##### Table of Contents



United States SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 for the fiscal year ended: December 31, 2008
 Commission
File Number: 000-32561
 Middlefield Banc Corp.
 (Exact name of registrant as specified in its charter)
 Ohio
    
    34-1585111(State or other jurisdiction 
of incorporation or organization)
    
    (IRS Employer
Identification No.)
 
 Address, including zip code, and telephone number,
including area code, of registrants principal executive offices
 Securities registered pursuant to section 12(b) of the Act none
 Securities registered pursuant to section 12(g) of the Act
 Yes
o No
þ
 Yes
o No
þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 Yes
o No
þ
  Documents Incorporated by Reference




---



TABLE OF CONTENTS  Item 1  BusinessItem 1.A  Risk FactorsItem 2  PropertiesItem 3  Legal ProceedingsItem 4  Submission of Matters to a Vote of Security HoldersPart IIItem 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6  Selected Financial DataItem 7  Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A  Quantitative and Qualitative Disclosures About Market RiskItem 8  Financial Statements and Supplementary DataItem 9  Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(T)  Controls and ProceduresItem 9b  Other InformationPart IIIItem 10  Directors and Executive Officers of the RegistrantItem 11  Executive CompensationItem 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13  Certain Relationships and Related TransactionsItem 14  Principal Accountant Fees and ServicesPart IVItem 15  Exhibits, Financial Statement SchedulesSignaturesExhibit IndexExhibit 20Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32    Table of Contents  
 
 Item 1  Business
 Middlefield Banc Corp .
 1.
    
    The Middlefield Banking Company (MBC), an Ohio-chartered commercial bank that began
operations in 1901. MBC engages in a general commercial banking business in northeastern
Ohio. The principal executive office is located at 15985 East High Street, Middlefield,
Ohio 44062-0035, and its telephone number is (440) 632-1666.
 2.
    
    Emerald Bank (EB), an Ohio-chartered commercial bank headquartered in Dublin, Ohio.
EB engages in a general commercial banking business in central Ohio. The principal
executive office is located at 6215 Perimeter Drive, Dublin Ohio 43017, and its telephone
number is (614) 793-4631.
 The Middlefield Banking Company .
   Emerald Bank.
 Market Area.
 Competition .
 Forward-looking Statements.
  1




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
    
    the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than we expect, resulting in a deterioration in the credit quality of our loan assets, among other things
    
    the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest-rate policies of the Federal Reserve Board
    
    inflation, interest rate, market, and monetary fluctuations
    
    the development and acceptance of new products and services of the Company and subsidiaries and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors products and services
    
    the willingness of users to substitute our products and services for those of competitors
    
    the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance)
    
    changes in consumer spending and saving habits
  Lending Loan Portfolio Composition and Activity
    2




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Loan Portfolio Composition at December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentType of loan:Commercial and industrial
    
    $
    66,524
    
    
    
    20.69
    
    
    $
    67,010
    
    
    
    21.65
    
    
    $
    68,496
    
    
    
    27.49
    %
    
    $
    65,252
    
    
    
    27.88
    %
    
    $
    52,148
    
    
    
    24.18
    %Real estate construction
    
    
    7,965
    
    
    
    2.48
    
    
    
    6,704
    
    
    
    2.17
    
    
    
    2,458
    
    
    
    0.99
    
    
    
    2,725
    
    
    
    1.16
    
    
    
    3,144
    
    
    
    1.46Mortgage:Residential
    
    
    199,354
    
    
    
    61.99
    
    
    
    193,514
    
    
    
    62.53
    
    
    
    162,917
    
    
    
    65.38
    
    
    
    151,866
    
    
    
    64.88
    
    
    
    147,425
    
    
    
    68.36Commercial
    
    
    42,789
    
    
    
    13.31
    
    
    
    36,818
    
    
    
    11.90
    
    
    
    9,949
    
    
    
    3.99
    
    
    
    8,208
    
    
    
    3.51
    
    
    
    7,027
    
    
    
    3.26Consumer installment
    
    
    4,943
    
    
    
    1.53
    
    
    
    5,400
    
    
    
    1.75
    
    
    
    5,371
    
    
    
    2.16
    
    
    
    6,004
    
    
    
    2.57
    
    
    
    5,909
    
    
    
    2.74Total loans
    
    
    321,575
    
    
    
    100.00
    
    
    
    309,446
    
    
    
    99.99
    
    
    
    249,191
    
    
    
    100.00
    %
    
    
    234,055
    
    
    
    100.00
    %
    
    
    215,653
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    3,557
    
    
    
    
    
    
    
    3,299
    
    
    
    
    
    
    
    2,849
    
    
    
    
    
    
    
    2,841
    
    
    
    
    
    
    
    2,623Net loans
    
    $
    318,019
    
    
    
    
    
    
    $
    306,147
    
    
    
    
    
    
    $
    246,342
    
    
    
    
    
    
    $
    231,214
    
    
    
    
    
    
    $
    213,030
  Loan Portfolio Maturity at December 31,2008Commercialand
    
    
    Real Estate
    
    
    Mortgage
    
    
    Consumer(Dollars in thousands)
    
    Industrial
    
    
    Construction
    
    
    Residential
    
    
    Commercial
    
    
    Installment
    
    
    TotalAmount due:In one year or less
    
    $
    15,435
    
    
    $
    2,978
    
    
    $
    1,588
    
    
    $
    868
    
    
    $
    1,274
    
    
    $
    22,143After one year through five years
    
    
    15,306
    
    
    
    1,443
    
    
    
    9,599
    
    
    
    6,132
    
    
    
    3,447
    
    
    
    35,927After five years
    
    
    35,783
    
    
    
    3,544
    
    
    
    188,167
    
    
    
    35,789
    
    
    
    222
    
    
    
    263,505Total amount due
    
    $
    66,524
    
    
    $
    7,965
    
    
    $
    199,354
    
    
    $
    42,789
    
    
    $
    4,943
    
    
    $
    321,575
   Fixed
    
    
    Adjustable(Dollars in thousands)
    
    Rate
    
    
    Rate
    
    
    TotalCommercial and industrial
    
    $
    27,231
    
    
    $
    39,293
    
    
    $
    66,524Real estate construction
    
    
    1,905
    
    
    
    6,060
    
    
    
    7,965Mortgage:Residential
    
    
    27,680
    
    
    
    171,674
    
    
    
    199,354Commercial
    
    
    7,567
    
    
    
    35,222
    
    
    
    42,789Consumer installment
    
    
    4,938
    
    
    
    5
    
    
    
    4,943$
    69,321
    
    
    $
    252,254
    
    
    $
    321,575
  3




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Residential Mortgage Loans .
     Commercial and Industrial Loans and Commercial Real Estate Loans . include

 
    
    accounts receivable, inventory and working capital loans
    
    renewable operating lines of credit
    
    loans to finance capital equipment
    
    term business loans
    
    short-term notes
 
    
    selected guaranteed or subsidized loan programs
for small businesses
 
    
    loans to professionals
 
    
    commercial real estate loans
     Real Estate Construction.
 
    
    residential construction loans to borrowers who will occupy the premises upon completion of construction,
    
    residential construction loans to builders,
    
    commercial construction loans, and
    
    real estate acquisition and development loans.
  4




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Consumer Installment Loans .
   Loan Solicitation and Processing .
  Income from Lending Activities .
 Nonperforming Loans.
   Classified Assets .
  5




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Classified Assets at December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of(Dollars in thousands)
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    

total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loansClassified loans:Special mention
    
    $
    5,134
    
    
    
    1.60
    %
    
    $
    5,302
    
    
    
    1.71
    %
    
    $
    7,394
    
    
    
    2.97
    %
    
    $
    6,567
    
    
    
    2.81
    %
    
    $
    4,094
    
    
    
    1.90
    %Substandard
    
    
    5,350
    
    
    
    1.66
    %
    
    
    1,029
    
    
    
    0.33
    %
    
    
    1,515
    
    
    
    0.61
    %
    
    
    2,020
    
    
    
    0.86
    %
    
    
    3,097
    
    
    
    1.44
    %Doubtful
    
    
    420
    
    
    
    0.13
    %
    
    
    835
    
    
    
    0.27
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    163
    
    
    
    0.08
    %Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total amount
due
    
    $
    10,904
    
    
    
    3.39
    %
    
    $
    7,166
    
    
    
    2.31
    %
    
    $
    8,909
    
    
    
    3.58
    %
    
    $
    8,587
    
    
    
    3.67
    %
    
    $
    7,354
    
    
    
    3.42
    %
  Investments.
    6




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Investment Portfolio Amortized Cost and Fair Value at December 31,2008
    
    
    2007
    
    
    2006Amortized
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    Amortized(Dollars in thousands)
    
    cost
    
    
    Fair value
    
    
    cost
    
    
    Fair value
    
    
    cost
    
    
    Fair valueAvailable for Sale:U.S. Government
agency securities
    
    $
    4,377
    
    
    $
    4,504
    
    
    $
    7,873
    
    
    $
    7,927
    
    
    $
    7,253
    
    
    $
    7,145Obligations of states
and political
subdivisions:Taxable
    
    
    500
    
    
    
    496
    
    
    
    749
    
    
    
    742
    
    
    
    748
    
    
    
    727Tax-exempt
    
    
    44,328
    
    
    
    43,684
    
    
    
    47,263
    
    
    
    46,929
    
    
    
    38,182
    
    
    
    37,968Corporate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed
securities
    
    
    54,568
    
    
    
    54,564
    
    
    
    29,219
    
    
    
    29,046
    
    
    
    16,959
    
    
    
    16,469Equity securities
    
    
    944
    
    
    
    1,022
    
    
    
    944
    
    
    
    1,324
    
    
    
    694
    
    
    
    739Total
    
    $
    104,717
    
    
    $
    104,270
    
    
    $
    86,048
    
    
    $
    85,968
    
    
    $
    63,836
    
    
    $
    63,048Held to Maturity:Obligations of states
and political
subdivisions:
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126
    
    
    $
    134Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126
    
    
    $
    134Total Investment
Securities
    
    $
    104,717
    
    
    $
    104,270
    
    
    $
    86,048
    
    
    $
    85,968
    
    
    $
    63,962
    
    
    $
    63,182
  31-Dec-08More than one to
    
    
    More than five to
    
    
    
    
    
    
    
    
    
    
    Total investment securities andOne year or less
    
    
    five years
    
    
    ten years
    
    
    More than ten years
    
    
    mortgage-backed securitiesAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Marketcost
    
    
    yield
    
    
    cost
    
    
    yield
    
    
    cost
    
    
    yield
    
    
    cost
    
    
    yield
    
    
    cost
    
    
    yield
    
    
    valueU.S. Government
agency securities
    
    $
    602
    
    
    
    4.65
    
    
    $
    
    
    
    
    
    
    
    $
    500
    
    
    
    5.00
    
    
    $
    3,274
    
    
    
    5.56
    
    
    $
    4,377
    
    
    
    5.37
    
    
    $
    4,504Obligations of
states and
political
subdivisions:Taxable
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    4.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    3.83
    
    
    
    496Tax-exempt
    
    
    558
    
    
    
    5.46
    
    
    
    4,543
    
    
    
    5.49
    
    
    
    10,069
    
    
    
    5.84
    
    
    
    29,158
    
    
    
    6.23
    
    
    
    44,328
    
    
    
    6.05
    
    
    
    43,684Mortgage-backed
securities
    
    
    84
    
    
    
    3.83
    
    
    
    596
    
    
    
    4.12
    
    
    
    2,195
    
    
    
    5.59
    
    
    
    51,694
    
    
    
    5.79
    
    
    
    54,568
    
    
    
    5.76
    
    
    
    54,564Equity Securities
    
    
    944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    944
    
    
    
    
    
    
    
    1,022Total
    
    $
    2,188
    
    
    
    2.82
    %
    
    $
    5,639
    
    
    
    5.23
    %
    
    $
    12,764
    
    
    
    5.76
    %
    
    $
    84,126
    
    
    
    5.93
    %
    
    $
    104,717
    
    
    
    5.81
    %
    
    $
    104,270
  7




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Sources of Funds Deposit Accounts
  Maturity of Time Deposits of$100,000 or more atDecember 31, 2008Amount
    
    
    Percent of TotalWithin three months
    
    $
    11,084,068
    
    
    
    15.91
    %Beyond three but within six months
    
    
    15,137,052
    
    
    
    21.73Beyond six but within twelve months
    
    
    18,782,587
    
    
    
    26.96Beyond one year
    
    
    24,659,571
    
    
    
    35.40Total
    
    $
    69,663,278
    
    
    
    100.00
 Borrowings
  2008
    
    
    2007
    
    
    2006Balance at year-end
    
    $
    1,886,253
    
    
    $
    1,510,607
    
    
    
    1,609,738Average balance outstanding
    
    
    2,967,069
    
    
    
    2,383,902
    
    
    
    3,281,340Maximum month-end balance
    
    
    6,057,893
    
    
    
    5,768,057
    
    
    
    8,245,406Weighted-average rate at year-end
    
    
    1.10
    %
    
    
    2.96
    %
    
    
    4.35
    %Weighted-average rate during the year
    
    
    1.55
    %
    
    
    3.89
    %
    
    
    5.10
    %
 Personnel
  Supervision and Regulation
    8




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Regulation of Bank Holding Companies Bank and Bank Holding Company Acquisitions
 
    
    directly or indirectly acquiring ownership or control of any voting
 shares of another bank or bank holding company, if after the
acquisition the acquiring company would own or control more than 5% of
the shares of the other bank or bank holding company (unless the
acquiring company already owns or controls a majority of the shares),
    
    acquiring all or substantially all of the assets of another bank, or
    
    merging or consolidating with another bank holding company.
   Nonbanking Activities
 Financial Holding Companies
 
    
    financial in nature or incidental to that financial activity, or
    
    complementary to a financial activity and that does not pose a
substantial risk to the safety and soundness of depository
institutions or the financial system generally.
  9




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
    
    acting as principal, agent, or broker for insurance,
    
    underwriting, dealing in, or making a market in securities, and
    
    providing financial and investment advice.
  Holding Company Capital and Source of Strength
  Liability of Commonly Controlled Institutions.
 Federal Deposit Insurance.
   Interstate Banking and Branching.
  10




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de
novo de novo de novo
 Capital Risk-Based Capital Requirements
   
    
    the allowance for loan losses, up to a maximum of 1.25% of risk-weighted assets,
    
    any qualifying perpetual preferred stock exceeding the amount includable in Tier 1 capital,
    
    mandatory convertible securities, and
    
    subordinated debt and intermediate term preferred stock, up to 50% of Tier 1 capital.
     11




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Prompt Corrective Action
  2008
    
    
    2007Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital(to Risk-weighted Assets)Actual
    
    $
    42,281,067
    
    
    
    13.57
    
    
    $
    42,664,943
    
    
    
    14.56For Capital Adequacy Purposes
    
    
    24,931,715
    
    
    
    8.00
    
    
    
    23,441,926
    
    
    
    8.00To Be Well Capitalized
    
    
    31,164,644
    
    
    
    10.00
    
    
    
    29,303,408
    
    
    
    10.00Tier I Capital(to Risk-weighted Assets)Actual
    
    $
    38,689,258
    
    
    
    12.41
    
    
    $
    39,194,767
    
    
    
    13.38For Capital Adequacy Purposes
    
    
    12,465,858
    
    
    
    4.00
    
    
    
    11,720,963
    
    
    
    4.00To Be Well Capitalized
    
    
    18,698,787
    
    
    
    6.00
    
    
    
    17,581,445
    
    
    
    6.00Tier I Capital(to Average Assets)Actual
    
    $
    38,689,258
    
    
    
    8.66
    
    
    $
    39,194,767
    
    
    
    9.23For Capital Adequacy Purposes
    
    
    17,860,169
    
    
    
    4.00
    
    
    
    16,990,099
    
    
    
    4.00To Be Well Capitalized
    
    
    22,325,211
    
    
    
    5.00
    
    
    
    21,237,623
    
    
    
    5.00
 Limits on Dividends and Other Payments.
   Recent Legislation.
  12




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Transactions with Affiliates.
 
    
    limit the extent to which a bank or its subsidiaries may lend to or engage in various other kinds of
transactions with any one affiliate to an amount equal to 10% of the institutions capital and surplus,
limiting the aggregate of covered transactions with all affiliates to 20% of capital and surplus,
    
    impose restrictions on investments by a subsidiary bank in the stock or securities of its holding company,
    
    impose restrictions on the use of a holding companys stock as collateral for loans by the subsidiary bank, and
    
    require that affiliate transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate.
  Community Reinvestment Act.
   13




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Federal Home Loan Bank.
  State Banking Regulation.
 Monetary Policy.
 
 
 Item 1.A
 Risk Factors
 Risks Related to the Companys Business
 Recent negative developments in the financial industry and the domestic credit market may
adversely affect the Companys operations and results .
 There can be no assurance that recent legislative and regulatory initiatives to address
difficult market and economic conditions will stabilize the U.S. banking system
  14




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The Company operates in a highly competitive industry and market area
  
    
    the ability to develop, maintain, and build long-term customer relationships
based on top quality service, high ethical standards, and safe, sound assets;
    
    the ability to expand the Companys market position;
    
    the scope, relevance, and pricing of products and services offered to meet
customer needs and demands;
    
    the rate at which the Company introduces new products and services relative to
its competitors;
    
    customer satisfaction with the Companys level of service; and
    
    industry and general economic trends.
  15




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The Company may not be able to attract and retain skilled people .
 The Company does not have the financial and other resources that larger competitors have; this
could affect its ability to compete for large commercial loan originations and its ability to offer
products and services competitors provide to customers .
 The business of banking is changing rapidly with changes in technology, which poses financial
and technological challenges to small and mid-sized institutions
 The banking industry is heavily regulated; the compliance burden to the industry is
considerable; the principal beneficiary of federal and state regulation is the public at large and
depositors, not stockholders
  Success in the banking industry requires disciplined management of lending risks .
   16




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##### Table of Contents



Changing interest rates have a direct and immediate impact on financial institutions
 A prolonged economic downturn in our market area would adversely affect our loan portfolio and
our growth prospects
 The Company could incur liabilities under federal and state environmental laws if we foreclose
on commercial properties
 Changes in accounting standards could materially impact our consolidated financial statements
  17




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##### Table of Contents



There are risks with respect to future expansion and acquisitions or mergers
 
    
    the time and expense associated with identifying and evaluating potential
acquisitions and merger partners;
    
    using inaccurate estimates and judgments to evaluate credit, operations,
management, and market risks with respect to the target institution or assets;
    
    diluting our existing shareholders in an acquisition;
    
    the time and expense associated with evaluating new markets for expansion, hiring
experienced local management, and opening new offices;
    
    taking a significant amount of time negotiating a transaction or working on
expansion plans, resulting in managements attention being diverted from the operation
of our existing business; and
    
    the time and expense associated with integrating the operations and personnel of
the combined businesses, creating an adverse short-term effect on our results of
operations.
  Compliance with Sarbanes-Oxley Act will involve significant expenditures, and non-compliance
may adversely affect us
 The Company utilizes the Federal Home Loan Bank as an additional source of liquidity
   18




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##### Table of Contents



Our deposit insurance premium could be substantially higher in the future which would have an
adverse effect on future earnings
    Government regulation could restrict our ability to pay cash dividends
 Risks Associated with the Companys Common Stock
 An investment in the Companys common stock is not an insured deposit
 The Companys common stock is very thinly traded, and it is therefore susceptible to wide
price swings
  19




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##### Table of Contents



Item 2  Properties
  Location
    
    County
    
    Owned/Leased
    
    Other InformationMain Office:15985 East High Street
    
    Geauga
    
    OwnedMiddlefield, OhioBranches:West Branch
    
    Geauga
    
    Owned15545 West High StreetMiddlefield, OhioGarrettsville Branch
    
    Portage
    
    Owned8058 State StreetGarrettsville, OhioMantua Branch
10519 South Main Street
Mantua, Ohio
    
    Portage
    
    Leased
    
    three-year lease renewed
in November 2007, with
option to renew for six
additional consecutive
three-year termsChardon Branch
    
    Geauga
    
    Owned
    
    opened in September, 2001348 Center StreetChardon, OhioOrwell Branch
    
    Ashtabula
    
    Owned
    
    opened in April, 200330 South Maple AvenueOrwell, OhioNewbury Branch
11110 Kinsman Road
Newbury, Ohio
    
    Geauga
    
    Leased
    
    ten-year lease dated
December 2006, with
option to renew for four
additional consecutive
five-year termsCortland Branch
    
    Trumbull
    
    Owned
    
    opened in June, 20083450 Niles Cortland RoadCortland, OhioEmerald Bank
6215 Perimeter Drive
Dublin, OH
    
    Franklin
    
    Leased
    
    twenty-year lease dated Febuary 2004, with the option to purchase after the tenth yearWesterville Branch (Emerald Bank)
    
    Franklin
    
    Owned
    
    opened in November, 200817 North State StreetWesterville, OH
    20




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##### Table of Contents



Item 3  Legal Proceedings
  
 
 Item 4  Submission of Matters to a Vote of Security Holders
  
 
 Part II
 
 
 Item 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  Equity Compensation Plan information
  Number of SecuritiesNumber of
    
    
    
    
    
    
    Remaining AvailableSecurities
    
    
    
    
    
    
    for Future Issuanceto be Issued Upon
    
    
    Weighted-Average
    
    
    Under EquityExercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding
    
    
    Outstanding
    
    
    (Excluding SecuritiesPlan Category
    
    Options or Rights
    
    
    Options or Rights
    
    
    Reflected in Column A)Equity compensation plans approved by
security holders:1999 Stock Option Plan
    
    
    110,465
    
    
    
    27.21
    
    
    
    89,535
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 
 Item 6  Selected Financial Data
  
 
 Item 7  Managements Discussion and Analysis of Financial Condition and Results of
Operations
  
 
 Item 7A  Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate
Sensitivity Simulation Analysis
 
 
 Item 8  Financial Statements and Supplementary Data
   21




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##### Table of Contents



Item 9  Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 
 Item 9a(T)  Controls and Procedures
 (a)
    
    Disclosure Controls and ProceduresThe Companys management, including the Companys principal executive officer and
principal financial officer, have evaluated the effectiveness of the Companys
disclosure controls and procedures, as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange
Act). Based upon their evaluation, the principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this report,
the Companys disclosure controls and procedures were effective for the purpose of
ensuring that the information required to be disclosed in the reports that the Company
files or submits under the Exchange Act with the Securities and Exchange Commission
(the SEC) (1) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and (2) is accumulated and communicated to the
Companys management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure.(b)
    
    Internal Controls Over Financial ReportingManagements annual report on internal control over financial reporting is
incorporated herein by reference to Item 8  the Companys audited Consolidated
Financial Statements in this Annual Report on Form 10-K.(c)
    
    Changes to Internal Control Over Financial ReportingThere were no changes in the Companys internal control over financial reporting during
the three months ended December 31, 2008 that have materially affected, or are
reasonable likely to materially affect, the Companys internal control over financial
reporting.
 
 
 Item 9b  Other Information
  
 
 Part III
 
 
 Item 10  Directors and Executive Officers of the Registrant
  
 
 Item 11  Executive Compensation
  
 
 Item 12  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 
 Item 13  Certain Relationships and Related Transactions
  
 
 Item 14  Principal Accountant Fees and Services
   22




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##### Table of Contents



Part IV
 
 
 Item 15  Exhibits, Financial Statement Schedules
 Financial Statements
 Index to Consolidated Financial Statements:
        Financial Statement Schedules
  Exhibits
  Exhibits Required by Item 601 of Regulation S-K
 exhibitnumber
    
    description
    
    location3.1
    
    
    Second Amended and Restated Articles of Incorporation
of Middlefield Banc Corp., as amended
    
    Incorporated by reference to Exhibit 3.1 of
Middlefield Banc Corp.s Annual Report on
Form 10-K for the Fiscal Year Ended December
31, 2005, filed on March 29, 20063.2
    
    
    Regulations of Middlefield Banc Corp.
    
    Incorporated by reference to Exhibit 3.2 of
Middlefield Banc Corp.s registration
statement on Form 10 filed on April 17, 20014.0
    
    
    Specimen stock certificate
    
    Incorporated by reference to Exhibit 4 of
Middlefield Banc Corp.s registration
statement on Form 10 filed on April 17, 20014.1
    
    
    Amended and Restated Trust Agreement, dated as of
December 21, 2006, between Middlefield Banc Corp., as
Depositor, Wilmington Trust Company, as Property
trustee, Wilmington Trust Company, as Delaware
Trustee, and Administrative Trustees
    
    Incorporated by reference to Exhibit 4.1 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on December 27, 20064.2
    
    
    Junior Subordinated Indenture, dated as of December
21, 2006, between Middlefield Banc Corp. and
Wilmington Trust Company
    
    Incorporated by reference to Exhibit 4.2 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on December 27, 20064.3
    
    
    Guarantee Agreement, dated as of December 21, 2006,
between Middlefield Banc Corp. and Wilmington Trust
Company
    
    Incorporated by reference to Exhibit 4.3 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on December 27, 200610.1.0
    *
    
    1999 Stock Option Plan of Middlefield Banc Corp.
    
    Incorporated by reference to Exhibit 10.1 of
Middlefield Banc Corp.s registration
statement on Form 10 filed on April 17, 2001
  23




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##### Table of Contents



exhibitnumber
    
    description
    
    location10.1.1
    *
    
    2007 Omnibus Equity Plan
    
    Incorporated by reference to Middlefield
Banc Corp.s definitive proxy statement for
the 2008 Annual Meeting of Shareholders,
Appendix A, filed on April 7, 200810.2
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Thomas G. Caldwell, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.2 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.3
    *
    
    Severance Agreement between Middlefield Banc Corp. and
James R. Heslop, II, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.3 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.4.0
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Jay P. Giles, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.4 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.4.1
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Teresa M. Hetrick, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.4.1
of Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.4.2
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Jack L. Lester, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.4.2
of Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.4.3
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Donald L. Stacy, dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.4.3
of Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.4.4
    *
    
    Severance Agreement between Middlefield Banc Corp. and
Alfred F. Thompson Jr., dated January 7, 2008
    
    Incorporated by reference to Exhibit 10.4.4
of Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.5
    
    
    Federal Home Loan Bank of Cincinnati Agreement for
Advances and Security Agreement dated September 14,
2000
    
    Incorporated by reference to Exhibit 10.4 of
Middlefield Banc Corp.s registration
statement on Form 10 filed on April 17, 200110.6
    *
    
    Amended Director Retirement Agreement with Richard T.
Coyne
    
    Incorporated by reference to Exhibit 10.6 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.7
    *
    
    Amended Director Retirement Agreement with Frances H.
Frank
    
    Incorporated by reference to Exhibit 10.7 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.8
    *
    
    Amended Director Retirement Agreement with Thomas C.
Halstead
    
    Incorporated by reference to Exhibit 10.8 of
Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.9
    *
    
    Director Retirement Agreement with George F. Hasman
    
    Incorporated by reference to Exhibit 10.9 of
Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2001, filed on March 28, 200210.10
    *
    
    Director Retirement Agreement with Donald D. Hunter
    
    Incorporated by reference to Exhibit 10.10
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2001, filed on March 28, 200210.11
    *
    
    Director Retirement Agreement with Martin S. Paul
    
    Incorporated by reference to Exhibit 10.11
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2001, filed on March 28, 2002
  24




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##### Table of Contents



exhibitnumber
    
    description
    
    location10.12
    *
    
    Amended Director Retirement Agreement with Donald E.
Villers
    
    Incorporated by reference to Exhibit 10.12
of Middlefield Banc Corp.s Form 8-K Current
Report filed on January 9, 200810.13
    *
    
    Executive Survivor Income Agreement (aka DBO agreement
[death benefit only]) with Donald L. Stacy
    
    Incorporated by reference to Exhibit 10.14
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.14
    *
    
    DBO Agreement with Jay P. Giles
    
    Incorporated by reference to Exhibit 10.15
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.15
    *
    
    DBO Agreement with Alfred F. Thompson Jr.
    
    Incorporated by reference to Exhibit 10.16
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.16
    *
    
    DBO Agreement with Nancy C. Snow
    
    Incorporated by reference to Exhibit 10.17
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.17
    *
    
    DBO Agreement with Theresa M. Hetrick
    
    Incorporated by reference to Exhibit 10.18
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.18
    *
    
    DBO Agreement with Jack L. Lester
    
    Incorporated by reference to Exhibit 10.19
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.19
    *
    
    DBO Agreement with James R. Heslop, II
    
    Incorporated by reference to Exhibit 10.20
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.20
    *
    
    DBO Agreement with Thomas G. Caldwell
    
    Incorporated by reference to Exhibit 10.21
of Middlefield Banc Corp.s Annual Report on
Form 10-K for the Year Ended December 31,
2003, filed on March 30, 200410.21
    *
    
    Form of Indemnification Agreement with directors of
Middlefield Banc Corp. and with executive officers of
Middlefield Banc Corp. and The Middlefield Banking
Company
    
    Incorporated by reference to Exhibit 99.1 of
Middlefield Banc Corp.s registration
statement on Form 10, Amendment No. 1, filed
on June 14, 200110.22
    *
    
    Annual Incentive Plan Summary
    
    Incorporated by reference to the summary
description of the annual incentive plan
included as Exhibit 10.22 of Middlefield
Banc Corp.s Form 8-K Current Report filed
on December 16, 200510.23
    *
    
    Amended Executive Deferred Compensation Agreement with
Thomas G. Caldwell
    
    Incorporated by reference to Exhibit 10.23
of Middlefield Banc Corp.s Form 8-K Current
Report filed on May 9, 200810.24
    *
    
    Amended Executive Deferred Compensation Agreement with
James R. Heslop, II
    
    Incorporated by reference to Exhibit 10.24
of Middlefield Banc Corp.s Form 8-K Current
Report filed on May 9, 2008
  25




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##### Table of Contents



exhibitnumber
    
    description
    
    location10.25
    *
    
    Amended Executive Deferred Compensation Agreement with
Donald L. Stacy
    
    Incorporated by reference to Exhibit 10.25
of Middlefield Banc Corp.s Form 8-K Current
Report filed on May 9, 200813
    
    
    Portions of the Annual Report for the year ended
December 31, 2008
    
    Incorporated by reference into this Form 10-K20
    
    
    Managements Annual Report on Internal Control Over
Financial Reporting
    
    filed herewith21
    
    
    Subsidiaries of Middlefield Banc Corp.
    
    filed herewith23
    
    
    Consent of S.R. Snodgrass, A.C., independent auditors
of Middlefield Banc Corp.
    
    filed herewith31.1
    
    
    Rule 13a-14(a) certification of Chief Executive Officer
    
    filed herewith31.2
    
    
    Rule 13a-14(a) certification of Chief Financial Officer
    
    filed herewith32
    
    
    Rule 13a-14(b) certification
    
    filed herewith
 *
    
    management contract or compensatory plan or arrangement  26




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Signatures
  Middlefield Banc Corp.By:
    /s/ Thomas G. CaldwellThomas G. CaldwellPresident and Chief Executive OfficerMarch 20, 2009  /s/ Thomas G. Caldwell

Thomas G. Caldwell
    
    
    
    March 20, 2009President, Chief Executive Officer, and Director/s/ Donald L. Stacy
    
    
    
    March 20, 2009Donald L. Stacy, Treasurer and Chief Financial Officer(Principal accounting and financial officer)/s/ Richard T. Coyne

Richard T. Coyne, Chairman of the Board
    
    
    
    March 20, 2009/s/ Frances H. Frank

Frances H. Frank, Director
    
    
    
    March 20, 2009/s/ James R. Heslop, II

James R. Heslop, II, Executive Vice President,
    
    
    
    March 20, 2009Chief Operating Officer, and Director/s/ Kenneth E. Jones

Kenneth E. Jones, Director
    
    
    
    March 20, 2009/s/ James McCaskey

James McCaskey, Director
    
    
    
    March 20, 2009/s/ Carolyn Turk

Carolyn Turk, Director
    
    
    
    March 20, 2009/s/ William J. Skidmore

William J. Skidmore, Director
    
    
    
    March 20, 2009/s/ Donald E. Villers

Donald E. Villers, Director
    
    
    
    March 20, 2009
  27




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##### Table of Contents



Statistical Summary
    
    
    2Decade of Progress
    
    
    4Letter to Our Shareholders
    
    
    8Letter from the Chairman
    
    
    10Middlefield Banc Corp. Board of Directors
    
    
    11Emerald Bank Directors, Officers & Staff
    
    
    14Emerald Bank Branch Locations
    
    
    15The Middlefield Banking Company Staff
    
    
    16The Middlefield Banking Company Officers
    
    
    17The Middlefield Banking Company Branch Locations
    
    
    18Financials
    
    
    21




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1999
    
    
    2000
    
    
    2001Interest Income
    
    $
    11,448,619
    
    
    $
    12,770,170
    
    
    $
    13,706,569Interest Expense
    
    
    5,048,276
    
    
    
    5,909,884
    
    
    
    6,747,922Net Interest Income
    
    
    6,400,343
    
    
    
    6,860,286
    
    
    
    6,958,647Provision for Loan Loss
    
    
    296,000
    
    
    
    275,000
    
    
    
    170,000Net Interest Income After Provision for
Loan Losses
    
    
    6,104,343
    
    
    
    6,585,286
    
    
    
    6,788,647Noninterest Income, Including Security
Gains/Losses
    
    
    804,358
    
    
    
    982,663
    
    
    
    1,194,193Nonintest Expense
    
    
    4,254,374
    
    
    
    4,408,617
    
    
    
    4,741,374Income Before Income Taxes
    
    
    2,654,327
    
    
    
    3,159,332
    
    
    
    3,241,466Income Taxes
    
    
    735,318
    
    
    
    992,661
    
    
    
    970,859Net Income
    
    $
    1,919,009
    
    
    $
    2,166,671
    
    
    $
    2,270,607Total Assets
    
    $
    165,512,453
    
    
    $
    176,488,813
    
    
    $
    197,857,964Deposits
    
    
    135,094,459
    
    
    
    147,166,046
    
    
    
    167,382,728Equity Capital
    
    
    17,689,055
    
    
    
    18,243,362
    
    
    
    19,786,807Loans Outstanding, Net
    
    
    119,471,741
    
    
    
    133,266,893
    
    
    
    150,766,103Allowance For Loan Losses
    
    
    1,756,137
    
    
    
    2,037,322
    
    
    
    2,062,252Net Charge Offs (Recoveries)
    
    
    78,589
    
    
    
    (6,185
    )
    
    
    145,070Full Time Employees (Average Equivalents)
    
    
    61
    
    
    
    57
    
    
    
    64Number of Offices
    
    
    4
    
    
    
    4
    
    
    
    5Earnings Per Share
    
    $
    1.25
    
    
    $
    1.50
    
    
    $
    1.54Dividends Per Share
    
    
    0.38
    
    
    
    0.40
    
    
    
    0.52Book Value Per Share
    
    
    12.13
    
    
    
    12.96
    
    
    
    13.93Dividends Pay-out Ratio
    
    
    29.82
    %
    
    
    27.47
    %
    
    
    34.00
    %Cash Dividends Paid
    
    $
    572,343
    
    
    $
    595,255
    
    
    $
    772,068Return on Average Assets
    
    
    1.21
    %
    
    
    1.31
    %
    
    
    1.22
    %Return on Average Equity
    
    
    11.17
    %
    
    
    12.83
    %
    
    
    11.89
    %




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##### Table of Contents



2002
    
    
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008$
    14,119,963
    
    
    
    
    $
    14,647,163
    
    
    $
    15,732,536
    
    
    $
    17,378,504
    
    
    $
    19,494,550
    
    
    $
    24,871,934
    
    
    $
    26,037,8136,148,086
    
    
    
    
    
    5,724,907
    
    
    
    5,768,898
    
    
    
    6,654,614
    
    
    
    8,567,442
    
    
    
    13,530,919
    
    
    
    14,058,0847,971,877
    
    
    
    
    
    8,922,256
    
    
    
    9,963,638
    
    
    
    10,723,890
    
    
    
    10,927,108
    
    
    
    11,341,015
    
    
    
    11,979,729300,000
    
    
    
    
    
    315,000
    
    
    
    174,000
    
    
    
    302,000
    
    
    
    60,000
    
    
    
    429,391
    
    
    
    608,0007,671,877
    
    
    
    
    
    8,607,256
    
    
    
    9,789,638
    
    
    
    10,421,890
    
    
    
    10,867,108
    
    
    
    10,911,624
    
    
    
    11,371,7291,143,217
    
    
    
    
    
    1,428,144
    
    
    
    1,779,231
    
    
    
    2,119,237
    
    
    
    2,427,455
    
    
    
    2,632,592
    
    
    
    2,226,5065,206,339
    
    
    
    
    
    6,105,450
    
    
    
    6,965,706
    
    
    
    7,424,640
    
    
    
    7,938,373
    
    
    
    9,372,650
    
    
    
    10,596,3533,608,755
    
    
    
    
    
    3,929,950
    
    
    
    4,603,163
    
    
    
    5,116,487
    
    
    
    5,356,190
    
    
    
    4,171,566
    
    
    
    3,001,8821,107,806
    
    
    
    
    
    1,131,330
    
    
    
    1,330,000
    
    
    
    1,415,156
    
    
    
    1,471,943
    
    
    
    796,223
    
    
    
    387,003$
    2,500,949
    
    
    
    
    $
    2,798,620
    
    
    $
    3,273,163
    
    
    $
    3,701,331
    
    
    $
    3,884,247
    
    
    $
    3,375,343
    
    
    $
    2,614,879$
    226,245,533
    
    
    
    
    $
    262,369,448
    
    
    $
    291,213,986
    
    
    $
    311,214,191
    
    
    $
    340,603,704
    
    
    $
    434,273,056
    
    
    $
    467,846,935187,384,494
    
    
    
    
    
    219,839,910
    
    
    
    239,885,451
    
    
    
    249,449,640
    
    
    
    271,050,193
    
    
    
    362,918,000
    
    
    
    394,819,60221,746,408
    
    
    
    
    
    23,504,314
    
    
    
    24,822,024
    
    
    
    27,289,365
    
    
    
    30,463,934
    
    
    
    34,961,384
    
    
    
    35,059,248172,642,646
    
    
    
    
    
    190,358,883
    
    
    
    213,029,852
    
    
    
    231,213,699
    
    
    
    246,341,647
    
    
    
    306,146,646
    
    
    
    318,018,5302,300,485
    
    
    
    
    
    2,521,270
    
    
    
    2,623,431
    
    
    
    2,841,098
    
    
    
    2,848,887
    
    
    
    3,299,276
    
    
    
    3,556,76361,767
    
    
    
    
    
    94,215
    
    
    
    71,839
    
    
    
    84,333
    
    
    
    52,211
    
    
    
    415,065
    
    
    
    350,51366
    
    
    
    
    
    72
    
    
    
    73
    
    
    
    75
    
    
    
    80
    
    
    
    91
    
    
    
    1015
    
    
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    8
    
    
    
    9
    
    
    
    10$
    1.68
    
    
    
    
    $
    1.89
    
    
    $
    2.18
    
    
    $
    2.50
    
    
    $
    2.60
    
    
    $
    2.17
    
    
    $
    1.720.58
    
    
    
    
    
    0.65
    
    
    
    0.72
    
    
    
    0.80
    
    
    
    0.87
    
    
    
    0.94
    
    
    
    1.0315.35
    
    
    
    
    
    16.49
    
    
    
    17.67
    
    
    
    19.25
    
    
    
    20.30
    
    
    
    22.56
    
    
    
    22.8334.30
    %
    
    
    
    
    34.37
    %
    
    
    32.72
    %
    
    
    31.69
    %
    
    
    33.43
    %
    
    
    43.07
    %
    
    
    60.25
    %$
    857,751
    
    
    
    
    $
    961,901
    
    
    $
    1,070,833
    
    
    $
    1,173,044
    
    
    $
    1,298,567
    
    
    $
    1,453,707
    
    
    $
    1,575,4821.17
    %
    
    
    
    
    1.13
    %
    
    
    1.17
    %
    
    
    1.23
    %
    
    
    1.22
    %
    
    
    0.85
    %
    
    
    0.58
    %12.08
    %
    
    
    
    
    12.39
    %
    
    
    13.36
    %
    
    
    14.43
    %
    
    
    13.59
    %
    
    
    10.06
    %
    
    
    7.91
    %




---



##### Table of Contents








---



##### Table of Contents








---



##### Table of Contents



President and Chief Executive Officer
 To our Shareholders and Friends




---



##### Table of Contents



President and Chief Executive Officer




---



##### Table of Contents



Chairman, Board of Directors
 
 Chairmans Report to the Shareholders
       
 Chairman, Board of Directors




---



##### Table of Contents



Board of Directors
 (PHOTO OF RICHARD T. COYNE)
    
    Richard T. Coyne  1997Chairman, Board of Directors,
Middlefield Banc Corp.
The Middlefield Banking Company
Retired: Jaco Products and Capital Plastics
    
    (PHOTO OF JAMES J. MCCASKEY)
    
    James J. McCaskey  2004
President
McCaskey Landscape and Design, LLC(PHOTO OF DONALD E. VILLERS)
    
    Donald E. Villers  1987
Retired: Copperweld Steel
    
    (PHOTO OF CAROLYN J. TURK)
    
    Carolyn J. Turk, C.P.A.  2004
Chief Financial Officer/Treasurer
Molded Fiber Glass Companies(PHOTO OF FRANCES H. FRANK)
    
    Frances H. Frank  1995
Secretary/Treasurer
The Frank Agency, Inc.
    
    (PHOTO OF WILLIAM J. SKIDMORE)
    
    William J. Skidmore  2007
Northeast Ohio Senior District Manager
Waste Management of Ohio, Inc.(PHOTO OF THOMAS G. CALDWELL)
    
    Thomas G. Caldwell  1997President and Chief Executive Officer
Middlefield Banc Corp.
The Middlefield Banking Company
    
    (PHOTO OF KENNETH E. JONES)
    
    Kenneth E. Jones  2008
President
Chesapeake Financial Advisors(PHOTO OF JAMES R. HESLOP)
    
    James R. Heslop, II  2001Executive Vice President/
Chief Operating Officer
Middlefield Banc Corp.
The Middlefield Banking Company
    
    (PHOTO OF ROBERT W. TOTH)
    
    Robert W. Toth*  2008
Retired: Gold Key Processing, Ltd
 *
    
    denotes The Middlefield Banking Company Director only




---



##### Table of Contents








---



##### Table of Contents








---



##### Table of Contents



Board of Directors
 Chairman, Board of Directors, Emerald Bank
 Vice Chairman, Board of Directors, Emerald Bank
 
 
 
 President and Chief Executive Officer
Middlefield Banc Corp.
The Middlefield Banking Company
 Chairman, Board of Directors, Middlefield Banc Corp.
The Middlefield Banking Company
 President and Chief Executive Officer
Emerald Bank
 Officers
 President and Chief Executive Officer
 Vice Chairman
 Chief Financial Officer and Treasurer
 Assistant Vice President
Commercial Banking
 Banking Officer
Westerville Branch Manager
 Staff
 Dublin Office:   Accounting Clerk  Branch Supervisor  Loan Processor  Customer Services  Customer Services
 Westerville Branch:   Customer Services  Customer Services  Customer Services




---



##### Table of Contents



Dublin Branch Drive up ATM    
 Westerville Branch Drive up ATM    




---



##### Table of Contents



Staff
 Main Office:   Branch Manager  Head Teller  Customer Services  Teller  Teller  Teller*  Receptionist  Customer Services  Teller  Teller  Teller*  Teller
 West Branch:   Customer Services  Head Teller  Teller*  Teller  Teller  Teller  Teller*  Teller  Teller*
 Garrettsville Branch:
 Branch Manager  Teller  Teller  Teller  Customer Services  Teller  Teller*
 Mantua Branch:   Branch Manager  Head Teller  Teller  Teller*
 Chardon Branch:   Customer Services  Teller*  Teller*  Teller*  Head Teller
 Orwell Branch:   Branch Manager  Teller*  Customer Services  Teller  Teller*  Teller*
 Newbury Branch:   Branch Manager  Teller*  Teller  Customer Services
 Cortland Branch:
 Teller  Teller*  Customer Services  Teller*
 Loan Department:   Loan Administrative Assistant  Lender  Loan Administrative Assistant  Loan Administrative Assistant  Loan Administrative Assistant  Loan Collection Manager  Loan Receptionist  Loan Administrative Assistant  Lender
 Operations:   Bookkeeper  Bookkeeper  Bookkeeper  Audit Assistant*  Proof Operator  Courier*  Bookkeeper  Compliance Assistant  Float Teller  Facility Maintenance  Float Teller  Courier*
 Financial Services:
 Financial Consultant
  *
    
    denotes part time




---



##### Table of Contents



Officers
 President and Chief Executive Officer
 Executive Vice President
Chief Operating Officer
 Senior Vice President
Operations/Administration
 Senior Vice President
Senior Lender
 Senior Vice President
Chief Financial Officer
 Senior Vice President
Area Executive
 Vice President
Chief Accounting Officer
 Vice President
Human Resource Administrator
 Vice President
Network Administrator
 Vice President
Compliance and Security Officer
 Vice President
Loan Administration
 Vice President/Lending
 Vice President/Lending
 Assistant Vice President
Bookkeeping Manager
 Assistant Vice President
Executive Secretary
 Assistant Vice President
West Branch Manager
 Assistant Vice President
Orwell Lending Officer
 Assistant Vice President
Chardon Branch Manager
 Assistant Vice President
Commercial Lender
 Banking Officer
Cortland Branch Manager




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##### Table of Contents



(GRAPHIC)
    
    (GRAPHIC)Main OfficeWalk up ATM
15985 East High Street, P.O. Box 35 
Middlefield, Ohio 44062 
888.801.1666  440.632.1666  fax: 440.632.1700
    
    Chardon BranchDrive up ATM
348 Center Street, P.O. Box 1078
Chardon, Ohio 44024
888.801.1666  440.286.1222  fax: 440.286.1111(GRAPHIC)
    
    (GRAPHIC)Garrettsville BranchDrive up ATM
8058 State Street 
Garrettsville, Ohio 44231 
888.801.2121  330.527.2121  fax: 330.527.4210
    
    Newbury BranchDrive up ATM
11110 Kinsman Road, Suite 1, P.O. Box 208
Newbury, Ohio 44065
888.801.1666  440.564.7000  fax: 440.564.7004




---



##### Table of Contents



(GRAPHIC)
    
    (GRAPHIC)Middlefield West BranchDrive up ATM
15545 West High Street, P.O. Box 35
Middlefield, Ohio 44062 
888.801.1666  440.632.1666  fax: 440.632.9781
    
    Orwell BranchDrive up ATM
30 South Maple Street, P.O. Box 66
Orwell, Ohio 44076
888.801.1666  440.437.7200  fax: 440.437.1111(GRAPHIC)
    
    (GRAPHIC)Mantua BranchWalk up ATM
10519 Main Street, P.O. Box 648 
Mantua, Ohio 44255 
877.274.0881  330.274.0881  fax: 330.274.0883
    
    Cortland BranchDrive up ATM
3450 Niles-Cortland Road, P.O. Box 636
Cortland, Ohio 44410
888.801.1666  330.637.3208  fax: 330.637.3207




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---



##### Table of Contents



Consolidated Financial Statements
    
    
    22Notes to Consolidated Financial Statements
    
    
    26Managements Discussion and Analysis
    
    
    54Shareholder Information
    
    
    70




---



##### Table of Contents



December 31,Consolidated Balance Sheet
    
    2008
    
    
    2007ASSETSCash and due from banks
    
    $
    9,795,248
    
    
    $
    9,072,972Federal funds sold
    
    
    7,548,000
    
    
    
    8,631,963Interest-bearing deposits in other institutions
    
    
    112,215
    
    
    
    110,387Cash and cash equivalents
    
    
    17,455,463
    
    
    
    17,815,322Investment securities available for sale
    
    
    104,270,366
    
    
    
    85,967,764Loans
    
    
    321,575,293
    
    
    
    309,445,922Less allowance for loan losses
    
    
    3,556,763
    
    
    
    3,299,276Net loans
    
    
    318,018,530
    
    
    
    306,146,646Premises and equipment
    
    
    8,448,915
    
    
    
    7,044,685Goodwill
    
    
    4,558,687
    
    
    
    4,371,206Bank-owned life insurance
    
    
    7,440,687
    
    
    
    7,153,381Accrued interest and other assets
    
    
    7,654,287
    
    
    
    5,774,052TOTAL ASSETS
    
    $
    467,846,935
    
    
    $
    434,273,056LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    42,357,154
    
    
    $
    41,348,219Interest-bearing demand
    
    
    26,404,660
    
    
    
    19,566,035Money market
    
    
    27,845,438
    
    
    
    22,684,041Savings
    
    
    68,968,844
    
    
    
    76,895,857Time
    
    
    229,243,506
    
    
    
    202,423,848Total deposits
    
    
    394,819,602
    
    
    
    362,918,000Short-term borrowings
    
    
    1,886,253
    
    
    
    1,510,607Other borrowings
    
    
    33,903,019
    
    
    
    32,395,319Accrued interest and other liabilities
    
    
    2,178,813
    
    
    
    2,487,746TOTAL LIABILITIES
    
    $
    432,787,687
    
    
    $
    399,311,672STOCKHOLDERS EQUITYCommon stock, no par value; 10,000,000 shares authorized,
1,725,381 and 1,701,546 shares issued
    
    
    27,301,403
    
    
    
    26,650,123Retained earnings
    
    
    14,786,353
    
    
    
    13,746,956Accumulated other comprehensive loss
    
    
    (294,901
    )
    
    
    (52,969
    )Treasury stock, at cost; 189,530 shares in 2008 and
151,745 shares in 2007
    
    
    (6,733,607
    )
    
    
    (5,382,726
    )TOTAL STOCKHOLDERS EQUITY
    
    
    35,059,248
    
    
    
    34,961,384TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    467,846,935
    
    
    $
    434,273,056




---



##### Table of Contents



Year Ended December 31,Consolidated Statement of Income
    
    2008
    
    
    2007
    
    
    2006INTEREST AND DIVIDEND INCOMEInterest and fees on loans
    
    $
    21,426,372
    
    
    $
    21,063,258
    
    
    $
    17,092,516Interest-bearing deposits in other institutions
    
    
    12,468
    
    
    
    155,550
    
    
    
    20,175Federal funds sold
    
    
    135,104
    
    
    
    498,040
    
    
    
    117,115Investment securities:Taxable
    
    
    2,538,237
    
    
    
    1,265,673
    
    
    
    1,143,375Tax-exempt
    
    
    1,810,319
    
    
    
    1,773,292
    
    
    
    1,038,318Other dividend income
    
    
    115,313
    
    
    
    116,121
    
    
    
    83,051TOTAL INTEREST AND DIVIDEND INCOME
    
    
    26,037,813
    
    
    
    24,871,934
    
    
    
    19,494,550INTEREST EXPENSEDeposits
    
    
    12,352,211
    
    
    
    11,633,010
    
    
    
    7,157,226Short-term borrowings
    
    
    46,084
    
    
    
    92,720
    
    
    
    167,475Other borrowings
    
    
    1,120,491
    
    
    
    1,269,910
    
    
    
    1,226,877Junior subordinated debt
    
    
    539,298
    
    
    
    535,279
    
    
    
    15,864TOTAL INTEREST EXPENSE
    
    
    14,058,084
    
    
    
    13,530,919
    
    
    
    8,567,442NET INTEREST INCOME
    
    
    11,979,729
    
    
    
    11,341,015
    
    
    
    10,927,108Provision for loan losses
    
    
    608,000
    
    
    
    429,391
    
    
    
    60,000NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    11,371,729
    
    
    
    10,911,624
    
    
    
    10,867,108NONINTEREST INCOMEService charges on deposit accounts
    
    
    1,888,059
    
    
    
    1,954,992
    
    
    
    1,800,173Investment securities gains (losses), net
    
    
    (344,049
    )
    
    
    7,942
    
    
    
    (5,868
    )Earnings on bank-owned life insurance
    
    
    287,305
    
    
    
    280,638
    
    
    
    239,761Other income
    
    
    395,191
    
    
    
    389,020
    
    
    
    393,389TOTAL NONINTEREST INCOME
    
    
    2,226,506
    
    
    
    2,632,592
    
    
    
    2,427,455NONINTEREST EXPENSESalaries and employee benefits
    
    
    4,911,671
    
    
    
    4,458,075
    
    
    
    3,675,120Occupancy
    
    
    885,904
    
    
    
    745,935
    
    
    
    507,250Equipment
    
    
    539,040
    
    
    
    525,250
    
    
    
    440,878Data processing costs
    
    
    803,230
    
    
    
    699,185
    
    
    
    634,707Professional fees
    
    
    586,873
    
    
    
    422,991
    
    
    
    333,932Ohio state franchise tax
    
    
    468,000
    
    
    
    424,873
    
    
    
    360,000Advertising
    
    
    372,988
    
    
    
    316,112
    
    
    
    331,644Postage and freight
    
    
    243,765
    
    
    
    208,554
    
    
    
    189,629Other expense
    
    
    1,784,882
    
    
    
    1,571,675
    
    
    
    1,465,213TOTAL NONINTEREST EXPENSE
    
    
    10,596,353
    
    
    
    9,372,650
    
    
    
    7,938,373Income before income taxes
    
    
    3,001,882
    
    
    
    4,171,566
    
    
    
    5,356,190Income taxes
    
    
    387,003
    
    
    
    796,223
    
    
    
    1,471,943NET INCOME
    
    $
    2,614,879
    
    
    $
    3,375,343
    
    
    $
    3,884,247EARNINGS PER SHAREBasic
    
    $
    1.72
    
    
    $
    2.17
    
    
    $
    2.61Diluted
    
    
    1.69
    
    
    
    2.14
    
    
    
    2.57




---



##### Table of Contents



AccumulatedOther
    
    
    
    
    
    
    TotalConsolidated Statement of
    
    Common Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Stockholders
    
    
    ComprehensiveChanges in Stockholders Equity
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Equity
    
    
    Income (Loss)Balance, December 31, 2005
    
    $
    1,434,987
    
    
    $
    15,976,335
    
    
    $
    14,959,891
    
    
    $
    (677,088
    )
    
    $
    (2,969,773
    )
    
    $
    27,289,365Net income
    
    
    
    
    
    
    
    
    
    
    3,884,247
    
    
    
    
    
    
    
    
    
    
    
    3,884,247
    
    
    $
    3,884,247Other comprehensive income:Unrealized gain on available-for-sale securities,
net of reclassification adjustment, net of taxes
of $80,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,101
    
    
    
    
    
    
    
    156,101
    
    
    
    156,101Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,040,348Exercise of stock options
    
    
    2,439
    
    
    
    62,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,115Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (238,534
    )
    
    
    (238,534
    )Common stock issued
    
    
    7,420
    
    
    
    305,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,711Five percent stock dividend
(including cash paid for fractional shares)
    
    
    67,284
    
    
    
    2,842,749
    
    
    
    (2,859,600
    )
    
    
    
    
    
    
    
    
    
    
    (16,851
    )Dividend reinvestment plan
    
    
    7,757
    
    
    
    320,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320,347Cash dividends ($.87 per share)
    
    
    
    
    
    
    
    
    
    
    (1,298,567
    )
    
    
    
    
    
    
    
    
    
    
    (1,298,567
    )Balance, December 31, 2006
    
    
    1,519,887
    
    
    
    19,507,257
    
    
    
    14,685,971
    
    
    
    (520,987
    )
    
    
    (3,208,307
    )
    
    
    30,463,934Net income
    
    
    
    
    
    
    
    
    
    
    3,375,343
    
    
    
    
    
    
    
    
    
    
    
    3,375,343
    
    
    $
    3,375,343Other comprehensive income:Unrealized gain on available-for-sale securities,
net of reclassification adjustment, net of taxes
of $241,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468,018
    
    
    
    
    
    
    
    468,018
    
    
    
    468,018Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,843,361Exercise of stock options
    
    
    538
    
    
    
    14,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,182Expense related to stock options
    
    
    
    
    
    
    26,435
    
    
    
    12,695
    
    
    
    
    
    
    
    
    
    
    
    39,130Purchase of treasury stock (56,665 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,174,419
    )
    
    
    (2,174,419
    )Common stock issued as a result of the
acquisition of Emerald Bank
    
    
    92,447
    
    
    
    3,662,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,662,750Common stock issued
    
    
    5,735
    
    
    
    221,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,360Five percent stock dividend
(including cash paid for fractional shares)
    
    
    73,547
    
    
    
    2,857,301
    
    
    
    (2,873,346
    )
    
    
    
    
    
    
    
    
    
    
    (16,045
    )Dividend reinvestment plan
    
    
    9,392
    
    
    
    360,838
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360,838Cash dividends ($.94 per share)
    
    
    
    
    
    
    
    
    
    
    (1,453,707
    )
    
    
    
    
    
    
    
    
    
    
    (1,453,707
    )Balance, December 31, 2007
    
    
    1,701,546
    
    
    
    26,650,123
    
    
    
    13,746,956
    
    
    
    (52,969
    )
    
    
    (5,382,726
    )
    
    
    34,961,384Net income
    
    
    
    
    
    
    
    
    
    
    2,614,879
    
    
    
    
    
    
    
    
    
    
    
    2,614,879
    
    
    $
    2,614,879Other comprehensive income:Unrealized loss on available-for-sale securities,
net of reclassification adjustment, net of tax
benefit of $124,632
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (241,932
    )
    
    
    
    
    
    
    (241,932
    )
    
    
    (241,932
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,372,947Exercise of stock options
    
    
    992
    
    
    
    19,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,642Expense related to stock options
    
    
    
    
    
    
    15,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,048Purchase of treasury stock (37,785 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350,881
    )
    
    
    (1,350,881
    )Common stock issued
    
    
    6,888
    
    
    
    194,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,514Dividend reinvestment plan
    
    
    15,955
    
    
    
    422,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422,076Cash dividends ($1.03 per share)
    
    
    
    
    
    
    
    
    
    
    (1,575,482
    )
    
    
    
    
    
    
    
    
    
    
    (1,575,482
    )Balance, December 31, 2008
    
    $
    1,725,381
    
    
    $
    27,301,403
    
    
    $
    14,786,353
    
    
    $
    (294,901
    )
    
    $
    (6,733,607
    )
    
    $
    35,059,248
 2008
    
    
    2007
    
    
    2006Components of comprehensive income (loss):Change in net unrealized gain (loss)
on investments available for sale
    
    $
    (469,004
    )
    
    $
    472,771
    
    
    $
    152,228Realized losses (gains) included in net income,
net of taxes of $116,977, $2,448, and $1,995
    
    
    227,072
    
    
    
    (4,753
    )
    
    
    3,873TOTAL
    
    $
    (241,932
    )
    
    $
    468,018
    
    
    $
    156,101




---



##### Table of Contents



Year Ended December 31,Consolidated Statement of Cash Flows
    
    2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    2,614,879
    
    
    $
    3,375,343
    
    
    $
    3,884,247Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    608,000
    
    
    
    429,391
    
    
    
    60,000Depreciation and amortization
    
    
    645,186
    
    
    
    597,741
    
    
    
    578,592Amortization of premium and discount on investment securities
    
    
    182,656
    
    
    
    226,766
    
    
    
    233,044Amortization of net deferred loan fees
    
    
    (143,673
    )
    
    
    (65,763
    )
    
    
    (78,577
    )Investment securities (gains) losses, net
    
    
    344,049
    
    
    
    (7,942
    )
    
    
    5,868Earnings on bank-owned life insurance
    
    
    (287,305
    )
    
    
    (280,638
    )
    
    
    (239,761
    )Deferred income taxes
    
    
    (269,947
    )
    
    
    97,308
    
    
    
    (58,058
    )Compensation expense on stock options
    
    
    15,048
    
    
    
    26,435
    
    
    
    Increase in accrued interest receivable
    
    
    94,061
    
    
    
    (292,056
    )
    
    
    (87,907
    )Decrease (increase) in accrued interest payable
    
    
    (210,461
    )
    
    
    540,144
    
    
    
    350,939Other, net
    
    
    (395,623
    )
    
    
    (352,696
    )
    
    
    (142,067
    )Net cash provided by operating activities
    
    
    3,196,870
    
    
    
    4,294,033
    
    
    
    4,506,320INVESTING ACTIVITIESInvestment securities available for sale:Proceeds from repayments and maturities
    
    
    16,912,691
    
    
    
    10,583,584
    
    
    
    11,109,971Purchases
    
    
    (39,061,652
    )
    
    
    (32,990,009
    )
    
    
    (16,932,389
    )Proceeds from sales
    
    
    2,953,089
    
    
    
    
    
    
    
    658,976Investment securities held to maturity:Proceeds from repayments and maturities
    
    
    
    
    
    
    
    
    
    
    95,643Proceeds from sale of securities
    
    
    
    
    
    
    102,942
    
    
    
    Increase in loans, net
    
    
    (13,388,057
    )
    
    
    (20,959,699
    )
    
    
    (15,109,371
    )Acquisition of subsidiary bank
    
    
    
    
    
    
    (1,828,301
    )
    
    
    Purchase of Federal Home Loan Bank stock
    
    
    (142,100
    )
    
    
    (91,100
    )
    
    
    (93,000
    )Purchase of bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )Purchase of premises and equipment
    
    
    (1,407,631
    )
    
    
    (570,065
    )
    
    
    (585,837
    )Proceeds from the sale of other real estate owned
    
    
    
    
    
    
    61,229
    
    
    
    Deposit acquisition premium
    
    
    
    
    
    
    (2,124,212
    )
    
    
    Net cash used for investing activities
    
    $
    (34,133,660
    )
    
    $
    (47,815,631
    )
    
    $
    (21,856,007
    )FINANCING ACTIVITIESNet increase in deposits
    
    $
    25,804,674
    
    
    $
    38,528,910
    
    
    $
    21,600,553Increase (decrease) in short-term borrowings, net
    
    
    375,645
    
    
    
    (99,131
    )
    
    
    (5,101,176
    )Proceeds from other borrowings
    
    
    13,500,000
    
    
    
    2,000,000
    
    
    
    16,248,000Repayment of other borrowings
    
    
    (11,992,300
    )
    
    
    (8,967,419
    )
    
    
    (6,713,473
    )Purchase of treasury stock
    
    
    (1,350,881
    )
    
    
    (2,174,419
    )
    
    
    (238,534
    )Exercise of stock options
    
    
    19,642
    
    
    
    14,182
    
    
    
    62,115Common stock issued
    
    
    
    
    
    
    221,360
    
    
    
    305,711Proceeds from dividend reinvestment plan
    
    
    616,590
    
    
    
    360,838
    
    
    
    320,347Tax effect of stock options
    
    
    
    
    
    
    12,695
    
    
    
    Cash dividends
    
    
    (1,575,482
    )
    
    
    (1,469,752
    )
    
    
    (1,315,418
    )Net cash received from deposit acquisition
    
    
    5,179,043
    
    
    
    19,270,054
    
    
    
    Net cash provided by financing activities
    
    
    30,576,931
    
    
    
    47,697,318
    
    
    
    25,168,125Increase (decrease) in cash and cash equivalents
    
    
    (359,859
    )
    
    
    4,175,720
    
    
    
    7,818,438CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    17,815,322
    
    
    
    13,639,602
    
    
    
    5,821,164CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    17,455,463
    
    
    $
    17,815,322
    
    
    $
    13,639,602SUPPLEMENTAL INFORMATIONCash paid during the year for:Interest on deposits and borrowings
    
    $
    14,268,548
    
    
    $
    12,910,196
    
    
    $
    8,216,503Income taxes
    
    
    600,000
    
    
    
    850,000
    
    
    
    1,498,363SUMMARY OF BUSINESS ACQUISITIONFair value of tangible assets acquired
    
    $
    
    
    
    $
    42,657,925
    
    
    $
    Fair value of core deposit intangible acquired
    
    
    
    
    
    
    103,781
    
    
    
    Fair value of liabilities assumed
    
    
    
    
    
    
    (38,408,610
    )
    
    
    Stock issued for the purchase of acquired companys common stock
    
    
    
    
    
    
    (3,662,750
    )
    
    
    Cash paid in the acquisition
    
    
    
    
    
    
    (3,887,110
    )
    
    
    Deferred tax asset
    
    
    
    
    
    
    889,361
    
    
    
    Goodwill recognized
    
    $
    
    
    
    $
    (2,307,403
    )
    
    $
    




---



##### Table of Contents



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Nature of Operations and Basis of Presentation
    Investment Securities




---



##### Table of Contents



Loans
   Allowance for Loan Losses
    Premises and Equipment




---



##### Table of Contents



Goodwill
 Goodwill and Other Intangible Assets.
 Intangible Assets
  Bank-Owned Life Insurance (BOLI)
  Income Taxes
  Earnings Per Share
  Stock-Based Compensation




---



##### Table of Contents



Expected
    
    
    Risk-Free
    
    
    Expected
    
    
    Expected LifeGrant Year
    
    Dividend Yield
    
    
    Interest Rate
    
    
    Volatility
    
    
    (in years)2006
    
    
    2.27
    
    
    
    4.67
    
    
    
    7.18
    
    
    
    9.942007
    
    
    2.53
    
    
    
    3.70  4.80
    
    
    
    4.09
    
    
    
    9.942008
    
    
    8.54
    
    
    
    3.53  3.73
    
    
    
    33.29
    
    
    
    9.94
   Cash Flow Information
  Advertising Costs
  Reclassification of Comparative Amounts
  Recent Accounting Pronouncements
 Business Combinations




---



##### Table of Contents



Noncontrolling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51.
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for
Derivative Instruments and Hedging Activities
 Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjusted Conversion Ratios. Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjusted Conversion Ratios, Application of Issue No. 98-5 to Certain Convertible
Instruments, Accounting for Certain Financial Instruments with Characteristics of
both Liability and Equity.
 Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).
 Accounting for Transfers
of Financial Assets and Repurchase Financing Transactions.




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##### Table of Contents



Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets.
 Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities,
 Determining the Fair Value of a Financial Asset
When the Market for That Asset is not Active. Fair Value Measurements, Accounting Changes and Error Corrections
 Employers
Disclosures about Postretirement Benefit Plan Assets Employers Disclosures about Pensions and Other Postretirement Benefits
 2.
    
    MERGERS AND ACQUISITIONS




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##### Table of Contents



Twelve Months Ended December 31,2008
    
    
    2007Interest income
    
    $
    26,037,813
    
    
    $
    25,712,096Interest expense
    
    
    14,058,084
    
    
    
    14,041,702Net interest income
    
    
    11,979,729
    
    
    
    11,670,394Provision for loan losses
    
    
    608,000
    
    
    
    475,493Net interest income after provisions for loan losses
    
    
    11,371,729
    
    
    
    11,194,901Noninterest income
    
    
    2,226,506
    
    
    
    2,659,299Noninterest expense
    
    
    10,596,353
    
    
    
    10,385,875Income before income taxes
    
    
    3,001,882
    
    
    
    3,468,325Provisions for income taxes
    
    
    387,003
    
    
    
    639,923Net income including restructuring charges
    
    
    2,614,879
    
    
    
    2,828,402Restructuring charges of $418,848, net of tax benefit of $142,408
    
    
    
    
    
    
    276,440Net income excluding restructuring charges
    
    $
    2,614,879
    
    
    $
    3,104,842Net loss per share including restructuring chargesBasic
    
    $
    1.72
    
    
    $
    1.82Diluted
    
    $
    1.69
    
    
    $
    1.79Net income per share excluding restructuring chargesBasic
    
    $
    1.72
    
    
    $
    2.00Diluted
    
    $
    1.69
    
    
    $
    1.97
  Twelve Months Ended December 31,2007Compensation and benefits
    
    $
    40,092Professional fees
    
    
    221,389Accleleration of contracts
    
    
    157,367Total
    
    $
    418,848




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##### Table of Contents



3.
    
    EARNINGS PER SHARE
  2008
    
    
    2007
    
    
    2006Weighted-average common shares outstanding
    
    
    1,710,861
    
    
    
    1,666,265
    
    
    
    1,586,463Average treasury stock shares
    
    
    (177,888
    )
    
    
    (110,667
    )
    
    
    (92,809
    )Weighted-average common shares and common stock equivalents
used to calculate basic earnings per share
    
    
    1,532,973
    
    
    
    1,555,598
    
    
    
    1,493,654Additional common stock equivalents (stock options)
used to calculate diluted earnings per share
    
    
    13,440
    
    
    
    21,649
    
    
    
    22,999Weighted-average common shares and common stock equivalents
used to calculate diluted earnings per share
    
    
    1,546,413
    
    
    
    1,577,247
    
    
    
    1,516,653
  4.
    
    STOCK DIVIDEND




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##### Table of Contents



5.
    
    INVESTMENT SECURITIES AVAILABLE FOR SALE
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair2008
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. government agency securities
    
    $
    4,376,650
    
    
    $
    126,912
    
    
    $
    
    
    
    $
    4,503,562Obligations of states and political subdivisions:Taxable
    
    
    499,528
    
    
    
    
    
    
    
    (3,278
    )
    
    
    496,250Tax-exempt
    
    
    44,328,318
    
    
    
    405,958
    
    
    
    (1,050,244
    )
    
    
    43,684,032Mortgage-backed securities
    
    
    54,568,407
    
    
    
    1,042,038
    
    
    
    (1,046,085
    )
    
    
    54,564,360Total debt securities
    
    
    103,772,903
    
    
    
    1,574,908
    
    
    
    (2,099,607
    )
    
    
    103,248,204Equity securities
    
    
    944,283
    
    
    
    141,079
    
    
    
    (63,200
    )
    
    
    1,022,162Total
    
    $
    104,717,186
    
    
    $
    1,715,987
    
    
    $
    (2,162,807
    )
    
    $
    104,270,366
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. government agency securities
    
    $
    7,872,500
    
    
    $
    55,058
    
    
    $
    (422
    )
    
    $
    7,927,136Obligations of states and political subdivisions:Taxable
    
    
    749,234
    
    
    
    
    
    
    
    (6,845
    )
    
    
    742,389Tax-exempt
    
    
    47,262,680
    
    
    
    188,253
    
    
    
    (522,389
    )
    
    
    46,928,544Mortgage-backed securities
    
    
    29,219,323
    
    
    
    161,252
    
    
    
    (334,940
    )
    
    
    29,045,635Total debt securities
    
    
    85,103,737
    
    
    
    404,563
    
    
    
    (864,596
    )
    
    
    84,643,704Equity securities
    
    
    944,283
    
    
    
    396,477
    
    
    
    (16,700
    )
    
    
    1,324,060Total
    
    $
    86,048,020
    
    
    $
    801,040
    
    
    $
    (881,296
    )
    
    $
    85,967,764
  Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    1,243,594
    
    
    $
    1,257,988Due after one year through five years
    
    
    5,638,739
    
    
    
    5,740,175Due after five years through ten years
    
    
    12,764,409
    
    
    
    12,884,932Due after ten years
    
    
    84,126,161
    
    
    
    83,365,109Total
    
    $
    103,772,903
    
    
    $
    103,248,204




---



##### Table of Contents



Less than Twelve Months
    
    
    Twelve Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized2008
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesObligations of states and political subdivisions
    
    $
    17,777,295
    
    
    $
    (561,005
    )
    
    $
    7,820,417
    
    
    $
    (492,517
    )
    
    $
    25,597,712
    
    
    $
    (1,053,522
    )Mortgage-backed securities
    
    
    16,107,618
    
    
    
    (966,793
    )
    
    
    5,062,619
    
    
    
    (79,292
    )
    
    
    21,170,237
    
    
    
    (1,046,085
    )Equity securities
    
    
    221,500
    
    
    
    (28,500
    )
    
    
    11,250
    
    
    
    (34,700
    )
    
    
    232,750
    
    
    
    (63,200
    )Total
    
    $
    34,106,413
    
    
    $
    (1,556,298
    )
    
    $
    12,894,286
    
    
    $
    (606,509
    )
    
    $
    47,000,699
    
    
    $
    (2,162,807
    )
 Less than Twelve Months
    
    
    Twelve Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized2007
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. government agency securities
    
    $
    
    
    
    $
    
    
    
    $
    498,930
    
    
    $
    (422
    )
    
    $
    498,930
    
    
    $
    (422
    )Obligations of states and political subdivisions
    
    
    12,102,406
    
    
    
    (223,753
    )
    
    
    19,818,047
    
    
    
    (305,481
    )
    
    
    31,920,453
    
    
    
    (529,234
    )Mortgage-backed securities
    
    
    4,753,699
    
    
    
    (42,409
    )
    
    
    12,503,364
    
    
    
    (292,331
    )
    
    
    17,257,063
    
    
    
    (334,940
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    29,250
    
    
    
    (16,700
    )
    
    
    29,250
    
    
    
    (16,700
    )Total
    
    $
    16,856,105
    
    
    $
    (266,362
    )
    
    $
    32,849,591
    
    
    $
    (614,934
    )
    
    $
    49,705,696
    
    
    $
    (881,296
    )




---



##### Table of Contents



6.
    
    LOANS
  2008
    
    
    2007Commercial and industrial
    
    $
    66,523,227
    
    
    $
    67,009,564Real estate  construction
    
    
    7,964,892
    
    
    
    6,704,054Real estate  mortgage:Residential
    
    
    199,354,277
    
    
    
    193,514,047Commercial
    
    
    42,789,470
    
    
    
    36,818,070Consumer installment
    
    
    4,943,427
    
    
    
    5,400,187321,575,293
    
    
    
    309,445,922Less allowance for loan losses
    
    
    3,556,763
    
    
    
    3,299,276Net loans
    
    $
    318,018,530
    
    
    $
    306,146,646
    2008
    
    
    200790 days or more past due and accruing interest
    
    $
    2,226,632
    
    
    $
    1,917,480Non-accrual loans (inclusive of impaired loans)
    
    
    6,254,748
    
    
    
    3,744,451Total nonperforming loans
    
    $
    8,481,380
    
    
    $
    5,661,931
  2008
    
    
    2007Impaired loans without a related allowance for loan loss
    
    $
    
    
    
    $
    Impaired loans with a related allowance for loan loss
    
    
    2,661,300
    
    
    
    2,481,272Related allowance for loan loss
    
    
    439,340
    
    
    
    348,006Average recorded investment in impaired loans
    
    
    1,886,661
    
    
    
    1,117,297Interest income recognized
    
    
    13,078
    
    
    
    126,305




---



##### Table of Contents



7.
    
    ALLOWANCE FOR LOAN LOSSES
  2008
    
    
    2007
    
    
    2006Balance,
January 1
    
    $
    3,299,276
    
    
    $
    2,848,887
    
    
    $
    2,841,098Add:Additions from acquisitions
    
    
    
    
    
    
    436,063
    
    
    
    Provisions charged to operations
    
    
    608,000
    
    
    
    429,391
    
    
    
    60,000Recoveries
    
    
    64,353
    
    
    
    13,839
    
    
    
    28,663Less loans charged off
    
    
    414,866
    
    
    
    428,904
    
    
    
    80,874Balance, December 31
    
    $
    3,556,763
    
    
    $
    3,299,276
    
    
    $
    2,848,887
 8.
    
    PREMISES AND EQUIPMENT
  2008
    
    
    2007Land and land improvements
    
    $
    1,896,376
    
    
    $
    1,537,930Building and leasehold improvements
    
    
    8,858,066
    
    
    
    7,620,924Furniture, fixtures, and equipment
    
    
    4,111,853
    
    
    
    3,801,81414,866,295
    
    
    
    12,960,668Less accumulated depreciation and amortization
    
    
    6,417,380
    
    
    
    5,915,983Total
    
    $
    8,448,915
    
    
    $
    7,044,685
  9.
    
    GOODWILL AND INTANGIBLE ASSETS




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##### Table of Contents



2009
    
    $
    39,5182010
    
    
    39,5182011
    
    
    39,5182012
    
    
    39,5182013
    
    
    39,518Thereafter
    
    
    155,269Balance, December 31
    
    $
    352,859
 10.
    
    OTHER ASSETS
  2008
    
    
    2007FHLB stock
    
    $
    1,873,100
    
    
    $
    1,731,000Accrued interest on investment securities
    
    
    528,067
    
    
    
    475,043Accrued interest on loans
    
    
    918,306
    
    
    
    1,065,391Deferred tax asset, net
    
    
    1,767,873
    
    
    
    1,398,408Other
    
    
    2,566,941
    
    
    
    1,104,210Total
    
    $
    7,654,287
    
    
    $
    5,774,052
 11.
    
    DEPOSITS
    Within three months
    
    $
    11,084,068Beyond three but within six months
    
    
    15,137,052Beyond six but within twelve months
    
    
    18,782,587Beyond one year
    
    
    24,659,571Total
    
    $
    69,663,278




---



##### Table of Contents



12.
    
    SHORT-TERM BORROWINGS
  2008
    
    
    2007
    
    
    2006Balance at year-end
    
    $
    1,886,253
    
    
    $
    1,510,607
    
    
    $
    1,609,738Average balance outstanding
    
    
    2,967,069
    
    
    
    2,383,902
    
    
    
    3,281,340Maximum month-end balance
    
    
    6,057,893
    
    
    
    5,768,057
    
    
    
    8,245,406Weighted-average rate at year-end
    
    
    1.10
    %
    
    
    2.96
    %
    
    
    4.35
    %Weighted-average rate during the year
    
    
    1.55
    %
    
    
    3.89
    %
    
    
    5.10
    %
   13.
    
    OTHER BORROWINGS
  Weighted-
    
    
    Stated interestMaturity range
    
    
    average
    
    
    rate rangeDescription
    
    from
    
    
    to
    
    
    interest rate
    
    
    from
    
    
    to
    
    
    2008
    
    
    2007Fixed rate
    
    
    02/13/09
    
    
    
    12/27/10
    
    
    
    4.25
    %
    
    
    2.61
    %
    
    
    5.07
    %
    
    $
    4,250,000
    
    
    $
    5,250,000Fixed rate amortizing
    
    
    05/18/09
    
    
    
    09/04/28
    
    
    
    4.00
    
    
    
    2.70
    
    
    
    5.51
    
    
    
    17,405,019
    
    
    
    8,897,319Convertible
    
    
    07/28/10
    
    
    
    10/09/12
    
    
    
    5.30
    
    
    
    4.14
    
    
    
    6.45
    
    
    
    4,000,000
    
    
    
    10,000,000Junior subordinated
debt
    
    
    12/21/37
    
    
    
    12/21/37
    
    
    
    6.58
    
    
    
    6.58
    
    
    
    6.58
    
    
    
    8,248,000
    
    
    
    8,248,000$
    33,903,019
    
    
    $
    32,395,319
  Weighted-Year Ending December 31,
    
    Amount
    
    
    Average Rate2009
    
    $
    7,682,102
    
    
    
    4.13
    %2010
    
    
    6,320,897
    
    
    
    4.852011
    
    
    2,378,922
    
    
    
    3.922012
    
    
    3,819,871
    
    
    
    4.042013
    
    
    1,393,211
    
    
    
    3.96Beyond 2013
    
    
    12,308,016
    
    
    
    5.73$
    33,903,019
    
    
    
    4.81
    %




---



##### Table of Contents



14.
    
    OTHER LIABILITIES
  2008
    
    
    2007Accrued interest payable
    
    $
    1,299,114
    
    
    $
    1,509,575Other
    
    
    879,699
    
    
    
    978,171Total
    
    $
    2,178,813
    
    
    $
    2,487,746
 15.
    
    INCOME TAXES
  2008
    
    
    2007
    
    
    2006Current payable
    
    $
    656,950
    
    
    $
    698,915
    
    
    $
    1,530,001Deferred
    
    
    (269,947
    )
    
    
    97,308
    
    
    
    (58,058
    )Total provision
    
    $
    387,003
    
    
    $
    796,223
    
    
    $
    1,471,943




---



##### Table of Contents



2008
    
    
    2007Deferred tax assets:Allowance for loan losses
    
    $
    1,114,868
    
    
    $
    1,008,069Net unrealized loss on securities
    
    
    151,919
    
    
    
    27,287Supplemental retirement plan
    
    
    134,121
    
    
    
    123,339Origination costs
    
    
    7,811
    
    
    
    25,115Alternative minimum tax credits
    
    
    65,637
    
    
    
    Investment security basis adjustment
    
    
    127,993
    
    
    
    Intangibles
    
    
    45,295
    
    
    
    Net operating losses
    
    
    502,676
    
    
    
    606,806Gross deferred tax assets
    
    
    2,150,320
    
    
    
    1,790,616Deferred tax liabilities:Deferred origination fees, net
    
    
    29,523
    
    
    
    55,637Premises and equipment
    
    
    83,425
    
    
    
    113,170Other
    
    
    269,499
    
    
    
    223,400Gross deferred tax liabilities
    
    
    382,447
    
    
    
    392,207Net deferred tax assets
    
    $
    1,767,873
    
    
    $
    1,398,409
   2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPre-tax
    
    
    
    
    
    
    Pre-tax
    
    
    
    
    
    
    Pre-taxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    IncomeProvision at statutory rate
    
    $
    1,020,640
    
    
    
    34.0
    %
    
    $
    1,418,332
    
    
    
    34.0
    %
    
    $
    1,821,105
    
    
    
    34.0
    %Tax-free income
    
    
    (713,193
    )
    
    
    (23.8
    )
    
    
    (702,123
    )
    
    
    (16.8
    )
    
    
    (437,874
    )
    
    
    (8.2
    )Nondeductible interest expense
    
    
    96,250
    
    
    
    3.2
    
    
    
    102,830
    
    
    
    2.5
    
    
    
    54,673
    
    
    
    1.0Other
    
    
    (16,694
    )
    
    
    (0.7
    )
    
    
    (22,816
    )
    
    
    (0.6
    )
    
    
    34,039
    
    
    
    0.6Actual tax expense and
effective rate
    
    $
    387,003
    
    
    
    12.7
    %
    
    $
    796,223
    
    
    
    19.1
    %
    
    $
    1,471,943
    
    
    
    27.4
    %
 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109,




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##### Table of Contents



16.
    
    EMPLOYEE BENEFITS
 Retirement Plan
  Supplemental Retirement Plan
   2008
    
    
    2007
    
    
    2006Components of net periodic pension costsService cost
    
    $
    12,656
    
    
    $
    11,991
    
    
    $
    9,510Interest cost
    
    
    12,813
    
    
    
    12,189
    
    
    
    9,791Net periodic pension cost
    
    $
    25,469
    
    
    $
    24,180
    
    
    $
    19,301
 Executive Deferred Compensation Plan
  Stock Option and Restricted Stock Plan




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##### Table of Contents



Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise2008
    
    
    Price
    
    
    2007
    
    
    PriceOutstanding, January 1
    
    
    88,211
    
    
    $
    28.04
    
    
    
    77,287
    
    
    $
    26.23Granted
    
    
    24,837
    
    
    
    23.71
    
    
    
    14,840
    
    
    
    37.27Exercised
    
    
    (992
    )
    
    
    19.80
    
    
    
    (565
    )
    
    
    25.10Forfeited
    
    
    (1,591
    )
    
    
    23.48
    
    
    
    (3,351
    )
    
    
    22.11Outstanding, December 31
    
    
    110,465
    
    
    $
    27.21
    
    
    
    88,211
    
    
    $
    28.04Exercisable at year-end
    
    
    85,628
    
    
    
    28.22
    
    
    
    83,724
    
    
    
    27.86
  Outstanding
    
    
    ExercisableContractual
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Average
    
    
    Exercise
    
    
    
    
    
    
    ExerciseGrant Date
    
    Price
    
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    PriceJune 14, 1999
    
    $
    23.70
    
    
    
    2,074
    
    
    
    0.45
    
    
    $
    23.70
    
    
    
    2,074
    
    
    $
    23.70November 23, 1999
    
    
    23.13
    
    
    
    2,934
    
    
    
    0.90
    
    
    
    23.13
    
    
    
    2,934
    
    
    
    23.13December 11, 2000
    
    
    17.90
    
    
    
    10,274
    
    
    
    1.95
    
    
    
    17.90
    
    
    
    10,274
    
    
    
    17.90December 9, 2002
    
    
    22.33
    
    
    
    9,552
    
    
    
    3.94
    
    
    
    22.33
    
    
    
    9,552
    
    
    
    22.33December 8, 2003
    
    
    24.29
    
    
    
    20,917
    
    
    
    4.94
    
    
    
    24.29
    
    
    
    20,917
    
    
    
    24.29May 12, 2004
    
    
    27.35
    
    
    
    907
    
    
    
    5.33
    
    
    
    27.35
    
    
    
    907
    
    
    
    27.35December 13, 2004
    
    
    30.45
    
    
    
    13,073
    
    
    
    5.95
    
    
    
    30.45
    
    
    
    13,073
    
    
    
    30.45December 14, 2005
    
    
    36.73
    
    
    
    8,595
    
    
    
    6.95
    
    
    
    36.73
    
    
    
    8,595
    
    
    
    36.73December 10, 2006
    
    
    40.24
    
    
    
    3,675
    
    
    
    7.95
    
    
    
    40.24
    
    
    
    3,675
    
    
    
    40.24April 19, 2007
    
    
    37.33
    
    
    
    9,140
    
    
    
    8.31
    
    
    
    37.33
    
    
    
    9,140
    
    
    
    37.73May 16, 2007
    
    
    37.48
    
    
    
    1,337
    
    
    
    8.41
    
    
    
    37.48
    
    
    
    1,337
    
    
    
    37.48December 10, 2007
    
    
    37.00
    
    
    
    3,150
    
    
    
    8.95
    
    
    
    37.00
    
    
    
    3,150
    
    
    
    37.00January 2, 2008
    
    
    36.25
    
    
    
    1,337
    
    
    
    9.12
    
    
    
    36.25
    
    
    
    
    
    
    
    November 10, 2008
    
    
    23.00
    
    
    
    23,500
    
    
    
    9.95
    
    
    
    23.00
    
    
    
    
    
    
    
    110,465
    
    
    
    
    
    
    
    
    
    
    
    85,628




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##### Table of Contents



17.
    
    COMMITMENTS
  2008
    
    
    2007Commitments to extend credit
    
    $
    56,648,649
    
    
    $
    49,375,176Standby letters of credit
    
    
    1,357,173
    
    
    
    466,647Total
    
    $
    58,005,822
    
    
    $
    49,841,823
   18.
    
    REGULATORY RESTRICTIONS
 Loans
  Dividends




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##### Table of Contents



19.
    
    REGULATORY CAPITAL
     Middlefield Banc Corp.
    
    
    The Middlefield Banking Co.
    
    
    Emerald BankDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2008Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal
Capital (to Risk-Weighted
Assets)Actual
    
    $
    42,281,067
    
    
    
    13.57
    %
    
    $
    32,793,489
    
    
    
    12.30
    %
    
    $
    7,472,699
    
    
    
    16.73
    %For Capital Adequacy Purposes
    
    
    24,931,715
    
    
    
    8.00
    
    
    
    21,324,640
    
    
    
    8.00
    
    
    
    3,572,686
    
    
    
    8.00To Be Well Capitalized
    
    
    31,164,644
    
    
    
    10.00
    
    
    
    26,655,800
    
    
    
    10.00
    
    
    
    4,465,857
    
    
    
    10.00Tier I Capital (to Risk-Weighted
Assets)Actual
    
    $
    38,689,258
    
    
    
    12.41
    %
    
    $
    29,956,378
    
    
    
    11.24
    %
    
    $
    6,912,474
    
    
    
    15.48
    %For Capital Adequacy Purposes
    
    
    12,465,858
    
    
    
    4.00
    
    
    
    10,662,320
    
    
    
    4.00
    
    
    
    1,786,343
    
    
    
    4.00To Be Well Capitalized
    
    
    18,698,787
    
    
    
    6.00
    
    
    
    15,993,480
    
    
    
    6.00
    
    
    
    2,679,514
    
    
    
    6.00Tier I Capital (to Average Assets)Actual
    
    $
    38,689,258
    
    
    
    8.66
    %
    
    $
    29,956,378
    
    
    
    7.69
    %
    
    $
    6,912,474
    
    
    
    12.91
    %For Capital Adequacy Purposes
    
    
    17,860,169
    
    
    
    4.00
    
    
    
    15,578,777
    
    
    
    4.00
    
    
    
    2,142,047
    
    
    
    4.00To Be Well Capitalized
    
    
    22,325,211
    
    
    
    5.00
    
    
    
    19,473,471
    
    
    
    5.00
    
    
    
    2,677,558
    
    
    
    5.00




---



##### Table of Contents



Middlefield Banc Corp.
    
    
    The Middlefield Banking Co.
    
    
    Emerald BankDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2007
    
    
    2007Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital (to Risk-Weighted Assets)Actual
    
    $
    42,664,943
    
    
    
    14.56
    %
    
    $
    32,028,171
    
    
    
    12.67
    %
    
    $
    7,777,400
    
    
    
    19.50
    %For Capital Adequacy Purposes
    
    
    23,441,926
    
    
    
    8.00
    
    
    
    20,230,160
    
    
    
    8.00
    
    
    
    3,190,160
    
    
    
    8.00To Be Well Capitalized
    
    
    29,302,408
    
    
    
    10.00
    
    
    
    25,287,700
    
    
    
    10.00
    
    
    
    3,987,700
    
    
    
    10.00Tier I Capital (to Risk-Weighted Assets)Actual
    
    $
    39,194,767
    
    
    
    13.38
    %
    
    $
    29,205,547
    
    
    
    11.55
    %
    
    $
    7,300,748
    
    
    
    18.31
    %For Capital Adequacy Purposes
    
    
    11,720,963
    
    
    
    4.00
    
    
    
    10,115,080
    
    
    
    4.00
    
    
    
    1,595,080
    
    
    
    4.00To Be Well Capitalized
    
    
    17,581,445
    
    
    
    6.00
    
    
    
    15,172,620
    
    
    
    6.00
    
    
    
    2,392,620
    
    
    
    6.00Tier I Capital (to Average Assets)Actual
    
    $
    39,194,767
    
    
    
    9.23
    %
    
    $
    29,205,547
    
    
    
    7.82
    %
    
    $
    7,300,748
    
    
    
    14.38
    %For Capital Adequacy Purposes
    
    
    16,990,099
    
    
    
    4.00
    
    
    
    14,946,917
    
    
    
    4.00
    
    
    
    2,030,504
    
    
    
    4.00To Be Well Capitalized
    
    
    21,237,623
    
    
    
    5.00
    
    
    
    18,683,646
    
    
    
    5.00
    
    
    
    2,538,130
    
    
    
    5.00
 20.
    
    FAIR VALUE DISCLOSURE MEASUREMENTS
  Level I:
    
    Quoted prices are available in active markets for identical
assets or liabilities as of the reported date.Level II:
    
    Pricing inputs are other than the quoted prices in active
markets, which are either directly or indirectly observable as
of the reported date. The nature of these assets and
liabilities includes items for which quoted prices are
available but traded less frequently and items that are
fair-valued using other financial instruments, the parameters
of which can be directly observed.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.




---



##### Table of Contents



December 31, 2008Level I
    
    
    Level II
    
    
    Level III
    
    
    TotalAssets Measured on a Recurring Basis:Investment securities available for sale
    
    $
    1,022,162
    
    
    $
    96,568,054
    
    
    $
    6,680,150
    
    
    $
    104,270,366
   Available-for-SaleSecuritiesBalance, January 1, 2008,
    
    $
    Total gains or losses (realized/unrealized)
    
    
    Included in earnings
    
    
    (376,449
    )Included in other comprehensive income
    
    
    Purchases, issuances, and settlements
    
    
    Transfers in and/or out of Level III
    
    
    7,056,599Balance, December 31, 2008
    
    $
    6,680,150The amount of total gains or losses for the period included in earnings attributable to
the change in unrealized gains or losses relating to assets still held at the reporting date
    
    $
    (376,449
    )




---



##### Table of Contents



December 31, 2008Level I
    
    
    Level II
    
    
    Level III
    
    
    TotalAssets Measured on a Nonrecurring Basis:Impaired loans
    
    $
    
    
    
    $
    1,194,594
    
    
    $
    1,027,366
    
    
    $
    2,221,960
 21.
    
    FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
  2008
    
    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    17,455,463
    
    
    $
    17,455,463
    
    
    $
    17,815,322
    
    
    $
    17,815,322Investment securities available for sale
    
    
    104,270,366
    
    
    
    104,270,366
    
    
    
    85,967,764
    
    
    
    85,967,764Net loans
    
    
    318,018,530
    
    
    
    317,010,526
    
    
    
    306,146,646
    
    
    
    307,323,642Bank-owned life insurance
    
    
    7,440,687
    
    
    
    7,440,687
    
    
    
    7,153,381
    
    
    
    7,153,381Federal Home Loan Bank stock
    
    
    1,873,100
    
    
    
    1,873,100
    
    
    
    1,731,000
    
    
    
    1,731,000Accrued interest receivable
    
    
    1,446,373
    
    
    
    1,446,373
    
    
    
    1,540,434
    
    
    
    1,540,434Financial liabilities:Deposits
    
    $
    394,819,602
    
    
    $
    399,946,594
    
    
    $
    362,918,000
    
    
    $
    364,271,994Short-term borrowings
    
    
    1,886,253
    
    
    
    1,886,253
    
    
    
    1,510,607
    
    
    
    1,510,607Other borrowings
    
    
    33,903,019
    
    
    
    35,771,019
    
    
    
    32,395,319
    
    
    
    32,262,319Accrued interest payable
    
    
    1,299,114
    
    
    
    1,299,114
    
    
    
    1,509,575
    
    
    
    1,509,575




---



##### Table of Contents



Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued
Interest Payable, and Short-Term Borrowings
  Bank-Owned Life Insurance
  Investment Securities Available for Sale
  Loans
  Deposits and Other Borrowed Funds
  Commitments to Extend Credit




---



##### Table of Contents



22.
    
    PARENT COMPANY
  December 31,CONDENSED BALANCE SHEET
    
    2008
    
    
    2007ASSETSCash and due from banks
    
    $
    695,025
    
    
    $
    1,199,416Interest-bearing deposits in other institutions
    
    
    112,215
    
    
    
    110,387Investment securities available for sale
    
    
    1,022,162
    
    
    
    1,324,060Other assets
    
    
    248,000
    
    
    
    420,175Investment in subsidiary bank
    
    
    41,435,443
    
    
    
    40,452,190TOTAL ASSETS
    
    $
    43,512,845
    
    
    $
    43,506,228LIABILITIESJunior subordinated debt
    
    $
    8,248,000
    
    
    $
    8,248,000Other liabilities
    
    
    205,597
    
    
    
    296,844STOCKHOLDERS EQUITY
    
    
    35,059,248
    
    
    
    34,961,384TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    43,512,845
    
    
    $
    43,506,228
 Year Ended December 31,CONDENSED STATEMENT OF INCOME
    
    2008
    
    
    2007
    
    
    2006INCOMEDividends from subsidiary bank
    
    $
    2,184,241
    
    
    $
    2,018,050
    
    
    $
    1,277,306Interest income
    
    
    10,029
    
    
    
    154,199
    
    
    
    19,931Other
    
    
    5,108
    
    
    
    6,965
    
    
    
    TOTAL INCOME
    
    
    2,199,378
    
    
    
    2,179,214
    
    
    
    1,297,237EXPENSESInterest expense
    
    
    539,298
    
    
    
    535,280
    
    
    
    18,387Other
    
    
    379,076
    
    
    
    269,861
    
    
    
    180,651TOTAL INCOME
    
    
    918,374
    
    
    
    805,141
    
    
    
    199,038Income before income tax benefit
    
    
    1,281,004
    
    
    
    1,374,073
    
    
    
    1,098,199Income tax benefit
    
    
    (322,991
    )
    
    
    (218,952
    )
    
    
    (60,644
    )Income before equity in undistributed net income of subsidiary
    
    
    1,603,995
    
    
    
    1,593,025
    
    
    
    1,158,843Equity in undistributed net income of subsidiary
    
    
    1,010,884
    
    
    
    1,782,318
    
    
    
    2,725,404NET INCOME
    
    $
    2,614,879
    
    
    $
    3,375,343
    
    
    $
    3,884,247




---



##### Table of Contents



Year Ended December 31,CONDENSED STATEMENT OF CASH FLOWS
    
    2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    2,614,879
    
    
    $
    3,375,343
    
    
    $
    3,884,247Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed net income of Middlefield Banking Company
    
    
    (981,770
    )
    
    
    (1,749,538
    )
    
    
    (2,725,404
    )Equity in undistributed net income of Emerald Bank
    
    
    (29,114
    )
    
    
    (32,780
    )
    
    
    Compensation expense on stock options
    
    
    15,048
    
    
    
    26,435
    
    
    
    Other
    
    
    168,526
    
    
    
    76,419
    
    
    
    15,865Net cash provided by operating activities
    
    
    1,787,569
    
    
    
    1,695,879
    
    
    
    1,174,708INVESTING ACTIVITIESDeferred acquisition costs
    
    
    
    
    
    
    
    
    
    
    (123,175
    )Investment in unconsolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    (248,000
    )Purchase of investment securities
    
    
    
    
    
    
    (250,000
    )
    
    
    (250,020
    )Net assets of Emerald Bank acquired
    
    
    
    
    
    
    (5,912,621
    )
    
    
    Net cash used for investing activities
    
    
    
    
    
    
    (6,162,621
    )
    
    
    (621,195
    )FINANCING ACTIVITIESIssuance of trust-preferred securities
    
    
    
    
    
    
    
    
    
    
    8,248,000Purchase of treasury stock
    
    
    (1,350,881
    )
    
    
    (2,174,419
    )
    
    
    (238,534
    )Exercise of stock options
    
    
    19,642
    
    
    
    14,182
    
    
    
    62,115Proceeds from dividend reinvestment and purchase plan
    
    
    616,589
    
    
    
    582,198
    
    
    
    626,058Tax effect of stock options
    
    
    
    
    
    
    12,695
    
    
    
    Cash dividends
    
    
    (1,575,482
    )
    
    
    (1,469,752
    )
    
    
    (1,315,418
    )Net cash provided by (used for) financing activities
    
    
    (2,290,132
    )
    
    
    (3,035,096
    )
    
    
    7,382,221Increase (decrease) in cash
    
    
    (502,563
    )
    
    
    (7,501,838
    )
    
    
    7,935,734CASH AT BEGINNING OF YEAR
    
    
    1,309,803
    
    
    
    8,811,641
    
    
    
    875,907CASH AT END OF YEAR
    
    $
    807,240
    
    
    $
    1,309,803
    
    
    $
    8,811,641




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##### Table of Contents



23.
    
    SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
 Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008Total interest income
    
    $
    6,588,203
    
    
    $
    6,512,636
    
    
    $
    6,550,445
    
    
    $
    6,386,529Total interest expense
    
    
    3,757,986
    
    
    
    3,513,850
    
    
    
    3,398,663
    
    
    
    3,387,585Net interest income
    
    
    2,830,217
    
    
    
    2,998,786
    
    
    
    3,151,782
    
    
    
    2,998,944Provision for loan losses
    
    
    75,000
    
    
    
    95,000
    
    
    
    187,000
    
    
    
    251,000Net interest income after provision for loan losses
    
    
    2,755,217
    
    
    
    2,903,786
    
    
    
    2,964,782
    
    
    
    2,747,944Total noninterest income
    
    
    637,451
    
    
    
    637,217
    
    
    
    680,247
    
    
    
    271,591Total noninterest expense
    
    
    2,515,672
    
    
    
    2,578,974
    
    
    
    2,729,581
    
    
    
    2,772,126Income before income taxes
    
    
    876,996
    
    
    
    962,029
    
    
    
    915,448
    
    
    
    247,409Income taxes
    
    
    140,000
    
    
    
    179,000
    
    
    
    211,000
    
    
    
    (132,997
    )Net income
    
    $
    736,996
    
    
    $
    783,029
    
    
    $
    704,448
    
    
    $
    380,406Per share data:Net incomeBasic
    
    $
    0.48
    
    
    $
    0.51
    
    
    $
    0.46
    
    
    $
    0.26Diluted
    
    
    0.47
    
    
    
    0.51
    
    
    
    0.46
    
    
    
    0.25Average shares outstandingBasic
    
    
    1,548,043
    
    
    
    1,530,255
    
    
    
    1,523,044
    
    
    
    1,530,686Diluted
    
    
    1,568,380
    
    
    
    1,548,607
    
    
    
    1,525,373
    
    
    
    1,532,597
 Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007
    
    
    2007
    
    
    2007Total interest income
    
    $
    5,391,747
    
    
    $
    6,235,712
    
    
    $
    6,573,178
    
    
    $
    6,671,297Total interest expense
    
    
    2,779,298
    
    
    
    3,359,372
    
    
    
    3,666,111
    
    
    
    3,726,138Net interest income
    
    
    2,612,449
    
    
    
    2,876,340
    
    
    
    2,907,067
    
    
    
    2,945,159Provision for loan losses
    
    
    45,000
    
    
    
    69,391
    
    
    
    60,000
    
    
    
    255,000Net interest income after provision for loan losses
    
    
    2,567,449
    
    
    
    2,806,949
    
    
    
    2,847,067
    
    
    
    2,690,159Total noninterest income
    
    
    621,628
    
    
    
    648,243
    
    
    
    653,810
    
    
    
    708,911Total noninterest expense
    
    
    2,273,702
    
    
    
    2,320,833
    
    
    
    2,416,933
    
    
    
    2,361,182Income before income taxes
    
    
    915,375
    
    
    
    1,134,359
    
    
    
    1,083,944
    
    
    
    1,037,888Income taxes
    
    
    163,000
    
    
    
    235,128
    
    
    
    223,000
    
    
    
    175,095Net income
    
    $
    752,375
    
    
    $
    899,231
    
    
    $
    860,944
    
    
    $
    862,793Per share data:Net income
Basic
    
    $
    0.51
    
    
    $
    0.57
    
    
    $
    0.54
    
    
    $
    0.55Diluted
    
    
    0.49
    
    
    
    0.56
    
    
    
    0.54
    
    
    
    0.55Average shares outstandingBasic
    
    
    1,497,417
    
    
    
    1,578,583
    
    
    
    1,585,225
    
    
    
    1,561,771Diluted
    
    
    1,519,911
    
    
    
    1,600,045
    
    
    
    1,604,693
    
    
    
    1,582,872




---



##### Table of Contents



Fair
Value Measurements.




---



##### Table of Contents



Overview
     Significant Financial Events in 2008
  Critical Accounting Policies
 Allowance for loan losses




---



##### Table of Contents



Valuation of Securities
  Income Taxes




---



##### Table of Contents



Changes in Financial Condition
 General.
   Cash on hand, Interest-earning deposits and Federal funds sold.
 Securities.




---



##### Table of Contents



Loans receivable.
    FHLB stock.
 Goodwill.
   Bank-owned life insurance.




---



##### Table of Contents



Deposits.
   Borrowed funds.
 Stockholders equity.




---



##### Table of Contents



Average balance sheet and yield/rate analysis.
 For The Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Cost
    
    
    Balance
    
    
    Interest
    
    
    Yield/Cost
    
    
    Balance
    
    
    Interest
    
    
    Yield/Cost(Dollars in thousands)
    
    
    (Dollars in thousands)
    
    
    (Dollars in thousands)Interest-earning assets:Loans receivable
    
    $
    317,226
    
    
    $
    21,426
    
    
    
    6.75
    %
    
    $
    288,022
    
    
    $
    21,063
    
    
    
    7.31
    %
    
    $
    240,452
    
    
    $
    17,093
    
    
    
    7.11
    %Investments securities (3)
    
    
    96,277
    
    
    
    4,349
    
    
    
    5.48
    %
    
    
    74,820
    
    
    
    3,040
    
    
    
    5.28
    %
    
    
    57,520
    
    
    
    2,181
    
    
    
    4.72
    %Interest-bearing deposits
with other banks
    
    
    7,701
    
    
    
    263
    
    
    
    3.41
    %
    
    
    13,829
    
    
    
    770
    
    
    
    5.57
    %
    
    
    4,503
    
    
    
    221
    
    
    
    4.91
    %Total interest-earning assets
    
    
    421,204
    
    
    
    26,038
    
    
    
    6.40
    %
    
    
    376,671
    
    
    
    24,873
    
    
    
    6.85
    %
    
    
    302,475
    
    
    
    19,495
    
    
    
    6.62
    %Noninterest-earning assets
    
    
    29,407
    
    
    
    
    
    
    
    
    
    
    
    21,307
    
    
    
    
    
    
    
    
    
    
    
    16,231Total assets
    
    
    450,610
    
    
    
    
    
    
    
    
    
    
    
    397,979
    
    
    
    
    
    
    
    
    
    
    
    318,706Interest-bearing liabilities:Interest-bearing demand
deposits
    
    $
    24,178
    
    
    
    297
    
    
    
    1.23
    %
    
    $
    15,541
    
    
    
    359
    
    
    
    2.31
    %
    
    $
    11,280
    
    
    
    133
    
    
    
    1.18
    %Money market deposits
    
    
    25,042
    
    
    
    783
    
    
    
    3.13
    %
    
    
    25,057
    
    
    
    1,026
    
    
    
    4.09
    %
    
    
    13,675
    
    
    
    374
    
    
    
    2.73
    %Savings deposits
    
    
    70,868
    
    
    
    1,363
    
    
    
    1.92
    %
    
    
    68,882
    
    
    
    1,695
    
    
    
    2.46
    %
    
    
    57,831
    
    
    
    910
    
    
    
    1.57
    %Certificates of deposit
    
    
    216,732
    
    
    
    9,912
    
    
    
    4.57
    %
    
    
    172,552
    
    
    
    8,581
    
    
    
    4.97
    %
    
    
    135,763
    
    
    
    5,740
    
    
    
    4.23
    %Borrowings
    
    
    36,229
    
    
    
    1,702
    
    
    
    4.70
    %
    
    
    36,639
    
    
    
    1,870
    
    
    
    5.10
    %
    
    
    30,767
    
    
    
    1,410
    
    
    
    4.58
    %Total interest-bearing
liabilities
    
    
    373,049
    
    
    
    14,058
    
    
    
    3.77
    %
    
    
    318,671
    
    
    
    13,531
    
    
    
    4.25
    %
    
    
    249,316
    
    
    
    8,567
    
    
    
    3.44
    %Noninterest-bearing liabilities
Other liabilities
    
    
    44,762
    
    
    
    
    
    
    
    
    
    
    
    45,769
    
    
    
    
    
    
    
    
    
    
    
    40,799Stockholders equity
    
    
    33,051
    
    
    
    
    
    
    
    
    
    
    
    33,539
    
    
    
    
    
    
    
    
    
    
    
    28,591Total liabilities and
stockholders equity
    
    $
    450,862
    
    
    
    
    
    
    
    
    
    
    $
    397,979
    
    
    
    
    
    
    
    
    
    
    $
    318,706Net interest income
    
    
    
    
    
    $
    11,980
    
    
    
    
    
    
    
    
    
    
    $
    11,342
    
    
    
    
    
    
    
    
    
    
    $
    10,928Interest rate spread (1)
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    3.19
    %Net yield on interest-earning
assets (2)
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.79
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.91
    %
    
    
    
    
    
    
    
    
    
    
    118.20
    %
    
    
    
    
    
    
    
    
    
    
    121.32
    %
 (1)
    
    Interest rate spread
represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.(2)
    
    Net yield on interest-earning assets represents net interest income
as a percentage of average interest-earning assets.(3)
    
    Tax equivalent adjustments to interest income for tax-exempt securities were $932, $913, and
$535 for 2008, 2007, and 2006 respectively.




---



##### Table of Contents



2008 versus 2007
    
    
    2007 versus 2006Increase (decrease) due to
    
    
    Increase (decrease) due toVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)
    
    
    (Dollars in thousands)Interest incomeLoans receivable
    
    $
    2,136
    
    
    $
    (1,773
    )
    
    $
    363
    
    
    $
    3,382
    
    
    $
    588
    
    
    $
    3,970Investments securities
    
    
    1,133
    
    
    
    176
    
    
    
    1,309
    
    
    
    817
    
    
    
    42
    
    
    
    859Other interest-earning assets
    
    
    (341
    )
    
    
    (166
    )
    
    
    (507
    )
    
    
    458
    
    
    
    91
    
    
    
    549Total interest-earning assets
    
    
    2,928
    
    
    
    (1,763
    )
    
    
    1,165
    
    
    
    4,657
    
    
    
    721
    
    
    
    5,378Interest expenseInterest-bearing demand deposits
    
    
    200
    
    
    
    (261
    )
    
    
    (62
    )
    
    
    50
    
    
    
    176
    
    
    
    226Money market deposits
    
    
    (1
    )
    
    
    (242
    )
    
    
    (243
    )
    
    
    311
    
    
    
    341
    
    
    
    652Savings deposits
    
    
    49
    
    
    
    (381
    )
    
    
    (332
    )
    
    
    174
    
    
    
    611
    
    
    
    785Certificates of deposit
    
    
    2,197
    
    
    
    (866
    )
    
    
    1,331
    
    
    
    1,555
    
    
    
    1,286
    
    
    
    2,841Other interest-bearing liabilities
    
    
    (21
    )
    
    
    (147
    )
    
    
    (168
    )
    
    
    269
    
    
    
    191
    
    
    
    460Total interest-bearing liabilities
    
    
    2,424
    
    
    
    (1,897
    )
    
    
    527
    
    
    
    2,359
    
    
    
    2,605
    
    
    
    4,964Change in net interest income
    
    $
    504
    
    
    $
    134
    
    
    $
    638
    
    
    $
    2,298
    
    
    $
    (1,884
    )
    
    $
    414
 Changes in Results of Operations
 2008 Results Compared to 2007 Results
 General.
 Net interest income.




---



##### Table of Contents



Interest income.
  Interest expense.
 Loan loss provision.
 Noninterest income.




---



##### Table of Contents



Noninterest expense.
 Provision for income taxes.
 2007 Results Compared to 2006 Results
 General.
  Net interest income.




---



##### Table of Contents



Interest income.
  Interest expense. th
 Loan loss provision.
 Noninterest income.
 Noninterest expense.
 Provision for income taxes.




---



##### Table of Contents



Asset and Liability Management
   Interest Rate Sensitivity Simulation Analysis
    Net interest income simulation.
 Portfolio equity simulation.




---



##### Table of Contents



Increase
    
    
    Decrease+200 BP
    
    
    -200 BPNet interest incomeincrease (decrease)
    
    
    (2.49
    )%
    
    
    6.47
    %Portfolio equityincrease (decrease)
    
    
    (8.79
    )%
    
    
    (6.19
    )%
 Allowance for loan losses.
 Accounting by Creditors for Impairment
of a Loan Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosures




---



##### Table of Contents



For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Allowance balance at beginning of period
    
    $
    3,299
    
    
    $
    2,849
    
    
    $
    2,841Addition from acquisition
    
    
    
    
    
    
    436
    
    
    
    Loans charged off:Commercial and industrial
    
    
    (278
    )
    
    
    (251
    )
    
    
    (8
    )Real estate
 construction
    
    
    
    
    
    
    
    
    
    
    Real estate
 mortgage:
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    (2
    )
    
    
    (26
    )
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Consumer installment
    
    
    (135
    )
    
    
    (151
    )
    
    
    (72
    )Total loans charged off
    
    
    (415
    )
    
    
    (428
    )
    
    
    (80
    )Recoveries of loans previously charged off:Commercial and industrial
    
    
    30
    
    
    
    
    
    
    
    Real estate
 construction
    
    
    
    
    
    
    
    
    
    
    Real estate
 mortgage:
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    2
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Consumer installment
    
    
    33
    
    
    
    13
    
    
    
    28Total recoveries
    
    
    65
    
    
    
    13
    
    
    
    28Net loans charged off
    
    
    (350
    )
    
    
    (415
    )
    
    
    (52
    )Provision for loan losses
    
    
    608
    
    
    
    429
    
    
    
    60Allowance balance at end of period
    
    $
    3,557
    
    
    $
    3,299
    
    
    $
    2,849Loans outstanding:Average
    
    $
    317,226
    
    
    $
    288,022
    
    
    $
    240,452End of period
    
    
    321,575
    
    
    
    309,446
    
    
    
    249,191Ratio of allowance for loan losses to loans outstanding at end of period
    
    
    1.11
    %
    
    
    1.07
    %
    
    
    1.14
    %Net charge offs to average loans
    
    
    (0.11
    )
    
    
    (0.14
    )
    
    
    (0.02
    )
  At December 31,2008
    
    
    2007
    
    
    2006Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofLoans in Each
    
    
    
    
    
    
    Loans in Each
    
    
    
    
    
    
    Loans in EachCategory to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)
    
    
    (Dollars in thousands)
    
    
    (Dollars in thousands)Type of Loans:Commercial and industrial
    
    $
    961
    
    
    
    20.7
    %
    
    $
    1,060
    
    
    
    21.7
    %
    
    $
    1,126
    
    
    
    27.5
    %Real estate
 construction
    
    
    
    
    
    
    2.5
    
    
    
    99
    
    
    
    2.2
    
    
    
    25
    
    
    
    1.0Real estate
 mortgage:Residential
    
    
    2,048
    
    
    
    62.0
    
    
    
    1,527
    
    
    
    62.5
    
    
    
    1,147
    
    
    
    65.4Commercial
    
    
    521
    
    
    
    13.3
    
    
    
    512
    
    
    
    11.9
    
    
    
    158
    
    
    
    4.0Consumer installment
    
    
    27
    
    
    
    1.5
    
    
    
    101
    
    
    
    1.7
    
    
    
    116
    
    
    
    2.1Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277
    
    
    
    Total
    
    $
    3,557
    
    
    
    100
    %
    
    $
    3,299
    
    
    
    100
    %
    
    $
    2,849
    
    
    
    100
    %




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##### Table of Contents



At December 31,2008
    
    
    2007
    
    
    2006Loans accounted for on a non-accrual basis:Commercial and industrial
    
    $
    1,530
    
    
    $
    1,231
    
    
    $
    200Real estate
 construction
    
    
    469
    
    
    
    643
    
    
    
    Real estate
 mortgage:Residential
    
    
    3,902
    
    
    
    1,825
    
    
    
    952Commercial
    
    
    351
    
    
    
    33
    
    
    
    Consumer installment
    
    
    2
    
    
    
    12
    
    
    
    28Total non-accrual loans
    
    
    6,254
    
    
    
    3,744
    
    
    
    1,180Accruing loans which are contractually past due 90 days or more:Commercial and industrial
    
    
    558
    
    
    
    574
    
    
    
    90Real estate
 construction
    
    
    
    
    
    
    
    
    
    
    Real estate
 mortgage:Residential
    
    
    1,659
    
    
    
    1,333
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    110Consumer installment
    
    
    9
    
    
    
    11
    
    
    
    9Total accruing loans which are contractually past due 90 days or more
    
    
    2,226
    
    
    
    1,918
    
    
    
    209Total non-performing loans
    
    $
    8,480
    
    
    $
    5,662
    
    
    $
    1,389Real estate owned
    
    
    1,106
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    9,586
    
    
    $
    5,662
    
    
    $
    1,389Total non-performing loans to total loans
    
    
    2.64
    %
    
    
    1.83
    %
    
    
    0.56
    %Total non-performing loans to total assets
    
    
    1.81
    %
    
    
    1.30
    %
    
    
    0.41
    %Total non-performing assets to total assets
    
    
    2.05
    %
    
    
    1.30
    %
    
    
    0.41
    %




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity.




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##### Table of Contents



Capital Resources.
  Market Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters
  CashHigh
    
    
    Low
    
    
    DividendsBid
    
    
    Bid
    
    
    per share2008First Quarter
    
    $
    37.25
    
    
    $
    36.00
    
    
    $
    0.250Second Quarter
    
    $
    37.00
    
    
    $
    30.00
    
    
    $
    0.260Third Quarter
    
    $
    29.25
    
    
    $
    21.00
    
    
    $
    0.260Fourth Quarter
    
    $
    28.00
    
    
    $
    20.00
    
    
    $
    0.2602007First Quarter
    
    $
    39.76
    
    
    $
    36.43
    
    
    $
    0.229Second Quarter
    
    $
    38.10
    
    
    $
    36.33
    
    
    $
    0.229Third Quarter
    
    $
    37.38
    
    
    $
    36.19
    
    
    $
    0.233Fourth Quarter
    
    $
    38.81
    
    
    $
    36.00
    
    
    $
    0.245




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##### Table of Contents



Corporate Headquarters
  
 Form 10-K and 10-Q Availability
  
 Market Makers
  
 Notice of Annual Meeting
  
 Transfer Agent and Registrar
  
 Independent Auditors
 
 Internet Information
  Dividend Payment Dates




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##### Table of Contents



Dividend Reinvestment and Stock Purchase Plan
  Direct Deposit of Dividends
  Market for Middlefields Common Equity & Related Stockholder Matters
  CashHigh
    
    
    Low
    
    
    DividendsBid
    
    
    Bid
    
    
    per share2008First Quarter
    
    $
    37.25
    
    
    $
    36.00
    
    
    $
    0.250Second Quarter
    
    $
    37.00
    
    
    $
    30.00
    
    
    $
    0.260Third Quarter
    
    $
    29.25
    
    
    $
    21.00
    
    
    $
    0.260Fourth Quarter
    
    $
    28.00
    
    
    $
    20.00
    
    
    $
    0.2602007First Quarter
    
    $
    39.76
    
    
    $
    36.43
    
    
    $
    0.229Second Quarter
    
    $
    38.10
    
    
    $
    36.33
    
    
    $
    0.229Third Quarter
    
    $
    37.38
    
    
    $
    36.19
    
    
    $
    0.233Fourth Quarter
    
    $
    38.81
    
    
    $
    36.00
    
    
    $
    0.245




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##### Table of Contents








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##### Table of Contents



Main Office
    
    Mantua Branch
    
    Newbury Branch15985 East High Street
    
    10519 Main Street
    
    11110 Kinsman Road440.632.1666
    
    330.274.0881
    
    440.564.7000West Branch
    
    Chardon Branch
    
    Cortland Branch15545 West High Street
    
    348 Center Street
    
    3450 Niles-Cortland Road440.632.1666
    
    440.286.1222
    
    330.637.3208Garrettsville Branch
    
    Orwell Branch8058 State Street
    
    30 South Maple Street330.527.2121
    
    440.437.7200
 
 Dublin Branch
    
    Westerville Branch6215 Perimeter Drive
    
    17 North State Street614.793.4631
    
    614.890.7832




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##### Table of Contents








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##### Table of Contents



Exhibit Index
 exhibitnumber
    
    description
    
    location20
    
    
    Managements Annual Report on Internal Control Over
Financial Reporting
    
    filed herewith21
    
    
    Subsidiaries of Middlefield Banc Corp.
    
    filed herewith23
    
    
    Consent of S.R. Snodgrass, A.C., independent auditors
of Middlefield Banc Corp.
    
    filed herewith31.1
    
    
    Rule 13a-14(a) certification of Chief Executive Officer
    
    filed herewith31.2
    
    
    Rule 13a-14(a) certification of Chief Financial Officer
    
    filed herewith32
    
    
    Rule 13a-14(b) certification
    
    filed herewith