MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands)

(Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

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

(Unaudited)

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

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 September 30, 2025, MI’s assets consist of a cash account, available-for-sale investment securities, 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 September 30, 2025, 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, 2024. 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.

 

Accounting Pronouncements Adopted in 2025

 

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. The guidance should be applied on a prospective or retrospective basis. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

Recent Accounting Pronouncements

 

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220- 40): Disaggregation of Income Statement Expenses. The guidance requires public companies to disclose additional information about certain types of costs and expenses in the footnotes. The new standard requires a tabular disclosure of defined natural expense categories along with expenses subject to existing disclosure requirements. The amendment should be applied on a prospective basis with the option for retrospective application. The amendments in this ASU are effective for annual periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The effective date was clarified in ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which was issued in January 2025. These ASUs are not expected to have a significant impact on the Company’s financial statements.

 

In August 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The guidance relates to the calculation of current expected credit losses for current accounts receivable and contract assets arising from revenue transactions accounted for under ASC 606, Revenue from Contracts with Customers.  The guidance provides a practical expedient to assume that current conditions as of the balance sheet date will persist through the reasonable and supportable forecast period. The guidance is effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years.  This guidance is to be adopted on a prospective basis. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.  The guidance makes targeted improvements to the accounting for internal-use software by updating guidance for when entities will begin capitalizing eligible costs.  The scope includes costs incurred to develop or obtain software for internal use, costs incurred to implement a cloud computing arrangement as a customer, and website development costs. This ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those annual periods.  Adoption can be applied on a prospective basis, a modified basis for in-process projects, or a retrospective basis. Early adoption is permitted.  We are currently reviewing the impact that the ASU will have on the Company’s 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, BOLI income, and gain on exchange of real estate, are not within the scope of ASC 606. For the nine months ended September 30, 2025, these revenue sources cumulatively comprise 94.3% 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 September 30,								For the Nine Months Ended September 30,
(Dollar amounts in thousands)			2025				2024				2025				2024
Service charges on deposit accounts:
Overdraft fees		$	268			$	249			$	787			$	748
ATM banking fees			479				489				1,394				1,419
Service charges and other fees			324				221				941				672
Gain (loss) on equity securities ⁽ª⁾			17				14				(24	)			(65	)
Earnings on bank-owned life insurance ⁽ª⁾			228				246				951				700
Gain on sale of loans ⁽ª⁾			158				56				221				135
Revenue from investment services			306				206				884				679
Gain on exchange of real estate ⁽ª⁾			-				-				1,229				-
Miscellaneous fee income			105				106				295				301
Gross rental income ⁽ª⁾			-				-				-				67
Other income			439				156				668				643
Total noninterest income		$	2,324			$	1,743			$	7,346			$	5,299

 

(a) Not within scope of ASC 606

 

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 and nine months ended September 30, 2025 and 2024:

 

		For the Three								For the Nine
		Months Ended								Months Ended
		September 30,								September 30,
		2025				2024				2025				2024
Weighted-average common shares outstanding			9,963,968				9,950,342				9,960,883				9,946,146
Average treasury stock shares			(1,879,310	)			(1,879,310	)			(1,879,310	)			(1,869,706	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share			8,084,658				8,071,032				8,081,573				8,076,440
Additional common stock equivalents (restricted stock) used to calculate diluted earnings per share			62,837				15,840				48,640				15,840
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share			8,147,495				8,086,872				8,130,213				8,092,280

 

At September 30, 2025, there were no anti-dilutive shares and 27,793 anti-dilutive shares at September 30, 2024, excluded from the calculation of diluted earnings per share related to restricted stock awards.

 

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NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The following table presents the changes in accumulated other comprehensive income (loss) (“AOCI”) by component, net of tax, for the three and nine months ended September 30, 2025, and 2024, respectively:

 

(Dollar amounts in thousands)		Unrealized holding gain (loss) on securities available-for-sale
Balance at June 30, 2025		$	(22,937	)
Other comprehensive income⁽ª⁾			4,062
Balance at September 30, 2025		$	(18,875	)
Balance at December 31, 2024		$	(20,073	)
Other comprehensive income⁽ª⁾			1,198
Balance at September 30, 2025		$	(18,875	)

 

(Dollar amounts in thousands)		Unrealized holding gain (loss) on securities available-for-sale
Balance at June 30, 2024		$	(19,468	)
Other comprehensive income⁽ª⁾			2,991
Balance at September 30, 2024		$	(16,477	)
Balance at December 31, 2023		$	(16,090	)
Other comprehensive loss⁽ª⁾			(387	)
Balance at September 30, 2024		$	(16,477	)

 

(a)

All amounts are net of tax.

 

There were no other reclassifications of amounts from AOCI for the three and nine months ended September 30, 2025, and 2024.

 

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.

 

 

		September 30, 2025
(Dollar amounts in thousands)		Level I				Level II				Level III				Total
Assets measured on a recurring basis:
Subordinated debt		$	-			$	21,893			$	1,679			$	23,572
Obligations of states and political subdivisions			-				124,373				-				124,373
Mortgage-backed securities in government-sponsored entities			-				7,910				-				7,910
Total investment securities available for sale			-				154,176				1,679				155,855
Equity securities			743				-				-				743
Interest rate derivative assets							547								547
Liabilities measured on a recurring basis:
Interest rate derivative liabilities							547								547

 

		December 31, 2024
(Dollar amounts in thousands)		Level I				Level II				Level III				Total
Assets measured on a recurring basis:
Subordinated debt		$	-			$	25,830			$	6,639			$	32,469
Obligations of states and political subdivisions			-				124,966				-				124,966
Mortgage-backed securities in government-sponsored entities			-				8,367				-				8,367
Total investment securities available for sale			-				159,163				6,639				165,802
Equity securities			753				-				-				753

 

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. These securities have been categorized in 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.

 

Interest Rate Derivatives - An independent third-party values interest rate derivatives using pricing models based on a discounted cash flow methodology.  The models take into account both Level I and Level II inputs such as swap rates, deposit rates, and other market-based rates and curves. A Level II categorization has been assigned. Interest rate derivatives are included in "accrued interest receivable and other assets" and "accrued interest payable and other liabilities" on the Consolidated Balance Sheet.

 

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)		September 30, 2025				December 31, 2024
Beginning of year		$	6,639			$	8,801
Settlements			(5,000	)			-
Transfers out of Level III (1)			-				(2,250	)
Net change in unrealized loss on investment securities available-for-sale			40				88
End of year		$	1,679			$	6,639

 

(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. 

 

		September 30, 2025
(Dollar amounts in thousands)		Level I				Level II				Level III				Total
Assets measured on a non-recurring basis:
Premises and equipment held for sale		$	-			$	-			$	998			$	998
Collateral-dependent loans			-				-				6,007				6,007

 

		December 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

 

 

Premises and Equipment Held for Sale - Premises and equipment held for sale consist of a branch location held for sale.  The Company has measured impairment on branch locations held for sale based on the fair value of the property. Fair value is based on the listed selling price, which is predominately determined using market transactions for similar properties. In some cases, management may adjust the sales price due to changes in market conditions, length of time that the property has been on the market, or other factors that a market participant may take into account when valuing the property. Additionally, management estimates expected costs to sell the property. If the fair value of the premises and equipment held for sale is less than the carrying amount, a charge is taken to reduce the property to its fair value (less estimated selling costs), and the property 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 property exceeds the carrying amount, then the property 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 $53,000 for September 30, 2025.

 

Collateral-Dependent Loans – The Company has measured expected credit loss 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 $1.8 million and $968,000 for September 30, 2025, and  December 31, 2024

 

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:

 

		September 30, 2025
(Dollar amounts in thousands)		Fair Value Estimate			Valuation Techniques		Unobservable Input		Range (Weighted Average)
Collateral-dependent loans		$	6,007		Appraisal of collateral		Appraisal adjustments			12.8 - 29.2% (25.2%)
Premises and equipment held for sale		$	998		Sale price		Adjustments to selling price			5.0%

 

		December 31, 2024
(Dollar amounts in thousands)		Fair Value Estimate			Valuation Techniques		Unobservable Input		Range (Weighted Average)
Collateral-dependent loans		$	3,321		Appraisal of collateral		Appraisal adjustments			0 - 23.9% (23.9%)

 

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

 

		September 30, 2025
		Carrying																Total
(Dollar amounts in thousands)		Value				Level I				Level II				Level III				Fair Value
Financial assets:
Net loans		$	1,583,995			$	-			$	-			$	1,572,635			$	1,572,635
Mortgage servicing rights			1,423				-				-				2,398				2,398
Financial liabilities:
Non-maturing deposits		$	1,351,857			$	1,351,857			$	-			$	-			$	1,351,857
Time deposits			270,445				-				-				269,408				269,408
Other borrowings			11,502				-				-				11,502				11,502

 

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		December 31, 2024
		Carrying																Total
(Dollar amounts in thousands)		Value				Level I				Level II				Level III				Fair Value
Financial assets:
Net loans		$	1,497,167			$	-			$	-			$	1,462,650			$	1,462,650
Mortgage servicing rights			1,497				-				-				2,522				2,522
Financial liabilities:
Non-maturing deposits		$	1,197,989			$	1,197,989			$	-			$	-			$	1,197,989
Time deposits			247,704				-				-				245,999				245,999
Other borrowings			11,660				-				-				11,660				11,660

 

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:

 

		September 30, 2025
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollar amounts in thousands)		Cost (a)				Gains				Losses				Value
Subordinated debt		$	24,500			$	85			$	(1,013	)		$	23,572
Obligations of states and political subdivisions:
Tax-exempt			146,851				21				(22,499	)			124,373
Mortgage-backed securities in government-sponsored entities			8,396				46				(532	)			7,910
Total		$	179,747			$	152			$	(24,044	)		$	155,855

 

(a)	Accrued interest of $1.4 million is excluded from amortized cost and presented in "accrued interest receivable and other assets" on the Consolidated Balance Sheet.

 

		December 31, 2024
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollar amounts in thousands)		Cost (a)				Gains				Losses				Value
Subordinated debt		$	34,300			$	67			$	(1,898	)		$	32,469
Obligations of states and political subdivisions:
Tax-exempt			147,767				4				(22,805	)			124,966
Mortgage-backed securities in government-sponsored entities			9,144				1				(778	)			8,367
Total		$	191,211			$	72			$	(25,481	)		$	165,802

 

(a)	Accrued interest of $1.5 million is excluded from amortized cost and presented in "accrued interest receivable and other assets" on the Consolidated Balance Sheet.

 

The amortized cost and fair value of investment securities at September 30, 2025, 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		$	70			$	70
Due after one year through five years			8,051				7,887
Due after five years through ten years			47,775				46,255
Due after ten years			123,851				101,643
Total		$	179,747			$	155,855

 

There were no investment securities sold during the three and nine months ended September 30, 2025, or the year ended  December 31, 2024. 

 

Investment securities with an approximate carrying value of $115.2 million and $112.1 million on  September 30, 2025, and  December 31, 2024, respectively, were pledged to secure deposits and for other purposes as required by law.

 

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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.

 

		September 30, 2025
		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		$	727			$	(23	)		$	19,761			$	(989	)		$	20,487			$	(1,013	)
Obligations of states and political subdivisions:
Tax-exempt			-				-				111,984				(22,499	)			111,984				(22,499	)
Mortgage-backed securities in government-sponsored entities			1,026				(3	)			5,093				(529	)			6,119				(532	)
Total		$	1,753			$	(26	)		$	136,838			$	(24,017	)		$	138,590			$	(24,044	)

 

		December 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		$	10,632			$	(368	)		$	20,770			$	(1,530	)		$	31,402			$	(1,898	)
Obligations of states and political subdivisions:
Tax-exempt			15,456				(487	)			102,484				(22,318	)			117,940				(22,805	)
Mortgage-backed securities in government-sponsored entities			1,986				(49	)			5,118				(729	)			7,104				(778	)
Total		$	28,074			$	(904	)		$	128,372			$	(24,577	)		$	156,446			$	(25,481	)

 

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 3 securities in an unrealized loss position for less than twelve months and 173 securities in an unrealized loss position for twelve months or greater on September 30, 2025. 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 September 30, 2025 and December 31, 2024, no allowance for credit losses was required on investment securities available for sale. 

 

Other investments, which primarily represent equity securities, totaled $1.1 million and $855,000 at September 30, 2025 and December 31, 2024, respectively. The Company recognized a gain on other investments of $17,000 and $14,000 for the three months ended September 30, 2025, and 2024, respectively. The Company recognized a loss on other investments of ($24,000) and ($65,000) for the nine months ended September 30, 2025 and 2024, respectively. 

NOTE 7 – LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

 

The following table summarizes the loan portfolio by primary segment and class of financial receivable:

 

	September 30,			December 31,
(Dollar amounts in thousands)		2025 ⁽¹⁾⁽²⁾			2024 ⁽¹⁾⁽²⁾
Commercial real estate:
Owner occupied	$	221,600		$	181,447
Non-owner occupied		390,354			412,291
Multifamily		88,899			89,849
Residential real estate		366,307			353,442
Commercial and industrial		269,422			229,034
Home equity lines of credit		159,805			143,379
Construction and other		104,843			103,608
Consumer installment		5,794			6,564
Total loans		1,607,024			1,519,614
Less: Allowance for credit losses		(23,029	)		(22,447	)
Net loans	$	1,583,995		$	1,497,167

 

(1)		Accrued interest of $5.9 million and $5.5 million at  September 30, 2025 and December 31, 2024, respectively, is excluded from amortized cost and presented in "accrued interest receivable and other assets" on the Consolidated Balance Sheets.
(2)		Unearned income, including net deferred loan fees and costs and unamortized premiums and discounts, totaled $6.6 million and $8.2 million at September 30, 2025 and December 31, 2024, respectively.

 

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Allowance for Credit Losses: Loans

 

The methodology for calculating the allowance for credit losses considers the possibility of expected 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. Refer to Note 1 – Summary of Significant Accounting Policies under the heading "Allowance for Credit Losses - Loans" of our 2024 Form 10-K for additional information on the Bank’s methodology for estimating the ACL.

 

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.

 

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

 

		For the Three Months Ended September 30, 2025
		Balance																	Balance
(Dollar amounts in thousands)		June 30, 2025				Charge-offs				Recoveries				Provision				September 30, 2025
Commercial real estate:
Owner occupied		$	2,538			$	-			$	92			$	311			$	2,941
Non-owner occupied			4,628				-				-				291				4,919
Multifamily			1,057				-				-				107				1,164
Residential real estate			5,801				(18	)			35				171				5,989
Commercial and industrial			3,014				(50	)			9				453				3,426
Home equity lines of credit			988				-				-				19				1,007
Construction and other			4,234				-				-				(721	)			3,513
Consumer installment			75				-				39				(44	)			70
Total		$	22,335			$	(68	)		$	175			$	587			$	23,029

 

		For the Three Months Ended September 30, 2024
		Balance																	Balance
(Dollar amounts in thousands)		June 30, 2024				Charge-offs				Recoveries				Provision				September 30, 2024
Commercial real estate:
Owner occupied		$	2,058			$	(45	)		$	-			$	177			$	2,190
Non-owner occupied			7,981				(1,341	)			-				1,716				8,356
Multifamily			1,268				-				-				125				1,393
Residential real estate			4,891				-				-				219				5,110
Commercial and industrial			2,430				(35	)			9				8				2,412
Home equity lines of credit			813				-				-				56				869
Construction and other			2,290				-				-				(159	)			2,131
Consumer installment			64				(5	)			35				(29	)			65
Total		$	21,795			$	(1,426	)		$	44			$	2,113			$	22,526

 

		For the Nine Months Ended September 30, 2025
		Balance																	Balance
(Dollar amounts in thousands)		December 31, 2024				Charge-offs				Recoveries				Provision				September 30, 2025
Commercial real estate:
Owner occupied		$	2,100			$	-			$	105			$	736			$	2,941
Non-owner occupied			8,364				(18	)			7				(3,434	)			4,919
Multifamily			1,310				-				-				(146	)			1,164
Residential real estate			5,236				(19	)			71				701				5,989
Commercial and industrial			2,427				(55	)			179				875				3,426
Home equity lines of credit			897				(4	)			8				106				1,007
Construction and other			2,052				-				-				1,461				3,513
Consumer installment			61				(44	)			104				(51	)			70
Total		$	22,447			$	(140	)		$	474			$	248			$	23,029

 

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		For the Nine Months Ended September 30, 2024
		Balance																	Balance
(Dollar amounts in thousands)		December 31, 2023				Charge-offs				Recoveries				Provision				September 30, 2024
Commercial real estate:
Owner occupied		$	2,668			$	(45	)		$	11			$	(444	)		$	2,190
Non-owner occupied			4,480				(1,341	)			-				5,217				8,356
Multifamily			1,796				-				-				(403	)			1,393
Residential real estate			5,450				-				-				(340	)			5,110
Commercial and industrial			4,377				(35	)			24				(1,954	)			2,412
Home equity lines of credit			750				(7	)			1				125				869
Construction and other			1,990				-				-				141				2,131
Consumer installment			182				(11	)			118				(224	)			65
Total		$	21,693			$	(1,439	)		$	154			$	2,118			$	22,526

 

 

The total ACL increased by $582,000, or 2.6%, from  December 31, 2024 to September 30, 2025. The increase was driven by portfolio activity, updated assumptions, and the economic outlook. For 2024 and 2025, the Bank utilized unemployment rate data from Federal Open Market Committee ("FOMC") within the model to forecast credit losses in the portfolio. The FOMC Summary of Economic Projections for the Civilian Unemployment Rate – Central Tendency – High used in the September 30, 2025 calculation projects a slight decrease in the unemployment rate from the prior quarter.  The prepayment rates, probability of default (“PD”), and loss given default (“LGD”) assumptions were updated with the March 31, 2025 calculation in accordance with our policy to refresh assumptions on an annual basis. Prepayment rate assumptions are based on Bank data, while PD and LGD assumptions are determined using peer benchmark data.  To the extent that credit risk is not fully identified within the forecasts and calculated reserve, management has made qualitative adjustments to the ACL balance. 

 

The fluctuation in the ACL during the nine months ended September 30, 2025, can be attributed to the following along with general increases and decreases in loan segment balances as well as charge-offs and recoveries that occurred during the period:

	•	Decrease in ACL for non-owner occupied CRE loans is due to (1) a decrease in PDs and LGDs based on using Bank data for the first 12 months of the forecast and reverting to peer benchmark data for the remainder of the forecast and (2) a decrease in the maximum loss rate used in the qualitative adjustment, partially offset by (1) a decrease in prepayment rates, (2) an increase in the qualitative adjustment to adjust for a change in the Credit team, and (3) one individually analyzed loan requiring a reserve at September 30, 2025 that did not require a reserve at December 31, 2024. In addition, there was a decrease of $21.9 million in the non-owner occupied loan segment balance.
	•	Increase in ACL for construction and other loans is due to (1) the impact of a decrease in prepayment rates and an increase in PDs and LGDs causing an increase in the calculated reserve and (2) an increase in the qualitative adjustment to adjust for a change in the Credit team. In addition, there was an increase of $1.2 million in the construction and other loan segment balance.
	•	Increase in ACL for commercial and industrial loans is due to (1) the impact of a decrease in prepayment rates, (2) an increase in the qualitative adjustment to adjust for a change in the Credit team, and (3) one individually analyzed loan requiring a reserve at September 30, 2025 that did not require a reserve at December 31, 2024. Additionally, there was an increase of $40.4 million in the commercial and industrial loan segment balance.
	•	Increase in ACL for owner occupied CRE loans is due to (1) the impact of a decrease in prepayment rates and an overall increase in PDs and (2) an increase in the qualitative adjustment to adjust for a change in the Credit team.  Additionally, the balance in this loan segment increased by $40.2 million during the period.
	•	Increase in ACL for residential real estate loans is due to a decrease in prepayment rates, partially offset by a decrease in PDs and LGDs in the calculation reserve.  In addition, there was a $12.7 million increase in the balance for this loan segment.

 

 

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.

 

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 ACL.

 

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.

 

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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 and for the nine months ended  September 30, 2025:

 

		September 30, 2025
		Term Loans Amortized Cost Basis by Origination Year																								Revolving Amortized
(Dollar amounts in thousands)		2025				2024				2023				2022				2021				Prior				Cost Basis				Total
Commercial real estate:
Owner occupied
Pass		$	32,496			$	17,688			$	26,103			$	31,492			$	38,894			$	57,387			$	6,118			$	210,178
Special Mention			-				-				3,691				-				-				-				-				3,691
Substandard			-				862				-				4,498				371				2,000				-				7,731
Total Owner occupied		$	32,496			$	18,550			$	29,794			$	35,990			$	39,265			$	59,387			$	6,118			$	221,600
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Non-owner occupied
Pass		$	15,387			$	7,427			$	54,719			$	94,460			$	47,044			$	141,040			$	743			$	360,820
Special Mention			-				-				-				387				-				234				-				621
Substandard			-				-				-				2,496				635				25,782				-				28,913
Total Non-owner occupied		$	15,387			$	7,427			$	54,719			$	97,343			$	47,679			$	167,056			$	743			$	390,354
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	18			$	-			$	18
Multifamily
Pass		$	-			$	2,885			$	45,017			$	18,823			$	6,742			$	15,432			$	-			$	88,899
Total Multifamily		$	-			$	2,885			$	45,017			$	18,823			$	6,742			$	15,432			$	-			$	88,899
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Residential real estate
Pass		$	35,764			$	44,302			$	49,963			$	57,160			$	65,975			$	110,348			$	312			$	363,824
Substandard			-				-				157				445				617				1,264				-				2,483
Total Residential real estate		$	35,764			$	44,302			$	50,120			$	57,605			$	66,592			$	111,612			$	312			$	366,307
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	19			$	-			$	19
Commercial and industrial
Pass		$	38,498			$	45,765			$	30,265			$	21,242			$	7,912			$	19,990			$	79,216			$	242,888
Special Mention			-				-				3,547				291				331				212				19,026				23,407
Substandard			-				-				1,413				16				-				276				1,422				3,127
Total Commercial and industrial		$	38,498			$	45,765			$	35,225			$	21,549			$	8,243			$	20,478			$	99,664			$	269,422
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	50			$	5			$	-			$	55
Home equity lines of credit
Pass		$	-			$	269			$	22			$	233			$	-			$	2,864			$	155,296			$	158,684
Substandard			-				-				233				191				-				287				410				1,121
Total Home equity lines of credit		$	-			$	269			$	255			$	424			$	-			$	3,151			$	155,706			$	159,805
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	4			$	-			$	4
Construction and other
Pass		$	4,660			$	56,254			$	19,057			$	1,889			$	998			$	1,906			$	17,346			$	102,110
Special Mention			-				-				-				-				-				188				-				188
Substandard			-				-				491				-				-				746				1,308				2,545
Total Construction and other		$	4,660			$	56,254			$	19,548			$	1,889			$	998			$	2,840			$	18,654			$	104,843
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer installment
Pass		$	1,051			$	1,025			$	597			$	182			$	69			$	2,677			$	-			$	5,601
Substandard			-				-				-				-				-				193				-				193
Total Consumer installment		$	1,051			$	1,025			$	597			$	182			$	69			$	2,870			$	-			$	5,794
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	44			$	-			$	44
Total Loans		$	127,856			$	176,477			$	235,275			$	233,805			$	169,588			$	382,826			$	281,197			$	1,607,024
Total Loans Summary
Pass		$	127,856			$	175,615			$	225,743			$	225,481			$	167,634			$	351,644			$	259,031			$	1,533,004
Special Mention			-				-				7,238				678				331				634				19,026				27,907
Substandard			-				862				2,294				7,646				1,623				30,548				3,140				46,113
Total Loans		$	127,856			$	176,477			$	235,275			$	233,805			$	169,588			$	382,826			$	281,197			$	1,607,024

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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 and for the year ended  December 31, 2024:

 

		December 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		$	12,424			$	20,265			$	33,389			$	39,025			$	25,532			$	39,393			$	4,394			$	174,422
Special Mention			-				-				-				389				-				772				-				1,161
Substandard			974				-				4,535				-				-				355				-				5,864
Total Owner occupied		$	13,398			$	20,265			$	37,924			$	39,414			$	25,532			$	40,520			$	4,394			$	181,447
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	45			$	-			$	45
Non-owner occupied
Pass		$	7,542			$	63,559			$	96,624			$	49,009			$	20,230			$	133,530			$	905			$	371,399
Special Mention			-				-				2,506				-				-				2,002				-				4,508
Substandard			-				-				3,719				635				-				32,030				-				36,384
Total Non-owner occupied		$	7,542			$	63,559			$	102,849			$	49,644			$	20,230			$	167,562			$	905			$	412,291
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	1,341			$	-			$	1,341
Multifamily
Pass		$	2,930			$	36,113			$	21,978			$	7,437			$	10,057			$	11,324			$	10			$	89,849
Total Multifamily		$	2,930			$	36,113			$	21,978			$	7,437			$	10,057			$	11,324			$	10			$	89,849
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Residential real estate
Pass		$	45,347			$	50,820			$	61,963			$	69,982			$	36,067			$	86,492			$	291			$	350,962
Substandard			34				169				115				635				-				1,527				-				2,480
Total Residential real estate		$	45,381			$	50,989			$	62,078			$	70,617			$	36,067			$	88,019			$	291			$	353,442
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Commercial and industrial
Pass		$	48,654			$	33,860			$	31,305			$	13,512			$	18,864			$	4,888			$	74,169			$	225,252
Special Mention			2,263				-				-				-				-				-				832				3,095
Substandard			214				10				-				-				305				84				74				687
Total Commercial and industrial		$	51,131			$	33,870			$	31,305			$	13,512			$	19,169			$	4,972			$	75,075			$	229,034
Current-period gross charge-offs		$	-			$	180			$	23			$	12			$	-			$	-			$	-			$	215
Home equity lines of credit
Pass		$	244			$	-			$	166			$	183			$	133			$	2,041			$	139,214			$	141,981
Substandard			-				68				150				-				34				493				653				1,398
Total Home equity lines of credit		$	244			$	68			$	316			$	183			$	167			$	2,534			$	139,867			$	143,379
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	7			$	-			$	7
Construction and other
Pass		$	31,361			$	48,177			$	2,418			$	1,223			$	506			$	1,368			$	14,909			$	99,962
Special Mention			-				-				834				-				-				221				-				1,055
Substandard			-				493				-				-				-				1,171				927				2,591
Total Construction and other		$	31,361			$	48,670			$	3,252			$	1,223			$	506			$	2,760			$	15,836			$	103,608
Current-period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer installment
Pass		$	1,539			$	1,047			$	381			$	112			$	36			$	3,284			$	-			$	6,399
Substandard			-				-				3				-				-				162				-				165
Total Consumer installment		$	1,539			$	1,047			$	384			$	112			$	36			$	3,446			$	-			$	6,564
Current-period gross charge-offs		$	-			$	-			$	2			$	6			$	-			$	30			$	-			$	38
Total Loans		$	153,526			$	254,581			$	260,086			$	182,142			$	111,764			$	321,137			$	236,378			$	1,519,614
Total Loans Summary
Pass		$	150,041			$	253,841			$	248,224			$	180,483			$	111,425			$	282,320			$	233,892			$	1,460,226
Special Mention			2,263				-				3,340				389				-				2,995				832				9,819
Substandard			1,222				740				8,522				1,270				339				35,822				1,654				49,569
Total Loans		$	153,526			$	254,581			$	260,086			$	182,142			$	111,764			$	321,137			$	236,378			$	1,519,614

 

---

 

Collateral-dependent Loans

 

The following table presents individually analyzed and collateral-dependent loans by classes of loan type as of  September 30, 2025:

 

		September 30, 2025
		Type of Collateral
(Dollar amounts in thousands)		Real Estate				Blanket Lien				Investment/Cash				Other				Total
Commercial real estate:
Owner occupied		$	2,718			$	-			$	-			$	-			$	2,718
Non-owner occupied			21,976				-				-				-				21,976
Residential real estate			617				-				-				-				617
Commercial and industrial			-				833				-				-				833
Construction and other			491				-				-				-				491
Total		$	25,802			$	833			$	-			$	-			$	26,635

 

The following table presents individually analyzed and collateral-dependent loans by classes of loan type as of  December 31, 2024:

 

		December 31, 2024
		Type of Collateral
(Dollar amounts in thousands)		Real Estate				Blanket Lien				Investment/Cash				Other				Total
Commercial real estate:
Owner occupied		$	3,198			$	-			$	-			$	-			$	3,198
Non-owner occupied			24,881				-				-				-				24,881
Residential real estate			617				-				-				-				617
Commercial and industrial			214				-				-				-				214
Construction and other			493				-				-				-				493
Total		$	29,403			$	-			$	-			$	-			$	29,403

 

At September 30, 2025 and December 31, 2024, the Company reported $1.3 million and $352,000, respectively, in residential real estate loans in the process of foreclosure.

 

Nonperforming and Past Due Loans

 

The following table presents the aging of the recorded investment in past-due loans by class of loans as of  September 30, 2025:

 

		September 30, 2025
						30-59 Days				60-89 Days				90 Days+				Total				Total
(Dollar amounts in thousands)		Current				Past Due				Past Due				Past Due				Past Due				Loans
Commercial real estate:
Owner occupied		$	221,097			$	381			$	-			$	122			$	503			$	221,600
Non-owner occupied			382,342				-				-				8,012				8,012				390,354
Multifamily			88,899				-				-				-				-				88,899
Residential real estate			362,419				1,971				755				1,162				3,888				366,307
Commercial and industrial			269,422				-				-				-				-				269,422
Home equity lines of credit			158,779				509				149				368				1,026				159,805
Construction and other			104,352				-				-				491				491				104,843
Consumer installment			5,598				3				-				193				196				5,794
Total		$	1,592,908			$	2,864			$	904			$	10,348			$	14,116			$	1,607,024

 

 

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The following table presents the aging of the recorded investment in past-due loans by class of loans as of  December 31, 2024:

 

		December 31, 2024
						30-59 Days				60-89 Days				90 Days+				Total				Total
(Dollar amounts in thousands)		Current				Past Due				Past Due				Past Due				Past Due				Loans
Commercial real estate:
Owner occupied		$	180,752			$	513			$	122			$	60			$	695			$	181,447
Non-owner occupied			402,924				1,355				-				8,012				9,367				412,291
Multifamily			89,756				93				-				-				93				89,849
Residential real estate			349,645				2,216				562				1,019				3,797				353,442
Commercial and industrial			226,669				81				2,284				-				2,365				229,034
Home equity lines of credit			142,484				366				102				427				895				143,379
Construction and other			103,115				-				-				493				493				103,608
Consumer installment			6,479				41				44				-				85				6,564
Total		$	1,501,824			$	4,665			$	3,114			$	10,011			$	17,790			$	1,519,614

 

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:

 

		September 30, 2025
		Nonaccrual				Nonaccrual								Loans Past
		with no				with				Total				Due Over 90 Days				Total
(Dollar amounts in thousands)		ACL				ACL				Nonaccrual				Still Accruing				Nonperforming
Commercial real estate:
Owner occupied		$	3,580			$	-			$	3,580			$	-			$	3,580
Non-owner occupied			15,865				6,111				21,976				-				21,976
Residential real estate			617				1,467				2,084				-				2,084
Commercial and industrial			-				859				859				-				859
Home equity lines of credit			-				745				745				-				745
Construction and other			491				-				491				-				491
Consumer installment			193				-				193				-				193
Total		$	20,746			$	9,182			$	29,928			$	-			$	29,928

 

		December 31, 2024
		Nonaccrual				Nonaccrual								Loans Past
		with no				with				Total				Due Over 90 Days				Total
(Dollar amounts in thousands)		ACL				ACL				Nonaccrual				Still Accruing				Nonperforming
Commercial real estate:
Owner occupied		$	974			$	301			$	1,275			$	-			$	1,275
Non-owner occupied			21,265				3,616				24,881				-				24,881
Multifamily			-				-				-				-				-
Residential real estate			617				1,377				1,994				-				1,994
Commercial and industrial			-				159				159				-				159
Home equity lines of credit			-				1,017				1,017				-				1,017
Construction and other			-				493				493				-				493
Consumer installment			162				3				165				-				165
Total		$	23,018			$	6,966			$	29,984			$	-			$	29,984

 

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $474,000 and $1.3 million for the three and nine months ended September 30, 2025, respectively, and $852,000 and $1.2 million for the three and nine months ended September 30, 2024, respectively.

 

Modifications for Borrowers Experiencing Financial Difficulty

 

The following disclosures are for loan modifications for 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 ACL for loans modified for borrowers experiencing financial difficulty is determined using the Bank's ACL policy as described in Note 1 - Summary of Significant Accounting Policies under the heading "Allowance for Credit Losses - Loans" in our 2024 Form 10-K.  

 

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The tables below detail the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concessions granted, and the financial effect of the modifications during the three and nine months ended September 30, 2025, and 2024:

 

		For the Three Months Ended September 30, 2025
										Payment				Interest Rate				Interest Rate								Percentage of
										Deferral				Reduction				Reduction								Total Loans
		Payment				Term				and Term				and Term				and Principal								Held for
(Dollar amounts in thousands)		Deferral				Extension				Extension				Past Due				Forgiveness				Total				Investment
Commercial real estate:
Owner occupied		$	2,224			$	-			$	-			$	-			$	-			$	2,224				0.1	%
Total		$	2,224			$	-			$	-			$	-			$	-			$	2,224				0.1	%

 

		For the Three Months Ended September 30, 2024
										Payment				Interest Rate				Interest Rate								Percentage of
										Deferral				Reduction				Reduction								Total Loans
		Payment				Term				and Term				and Term				and Principal								Held for
(Dollar amounts in thousands)		Deferral				Extension				Extension				Past Due				Forgiveness				Total				Investment
Commercial real estate:
Non-owner occupied		$	-			$	13,482			$	-			$	-			$	-			$	13,482				0.9	%
Total		$	-			$	13,482			$	-			$	-			$	-			$	13,482				0.9	%

 

		For the Nine Months Ended September 30, 2025
										Payment				Interest Rate				Interest Rate								Percentage of
										Deferral				Reduction				Reduction								Total Loans
		Payment				Term				and Term				and Term				and Principal								Held for
(Dollar amounts in thousands)		Deferral				Extension				Extension				Past Due				Forgiveness				Total				Investment
Commercial real estate:
Owner occupied		$	2,224			$	-			$	-			$	-			$	-			$	2,224				0.1	%
Residential real estate			57				-				-				-				-				57				0.0	%
Commercial and industrial			-				889				-				-				-				889				0.1	%
Home equity lines of credit			-				100				-				-				-				100				0.0	%
Construction and other			-				2,055				-				-				-				2,055				0.1	%
Total		$	2,281			$	3,044			$	-			$	-			$	-			$	5,325				0.3	%

 

		For the Nine Months Ended September 30, 2024
										Payment				Interest Rate				Interest Rate								Percentage of
										Deferral				Reduction				Reduction								Total Loans
		Payment				Term				and Term				and Term				and Principal								Held for
(Dollar amounts in thousands)		Deferral				Extension				Extension				Past Due				Forgiveness				Total				Investment
Commercial real estate:
Non-owner occupied		$	-			$	13,482			$	-			$	-			$	-			$	13,482				0.9	%
Total		$	-			$	13,482			$	-			$	-			$	-			$	13,482				0.9	%

 

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The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts. The following tables present the amortized cost as of September 30, 2025 and 2024, of loans modified during the 12 months then ended, by aging.

 

		September 30, 2025
						30-59 Days				60-89 Days				90 Days+				Total				Total
(Dollar amounts in thousands)		Current				Past Due				Past Due				Past Due				Past Due				Loans
Commercial real estate:
Owner occupied		$	2,224			$	-			$	-			$	-			$	-			$	2,224
Non-owner occupied			1,763				-				-				-				-				1,763
Residential real estate			57				-				-				-				-				57
Commercial and industrial			889				-				-				-				-				889
Home equity lines of credit			100				-				-				-				-				100
Construction and other			2,055				-				-				-				-				2,055
Total		$	7,088			$	-			$	-			$	-			$	-			$	7,088

 

		September 30, 2024
						30-59 Days				60-89 Days				90 Days+				Total				Total
(Dollar amounts in thousands)		Current				Past Due				Past Due				Past Due				Past Due				Loans
Commercial real estate:
Non-owner occupied		$	13,483			$	-			$	-			$	-			$	-			$	13,483
Construction and other			1,819				-				-				-				-				1,819
Total		$	15,302			$	-			$	-			$	-			$	-			$	15,302

 

As of September 30, 2025, the Bank had a commitment to lend additional funds to a borrower experiencing financial difficulty whose loan was modified of $491,000.  There were no such commitments as of September 30, 2024. During the three and nine months ended September 30, 2025, and 2024, the Bank did not have any loans that were modified for borrowers experiencing financial difficulty and subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.    

 

Allowance for Credit Losses: Unfunded Commitments

 

The Company records 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 was $1.3 million and $1.6 million as of September 30, 2025 and  December 31, 2024, respectively, and included in “accrued interest payable and other liabilities” on the Consolidated Balance Sheet. The "provision for (recovery of) credit losses" on the Consolidated Statement of Income associated with the liability for unfunded commitments amounted to a recovery of credit losses of $195,000 and $267,000 for the three and nine months ended September 30, 2025, respectively, and a provision for credit losses of $121,000 and $67,000 for the three and nine months ended September 30, 2024.

 

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 

 

The following table summarizes the commitments to extend credit, which were composed of the following:

 

(Dollar amounts in thousands)		September 30, 2025				December 31, 2024
Commitments to extend credit		$	407,440			$	468,006
Standby letters of credit			561				798
Total		$	408,001			$	468,804

 

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.

 

Commitments to Fund

 

We have investments in low-income housing tax credit operating partnerships. 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 partnerships consists of the unamortized investment balance plus any unfunded equity commitments and tax credits claimed but subject to recapture. The investments at September 30, 2025 and December 31, 2024, were $3.7 million and $1.8 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 investments are amortized over the period that we expect to receive the tax benefits using the proportional amortization method. For the nine months ended September 30, 2025 and 2024, we recognized $160,000 and $80,000, respectively, of amortization. At September 30, 2025 and December 31, 2024, we had an unfunded tax credit commitment of $2.4 million and $1.5 million, respectively, which is recorded in the Consolidated Balance Sheet in "accrued interest payable and other liabilities".

 

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Cannabis Industry

 

We provide deposit services to customers who are licensed by the State of Ohio's Division of Cannabis Control to do business as (or are related to) 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 and site visits. Throughout the relationship, we continue monitoring the business 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

 

Refer to Note 8 - Commitments and Contingent Liabilities of our Form 10-Q for the period ended June 30, 2025, for information on litigation that was settled during the second quarter of 2025.

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

The following table summarizes lending activities to principal officers, directors, and their affiliates for the periods ended  September 30, 2025 and December 31, 2024:

 

(Dollar amounts in thousands)		September 30, 2025				December 31, 2024
Beginning balance		$	26,114			$	24,185
New loans			145				3,362
Repayments			(1,809	)			(1,377	)
Effect of change in related party status			-				(56	)
Ending balance		$	24,450			$	26,114

 

Deposits of related parties amounted to $29.2 million and $32.5 million as of  September 30, 2025 and  December 31, 2024, respectively.

 

NOTE 10 - SEGMENT REPORTING

 

The Company has one business segment: Bank Segment. The Bank Segment provides customers with a broad range of banking services, including various deposit and lending products to consumer and commercial customers. The Company’s chief operating decision maker (CODM) is the Chief Executive Officer.

 

---

 

The following table shows selected financial data for the Bank Segment for the three and nine months ended September 30, 2025, and 2024. The accounting policies of the segment are the same as those followed by the Company. The information is derived from the internal financial reporting records that are used to monitor and manage the Company's financial performance. The segment expense categories are based on the information regularly provided to the CODM and are considered significant to the segment’s operations. The Bank Segment excludes the income, expenses, and total assets of the parent company, Middlefield Banc Corp, and the parent company’s nonbank asset resolution subsidiary, EMORECO, Inc., which are shown as reconciling items in the following table. There is no authoritative guidance for management accounting equivalent to GAAP, and therefore, the financial results of our business segment are not necessarily comparable with similar information presented by other companies. 

 

		For the Three Months Ended September 30,
		2025												2024
						Reconciling												Reconciling
(Dollar amounts in thousands)		Bank				Items				Total				Bank				Items				Total
Net interest income		$	17,693			$	(128	)		$	17,565			$	15,218			$	(145	)		$	15,073
Noninterest income			2,310				14				2,324				1,719				24				1,743
Total revenue			20,003				(114	)			19,889				16,937				(121	)			16,816
Provision for (recovery of) credit losses			392				-				392				2,234				-				2,234
Salaries and employee benefits			6,228				655				6,883				5,899				302				6,201
Occupancy expenses			604				-				604				627				-				627
Data processing costs			1,240				-				1,240				1,248				-				1,248
Other noninterest expense (1)			3,765				606				4,371				3,142				653				3,795
Income tax provision (benefit)			1,367				(288	)			1,079				597				(226	)			371
Net income (loss)		$	6,407			$	(1,087	)		$	5,320			$	3,190			$	(850	)		$	2,340
Total assets		$	1,975,480			$	3,413			$	1,978,893			$	1,855,461			$	2,174			$	1,857,635

 

		For the Nine Months Ended September 30,
		2025												2024
						Reconciling												Reconciling
(Dollar amounts in thousands)		Bank				Items				Total				Bank				Items				Total
Net interest income		$	51,456			$	(356	)		$	51,100			$	45,573			$	(448	)		$	45,125
Noninterest income			7,356				(10	)			7,346				5,332				(33	)			5,299
Total revenue			58,812				(366	)			58,446				50,905				(481	)			50,424
Provision for (recovery of) credit losses			(19	)			-				(19	)			2,185				-				2,185
Salaries and employee benefits			18,524				1,641				20,165				17,893				752				18,645
Occupancy expenses			1,958				-				1,958				1,780				-				1,780
Data processing costs			3,784				-				3,784				3,665				-				3,665
Other noninterest expense (1)			11,209				1,826				13,035				9,532				2,116				11,648
Income tax provision (benefit)			4,021				(805	)			3,216				2,533				(703	)			1,830
Net income (loss)		$	19,335			$	(3,028	)		$	16,307				13,317			$	(2,646	)		$	10,671
Total assets		$	1,975,480			$	3,413			$	1,978,893			$	1,855,461			$	2,174			$	1,857,635

 

(1)

Includes expenses that are in the reported measure of net income but not specifically provided to the CODM. Other noninterest expense is composed of expenses such as equipment expense, Ohio state franchise tax, professional fees, advertising expense, and other expenses.

 

The CODM utilizes net income as the primary measure to allocate resources during the annual budget process. This measure is used by CODM to evaluate the performance of the business segment, with a focus on net interest income, provision for credit losses, noninterest income, and noninterest expense. Net income is compared to both budgeted and comparative historical amounts on a monthly basis. Drivers of any significant variations from budget are assessed. The measure of segment assets is reported as total assets. 

 

NOTE 11 - SUBSEQUENT EVENT

 

Farmers National Banc Corp ("Farmers") and the Company have entered into an Agreement and Plan of Merger (the "Agreement") dated as of October 22, 2025, which provides for the merger of the Company with and into Farmers (the "Merger"). The merger transaction is subject to certain conditions, including, but not limited to, receipt of Farmers and Company shareholders approvals and the approval of the Merger by various regulatory agencies. 

 

Under the terms of the Agreement, each share of Company common stock immediately prior to completion of the Merger will be converted into the right to receive 2.6 shares of Farmers common stock. The merger consideration will be received from Farmers at the effective time of the Merger.  On October 22, 2025, the date of execution of the Agreement, the closing price of Farmers common stock was $13.28 per share. On November

, 2025, the closing price of Farmers common stock was $  per share.  The value of Farmers common stock at the time of completion of the Merger could be greater than, less than, or the same as the value of Farmers common stock on the date of this Form 10-Q. The Merger is expected to close by the end of the first quarter of 2026.   

 

 

 

 

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.

 

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

 

These comments should be read in conjunction with the Company’s 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 Consolidated 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.

 

2025 Nine-Month Financial Highlights (on a year-over-year basis):  

 

	●	Third quarter diluted earnings increased to $0.65 per share, driving year-to-date earnings of $2.01 per share
	●	Pre-tax, pre-provision earnings(1) increased 37.3% to $6.8 million
	●	Net interest margin expanded 33 basis points to 3.79%
	●	Total loans increased $102.5 million, or 6.8% to a record $1.61 billion
	●	Total assets increased $121.3 million, or 6.5% to a record $1.98 billion
	●	Book value increased 6.1% to $27.71 from $26.11 per share, while tangible book value(1) increased 8.4% to $22.62 from $20.87 per share

 

		For the Three Months Ended																				For the Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2025				2025				2025				2024				2024				2025				2024
Per common share data
Net income per common share - basic		$	0.66			$	0.76			$	0.60			$	0.60			$	0.29			$	2.02			$	1.32
Net income per common share - diluted		$	0.65			$	0.76			$	0.60			$	0.60			$	0.29			$	2.01			$	1.32
Dividends declared per share		$	0.21			$	0.21			$	0.21			$	0.20			$	0.20			$	0.63			$	0.60
Book value per share (period end)		$	27.71			$	26.74			$	26.46			$	26.08			$	26.11			$	27.71			$	26.11
Tangible book value per share (period end) (1) (2)		$	22.62			$	21.60			$	21.29			$	20.88			$	20.87			$	22.62			$	20.87
Dividends declared		$	1,698			$	1,697			$	1,697			$	1,616			$	1,615			$	5,092			$	4,841
Dividend yield			2.78	%			2.80	%			3.05	%			2.84	%			2.76	%			2.81	%			2.78	%
Dividend payout ratio			31.92	%			27.56	%			35.13	%			33.33	%			69.02	%			31.23	%			45.37	%
Average shares outstanding - basic			8,084,658				8,081,193				8,078,805				8,071,905				8,071,032				8,081,573				8,076,440
Average shares outstanding - diluted			8,147,495				8,113,572				8,097,545				8,092,357				8,086,872				8,130,213				8,092,280
Period ending shares outstanding			8,086,886				8,081,193				8,081,193				8,073,708				8,071,032				8,086,886				8,071,032
Selected ratios
Return on average assets (Annualized)			1.08	%			1.29	%			1.04	%			1.04	%			0.50	%			1.14	%			0.77	%
Return on average equity (Annualized)			9.62	%			11.53	%			9.22	%			9.19	%			4.45	%			10.12	%			6.90	%
Return on average tangible common equity (1) (3)			11.86	%			14.31	%			11.48	%			11.50	%			5.58	%			12.54	%			8.68	%
Efficiency (4)			63.73	%			64.49	%			65.22	%			65.05	%			67.93	%			64.45	%			68.19	%
Equity to assets at period end			11.33	%			11.23	%			11.32	%			11.36	%			11.34	%			11.33	%			11.34	%
Noninterest expense to average assets			0.67	%			0.72	%			0.65	%			0.63	%			0.66	%			2.04	%			1.94	%

 

(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.

 

 

		For the Three Months Ended																				For the Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
Yields		2025				2025				2025				2024				2024				2025				2024
Interest-earning assets:
Loans receivable (1)			6.30	%			6.40	%			6.17	%			6.12	%			6.19	%			6.29	%			6.19	%
Investment securities (1) (2)			3.69	%			3.64	%			3.69	%			3.63	%			3.62	%			3.67	%			3.60	%
Interest-earning deposits with other banks			3.52	%			4.13	%			3.57	%			4.23	%			4.27	%			3.72	%			4.58	%
Total interest-earning assets			5.93	%			6.03	%			5.81	%			5.78	%			5.84	%			5.93	%			5.85	%
Deposits:
Interest-bearing demand deposits			2.27	%			2.27	%			2.13	%			2.07	%			2.16	%			2.29	%			1.99	%
Money market deposits			3.43	%			3.53	%			3.38	%			3.81	%			3.93	%			3.45	%			3.90	%
Savings deposits			0.95	%			0.86	%			0.82	%			0.75	%			0.71	%			0.87	%			0.64	%
Certificates of deposit			3.74	%			3.66	%			3.93	%			4.21	%			4.49	%			3.77	%			4.37	%
Total interest-bearing deposits			2.91	%			2.90	%			2.82	%			3.05	%			3.17	%			2.90	%			3.07	%
Non-Deposit Funding:
Borrowings			4.53	%			4.54	%			4.58	%			4.93	%			5.54	%			4.55	%			5.58	%
Total interest-bearing liabilities			3.03	%			3.01	%			3.01	%			3.21	%			3.41	%			3.03	%			3.37	%
Cost of deposits			2.20	%			2.21	%			2.10	%			2.24	%			2.33	%			2.17	%			2.24	%
Cost of funds			2.33	%			2.34	%			2.30	%			2.41	%			2.58	%			2.32	%			2.54	%
Net interest margin (3)			3.79	%			3.88	%			3.69	%			3.56	%			3.46	%			3.79	%			3.51	%

 

(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.

 

 

		For the Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
Asset quality data		2025				2025				2025				2024				2024
(Dollar amounts in thousands, unaudited)
Nonperforming assets (1)		$	29,928			$	25,052			$	29,550			$	29,984			$	30,078
Allowance for credit losses		$	23,029			$	22,335			$	22,401			$	22,447			$	22,526
Allowance for credit losses/total loans			1.43	%			1.41	%			1.44	%			1.48	%			1.50	%
Net charge-offs (recoveries):
Quarter-to-date		$	(107	)		$	(18	)		$	(209	)		$	151			$	1,382
Year-to-date			(334	)			(227	)			(209	)			1,436				1,285
Net charge-offs (recoveries) to average loans, annualized:
Quarter-to-date			(0.03	%)			(0.00	%)			(0.06	%)			0.04	%			0.36	%
Year-to-date			(0.03	%)			(0.03	%)			(0.06	%)			0.10	%			0.11	%
Nonperforming loans/total loans			1.86	%			1.58	%			1.91	%			1.97	%			2.00	%
Allowance for credit losses/nonperforming loans			76.95	%			89.15	%			75.81	%			74.86	%			74.89	%
Nonperforming assets/total assets			1.51	%			1.30	%			1.56	%			1.62	%			1.62	%

 

(1) Nonperforming assets consist of nonperforming loans.

 

GAAP to Non-GAAP Reconciliations

 

Reconciliation of Common Stockholders' Equity to Tangible Common Equity		For the Three Months Ended
(Dollar amounts in thousands, unaudited)		September 30,				June 30,				March 31,				December 31,				September 30,
		2025				2025				2025				2024				2024
Stockholders' equity		$	224,120			$	216,052			$	213,793			$	210,562			$	210,705
Less goodwill and other intangibles			41,218				41,468				41,718				41,967				42,225
Tangible common equity		$	182,902			$	174,584			$	172,075			$	168,595			$	168,480
Shares outstanding			8,086,886				8,081,193				8,081,193				8,073,708				8,071,032
Tangible book value per share		$	22.62			$	21.60			$	21.29			$	20.88			$	20.87

 

 

Reconciliation of Average Equity to Return on Average Tangible Common Equity		For the Three Months Ended																				For the Nine Months Ended
(Dollar amounts in thousands, unaudited)		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2025				2025				2025				2024				2024				2025				2024
Average stockholders' equity		$	219,278			$	214,144			$	212,465			$	209,864			$	209,096			$	215,395			$	206,691
Less average goodwill and other intangibles			41,340				41,589				41,839				42,092				42,350				41,589				42,512
Average tangible common equity		$	177,938			$	172,555			$	170,626			$	167,772			$	166,746			$	173,806			$	164,179
Net income		$	5,320			$	6,157			$	4,830			$	4,848			$	2,340			$	16,307			$	10,671
Return on average tangible common equity (annualized)			11.86	%			14.31	%			11.48	%			11.50	%			5.58	%			12.54	%			8.68	%

 

 

Reconciliation of Pre-Tax Pre-Provision Income (PTPP)		For the Three Months Ended																				For the Nine Months Ended
(Dollar amounts in thousands, unaudited)		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2025				2025				2025				2024				2024				2025				2024
Net income		$	5,320			$	6,157			$	4,830			$	4,848			$	2,340			$	16,307			$	10,671
Add income taxes			1,079				1,213				924				995				371				3,216				1,830
Add provision for (recovery of) credit losses			392				(506	)			95				(177	)			2,234				(19	)			2,185
PTPP		$	6,791			$	6,864			$	5,849			$	5,666			$	4,945			$	19,504			$	14,686

 

Financial Condition

 

General. The Company’s total assets on September 30, 2025 were $1.98 billion, an increase of $125.5 million from December 31, 2024. For the same period, total loans increased by $87.4 million, cash and cash equivalents increased by $47.9 million, and investment securities available for sale decreased by $9.9 million. The Company's total liabilities on September 30, 2025 were $1.75 billion, an increase of $112.0 million from December 31, 2024. For the same period, total deposits increased by $176.6 million. Stockholders’ equity increased by $13.6 million, or 6.4%. 

 

Cash and cash equivalents. Cash and cash equivalents increased $47.9 million to $103.7 million on September 30, 2025, from $55.8 million on December 31, 2024. The increase in cash and cash equivalents is primarily due to an increase in deposits and partially offset by an increase in loans and a decrease in Federal Home Loan Bank advances. 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 September 30, 2025, totaled $155.9 million, a decrease of $9.9 million, or 6.0%, from $165.8 million on December 31, 2024. There were no purchases or sales of securities for the nine months ended September 30, 2025. During this period, the Company recorded repayments, calls, and maturities of $11.0 million and a decrease in the net unrealized losses of $1.5 million. 

 

On September 30, 2025, the Company held $23.6 million at fair value of subordinated debt in other banks, as compared to $32.5 million on December 31, 2024. The average yield on this portfolio was 5.32% for the nine-month period ended September 30, 2025, as compared to 5.19% for the 12-month period ended December 31, 2024.

 

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 79.8% 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. Total loans increased $87.4 million, or 5.8%, to $1.61 billion as of September 30, 2025 from $1.52 billion as of December 31, 2024. The increase in the owner occupied and commercial and industrial loan portfolios is due to an increased focus on these segments. The decrease in the non-owner occupied loan segment is the result of rebalancing the commercial real estate portfolio. The following table summarizes fluctuation within the primary segments of the loan portfolio:

 

		September 30,				December 31,
(Dollar amounts in thousands)			2025				2024				$ change				% change				% of loans
Commercial real estate:
Owner occupied		$	221,600			$	181,447			$	40,153				22.13	%			13.79	%
Non-owner occupied			390,354				412,291				(21,937	)			(5.32	%)			24.29	%
Multifamily			88,899				89,849				(950	)			(1.06	%)			5.53	%
Residential real estate			366,307				353,442				12,865				3.64	%			22.79	%
Commercial and industrial			269,422				229,034				40,388				17.63	%			16.78	%
Home equity lines of credit			159,805				143,379				16,426				11.46	%			9.94	%
Construction and other			104,843				103,608				1,235				1.19	%			6.52	%
Consumer installment			5,794				6,564				(770	)			(11.73	%)			0.36	%
Total loans			1,607,024				1,519,614				87,410				5.75	%			100.00	%
Less: Allowance for credit losses			(23,029	)			(22,447	)			582				2.59	%
Net loans		$	1,583,995			$	1,497,167			$	86,828				5.80	%

 

The Company’s Mortgage Banking operation generates loans for sale to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the FHLB. There was one loan held for sale of $209,000 at September 30, 2025, and no loans held for sale at December 31, 2024. The Company recorded gains on the sale of these loans totaling $221,000 based on proceeds of $7.1 million for the nine months ended September 30, 2025.

 

Commercial real estate loans represent the Company’s largest loan segment and consist of term loans secured by a mortgage lien on real property and include both owner occupied and non-owner occupied loans as well as multifamily loans. The Company originates fixed and adjustable rate commercial real estate loans to new and existing customers located within its primary markets; however, the property may be located outside of our primary lending areas. As of September 30, 2025, approximately 92% of the properties related to the commercial real estate loans were located in the state of Ohio. Commercial real estate loans are typically originated with maturity dates of less than 20 years with repricing every 5 years. Management believes that the segment is well diversified. 

 

The following table breaks down the Company’s commercial real estate portfolio by category and provides the weighted average loan-to-value for each category as of September 30, 2025:

 

						Percent of				Percent of				Weighted Average
(Dollar amounts in thousands)		Balance				CRE Portfolio				Loan Portfolio				Loan-to-Value
Multi-Family		$	88,899				12.7	%			5.5	%			64.6	%
Owner Occupied
Real Estate and Rental and Leasing			73,969				10.6	%			4.6	%			59.1	%
Other Services (except Public Administration)			41,291				5.9	%			2.6	%			58.2	%
Manufacturing			22,991				3.3	%			1.4	%			50.4	%
Educational Services			11,762				1.7	%			0.7	%			49.7	%
Accommodation and Food Services			11,441				1.6	%			0.7	%			47.4	%
Other			60,146				8.5	%			3.7	%			53.0	%
Total Owner Occupied		$	221,600				31.6	%			13.7	%
Non-Owner Occupied
Real Estate and Rental and Leasing			324,180				46.3	%			20.2	%			54.2	%
Accommodation and Food Services			38,132				5.4	%			2.4	%			58.0	%
Health Care and Social Assistance			19,100				2.7	%			1.2	%			56.8	%
Manufacturing			3,903				0.6	%			0.2	%			44.4	%
Other			5,039				0.7	%			0.3	%			62.9	%
Total Non-Owner Occupied		$	390,354				55.7	%			24.3	%
Total CRE		$	700,853				100.0	%			43.5	%

 

 

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 material percentage of its loan portfolio in commercial real estate loans. On September 30, 2025, commercial real estate loans (including construction, land, and land development loans) represented 260.8% of total risk-based capital, and growth in that segment over the past 36 months was 16.6%, which is less than the 50% threshold laid out in the regulatory guidance. Construction, land, and land development loans represent 46.7% of total risk-based capital. Based on the regulatory guidance, the Company does not have a concentration in commercial real estate lending as of September 30, 2025. 

 

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. The Board of Directors has adopted limits on both aggregate and industry-specific concentration levels, including limits specific to commercial real loans. The underwriting and risk rating of all loans is completed by a team that is independent of the individuals originating the loans. 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 real estate loans are the financial condition of the borrower, sufficiency of the valued collateral, and timeliness of scheduled loan payments, and these loans may be negatively impacted by changes in the real estate markets or in the general economy. 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.

 

Nonperforming loans in the commercial real estate segment were $25.6 million at September 30, 2025. The allowance for credit losses for this segment totaled $9.0 million at September 30, 2025, representing an allowance for credit losses to loans ratio of 1.29% specific to the commercial real estate segment. 

 

Our residential real estate loans totaled $366.3 million, or 22.8% of total loans, at September 30, 2025. 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 September 30, 2025, approximately 99% of the properties related to our residential real estate loans were located 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 $2.1 million at September 30, 2025. The allowance for credit losses for this segment totaled $6.0 million at September 30, 2025, representing an allowance for credit losses to loans ratio of 1.63% specific to the residential real estate segment.

 

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 September 30, 2025, 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 September 30, 2025, unused line of credit commitments totaled $407.4 million, which is a decrease of $55.3 million, or 12.0%, from December 31, 2024. The commercial unused line of credit commitments were $239.2 million as of September 30, 2025, compared to $308.8 million on December 31, 2024. The decrease is the result of draws on existing construction loans during the period.

 

Allowance for Credit Losses and Asset Quality. The ACL increased by $582,000, or 2.6%, to $23.0 million on September 30, 2025, from $22.4 million on December 31, 2024. For the nine months ended September 30, 2025, net loan recoveries totaled $334,000, or 0.03% of average loans, annualized, compared to net charge-offs totaling $1.3 million or (0.11%) of average loans, annualized, for the same period in 2024. The portion of the recovery of credit losses associated with loans was a provision of $248,000 for the nine months ended September 30, 2025. The ratio of the ACL to nonperforming loans was 76.9% as of September 30, 2025, compared to 74.9% for the same period in the prior year. The ACL to total loans ratio decreased to 1.43% as of September 30, 2025, compared to 1.50% as of September 30, 2024. The decrease in the ACL as a percentage of total loans was mainly from changes in portfolio activity, updated appraisals for individually analyzed loans, updated assumptions during the first quarter of 2025, and the economic outlook.

 

Management analyzes the adequacy of the ACL 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 ACL 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 continued uncertainty characterized by inflation, interest rates, tariffs, and the federal government shutdown that started as of midnight on September 30, 2025. Geopolitical events, both within the U.S. and globally, with weakening growth prospects raise the potential for adverse impacts on the U.S. economy. The direct impacts of the pandemic and related economic disruptions, the market liquidity events in 2023, and persistently high inflation, which previously dominated our risk analysis, have lessened. Changes in interest rates could potentially impact the valuations of assets that collateralize our loans. 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 ACL is appropriately stated as of September 30, 2025. 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 September 30,
		2025												2024
(Dollar amounts in thousands)			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
Commercial real estate:
Owner occupied		$	210,599			$	92				0.17	%		$	185,850			$	(45	)			(0.10	%)
Non-owner occupied			400,501				-				0.00	%			398,094				(1,341	)			(1.35	%)
Multifamily			84,793				-				0.00	%			91,262				-				0.00	%
Residential real estate			364,316				17				0.02	%			342,890				-				0.00	%
Commercial and industrial			265,331				(41	)			(0.06	%)			224,892				(26	)			(0.05	%)
Home equity lines of credit			159,167				-				0.00	%			134,977				-				0.00	%
Construction and other			114,993				-				0.00	%			122,560				-				0.00	%
Consumer installment			6,033				39				2.59	%			6,993				30				1.72	%
Total		$	1,605,733			$	107				0.03	%		$	1,507,518			$	(1,382	)			(0.37	%)

 

		For the Nine Months Ended September 30,
		2025												2024
(Dollar amounts in thousands)			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
Commercial real estate:
Owner occupied		$	202,777			$	105				0.07	%		$	185,989			$	(34	)			(0.02	%)
Non-owner occupied			403,818				(11	)			(0.00	%)			405,591				(1,341	)			(0.44	%)
Multifamily			89,930				-				0.00	%			88,920				-				0.00	%
Residential real estate			362,112				52				0.02	%			338,320				-				0.00	%
Commercial and industrial			250,778				124				0.07	%			217,996				(11	)			(0.01	%)
Home equity lines of credit			152,535				4				0.00	%			133,190				(6	)			(0.01	%)
Construction and other			104,874				-				0.00	%			118,685				-				0.00	%
Consumer installment			6,217				60				1.29	%			7,144				107				2.00	%
Total		$	1,573,040			$	334				0.03	%		$	1,495,834			$	(1,285	)			(0.11	%)

 

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.

 

Nonperforming loans at September 30, 2025, were $29.9 million, compared to $30.0 million at December 31, 2024. Three commercial real estate loans were moved to nonaccrual during 2024. One of the loans paid off in the second quarter of 2025, and the balance of the remaining two loans as of September 30, 2025, was $15.1 million. These loans are adequately secured and individually analyzed within the ACL calculation as of September 30, 2025. Management believes these relationships do not indicate a trend in the markets served, the portfolio, or underwriting standards. A major factor in determining the appropriateness of the ACL is the type of collateral that secures the loans. Nonperforming loans secured by real estate totaled $28.9 million and $29.7 million as of September 30, 2025 and December 31, 2024, respectively. Of the total nonperforming loans on September 30, 2025, 96.5% 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. 

 

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds, totaling $1.62 billion or 93.3% of the Company’s total average funding sources at September 30, 2025. Total deposits increased $176.6 million on September 30, 2025, when compared to $1.45 billion on December 31, 2024. The following table summarizes fluctuation within the primary segments of the deposit portfolio:

 

		September 30,				December 31,
(Dollar amounts in thousands)			2025				2024				$ change				% change
Noninterest-bearing demand		$	410,612			$	377,875			$	32,737				8.66	%
Interest-bearing demand			232,452				208,291				24,161				11.60	%
Money market			528,246				414,074				114,172				27.57	%
Savings			180,547				197,749				(17,202	)			(8.70	%)
Time			270,445				247,704				22,741				9.18	%
Total deposits		$	1,622,302			$	1,445,693			$	176,609				12.22	%

 

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 $108.6 million on September 30, 2025 and $35.1 million on December 31, 2024 and are included in time and interest-bearing demand deposits on the Consolidated Balance Sheet.

 

 

Deposit balances in excess of the $250,000 FDIC-insured limit totaled approximately $545.7 million, or 33.6% of total deposits, at September 30, 2025 and approximately $447.2 million, or 30.9% of total deposits, at December 31, 2024.

 

Public fund deposits from state and political subdivisions in the U.S. compared to total deposits were $193.8 million, or 11.9% at September 30, 2025 and $167.9 million, or 11.6% at December 31, 2024.

 

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 and FRB discount window, subordinated debt, short-term borrowings from other banks, and federal funds purchased. FHLB advances decreased by $66.4 million to $106.0 million as of September 30, 2025, compared to $172.4 million at December 31, 2024. Other borrowings were relatively unchanged at $11.5 million as of September 30, 2025 and $11.7 million on December 31, 2024.

 

Stockholders’ equity. Stockholders’ equity increased $13.6 million, or 6.4%, to $224.1 million at September 30, 2025 from $210.6 million at December 31, 2024. This increase was primarily the result of $16.3 million in net income. These changes were partially offset by $5.1 million of cash dividends paid.

 

The Company's tangible book value per share, which is a non-GAAP financial measure, was $22.62 at September 30, 2025 compared to $20.87 at September 30, 2024 and $20.88 at December 31, 2024. 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 $23.9 million as of September 30, 2025, compared to net unrealized losses of $20.9 million at September 30, 2024, and net unrealized losses of $25.4 million at December 31, 2024.

 

RESULTS OF OPERATIONS

 

General. Net income for the three months ended September 30, 2025, was $5.3 million, a $3.0 million, or 127.4%, increase from the amount earned during the same period in 2024. Diluted earnings per share for the quarter were $0.65 for the three months ended September 30, 2025 and $0.29 for the same period in 2024. Net income for the nine months ended September 30, 2025, was $16.3 million, a $5.6 million, or 52.8%, increase from the amount earned during the same period in 2024. Diluted earnings per share for the quarter were $2.01 for the nine months ended September 30, 2025 and $1.32 for the same period in 2024.

 

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 September 30, 2025, totaled $17.6 million, an increase of 16.5% from that reported in the comparable period of 2024. The net interest margin was 3.79% for the three months ended September 30, 2025, an increase of 33 basis points for the same period of 2024. The increase in the net interest margin is attributable to a decrease of 75 basis points paid on certificates of deposit, a decrease of 50 basis points paid on money market deposits, an increase in the average balance of loans of $98.2 million, and a decrease in the average balance of FHLB advances of $31.5 million, coupled with a decrease of 108 basis points in the average cost of those advances. The increase was partially offset by an increase in the average balance of money market deposits of $117.2 million.  Additionally, the Federal Reserve decreased the target federal funds interest rate by a total of 100 basis points from September through December 2024, which impacted the comparability of the net interest margin between the three months ended September 30, 2025, and September 30, 2024.

 

Net interest income for the nine months ended September 30, 2025, totaled $51.1 million, an increase of 13.2% from that reported in the comparable period of 2024. The net interest margin was 3.79% for the nine months ended September 30, 2025, an increase of 28 basis points for the same period of 2024. The increase in the net interest margin is attributable to a decrease of 60 basis points paid on certificates of deposit, a decrease in the average balance of certificates of deposit of $36.5 million, an increase in the average balance of loans of $77.2 million, and a decrease in the average balance of FHLB advances of $38.9 million, coupled with a decrease of 105 basis points in the average cost of those advances. The increase was partially offset by an increase in the average balance of money market deposits of $142.9 million.  Additionally, the net interest margin has been impacted by a decrease in the target federal funds interest rate as described in the previous paragraph.

 

The Company is currently in a slightly liability-sensitive position and expects to remain so for the next 18-month outlook period. A decrease in rates should lead to a minimal expansion of net interest margin as the Company’s interest-bearing liabilities reprice faster than its interest-bearing assets. 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 September 30, 2025, nearly all loan contracts with floor rates exceed their contractual floor 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 $2.0 million, or 7.8%, for the three months ended September 30, 2025, compared to the same period in the prior year. This is mainly attributable to a $2.0 million increase in interest and fees on loans, which is due to an increase in the average balance of loans of $98.2 million, or 6.5%, along with an 11-basis point increase in the yield on the loan portfolio to 6.30% for the three months ended September 30, 2025, when compared to the same period in the prior year. The average balance of investment securities decreased by $3.5 million, or 1.8%, while the 3.69% yield on the investment portfolio increased by 7 basis points, from 3.62%, for the same period in the prior year. The yield for the investment portfolio is based on amortized cost.

 

 

Interest and dividend income increased $4.5 million, or 5.9%, for the nine months ended September 30, 2025, compared to the same period in the prior year. This is mainly attributable to a $4.7 million increase in interest and fees on loans, which is due to an increase in the average balance of loans of $77.2 million, or 5.2%, along with a 10-basis point increase in the yield on the loan portfolio to 6.29% for the nine months ended September 30, 2025, when compared to the same period in the prior year. The average balance of investment securities decreased by $1.2 million, or less than 0.01%, while the 3.67% yield on the investment portfolio increased by 7 basis points, from 3.60%, for the same period in the prior year. The yield for the investment portfolio is based on amortized cost.

 

Interest expense. Interest expense decreased by $497,000, or 4.7%, for the three months ended September 30, 2025, compared to the same period in the prior year. This decrease in interest expense is primarily attributable to a decrease in short-term borrowing expense of $657,000 as a result of the Bank paying down FHLB advances and a decrease of 108 basis points on the rate paid on those advances. The increase in deposit expense of $180,000 is attributable to an increase in the average balance of interest-bearing deposits of $117.9 million, or 10.7% which is slightly offset by a 25-basis point decrease in the rates paid on deposits. 

 

Interest expense decreased by $1.5 million, or 4.8%, for the nine months ended September 30, 2025, compared to the same period in the prior year. This decrease in interest expense is primarily attributable to a decrease in short-term borrowing expense of $2.4 million as a result of the Bank paying down FHLB advances and a decrease of 105 basis points on the rate paid on those advances. The increase in deposit expense of $965,000 is attributable to an increase in the average balance of interest-bearing deposits of $108.7 million, or 10.1%, which is slightly offset by a 17-basis point decrease in the rates paid on deposits. 

 

Provision for (recovery of) credit losses. The provision for (recovery of) credit losses represents the charge to income necessary to adjust the ACL to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio, including unfunded commitments. Each quarter, management reviews the loan portfolio for estimated probable expected credit losses. Based on this review, a provision of credit losses of $392,000 was recorded for the three months ended September 30, 2025, compared to a provision for credit losses of $2.2 million for the same period in the prior year.  The provision for credit losses for the 2025 third quarter consisted of a provision for credit losses on loans of $587,000 and a reduction in the provision for credit losses for unfunded commitments of $195,000.  The decrease in the provision for credit losses was due to fewer charge-offs during the third quarter of 2025 than in the third quarter of 2024.

 

A recovery of credit losses of $19,000 was recorded for the nine months ended September 30, 2024 compared to a provision for credit losses of $2.2 million for the same period in the prior year. The recovery of credit losses for the nine months ended September 30, 2025, consisted of a provision for credit losses on loans of $248,000 and a reduction in the provision for credit losses for unfunded commitments of $267,000.  The change in the provision for (recovery of) credit losses was the result of fewer charge-offs recorded during the nine months ended September 30, 2025, than during the comparable period in 2024.

 

Noninterest income. Noninterest income increased by $581,000, or 33.3% for the three months ended September 30, 2025, over the comparable 2024 period. The increase was primarily due to derivative fee income earned during the third quarter of 2025.

 

Noninterest income increased by $2.0 million, or 38.6%, for the nine months ended September 30, 2025, over the comparable 2024 period. This increase was primarily the result of a one-time, non-cash gain of $1.2 million on the exchange of real estate. In April 2025, the Company completed an exchange of real estate with the City of Westerville, Ohio for a parcel of land that had a fair value of $1.5 million. In exchange, Middlefield transferred land and a building with related furnishings associated with its current branch located in Westerville, Ohio. The transferred branch had a net book value of $221,000. 

 

Noninterest expense. Noninterest expense of $13.1 million for the third quarter of 2025 was 10.3%, or $1.2 million higher than the third quarter of 2024, primarily due to a $682,000 increase in salaries and employee benefits.

 

Noninterest expense of $38.9 million for the nine months ended September 30, 2025 was 9.0% or $3.2 million higher than the nine months ended September 30, 2024, primarily due to a $1.5 million increase in salaries and employee benefits and a $711,000 loss associated with recording a separate property located in Westerville, Ohio as held for sale during the second period of 2025.  

 

Provision for income taxes. The Company recognized $1.1 million in income tax expense for the three months ended September 30, 2025, which reflected an effective tax rate of 16.9%, as compared to $371,000 in income tax expense with an effective tax rate of 13.7% for the comparable 2024 period.

 

The Company recognized $3.2 million in income tax expense for the nine months ended September 30, 2025, which reflected an effective tax rate of 16.5% as compared to $1.8 million in income tax expense with an effective tax rate of 14.6% for the comparable 2024 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 (tax-exempt for federal income tax purposes) and loans 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 September 30,
		2025												2024
		Average								Average				Average								Average
(Dollars in thousands)		Balance				Interest				Yield/Cost				Balance				Interest				Yield/Cost
Interest-earning assets:
Loans receivable ⁽¹⁾		$	1,605,733			$	25,485				6.30	%		$	1,507,518			$	23,441				6.19	%
Investment securities ⁽²⁾			188,211				1,496				3.69	%			191,748				1,490				3.62	%
Interest-earning deposits with other banks ⁽³⁾			70,727				627				3.52	%			63,580				682				4.27	%
Total interest-earning assets		$	1,864,671			$	27,608				5.93	%		$	1,762,846			$	25,613				5.84	%
Noninterest-earning assets			83,217												88,644
Total assets		$	1,947,888											$	1,851,490
Interest-bearing liabilities:
Interest-bearing demand deposits		$	233,106				1,331				2.27	%		$	217,124				1,181				2.16	%
Money market deposits			479,785				4,143				3.43	%			362,545				3,583				3.93	%
Savings deposits			184,146				440				0.95	%			198,775				357				0.71	%
Certificates of deposit			324,516				3,058				3.74	%			325,240				3,671				4.49	%
Short-term borrowings			82,306				918				4.43	%			113,812				1,575				5.51	%
Other borrowings			11,532				153				5.26	%			11,739				173				5.86	%
Total interest-bearing liabilities		$	1,315,391			$	10,043				3.03	%		$	1,229,235			$	10,540				3.41	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		$	398,307											$	396,456
Other liabilities			14,912												16,703
Stockholders' equity			219,278												209,096
Total liabilities and stockholders' equity		$	1,947,888											$	1,851,490
Net interest income						$	17,565											$	15,073
Interest rate spread ⁽⁴⁾											2.90	%											2.43	%
Net interest margin ⁽⁵⁾											3.79	%											3.46	%
Ratio of average interest-earning assets to average interest-bearing liabilities											141.76	%											143.41	%

 

---

(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $271 and $281 for the three months ended September 30, 2025 and 2024, respectively.

(2) Yield is calculated on the basis of amortized cost.

(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 September 30, 2025, and 2024, 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.

 

		2025 versus 2024
		Increase (decrease) due to
(Dollars in thousands)		Volume				Rate				Total
Interest-earning assets:
Loans receivable		$	1,532			$	512			$	2,044
Investment securities			(32	)			38				6
Interest-earning deposits with other banks			77				(132	)			(55	)
Total interest-earning assets		$	1,577			$	418			$	1,995
Interest-bearing liabilities:
Interest-bearing demand deposits		$	87			$	63			$	150
Money market deposits			1,161				(601	)			560
Savings deposits			(26	)			109				83
Certificates of deposit			(8	)			(605	)			(613	)
Short-term borrowings			(438	)			(219	)			(657	)
Other borrowings			(3	)			(17	)			(20	)
Total interest-bearing liabilities		$	773			$	(1,270	)		$	(497	)
Net interest income		$	804			$	1,688			$	2,492

 

 

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 (tax-exempt for federal income tax purposes) and loans 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 Nine Months Ended September 30,
		2025												2024
		Average								Average				Average								Average
(Dollars in thousands)		Balance				Interest				Yield/Cost				Balance				Interest				Yield/Cost
Interest-earning assets:
Loans receivable ⁽¹⁾		$	1,573,040			$	73,994				6.29	%		$	1,495,834			$	69,258				6.19	%
Investment securities ⁽²⁾			190,609				4,472				3.67	%			191,784				4,400				3.60	%
Interest-earning deposits with other banks ⁽³⁾			66,466				1,851				3.72	%			63,203				2,166				4.58	%
Total interest-earning assets		$	1,830,115			$	80,317				5.93	%		$	1,750,821			$	75,824				5.85	%
Noninterest-earning assets			82,392												88,408
Total assets		$	1,912,507											$	1,839,229
Interest-bearing liabilities:
Interest-bearing demand deposits		$	223,719				3,839				2.29	%		$	212,699			$	3,167				1.99	%
Money market deposits			475,919				12,272				3.45	%			332,987				9,730				3.90	%
Savings deposits			188,692				1,232				0.87	%			197,477				951				0.64	%
Certificates of deposit			294,416				8,303				3.77	%			330,884				10,833				4.37	%
Short-term borrowings			93,403				3,135				4.49	%			132,275				5,488				5.54	%
Other borrowings			11,586				436				5.03	%			11,790				530				6.00	%
Total interest-bearing liabilities		$	1,287,735			$	29,217				3.03	%		$	1,218,112			$	30,699				3.37	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		$	395,385											$	397,764
Other liabilities			13,992												16,662
Stockholders' equity			215,395												206,691
Total liabilities and stockholders' equity		$	1,912,507											$	1,839,229
Net interest income						$	51,100											$	45,125
Interest rate spread ⁽⁴⁾											2.90	%											2.48	%
Net interest margin ⁽⁵⁾											3.79	%											3.51	%
Ratio of average interest-earning assets to average interest-bearing liabilities											142.12	%											143.73	%

 

---

(1) Tax-equivalent adjustments to calculate the yield on tax-exempt securities and loans were $809 and $851 for the nine months ended September 30, 2025 and 2024, respectively.

(2) Yield is calculated on the basis of amortized cost.

(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 nine-month periods ended September 30, 2025, and 2024, 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.

 

		2025 versus 2024
		Increase (decrease) due to
(Dollars in thousands)		Volume				Rate				Total
Interest-earning assets:
Loans receivable		$	3,574			$	1,162			$	4,736
Investment securities			(32	)			104				72
Interest-earning deposits with other banks			112				(427	)			(315	)
Total interest-earning assets		$	3,654			$	839			$	4,493
Interest-bearing liabilities:
Interest-bearing demand deposits		$	164			$	508			$	672
Money market deposits			4,169				(1,627	)			2,542
Savings deposits			(42	)			323				281
Certificates of deposit			(1,192	)			(1,338	)			(2,530	)
Short-term borrowings			(1,611	)			(742	)			(2,353	)
Other borrowings			(9	)			(85	)			(94	)
Total interest-bearing liabilities		$	1,479			$	(2,961	)		$	(1,482	)
Net interest income		$	2,175			$	3,800			$	5,975

 

 

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 investment 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. The Company’s goal is to obtain the majority of its funding from customer deposits, which are generated principally through development of long-term customer relationships. 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 borrowing agreements with the FHLB and Federal Reserve Bank, the purchase of brokered deposits, and the adjustment of interest rates to obtain deposits.

 

At September 30, 2025, the additional borrowing capacity at the FHLB was $394.1 million, as compared to $381.7 million on December 31, 2024. The Company’s maximum borrowing capacity at the FHLB was $525.1 million at September 30, 2025. During the third quarter of 2024, the Company was approved for a Borrower in Custody ("BIC") Arrangement to pledge certain loan portfolios, and therefore, the Company also has the option of borrowing from the Federal Reserve discount window. The borrowing capacity with the Federal Reserve discount window was $132.6 million at September 30, 2025. 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 September 30, 2025, total net available liquidity was $864.8 million, compared to $859.0 million at December 31, 2025. This accounted for 53.3% of total deposits at September 30, 2025, compared to 59.4% at December 31, 2025. At September 30, 2025, 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 September 30, 2025. Although the Company currently exhibits strong liquidity, management will continue to monitor liquidity in future periods.

 

For the nine months ended September 30, 2025, the adjustments to reconcile net income to net cash provided by operating activities consisted mainly of origination of and proceeds from the sale of loans held for sale, non-cash gain on exchange of real estate, earnings on bank-owned life insurance, net stock-based compensation, 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 US GAAP. US 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.

 

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 September 30, 2025. The following table indicates the capital ratios for the Bank and the Company as of September 30, 2025, and December 31, 2024, as well as the capital category threshold ratios for a well-capitalized, adequately capitalized plus the capital conservation buffer institution.

 

		As of September 30, 2025
		Leverage				Tier 1 Risk Based				Common Equity Tier 1				Total Risk Based
The Middlefield Banking Company			10.62	%			12.11	%			12.11	%			13.37	%
Middlefield Banc Corp.			11.00	%			12.41	%			11.94	%			13.66	%
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, 2024
		Leverage				Tier 1 Risk Based				Common Equity Tier 1				Total Risk Based
The Middlefield Banking Company			10.70	%			11.99	%			11.99	%			13.24	%
Middlefield Banc Corp.			10.86	%			12.28	%			11.78	%			13.54	%
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 repricing 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. All modeled outcomes are within the limits approved by the Board of Directors of the Company.

 

●

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.

 

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 September 30, 2025, and December 31, 2024, remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over one year from the September 30, 2025, and December 31, 2024 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 September 30, 2025, and December 31, 2024, for portfolio equity.  

 

		September 30, 2025								December 31, 2024
Change in Rates		% Change in NII				% Change in EVE				% Change in NII				% Change in EVE
+200bp			(2.60	%)			(0.30	%)			(3.40	%)			(7.10	%)
-100bp			0.60	%			(1.80	%)			1.80	%			2.10	%

 

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 September 30, 2025, have remained unchanged from December 31, 2024. 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 of our 2024 Form 10-K 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, 2024. For more information regarding our risk factors, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

 

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 September 30, 2025:

 

(Dollar amounts 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
July 1-31			-			$	-				-				250,052
August 1-31			-				-				-				250,052
September 1-30			-				-				-				250,052
Total			-			$	-

 

(a) In February 2022, the Board of Directors authorized the repurchase of up to 300,000 shares 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 September 30, 2025. 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 September 30, 2025, 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).

 

 

Item 6.

Exhibits

 

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended September 30, 2025

 

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		Incorporated by reference to Exhibit 10.1.1 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.2*		Split-Dollar Agreement between The Middlefield Banking Company and Thomas M. Wilson		Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.3		Agreement for the Exchange of Real Estate		Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.'s 8-K Current Report filed on June 5, 2024
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*		Amended 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		Incorporated by reference to Exhibit 10.4.2 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.4.3*		Change in Control Agreement between Middlefield Banc Corp. and Thomas M. Wilson		Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.4.4*		Change in Control Agreement between Middlefield Banc Corp. and Sarah A. Winters		Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
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 Current 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		[reserved]
10.8*		Supplemental Executive Retirement Benefits Agreement with Ronald L. Zimmerly, Jr.		Incorporated by reference to Exhibit 10.8 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.9*		First Amendment to the Supplemental Executive Retirement Benefits Agreement with Ronald L. Zimmerly, Jr.		Incorporated by reference to Exhibit 10.9 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.10*		Secondary Supplemental Executive Retirement Plan with Ronald L. Zimmerly, Jr.		Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
10.11		[reserved]
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.		Incorporated by reference to Exhibit 10.13 of Middlefield Banc Corp.'s Form 10-Q filed on May 14, 2024
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*		[reserved]
10.16		[reserved]
10.17		[reserved]
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*		DBO Agreement with Michael C. Ranttila		Incorporated by reference to Exhibit 10.19 of Middlefield Banc Corp.'s Form 8-K Current Report on Form 8-K filed on July 11, 2024
10.20*		DBO Agreement with James R. Heslop, II		Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.21*		DBO Agreement with Thomas G. Caldwell		Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.22*		Annual Incentive Plan		Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on June 13, 2024
10.22.1		[reserved]
10.23**		Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell		Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.24**		Amended Executive Deferred Compensation Agreement with James R. Heslop, II		Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.25**		Amended Executive Deferred Compensation Agreement with Donald L. Stacy		Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.26**		Executive Variable Benefit Deferred Compensation Agreement with James R. Heslop, II		Incorporated by reference to Exhibit 10.26 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020

 

 

10.27**		Executive Variable Benefit Deferred Compensation Agreement with Donald L. Stacy		Incorporated by reference to Exhibit 10.27 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.28**		Executive Deferred Compensation Agreement with Charles O. Moore		Incorporated by reference to Exhibit 10.28 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2019, filed on March 4, 2020
10.29*		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
10.35*		Form of a Performance Share Unit Award Agreement under the 2017 Omnibus Equity Plan		Incorporated by reference to Exhibit 10.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on September 4, 2024
10.36*		Form of an Executive Restricted Share Unit Award Agreement under the 2017 Omnibus Equity Plan		Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on September 4, 2024
10.36.1*		Form of a Restricted Share Unit Award Agreement for Non-Employee Directors of the Middlefield Banking Company under the 2017 Omnibus Equity Plan granted on June 27, 2025		Incorporated by reference to Exhibit 10.36.1 of Middlefield Banc Corp's Form 10-Q Quarterly Report filed on August 12, 2025
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.

 

 

SIGNATURES

 

 

 

 

 

	MIDDLEFIELD BANC CORP.
Date: November 13, 2025	By: /s/ Ronald L. Zimmerly, Jr.
	----------------------------------------
	Ronald L. Zimmerly, Jr.
	Director, President and Chief Executive Officer
	(Principal Executive Officer)

 

 

 

Date: November 13, 2025	By: /s/Michael C. Ranttila
	----------------------------------------
	Michael C. Ranttila
	Executive Vice President - Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)