株探米国株
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   

For the quarterly period ended March 31, 2024

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

 

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Middlefield Banc Corp.

(Exact Name of Registrant as Specified in its Charter)

 

Ohio

  

34-1585111

State or Other Jurisdiction of

  

I.R.S. Employer Identification No.

Incorporation or Organization

    
     

15985 East High Street, Middlefield, Ohio

  

44062-0035

Address of Principal Executive Offices

  

Zip Code

 

 

440-632-1666

  

Registrant’s Telephone Number, Including Area Code

 

     

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

 

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

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, Without Par Value

MBCN

The NASDAQ Stock Market, LLC

(NASDAQ Capital Market)

 

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

 

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

 

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

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒  

Smaller reporting company ☒

Emerging growth company ☐ 

  

 

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

 

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

 

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

Outstanding at May 14, 2024: 8,067,144

 

 
Table of Contents

 

 
 

 MIDDLEFIELD BANC CORP.

INDEX

 

Part 1 – Financial Information

 

Item 1.

Financial Statements (unaudited)

 
 

Consolidated Balance Sheet

3
 

Consolidated Statement of Income

4
 

Consolidated Statement of Comprehensive Income

5
 

Consolidated Statement of Changes in Stockholders’ Equity

6
 

Consolidated Statement of Cash Flows

7
 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

32

PART II – Other Information

32

Item 1.

Legal Proceedings

32

Item 1a.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other information

33

Item 6.

Exhibits

34

Signatures

37

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32

  

 

2
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MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

 

   

March 31,

    

December 31,

  
   

2024

    

2023

  
                 

ASSETS

                

Cash and due from banks

   $ 44,816     $ 56,397  

Federal funds sold

     1,438       4,439  

Cash and cash equivalents

     46,254       60,836  

Investment securities available for sale, at fair value

     167,890       170,779  

Other investments

     907       955  

Loans:

                

Commercial real estate:

                

Owner occupied

     178,543       183,545  

Non-owner occupied

     398,845       401,580  

Multifamily

     81,691       82,506  

Residential real estate

     331,480       328,854  

Commercial and industrial

     227,433       221,508  

Home equity lines of credit

     129,287       127,818  

Construction and other

     135,716       125,105  

Consumer installment

     7,131       7,214  

Total loans

     1,490,126       1,478,130  

Less: allowance for credit losses

     21,069       21,693  

Net loans

     1,469,057       1,456,437  

Premises and equipment, net

     21,035       21,339  

Goodwill

     36,356       36,356  

Core deposit intangibles

     6,384       6,642  

Bank-owned life insurance

     34,575       34,349  

Accrued interest receivable and other assets

     34,210       35,190  

TOTAL ASSETS

   $ 1,816,668     $ 1,822,883  

LIABILITIES

                

Deposits:

                

Noninterest-bearing demand

   $ 390,185     $ 401,384  

Interest-bearing demand

     209,015       205,582  

Money market

     318,823       274,682  

Savings

     196,721       210,639  

Time

     332,165       334,315  

Total deposits

     1,446,909       1,426,602  

Federal Home Loan Bank advances

     137,000       163,000  

Other borrowings

     11,812       11,862  

Accrued interest payable and other liabilities

     15,372       15,738  

TOTAL LIABILITIES

     1,611,093       1,617,202  

STOCKHOLDERS' EQUITY

                

Common stock, no par value; 25,000,000 shares authorized, 9,946,454 and 9,930,704 shares issued; 8,067,144 and 8,095,252 shares outstanding

     161,823       161,388  

Retained earnings

     102,791       100,237  

Accumulated other comprehensive loss

     (18,130 )     (16,090 )

Treasury stock, at cost; 1,879,310 and 1,835,452 shares

     (40,909 )     (39,854 )

TOTAL STOCKHOLDERS' EQUITY

     205,575       205,681  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

   $ 1,816,668     $ 1,822,883  

 

See accompanying notes to unaudited consolidated financial statements.

 

3
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 MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  

INTEREST AND DIVIDEND INCOME

                

Interest and fees on loans

   $ 22,395     $ 18,275  

Interest-earning deposits in other institutions

     437       250  

Federal funds sold

     152       253  

Investment securities:

                

Taxable interest

     467       458  

Tax-exempt interest

     972       980  

Dividends on stock

     189       88  

Total interest and dividend income

     24,612       20,304  
                 

INTEREST EXPENSE

                

Deposits

     7,466       2,990  

Short-term borrowings

     1,993       653  

Other borrowings

     184       155  

Total interest expense

     9,643       3,798  
                 

NET INTEREST INCOME

     14,969       16,506  
                 

(Recovery of) Provision for credit losses

     (136 )     507  
                 

NET INTEREST INCOME AFTER (RECOVERY OF) PROVISION FOR CREDIT LOSSES

     15,105       15,999  
                 

NONINTEREST INCOME

                

Service charges on deposit accounts

     909       987  

Loss on equity securities

     (52 )     (138 )

Gain on other real estate owned

     -       2  

Earnings on bank-owned life insurance

     227       200  

Gain on sale of loans

     10       23  

Revenue from investment services

     204       186  

Gross rental income

     67       102  

Other income

     431       318  

Total noninterest income

     1,796       1,680  
                 

NONINTEREST EXPENSE

                

Salaries and employee benefits

     6,333       5,852  

Occupancy expense

     552       696  

Equipment expense

     240       317  

Data processing and information technology costs

     1,249       1,070  

Ohio state franchise tax

     397       385  

Federal deposit insurance expense

     251       120  

Professional fees

     558       538  

Advertising expense

     419       486  

Software amortization expense

     22       26  

Core deposit intangible amortization

     258       265  

Gross other real estate owned expenses

     99       132  

Merger-related costs

     -       245  

Other expense

     1,587       1,662  

Total noninterest expense

     11,965       11,794  
                 

Income before income taxes

     4,936       5,885  

Income taxes

     769       989  
                 

NET INCOME

   $ 4,167     $ 4,896  
                 

EARNINGS PER SHARE

                

Basic

   $ 0.52     $ 0.60  

Diluted

   $ 0.51     $ 0.60  

 

See accompanying notes to unaudited consolidated financial statements.

 

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MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME

(Dollar amounts in thousands)

(Unaudited)

 

   

Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  
                 

Net income

   $ 4,167     $ 4,896  
                 

Other comprehensive (loss) income:

                

Unrealized holding (loss) gain on securities available for sale

     (2,582 )     3,659  

Tax effect

     542       (768 )
                 

Total other comprehensive (loss) income

     (2,040 )     2,891  
                 

Comprehensive income

   $ 2,127     $ 7,787  

 

See accompanying notes to unaudited consolidated financial statements.

 

5
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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

    

Loss

    

Stock

    

Equity

  
                                                 

Balance, December 31, 2023

     9,930,704     $ 161,388     $ 100,237     $ (16,090 )   $ (39,854 )   $ 205,681  
                                                 

Net income

                     4,167                       4,167  

Other comprehensive loss

                         (2,040 )           (2,040 )

Stock-based compensation, net

     15,750       435                         435  

Common shares repurchased (43,858)

                               (1,055 )     (1,055 )

Cash dividends ($0.20 per share)

                     (1,613 )                     (1,613 )
                                                 

Balance, March 31, 2024

     9,946,454     $ 161,823     $ 102,791     $ (18,130 )   $ (40,909 )   $ 205,575  

 

                           

Accumulated

                  
                           

Other

            

Total

  
   

Common Stock

    

Retained

    

Comprehensive

    

Treasury

    

Stockholders'

  
   

Shares

    

Amount

    

Earnings

    

(Loss) Income

    

Stock

    

Equity

  
                                                 

Balance, December 31, 2022

     9,916,466     $ 161,029     $ 94,154     $ (22,144 )   $ (35,348 )   $ 197,691  
                                                 

Net income

                     4,896                       4,896  

Other comprehensive income

                         2,891             2,891  

Cumulative impact of ASC 326 adoption (CECL)

                     (4,421 )                     (4,421 )

Stock-based compensation, net

     7,779       219                               219  

Common shares repurchased (95,364)

                               (4,506 )     (4,506 )

Cash dividends ($0.20 per share)

                     (1,605 )                     (1,605 )
                                                 

Balance, March 31, 2023

     9,924,245     $ 161,248     $ 93,024     $ (19,253 )   $ (39,854 )   $ 195,165  

 

See accompanying notes to unaudited consolidated financial statements.

 

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MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

   

For the Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  

OPERATING ACTIVITIES

                

Net income

   $ 4,167     $ 4,896  

Adjustments to reconcile net income to net cash provided by operating activities:

                

(Recovery of) provision for credit losses

     (136 )     507  

Loss on equity securities

     52       138  

Software amortization expense

     22       26  

Amortization of premium and discount on investment securities, net

     140       150  

Amortization of core deposit intangibles

     258       265  

Depreciation, amortization, and accretion, net

     97       193  

Stock-based compensation, net

     -       30  

Origination of loans held for sale

     (629 )     1,494  

Proceeds from sale of loans held for sale

     639       (1,575 )

Gain on sale of loans held for sale

     (10 )     (23 )

Earnings on bank-owned life insurance

     (227 )     (200 )

Deferred income tax (benefit)

     447       (381 )

Gains on other real estate owned

     -       (2 )

(Increase) decrease in accrued interest receivable

     (131 )     25  

Increase in accrued interest payable

     3,495       230  

Other, net

     (2,745 )     665  

Net cash provided by operating activities

     5,439       6,438  
                 

INVESTING ACTIVITIES

                

Investment securities available for sale:

                

Proceeds from repayments and maturities

     167       871  

Purchases

     -       (2,000 )

Purchase of other investments

     (4 )     -  

Increase in loans, net

     (12,184 )     (29,763 )

Proceeds from the sale of other real estate owned

     -       31  

Purchase of premises and equipment

     (92 )     (263 )

Purchase of restricted stock

     -       (1,687 )

Redemption of restricted stock

     503       1,793  

Net cash used in investing activities

     (11,610 )     (31,018 )
                 

FINANCING ACTIVITIES

                

Net increase in deposits

     20,307       23,588  

Net (decrease) increase in short-term borrowings

     (26,000 )     20,000  

Repayment of other borrowings

     (50 )     (49 )

Repurchase of common shares

     (1,055 )     (4,506 )

Cash dividends

     (1,613 )     (1,605 )

Net cash (used in) provided by financing activities

     (8,411 )     37,428  
                 

(Decrease) increase in cash and cash equivalents

     (14,582 )     12,848  
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     60,836       53,809  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 46,254     $ 66,657  
                 
    For the Three Months Ended  
    March 31,  
    2024     2023  

SUPPLEMENTAL INFORMATION

                

Cash paid during the year for:

                

Interest on deposits and borrowings

   $ 6,148     $ 3,568  

Income taxes

     1,890       -  

 

See accompanying notes to unaudited consolidated financial statements.

 

7
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MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. The consolidated financial statements also include the accounts of MBC’s subsidiaries, Middlefield Investments, Inc. (“MI”) and MB Insurance Services (“MIS”). All significant inter-company items have been eliminated.

 

On March 13, 2019, MBC established MI as an operating subsidiary to hold and manage an investment portfolio. On  March 31, 2024, MI’s assets consist of a cash account, investments, and related accrued interest accounts. MI may only hold and manage investments and may not engage in any other activity without prior approval of the Ohio Division of Financial Institutions. In the first quarter of 2022, MBC established MIS as an operating subsidiary to offer retail and business customers various insurance services, including home, renters, automobile, pet, identity theft, travel, and professional liability insurance. On March 31, 2024, MIS assets consist of a cash account, a prepaid asset, and an accounts receivable. As a result of the bank merger of Liberty National Bank and MBC on December 1, 2022, Middlefield Banc Corp. acquired a 100% ownership interest in LBSI Insurance, LLC (“LBSI”), a wholly owned financial subsidiary of Liberty National Bank. LBSI did not operate after the merger, and its existence ended January 19, 2024. All significant intercompany items have been eliminated between MBC and these subsidiaries.

 

The unaudited consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of Regulation SX. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023. 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.

 

The Company’s significant accounting policies involve the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2024. However, the Company has identified critical accounting policies, and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses for the investment securities held for sale, loan portfolios, and unfunded commitments.

 

Investments 

 

Management determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

 

Investment securities classified as available for sale are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Unrealized gains or losses are reported as increases or decreases in other comprehensive income (loss), net of the deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

 

Investment securities classified as held to maturity are those securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. These securities are carried at cost, adjusted for the amortization of premium and accretion of discount, and computed by a method that approximates the interest method over the terms of the securities. As of  March 31, 2024, the Company did not hold any held-to-maturity securities.

 

Equity securities, which are included in other investments on the Consolidated Balance Sheet, are measured at fair value with changes in fair value recognized in net income.

 

The Bank adopted ASU No. 2016-13, Financial Instruments - Credit Loses - Topic (326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), effective January 1, 2023. The Bank measures expected credit losses on available-for-sale investment securities when the Bank intends to sell, or when it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available for sale investment securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Bank considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is used to calculate the present value of expected cash flows. The Bank obtains its forecast data through a subscription to a widely recognized and relied-upon company that publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario and uses a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

 

The allowance for credit losses is included within investment securities available for sale on the Consolidated Balance Sheet. Changes in the allowance for credit losses are recorded within the provision for credit losses on the Consolidated Statement of Income. Losses are charged against the allowance when the Bank believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

 

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Accrued interest receivable on available-for-sale investment securities totaled $1.6 million on  March 31, 2024, and is included within accrued interest receivable and other assets on the Consolidated Balance Sheet. This amount is excluded from the estimate of expected credit losses. Available for sale investment securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale investment securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

 

Loans

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of unearned income, which includes net deferred loan fees and costs and unamortized premiums and discounts. Accrued interest receivable is included within accrued interest receivable and other assets on the Consolidated Balance Sheet. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loans’ yield (interest income). The Bank amortizes these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method. Interest income is primarily recognized on an accrual basis according to formulas in written contracts, such as loan agreements.

 

The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial construction, commercial and industrial loans, and commercial real estate loans. Consumer loans consist of the following classes: residential real estate loans, home equity loans, and consumer loans.

 

For all classes of loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Interest received on nonaccrual loans generally is either applied against the principal or reported as interest income on a cash basis, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past-due status of all classes of loans is determined based on contractual due dates for loan payments.

 

The Bank adopted ASU 2016-13, effective January 1, 2023. Upon adoption, the reserve for credit losses on loans increased by $5.4 million. The guidance applies an expected-loss methodology, recognizing current expected credit losses for the remaining life of the asset at the time of origination or acquisition.  The allowance for credit losses ("ACL") is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

 

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions, and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

 

Management uses a discounted cash flow ("DCF") model to calculate the present value of the expected cash flows for pools of loans that share similar risk characteristics and compares the results of this calculation to the amortized cost basis to determine its ACL balance.

 

The contractual term used in projecting the cash flows of a loan is based on the maturity date of a loan and is adjusted for prepayment or curtailment assumptions, which may shorten that contractual time period. Options to extend are considered by management in determining the contractual term.

 

The key inputs to the DCF model are (1) probability of default, (2) loss given default, (3) prepayment and curtailment rates, (4) reasonable and supportable economic forecasts, (5) forecast reversion period, (6) expected recoveries on charged off loans, and (7) discount rate.

 

Probability of Default ("PD")

In order to incorporate economic factors into forecasting within the DCF model, management elected to use the Loss Driver method to generate the PD rate inputs. The Loss Driver method analyzes how one or more economic factors change the default rate using statistical regression analysis. Management selected economic factors that have strong correlations to historical default rates.

 

Loss Given Default ("LGD")

Management elected to use the Frye Jacobs parameter for determining the LGD input, which is an estimation technique that derives an LGD input from segment-specific risk curves that correlate LGD with PD.

 

Prepayment and Curtailment Rates

Prepayment Rates: Loan-level transaction data is used to calculate semi-annual prepayment rates. These semi-annual rates are annualized, and the average of the annualized rates is used in the DCF calculation for fixed payments or term loans. Rates are calculated for each pool.

 

Curtailment Rates: Loan-level transaction data is used to calculate annual curtailment rates using available historical loan-level data. The average of the historical rates is used in the DCF model for interest-only payment or line-of-credit type loans. Rates are calculated for each pool.

 

Reasonable and Supportable Forecasts

The forecast data used in the DCF model is obtained via a subscription to a widely recognized and relied-upon company that publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable forecast.

 

Forecast Reversion Period

Management uses forecasts to predict how economic factors will perform and has determined to use a four-quarter forecast period as well as an eight-quarter straight-line reversion period to historical averages (also commonly referred to as the mean reversion period).

 

Expected Recoveries on Charged-off Loans

Management performs an analysis to estimate recoveries that could be reasonably expected based on historical experience in order to account for expected recoveries on loans that have already been fully charged off and are not included in the ACL calculation.

 

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Discount Rate

The effective interest rate of the underlying loans of the Company serves as the discount rate applied to the expected periodic cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

 

Individual Evaluation

Management evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. These instruments will not be included in the collective analyses. The individual analysis will establish a specific reserve for instruments in scope.

 

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”), which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Home Equity Lines of Credit (“HELOC”), Construction and Other (“Construction”), and Consumer Installment Loans. The CRE loan segments consist of loans made to finance the activities of CRE owners and operators and certain agricultural loans. The RRE and HELOC loan segments consist of loans made to finance the activities of residential homeowners. The C&I loan segment consists of loans made to finance the activities of commercial customers and certain agricultural loans. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

 

Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. The qualitative adjustments for current conditions are based upon 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, the value of underlying collateral, concentrations of credit from a loan type, industry, and/or geographic standpoint. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.

 

The Bank has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against interest income.

 

The ACL calculation for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and should, therefore, be individually assessed. Beginning in the third quarter of 2023, the Bank automatically considers all nonaccrual loans greater than $250,000 for individual analysis. Additional identification of loans to be individually evaluated is accomplished through the Bank’s normal loan review, criticized asset review, and portfolio management processes. The Bank previously evaluated all commercial loans greater than $150,000 for individual analysis that met the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful, and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate, 2) the loan’s observable market price, or 3) the fair value of the collateral when the loan is collateral dependent. Management considers a financial asset as collateral dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral, based on management's assessment as of the reporting date. Measurement of the expected credit losses on collateral-dependent loans is based on the fair value of the collateral, less any costs to sell. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual residential real estate loans, home equity loans, and consumer loans for impairment disclosures.

 

The Bank adopted ASU No. 2016-13 effective January 1, 2023. Upon adoption, the reserve for credit losses for unfunded commitments increased by $622,000. The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on off-balance sheet credit exposures is included in accrued interest payable and other liabilities on the balance sheet and adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, consistent with the estimation process on the loan portfolio.

 

Reclassification of Comparative Amounts

 

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

 

Accounting Pronouncements Adopted in 2024

 

In  March 2023, the FASB issued ASU 2023-02, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments allow entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related tax credits. This method of accounting had been available only for qualifying investments in qualified affordable housing projects. The guidance also requires certain disclosures regarding an entity’s tax equity investments. On January 1, 2024, the Bank adopted ASU 2023-03. This ASU did not have a significant impact on the Bank’s financial statements.

 

Recent Accounting Pronouncements

 

In  January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,  March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 Issued  December 2022, which was issued in  December 2022, extended the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from  December 31, 2022 to  December 31, 2024. The ASUs are not expected to have a significant impact on the Bank’s financial statements.

 

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In  June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendment clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit account of the equity security and is not considered in measuring its fair value. The ASU clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The ASU also requires certain disclosures for equity securities subject to contractual sale restrictions. The amendments in this ASU are effective for all entities for fiscal years beginning after  December 15, 2024. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires enhanced disclosures about significant segment expenses for public entities reporting segment information under ASC Topic 280. The amendments include required disclosure of significant segment expenses regularly reviewed by the chief operating decision maker, description of the composition of other segment items, and title and position of the chief operating decision maker. Additionally, the ASU requires public entities to provide all annual disclosures under Topic 280 in interim periods. The ASU also requires that public entities with a single reportable segment provide all the disclosures required by this amendment and existing disclosure requirements in Topic 820. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has a single reportable segment. This ASU is not expected to have a significant impact on the Company's financial statements.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require entities to disclose specific categories in the rate reconciliation and provide additional information for material reconciling items. The ASU also requires the disclosure of income taxes paid disaggregated by jurisdiction. The amendments in this ASU are effective for public business entities for annual periods beginning after  December 15, 2024. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718).  The ASU amended the guidance in ASC 718 to add an example showing how to apply the scope guidance to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements.  The guidance is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years.  The Company is currently evaluating the impact of this new guidance on its financial statements.

 

 

NOTE 2 – REVENUE RECOGNITION

 

Following ASC Topic 606, Revenue from Contracts with Customers (Topic 606), management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from equity security gains (losses), gains on the sale of loans, rental income, and BOLI income, are not within the scope of ASC 606. For the three months ended March 31, 2024, these revenue sources cumulatively comprise 94.2% of the total revenue of the Company.

 

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

 

Service charges on deposit accounts – The Company has contracts with its deposit customers whereby fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be canceled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized monthly 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 the completion of the requested service/transaction.

 

Revenue from investment services – The Company earns investment services revenue through its referral agreement with LPL Financial. The performance obligation to investment management customers is satisfied over time, and therefore, revenue is recognized over time. The Company generally receives trailing investment services revenue in arrears and recognizes the revenue when the monthly statement with referral revenue is received.

 

Miscellaneous fee income – Fees earned on other services, such as ATM surcharge fees, money order fees, and check fees, are recognized at the time of the event or the applicable billing cycle.

 

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

 

   

For the Three Months Ended March 31,

  

Noninterest Income

  

2024

    

2023

  

(Dollar amounts in thousands)

                

Service charges on deposit accounts:

                

Overdraft fees

   $ 250     $ 246  

ATM banking fees

     439       472  

Service charges and other fees

     220       269  

Loss on equity securities ⁽ª⁾

     (52 )     (138 )

Gain on sale of other real estate owned ⁽ª⁾

     -       2  

Earnings on bank-owned life insurance ⁽ª⁾

     227       200  

Gain on sale of loans ⁽ª⁾

     10       23  

Revenue from investment services

     204       186  

Miscellaneous fee income

     93       86  

Gross rental income ⁽ª⁾

     67       102  

Other income

     338       232  

Total noninterest income

   $ 1,796     $ 1,680  

 

(a) Not within scope of ASC 606

 

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NOTE 3 - EARNINGS PER SHARE

 

The Company provides a 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 restricted stock to average shares outstanding.

 

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

 

   

For the Three

  
   

Months Ended

  
   

March 31,

  
   

2024

    

2023

  
                 

Weighted-average common shares outstanding

     9,941,596       9,921,529  
                 

Average treasury stock shares

     (1,850,393 )     (1,782,758 )
                 

Weighted-average common shares and common stock equivalents used to calculate basic earnings per share

     8,091,203       8,138,771  
                 

Additional common stock equivalents (stock options and restricted stock) used to calculate diluted earnings per share

     5,114       13,858  
                 

Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share

     8,096,317       8,152,629  

 

On March 31, 2024, there were 38,836 shares of restricted stock, 33,722 shares of which were anti-dilutive.

 

On March 31, 2023, there were 70,219 shares of restricted stock, 56,361 shares of which were anti-dilutive.

 

When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by the Company. As of March 31, 2024, the Company held 1,879,310 of the Company’s shares, which is an increase of 43,858 from the 1,835,452 shares held as of March 31, 2023.

 

 

 

NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

 

The following table presents the changes in accumulated other comprehensive (loss) income (“AOCI”) by component, net of tax, for the three months ended March 31, 2024, and 2023, respectively:

 

(Dollars in thousands)

   Unrealized (losses)/gains on securities available-for-sale(a)  

Balance as of December 31, 2023

   $ (16,090 )

Other comprehensive loss

     (2,040 )

Balance as of March 31, 2024

   $ (18,130 )

 

(Dollars in thousands)

   Unrealized (losses)/gains on securities available-for-sale(a)  

Balance as of December 31, 2022

   $ (22,144 )

Other comprehensive income

     2,891  

Balance as of March 31, 2023

   $ (19,253 )

 

 

(a)

All amounts are net of tax.

 

There were no other reclassifications of amounts from AOCI for the three months ended March 31, 2024, and 2023.

 

 

NOTE 5 - FAIR VALUE MEASUREMENTS

 

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

 

Level I:

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

 

Level II:

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

 

Level III:

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

 

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

 

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

 

           

March 31, 2024

          

(Dollar amounts in thousands)

  

Level I

    

Level II

    

Level III

    

Total

  

Assets measured on a recurring basis:

                                

Subordinated debt

   $ -     $ 25,186     $ 6,581     $ 31,767  

Obligations of states and political subdivisions

     -       130,103       -       130,103  

Mortgage-backed securities in government-sponsored entities

     -       6,020       -       6,020  

Total investment securities available for sale

     -       161,309       6,581       167,890  

Equity securities

     776       -       -       776  

Total

   $ 776     $ 161,309     $ 6,581     $ 168,666  

 

           

December 31, 2023

          

(Dollar amounts in thousands)

  

Level I

    

Level II

    

Level III

    

Total

  

Assets measured on a recurring basis:

                                

Subordinated debt

   $ -     $ 23,118     $ 8,801     $ 31,919  

Obligations of states and political subdivisions

     -       132,542       -       132,542  

Mortgage-backed securities in government-sponsored entities

     -       6,318       -       6,318  

Private-label mortgage-backed securities

     -       -       -       -  

Total investment securities available for sale

     -       161,978       8,801       170,779  

Equity securities

     814       -       -       814  

Total

   $ 814     $ 161,978     $ 8,801     $ 171,593  

 

Investment Securities Available for Sale

An independent pricing service provides the Company fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, benchmarked yield curve, credit spreads and prices from market makers and live trading systems (Level II). Level III securities are assets whose fair value cannot be determined by using observable measures. The inputs to the valuation methodology of these securities are unobservable and significant to the fair value measurement. Currently, this category includes certain subordinated debt investments that are valued based on the discounted cash flow approach assuming a yield curve of similarly structured instruments.

 

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of specific financial instruments could result in a different estimate of fair value at the reporting date. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments following the respective reporting dates may be different from the amounts reported at each period-end.

 

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

 

 

The following table presents the fair value reconciliation of Level III assets measured at fair value on a recurring basis.

 

   

Subordinated debt

  

(Dollar amounts in thousands)

  

March 31, 2024

    

December 31, 2023

  

Beginning of year

   $ 8,801     $ 8,737  

Purchases, sales, settlements:

                

Purchases

     -       1,000  

Transfers out of Level III (1)

     (2,250 )     (1,000 )

Net change in unrealized loss on investment securities available-for-sale

     30       64  

Balance at end of period

   $ 6,581     $ 8,801  

 

 

(1)

Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level II versus Level III criteria. The level designation of each financial instrument is reassessed at the end of each period.

 

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The following table presents the assets measured at fair value on a non-recurring basis on the Consolidated Balance Sheet by level within the fair value hierarchy.

 

           

March 31, 2024

          

(Dollar amounts in thousands)

  

Level I

    

Level II

    

Level III

    

Total

  

Assets measured on a non-recurring basis:

                                

Collateral-dependent loans

   $ -     $ -     $ 3,321     $ 3,321  

 

           

December 31, 2023

          

(Dollar amounts in thousands)

  

Level I

    

Level II

    

Level III

    

Total

  

Assets measured on a non-recurring basis:

                                

Collateral-dependent loans

   $ -     $ -     $ 3,361     $ 3,361  

 

Collateral-Dependent Loans – The Company has measured impairment on collateral-dependent individually analyzed loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based on independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property, which are also included in the net realizable value. If the fair value of the collateral-dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for credit 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 in the period in which the adjustment is recorded. 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 preceding tables include selling costs of $883,000 and $843,000 on  March 31, 2024, and  December 31, 2023, respectively.

 

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company uses Level III inputs to determine fair value:

 

   

Quantitative Information about Level III Fair Value Measurements

  

(Dollar amounts in thousands)

                    
   

Fair Value Estimate

  

Valuation Techniques

Unobservable Input

  

Range (Weighted Average)

  

March 31, 2024

                    

Collateral-dependent loans

   $ 3,321  

Appraisal of collateral (1)

Appraisal adjustments (2)

     21.0 %

 

   

Quantitative Information about Level III Fair Value Measurements

  

(Dollar amounts in thousands)

                    
   

Fair Value Estimate

  

Valuation Techniques

Unobservable Input

  

Range (Weighted Average)

  

December 31, 2023

                    

Collateral-dependent loans

   $ 3,361  

Appraisal of collateral (1)

Appraisal adjustments (2)

     20.1 %

 

 

(1)

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

(2)

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

 

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

 

   

March 31, 2024

  
   

Carrying

                            

Total

  
   

Value

    

Level I

    

Level II

    

Level III

    

Fair Value

  
   

(Dollar amounts in thousands)

  

Financial assets:

                                        

Net loans

   $ 1,469,057     $ -     $ -     $ 1,391,216     $ 1,391,216  

Mortgage servicing rights

     1,589                   2,701       2,701  
                                         

Financial liabilities:

                                        

Non-maturing deposits

   $ 1,114,744     $ 1,114,744     $ -     $ -     $ 1,114,744  

Time deposits

     332,165       -       -       329,023       329,023  

Other borrowings

     11,812       -       -       11,812       11,812  

 

   

December 31, 2023

  
   

Carrying

                            

Total

  
   

Value

    

Level I

    

Level II

    

Level III

    

Fair Value

  
   

(Dollar amounts in thousands)

  

Financial assets:

                                        

Net loans

   $ 1,456,437     $ -     $ -     $ 1,370,657     $ 1,370,657  

Mortgage servicing rights

     1,636                   2,781       2,781  
                                         

Financial liabilities:

                                        

Non-maturing deposits

   $ 1,092,287     $ 1,092,287     $ -     $ -     $ 1,092,287  

Time deposits

     334,315       -       -       331,638       331,638  

Other borrowings

     11,862       -       -       11,862       11,862  

 

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Included within other borrowings is an $8.2 million note payable, which matures in December 2037. These borrowings were used to form a special purpose entity to issue $8.0 million of floating rate, obligated mandatorily redeemable securities. The rate adjusts quarterly, equal to SOFR plus 1.67%. The borrowing is a floating rate instrument, and any difference between the cost and fair value is insignificant. 

 

In addition to the financial instruments included in the above tables, cash and cash equivalents, bank-owned life insurance, Federal Home Loan Bank (the “FHLB”) stock, other investments, accrued interest receivable, FHLB advances, finance lease liabilities, and accrued interest payable, are carried at cost, which approximates the fair value of the instruments.

 

 

NOTE 6 – INVESTMENT AND EQUITY SECURITIES

 

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

 

   

March 31, 2024

  
           

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Fair

  

(Dollar amounts in thousands)

  

Cost (a)

    

Gains

    

Losses

    

Value

  
                                 

Subordinated debt

   $ 34,300     $ 61     $ (2,594 )   $ 31,767  

Obligations of states and political subdivisions:

                                

Tax-exempt

     149,747       45       (19,689 )     130,103  

Mortgage-backed securities in government-sponsored entities

     6,793       -       (773 )     6,020  

Total

   $ 190,840     $ 106     $ (23,056 )   $ 167,890  

 

(a)

Amortized cost excludes accrued interest receivable of $1.6 million for the period ending  March 31, 2024.

 

   

December 31, 2023

  
           

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Fair

  

(Dollar amounts in thousands)

  

Cost (a)

    

Gains

    

Losses

    

Value

  
                                 

Subordinated debt

   $ 34,300     $ 70     $ (2,451 )   $ 31,919  

Obligations of states and political subdivisions:

                                

Tax-exempt

     149,881       153       (17,492 )     132,542  

Mortgage-backed securities in government-sponsored entities

     6,965       -       (647 )     6,318  

Total

   $ 191,146     $ 223     $ (20,590 )   $ 170,779  

 

(a)

 Amortized cost excludes accrued interest receivable of $1.6 million for the period ending  December 31, 2023.

 

The amortized cost and fair value of investment securities at March 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   

Amortized

    

Fair

  

(Dollar amounts in thousands)

  

Cost

    

Value

  
                 

Due in one year or less

   $ 565     $ 565  

Due after one year through five years

     2,063       1,993  

Due after five years through ten years

     56,271       53,099  

Due after ten years

     131,941       112,233  

Total

   $ 190,840     $ 167,890  

 

There were no investment securities sold during the three months ended March 31, 2024, or year ended  December 31, 2023. 

 

Investment securities with an approximate carrying value of $116.4 million and $91.2 million on  March 31, 2024, and  December 31, 2023, respectively, were pledged to secure deposits and for other purposes as required by law.

 

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

 

   

March 31, 2024

  
   

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

  
                                                 

Subordinated debt

   $ 3,743     $ (307 )   $ 26,964     $ (2,287 )   $ 30,707     $ (2,594 )

Obligations of states and political subdivisions:

                                                

Tax-exempt

     9,105       (47 )     104,148       (19,642 )     113,253       (19,689 )

Mortgage-backed securities in government-sponsored entities

     147       (3 )     5,873       (770 )     6,020       (773 )

Total

   $ 12,995     $ (357 )   $ 136,985     $ (22,699 )   $ 149,980     $ (23,056 )

 

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Table of Contents
 
   

December 31, 2023

  
   

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

  
                                                 

Subordinated debt

   $ 994     $ (6 )   $ 29,356     $ (2,445 )   $ 30,350     $ (2,451 )

Obligations of states and political subdivisions:

                                                

Tax-exempt

     1,386       (10 )     106,078       (17,482 )     107,464       (17,492 )

Mortgage-backed securities in government-sponsored entities

     195       (1 )     6,122       (646 )     6,317       (647 )

Total

   $ 2,575     $ (17 )   $ 141,556     $ (20,573 )   $ 144,131     $ (20,590 )

 

Every quarter, the Company evaluates investment securities with unrealized losses to determine if the decline in fair value has resulted from credit losses or other factors. There were 18 securities in an unrealized loss position for less than twelve months and 166 securities in an unrealized loss position for twelve months or greater on March 31, 2024. Unrealized losses on investment securities available for sale have not been recognized into income because we do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. The unrealized losses on investment securities were attributable to changes in interest rates and not related to the credit quality of these issuers. As of March 31, 2024, no ACL was required on investment securities available for sale.

 

Other investments, which primarily represents equity securities, totaled $907,000 and $955,000 at March 31, 2024 and December 31, 2023, respectively. The Company recognized a net loss on other investments of $52,000 and $138,000 for the three months ended March 31, 2024 and 2023, respectively. No other investments were sold during these periods.

 

NOTE 7 – LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

 

The following table summarizes the loan portfolio by primary segment and class of financial receivable (in thousands) (a)(b):

 

   

March 31,

    

December 31,

  
   

2024

    

2023

  
                 

Commercial real estate:

                

Owner occupied

   $ 178,543     $ 183,545  

Non-owner occupied

     398,845       401,580  

Multifamily

     81,691       82,506  

Residential real estate

     331,480       328,854  

Commercial and industrial

     227,433       221,508  

Home equity lines of credit

     129,287       127,818  

Construction and Other

     135,716       125,105  

Consumer installment

     7,131       7,214  

Total loans

     1,490,126       1,478,130  

Less: Allowance for credit losses

     (21,069 )     (21,693 )

Net loans

   $ 1,469,057     $ 1,456,437  

 

(a)

Accrued interest of $5.6 million and $5.5 million at  March 31, 2024 and December 31, 2023, respectively, is excluded from amortized cost and presented in "Accrued interest receivable and other assets" on the Consolidated Balance Sheets.

(b)

Unearned income, including net deferred loan fees and costs and unamortized premiums and discounts, totaled $9.1 million and $9.2 million at March 31, 2024 and December 31, 2023, respectively.

 

Allowance for Credit Losses: Loans

 

On January 1, 2023, the Company adopted ASU 2016-13. This methodology for calculating the allowance for credit losses considers the possibility of loss over the life of the loan. It also considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL estimate under the current expected loss model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements. An ACL is maintained to absorb losses from the loan portfolio. The ACL 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.

 

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

 

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

 

   

For the Three Months Ended March 31, 2024

  
   

Allowance for Credit Losses

  
   

Balance

                            

Balance

  
   

December 31, 2023

    

Charge-offs

    

Recoveries

    

Provision

    

March 31, 2024

  

Loans:

                                        

Commercial real estate:

                                        

Owner occupied

   $ 2,668     $ -     $ 11     $ (619 )   $ 2,060  

Non-owner occupied

     4,480       -       -       3,288       7,768  

Multifamily

     1,796       -       -       (592 )     1,204  

Residential real estate

     5,450       -       -       (676 )     4,774  

Commercial and industrial

     4,377       -       8       (2,347 )     2,038  

Home equity lines of credit

     750       (7 )     -       42       785  

Construction and other

     1,990       -       -       383       2,373  

Consumer installment

     182       -       56       (171 )     67  

Total

   $ 21,693     $ (7 )   $ 75     $ (692 )   $ 21,069  

 

   

For the Three Months Ended March 31, 2023

  
   

Allowance for Credit Losses

  
   

Balance

    

CECL

                            

Balance

  
   

December 31, 2022

    

Adoption

    

Charge-offs

    

Recoveries

    

Provision

    

March 31, 2023

  

Loans:

                                                

Commercial real estate:

                                                

Owner occupied

   $ 2,203     $ 811     $ -     $ 1     $ (337 )   $ 2,678  

Non-owner occupied

     5,597       (1,206 )     -       -       321       4,712  

Multifamily

     662       591       -       -       118       1,371  

Residential real estate

     2,047       2,744       -       -       176       4,967  

Commercial and industrial

     1,483       2,320       (54 )     10       60       3,819  

Home equity lines of credit

     1,753       (1,031 )     -       70       17       809  

Construction and other

     609       956       -       -       (12 )     1,553  

Consumer installment

     84       197       (58 )     39       (9 )     253  

Total

   $ 14,438     $ 5,382     $ (112 )   $ 120     $ 334     $ 20,162  

 

The total ACL decreased by $624,000, or 2.9%, from  December 31, 2023 to March 31, 2024. The decrease was driven by portfolio activity and the economic outlook. The Bank utilized Moody’s December 2023 consensus information to estimate credit losses. The forecast takes into account the national housing price index and national unemployment rates. To the extent that credit risk is not fully identified within the forecasts, management has made qualitative adjustments to the ACL balance. The fluctuation in the ACL can also be attributed to the following:

• Increased non-owner occupied CRE and construction as well as an increase in loss rate included in the ACL calculation.

• Decreased C&I and Owner occupied CRE as well as a decrease in loss rate included in the ACL calculation.

 

The provision fluctuations during the three months ended March 31, 2023, allocated to:

• non-owner occupied commercial loans, multifamily loans, and residential real estate loans are due to an increase in outstanding balances.

• owner-occupied loans are due to a decrease in outstanding balances

 

Credit Quality Indicators

 

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidelines established by the Board of Directors. Loans are individually analyzed when, based on current information and events, the Company will probably 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 credit loss 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 concerning the principal and interest owed. 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 quarterly. 

 

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but have potential weaknesses, resulting in 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. A loan categorized as Doubtful contains all of the weaknesses as a Substandard loan with the added characteristic that the weaknesses are so pronounced that the collection or liquidation in full of both principal and interest is highly questionable or improbable. Any portion of a loan that has been charged off is placed in the Loss category.

 

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Table of Contents
 

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 loss. 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 $750,000 or greater. Detailed reviews, including plans for resolution, are performed on criticized loans of $150,000 or more 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.

 

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.

 

The following table represents outstanding loan balances by credit quality indicators and vintage year by class of financing receivable and current period gross charge-offs by year of origination as of March 31, 2024:

 

March 31, 2024

  

Term Loans Amortized Cost Basis by Origination Year

    

Revolving Amortized

          

(Dollar amounts in thousands)

  

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Cost Basis

    

Total

  

Commercial real estate:

                                                                

Owner occupied

                                                                

Pass

   $ 1,578     $ 14,302     $ 31,905     $ 39,988     $ 24,704     $ 52,482     $ 2,815     $ 167,774  

Special Mention

     -       -       2,256       411       -       801       -       3,468  

Substandard

     -       -       2,345       -       1,549       3,407       -       7,301  

Total Owner occupied

   $ 1,578     $ 14,302     $ 36,506     $ 40,399     $ 26,253     $ 56,690     $ 2,815     $ 178,543  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Non-owner occupied

                                                                

Pass

   $ 1,738     $ 44,287     $ 95,604     $ 40,639     $ 22,463     $ 149,349     $ -     $ 354,080  

Special Mention

     -       -       2,508       -       -       2,163       -       4,671  

Substandard

     -       -       -       -       -       35,588       -       35,588  

Doubtful

     -       -       -       647       -       3,859       -       4,506  

Total Non-owner occupied

   $ 1,738     $ 44,287     $ 98,112     $ 41,286     $ 22,463     $ 190,959     $ -     $ 398,845  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Multifamily

                                                                

Pass

   $ -     $ 29,008     $ 25,617     $ 4,235     $ 10,354     $ 12,378     $ 99     $ 81,691  

Total Multifamily

   $ -     $ 29,008     $ 25,617     $ 4,235     $ 10,354     $ 12,378     $ 99     $ 81,691  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Residential real estate

                                                                

Pass

   $ 9,477     $ 49,672     $ 55,248     $ 77,851     $ 38,676     $ 98,345     $ 690     $ 329,959  

Substandard

     -       -       124       109       -       1,288       -       1,521  

Total Residential real estate

   $ 9,477     $ 49,672     $ 55,372     $ 77,960     $ 38,676     $ 99,633     $ 690     $ 331,480  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Commercial and industrial

                                                                

Pass

   $ 10,679     $ 45,309     $ 41,062     $ 16,611     $ 23,381     $ 6,244     $ 66,241     $ 209,527  

Special Mention

     214       -       -       -       -       -       925       1,139  

Substandard

     -       5,012       14       -       345       940       10,460       16,771  

Loss

     -       -       -       -       -       (4 )     -       (4 )

Total Commercial and industrial

   $ 10,893     $ 50,321     $ 41,076     $ 16,611     $ 23,726     $ 7,180     $ 77,626     $ 227,433  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Home equity lines of credit

                                                                

Pass

   $ -     $ -     $ 155     $ -     $ 15     $ 1,953     $ 125,655     $ 127,778  

Substandard

     -       -       104       -       36       583       786       1,509  

Total Home equity lines of credit

   $ -     $ -     $ 259     $ -     $ 51     $ 2,536     $ 126,441     $ 129,287  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ 7     $ -     $ 7  

Construction and other

                                                                

Pass

   $ 989     $ 65,912     $ 24,122     $ 19,942     $ 1,618     $ 4,202     $ 9,558     $ 126,343  

Special Mention

     -       -       3,566       2,351       -       254       -       6,171  

Substandard

     -       -       -       420       -       1,771       1,011       3,202  

Total Construction and other

   $ 989     $ 65,912     $ 27,688     $ 22,713     $ 1,618     $ 6,227     $ 10,569     $ 135,716  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Consumer installment

                                                                

Pass

   $ 514     $ 1,623     $ 966     $ 228     $ 71     $ 3,534     $ -     $ 6,936  

Substandard

     -       -       5       6       -       184       -       195  

Total Consumer installment

   $ 514     $ 1,623     $ 971     $ 234     $ 71     $ 3,718     $ -     $ 7,131  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Total Loans

   $ 25,189     $ 255,125     $ 285,601     $ 203,438     $ 123,212     $ 379,321     $ 218,240     $ 1,490,126  

 

18
Table of Contents
 

December 31, 2023

  

Term Loans Amortized Cost Basis by Origination Year

    

Revolving Amortized

          

(Dollar amounts in thousands)

  

2023

    

2022

    

2021

    

2020

    

2019

    

Prior

    

Cost Basis

    

Total

  

Commercial real estate:

                                                                

Owner occupied

                                                                

Pass

   $ 14,634     $ 34,850     $ 41,609     $ 25,040     $ 12,304     $ 41,976     $ 2,662     $ 173,075  

Special Mention

     -       2,271       -       -       13       799       -       3,083  

Substandard

     -       2,356       -       1,559       146       3,326       -       7,387  

Total Owner occupied

   $ 14,634     $ 39,477     $ 41,609     $ 26,599     $ 12,463     $ 46,101     $ 2,662     $ 183,545  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ 46     $ -     $ 46  

Non-owner occupied

                                                                

Pass

   $ 43,393     $ 95,098     $ 40,959     $ 22,707     $ 32,405     $ 127,469     $ 504     $ 362,535  

Special Mention

     -       2,508       -       -       -       2,197       -       4,705  

Substandard

     -       -       -       -       5,237       24,569       -       29,806  

Doubtful

     -       -       647       -       3,887       -       -       4,534  

Total Non-owner occupied

   $ 43,393     $ 97,606     $ 41,606     $ 22,707     $ 41,529     $ 154,235     $ 504     $ 401,580  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Multifamily

                                                                

Pass

   $ 29,218     $ 25,776     $ 4,267     $ 10,453     $ 1,391     $ 11,231     $ 104     $ 82,440  

Substandard

     -       -       -       -       -       66       -       66  

Total Multifamily

   $ 29,218     $ 25,776     $ 4,267     $ 10,453     $ 1,391     $ 11,297     $ 104     $ 82,506  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Residential real estate

                                                                

Pass

   $ 50,086     $ 56,180     $ 78,909     $ 39,476     $ 19,418     $ 82,441     $ 672     $ 327,182  

Substandard

     -       127       210       -       24       1,311       -       1,672  

Total Residential real estate

   $ 50,086     $ 56,307     $ 79,119     $ 39,476     $ 19,442     $ 83,752     $ 672     $ 328,854  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ 108     $ -     $ 108  

Commercial and industrial

                                                                

Pass

   $ 46,918     $ 43,494     $ 17,909     $ 25,143     $ 2,741     $ 6,533     $ 66,842     $ 209,580  

Special Mention

     -       -       -       -       -       -       184       184  

Substandard

     13       15       -       353       124       876       10,367       11,748  

Loss

     -       -       -       -       -       (4 )     -       (4 )

Total Commercial and industrial

   $ 46,931     $ 43,509     $ 17,909     $ 25,496     $ 2,865     $ 7,405     $ 77,393     $ 221,508  

Current-period gross charge-offs

   $ -     $ -     $ 75     $ -     $ 6     $ 4     $ -     $ 85  

Home equity lines of credit

                                                                

Pass

   $ -     $ 126     $ -     $ 16     $ 63     $ 2,097     $ 124,001     $ 126,303  

Substandard

     -       105       -       36       29       583       762       1,515  

Total Home equity lines of credit

   $ -     $ 231     $ -     $ 52     $ 92     $ 2,680     $ 124,763     $ 127,818  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Construction and other

                                                                

Pass

   $ 55,528     $ 23,059     $ 20,246     $ 1,777     $ 5,609     $ 851     $ 9,152     $ 116,222  

Special Mention

     -       3,573       2,371       -       265       -       -       6,209  

Substandard

     -       -       420       -       1,770       -       484       2,674  

Total Construction and other

   $ 55,528     $ 26,632     $ 23,037     $ 1,777     $ 7,644     $ 851     $ 9,636     $ 125,105  

Current-period gross charge-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Consumer installment

                                                                

Pass

   $ 1,810     $ 1,088     $ 324     $ 89     $ 74     $ 3,669     $ -     $ 7,054  

Substandard

     -       7       -       -       -       153       -       160  

Total Consumer installment

   $ 1,810     $ 1,095     $ 324     $ 89     $ 74     $ 3,822     $ -     $ 7,214  

Current-period gross charge-offs

   $ -     $ 25     $ -     $ -     $ -     $ 38     $ -     $ 63  

Total Loans

   $ 241,600     $ 290,633     $ 207,871     $ 126,649     $ 85,500     $ 310,143     $ 215,734     $ 1,478,130  

 

Collateral-dependent Loans

 

The following table presents individually analyzed and collateral-dependent loans by class of loans (in thousands):

 

   

March 31, 2024

  
   

Type of Collateral

  

(Dollar amounts in thousands)

  

Real Estate

    

Blanket Lien

    

Investment/Cash

    

Other

    

Total

  

Commercial real estate:

                                        

Owner occupied

   $ 2,345     $ -     $ -     $ -     $ 2,345  
Non-owner occupied     8,122       -       -       1,894       10,016  
Commercial and industrial     -       14,948       -       -       14,948  

Total

   $ 10,467     $ 14,948     $ -     $ -     $ 27,309  

 

 

   

December 31, 2023

  
   

Type of Collateral

  

(Dollar amounts in thousands)

  

Real Estate

    

Blanket Lien

    

Investment/Cash

    

Other

    

Total

  

Commercial real estate:

                                        

Non-owner occupied

   $ 8,150     $ -     $ -     $ -     $ 8,150  

Total

   $ 8,150     $ -     $ -     $ -     $ 8,150  

 

 

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Nonperforming and Past Due Loans 

 

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

 

           

30-59 Days

    

60-89 Days

    

90 Days+

    

Total

    

Total

  

March 31, 2024

  

Current

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Loans

  
                                                 

Commercial real estate:

                                                

Owner occupied

   $ 178,158     $ 279     $ -     $ 106     $ 385     $ 178,543  

Non-owner occupied

     391,238       3,991       -       3,616       7,607       398,845  

Multifamily

     81,691       -       -       -       -       81,691  

Residential real estate

     328,670       2,132       678       -       2,810       331,480  

Commercial and industrial

     226,900       392       50       91       533       227,433  

Home equity lines of credit

     128,648       171       23       445       639       129,287  

Construction and other

     135,716       -       -       -       -       135,716  

Consumer installment

     7,123       8       -       -       8       7,131  

Total

   $ 1,478,144     $ 6,973     $ 751     $ 4,258     $ 11,982     $ 1,490,126  

 

           

30-59 Days

    

60-89 Days

    

90 Days+

    

Total

    

Total

  

December 31, 2023

  

Current

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Loans

  
                                                 

Commercial real estate:

                                                

Owner occupied

   $ 183,242     $ 197     $ -     $ 106     $ 303     $ 183,545  

Non-owner occupied

     397,964       3,616       -       -       3,616       401,580  

Multifamily

     82,440       -       -       66       66       82,506  

Residential real estate

     326,224       1,366       1,010       254       2,630       328,854  

Commercial and industrial

     221,304       -       146       58       204       221,508  

Home equity lines of credit

     126,894       447       180       297       924       127,818  

Construction and other

     125,040       65       -       -       65       125,105  

Consumer installment

     7,138       69       -       7       76       7,214  

Total

   $ 1,470,246     $ 5,760     $ 1,336     $ 788     $ 7,884     $ 1,478,130  

 

The following tables present the recorded investment in nonaccrual loans and loans 90 and greater days past due and still on accrual by class of loans (in thousands):

 

   

March 31, 2024

  
   

Nonaccrual

    

Nonaccrual

            

Loans Past

          

(Dollar amounts in thousands)

  

with no

    

with

    

Total

    

Due Over 90 Days

    

Total

  
   

ACL

    

ACL

    

Nonaccrual

    

Still Accruing

    

Nonperforming

  

Commercial real estate:

                                        

Owner occupied

   $ -     $ 245     $ 245     $ -     $ 245  

Non-owner occupied

     4,505       3,617       8,122       -       8,122  

Multifamily

     -       33       33       -       33  

Residential real estate

     -       1,024       1,024       -       1,024  

Commercial and industrial

     -       266       266       -       266  

Home equity lines of credit

     -       850       850       96       946  

Consumer installment

     184       11       195       -       195  

Total

   $ 4,689     $ 6,046     $ 10,735     $ 96     $ 10,831  

 

   

December 31, 2023

  
   

Nonaccrual

    

Nonaccrual

            

Loans Past

          

(Dollar amounts in thousands)

  

with no

    

with

    

Total

    

Due Over 90 Days

    

Total

  
   

ACL

    

ACL

    

Nonaccrual

    

Still Accruing

    

Nonperforming

  

Commercial real estate:

                                        

Owner occupied

   $ -     $ 252     $ 252     $ -     $ 252  

Non-owner occupied

     4,534       3,616       8,150       -       8,150  

Multifamily

     -       66       66       -       66  

Residential real estate

     -       1,170       1,170       -       1,170  

Commercial and industrial

     -       223       223       -       223  

Home equity lines of credit

     -       856       856       -       856  

Consumer installment

     153       7       160       -       160  

Total

   $ 4,687     $ 6,190     $ 10,877     $ -     $ 10,877  

 

 

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $128,000 and $115,000 for the three months ended March 31, 2024 and 2023, respectively.

 

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Modifications to Borrowers Experiencing Financial Difficulty

 

Effective January 1, 2023, the Company implemented ASU 2022-02, which eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. The Bank may modify the contractual terms of a loan to a borrower experiencing financial difficulty to mitigate the risk of loss. Such modifications may include a term extension, interest rate reduction, significant payment deferral, other modifications, or a combination of modification types. In general, any delay in payment of greater than 90 days in the last 12 months is considered to be a significant payment deferral.

 

The table below details the amortized cost basis of the loans modified to borrowings experiencing financial difficulty, disaggregated by class of loans and type of concessions granted, and the financial effect of the modifications:

 

   

For the Three Months Ended March 31, 2024

  
   

Modifications

  
                   

Payment

    

Interest Rate

    

Interest Rate

            

Percentage of

  
                   

Deferral

    

Reduction

    

Reduction

            

Total Loans

  
   

Payment

    

Term

    

and Term

    

and Term

    

and Principal

            

Held for

  
   

Deferral

    

Extension

    

Extension

    

Past Due

    

Forgiveness

    

Total

    

Investment

  
                                                         

Commercial real estate:

                                                        

Non-owner occupied

   $ -     $ 14,924     $ 2,507     $ -     $ -     $ 17,431       1.2 %

Construction and other

     -       3,202       -       -       -       3,202       0.2 %

Total

   $ -     $ 18,126     $ 2,507     $ -     $ -     $ 20,633       1.4 %

 

   

For the Three Months Ended March 31, 2023

  
   

Modifications

  
                   

Payment

    

Interest Rate

    

Interest Rate

            

Percentage of

  
                   

Deferral

    

Reduction

    

Reduction

            

Total Loans

  
   

Payment

    

Term

    

and Term

    

and Term

    

and Principal

            

Held for

  
   

Deferral

    

Extension

    

Extension

    

Past Due

    

Forgiveness

    

Total

    

Investment

  
                                                         

Commercial real estate:

                                                        

Non-owner occupied

   $ -     $ 4,179     $ -     $ -     $ -     $ 4,179       0.3 %

Commercial and industrial

     -       149       -       -       -       149       0.0 %

Consumer installment

     -       8       -       -       -       8       0.0 %

Total

   $ -     $ 4,336     $ -     $ -     $ -     $ 4,336       0.3 %

 

As of March 31, 2024, the Bank had no commitments to lend additional funds on modified loans. As of March 31, 2024, the Bank did not have any loans that were modified for borrowers experiencing financial difficulty and subsequently defaulted. As of March 31, 2024, there were no modified loans that were delinquent. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first. At  March 31, 2024 and  December 31, 2023, the Company reported $262,000 and $228,000, respectively, in residential real estate loans in the process of foreclosure.

 

Allowance for Credit Losses: Unfunded Commitments

 

Upon adoption of ASU 2016-13 on January 1, 2023, the Company recorded a separate ACL for unfunded commitments using a methodology that is inherently similar to the methodology used for calculating the ACL for loans. The liability for credit losses on these exposures is included in “Accrued interest payable and other liabilities” on the Consolidated Balance Sheet and amounted to $2.3 million and $1.8 million as of March 31, 2024, and December 31, 2023, respectively. 

 

 

NOTE 8 – COMMITMENTS AND CONTINGENT LIABILITIES

 

In the ordinary course of business, various outstanding commitments and certain contingent liabilities are not reflected in the accompanying consolidated financial statements. These commitments and contingent liabilities represent financial instruments with off-balance-sheet risk. The contract or notional amounts of those instruments reflect the extent of involvement in particular types of financial instruments.

 

Commitments to Extend Credit which were composed of the following:

 

(Dollar amounts in thousands)

  

March 31, 2024

    

December 31, 2023

  
                 

Commitments to extend credit

   $ 490,178     $ 418,952  

Standby letters of credit

     5,000       5,884  
                 

Total

   $ 495,178     $ 424,836  

 

The commitments to extend credit involve, to varying degrees, elements of credit and interest rate risk over the amount recognized in the Consolidated Balance Sheet. The Company’s exposure to credit loss, in the event of nonperformance by the other parties to the financial instruments, is represented by the contractual amounts as disclosed. The Company minimizes its exposure to credit loss under these commitments by subjecting them to credit approval, review procedures, and collateral requirements as deemed necessary. Loan commitments generally have fixed expiration dates within one year of their origination. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically one year, with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized over the coverage period. The collateral is typically bank deposit instruments or customer business assets for secured letters of credit.

 

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Commitments to Fund

 

In August 2023, we invested in a low-income housing tax credit operating partnership. As a limited partner, we are allocated tax credits and deductions associated with the underlying properties. Our maximum exposure to loss in connection with the partnership consists of the unamortized investment balance plus any unfunded equity commitments and tax credits claimed but subject to recapture. The investment at March 31, 2024 and December 31, 2023, was $1.9 million and $2.0 million, respectively, and recorded in the Consolidated Balance Sheet in "Accrued interest receivable and other assets". We do not have any loss reserves recorded since we believe the likelihood of loss is remote. The investment is amortized over the period that we expect to receive the tax benefits using the proportional amortization method. For the three months ended March 31, 2024, we recognized $21,000 of amortization. At March 31, 2024 and December 31, 2023, we had an unfunded tax credit commitment of $1.7 million, which is recorded in the Consolidated Balance Sheet in "Accrued interest payable and other liabilities".

 

Cannabis Industry

 

We provide deposit services to customers who are licensed by the State of Ohio to do business in (or are related to) the Division of Cannabis Control as growers, processors, and dispensaries. Marijuana businesses are regulated by the Ohio Department of Commerce and legal in the State of Ohio, although it is not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state-legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted as a new client, including confirmation that the business is properly licensed by the State of Ohio. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.

 

While we believe we are operating in compliance with the FinCEN guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion, and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position could cause us to immediately cease providing banking services to the cannabis industry. We are upfront with our customers regarding the fact that we may have to terminate our deposit services relationship if a change occurs with the Federal government’s position, and that the termination may come with little or no notice.

 

Litigation

 

As previously disclosed, a cyber-attack occurred in April 2023 that resulted in a temporary disruption to our computer systems. A cybersecurity firm investigated the nature and scope of the incident, evaluated our systems, and confirmed that nonpublic information relating to current and former employees, customers, and others was obtained from our systems. We have no knowledge as to how the unauthorized third party has or plans to use the impacted data. On January 8, 2024, a customer filed a lawsuit against The Middlefield Banking Company in the U.S. District Court for the Northern District of Ohio related to the cyber-attack incident. A similar lawsuit was filed on January 10, 2024, against the Middlefield Banking Company in the Court of Common Pleas for Cuyahoga County, Ohio. The plaintiffs and class members in the two cases, who are current and former customers of the Bank, claim to have been harmed by alleged actions or inactions by the Bank in connection with the incident. The plaintiffs assert a variety of common law and statutory claims regarding the compromised nonpublic information and seek monetary damages, equitable and injunctive relief, pre-judgment and post-judgment interest, awards of actual and punitive damages, costs and attorneys’ fees, and other related relief. We dispute the allegations in the lawsuits.

 

We maintain a cyber risk insurance policy to cover the costs resulting from cyber-attacks, such as the event that occurred in April 2023. The policy has an aggregate limit of $3 million and a deductible of $50,000. The policy includes coverage for business loss, breach response, and liabilities that could occur as a result of a cyber event. We believe that our insurance policy will fully cover the losses associated with these lawsuits; however, it is possible that the losses could exceed the policy limit. It is not possible to reasonably estimate the amount of such losses or range of losses that might result from the resolution of the lawsuit filed in Cuyahoga County Common Pleas Court. We expect that any costs associated with these lawsuits, including attorney fees, adverse judgments or settlements, will be billed to and paid by the insurance company in accordance with the terms of the policy.

 

 

NOTE 9 - RELATED PARTY TRANSACTION

 

Loans to principal officers, directors, and their affiliates during March 31, 2024 and December 31, 2023 were as follows:

 

(Dollars in thousands)

  

March 31, 2024

    

December 31, 2023

  

Beginning balance

   $ 24,185     $ 2,057  

New loans

     2,259       23,922  

Repayments

     (76 )     (1,794 )

Ending balance

   $ 26,368     $ 24,185  

 

Deposits of related parties amount to $33.3 million and $33.1 million as of  March 31, 2024 and  December 31, 2023, respectively.

 

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

 

This Form 10-Q contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on a variety of estimates and assumptions.  The estimates and assumptions involve judgments about a number of things, including future economic, competitive, cybersecurity, and financial market conditions, conflicts around the world, and future business decisions.  These matters are inherently subject to significant business, economic, and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company's control.  Although the Company believes its estimates and assumptions are reasonable, actual results could vary materially from those shown.  The inclusion of forward-looking information does not constitute a representation by the Company or any other person that the indicated results will be achieved.  Investors are cautioned not to place undue reliance on forward-looking information.

 

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These forward-looking statements may involve significant risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results in these forward-looking statements.

 

CHANGES IN FINANCIAL CONDITION

 

Overview

 

The following is management’s discussion and analysis of certain significant factors that have affected the financial condition and results of operations of the Company as reflected on the unaudited Consolidated Balance Sheet as of March 31, 2024, as compared with December 31, 2023, and operating results for the three month periods ended March 31, 2024, and 2023. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

 

This discussion contains certain performance measures determined by methods other than under GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include tangible book value per common share, return on average tangible common equity, and pre-tax, pre-provision income. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.

 

2024 Three-Month Financial Highlights (on a year-over-year basis unless noted):

 

 

●

 Net income was $4.2 million, compared to $4.9 million for the quarter ended March 31, 2023, and $3.5 million for the quarter ended December 31, 2023
 

●

 Earnings were $0.51 per diluted share, compared to $0.60 per diluted share for the quarter ended March 31, 2023, and $0.44 per diluted share for the quarter ended December 31, 2023
 

●

 Net interest income after the provision for credit losses was $15.1 million, compared to $16.0 million
 

●

 Noninterest income increased 6.9% to $1.8 million
 

●

 Total loans increased 7.8% to a record $1.49 billion
 

●

 Total deposits were $1.45 billion, compared to $1.43 billion
 

●

 Return on average assets annualized was 0.92%, compared to 0.78% for the quarter ended December 31, 2023
 

●

 Return on average equity annualized was 8.16%, compared to 7.13% for the quarter ended December 31, 2023
 

●

 Return on average tangible common equity(1) was 10.30%, compared to 9.11% for the quarter ended December 31, 2023
 

●

 Excellent asset quality with nonperforming assets to total assets of 0.60%, compared to 0.73%
 

●

 Allowance for credit losses was 1.41% of total loans, compared to 1.46%
 

●

 Equity to assets remained strong at 11.32%, compared to 11.30%
 

●

 Book value increased 5.6% to $25.48 per share

 

 

(1)

  See non-GAAP reconciliation under the section “GAAP to Non-GAAP Reconciliations”

 

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

                                        
   

For the Three Months Ended

  
   

Mar 31,

    

Dec 31,

    

Sep 30,

    

Jun 30,

    

Mar 31,

  
   

2024

    

2023

    

2023

    

2023

    

2023

  

Per common share data

                                        

Net income per common share - basic

   $ 0.52     $ 0.44     $ 0.47     $ 0.63     $ 0.60  

Net income per common share - diluted

   $ 0.51     $ 0.44     $ 0.47     $ 0.63     $ 0.60  

Dividends declared per share

   $ 0.20     $ 0.25     $ 0.20     $ 0.20     $ 0.20  

Book value per share (period end)

   $ 25.48     $ 25.41     $ 23.94     $ 24.38     $ 24.13  

Tangible book value per share (period end) (1) (2)

   $ 20.18     $ 20.10     $ 18.62     $ 19.02     $ 19.29  

Dividends declared

   $ 1,613     $ 2,023     $ 1,619     $ 1,616     $ 1,605  

Dividend yield

     3.37 %     3.06 %     3.12 %     2.99 %     2.89 %

Dividend payout ratio

     38.71 %     57.10 %     42.21 %     31.74 %     32.78 %

Average shares outstanding - basic

     8,091,203       8,093,478       8,092,494       8,088,793       8,138,771  

Average shares outstanding - diluted

     8,096,317       8,116,261       8,101,306       8,101,984       8,152,629  

Period ending shares outstanding

     8,067,144       8,095,252       8,092,576       8,088,793       8,088,793  
                                         

Selected ratios

                                        

Return on average assets (Annualized)

     0.92 %     0.78 %     0.86 %     1.17 %     1.16 %

Return on average equity (Annualized)

     8.16 %     7.13 %     7.73 %     10.41 %     10.19 %

Return on average tangible common equity (1) (3)

     10.30 %     9.11 %     9.91 %     13.12 %     12.77 %

Efficiency (4)

     68.68 %     68.99 %     65.65 %     61.27 %     62.44 %

Equity to assets at period end

     11.32 %     11.28 %     10.80 %     11.26 %     11.30 %

Noninterest expense to average assets

     0.66 %     0.68 %     0.68 %     0.69 %     0.69 %

 

(1) See section “GAAP to Non-GAAP Reconciliations” for the reconciliation of GAAP performance measures to non-GAAP measures.

(2) Calculated by dividing tangible common equity by shares outstanding.

(3) Calculated by dividing annualized net income for each period by average tangible common equity.

(4) The efficiency ratio is calculated by dividing noninterest expense less amortization of intangibles by the sum of net interest income on a fully taxable-equivalent basis plus noninterest income.

 

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For the Three Months Ended

  
   

Mar 31,

    

Dec 31,

    

Sep 30,

    

Jun 30,

    

Mar 31,

  

Yields

  

2024

    

2023

    

2023

    

2023

    

2023

  

Interest-earning assets:

                                        

Loans receivable (1)

     6.11 %     6.01 %     5.82 %     5.96 %     5.45 %

Investment securities (1) (2)

     3.52 %     3.52 %     3.51 %     3.54 %     3.55 %

Interest-earning deposits with other banks

     4.88 %     3.71 %     4.13 %     3.98 %     3.46 %

Total interest-earning assets

     5.77 %     5.64 %     5.49 %     5.60 %     5.14 %

Deposits:

                                        

Interest-bearing demand deposits

     1.86 %     1.67 %     1.51 %     1.11 %     0.83 %

Money market deposits

     3.81 %     3.58 %     2.94 %     2.21 %     1.52 %

Savings deposits

     0.58 %     0.59 %     0.58 %     0.73 %     1.03 %

Certificates of deposit

     4.06 %     3.68 %     3.27 %     2.35 %     1.71 %

Total interest-bearing deposits

     2.88 %     2.56 %     2.16 %     1.60 %     1.28 %

Non-Deposit Funding:

                                        

Borrowings

     5.61 %     5.57 %     5.66 %     5.26 %     4.78 %

Total interest-bearing liabilities

     3.23 %     2.96 %     2.48 %     2.02 %     1.52 %

Cost of deposits

     2.08 %     1.81 %     1.53 %     1.09 %     0.84 %

Cost of funds

     2.42 %     2.18 %     1.80 %     1.43 %     1.02 %

Net interest margin (3)

     3.54 %     3.63 %     3.82 %     4.27 %     4.19 %

 

(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were determined using an effective tax rate of 21%.

(2) Yield is calculated on the basis of amortized cost.
(3) Net interest margin represents net interest income as a percentage of average interest-earning assets

 

GAAP to Non-GAAP Reconciliations

 

Reconciliation of Common Stockholders' Equity to Tangible Common Equity

  

For the Period Ended

  

(Dollar amounts in thousands, unaudited)

  

Mar 31,

    

Dec 31,

    

Sep 30,

    

Jun 30,

    

Mar 31,

  
   

2024

    

2023

    

2023

    

2023

    

2023

  
                                         

Stockholders' equity

   $ 205,575     $ 205,681     $ 193,749     $ 197,227     $ 195,165  

Less goodwill and other intangibles

     42,740       42,998       43,103       43,368       39,171  

Tangible common equity

   $ 162,835     $ 162,683     $ 150,646     $ 153,859     $ 155,994  
                                         

Shares outstanding

     8,067,144       8,095,252       8,092,576       8,088,793       8,088,793  

Tangible book value per share

   $ 20.18     $ 20.10     $ 18.62     $ 19.02     $ 19.29  

 

Reconciliation of Average Equity to Return on Average Tangible Common Equity

  

For the Three Months Ended

  
                                         
   

Mar 31,

    

Dec 31,

    

Sep 30,

    

Jun 30,

    

Mar 31,

  
   

2024

    

2023

    

2023

    

2023

    

2023

  
                                         

Average stockholders' equity

   $ 205,342     $ 197,208     $ 196,795     $ 196,183     $ 194,814  

Less average goodwill and other intangibles

     42,654       42,972       43,232       40,522       39,300  

Average tangible common equity

   $ 162,688     $ 154,236     $ 153,563     $ 155,661     $ 155,514  
                                         

Net income

   $ 4,167     $ 3,543     $ 3,836     $ 5,092     $ 4,897  

Return on average tangible common equity (annualized)

     10.30 %     9.11 %     9.91 %     13.12 %     12.77 %

 

Reconciliation of Pre-Tax Pre-Provision Income (PTPP)

  

For the Three Months Ended

  
                                         
   

Mar 31,

    

Dec 31,

    

Sep 30,

    

Jun 30,

    

Mar 31,

  
   

2024

    

2023

    

2023

    

2023

    

2023

  
                                         

Net income

   $ 4,167     $ 3,543     $ 3,836     $ 5,092     $ 4,897  

Add income taxes

     769       709       703       986       989  

Add (recovery of) provision for credit losses

     (136 )     554       1,127       814       507  

PTPP

   $ 4,800     $ 4,806     $ 5,666     $ 6,892     $ 6,393  

 

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Financial Condition

 

General. The Company’s total assets on March 31, 2024 were $1.82 billion, a decrease of $6.2 million from December 31, 2023. For the same period, total loans increased by $12.0 million, cash and cash equivalents decreased by $14.6 million, and investment securities decreased by $2.9 million. Stockholders’ equity decreased by $106,000, or 0.1%, as a result of an increase in treasury stock and higher accumulated other comprehensive loss, partially offset by higher retained earnings. Excluding the increase in treasury stock, total stockholders’ equity increased by $949,000.

 

Cash and cash equivalents. Cash and cash equivalents decreased $14.6 million to $46.3 million on March 31, 2024, from $60.8 million on December 31, 2023. The decrease in cash and cash equivalents is primarily due to an increase in loans and decrease in short-term borrowings, and partially offset by an increase in deposits. Deposits from customers into savings and checking accounts, loan and securities repayments, and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases, and repayments of borrowed and brokered funds. 

 

Investment securities. Management's objective in structuring the portfolio is to maintain liquidity while providing an acceptable rate of return without sacrificing asset quality. Securities available for sale on March 31, 2024, totaled $167.9 million, a decrease of $2.9 million, or 1.69%, from $170.8 million on December 31, 2023. There were no sales or purchases of securities for the three months ended March 31, 2024. During this period, the Company recorded repayments, calls, and maturities of $167,000 and an increase in the net unrealized holding loss through AOCI of $2.0 million. 

 

On March 31, 2024, the Company held $31.8 million at fair value of subordinated debt in other banks, as compared to $31.9 million on December 31, 2023. The average yield on this portfolio was 4.92% on March 31, 2024, as compared to 4.79% on December 31, 2023.

 

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 incidences in the municipal market, such as sector, security, impairment filing, timeliness of disclosure, external credit assessment(s), credit spread, state, vintage, and underwriter. Municipal bonds compose 77.49% of the overall portfolio. These investments have historically proven to have extremely low credit risk.

 

Loans. The loan portfolio 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 dispersed geographically. Loans increased $12.0 million, or 0.81%, to $1.49 billion as of March 31, 2024. The following table summarizes fluctuation within the primary segments of the loan portfolio (in thousands):

 

   

March 31,

    

December 31,

                          
   

2024

    

2023

    

$ change

    

% change

    

% of loans

  
                                         

Commercial real estate:

                                        

Owner occupied

   $ 178,543     $ 183,545     $ (5,002 )     (2.73 %)     11.98 %

Non-owner occupied

     398,845       401,580       (2,735 )     (0.68 %)     26.77 %

Multifamily

     81,691       82,506       (815 )     (0.99 %)     5.48 %

Residential real estate

     331,480       328,854       2,626       0.80 %     22.25 %

Commercial and industrial

     227,433       221,508       5,925       2.67 %     15.26 %

Home equity lines of credit

     129,287       127,818       1,469       1.15 %     8.68 %

Construction and Other

     135,716       125,105       10,611       8.48 %     9.11 %

Consumer installment

     7,131       7,214       (83 )     (1.15 %)     0.48 %

Total loans

     1,490,126       1,478,130       11,996       0.81 %     100.00 %

Less: Allowance for credit losses

     (21,069 )     (21,693 )     (624 )     (2.88 %)        
                                         

Net loans

   $ 1,469,057     $ 1,456,437     $ 12,620       0.87 %        

 

The Company’s Mortgage Banking operation generates loans for sale to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the FHLB. There were no loans held for sale at March 31, 2024, and December 31, 2023. The Company recorded gains on the sale of these loans totaling $10,000 based on proceeds of $639,000 million for the three months ended March 31, 2024.

 

The federal banking regulators have issued guidance for those institutions that are deemed to have concentrations in commercial real estate lending. According to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions that have (1) total reported loans for construction, land development, and other land acquisitions that 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 that are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management concerning 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. On March 31, 2024, commercial real estate loans (including construction, land, and land development loans) represented 302.3% of total risk-based capital; however, growth in that segment over the past 36 months was 12.6%, which is less than the 50% threshold laid out in the regulatory guidance. Construction, land, and land development loans represent 66.5% 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 for its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes in cash flows due to interest rate increases and declines in net operating income. The primary risk elements with respect to our commercial loans are the financial condition of the borrower, sufficiency of collateral and timeliness of scheduled payments. We have a policy that requires a periodic review of financial statements from commercial loan customers and have a disciplined and formalized review of the existence of collateral and its value. 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 forma projections, including stress testing, in which the Board of Directors has established internal minimum targets for regulatory capital ratios that are more than well-capitalized ratios as defined by regulatory requirements.

 

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Table of Contents

 

The Company opted not to phase in, over three years, the effects of the initial CECL entry to equity for the implementation of ASC 326, recorded on January 1, 2023. As of March 31, 2024, management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject.

 

The Company monitors fluctuations in unused commitments as a means of identifying potential material drawdowns on existing lines of credit. On March 31, 2024, unused line of credit commitments increased by $68.1 million, or 16.25%, from December 31, 2023. The commercial unused line of credit commitments were $343.3 million as of March 31, 2024, compared to $279.4 million on December 31, 2023.

 

Allowance for Credit Losses and Asset Quality. The ACL decreased by $624,000, or 2.9%, to $21.1 million on March 31, 2024, from $21.7 million on December 31, 2023. For the three months ended March 31, 2024, net loan recoveries totaled $68,000, or 0.02% of average loans, annualized, compared to $8,000 or (0.01%) of average loans, annualized, for the same period in 2023. The allocation of the recovery of credit losses associated with loans was $0.7 for the three months ended March 31, 2024. The ratio of the allowance for credit losses to nonperforming loans was 194.5% as of March 31, 2024, compared to 293.0% for the same period in the prior year. The allowance for credit losses to total loans ratio decreased from 1.46% as of March 31, 2023, to 1.41% as of March 31, 2024. 

 

Management analyzes the adequacy of the allowance for credit 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 credit losses is a significant estimate that is particularly susceptible to changes in the near term. Risks that may impact our loan portfolio include the weakened economic outlook exacerbated by the current hostilities in Ukraine and the resulting increased uncertainty characterized by persistent inflation. The direct impacts of the pandemic and related economic disruptions, which previously dominated our risk analysis, have lessened. Geopolitical events and persistently high inflation with weakening growth prospects raise the potential for adverse impacts on the U.S. economy. Increasing interest rates could potentially impact the valuations of assets that collateralize our loans. Recent market liquidity events have added uncertainty, and the Company is concerned about the impact of tighter credit conditions on the economy and the effect that may have on future economic growth. Management’s analysis includes a review of all loans designated as individually analyzed, 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 credit losses. Future additions or reductions to the allowance for credit 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 credit losses allocated to these types of loans. Management believes the allowance for credit losses is appropriately stated as of March 31, 2024. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for credit losses is considered a critical accounting policy.

 

The following table illustrates the net charge-offs to average loans ratio for each loan category for each reported period:

 

   

For the Three Months Ended March 31,

  
   

2024

    

2023

  
   

Average Loan Balance

    

Net recoveries (charge-offs)

    

Net recoveries (charge-offs) to average loans

    

Average Loan Balance

    

Net recoveries (charge-offs)

    

Net recoveries (charge-offs) to average loans

  

(Dollars in Thousands)

                                                

Type of Loans:

                                                

Commercial real estate:

                                                

Owner occupied

   $ 180,119     $ 11       0.02 %   $ 187,740     $ (1 )     (0.00% )

Non-owner occupied

     398,167       -       0.00 %     385,475       -       0.00 %

Multifamily

     81,679       -       0.00 %     60,759       -       0.00 %

Residential real estate

     328,480       -       0.00 %     299,703       -       0.00 %

Commercial and industrial

     223,323       8       0.01 %     194,314       44       0.09 %

Home equity lines of credit

     127,896       (7 )     (0.02% )     126,659       (70 )     (0.22% )

Construction and other

     129,744       -       0.00 %     98,289       -       0.00 %

Consumer installment

     7,136       56       3.14 %     7,927       19       0.96 %
                                                 

Total

   $ 1,476,543     $ 68       0.02 %   $ 1,360,866     $ (8 )     (0.00% )

 

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 the 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 until doubt about collectability ceases.

 

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Table of Contents

 

   

Asset Quality History

  
                 

(Dollar amounts in thousands)

  

March 31, 2024

    

December 31, 2023

  
                 

Nonperforming loans (2)

   $ 10,831     $ 2,111  

Other real estate owned

     0       0  
                 

Nonperforming assets

   $ 10,831     $ 2,111  
                 

Allowance for credit losses (a)

   $ 21,069       21,693  
                 

Ratios:

                

Nonperforming loans to total loans

     0.73 %     0.14 %

Nonperforming assets to total assets

     0.60 %     0.12 %

Allowance for credit losses to total loans

     1.41 %     1.47 %

Allowance for credit losses to nonperforming loans

     194.52 %     1,027.62 %
                 

Total loans

   $ 1,490,126     $ 1,478,130  

Total assets

   $ 1,816,668     $ 1,822,883  

 

Nonperforming loans secured by real estate totaled $10.2 million and $2.3 million as of March 31, 2024 and December 31, 2023, respectively.

 

A major factor in determining the appropriateness of the allowance for credit losses is the type of collateral that secures the loans. Of the total nonperforming loans on March 31, 2024, 95.4% 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 objective of the Company is to minimize future loss exposure.

 

Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria for its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes in cash flows due to interest rate increases and declines in net operating income. The primary risk elements with respect to our commercial loans are the financial condition of the borrower, sufficiency of collateral and timeliness of scheduled payments. We have a policy that requires a periodic review of financial statements from commercial loan customers and have a disciplined and formalized review of the existence of collateral and its value. 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 a capital planning policy, which includes pro forma projections, including stress testing, in which the Board of Directors has established internal minimum targets for regulatory capital ratios that are more than well-capitalized ratios as defined by regulatory requirements.

 

The Company’s commercial real estate portfolio included the following categories as of March 31, 2024:

 

   

Balance

    

Percent of

    

Percent of

  

CRE Category

  

(in thousands)

    

CRE Portfolio

    

Loan Portfolio

  

Multifamily

   $ 81,691       12.4 %     5.5 %

Office Space

     78,789       12.0 %     5.3 %

Shopping Plazas

     73,250       11.1 %     4.9 %

Self-Storage

     61,525       9.3 %     4.1 %

Hospitality

     39,779       6.0 %     2.7 %

Senior Living

     26,545       4.0 %     1.8 %

Other

     297,500       45.1 %     20.0 %

Total CRE

   $ 659,079       100.0 %     44.2

%

 

Nonperforming loans in the commercial real estate segment were $8.4 million at March 31, 2024. The allowance for credit losses for this segment totaled $11.0 million at March 31, 2024, representing an allowance for credit losses to loans ratio of 1.67% specific to the commercial real estate segment. 

 

Our residential real estate loans totaled $331.5 million, or 22.2% of total loans, at March 31, 2024. The Bank grants real estate loans primarily within its designated lending areas, consisting of the communities surrounding branch offices in Ashtabula, Geauga, Portage, Summit, Cuyahoga, Lake, Trumbull, Madison, Delaware, Franklin, Union, Logan, and Hardin counties in Ohio. At March 31, 2024, approximately 99% of our residential real estate loans were concentrated in Ohio. Management believes our knowledge of these markets and our relative connectedness to the consumer borrowers we serve outweighs the geographic concentration risks. Our credit policy requires minimum credit scores, evidence of stable income, and maximum loan-to-values when underwriting residential real estate loans. The evaluation of our retail credit portfolio is defined in our credit policy and incorporates the Uniform Real Credit Classification and Account Management Policy as prescribed by federal regulatory authorities. Nonperforming loans in the residential real estate segment were $1.0 million at March 31, 2024. The allowance for credit losses for this segment totaled $4.8 million at March 31, 2024, representing an allowance for credit losses to loans ratio of 1.44% specific to the residential real estate segment.

 

27
Table of Contents

 

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $1.45 billion or 90.4% of the Company’s total average funding sources at March 31, 2024. Total deposits increased $20.3 million on March 31, 2024, from $1.43 billion on December 31, 2023. The following table summarizes fluctuation within the primary segments of the deposit portfolio (in thousands):

 

   

March 31,

    

December 31,

                  
   

2024

    

2023

    

$ change

    

% change

  
                                 

Noninterest-bearing demand

   $ 390,185     $ 401,384     $ (11,199 )     (2.79 %)

Interest-bearing demand

     209,015       205,582       3,433       1.67 %

Money market

     318,823       274,682       44,141       16.07 %

Savings

     196,721       210,639       (13,918 )     (6.61 %)

Time

     332,165       334,315       (2,150 )     (0.64 %)

Total deposits

   $ 1,446,909     $ 1,426,602     $ 20,307       1.42 %

 

The Company uses specific non-core funding instruments to grow the balance sheet and maintain liquidity. These deposits, either from a broker or a listing service, were $90.4 million on March 31, 2024 and $90.3 million on December 31, 2023.     

 

Deposit balances in excess of the $250,000 FDIC-insured limit totaled approximately $404.4 million, or 28.0% of total deposits, at March 31, 2024 and approximately $390.0 million, or 27.3% of total deposits, at December 31, 2023.

 

States and political subdivisions in the U.S. deposits (“Public funds”) compared to total deposits were $160.0 million, or 11.1% at March 31, 2024 and $141.3 million, or 9.9% at December 31, 2023.

 

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 advances from the FHLB, subordinated debt, short-term borrowings from other banks, and federal funds purchased. Short-term borrowings decreased by $26.0 million to $137.0 million as of March 31, 2024, compared to $163.0 million at December 31, 2023. Other borrowings were relatively unchanged at $11.8 million as of March 31, 2024 and $11.9 million on December 31, 2023.   

 

Stockholders’ equity. Stockholders’ equity decreased $106,000, or 0.05%, to $205.6 million at March 31, 2024 from $205.7 million at December 31, 2023. This decrease was primarily the result of a $1.1 million increase in treasury stock due to repurchasing 43,858 common shares during the three months ended March 31, 2024, $1.6 million of cash dividends paid, and an increase of $2.0 million in other comprehensive loss due to an increase in the unrealized losses on investment securities available for sale. These changes were partially offset by $4.2 million in net income.

 

The Company's tangible book value per share, which is a non-GAAP financial measure, was $20.18 at March 31, 2024 compared to $19.29 at March 31, 2023 and $20.10 at December 31, 2023. Tangible equity has been impacted by the changes in stockholders' equity described in the previous paragraph, including the unrealized losses of the Company's available-for-sale investment securities portfolio.  Net unrealized losses from available for sale investment securities were $23.0 million as of March 31, 2024, compared to net unrealized losses of $24.4 million at March 31, 2023, and net unrealized losses of $20.4 million at December 31, 2023.

 

RESULTS OF OPERATIONS

 

General. Net income for the three months ended March 31, 2024, was $4.2 million, a $729,000, or 14.9%, decrease from the amount earned during the same period in 2023. Diluted earnings per share for the quarter was $0.51 for the three months ended March 31, 2024 and $0.60 for the same period in 2023.

 

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 reviews and periodically adjusts the mix of interest-earning assets and interest-bearing liabilities, to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company’s net interest income. Management’s goal is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.

 

Net interest income for the three months ended March 31, 2024, totaled $15.0 million, a decrease of 9.3% from that reported in the comparable period of 2023. The net interest margin was 3.54% for the three months ended March 31, 2024, a decrease of 65 basis points for the same period of 2023. The decrease in the net interest margin is attributable to an increase in the average balance of interest-bearing deposits of $96.9 million, coupled with a 131-basis point increase in the yield earned on those deposits. This was partially offset by a $115.7 million increase in the average balance of loans receivable, coupled with a 66-basis point increase in the rate paid on those loans.

 

The Company is currently in a liability-sensitive position and expects to remain so for the next two-year outlook period. An increase in rates should lead to an expansion of net interest margin as the Company’s interest-earning assets reprice faster than its interest-bearing liabilities. Much of the Company’s liability sensitivity is due to deposit account increase in cost of funds. As part of the Company’s strategy, floor rates are used to protect the Company’s net interest margin in a declining interest rate environment. As of March 31, 2024, nearly all loan contracts with floor rates exceed their contractual floor rates and are repricing accordingly with rising interest rates. Please refer to Item 3, Quantitative and Qualitative Disclosures about Market Risk, for further discussion on asset and liability management and interest rate sensitivity.

 

Interest and dividend income. Interest and dividend income increased $4.3 million or 21.2%, for the three months ended March 31, 2024, compared to the same period in the prior year. This is attributable to a $4.1 million increase in interest and fees on loans and a $187,000 increase in interest on interest-earning deposits in other institutions, offset by a decrease of $101,000 in interest on federal funds sold. The average balance of investment securities decreased by $221,000, or 0.1%, and the 3.52% yield on the investment portfolio decreased by 4 basis points, from 3.55%, for the same period in the prior year.  The yield for the investment portfolio is based on amortized cost.

 

Interest expense. Interest expense increased by $5.8 million, or 153.9%, for the three months ended March 31, 2024, compared to the same period in the prior year. This is attributable to an increase in deposit expense of $4.5 million and a $1.4 million increase in short-term and other borrowings expenses. The increase in deposit expense is attributable to an increase in the average balance of interest-bearing deposits of $96.9 million, or 0.4% as well as an increase of 235 basis points in the rates paid on certificates of deposits and an increase of 229 basis points in the rates paid on money market deposits. The increase in short-term borrowing expenses is a result of the Bank taking on additional FHLB advances.

 

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Provision for credit losses. The provision for credit losses represents the charge to income necessary to adjust the allowance for credit losses to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio. Each quarter, management reviews the loan portfolio for estimated probable expected credit losses. Based on this review, a recovery of credit losses of $136,000 was recorded for the three months ended March 31, 2024, including a recovery for credit losses on loans of $692,000 and a reserve for unfunded commitments of $556,000. A provision of  $507,000 was recorded for the three months ended March 31, 2023. The recovery for credit losses for the three months ended March 31, 2024 was mainly due to changes in projected loss drivers, prepayment assumptions, and curtailment expectations over the reasonable and supportable forecast period in the calculation of the allowance for credit losses.

 

The ACL to total loans for the quarter ended March 31, 2024, was 1.41%, compared to 1.46% during the same period in the prior year. The Company remains confident in its conservative and disciplined approach to credit and risk management.

 

Noninterest income. Noninterest income increased by $116,000, or 6.9%, for the three months ended March 31, 2024, over the comparable 2023 period. This increase was the result of a $113,000 increase in other income, a $86,000 improvement in loss on equity securities, a $27,000 increase in earnings on bank-owned life insurance, and a $18,000 increase in revenue from investment services. These increases were partially offset by a $78,000 decrease in service charges on deposit accounts and a $35,000 decrease in gross rental income.

 

Noninterest expense. Noninterest expense of $12.0 million for the first quarter of 2024 was 1.4%, or $171,000 million higher than the first quarter of 2023, primarily due to the $481,000 million increase in salaries and employee benefits, a $179,000 increase in data processing and information technology costs, a $131,000 increase in federal deposit insurance expense, and a $20,000 increase in professional fees. These increases were partially offset by a $144,000 decrease in occupancy expense, a $245,000 decrease in merger-related costs, and a decrease of $77,000 in equipment expense. The Company also recognized $99,000 in gross OREO expenses in the three months ended March 31, 2024. 

 

To date, the Bank has not experienced any material losses related to cyber-attacks or other information security breaches; however, there can be no assurance that it or its subsidiaries will not suffer such losses in the future. On April 12, 2023, a cyber-attack resulted in a disruption to the computer systems of the Bank. The Bank took immediate action to remediate the security vulnerability and retained a cybersecurity firm to investigate the nature and scope of the incident. Restoration efforts were completed and normal operations resumed shortly thereafter. The Bank has put additional security measures in place and continuously monitors for suspicious activity. The Company does not expect this incident to have a material impact on its business operations or financial results.

 

Provision for income taxes. The Company recognized $769,000 in income tax expense for the three months ended March 31, 2024, which reflected an effective tax rate of 15.58%, as compared to $989,000 in income tax expense with an effective tax rate of 16.81% for the comparable 2023 period. 

 

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 spreads and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages, the average loan balances include nonaccrual loans and exclude the allowance for credit losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities and loans (tax-exempt for federal income tax purposes) are shown on a fully tax-equivalent basis utilizing a federal tax rate of 21%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

 

   

For the Three Months Ended March 31,

  
   

2024

    

2023

  
                                                 
   

Average

            

Average

    

Average

            

Average

  

(Dollars in thousands)

  

Balance

    

Interest

    

Yield/Cost

    

Balance

    

Interest

    

Yield/Cost

  

Interest-earning assets:

                                                

Loans receivable ⁽¹⁾

   $ 1,476,543     $ 22,395       6.11 %   $ 1,360,866     $ 18,275       5.45 %

Investment securities (1)(2)

     193,810       1,439       3.52 %     194,031       1,438       3.55 %

Interest-earning deposits with other banks ⁽³⁾

     64,139       778       4.88 %     69,308       591       3.46 %

Total interest-earning assets

   $ 1,734,492     $ 24,612       5.77 %   $ 1,624,205     $ 20,304       5.14 %

Noninterest-earning assets

     88,192                       89,158                  

Total assets

   $ 1,822,684                     $ 1,713,363                  

Interest-bearing liabilities:

                                                

Interest-bearing demand deposits

   $ 211,009       978       1.86 %   $ 177,935     $ 364       0.83 %

Money market deposits

     298,479       2,827       3.81 %     208,408       783       1.52 %

Savings deposits

     201,080       290       0.58 %     315,049       804       1.03 %

Certificates of deposit

     333,871       3,371       4.06 %     246,151       1,039       1.71 %

Short-term borrowings

     144,357       1,993       5.55 %     56,459       653       4.69 %

Other borrowings

     11,840       184       6.25 %     12,038       155       5.22 %

Total interest-bearing liabilities

   $ 1,200,636     $ 9,643       3.23 %   $ 1,016,040     $ 3,798       1.52 %

Noninterest-bearing liabilities:

                                                

Noninterest-bearing demand deposits

   $ 400,209                     $ 491,649                  

Other liabilities

     16,497                       10,860                  

Stockholders' equity

     205,342                       194,814                  

Total liabilities and stockholders' equity

   $ 1,822,684                     $ 1,713,363                  

Net interest income

           $ 14,969                     $ 16,506          

Interest rate spread ⁽⁴⁾

                     2.54 %                     3.62 %

Net interest margin ⁽⁵⁾

                     3.54 %                     4.19 %

Ratio of average interest-earning assets to average interest-bearing liabilities

                     144.46 %                     159.86 %

 

(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $281 and $278 for the three months ended March 31, 2024 and 2023, respectively.
(2) Yield is calculated on the basis of amortized cost.

 

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(3) Includes dividends received on restricted stock.

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

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

 

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three-month periods ended March 31, 2024, and 2023, in terms of (1) changes in the 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 the change in volume). The changes attributable to the combined impact of volume/rate are allocated consistently between the volume and rate variances.

 

   

2024 versus 2023

  
   

Increase (decrease) due to

  

(Dollars in thousands)

  

Volume

    

Rate

    

Total

  
                         

Interest-earning assets:

                        

Loans receivable

   $ 1,567     $ 2,553     $ 4,120  

Investment securities

     (2 )     3       1  

Interest-earning deposits with other banks

     (44 )     231       187  

Total interest-earning assets

   $ 1,521     $ 2,787     $ 4,308  
                         

Interest-bearing liabilities:

                        

Interest-bearing demand deposits

   $ 68     $ 546     $ 614  

Money market deposits

     340       1,704       2,044  

Savings deposits

     (292 )     (222 )     (514 )

Certificates of deposit

     373       1,959       2,332  

Short-term borrowings

     1,025       315       1,340  

Other borrowings

     (3 )     32       29  

Total interest-bearing liabilities

   $ 1,511     $ 4,334     $ 5,845  
                         

Net interest income

   $ 10     $ (1,547 )   $ (1,537 )

 

LIQUIDITY

 

Management's objective in managing liquidity is to continue meeting the cash flow needs of banking customers, such as new or increased borrowings or deposit withdrawals, as well as the Company’s financial commitments, while doing so at a reasonable cost and in a timely manner. The principal sources of liquidity are customer deposits, loan repayments, maturing and principal reductions and sales of securities available for sale, and federal funds sold, which generate cash that the Company deposits with banks. While investment securities available for sale are generally considered as a source of cash, in the current interest rate environment, it is unlikely that any of these securities would be sold for funding needs. The Company offers a line of retail deposit products created to 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 FHLB, and the adjustment of interest rates to obtain deposits.

 

At March 31, 2024, the additional borrowing capacity at the FHLB was $482.1 million, as compared to $430.1 million on December 31, 2023. Considering the Company’s strong capital levels, robust liquidity, and diverse loans and deposit portfolios, along with the maximum borrowing capacity of $644.1 million at the FHLB, the Company did not need to use the Federal Reserve’s Bank Term Funding Program. The Company also has the option of borrowing from the Federal Reserve discount window with any assets not currently pledged elsewhere. Given the flexibility of borrowing structure options with the FHLB, if the Company needed additional liquidity, the FHLB capacity would likely be used before other funding mechanisms.

 

At March 31, 2024, total net available liquidity was $745.7 million, which accounted for 5.15% of total deposits. At March 31, 2024, these liquidity sources exceeded the amount of the Company’s uninsured deposit balances. Management believes that the combination of high levels of potentially liquid assets, cash flows from operations, and additional borrowing capacity provided the Bank with strong liquidity as of March 31, 2024. Although the Company currently exhibits strong liquidity, management will continue to monitor liquidity in future periods.

 

For the three months ended March 31, 2024, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the recovery of credit losses, origination and proceeds from the sale of loans held for sale, amortization of CDI, earnings on bank-owned life insurance, amortization of premium and discount on investment securities, and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the Consolidated Statement of Cash Flows.

 

INFLATION

 

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for investment securities available for sale, individually analyzed loans, and other real estate owned that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

 

Management believes that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the inflation rate. It should be noted that interest rates and inflation do affect each other but do not always move in correlation with each other. Please refer to item 3, Quantitative and Qualitative Disclosures about Market Risk, for further discussion on interest rate risk.

 

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.

 

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The Federal Reserve Board and the FDIC have extensive authority to prevent and remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.

 

REGULATORY CAPITAL REQUIREMENTS

 

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts, and bank and thrift holding companies. The net unrealized gain or loss on available-for-sale securities is generally not included in computing regulatory capital. To avoid limitations on capital distributions, including dividend payments, the Bank and the Company must each hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. Within the tabular presentation that follows is the adequately capitalized ratio plus a 2.50% capital conservation buffer.

 

The Bank and the Company met each of the well-capitalized ratio guidelines as of March 31, 2024. The following table indicates the capital ratios for the Bank and the Company as of March 31, 2024, and December 31, 2023, as well as the capital category threshold ratios for a well-capitalized, adequately capitalized plus the capital conservation buffer institution.

 

   

As of March 31, 2024

  
   

Leverage

     Tier 1 Risk Based     Common Equity Tier 1    

Total Risk Based

  

The Middlefield Banking Company

     10.50 %     11.67 %     11.67 %     12.93 %

Middlefield Banc Corp.

     10.64 %     11.98 %     11.47 %     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, 2023

  
   

Leverage

     Tier 1 Risk Based     Common Equity Tier 1    

Total Risk Based

  

The Middlefield Banking Company

     10.48 %     11.82 %     11.82 %     13.08 %

Middlefield Banc Corp.

     10.68 %     12.18 %     11.66 %     13.43 %

Adequately capitalized ratio

     4.00 %     6.00 %     4.50 %     8.00 %

Adequately capitalized ratio plus fully phased-in capital conservation buffer

     4.00 %     8.50 %     7.00 %     10.50 %

Well-capitalized ratio (Bank only)

     5.00 %     8.00 %     6.50 %     10.00 %

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

ASSET AND LIABILITY MANAGEMENT

 

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives, and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing 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 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 meets quarterly, and generally monitors various asset and liability management policies and strategies.

 

Interest Rate Sensitivity Simulation Analysis

 

The Company engages an external consultant to facilitate net interest 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 the 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 considering certain long-term shock rates. Given a 200 basis point immediate and permanent increase in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity. Given a 100 basis point immediate and permanent decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 10% of stockholders’ equity.

 

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The following table presents the simulated impact of a 200-basis point upward or 100-basis point downward shift of market interest rates on net interest income and the change in portfolio equity. This analysis assumed the interest-earning asset and interest-bearing liability levels at March 31, 2024, and December 31, 2023, remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over one year from the March 31, 2024, and December 31, 2023 levels for net interest income and portfolio equity. The impact of market-rate movements was developed by simulating the effects of an immediate and permanent change in rates at March 31, 2024, and December 31, 2023, for portfolio equity.  

 

   

March 31, 2024

    

December 31, 2023

  

Change in Rates

  

% Change in NII

    

% Change in EVE

    

% Change in NII

    

% Change in EVE

  

+200bp

     (3.20 %)     (8.60 %)     (3.20 %)     (9.20 %)

-100bp

     1.03 %     2.30 %     1.73 %     2.90 %

 

CRITICAL ACCOUNTING ESTIMATES

 

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of March 31, 2024, have remained unchanged from December 31, 2023. However, the Company has identified accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses, for the investment securities available for sale, loan portfolios, and unfunded commitments. Please refer to Note 1 - Summary of Significant Accounting Policies for further discussion on significant accounting policies.

 

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 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 in ensuring 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 periods specified in Securities and Exchange Commission rules and forms. After the date of their evaluation, our Chief Executive Officer and Chief Financial Officer 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 concerning significant deficiencies and material weaknesses.

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings
  See the information in Note 8, which we incorporate here by reference.
   
  From time to time, the Company and the subsidiary bank may be involved in litigation relating to claims arising out of their normal course of business. In the opinion of management, no other current legal proceedings are material to the Company's financial condition or the subsidiary bank, either individually or in the aggregate.

 

Item 1a.

Risk Factors
  The Company is attentive to various risks and continuously evaluates the potential impact of such risks. There have been no material updates or changes in risks faced by the Company since December 31, 2023. For more information regarding our risk factors, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

 

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table summarized the Company's repurchases of common shares for the three months ended March 31, 2024:

 

2024 period

                                

In thousands, except per share data

   Total shares purchased     Average price paid per share     Total shares purchased as part of a publicly announced program (a)     Maximum number of shares that may yet be purchased under the program  
                                 

January 1-31

     -     $ -       -       293,910  

February 1-29

     -       -       -       293,910  

March 1-31

     43,858       24.00       43,858       250,052  

Total

     43,858     $ 24.00                  

 

(a) In February 2022, the Board of Directors authorized the repurchase of up to 300,000 of common stock under the Company's repurchase program (the "Program") to enhance the value of Company stock and manage its capital. In February 2023, the Board of Directors authorized the Company to repurchase an additional 300,000 shares under the Program. The Company has completed the repurchase of 349,948 shares under the Program through March 31, 2024. The Program may be modified, suspended or terminated by the Company at any time.

 

Item 3.

Defaults Upon Senior Securities
  None

 

Item 4.

Mine Safety Disclosures
  N/A

 

 

Item 5.

Other information
  During the three months ended March 31, 2024, there were no “Rule 10b5-1 trading plans” or “non-Rule 10b5-1 trading arrangements” adopted, modified or terminated by any director or officer of the Company (as such terms are defined in Item 408 of Regulation S-K of the Exchange Act).

 

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Item 6.

Exhibits

 

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended March 31, 2024

 

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 Form 8-K Current Report filed on December 1, 2022
         

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*

  

Split-Dollar Agreement between The Middlefield Banking Company and Rebecca A. Noblit

   filed herewith
         

10.2*

  

Split-Dollar Agreement between The Middlefield Banking Company and Thomas M. Wilson

   filed herewith

 

10.3

  

[reserved]

  

 
         

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*

   Change in Control Agreement between Middlefield Banc Corp. and Michael L. Cheravitch  

filed herewith
         

10.4.2*

  

Change in Control Agreement between Middlefield Banc Corp. and Rebecca A. Noblit

   filed herewith
         

10.4.3*

  

Change in Control Agreement between Middlefield Banc Corp. and Thomas M. Wilson

  

filed herewith
         

10.4.4*

  

Change in Control Agreement between Middlefield Banc Corp. and Sarah A. Winters

  

filed herewith
         

10.4.5

  

[reserved]

  

 
         

10.4.6

  

[reserved]

    
         

10.4.7*

  

Amended change in Control Agreement between Middlefield Banc Corp. and Michael C. Ranttila

  

Incorporated by reference to Exhibit 99 of Middlefield Banc Corp.’s Form 8-K Report filed on August 15, 2023
         

10.4.8*

  

Change in Control Agreement between Middlefield Banc Corp. and Courtney M. Erminio

  

Incorporated by reference to Exhibit 10.4.8 of Middlefield Bank Corp’s Form 10-K Annual Report filed on March 15, 2023
         

10.5*

  

Severance Agreement between Middlefield Banc Corp. and Ronald L. Zimmerly, Jr., dated December 1, 2022

  

Incorporated by reference to Exhibit 10.5 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2022, filed on March 15, 2023
         

10.6*

  

Restricted Stock Award Agreement between Middlefield Banc Corp. and Ronald L. Zimmerly, Jr., dated December 1, 2022

  

Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2022, filed on March 15, 2023
         

10.7*

  

Amended Director Retirement Agreement with Frances H. Frank

  

Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

 

34
Table of Contents

 

10.8*

  

Supplemental Executive Retirement Benefits Agreement with Ronald L. Zimmerly, Jr.

  

filed herewith
         

10.9*

  

First Amendment to the Supplemental Executive Retirement Benefits Agreement with Ronald L. Zimmerly, Jr.

  

filed herewith
         

10.10*

  

Secondary Supplemental Executive Retirement Plan with Ronald L. Zimmerly, Jr.

   filed herewith
         

10.11*

  

Director Retirement Agreement with Martin S. Paul

  

Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
         

10.12*

  

Split-Dollar Agreement between The Middlefield Banking Company and Ronald L. Zimmerly, Jr.

  

Incorporated by reference to Exhibit 10.12 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2022, filed on March 15, 2023
         

10.13*

  

Supplemental Executive Retirement Plan with Ronald L. Zimmerly, Jr.

   filed herewith
         

10.14*

  

Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy

  

Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
         

10.15*

  

DBO Agreement with Jay P. Giles

  

Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
         

10.16

  

[reserved]

  

 
         

10.17*

  

DBO Agreement with Teresa M. Hetrick

  

Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
         

10.18 *

  

Executive Deferred Compensation Agreement with Jay P. Giles

  

Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

10.19

  

[reserved]

    
         

10.20*

  

DBO Agreement with James R. Heslop, II

  

Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

 

10.21*

  

DBO Agreement with Thomas G. Caldwell

  

Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
         

10.22*

  

Annual Incentive Plan

  

Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 12, 2019
         

10.22.1

  

[reserved]

    
         

10.23**

  

Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell

  

Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
         

10.24**

  

Amended Executive Deferred Compensation Agreement with James R. Heslop, II

  

Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
         

10.25**

  

Amended Executive Deferred Compensation Agreement with Donald L. Stacy

  

Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
         

10.26**

  

Executive Variable Benefit Deferred Compensation Agreement with James R. Heslop, II

  

Incorporated by reference to Exhibit 10.26 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
         

10.27**

  

Executive Variable Benefit Deferred Compensation Agreement with Donald L. Stacy

  

Incorporated by reference to Exhibit 10.27 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
         

10.28**

  

Executive Deferred Compensation Agreement with Charles O. Moore

  

Incorporated by reference to Exhibit 10.28 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020

 

35
Table of Contents

 

10.29*

  

Executive Deferred Compensation Agreement with Ronald L. Zimmerly, Jr.

  

Incorporated by reference to Exhibit 10.29 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2022, filed on March 15, 2023

 

10.29.1

  

Form of a conditional stock award under the 2017 Omnibus Equity Plan

  

Incorporated by reference to Exhibit 10.29 of Middlefield Banc Corp.’s Form 8-K Current Report filed on July 24, 2017

 

10.30**

  

Executive Deferred Compensation Agreement with Michael L. Allen

  

Incorporated by reference to Exhibit 10.30 of Middlefield Banc Corp.’s Form 10-Q Quarterly Report filed on May 7, 2019
         

10.31**

  

Executive Deferred Compensation Agreement with John D. Lane

  

Incorporated by reference to Exhibit 10.31 of Middlefield Banc Corp.’s Form 10-Q Quarterly Report filed on May 7, 2019
         

10.32**

  

Executive Deferred Compensation Agreement with Michael C. Ranttila

  

Incorporated by reference to Exhibit 10.32 of Middlefield Banc Corp.’s Form 10-K Annual Report filed on March 12, 2021
         

10.33**

  

Executive Deferred Compensation Agreement with Courtney M. Erminio

  

Incorporated by reference to Exhibit 10.33 of Middlefield Banc Corp.’s Form 10-Q Quarterly Report filed on August 8, 2022
         

10.34**

  

Executive Deferred Compensation Agreement with Alfred F. Thompson

  

Incorporated by reference to Exhibit 10.34 of Middlefield Banc Corp.’s Form 10-Q Quarterly Report filed on August 8, 2022
         

31.1

  

Rule 13a-14(a) certification of Chief Executive Officer

  

filed herewith
         

31.2

  

Rule 13a-14(a) certification of Chief Financial Officer

  

filed herewith
         

32

  

Rule 13a-14(b) certification

  

filed herewith
         

99.1

  

Form of Indemnification Agreement with directors of Middlefield Banc Corp. and with executive officers of Middlefield Banc Corp. and The Middlefield Banking Company

  

Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001
         

100

  

[reserved]

    
         

101.INS***

  

Inline XBRL Instance

  

furnished herewith
         

101.SCH***

  

Inline XBRL Taxonomy Extension Schema

  

furnished herewith
         

101.CAL***

  

Inline XBRL Taxonomy Extension Calculation

  

furnished herewith
         

101.DEF***

  

Inline XBRL Taxonomy Extension Definition

  

furnished herewith
         

101.LAB***

  

Inline XBRL Taxonomy Extension Labels

  

furnished herewith
         

101.PRE***

  

Inline XBRL Taxonomy Extension Presentation

  

furnished herewith

  

        

104

  

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

    

 

 

* management contract or compensatory plan or arrangement

 

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

 

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized.

 

36
Table of Contents
 

mbcn20230630_10qimg002.jpg

 

SIGNATURES

 

 

 

 

 

 

MIDDLEFIELD BANC CORP.
   

Date: May 14, 2024

By: /s/ Ronald L. Zimmerly, Jr.
   

 

----------------------------------------
   

 

Ronald L. Zimmerly, Jr.
   

 

Chief Executive Officer
   
  (Principal Executive Office)

 

 

 

Date: May 14, 2024

By: /s/Michael C. Ranttila
   
  ----------------------------------------
   

 

Michael C. Ranttila
   

 

Executive Vice President, Chief Financial Officer
   
  (Principal Financial and Accounting Officer)

 

37
EX-10.11 2 ex_672608.htm EXHIBIT 10.1.1 SPLIT DOLLAR NOBLIT ex_672608.htm

Exhibit 10.1.1

 

 

SPLIT DOLLAR LIFE INSURANCE AGREEMENT

 

THIS SPLIT DOLLAR AGREEMENT (this "Agreement") is adopted this 1st day of February, 2021, by and between Liberty National Bank (the "Employer") and Rebecca A. Noblit (the "Employee"), and formalizes the agreements and understanding between the Employer and the Employee.

 

WITNESSETH:

 

WHEREAS, the Employee is employed by the Employer;

 

WHEREAS, the Employer recognizes the valuable services the Employee has performed for the Employer and wishes to encourage the Employee's continued employment and to provide the Employee with additional incentive to achieve corporate objectives; and

 

WHEREAS, the Employer wishes to provide the terms and conditions upon which the Employer shall share the death proceeds of certain life insurance policies with the Employee's designated beneficiary;

 

NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Employer and the Employee agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Whenever used in this Agreement, the following terms shall have the meanings specified:

 

1.1    "Administrator" means the Employer's board of directors or its designee.

 

1.2    "Beneficiary" means each designated person, or the estate of the deceased Employee, entitled to benefits upon the death of the Employee.

 

1.3    "Beneficiary Designation Form" means the form established from time to time by the Administrator that the Employee completes, signs and returns to the Administrator to designate one or more Beneficiaries.

 

 

1.4

“Code" means the Internal Revenue Code of 1986, as amended.

 

 

1.5

“Insurer” means _          ____

 

1.6“    Net Death Proceeds" means the total death proceeds of the Policy minus the greater of (i) the Policy's cash surrender value or (ii) the aggregate premiums paid on the Policy by the Employer.

 

1.7“    Policy” means the policy number __ _ issued by the Insurer and adopted by the Employer for purposes of insuring the Employee’s life under this Agreement



 

 

 

1.8    "Separation from Service" means a termination of the Employee's employment with the Employer for reasons other than death. A Separation from Service may occur as of a specified date for purposes of the Agreement: even if the Employee continues to provide some services for the Employer after that date, provided that the facts and circumstances indicate that the Employer and the Employee reasonably anticipated at that date that either no further services would be performed after that date, or that the level of bona fide services the Employee would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period (or the full period during which the Employee performed services for the Employer, if that is Jess than thirty-six (36) months). In determining whether a Separation of Service occurs the Administrator shall adhere to the terms of Treasury Regulation §1.409A-1(h) and shall take into account, among other things, the definition of "service recipient" and "employer" set forth therein. The Administrator shall have full and final authority, to determine conclusively whether a Separation from Service occurs, and the date of such Separation from Service.

 

ARTICLE 2

POLICY OWNERSHIP AND INTERESTS

 

2.1     Employer's Interest. The Employer shall own the Policy and shall have the right to exercise all incidents of ownership and may terminate the Policy without the consent of the Employee. The Employer shall be the beneficiary of the remaining death proceeds of the Policy after the Employee’s interest is determined according to Section 2.2 below.

 

2.2     Employee’s Interest. The Employee, or the Employee’s assignee, shall have the right to designate the Beneficiary of a portion of the Policy’s death proceeds as specified in this Section 2.2. The Employee shall also have the right to change settlement options with respect to the Employee’s Interest.

 

 

2.2.1

Death Prior to Separation from Service. If the Employee dies prior to Separation from Service, the Beneficiary shall be entitled to the lesser of (i) One Hundred Thousand Dollars ($100,000) or (ii) the Net Death Proceeds.

 

 

2.2.2

Death After Separation from Service. If the Employee dies after Separation from Service, the Beneficiary shall not be entitled to any benefit.

 

ARTICLE 3

PREMIUMS AND IMPUTED INCOME

 

3.1    Premium Payment. The Employer shall pay all premiums due on the Policy from its general assets.

 

3.2    Economic Benefit. The Employer shall determine the economic benefit attributable to the Employee based on the life insurance premium factor for the Employee’s age multiplied by the aggregate death benefit payable to the Beneficiary. The “life insurance premium factor” is the minimum factor applicable under guidance published pursuant to Treasury Regulations §1.61-22(d)(3)(ii) or any subsequent authority.



 

 

 

ARTICLE 4

SUICIDE OR MISSTATEMENT

 

No benefits shall be payable if the Employee commits suicide within two years after the date of this Agreement, or if the Insurer denies coverage (i) for material misstatements of fact made by the Employee on any application for the Policy, or (ii) for any other reason; provided, however that the Employer shall evaluate the reason for the denial, and upon advice of legal counsel and in its sole discretion, consider judicially challenging any denial.

 

ARTICLE 5

BENEFICIARIES

 

5.1    Designation of Beneficiaries. The Employee may designate any person to receive any benefits payable under the Agreement upon the Employee's death, and the designation may be changed from time to time by the Employee by filing a new designation. Each designation will revoke all prior designations by the Employee, shall be in the form prescribed by the Administrator and shall be effective only when filed in writing with the Administrator during the Employee's lifetime. If the Employee names someone other than the Employee's spouse as a Beneficiary, the Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Administrator, executed by the Employee's spouse and returned to the Administrator. The Employee's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Employee or if the Employee names a spouse as Beneficiary and the marriage is subsequently dissolved.

 

5.2    Absence of Beneficiary Designation. In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Employee, the Employer shall direct the Insurer to pay the benefit to the Employee's spouse. If the spouse is not living then the Employer shall direct the Insurer pay the benefit to the Employee's living descendants per stirpes, and if there are no living descendants, to the Employee's estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Employee's personal representative, executor, or administrator.

 

5.3    Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Employer may direct the Insurer to make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Employer and the Administrator from further liability on account thereof.



 

 

 

ARTICLE 6

ASSIGNMENT

 

The Employee may irrevocably assign without consideration all of the Employee's interest in this Agreement to any person, entity, or trust. In the event the Employee shal1 transfer all of the Employee's interest, then all of the Employee's interest in this Agreement shall be vested in the Employee's transferee, who shall be substituted as a party hereunder, and the Employee shall have no further interest in this Agreement.

 

ARTICLE 7

INSURER

 

The Insurer shall be bound only by the terms of its given Policy. The Insurer shall not be bound by or deemed to have notice of the provisions of this Agreement. The Insurer shall have the right to rely on the Employer's representations with regard to any definitions, interpretations or Policy interests as specified under this Agreement.

 

ARTICLE 8

ADMINISTRATION

 

8.1    Administrator Duties. The Administrator shall be responsible for the management, operation, and administration of the Agreement. When making a determination or calculation, the Administrator shall be entitled to rely on information furnished by the Employer, Employee or Beneficiary. No provision of this Agreement shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.

 

8.2    Administrator Authority. The Administrator shall enforce this Agreement in accordance with its terms, shall be charged with the general administration of this Agreement, and shall have all powers necessary to accomplish its purposes.

 

8.3    Binding Effect of Decision. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest herein.

 

8.4    Compensation, Expenses and Indemnity. The Administrator shall serve without compensation for services rendered hereunder. The Administrator is authorized at the expense of the Employer to employ such legal counsel and record keeper as it may deem advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this Agreement shall be paid by the Employer.

 

8.5    Employer information. The Employer shall supply full and timely information to the Administrator on all matters relating to the Employee's death, Separation from Service, and such other information as the Administrator reasonably requires.



 

 

 

ARTICLE 9

CLAIMS AND REVIEW PROCEDURE

 

9.1    Claims Procedure. A person (the "Claimant") who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows.

 

(a)    Initiation - Written Claim. The Claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

 

(b)    Timing of Administrator Response. The Administrator shall respond to such Claimant within ninety (90) days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional ninety (90) days by notifying the Claimant: in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

 

(c)     Notice of Decision. If the Administrator denies part or all of the claim, the Administrator shall notify the Claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i) the specific reasons for the denial; (ii)a reference to the specific provisions of this Agreement on which the denial is based; (iii) a description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed; (iv) an explanation of this Agreement's review procedures and the time limits applicable to such procedures; and (v) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

 

9.2    Review Procedure. If the Administrator denies part or all of the claim, the Claimant shall have the opportunity for a full and fair review by the Administrator of the denial as follows.

 

(a)    Initiation-Written Request. To initiate the review, the Claimant within sixty (60) days after receiving the Administrator's notice of denial, must file with the Administrator a written request for review.

 

(b)    Additional Submissions – Information Access. The Claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Administrator shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits.



 

 

 

(c)    Considerations on Review. In considering the review, the Administrator shall take into account all materials and information the Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

(d)    Timing of Administrator Response. The Administrator shall respond in writing to such Claimant within sixty (60) days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional sixty (60) days by notifying the Claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

 

(e)    Notice of Decision. The Administrator shall notify the Claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i)the specific reasons for the denial; (ii) a reference to the specific provisions of this Agreement on which the denial is based; (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits; and (iv) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a).

 

ARTICLE 10

AMENDMENTS AND TERMINATION

 

This Agreement may be amended only by a written agreement signed by both the Employer and the Employee. In the event that the Employer decides to maintain the Policy after termination of the Agreement, the Employer shall be the direct beneficiary of all of the death proceeds of the Policy.

 

ARTICLE 11

MISCELLANEOUS

 

11.1     No Effect on Other Rights. This Agreement constitutes the entire agreement between the Employer and the Employee as to the subject matter hereof. No rights are granted to the Employee by virtue of this Agreement other than those specifically set forth herein. Nothing contained herein will confer upon the Employee the right to be retained in the service of the Employer nor limit the right of the Employer to discharge or otherwise deal with the Employee without regard to the existence hereof.

 

11.2    State Law. To the extent not governed by ERISA, the provisions of this Agreement shall be construed and interpreted according to the internal law of the State of Ohio without regard to its conflicts of laws principles.

 

11.3    Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.



 

 

 

11.4    Notice. Any notice, consent or demand required or permitted to be given to the Employer or Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the Employer's principal business office. Any notice or filing required or permitted to be given to the Employee or Beneficiary under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Employee or Beneficiary, as appropriate. Any notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

 

11.5    Headings and interpretation. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed part of this Agreement. Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

 

11.6    Coordination with Other Benefits. The benefits provided for the Employee or the Beneficiary under this Agreement are in addition to any other benefits available to the Employee under any other plan or program for employees of the Employer. This Agreement shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.

 

11.7    Inurement. This Agreement shall be binding upon and shall inure to the benefit of the Employer, its successor and assigns, and the Employee, the Employee's successors, heirs, executors, administrators, and the Beneficiary.

 

11.8    Entire Agreement. This Agreement, along with the Beneficiary Designation Form, constitutes the entire agreement between the Employer and the Employee as to the subject matter hereof. No rights are granted to the Employee under this Agreement other than those specifically set forth herein.

 

IN WITNESS WHEREOF, the Employee and a duly authorized representative of the Employer have signed this Agreement.

ex_672608img001.jpg

 

 
EX-10.2 3 ex_672609.htm EXHIBIT 10.2 SPLIT DOLLAR WILSON ex_672609.htm

Exhibit 10.2

 

SPLIT DOLLAR LIFE INSURANCE AGREEMENT

 

THIS SPLIT DOLLAR AGREEMENT (this "Agreement") is adopted this 1st day of February, 2021, by and between Liberty National Bank (the "Employer") and Thomas M. Wilson (the "Employee"), and formalizes the agreements and understanding between the Employer and the Employee.

 

WITNESSETH:

 

WHEREAS, the Employee is employed by the Employer;

 

WHEREAS, the Employer recognizes the valuable services the Employee has performed for the Employer and wishes to encourage the Employee's continued employment and to provide the Employee with additional incentive to achieve corporate objectives; and

 

WHEREAS, the Employer wishes to provide the terms and conditions upon which the Employer shall share the death proceeds of certain life insurance policies with the Employee's designated beneficiary;

 

NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Employer and the Employee agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Whenever used in this Agreement, the following terms shall have the meanings specified:

 

1.1    "Administrator" means the Employer's board of directors or its designee.

 

1.2    "Beneficiary" means each designated person, or the estate of the deceased Employee, entitled to benefits upon the death of the Employee.

 

1.3    "Beneficiary Designation Form" means the form established from time to time by the Administrator that the Employee completes, signs and returns to the Administrator to designate one or more Beneficiaries.

 

 

1.4

“Code" means the Internal Revenue Code of 1986, as amended.

 

 

1.5

“Insurer” means _                    ____

 

1.6“    Net Death Proceeds" means the total death proceeds of the Policy minus the greater of (i) the Policy's cash surrender value or (ii) the aggregate premiums paid on the Policy by the Employer.

 

1.7“    Policy” means the policy number __ _ issued by the Insurer and adopted by the Employer for purposes of insuring the Employee’s life under this Agreement



 

 

 

1.8    "Separation from Service" means a termination of the Employee's employment with the Employer for reasons other than death. A Separation from Service may occur as of a specified date for purposes of the Agreement: even if the Employee continues to provide some services for the Employer after that date, provided that the facts and circumstances indicate that the Employer and the Employee reasonably anticipated at that date that either no further services would be performed after that date, or that the level of bona fide services the Employee would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period (or the full period during which the Employee performed services for the Employer, if that is Jess than thirty-six (36) months). In determining whether a Separation of Service occurs the Administrator shall adhere to the terms of Treasury Regulation §1.409A-1(h) and shall take into account, among other things, the definition of "service recipient" and "employer" set forth therein. The Administrator shall have full and final authority, to determine conclusively whether a Separation from Service occurs, and the date of such Separation from Service.

 

ARTICLE 2

POLICY OWNERSHIP AND INTERESTS

 

2.1     Employer's Interest. The Employer shall own the Policy and shall have the right to exercise all incidents of ownership and may terminate the Policy without the consent of the Employee. The Employer shall be the beneficiary of the remaining death proceeds of the Policy after the Employee’s interest is determined according to Section 2.2 below.

 

2.2     Employee’s Interest. The Employee, or the Employee’s assignee, shall have the right to designate the Beneficiary of a portion of the Policy’s death proceeds as specified in this Section 2.2. The Employee shall also have the right to change settlement options with respect to the Employee’s Interest.

 

 

2.2.1

Death Prior to Separation from Service. If the Employee dies prior to Separation from Service, the Beneficiary shall be entitled to the lesser of (i) One Hundred Thousand Dollars ($100,000) or (ii) the Net Death Proceeds.

 

 

2.2.2

Death After Separation from Service. If the Employee dies after Separation from Service, the Beneficiary shall not be entitled to any benefit.

 

ARTICLE 3

PREMIUMS AND IMPUTED INCOME

 

3.1    Premium Payment. The Employer shall pay all premiums due on the Policy from its general assets.

 

3.2    Economic Benefit. The Employer shall determine the economic benefit attributable to the Employee based on the life insurance premium factor for the Employee’s age multiplied by the aggregate death benefit payable to the Beneficiary. The “life insurance premium factor” is the minimum factor applicable under guidance published pursuant to Treasury Regulations §1.61-22(d)(3)(ii) or any subsequent authority.



 

 

 

ARTICLE 4

SUICIDE OR MISSTATEMENT

 

No benefits shall be payable if the Employee commits suicide within two years after the date of this Agreement, or if the Insurer denies coverage (i) for material misstatements of fact made by the Employee on any application for the Policy, or (ii) for any other reason; provided, however that the Employer shall evaluate the reason for the denial, and upon advice of legal counsel and in its sole discretion, consider judicially challenging any denial.

 

ARTICLE 5

BENEFICIARIES

 

5.1    Designation of Beneficiaries. The Employee may designate any person to receive any benefits payable under the Agreement upon the Employee's death, and the designation may be changed from time to time by the Employee by filing a new designation. Each designation will revoke all prior designations by the Employee, shall be in the form prescribed by the Administrator and shall be effective only when filed in writing with the Administrator during the Employee's lifetime. If the Employee names someone other than the Employee's spouse as a Beneficiary, the Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Administrator, executed by the Employee's spouse and returned to the Administrator. The Employee's beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Employee or if the Employee names a spouse as Beneficiary and the marriage is subsequently dissolved.

 

5.2    Absence of Beneficiary Designation. In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Employee, the Employer shall direct the Insurer to pay the benefit to the Employee's spouse. If the spouse is not living then the Employer shall direct the Insurer pay the benefit to the Employee's living descendants per stirpes, and if there are no living descendants, to the Employee's estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Employee's personal representative, executor, or administrator.

 

5.3    Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Employer may direct the Insurer to make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Employer and the Administrator from further liability on account thereof.



 

 

 

ARTICLE 6

ASSIGNMENT

 

The Employee may irrevocably assign without consideration all of the Employee's interest in this Agreement to any person, entity, or trust. In the event the Employee shal1 transfer all of the Employee's interest, then all of the Employee's interest in this Agreement shall be vested in the Employee's transferee, who shall be substituted as a party hereunder, and the Employee shall have no further interest in this Agreement.

 

ARTICLE 7

INSURER

 

The Insurer shall be bound only by the terms of its given Policy. The Insurer shall not be bound by or deemed to have notice of the provisions of this Agreement. The Insurer shall have the right to rely on the Employer's representations with regard to any definitions, interpretations or Policy interests as specified under this Agreement.

 

ARTICLE 8

ADMINISTRATION

 

8.1    Administrator Duties. The Administrator shall be responsible for the management, operation, and administration of the Agreement. When making a determination or calculation, the Administrator shall be entitled to rely on information furnished by the Employer, Employee or Beneficiary. No provision of this Agreement shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.

 

8.2    Administrator Authority. The Administrator shall enforce this Agreement in accordance with its terms, shall be charged with the general administration of this Agreement, and shall have all powers necessary to accomplish its purposes.

 

8.3    Binding Effect of Decision. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest herein.

 

8.4    Compensation, Expenses and Indemnity. The Administrator shall serve without compensation for services rendered hereunder. The Administrator is authorized at the expense of the Employer to employ such legal counsel and record keeper as it may deem advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this Agreement shall be paid by the Employer.

 

8.5    Employer information. The Employer shall supply full and timely information to the Administrator on all matters relating to the Employee's death, Separation from Service, and such other information as the Administrator reasonably requires.



 

 

 

ARTICLE 9

CLAIMS AND REVIEW PROCEDURE

 

9.1    Claims Procedure. A person (the "Claimant") who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows.

 

(a)    Initiation - Written Claim. The Claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

 

(b)    Timing of Administrator Response. The Administrator shall respond to such Claimant within ninety (90) days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional ninety (90) days by notifying the Claimant: in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

 

(c)     Notice of Decision. If the Administrator denies part or all of the claim, the Administrator shall notify the Claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i) the specific reasons for the denial; (ii)a reference to the specific provisions of this Agreement on which the denial is based; (iii) a description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed; (iv) an explanation of this Agreement's review procedures and the time limits applicable to such procedures; and (v) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

 

9.2    Review Procedure. If the Administrator denies part or all of the claim, the Claimant shall have the opportunity for a full and fair review by the Administrator of the denial as follows.

 

(a)    Initiation-Written Request. To initiate the review, the Claimant within sixty (60) days after receiving the Administrator's notice of denial, must file with the Administrator a written request for review.

 

(b)    Additional Submissions – Information Access. The Claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Administrator shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits.



 

 

 

(c)    Considerations on Review. In considering the review, the Administrator shall take into account all materials and information the Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

(d)    Timing of Administrator Response. The Administrator shall respond in writing to such Claimant within sixty (60) days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional sixty (60) days by notifying the Claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

 

(e)    Notice of Decision. The Administrator shall notify the Claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i)the specific reasons for the denial; (ii) a reference to the specific provisions of this Agreement on which the denial is based; (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits; and (iv) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a).

 

ARTICLE 10

AMENDMENTS AND TERMINATION

 

This Agreement may be amended only by a written agreement signed by both the Employer and the Employee. In the event that the Employer decides to maintain the Policy after termination of the Agreement, the Employer shall be the direct beneficiary of all of the death proceeds of the Policy.

 

ARTICLE 11

MISCELLANEOUS

 

11.1     No Effect on Other Rights. This Agreement constitutes the entire agreement between the Employer and the Employee as to the subject matter hereof. No rights are granted to the Employee by virtue of this Agreement other than those specifically set forth herein. Nothing contained herein will confer upon the Employee the right to be retained in the service of the Employer nor limit the right of the Employer to discharge or otherwise deal with the Employee without regard to the existence hereof.

 

11.2    State Law. To the extent not governed by ERISA, the provisions of this Agreement shall be construed and interpreted according to the internal law of the State of Ohio without regard to its conflicts of laws principles.

 

11.3    Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.



 

 

 

11.4    Notice. Any notice, consent or demand required or permitted to be given to the Employer or Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the Employer's principal business office. Any notice or filing required or permitted to be given to the Employee or Beneficiary under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Employee or Beneficiary, as appropriate. Any notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

 

11.5    Headings and interpretation. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed part of this Agreement. Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

 

11.6    Coordination with Other Benefits. The benefits provided for the Employee or the Beneficiary under this Agreement are in addition to any other benefits available to the Employee under any other plan or program for employees of the Employer. This Agreement shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.

 

11.7    Inurement. This Agreement shall be binding upon and shall inure to the benefit of the Employer, its successor and assigns, and the Employee, the Employee's successors, heirs, executors, administrators, and the Beneficiary.

 

11.8    Entire Agreement. This Agreement, along with the Beneficiary Designation Form, constitutes the entire agreement between the Employer and the Employee as to the subject matter hereof. No rights are granted to the Employee under this Agreement other than those specifically set forth herein.

 

IN WITNESS WHEREOF, the Employee and a duly authorized representative of the Employer have signed this Agreement.

ex_672609img001.jpg

 

 
EX-10.41 4 ex_672610.htm EXHIBIT 10.4.1 CIC CHERAVITCH ex_672610.htm

Exhibit 10.4.1

CHANGE IN CONTROL AGREEMENT

 

This CHANGE IN CONTROL AGREEMENT (this "Agreement") is entered into effective as of 12th day of February, 2024, by and between Middlefield Banc Corp., an Ohio corporation ("Middlefield"), and Michael L. Cheravitch, Executive Vice President and Chief Banking Officer of The Middlefield Banking Company, a subsidiary of Middlefield (the "Executive").

 

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of The Middlefield Banking Company, and

 

 

WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule

 

359.1(f)(l )(ii) [12 CFR 359. l (f)(l )(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

 

Now THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1.    Termination after a Change in Control. (a) Cash benefit. If the Executive's employment Terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the Executive in an amount in cash equal to 1 times the Executive's compensation. For this purpose the Executive's compensation means (x) the sum of the Executive's base salary when the Change in Control occurs or when employment termination occurs, whichever amount is greater, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. For purposes of the preceding clause (y), if the Executive has been employed by Middlefield for less than three full calendar years, the Executive's cash bonus and cash incentive compensation average will be determined using the average of the cash bonus and cash incentive compensation that the Executive has received for the calendar years during which the Executive has been employed by Middlefield, with any cash bonus and cash incentive compensation that the Executive receives for a partial calendar year's employment annualized to reflect a complete year of service. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year's service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. Unless delay is required under section l (b), the payment required under this section l(a) shall be made the day the Executive's employment terminates. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. If the Executive's employment terminates involuntarily but without Cause before the Change in Control occurs but after discussions regarding the Change in Control commence, then for purposes of this Agreement the Executive's employment shall be deemed to have Terminated immediately after the Change in Control and the Executive shall be entitled to the cash benefit under this section I (a) on the date of the Change in Control.

 

 

(b)    Payment of the benefit. If when employment termination occurs the Executive is a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder ("Code Section 409A"), if the cash severance benefit under section l(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, payment of the benefit under section l(a) shall be delayed and shall be made to the Executive in a single lump sum without interest on the first day of the seventh month after the month in which the Executive's employment terminates.

 

(c)    Change in Control defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule l .409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule l.409A- 3(i)(5) would include the following -

 

 

 

1)

Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

 

 

2)

Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield' s board of directors, or

 

 

3)

Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield's assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield's assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

(d)    Involuntary termination with Cause defined. For purposes of this Agreement involuntary termination of the Executive's employment shall be considered involuntary Termination with Cause if the Executive shall have committed any of the following acts -

 

 

 

1)

an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

 

 

2)

gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive's duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield's or subsidiary's written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield's sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive's capacity as an officer or as a director of Middlefield or subsidiary, or

 

 

3)

removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield's subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(l) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(l), or

 

 

4)

intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield's sole judgment causes material harm to Middlefield or affiliates, or

 

 

5)

any actions that have caused the Executive to be terminated with cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

 

 

 

6)

the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

 

7)

intentional wrongful engagement in any competitive activity. For purposes of this Agreement competitive activity means the Executive's participation, without the consent of Middlefield' s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise's revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise's revenues for its most recently completed fiscal year, and (z) Middlefield's revenues from the product or service amounted to 10% of Middlefield's revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive's share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise's outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

 

For purposes of this Agreement no act or failure to act on the Executive's part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence.

An act or failure to act on the Executive's part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield's best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield's best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

 

(e)    Voluntary termination with Good Reason defined. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) are satisfied-

 

(x)    a voluntary termination by the Executive shall be considered a voluntary Termination with Good Reason if any of the following occur without the Executive's advance written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive's advance written consent -

 

 

 

1)

a material diminution of the Executive's base salary,

 

 

2)

a material diminution of the Executive's authority, duties, or responsibilities,

 

 

3)

a material diminution in the budget over which the Executive retains authority,

 

 

4)

a material change in the geographic location at which the Executive must perform services, or

 

 

5)

any other action or inaction that constitutes a material breach by Middlefield of this Agreement.

 

 

(y)    the Executive must give notice to Middlefield of the existence of one or more of the conditions described in clause (x) within 90 days after the initial existence of the condition, and Middlefield shall have 30 days thereafter to remedy the condition. In addition, the Executive's voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within 24 months after the initial existence of the condition.

 

2.    Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(b), if the Executive's employment terminates involuntarily but without Cause or voluntarily but for Good Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 12 months after the Executive's Termination, whichever occurs first.

 

(b)         Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or policies for the insurance benefits specified in section 2(a) it is not possible to continue the Executive's coverage, or (y) if when employment termination occurs the Executive is a specified employee within the meaning of Code Section 409A, if any of the continued insurance coverage benefits specified in section 2(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the present value of Middlefield's projected cost to maintain that particular insurance benefit had the Executive's employment not terminated, assuming continued coverage for 12 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive's employment terminates.

 

3.    Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive's employment Terminates with Cause, if the Executive dies while actively employed by Middlefield or a subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the te1m totally disabled means that because of injury or sickness the Executive is unable to perform the Executive's duties. The benefits, if any, payable to the Executive or the Executive's beneficiary or estate relating to the Executive's death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

 

 

4.    Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield's board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

 

5.    This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

 

6.    Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at Middlefield's expense as provided in this section 6, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 6, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel's customary practices, up to a maximum aggregate amount of $100,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield's obligation to pay the Executive's legal fees under this section 6 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive's legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

 

 

7.    Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

 

8.    Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any

 

persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield's obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

 

(b)    This Agreement is enforceable by the Executive's heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

 

(c)    This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 8. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 8, Middlefield shall have no liability to pay any amount to the assignee or transferee.

 

9.    Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified mail restricted delivery or registered mail restricted delivery, return receipt requested, or if delivered by a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt confirmed through a signature from someone at the delivery address. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

 

10.    Captions and Counterparts. The headings and subheadings in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

 

 

11.    Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

 

12.    Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other

 

provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

 

13.    Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

 

14.    Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set fo1ih expressly in this Agreement.

 

15.    No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

 

    Compliance with Internal Revenue Code Section 409A.

 

(b)    Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)    Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a "separation from service" (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a "Termination" or "termination of employment" or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a "specified employee," within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of thesix-month period measured from the date of the Executive's separation from service or (ii) the date of the Executive's death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive's separation from service or, if earlier, on the date of the Executive's death, all payments delayed pursuant to this section 16(c) (whether they would have othe1wise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section 16(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive's termination to the date of payment.

 

(d)    Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule l.409A-l(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(e)    Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., "payment shall be made within ten (10) days following the date of termination"), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

 

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

EXECUTIVE         MIDDLEFIELD BANC CORP.

 

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EX-10.42 5 ex_672611.htm EXHIBIT 10.4.2 CIC NOBLIT ex_672611.htm

Exhibit 10.4.2

CHANGE IN CONTROL AGREEMENT

 

 

This CHANGE IN CONTROL AGREEMENT (this "Agreement") is entered into effective as of this 12th day of February, 2024, by and between Middlefield Banc Corp., an Ohio corporation ("Middlefield"), and Rebecca A. Noblit, Executive Vice President and Chief Credit Officer of The Middlefield Banking Company, a subsidiary of Middlefield (the "Executive").

 

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desi1ing to provide additional inducement for the Executive to remain in the employment of The Middlefield Banking Company, and

 

WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule

359.1(f)(l )(ii) [12 CFR 359.1(f)(l )(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

 

Now THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1.    Termination after a Change in Control. (a) Cash benefit. If the Executive's employment terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the Executive in an amount in cash equal to 2 times the Executive's compensation. For this purpose the Executive's compensation means (x) the sum of the Executive's base salary when the Change in Control occurs or when employment termination occurs, whichever amount is greater, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. For purposes of the preceding clause (y), if the Executive has been employed by Middlefield for less than three full calendar years, the Executive's cash bonus and cash incentive compensation average will be determined using the average of the cash bonus and cash incentive compensation that the Executive has received for the calendar years during which the Executive has been employed by Middlefield, with any cash bonus and cash incentive compensation that the Executive receives for a partial calendar year's employment annualized to reflect a complete year of service. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year's service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. Unless delay is required under section l(b), the payment required under this section l(a) shall be made the day the Executive's employment terminates. The amount payable to the Executive hereunder shall not be reduced to account for the time

 

value of money or discounted to present value. If the Executive's employment terminates involuntarily but without Cause before the Change in Control occurs but after discussions regarding the Change in Control commence, then for purposes of this Agreement the Executive's employment shall be deemed to have terminated immediately after the Change in Control and the Executive shall be entitled to the cash benefit under this section l(a) on the date of the Change in Control.

 

(b)    Payment of the benefit. If when employment termination occurs the Executive is a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder ("Code Section 409A"), if the cash severance benefit under section l(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, payment of the benefit under section l(a) shall be delayed and shall be made to the Executive in a single lump sum without interest on the first day of the seventh month after the month in which the Executive's employment terminates.

 

(c)    Change in Control defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A- 3(i)(5) would include the following -

 

 

 

1)

Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

 

 

2)

Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield's board of directors, or

 

 

3)

Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield's assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield's assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

(d)    Involuntary termination with Cause defined. For purposes of this Agreement involuntary termination of the Executive's employment shall be considered involuntary termination with Cause if the Executive shall have committed any of the following acts -

 

 

1)

an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

 

 

2)

gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive's duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield's or subsidiary's written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield's sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive's capacity as an officer or as a director of Middlefield or subsidiary, or

 

 

 

3)

removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield' s subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(l) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(l), or

 

 

4)

intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield's sole judgment causes material harm to Middlefield or affiliates, or

 

 

5)

any actions that have caused the Executive to be terminated with cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

 

 

6)

the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

 

 

7)

intentional wrongful engagement in any competitive activity. For purposes of this Agreement competitive activity means the Executive's participation, without the consent of Middlefield's board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise's revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise's revenues for its most recently completed fiscal year, and (z) Middlefield's revenues from the product or service amounted to 10% of Middlefield's revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive's share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise's outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

 

For purposes of this Agreement no act or failure to act on the Executive's part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence.

 

An act or failure to act on the Executive's part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield's best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield's best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

 

(e)    Voluntary termination with Good Reason defined. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) are satisfied -

 

(x)    a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if any of the following occur without the Executive's advance written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive's advance written consent-

 

 

1)

a material diminution of the Executive's base salary,

 

 

2)

a material diminution of the Executive's authority, duties, or responsibilities,

 

 

3)

a material diminution in the budget over which the Executive retains authority,

 

 

 

4)

a material change in the geographic location at which the Executive must perform services, or

 

 

5)

any other action or inaction that constitutes a material breach by Middlefield of this Agreement.

 

(y)    the Executive must give notice to Middlefield of the existence of one or more of the conditions described in clause (x) within 90 days after the initial existence of the condition, and Middlefield shall have 30 days thereafter to remedy the condition. In addition, the Executive's voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within 24 months after the initial existence of the condition.

 

2.    Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(b), if the Executive's employment terminates involuntarily but without Cause or voluntarily but for Good Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive's te1mination, whichever occurs first.

 

(b)         Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or policies for the insurance benefits specified in section 2(a) it is not possible to continue the Executive's coverage, or (y) if when employment termination occurs the Executive is a specified employee within the meaning of Code Section 409A, if any of the continued insurance coverage benefits specified in section 2(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the present value of Middlefield's projected cost to maintain that particular insurance benefit had the Executive's employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive's employment terminates.

 

3.    Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive's employment terminates with Cause, if the Executive dies while actively employed by Middlefield or a subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive's duties. The benefits, if any, payable to the Executive or the Executive's beneficiary or estate relating to the Executive's death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

 

4.    Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield's board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

 

5.    This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

 

6.    Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at Middlefield's expense as provided in this section 6, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 6, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel's customary practices, up to a maximum aggregate amount of $100,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield's obligation to pay the Executive's legal fees under this section 6 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive's legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CPR 359.3].

 

7.    Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

 

8.    Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any

 

persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield's obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

 

(b)    This Agreement is enforceable by the Executive's heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

 

(c)    This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 8. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 8, Middlefield shall have no liability to pay any amount to the assignee or transferee.

 

9.    Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified mail restricted delivery or registered mail restricted delivery, return receipt requested, or if delivered by a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt confirmed through a signature from someone at the delivery address. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

 

 

10.    Captions and Counterparts. The headings and subheadings in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

 

11.    Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

12.    Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other

 

provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

 

 

13.    Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

 

14.    Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

 

15.    No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

 

16.    Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

 

 

(b)    Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)    Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a "separation from service" (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a "termination" or "termination of employment" or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a "specified employee," within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive's separation from service or (ii) the date of the Executive's death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive's separation from service or, if earlier, on the date of the Executive's death, all payments delayed pursuant to this section t 6(c) (whether they would have othe1wise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section .16(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive's termination to the date of payment.

 

(d)    Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule 1.409A-l(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(e)    Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., "payment shall be made within ten (I 0) days following the date of te1mination"), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

 

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

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EX-10.43 6 ex_672612.htm EXHIBIT 10.4.3 CIC WILSON ex_672612.htm

Exhibit 10.4.3

CHANGE IN CONTROL AGREEMENT

 

This CHANGE IN CONTROL AGREEMENT (this "Agreement") is entered into effective as of this 12th day of February, 2024, by and between Middlefield Banc Corp., an Ohio corporation ("Middlefield"), and Thomas M. Wilson, Executive Vice President and Chief Strategy and Innocation Officer of The Middlefield Banking Company, a subsidiary of Middlefield (the "Executive").

 

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of The Middlefield Banking Company, and

 

WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.l{f)(l)(ii) [12 CFR 359.l(f)(l)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

 

Now THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1.    Termination after a Change in Control. (a) Cash benefit. If the Executive's employment terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the Executive in an amount in cash equal to 2 times the Executive's compensation. For this purpose the Executive's compensation means (x) the sum of the Executive's base salary when the Change in Control occurs or when employment termination occurs, whichever amount is greater, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. For purposes of the preceding clause (y), if the Executive has been employed by Middlefield for less than three full calendar years, the Executive's cash bonus and cash incentive compensation average will be determined using the average of the cash bonus and cash incentive compensation that the Executive has received for the calendar years during which the Executive has been employed by Middlefield, with any cash bonus and cash incentive compensation that the Executive receives for a partial calendar year's employment annualized to reflect a complete year of service. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year's service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. Unless delay is required under section 1(b), the payment required under this section l(a) shall be made the day the Executive's employment terminates.

 

The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. If the Executive's employment terminates involuntarily but without Cause before the Change in Control occurs but after discussions regarding the Change in Control commence, then for purposes of this Agreement the Executive's employment shall be deemed to have terminated immediately after the Change in Control and the Executive shall be entitled to the cash benefit under this section l(a) on the date of the Change in Control.

 

(b)    Payment of the benefit. If when employment termination occurs the Executive is a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder ("Code Section 409A"), if the cash severance benefit under section l(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, payment of the benefit under section l(a) shall be delayed and shall be made to the Executive in a single lump sum without interest on the first day of the seventh month after the month in which the Executive's employment terminates.

 

(c)    Change in Control defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule l.409A- 3(i)(5) would include the following -

 

 

 

1)

Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

 

 

 

2)

Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield's board of directors, or

 

 

 

3)

Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield' s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield's assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield's assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

(d)    Involuntary termination with Cause defined. For purposes of this Agreement involuntary termination of the Executive's employment shall be considered involuntary termination with Cause if the Executive shall have committed any of the following acts -

 

 

1)

an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

 

 

 

2)

gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive's duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield's or subsidiary's written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield's sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive's capacity as an officer or as a director of Middlefield or subsidiary, or

 

 

3)

removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield's subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(l) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(l), or

 

 

4)

intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield's sole judgment causes material harm to Middlefield or affiliates, or

 

 

 

5)

any actions that have caused the Executive to be terminated with cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

 

 

6)

the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

 

7)

Intentional wrongful engagement in any competitive activity. For purposes of this Agreement competitive activity means the Executive's participation, without the consent of Middlefield' s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise's revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise's revenues for its most recently completed fiscal year, and (z) Middlefield's revenues from the product or service amounted to 10% of Middlefield's revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive's share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise's outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

 

For purposes of this Agreement no act or failure to act on the Executive's part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence.

 

An act or failure to act on the Executive's part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield's best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield's best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

 

(e)    Voluntary termination with Good Reason defined. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) are satisfied-

 

(x)    a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if any of the following occur without the Executive's advance written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive's advance written consent -

 

 

1)

a material diminution of the Executive's base salary,

 

 

2)

a material diminution of the Executive's authority, duties, or responsibilities,

 

 

3)

a material diminution in the budget over which the Executive retains authority,

 

 

4)

a material change in the geographic location at which the Executive must perform services, or

 

 

 

5)

any other action or inaction that constitutes a material breach by Middlefield of this Agreement.

 

(y)    the Executive must give notice to Middlefield of the existence of one or more of the conditions described in clause (x) within 90 days after the initial existence of the condition, and Middlefield shall have 30 days thereafter to remedy the condition. In addition, the Executive's voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within 24 months after the initial existence of the condition.

 

2.    Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(6), if the Executive's employment terminates involuntarily but without Cause or voluntarily but for Good Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive's termination, whichever occurs first.

 

 

(b)         Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or policies for the insurance benefits specified in section 2(a) it is not possible to continue the Executive's coverage, or (y) if when employment termination occurs the Executive is a specified employee within the meaning of Code Section 409A, if any of the continued insurance coverage benefits specified in section 2(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the present value of Middlefield's projected cost to maintain that particular insurance benefit had the Executive's employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive's employment terminates.

 

3.    Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive's employment terminates with Cause, if the Executive dies while actively employed by Middlefield or a subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive's duties. The benefits, if any, payable to the Executive or the Executive's beneficiary or estate relating to the Executive's death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

 

4.    Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield's board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

 

5.    This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

 

 

6.    Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at Middlefield's expense as provided in this section 6, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 6, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel's customary practices, up to a maximum aggregate amount of $100,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield's obligation to pay the Executive's legal fees under this section 6 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive's legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

 

7.    Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

 

 

8.    Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield's obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

 

(b)    This Agreement is enforceable by the Executive's heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

 

(c)    This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 8. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 8, Middlefield shall have no liability to pay any amount to the assignee or transferee.

 

9.    Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified mail restricted delivery or registered mail restricted delivery, return receipt requested, or if delivered by a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt confirmed through a signature from someone at the delivery address. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

 

10.    Captions and Counterparts. The headings and subheadings in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

 

11.    Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

12.    Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other

 

provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

 

13.    Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

 

14.    Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

 

 

15.    No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

 

16.    Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

 

(b)    Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)    Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a "separation from service" (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a "termination" or "termination of employment" or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a "specified employee," within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive's separation from service or (ii) the date of the Executive's death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive's separation from service or, if earlier, on the date of the Executive's death, all payments delayed pursuant to this section l 6(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section l 6(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate repotted in The Wall Street Journal for the date of the Executive's termination to the date of payment.

 

(d)    Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule l.409A-l(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such te1mination of employment.

 

(e)    Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., "payment shall be made within ten (10) days following the date of termination"), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

 

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

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EX-10.44 7 ex_672613.htm EXHIBIT 10.4.4 CIC WINTERS ex_672613.htm

Exhibit 10.4.4

CHANGE IN CONTROL AGREEMENT

 

This CHANGE IN CONTROL AGREEMENT (this "Agreement") is entered into effective as of this 12th day of February, 2024, by and between Middlefield Banc Corp., an Ohio corporation ("Middlefield"), and Sarah A. Winters, Senior Vice President and Chief Human Resources Officer of The Middlefield Banking Company, a subsidiary of Middlefield (the "Executive").

 

 

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of The Middlefield Banking Company, and

 

WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.l(f)(l)(ii) [12 CFR 359.l(f)(l)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

 

Now THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1.    Termination after a Change in Control. (a) Cash benefit. If the Executive's employment terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the Executive in an amount in cash equal to 2 times the Executive's compensation. For this purpose the Executive's compensation means (x) the sum of the Executive's base salary when the Change in Control occurs or when employment termination occurs, whichever amount is greater, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. For purposes of the preceding clause (y), if the Executive has been employed by Middlefield for less than three full calendar years, the Executive's cash bonus and cash incentive compensation average will be determined using the average of the cash bonus and cash incentive compensation that the Executive has received for the calendar years during which the Executive has been employed by Middlefield, with any cash bonus and cash incentive compensation that the Executive receives for a partial calendar year's employment annualized to reflect a complete year of service. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year's service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. Unless delay is required under section I (b), the payment required under this section l(a) shall be made the day the Executive's employment terminates. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. If the Executive's employment terminates involuntarily but without Cause before the Change in Control occurs but after discussions regarding the Change in Control commence, then for purposes of this Agreement the Executive's employment shall be deemed to have terminated immediately after the Change in Control and the Executive shall be entitled to the cash benefit under this section l(a) on the date of the Change in Control.

 

(b)    Payment of the benefit. If when employment termination occurs the Executive is a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder ("Code Section 409A"), if the cash severance benefit under section 1(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, payment of the benefit under section l(a) shall be delayed and shall be made to the Executive in a single lump sum without interest on the first day of the seventh month after the month in which the Executive's employment terminates.

 

(c)    Change in Control defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A- 3(i)(5) would include the following-

 

l)         Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

 

 

2)

Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield's board of directors, or

 

 

3)

Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield's assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield's assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

(d)    Involuntary termination with Cause defined. For purposes of this Agreement involuntary termination of the Executive's employment shall be considered involuntary termination with Cause if the Executive shall have committed any of the following acts -

 

 

I)

an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

 

 

2)

gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive's duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield's or subsidiary's written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield's sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive's capacity as an officer or as a director of Middlefield or subsidiary, or

 

 

 

3)

removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield's subsidiary bank or banks by an order issued under section 8(e)(4) or (g)( I) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(l), or

 

 

4)

intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield's sole judgment causes material harm to Middlefield or affiliates, or

 

 

5)

any actions that have caused the Executive to be terminated with cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

 

 

6)

the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

 

7)

intentional wrongful engagement in any competitive activity. For purposes of this Agreement competitive activity means the Executive's participation, without the consent of Middlefield's board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise's revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to I 0% or more of the enterprise's revenues for its most recently completed fiscal year, and (z) Middlefield's revenues from the product or service amounted to 10% of Middlefield's revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive's share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise's outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

 

For purposes of this Agreement no act or failure to act on the Executive's part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence.

 

An act or failure to act on the Executive's part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield's best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

 

(e)    Voluntary termination with Good Reason defined. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) are satisfied -

 

(x)    a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if any of the following occur without the Executive's advance written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive's advance written consent -

 

 

1)

a material diminution of the Executive's base salary,

 

 

2)

a material diminution of the Executive's authority, duties, or responsibilities,

 

 

3)

a material diminution in the budget over which the Executive retains authority,

 

 

4)

a material change in the geographic location at which the Executive must perform services, or

 

 

5)

any other action or inaction that constitutes a material breach by Middlefield of this Agreement.

 

 

(y)    the Executive must give notice to Middlefield of the existence of one or more of the conditions described in clause (x) within 90 days after the initial existence of the condition, and Middlefield shall have 30 days thereafter to remedy the condition. In addition, the Executive's voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within 24 months after the initial existence of the condition.

 

2.    Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(b), if the Executive's employment terminates involuntarily but without Cause or voluntarily but for Good Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive's termination, whichever occurs first.

 

 

(b)         Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or policies for the insurance benefits specified in section 2(a) it is not possible to continue the Executive's coverage, or (y) if when employment termination occurs the Executive is a specified employee within the meaning of Code Section 409A, if any of the continued insurance coverage benefits specified in section 2(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the present value of Middlefield's projected cost to maintain that particular insurance benefit had the Executive's employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive's employment terminates.

 

3.    Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive's employment terminates with Cause, if the Executive dies while actively employed by Middlefield or a subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive's duties. The benefits, if any, payable to the Executive or the Executive's beneficiary or estate relating to the Executive's death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

 

4.    Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield's board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

 

5.    This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

 

 

6.    Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at Middlefield's expense as provided in this section 6, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 6, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel's customary practices, up to a maximum aggregate amount of $100,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield's obligation to pay the Executive's legal fees under this section 6 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive's legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

 

7.    Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

 

 

8.    Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield's obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

 

 

(b)    This Agreement is enforceable by the Executive's heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

 

(c)    This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 8. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 8, Middlefield shall have no liability to pay any amount to the assignee or transferee.

 

9.    Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified mail restricted delivery or registered mail restricted delivery, return receipt requested, or if delivered by a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt confirmed through a signature from someone at the delivery address. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

 

10.    Captions and Counterparts. The headings and subheadings in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

 

11.    Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

12.    Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other

 

provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

 

13.    Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

 

14.    Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

 

15.    No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

 

 

16.    Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

 

(b)    Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)    Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a "separation from service" (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a "termination" or "termination of employment" or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a "specified employee," within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive's separation from service or (ii) the date of the Executive's death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive's separation from service or, if earlier, on the date of the Executive's death, all payments delayed pursuant to this section 16(c) (whether they would have othe1wise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section I 6(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive's termination to the date of payment.

 

(d)    Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule l .409A-1(b)(9)(iii) but for the amount of such payment, the dete1mination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(e)    Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., "payment shall be made within ten (10) days following the date of termination"), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

 

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

cicwinters.jpg

 

 
EX-10.8 8 ex_672614.htm EXHIBIT 10.8 SERP ZIMMERLY ex_672614.htm

Exhibit 10.8

 

SUPPLEMENTAL EXECUTIVE

RETIREMENT BENEFITS AGREEMENT

 

This Supplemental Executive Retirement Benefits Agreement (this ''Agreement") is made as of the 15th day of December, 2011, with an Effective Date of January I, 2012, by and between Liberty National Bank, a national banking association ("Bank"), and Ronald Zimmerly, an individual (''Executive").

 

RECITALS

 

WHEREAS, Executive has provided valuable services to the Bank as an executive officer and is expected to continue to provide his services as an executive officer of the Bank in future years;

 

WHEREAS, the Board of the Bank has determined that it is in the best interests of the Bank and its constituencies to provide Executive additional incentives to continue to provide his services as a key management executive of the Bank, and has decided that one appropriate way to provide such incentives is to provide certain supplemental retirement benefits to Executive on the terms and conditions described in this Agreement;

 

WHEREAS, Executive Is willing to enter an agreement· with the Bank providing for such supplemental retirement benefits on the terms and conditions described below.

 

NOW, THEREFORE, the parties hereto, for and in consideration of the foregoing and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, do agree as follows:

 

1.    Employment of Executive and Commitment to Provide Supplemental Retirement Benefits. In exchange for the supplemental retirement benefits described in this Agreement, Executive agrees that he will not voluntarily terminate his employment with the Bank prior to January I, 2013, the first anniversary of the Effective Date of this Agreement, except as otherwise provided in a certain "Change in Control-Severance Compensation Agreement'' dated December 15, 2011. The Bank, in tum, agrees that in exchange for such commitment, the Bank will provide Executive with the unfunded supplemental retirement benefits on the terms and conditions described in this Agreement, the obligations under which shall be reflected on the general ledger of the Bank (the "Retirement Account"). The Retirement Account shall be an unsecured liability of the Bank to Executive, payable only as provided herein from the general funds of the Bank and only if Executive satisfies the requirements for benefits described in Sections 2, 3, 4 or 6 of this Agreement. The Retirement Account is not a deposit or insured by the FDIC and does not constitute a trust account or any other special obligation of the Bank and does not have priority of payment over any other general obligation of the Bank.

2.    Normal Retirement Benefits.

a.    Eligibility For Normal Retirement Benefit. If Executive continues his employment with the Bank through June 8, 2029 (Executive's "Normal Retirement Date") and does not experience a Separation from Service with 1he Bank and its affiliates (as the term "Separation from Service" is defined below) until on or after the Normal Retirement Date, then Executive shall be entitled to receive the Normal Retirement Benefits described in Subsection 2(b), commencing upon the Payment Commencement Date defined in Subsection 2(c).

b.    Amount of Normal Retirement Benefits. If Executive satisfies the requirements for the Normal Retirement Benefits described in Subsection (a), the Bank shall pay to Executive or his beneficiary a Normal Retirement Benefit equal to $65,800 per year, payable in monthly installments over a period of one-hundred-eighty ( 180) months (i.e., over 15 years), beginning on the Payment Commencement Date defined in Subsection 2(c) and on the first day of each month thereafter until the fifteenth (15th) anniversary of the Payment Commencement Date.



 

 

 

c.    Payment Commencement Date. For this purpose, except as described in Subsection (e) below, Executive's "Payment Commencement Date" shall be the later of (I) the first business day of the month following the month in which Executive attains age 65 (June 8, 2029) or (2) the first business day of the first calendar month following the end of the calendar month in which Executive experiences a Separation from Service (as defined in Subsection 2 (d) below).

 

d.    Separation from Service. For purposes of this Agreement, the phrase 'Separation from Service' shall be deemed to occur only if either (i) Executive has ceased to perform any services for the Bank and all affiliated companies that, together with the Bank, constitute the 'service recipient' within the meaning of Section 409A of the Internal Revenue Code ('Code') and the regulations thereunder (collectively, the 'Service Recipient') or (ii) the level of bona fide services Executive performs for the Bank after a given date (whether as an employee or as an independent contractor) permanently decreases (excluding a decrease as a result of military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as Executive retains a right to reemployment with the Bank under an applicable statute or by contract) to no more than twenty-five percent (25%) of the average level of bona fide services performed for the Bank (whether as an employee, director or an independent contractor) over the immediately preceding 36-month period (or the full period of service if Executive has been providing services to the Bank for less than 36 months).

 

e.    Suspension of Payments. Notwithstanding any other provision of this Agreement to the contrary, if at the time of Executive's Separation from Service, Executive is a Specified Employee of the Bank, and the payment of any amount under this Section 2 would otherwise fail to meet the requirements of Code Section 409A(a)(t)B(i), no part of the Normal Retirement Benefits shall be paid until six months after Executive's Separation from Service (or any earlier date permitted under Code Section 409A), at which time Executive shall be paid a lump sum equal to the amounts which would otherwise have been paid during the suspension period in the 30-day period immediately following such suspension period, and thereafter payment of the unpaid monthly amounts shall continue on what would otherwise have been the original payment schedule for such monthly amounts. For this purpose, Executive shall be considered to be a "Specified Employee" of the Bank on any date if, and only if, (A) Executive is a specified employee of the Bank (as that term is defined in Section 409A(a)(2)(B) of the Code) by reason of being a "key employee" of the Bank under Section 416(i) of the Code (without regard to paragraph (5) thereof) and (B) stock of the Bank (or the Bank's holding corporation) is publicly traded on an established securities market on such date.

3.    Early Retirement Benefits.

 

a.    Eligibility for Early Retirement Benefits Upon Termination Prior to Normal Retirement Date. Subject to subsection 3(c) below, if Executive experiences a Separation from Service with the Bank and its affiliates because he voluntarily resigns from full-time employment with the Bank and its affiliates for any reason after January 1, 201 J but before his Normal Retirement Date, or the Bank discharges him for any reason other than For Cause (as defined in subsection 3(c) below) before his Normal Retirement Date, the Bank shall pay to Executive, or his beneficiary in the case of death as provided in Section 5, the Limited Early Retirement Benefit (as hereinafter defined) over a period of one-hundred-eighty ( I 80) months (i.e., over IS years), beginning on the Payment Commencement Date (as determined under Section 2(c) above) and on the first day of each month thereafter until (but including) the fifteenth (15th) anniversary of the Payment Commencement Date.

 

b.    Amount of Limited Early Retirement Benefits. For the purposes of this Agreement, the "Limited Early Retirement Benefit" shall be the annual amount set forth on Exhibit A corresponding to the calendar year in which Executive's employment terminates, and the amount payable each month shall be one-twelfth (1/12) of such annual amount set forth on Exhibit A.

 

c.    Discharge for Cause. Any other provision of this Agreement to the contrary notwithstanding, if Executive experiences a Separation from Service with the Bank and its affiliates as a result of, or in connection with: (i) Executive's insubordination; (ii) Executive's breach of his obligations under this Agreement; his employment agreement with the Bank (if any), (iii) any act or omission by Executive which is, or is likely to be, injurious to the Bank and its affiliates or the business reputation of the Bank and its affiliates, (iv) Executive's dishonesty, fraud, malfeasance, negligence or misconduct; (v) Executive's failure to satisfactorily perform his duties, to follow the direction (consistent with his duties) of the Board of Directors of the Bank, or to follow the policies, procedures, and rules of the Bank and its affiliates; or {vi) Executive's conviction of, or Executive's entry of a plea of guilty or no contest to, a felony or crime involving moral turpitude (any of the foregoing referred to herein as "For Cause"), then Executive shall not be entitled to any supplemental retirement benefits provided for in this Agreement and this Agreement may be terminated by the Bank without any liability whatsoever. The obligation of the Bank to make any payments contemplated under this Agreement shall be suspended during the pendency of any indictment, information or similar charge regarding a felony or crime of moral turpitude, during any regulatory or other adjudicative proceeding concerning regulatory suspension or removal or, for a reasonable time (not to exceed ninety days), while the Board of Directors of the Bank seeks to determine whether Executive could have been terminated For Cause even though Executive may have previously retired, resigned, become Substantially Disabled or been discharged other than For Cause. If during such period the Board of Directors determines that Executive could have been discharged For Cause, this Subsection 3(c) shall be applicable as if Executive had been discharged For Cause. Notwithstanding the foregoing, if, as of the effective date of Executive's termination of employment, there is an employment or other services agreement in effect between Executive and the Bank which defines the term 'For Cause' or a similar concept, then the definition for such term as provided in such services agreement shall apply in lieu of the foregoing definition of such term in this Subsection J(c).

 

d.    Suspension of Payments. Notwithstanding anything in this Section 3 to the contrary, if at the time of Executive's Separation from Service, Executive is a Specified Employee of the Bank, and the payment of any amount under this Section 3 would otherwise fail to meet the requirements of Code Section 409A(a)( I )B(i), no part of the Limited Early Retirement Benefits shall be paid until six months after Executive's Separation from Service (or any earlier date permitted under Code Section 409A), at which time Executive shall be paid a lump sum equal to the amounts which would otherwise have been paid during the suspension period in the 30-day period immediately following such suspension period, and thereafter payment of the unpaid monthly amounts shall continue on what would otherwise have been the original payment schedule for such monthly amounts.

 

 

 

4.

Disability

 

a.    Amount of Disability Benefit, If Executive should become Substantially Disabled {as. defined in Subsection 4(c) below) while he continues to be employed by the Bank and Executive's employment with the Bank is subsequently terminated by the Bank as a result of the disability prior to his Payment Commencement Date, then the Bank shall pay to Executive a Disability Benefit equal to either:

 

i.    If Executive's employment is terminated on or after his Normal Retirement Date, the amount of the annual Normal Retirement Benefit which would have been payable if Executive retired under Section 2 on such date, commencing on the Payment Commencement Date (as defined in Section 2(c) above); or

 

ii.    (ii)If Executive becomes Substantially Disabled prior to his Normal Retirement Date, the amount of the annual Limited Early Retirement Benefit which would have been payable if Executive had terminated employment under Section 3 on such date, except that payment of the Disability Benefit shall commence on the first business day of the first calendar month after Executive is determined to be Substantially Disabled {rather than on the Payment Commencement Date).

 

b.    Payment of Disability Benefit. The Disability Benefit shall be paid in monthly installments over a period of one-hundred-eighty (180) months {i.e., over 15 years) in accordance with Sections 2 or 3 above (as applicable), except that the payments shall commence on the first business day of the first calendar month after Executive is determined to be Substantially Disabled (rather than on the Payment Commencement Date specified in Section 2 or 3 above).



 

 

 

c.    Standard for Substantially Disabled. For purposes of this Agreement, Executive shall be considered ''Substantially Disabled" if Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve ( 12) months or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve ( 12) months, receiving income replacement benefits for a period of nor less than three (3) months under an accident and health plan covering the Bank's employees. The determination of whether Executive is "Substantially Disabled" under clause (i) above shall be made by a licensed physician selected by the Board of Directors of the Bank. Notwithstanding the foregoing, "Substantially Disabled" shall be construed consistently with the definition of "disabled" under Code Section 409(a)(2)(C).

 

 

5.

Death of Executive.

 

a.    Death While Receiving Benefits. Upon Executive's death after the Payment Commencement Date for any benefits payable under Sections 2, 3, 4 or 6 of this Agreement, Executive's beneficiary designated on Exhibit B hereto (or Executive's estate if no beneficiary is designated) shall receive the remaining payments due to Executive as if Executive had lived until the last payment due was paid.

 

b.    Death Before Payment Commencement Date. Upon Executive's death prior to a Separation from Service and before payments have commenced under any provision of Sections 2, 3, 4 or 6 of this Agreement, Executive's beneficiary designated on Exhibit D hereto (or Executive's estate if no beneficiary is designated) shall receive a Death Benefit based upon the Accrual Balance recorded on the Bank's general ledger as of the month-end preceding the date of Executive's death. The Death Benefit amount shall be an annuity determined using the Accrual Balance plus interest at the Discount Rate (as defined in 5.(b) (ii) below) payable in five equal annual installments beginning on the first day of the second month following the date of Executive's death. See Exhibit C for a schedule of the projected Accrual Balance at the beginning of each year prior to the Payment Commencement Date. (Example of annuity calculation: If the Accrual Balance were $550,000 at the date of death, the Discount Rate of6%, the payments over five years, then the annual Death Benefit would equal $123,177 for five years.)

 

For purposes of this Section 5 of the Agreement:

 

i.    "Accrual Balance" means the liability accrued by the Bank, using Generally Accepted Accounting Principles (''GAAP"), applying appropriate methodology, Discount Rate, periodic compounding and payments. Any one of a variety of amortization methods may be used to determine the Accrual Balance. However, once chosen, the method must be consistently applied for purposes of the amount payable under this Section 5.

ii.    "Discount Rate" means the rate used by the Bank in determining the Accrual Balance. The initial Discount Rate is six percent (6%). However, the Bank, in its sole discretion, may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP.

 

 

6.

Change in Control.

 

a.    If a Change in Control (as defined in Subsection 6(d) below) occurs before Executive experiences a Separation from Service with the Bank and, during the period of twenty-four (24) months following the effective date of the Change in Control (but before his Normal Retirement Date), Executive experiences a Separation from Service because he voluntarily resigns from full-time employment with the Bank for any reason or the Bank discharges him for any reason other than for Cause during such period of twenty-four (24) months following the effective date of the Change in Control, then Executive shall receive a Change in Control Benefit based upon the Accrual Balance recorded on the Bank's general ledger as of the month-end preceding the date of Executive's Separation from Service within the twenty four (24) month period following the effective date of the Change in Control. The Change in Control Benefit amount shall be an annuity determined using the Accrual Balance plus interest at the Discount Rate payable in five equal annual installments beginning on the first day of the month following 1he dale of Separation from Service following the Change in Control. Sec Exhibit C for a schedule of the projected Accrual Balance at the beginning of each year prior to the Payment Commencement Date.

b.    Upon the Bank's payment of the Change in Control Benefit under this Section 6, the Bank's obligations to make payments under any other Section of this Agreement, including without limitation, the Normal Retirement Benefit under Section 2, the Early Retirement Benefit under Section 3, or the Disability Retirement Benefit under Section 4, shall terminate.

c.    If a Change in Control occurs after Executive experiences a Separation from Service following the Payment Commencement Date and payments under this Agreement have commenced, Executive shall receive the remaining payments still due to Executive as if no Change in Control had occurred.

d.    For purposes of this Agreement, the occurrence of a "Change in Control'' shall mean the occurrence of any of the following:

i.    (i) the closing of the sale of all, or a material portion, of the assets of the Bank (or the Bank's holding company) which constitutes a "change in the ownership of a substantial portion of the assets'' under Treasury Regulation J .409A·3(i)(5)(vii);

ii.    (ii). the appointment or election to the Board of one or more directors which cause a majority of the members of the Board of Directors to have been replaced during the preceding 12- month period by directors whose appointment or election was not endorsed by a majority of the members of the Board who were serving immediately prior to the beginning of the 12-month period;

iii.    (iii) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of thirty percent (30%) or more of the outstanding voting securities of the Bank or the Bank's holding company by any person, trust, entity or group, within the meaning of Treasury Regulation I .409A-3(i)(5)(vi)(B ).

 

No transaction or acquisition of voting securities of the Bank or its holding company shall be considered a "Change in Control" for purposes of this Section 6 unless it would qualify as a "change in the ownership'' of the Bank under Treasury Regulation l.409A·3(i)(5Xv), a "change in the effective control" of the Bank under Treasury Regulation 1.409A-3(i)(5)(vi),or a "change in the ownership of a substantial portion of the assets" of the Bank under Treasury Regulation I .409A-3(i)(5)(vii).

 

For purposes of this Section 6 of the Agreement:

iv.    "Accrual Balance" means the liability accrued by the Bank, using Generally Accepted Accounting Principles (''GAAP"), applying appropriate methodology, Discount Rate, periodic compounding and payments. Any one of a variety of amortization methods may be used to determine the Accrual Balance. However, once chosen, the method must be consistently applied for purposes of the amount payable under this Section 6.

v.    "Discount Rate" means the rate used by the Bank in determining the Accrual Balance. The initial Discount Rate is six percent (6%). However, the Bank, in its sole discretion, may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP.

7.    Benefits Mutually Exclusive. Under no circumstances will Executive or, if applicable his beneficiary or estate, become entitled to benefits under more than one of Sections 2, 3, 4, 5 or 6 of this Agreement.

8.    Intent of Parties. The Bank and Executive intend that this Agreement shall primarily provide supplemental retirement benefits 10 Executive as a member of a select group of management or highly compensated employees of the Bank for purposes of the Employee Retirement Income Security Act of 1974, as may be amended ("ERISA").



 

 

 

 

9.

ERISA Claims and Appeals Procedure,

 

a.    For claims procedure purposes, the 'Claims Administrator' shall be the Chairman of the Compensation Committee of the Board of Directors of the Bank or his or her designee or, in the event there is no Compensation Committee, the Chairman of the Board of Directors of the Bank (or if Executive is serving as the Chairman of the Board, the senior independent director serving on the Board).

 

For claims procedure purposes, “Appeals Fiduciary” means the Board of Directors of the Bank, or, if the full Board chooses to delegate the authority to review appeals of claims for benefits payable due 10 Executive under this Agreement, the Compensation Committee of the Board of Directors.

 

b.    Notice of Denial. If Executive or a beneficiary is denied a claim for benefits under this Agreement, the Claims Administrator shall provide to the claimant written notice of the denial within ninety (90) days (forty-five (45) days with respect to a denial of any claim for benefits due to Executive becoming Substantially Disabled) after the Claims Administrator receives the claim, unless special circumstances require an extension of time for processing the claim. If such an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. In no event shall the extension exceed a period of ninety (90) days (thirty (30) days with respect to a claim for benefits due to Executive becoming Substantially Disabled) from the end of such initial period. With respect to a claim for benefits due to Executive becoming Substantially Disabled, an additional extension of up to thirty (30) days beyond the initial 30-day extension period may be required for processing the claim. In such event, written notice of the extension shall be furnished to the claimant within the initial 30-day extension period. Any extension notice shall indicate the special circumstances requiring the extension of time, the date by which the Claims Administrator expects to render the final decision, the standards on which entitlement to benefits are based, the unresolved issues that prevent a decision on the claim and the additional information needed to resolve those issues.

 

c.    Contents of Notice of Denial. If Executive or beneficiary is denied a claim for benefits under this Agreement, the written notice of the denial shall set forth:

 

i.    the specific reasons for the denial;

 

ii.    specific references to the pertinent provisions of this Agreement on which the denial is closed;

 

iii.    a description of any additional material or information necessary for the

 

iv.    claimant to perfect the claim and an explanation of why such material or information is necessary;

 

v.    an explanation of this Agreement's claim review procedures, and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review; and

 

vi.    such other information as may be required by the Department of Labor's claims procedures regulations under Section S03 of ERISA or other applicable federal law.

 

d.    Right to Review. After receiving written notice of the denial of a claim, a claimant or his or her representative shall be entitled to:

 

i.    request a full and fair review of the denial of the claim by written application to the Appeals Fiduciary;

 

ii.    request, free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim;

 

 

iii.    submit written comments, documents, records, and other information relating to he denied claim to the Appeals Fiduciary, as applicable; and

 

iv.    a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

If a claimant wishes a review of the decision denying his or her claim to benefits under this Agreement, he or she must submit the written application to the Claims Administrator within sixty (60) days after receiving written notice of the denial. If the claimant wishes a review of the decision denying his or her claim to benefits under this Agreement due to Executive becoming Substantially Disabled, he or she must submit the written application to the Appeals Fiduciary within one hundred eighty (180) days after receiving written notice of the denial.

 

e.    Decision on Review. No later than sixty (60) days (fort-.five (45) days with respect to a claim for benefits due to Executive becoming Substantially Disabled) following the receipt of the written application for review, the Appeals Fiduciary shall submit its decision on the review in writing to the claimant involved and to his or her representative, if any, unless the Appeals Fiduciary determines that special circumstances (such as the need to hold a hearing) require an extension of time, to a day no later than one hundred twenty ( 120) days {ninety (90) days with respect to a claim for benefits due to Executive becoming Substantially Disabled) after the date of receipt of the written application for review. If the Appeals Fiduciary determines that the extension of time is required, the Appeals Fiduciary shall furnish to the claimant written notice of the extension before the expiration of the initial sixty (60) day (forty-five (45) days with respect to a claim for benefits due to Executive becoming Substantially Disabled) period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Appeals Fiduciary expects to render its decision on review. In the case of a decision adverse to the claimant, the Appeals Fiduciary shall provide to the claimant written notice of the denial which shall include:

 

i.    the specific reasons for the decision;

 

ii.    specific references to the pertinent provisions of this Agreement on which the decision is based;

 

iii.    a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits;

 

iv.    (iv) an explanation of this Agreement's claim review procedures, and the time limits applicable to such procedures, including a statement of the claimant's right to bring an action under Section 502(a) of ER(SA following the denial of the claim upon review;

 

v.    (v) in the case of a claim for benefits due to Executive becoming Substantially Disabled, if an internal rule, guideline, protocol or other similar criterion is relied upon in making the adverse determination, either the specific rule, guideline, protocol or other similar criterion; or a statement that such rule, guideline, protocol or other similar criterion was relied upon in making the decision and that a copy of such rule, guideline, protocol or other similar criterion will be provided free of charge upon request;

 

vi.    (vi) in the case of a claim for benefits due to Executive becoming Substantially Disabled, if a denial of the claim is based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, an explanation applying the terms of this Agreement to the claimant's medical circumstances or a statement that such explanation will be provided free of charge upon request; and

 

 

vii.    in the case of a claim for benefits due to Executive becoming Substantially Disabled, a statement regarding the availability of other voluntary alternative dispute resolution options.

 

viii.    The Appeals Fiduciary shall have discretionary authority to determine all interpretative issues arising under this Agreement and the interpretations of the Appeals fiduciary shall be final and binding upon Executive or any other party claiming benefits under this Agreement.

 

 

 

10.

Funding by the Bank.

a.    The Bank shall be under no obligation to set aside, earmark or otherwise segregate any funds with which to pay its obligations under this Agreement. Executive shall be and remain an unsecured general creditor of the Bank with respect to the Bank's obligations hereunder. Executive shall have no property interest in the Retirement Account or any other rights with respect thereto.

 

b.    Notwithstanding anything herein to the contrary, the Bank has no obligation whatsoever to purchase or maintain an actual life insurance policy with respect to Executive or otherwise. If the Bank determines in its sole discretion to purchase a life insurance policy referable to the life of Executive, neither Executive nor Executive's beneficiary shall have any legal or equitable ownership interest in, or lien on, such policy or any other specific funding or any other Investment or to any asset of the Bank. The Bank, in its sole discretion, may determine the exact nature and method of funding (if any) of the obligations under this Agreement. If the Bank elects to fund its obligations under this Agreement, in whole or in part, through the purchase of a life insurance policy, mutual funds, disability policy, annuity, or other security, the Bank reserves the right, in its sole discretion, to terminate such method of funding at any time, in whole or in part.

 

c.    If the Bank, in its sole discretion, elects to invest in a life insurance, disability or annuity policy on the life of Executive, Executive shall assist the Bank, from time to time, promptly upon the request of the Bank, in obtaining such insurance policy by supplying any information necessary to obtain such policy as well as submitting to any physical examinations required therefor. The Bank shall be responsible for the payment of all premiums with respect to any whole life, variable, or universal life insurance, disability or annuity policy purchased in connection with this Agreement unless otherwise expressly agreed.

 

11.    Forfeiture of Benefits Due to Misconduct. Except as provided herein, the obligation of the Bank to commence or, if applicable, to continue payment of any benefits hereunder shall cease and all or any remaining payments, as the case may be, shall be forfeited:

 

a.    if Executive is discharged For Cause pursuant to Section 3(c) of this Agreement, or breaches any surviving restrictive covenants concerning non-competition, non-solicitation of customers and/or non- solicitation of employees under any employment contract in existence immediately prior to Executive's separation from service with the Bank and its affiliates; or

 

b.    if no such employment contract is in existence immediately prior to the effective date of such separation from service, if during the twelve-month period immediately following such effective date, Executive (i) directly or indirectly solicits any customer of the Bank, with whom Executive had material contact within the two-year period immediately preceding such effective date, for the purpose of providing any goods or services relating to the business of providing financial and banking services to individual consumers and businesses; (ii)directly or indirectly solicits, recruits or induces any employee of the Bank to terminate his employment relationship with the Bank for the purpose of providing financial and banking services to individual consumers and businesses on behalf of Executive or any third party; or (iii) on his own behalf or on behalf of any third party in the business of providing financial and banking services to individual consumers and businesses, engages in or performs within a fifty-mile radius of the Bank's offices at which Executive was primarily located immediately prior to the effective date of such separation from service services which are substantially similar to those which Executive performed for the Bank.

 

Notwithstanding the foregoing, the forfeiture provisions of this Section 11 shall not be operative with respect to any conduct on the part of Executive that first occurs after the effective date of a Change in Control (as defined in Section 6 above).

 

12.    Employment of Executive: Other Agreements. The benefits provided for herein for Executive are supplemental retirement benefits and shall not be deemed to modify, affect or limit any salary or salary increases, bonuses, profit sharing or any other type of compensation of Executive in any manner whatsoever. No provision contained in this Agreement shall in any way affect, restrict or limit any existing employment agreement between the Bank and Executive, nor shall any provision or condition contained in this Agreement create specific employment rights of Executive or limit the right of the Bank to discharge Executive with or without cause. Except as otherwise provided therein, nothing contained in this Agreement shall affect the right of Executive to participate in or be covered by or under any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation, retirement or fringe benefit plan constituting any part of the Bank's compensation structure whether now or hereinafter existing.

 

13.    Confidentiality. In further consideration of the mutual promises contained herein, Executive agrees that the terms and conditions of this Agreement, except as such may be disclosed in financial statements and tax returns, or in connection with estate planning, are and shall forever remain confidential until the death of Executive and Executive agrees that he/she shall not reveal the terms and conditions contained in this Agreement at any time to any person or entity, other than his financial and professional advisors unless required to do so by a court of competent jurisdiction.

 

14.    Withholding. Executive is responsible for payment of all taxes applicable to compensation and benefits paid or provided to Executive under this Agreement, including federal and state income tax withholding, except the Bank shall withhold any taxes that, in its reasonable Judgment, are required to be withheld, including but not limited to taxes owed under Section 409A of the Code and regulations thereunder and all employment (FICA) taxes due to be paid by the Bank pursuant to Section 3121(v) of the Code and regulations promulgated thereunder (i.e., FICA taxes on the present value of payments hereunder which are no longer subject to vesting). Executive acknowledges that the Bank's sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authority(ies). Further, the Bank shall satisfy all applicable reporting requirements including those under Section 409A of the Code and the regulations thereunder. Executive agrees that appropriate amounts for any such withholdings, including FICA taxes, may be deducted from the cash salary, bonus or payments due under this Agreement or other payments due to Executive by the Bank to satisfy the employee-portion of such obligations. If insufficient cash wages are available or if Executive so desires, Executive may remit payment in cash for the withholding amounts. Notwithstanding any other provision in this Agreement to the contrary, payment under this Agreement may be accelerated to pay, where applicable, the Federal Insurance Contributions Act tax imposed under Sections 3101, 3121(a), and 3121(v)(2) of the Code and any state, local, and foreign tax obligations (the 'Tax Obligations') that may be Imposed on amounts deferred pursuant to this Agreement prior 10 the time such amounts are paid or made available to Executive and to pay the income tax at source on wages imposed under Section 340 I of the Code or the corresponding withholding provisions of applicable state, local, or foreign tax laws as a result of an accelerated payment of the Tax Obligations (the 'Income Tax Obligations'). Accelerated payments pursuant to this Section 14 shall not exceed the amount of the Tax Obligations and Income Tax Obligations and shall be made as a payment directly to taxing authorities pursuant to the applicable withholding provisions. Any accelerated payments pursuant to this Section 14 shall reduce the benefit provided to Executive pursuant to this Agreement.

 

 

15.

Miscellaneous Provisions.
 

a.

Counterparts. This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission of an executed counterpart.
 

b.

Construction. As used in this Agreement, the neuter gender shall include the masculine and the feminine, the masculine and feminine genders shall be interchangeable among themselves and each with the neuter, the singular numbers shall include the plural, and the plural the singular. The term "person" shall include all persons and entities of every nature whatsoever, including, but not limited to, individuals, corporations, partnerships, governmental entities and associations. The terms "including," "included," "such as" and terms of similar import shall not imply the exclusion of other items not specifically enumerated.
 

c.

Severability. lf any provision of this Agreement or the application thereof to any person or circumstance shall be held to be invalid, illegal, unenforceable or inconsistent with any present or future law, ruling, rule or regulation of any court, governmental or regulatory authority having jurisdiction over the subject matter of this Agreement, such provision shall be rescinded or modified in accordance with such law, ruling, rule or regulation and the remainder of this Agreement or the application of such provision to the person or circumstances other than those as to which it is held inconsistent shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
 

d.

Federal Law Restrictions. Notwithstanding anything herein contained to the contrary, any payments to Executive by the Bank pursuant to this Agreement are subject to and conditioned upon their compliance with Section l S(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section I 828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.
 

e.

Governing Law. This Agreement Is made in the State of Ohio and shall be governed in all respects and construed in accordance with the laws of the State of Ohio, without regard to its conflicts of law principles, except to the extent superseded by the Federal laws of the United States.
 

f.

Binding Effect. This Agreement is binding upon the parties, their respective successors, assigns, heirs and legal representatives. Without limiting the foregoing this Agreement shall be binding upon any successor of the Bank whether by merger or acquisition of all or substantially all of the assets or liabilities of the Bank. This Agreement may not be assigned by any party without the prior written consent of each other party hereto. This Agreement has been approved by the Board of Directors of the Bank and the Bank agrees to maintain an executed counterpart of this Agreement in a safe place as an official record of the Bank.
 

g.

No Trust. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and Executive, Executive's designated beneficiary or any other person.
 

h.

Assignment of Rights. None of the payments provided for by this Agreement shall be subject to seizure for payment of any debts or judgments against Executive or any beneficiary; nor shall Executive or any beneficiary have any right to transfer, modify, anticipate or encumber any rights or benefits hereunder; provided, however, that the undistributed portion· of any benefit payable hereunder shall at all times be subject to set-off for debts owed by Executive to the Bank.
 

i.

Entire Agreement. This Agreement (together with its exhibits, which are incorporated herein by reference) constitutes the entire agreement of the parties with respect to the subject matter hereof and all prior or contemporaneous negotiations, agreements and understandings, whether oral or written are hereby superseded, merged and integrated into this Agreement.


 

 

 

 

j.

Notice. Any notice to be delivered under this Agreement shall be given in writing and delivered by hand, or by first class, certified or registered mail, postage prepaid, addressed to the Bank or Executive, as applicable, at the address for such party set forth below or such other address designated by notice.

 

ex_672614img001.jpg

 

 

 

k.

Non-waiver. No delay or failure by either party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right.

 

 

l.

Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.

 

 

m.

Amendment. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties. No waiver of any provision contained in this Agreement shall be effective unless it is in writing and signed by the party against whom such waiver is asserted.

 

 

n.

Seal. The parties hereto intend this Agreement to have the effect of an agreement executed under the seal of each.

 

 

o.

Legal Expenses. From and after the occurrence of a Change in Control, the Bank shall pay all reasonable legal fees and expenses incurred by Executive seeking to obtain or enforce any right or benefit provided by this Agreement promptly from time to time, at the Executive's request, as such fees and expenses are incurred; provided, however, that the Executive shall be required to reimburse the Bank for only such fees and expenses if a court, arbitrator or any other adjudicator agreed to by the parties determines that the Executive's claim is without substantial merit. The Bank's obligation in this regard shall continue until such time as a final determination (including any appeals) is made with respect to the proceedings; provided, however, that such proceedings must commence prior to the expiration of any applicable statute of limitations and payment of such reimbursements must be made as soon as feasible following the date the Executive submits verification of the expenses incurred but not later than the last day of the Executive's taxable year following the taxable year in which the expenses are incurred. The Executive shall not be required to pay any legal fees or expenses incurred by the Bank in connection with any claim or controversy arising out of or relating to this Agreement, or any breach thereof.

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed, or caused to be executed, this Agreement as of the day and year first above written.

 

ex_672614img002.jpg

 



 

 

 

Exhibit A

 

Ronald Zimmerly

"Normal Retirement Date"= June 8, 2029

 

"Payment Commencement Date"= The payment commencement date for the Normal Retirement Benefit shall be later of the first business day of the month following the month in which Executive attains age 65 (June 8, 2029) or the first business day of the month following the month in which Executive experiences a Separation from Service (as defined in Section 2(d) of the Agreement).

 

"Normal Retirement Benefit"= $65,800 per year

 

"Limited Early Retirement Benefit" means the annual amount equal to the ''Limited Benefit" from the following table below based upon Executive's year of termination of employment:

Year of Termination of Employment

Limited Benefit

January 1, 2012 to December 31, 2012

$0

January 1, 2013 to December 31, 2013

$6,926

January 1, 2014 to December 31, 2014

$10,389

January 1, 2015 to December 31, 2015

$13,853

January 1, 2016 to December 31, 2016

$17,316

January 1, 2017 to December 31, 2017

$20,779

January 1, 2018 to December 31, 2018

$24,242

January 1, 2019 to December 31, 2019

$27,705

January 1, 2020 to December 31, 2020

$31,168

January 1, 2021 to December 31, 2021

$34,632

January 1, 2022 to December 31, 2022

$38,095

January 1, 2023 to December 31, 2023

$41,558

January 1, 2024 to December 31, 2024

$45,021

January 1, 2025 to December 31, 2025

$48,484

January 1, 2026 to December 31, 2026

$51,947

January 1, 2027 to December 31, 2027

$55,411

January 1, 2028 to December 31, 2028

$58,874

January 1, 2029 to June 7, 2029

$62,337

 

 

The undersigned Ronald Zimmerly (the ''Executive") hereby acknowledges that he has reviewed this Exhibit A to the Supplemental Executive Retirement Benefits Agreement and that the information set forth in this Exhibit A is true and correct in all material respects.

ex_672614img003.jpg

 

 

 

 

 

 

 

 

 

 

Exhibit C

 

RONALD ZIMMERLY

Projected Death Benefit and Change in Control Benefit

Year

Projected Value of Death Benefit Based on Accrual Balance (see Note)

Projected Present Value of Change in Control Benefit Based on Accrual Balance (see Note)

January 1, 2012

$0

$0

January 1, 2013

$13,185

$13,185

January 1, 2014

$27,952

$27,952

January 1, 2015

$44,443

$44,443

January 1, 2016

$62,813

$62,813

January 1, 2017

$83,228

$83,228

January 1, 2018

$105,865

$105,865

January 1, 2019

$130,920

$130,920

January 1, 2020

$158,600

$158,600

January 1, 2021

$189,131

$189,131

January 1, 2022

$222,754

$222,754

January 1, 2023

$259,732

$259,732

January 1, 2024

$300,344

$300,344

January 1, 2025

$344,895

$344,895

January 1, 2026

$393,711

$393,711

January 1, 2027

$447,143

$447,143

January 1, 2028

$505,570

$505,570

January 1, 2029

$569,398

$569,398

June 7, 2029

$639,066

$639,066

 

Note: The actual Death Benefit under Section 5. (b) and the actual Change in Control Benefit under Section 6 will be calculated based upon the Accrual Balance on the Bank's general ledger as of the month-end preceding the date of the Executive's death or the date of the Separation from Service date following the Change in Control, as applicable.

 

The undersigned RONALD ZIMMERLY ("Executive") hereby acknowledges that he or she has reviewed this Exhibit C to the Supplemental Executive Retirement Benefits Agreement and that the information set forth in this Exhibit C is true and correct in all material respects.

 

ex_672614img004.jpg

 

 
EX-10.9 9 ex_672649.htm EXHIBIT 10.9 FA SERP ZIMMERLY ex_672649.htm

Exhibit 10.9

 

FIRST AMENDMENT TO THE

SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS AGREEMENT

 

This First Amendment to the Supplemental Executive Retirement Benefits Agreement is adopted this 14th day of July, 2015, by and between Liberty National Bank, a national banking association (the "Bank") and Ronald Zimmerly, an individual resident of the State of Ohio (the "Executive").

 

WHEREAS, the Bank and the Executive have previously entered into the Supplemental Executive Retirement Benefits Agreement dated December 15, 2011 and effective January 1, 2012, (the ''Agreement"), an unfunded arrangement maintained to encourage the Executive to remain an employee of the Employer;

 

WHEREAS, the Agreement is designed to provide supplemental retirement benefits to the Executive upon his retirement, death, or disability, payable out of the Employer's general assets; and

 

WHEREAS, the Employer and the Executive have agreed to amend the Agreement relative to the amount of the benefits provided under the Agreement as of October 1, 2015 (the "Effective Date");

 

NOW, THEREFORE, for good and valuable consideration, the adequacy of which is acknowledged by the parties hereto, the Agreement is hereby amended with the following changes:

 

Freeze in Accrued Benefits. Effective as of the date indicated above, the Limited Early Retirement Benefit for the calendar year 201 S is hereby frozen and established as the frozen Limited Benefit and the Normal Retirement Benefit, as shown on Exhibit D attached hereto.

 

Exhibit A and Exhibit C. Effective as of the date indicated above, Exhibit A and Exhibit C, as provided in the Agreement, are hereby deleted in their entirety and Exhibit D, attached hereto, is hereby established as the amended schedule of benefits under the Agreement.

 

All other provisions of the Agreement remain unchanged.

 

IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Employer have signed this Agreement as of the date first written above.

 

ex_672649img001.jpg

 

 

 

 

 

 

 

 

 

 

 

Year of Termination of Employment

Limited Benefit

Normal Retirement Benefit

Projected Present Value of Death Benefit Based on Accrual Balance

Projected Present Value of Change in Control Benefit Based on Accrual Balance

January 1, 2015 to December 31, 2015

$13,853

$13,853

$46,770

$46,770

January 1, 2016 to December 31, 2016

$13,853

$13,853

$50,519

$50,519

January 1, 2017 to December 31, 2017

$13,853

$13,853

$54,549

$54,549

January 1, 2018 to December 31, 2018

$13,853

$13,853

$58,881

$58,881

January 1, 2019 to December 31, 2019

$13,853

$13,853

$63,536

$63,536

January 1, 2020 to December 31, 2020

$13,853

$13,853

$68,538

$68,538

January 1, 2021 to December 31, 2021

$13,853

$13,853

$73,911

$73,911

January 1, 2022 to December 31, 2022

$13,853

$13,853

$79,683

$79,683

January 1, 2023 to December 31, 2023

$13,853

$13,853

$85,881

$85,881

January 1, 2024 to December 31, 2024

$13,853

$13,853

$92,536

$92,536

January 1, 2025 to December 31, 2025

$13,853

$13,853

$99,680

$99,680

January 1, 2026 to December 31, 2026

$13,853

$13,853

$107,349

$107,349

January 1, 2027 to December 31, 2027

$13,853

$13,853

$115,579

$115,579

January 1, 2028 to December 31, 2028

$13,853

$13,853

$124,410

$124,410

January 1, 2029

$13,853

$13,853

$133,885

$133,885

 

Note: The actual Death Benefit and actual Change in Control Benefit under this Amendment will be calculated based on the Accrual Balance on the Bank's general ledger as of the month-end preceding the date of the Executive's death or the date of Separation from Service date following the Change in Control, as applicable.

 
EX-10.10 10 ex_672615.htm EXHIBIT 10.10 S SERP ZIMMERLY ex_672615.htm

Exhibit 10.10

 

LIBERTY NATIONAL BANK

SECONDARY SUPPLEMENT AL EXECUTIVE RETIREMENT PLAN

 

This Supplemental Executive Retirement Plan (''Plan") is adopted as of this 1st day of October, 201 S (the "Effective Date") by LIBERTY NATIONAL BANK, an Ohio corporation (the "Employer" or the "Bank") for the benefit of Ronald L. Zimmerly, Jr. (the "Executive"). The purpose of the Plan is to provide certain supplemental nonqualified pension benefits to certain executives who have contributed substantially to the success of the Employer and the Employer desires to incentivize the executives to continue in its employ.

 

This Plan is intended to be and shall be administered as an income tax nonqualified, unfunded plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), Sections 201(2), 301 (a)(3), and 40l(a)(l). This Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and, accordingly, the intent of the parties hereto is that the Plan shall be operated and interpreted consistent with the requirements thereof.

 

ARTICLE 1

DEFINITIONS

 

Whenever used in this Plan, the following terms have the meanings specified:

 

1.1.“    Account Balance'' means, as of any date, the liability that should be accrued by the Bank under generally accepted accounting principles ("GAAP") on behalf of the Executive.

 

1.2.    "Annuity Contract" means the following annuity contract(s) purchased and solely owned by the Bank: [a Flexible Premium Indexed Deferred Annuity Contract issued by National Western Life Insurance Company, contract #1350652 or such other annuity contracts as the Bank may purchase from time to time].

 

1.3.    "Beneficiary" means the person or entity designated, or otherwise determined in accordance with Article 4, in writing by the Executive to receive death benefits pursuant to this Plan in the event of his or her death.

 

1.4.    "Beneficiary Designation Form" means the form established from time to time by the Plan Administrator that the Executive completes, signs, and returns to the Plan Administrator to designate one or more Beneficiaries.

 

1.5.    "Board" means the Board of Directors of the Employer.

 

1.6.    "ERISA''. means the Employee Retirement Income Security Act of 1974.

 

1.7.    "Normal Retirement Age" means age sixty-five (65).

 

1.8.    "Normal Retirement Date" means the later of a Designated Executive's Normal Retirement Age or Separation from Service.

 

1.9.“    Rider" means the income rider attached to the Annuity Contract as an endorsement or other product feature that operates as an income rider, with such feature providing for a withdrawal or payment feature for the life of the annuitant.

 

1.10.    "Separation from Service" means separation from service as that term is defined and interpreted in Section 409A of the Code and Treasury Regulation § 1.409A-1 (h) or in subsequent regulations or other guidance issued by the Internal Revenue Service.

 

1.11.    "Specified Employee" means a key employee (as defined in Section 416(i) of the Code without regard to paragraph 5 thereof) of the Bank if any stock of the Bank is publicly traded on an established securities market or otherwise.

 

1.12.“    Termination for Cause" means Separation from Service for:

 

(a)    Gross negligence of gross neglect of duties to the Bank; or

(b)    Conviction of a felony or gross misdemeanor involving moral turpitude in connection with the Designated Executive's employment with the Bank; or

 

 

ARTICLE2

DEFERRED COMPENSATION AND VALUATION OF ACCOUNT

 

2.1.    Annuity Contract and Other Investments. For purposes of satisfying its obligations to provide benefits under this Plan, the Bank has initially invested in the Annuity Contract and may invest in other investments. However, nothing in this Section shall require the Bank to invest in any particular form of investment.

 

2.2.    Ownership of the Annuity Contract. The Bank is the sole owner of the Annuity Contract, and other such investments, and shall have the right to exercise all incidents of ownership. The Bank shall be the beneficiary of the death proceeds of the Annuity Contract. The Bank shall at all times be entitled to the Annuity Contract's cash surrender value, as that term is defined in the Annuity Contract.

 

2.3.    Right to Annuity Contract. Notwithstanding any provision hereof to the contrary, the Bank shall have the right to sell or surrender any Annuity Contract without terminating this Plan, provided the Bank replaces the Annuity Contract with a comparable annuity policy or asset of comparable value. Without limitation, the Annuity Contract at all times shall be the exclusive property of the Bank and shall be subject to the claims of the Bank's creditors

 

2.4.    Rabbi Trust. Employer may establish a "rabbi trust" to which contributions may be made to provide the Employer with a source of funds for purposes of satisfying the obligations of the Employer under the Plan. The trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan. The Executive and his or her Beneficiary shall have no beneficial ownership interest in any assets held in the trust.



 

ARTICLE3

RETIREMENT AND OTHER BENEFITS

 

3.1.    Retirement Benefit. Upon the Executive's Separation from Service for any reason other than death or Termination For Cause, the Executive will be entitled to the monthly benefit payment described in this paragraph 3.1. The amount of the monthly benefit will equal (a) the amount that is paid from the Annuity Contract designated under this Plan to benefit the Executive through the Rider, with such amount determined as of the data of Separation from Service, less (b) any amounts due and paid under the Amended and Restated Officer Supplemental Retirement Agreement for the benefit of the Executive, dated January 1, 2009, and as amended to freeze benefit accruals dated October 1, 2015 (the "Normal Retirement Benefit"). The Normal Retirement Benefit will be payable in equal monthly installments for the life of the Executive commencing on the later of the first (1st) day of the month following the Designated Executive's Normal Retirement Date or the first (151) day of the month following the Executive's Separation from Service. This shall be the Executive's benefit in lieu of any other benefit under this Plan.

 

3.2.    Restriction on Timing of Distributions. Notwithstanding the applicable provisions of this Plan regarding timing of payments, the following special rules shall apply if the stock of the Employer is publicly traded at the time of the Executive's Separation from Service in order for this Plan to comply with Section 409A of the Code: (i) to the extent the Executive is a "specified employee" (as defined under Section 1.409A-l(i) of the Treasury Regulations) at the time of a distribution and to the extent such applicable provisions of Section 409A of the Code and the regulations thereunder require a delay of such distributions by a six-month period after the date of such Executive's Separation from Service with the Employer, no such distribution shall be made prior to the date that is six ·months after the date of the Executive's ·separation from Service with the Employer, and (ii) any such delayed payments shall be paid to the Executive in a single lump sum within five (5) business days after the end of the six (6) month delay.

 

3.3.    Termination for Cause. In the event the Executive's Separation from Service is due to Termination for Cause, this agreement will terminate and the Executive will not be entitled to any of the benefits enumerated in this agreement.

 

ARTICLE 4

BENEFICIARIES

 

4.1.    Beneficiary Designations. The Executive shall have the right to designate at any time a Beneficiary to receive any benefits payable under this Plan upon the death of the Executive. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other benefit plan of the Employer in which the Executive participates.

 

4.2.    Beneficiary Designation: Changes. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executive's Beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator1 s rules and procedures, as in effect



 

from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before the Executive's death.

 

4.3.    Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received in writing by the Plan Administrator or its designated agent.

 

4.4.    No Beneficiary Designation. If the Executive dies without a valid Beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive's spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be distributed to the personal representative of the Executive's estate.

 

4.5.    Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Employer may pay such benefit to the guardian, legal representative, or person having the care or custody of the minor, incapacitated person, or incapable person. The Employer may require proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of the benefit. Distribution shall completely discharge the Employer from all liability for the benefit.

 

ARTICLES

GENERAL LIMITATIONS

 

5.1.    Limits on Payments. It is the intention of the parties that none of the payments to which the Executive is entitled under this Plan will constitute a "golden parachute payment" within the meaning of 12 USC Section l 828(k) or implementing regulations of the FDIC, the payment of which is prohibited (collectively, "Section 1828(k)"). Notwithstanding any other provision of this Plan to the contrary, any payments due to be made by Employer for the benefit of the Executive pursuant to this Plan, or otherwise, are subject to and conditioned on compliance with Section 1828(k) and any regulations promulgated thereunder including the receipt of all required approvals thereof by Employer's primary federal banking regulator and/or the FDIC.

 

5.2.    In addition, Employer and its successors retain the legal right to demand the return of any payment made hereunder. which constitutes a "golden parachute payment" within the meaning of Section 1828(k) or implementing regulations of the FDIC should Employer or its successors later obtain information indicating that the Executive committed, is substantially responsible for, or has violated, the respective acts or omissions, conditions, or offenses outlined under 12 C. F .R. 359.4(a)(4).

 

ARTICLE 6

CLAIMS AND REVIEW PROCEDURES

 

6.1.    Claims Procedure. A person or Beneficiary (a "claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows, and strictly in accordance with Section 409A of the Code:

 

(a)    Initiation - Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. If the claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after the notice was received by the claimant. All other claims must be made within one hundred eighty (180) days after the date of the event that caused the claim to arise. The claim must state with particularity the determination desired by the claimant.



 

 

 

(b)    Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days by notifying the claimant in writing, prior to the end of the initial ninety (90)-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

 

(c)    Notice of Decision. If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

 

 

(i)

The specific reasons for the denial,

 

 

(ii)

A reference to the specific provisions of the Plan on which the denial is based,

 

 

(iii)

A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

 

 

(iv)

An explanation of the Plan's review procedures and the time limits applicable to such procedures, and

 

 

(v)

A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.\

 

6.2.    Review Procedure. If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial, as follows

 

(a)    Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Plan Administrator's notice of denial, must file with the Plan Administrator a written request for review.

 

(b)    Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable BRISA regulations) to the claimant's claim for benefits.



 

 

 

(c)    Considerations on Review. In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

(d)    Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional sixty (60)days by notifying the claimant in writing, prior to the end of the initial sixty (60)-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

 

(e)    Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

 

 

(i)

The specific reasons for the denial,

 

 

(ii)

A reference to the specific provisions of the Plan on which the denial is based,

 

 

(iii)

A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and

 

 

(iv)

A statement of the claimant's right to bring a civil action under ERISA Section 502(a).

 

 

(v)

A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

 

(f)    Claims Criteria. All claim determinations under this Section 6 shall be made in accordance with Section 409A of the Code and the Regulations thereunder.

 

ARTICLE 7

MISCELLANEOUS

 

7.1.     Amendments and Termination. Strictly in compliance with Section 409A of the Code, (a) this Agreement may be amended by a written agreement signed by the Employer and by the Executive, and (b) except as otherwise provided herein, the Agreement may be terminated solely by the Employer in its sole discretion. Any acceleration of payments or change in the form of payments under this Agreement, including upon the amendment, modification or termination of the Agreement, shall be strictly as permitted and in accordance with Section 409A of the Code, including 1.409A-3(i)(4) of the Treasury Regulations.

7.2.    No Guarantee of Employment. This Plan is not an employment policy or contract. It does not give any Executive the right to remain an employee of the Employer, nor does it interfere with the Employer's right to discharge the Executive. It also does not require any Executive to remain an employee nor interfere with any Executive's right to terminate employment at any time.

 

7.3.    Non-Transferability. Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.

 

7.4.    Tax Withholding. The Employer shall withhold any taxes that are required to be withheld from the benefits provided under this Plan.

 

7.5.    Applicable Law. Except to the extent preempted by the laws of the United States of America, the validity, interpretation, construction and performance of this Plan shall be governed by and construed in accordance with the laws of the State of Ohio _____ , without giving effect to the principles of conflict of laws of such state.

 

7.6.    Unfunded Arrangement. The Executive and his/her Beneficiary are general unsecured creditors of the Employer for the payment of benefits under this Plan. The benefits represent the mere promise by the Employer to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance, annuity contract or other asset purchased by Employer to fund its obligations under this Plan shall be a general asset of the Employer to which the Executive and Beneficiary have no preferred or secured claim.

 

7.7.    Benefit Provision. Notwithstanding the provisions of this Plan in the payment of the benefits under Article 3, any benefits payable under this Plan are contingent solely upon the amount that is provided by the Annuity Contract(s) as identified in this Plan or other provision as provided for in Article 2.

 

7.8.    Severability. If any provision of this Plan is held invalid, such invalidity shall not affect any other provision of this Plan, and each such other provision shall continue in full force and effect to the full extent consistent with law. If any provision of this Plan is held invalid in part, such invalidity shall not affect the remainder of the provision, and the remainder of such provision together with all other provisions of this Plan shall continue in full force and effect to the full extent consistent with law.

 

7.9.    Headings. The headings of articles herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Plan.

 

 

7.10.    Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Employer at the time of the delivery of such notice, and properly addressed to the Employer if addressed to the Board, 100 East Franklin St., Kenton, Ohio.

 

7.11.    Payment of Legal Fees. In the event litigation ensues between the parties concerning the enforcement of the obligations of the parties under this Plan, the Employer shall pay all costs and expenses in connection with such litigation until such time as a final determination (excluding any appeals) is made with respect to the litigation.

 

 

7.12.    Termination or Modification of Plan Because of Changes in Law. Rules or Regulations. The Employer is entering into this Plan on the assumption that certain existing tax laws, rules, and regulations will continue in effect in their current form. If that assumption materially changes and the change has a material detrimental effect on this Plan, then the Employer reserves the right to terminate or modify this Plan accordingly.

 

ARTICLES

ADMINISTRATION OF AGREEMENT

 

8.1.    Plan Administrator Duties. This Plan shall be administered by a Plan Administrator consisting of the Board or such committee or person(s) as the Board shall appoint. The Plan Administrator shall have the sole and absolute discretion and authority to interpret and enforce all appropriate rules and regulations for the administration of this Plan and the rights of the Executive under this Plan, to decide or resolve any and all questions or disputes arising under this Plan, including benefits payable under this Plan and all other interpretations of this Plan, as may arise in connection with the Plan.

8.2.    Agents. In the administration of this Plan, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Employer.

8.3.    Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation, and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. Without limiting the foregoing, it is acknowledged that the value of the benefits payable hereunder may be difficult to determine in the event the Employer does not actually purchase and maintain the Annuity Contract as contemplated hereunder; therefore, in such event, the Employer shall have the right to make any reasonable assumptions in determining the benefits payable hereunder and any such determination made in good faith shall be binding on the Executive.

8.4.    Indemnity of Plan Administrator. The Plan Administrator shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan, unless such action or omission is attributable to the willful misconduct of the Plan Administrator or any of its members. The Employer shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Plan Administrator or any of its members.

8.5.    Employer Information. To enable the Plan Administrator to perform its functions, the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the retirement, death, or Separation of Service of the Executive and such other pertinent information as the Plan Administrator may reasonably require.

 

This Supplemental Executive Retirement Plan Agreement is hereby adopted as of the date written above.

 

 

 

 

 

 

ex_672615img001.jpg

 

 
EX-10.13 11 ex_672616.htm EXHIBIT 10.13 SERP ZIMMERLY 2 ex_672616.htm

Exhibit 10.13

 

LIBERTY NATIONAL BANK

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

 

This Liberty National Bank Supplemental Executive Retirement Plan ("Plan") is adopted as of this l 51 day of October, 2015 (the "Effective Date") by Liberty National Bank, an Ohio corporation (the "Employer" or the "Bank") for the benefit of Ronald L. Zimmerly, Jr. (the "Executive"). The purpose of the Plan is to provide certain supplemental nonqualified pension benefits to certain executives who have contributed substantially to the success of the Employer and the Employer desires to incentivize the executives to continue in its employ.

 

This Plan is intended to be and shall be administered as an income tax nonqualified, unfunded plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), Sections 201(2), 301(a)(3), and 401(a)(l). This Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and, accordingly, the intent of the parties hereto is that the Plan shall be operated and interpreted consistent with the requirements thereof.

 

ARTICLE 1

DEFINITIONS

Whenever used in this Plan, the following terms have the meanings specified:

 

1.1.    "Accrued Liability Balance" means, as of any date, the liability that should be accrued by the Bank under generally accepted accounting principles ("GAAP") on behalf of the Executive.

1.2.“    Annuity Contracts" means the following annuity contract(s) purchased and solely owned by the Bank:

 

Policy Number 1350607 issued by National Western Life Insurance Company ("Annuity Contract #I"),

 

Policy Number 1195072289 issued by Great American Insurance Company ("Annuity Contract #2"),

 

Policy Number 1350637 issued by National Western Life Insurance Company ("Annuity Contract #3"),

 

Policy Number 1195072292 issued by Great American Insurance Company ("Annuity Contract #4"),

 

Policy Number 1351505 issued by National Western Life Insurance Company ("Annuity Contract #5"), and

 

Policy Number 1 195072293 issued by Great American Insurance Company ("Annuity Contract #6"),

 



 

or such other annuity contracts or investments as the Bank may purchase from time to time, the value of which serve as the contributions to the Plan on behalf of the Executive.

 

1.3.    "Beneficiary" means the person or entity designated, or otherwise determined in accordance with Article 4, in writing by the Executive to receive death benefits pursuant to this Plan in the event of his or her death.

1.4.    "Beneficiary Designation Form" means the form established from time to time by the Plan Administrator that the Executive completes, signs, and returns to the Plan Administrator to designate one or more Beneficiaries.

1.5.    "Board" means the Board of Directors of the Employer.

1.6.    "Early Separation Date" means the date the Executive incurs a Separation from Service prior to reaching Normal Retirement Age.

1.7.    "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

1.8.    "Rider" means the income rider attached to the Annuity Contract as an endorsement or other product feature that operates as an income rider, with such feature providing for a withdrawal or payment feature for the life of the annuitant.

1.9.    "Normal Retirement Age" means age 60.

1.10.    "Normal Retirement Date" means the later of Normal Retirement Age or the date the Executive Separates from Service.

1.11.    "Separation from Service" means separation from service as that term is defined and interpreted in Section 409A of the Code and Treasury Regulations § 1.409A-l (h) or in subsequent regulations or other guidance issued by the Internal Revenue Service.

1.12.    "Termination for Cause" and "Cause" shall have the same definition specified in any effective severance or employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank. If the Executive is not a party to a severance or employment agreement containing a definition of termination for cause, Termination for Cause means the Bank terminates the Executive's employment because of (a) fraud; (b) embezzlement; ( c) conviction of or plea of nolo contendere by the Executive of any felony; ( d) a material breach of, or the willful failure or refusal by the Executive to perform and discharge the Executive's duties, responsibilities and obligations under this Agreement; (e) any act of moral turpitude or willful misconduct by the Executive intended to result in personal enrichment of the Executive at the expense of the Employer, or any of its affiliates or which has a material adverse impact on the business or reputation of the Employer or any of its affiliates (such determination to be made by the Board in its reasonable judgment); (f) intentional material damage to the property or business of the Employer; (g) gross negligence; or (h) the ineligibility of the Executive to perform his duties because of a ruling, directive or other action by any agency of the United States or any state of the United States having regulatory authority over the Employer.



 

 

 

1.13.    Vested Benefit" means the portion of the applicable annuity contracts the Executive is vested in based on the vesting schedule as described below:

 

The Executive will vest in each of the applicable annuity contracts as follows, provided the Executive is still employed by the Employer on the specified anniversary dates:

 

The Executive will vest in "Annuity Contract #1" upon the first anniversary of the Effective Date of this Agreement

 

The Executive will vest in "Annuity Contract #2" upon the second anniversary of the Effective Date of this Agreement

 

The Executive will vest in ''Annuity Contract #3" upon the third anniversary of the Effective Date of this Agreement-

 

The Executive will vest in "Annuity Contract #4" upon the fourth anniversary of the Effective Date of this Agreement

 

The Executive will vest in "Annuity Contract #5" upon the fifth anniversary of the Effective Date of this Agreement

 

The Executive will vest in "Annuity Contract #611 upon the sixth anniversary of the Effective Date of this Agreement

 

ARTICLE2

BENEFIT FINANCING AND OWNERSHIP OF INVESTMENTS

 

2.1.    Annuity Contracts and Other Investments. For purposes of satisfying its obligations to provide benefits under this Plan, the Bank has initially invested in the Annuity Contracts and may invest in other investments. However, nothing in this paragraph shall require the Bank to invest in any particular form of investment.

2.2.     Ownership of the Annuity Contracts. The Bank is the sole owner of the Annuity Contracts and other such investments under this Plan, and shall have the right to exercise all incidents of ownership, until such time that ownership of the Annuity Contract(s) has been transferred to the Executive. The Bank sha11 be the beneficiary of the death proceeds of the Annuity Contracts while owned by the Bank. The Bank shall be entitled to the Annuity Contracts' cash surrender values (as defined in the applicable Annuity Contract) while owned by the Bank.

2.3.     Right to Annuity Contract. Notwithstanding any provision hereof to the contrary, until the obligation of the Bank is satisfied and prior to transfer of ownership of such Annuity Contract to the Participant, the Bank shall have the right to transfer, sell or surrender any Annuity Contract without terminating this Plan, provided the Bank replaces the Annuity Contract with a comparable annuity policy or asset of comparable value. Prior to transfer of ownership of the Annuity Contracts to the Participant, the Annuity Contracts shall be the exclusive property of the Bank and shall be subject to the claims of the Bank's creditors.



 

 

 

2.4.    Rabbi Trust. Employer may establish a "rabbi trust" to which contributions may be made to provide the Employer with a source of funds for purposes of satisfying the obligations of the Employer under the Plan. The trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan. The Executive and his or her Beneficiary shall have no beneficial ownership interest in any assets held in the trust.

 

ARTICLE 3

RETIREMENT AND OTHER BENEFITS

 

3.1.     Normal Retirement Benefit. Upon the Executive's Separation from Service after attaining Normal Retirement Age, for any reason other than Death or Disability, the Executive will be entitled to the benefits described in this paragraph 3.1. The amount of the benefits will equal the applicable vested Annuity Contracts.

 

The Bank shall make the benefit payment in the form of transferring ownership of the applicable vested annuity contracts to the Executive in a single transfer on or before the first (1st) day of the second (2nd) month following the Executive's Normal Retirement Date.

 

3.2.    Early Separation Benefit. In the event the Executive incurs a Separation from Service prior to Normal Retirement Age for any reason other than Death, the Executive will be entitled to the benefits described in this paragraph 3 .2. The amount of the benefit will equal the applicable vested Annuity Contracts, determined as of the date of Separation from Service and according to the Vested Benefit schedule described in paragraph 1.14 of this Agreement.

 

The Bank shall make the benefit payment in the form of transferring ownership of the applicable vested Annuity Contracts to the Executive in a single transfer on or before the first (1st) day of the second (2nd) month following the Executive's Normal Retirement Age.

 

3.3.    Death Benefit. Upon death of the Executive prior to Separation from Service the Executive's Beneficiary will be entitled to the benefits described in this paragraph 3.3. The amount of the benefit will equal the Accrued Liability Balance as described in paragraph 1.1 and determined as of the date of Death.

 

The Bank shall make the benefit payment to the Executive's Beneficiary in the form of a single, lump sum payment on or before the first (1st) day of the second (2nd) month following the Executive's death.

 

3.4.    Termination for Cause. Notwithstanding any provision herein to the contrary, no benefit shall be payable under this Agreement upon a Termination for Cause and upon such Termination for Cause; this Agreement shall terminate.

 

3.5.    Restriction on Timing of Distributions. Notwithstanding the applicable provisions of this Plan regarding timing of payments. the following special rules shall apply if the stock of the Employer is publicly traded at the time of the Executive's Separation from Service in order for this Plan to comply with Section 409A pf the Code: (i) to the extent the Executive is a "specified employee" (as defined under Section 409A of the Code) at the time of a distribution and to the extent such applicable provisions of Section 409A of the Code and the regulations thereunder require a delay of such distributions by a six-month period after the date of such Executive's

Separation from Service with the Employer, no such distribution shall be made prior to the date that is six months after the date of the Executive's Separation from Service with the Employer, and (ii) any such delayed payments shall be paid to the Executive in a single lump sum within five (5) business days after the end of the six (6) month delay.

 

ARTICLE 4

BENEFICIARIES

 

4.1.    Beneficiary Designations. The Executive shall have the right to designate at any time a Beneficiary to receive any benefits payable under this Plan upon the death of the Executive. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other benefit plan of the Employer in which the Executive participates.

 

4.2.    Beneficiary Designation; Changes. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executive's Beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator's rules and procedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before the Executive's death.

 

 

4.3.    Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received in writing by the Plan Administrator or its designated agent.

 

4.4.    No Beneficiary Designation. If the Executive dies without a valid Beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive's spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be distributed to the personal representative of the Executive's estate.

 

4.5.    Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Employer may pay such benefit to the guardian, legal representative, or person having the care or custody of the minor, incapacitated person, or incapable person. The Employer may require proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of the benefit. Distribution shall completely discharge the Employer from all liability for the benefit.

 

ARTICLE 5

GENERAL LIMITATIONS

 

5.1.    Limits on Payments. It is the intention of the parties that none of the payments to which the Executive is entitled under this Plan will constitute a "golden parachute payment" within the meaning of 12 USC Section 1828(k) or implementing regulations of the FDIC, the payment of which is prohibited (collectively, "Section l 828(k)"). Notwithstanding any other provision of this Plan to the contrary, any payments due to be made by Employer for the benefit of the Executive

pursuant to this Plan, or otherwise, are subject to and conditioned on compliance with Section 1828(k) and any regulations promulgated thereunder including the receipt of all required approvals thereof by Employer’s primary federal banking regulator and/or the FDIC.

 

In addition, Employer and its successors retain the legal right to demand the return of any payment made hereunder which constitutes a "golden parachute payment” within the meaning of Section l 828(k) or implementing regulations of the FDIC should Employer or its successors later obtain information indicating that the Executive committed, is substantially responsible for, or has violated, the respective acts or omissions, conditions, or offenses outlined under 12 C.F.R. 359.4(a)(4).

 

ARTICLE6

CLAIMS AND REVIEW PROCEDURES

 

6.1.    Claims Procedure. A person or Beneficiary (a "claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows:

(a)    Initiation -Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. If the claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after the notice was received by the claimant. All other claims must be made within one hundred eighty (180) days after the date of the event that caused the claim to arise. The claim must state with particularity the determination desired by the claimant.

 

(b)    Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days by notifying the claimant in writing prior to the end of the initial ninety (9O)-day period that an additional period is required. The notice of extension must set forth the special circumstances and

 

(c)    Notice of Decision. If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

 

 

 

(i)

The specific reasons for the denial,
 

(ii)

A reference to the specific provisions of the Plan on which the denial is based,
 

(iii)

A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,


 

 

 

 

(iv)

An explanation of the Plan's review procedures and the time limits applicable to such procedures, and
 

(v)

A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2.    Review· Procedure. If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial, as follows

(a)    Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Plan Administrator's notice of denial, must file with the Plan Administrator a written request for review.

(b)    Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.

(c)    Considerations on Review. In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

(d)

Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional sixty (60) days by notifying the claimant in writing, prior to the end of the initial sixty (60)-day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.
 

(e)

Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
 

(i)

The specific reasons for the denial,
 

(ii)

A reference to the specific provisions of the Plan on which the denial is based,
 

(iii)

A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and
 

(iv)

A statement of the claimant's right to bring a civil action under ERISA Section 502(a).


 

 

 

ARTICLE7

MISCELLANEOUS

 

7.1.    Amendments and Termination. Subject to paragraph 7.12 of this Plan, this Plan may be amended or terminated solely by a written agreement signed by the Bank and by the Executive. No termination of the Plan shall be effectuated in a manner that does not conform to the requirements of Code Section 409A (a termination and liquidation of the Plan must conform with the requirements of Treasury Regulations §1.409A-3(j)(4)(ix)(A), (8) or (C)).

7.2.    No Guarantee of Employment. This Plan is not an employment policy or contract. It does not give any Executive the right to remain an employee of the Employer, nor does it interfere with the Employer's right to discharge the Executive. It also does not require any Executive to remain an employee nor interfere with any Executive's right to terminate employment at any time.

7.3.    Non-Transferability. Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.

7.4.    Tax Withholding. The Employer shall withhold any taxes that are required to be withheld from the benefits provided under this Plan.

7.5.    Applicable Law. Except to the extent preempted by the laws of the United States of America, the validity, interpretation, construction and performance of this Plan shall be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

7.6.    Unfunded Arrangement. The Executive and his/her Beneficiary are general unsecured creditors of the Employer for the payment of benefits under this Plan. The benefits represent the mere promise by the Employer to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance, annuity contract or other asset purchased by Employer to fund its obligations under this Plan shall be a general asset of the Employer to which the Executive and Beneficiary have no preferred or secured claim.

7.7.    Benefit Provision. Notwithstanding the provisions of this Plan in the payment of the benefits under Article 3, any benefits payable under this Plan are contingent solely upon the amount that is provided by the Annuity Contract(s) as identified in this Plan or other provision as provided for in Article 2.

7.8.    Severability. If any provision of this Plan is held invalid, such invalidity shall not affect any other provision of this Plan, and each such other provision shall continue in full force and effect to the full extent consistent with law. If any provision of this Plan is held invalid in part, such invalidity shall not affect the remainder of the provision, and the remainder of such provision together with all other provisions of this Plan shall continue in full force and effect to the full extent consistent with law.



 

 

 

7.9.    Headings. The headings of articles and paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Plan.

 

7.10.    Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Employer at the time of the delivery of such notice, and properly addressed to the Employer if addressed to the Board, at 100 East Franklin St., Kenton, Ohio.

 

7.11.    Payment of Legal Fees. In the event litigation ensues between the parties concerning the enforcement of the obligations of the parties under this Plan, the Employer shall pay all costs and expenses in connection with such litigation until such time as a final determination (excluding any appeals) is made with respect to the litigation.

 

7.12.    Termination or Modification of Plan Because of Changes in Law, Rules or Regulations. The Employer is entering into this Plan on the assumption that certain existing tax laws, rules, and regulations will continue in effect in their current form. If that assumption materially changes and the change has a material detrimental effect on this Plan, then the Employer reserves the right to terminate or modify this Plan accordingly.

 

ARTICLES

ADMINISTRATION OF PLAN

 

8.1.    Plan Administrator Duties. This Plan shall be administered by a Plan Administrator consisting of the Board or such committee or person(s) as the Board shall appoint. The Plan Administrator shall have the sole and absolute discretion and authority to interpret and enforce all appropriate rules and regulations for the administration of this Plan and the rights of the Executive under this Plan, to decide or resolve any and all questions or disputes arising under this Plan, including benefits payable under this Plan and all other interpretations of this Plan, as may arise in connection with the Plan.

 

8.2.    Agents. In the administration of this Plan, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Employer.

 

8.3.    Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation, and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. Without limiting the foregoing, it is acknowledged that the value of the benefits payable hereunder may be difficult to determine-in the event the Employer does not actually purchase and maintain the Annuity Contract as contemplated hereunder; therefore, in such event, the Employer shall have the right to make any reasonable assumptions in determining the benefits payable hereunder and any such determination made in good faith shall be binding on the Executive.

 

8.4.    Indemnity of Plan Administrator. The Plan Administrator shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan, unless such action or omission is attributable to the willful misconduct of the Plan Administrator or any of its members. The Employer shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Plan Administrator or any of its members.

8.5.    Employer Information. To enable the Plan Administrator to perform its functions, the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the retirement, Disability, death, or Separation of Service of the Executive and such other pertinent information as the Plan Administrator may reasonably require.

8.6.    Compliance with Code Section 409A. This Plan shall be interpreted and administered consistent with Code Section 409A.

 

This Supplemental Executive Retirement Plan is hereby adopted as of the date written above.

 

ex_672616img001.jpg

 

 
EX-31.1 12 ex_635295.htm EXHIBIT 31.1 ex_635295.htm

Exhibit 31.1

 

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

 

I, Ronald L. Zimmerly, Jr., certify that:

 

1. 

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

 

2. 

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

 

3. 

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

 

4. 

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

 

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

 

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

 

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

 

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

 

5. 

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

 

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

 

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

 

Date: May 14, 2024

/s/ Ronald L. Zimmerly, Jr.
   
 

Ronald L. Zimmerly, Jr.         
 

Chief Executive Officer

 

 
EX-31.2 13 ex_635296.htm EXHIBIT 31.2 ex_635296.htm

Exhibit 31.2

 

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

 

I, Michael C. Ranttila, certify that:

 

1. 

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

 

2. 

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

 

3. 

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

 

4. 

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

 

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

 

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

 

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

 

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

 

5. 

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

 

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

 

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

 

Date: May 14, 2024

/s/ Michael C. Ranttila
   
 

Michael C. Ranttila
 

Executive Vice President, Chief Financial Officer

 

 
EX-32 14 ex_635297.htm EXHIBIT 32 ex_635297.htm

Exhibit 32

smlogo.jpg

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

In connection with the Quarterly Report of Middlefield Banc Corp. (the “Company”) on Form 10-Q for the period ending March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Ronald L. Zimmerly, Jr., Chief Executive Officer, and Michael C. Ranttila, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

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

 

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

 

 

 

By: /s/ Ronald L. Zimmerly Jr.

  

By: /s/ Michael C. Ranttila
     

Ronald L. Zimmerly, Jr.

  

Michael C. Ranttila
     

Chief Executive Officer

  

Executive Vice President, Chief Financial Officer

 

 

 

May 14, 2024

 

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