in loan volume along with an allocation for the PPP loans in the amount of $126.9 million. |
● | home equity lines of credit are due to a decrease in outstanding balances. |
● | construction loans are due to increased loan volume. |
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:
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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 |
● | extension of repayment requirements beyond normal terms |
● |
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● | reduction of |
● |
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| 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. See Note 9 of the financial statements for disclosure of COVID-19 loan forbearance programs.
On Additionally, 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-19COVID-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,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-19COVID-19 to borrowers who were current prior to any relief are not TDRs. TDRs (see Note 9).
The following tables summarize troubled debt restructurings that did not meet the exemption criteria above (in thousands):
For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||
March 31, 2020 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | Number of Contracts | Pre-Modification | Post-Modification | |||||||||||||||||||||||||||||||||||
Troubled Debt Restructurings | Term Modification | Other | Total | Outstanding Recorded Investment | Outstanding Recorded Investment | Term Modification | Other | Total | Outstanding Recorded Investment | Outstanding Recorded Investment | ||||||||||||||||||||||||||||||
Residential real estate | 2 | - | 2 | $ | 42 | $ | 42 | |||||||||||||||||||||||||||||||||
Commercial and industrial | 1 | - | 1 | 95 | 95 | 1 | 0 | 1 | $ | 20 | $ | 20 |
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 | 0 | 2 | $ | 42 | $ | 42 | |||||||||||||
Commercial and industrial | 1 | 0 | 1 | 95 | 95 |
There were no troubled debt restructurings during the three months ended March 31, 2019.
There were no0 subsequent defaults of troubled debt restructurings for the three months-month periods ended March 31, 2020 2021 and March 31, 2019.2020.
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 |
NOTE 10 – RISKS AND UNCERTAINTIES
COVID-19COVID-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”).
Asas a qualified SBA lender, we were automatically authorized to originate PPP loans.
An eligible business can apply for a PPP loan up to During 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 six12 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, endedMarch 31, 2021, we approved 1,048 applications for up to $138.1originated $205.4 million of loans under the PPP and helped customers receive $78.5 million of forgiveness payments under the terms of the program. The balance of PPP loans outstanding at March 31, 2021 approximates $126.9 million.
On December 27, 2020, President Trump signed another COVID-19 relief bill that extended and modified several provisions of the PPP. This included an additional allocation of $284 billion for PPP loans. The SBA reactivated the PPP on January 11, 2021. Middlefield Bank is originating additional PPP loans through the PPP, which will currently extend through May 31, 2021. In the three months ended March 31, 2021, Middlefield Bank had generated and received SBA approval on 530 PPP loans totaling $60.5 million and received $1.0 million in related deferred PPP fees under the 2021 PPP authorization.
As of March 31, 2021, 14 loans aggregating $25.3 million were modified for deferral, compared to 11 loans aggregating $24.5 million at December 31, 2020. Modifications consist of the deferral of principal payments and the extension of the maturity date. Of the 14 loans on deferral as of March 31, 2021, 8 loans are interest-only deferrals aggregating $19.4 million.
Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that suchthose 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-19COVID-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)(1) related to COVID-19; (2)COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3)(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)(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-19COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g.(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, 2020.2021.
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 | % |
NOTE 10– COMMITMENTS AND CONTINGENCIES
Cannabis Industry
We provide deposit services to customers that are licensed by the State of Ohio to do business in (or are related to) the Medical Marijuana Control Program as growers, processors and dispensaries. Medical Marijuana businesses are regulated by the Ohio Department of Commerce and legal in the State of Ohio, although it is not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis business. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCen guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the State of Ohio. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.
While we believe we are operating in compliance with the FinCen guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry. We are upfront with our customers regarding the fact that we may have to terminate our relationship if a change occurs with the Federal government’s position and that the termination may come with little or no notice.
March 31, 2021 and December 31, 2020, deposit balances from cannabis customers were approximately $18.3 million and $11.8 million, or 1.5% and 1.0% of total deposits, respectively.
Item 2. Management’sManagement’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. Significant progress has been made to combat the outbreak of COVID-19. While it appears that the epidemiological and macroeconomic conditions are trending in a positive direction as of March 31, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.
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
Overview
The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2021, as compared with December 31, 2020, and operating results for the three month periods ended March 31, 2021 and 2020. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.
This discussion contains certain performance measures determined by methods other than in accordance with GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include tangible book value per common share, return on average tangible common equity, and pre-tax, pre-provision for loan losses income. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.
2021 First Quarter Financial Highlights Include (on a year-over-year basis unless noted):
● | Net income increased to a quarterly record of $4.2 million, or a record $0.65 per diluted share |
● | Net interest margin improved by 10 basis points to 3.73%, compared to 3.63% |
● | Total noninterest income was up 106.5% to $2.2 million |
● | Pre-tax, pre-provision for loan losses income increased 49.5% to $5.8 million |
● | Return on average assets increased to 1.22% from 0.35% |
● | Return on average equity increased to 11.64% from 3.01% |
● | Return on average tangible common equity increased to 13.16% from 3.43% |
● | Efficiency ratio improved to 57.91%, compared to 63.47% |
● | Net charge-offs declined 86.0% to $37,000 |
● | First quarter cash dividend increased 6.7% to $0.16 per share |
For the Three Months Ended | ||||||||||||||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
Per common share data | ||||||||||||||||||||
Net income per common share - basic | $ | 0.65 | $ | 0.39 | $ | 0.29 | $ | 0.47 | $ | 0.16 | ||||||||||
Net income per common share - diluted | $ | 0.65 | $ | 0.39 | $ | 0.29 | $ | 0.46 | $ | 0.16 | ||||||||||
Dividends declared per share | $ | 0.16 | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | ||||||||||
Book value per share (period end) | $ | 22.80 | $ | 22.54 | $ | 22.27 | $ | 22.09 | $ | 20.83 | ||||||||||
Tangible book value per share (period end) (2) (3) | $ | 20.17 | $ | 19.91 | $ | 19.63 | $ | 19.43 | $ | 18.16 | ||||||||||
Dividends declared | $ | 1,016 | $ | 957 | $ | 957 | $ | 956 | $ | 964 | ||||||||||
Dividend yield | 3.10 | % | 2.65 | % | 3.09 | % | 2.91 | % | 3.82 | % | ||||||||||
Dividend payout ratio | 24.38 | % | 38.45 | % | 51.65 | % | 32.23 | % | 92.60 | % | ||||||||||
Average shares outstanding - basic | 6,364,132 | 6,378,706 | 6,376,291 | 6,369,467 | 6,417,109 | |||||||||||||||
Average shares outstanding - diluted | 6,378,493 | 6,397,681 | 6,385,765 | 6,388,118 | 6,429,443 | |||||||||||||||
Period ending shares outstanding | 6,344,657 | 6,379,323 | 6,378,110 | 6,369,467 | 6,369,467 | |||||||||||||||
Selected ratios | ||||||||||||||||||||
Return on average assets | 1.22 | % | 0.72 | % | 0.54 | % | 0.90 | % | 0.35 | % | ||||||||||
Return on average equity | 11.64 | % | 6.76 | % | 5.11 | % | 8.57 | % | 3.01 | % | ||||||||||
Return on average tangible common equity (2) (4) | 13.16 | % | 7.64 | % | 5.79 | % | 9.76 | % | 3.43 | % | ||||||||||
Efficiency (1) | 57.91 | % | 59.29 | % | 51.96 | % | 61.29 | % | 63.47 | % | ||||||||||
Equity to assets at period end | 10.42 | % | 10.33 | % | 10.41 | % | 10.47 | % | 10.93 | % | ||||||||||
Noninterest expense to average assets | 0.60 | % | 0.57 | % | 0.52 | % | 0.58 | % | 0.61 | % |
(1) | The efficiency ratio is calculated by dividing noninterest expense less amortization of intangibles by the sum of net interest income on a fully taxable equivalent basis plus noninterest income |
(2) | See reconciliation of non-GAAP measures below |
(3) | Calculated by dividing tangible common equity by shares outstanding |
(4) | Calculated by dividing annualized net income for each period by average tangible common equity |
For the Three Months Ended | ||||||||||||||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
Yields | 2021 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||
Interest-earning assets: | ||||||||||||||||||||
Loans receivable (2) | 4.48 | % | 4.28 | % | 4.48 | % | 4.53 | % | 4.95 | % | ||||||||||
Investment securities (2) | 3.75 | % | 3.65 | % | 3.66 | % | 3.76 | % | 3.62 | % | ||||||||||
Interest-earning deposits with other banks | 0.20 | % | 0.21 | % | 0.27 | % | 0.23 | % | 1.40 | % | ||||||||||
Total interest-earning assets | 4.11 | % | 4.00 | % | 4.23 | % | 4.27 | % | 4.69 | % | ||||||||||
Deposits: | ||||||||||||||||||||
Interest-bearing demand deposits | 0.16 | % | 0.21 | % | 0.32 | % | 0.35 | % | 0.42 | % | ||||||||||
Money market deposits | 0.47 | % | 0.53 | % | 0.70 | % | 0.93 | % | 1.41 | % | ||||||||||
Savings deposits | 0.07 | % | 0.11 | % | 0.20 | % | 0.21 | % | 0.50 | % | ||||||||||
Certificates of deposit | 1.28 | % | 1.56 | % | 1.77 | % | 2.00 | % | 2.12 | % | ||||||||||
Total interest-bearing deposits | 0.53 | % | 0.70 | % | 0.93 | % | 1.11 | % | 1.39 | % | ||||||||||
Non-Deposit Funding: | ||||||||||||||||||||
Borrowings | 1.10 | % | 0.95 | % | 0.45 | % | 0.53 | % | 1.62 | % | ||||||||||
Total interest-bearing liabilities | 0.54 | % | 0.71 | % | 0.91 | % | 1.07 | % | 1.40 | % | ||||||||||
Cost of deposits | 0.40 | % | 0.54 | % | 0.72 | % | 0.85 | % | 1.13 | % | ||||||||||
Cost of funds | 0.41 | % | 0.55 | % | 0.71 | % | 0.83 | % | 1.14 | % | ||||||||||
Net interest margin (1) | 3.73 | % | 3.49 | % | 3.57 | % | 3.49 | % | 3.63 | % |
(1) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
(2) | Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were determined using an effective tax rate of 21%. |
Reconciliation of Common Stockholders' Equity to Tangible Common Equity | For the Three Months Ended | |||||||||||||||||||
(Dollar amounts in thousands, unaudited) | March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||
2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
Stockholders' Equity (GAAP) | $ | 144,670 | $ | 143,810 | $ | 142,056 | $ | 140,695 | $ | 132,687 | ||||||||||
Less Goodwill and other intangibles | 16,715 | 16,795 | 16,878 | 16,961 | 17,044 | |||||||||||||||
Tangible Common Equity (Non-GAAP) | $ | 127,955 | $ | 127,015 | $ | 125,178 | $ | 123,734 | $ | 115,643 | ||||||||||
Shares outstanding | 6,344,657 | 6,379,323 | 6,378,110 | 6,369,467 | 6,369,467 | |||||||||||||||
Tangible book value per share (Non-GAAP) | $ | 20.17 | $ | 19.91 | $ | 19.63 | $ | 19.43 | $ | 18.16 |
Reconciliation of Average Equity to Return on Average Tangible Common Equity | For the Three Months Ended | |||||||||||||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
Average Stockholders' Equity (GAAP) | $ | 145,208 | $ | 146,374 | $ | 144,167 | $ | 139,212 | $ | 139,208 | ||||||||||
Less Average Goodwill and other intangibles | 16,754 | 16,836 | 16,919 | 17,002 | 17,085 | |||||||||||||||
Average Tangible Common Equity (Non-GAAP) | $ | 128,454 | $ | 129,538 | $ | 127,248 | $ | 122,210 | $ | 122,123 | ||||||||||
Net income | $ | 4,167 | $ | 2,489 | $ | 1,853 | $ | 2,966 | $ | 1,041 | ||||||||||
Return on average tangible common equity (annualized) (Non-GAAP) | 13.16 | % | 7.64 | % | 5.79 | % | 9.76 | % | 3.43 | % |
General. The Company’s total assets ended the March 31, 20202021 quarter at $1.21$1.39 billion, an increasea decrease of $31.5$3.9 million from December 31, 2019.2020. For the same time period, cash and cash equivalents increased $20.2decreased $11.9 million, or 57.6%10.6%, while net loans increased $11.3decreased $548,000 million, or 1.2%0.1%. Total liabilities increased $36.6decreased $4.7 million or 3.5%0.4%, while stockholders’ equity decreased $5.1 million,increased $860,000, or 3.7%0.6%.
Cash and cash equivalents. Cash and cash equivalents increased $20.2decreased $11.9 million, or 57.6%10.6%, to $55.3$100.5 million at March 31, 20202021 from $35.1$112.4 million at December 31, 2019.2020. Deposits from customers into savings and checking accounts, loan and securities repayments, and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases of investment securities and repayments of borrowed funds. Increases in cash for the year can be traced primarily to pandemic-related government stimulus. This resulted in increased deposits, as both retail and commercial customers kept excess funds in liquid deposit accounts. A further increase to cash was the result of PPP forgiveness of $49.6 million as of March 31, 2021.
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.
Investment securities. Investment securities available for sale on March 31, 20202021 totaled $103.0$123.2 million, a decreasean increase of $2.8$8.9 million, or 2.6%7.7%, from $105.7$114.4 million at December 31, 2019.2020. During this period, the Company recorded repayments, calls, and maturities of $2.8$3.6 million and a net unrealized holding loss through AOCI of $5.2$1.7 million. Securities purchased were $5.3$14.2 million, and there were no sales of securities for the three months ended March 31, 2020.2021. The Company recorded $160,000$81,000 in lossesgains on equity securities as of March 31, 20202021 on the Company’s Consolidated Statement of Income and Consolidated Statement of Cash Flows. The lossgain 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
At March 31, 2020 is an investment in2021, the Company held $26.3 million of subordinated debt of an Ohio-based community bank in the amount of $4.0other banks, as compared to $21.3 million at an annual interest rateDecember 31, 2020. The average yield on this portfolio was 5.18% at March 31, 2021 as compared to 5.19% at December 31, 2020. The Company will continue to take advantage of 6%.this market if similar quality investments can be found.
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%68% 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 thedispersed geographically. The central Ohio market comprising 24.8%comprises 23.4% of the Company’s total loans. Net loans receivable increased $11.3 million,decreased $548,000, or 1.2%0.1%, to $988.8 million$1.09 billion as of March 31, 2020 from $977.5 million at December 31, 2019. Included in the total increase for loans2021. Loans receivable werehad increases in the commercial and industrial, owner occupied, construction and other, and CRE owner occupied portfolios of $10.6 million, or 4.6%, $1.4 million, or 2.2%, and $1.3 million, or 1.2%, respectively. For the quarter ended March 31, 2021, loans receivable had decreases in the 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%,CRE non-owner occupied, 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$1.1 million, or 10.8%0.9%, $9.4$4.8 million, or 3.1%1.6%, and $9.8$5.9 million, or 15.7%2.5%, respectively. The increase in the commercial and industrial portfolio includes the PPP loans issued as of March 31, 2021 of $126.9 million, $60.5 of which was generated during the three months ended March 31, 2021.
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, 20202021 totaled $513,000, a decrease$1.3 million, an increase of $707,000,$382,000, or 58.0%43.5%, from December 31, 2019.2020. This decreaseincrease is the result of fewer saleable loans being held at quarter end.increased activity due to the low rate environment. The Company recorded proceeds from the sale of $4.1$12.7 million of these loans for $114,000$592,000 in gains on sale of loans as of March 31, 20202021 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, 20202021 non-owner-occupied commercial real estate loans (including construction, land and land development loans) represent 310.7%280.8% of total risk-based capital. Construction, land and land development loans represent 51.0%43.0% 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 proformapro forma 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, 2020,2021, unused line of credit commitments increased $3.2decreased $1.7 million, or 0.7%, from December 31, 2019.2020.
Allowance for Loan and Lease LossesLosses and Asset Quality. The allowance for loan and lease losses increased $2.5 million,$663,000, or 36.6%4.9%, to $9.2$14.1 million at March 31, 20202021 from $6.8$13.5 million at December 31, 2019.2020. For the three months ended March 31, 2020,2021, net loan charge-offs totaled $37,000, or 0.01% of average loans, annualized, compared to net charge-offs of $264,000, or 0.11% of average loans, compared to net charge-offs of $462,000, or 0.19% of average loans,annualized, for the same period in 2019.2020. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $2.7 million$700,000 in the three-month period ended March 31, 2020.2021. The ratio of the allowance for loan and lease losses to nonperforming loans was 109.98%157.7% for the three-month period ended March 31, 2020,2021, compared to 68.81%110.0% 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 onsince the provision for loan losses section below.beginning of the COVID-19 pandemic as well as an $536,000 increase in impaired loans.
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, 2020.2021. 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 carrying value of goodwill was $15.1 million at March 31, 2021 and December 31, 2020. The Company considersconsidered the negative economic impact resulting from the COVID-19 shutdowns to be a triggering event necessitating a mid-cycle analysis for impairment. The Company performed a quantitative analysis of goodwill as of March 31, 2020 using multiple approaches. The primary methodology was the discounted cash flow approach, while also considering a market approach of comparing to multiples of similar public companies as well as market price with control premiums. The results from each of the primary approaches showed valuation of the reporting unit in excess of carrying value at March 31, 2020. A weighted average of the methodologies resulted in a fair value approximately 18% higher than its carrying value.
Each of the valuation methods used by the Company requires significant assumptions. Depending on the specific method, assumptions are made regarding growth rates, discount rates for cash flows, control premiums, and selected multiples. Changes to any of the assumptions could result in significantly different results. Based on the analysis performed as of March 31, 2020, the Company determined that goodwill was not impaired. The Company also performed a qualitative assessment of goodwill as of September 30, 2020 with no resulting goodwill impairment.
Nonperforming assets. Nonperforming assets include nonaccrual loans, loans 90 days or more past due, other real estate owned, and repossessed assets. Real estate owned is written down to fair value at its initial recording and continually monitored for changes in fair value. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about 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 | Asset Quality History | |||||||||||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||
Nonperforming loans | $ | 8,405 | $ | 8,879 | $ | 10,053 | $ | 10,729 | $ | 10,472 | $ | 8,958 | $ | 7,858 | $ | 6,690 | $ | 9,803 | $ | 8,405 | ||||||||||||||||||||
Other real estate owned | 456 | 155 | 89 | 89 | 126 | 7,372 | 7,387 | 7,391 | 687 | 456 | ||||||||||||||||||||||||||||||
Nonperforming assets | $ | 8,861 | $ | 9,034 | $ | 10,142 | $ | 10,818 | $ | 10,598 | $ | 16,330 | $ | 15,245 | $ | 14,081 | $ | 10,490 | $ | 8,861 | ||||||||||||||||||||
Allowance for loan and lease losses | 9,244 | 6,768 | 7,001 | 7,304 | 7,206 | 14,122 | 13,459 | 11,359 | 10,210 | 9,244 | ||||||||||||||||||||||||||||||
Ratios: | ||||||||||||||||||||||||||||||||||||||||
Nonperforming loans to total loans | 0.84 | % | 0.90 | % | 1.01 | % | 1.07 | % | 1.04 | % | 0.81 | % | 0.71 | % | 0.59 | % | 0.88 | % | 0.84 | % | ||||||||||||||||||||
Nonperforming assets to total assets | 0.73 | % | 0.76 | % | 0.79 | % | 0.84 | % | 0.83 | % | 1.18 | % | 1.10 | % | 1.03 | % | 0.78 | % | 0.73 | % | ||||||||||||||||||||
Allowance for loan and lease losses to total loans | 0.93 | % | 0.69 | % | 0.70 | % | 0.73 | % | 0.72 | % | 1.28 | % | 1.22 | % | 1.01 | % | 0.92 | % | 0.93 | % | ||||||||||||||||||||
Allowance for loan and lease losses to nonperforming loans | 109.98 | % | 76.22 | % | 69.64 | % | 68.08 | % | 68.81 | % | 157.65 | % | 171.28 | % | 169.79 | % | 104.15 | % | 109.98 | % | ||||||||||||||||||||
Total loans | 1,104,200 | 1,104,085 | 1,124,396 | 1,110,259 | 998,000 | |||||||||||||||||||||||||||||||||||
Total assets | 1,388,093 | 1,391,979 | 1,364,809 | 1,343,320 | 1,213,939 |
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 2624 TDRs accruing interest with a balance of $2.9$2.5 million as of March 31, 2020.2021. 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$8.2 million as of March 31, 2020, a decrease2021, an increase of $451,000$957,000 from $7.8$7.2 million at December 31, 2019.2020.
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%2021, 91.20% 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%1.22% as of December 31, 20192020 to 0.93%1.28% as of March 31, 2020.2021.
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$1.23 billion or 95.4%99.3% of the Company’s total average funding sources at March 31, 2020.2021. Total deposits decreased $17.1 million, or 1.7%,increased $227,000 at March 31, 20202021 from $1.02$1.23 billion at December 31, 2019.2020. Throughout the COVID-19 pandemic, our deposit customers have held significantly higher balances, which has resulted in a substantial increase in our cash and cash equivalent balances and total assets. The total decreaseincrease in deposits is the net of increases in noninterest-bearing demand deposits, interest-bearing demand deposits, and noninterest-bearing demandsavings deposits of $17.3$25.9 million, or 16.1%8.9%, $20.0 million, or 10.2%, and $15.0$16.1 million, or 7.8%6.6%, respectively, and decreases in money market deposits savings, and time deposits of $4.3$11.3 million, or 2.7%5.7%, $16.5and $50.4 million, or 8.6%, and $28.7 million, or 7.8%17.0%, respectively, at March 31, 2020.2021, as some maturing certificates are not being renewed in the current low interest rate environment. Included in the net increase are deposits attributable to PPP loans. 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$40.8 million at March 31, 2020,2021, as compared to $117.1$66.9 million at December 31, 2019.2020.
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 juniorfrom the Federal Home Loan Bank of Cincinnati (the “FHLB”), subordinated debt, short-term borrowings from other banks, and federal funds purchased. Short-termOther borrowings increased $54.9decreased $3.9 million, or 23.1%, to $60.0$13.1 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, 20202021 from $12.8$17.0 million as of December 31, 2019.2020.
Stockholders’Stockholders’ equity. Stockholders’ equity decreased $5.1 million,increased $860,000, or 3.7%0.6%, to $132.7$144.7 million at March 31, 20202021 from $137.8$143.8 million at December 31, 2019.2020. This decreaseincrease was the result of decreasesincreases in retained earnings of $3.2 million, and common stock of $187,000. This increase is net of a decrease in AOCI of $4.1$1.4 million, dividends paid of $964,000, and an increase in treasury stock of $1.2 million, or 7.6%$1.1 million. The change in retained earnings is due to $16.9 million as of March 31, 2020, from $15.7 million as of December 31, 2019. Thethe year-to-date net income offset by dividends paid, 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 58,20049,468 of its outstanding shares during the three months ended March 31, 2020.2021.
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, 2020,2021, was $1.0$4.2 million, a $2.0$3.1 million, or 65.4%300.3%, decreaseincrease from the amount earned during the same period in 2019.2020. Diluted earnings per share for the quarter decreasedincreased to $0.16,$0.65, compared to $0.46$0.16 from the same period in 2019.2020.
The Company’s annualized return on average assets (“ROA”) and return on average equity (“ROE”) for the quarter were 0.35%1.22% and 3.01%11.64%, respectively, compared with 1.01%0.35% and 9.36%3.01% for the same period in 2019.2020.
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.
Net interest income for the three months ended March 31, 20202021 totaled $10.0$11.9 million, a decreasean increase of 1.9%18.6% from that reported in the comparable period of 2019.2020. The net interest margin was 3.63%3.73% for the first quarter of 2020, a decrease2021, an increase from the 3.69%3.63% reported for the same quarter of 2019.2020. The declineincrease in the net interest margin is attributable to a 12 basis point decrease in loans receivable yield combined with anon certificates of deposits and money market deposits of 84 and 94 basis points, respectively, as well as a decrease in the average balance decline of $16.3 million in the same category.certificates of deposits of $104.4 million. 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,increased $133,000, or 3.5%1.0%, 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, 2020,2021, compared to the same period in the prior year. This is attributable to a decreaseincreases in interest on investment securities and interest and fees on loans of $142,000 and $89,000, respectively, and is partially offset by decreases in interest on federal funds sold and interest-earning deposits in other institutions of $21,000 and $98,000, respectively.
Interest and fees earned on loans receivable increased $89,000, or 0.7%, for the three months ended March 31, 2021, compared to the same period in the prior year. This is attributable to an increase in average loan balances of $16.3$119.3 million, accompaniedpartially offset by a 1247 basis point decrease in the average yield to 4.95%4.48%. The increase in the average loan balance is due in part to the issuance of PPP loans, from which the related gross deferred fee income was $1.4 million for the period ending March 31, 2021.
Net interest earned on securities increased by $42,000$142,000 for the three months ended March 31, 20202021 when compared to the same period in the prior year. The average balance of investment securities increased $8.4$10.6 million, or 8.6%10.0%, while the 3.62%3.75% yield on the investment portfolio decreasedincreased by 1013 basis points, from 3.72%3.62%, for the same period in the prior year.
Interest expense. Interest expense decreased $278,000,$1.7 million, or 8.5%58.2%, for the three months ended March 31, 2020,2021, compared to the same period in the prior year. TheThis decrease is attributable to decreasesa decrease 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 balancesbalance of certificates of deposits of $53.6$104.4 million, or 16.7%.27.9%, and is further attributable to decreases of 94 and 84 basis points in money market deposits and certificates of deposit, respectively.
The decreases in costs were primarily due to decreasing interest rates on all deposit products in response to the unprecedented decrease in the targeted federal funds interest rate, as well as other continuing effects of the COVID-19 pandemic.
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$700,000 was recorded for the quarter ended March 31, 2020, an increase2021, a decrease of $2.5$2.0 million from the quarter ended March 31, 2019.2020. The Company remains confident in theits conservative and disciplined approach to credit and risk management, however,management. However, the economic challenges caused by the COVID-19 crisis has an immediatecould 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$9.0 million, or 0.84%0.81%, of total loans at March 31, 20202021 compared with $10.5$8.4 million, or 1.04%0.84%, at March 31, 2019.2020. For the three months ended March 31, 2020,2021, net loan charge-offs totaled $264,000,$37,000, or 0.11%0.01% of average loans, compared to net charge-offs of $462,000,$264,000, or 0.19%0.11% of average loans, for the first quarter of 2019.2020.
With the passage of the PPP, administered by the Small Business Administration (“SBA”), the Company has actively participated in assisting its customers with applications for resources through the program. At March 31, 2021, the Company carried $126.9 million of PPP loans classified as C&I loans for reporting purposes. Loans funded through the PPP program are fully guaranteed by the U.S. government. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information about any of our PPP loans, the Company does not provide a provision for loan losses on its PPP loans at March 31, 2021.
Noninterest income. Noninterest income decreased $58,000,increased $1.1 million, or 5.1%106.5%, for the three months ended March 31, 20202021 over the comparable 20192020 period. This decreaseincrease was the result of a loss on equity securities of $160,000 (see Note 7), which was partially offset by an increaseincreases in gains on sale of loans, and in other incomeservice charges on deposit accounts of $55,000,$478,000, or 93.2%419.3%, and $58,000,$234,000, or 14.4%42.3%, respectively. There was also an increase in gain on equity securities of $241,000. The increase in gains on sale of loans is due to an increase in saleable loans being sold during the quarter, and therefinancing of mortgages due to a decrease in rates. The increase in other incomeservice charges on deposit accounts is due to an increase in recoveries on student loans.increased charges incurred including cash management fees relating to cannabis-related business.
Noninterest expense. Noninterest expense of $7.3$8.4 million for the first quarter 20202021 was 3.3%15.2%, or $248,000, lower$1.1 million, higher than the first quarter of 2019. Data2020. Salaries and employee benefits, data processing costs, and otherequipment expense increased $201,000,$670,000, or 43.2%18.7%, $120,000, or 18.0%, and $196,000,$84,000, or 22.5%30.8%, respectively. These increases were partially offset by a decrease in salariessoftware amortization expense of $61,000, or 43.3%. The salary increase is mostly due to annual pay adjustments, an increase in profit sharing expense, and employee benefits of $600,000, or 14.5%.a decrease in restricted stock activity. The increase in data processing costs is due to new and increased costs of processing agreements,services, and the increase in otherequipment expense is due to increasesan increase in miscellaneous loan expenses, sundry gains and losses, and no offsetting gainsdepreciation expense on sales of OREO properties.fixed assets. The decrease in salarysoftware amortization expense is due to extending the valuation adjustment for share-based compensation liability (see Note 3), as well as a decrease in profit sharing expense recorded.life of certain software assets.
Provision for income taxes. The Company recognized $74,000$896,000 in income tax expense, which reflected an effective tax rate of 6.6%17.7% for the three months ended March 31, 2020,2021, as compared to $611,000$74,000 with an effective tax rate of 16.9%6.6% for the comparable 20192020 period. The increase in the effective tax rate is due to the increase of taxable income.
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, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Balance | Interest | Yield/Cost | Balance | Interest | Yield/Cost | 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 | % | $ | 1,103,373 | $ | 12,167 | 4.48 | % | $ | 984,034 | $ | 12,078 | 4.95 | % | ||||||||||||||||||||||||
Investment securities (3) | 105,894 | 786 | 3.62 | % | 97,484 | 744 | 3.72 | % | 116,510 | 928 | 3.75 | % | 105,894 | 786 | 3.62 | % | ||||||||||||||||||||||||||||||||
Interest-earning deposits with other banks (4) | 41,717 | 145 | 1.40 | % | 45,283 | 252 | 2.26 | % | 93,709 | 47 | 0.20 | % | 41,717 | 145 | 1.40 | % | ||||||||||||||||||||||||||||||||
Total interest-earning assets | 1,131,645 | 13,009 | 4.69 | % | 1,143,110 | 13,484 | 4.84 | % | 1,313,592 | 13,142 | 4.11 | % | 1,131,645 | 13,009 | 4.69 | % | ||||||||||||||||||||||||||||||||
Noninterest-earning assets | 65,003 | 60,576 | 71,007 | 65,003 | ||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 1,196,648 | $ | 1,203,686 | $ | 1,384,599 | $ | 1,196,648 | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 113,691 | $ | 119 | 0.42 | % | $ | 96,402 | $ | 72 | 0.30 | % | $ | 203,047 | $ | 8,595 | 17.17 | % | $ | 113,691 | $ | 119 | 0.42 | % | ||||||||||||||||||||||||
Money market deposits | 158,008 | 552 | 1.41 | % | 194,236 | 755 | 1.58 | % | 195,275 | (1,273 | ) | -2.64 | % | 158,008 | 552 | 1.41 | % | |||||||||||||||||||||||||||||||
Savings deposits | 183,137 | 226 | 0.50 | % | 207,848 | 417 | 0.81 | % | 256,151 | (463 | ) | -0.73 | % | 183,137 | 226 | 0.50 | % | |||||||||||||||||||||||||||||||
Certificates of deposit | 373,866 | 1,968 | 2.12 | % | 320,243 | 1,701 | 2.15 | % | 269,493 | (5,654 | ) | -8.51 | % | 373,866 | 1,968 | 2.12 | % | |||||||||||||||||||||||||||||||
Short-term borrowings | 14,808 | 35 | 0.95 | % | 35,390 | 213 | 2.44 | % | 111 | - | 0.00 | % | 14,808 | 35 | 0.95 | % | ||||||||||||||||||||||||||||||||
Other borrowings | 12,703 | 76 | 2.41 | % | 13,447 | 96 | 2.90 | % | 14,258 | 39 | 1.11 | % | 12,703 | 76 | 2.41 | % | ||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 856,213 | 2,976 | 1.40 | % | 867,566 | 3,254 | 1.52 | % | 938,335 | 1,244 | 0.54 | % | 856,213 | 2,976 | 1.40 | % | ||||||||||||||||||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 195,411 | 198,286 | 295,199 | 195,411 | ||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 5,816 | 7,384 | 5,857 | 5,816 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholders' equity | 139,208 | 130,450 | 145,208 | 139,208 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,196,648 | $ | 1,203,686 | $ | 1,384,599 | $ | 1,196,648 | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 10,033 | $ | 10,230 | $ | 11,898 | $ | 10,033 | ||||||||||||||||||||||||||||||||||||||||
Interest rate spread (1) | 3.29 | % | 3.32 | % | 3.57 | % | 3.29 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest margin (2) | 3.63 | % | 3.69 | % | 3.73 | % | 3.63 | % | ||||||||||||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 132.17 | % | 131.76 | % | 139.99 | % | 132.17 | % |
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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, 20202021 and 2019,2020, 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 | 2020 versus 2019 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
(Dollars in thousands) | Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans receivable | $ | (206 | ) | $ | (204 | ) | $ | (410 | ) | $ | 1,457 | $ | (1,368 | ) | $ | 89 | ||||||||
Investment securities | 78 | (36 | ) | 42 | 95 | 47 | 142 | |||||||||||||||||
Interest-earning deposits with other banks | (20 | ) | (87 | ) | (107 | ) | 179 | (277 | ) | (98 | ) | |||||||||||||
Total interest-earning assets | (148 | ) | (327 | ) | (475 | ) | 1,731 | (1,598 | ) | 133 | ||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | 13 | 34 | 47 | 93 | 8,383 | 8,476 | ||||||||||||||||||
Money market deposits | (142 | ) | (61 | ) | (203 | ) | 130 | (1,955 | ) | (1,825 | ) | |||||||||||||
Savings deposits | (50 | ) | (141 | ) | (191 | ) | 90 | (779 | ) | (689 | ) | |||||||||||||
Certificates of deposit | 287 | (20 | ) | 267 | (546 | ) | (7,076 | ) | (7,622 | ) | ||||||||||||||
Short-term borrowings | (125 | ) | (53 | ) | (178 | ) | (34 | ) | (1 | ) | (35 | ) | ||||||||||||
Other borrowings | (5 | ) | (15 | ) | (20 | ) | 9 | (46 | ) | (37 | ) | |||||||||||||
Total interest-bearing liabilities | (22 | ) | (256 | ) | (278 | ) | (258 | ) | (1,474 | ) | (1,732 | ) | ||||||||||||
Net interest income | $ | (126 | ) | $ | (71 | ) | $ | (197 | ) | $ | 1,989 | $ | (124 | ) | $ | 1,865 |
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,FHLB, 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, 2020,2021, additional borrowing capacity at the FHLB was $222.4$388.2 million, as compared to $273.4$401.7 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.collateralizing fewer assets. For the three months ended March 31, 2020,2021, wholesale funding decreased $92.0$25.3 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 plans2021. Although the company currently exhibits strong liquidity, management will continue 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, 2020,2021, 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 a 2.50% capital conservation buffer that includes the fully phased-in 2.50% buffer.
Middlefield Bank and the Company met each of the well-capitalized ratio guidelines at March 31, 2020.2021. The following table indicates the capital ratios for Middlefield Bank and the Company at March 31, 20202021 and December 31, 2019.2020.
As of March 31, 2021 | ||||||||||||||||||||||||||||||||
As of March 31, 2020 | Tier 1 Risk | Common | Total Risk | |||||||||||||||||||||||||||||
Leverage | Tier 1 Risk Based | Common Equity Tier 1 | Total Risk Based | Leverage | Based | Equity Tier 1 | Based | |||||||||||||||||||||||||
The Middlefield Banking Company | 10.53 | % | 12.18 | % | 12.18 | % | 13.09 | % | 9.56 | % | 11.50 | % | 11.50 | % | 12.74 | % | ||||||||||||||||
Middlefield Banc Corp. | 10.22 | % | 12.38 | % | 11.59 | % | 13.29 | % | 10.06 | % | 11.71 | % | 11.00 | % | 12.95 | % | ||||||||||||||||
Adequately capitalized ratio | 4.00 | % | 6.00 | % | 4.50 | % | 8.00 | % | 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 | % | 4.00 | % | 8.50 | % | 7.00 | % | 10.50 | % | ||||||||||||||||
Well-capitalized ratio (Bank only) | 5.00 | % | 8.00 | % | 6.50 | % | 10.00 | % | 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.
As of December 31, 2020 | ||||||||||||||||
Tier 1 Risk | Common | Total Risk | ||||||||||||||
Leverage | Based | Equity Tier 1 | Based | |||||||||||||
The Middlefield Banking Company | 9.45 | % | 11.47 | % | 11.47 | % | 12.68 | % | ||||||||
Middlefield Banc Corp. | 10.22 | % | 11.68 | % | 10.96 | % | 12.88 | % | ||||||||
Adequately capitalized ratio | 4.00 | % | 6.00 | % | 4.50 | % | 8.00 | % | ||||||||
Adequately capitalized ratio plus fully phased-in capital conservation buffer | 4.00 | % | 8.50 | % | 7.00 | % | 10.50 | % | ||||||||
Well-capitalized ratio (Bank only) | 5.00 | % | 8.00 | % | 6.50 | % | 10.00 | % |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
ASSET AND LIABILITY MANAGEMENT
The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the re-pricing or maturity of interest-earning assets and the re-pricing or maturity of interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in a strong asset/liability management process in order to insulate the Company from material and prolonged increases in interest rates.
The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors and senior management. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies.
Interest Rate Sensitivity Simulation Analysis
The Company engages an external consultant to facilitate income simulation modeling on a quarterly basis. This modeling measures interest rate risk and sensitivity. The Asset and Liability Management Committee of the Company believes the various rate scenarios of the simulation modeling 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.
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, 20202021 and December 31, 20192020 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, 20202021 and December 31, 20192020 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, 20202021 and December 31, 20192020 for portfolio equity:
March 31, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
Change in Rates | % Change in NII | % Change in EVE | % Change in NII | % Change in EVE | % Change in NII | % Change in EVE | % Change in NII | % Change in EVE | ||||||||||||||||||||||||
+200bp | (0.50 | )% | 4.80 | % | 0.20 | % | 6.20 | % | 1.60 | % | 3.60 | % | 1.70 | % | 9.10 | % | ||||||||||||||||
-100bp | 0.90 | % | (13.70 | )% | (0.60 | )% | (9.40 | )% | (0.80 | )% | (14.20 | )% | (0.70 | )% | (19.90 | )% |
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, 2020,2021, have remained unchanged from December 31, 2019.2020.
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.
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.
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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 20202021 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 | ||||||||||||||||||||||||||||
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2021 period |
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In thousands, except per | Total shares | part of a publicly announced | that may yet be purchased | |||||||||||||||||||||||||||||
share data | purchased | Average price paid per share | program (a) | under the program | ||||||||||||||||||||||||||||
January 1-31 | - | $ | - | - | 100,584 | 400 | $ | 18.99 | 400 | 299,600 | ||||||||||||||||||||||
February 1-29 | - | $ | - | - | 100,584 | |||||||||||||||||||||||||||
February 1-28 | 31,682 | $ | 22.37 | 32,082 | 267,918 | |||||||||||||||||||||||||||
March 1-31 | 58,200 | $ | 20.41 | 58,200 | 42,384 | 17,386 | $ | 22.56 | 49,468 | 250,532 | ||||||||||||||||||||||
Total | 58,200 | $ | 20.41 | 49,468 | $ | 22.41 |
(a) | On |
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Item 5. | Other information |
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Item 5. Other information
Item 6. | Exhibits |
None
Item 6. Exhibits
Exhibit list for Middlefield Banc Corp.’s’s Form 10-Q Quarterly Report for the Period Ended March 31, 20202021
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 | Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | |||
4 | Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001 | |||
4.1 | Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006 | |||
4.2 | Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006 | |||
4.3 | 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* | 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* | 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 |
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 | 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* | 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 | |||
10.4.7* | Change in Control Agreement between Middlefield Banc Corp. and Michael C. Ranttila | Incorporated by reference to Exhibit 10.4.7 of Middlefield Banc Corp.’s Form 10-K Current Report filed on March 12, 2021 | |||
10.5 | [reserved] | ||||
10.6* | Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008 | ||||
10.7* | Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008 | ||||
10.8 | [reserved] | ||||
10.9 | [reserved] | ||||
10.10 | |||||
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10.11* | 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* | 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* | 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* | 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 * | 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] | ||||
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10.20* | 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* | 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* | Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019 | ||||
10.22.1 | [reserved] |
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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** | Incorporated by reference to Exhibit 10.31 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on May 7, 2019 | ||||
10.32** | Executive Deferred Compensation Agreement with Michael C. Ranttila | Incorporated by reference to Exhibit 10.32 of Middlefield Banc Corp.’s Form 10-K Current Report filed on March 12, 2021 | |||
31.1 | filed herewith | ||||
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31.2 | filed herewith | ||||
32 | filed herewith | ||||
99.1 | 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*** | Inline XBRL Instance | furnished herewith | |||
101.SCH*** | Inline XBRL Taxonomy Extension Schema | furnished herewith | |||
101.CAL*** | Inline XBRL Taxonomy Extension Calculation | furnished herewith | |||
101.DEF*** | Inline XBRL Taxonomy Extension Definition | furnished herewith | |||
101.LAB*** | Inline XBRL Taxonomy Extension Labels | furnished herewith | |||
101.PRE*** | Inline XBRL Taxonomy Extension Presentation | furnished herewith | |||
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| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* 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
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 5, 2021 | By: | /s/Thomas G. Caldwell | |
Thomas G. Caldwell | |||
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President and Chief Executive Officer | |||
Date: May | By: | /s/Donald L. Stacy | |
Donald L. Stacy | |||
Principal Financial and Accounting Officer |