UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One) X ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 20192020

or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number  001-36613   Commission File Number 001-36613 Middlefield Banc Corp. (Exact Name of Registrant as Specified in its Charter)   Ohio   34-1585111 State or Other Jurisdiction of   I.R.S. Employer Identification No. Incorporation or Organization       15985 East High Street, Middlefield, Ohio 44062-0035 Address of Principal Executive Offices Zip Code     15985 East High Street, Middlefield, Ohio   44062-0035 Address of Principal Executive Offices Zip Code     440-632-1666       Registrant’s Telephone Number, Including Area Code                       Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X

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 X    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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒    No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer X☒ Non-accelerated filer ☐   Smaller reporting company X☒ Emerging growth company ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Outstanding at August 4, 2020:  6,378,110 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 Act).  Yes ☐    No X Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Outstanding at August 6, 2019: 3,242,842   1     MIDDLEFIELD BANC CORP.   INDEX   Part I – Financial Information         Item 1. Financial Statements (unaudited)         Consolidated Balance Sheet as of June 30, 20192020 and December 31, 2018 2019  3         Consolidated Statement of Income for the Three and Six Months ended June 30, 20192020 and 2018 2019 4         Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 20192020 and 2018 2019 5         Consolidated Statement of Changes in Stockholders' Equity for the Three and Six Months ended June 30, 20192020 and 2018 2019 6         Consolidated Statement of Cash Flows for the Six Months ended June 30, 20192020 and 2018 2019 8         Notes to Unaudited Consolidated Financial Statements 10       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 33       Item 3. Quantitative and Qualitative Disclosures about Market Risk 41 45       Item 4. Controls and Procedures 42 46     Part II – Other Information       Item 1. Legal Proceedings 42 47       Item 1a. Risk Factors 43 47       Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43 48 Item 3. Defaults by the Company on its Senior Securities 48 Item 4. Mine Safety Disclosures 48 Item 5. Other Information 48 Item 6. Exhibits and Reports on Form 8-K 49 Signatures  54       Item 3. Defaults by the Company on its Senior Securities 43 Item 4. Mine Safety Disclosures 43 Item 5. Other Information 43 Item 6. Exhibits and Reports on Form 8-K 43 Signatures 48 Exhibit 31.1           Exhibit 31.2           Exhibit 32       2     MIDDLEFIELD BANC CORP. CONSOLIDATED BALANCE SHEET (Dollar amounts in thousands, except share data) (Unaudited)     June 30,     December 31,     June 30,   December 31,     2019     2018     2020     2019                     ASSETS                           Cash and due from banks   $ 133,372     $ 107,933     $ 55,766     $ 35,113   Federal funds sold     2,010       -       2,520       -   Cash and cash equivalents     135,382       107,933     58,286     35,113   Equity securities, at fair value     660       616     581     710   Investment securities available for sale, at fair value     98,809       98,322     112,529     105,733   Loans held for sale     431       597     4,151     1,220   Loans     998,232       992,109   Less allowance for loan and lease losses     7,304       7,428   Loans:           Commercial real estate:           Owner occupied   110,134     102,386   Non-owner occupied   300,577     302,180   Multifamily   37,604     62,028   Residential real estate   227,427     234,798   Commercial and industrial   240,096     89,527   Home equity lines of credit   117,196     112,248   Construction and other   66,015     66,680   Consumer installment     11,210       14,411   Total loans   1,110,259     984,258   Less: allowance for loan and lease losses     10,210       6,768   Net loans     990,928       984,681     1,100,049     977,490   Premises and equipment, net     16,788       13,003     18,962     17,874   Goodwill     15,071       15,071     15,071     15,071   Core deposit intangibles     2,227       2,397     1,890     2,056   Bank-owned life insurance     16,294       16,080     16,723     16,511   Accrued interest receivable and other assets     11,832       9,698       15,078       10,697                     TOTAL ASSETS   $ 1,288,422     $ 1,248,398     $ 1,343,320     $ 1,182,475                     LIABILITIES                           Deposits:                           Noninterest-bearing demand   $ 198,817     $ 203,410     $ 270,738     $ 191,370   Interest-bearing demand     94,266       92,104     136,722     107,844   Money market     152,885       196,685     168,842     160,826   Savings     194,505       222,954     218,545     192,003   Time     411,034       300,914       363,420       368,800   Total deposits     1,051,507       1,016,067     1,158,267     1,020,843   Short-term borrowings:                           Federal funds purchased     -       398     -     75   Federal Home Loan Bank advances     85,000       90,000       20,417       5,000   Total short-term borrowings     85,000       90,398     20,417     5,075   Other borrowings     12,449       8,803     17,162     12,750   Accrued interest payable and other liabilities     5,206       4,840       6,779       6,032   TOTAL LIABILITIES     1,154,162       1,120,108       1,202,625       1,044,700                     STOCKHOLDERS' EQUITY                           Common stock, no par value; 10,000,000 shares authorized, 3,646,497 and 3,630,497 shares issued; 3,242,585 and 3,244,332 shares outstanding     86,590       85,925   Common stock, no par value; 10,000,000 shares authorized, 7,298,829 and 7,294,792 shares issued; 6,369,467 and 6,423,630 shares outstanding   86,722     86,617   Retained earnings     60,517       56,037     67,150     65,063   Accumulated other comprehensive income (loss)     1,377       (154 ) Treasury stock, at cost; 403,912 and 386,165 shares     (14,224 )     (13,518 ) Accumulated other comprehensive income   3,761     1,842   Treasury stock, at cost; 929,362 and 871,162 shares     (16,938 )     (15,747 ) TOTAL STOCKHOLDERS' EQUITY     134,260       128,290       140,695       137,775                     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,288,422     $ 1,248,398     $ 1,343,320     $ 1,182,475     See accompanying notes to unaudited consolidated financial statements.   3     MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF INCOME   (Dollar amounts in thousands, except per share data) (Unaudited)     Three Months Ended     Six Months Ended     Three Months Ended   Six Months Ended     June 30,     June 30,     June 30,   June 30,     2019     2018     2019     2018     2020     2019     2020     2019   INTEREST AND DIVIDEND INCOME                                                   Interest and fees on loans   $ 12,706     $ 11,197     $ 25,194     $ 22,251     $ 12,281     $ 12,706     $ 24,359     $ 25,194   Interest-earning deposits in other institutions     169       115       356       234     7     169     101     356   Federal funds sold     25       7       32       21     -     25     21     32   Investment securities:                                                   Taxable interest     214       170       393       339     206     214     363     393   Tax-exempt interest     553       550       1,118       1,075     634     553     1,263     1,118   Dividends on stock     53       53       111       112       27       53       57       111   Total interest and dividend income     13,720       12,092       27,204       24,032       13,155       13,720       26,164       27,204                                     INTEREST EXPENSE                                                   Deposits     3,277       1,979       6,222       3,619     2,336     3,277     5,201     6,222   Short-term borrowings     79       192       292       468     32     79     67     292   Other borrowings     95       118       191       240       62       95       138       191   Total interest expense     3,451       2,289       6,705       4,327       2,430       3,451       5,406       6,705                                     NET INTEREST INCOME     10,269       9,803       20,499       19,705     10,725     10,269     20,758     20,499                                     Provision for loan losses     110       210       350       420       1,000       110       3,740       350                                     NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     10,159       9,593       20,149       19,285       9,725       10,159       17,018       20,149                                     NONINTEREST INCOME                                                   Service charges on deposit accounts     530       472       1,038       925     566     530     1,119     1,038   Investment securities gains on sale, net     190       -       190       -     -     190     -     190   (Loss) gain on equity securities     (14 )     13       44       31   Gain (loss) on equity securities   31     (14 )   (129 )   44   Earnings on bank-owned life insurance     109       98       214       210     105     109     212     214   Gain on sale of loans     98       154       157       158     381     98     495     157   Other income     386       311       788       510       412       386       872       788   Total noninterest income     1,299       1,048       2,431       1,834       1,495       1,299       2,569       2,431                                     NONINTEREST EXPENSE                                                   Salaries and employee benefits     4,078       3,866       8,202       7,845     4,076     4,078     7,600     8,202   Occupancy expense     496       472       1,049       1,008     483     496     1,033     1,049   Equipment expense     291       201       526       434     307     291     580     526   Data processing costs     549       402       1,014       879     684     549     1,350     1,014   Ohio state franchise tax     261       244       520       359     281     261     549     520   Federal deposit insurance expense     100       150       230       300     74     100     197     230   Professional fees     403       327       834       772     369     403     718     834   Advertising expense     200       230       403       458     217     200     426     403   Software amortization expense     152       155       297       305     74     48     215     191   Core deposit intangible amortization     85       87       170       178     83     85     166     170   Other expense     867       929       1,737       1,870       1,041       971       2,107       1,843   Total noninterest expense     7,482       7,063       14,982       14,408       7,689       7,482       14,941       14,982                                     Income before income taxes     3,976       3,578       7,598       6,711     3,531     3,976     4,646     7,598   Income taxes     686       481       1,297       1,009       565       686       639       1,297                                     NET INCOME   $ 3,290     $ 3,097     $ 6,301     $ 5,702     $ 2,966     $ 3,290     $ 4,007     $ 6,301                                     EARNINGS PER SHARE                                                   Basic   $ 1.01     $ 0.96     $ 1.94     $ 1.77     $ 0.47     $ 0.51     $ 0.63     $ 0.97   Diluted   $ 1.01     $ 0.96     $ 1.93     $ 1.76     $ 0.46     $ 0.50     $ 0.62     $ 0.97     See accompanying notes to unaudited consolidated financial statements.   4     MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Dollar amounts in thousands) (Unaudited)     Three Months Ended     Six Months Ended     Three Months Ended   Six Months Ended     June 30,     June 30,     June 30,   June 30,     2019     2018     2019     2018     2020     2019     2020     2019                                     Net income   $ 3,290     $ 3,097     $ 6,301     $ 5,702     $ 2,966     $ 3,290     $ 4,007     $ 6,301                                     Other comprehensive income (loss):                                 Net unrealized holding gain (loss) on available-for-sale investment securities     1,122       (73 )     2,128       (1,985 ) Other comprehensive income:                   Net unrealized holding gain on available-for-sale investment securities   7,592     1,122     2,429     2,128   Tax effect     (236 )     15       (447 )     417       (1,594 )     (236 )     (510 )     (447 )                                   Reclassification adjustment for investment securities gains included in net income     (190 )     -       (190 )     -     -     (190 )   -     (190 ) Tax effect     40       -       40       -       -       40       -       40                                     Total other comprehensive income (loss)     736       (58 )     1,531       (1,568 ) Total other comprehensive income     5,998       736       1,919       1,531                                     Comprehensive income   $ 4,026     $ 3,039     $ 7,832     $ 4,134     $ 8,964     $ 4,026     $ 5,926     $ 7,832     See accompanying notes to unaudited consolidated financial statements.   5     MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollar amounts in thousands, except share and per share data) (Unaudited)                               Accumulated                                             Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income     Stock     Equity                                                     Balance, March 31, 2019     3,642,535     $ 86,437     $ 58,139     $ 641     $ (13,518 )   $ 131,699                                                     Net income                     3,290                       3,290   Other comprehensive income                             736               736   Dividend reinvestment and purchase plan     3,762       149                               149   Stock options exercised     200       4                               4   Treasury shares acquired (17,747)                                     (706 )     (706 ) Cash dividends ($0.28 per share)                     (912 )                     (912 )                                                   Balance, June 30, 2019     3,646,497     $ 86,590     $ 60,517     $ 1,377     $ (14,224 )   $ 134,260                               Accumulated                                               Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income (Loss)     Stock     Equity                                                     Balance, March 31, 2020     7,298,829     $ 86,722     $ 65,140     $ (2,237 )   $ (16,938 )   $ 132,687                                                     Net income                     2,966                       2,966   Other comprehensive income                             5,998               5,998   Cash dividends ($0.15 per share)                     (956 )                     (956 )                                                   Balance, June 30, 2020     7,298,829     $ 86,722     $ 67,150     $ 3,761     $ (16,938 )   $ 140,695                                 Accumulated                                             Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Loss     Stock     Equity                                                     Balance, March 31, 2018     3,609,149     $ 85,116     $ 48,927     $ (373 )   $ (13,518 )   $ 120,152                                                     Net income                     3,097                       3,097   Other comprehensive loss                             (58 )             (58 ) Dividend reinvestment and purchase plan     2,624       141                               141   Stock options exercised     4500       104                               104   Stock-based compensation, net     3,570       183                               183   Cash dividends ($0.28 per share)                     (903 )                     (903 )                                                   Balance, June 30, 2018     3,619,843     $ 85,544     $ 51,121     $ (431 )   $ (13,518 )   $ 122,716                               Accumulated                                               Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income     Stock     Equity                                                     Balance, March 31, 2019     7,285,070     $ 86,437     $ 58,139     $ 641     $ (13,518 )   $ 131,699                                                     Net income                     3,290                       3,290   Other comprehensive income                             736               736   Dividend reinvestment and purchase plan     7,524       149                               149   Stock options exercised     400       4                               4   Treasury shares acquired (35,494)                                     (706 )     (706 ) Cash dividends ($0.14 per share)                     (912 )                     (912 )                                                   Balance, June 30, 2019     7,292,994     $ 86,590     $ 60,517     $ 1,377     $ (14,224 )   $ 134,260     (continued on following page) See accompanying notes to unaudited consolidated financial statements.   6   MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollar amounts in thousands, except share and per share data) (Unaudited, continued from previous page)                               Accumulated                                               Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income (Loss)     Stock     Equity                                                     Balance, December 31, 2018     3,630,497     $ 85,925     $ 56,037     $ (154 )   $ (13,518 )   $ 128,290                                                     Net income                     6,301                       6,301   Other comprehensive income                             1,531               1,531   Dividend reinvestment and purchase plan     8,284       345                               345   Stock options exercised     200       4                               4   Stock-based compensation, net     7,516       316                               316   Treasury shares acquired (17,747)                                     (706 )     (706 ) Cash dividends ($0.56 per share)                     (1,821 )                     (1,821 )                                                   Balance, June 30, 2019     3,646,497     $ 86,590     $ 60,517     $ 1,377     $ (14,224 )   $ 134,260                               Accumulated                                               Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income     Stock     Equity                                                     Balance, December 31, 2019     7,294,792     $ 86,617     $ 65,063     $ 1,842     $ (15,747 )   $ 137,775                                                     Net income                     4,007                       4,007   Other comprehensive income                             1,919               1,919   Stock-based compensation, net     4,037       105                               105   Treasury shares acquired (58,200)                                     (1,191 )     (1,191 ) Cash dividends ($0.30 per share)                     (1,920 )                     (1,920 )                                                   Balance, June 30, 2020     7,298,829     $ 86,722     $ 67,150     $ 3,761     $ (16,938 )   $ 140,695                                 Accumulated                                               Other             Total       Common Stock     Retained     Comprehensive     Treasury     Stockholders'       Shares     Amount     Earnings     Income (Loss)     Stock     Equity                                                     Balance, December 31, 2017     3,603,881     $ 84,859     $ 47,431     $ 1,091     $ (13,518 )   $ 119,863                                                     Change in accounting principle for adoption of ASU 2016-01                     141       (141 )             -   Change in accounting principle for adoption of ASU 2018-02                     (187 )     187               -   Net income                     5,702                       5,702   Other comprehensive loss                             (1,568 )             (1,568 ) Dividend reinvestment and purchase plan     5,902       301                               301   Stock options exercised     4,500       104                               104   Stock-based compensation, net     5,560       280                               280   Cash dividends ($0.61 per share)                     (1,966 )                     (1,966 )                                                   Balance, June 30, 2018     3,619,843     $ 85,544     $ 51,121     $ (431 )   $ (13,518 )   $ 122,716                               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                   6,301                   6,301   Other comprehensive income                         1,531             1,531   Dividend reinvestment and purchase plan     16,568       345                         345   Stock options exercised     400       4                         4   Stock-based compensation, net     15,032       316                         316   Treasury shares acquired (35,494)                               (706 )     (706 ) Cash dividends ($0.28 per share)                   (1,821 )                 (1,821 )                                                   Balance, June 30, 2019     7,292,994     $ 86,590     $ 60,517     $ 1,377     $ (14,224 )   $ 134,260     See accompanying notes to unaudited consolidated financial statements.   7     MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Dollar amounts in thousands) (Unaudited)     Six Months Ended     Six Months Ended     June 30,     June 30,     2019     2018     2020     2019   OPERATING ACTIVITIES                           Net income   $ 6,301     $ 5,702     $ 4,007     $ 6,301   Adjustments to reconcile net income to net cash provided by operating activities:                           Provision for loan losses     350       420     3,740     350   Investment securities gains on sale, net     (190 )     -     -     (190 ) Gain on equity securities     (44 )     (31 ) Loss (gain) on equity securities   129     (44 ) Depreciation and amortization of premises and equipment, net     524       457     437     524   Software amortization expense     297       305     215     191   Financing lease amortization expense     173       -     131     173   Amortization of premium and                 discount on investment securities, net     176       208   Gain on sale of premises and equipment   (27 )   -   Amortization of premium and discount on investment securities, net   190     176   Accretion of deferred loan fees, net     (429 )     (564 )   (1,108 )   (429 ) Amortization of core deposit intangibles     170       178     166     170   Stock-based compensation expense     186       280   Stock-based compensation (income) expense, net   (8 )   186   Origination of loans held for sale     (6,781 )     (6,694 )   (21,051 )   (6,781 ) Proceeds from sale of loans     7,104       6,146     18,615     7,104   Gain on sale of loans     (157 )     (121 )   (495 )   (157 ) Earnings on bank-owned life insurance     (214 )     (210 )   (212 )   (214 ) Deferred income tax     183       132     (534 )   183   Net gain on other real estate owned     (106 )     5     (62 )   (106 ) Decrease (increase) in accrued interest receivable     66       (7 ) Increase in accrued interest payable     292       83   (Increase) decrease in accrued interest receivable   (2,070 )   66   (Decrease) increase in accrued interest payable   (18 )   292   Other, net     (2,991 )     (1,268 )     508       (2,885 ) Net cash provided by operating activities     4,910       5,021       2,553       4,910                     INVESTING ACTIVITIES                           Investment securities available for sale:                           Proceeds from repayments and maturities     6,851       2,304     7,745     6,851   Proceeds from sale of securities     11,807       -     -     11,807   Purchases     (17,193 )     (9,862 )   (12,302 )   (17,193 ) Increase in loans, net     (6,206 )     (20,005 )   (125,775 )   (6,206 ) Proceeds from the sale of other real estate owned     325       26     114     325   Purchase of premises and equipment     (681 )     (1,582 ) Net purchase of premises and equipment   (646 )   (681 ) Proceeds from the disposal of premises and equipment   27     -   Purchase of restricted stock     (29 )     (90 )     (1,600 )     (29 ) Net cash used in investing activities     (5,126 )     (29,209 )     (132,437 )     (5,126 )                   FINANCING ACTIVITIES                           Net increase in deposits     35,440       54,052     137,424     35,440   Increase (decrease) in short-term borrowings, net     (5,398 )     13,126   Repayment of other borrowings     (155 )     (10,069 ) Increase (decrease) in borrowings, net   18,744     (5,553 ) Restricted stock cash portion     (44 )     -     -     (44 ) Stock options exercised     4       104     -     4   Proceeds from dividend reinvestment and purchase plan     345       301     -     345   Repurchase of treasury shares     (706 )     -     (1,191 )   (706 ) Cash dividends     (1,821 )     (1,966 )     (1,920 )     (1,821 ) Net cash provided by financing activities     27,665       55,548       153,057       27,665                     Increase in cash and cash equivalents     27,449       31,360     23,173     27,449                     CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     107,933       39,886       35,113       107,933                     CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 135,382     $ 71,246     $ 58,286     $ 135,382     See accompanying notes to unaudited consolidated financial statements.   8     Six Months Ended     Six Months Ended     June 30,     June 30,     2019     2018     2020     2019   SUPPLEMENTAL INFORMATION                           Cash paid during the year for:                           Interest on deposits and borrowings   $ 6,413     $ 4,238     $ 5,424     $ 6,413   Income taxes     1,330       1,075     -     1,330                     Noncash operating transactions:                           Operating lease assets added to other, net   $ (1,071 )   $ -     $ -     $ (1,071 ) Operating lease liabilities added to other, net     1,071       -     -     1,071   Noncash investing transactions:                           Transfers from loans to other real estate owned   $ 38     $ -     $ 584     $ 38   Transfer of equity securities from investment securities available for sale, at fair value     -       (625 ) Finance lease assets added to premises and equipment     (3,801 )     -     (1,010 )   (3,801 ) Noncash financing transactions:                           Finance lease liabilities added to borrowed funds   $ 3,801     $ -     $ 1,010     $ 3,801     See accompanying notes to unaudited consolidated financial statements.   9   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. (MII)(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, 2018.2019.  The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented.  The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.     Recently Adopted Accounting Pronouncements – In February 2016,preparing the FASB issued ASU 2016-02, Leases(Topic842). The standard requires lesseesfinancial statements, management is required to recognizemake estimates and assumptions that affect the assetsreported amounts and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reportingbalance sheet date and revenues and expenses for the period. On January 1, 2019, the Company adopted ASU 2016-02 which resulted in the recording of finance lease assets and liabilities of $3.8 million and operating lease assets and liabilities of $1.1 million on the Consolidated Balance Sheet. See Note 9 to the financial statements.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”), 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. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effectcumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The CECL model has been completedIn November 2019, the FASB issued ASU 2019-10,Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and runs concurrently withHedging (Topic 815), and Leases (Topic 842). This Update defers the existing incurred loss model each month.effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management continues monitoringwill continue to monitor model output with final assumption changesthroughout the deferral period. In November 2019, the FASB issued ASU 2019-11,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In 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 madethe 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 third quarter.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 fromfor prior years have been reclassified to conform to current-year presentations. Such reclassifications did not affect net income or retained earnings.   10     NOTE 2 – REVENUE RECOGNITION   In accordance with ASC Topic 606, management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from investment security gains, gains on the sale of loans, and BOLI income, are not within the scope of ASC 606. These revenue sources cumulatively comprise 92.2%92.4% of the total revenue of the Company.   The main types of noninterest income within the scope of the standard are as follows:   Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific customer requests or activities that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, which is completion of the requested service/transaction.   Gains (losses) on sale of other real estate owned(“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 June 30,     For the Six Months Ended June 30,     For the Three Months Ended June 30,     For the Six Months Ended June 30,   Noninterest Income   2019     2018     2019     2018     2020     2019     2020     2019   (Dollar amounts in thousands)                                                                                   Service charges on deposit accounts:                                   Overdraft fees   $ 190     $ 197     $ 438     $ 390     $ 122     $ 190     $ 312     $ 438   ATM banking fees     241       214       435       415     263     241     473     435   Service charges and other fees     99       61       165       120     181     99     334     165   Investment securities gains on sale, net (a)     190       -       190       -     -     190     -     190   (Loss) gain on equity securities (a)     (14 )     13       44       31   Gain (loss) on equity securities (a)   31     (14 )   (129 )   44   Earnings on bank-owned life insurance (a)     109       98       214       210     105     109     212     214   Gain on sale of loans (a)     98       154       157       158     381     98     495     157   Revenue from investment services   137     124     268     262   Other income     386       311       788       510       275       262       604       526   Total noninterest income   $ 1,299     $ 1,048     $ 2,431     $ 1,834     $ 1,495     $ 1,299     $ 2,569     $ 2,431     Net gain on other real estate owned   $ 62     $ 63     $ 62     $ 106     (a)  Not within scope of ASC 606   11   NOTE 3 - STOCK-BASED COMPENSATION   The Company had no unvested nonvested stock options outstanding as of June 30, 2019 2020 and 2018.2019.   Stock option activity during the six months ended June 30, 2019 2020 is as follows:               Weighted-               average               Exercise Price       Shares     Per Share                     Outstanding, January 1, 2019     7,450     $ 17.55   Exercised     (200 )     17.55                     Outstanding, June 30, 2019     7,250     $ 17.55                     Exercisable, June 30, 2019     7,250     $ 17.55               Weighted-               average               Exercise Price       Shares     Per Share                     Outstanding, January 1, 2020     14,500     $ 8.78   Exercised     (1,000 )     8.78                     Outstanding, June 30, 2020     13,500     $ 8.78                     Exercisable, June 30, 2020     13,500     $ 8.78     The following table presents the activity during the six months ended June 30, 2019 2020 related to awards of restricted stock:               Weighted-               average               Grant Date Fair       Units     Value Per Unit                     Nonvested at January 1, 2019     21,072     $ 41.96   Granted     14,565       41.90   Vested     (4,970 )     32.40   Nonvested at June 30, 2019     30,667     $ 43.48                     Expected to vest at June 30, 2019     750     $ 46.03               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 June 30, 2020     84,688     $ 22.94                     Expected to vest as of June 30, 2020     1,000     $ 22.65     The Company recognizes restricted stock forfeitures in the period they occur.   Share-based compensation expense of $0$294,000 and $91,000$0 was recognized for the three-monththree-month periods ended June 30, 2019 2020 and 2018,2019, respectively. Share-based compensation expense of $90,000($113,000) and $136,000$90,000 was recognized for the six-monthsix-month periods ended June 30, 2019 2020 and 2018,2019, respectively. The expense recorded for the six-month period ended June 30, 2020 is the result of the decrease in the market valuations of the plans for December 31, 2019. 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 first quarter of 2020, there was a significant decrease in the probability of the achievement of the performance condition which resulted in a decrease in the liability related to the plan and a reversal of compensation expense. Since the shares of restricted stock are historically paid out at the vesting date in a combination of shares and cash, the Company has recorded a liability related to this plan which totals $581,000 and $236,000 and $261,000 at June 30, 2019 2020 and 2018,2019, respectively. When the shares vest, the amount distributed in shares is transferred to common stock and the remainder is distributed in cash.   Total unrecognized stock compensation cost related to nonvested share-based compensation on restricted stock as of June 30, 2019 2020 totals $517,000,$374,000, of which $123,000$124,000 is estimated for the rest of 2019, $201,0002020, $180,000 for 2020, $168,0002021, $63,000 for 2021,2022, and $25,000$7,000 for 2022.2023.   12       NOTE 4 - EARNINGS PER SHARE   The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options and restricted stock to average shares outstanding.   The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings-per-share computation.     For the Three     For the Six     For the Three   For the Six     Months Ended     Months Ended     Months Ended   Months Ended     June 30,     June 30,     June 30,     June 30,     2019     2018     2019     2018     2020     2019     2020     2019                                     Weighted-average common shares issued     3,643,271       3,611,891       3,639,310       3,609,174     7,298,829     7,286,542     7,298,785     7,278,620                                     Average treasury stock shares     (392,017 )     (386,165 )     (389,107 )     (386,165 )     (929,362 )     (784,034 )     (905,497 )     (778,214 )                                   Weighted-average common shares and common stock equivalents used to calculate basic earnings per share     3,251,254       3,225,726       3,250,203       3,223,009     6,369,467     6,502,508     6,393,288     6,500,406                                     Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share     6,219       14,603       6,322       15,227       18,651       12,438       19,297       12,644                                     Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share     3,257,473       3,240,329       3,256,525       3,238,236       6,388,118       6,514,946       6,412,585       6,513,050     Options to purchase 7,25013,500 shares of common stock at $17.55$8.78 per share were outstanding during the three and six months ended June 30, 2019. 2020. Also outstanding were 30,66784,688 shares of restricted stock. Nonestock, 73,147 shares of the outstanding options or restricted stockwhich were anti-dilutive.   Options to purchase 13,75014,500 shares of common stock at prices ranging from $17.55 to $23.00,$8.78 per share were outstanding during the three and six months ended June 30, 2018. 2019. Also outstanding were 20,42561,334 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. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the transaction is presented within the share premium. The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by the Company. As of June 30, 2019, 2020, the Company held 403,912929,362 of the Company’s shares, which is an increase of 17,74758,200 from the 386,165871,162 shares held as of December 31, 2018.2019.   NOTE 5 - FAIRFAIR 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.   13 Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed. Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-waytwo-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.   This hierarchy requires the use of observable market data when available.   The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.             June 30, 2019                 June 30, 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:                                                   U.S. government agency securities   $ -     $ 1,995     $ -     $ 1,995   Subordinated debt     -       4,086       -       4,086     $ -     $ 11,289     $ -     $ 11,289   Obligations of states and political subdivisions     -       72,911       -       72,911     -     84,540     -     84,540   Mortgage-backed securities in government-sponsored entities     -       19,817       -       19,817       -       16,700       -       16,700   Total debt securities     -       98,809       -       98,809     -     112,529     -     112,529   Equity securities in financial institutions     660       -       -       660       581       -       -       581   Total   $ 660     $ 98,809     $ -     $ 99,469     $ 581     $ 112,529     $ -     $ 113,110               December 31, 2018                 December 31, 2019       (Dollar amounts in thousands)   Level I     Level II     Level III     Total     Level I     Level II     Level III     Total   Assets measured on a recurring basis:                                                   U.S. government agency securities   $ -     $ 7,471     $ -     $ 7,471   Subordinated debt   $ -     $ 4,126     $ -     $ 4,126   Obligations of states and political subdivisions     -       73,093       -       73,093     -     82,977     -     82,977   Mortgage-backed securities in government-sponsored entities     -       17,758       -       17,758       -       18,630       -       18,630   Total debt securities     -       98,322       -       98,322     -     105,733     -     105,733   Equity securities in financial institutions     616       -       -       616       710       -       -       710   Total   $ 616     $ 98,322     $ -     $ 98,938     $ 710     $ 105,733     $ -     $ 106,443     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).   Equity Securities - Equity securities that are traded on a national securities exchange are valued at their last reported sales price as of the measurement date. Equity securities traded in the over-the-counter (“OTC”) markets and listed securities for which no sale was reported on that date are generally valued at their last reported “bid” price if held long, and last reported “ask” price if sold short. To the extent equity securities are actively traded and valuation adjustments are not applied, they are categorized in Level I of the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level II of the fair value hierarchy.   14 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 in the threesix months ended June 30, 2019.2020.             June 30, 2019                 June 30, 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   $ -     $ -     $ 5,025     $ 5,025     $ -     $ -     $ 4,729     $ 4,729               December 31, 2018                 December 31, 2019       (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   $ -     $ -     $ 1,075     $ 1,075     $ -     $ -     $ 5,166     $ 5,166     Impaired Loans – The Company has measured impairment on collateral-dependent impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-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 $1.8$2.1 million and $492,000 as of June 30, 2019 2020 and December 31, 2018, respectively.2019.   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   Fair Value Estimate   Valuation Techniques Unobservable Input   Range (Weighted Average)     Fair Value Estimate   Valuation Techniques Unobservable Input   Average)  June 30, 2019                     June 30, 2020                   Impaired loans   $ 5,025   Appraisal of collateral (1) Appraisal adjustments (2)    0% to 56.6% (0.9%)     $ 4,729   Appraisal of collateral (1) Appraisal adjustments (2)   29.8% to 46.2% (34.7%)     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   Fair Value Estimate   Valuation Techniques Unobservable Input   Range (Weighted Average)     Fair Value Estimate   Valuation Techniques Unobservable Input   Average)  December 31, 2018                       December 31, 2019                   Impaired loans   $ 1,075   Appraisal of collateral (1) Appraisal adjustments (2)    0% to 100.0% (40.6%)     $ 5,166   Appraisal of collateral (1) Appraisal adjustments (2)   40.3% to 47.4% (41.8%)     (1)(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable, less any associated allowance.     (2)(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.   15 The estimated fair value of the Company’s financial instruments not recorded at fair value on a recurring basis is as follows:     June 30, 2019     June 30, 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   $ 135,382     $ 135,382     $ -     $ -     $ 135,382     $ 58,286     $ 58,286     $ -     $ -     $ 58,286   Loans held for sale     431       -       431       -       431     4,151     -     4,151     -     4,151   Net loans     990,928       -       -       987,542       987,542     1,100,049     -     -     1,100,623     1,100,623   Bank-owned life insurance     16,294       16,294       -       -       16,294     16,723     16,723     -     -     16,723   Federal Home Loan Bank stock     3,708       3,708       -       -       3,708     5,448     5,448     -     -     5,448   Accrued interest receivable     3,567       3,567       -       -       3,567     5,541     5,541     -     -     5,541                                             Financial liabilities:                                                               Deposits   $ 1,051,507     $ 640,473     $ -     $ 412,944     $ 1,053,417     $ 1,158,267     $ 794,847     $ -     $ 369,173     $ 1,164,020   Short-term borrowings     85,000       85,000       -       -       85,000     20,417     20,417     -     -     20,417   Other borrowings     12,449       -       -       12,490       12,490     17,162     -     -     13,211     13,211   Accrued interest payable     1,036       1,036       -       -       1,036     899     899     -     -     899       December 31, 2018     December 31, 2019     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   $ 107,933     $ 107,933     $ -     $ -     $ 107,933     $ 35,113     $ 35,113     $ -     $ -     $ 35,113   Loans held for sale     597       -       597       -       597     1,220     -     1,220     -     1,220   Net loans     984,681       -       -       973,124       973,124     977,490     -     -     974,213     974,213   Bank-owned life insurance     16,080       16,080       -       -       16,080     16,511     16,511     -     -     16,511   Federal Home Loan Bank stock     3,679       3,679       -       -       3,679     3,848     3,848     -     -     3,848   Accrued interest receivable     3,633       3,633       -       -       3,633     3,471     3,471     -     -     3,471                                             Financial liabilities:                                                               Deposits   $ 1,016,067     $ 715,153     $ -     $ 298,891     $ 1,014,044     $ 1,020,843     $ 652,043     $ -     $ 371,193     $ 1,023,236   Short-term borrowings     90,398       90,398       -       -       90,398     5,075     5,075     -     -     5,075   Other borrowings     8,803       -       -       8,827       8,827     12,750     -     -     12,783     12,783   Accrued interest payable     744       744       -       -       744     917     917     -     -     917     All financial instruments included in the above tables, with the exception of net loans, deposits, and other borrowings, are carried at cost, which approximates the fair value of the instrument.   16   NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME   The following table presents the changes in accumulated other comprehensive income (loss) (“AOCI”) by component net of tax for the three and six months ended June 30, 2019 2020 and 2018,2019, respectively:   (Dollars in thousands)    Unrealized gains on available-for-sale securities (a)   Balance as of March 31, 2019   $ 641   Other comprehensive income     886   Amount reclassified from accumulated other comprehensive income     (150 ) Balance at June 30, 2019   $ 1,377             Balance as of December 31, 2018   $ (154 ) Other comprehensive income     1,681   Amount reclassified from accumulated other comprehensive income     (150 ) Balance at June 30, 2019   $ 1,377   (Dollars in thousands)   Unrealized gains/(losses) on available-for-sale securities (a)   Balance as of March 31, 2020   $ (2,237 ) Other comprehensive income     5,998   Balance at June 30, 2020   $ 3,761             Balance as of December 31, 2019   $ 1,842   Other comprehensive income     1,919   Balance at June 30, 2020   $ 3,761     (Dollars in thousands)   Unrealized gains on available-for-sale securities (a)   Balance as of March 31, 2018   $ (373 ) Other comprehensive loss before reclassification     (58 ) Balance at June 30, 2018   $ (431 )           Balance as of December 31, 2017   $ 1,091   Other comprehensive loss before reclassification     (1,568 ) Change in accounting principle, ASC 2016-01 (b)     (141 ) Change in accounting principle, ASC 2018-02 (b)     187   Period change     (1,522 ) Balance at June 30, 2018   $ (431 ) (Dollars in thousands)   Unrealized gains/(losses) on available-for-sale securities (a)   Balance as of March 31, 2019   $ 641   Other comprehensive income     886   Amount reclassified from accumulated other comprehensive income     (150 ) Period change     736   Balance at June 30, 2019   $ 1,377             Balance as of December 31, 2018   $ (154 ) Other comprehensive income     1,681   Amount reclassified from accumulated other comprehensive income     (150 ) Period change     1,531   Balance at June 30, 2019   $ 1,377     (a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.   (b)(a) ReclassificationsAll amounts are the resultnet of the adoption of ASUs 2016-01 and 2018-02 effective for the Company beginning January 1, 2018. The reclassifications are presented within the Consolidated Statement of Changestax. Amounts in Stockholders’ Equity for the affected transitional periods.parentheses indicate debits to AOCI.   The following tables present significant amounts reclassified from or to each component of AOCI:     Amounts Reclassified from Accumulated Other   Affected Line Item in   Amounts Reclassified from Accumulated Other Comprehensive Income   Affected Line Item in the Statement Where   Comprehensive Income   the Statement Where (Dollars in thousands)   For the Three and Six Months Ended   Net Income is   For the Three and Six Months Ended   Net Income is Details about other comprehensive income   June 30, 2019     June 30, 2018   Presented   June 30, 2020     June 30, 2019   Presented Unrealized gains on available-for-sale securities (a)   $ 190     $ -   Investment securities gains on sale, net               (40 )     -   Income taxes   $ -     $ 190   Investment securities gains on sale, net   $ 150     $ -         -       (40 ) Income taxes   $ -     $ 150         (a) For unrealized gains on available-for-sale securities, amounts in parentheses indicate expenses and other amounts indicate income.   17   NOTE 7 – INVESTMENT AND EQUITY SECURITIES   The amortized cost and fair values of investment securities available for sale are as follows:     June 30, 2019     June 30, 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                                     U.S. government agency securities   $ 2,000     $ -     $ (5 )   $ 1,995   Subordinated debt     4,000       86       -       4,086     $ 11,050     $ 239     $ -     $ 11,289   Obligations of states and political subdivisions:                                                   Taxable     501       7       -       508     500     2     -     502   Tax-exempt     70,818       1,585       -       72,403     80,155     3,883     -     84,038   Mortgage-backed securities in government-sponsored entities     19,746       223       (152 )     19,817       16,063       637       -       16,700   Total   $ 97,065     $ 1,901     $ (157 )   $ 98,809     $ 107,768     $ 4,761     $ -     $ 112,529       December 31, 2018     December 31, 2019             Gross     Gross                 Gross   Gross         Amortized     Unrealized     Unrealized     Fair     Amortized   Unrealized   Unrealized   Fair   (Dollar amounts in thousands)   Cost     Gains     Losses     Value     Cost     Gains     Losses     Value                                     U.S. government agency securities   $ 7,442     $ 90     $ (61 )   $ 7,471   Subordinated debt   $ 4,000     $ 126     $ -     $ 4,126   Obligations of states and political subdivisions:                                                   Taxable     502       10       -       512     500     1     -     501   Tax-exempt     72,387       667       (473 )     72,581     80,436     2,065     (25 )   82,476   Mortgage-backed securities in government-sponsored entities     18,185       88       (515 )     17,758       18,465       274       (109 )     18,630   Total   $ 98,516     $ 855     $ (1,049 )   $ 98,322     $ 103,401     $ 2,466     $ (134 )   $ 105,733     The Company recognized a net gain (loss) on equity investments of $31,000 and ($129,000), respectively, for the three and six months ended June 30, 2020. The Company recognized a net (loss) gainsgain on equity investments of ($14,000) and $44,000, respectively, for the three and six months ended June 30, 2019. The Company recognizedNo net gains on equity investments of $13,000 and $31,000, respectively, for the three and six months ended June 30, 2018. No net gainsor losses on sold equity securities were realized during this period.these periods.   The amortized cost and fair value of debt securities at June 30, 2019, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.     Amortized     Fair     Amortized   Fair   (Dollar amounts in thousands)   Cost     Value     Cost     Value                     Due in one year or less   $ 5,094     $ 5,122     $ 3     $ 3   Due after one year through five years     1,790       1,820     887     911   Due after five years through ten years     13,446       13,658     22,176     22,713   Due after ten years     76,735       78,209       84,702       88,902   Total   $ 97,065     $ 98,809     $ 107,768     $ 112,529     18 Proceeds from the sales of investment securities and the gross realized gains and losses are as follows:   (Dollar amounts in thousands)   For the Three Months Ended June 30,     For the Six Months Ended June 30,   (Dollars amounts in thousands)   For the Three Months Ended June 30,     For the Six Months Ended June 30,     2019     2018     2019     2018     2020     2019     2020     2019   Proceeds from sales   $ 11,807     $ -     $ 11,807     $ -     $ -     $ 11,807     $ -     $ 11,807   Gross realized gains     223       -       223       -     -     223     -     223   Gross realized losses     (33 )     -       (33 )     -     -     (33 )   -     (33 ) There were no securities sold during the six months ended June 30, 2020.   Investment securities with an approximate carrying value of $51.1$53.6 million and $63.5$55.6 million at June 30, 2019 2020 and December 31, 2018, 2019, 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.       June 30, 2019       Less than Twelve Months     Twelve Months or Greater     Total               Gross             Gross             Gross       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized   (Dollar amounts in thousands)   Value     Losses     Value     Losses     Value     Losses                                                     U.S. government agency securities   $ -     $ -     $ 1,995     $ (5 )   $ 1,995     $ (5 ) Mortgage-backed securities in government-sponsored entities     -       -       10,945       (152 )     10,945       (152 ) Total   $ -     $ -     $ 12,940     $ (157 )   $ 12,940     $ (157 )   December 31, 2018     December 31, 2019     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                                                     U.S. government agency securities   $ -     $ -     $ 4,105     $ (61 )   $ 4,105     $ (61 ) Obligations of states and political subdivisions:                                                                           Tax-exempt     20,451       (286 )     11,053       (187 )     31,504       (473 )   $ 4,324     $ (25 )   $ -     $ -     $ 4,324     $ (25 ) Mortgage-backed securities in government-sponsored entities     2,068       (9 )     12,257       (506 )     14,325       (515 )     1,409       (2 )     8,223       (107 )     9,632       (109 ) Total   $ 22,519     $ (295 )   $ 27,415     $ (754 )   $ 49,934     $ (1,049 )   $ 5,733     $ (27 )   $ 8,223     $ (107 )   $ 13,956     $ (134 )   There were 16no securities in a gross unrealized loss position at June 30, 2020. There were no securities considered temporarily impaired at June 30, 2019.2020.   On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.   OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.   An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.   Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for 96%90% of the total available-for-sale portfolio as of June 30, 2019 2020 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of the state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:     • The length of time and the extent to which the fair value has been less than the amortized cost basis.basis; 19 • 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;   • Changes in the near-term prospectsThe level of cash flows generated from the underlying collateral supporting the principal and interest payments of a security such as changes in default rates, loss severity given defaultthe debt securities; and significant changes in prepayment assumptions;   • The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and • Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.   For the six months ended June 30, 2019 2020 and 2018,2019, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of June 30, 2019 2020 or December 31, 2018 2019 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.   NNOTE OTE 8 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES Major classifications of loans are summarized as follows (in thousands):     June 30,     December 31,       2019     2018                     Commercial and industrial   $ 85,520     $ 83,857   Real estate - construction     54,619       56,731   Real estate - mortgage:                 Residential     345,830       336,487   Commercial     496,300       498,247   Consumer installment     15,963       16,787         998,232       992,109   Less: Allowance for loan and lease losses     (7,304 )     (7,428 )                   Net loans   $ 990,928     $ 984,681   The amounts above include deferred loan origination costs of $1.4 million and $1.6 million at June 30, 2019 and December 31, 2018.   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, Plain City, Powell, Sunbury, Westerville, and Powell,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):                       Real Estate - Mortgage                   June 30, 2019   Commercial and industrial     Real estate- construction     Residential     Commercial     Consumer installment     Total   Loans:                                                 Individually evaluated for impairment   $ 2,115     $ -     $ 1,783     $ 11,426     $ 2     $ 15,326   Collectively evaluated for impairment     83,405       54,619       344,047       484,874       15,961       982,906   Total loans   $ 85,520     $ 54,619     $ 345,830     $ 496,300     $ 15,963     $ 998,232                       Real Estate - Mortgage                   December 31, 2018   Commercial and industrial     Real estate- construction     Residential     Commercial     Consumer installment     Total   Loans:                                                 Individually evaluated for impairment   $ 2,570     $ -     $ 1,970     $ 9,533     $ 2     $ 14,075   Collectively evaluated for impairment     81,287       56,731       334,517       488,714       16,785       978,034   Total loans   $ 83,857     $ 56,731     $ 336,487     $ 498,247     $ 16,787     $ 992,109   June 30, 2020   Impairment Evaluation       Individually     Collectively     Total Loans   Loans:                         Commercial real estate:                         Owner occupied   $ 3,486     $ 106,648     $ 110,134   Non-owner occupied     14,685       285,892       300,577   Multifamily     -       37,604       37,604   Residential real estate     1,259       226,168       227,427   Commercial and industrial     1,127       238,969       240,096   Home equity lines of credit     347       116,849       117,196   Construction and other     -       66,015       66,015   Consumer installment     -       11,210       11,210   Total   $ 20,904     $ 1,089,355     $ 1,110,259     20   December 31, 2019   Impairment Evaluation       Individually     Collectively     Total Loans   Loans:                         Commercial real estate:                         Owner occupied   $ 3,474     $ 98,912     $ 102,386   Non-owner occupied     7,084       295,096       302,180   Multifamily     -       62,028       62,028   Residential real estate     1,278       233,520       234,798   Commercial and industrial     882       88,645       89,527   Home equity lines of credit     351       111,897       112,248   Construction and other     -       66,680       66,680   Consumer installment     1       14,410       14,411   Total   $ 13,070     $ 971,188     $ 984,258   The amounts above include net deferred loan origination costs of $4.7 million and $1.3 million at June 30, 2020 and December 31, 2019, respectively. The net deferred loan origination costs at June 30, 2020 include $4.0 million of unearned deferred fees from PPP loans. June 30, 2020   Ending Allowance Balance Attributable to Loans:       Individually Evaluated for Impairment     Collectively Evaluated for Impairment     Total Allocation   Loans:                         Commercial real estate:                         Owner occupied   $ 10     $ 1,028     $ 1,038   Non-owner occupied     1,874       3,285       5,159   Multifamily     -       291       291   Residential real estate     22       1,145       1,167   Commercial and industrial     43       1,062       1,105   Home equity lines of credit     27       1,176       1,203   Construction and other     -       236       236   Consumer installment     -       11       11   Total   $ 1,976     $ 8,234     $ 10,210                         Real Estate - Mortgage                   June 30, 2019   Commercial and industrial     Real estate- construction     Residential     Commercial     Consumer installment     Total   Allowance for loan and lease losses:                                                 Ending allowance balance attributable to loans:                                                 Individually evaluated for impairment   $ 140     $ -     $ 51     $ 672     $ -     $ 863   Collectively evaluated for impairment     399       90       1,630       4,203       119       6,441   Total ending allowance balance   $ 539     $ 90     $ 1,681     $ 4,875     $ 119     $ 7,304   21                     Real Estate - Mortgage                   December 31, 2018   Commercial and industrial     Real estate- construction     Residential     Commercial     Consumer installment     Total   Allowance for loan and lease losses:                                                 Ending allowance balance attributable to loans:                                                 Individually evaluated for impairment   $ 667     $ -     $ 43     $ 643     $ 1     $ 1,354   Collectively evaluated for impairment     302       100       1,538       4,008       126       6,074   Total ending allowance balance   $ 969     $ 100     $ 1,581     $ 4,651     $ 127     $ 7,428     December 31, 2019   Ending Allowance Balance Attributable to Loans:       Individually Evaluated for Impairment     Collectively Evaluated for Impairment     Total Allocation   Loans:                         Commercial real estate:                         Owner occupied   $ 45     $ 756     $ 801   Non-owner occupied     582       2,800       3,382   Multifamily     -       340       340   Residential real estate     28       698       726   Commercial and industrial     3       453       456   Home equity lines of credit     2       930       932   Construction and other     -       103       103   Consumer installment     -       28       28   Total   $ 660     $ 6,108     $ 6,768     The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”) which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Real EstateHome Equity Lines of Credit (“HELOC”), Construction Real Estate - Mortgage which is further segmented into Residential and Commercial Real EstateOther (“CRE”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. The residential mortgage loan segment consistsAlthough PPP loans are included with C&I loans, the nature of PPP loans made fordiffers considerably from the purposerest of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators.category. 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 ResidentialCRE, RRE, C&I, HELOC, and CREConstruction portfolios were partially offset by decreasesa decrease in the allowance for the C&I, Real Estate Construction, and 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.   22 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):   June 30, 2019   Impaired Loans               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance   With no related allowance recorded:                         Commercial and industrial   $ 1,012     $ 1,523     $ -   Real estate - mortgage:                         Residential     1,360       1,481       -   Commercial     3,245       3,333       -   Consumer installment     2       2       -   Total   $ 5,619     $ 6,339     $ -                             With an allowance recorded:                         Commercial and industrial   $ 1,103     $ 1,322     $ 140   Real estate - mortgage:                         Residential     423       521       51   Commercial     8,181       8,191       672   Total   $ 9,707     $ 10,034     $ 863                             Total:                         Commercial and industrial   $ 2,115     $ 2,845     $ 140   Real estate - mortgage:                         Residential     1,783       2,002       51   Commercial     11,426       11,524       672   Consumer installment     2       2       -   Total   $ 15,326     $ 16,373     $ 863   June 30, 2020   Impaired Loans               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance   With no related allowance recorded:                         Commercial real estate:                         Owner occupied   $ 3,028     $ 3,033     $ -   Non-owner occupied     7,538       7,538       -   Residential real estate     781       908       -   Commercial and industrial     659       1,148       -   Home equity lines of credit     179       189       -   Total   $ 12,185     $ 12,816     $ -                             With an allowance recorded:                         Commercial real estate:                         Owner occupied   $ 458     $ 458     $ 10   Non-owner occupied     7,147       7,147       1,874   Residential real estate     478       478       22   Commercial and industrial     468       468       43   Home equity lines of credit     168       168       27   Total   $ 8,719     $ 8,719     $ 1,976                             Total:                         Commercial real estate:                         Owner occupied   $ 3,486     $ 3,491     $ 10   Non-owner occupied     14,685       14,685       1,874   Residential real estate     1,259       1,386       22   Commercial and industrial     1,127       1,616       43   Home equity lines of credit     347       357       27   Total   $ 20,904     $ 21,535     $ 1,976     23 December 31, 2018   Impaired Loans               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance   With no related allowance recorded:                         Commercial and industrial   $ 207     $ 413     $ -   Real estate - mortgage:                         Residential     1,306       1,462       -   Commercial     1,867       2,186       -   Total   $ 3,380     $ 4,061     $ -                             With an allowance recorded:                         Commercial and industrial   $ 2,363     $ 3,013     $ 667   Real estate - mortgage:                         Residential     664       715       43   Commercial     7,666       7,676       643   Consumer installment     2       2       1   Total   $ 10,695     $ 11,406     $ 1,354                             Total:                         Commercial and industrial   $ 2,570     $ 3,426     $ 667   Real estate - mortgage:                         Residential     1,970       2,177       43   Commercial     9,533       9,862       643   Consumer installment     2       2       1   Total   $ 14,075     $ 15,467     $ 1,354     December 31, 2019   Impaired Loans               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance   With no related allowance recorded:                         Commercial real estate:                         Owner occupied   $ 1,772     $ 1,772     $ -   Non-owner occupied     3,845       3,845       -   Residential real estate     759       829       -   Commercial and industrial     747       1,524       -   Home equity lines of credit     220       228       -   Consumer installment     1       1       -   Total   $ 7,344     $ 8,199     $ -                             With an allowance recorded:                         Commercial real estate:                         Owner occupied   $ 1,702     $ 1,713     $ 45   Non-owner occupied     3,239       3,239       582   Residential real estate     519       569       28   Commercial and industrial     135       135       3   Home equity lines of credit     131       131       2   Total   $ 5,726     $ 5,787     $ 660                             Total:                         Commercial real estate:                         Owner occupied   $ 3,474     $ 3,485     $ 45   Non-owner occupied     7,084       7,084       582   Residential real estate     1,278       1,398       28   Commercial and industrial     882       1,659       3   Home equity lines of credit     351       359       2   Consumer installment     1       1       -   Total   $ 13,070     $ 13,986     $ 660     The tables above include troubled debt restructuring totaling $3.2 million and $3.6 million as of June 30, 2019 2020 and $4.4 million as of December 31, 2018.2019, respectively. The amounts allocated within the allowance for losses for troubled debt restructurings was $37,000 and $33,000 at June 30, 2020 and December 31, 2019, respectively.   24 The following tables present the average balance and interest income by class, recognized on impaired loans (in thousands):       For the Three Months Ended June 30, 2019     For the Six Months Ended June 30, 2019       Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized   Commercial and industrial   $ 1,970     $ 23     $ 2,170     $ 45   Real estate - construction     1,620       -       1,080       -   Real estate - mortgage:                                 Residential     1,820       15       1,870       27   Commercial     10,238       85       10,003       172   Consumer installment     2       -       2       -   Total   $ 15,650     $ 123     $ 15,125     $ 244       For the Three Months Ended June 30, 2020     For the Six Months Ended June 30, 2020       Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized                                     Commercial real estate:                                 Owner occupied   $ 3,459     $ 32     $ 3,464     $ 65   Non-owner occupied     10,864       209       9,604       258   Residential real estate     1,206       14       1,230       25   Commercial and industrial     1,019       11       973       21   Home equity lines of credit     347       2       348       4   Consumer installment     1       -       1       -   Total   $ 16,896     $ 268     $ 15,620     $ 373         For the Three Months Ended June 30, 2018     For the Six Months Ended June 30, 2018       Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized                                     Commercial and industrial   $ 4,277     $ 23     $ 3,644     $ 47   Real estate - construction     142       -       283       -   Real estate - mortgage:                                 Residential     2,772       13       2,871       27   Commercial     6,464       51       6,583       102   Consumer installment     4       -       4       -   Total   $ 13,659     $ 87     $ 13,385     $ 176       For the Three Months Ended June 30, 2019     For the Six Months Ended June 30, 2019       Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized                                     Commercial real estate:                                 Owner occupied   $ 3,819     $ 35     $ 4,014     $ 72   Non-owner occupied     6,419       50       5,989       100   Residential real estate     1,716       15       1,761       27   Commercial and industrial     1,970       23       2,170       45   Home equity lines of credit     104       -       109       -   Construction and other     1,620       -       1,080       -   Consumer installment     2       -       2       -   Total   $ 15,650     $ 123     $ 15,125     $ 244     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.   25 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   June 30, 2019   Pass     Mention     Substandard     Doubtful     Loans                                             Commercial and industrial   $ 78,051     $ 4,846     $ 2,623     $ -     $ 85,520   Real estate - construction     54,619       -       -       -       54,619   Real estate - mortgage:                                         Residential     340,320       999       4,511       -       345,830   Commercial     480,275       4,834       11,191       -       496,300   Consumer installment     15,953       -       10       -       15,963   Total   $ 969,218     $ 10,679     $ 18,335     $ -     $ 998,232               Special                     Total   June 30, 2020   Pass     Mention     Substandard     Doubtful     Loans                                             Commercial real estate:                                         Owner occupied   $ 103,644     $ 3,042     $ 3,448     $ -     $ 110,134   Non-owner occupied     270,678       3,749       26,150       -       300,577   Multifamily     37,604       -       -       -       37,604   Residential real estate     224,316       410       2,701       -       227,427   Commercial and industrial     235,535       2,658       1,903       -       240,096   Home equity lines of credit     115,617       -       1,579       -       117,196   Construction and other     66,015       -       -       -       66,015   Consumer installment     11,191       -       19       -       11,210   Total   $ 1,064,600     $ 9,859     $ 35,800     $ -     $ 1,110,259                 Special                     Total   December 31, 2018   Pass     Mention     Substandard     Doubtful     Loans                                             Commercial and industrial   $ 77,002     $ 4,572     $ 2,283     $ -     $ 83,857   Real estate - construction     55,397       1,334       -       -       56,731   Real estate - mortgage:                                         Residential     332,475       553       3,459       -       336,487   Commercial     483,516       6,617       8,114       -       498,247   Consumer installment     16,776       -       11       -       16,787   Total   $ 965,166     $ 13,076     $ 13,867     $ -     $ 992,109               Special                     Total   December 31, 2019   Pass     Mention     Substandard     Doubtful     Loans                                             Commercial real estate:                                         Owner occupied   $ 95,518     $ 3,951     $ 2,917     $ -     $ 102,386   Non-owner occupied     292,192       3,038       6,950       -       302,180   Multifamily     62,028       -       -       -       62,028   Residential real estate     231,633       420       2,745       -       234,798   Commercial and industrial     84,136       3,619       1,772       -       89,527   Home equity lines of credit     111,354       -       894       -       112,248   Construction and other     66,680       -       -       -       66,680   Consumer installment     14,398       -       13       -       14,411   Total   $ 957,939     $ 11,028     $ 15,291     $ -     $ 984,258     Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.   Nonperforming assets are nonaccrual loans including nonaccrual troubled debt restructurings (“TDR”), loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against the principal balance.   26 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   June 30, 2019   Current     Past Due     Past Due     Past Due     Past Due     Loans                                                     Commercial and industrial   $ 84,803     $ 298     $ 58     $ 361     $ 717     $ 85,520   Real estate - construction     54,458       161       -       -       161       54,619   Real estate - mortgage:                                                 Residential     340,884       2,182       446       2,318       4,946       345,830   Commercial     491,843       81       86       4,290       4,457       496,300   Consumer installment     15,941       22       -       -       22       15,963   Total   $ 987,929     $ 2,744     $ 590     $ 6,969     $ 10,303     $ 998,232               30-59 Days     60-89 Days     90 Days+     Total     Total   June 30, 2020   Current     Past Due     Past Due     Past Due     Past Due     Loans                                                     Commercial real estate:                                                 Owner occupied   $ 108,989     $ -     $ 350     $ 795     $ 1,145     $ 110,134   Non-owner occupied     295,729       -       742       4,106       4,848       300,577   Multifamily     37,604       -       -       -       -       37,604   Residential real estate     223,820       1,539       893       1,175       3,607       227,427   Commercial and industrial     239,836       160       -       100       260       240,096   Home equity lines of credit     116,818       189       50       139       378       117,196   Construction and other     60,524       5,491       -       -       5,491       66,015   Consumer installment     10,977       -       1       232       233       11,210   Total   $ 1,094,297     $ 7,379     $ 2,036     $ 6,547     $ 15,962     $ 1,110,259                 30-59 Days     60-89 Days     90 Days+     Total     Total   December 31, 2018   Current     Past Due     Past Due     Past Due     Past Due     Loans                                                     Commercial and industrial   $ 82,770     $ 288     $ 213     $ 586     $ 1,087     $ 83,857   Real estate - construction     56,731       -       -       -       -       56,731   Real estate - mortgage:                                                 Residential     331,379       2,612       1,083       1,413       5,108       336,487   Commercial     496,597       664       -       986       1,650       498,247   Consumer installment     16,768       19       -       -       19       16,787   Total   $ 984,245     $ 3,583     $ 1,296     $ 2,985     $ 7,864     $ 992,109               30-59 Days     60-89 Days     90 Days+     Total     Total   December 31, 2019   Current     Past Due     Past Due     Past Due     Past Due     Loans                                                     Commercial real estate:                                                 Owner occupied   $ 101,264     $ 64     $ -     $ 1,058     $ 1,122     $ 102,386   Non-owner occupied     298,941       -       -       3,239       3,239       302,180   Multifamily     62,028       -       -       -       -       62,028   Residential real estate     232,518       1,439       34       807       2,280       234,798   Commercial and industrial     88,965       190       66       306       562       89,527   Home equity lines of credit     111,792       274       29       153       456       112,248   Construction and other     66,680       -       -       -       -       66,680   Consumer installment     13,378       622       216       195       1,033       14,411   Total   $ 975,566     $ 2,589     $ 345     $ 5,758     $ 8,692     $ 984,258     The following tables present the recorded investment in non-accrualnonaccrual loans and loans past due over 89 days and still on accrual by class of loans (in thousands):               90+ Days Past   June 30, 2019   Nonaccrual     Due and Accruing                     Commercial and industrial   $ 1,082     $ -   Real estate - construction     -       -   Real estate - mortgage:                 Residential     4,196       58   Commercial     5,389       -   Consumer installment     4       -   Total   $ 10,671     $ 58               90+ Days Past Due   June 30, 2020   Nonaccrual     and Accruing                     Commercial real estate:                 Owner occupied   $ 1,266     $ -   Non-owner occupied     4,106       -   Residential real estate     2,646       -   Commercial and industrial     519       -   Home equity lines of credit     1,021       -   Consumer installment     245       -   Total   $ 9,803     $ -                 90+ Days Past   December 31, 2018   Nonaccrual     Due and Accruing                     Commercial and industrial   $ 996     $ 91   Real estate - construction     -       -   Real estate - mortgage:                 Residential     2,731       754   Commercial     2,864       100   Consumer installment     4       -   Total   $ 6,595     $ 945   27               90+ Days Past Due   December 31, 2019   Nonaccrual     and Accruing                     Commercial real estate:                 Owner occupied   $ 1,162     $ -   Non-owner occupied     3,289       -   Residential real estate     2,576       -   Commercial and industrial     946       -   Home equity lines of credit     709       -   Consumer installment     197       -   Total   $ 8,879     $ -     Interest income that would have been recorded had these loans not been placed on nonaccrual status was $211,000$128,000 for the sixthree months ended June 30, 2019 2020 and $456,000$47,000 for the three months ended December 31, 2019. Interest income that would have been recorded had these loans not been placed on nonaccrual status was $228,000 for the six months ended June 30, 2020 and $342,000 for the year ended December 31, 2018.2019.   An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.   The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35310-10-35 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.   28 The following tables summarize the primary segments of the loan portfolio and the activity within those segments (in thousands):       Commercial and industrial     Real estate- construction     Real estate- residential mortgage     Real estate- commercial mortgage     Consumer installment     Total   ALLL balance at December 31, 2018   $ 969     $ 100     $ 1,581     $ 4,651     $ 127     $ 7,428   Charge-offs     (355 )     -       (138 )     (32 )     (88 )     (613 ) Recoveries     40       45       46       2       6       139   Provision     (115 )     (55 )     192       254       74       350   ALLL balance at June 30, 2019   $ 539     $ 90     $ 1,681     $ 4,875     $ 119     $ 7,304       For the six months ended June 30, 2020       Allowance for Loan and Lease Losses       Balance                             Balance       December 31, 2019     Charge-offs     Recoveries     Provision     June 30, 2020   Loans:                                         Commercial real estate:                                         Owner occupied   $ 801     $ (50 )   $ 14     $ 273     $ 1,038   Non-owner occupied     3,382       -       74       1,703       5,159   Multifamily     340       -       -       (49 )     291   Residential real estate     726       (51 )     30       462       1,167   Commercial and industrial     456       (170 )     239       580       1,105   Home equity lines of credit     932       (54 )     16       309       1,203   Construction and other     103       -       34       99       236   Consumer installment     28       (391 )     11       363       11   Total   $ 6,768     $ (716 )   $ 418     $ 3,740     $ 10,210         Commercial and industrial     Real estate- construction     Real estate- residential mortgage     Real estate- commercial mortgage     Consumer installment     Total   ALLL balance at December 31, 2017   $ 999     $ 313     $ 1,760     $ 4,036     $ 82     $ 7,190   Charge-offs     (9 )     -       (74 )     (111 )     (135 )     (329 ) Recoveries     140       17       29       -       35       221   Provision     50       (241 )     28       436       147       420   ALLL balance at June 30, 2018   $ 1,180     $ 89     $ 1,743     $ 4,361     $ 129     $ 7,502       For the six months ended June 30, 2019       Allowance for Loan and Lease Losses       Balance                             Balance       December 31, 2018     Charge-offs     Recoveries     Provision     June 30, 2019   Loans:                                         Commercial real estate:                                         Owner occupied   $ 1,315     $ (32 )   $ 2     $ (419 )   $ 866   Non-owner occupied     2,862       -       -       726       3,588   Multifamily     474       -       -       (62 )     412   Residential real estate     761       -       39       (53 )     747   Commercial and industrial     969       (355 )     40       (115 )     539   Home equity lines of credit     820       (138 )     7       247       936   Construction and other     100       -       45       (48 )     97   Consumer installment     127       (88 )     6       74       119   Total   $ 7,428     $ (613 )   $ 139     $ 350     $ 7,304         Commercial and industrial     Real estate- construction     Real estate- residential mortgage     Real estate- commercial mortgage     Consumer installment     Total   ALLL balance at March 31, 2019   $ 586     $ 748     $ 1,623     $ 4,161     $ 88     $ 7,206   Charge-offs     (9 )     -       (48 )     -       (41 )     (98 ) Recoveries     24       23       33       1       5       86   Provision     (62 )     (681 )     73       713       67       110   ALLL balance at June 30, 2019   $ 539     $ 90     $ 1,681     $ 4,875     $ 119     $ 7,304       Commercial and industrial     Real estate- construction     Real estate- residential mortgage     Real estate- commercial mortgage     Consumer installment     Total   ALLL balance at March 31, 2018   $ 1,256     $ 92     $ 1,782     $ 4,323     $ 98     $ 7,551   Charge-offs     -       -       (74 )     (111 )     (130 )     (315 ) Recoveries     29       -       10       -       17       56   Provision     (105 )     (3 )     25       149       144       210   ALLL balance at June 30, 2018   $ 1,180     $ 89     $ 1,743     $ 4,361     $ 129     $ 7,502       For the three months ended June 30, 2020       Allowance for Loan and Lease Losses       Balance                             Balance       March 31, 2020     Charge-offs     Recoveries     Provision     June 30, 2020   Loans:                                         Commercial real estate:                                         Owner occupied   $ 1,099     $ (50 )   $ 11     $ (22 )   $ 1,038   Non-owner occupied     4,364       -       -       795       5,159   Multifamily     386       -       -       (95 )     291   Residential real estate     1,164       (5 )     -       8       1,167   Commercial and industrial     716       (109 )     132       366       1,105   Home equity lines of credit     1,240       (41 )     12       (8 )     1,203   Construction and other     254       -       17       (35 )     236   Consumer installment     21       (3 )     2       (9 )     11   Total   $ 9,244     $ (208 )   $ 174     $ 1,000     $ 10,210     29       For the three months ended June 30, 2019       Allowance for Loan and Lease Losses       Balance                             Balance       March 31, 2019     Charge-offs     Recoveries     Provision     June 30, 2019   Loans:                                         Commercial real estate:                                         Owner occupied   $ 830     $ -     $ 1     $ 35     $ 866   Non-owner occupied     2,857       -       -       731       3,588   Multifamily     492       -       -       (80 )     412   Residential real estate     773       -       30       (56 )     747   Commercial and industrial     586       (9 )     24       (62 )     539   Home equity lines of credit     832       (48 )     3       149       936   Construction and other     748       -       23       (674 )     97   Consumer installment     88       (41 )     5       67       119   Total   $ 7,206     $ (98 )   $ 86     $ 110     $ 7,304     The provision fluctuations during the six-monthsix-month period ended June 30, 2020 allocated to: ● a $2.2 million increase in all lending categories’ qualitative factors during the second quarter of 2020 due to the economic uncertainty resulting from the COVID-19 pandemic. ● non-owner occupied portfolio are due to the increase of specific reserves for two relationships totaling $1.3 million. ● commercial and industrial loans are due to growth in loan volume along with an allocation for the PPP loans in the amount of $423,000. The provision fluctuations during the six-month period ended June 30, 2019 allocated to:   ● commercial and industrial loans are due to the charge-off of a large relationship of $336,000 from a previous reserve of $358,000 in the first quarter.   ● residential real estate and home equity lines of credit loans are due to charge-offs and portfolio are due to charge-offs and portfolio growth.   ● commercial real estatenon-owner occupied loans are due to the reclassification of a large construction loan, with a first quarter reserve of $661,000, to commercial real estate.from construction and other.   The provision fluctuations during the three-monththree-month period ended June 30, 2019 2020 allocated to: ● non-owner occupied portfolio are due to the increase of specific reserves for two relationships totaling $776,000.   ● commercial real estateand industrial loans are due to growth in loan volume along with an allocation for the PPP loans in the amount of $423,000. The provision fluctuation during the three-month period ended June 30, 2019 allocated to: ● non-owner occupied loans are due to the reclassification of a large construction loan, with a first quarter reserve of $661,000, to commercial real estate.from construction and other.   TDR describes loans on which the bank has granted concessions for reasons related to the customer’s financial difficulties. Such concessions may include one or more of the following: ● reduction in the interest rate to below-market rates ● extension of repayment requirements beyond normal terms ● reduction of the principal amount owed ● reduction of accrued interest due ● acceptance of other assets in full or partial payment of a debt In each case, the concession is made due to deterioration in the borrower’s financial condition, and the new terms are less stringent than those required on a new loan with similar risk. On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. 30 The following tables summarize troubled debt restructurings (in thousands):       For the Three and Six Months Ended       June 30, 2019       Number of Contracts     Pre-Modification     Post-Modification       Term                     Outstanding Recorded     Outstanding Recorded   Troubled Debt Restructurings   Modification     Other     Total     Investment     Investment   Residential real estate     -       1       1     $ 85     $ 140       For the Three Months Ended       June 30, 2018       Number of Contracts     Pre-Modification     Post-Modification       Term                     Outstanding Recorded     Outstanding Recorded   Troubled Debt Restructurings   Modification     Other     Total     Investment     Investment   Residential real estate     1       -       1     $ 113     $ 113     For the Six Months Ended     For the Six Months Ended     June 30, 2018     June 30, 2020     Number of Contracts     Pre-Modification     Post-Modification     Number of Contracts   Pre-Modification   Post-Modification     Term                     Outstanding Recorded     Outstanding Recorded     Term           Outstanding Recorded   Outstanding Recorded   Troubled Debt Restructurings   Modification     Other     Total     Investment     Investment     Modification     Other     Total     Investment     Investment   Residential real estate     2       -       2     $ 160     $ 160     1     -     1     $ 39     $ 39   Commercial and industrial   2     -     2     118     117     The following table summarizes TDR modifications within the previous 12 months for which there was a payment default during the six-month period ended June 30, 2018 (in thousands):   For the Three and Six Months Ended     June 30, 2019     For the Six Months Ended     Number of Contracts   Pre-Modification   Post-Modification     June 30, 2018     Term           Outstanding Recorded   Outstanding Recorded   Troubled Debt Restructurings   Number of     Recorded     Modification   Other   Total   Investment   Investment   subsequently defaulted   Contracts     Investment   Residential real estate     2     $ 215     -     1     1     $ 85     $ 140     There were no troubled debt restructurings during the three-month period ended June 30, 2020. There were no subsequent defaults of troubled debt restructurings for the three-monththree-month periods ended June 30, 2020 and June 30, 2019, and June 30, 2018, or for the six-month periodsix-month periods ended June 30, 2020 and June 30, 2019.   NOTE 9 – STOCK SPLIT DISCLOSURE   On October 9, 2019, the Board of Directors of Middlefield Banc Corp. authorized a two-for-one stock split. Each shareholder of record at the close of business on October 25, 2019, received one additional share for every outstanding share held on the record date. The additional shares were paid on November 8, 2019. As a result, all share and earnings per share information have been retroactively adjusted to reflect the stock split. With respect to the June 30, 2020 and 2019 financial statements, the effect of the stock split on June 30, 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 and six months ended June 30, 2019 is as follows:     For the three months ended     For the six months ended       June 30, 2019     June 30, 2019   Restated net income per common share - basic   $ 0.51     $ 0.97   Restated net income per common share - diluted   $ 0.50     $ 0.97   Restated weighted-average common shares issued     7,286,542       7,278,620   Restated average treasury stock shares     784,034       778,214   Restated average shares outstanding - basic     6,502,508       6,500,406   Restated stock options and restricted stock     12,438       12,644   Restated average shares outstanding - diluted     6,514,946       6,513,050   Restated period ending shares outstanding     6,485,170       6,485,170   Restated treasury shares outstanding     807,824       807,824   31   NOTE 910 – LEASERISKS AND UN COMMITMENTSCERTAINTIES COVID-19 Update   The Company utilizes leases for six of its branch locations. As of following table provides information with respect to our commercial loans by type at June 30, 2019, net assets recorded2020 that management considers to be at the highest exposure to risk related to the COVID-19 pandemic. At Risk Loans at June 30, 2020   Loan Type   Number of Loans     Balance (in thousands)     % of Total Loans   Retail     270     $ 195,550       17.6 % Multifamily & Residential NOO     354       120,697       10.9 % Ambulatory Care, Nursing/Rehabilitation and Social Assistance     218       81,491       7.3 % Hospitality and tourism     58       44,923       4.1 % Restaurant/food service/bar     136       24,938       2.2 % Other     219       20,208       1.8 % Total     1,255     $ 487,807       43.9 % The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under leases amounteda new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to $4.6 million and have remaining lease terms of 1 year to 6 years. As of June 30, 2019, finance lease assets included in premises and equipment, net totaled $3.6 million and operating lease assets included in accrued interest receivable and other assets on the Consolidated Balance Sheet totaled $983,000. As of June 30, 2019, finance lease obligations included in other borrowings totaled $3.7 million and operating lease obligations included in accrued interest payable and other liabilities on the Consolidated Balance Sheet totaled $984,000.originate PPP loans.   On April 17, 2019, the Company purchased a building to relocate the Mantua branch which is and has been at a leased location asAs of June 30, 2019. The relocation is planned2020, we approved 1,343 applications for 2020, andup to $142.7 million of loans under the Company entered into an amended lease agreement with the Mantua lessor which does not exceed 12 months. As such, the lease for the Mantua location is not considered a capitalized lease as of June 30, 2019.PPP.   Lease costs incurredAs of June 30, 2020, we modified 362 loans aggregating $214.8 million primarily consisting of the deferral of principal and interest payments and the extension of the maturity date for up to three months. Details with respect to actual commercial loan deferrals are as follows:       For the Three Months Ended June 30, 2019     For the Six Months Ended June 30, 2019   Lease Costs:                 Finance lease cost:                 Amortization of right-of-use asset   $ 104     $ 173   Interest Expense     30       69   Other     13       15   Operating lease cost     43       126   Total lease cost   $ 190     $ 383     Type   Number of Loans     Balance (in thousands)     % of Total Loans   Retail     58     $ 89,438       8.1 % Hospitality and tourism     23       35,700       3.2 % Ambulatory Care, Nursing/Rehabilitation and Social Assistance     10       22,456       2.0 % Multifamily & Residential NOO     16       7,628       0.7 % Restaurant/food service/bar     10       5,216       0.5 % Other     245       54,379       4.9 % Total     362     $ 214,817       19.4 %   The following table displays the weighted-average term and discount ratesAn eligible business can apply for both operating and finance leases outstanding as of June 30, 2019:     Operating     Finance   Weighted-average term (years)     2.1       4.9   Weighted-average discount rate     2.9 %     3.4 % The following table displays the undiscounted cash flows due related to operating and finance leases as of June 30, 2019, along with a reconciliationPPP loan up to the discountedgreater of: (1) 2.5 times its average monthly payroll costs; or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount recorded onof the June 30, 2019 balance sheet:     Operating     Finance   Undiscounted cash flows due within:                 2019   $ 112     $ 199   2020     226       411   2021     210       424   2022     211       431   2023     211       431   2024 and thereafter     339       2,792   Total undiscounted cash flows     1,309       4,688                     Impact of present value discount     (326 )     (1,061 )                   Amount reported on balance sheet   $ 983     $ 3,627   The Company has noborrower’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 purchase obligations for leases executed but not yet recorded.qualifying expenses.   32 As of June 30, 2020, PPP loan amounts that could be forgiven under this provision are as follows:       Number of Loans     Loan Balance (in thousands)   > $2 million     6     $ 14,774   $350,000 - $2 million     92       69,361   $150,000 - $350,000     96       20,768   < $150,000     1,108       36,397   Total     1,302     $ 141,300   Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that those 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. COVID-19 Loan Forbearance Programs. Section 4013 of the CARES Act provides that banks may elect not to categorize a loan modification as a TDR if the loan modification is (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020, under the National Emergencies Act terminates, or (B) December 31, 2020. According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory agencies on April 7, 2020, short-term loan modifications not otherwise eligible under Section 4013 that are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 8 of the financial statements for additional disclosure of TDRs at June 30, 2020. Item 2. Management’s Discussion and Analysis of FinancialFinancial Condition and Results of Operations   The following management’sManagement’s discussion and analysis (MD&A) provideprovides 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.infrastructure and the potential impact of the COVID-19 pandemic. All forward-looking statements included in this report on Form 10-Q are based on information available at the time of the report. Middlefield Banc Corp. assumes no obligation to update any forward-looking statement.   CHANGES IN FINANCIAL CONDITION   General. The Company’s total assets ended the June 30, 20192020 quarter at $1.29$1.34 billion, an increase of $40.0$160.8 million from December 31, 2018.2019. For the same time period, cash and cash equivalents increased $27.4$23.2 million, or 25.4%66.0%, while net loans increased $6.2$122.6 million, or 0.6%12.5%. Total liabilities increased $34.1$157.9 million or 3.0%15.1%, while stockholders’ equity increased $6.0$2.9 million, or 4.7%2.1%.   Cash and cash equivalents. Cash and cash equivalents increased $27.4$23.2 million, or 25.4%66.0%, to $135.4$58.3 million at June 30, 20192020 from $107.9$35.1 million at December 31, 2018.2019. Deposits from customers into savings and checking accounts, loan and securities repayments, and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, purchases of investment securities and repayments of borrowed funds.       33 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.     Investment securities. Investment securities available for sale on June 30, 20192020 totaled $98.8$112.5 million, an increase of $487,000,$6.8 million, or 0.5%6.4%, from $98.3$105.7 million at December 31, 2018.2019. During this period, the Company recorded repayments, calls, and maturities of $6.9$7.8 million and a net unrealized holding gain through AOCI of $2.4 million. Securities purchased were $17.2$12.3 million, and there were no sales of securities were $11.8 million.for the six months ended June 30, 2020. The Company recorded $190,000$129,000 in gains on sales of investment securities and $44,000 in gainslosses on equity securities as of June 30, 20192020 on the Company’s Consolidated Statement of Income and Consolidated Statement of Cash Flows. The gainloss on equity securities is the result of remeasurements of fair value of the equity securities held during this six-month period. Included 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 Company’s available-for-sale investmentmunicipal market, such as: sector, security, impairment filing, timeliness of disclosure, external credit assessment(s), credit spread, state, vintage, and underwriter. Municipal bonds compose 75% 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, as80% of June 30, 2019the portfolio is an investmenteither pre-refunded or rated in the subordinated debtbroad rating categories of an Ohio-based community bankAA or AAA. While not included in the amountassessment of $4.0 million atthe credit quality of portfolio holdings, 17.6% benefit from a bond insurance policy, which provides an annual interest rateadditional layer of 6%.payment support for the securities.   Loans receivable.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 fourfive branches in the central Ohio market comprising 23.8%23.6% of the Company’s total loans. Since December 31, 2017, however, 79.7% of all loan growth has come from the central Ohio footprint. Net loans receivable increased $6.2$122.6 million, or 0.6%12.5%, to $990.9 million$1.10 billion as of June 30, 20192020 from $984.7$977.5 million at December 31, 2018 due to loan growth targeted in the mid-single digits.2019. Included in the total increase for loans receivable were increases in the residential real estate and commercial and industrial, CRE owner occupied, and home equity lines of credit portfolios of $9.3$150.6 million, or 2.8%168.2%, $7.8 million, or 7.6%, and $1.7$5.0 million, or 2.0%4.4%, respectively. This increase is net of decreases in the construction and other, CRE non-owner occupied, consumer installment, commercialresidential real estate, and real estate-constructionCRE multifamily portfolios of $824,000,$665,000, or 4.9%1.0%, $1.9$1.6 million, or 0.4%0.5%, $3.2 million, or 22.2%, $7.4 million, or 3.1%, and $2.1$24.4 million, or 3.7%39.4%, respectively. The increase in the commercial and industrial portfolio includes the PPP loans issued as of June 30, 2020 of $142.7 million.   The Company’s Mortgage Banking operation generates loans for sale to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Loans held for sale on June 30, 20192020 totaled $431,000, a decrease$4.2 million, an increase of $166,000,$2.9 million, or 27.8%240.2%, from December 31, 2018.2019. This decreaseincrease is the result of fewermore saleable loans being fundedheld at quarter end. The Company recorded proceeds from the sale of $18.6 million of these loans for $495,000 in gains on sale of loans as of June 30, 2020 on the Company’s Consolidated Statement of Cash Flows.   The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. At June 30, 20192020 non-owner-occupied commercial real estate loans (including construction, land and land development loans) represent 356.0%295.5% of total risk-based capital. Construction, land and land development loans represent 44.0%46.1% 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 pro-formapro 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.   34 The Company monitors daily fluctuations in unused commitments as a means of identifying potentially material drawdowns on existing lines of credit. At June 30, 2020, unused line of credit commitments is unchanged from December 31, 2019. Allowance for Loan and Lease Losses and Asset Quality.Quality. The allowance for loan and lease losses decreased $124,000,increased $3.4 million, or 1.7%50.9%, to $7.3$10.2 million at June 30, 20192020 from $7.4$6.8 million at December 31, 2018.2019. For the three months ended June 30, 2019,2020, net loan charge-offs totaled $12,000,$34,000, or 0.01% of average loans, compared to net charge-offs of $259,000, or 0.11% of average loans,$12,000 for the same period in 2018.2019. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $110,000$1.0 million in the three-month period ended June 30, 2019.2020. For the six months ended June 30, 2019,2020, net loan charge-offs totaled $474,000,$298,000, or 0.10%0.06% of average loans, compared to net charge-offs of $108,000,$474,000, or 0.02%,0.10% of average loans, for the same period in 2018.2019. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $350,000$3.7 million in the six-month period ended June 30, 2019. During2020. The ratio of the allowance for loan and lease losses to nonperforming loans was 104.2% for the three-month period ended June 30, 2020, compared to 68.1% 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 during the six months ended June 30, 2019, one central Ohio2020. See additional discussions on the provision for loan of $3.2 million negatively affected nonperforming loans.  The reserve for this credit is $656,000. The issue is isolated to this particular borrower and it is not indicative of a trend in the market, portfolio, or an issue in underwriting. Offsetting this amount is a reserve reduction of $358,000 due to a charge off of $336,000, as well as a reserve reduction of $435,000 from the payoff of one commercial real estate loan.losses section below.   Management analyzes the adequacy of the allowance for loan and lease losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values, and changes in the amount and composition of the loan portfolio. The allowance for loan and lease losses is a significant estimate that is particularly susceptible to changes in the near term. Management’s analysis includes a review of all loans designated as impaired, historical loan loss experience, the estimated fair value of the underlying collateral, economic conditions, current interest rates, trends in the borrower’s industry and other factors that management believes warrant recognition in providing for an appropriate allowance for loan and lease losses. Future additions or reductions to the allowance for loan and lease losses will be dependent on these factors. Additionally, the Company uses an outside party to conduct an independent review of commercial and commercial real estate loans that is designed to validate management conclusions of risk ratings and the appropriateness of the allowance allocated to these loans. The Company uses the results of this review to help determine the effectiveness of policies and procedures and to assess the adequacy of the allowance for loan and lease losses allocated to these types of loans. Management believes the allowance for loan and lease losses is appropriately stated at June 30, 2019.2020. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for loan and lease losses is considered a critical accounting policy.   Goodwill. The Company considers the negative economic impact resulting from the COVID-19 shutdowns to be a triggering event necessitating a mid-cycle analysis for impairment. Based on the analysis performed as of March 31, 2020, the Company determined that goodwill was not impaired. Accrued Interest Receivable and Other Assets. Accrued interest receivable and other assets increased $4.4 million, or 41.0%, to $15.1 million at June 30, 2020 from $10.7 million at December 31, 2019. Income receivable on loans has increased $2.1 million as a result of the COVID-19 payment deferral program. Also included in this increase are increases in FHLB stock owned of $1.6 million, other real estate owned of $532,000, and an increase in the holding company franchise tax asset of $551,000. 35   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)   June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018     June 30, 2018     June 30, 2020     March 31, 2020     December 31, 2019     September 30, 2019     June 30, 2019                                             Nonperforming loans   $ 10,729     $ 10,472     $ 7,540     $ 7,288     $ 8,372     $ 9,803     $ 8,405     $ 8,879     $ 10,053     $ 10,729   Other real estate owned     89       126       270       257       181       687       456       155       89       89                                             Nonperforming assets   $ 10,818     $ 10,598     $ 7,810     $ 7,545     $ 8,553     $ 10,490     $ 8,861     $ 9,034     $ 10,142     $ 10,818                                             Allowance for loan and lease losses     7,304       7,206       7,428       7,494       7,502     10,210     9,244     6,768     7,001     7,304                                             Ratios:                                                               Nonperforming loans to total loans     1.07 %     1.04 %     0.76 %     0.75 %     0.89 %   0.88 %   0.84 %   0.90 %   1.01 %   1.07 % Nonperforming assets to total assets     0.84 %     0.83 %     0.63 %     0.63 %     0.73 %   0.78 %   0.73 %   0.76 %   0.79 %   0.84 % Allowance for loan and lease losses to total loans     0.73 %     0.72 %     0.75 %     0.77 %     0.79 %   0.92 %   0.93 %   0.69 %   0.70 %   0.73 % Allowance for loan and lease losses to nonperforming loans     68.08 %     68.81 %     98.51 %     102.83 %     89.61 %   104.15 %   109.98 %   76.22 %   69.64 %   68.08 %   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 2625 TDRs accruing interest with a balance of $2.9$2.8 million as of June 30, 2019.2020. A TDR that yields a market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as a TDR in calendar years after the year in which the restructuring took place. To be in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. Nonperforming loans secured by real estate totaled $9.6$9.1 million as of June 30, 2019,2020, an increase of $4.0$1.3 million from $5.6$7.8 million at December 31, 2018.2019.   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 June 30, 2019, 90.9%2020, 93.3% 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 decreasedincreased from 0.75%0.69% as of December 31, 20182019 to 0.73%0.92% as of June 30, 2019.2020.   Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $1.05$1.16 billion or 98.5%103.9% of the Company’s total average funding sources at June 30, 2019.2020. Total deposits increased $35.4$137.4 million, or 3.5%13.5%, at June 30, 20192020 from $1.02 billion at December 31, 2018.2019. The total increase in deposits is the net of increases in time and interest-bearingnoninterest-bearing demand deposits, of $110.1 million, or 36.6%, and $2.2 million, or 2.3%, respectively, and decreases in noninterest-bearinginterest-bearing demand deposits, savings, and money market deposits of $4.6$79.4 million, or 2.3%41.5%, $28.4$28.9 million, or 12.8%26.8%, $26.5 million, or 13.8%, and $43.8$8.0 million, or 22.3%5.0%, respectively, and a decrease in time deposits of $5.4 million, or 1.5%, at June 30, 2020, as some maturing certificates are not being renewed in the current low interest rate environment. Included in the net increase are $58.8 million of new PPP deposits. 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 $54.9 million at June 30, 2020, as compared to $117.1 million at December 31, 2019.   Borrowed funds. The Company uses short-term and long-term borrowings as another source of funding for asset growth and liquidity needs. These borrowings primarily include FHLB advances, junior subordinated debt, short-term borrowings from other banks, and federal funds purchased. Short-term borrowings decreased $5.4increased $15.3 million or 6.0%, to $85.0$20.4 million as of June 30, 2019.2020. Other borrowings increased $3.6$4.4 million, or 41.4%34.6%, to $12.4$17.2 million as of June 30, 20192020 from $8.8$12.8 million as of December 31, 2018. This increase is mainly due to the adoption of ASU 2016-02, “Leases (Topic 842)” effective January 1, 2019, which resulted in the recording of financial lease liabilities in the amount of $2.7 million (see Note 9). This quarter, the Company tested its ability to shift off balance sheet liquidity to the balance sheet by borrowing an advance of $80.0 million for one day.2019.   36   Stockholders’ equity. Stockholders’ equity increased $6.0$2.9 million, or 4.7%2.1%, to $134.3$140.7 million at June 30, 20192020 from $128.3$137.8 million at December 31, 2018.2019. This growthincrease was the result of increases in retained earnings of $2.1 million, AOCI of $1.9 million, and common stock of $4.5 million, $1.5 million, and $665,000, respectively.$105,000. This increase is net of an increase in treasury stock of $706,000,$1.2 million, or 5.2%7.6%, to $14.2$16.9 million as of June 30, 2019,2020, from $13.5$15.7 million as of December 31, 2018.2019. The change in retained earnings is due to the year-to-date net income offset by dividends paid, the change in AOCI is due to fair value adjustments of available-for-sale securities, the change in common stock is due to regular stock grants and dividend reinvestment and purchase plan distributions, and the change in treasury stock is due to the Company repurchasing 17,74758,200 of its outstanding shares during the six months ended June 30, 2019.2020.   The Company suspended its stock repurchase program as a result of the economic slowdown and the focus on capital preservation. The suspension will continue until economic clarity arises and the Company is certain it is the best use of capital. RESULTS OF OPERATIONS   General. Net income for the three months ended June 30, 2019,2020, was $3.3$3.0 million, a $193,000,$324,000, or 6.2%9.8%, increasedecrease from the amount earned during the same period in 2018.2019. Diluted earnings per share for the quarter increaseddecreased to $1.01,$0.46, compared to $0.96$0.50 from the same period in 2018.2019. Net income for the six months ended June 30, 2019,2020, was $6.3$4.0 million, a $599,000,$2.3 million, or 10.5%36.4%, increasedecrease from the amount earned during the same period in 2018.2019. Diluted earnings per share for this six-month period increaseddecreased to $1.93,$0.62, compared to $1.76 for$0.97 from the same period in 2018.2019.   The Company’s annualized return on average assets (“ROA”) and return on average equity (“ROE”) for the quarter were 1.09%0.90% and 9.79%8.56%, respectively, compared with 1.11%1.09% and 10.08%9.79% for the same period in 2018.2019. The Company’s ROA and ROE for the six-month period were 1.05%0.78% and 9.58%5.79%, respectively, compared with 1.03%1.05% and 9.42%9.58% for the same period in 2018.2019.   Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities, in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company’s net interest income. Management’s goal is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.   Net interest income for the three months ended June 30, 20192020 totaled $10.3$10.7 million, an increase of 4.8%4.4% from that reported in the comparable period of 2018.2019. The net interest margin was 3.65%3.49% for the second quarter of 2019, down2020, a decrease from the 3.74%3.65% reported for the same quarter of 2018.2019. The decline in the net interest margin is attributable to a 4356 basis points increasepoint decrease in total interest bearing liabilitiesloans receivable yield along with a 198 basis point decrease in the yield on interest-earning deposits with other banks. This decline was partially offset by an increase in average loan balances of 26$89.8 million or 9.0%. PPP loans reduced the net interest margin for the second quarter by 10 basis points infrom the yield on total interest earning assets for the three-month period ended June 30, 2019.first quarter of 2020. Net interest income for the six months ended June 30, 20192020 totaled $20.5$20.8 million, an increase of 4.0%1.3% from that reported in the comparable period of 2018.2019. The net interest margin was 3.67%3.56% for the six-month period ended June 30, 2019, down2020, a decrease from the 3.78%3.67% reported for the comparable period of 2018.2019. The decline in the net interest margin is attributable to a 4635 basis points increasepoint decrease in total interest bearing liabilitiesloans receivable yield along with a 152 basis point decrease in the yield on interest-earning deposits with other banks. This decline was partially offset by an increase in average loan balances of 25 basis points$36.7 million or 3.7%. The Company’s net interest margin may be subject to further decline as a result of the abrupt decrease in interest rates during the yieldfirst quarter of 2020, the reduced interest income on totalfloating-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 earningrates have a negative impact on margin as the Company’s interest-earning assets forreprice 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 six-month periodFederal Reserve maintains short-term interest rates at the low level established in March 2020. For the three months ended June 30, 2019. Beta,2020, the changedecrease in bank product yield/cost dividedyield on interest-earning deposits with other banks led to a $213,000 decline in interest income. The $565,000 overall decrease in interest income was offset by the changea $1.0 million decrease in the average effective federal funds rate, is used to measure the impact of FOMC interest rate changes toexpense. For the income statement. Although deposit betas outpaced those of assets during the three and six months ended June 30, 2019,2020, the netdecrease in yield on interest-earning deposits with other banks led to a $320,000 decline in interest margin continues to compare favorably against peer banks.income. The $1.0 million overall decrease in interest income was offset by a $1.3 million decrease in interest expense.   Interest and dividend income. Interest and dividend income increased $1.6 million,decreased $565,000, or 13.5%4.1%, for the three months ended June 30, 2019,2020, compared to the same period in the prior year. This is attributable to an increasea decrease in interest and fees on loans of $1.5 million.$425,000. Interest and dividend income increased $3.2decreased $1.0 million, or 13.2%3.8%, for the six months ended June 30, 2019,2020, compared to the same period in the prior year. This is attributable to an increasea decrease in interest and fees on loans of $2.9 million.$835,000. 37   Interest and fees earned on loans receivable increased $1.5 million,decreased $425,000, or 13.5%3.3%, for the three months ended June 30, 2019,2020, compared to the same period in the prior year. This is attributable to a 56 basis point decrease in the average yield to 4.53%, partially offset by an increase in average loan balances of $70.8 million, accompanied by a 26 basis point increase in the average yield to 5.08%.$89.8 million. Interest and fees earned on loans receivable increased $2.9 million,decreased $835,000, or 13.2%3.3%, for the six months ended June 30, 2019,2020, compared to the same period in the prior year. This is attributable to a 35 basis point decrease in the average yield to 4.73%, partially offset by an increase in average loan balances of $70.4 million, accompanied by a 25 basis point$36.7 million. The increase in the average yieldloan balance is due in part to 5.07%.the issuance of PPP loans in 2020, the related income of which was $927,000 as of June 30, 2020.   Net interest earned on securities increased by $47,000$73,000 for the three months ended June 30, 20192020 when compared to the same period in the prior year. The average balance of investment securities increased $4.6$8.7 million, or 4.8%8.8%, while the 3.79%3.76% yield on the investment portfolio increased by 116 basis points, from 3.68%3.70%, for the same period in the prior year. Net interest earned on securities increased by $97,000$115,000 for the six months ended June 30, 20192020 when compared to the same period in the prior year. The average balance of investment securities increased $4.2$8.6 million, or 4.4%8.7%, while the 3.80%3.69% yield on the investment portfolio increaseddecreased by 162 basis points, from 3.64%3.71%, for the same period in the prior year.     Interest expense. Interest expense increased $1.2decreased $1.0 million, or 50.8%29.6%, for the three months ended June 30, 2019,2020, compared to the same period in the prior year. The increasedecrease is attributable to increasesa decrease in the average balancesbalance of certificates of deposit,deposits of $40.7 million, or 10.4%, and is further attributable to decreases of 214, 48, 47, and 35 basis points in short-term borrowings, savings, money market deposits, and interest-bearing demand deposits of $102.7 million, or 35.6%, $18.5 million, or 13.1%, and $372,000, or 0.4%, respectively. This increase was accompanied by increases in costs of 56, 56, 52, 11, and 6 basis points for the average balances of other borrowings, certificates of deposit, money market deposits savings deposits, and interest-bearing demand deposits, respectively. The overallcost. This decrease was partially offset by an increase in deposits was utilized to pay down short-term borrowings and other borrowings, the average balance of which decreased by $15.6short-term borrowings of $42.6 million, or 53.8%, and $6.5319.2%. Interest expense decreased $1.3 million, or 34.3%, respectively. Interest expense increased $2.4 million, or 55.0%19.4%, for the six months ended June 30, 2019,2020, compared to the same period in the prior year. The increasedecrease is attributable to increasesdecreases in the average balances of certificates of deposit, money market deposits, and interest-bearing demand deposits of $85.5 million, or 31.7%, $31.2 million, or 21.4%, and $3.2 million, or 3.41%, respectively. This increase was accompanied by increases in costs of 65, 57, 57, 55, 22, and 5 basis points for the average balances of money market deposits and savings deposits of $15.8 million, or 8.9%, and $10.6 million, or 5.3%, respectively. This decrease is further attributable to decreases in costs of 204, 90, 40, 33, and 21 basis points in short-term borrowings, other borrowings, savings, money market deposits, and certificates of deposit, savings deposits and interest-bearing demand deposits, respectively. The overallcosts. This decrease was partially offset by an increase in deposits was utilized to pay down short-term borrowings and other borrowings, the average balance of which decreased by $26.8short-term borrowings of $11.0 million, or 52.4%,45.2%. 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 rate in March 2020. The COVID-19 pandemic could result in lower levels of deposits in future periods, which could decrease our average interest-bearing deposits for the remainder of 2020. Also, as a result of the reductions in the targeted federal funds interest rate, as well as the impact of the COVID-19 pandemic, we expect that our net interest income and $7.7 million, or 36.4%, respectively.   net interest margin could decrease in future periods.   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 $110,000$1.0 million was recorded for the quarter ended June 30, 2019, a decrease2020, an increase of $100,000, or 47.6%,$890,000 from the quarter ended June 30, 2018.2019. A provision for loan losses of $350,000$3.7 million was recorded for the six-month period ended June 30, 2019, a decrease2020, an increase of $70,000, or 16.7%,$3.4 million from the same period in 2018. 2019. The Company remains confident in the conservative and disciplined approach to credit and risk management. However, the economic challenges caused by the COVID-19 crisis has an immediate impact on credit quality. At June 30, 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 increase 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 six months ended June 30, 2020 is (in thousands): Commercial real estate:         Owner occupied   $ 191   Non-owner occupied     542   Multifamily     63   Residential real estate     458   Commercial and industrial     646   Home equity lines of credit     228   Construction and other     112   Consumer installment     8   Total   $ 2,248   38 Nonperforming loans were $10.7$9.8 million, or 1.07%.88%, of total loans at June 30, 20192020 compared with $8.4$10.7 million, or 0.89%1.07%, at June 30, 2018.2019. For the three months ended June 30, 2019,2020, net loan charge-offs totaled $12,000, compared to net charge-offs of $259,000,$34,000, or 0.11% of average loans, for the second quarter of 2018. For the six months ended June 30, 2019, net loan charge-offs totaled $474,000, or 0.10%0.01% of average loans, compared to net charge-offs of $108,000,$12,000, for the second quarter of 2019. For the six months ended June 30, 2020, net loan charge-offs totaled $298,000, or 0.02%,0.06% of average loans, compared to net charge-offs of $474,000, or 0.10% of average loans, for the same period in 2018.2019.   Noninterest income. Noninterest income increased $251,000,$196,000, or 24.0%15.1%, for the three months ended June 30, 20192020 over the comparable 20182019 period. This increase was the result of an increase in gains on sale of loans of $283,000, or 288.8%, partially offset by a decrease in investment securities gains on sale, and other incomenet, of $190,000, and $75,000, or 24.1%, respectively.$190,000. The increase in other incomegains on sale of loans is due to increasesan increase in revenue from investment services and income received from recoveries on acquired student loans.refinancing of mortgages due to a decrease in rates. Noninterest income increased $597,000,$138,000, or 32.6%5.7%, forduring the six months ended June 30, 20192020 over the comparable 20182019 period. This increase was the result of an increase in gains on sale of loans of $338,000, or 215.3%, partially offset by decreases in investment securities gains on sale, net, and other incomegains on equity securities (Note 7) of $190,000, and $278,000, or 54.5%.$173,000, respectively. The increase in other incomegains on sale of loans is due to increasesan increase in revenue fromsaleable loans being sold during this time period. The decrease in investment services and income received from recoveriessecurities gains on acquired student loans.sale is due to no available-for-sale securities being sold during the second quarter of 2020.   Noninterest expense.  Noninterest expense of $7.5$7.7 million for the second quarter 20192020 was 5.9%2.8%, or $419,000,$207,000, higher than the second quarter of 2018. Salaries and employee benefits and data2019.  Data processing costs and other expenses increased $212,000,$135,000, or 5.5%24.6%, and $147,000,$70,000, or 36.6%7.2%, respectively. These increases were offset by decreases in other expense and federal deposit insurance expense of $62,000, or 6.7%, and $50,000, or 33.3%, respectively. The salary increase is mostly due to annual pay adjustments and an increase in employees.  The increase in data processing costs is due to new and increased costs of processing agreements.  The increase in other expense is due to increases in directors' fees, miscellaneous loan expenses, sundry gains and losses, and pandemic response-related expenses.  Noninterest expense of $15.0$14.9 million for the six-month period ended June 30, 20192020 was 4.0%0.3%, or $574,000, higher$41,000, lower than the same period in 2018. Salaries and employee benefits, Ohio state franchise tax, and data2019.  Data processing costs and other expense increased $357,000,$336,000, or 4.6%, $161,000, or 44.8%33.1%, and $135,000,$264,000, or 15.4%14.3%, respectively.  These increases were offset by decreasesa decrease in other expensesalaries and federal deposit insurance expenseemployee benefits of $133,000,$602,000, or 7.1%, and $70,000, or 23.3%, respectively.7.3%.  The salary increase is mostly due to annual pay adjustments and an increase in employees. The increase in Ohio state franchise tax is due to the increase in the Company’s franchise value, and the increase in data processing costs is due to new and increased costs of processing agreements.   agreements, and the increase in other expense is due to increases in miscellaneous loan expenses, postage, sundry gains and losses, and fewer offsetting gains on sales of OREO properties.  The decrease in salary expense is due to the valuation adjustment for share-based compensation liability (see Note 3), as well as a decrease in profit sharing expense recorded.   Provision for income taxes. The Company recognized $686,000$565,000 in income tax expense, which reflected an effective tax rate of 17.3%16.0% for the three months ended June 30, 2019,2020, as compared to $481,000$686,000 with an effective tax rate of 13.4%17.3% for the comparable 20182019 period. The Company recognized $1.3 million$639,000 in income tax expense, which reflected an effective tax rate of 17.1%13.8% for the six months ended June 30, 2019,2020, as compared to $1.0$1.3 million with an effective tax rate of 15.0%17.1% for the comparable 20182019 period. The decrease in the effective tax rate is due to the reduction of net income.   39   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 June 30,     For the Three Months Ended June 30,     2020     2019     2019     2018       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)   $ 1,002,346     $ 12,706       5.08 %   $ 931,504     $ 11,197       4.82 %   $ 1,092,095     $ 12,281     4.53 %   $ 1,002,346     $ 12,706     5.09 % Investment securities (3)     99,022       767       3.79 %     94,460       720       3.68 %   107,765     840     3.76 %   99,022     767     3.70 % Interest-earning deposits with other banks (4)     44,747       247       2.21 %     40,904       175       1.72 %     58,541       34       0.23 %     44,747       247       2.21 % Total interest-earning assets     1,146,115       13,720       4.86 %     1,066,868       12,092       4.60 %   1,258,401       13,155     4.27 %   1,146,115       13,720     4.86 % Noninterest-earning assets     61,267                       53,653                       62,976                 61,267             Total assets   $ 1,207,382                     $ 1,120,521                     $ 1,321,377               $ 1,207,382             Interest-bearing liabilities:                                                   Interest-bearing demand deposits   $ 98,929     $ 88       0.36 %   $ 98,557     $ 73       0.30 %   $ 129,917     $ 112     0.35 %   $ 98,929     $ 88     0.36 % Money market deposits     159,705       558       1.40 %     141,238       309       0.88 %   164,434     381     0.93 %   159,705     558     1.40 % Savings deposits     195,451       336       0.69 %     215,639       309       0.57 %   198,967     104     0.21 %   195,451     336     0.69 % Certificates of deposit     390,997       2,295       2.35 %     288,283       1,288       1.79 %   350,298     1,739     2.00 %   390,997     2,295     2.35 % Short-term borrowings     13,354       79       2.37 %     28,929       192       2.66 %   55,973     32     0.23 %   13,354     79     2.37 % Other borrowings     12,489       95       3.05 %     19,006       118       2.49 %     15,615       62       1.60 %     12,489       95       3.05 % Total interest-bearing liabilities     870,925       3,451       1.59 %     791,652       2,289       1.16 %   915,204       2,430     1.07 %   870,925       3,451     1.59 % Noninterest-bearing liabilities:                                                   Noninterest-bearing demand deposits     198,234                       203,266                     262,575               198,234             Other liabilities     3,387                       2,375                     4,311               3,387             Stockholders' equity     134,836                       123,228                       139,287                 134,836             Total liabilities and stockholders' equity   $ 1,207,382                     $ 1,120,521                     $ 1,321,377               $ 1,207,382             Net interest income           $ 10,269                     $ 9,803                   $ 10,725               $ 10,269         Interest rate spread (1)                     3.27 %                     3.44 %             3.20 %             3.27 % Net interest margin (2)                     3.65 %                     3.74 %             3.49 %             3.65 % Ratio of average interest-earning assets to average interest-bearing liabilities                     131.60 %                     134.76 %             137.50 %             131.60 %   (1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (2) Net interest margin represents net interest income as a percentage of average interest-earning assets. (3) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $168 and $146 for the three months ended June 30, 2019 and 2018, respectively. (4) Includes dividends received on restricted stock. (2) Net interest margin represents net interest income as a percentage of average interest-earning assets. (3) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $190 and  $168 for the three months ended June 30, 2020 and 2019, respectively. (4) Includes dividends received on restricted stock.     40   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 June 30, 20192020 and 2018,2019, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances.     2019 versus 2018     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   $ 852     $ 657     $ 1,509     $ 1,136     $ (1,561 )   $ (425 ) Investment securities     42       5       47     80     (7 )   73   Interest-earning deposits with other banks     16       56       72       76       (289 )     (213 ) Total interest-earning assets     910       718       1,628       1,292       (1,857 )     (565 )                                                     Interest-bearing liabilities:                                       Interest-bearing demand deposits     -       15       15     28     (4 )   24   Money market deposits     40       209       249     16     (193 )   (177 ) Savings deposits     (29 )     56       27     6     (238 )   (232 ) Certificates of deposit     459       548       1,007     (238 )   (318 )   (556 ) Short-term borrowings     (103 )     (10 )     (113 )   251     (298 )   (47 ) Other borrowings     (40 )     17       (23 )     24       (57 )     (33 ) Total interest-bearing liabilities     327       835       1,162       87       (1,108 )     (1,021 )                                                     Net interest income   $ 583     $ (117 )   $ 466     $ 1,205     $ (749 )   $ 456     41   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 Six Months Ended June 30,     For the Six Months Ended June 30,     2019     2018     2020     2019     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)   $ 1,001,344     $ 25,194       5.07 %   $ 930,915     $ 22,251       4.82 %   $ 1,038,064     $ 24,359     4.73 %   $ 1,001,344     $ 25,194     5.08 % Investment securities (3)     98,253       1,511       3.80 %     94,074       1,414       3.64 %   106,829     1,626     3.69 %   98,253     1,511     3.71 % Interest-earning deposits with other banks (4)     45,015       499       2.24 %     41,552       367       1.78 %     50,129       179       0.72 %     45,015       499       2.24 % Total interest-earning assets     1,144,612       27,204       4.85 %     1,066,541       24,032       4.60 %   1,195,022       26,164     4.47 %   1,144,612       27,204     4.85 % Noninterest-earning assets     60,912                       53,463                       63,990                 60,912             Total assets   $ 1,205,524                     $ 1,120,004                     $ 1,259,012               $ 1,205,524             Interest-bearing liabilities:                                                   Interest-bearing demand deposits   $ 96,594     $ 160       0.33 %   $ 93,410     $ 131       0.28 %   $ 121,804     229     0.38 %   $ 96,594     $ 160     0.33 % Money market deposits     176,970       1,313       1.50 %     145,779       614       0.85 %   161,221     934     1.17 %   176,970     1,313     1.50 % Savings deposits     201,650       753       0.75 %     215,597       575       0.54 %   191,052     331     0.35 %   201,650     753     0.75 % Certificates of deposit     355,620       3,996       2.27 %     270,093       2,299       1.72 %   362,082     3,707     2.06 %   355,620     3,996     2.27 % Short-term borrowings     24,372       292       2.42 %     51,166       468       1.84 %   35,390     67     0.38 %   24,372     292     2.42 % Other borrowings     13,473       191       2.86 %     21,166       240       2.29 %     14,159       138       1.96 %     13,473       191       2.86 % Total interest-bearing liabilities     868,679       6,705       1.56 %     797,211       4,327       1.09 %   885,708       5,406     1.23 %   868,679       6,705     1.56 % Noninterest-bearing liabilities:                                                   Noninterest-bearing demand deposits     199,332                       197,581                     228,993               199,332             Other liabilities     4,870                       3,097                     5,024               4,870             Stockholders' equity     132,643                       122,115                       139,287                 132,643             Total liabilities and stockholders' equity   $ 1,205,524                     $ 1,120,004                     $ 1,259,012               $ 1,205,524             Net interest income           $ 20,499                     $ 19,705                   $ 20,758               $ 20,499         Interest rate spread (1)                     3.29 %                     3.51 %             3.24 %             3.29 % Net interest margin (2)                     3.67 %                     3.78 %             3.56 %             3.67 % Ratio of average interest-earning assets to average interest-bearing liabilities                     131.76 %                     133.78 %             134.92 %             131.76 %   (1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (2) Net interest margin represents net interest income as a percentage of average interest-earning assets. (3) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $338 and $286 for the six months ended June 30, 2019 and 2018, respectively. (4) Includes dividends received on restricted stock. (2) Net interest margin represents net interest income as a percentage of average interest-earning assets. (3) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $379 and  $338 for the six months ended June 30, 2020 and 2019, respectively. (4) Includes dividends received on restricted stock.     42   Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the six-month periods ended June 30, 20192020 and 2018,2019, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances.     2019 versus 2018     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   $ 1,683     $ 1,260     $ 2,943     $ 928     $ (1,763 )   $ (835 ) Investment securities     76       21       97     158     (43 )   115   Interest-earning deposits with other banks     31       101       132       57       (377 )     (320 ) Total interest-earning assets     1,790       1,382       3,172       1,143       (2,183 )     (1,040 )                                                     Interest-bearing liabilities:                                       Interest-bearing demand deposits     4       25       29     41     28     69   Money market deposits     131       568       699     (117 )   (262 )   (379 ) Savings deposits     (37 )     215       178     (40 )   (382 )   (422 ) Certificates of deposit     728       969       1,697     73     (362 )   (289 ) Short-term borrowings     (245 )     69       (176 )   133     (358 )   (225 ) Other borrowings     (87 )     38       (49 )     10       (63 )     (53 ) Total interest-bearing liabilities     494       1,884       2,378       100       (1,399 )     (1,299 )                                                     Net interest income   $ 1,296     $ (502 )   $ 794     $ 1,043     $ (784 )   $ 259   43   LIQUIDITYLIQUIDITY   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 introducedoffers a new line of retail deposit products during the second quarter of 2019. These products were 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 (the “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 June 30, 2020, additional borrowing capacity at the FHLB was $383.3 million, as compared to $273.4 million at December 31, 2020. This increase was the result of collateralizing additional assets. For the six months ended June 30, 2019,2020, wholesale funding decreased $52.2 million. 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 June 30, 2020. Management plans to continually monitor liquidity in future periods to look for signs of stress resulting from the COVID-19 pandemic. For the six months ended June 30, 2020, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment and software, the provision for loan losses, net amortization of securities, earnings on bank-owned life insurance, accretion of net deferred loan fees, and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the Condensed Consolidated Statements of Cash Flows.   INFLATION   Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.   Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.   REGULATORY MATTERS   The Company is subject to the regulatory requirements of the Federal Reserve System as a bank holding company. The bank subsidiary is subject to regulations of the Federal Deposit Insurance Corporation (“FDIC”) and the Ohio Division of Financial Institutions.   The Federal Reserve Board and the FDIC have extensive authority to prevent and to remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.   44 REGULATORY CAPITAL REQUIREMENTS   Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank and thrift holding companies. The net unrealized gain or loss on available-for-sale securities is generally not included in computing regulatory capital. In order to avoid limitations on capital distributions, including dividend payments, Middlefield Bank and the Company must each hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The implementation of the capital ratio buffer began January 1, 2016 at the 0.625% level and has been fully phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019). Within the tabular presentation that follows is the adequately capitalized ratio plus capital conservation buffer that includes the fully phased-in 2.50% buffer.   Middlefield Bank and the Company met each of the well-capitalized ratio guidelines at June 30, 2019.2020. The following table indicates the capital ratios for Middlefield Bank and Company at June 30, 20192020 and December 31, 2018.2019.     As of June 30, 2020     As of June 30, 2019         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     9.76 %     11.43 %     11.43 %     12.15 %   9.64 %   11.13 %   11.13 %   12.04 % Middlefield Banc Corp.     10.38 %     12.14 %     11.36 %     12.86 %   10.28 %   11.34 %   10.63 %   12.24 % 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               Tier 1 Risk     Common     Total Risk       Leverage     Based     Equity Tier 1     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 %       As of December 31, 2018       Leverage     Tier 1 Risk Based     Common Equity Tier 1     Total Risk Based   The Middlefield Banking Company     9.60 %     11.09 %     11.09 %     11.83 % Middlefield Banc Corp.     10.26 %     11.83 %     11.03 %     12.57 % Adequately capitalized ratio     4.00 %     6.00 %     4.50 %     8.00 % Adequately capitalized ratio plus fully phased-in capital conservation buffer     4.00 %     8.50 %     7.00 %     10.50 % Well-capitalized ratio (Bank only)     5.00 %     8.00 %     6.50 %     10.00 % While we believe that Middlefield Bank is well prepared to weather the COVID-19 global pandemic, Middlefield Bank’s regulatory capital ratios could be adversely affected by credit losses and other adverse consequences associated with the pandemic.   Item 3. Quantitative and Qualitative Disclosures about Market Risk   ASSET AND LIABILITY MANAGEMENT   The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the re-pricing or maturity of interest-earning assets and the re-pricing or maturity of interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in a strong asset/liability management process in order to insulate the Company from material and prolonged increases in interest rates.   The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors and senior management. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies.   45 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 200100 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 200100 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 June 30, 20192020 and December 31, 20182019 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 June 30, 20192020 and December 31, 20182019 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 June 30, 20192020 and December 31, 20182019 for portfolio equity:       June 30, 2019     December 31, 2018     June 30, 2020     December 31, 2019   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     0.10 %     15.00 %     (0.12 )%     12.40 %   (0.30 )%   4.90 %   0.20 %   6.20 % -200bp     (3.30 )%     (49.20 )%     (3.33 )%     (40.90 )% -100bp   0.20 %   (17.50 )%   (0.60 )%   (9.40 )%   CRITICAL ACCOUNTING ESTIMATES   The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of June 30, 2019,2020, have remained unchanged from December 31, 2018.2019.   Item 4. Controls and Procedures   Controls and Procedures Disclosure   The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.   As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.   46 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. Legal Proceedings   From time to time, the Company and MBC may be involved in litigation relating to claims arising out of their normal course of business. Currently, the Company and MBC are not involved in any legal proceedings the outcome of which, in management’s opinion, would be material to their financial condition or results of operations.   Item 1a. Risk Factors In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us. The economic impact of the novel COVID-19 outbreak could adversely affect our financial condition and results of operations. In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 32 million people have filed claims for unemployment. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies have encouraged lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies encouraged financial institutions to prudently work with affected borrowers and issued guidance providing relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. 47   Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: Item 1a.● There are no material changesdemand for our products and services may decline, making it difficult to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Please refer to that section for disclosures regarding the risksincrease our assets and uncertainties related to the Company’s business.income;   Item 2.● Unregistered Salesif the economy is unable to substantially reopen, and high levels of Equity Securitiesunemployment continue for an extended period of time, loan delinquencies, nonperforming assets, and Useforeclosures may increase, resulting in increased loan charge-offs and additions to loan loss reserves and reduced income; ● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; ● our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; ● the net worth and liquidity of Proceedsloan guarantors may decline, impairing their ability to honor commitments to us; ● as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; ● a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; ● we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and ● Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs for bank failures. Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  None  Item 3. Defaults by the Company on its Senior Securities   None   Item 3. Defaults by the Company on its Senior Securities None Item 4. Item 4. Mine Safety Disclosures   N/A   Item 5. Item 5. Other information   None   Item 6. Exhibits 48   Item 6.    Exhibits Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended June 30, 20192020   Exhibit Number   Description   Location 3.1   Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended   Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006           3.2   Regulations of Middlefield Banc Corp.   Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001           4   Specimen stock certificate   Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001           4.1   Amended and Restated Trust Agreement, dated as of December 21, 2006, between Middlefield Banc Corp., as Depositor, Wilmington Trust Company, as Property trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees   Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006           4.2   Junior Subordinated Indenture, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company   Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.3   Guarantee Agreement, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company   Incorporated by reference to Exhibit 4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006           10.1.0*   2017 Omnibus Equity Plan   Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2017 Annual Meeting of Shareholders, Appendix A, filed on April 4, 2017           10.1.1*   2007 Omnibus Equity Plan   Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2008 Annual Meeting of Shareholders, Appendix A, filed on April 7, 2008           10.2*   Change in Control Agreement between Middlefield Banc Corp. and Thomas G. Caldwell   Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019           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 49

10.4		Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000		Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.4.1*		Severance Agreement between Middlefield Banc Corp. and Teresa M. Hetrick, dated January 7, 2008		Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.2*		Change in Control Agreement between Middlefield Banc Corp. and Charles O. Moore		Incorporated by reference to Exhibit 10.4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
10.4.3*		Change in Control Agreement between Middlefield Banc Corp. and Donald L. Stacy		Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
10.4.4*		Severance Agreement between Middlefield Banc Corp. and Alfred F. Thompson, Jr., dated January 7, 2008		Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.5*		Change in Control Agreement between Middlefield Banc Corp. and Michael L. Allen		Incorporated by reference to Exhibit 10.4.5 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on November 5, 2019
10.4.6*		Change in Control Agreement between Middlefield Banc Corp. and John D. Lane		Incorporated by reference to Exhibit 10.4.6 of Middlefield Banc Corp.’s Form 10-Q Current Report filed on November 5, 2019
10.5		[reserved]
10.6*		Amended Director Retirement Agreement with Richard T. Coyne		Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008