Form 8-K/A

8-K/A — FARMERS NATIONAL BANC CORP /OH/

Accession: 0001437749-26-016395

Filed: 2026-05-12

Period: 2026-03-02

CIK: 0000709337

SIC: 6022 (STATE COMMERCIAL BANKS)

Item: Financial Statements and Exhibits

Documents

8-K/A — fmnb20260504_8ka.htm (Primary)

EX-23.1 — EXHIBIT 23.1 (ex_958917.htm)

EX-99.1 — EXHIBIT 99.1 (ex_956445.htm)

EX-99.2 — EXHIBIT 99.2 (ex_956446.htm)

EX-99.3 — EXHIBIT 99.3 (ex_957633.htm)

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8-K/A — FORM 8-K/A

8-K/A (Primary)

Filename: fmnb20260504_8ka.htm · Sequence: 1

fmnb20260504_8ka.htm

Form 8-K/A date of report 03-02-26

true

0000709337

2026-03-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

March 2, 2026

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio

001-35296

34-1371693

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

20 South Broad Street, P.O. Box 555, Canfield, Ohio

44406-0555

(Address of principal executive offices)

(Zip Code)

(330) 533-3341

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐

Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, No Par Value

FMNB

The NASDAQ Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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

Explanatory Note

On March 2, 2026, Farmers National Banc Corp. (the “Company”) filed a Current Report on Form 8-K (the “Original Report”) to report that the Company completed its merger with Middlefield Banc Corp. (“Middlefield”) pursuant to the Agreement and Plan of Merger, dated as of October 22, 2025, by and among the Company and Middlefield (the “Merger Agreement”). Pursuant to the Merger Agreement, effective March 2, 2026, Middlefield merged with and into the Company (the “Merger”), with the Company as the surviving entity in the Merger.

This Current Report on Form 8-K/A (the “Amendment”) amends the Original Report to include the financial statements of Middlefield and the pro forma financial information required by Item 9.01 of Form 8-K. Except as expressly set forth herein, this Amendment does not amend, modify or update the disclosures contained in the Original Report.

Item 9.01

Financial Statements and Exhibits.

(a)

Financial Statements of Businesses Acquired.

The audited consolidated balance sheets of Middlefield and subsidiaries as of and for the years ended December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements, and the consent of Middlefield’s independent auditor, are filed as Exhibit 99.1 and are incorporated herein by reference.

The unaudited financial statements of Middlefield and subsidiaries as of and for the nine months ended September 30, 2025 and 2024, are filed as Exhibit 99.2 and are incorporated herein by reference.

(b)

Pro Forma Financial Information.

The unaudited pro forma combined financial information of the Company giving effect to the Merger, which includes the unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2025, and the unaudited pro forma condensed combined consolidated statements of income for the year ended December 31, 2024 and for the nine months ended September 30, 2025, as well as the accompanying notes thereto, are filed as Exhibit 99.3 and are incorporated herein by reference.

(d)

Exhibits.

Exhibit

Number

Description

23.1

Consent of S.R. Snodgrass P.C.

99.1

Audited consolidated financial statements of Middlefield as of and for the years ended December 31, 2024 and 2023

99.2

Unaudited consolidated financial statements of Middlefield as of and for the nine months ended September 30, 2025 and 2024

99.3

Unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2025, and the unaudited pro forma condensed combined consolidated statements of income for the year ended December 31, 2024 and for the nine months ended September 30, 2025

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Farmers National Banc Corp.

By: /s/ Kevin J. Helmick

Kevin J. Helmick

President and Chief Executive Officer

Date: May 12, 2026

EX-23.1 — EXHIBIT 23.1

EX-23.1

Filename: ex_958917.htm · Sequence: 2

ex_958917.htm

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this current report on Form 8-K/A of our report dated March 13, 2025, relating to the consolidated financial statements of Middlefield Banc Corp. and subsidiaries, for the year ended December 31, 2024.

/s/ S.R. Snodgrass, P.C.

Cranberry Township, Pennsylvania

May 12, 2026

EX-99.1 — EXHIBIT 99.1

EX-99.1

Filename: ex_956445.htm · Sequence: 3

mbcn20241231_10k.htm

Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Middlefield Banc Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Middlefield Banc Corp. and subsidiaries (the “Company”) as of December 31, 2024 and 2023; the related consolidated statement of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses on Loans (ACL)

Description of the Matter

The Company’s loan portfolio totaled $1.5 billion as of December 31, 2024, and the associated allowance for credit losses on loans was $22.4 million. As discussed in Notes 1 and 7 to the consolidated financial statements, the ACL related to loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the ACL represents management’s best estimate of current expected credit losses on these financial instruments considering all relevant available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instruments.

The Company’s methodology for estimating the ACL on loans includes quantitative and qualitative components of the calculation. For pooled loans, the Company utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of loan. The DCF methodology combines probability of default, the loss given default, and prepayment speed assumptions to estimate a reserve for each loan. The quantitative loss rates are adjusted by current and forecasted macroeconomic assumptions and return to the mean after the forecasted periods. The sum of all the loan level reserves are aggregated for each portfolio segment and a loss factor is derived. These quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates. Qualitative loss factors are applied to each portfolio segment with the amounts determined by correlation of credit stress to the maximum loss factor. Changes in these assumptions could have a material effect on the Company’s financial results.

Allowance for Credit Losses on Loans (ACL) (Continued)

How We Addressed the Matter in Our Audit

The primary procedures we performed related to this critical audit matter (CAM) included:

● Testing the design and operating effectiveness of internal controls over the calculation of the ACL, including the qualitative factor adjustments.

● Evaluated the reasonableness of selected loss drivers utilized and loss driver forecasts for loan pools

● Testing the completeness and accuracy of the significant data points that management uses in their evaluation of the qualitative adjustments.

● Testing the anchoring calculation that management completes to properly align the magnitude of the adjustments with the Company’s historical loss data.

● Evaluating the directional consistency and reasonableness of management’s conclusions regarding basis points applied (whether positive or negative) based on the trends identified in the underlying data.

● Testing the mathematical accuracy of the application of the qualitative adjustments to the loan segments within the ACL calculation.

We have served as the Company’s auditor since 1986.

/s/S. R. Snodgrass, P.C

Cranberry Township, Pennsylvania

March 13, 2025

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands)

December 31,

2024

2023

ASSETS

Cash and due from banks

46,037

56,397

Federal funds sold

9,755

4,439

Cash and cash equivalents

55,792

60,836

Investment securities available for sale, at fair value

165,802

170,779

Other investments

855

955

Loans:

Commercial real estate:

Owner occupied

181,447

183,545

Non-owner occupied

412,291

401,580

Multifamily

89,849

82,506

Residential real estate

353,442

328,854

Commercial and industrial

229,034

221,508

Home equity lines of credit

143,379

127,818

Construction and other

103,608

125,105

Consumer installment

6,564

7,214

Total loans

1,519,614

1,478,130

Less: allowance for credit losses

22,447

21,693

Net loans

1,497,167

1,456,437

Premises and equipment, net

20,565

21,339

Goodwill

36,356

Core deposit intangibles

5,611

6,642

Bank-owned life insurance

35,259

34,349

Accrued interest receivable and other assets

35,952

35,190

TOTAL ASSETS

1,853,359

1,822,883

LIABILITIES

Deposits:

Noninterest-bearing demand

377,875

401,384

Interest-bearing demand

208,291

205,582

Money market

414,074

274,682

Savings

197,749

210,639

Time

247,704

334,315

Total deposits

1,445,693

1,426,602

Federal Home Loan Bank advances

172,400

163,000

Other borrowings

11,660

11,862

Accrued interest payable and other liabilities

13,044

15,738

TOTAL LIABILITIES

1,642,797

1,617,202

STOCKHOLDERS' EQUITY

Common stock, no par value; 25,000,000 shares authorized, 9,953,018 and 9,930,704 shares issued; 8,073,708 and 8,095,252 shares outstanding

161,999

161,388

Additional paid-in capital

246

Retained earnings

109,299

100,237

Accumulated other comprehensive loss

(20,073

)

(16,090

)

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

(40,909

)

(39,854

)

TOTAL STOCKHOLDERS' EQUITY

210,562

205,681

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

1,853,359

1,822,883

See accompanying notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED INCOME STATEMENT

(Dollar amounts in thousands, except per share data)

Year Ended

December 31,

2024

2023

INTEREST AND DIVIDEND INCOME

Interest and fees on loans

92,566

81,963

Interest-earning deposits in other institutions

1,491

1,289

Federal funds sold

568

771

Investment securities:

Taxable interest

2,028

1,893

Tax-exempt interest

3,861

3,914

Dividends on stock

748

471

Total interest and dividend income

101,262

90,301

INTEREST EXPENSE

Deposits

33,263

18,995

Short-term borrowings

6,616

5,386

Other borrowings

703

717

Total interest expense

40,582

25,098

NET INTEREST INCOME

60,680

65,203

Provision for credit losses

2,008

3,002

NET INTEREST INCOME AFTER PROVISON FOR CREDIT LOSSES

58,672

62,201

NONINTEREST INCOME

Service charges on deposit accounts

3,907

3,878

Loss on equity securities

)

(161

)

Loss on other real estate owned

(170

)

Earnings on bank-owned life insurance

930

823

Gain on sale of loans

199

Revenue from investment services

916

743

Gross rental income

421

Other income

1,202

1,060

Total noninterest income

7,213

6,691

NONINTEREST EXPENSE

Salaries and employee benefits

24,641

24,511

Occupancy expense

2,376

2,566

Equipment expense

925

1,241

Data processing and information technology costs

4,740

4,588

Ohio state franchise tax

1,583

1,578

Federal deposit insurance expense

1,055

861

Professional fees

2,265

2,293

Advertising expense

1,581

1,477

Software amortization expense

200

Core deposit intangible amortization

1,031

1,059

Gross other real estate owned expenses

510

Merger-related costs

473

Other expense

7,045

6,885

Total noninterest expense

47,541

48,137

Income before income taxes

18,344

20,755

Income taxes

2,825

3,387

NET INCOME

15,519

17,368

EARNINGS PER SHARE

Basic

1.93

2.14

Diluted

1.92

2.14

See accompanying notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands)

Year Ended

December 31,

2024

2023

Net income

15,519

17,368

Other comprehensive income (loss):

Unrealized holding gain (loss) on securities available for sale

(5,042

)

7,664

Tax effect

1,059

(1,610

)

Total other comprehensive income (loss)

(3,983

)

6,054

Comprehensive income

11,536

23,422

See accompanying notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollar amounts in thousands, except share data)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

Amount

Capital

Earnings

(Loss) Income

Stock

Equity

Balance, December 31, 2022

9,916,466

161,029

94,154

(22,144

)

(35,348

)

197,691

Net income

17,368

Other comprehensive income

6,054

Cumulative impact of ASC 326 adoption (CECL)

(4,421

)

(4,421

)

Authorization of additional common shares

(37

)

(37

)

Stock-based compensation, net

14,238

396

Common shares repurchased (164,221)

(4,506

)

(4,506

)

Cash dividends ($0.81 per share)

(6,864

)

(6,864

)

Balance, December 31, 2023

9,930,704

161,388

100,237

(16,090

)

(39,854

)

205,681

Net income

15,519

Other comprehensive loss

(3,983

)

(3,983

)

Stock-based compensation, net

22,314

611

Restricted stock grant

246

Common shares repurchased (43,858 shares)

(1,055

)

(1,055

)

Cash dividends ($0.80 per share)

(6,457

)

(6,457

)

Balance, December 31, 2024

9,953,018

161,999

246

109,299

(20,073

)

(40,909

)

210,562

See accompanying notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

For the Year Ended

December 31,

2024

2023

OPERATING ACTIVITIES

Net income

15,519

17,368

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

Provision for credit losses

2,008

3,002

Loss on equity securities

161

Software amortization expense

200

Amortization of premium and discount on investment securities, net

746

593

Amortization of core deposit intangibles

1,031

1,059

Depreciation, amortization, and accretion, net

(78

)

(108

)

Stock-based compensation, net

374

260

Origination of loans held for sale

(7,110

)

(5,639

)

Proceeds from sale of loans held for sale

7,309

5,736

Gain on sale of loans held for sale

(199

)

(97

)

Earnings on bank-owned life insurance

(930

)

(823

)

Deferred income tax (benefit)

198

(705

)

Losses on other real estate owned

170

Decrease (increase) in accrued interest receivable

(1,183

)

Increase (decrease) in accrued interest payable

(1,060

)

2,348

Other, net

(624

)

119

Net cash provided by operating activities

17,468

22,356

INVESTING ACTIVITIES

Investment securities available for sale:

Proceeds from repayments and maturities

2,127

3,259

Purchases

(2,938

)

(2,000

)

Other Investments

Proceeds from sale

Purchases

)

(200

)

Increase in loans, net

(41,292

)

(129,220

)

Proceeds from the sale of other real estate owned

5,651

Proceeds from bank-owned life insurance

289

Purchase of premises and equipment

(776

)

(1,096

)

Purchase of restricted stock

(4,790

)

(7,462

)

Redemption of restricted stock

4,289

4,237

Net cash used in investing activities

(43,289

)

(126,542

)

FINANCING ACTIVITIES

Net increase in deposits

19,091

24,780

Net increase in Federal Home Loan Bank advances

9,400

98,000

Repayment of other borrowings

(202

)

(197

)

Repurchase of common shares

(1,055

)

(4,506

)

Cash dividends

(6,457

)

(6,864

)

Net cash provided by financing activities

20,777

111,213

(Decrease) increase in cash and cash equivalents

(5,044

)

7,027

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

60,836

53,809

CASH AND CASH EQUIVALENTS AT END OF PERIOD

55,792

60,836

For the Year Ended

December 31,

2024

2023

SUPPLEMENTAL INFORMATION

Cash paid during the year for:

Interest on deposits and borrowings

41,642

22,750

Income taxes

1,975

1,565

Noncash investing transactions:

Purchased loan fair value adjustment

4,621

See accompanying notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

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

On December 1, 2022, the Company completed its merger with Liberty Bancshares, Inc. (“Liberty’), pursuant to a previously announced definitive merger agreement. Under the terms of the merger agreement, Liberty shareholders received 2.752 shares of the Company’s common stock in exchange for each share of Liberty common stock they owned immediately before the merger. The Company issued 2,561,513 shares of its common stock in the merger, and the aggregate merger consideration was approximately $73.3 million. Upon closing, Liberty’s bank subsidiary was merged into MBC, and Liberty’s six full-service bank offices, in Ada and Kenton in Hardin County, Bellefontaine North and Bellefontaine South in Logan County, Marysville in Union County, and Westerville in Franklin County, became offices of MBC.

Estimates

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company has defined cash and cash equivalents as those amounts included in the Consolidated Balance Sheet captions as “Cash and due from banks” and “Federal funds sold” with original maturities of less than 90 days.

Investments

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

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

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

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

Allowance for Credit Losses – Investment Securities Available for Sale

The Bank adopted ASU No. 2016-13, Financial Instruments - Credit Loses - Topic (326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), effective January 1, 2023. Financial statement amounts related to investment securities recorded as of December 31, 2024 and 2023 are presented in accordance with the accounting policies described in the following sections.

The Bank measures expected credit losses on available for sale investment securities when the Bank intends to sell, or when it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available for sale investment securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Bank considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is used to calculate the present value of expected cash flows. The Bank obtains its forecast data through a subscription to a widely recognized and relied-upon company that publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario and uses a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

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

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

Loans

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

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

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

Allowance for Credit Losses ("ACL") – Loans

The Bank adopted ASU 2016-13, effective January 1, 2023. Financial statement amounts related to loans recorded as of December 31, 2024 and 2023 are presented in accordance with the accounting policies described in the following sections. The guidance applies an expected-loss methodology, recognizing current expected credit losses for the remaining life of the asset at the time of origination or acquisition.

The allowance for credit losses ("ACL") is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

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

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

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

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

Probability of Default ("PD")

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

Loss Given Default ("LGD")

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

Prepayment and Curtailment Rates

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

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

Reasonable and Supportable Forecasts

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

Forecast Reversion Period

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

Expected Recoveries on Charged-off Loans

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

Discount Rate

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

Individual Evaluation

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

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

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

The Bank has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against interest income. Accrued interest receivable is included within accrued interest receivable and other assets on the Consolidated Balance Sheet.

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

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

Restricted Stock

Common stock of the FHLB represents ownership in an institution that is wholly owned by other financial institutions. This equity security is accounted for at cost and classified with "accrued interest and other assets" in the Consolidated Balance Sheet. The FHLB of Cincinnati has reported profits for 2024 and 2023, remains in compliance with regulatory capital and liquidity requirements, and continues to pay dividends on the stock and make redemptions at the par value. Considering these factors, management concluded that the stock was not impaired on December 31, 2024, or 2023.

Mortgage Banking Activities

The Bank sells residential mortgage loans on a servicing retained basis. Servicing rights are initially recorded at fair value. The Bank measures servicing assets using the amortization method. Loan servicing rights are amortized in proportion to and throughout estimated net future servicing revenue. The expected period of the estimated net servicing income is partly based on the expected prepayment of the underlying mortgages. The unamortized balance of mortgage servicing rights is included in "accrued interest and other assets" on the Consolidated Balance Sheet.

Servicing fee income is recorded for fees earned for servicing loans and included in "other income" in the Consolidated Income Statement. The fees are based on a contractual percentage of outstanding principal and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material. The Bank is servicing loans for others in the amount of $197.4 million and $210.3 million on December 31, 2024, and 2023, respectively.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost net of accumulated depreciation. Depreciation is computed on the straight-line method over the assets' estimated useful lives, which range from 3 to 20 years for furniture, fixtures, and equipment and 3 to 40 years for buildings and leasehold improvements. Expenditures for maintenance and repairs are charged against income as incurred. Costs of significant additions and improvements are capitalized.

Leases

The Company has operating and financing leases for several branch locations and office space. Generally, the underlying lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company may also lease specific office equipment under operating leases. Many of our leases include both lease (e.g., minimum rent payments) and non-lease components (e.g., common-area or other maintenance costs). The Company accounts for each element separately based on the standalone price of each component. Operating and financing leases with lease terms of less than one year are excluded from our right-of-use assets and lease liabilities. Operating and financing lease expense are recognized in "occupancy expense" and "equipment expense" in the Consolidated Income Statement on a straight-line basis over the lease term.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at the sole discretion of management. It is based on whether the extension options are reasonably certain to be exercised after giving proper consideration to all facts and circumstances of the lease. If management determines that the Company is reasonably sure to exercise the extension option(s), the additional term is included in the calculation of the right-of-use asset and a lease liability.

As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting. Acquired assets, including separately identifiable intangible assets, and assumed liabilities are recorded at their acquisition-date fair values. The excess of the cost of acquisition over the fair values is recognized as goodwill. During the measurement period, which cannot exceed one year from the acquisition date, changes to estimated fair values are recognized as an adjustment to goodwill. Certain transaction costs are expensed as incurred.

Goodwill

Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Goodwill is not amortized and is tested for impairment, at least annually as of October 1, or when indicators of impairment exist. We have elected to perform qualitative assessment for testing the impairment of goodwill. If we elect to bypass this qualitative assessment or conclude as a result of the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, a quantitative impairment test will be performed. If the fair value is less than carrying value, an impairment charge is recorded for the difference.

Intangible Assets

Intangible assets include core deposit intangibles, which measure the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangibles are amortized over their expected useful lives, commonly ten years, on a straight-line basis. The recoverability of the carrying value of intangible assets is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense.

Bank-Owned Life Insurance (“BOLI”)

The Company owns insurance on the lives of a specific group of key employees. The policies were purchased to help offset the increase in the costs of various fringe benefit plans, including healthcare. The cash surrender value of these policies is included as an asset on the Consolidated Balance Sheet, and any increases in the cash surrender value are recorded as noninterest income on the Consolidated Income Statement. In the event of the death of an insured individual under these policies, the Company would receive a death benefit, which would be recorded as tax-free noninterest income.

Other Real Estate Owned (“OREO”)

Real estate properties acquired through foreclosure are initially recorded at fair value at the foreclosure date, establishing a new cost basis. After foreclosure, the real estate is carried at the lower of cost or fair value less estimated cost to sell. Revenue and expenses from operations of the properties, gains or losses on sales, and additions to the valuation allowance are included in operating results. At December 31, 2024 and 2023, the Company reported $352,000 and $228,000, respectively, in residential real estate loans in the process of foreclosure.

Fair Value

Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market. It represents an exit price at the measurement date. Valuation inputs can be observable or unobservable. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy that gives the highest ranking to quoted prices in active markets for identification assets or liabilities (Level 1) and the lowest ranking to unobservable inputs (Level 3). Fair values for Level 2 assets and liabilities are based on a combination of one or more of the following factors: (1) quoted market prices for similar assets or liabilities, (2) observable inputs, such as interest rates or yield curves, or (3) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy assigned to a fair value measurement is based on the lowest level input that is significant to the measurement. Assets and liabilities may transfer between levels based on the observable and unobservable inputs used at the valuation date.

Assets and liabilities are recorded at fair value on a recurring or nonrecurring basis. Nonrecurring fair value adjustments are typically recorded with the application of lower of cost or fair value accounting or impairment.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. The net balance of deferred tax assets and liabilities is reported in "accrued interest receive and other assets" or "accrued interest payable and other liabilities" in the Consolidated Balance Sheet, as appropriate. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Fee-based Services Revenue Recognition

Refer to Note 2 - Revenue Recognition.

Stock-Based Compensation

The Company accounts for stock-based compensation based on the grant date fair value of all share-based payment awards expected to vest, including employee share options. Compensation cost is recognized for restricted stock issued to employees based on the fair value of these awards at the grant date. The market price of the Company’s common shares at the grant date is used to estimate the fair value of restricted stock and stock awards. Stock-based compensation cost for awards granted to employees is recognized over the required service period, generally defined as the vesting period, and is recorded in "salaries and employee benefits" expense in the Consolidated Income Statement, while the expense related to awards granted to directors is recorded in "other expense". (See Note 14 - Employee Benefits). One of the Company’s restricted stock plans allows for a portion of the value to be received in cash by the participant upon vesting. Therefore, the Company records the expense as a liability until the shares vest and the split of the payment between shares and cash can be determined. The Company also measures the fair value of the liability each reporting period and adjusts accordingly. Another of the Company's restricted stock plans settles in shares upon vesting, and the related expense is recorded through additional paid-in capital.

The Company has performance-based restricted stock units whereby the vesting in the granted awards is contingent on certain internal and external financial performance factors. The fair value of these stock units is estimated using a Monte Carlo simulation, as further discussed in Note 14 - Employee Benefits.

Advertising Costs

Advertising costs are expensed as incurred.

Treasury Stock

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

Earnings Per Share

The Company provides a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and convertible securities are adjusted in the denominator. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Reclassification of Comparative Amounts

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

Accounting Pronouncements Adopted in 2024

In March 2023, the FASB issued ASU 2023-02, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments allow entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related tax credits. This method of accounting had been available only for qualifying investments in qualified affordable housing projects. The guidance also requires certain disclosures regarding an entity’s tax equity investments. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2023. This ASU did not have a significant impact on the Company’s financial statements.

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

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendment clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit account of the equity security and is not considered in measuring its fair value. The ASU clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The ASU also requires certain disclosures for equity securities subject to contractual sale restrictions. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2023. This ASU did not have a significant impact on the Company’s financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires enhanced disclosures about significant segment expenses for public entities reporting segment information under ASC Topic 280. The amendments include required disclosure of significant segment expenses regularly reviewed by the chief operating decision maker, description of the composition of other segment items, and title and position of the chief operating decision maker. Additionally, the ASU requires public entities to provide all annual disclosures under Topic 280 in interim periods. The ASU also requires that public entities with a single reportable segment provide all the disclosures required by this amendment and existing disclosure requirements in Topic 820. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has a single reportable segment. The disclosure requirements under the ASU have been incorporated in Note 19 - Segment Reporting.

Recent Accounting Pronouncements

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

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220-40): Disaggregation of Income Statement Expenses. The guidance requires public companies to disclose additional information about certain types of costs and expenses. The amendment should be applied on a prospective or retrospective basis. 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. This ASU is not expected to have a significant impact on the Company’s financial statements.

REVENUE RECOGNITION

Following ASC Topic 606, Revenue from Contracts with Customers (Topic 606), management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from equity security gains (losses), gains on the sale of loans, rental income, and BOLI income, are not within the scope of ASC 606. For the twelve months ended December 31, 2024, these revenue sources cumulatively comprise 94.4% of the total revenue of the Company.

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

Service charges on deposit accounts – The Company has contracts with its deposit customers 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 Year Ended December 31,

(Dollar amounts in thousands)

2024

2023

Noninterest Income

Service charges on deposit accounts:

Overdraft fees

1,001

995

ATM banking fees

1,899

1,928

Service charges and other fees

1,007

955

Loss on equity securities ⁽ª⁾

)

(161

)

Loss on sale of other real estate owned ⁽ª⁾

(170

)

Earnings on bank-owned life insurance ⁽ª⁾

930

823

Gain on sale of loans ⁽ª⁾

199

Revenue from investment services

916

743

Miscellaneous fee income

403

380

Gross rental income ⁽ª⁾

421

Other income

799

680

Total noninterest income

7,213

6,691

(a) Not within scope of ASC 606

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 year ended December 31:

For the Twelve

Months Ended

December 31,

2024

2023

Weighted-average common shares outstanding

9,947,420

9,925,689

Average treasury stock shares

(1,872,120

)

(1,822,459

)

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

8,075,300

8,103,230

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

10,798

22,783

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

8,086,098

8,126,013

Outstanding on December 31, 2024, were 109,831 shares of restricted stock, 99,033 shares of which were anti-dilutive.

Outstanding on December 31, 2023, were 78,573 shares of restricted stock, 55,790 shares of which were anti-dilutive.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

(Dollars in thousands)

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

Balance at December 31, 2023

(16,090

)

Other comprehensive loss⁽ª⁾

(3,983

)

Balance at December 31, 2024

(20,073

)

(Dollars in thousands)

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

Balance at December 31, 2022

(22,144

)

Other comprehensive income⁽ª⁾

6,054

Balance at December 31, 2023

(16,090

)

(a)

All amounts are net of tax.

There were no other reclassifications of amounts from AOCI for the years ended December 31, 2024, and 2023.

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.

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.

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

Mortgage-backed securities in government-sponsored entities

8,367

Total investment securities available for sale

159,163

6,639

165,802

Equity securities

753

Total

753

159,163

6,639

166,555

December 31, 2023

(Dollar amounts in thousands)

Level I

Level II

Level III

Total

Assets measured on a recurring basis:

Subordinated debt

23,118

8,801

31,919

Obligations of states and political subdivisions

132,542

Mortgage-backed securities in government-sponsored entities

6,318

Total investment securities available for sale

161,978

8,801

170,779

Equity securities

814

Total

814

161,978

8,801

171,593

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

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

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

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

Subordinated debt

(Dollar amounts in thousands)

December 31, 2024

December 31, 2023

Beginning of year

8,801

8,737

Purchases, sales, settlements:

Purchases

1,000

Transfers out of Level III (1)

(2,250

)

(1,000

)

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

End of year

6,639

8,801

(1)

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

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.

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

December 31, 2023

(Dollar amounts in thousands)

Level I

Level II

Level III

Total

Assets measured on a non-recurring basis:

Collateral-dependent loans

3,361

Collateral-Dependent Loans – The Company has measured impairment on collateral-dependent individually analyzed loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based on independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property, which are also included in the net realizable value. If the fair value of the collateral-dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for credit losses, or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs), and the loan is included in the above table as a Level III measurement in the period in which the adjustment is recorded. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the above table as it is not currently being carried at its fair value. The fair values in the preceding tables include selling costs of $968,000 and $843,000 on December 31, 2024, and 2023, respectively.

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

Quantitative Information about Level III Fair Value Measurements

(Dollar amounts in thousands)

Fair Value Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

December 31, 2024

Collateral-dependent loans

3,321

Appraisal of collateral (1)

Appraisal adjustments (2)

0 - 23.9% (23.9%)

Quantitative Information about Level III Fair Value Measurements

(Dollar amounts in thousands)

Fair Value Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

December 31, 2023

Collateral-dependent loans

3,361

Appraisal of collateral (1)

Appraisal adjustments (2)

20.1%

(1)

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

(2)

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

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

December 31, 2024

Carrying

Total

Value

Level I

Level II

Level III

Fair Value

(Dollar amounts in thousands)

Financial assets:

Net loans

1,497,167

1,462,650

Mortgage servicing rights

1,497

2,522

Financial liabilities:

Non-maturing deposits

1,197,989

Time deposits

247,704

245,999

Other borrowings

11,660

December 31, 2023

Carrying

Total

Value

Level I

Level II

Level III

Fair Value

(Dollar amounts in thousands)

Financial assets:

Net loans

1,456,437

1,370,657

Mortgage servicing rights

1,636

2,781

Financial liabilities:

Non-maturing deposits

1,092,287

Time deposits

334,315

331,638

Other borrowings

11,862

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, Federal Home Loan Bank advances, finance lease liabilities, and accrued interest payable, are carried at cost, which approximates the fair value of the instruments.

INVESTMENT AND EQUITY SECURITIES

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

December 31, 2024

Gross

Amortized

Unrealized

Fair

(Dollar amounts in thousands)

Cost (a)

Gains

Losses

Value

Subordinated debt

34,300

(1,898

)

32,469

Obligations of states and political subdivisions:

Tax-exempt

147,767

(22,805

)

124,966

Mortgage-backed securities in government-sponsored entities

9,144

(778

)

8,367

Total

191,211

(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.

December 31, 2023

Gross

Amortized

Unrealized

Fair

(Dollar amounts in thousands)

Cost (a)

Gains

Losses

Value

Subordinated debt

34,300

(2,451

)

31,919

Obligations of states and political subdivisions:

Tax-exempt

149,881

153

(17,492

)

132,542

Mortgage-backed securities in government-sponsored entities

6,965

(647

)

6,318

Total

191,146

223

(20,590

)

170,779

(a)

Accrued interest of $1.6 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 December 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized

Fair

(Dollar amounts in thousands)

Cost

Value

Due in one year or less

590

Due after one year through five years

6,177

5,991

Due after five years through ten years

57,369

54,247

Due after ten years

127,075

104,974

Total

191,211

165,802

There were no investment securities sold during the years ended December 31, 2024 and 2023.

Investment securities with an approximate carrying value of $112.1 million and $118.8 million on December 31, 2024, and 2023, respectively, were pledged to secure deposits and for other purposes as required by law.

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

December 31, 2024

Less than Twelve Months

Twelve Months or Greater

Total

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

)

December 31, 2023

Less than Twelve Months

Twelve Months or Greater

Total

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollar amounts in thousands)

Value

Losses

Value

Losses

Value

Losses

Subordinated debt

994

)

29,356

(2,445

)

30,350

(2,451

)

Obligations of states and political subdivisions:

Tax-exempt

1,386

(10

)

106,078

(17,482

)

107,464

(17,492

)

Mortgage-backed securities in government-sponsored entities

195

)

6,122

(646

)

6,317

(647

)

Total

2,575

(17

)

141,556

(20,573

)

144,131

(20,590

)

Every quarter, the Company evaluates investment securities with unrealized losses to determine if the decline in fair value has resulted from credit losses or other factors. There were 39 securities in an unrealized loss position for less than twelve months and 163 securities in an unrealized loss position for twelve months or greater on December 31, 2024. Unrealized losses on investment securities available for sale have not been recognized into income because we do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. The unrealized losses on investment securities were attributable to changes in interest rates and not related to the credit quality of these issuers. As of December 31, 2024 and 2023, no ACL was required on investment securities available for sale.

Other investments, which primarily represents equity securities, totaled $855,000 and $955,000 at December 31, 2024 and 2023, respectively. The Company recognized a net loss on other investments of $9,000 and $161,000 for the years ended December 31, 2024 and 2023, respectively. Other investments sold during 2024 resulted in the recognition of gains totaling $71,000. No other investments were sold during 2023.

LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

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

December 31,

2024 ⁽¹⁾⁽²⁾

2023 ⁽¹⁾⁽²⁾

Commercial real estate:

Owner occupied

181,447

183,545

Non-owner occupied

412,291

401,580

Multifamily

89,849

82,506

Residential real estate

353,442

328,854

Commercial and industrial

229,034

221,508

Home equity lines of credit

143,379

127,818

Construction and other

103,608

125,105

Consumer installment

6,564

7,214

Total loans

1,519,614

1,478,130

Less: Allowance for credit losses

(22,447

)

(21,693

)

Net loans

1,497,167

1,456,437

(1)

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

(2)

Unearned income, including net deferred loan fees and costs and unamortized premiums and discounts, totaled $8.2 million and $9.2 million at December 31, 2024 and 2023, respectively.

Allowance for Credit Losses: Loans

On January 1, 2023, the Company adopted ASU 2016-13. This methodology for calculating the allowance for credit losses considers the possibility of 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.

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 (in thousands):

For the Twelve Months Ended December 31, 2024

Allowance for Credit Losses

Balance

December 31, 2023

Charge-offs

Recoveries

Provision

December 31, 2024

Loans:

Commercial real estate:

Owner occupied

2,668

(45

)

(534

)

2,100

Non-owner occupied

4,480

(1,341

)

5,225

8,364

Multifamily

1,796

(486

)

1,310

Residential real estate

5,450

(214

)

5,236

Commercial and industrial

4,377

(215

)

(1,790

)

2,427

Home equity lines of credit

750

)

153

897

Construction and other

1,990

2,052

Consumer installment

182

(38

)

143

(226

)

Total

21,693

(1,646

)

210

2,190

22,447

For the Twelve Months Ended December 31, 2023

Allowance for Credit Losses

Balance

CECL

Balance

December 31, 2022

Adoption

Charge-offs

Recoveries

Provision

December 31, 2023

Loans:

Commercial real estate:

Owner occupied

2,203

811

(46

)

(305

)

2,668

Non-owner occupied

5,597

(1,206

)

4,480

Multifamily

662

591

543

1,796

Residential real estate

2,047

2,744

(108

)

754

5,450

Commercial and industrial

1,483

2,320

(85

)

621

4,377

Home equity lines of credit

1,753

(1,031

)

(42

)

750

Construction and other

609

956

425

1,990

Consumer installment

197

(63

)

207

(243

)

182

Total

14,438

5,382

(302

)

333

1,842

21,693

The total ACL increased by $754,000, or 3.5%, from December 31, 2023 to December 31, 2024. The increase was driven by portfolio activity and the economic outlook, which was partially driven by a change in data inputs. For 2024, the Bank utilized unemployment rate data from Federal Open Market Committee ("FOMC") within the model to forecast credit losses in the portfolio, while Moody’s September 2023 consensus information, which takes into account the national housing price index and national unemployment rates, was used forecast credit losses during 2023. The change was due, in part, to the change from using state specific economic data as inputs in the 2023 assessments to using national economic data inputs in the 2024 assessments. It was determined that national data inputs are more representative of the Bank’s loan portfolio, including historical loss rates. The noted changes to data sources in 2024 within the model and in the application of qualitative adjustments resulted in an increase or decrease to loss rates when applied to each pool. To the extent that credit risk is not fully identified within the forecasts, management has made qualitative adjustments to the ACL balance. Refer to Note 1 – Summary of Significant Accounting Policies for additional information on the Bank’s methodology for estimating the ACL.

The fluctuation in the ACL during the year ended December 31, 2024, can also be attributed to the following:

•

increase in ACL for non-owner occupied CRE loans is due to increases in outstanding balances and an increase in loss rates utilized in 2024.

•

decrease in ACL for owner occupied CRE loans is due to a decrease in outstanding balances.

•

decrease in ACL for multifamily loans is due to a decrease in loss rates utilized in 2024.

•

decrease in ACL for commercial and industrial loans is due to a decrease in loss rates utilized in 2024.

The provision fluctuations during the year ended December 31, 2023, can be attributed to:

•

increase in ACL for residential, commercial and industrial, and construction loans are due to increases in outstanding balances.

•

decrease in ACL for owner occupied CRE loans and home equity lines of credit are due to a decrease in outstanding balances.

Credit Quality Indicators

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidelines established by the Board of Directors. Loans are individually analyzed when, based on current information and events, the Company will probably be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating credit loss include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall concerning the principal and interest owed. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made quarterly.

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but have potential weaknesses, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. A loan categorized as Doubtful contains all of the weaknesses as a Substandard loan with the added characteristic that the weaknesses are so pronounced that the collection or liquidation in full of both principal and interest is highly questionable or improbable. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as payment delinquency, bankruptcy, repossession, or death, occurs to raise awareness of a possible credit quality loss. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships with loan balances of $750,000 or greater. Detailed reviews, including plans for resolution, are performed on criticized loans of $150,000 or more on at least a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

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

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

Multifamily

Pass

2,930

36,113

21,978

7,437

10,057

11,324

89,849

Total Multifamily

2,930

36,113

21,978

7,437

10,057

11,324

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

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

305

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

215

Home equity lines of credit

Pass

244

166

183

133

2,041

139,214

141,981

Substandard

150

493

653

1,398

Total Home equity lines of credit

244

316

183

167

2,534

139,867

143,379

Current-period gross charge-offs

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

3,284

6,399

Substandard

162

165

Total Consumer installment

1,539

1,047

384

112

3,446

6,564

Current-period gross charge-offs

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

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

Revolving Amortized

(Dollar amounts in thousands)

2023

2022

2021

2020

2019

Prior

Cost Basis

Total

Commercial real estate:

Owner occupied

Pass

14,634

34,850

41,609

25,040

12,304

41,976

2,662

173,075

Special Mention

2,271

799

3,083

Substandard

2,356

1,559

146

3,326

7,387

Total Owner occupied

14,634

39,477

41,609

26,599

12,463

46,101

2,662

183,545

Current-period gross charge-offs

Non-owner occupied

Pass

43,393

95,098

40,959

22,707

32,405

127,469

504

362,535

Special Mention

2,508

2,197

4,705

Substandard

5,237

24,569

29,806

Doubtful

647

3,887

4,534

Total Non-owner occupied

43,393

97,606

41,606

22,707

41,529

154,235

504

401,580

Current-period gross charge-offs

Multifamily

Pass

29,218

25,776

4,267

10,453

1,391

11,231

104

82,440

Substandard

Total Multifamily

29,218

25,776

4,267

10,453

1,391

11,297

104

82,506

Current-period gross charge-offs

Residential real estate

Pass

50,086

56,180

78,909

39,476

19,418

82,441

672

327,182

Substandard

127

210

1,311

1,672

Total Residential real estate

50,086

56,307

79,119

39,476

19,442

83,752

672

328,854

Current-period gross charge-offs

108

Commercial and industrial

Pass

46,918

43,494

17,909

25,143

2,741

6,533

66,842

209,580

Special Mention

184

Substandard

353

124

876

10,367

11,748

Loss

)

Total Commercial and industrial

46,931

43,509

17,909

25,496

2,865

7,405

77,393

221,508

Current-period gross charge-offs

Home equity lines of credit

Pass

126

2,097

124,001

126,303

Substandard

105

583

762

1,515

Total Home equity lines of credit

231

2,680

124,763

127,818

Current-period gross charge-offs

Construction and other

Pass

55,528

23,059

20,246

1,777

5,609

851

9,152

116,222

Special Mention

3,573

2,371

265

6,209

Substandard

420

1,770

484

2,674

Total Construction and other

55,528

26,632

23,037

1,777

7,644

851

9,636

125,105

Current-period gross charge-offs

Consumer installment

Pass

1,810

1,088

324

3,669

7,054

Substandard

153

160

Total Consumer installment

1,810

1,095

324

3,822

7,214

Current-period gross charge-offs

Total Loans

241,600

290,633

207,871

126,649

85,500

310,143

215,734

1,478,130

Total Loans Summary

Pass

241,587

279,671

204,223

124,701

74,005

276,267

203,937

1,404,391

Special Mention

8,352

2,371

278

2,996

184

14,181

Substandard

2,610

630

1,948

7,330

30,884

11,613

55,028

Doubtful

647

3,887

4,534

Loss

)

Total Loans

241,600

290,633

207,871

126,649

85,500

310,143

215,734

1,478,130

Collateral-dependent Loans

The following table presents individually analyzed and collateral-dependent loans by 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

Non-owner occupied

24,881

Residential real estate

617

Commercial and industrial

214

Construction and other

493

Total

29,403

The following table presents individually analyzed and collateral-dependent loans by classes of loan type as of December 31, 2023:

December 31, 2023

Type of Collateral

(Dollar amounts in thousands)

Real Estate

Blanket Lien

Investment/Cash

Other

Total

Commercial real estate:

Non-owner occupied

8,150

Total

8,150

Nonperforming and Past Due Loans

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

30-59 Days

60-89 Days

90 Days+

Total

December 31, 2024

Current

Past Due

Loans

Commercial real estate:

Owner occupied

180,752

513

122

695

181,447

Non-owner occupied

402,942

1,355

8,012

9,367

412,291

Multifamily

89,756

89,849

Residential real estate

349,645

2,216

562

1,019

3,797

353,442

Commercial and industrial

226,669

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

103,608

Consumer installment

6,479

6,564

Total

1,501,824

4,665

3,114

10,011

17,790

1,519,614

The following table present the aging of the recorded investment in past-due loans by class of loans (in thousands) as of December 31, 2023:

30-59 Days

60-89 Days

90 Days+

Total

December 31, 2023

Current

Past Due

Loans

Commercial real estate:

Owner occupied

183,242

197

106

303

183,545

Non-owner occupied

397,964

3,616

401,580

Multifamily

82,440

82,506

Residential real estate

326,224

1,366

1,010

254

2,630

328,854

Commercial and industrial

221,304

146

204

221,508

Home equity lines of credit

126,894

447

180

297

924

127,818

Construction and other

125,040

125,105

Consumer installment

7,138

7,214

Total

1,470,246

5,760

1,336

788

7,884

1,478,130

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

December 31, 2024

Nonaccrual

Loans Past

(Dollar amounts in thousands)

with no

with

Total

Due Over 90 Days

Total

ACL

Nonaccrual

Still Accruing

Nonperforming

Commercial real estate:

Owner occupied

974

301

1,275

Non-owner occupied

21,265

3,616

24,881

Residential real estate

617

1,377

1,994

Commercial and industrial

159

Home equity lines of credit

1,017

Construction and other

493

Consumer installment

162

165

Total

23,018

6,966

29,984

December 31, 2023

Nonaccrual

Loans Past

(Dollar amounts in thousands)

with no

with

Total

Due Over 90 Days

Total

ACL

Nonaccrual

Still Accruing

Nonperforming

Commercial real estate:

Owner occupied

252

Non-owner occupied

4,534

3,616

8,150

Multifamily

Residential real estate

1,170

Commercial and industrial

223

Home equity lines of credit

856

Construction and other

Consumer installment

153

160

Total

4,687

6,190

10,877

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $2.3 million and $689,000 for the years ended December 31, 2024 and 2023, respectively.

Modifications to Borrowers Experiencing Financial Difficulty

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

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

December 31, 2024

Modifications

Payment

Interest Rate

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Non-owner occupied

8,414

13,151

21,565

1.4

Multifamily

707

4.7

Total

9,121

13,151

22,272

1.5

December 31, 2023

Modifications

Payment

Interest Rate

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Non-owner occupied

145

2,507

2,652

0.2

Residential real estate

19,074

1.4

Commercial and industrial

0.0

Consumer installment

0.0

Total

19,310

2,507

21,817

1.6

As of December 31, 2024, the Bank had no commitments to lend additional funds on modified loans. As of December 31, 2024 and 2023, 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

Upon adoption of ASU 2016-13 on January 1, 2023, the Company recorded a separate ACL for unfunded commitments using a methodology that is inherently similar to the methodology used for calculating the ACL for loans. The liability for credit losses on these exposures is $1.6 million and $1.8 million as of December 31, 2024 and 2023, respectively, and included in “accrued interest payable and other liabilities” on the Consolidated Balance Sheet. The provision for credit loss associated with the liability for unfunded commitments amounted to a recovery of credit losses of $182,000 for the year ended December 31, 2024, and a provision for credit losses of $1.8 million for the year ended December 31, 2023.

PREMISES AND EQUIPMENT

Major classifications of premises and equipment at December 31 are as follows:

(Dollar amounts in thousands)

2024

2023

Land and land improvements

4,896

Building and leasehold improvements

21,190

21,014

Furniture, fixtures, and equipment

10,564

10,104

Financing right-of-use assets

4,990

Construction in process

139

Total premises and equipment

41,779

41,004

Less accumulated depreciation and amortization

21,214

19,665

Total premises and equipment, net

20,565

21,339

Depreciation and amortization expense charged to operations was $1.6 million in 2024 and $1.7 million in 2023. The expense includes amortization of financing right-of-use assets.

GOODWILL AND INTANGIBLE ASSETS

Goodwill

Our annual goodwill impairment testing is performed as of October 1 each year, or more frequently as events occur or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount. The Company conducted a qualitative test as of October 1, 2024 through the evaluation of numerous factors such as economic trends, market and industry considerations, financial performance, and internal events.

(Dollar amount in thousands)

Balance at December 31, 2022

31,735

Measurement period adjustment

4,621

Balance at December 31, 2023

36,356

Balance at December 31, 2024

36,356

Core Deposit Intangible

The carrying amount of the core deposit intangible was $5.6 million and $6.6 million for the years ended December 31, 2024, and 2023, respectively. Core deposit accumulated amortization was $4.2 million and $3.2 million for the years ended December 31, 2024, and 2023. Amortization expense totaled $1.0 million and $1.1 million in 2024 and 2023, respectively. Core deposit intangible assets are amortized to their estimated residual values over their expected useful lives, commonly ten years. The estimated aggregate future amortization expense for core deposit intangible assets as of December 31, 2024, is as follows:

(Dollar amounts in thousands)

Remaining

2025

998

2026

968

2027

691

2028

665

2029

582

Thereafter

1,707

Total

5,611

Mortgage Servicing Rights

We originate and periodically sell residential mortgage loans but continue to service those loans for the buyers. We record a servicing asset if we retain the right to service loans in exchange for servicing fees that exceed the going market servicing rate and are considered more than adequate compensation for servicing. Activity for mortgage servicing rights follows:

(Dollar amounts in thousands)

2024

2023

Beginning of year

1,636

2,072

Servicing retained from loan sales

Amortization

(197

)

(496

)

End of year

1,497

1,636

10.

DEPOSITS

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 as of December 31, 2024, and 2023 were $56.6 million and $117.6 million, respectively.

Scheduled maturities of all time deposits as of December 31, 2024, are as follows:

(Dollar amounts in thousands)

2025

208,881

2026

7,877

2027

28,055

2028

1,883

2029

1,008

Total

247,704

11.

SHORT-TERM BORROWINGS

For the years ended December 31, 2024 and 2023, short-term borrowings consisted of Federal Home Loan advances. Outstanding balances and related information on short-term borrowings are summarized as follows:

2024

2023

(Dollar amounts in thousands)

Balance at year-end

172,400

163,000

Average balance outstanding

122,506

101,088

Maximum month-end balance

172,400

163,000

Weighted-average rate at year-end

4.42

5.47

Weighted-average rate during the year

5.40

5.33

Average balances outstanding during the year represent daily average balances, and average interest rates represent interest expense divided by the related average balance.

The Company maintains a $6.0 million line of credit and a $10.0 million line of credit with other financial institutions. Both lines of credit have an adjustable rate based on the time of borrowings. On December 31, 2024, and 2023, there were no outstanding borrowings under these lines of credit. The additional borrowing capacity on FHLB advances was $381.7 million and $430.1 million on December 31, 2024, and 2023, respectively.

Under the terms of a blanket agreement, FHLB borrowings are secured by certain qualifying assets of the Company, which consist principally of first mortgage loans or mortgage-backed securities.

12.

OTHER BORROWINGS

Other borrowings for the years ended December 31, consist of the following:

(Dollar amounts in thousands)

Description

2024

2023

Finance lease liabilities

3,412

3,614

Junior subordinated debt

8,248

Total

11,660

11,862

The Company formed a special purpose entity (“Entity”) to issue $8.0 million of floating rate, obligated mandatorily redeemable securities, and $248,000 in common securities as part of a pooled offering. The rate adjusts quarterly, equal to SOFR plus 1.67%. The debt had a weighted-average interest rate of 7.23% at December 31, 2024, and 7.16% at December 31, 2023. The Entity may redeem them at face value in whole or in part. The Company borrowed the issuance proceeds from the Entity in December 2006 in the form of an $8.2 million note payable, which matures in December 2037. There are no principal payments scheduled within the next five years.

The Bank has a $25.0 million irrevocable Standby Letter of Credit Agreement with the FHLB outstanding at December 31, 2024. This letter of credit is issued to secure municipal deposit accounts as required by law. The amount of funds available from the FHLB to the Bank is reduced by any letters of credit outstanding.

See Note 15, Commitments and Contingent Liabilities, for additional information on the Company's finance lease liabilities.

13.

INCOME TAXES

The provision for federal income taxes for the years ended December 31 consists of:

(Dollar amounts in thousands)

2024

2023

Current payable

2,627

4,092

Deferred

198

(705

)

Total provision

2,825

3,387

The tax effects of deductible and taxable temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows at December 31:

(Dollar amounts in thousands)

2024

2023

Deferred tax assets:

Allowance for credit losses

4,714

4,469

Supplemental retirement plan

839

959

Investment security basis adjustment

Nonaccrual interest income

533

387

Accrued compensation

443

494

Deferred origination fees, net

878

Net unrealized loss on AFS securities

5,336

4,277

Lease liability

802

111

Acquisition fair value adjustments

Other

394

374

Gross deferred tax assets

13,143

12,044

Deferred tax liabilities:

Premises and equipment

1,041

961

Deferred origination fees, net

268

Net unrealized gain on equity securities

FHLB stock dividends

115

Intangibles

478

Mortgage servicing rights

314

344

Right of use assets

758

843

Other

103

Gross deferred tax liabilities

3,045

2,807

Net deferred tax assets

10,098

9,237

No valuation allowance was established on December 31, 2024, and 2023, in view of the Company’s tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The reconciliation between the federal statutory rate and the Company’s effective consolidated income tax rate for the years ended December 31, is as follows:

2024

2023

% of

Pretax

(Dollar amounts in thousands)

Amount

Income

Amount

Income

Provision at statutory rate

3,852

21.0

4,358

21.0

Tax-exempt income

(1,088

)

(5.9

(1,044

)

(5.0

Nondeductible interest expense

0.2

0.1

Other

0.1

Actual tax expense and effective rate

2,825

15.4

3,387

16.2

ASC 740-10 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

At December 31, 2024 and 2023, the Company had no ASC 740-10 unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next 12 months. The Company recognizes interest and penalties on unrecognized tax benefits as a component of other expense.

The Company and the Bank are subject to U.S. federal income tax as well as an income tax in the state of Florida, and the Bank is subject to a capital-based franchise tax in the state of Ohio. The Company and the Bank are no longer subject to examination by taxing authorities for years before December 31, 2021.

14. EMPLOYEE BENEFITS

Employee Retirement Plan

The Bank maintains section 401(k) employee savings and investment plan for all full-time employees and officers of the Bank who are at least 21 years of age. The Bank’s contributions to the plan are based on 66% matching of voluntary contributions up to 6% of compensation for the years ended December 31, 2024, and 2023. The plan also permits the Bank to make a discretionary annual profit-sharing contribution to eligible employees. Employee contributions are vested at all times, and MBC contributions are fully vested after six years beginning at the second year in 20% increments. Matching contributions for 2024 and 2023 amounted to $520,000 and $641,000, respectively. The Bank did not make any profit-sharing contributions during 2024 or 2023. Effective January 1, 2025, the plan was revised to adjust the vesting schedule whereby MBC contributions will be fully vested after five years beginning at the first year in 20% increments.

Executive Deferred Compensation Plans

The Company maintains executive deferred compensation plans to provide post-retirement payments to members of senior management. The plan agreements are noncontributory, defined contribution arrangements that provide supplemental retirement income benefits to several officers, with contributions made solely by the Bank. Accrued executive deferred compensation amounted to $3.5 million and $3.8 million as of December 31, 2024, and 2023, respectively. During 2024, the Company recognized a net reduction in nonqualified deferred compensation expense resulting in a benefit of $91,000. The decrease in expense reflects the number of participants in the payout phase exceeding currently eligible participants. During 2023, the Company recognized nonqualified deferred compensation expense of $437,000 to the plans.

Stock Option and Restricted Stock Plan

In 2017, the Company adopted the 2017 Omnibus Equity Plan (the “2017 Plan”) for granting incentive stock options, nonqualified stock options, restricted stock, and other equity awards to key officers and employees and nonemployee directors of the Company. A total of 448,000 shares of common stock were reserved for issuance under the 2017 Plan, which expires ten years from the date of board approval of the plan. The per-share exercise price of an option granted will not be less than the fair value of a share of common stock on the date the option is granted. The remaining available shares that can be issued under the 2017 Plan were 352,063 as of December 31, 2024.

There was no stock option activity during the years ended December 31, 2024, or 2023

During 2024 and 2023, the Compensation Committee of the Company's Board of Directors granted awards of restricted stock for an aggregate amount of 70,538 and 36,173 shares, respectively, to certain employees of the Bank. The number of restricted stock shares earned or settled will depend on specific conditions and are also subject to service period-based vesting. The award recipient must maintain service with Middlefield Banc Corp. and its affiliates during the service period defined in the award to satisfy the service condition.

Awards of restricted stock are granted annually in a variety of forms:

●

Time-lapsed restricted stock units payable in stock or cash at the option of the employee, which generally vest at the end of the three-year vesting period

●

Time-lapsed restricted stock units payable in stock, which vest at the end of the three-year performance cycle

●

Performance units payable in stock, which vest at the end of the three-year performance cycle and will not vest unless the Company attains defined performance levels (external market and internal performance conditions) and the service condition is met

The following table presents the activity during 2024 related to awards of restricted stock:

Vesting contingent on service conditions - payable in stock or cash

Vesting contingent on service conditions - payable in stock

Vesting contingent on performance and service conditions - payable in stock

Number of nonvested shares

Weighted-average grant-date fair value

Number of nonvested shares

Weighted-average grant-date fair value

Number of nonvested shares

Weighted-average grant-date fair value

Nonvested at January 1, 2024

78,573

25.95

Granted

26,417

24.02

44,121

22.35

Vested

(19,745

)

23.62

Forfeited

(24,829

)

20.07

Nonvested at December 31, 2024

33,999

26.93

26,417

24.02

44,121

22.35

The gross compensation expense recognized for all outstanding awards was $714,000 and $391,000 for the years ended 2024 and 2023, respectively. The income tax benefit recognized in the income statement for these plans was $150,000 and $82,000 for the years ended 2024 and 2023, respectively. The liability for the restricted stock units payable in stock or cash was $462,000 and $758,000 for the years ended December 31, 2024, and December 31, 2023, respectively, and included in "accrued interest payable and other liabilities" on the Consolidated Balance Sheet.

During 2024, 19,745 time-lapsed restricted stock units payable in stock or cash vested. The total fair value of these units that vested in stock and cash during 2024 totaled $311,000 and $213,000, respectively. During 2023, 10,713 time-lapsed restricted stock units payable in stock or cash vested. The total fair value of these units that vested in stock and cash during 2024 totaled $195,000 and $114,000, respectively.

The compensation cost of time-lapsed restricted stock awards is calculated using the closing trading price of our common stock on the grant date. The compensation cost of performance units is calculated using a Monte Carlo simulation to reflect the market condition in the fair value of the award. The assumptions used are noted in the following table. Expected volatilities are based on historical volatilities for the Company and members of a defined peer group. The expected term is derived from the time remaining in the respective awards’ performance period. The risk-free rate for periods within the remaining performance period is based on the semi-annual zero-coupon US Treasury rates as of the grant date.

2024

Expected volatility

21.31% - 60.78

Average volatility

32.73

Expected dividends

Expected term (in years)

2.40

Risk-free rate

3.86

The weighted-average grant-date fair value of awards granted was $22.98 during 2024 and $27.57 during 2023. As of December 31, 2024, unrecognized compensation cost related to nonvested shares totaled $1.8 million. This cost is expected to be recognized over a weighted-average period of 2.1 years.

The Company compensates the Board of Directors through a combination of stock and cash. During 2024, the Company paid out 6,768 of shares totaling $187,000. The Company paid out 7,475 shares totaling $203,000 during 2023. The expense associated with the stock payments to the Board of Directors is included in "other expense" in the Consolidated Income Statement.

15.

COMMITMENTS AND CONTINGENT LIABILITIES

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

Commitments to Extend Credit which were composed of the following:

(Dollar amounts in thousands)

December 31, 2024

December 31, 2023

Commitments to extend credit

468,006

418,952

Standby letters of credit

798

5,884

Total

468,804

424,836

The commitments to extend credit involve, to varying degrees, elements of credit and interest rate risk over the amount recognized in the Consolidated Balance Sheet. The Company’s exposure to credit loss, in the event of nonperformance by the other parties to the financial instruments, is represented by the contractual amounts as disclosed. The Company minimizes its exposure to credit loss under these commitments by subjecting them to credit approval, review procedures, and collateral requirements as deemed necessary. Loan commitments generally have fixed expiration dates within one year of their origination.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically one year, with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized over the coverage period. The collateral is typically bank deposit instruments or customer business assets for secured letters of credit.

Commitments to Fund

We have an investment in a low-income housing tax credit operating partnership. As a limited partner, we are allocated tax credits and deductions associated with the underlying properties. Our maximum exposure to loss in connection with the partnership consists of the unamortized investment balance plus any unfunded equity commitments and tax credits claimed but subject to recapture. The investment at December 31, 2024 and 2023 was $1.8 million and $2.0 million, respectively, and recorded in the Consolidated Balance Sheet in "accrued interest receivable and other assets". We do not have any loss reserves recorded since we believe the likelihood of loss is remote. The investment is amortized over the period that we expect to receive the tax benefits using the proportional amortization method. In 2024 and 2023, we recognized $127,000 and $35,000 of amortization, respectively. At December 31, 2024 and 2023, we had an unfunded commitment of $1.5 million and $1.7 million, respectively, which is recorded in the Consolidated Balance Sheet in "accrued interest payable and other liabilities".

Cannabis Industry

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

As previously disclosed, a cyber-attack occurred in April 2023 that resulted in a temporary disruption to our computer systems. A cybersecurity firm investigated the nature and scope of the incident, evaluated our systems, and confirmed that nonpublic information relating to current and former employees, customers, and others was obtained from our systems.

On January 8, 2024, a customer filed a lawsuit against The Middlefield Banking Company in the U.S. District Court for the Northern District of Ohio related to the cyber-attack incident. A similar lawsuit was filed on January 10, 2024, against The Middlefield Banking Company in the Court of Common Pleas for Cuyahoga County, Ohio. The plaintiffs and class members in the two cases, who are current and former customers of the Bank, claim to have been harmed by alleged actions or inactions by the Bank in connection with the incident. The plaintiffs assert a variety of common law and statutory claims regarding the compromised nonpublic information and seek monetary damages, equitable and injunctive relief, pre-judgment and post-judgment interest, awards of actual and punitive damages, costs and attorneys’ fees, and other related relief. On March 28, 2024, the plaintiff in the case before the U.S. District Court for the Northern District of Ohio voluntarily dismissed their lawsuit against The Middlefield Banking Company without prejudice. The plaintiff in the Cuyahoga County lawsuit filed an amended complaint on August 8, 2024, to add an additional plaintiff. The amendment made no change to the relief sought in the original complaint.

On October 31, 2024, the plaintiffs filed with the Court of Common Pleas a motion for preliminary approval of class action settlement, with the Court granting preliminary approval of the class action settlement on November 6, 2024. On February 4, 2025, the plaintiffs submitted a motion for attorneys’ fees for class counsel. The Court of Common Pleas has scheduled a final approval hearing for April 1, 2025, to confirm the preliminary approval of the class action settlement and to determine the requested attorneys’ fee award.

Losses attributable to the April 2023 incident are within the coverage limits of the cyber risk insurance policy in place at that time. The policy has an aggregate limit of $3 million and a deductible of $50,000. The policy includes coverage for business loss, breach response, and liabilities that could occur as a result of a cyber event. Although we believe that our insurance policy will fully cover the losses associated with the lawsuit, it is possible that the losses could exceed the policy limit. We expect that any costs associated with the lawsuit, including attorney fees, adverse judgment or settlement, will be billed to and paid by the insurance company in accordance with the terms of the policy.

Leasing Commitments

The Company leases six of its branch locations. As of December 31, 2024, net assets recorded under leases amounted to $3.6 million and have remaining lease terms of 2 years to 17 years. As of December 31, 2024, finance lease assets included in "premises and equipment, net" on the Consolidated Balance Sheet totaled $3.2 million and $3.5 million as of December 31, 2023, and operating lease assets included in "accrued interest receivable and other assets" on the Consolidated Balance Sheet totaled $400,000 and $560,000 as of December 31, 2024, and 2023, respectively. As of December 31, 2024, finance lease obligations included in "other borrowings" on the Consolidated Balance Sheet totaled $3.4 million, and operating lease obligations included in "accrued interest payable and other liabilities" on the Consolidated Balance Sheet totaled $406,000.

Lease costs incurred are as follows for the years ended December 31 (in thousands):

2024

2023

Finance lease cost:

Amortization of right-of-use asset

248

Interest Expense

106

112

Other

Operating lease cost

218

216

Total lease cost

615

623

The following table displays the weighted-average term and discount rates for both operating and finance leases outstanding as of December 31, 2024:

2024

2023

Operating

Finance

Operating

Finance

Weighted-average term (years)

3.6

13.6

4.2

14.6

Weighted-average discount rate

2.1

3.0

1.9

3.0

The following table displays the undiscounted cash flows due related to operating and finance leases as of December 31, 2024, along with a reconciliation to the discounted amount recorded on the December 31, 2024 Consolidated Balance Sheet (in thousands):

Operating

Finance

Undiscounted cash flows due within:

2025

169

314

2026

134

320

2027

320

2028

320

2029

320

2030 and thereafter

2,566

Total undiscounted cash flows

425

4,160

Impact of present value discount

(19

)

(748

)

Total

406

3,412

16.

REGULATORY RESTRICTIONS

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.

The Company is subject to the regulatory requirements of the Federal Reserve System as a bank holding company. The Bank is subject to regulations of the FDIC and the State of Ohio, Division of Financial Institutions.

Loans

Federal law prevents the Company from borrowing from the Bank unless specific obligations secure the loans. Further, such a secured loan is limited to 10% of the Bank’s common stock and capital surplus.

Dividends

The Bank is subject to dividend restrictions that generally limit the amount of dividends that an Ohio state-chartered bank can pay. Under the Ohio Banking Code, cash dividends may not exceed net profits as defined for that year combined with retained net profits for the two preceding years less any required transfers to surplus. Under this formula, the amount available for payment of dividends at December 31, 2024, approximates $13.2 million.

17.

REGULATORY CAPITAL

Financial institution regulators have established guidelines for minimum capital ratios for banks and bank 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 December 31, 2024 and 2023. The following table indicates the capital ratios for the Bank and the Company as of December 31, 2024, and 2023, as well as the capital category threshold ratios for a well-capitalized, adequately capitalized plus the capital conservation buffer institution.

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

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

As of December 31, 2023

Leverage

Tier 1 Risk Based

Common Equity Tier 1

Total Risk Based

The Middlefield Banking Company

10.48

11.82

13.08

Middlefield Banc Corp.

10.68

12.18

11.66

13.43

Adequately capitalized ratio

4.00

6.00

4.50

8.00

Adequately capitalized ratio plus fully phased-in capital conservation buffer

4.00

8.50

7.00

10.50

Well-capitalized ratio (Bank only)

5.00

8.00

6.50

10.00

18.

Related Party Transaction

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

(Dollars in thousands)

December 31, 2024

December 31, 2023

Beginning balance

24,185

2,057

New loans

3,362

23,922

Repayments

(1,377

)

(1,794

)

Effect of change in related party status

(56

)

Ending balance

26,114

24,185

Deposits of related parties amount to $32.5 million and $33.1 million as of December 31, 2024 and 2023, respectively.

19.

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 years ended December 31, 2024 and 2023. The accounting policies of the segment are the same as those described in Note 1 – Summary of Significant Accounting Policies. 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.

2024

2023

Reconciling

(Dollar amounts in thousands)

Bank

Items

Total

Bank

Items

Total

Net interest income

61,275

(595

)

60,680

65,805

(602

)

65,203

Noninterest income

7,253

(40

)

7,213

6,793

(102

)

6,691

Total revenue

68,528

(635

)

67,893

72,598

(704

)

71,894

Provision for credit losses

2,008

3,002

Salaries and employee benefits

23,567

1,074

24,641

23,760

751

24,511

Occupancy expenses

2,376

2,566

Data processing costs

4,740

4,588

Other noninterest expense (1)

12,955

2,829

15,784

13,863

2,609

16,472

Income tax provision (benefit)

3,778

(953

)

2,825

4,241

(854

)

3,387

Net income

19,104

(3,585

)

15,519

20,578

(3,210

)

17,368

Total assets

1,851,688

1,671

1,853,359

1,820,224

2,659

1,822,883

(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.

20.

PARENT COMPANY

Following are condensed financial statements of the Parent Company.

CONDENSED BALANCE SHEET

(Dollar amounts in thousands)

December 31,

2024

2023

ASSETS

Cash and due from banks

4,036

4,065

Other investments

503

544

Investment in nonbank subsidiary

Investment in bank subsidiary

213,720

208,098

Other assets

1,168

2,125

TOTAL ASSETS

219,428

214,833

LIABILITIES

Other borrowings

8,248

Other liabilities

618

904

TOTAL LIABILITIES

8,866

9,152

STOCKHOLDERS' EQUITY

210,562

205,681

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

219,428

214,833

CONDENSED STATEMENT OF OPERATIONS

(Dollar amounts in thousands)

Year Ended December 31,

2024

2023

INCOME

Dividends from bank subsidiary

9,500

17,000

Loss on equity securities

(40

)

(100

)

Other income

Total income

9,462

16,903

EXPENSES

Interest expense

597

605

Salaries and employee benefits

1,074

751

Ohio state franchise tax

1,583

1,578

Other expense

1,246

1,032

Total expenses

4,500

3,966

Income before income taxes

4,962

12,937

Income taxes

(953

)

(854

)

Income before equity in undistributed net income of subsidiaries

5,915

13,791

Equity in undistributed net income of subsidiaries

9,604

3,578

NET INCOME

15,519

17,368

COMPREHENSIVE INCOME

11,536

23,422

CONDENSED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

Year Ended December 31,

2024

2023

OPERATING ACTIVITIES

Net income

15,519

17,368

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

Equity in undistributed net income of subsidiaries

(9,604

)

(3,578

)

Stock-based compensation, net

374

260

Loss on equity securities

100

Other, net

1,153

1,084

Net cash provided by operating activities

7,483

15,234

FINANCING ACTIVITIES

Repurchase of common shares

(1,055

)

(4,506

)

Cash dividends

(6,457

)

(6,864

)

Net cash used in financing activities

(7,512

)

(11,370

)

Increase (decrease) in cash

(29

)

3,864

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

4,065

201

CASH AND CASH EQUIVALENTS AT END OF YEAR

4,036

4,065

EX-99.2 — EXHIBIT 99.2

EX-99.2

Filename: ex_956446.htm · Sequence: 4

mbcn20250930_10q.htm

Exhibit 99.2

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

September 30,

December 31,

2025

2024

ASSETS

Cash and due from banks

81,372

46,037

Federal funds sold

22,333

9,755

Cash and cash equivalents

103,705

55,792

Investment securities available for sale, at fair value

155,855

165,802

Other investments

1,131

855

Loans held for sale

209

Loans:

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

Premises and equipment, net

21,428

20,565

Premises and equipment held for sale

998

Goodwill

36,356

Core deposit intangibles

4,862

5,611

Bank-owned life insurance

35,335

35,259

Accrued interest receivable and other assets

35,019

35,952

TOTAL ASSETS

1,978,893

1,853,359

LIABILITIES

Deposits:

Noninterest-bearing demand

410,612

377,875

Interest-bearing demand

232,452

208,291

Money market

528,246

414,074

Savings

180,547

197,749

Time

270,445

247,704

Total deposits

1,622,302

1,445,693

Federal Home Loan Bank advances

106,000

172,400

Other borrowings

11,502

11,660

Accrued interest payable and other liabilities

14,969

13,044

TOTAL LIABILITIES

1,754,773

1,642,797

STOCKHOLDERS' EQUITY

Common stock, no par value; 25,000,000 shares authorized, 9,966,196 and 9,953,018 shares issued; 8,086,886 and 8,073,708 shares outstanding

162,349

161,999

Additional paid-in capital

1,041

246

Retained earnings

120,514

109,299

Accumulated other comprehensive loss

(18,875

)

(20,073

)

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

(40,909

)

(40,909

)

TOTAL STOCKHOLDERS' EQUITY

224,120

210,562

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

1,978,893

1,853,359

See accompanying notes to unaudited consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

2025

2024

2025

2024

INTEREST AND DIVIDEND INCOME

Interest and fees on loans

25,485

23,441

73,994

69,258

Interest-earning deposits in other institutions

299

348

915

1,171

Federal funds sold

192

143

467

417

Investment securities:

Taxable interest

538

528

1,594

1,500

Tax-exempt interest

958

962

2,878

2,900

Dividends on stock

136

191

469

578

Total interest and dividend income

27,608

25,613

80,317

75,824

INTEREST EXPENSE

Deposits

8,972

8,792

25,646

24,681

Short-term borrowings

918

1,575

3,135

5,488

Other borrowings

153

173

436

530

Total interest expense

10,043

10,540

29,217

30,699

NET INTEREST INCOME

17,565

15,073

51,100

45,125

Provision for (Recovery of) credit losses

392

2,234

(19

)

2,185

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

17,173

12,839

51,119

42,940

NONINTEREST INCOME

Service charges on deposit accounts

1,072

959

3,122

2,839

Gain (loss) on equity securities

(24

)

(65

)

Earnings on bank-owned life insurance

228

246

951

700

Gain on sale of loans

158

221

135

Revenue from investment services

306

206

884

679

Gain on exchange of real estate

1,229

Gross rental income

Other income

543

262

963

944

Total noninterest income

2,324

1,743

7,346

5,299

NONINTEREST EXPENSE

Salaries and employee benefits

6,883

6,201

20,165

18,645

Occupancy expense

604

627

1,958

1,780

Equipment expense

249

203

722

704

Data processing and information technology costs

1,240

1,248

3,784

3,665

Ohio state franchise tax

399

1,197

1,193

Federal deposit insurance expense

267

255

801

762

Professional fees

700

539

1,819

1,654

Advertising expense

386

283

1,201

1,210

Software amortization expense

279

117

Core deposit intangible amortization

250

257

749

773

Loss on premises and equipment held for sale

711

Gross other real estate owned expenses

Other expense

2,008

1,785

5,556

5,136

Total noninterest expense

13,098

11,871

38,942

35,738

Income before income taxes

6,399

2,711

19,523

12,501

Income taxes

1,079

371

3,216

1,830

NET INCOME

5,320

2,340

16,307

10,671

EARNINGS PER SHARE

Basic

0.66

0.29

2.02

1.32

Diluted

0.65

0.29

2.01

1.32

See accompanying notes to unaudited consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

2025

2024

2025

2024

Net income

5,320

2,340

16,307

10,671

Other comprehensive income (loss):

Unrealized holding gain (loss) on securities available for sale

5,142

3,786

1,517

(490

)

Tax effect

(1,080

)

(795

)

(319

)

103

Total other comprehensive income (loss)

4,062

2,991

1,198

(387

)

Comprehensive income (loss)

9,382

5,331

17,505

10,284

See accompanying notes to unaudited consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

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

(Unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

Amount

Capital

Earnings

Income (Loss)

Stock

Equity

Balance, June 30, 2025

9,960,503

162,195

811

116,892

(22,937

)

(40,909

)

216,052

Net income

5,320

Other comprehensive income

4,062

Shares issued for stock grants

5,693

154

Restricted stock grants

230

Cash dividends ($0.21 per share)

(1,698

)

(1,698

)

Balance, September 30, 2025

9,966,196

162,349

1,041

120,514

(18,875

)

(40,909

)

224,120

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

Amount

Capital

Earnings

Income (Loss)

Stock

Equity

Balance, June 30, 2024

9,946,454

161,823

105,342

(19,468

)

(40,909

)

206,788

Net income

2,340

Other comprehensive income

2,991

Shares issued for stock grants

3,888

Restricted stock grants

108

Cash dividends ($0.20 per share)

(1,615

)

(1,615

)

Balance, September 30, 2024

9,950,342

161,916

108

106,067

(16,477

)

(40,909

)

210,705

See accompanying notes to unaudited consolidated financial statements.

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

Amount

Capital

Earnings

Income (Loss)

Stock

Equity

Balance, December 31, 2024

9,953,018

161,999

246

109,299

(20,073

)

(40,909

)

210,562

Net income

16,307

Other comprehensive income

1,198

Shares issued for stock grants

13,178

350

Restricted stock grants

795

Cash dividends ($0.63 per share)

(5,092

)

(5,092

)

Balance, September 30, 2025

9,966,196

162,349

1,041

120,514

(18,875

)

(40,909

)

224,120

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

Amount

Capital

Earnings

Income (Loss)

Stock

Equity

Balance, December 31, 2023

9,930,704

161,388

100,237

(16,090

)

(39,854

)

205,681

Net income

10,671

Other comprehensive loss

(387

)

(387

)

Shares issued for stock grants

19,638

528

Restricted stock grants

108

Common shares repurchased (43,858)

(1,055

)

(1,055

)

Cash dividends ($0.60 per share)

(4,841

)

(4,841

)

Balance, September 30, 2024

9,950,342

161,916

108

106,067

(16,477

)

(40,909

)

210,705

See accompanying notes to unaudited consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

For the Nine Months Ended

September 30,

2025

2024

OPERATING ACTIVITIES

Net income

16,307

10,671

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision for (recovery of) credit losses

(19

)

2,185

Impairment loss on premises and equipment held for sale

711

Gain on exchange of real estate

(1,229

)

Loss (gain) on equity securities

Software amortization expense

279

117

Amortization of premium and discount on investment securities, net

416

421

Amortization of core deposit intangibles

749

773

Depreciation, amortization, and accretion, net

(483

)

(47

)

Stock-based compensation, net

2,120

482

Origination of loans held for sale

(7,066

)

(5,638

)

Proceeds from sale of loans held for sale

7,078

5,524

Loss (gain) on sale of loans held for sale

(221

)

(135

)

Earnings on bank-owned life insurance

(951

)

(700

)

Deferred income tax

631

(45

)

Decrease (increase) in accrued interest receivable

(278

)

265

Increase (decrease) in accrued interest payable

709

3,950

Other, net

(1,103

)

(3,078

)

Net cash provided by (used in) operating activities

17,674

14,809

INVESTING ACTIVITIES

Investment securities available for sale:

Proceeds from repayments and maturities

11,048

1,871

Purchases

(1,898

)

Other Investments:

Purchases

(300

)

Decrease (increase) in loans, net

(79,497

)

(26,460

)

Purchase of loans

(6,103

)

Proceeds from bank-owned life insurance

892

Purchase of premises and equipment

(2,336

)

(368

)

Purchase of restricted stock

(4,937

)

(723

)

Redemption of restricted stock

6,513

2,691

Net cash provided by (used in) investing activities

(74,720

)

(24,892

)

FINANCING ACTIVITIES

Net increase (decrease) in deposits

176,609

86,167

Net increase (decrease) in Federal Home Loan Bank advances

(66,400

)

(57,000

)

Repayment of other borrowings

(158

)

(151

)

Repurchase of common shares

(1,055

)

Cash dividends

(5,092

)

(4,841

)

Net cash provided by (used in) financing activities

104,959

23,120

Increase (decrease) in cash and cash equivalents

47,913

13,037

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

55,792

60,836

CASH AND CASH EQUIVALENTS AT END OF PERIOD

103,705

73,873

For the Nine Months Ended

September 30,

2025

2024

SUPPLEMENTAL INFORMATION

Cash paid during the year for:

Interest on deposits and borrowings

28,508

26,749

Income taxes

3,300

2,130

Noncash investing transactions:

Exchange of real estate, net

1,229

Transfer from premises and equipment, net to premises and equipment held for sale

1,016

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:

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⁾

(24

)

(65

)

Earnings on bank-owned life insurance ⁽ª⁾

228

246

951

700

Gain on sale of loans ⁽ª⁾

158

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⁾

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 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

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.

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

Level I:

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

Level II:

Level III:

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

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

Mortgage-backed securities in government-sponsored entities

7,910

Total investment securities available for sale

154,176

1,679

155,855

Equity securities

743

Interest rate derivative assets

547

Liabilities measured on a recurring basis:

Interest rate derivative liabilities

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

Mortgage-backed securities in government-sponsored entities

8,367

Total investment securities available for sale

159,163

6,639

165,802

Equity securities

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.

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

End of year

1,679

6,639

(1)

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

Collateral-dependent loans

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

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

Mortgage servicing rights

1,423

2,398

Financial liabilities:

Non-maturing deposits

1,351,857

Time deposits

270,445

269,408

Other borrowings

11,502

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

Mortgage servicing rights

1,497

2,522

Financial liabilities:

Non-maturing deposits

1,197,989

Time deposits

247,704

245,999

Other borrowings

11,660

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

Amortized

Unrealized

Fair

(Dollar amounts in thousands)

Cost (a)

Gains

Losses

Value

Subordinated debt

24,500

(1,013

)

23,572

Obligations of states and political subdivisions:

Tax-exempt

146,851

(22,499

)

124,373

Mortgage-backed securities in government-sponsored entities

8,396

(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

Amortized

Unrealized

Fair

(Dollar amounts in thousands)

Cost (a)

Gains

Losses

Value

Subordinated debt

34,300

(1,898

)

32,469

Obligations of states and political subdivisions:

Tax-exempt

147,767

(22,805

)

124,966

Mortgage-backed securities in government-sponsored entities

9,144

(778

)

8,367

Total

191,211

(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

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.

September 30, 2025

Less than Twelve Months

Twelve Months or Greater

Total

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

)

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

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.

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.

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

(Dollar amounts in thousands)

June 30, 2025

Charge-offs

Recoveries

Provision

September 30, 2025

Commercial real estate:

Owner occupied

2,538

311

2,941

Non-owner occupied

4,628

291

4,919

Multifamily

1,057

107

1,164

Residential real estate

5,801

(18

)

171

5,989

Commercial and industrial

3,014

(50

)

453

3,426

Home equity lines of credit

988

1,007

Construction and other

4,234

(721

)

3,513

Consumer installment

(44

)

Total

22,335

(68

)

175

587

23,029

For the Three Months Ended September 30, 2024

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

)

2,412

Home equity lines of credit

813

869

Construction and other

2,290

(159

)

2,131

Consumer installment

)

(29

)

Total

21,795

(1,426

)

2,113

22,526

For the Nine Months Ended September 30, 2025

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

)

(3,434

)

4,919

Multifamily

1,310

(146

)

1,164

Residential real estate

5,236

(19

)

701

5,989

Commercial and industrial

2,427

(55

)

179

875

3,426

Home equity lines of credit

897

)

106

1,007

Construction and other

2,052

1,461

3,513

Consumer installment

(44

)

104

(51

)

Total

22,447

(140

)

474

248

23,029

For the Nine Months Ended September 30, 2024

Balance

(Dollar amounts in thousands)

December 31, 2023

Charge-offs

Recoveries

Provision

September 30, 2024

Commercial real estate:

Owner occupied

2,668

(45

)

(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

)

(1,954

)

2,412

Home equity lines of credit

750

)

125

869

Construction and other

1,990

141

2,131

Consumer installment

182

(11

)

118

(224

)

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 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.

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

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

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

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

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

Home equity lines of credit

Pass

269

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

Construction and other

Pass

4,660

56,254

19,057

1,889

998

1,906

17,346

102,110

Special Mention

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

2,677

5,601

Substandard

193

Total Consumer installment

1,051

1,025

597

182

2,870

5,794

Current-period gross charge-offs

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

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

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

Multifamily

Pass

2,930

36,113

21,978

7,437

10,057

11,324

89,849

Total Multifamily

2,930

36,113

21,978

7,437

10,057

11,324

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

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

305

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

215

Home equity lines of credit

Pass

244

166

183

133

2,041

139,214

141,981

Substandard

150

493

653

1,398

Total Home equity lines of credit

244

316

183

167

2,534

139,867

143,379

Current-period gross charge-offs

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

3,284

6,399

Substandard

162

165

Total Consumer installment

1,539

1,047

384

112

3,446

6,564

Current-period gross charge-offs

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

Non-owner occupied

21,976

Residential real estate

617

Commercial and industrial

833

Construction and other

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

Non-owner occupied

24,881

Residential real estate

617

Commercial and industrial

214

Construction and other

493

Total

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

(Dollar amounts in thousands)

Current

Past Due

Loans

Commercial real estate:

Owner occupied

221,097

381

122

503

221,600

Non-owner occupied

382,342

8,012

390,354

Multifamily

88,899

Residential real estate

362,419

1,971

755

1,162

3,888

366,307

Commercial and industrial

269,422

Home equity lines of credit

158,779

509

149

368

1,026

159,805

Construction and other

104,352

491

104,843

Consumer installment

5,598

193

196

5,794

Total

1,592,908

2,864

904

10,348

14,116

1,607,024

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

(Dollar amounts in thousands)

Current

Past Due

Loans

Commercial real estate:

Owner occupied

180,752

513

122

695

181,447

Non-owner occupied

402,924

1,355

8,012

9,367

412,291

Multifamily

89,756

89,849

Residential real estate

349,645

2,216

562

1,019

3,797

353,442

Commercial and industrial

226,669

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

103,608

Consumer installment

6,479

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

Loans Past

with no

with

Total

Due Over 90 Days

Total

(Dollar amounts in thousands)

ACL

Nonaccrual

Still Accruing

Nonperforming

Commercial real estate:

Owner occupied

3,580

Non-owner occupied

15,865

6,111

21,976

Residential real estate

617

1,467

2,084

Commercial and industrial

859

Home equity lines of credit

745

Construction and other

491

Consumer installment

193

Total

20,746

9,182

29,928

December 31, 2024

Nonaccrual

Loans Past

with no

with

Total

Due Over 90 Days

Total

(Dollar amounts in thousands)

ACL

Nonaccrual

Still Accruing

Nonperforming

Commercial real estate:

Owner occupied

974

301

1,275

Non-owner occupied

21,265

3,616

24,881

Multifamily

Residential real estate

617

1,377

1,994

Commercial and industrial

159

Home equity lines of credit

1,017

Construction and other

493

Consumer installment

162

165

Total

23,018

6,966

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.

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

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

(Dollar amounts in thousands)

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Owner occupied

2,224

0.1

Total

2,224

0.1

For the Three Months Ended September 30, 2024

Payment

Interest Rate

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

(Dollar amounts in thousands)

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Non-owner occupied

13,482

0.9

Total

13,482

0.9

For the Nine Months Ended September 30, 2025

Payment

Interest Rate

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

(Dollar amounts in thousands)

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Owner occupied

2,224

0.1

Residential real estate

0.0

Commercial and industrial

889

0.1

Home equity lines of credit

100

0.0

Construction and other

2,055

0.1

Total

2,281

3,044

5,325

0.3

For the Nine Months Ended September 30, 2024

Payment

Interest Rate

Percentage of

Deferral

Reduction

Total Loans

Payment

Term

and Term

and Principal

Held for

(Dollar amounts in thousands)

Deferral

Extension

Past Due

Forgiveness

Total

Investment

Commercial real estate:

Non-owner occupied

13,482

0.9

Total

13,482

0.9

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

(Dollar amounts in thousands)

Current

Past Due

Loans

Commercial real estate:

Owner occupied

2,224

Non-owner occupied

1,763

Residential real estate

Commercial and industrial

889

Home equity lines of credit

100

Construction and other

2,055

Total

7,088

September 30, 2024

30-59 Days

60-89 Days

90 Days+

Total

(Dollar amounts in thousands)

Current

Past Due

Loans

Commercial real estate:

Non-owner occupied

13,483

Construction and other

1,819

Total

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

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

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".

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.

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 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

(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

2,324

1,719

1,743

Total revenue

20,003

(114

)

19,889

16,937

(121

)

16,816

Provision for (recovery of) credit losses

392

2,234

Salaries and employee benefits

6,228

655

6,883

5,899

302

6,201

Occupancy expenses

604

627

Data processing costs

1,240

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

(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

Salaries and employee benefits

18,524

1,641

20,165

17,893

752

18,645

Occupancy expenses

1,958

1,780

Data processing costs

3,784

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)

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 12, 2025, the closing price of Farmers common stock was $13.37 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.

EX-99.3 — EXHIBIT 99.3

EX-99.3

Filename: ex_957633.htm · Sequence: 5

ex_957633.htm

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based on the historical financial statements of Farmers and Middlefield, and has been prepared to illustrate the financial effect of the Merger. The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Farmers and its subsidiaries and of Middlefield and its subsidiaries, as an acquisition by Farmers of Middlefield using the acquisition method of accounting (Accounting Standards Codification (ASC) 805 “Business Combinations”) and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Middlefield will be recorded by Farmers at their respective fair values as of the date the Merger is completed. The pro forma financial information should be read in conjunction with Farmers’ Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2025 and Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which are incorporated by reference herein, and Middlefield’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2025 and Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which are incorporated by reference herein.

In November 2025, the FASB issued Accounting Standards Update 2025-08, Financial Instruments – Credit Losses (Topic 326). ASU 2025-08 expands the use of the gross up method to certain acquired loans beyond purchased financial assets with credit deterioration. The ASU applies the gross-up method to acquired non-PCD assets that are purchased seasoned loans ultimately eliminating the Day 1 credit loss expense and reducing interest income recognized in subsequent periods. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2026 and is applied on a prospective basis. Early adoption is permitted. If the ASU is adopted early, the impact would be to remove the CECL expense of $15.1 million which would instead gross up the balance sheet and reduce goodwill.

The unaudited pro forma condensed combined financial information set forth below assumes that the Merger was consummated on January 1, 2024 for purposes of the unaudited pro forma condensed combined statements of income and September 30, 2025 for purposes of the unaudited pro forma condensed combined balance sheet and gives effect to the Merger, for purposes of the unaudited pro forma condensed combined statements of income, as if it had been effective during the entire period presented.

These unaudited pro forma condensed combined financial statements reflect the Merger based upon estimated preliminary acquisition accounting adjustments. Actual adjustments will be made as of the effective date of the Merger and, therefore, may differ from those reflected in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial statements included herein are presented for informational purposes only and do not necessarily reflect the financial results of the combined company had the companies actually been combined at the beginning of each period presented. The adjustments included in these unaudited pro forma condensed financial statements are preliminary and may be revised. This information also does not reflect the benefits of the expected cost savings, expense efficiencies or any potential balance sheet restructuring, opportunities to earn additional revenue, potential impacts of current market conditions on revenues, or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the Merger had been consummated on the date or at the beginning of the period indicated or which may be attained in the future. The unaudited pro forma condensed combined financial statements and accompanying notes should be read in conjunction with and are qualified in their entirety by reference to the historical consolidated financial statements and related notes thereto of Farmers and its subsidiaries and of Middlefield and its subsidiaries. Such information and notes thereto are incorporated by reference herein.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2025

Farmers

Middlefield

Pro Forma

Adjustments

Pro Forma

Combined

Pro Forma

Notes

ASSETS

Cash and cash equivalents

92,345

103,705

—

196,050

Securities available for sale (including equity securities)

1,301,766

155,855

—

1,457,621

Loans held for sale

4,975

209

—

5,184

Loans

3,337,780

1,607,024

(35,791

)

4,909,013

Allowance for credit losses

(39,528

)

(23,029

)

(5,375

)

(67,932

)

Net Loans

3,298,252

1,583,995

(41,166

)

4,841,081

Premises and equipment, net

56,639

22,426

2,500

81,565

Bank owned life insurance

118,475

35,335

—

153,810

Goodwill

167,450

36,356

79,600

283,406

Other intangibles

18,563

4,862

18,238

41,663

Other assets

177,110

36,150

3,765

217,025

Total assets

5,235,575

1,978,893

62,937

7,277,405

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Noninterest-bearing

994,604

410,612

—

1,405,216

Interest-bearing

3,405,911

1,211,690

(1,037

)

4,616,564

Total deposits

4,400,515

1,622,302

(1,037

)

6,021,780

Short-term borrowings

235,000

106,000

—

341,000

Long-term borrowings

86,581

11,502

(2,400

)

95,683

Other liabilities

47,530

14,969

8,404

70,903

Total liabilities

4,769,626

1,754,773

4,967

6,529,366

Commitments and contingent liabilities Stockholders’ equity:

Common stock

366,214

162,349

140,108

668,671

Additional paid-in-capital

—

1,041

(1,041

)

—

Retained earnings

277,930

120,514

(140,881

)

257,563

Accumulated other comprehensive loss

(155,085)

(18,875)

18,875

(155,085)

Treasury stock

(23,110

)

(40,909

)

40,909

(23,110

)

Total stockholders’ equity

465,949

224,120

57,970

748,039

Total liabilities and stockholders’ equity

5,235,575

1,978,893

62,937

7,277,405

Shares outstanding

37,646,549

8,086,886

13,563,579

59,297,014

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025

(In thousands, except per share data)

Farmers

Middlefield

Pro Forma

Adjustments

Pro Forma

Combined

Pro Forma

Notes

Interest and dividend income:

Loans, including fees

142,361

73,994

6,711

223,066

Securities and other

32,013

6,323

4,480

42,816

Total interest income

174,374

80,317

11,191

265,882

Interest expense:

Deposits

60,329

25,646

—

85,975

Borrowings

8,620

3,571

150

12,341

Total interest expense

68,949

29,217

150

98,316

Net interest income

105,425

51,100

11,041

167,566

Provision (credit) for credit losses

4,763

(19

)

—

4,744

Net interest income after provision (credit) for credit losses

100,662

51,119

11,041

162,822

Total non-interest income

34,032

7,346

(37

)

41,341

Total non-interest expense

87,381

38,942

1,779

128,102

Income before income taxes

47,313

19,523

9,225

76,061

Provision for income taxes

7,364

3,216

1,937

12,517

Net income

39,949

16,307

7,288

63,544

Basic earnings per common share:

Earnings per share

1.07

2.02

1.09

Weighted average shares outstanding

37,430,415

8,081,573

12,930,517

58,442,505

Diluted earnings per common share:

Earnings per share

1.06

2.01

1.08

Weighted average shares outstanding

37,626,099

8,130,213

13,008,341

58,764,653

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2024

(In thousands, except per share data)

Farmers

Middlefield

Pro Forma

Adjustments

Pro Forma

Combined

Pro Forma

Notes

Interest and dividend income:

Loans, including fees

185,710

92,566

8,948

287,224

Securities and other

42,022

8,696

5,973

56,691

Total interest income

227,732

101,262

14,921

343,915

Interest expense:

Deposits

81,169

33,263

1,037

115,469

Borrowings

18,195

7,319

200

25,714

Total interest expense

99,364

40,582

1,237

141,183

Net interest income

128,368

60,680

13,684

202,732

Provision for credit losses

7,966

2,008

15,143

25,117

Net interest income after provision for credit losses

120,402

58,672

(1,459

)

177,615

Total non-interest income

41,716

7,213

(50

)

48,879

Total non-interest expense

106,691

47,541

12,744

166,976

Income before income taxes

55,427

18,344

(14,253

)

59,518

Provision for income taxes

9,478

2,825

(2,993

)

9,310

Net income

45,949

15,519

(11,260

)

50,208

Basic earnings per common share:

Earnings per share

1.23

1.93

0.86

Weighted average shares outstanding

37,327,848

8,075,300

12,920,480

58,323,628

Diluted earnings per common share:

Earnings per share

1.22

1.92

0.86

Weighted average shares outstanding

37,511,885

8,086,098

12,937,757

58,535,740

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note1 - Under the terms of the Merger Agreement, Middlefield will merge into Farmers, with Middlefield shareholders receiving 2.6 shares of Farmers common shares for each share of Middlefield common shares held. The unaudited pro forma combined condensed consolidated financial statements have been prepared using the acquisition method of accounting, giving effect to the Merger. The unaudited pro forma combined condensed consolidated balance sheet combines the historical information of Farmers and Middlefield as of September 30, 2025, and assumes the Merger was completed on that date. The unaudited pro forma combined condensed consolidated statements of income combine the historical financial information of Farmers and Middlefield and give effect to the Merger as if it had been completed as of January 1, 2024 and carried forward through December 31, 2024 and the nine months ended September 30, 2025.

The preliminary estimated merger consideration and allocation of the purchase price is as follows:

Common shares of Middlefield as of September 30, 2025

8,086,886

Stock based compensation to be converted

240,216

Total shares to be converted

8,327,102

Exchange ratio

2.60

Farmers shares to be issued

21,650,465

Price per share of Farmers common stock (closing price December 3, 2025)

13.97

Preliminary estimated merger consideration

302,457

The purchase price will depend on the market price of Farmers common stock when the acquisition is consummated. Farmers management believes that a 15% fluctuation in the market price of its common stock is reasonably possible based on historical volatility, and the potential effect on purchase price would be:

“Farmers

Share Price”

“Purchase Price

(In Thousands)”

As presented

13.97

302,457

15% increase

16.07

347,826

15% decrease

11.87

257,088

Middlefield

Book Value

Fair Value

Adjustments

Fair Value

Preliminary estimated merger consideration

311,983

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash and due from banks

103,705

Securities available for sale

155,855

Loans held for sale

209

Loans, net of allowance for credit losses

1,583,995

(26,023

)

1,557,972

Premise and equipment

22,426

2,500

24,926

Bank owned life insurance

35,335

Core deposit intangible

23,100

Other assets

36,150

249

36,399

Total identifiable assets acquired

1,937,675

(174

)

1,937,501

Deposits

1,622,302

(1,037

)

1,621,265

Borrowed funds

117,502

(2,400

)

115,102

Other liabilities

14,969

(336

)

14,633

Total liabilities assumed

1,754,773

(3,773

)

1,751,000

Total Identifiable net assets

182,902

3,599

186,501

Goodwill

115,956

Total allocation

182,902

119,555

302,457

A -

Adjustment to loans reflects the estimated interest rate fair value mark on the portfolio of $20.6 million and credit fair value mark related to non-purchased credit-deteriorated (“PCD”) loans of $15.1 million based on estimates of expected cash flows and $13.3 million on loans preliminarily identified as PCD, resulting in a discount on Middlefield’s portfolio. The final component is a $13.3 million increase adjustment, representing a gross up of PCD loans.

B -

Adjustment to reflect the elimination of Middlefield’s ACL totaling $23.0 million, the $13.2 million addition to the ACL attributable to loans identified as PCD and the day 1 recognition of the ACL related to non-PCD loans of $15.1 million.

C -

Adjustments to premises and equipment represents adjustments to appraised values.

D -

Goodwill was adjusted to remove Middlefield’s goodwill totaling $36.4 million and to record estimated goodwill of $116.0 million resulting from the Merger.

E -

Other intangibles were adjusted to remove Middlefield’s core deposit intangible asset totaling $4.9 million and to record the estimated core deposit intangible resulting from the Merger of $23.1 million.

F -

Adjustments to other assets represents a fair value adjustment of $249,000 for mortgage servicing rights and the recording of the estimated net deferred tax asset of $3.5 million resulting from the Merger.

G -

Adjustment to interest-bearing deposits represents time deposits adjusted to fair value.

H -

Adjustment to trust preferreds to reflect liquidity and interest rate estimates resulting in a discount on Middlefield’s debt.

I -

Adjustment to accrue estimated merger-related expenses, net of tax expected to be incurred by Farmers.

J -

Adjustment to eliminate Middlefield’s capital accounts, and to record the issuance of 21,650,465 shares of Farmers common stock to Middlefield’s shareholders.

K -

Adjustment to eliminate Middlefield’s capital surplus

L -

Adjustment to eliminate Middlefield’s retained earnings, to record the after tax merger costs expected to be incurred by Farmers and to record the after-tax provision for credit losses of $12.0 million resulting from the non-PCD loan provision for credit losses recorded immediately following the consumption of the merger.

M -

Adjustment to eliminate Middlefield’s accumulated other comprehensive income.

N -

Adjustment to eliminate Middlefield’s treasury stock.

O -

Adjustment to record loan discount accretion of the estimated fair value mark, based on the expected average life of the portfolio.

P -

Adjustment to record investment securities discount accretion of the estimated fair value mark, based on the expected average life of the portfolio.

Q -

Adjustment to record discount accretion of the estimated fair value mark over the remaining contractual maturity of the underlying instruments stated term.

R -

Adjustment to record the amortization of the estimated fair value mark on mortgage servicing rights over its expected average life.

S -

Adjustment to record amortization of the estimated core deposit intangible (CDI) and estimated fixed asset fair value mark over their expected lives.

T -

Adjustment to recognize the tax impact of pro forma transactions related adjustment at 21%.

U -

Adjustment to Middlefield common shares reflecting the conversion ratio of 2.60 at closing. V - Adjustment to record amortization of estimated time deposit mark.

W -

To record the provision for credit losses of $15.1 million resulting from the non-PCD loan provision for credit losses recorded immediately following the consummation of the Merger.

X -

Adjustment to record amortization of the estimated core deposit intangible (CDI) and estimated fixed asset fair value mark over their expected lives and record merger expense incurred by Farmers.

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