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Note 10 - Risks and Uncertainties | 3 Months Ended
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Mar. 31, 2020
Notes to Financial Statements |
Risks and Uncertainties [Text Block] | NOTE 1 0 – RISKS AND UNCERTAINTIES COVID- 19 Update The following table provides information with respect to our commercial loans by type at March 31, 2020. At Risk
Type |  | Number of Loans |  |  | Balance (in thousands) |  |  | % of Total Loans |
Residential non-owner occupied |  |  | 337 |  |  | $ | 142,725 |  |  |  | 14.30 | %
Retail |  |  | 220 |  |  |  | 197,073 |  |  |  | 19.75 | %
Restaurant/food service/bar |  |  | 48 |  |  |  | 16,868 |  |  |  | 1.69 | %
Hospitality and tourism |  |  | 32 |  |  |  | 45,225 |  |  |  | 4.53 | %
Self-storage facility |  |  | 29 |  |  |  | 25,622 |  |  |  | 2.57 | %
Other |  |  | 121 |  |  |  | 14,218 |  |  |  | 1.42 | %
Total |  |  | 787 |  |  | $ | 441,731 |  |  |  | 44.26 | %
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID- 19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7 (a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible business can apply for a PPP loan up to the greater of: ( 1 ) 2.5 times its average monthly payroll costs; or ( 2 ) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two -year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses. As of May 3, 2020, we approved 1,048 applications for up to $138.1 million of loans under the PPP. Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. Middlefield Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the bank regarding PPP loans, regarding the process and procedures used in processing applications for the PPP. If any such litigation is filed against Middlefield Bank and is not resolved in a manner favorable to Middlefield Bank, it may result in significant financial liability or adversely affect Middlefield Bank’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations. Middlefield Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by Middlefield Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by Middlefield Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from Middlefield Bank. Owner-Occupied Residential Mortgage & Consumer Loans. For residential mortgage and consumer loans, CARES Act Section 4013 forbearance agreements are available to qualified borrowers. As of May 1, 2020, we received inquiries from 59 loan borrowers with aggregate outstanding loan balances of $7.8 million concerning the availability of some form of payment relief. Of these requests, there are no borrowers related to single-family non-owner-occupied loans. Due to the widespread impact of the State of Ohio Stay At Home order, we expect that additional residential loan borrowers will seek loan forbearance or loan modification agreements in the second quarter of 2020. Deferrals As of May 1, 2020, we received requests to modify 606 loans aggregating $333.2 million. As of April 21, 2020, we modified 252 loans aggregating $147.0 million primarily consisting of the deferral of principal and interest payments and the extension of the maturity date. The remaining modifications are in process and are expected to be completed. Details with respect to actual loan modifications are as follows: COVID- 19 Loan Forbearance Programs. Section 4013 of the CARES Act provides that banks may elect not to categorize a loan modification as a TDR if the loan modification is ( 1 ) related to COVID- 19; ( 2 ) executed on a loan that was not more than 30 days past due as of December 31, 2019; and ( 3 ) executed between March 1, 2020, and the earlier of (A) 60 days after the date on which the national emergency concerning the novel coronavirus disease ( COVID–19 ) outbreak declared by the President on March 13, 2020, under the National Emergencies Act terminates, or (B) December 31, 2020. According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory agencies on April 7, 2020, short-term loan modifications not otherwise eligible under Section 4013 that are made on a good faith basis in response to COVID- 19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 8 of the financial statements for additional disclosure of TDRs at March 31, 2020.
Type |  | Number of Loans |  |  | Balance (in thousands) |  |  | % of Total Loans |
Residential non-owner occupied |  |  | 9 |  |  | $ | 2,297 |  |  |  | 0.23 | %
Office |  |  | 9 |  |  |  | 1,776 |  |  |  | 0.18 | %
Retail |  |  | 41 |  |  |  | 52,443 |  |  |  | 5.25 | %
Restaurant/food service/bar |  |  | 8 |  |  |  | 3,320 |  |  |  | 0.33 | %
Hospitality and tourism |  |  | 8 |  |  |  | 4,638 |  |  |  | 0.46 | %
Other |  |  | 113 |  |  |  | 42,547 |  |  |  | 4.26 | %
Total |  |  | 188 |  |  | $ | 107,021 |  |  |  | 10.71 | %

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