##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20552
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended September 30, 2008
 Commission File Number 000-32561
 (MBC LOGO)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.)
 15985 East High Street, Middlefield, Ohio 44062-9263
(Address of principal executive offices)
 (440) 632-1666
(Registrants telephone number, including area code)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 YES þ NO o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act:
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Small reporting companyþ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 YES o NO þ
 State the number of shares outstanding of each of the issuers classes of common equity as of the latest practicle date:
 Class: Common Stock, without par value
Outstanding at November 12, 2008: 1,529,292




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##### 



MIDDLEFIELD BANC CORP.
 INDEX
 PART I    FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated
Balance Sheet (Unaudited) as of
September 30, 2008 and December 31, 2007
    
    
    2Consolidated Statement of Income (Unaudited) 
for the Three and Nine Months ended September 30, 2008
and 2007
    
    
    3Consolidated Statement of Changes in Stockholders Equity (Unaudited) 
for the Nine Months ended September 30, 2008
    
    
    4Consolidated Statement of Cash Flows (Unaudited) 
for the Nine Months ended September 30, 2008 and 2007
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II    OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered sales of equity securities and use of proceeds
    
    
    20Item 3. Default Upon Senior Securities
    
    
    20Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits and Reports on Form 8 - K
    
    
    21SIGNATURES
    
    
    22Exhibit 31Exhibit 31.1Exhibit 32Exhibit 99
   1




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash and due from banks
    
    $
    8,263,756
    
    
    $
    9,072,972Federal funds sold
    
    
    4,570,826
    
    
    
    8,631,963Interest-bearing deposits in other institutions
    
    
    112,215
    
    
    
    110,387Cash and cash equivalents
    
    
    12,946,797
    
    
    
    17,815,322Investment securities available for sale
    
    
    96,371,351
    
    
    
    85,967,764Loans
    
    
    320,151,943
    
    
    
    309,445,922Less allowance for loan losses
    
    
    3,613,857
    
    
    
    3,299,276Net loans
    
    
    316,538,086
    
    
    
    306,146,646Premises and equipment
    
    
    8,018,503
    
    
    
    7,044,685Goodwill
    
    
    4,371,205
    
    
    
    4,371,206Bank-owned life insurance
    
    
    7,371,180
    
    
    
    7,153,381Accrued interest and other assets
    
    
    8,450,812
    
    
    
    5,774,052TOTAL ASSETS
    
    $
    454,067,935
    
    
    $
    434,273,056LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    40,929,373
    
    
    $
    41,348,219Interest-bearing demand
    
    
    27,409,745
    
    
    
    19,566,035Money market
    
    
    26,831,740
    
    
    
    22,684,041Savings
    
    
    69,835,964
    
    
    
    76,895,857Time
    
    
    214,957,328
    
    
    
    202,423,848Total deposits
    
    
    379,964,150
    
    
    
    362,918,000Short-term borrowings
    
    
    1,693,699
    
    
    
    1,510,607Other borrowings
    
    
    36,687,924
    
    
    
    32,395,319Accrued interest and other liabilities
    
    
    2,340,455
    
    
    
    2,487,746TOTAL LIABILITIES
    
    
    420,686,228
    
    
    
    399,311,672STOCKHOLDERS EQUITYCommon stock, no par value; 10,000,000 shares authorized,
1,718,822 and 1,701,546 shares issued
    
    
    27,159,602
    
    
    
    26,650,123Retained earnings
    
    
    14,793,600
    
    
    
    13,746,956Accumulated other comprehensive loss
    
    
    (1,837,888
    )
    
    
    (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
    
    
    33,381,707
    
    
    
    34,961,384TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    454,067,935
    
    
    $
    434,273,056
   2




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOMEInterest and fees on loans
    
    $
    5,425,266
    
    
    $
    5,604,206
    
    
    $
    16,273,630
    
    
    $
    15,449,822Interest-bearing deposits in
other institutions
    
    
    1,949
    
    
    
    22,159
    
    
    
    10,790
    
    
    
    127,772Federal funds sold
    
    
    22,181
    
    
    
    122,029
    
    
    
    124,467
    
    
    
    383,464Investment securities:Taxable interest
    
    
    622,184
    
    
    
    323,806
    
    
    
    1,793,645
    
    
    
    844,454Tax-exempt interest
    
    
    449,351
    
    
    
    468,552
    
    
    
    1,360,226
    
    
    
    1,310,932Dividends on FHLB stock
    
    
    29,514
    
    
    
    32,426
    
    
    
    88,526
    
    
    
    84,193Total interest income
    
    
    6,550,445
    
    
    
    6,573,178
    
    
    
    19,651,284
    
    
    
    18,200,637INTEREST EXPENSEDeposits
    
    
    2,948,998
    
    
    
    3,176,508
    
    
    
    9,381,666
    
    
    
    8,360,623Short-term borrowings
    
    
    17,610
    
    
    
    35,750
    
    
    
    34,793
    
    
    
    75,420Other borrowings
    
    
    432,055
    
    
    
    453,853
    
    
    
    1,254,040
    
    
    
    1,368,738Total interest expense
    
    
    3,398,663
    
    
    
    3,666,111
    
    
    
    10,670,499
    
    
    
    9,804,781NET INTEREST INCOME
    
    
    3,151,782
    
    
    
    2,907,067
    
    
    
    8,980,785
    
    
    
    8,395,856Provision for loan losses
    
    
    187,000
    
    
    
    60,000
    
    
    
    357,000
    
    
    
    174,391NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    2,964,782
    
    
    
    2,847,067
    
    
    
    8,623,785
    
    
    
    8,221,465NONINTEREST INCOMEService charges on deposit accounts
    
    
    493,228
    
    
    
    494,456
    
    
    
    1,417,789
    
    
    
    1,427,458Investment securities gains, net
    
    
    25,758
    
    
    
    
    
    
    
    34,508
    
    
    
    Earnings on bank-owned life insurance
    
    
    75,336
    
    
    
    69,909
    
    
    
    217,798
    
    
    
    210,162Other income
    
    
    85,925
    
    
    
    89,445
    
    
    
    284,820
    
    
    
    286,061Total noninterest income
    
    
    680,247
    
    
    
    653,810
    
    
    
    1,954,915
    
    
    
    1,923,681NONINTEREST EXPENSESalaries and employee benefits
    
    
    1,322,026
    
    
    
    1,220,646
    
    
    
    3,643,199
    
    
    
    3,365,646Occupancy expense
    
    
    203,298
    
    
    
    184,078
    
    
    
    643,884
    
    
    
    551,586Equipment expense
    
    
    150,334
    
    
    
    139,197
    
    
    
    435,770
    
    
    
    393,411Data processing costs
    
    
    193,033
    
    
    
    186,213
    
    
    
    591,098
    
    
    
    498,932Ohio state franchise tax
    
    
    117,000
    
    
    
    109,673
    
    
    
    351,000
    
    
    
    313,873Other expense
    
    
    743,890
    
    
    
    577,126
    
    
    
    2,159,276
    
    
    
    1,888,020Total noninterest expense
    
    
    2,729,581
    
    
    
    2,416,933
    
    
    
    7,824,227
    
    
    
    7,011,468Income before income taxes
    
    
    915,448
    
    
    
    1,083,944
    
    
    
    2,754,473
    
    
    
    3,133,678Income taxes
    
    
    211,000
    
    
    
    223,000
    
    
    
    530,000
    
    
    
    621,128NET INCOME
    
    $
    704,448
    
    
    $
    860,944
    
    
    $
    2,224,473
    
    
    $
    2,512,550EARNINGS PER SHAREBasic
    
    $
    0.46
    
    
    $
    0.54
    
    
    $
    1.45
    
    
    $
    1.61Diluted
    
    
    0.46
    
    
    
    0.53
    
    
    
    1.44
    
    
    
    1.59DIVIDENDS DECLARED PER SHARE
    
    $
    0.260
    
    
    $
    0.233
    
    
    $
    0.770
    
    
    $
    0.690
   3




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##### Table of Contents



AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Stockholders
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    Equity
    
    
    Income (Loss)Balance, December 31, 2007
    
    $
    26,650,123
    
    
    $
    13,746,956
    
    
    $
    (52,969
    )
    
    $
    (5,382,726
    )
    
    $
    34,961,384Net income
    
    
    
    
    
    
    2,224,473
    
    
    
    
    
    
    
    
    
    
    
    2,224,473
    
    
    $
    2,224,473Other comprehensive income:Unrealized loss on available for sale
securities net of tax benefit of $919,483
    
    
    
    
    
    
    
    
    
    
    (1,784,919
    )
    
    
    
    
    
    
    (1,784,919
    )
    
    
    (1,784,919
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    439,554Stock based compensation expense
recognized in earnings
    
    
    11,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,286Purchase of treasury stock (37,785 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350,881
    )
    
    
    (1,350,881
    )Dividend reinvestment and purchase plan
    
    
    498,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498,193Cash dividends ($0.77 per share)
    
    
    
    
    
    
    (1,177,829
    )
    
    
    
    
    
    
    
    
    
    
    (1,177,829
    )Balance, September 30, 2008
    
    $
    27,159,602
    
    
    $
    14,793,600
    
    
    $
    (1,837,888
    )
    
    $
    (6,733,607
    )
    
    $
    33,381,707
   4




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    2,224,473
    
    
    $
    2,512,550Adjustments to reconcile net income to
net cash provided by operating activities:Provision for loan losses
    
    
    357,000
    
    
    
    174,391Depreciation and amortization
    
    
    393,883
    
    
    
    378,749Amortization of premium and
discount on investment securities
    
    
    158,650
    
    
    
    168,622Amortization of deferred loan fees, net
    
    
    (104,138
    )
    
    
    (49,492
    )Earnings on bank-owned life insurance
    
    
    (217,799
    )
    
    
    (210,163
    )Compensation for stock option expense
    
    
    11,286
    
    
    
    Increase in accrued interest receivable
    
    
    (364,938
    )
    
    
    (827,231
    )Increase (decrease) in accrued interest payable
    
    
    (223,246
    )
    
    
    410,189Other, net
    
    
    (123,615
    )
    
    
    (540,786
    )Net cash used for operating activities
    
    
    2,077,047
    
    
    
    2,016,829INVESTING ACTIVITIESInvestment securities available for sale:Proceeds from repayments and maturities
    
    
    11,598,563
    
    
    
    5,402,909Proceeds from sale of securities
    
    
    2,929,439
    
    
    
    Purchases
    
    
    (27,760,155
    )
    
    
    (24,059,580
    )Investment securities held to maturity:Proceeds from repayments and maturities
    
    
    
    
    
    
    5,954Increase in loans, net
    
    
    (11,751,849
    )
    
    
    (18,373,626
    )Acquisition of subsidiary bank
    
    
    
    
    
    
    (1,828,301
    )Purchase of Federal Home Loan Bank stock
    
    
    (85,200
    )
    
    
    (56,100
    )Purchase of premises and equipment
    
    
    (1,367,701
    )
    
    
    (396,347
    )Deposit acquisition premium
    
    
    
    
    
    
    (2,120,612
    )Net cash used for investing activities
    
    
    (26,436,903
    )
    
    
    (41,425,703
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    17,046,151
    
    
    
    28,361,018Increase in short-term borrowings, net
    
    
    183,092
    
    
    
    902,844Repayment of other borrowings
    
    
    (7,707,395
    )
    
    
    (8,260,732
    )Proceeds from other borrowings
    
    
    12,000,000
    
    
    
    Purchase of Treasury Stock
    
    
    (1,350,881
    )
    
    
    (1,083,895
    )Proceeds from dividend reinvestment & purchase plan
    
    
    498,193
    
    
    
    462,825Cash dividends
    
    
    (1,177,829
    )
    
    
    (1,060,659
    )Net cash received from deposit acquisition
    
    
    
    
    
    
    19,270,054Net cash provided by financing activities
    
    
    19,491,331
    
    
    
    38,591,455Increase (decrease) in cash and cash equivalents
    
    
    (4,868,525
    )
    
    
    (817,419
    )CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD
    
    
    17,815,322
    
    
    
    13,639,602CASH AND CASH EQUIVALENTS
AT END OF PERIOD
    
    $
    12,946,797
    
    
    $
    12,822,183SUPPLEMENTAL INFORMATIONCash paid during the year for:Interest on deposits and borrowings
    
    $
    10,901,695
    
    
    $
    9,314,016Income taxes
    
    
    400,000
    
    
    
    750,000Summary of business acquisition:Fair value of tangible assets acquired
    
    $
    
    
    
    $
    42,657,925Fair value of core deposit intangible acquired
    
    
    
    
    
    
    103,781Fair 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
    )Goodwill recognized
    
    $
    
    
    
    $
    (3,196,764
    )
   5




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##### Table of Contents



Business Combinations
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51 non-controlling
 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
  6




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##### Table of Contents



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
 Determination of the Useful Life of
Intangible Assets (FSP
142-3). , 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 Fair
Value Measurements Accounting Changes and Error Corrections
    7




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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
    
    
    1,337
    
    
    
    36.25
    
    
    
    10,357
    
    
    
    37.73Exercised
    
    
    (992
    )
    
    
    19.80
    
    
    
    (565
    )
    
    
    25.10Forfeited
    
    
    (1,591
    )
    
    
    23.48
    
    
    
    
    
    
    
    Outstanding, September 30
    
    
    86,965
    
    
    $
    28.34
    
    
    
    87,079
    
    
    $
    27.60
    For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average common shares
issued
    
    
    1,712,574
    
    
    
    1,703,114
    
    
    
    1,707,720
    
    
    
    1,660,903Average treasury stock shares
    
    
    (189,530
    )
    
    
    (112,275
    )
    
    
    (173,979
    )
    
    
    (101,842
    )Weighted average common shares and
common stock equivalents used to
calculate basic earnings per share
    
    
    1,523,044
    
    
    
    1,590,839
    
    
    
    1,533,741
    
    
    
    1,559,061Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share
    
    
    2,329
    
    
    
    19,468
    
    
    
    12,659
    
    
    
    21,354Weighted average common shares and
common stock equivalents used
to calculate diluted earnings per share
    
    
    1,525,373
    
    
    
    1,610,307
    
    
    
    1,546,400
    
    
    
    1,580,414
  8




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##### Table of Contents



anti-dilutive
    For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Unrealized holding gains (losses) arising during
the period on securities held
    
    
    (727,463
    )
    
    
    656,243
    
    
    
    (1,807,694
    )
    
    
    (111,356
    )Reclassification adjustment for gains included in net income
    
    
    17,000
    
    
    
    
    
    
    
    22,775
    
    
    
    Net change in unrealized gains (losses) during the period
    
    
    (710,463
    )
    
    
    656,243
    
    
    
    (1,784,919
    )
    
    
    (111,356
    )Unrealized holding losses, beginning of period
    
    
    (1,127,425
    )
    
    
    (1,288,586
    )
    
    
    (52,969
    )
    
    
    (520,987
    )Unrealized holding losses, end of period
    
    
    (1,837,888
    )
    
    
    (632,343
    )
    
    
    (1,837,888
    )
    
    
    (632,343
    )Net income
    
    
    704,448
    
    
    
    860,944
    
    
    
    2,224,473
    
    
    
    2,512,550Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) arising during the period
    
    
    (710,463
    )
    
    
    656,243
    
    
    
    (1,784,919
    )
    
    
    (111,356
    )Comprehensive income (losses)
    
    
    (6,015
    )
    
    
    1,517,187
    
    
    
    439,554
    
    
    
    2,401,194
  Fair Value Measurements
  9




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##### Table of Contents



Quoted Prices inActive Markets for
    
    
    Significant OtherAssets Identical
    
    
    Observable
    
    
    Balance as of(Level 1)
    
    
    Inputs (Level 2)
    
    
    30-Sep-08Assets measured at fair value on a recurring basis:Securities available-for-sale
    
    $
    1,038,412
    
    
    $
    95,332,939
    
    
    $
    96,371,351Assets measured at fair value on a non-recurring basis:Collateral dependent impaired loans
    
    $
    
    
    
    $
    1,493,013
    
    
    $
    1,493,013
      10




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##### Table of Contents



Nine Months Ended2008
    
    
    2007Interest Income
    
    $
    19,651,284
    
    
    $
    18,906,851Interest Expense
    
    
    10,670,499
    
    
    
    10,230,811Net Interest Income
    
    
    8,980,785
    
    
    
    8,676,040Provision for loan losses
    
    
    357,000
    
    
    
    220,493Net Interest Income after provision for loan losses
    
    
    8,623,785
    
    
    
    8,455,547Non Interest Income
    
    
    1,954,915
    
    
    
    1,945,839Non Interest Expense
    
    
    7,824,227
    
    
    
    7,531,965Income before income taxes
    
    
    2,754,473
    
    
    
    2,869,421Provision for income taxes
    
    
    530,000
    
    
    
    621,128Net income
    
    $
    2,224,473
    
    
    $
    2,248,293EARNINGS PER SHAREBasic
    
    $
    1.45
    
    
    $
    1.44Diluted
    
    
    1.44
    
    
    
    1.42
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  CHANGES IN FINANCIAL CONDITION
 General.
 Cash on hand and due from banks.
  11




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##### Table of Contents



Investment securities.
 Loans receivable.
  Non-performing loans.
 Deposits.
 Borrowed funds.
 Stockholders equity.
  RESULTS OF OPERATIONS
 General.
  12




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##### Table of Contents



Net interest income.
   Interest income.
     Interest expense.
 1.
    
    A volume increase in the balance of interest-bearing liabilities of $32.5 million
resulting in $377,000 of additional interest cost.2.
    
    The interest rate on interest-bearing liabilities declining by 86 basis points from
4.28% for the third quarter of 2007 to 3.62% for the same period in 2008.
  13




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##### Table of Contents



1.
    
    A volume increase in the balance of interest-bearing liabilities of $57.8 million
resulting in $1.8 million of additional interest cost.2.
    
    The interest rate on interest-bearing liabilities declining by 36 basis points from
4.21% for the first three quarters of 2007 to 3.85% for the same period in 2008.
  interest-bearing
   Provision for loan losses.
 Non-interest income.
  Non-interest expense.
   14




---



##### Table of Contents



Provision for income taxes.
 CRITICAL ACCOUNTING ESTIMATES
  Average Balance Sheet and Yield/Rate Analysis.
 Analysis of Changes in Net Interest Income.
 For the Three Months Ended September 30,2008
    
    
    2007(4)
    
    
    
    
    
    
    
    
    
    
    (4)Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest (1)
    
    
    Yield/Cost
    
    
    Balance
    
    
    Interest (1)
    
    
    Yield/Cost(Dollars in thousands)
    
    
    (Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    318,761
    
    
    $
    5,425
    
    
    
    6.75
    %
    
    
    303,872
    
    
    $
    5,604
    
    
    
    7.32
    %Investments securities
    
    
    94,532
    
    
    
    1,073
    
    
    
    5.48
    %
    
    
    77,861
    
    
    
    792
    
    
    
    5.27
    %Interest-bearing deposits with other
banks
    
    
    5,897
    
    
    
    52
    
    
    
    3.48
    %
    
    
    15,187
    
    
    
    177
    
    
    
    4.62
    %Total interest-earning assets
    
    
    419,191
    
    
    
    6,550
    
    
    
    6.42
    %
    
    
    396,920
    
    
    
    6,573
    
    
    
    6.81
    %Noninterest-earning assets
    
    
    29,782
    
    
    
    
    
    
    
    
    
    
    
    20,392Total assets
    
    
    448,973
    
    
    
    
    
    
    
    
    
    
    $
    417,312Interest-bearing liabilities:Interest  bearing demand deposits
    
    
    25,962
    
    
    
    78
    
    
    
    1.19
    %
    
    $
    17,025
    
    
    
    91
    
    
    
    2.12
    %Money market deposits
    
    
    25,789
    
    
    
    197
    
    
    
    3.02
    %
    
    
    26,090
    
    
    
    257
    
    
    
    3.91
    %Savings deposits
    
    
    70,001
    
    
    
    318
    
    
    
    1.80
    %
    
    
    77,539
    
    
    
    573
    
    
    
    2.93
    %Certificates of deposit
    
    
    212,605
    
    
    
    2,357
    
    
    
    4.40
    %
    
    
    180,867
    
    
    
    2,255
    
    
    
    4.95
    %Borrowings
    
    
    38,111
    
    
    
    450
    
    
    
    4.68
    %
    
    
    38,695
    
    
    
    490
    
    
    
    5.02
    %Total interest-bearing liabilities
    
    
    372,468
    
    
    
    3,399
    
    
    
    3.62
    %
    
    
    340,216
    
    
    
    3,666
    
    
    
    4.28
    %Noninterest-bearing liabilitiesOther liabilities
    
    
    44,376
    
    
    
    
    
    
    
    
    
    
    
    42,867Stockholders equity
    
    
    32,129
    
    
    
    
    
    
    
    
    
    
    
    34,228Total liabilities and stockholders equity
    
    $
    448,973
    
    
    
    
    
    
    
    
    
    
    $
    417,311Net interest income
    
    
    
    
    
    $
    3,152
    
    
    
    
    
    
    
    
    
    
    $
    2,907Interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.80
    %
    
    
    
    
    
    
    
    
    
    
    2.54
    %Net yield on interest-earning assets (3)
    
    
    
    
    
    
    
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %Ratio of average interest-earning assets
to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.54
    %
    
    
    
    
    
    
    
    
    
    
    116.67
    %
 
 (1)
    
    Interest income and expense are for the period that
banking operations were in effect.(2)
    
    Interest rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(3)
    
    Net yield on interest-earning assets represents net interest income as a percentage of average
interest-earning assets.(4)
    
    Average yields are computed using annualized interest income and expense for the periods.  15




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##### Table of Contents



2008 versus 2007Increase (decrease) due toVolume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    275
    
    
    
    -453
    
    
    
    -179Investments securities
    
    
    221
    
    
    
    60
    
    
    
    281Interest-bearing deposits with
other banks
    
    
    -108
    
    
    
    -17
    
    
    
    -125Total interest-earning assets
    
    
    388
    
    
    
    -410
    
    
    
    -23Interest-bearing liabilities:Interest  bearing demand deposits
    
    
    48
    
    
    
    -61
    
    
    
    -13Money market deposits
    
    
    -3
    
    
    
    -57
    
    
    
    -60Savings deposits
    
    
    -56
    
    
    
    -200
    
    
    
    -255Certificates of deposit
    
    
    396
    
    
    
    -293
    
    
    
    102Borrowings
    
    
    -7
    
    
    
    -33
    
    
    
    -40Total interest-bearing liabilities
    
    
    377
    
    
    
    -645
    
    
    
    -267Net interest income
    
    $
    10
    
    
    $
    235
    
    
    $
    245
 For the Nine Months Ended September 30,2008
    
    
    2007(4)
    
    
    
    
    
    
    
    
    
    
    (4)Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest (1)
    
    
    Yield/Cost
    
    
    Balance
    
    
    Interest (1)
    
    
    Yield/Cost(Dollars in thousands)
    
    
    (Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    316,032
    
    
    $
    16,274
    
    
    
    6.86
    %
    
    
    282,169
    
    
    $
    15,450
    
    
    
    7.32
    %Investments securities
    
    
    95,419
    
    
    
    3,165
    
    
    
    5.40
    %
    
    
    71,969
    
    
    
    2,155
    
    
    
    5.26
    %Interest-bearing deposits with other
banks
    
    
    6,803
    
    
    
    213
    
    
    
    4.17
    %
    
    
    14,730
    
    
    
    596
    
    
    
    5.41
    %Total interest-earning assets
    
    
    418,255
    
    
    
    19,651
    
    
    
    6.48
    %
    
    
    368,868
    
    
    
    18,201
    
    
    
    6.84
    %Noninterest-earning assets
    
    
    28,141
    
    
    
    
    
    
    
    
    
    
    
    18,285Total assets
    
    $
    446,396
    
    
    
    
    
    
    
    
    
    
    $
    387,153Interest-bearing liabilities:Interest  bearing demand deposits
    
    
    23,310
    
    
    
    220
    
    
    
    1.26
    %
    
    $
    14,201
    
    
    
    265
    
    
    
    2.49
    %Money market deposits
    
    
    24,418
    
    
    
    588
    
    
    
    3.21
    %
    
    
    25,557
    
    
    
    801
    
    
    
    4.19
    %Savings deposits
    
    
    71,834
    
    
    
    1,100
    
    
    
    2.04
    %
    
    
    66,403
    
    
    
    1,187
    
    
    
    2.39
    %Certificates of deposit
    
    
    214,270
    
    
    
    7,474
    
    
    
    4.65
    %
    
    
    167,217
    
    
    
    6,108
    
    
    
    4.88
    %Borrowings
    
    
    35,677
    
    
    
    1,289
    
    
    
    4.81
    %
    
    
    38,352
    
    
    
    1,444
    
    
    
    5.03
    %Total interest-bearing liabilities
    
    
    369,509
    
    
    
    10,670
    
    
    
    3.85
    %
    
    
    311,730
    
    
    
    9,805
    
    
    
    4.21
    %Noninterest-bearing liabilitiesOther liabilities
    
    
    43,114
    
    
    
    
    
    
    
    
    
    
    
    42,445Stockholders equity
    
    
    33,773
    
    
    
    
    
    
    
    
    
    
    
    32,979Total liabilities and stockholders equity
    
    
    446,396
    
    
    
    
    
    
    
    
    
    
    $
    387,154Net interest income
    
    
    
    
    
    $
    8,981
    
    
    
    
    
    
    
    
    
    
    $
    8,396Interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %Net yield on interest-earning assets (3)
    
    
    
    
    
    
    
    
    
    
    3.08
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %Ratio of average interest-earning assets
to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.19
    %
    
    
    
    
    
    
    
    
    
    
    118.33
    %
 
 (1)
    
    Interest income and expense are for the period that banking operations were in effect.(2)
    
    Interest rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(3)
    
    Net yield on interest-earning assets represents net interest income as a percentage of average
interest-earning assets.(4)
    
    Average yields are computed using annualized interest income and expense for the periods.  16




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2008 versus 2007Increase (decrease) due toVolume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    1,854
    
    
    
    -1,031
    
    
    
    824Investments securities
    
    
    922
    
    
    
    87
    
    
    
    1,010Interest-bearing deposits with
other banks
    
    
    -321
    
    
    
    -62
    
    
    
    -383Total interest-earning assets
    
    
    2,456
    
    
    
    -1,005
    
    
    
    1,450Interest-bearing liabilities:Interest  bearing demand deposits
    
    
    170
    
    
    
    -215
    
    
    
    -45Money market deposits
    
    
    -36
    
    
    
    -177
    
    
    
    -213Savings deposits
    
    
    97
    
    
    
    -184
    
    
    
    -87Certificates of deposit
    
    
    1,719
    
    
    
    -353
    
    
    
    1,366Borrowings
    
    
    -101
    
    
    
    -54
    
    
    
    -155Total interest-bearing liabilities
    
    
    1,849
    
    
    
    -984
    
    
    
    865Net interest income
    
    $
    606
    
    
    $
    (22
    )
    
    $
    585
 LIQUIDITY
   INFLATION
   REGULATORY MATTERS
   17




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##### Table of Contents



REGULATORY CAPITAL REQUIREMENTS
    Middlefield Banc Corp.
    
    
    The Middlefield Banking Co.
    
    
    Emerald BankSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2008
    
    
    2008Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital
(to Risk-weighted Assets)Actual
    
    $
    42,881,146
    
    
    
    13.98
    %
    
    $
    33,069,404
    
    
    
    12.60
    %
    
    $
    7,913,660
    
    
    
    17.97
    %For Capital Adequacy Purposes
    
    
    24,532,435
    
    
    
    8.00
    
    
    
    21,000,160
    
    
    
    8.00
    
    
    
    3,522,319
    
    
    
    8.00To Be Well Capitalized
    
    
    30,665,544
    
    
    
    10.00
    
    
    
    26,250,200
    
    
    
    10.00
    
    
    
    4,402,899
    
    
    
    10.00Tier I
Capital
(to Risk-weighted Assets)Actual
    
    $
    39,096,390
    
    
    
    12.75
    %
    
    $
    30,109,199
    
    
    
    11.47
    %
    
    $
    7,362,022
    
    
    
    16.72
    %For Capital Adequacy Purposes
    
    
    12,266,218
    
    
    
    4.00
    
    
    
    10,500,080
    
    
    
    4.00
    
    
    
    1,761,159
    
    
    
    4.00To Be Well Capitalized
    
    
    18,399,327
    
    
    
    6.00
    
    
    
    15,750,120
    
    
    
    5.00
    
    
    
    2,641,739
    
    
    
    6.00Tier I Capital
(to Average Assets)Actual
    
    $
    39,096,390
    
    
    
    8.83
    %
    
    $
    30,109,199
    
    
    
    7.78
    %
    
    $
    7,362,022
    
    
    
    14.06
    %For Capital Adequacy Purposes
    
    
    17,707,847
    
    
    
    4.00
    
    
    
    15,473,487
    
    
    
    4.00
    
    
    
    2,094,131
    
    
    
    4.00To Be Well Capitalized
    
    
    22,134,809
    
    
    
    5.00
    
    
    
    19,341,858
    
    
    
    5.00
    
    
    
    2,617,664
    
    
    
    5.00
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 ASSET AND LIABILITY MANAGEMENT
   18




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##### Table of Contents



Increase
    
    
    Decrease200
    
    
    200BP
    
    

BPNet interest
income  increase (decrease)
    
    
    (0.5
    )%
    
    
    (0.9
    )%Portfolio
equity  increase (decrease)
    
    
    (11.2
    )%
    
    
    (2.6
    )%
 
 ITEM 4.
Controls and Procedures Disclosure
    19




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
  
   
  
   
   
   
    20




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##### Table of Contents



exhibitnumber
    
    description
    
    location2
    
    
    Agreement and Plan of Merger among
Middlefield Banc Corp., EB Interim
Bank, and Emerald Bank, dated as of
November 15, 2007, as amended by
Amendment No. 1
    
    Incorporated by
reference to the
prospectus/proxy
statement, Appendix
A, contained in
Part I of Form S-4
Registration
Statement Amendment
No. 1 filed on
February 9, 2008.
Disclosure
schedules referred
to in the Agreement
and Plan of Merger
are omitted in
reliance on Item
601(b)(2) of
Regulation S-K.
Upon request of the
SEC, Middlefield
Banc Corp. will
furnish
supplemental to the
SEC a copy of the
disclosure
schedules3.1
    
    
    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, 20073.2
    
    
    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
    
    
    Specimen stock certificate
    
    Incorporated by
reference to
Exhibit 3.2 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,
2007, 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, 20074.2
    
    
    Junior Subordinated Indenture, dated
as of December 21, 2007, 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, 20074.3
    
    
    Guarantee Agreement, dated as of
December 21, 2007, 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, 200799
    
    
    Report of independent registered
public accounting firm.
    
    filed herewith31
    
    
    Rule 13a-14(a) certification of
Chief Executive Officer
    
    filed herewith31.1
    
    
    Rule 13a-14(a) certification of
Chief Financial Officer
    
    filed herewith32
    
    
    Rule 13a-14(b) certification
    
    filed herewith
  21




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##### Table of Contents



SIGNATURES
  MIDDLEFIELD BANC CORP.Date: November 13, 2008
    By:

/s/ Thomas G. CaldwellThomas G. CaldwellPresident and Chief Executive OfficerDate:   November 13, 2008
    By:

/s/ Donald L. StacyDonald L. StacyPrincipal Financial and Accounting Officer  22




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##### Table of Contents



EXHIBIT INDEX
 exhibitnumber
    
    description
    
    location99
    
    
    Report of independent registered public
accounting firm.
    
    filed herewith31
    
    
    Rule 13a-14(a) certification of Chief
Executive Officer
    
    filed herewith31.1
    
    
    Rule 13a-14(a) certification of Chief
Financial Officer
    
    filed herewith32
    
    
    Rule 13a-14(b) certification
    
    filed herewith
  23