##### 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 June 30, 2008
 Commission
File Number 000-32561
 
 Middlefield Banc Corp.
 (Exact name of registrant as specified in its charter)
 Ohio
(State or other jurisdiction of incorporation 
or organization)
    
    34 - 1585111
(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 company þ
 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 August 13, 2008: 1,522,390




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##### 



MIDDLEFIELD BANC CORP.
 INDEX
 PART I  -  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheet (Unaudited) as of
June 30, 2008 and December 31, 2007
 2Consolidated Statement of Income (Unaudited)
for the Three and Six Months ended June 30, 2008
and 2007
 3Consolidated Statement of Changes in Stockholders Equity (Unaudited)
for the Six Months ended June 30, 2008
 4Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended June 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
 19Item 1A. Risk FactorsItem 2. Unregistered sales of equity securities and use of proceeds
 19Item 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



June 30,
    
    
    December 312008
    
    
    2007ASSETSCash and due from banks
    
    $
    9,502,382
    
    
    $
    9,072,972Federal funds sold
    
    
    790,062
    
    
    
    8,631,963Interest-bearing deposits in other institutions
    
    
    110,387
    
    
    
    110,387Cash and cash equivalents
    
    
    10,402,831
    
    
    
    17,815,322Investment securities available for sale
    
    
    93,797,174
    
    
    
    85,967,764Loans
    
    
    319,350,603
    
    
    
    309,445,922Less allowance for loan losses
    
    
    3,434,993
    
    
    
    3,299,276Net loans
    
    
    315,915,610
    
    
    
    306,146,646Premises and equipment
    
    
    7,974,133
    
    
    
    7,044,685Goodwill
    
    
    4,371,207
    
    
    
    4,371,206Bank-owned life insurance
    
    
    7,295,844
    
    
    
    7,153,381Accrued interest and other assets
    
    
    7,597,413
    
    
    
    5,774,052TOTAL ASSETS
    
    $
    447,354,212
    
    
    $
    434,273,056LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    43,132,291
    
    
    $
    41,348,219Interest-bearing demand
    
    
    23,501,076
    
    
    
    19,566,035Money market
    
    
    24,849,884
    
    
    
    22,684,041Savings
    
    
    71,953,596
    
    
    
    76,895,857Time
    
    
    210,651,595
    
    
    
    202,423,848Total deposits
    
    
    374,088,442
    
    
    
    362,918,000Short-term borrowings
    
    
    1,402,320
    
    
    
    1,510,607Federal funds purchased
    
    
    4,310,000
    
    
    
    Other borrowings
    
    
    31,656,317
    
    
    
    32,395,319Accrued interest and other liabilities
    
    
    2,262,658
    
    
    
    2,487,746TOTAL LIABILITIES
    
    
    413,719,737
    
    
    
    399,311,672STOCKHOLDERS EQUITYCommon stock, no par value; 10,000,000 shares authorized,
1,711,920 and 1,701,546 shares issued
    
    
    27,010,507
    
    
    
    26,650,123Retained earnings
    
    
    14,485,000
    
    
    
    13,746,956Accumulated other comprehensive loss
    
    
    (1,127,425
    )
    
    
    (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
    
    
    33,634,475
    
    
    
    34,961,384TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    447,354,212
    
    
    $
    434,273,056
   2




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOMEInterest and fees on loans
    
    $
    5,393,090
    
    
    $
    5,315,387
    
    
    $
    10,848,364
    
    
    $
    9,845,616Interest-bearing deposits in
other institutions
    
    
    3,638
    
    
    
    49,724
    
    
    
    8,841
    
    
    
    105,613Federal funds sold
    
    
    22,982
    
    
    
    130,200
    
    
    
    102,286
    
    
    
    261,435Investment securities:Taxable interest
    
    
    606,382
    
    
    
    254,534
    
    
    
    1,171,461
    
    
    
    520,648Tax-exempt interest
    
    
    456,932
    
    
    
    459,595
    
    
    
    910,875
    
    
    
    842,380Dividends on FHLB stock
    
    
    29,612
    
    
    
    26,272
    
    
    
    59,012
    
    
    
    51,767Total interest income
    
    
    6,512,636
    
    
    
    6,235,712
    
    
    
    13,100,839
    
    
    
    11,627,459INTEREST EXPENSEDeposits
    
    
    3,098,688
    
    
    
    2,869,444
    
    
    
    6,432,668
    
    
    
    5,184,115Short-term
borrowings
    
    
    7,288
    
    
    
    20,455
    
    
    
    17,183
    
    
    
    39,670Other borrowings
    
    
    407,874
    
    
    
    469,473
    
    
    
    821,985
    
    
    
    914,885Total interest expense
    
    
    3,513,850
    
    
    
    3,359,372
    
    
    
    7,271,836
    
    
    
    6,138,670NET INTEREST INCOME
    
    
    2,998,786
    
    
    
    2,876,340
    
    
    
    5,829,003
    
    
    
    5,488,789Provision for loan losses
    
    
    95,000
    
    
    
    69,391
    
    
    
    170,000
    
    
    
    114,391NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    2,903,786
    
    
    
    2,806,949
    
    
    
    5,659,003
    
    
    
    5,374,398NONINTEREST INCOMEService charges on deposit accounts
    
    
    459,033
    
    
    
    481,055
    
    
    
    924,561
    
    
    
    933,002Investment securities gains, net
    
    
    8,750
    
    
    
    
    
    
    
    8,750
    
    
    
    Earnings on bank-owned life insurance
    
    
    72,374
    
    
    
    68,174
    
    
    
    142,462
    
    
    
    140,253Other income
    
    
    97,060
    
    
    
    99,014
    
    
    
    198,895
    
    
    
    196,616Total noninterest income
    
    
    637,217
    
    
    
    648,243
    
    
    
    1,274,668
    
    
    
    1,269,871NONINTEREST EXPENSESalaries and employee benefits
    
    
    1,126,754
    
    
    
    1,040,092
    
    
    
    2,321,173
    
    
    
    2,145,000Occupancy expense
    
    
    209,403
    
    
    
    198,278
    
    
    
    440,586
    
    
    
    367,508Equipment expense
    
    
    139,326
    
    
    
    132,423
    
    
    
    285,436
    
    
    
    254,214Data processing costs
    
    
    188,785
    
    
    
    161,471
    
    
    
    398,065
    
    
    
    312,719Ohio state franchise tax
    
    
    117,000
    
    
    
    108,200
    
    
    
    234,000
    
    
    
    204,200Other expense
    
    
    797,706
    
    
    
    680,369
    
    
    
    1,415,386
    
    
    
    1,310,894Total noninterest expense
    
    
    2,578,974
    
    
    
    2,320,833
    
    
    
    5,094,646
    
    
    
    4,594,535Income before income taxes
    
    
    962,029
    
    
    
    1,134,359
    
    
    
    1,839,025
    
    
    
    2,049,734Income taxes
    
    
    179,000
    
    
    
    235,128
    
    
    
    319,000
    
    
    
    398,128NET INCOME
    
    $
    783,029
    
    
    $
    899,231
    
    
    $
    1,520,025
    
    
    $
    1,651,606EARNINGS PER SHAREBasic
    
    $
    0.51
    
    
    $
    0.57
    
    
    $
    0.99
    
    
    $
    1.07Diluted
    
    
    0.51
    
    
    
    0.56
    
    
    
    0.98
    
    
    
    1.06DIVIDENDS DECLARED PER SHARE
    
    $
    0.260
    
    
    $
    0.224
    
    
    $
    0.510
    
    
    $
    0.457
   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
    
    
    
    
    
    
    1,520,025
    
    
    
    
    
    
    
    
    
    
    
    1,520,025
    
    
    $
    1,520,025Other comprehensive income:Unrealized loss on available for sale
securities net of tax benefit of $553,495
    
    
    
    
    
    
    
    
    
    
    (1,074,456
    )
    
    
    
    
    
    
    (1,074,456
    )
    
    
    (1,074,456
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    445,569Stock based compensation expense
recognized in earnings
    
    
    7,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,524Purchase of treasury stock (37,785 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350,881
    )
    
    
    (1,350,881
    )Dividend reinvestment and purchase plan
    
    
    352,860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,860Cash dividends ($0.51 per share)
    
    
    
    
    
    
    (781,981
    )
    
    
    
    
    
    
    
    
    
    
    (781,981
    )Balance, June 30, 2008
    
    $
    27,010,507
    
    
    $
    14,485,000
    
    
    $
    (1,127,425
    )
    
    $
    (6,733,607
    )
    
    $
    33,634,475
   4




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##### Table of Contents



Six Months EndedJune 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    1,520,025
    
    
    $
    1,651,606Adjustments to reconcile net income to
net cash provided by operating activities:Provision for loan losses
    
    
    170,000
    
    
    
    114,391Depreciation and amortization
    
    
    253,770
    
    
    
    245,020Amortization of premium and
discount on investment securities
    
    
    108,373
    
    
    
    114,514Amortization of deferred loan fees, net
    
    
    (80,287
    )
    
    
    (24,119
    )Earnings on bank-owned life insurance
    
    
    (142,463
    )
    
    
    (140,253
    )Compensation for stock option expense
    
    
    7,524
    
    
    
    Increase in accrued interest receivable
    
    
    42,045
    
    
    
    (252,413
    )Increase (decrease) in accrued interest payable
    
    
    (205,513
    )
    
    
    125,237Other, net
    
    
    (358,975
    )
    
    
    (380,472
    )Net cash used for operating activities
    
    
    1,314,499
    
    
    
    1,453,511INVESTING ACTIVITIESInvestment securities available for sale:Proceeds from repayments and maturities
    
    
    8,578,818
    
    
    
    2,499,419Purchases
    
    
    (18,144,564
    )
    
    
    (12,603,824
    )Investment securities held to maturity:Proceeds from repayments and maturities
    
    
    
    
    
    
    5,954Increase in loans, net
    
    
    (10,769,677
    )
    
    
    (13,783,759
    )Acquisition of subsidiary bank
    
    
    
    
    
    
    (1,828,301
    )Purchase of Federal Home Loan Bank stock
    
    
    (61,500
    )
    
    
    (56,100
    )Purchase of premises and equipment
    
    
    (1,183,218
    )
    
    
    (98,112
    )Net cash used for investing activities
    
    
    (21,580,141
    )
    
    
    (25,864,723
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    11,170,442
    
    
    
    21,739,314Increase in short-term borrowings, net
    
    
    4,201,713
    
    
    
    4,158,319Repayment of other borrowings
    
    
    (1,739,002
    )
    
    
    (2,137,367
    )Proceeds from other borrowings
    
    
    1,000,000
    
    
    
    Purchase of Treasury Stock
    
    
    (1,350,881
    )
    
    
    (196,750
    )Proceeds from dividend reinvestment & purchase plan
    
    
    352,860
    
    
    
    351,431Cash dividends
    
    
    (781,981
    )
    
    
    (693,573
    )Net cash provided by financing activities
    
    
    12,853,151
    
    
    
    23,221,374Increase (decrease) in cash and cash equivalents
    
    
    (7,412,491
    )
    
    
    (1,189,838
    )CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD
    
    
    17,815,322
    
    
    
    13,639,602CASH AND CASH EQUIVALENTS
AT END OF PERIOD
    
    $
    10,402,831
    
    
    $
    12,449,764SUPPLEMENTAL INFORMATIONCash paid during the year for:Interest on deposits and borrowings
    
    $
    7,516,559
    
    
    $
    4,399,898Income taxes
    
    
    350,000
    
    
    
    450,000Summary 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
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115 Fair Value
Measurements
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51
  6




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Disclosures about Derivative Instruments and Hedging
Activities Accounting for
Derivative Instruments and Hedging Activities
 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
   
  Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    averageExercise
    
    
    
    
    
    
    Exercise2008
    
    
    Price
    
    
    2007
    
    
    PriceOutstanding, January 1
    
    
    88,211
    
    
    $
    28.34
    
    
    
    77,287
    
    
    $
    26.23Granted
    
    
    1,337
    
    
    
    36.25
    
    
    
    10,357
    
    
    
    37.73Exercised
    
    
    (842
    )
    
    
    19.11
    
    
    
    (565
    )
    
    
    25.10Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, June 30
    
    
    88,706
    
    
    $
    28.55
    
    
    
    87,079
    
    
    $
    27.60
  7




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average common shares
outstanding
    
    
    1,707,946
    
    
    
    1,681,180
    
    
    
    1,705,266
    
    
    
    1,639,447Average treasury stock shares
    
    
    (177,691
    )
    
    
    (97,712
    )
    
    
    (166,117
    )
    
    
    (96,403
    )Weighted average common shares and
common stock equivalents used to
calculate basic earnings per share
    
    
    1,530,255
    
    
    
    1,583,468
    
    
    
    1,539,149
    
    
    
    1,543,044Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share
    
    
    18,352
    
    
    
    21,463
    
    
    
    19,345
    
    
    
    21,979Weighted average common shares and
common stock equivalents used
to calculate diluted earnings per share
    
    
    1,548,607
    
    
    
    1,604,931
    
    
    
    1,558,494
    
    
    
    1,565,023
   8




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Unrealized holding losses arising during
the period on securities held
    
    
    (1,312,215
    )
    
    
    (795,803
    )
    
    
    (1,080,231
    )
    
    
    (767,599
    )Reclassification adjustment for gains included in net income
    
    
    5,775
    
    
    
    
    
    
    
    5,775
    
    
    
    Net change in unrealized losses during the period
    
    
    (1,306,440
    )
    
    
    (795,803
    )
    
    
    (1,074,456
    )
    
    
    (767,599
    )Unrealized holding (losses) gains, beginning of period
    
    
    179,015
    
    
    
    (492,783
    )
    
    
    (52,969
    )
    
    
    (520,987
    )Unrealized holding losses, end of period
    
    
    (1,127,425
    )
    
    
    (1,288,586
    )
    
    
    (1,127,425
    )
    
    
    (1,288,586
    )Net income
    
    
    783,029
    
    
    
    899,231
    
    
    
    1,520,025
    
    
    
    1,651,606Other comprehensive income, net of tax:Unrealized holding losses arising during the period
    
    
    (1,306,440
    )
    
    
    (795,803
    )
    
    
    (1,074,456
    )
    
    
    (767,599
    )Comprehensive income
    
    
    (523,411
    )
    
    
    103,428
    
    
    
    445,569
    
    
    
    884,007
  Fair Value Measurements
  Quoted Prices in Active
    
    
    Significant OtherMarkets for Identical
    
    
    Observable Inputs
    
    
    Balance as ofAssets (Level 1)
    
    
    (Level 2)
    
    
    30-Jun-08Securities available-for-sale
    
    $
    1,068,212
    
    
    $
    92,728,962
    
    
    $
    93,797,174
   9




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##### Table of Contents



Six Months Ended2008
    
    
    2007Interest Income
    
    $
    13,100,839
    
    
    $
    12,333,673Interest Expense
    
    
    7,271,836
    
    
    
    6,564,700Net Interest Income
    
    
    5,829,003
    
    
    
    5,768,973Provision for loan losses
    
    
    170,000
    
    
    
    160,493Net Interest Income after provision for loan losses
    
    
    5,659,003
    
    
    
    5,608,480Non Interest Income
    
    
    1,274,668
    
    
    
    1,292,029Non Interest Expense
    
    
    5,094,646
    
    
    
    5,115,032Income before income taxes
    
    
    1,839,025
    
    
    
    1,785,477Provision for income taxes
    
    
    319,000
    
    
    
    398,128Net income
    
    $
    1,520,025
    
    
    $
    1,387,349EARNINGS PER SHAREBasic
    
    $
    0.99
    
    
    $
    0.90Diluted
    
    
    0.98
    
    
    
    0.89
   10




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##### Table of Contents



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.
 Investment securities.
 Loans receivable.
  Non-performing loans.
 Deposits.
  11




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##### Table of Contents



Borrowed funds.
 Stockholders equity.
 RESULTS OF OPERATIONS
 General.
  Net interest income.
   Interest income.
   12




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##### Table of Contents



Interest expense.
     Provision for loan losses.
 Non-interest income.
  13




---



##### Table of Contents



Non-interest expense.
  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 June 30,2008
    
    
    2007(4)
    
    
    
    
    
    
    
    
    
    
    (4)Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    AverageBalance
    
    
    (1)
    
    
    Yield/Cost
    
    
    Balance
    
    
    (1)
    
    
    Yield/Cost(Dollars in thousands)
    
    
    (Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    318,134
    
    
    $
    5,393
    
    
    
    6.80
    %
    
    
    289,093
    
    
    $
    5,315
    
    
    
    7.37
    %Investments securities
    
    
    97,444
    
    
    
    1,076
    
    
    
    5.39
    %
    
    
    72,404
    
    
    
    715
    
    
    
    5.27
    %Interest-bearing deposits with other banks
    
    
    4,785
    
    
    
    53
    
    
    
    4.41
    %
    
    
    15,242
    
    
    
    206
    
    
    
    5.42
    %Total interest-earning assets
    
    
    420,362
    
    
    
    6,521
    
    
    
    6.45
    %
    
    
    376,739
    
    
    
    6,236
    
    
    
    6.89
    %Noninterest-earning assets
    
    
    27,426
    
    
    
    
    
    
    
    
    
    
    
    18,036Total assets
    
    $
    447,788
    
    
    
    
    
    
    
    
    
    
    $
    394,775Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    22,911
    
    
    
    68
    
    
    
    1.19
    %
    
    $
    13,461
    
    
    
    105
    
    
    
    3.13
    %Money market deposits
    
    
    24,419
    
    
    
    186
    
    
    
    3.06
    %
    
    
    27,572
    
    
    
    288
    
    
    
    4.19
    %Savings deposits
    
    
    72,012
    
    
    
    323
    
    
    
    1.80
    %
    
    
    68,552
    
    
    
    409
    
    
    
    2.39
    %Certificates of deposit
    
    
    216,920
    
    
    
    2,522
    
    
    
    4.66
    %
    
    
    168,287
    
    
    
    2,067
    
    
    
    4.93
    %Borrowings
    
    
    34,448
    
    
    
    415
    
    
    
    4.83
    %
    
    
    39,214
    
    
    
    491
    
    
    
    5.02
    %Total interest-bearing liabilities
    
    
    370,709
    
    
    
    3,514
    
    
    
    3.80
    %
    
    
    317,086
    
    
    
    3,360
    
    
    
    4.25
    %Noninterest-bearing liabilitiesOther liabilities
    
    
    42,709
    
    
    
    
    
    
    
    
    
    
    
    43,580Stockholders equity
    
    
    34,370
    
    
    
    
    
    
    
    
    
    
    
    34,109Total liabilities and stockholders equity
    
    $
    447,788
    
    
    
    
    
    
    
    
    
    
    $
    394,775Net interest income
    
    
    
    
    
    $
    3,008
    
    
    
    
    
    
    
    
    
    
    $
    2,876Interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %Net yield on interest-earning assets (3)
    
    
    
    
    
    
    
    
    
    
    3.09
    %
    
    
    
    
    
    
    
    
    
    
    3.31
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.39
    %
    
    
    
    
    
    
    
    
    
    
    118.81
    %
 
 (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.  14




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##### Table of Contents



2008 versus 2007Increase (decrease) due toVolume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans receivable
    
    
    534
    
    
    
    -456
    
    
    
    78Investments securities
    
    
    329
    
    
    
    31
    
    
    
    361Interest-bearing deposits with other banks
    
    
    -141
    
    
    
    -12
    
    
    
    -153Total interest-earning assets
    
    
    722
    
    
    
    -436
    
    
    
    285Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    74
    
    
    
    -111
    
    
    
    -37Money market deposits
    
    
    -33
    
    
    
    -69
    
    
    
    -102Savings deposits
    
    
    21
    
    
    
    -107
    
    
    
    -86Certificates of deposit
    
    
    597
    
    
    
    -143
    
    
    
    455Borrowings
    
    
    -60
    
    
    
    -16
    
    
    
    -76Total interest-bearing liabilities
    
    
    599
    
    
    
    -445
    
    
    
    154Net interest income
    
    $
    123
    
    
    $
    9
    
    
    $
    132
 For the Six Months Ended June 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
    
    
    314,668
    
    
    $
    10,848
    
    
    
    6.91
    %
    
    
    270,800
    
    
    $
    9,846
    
    
    
    7.33
    %Investments securities
    
    
    95,862
    
    
    
    2,100
    
    
    
    5.37
    %
    
    
    68,974
    
    
    
    1,363
    
    
    
    5.25
    %Interest-bearing deposits with other banks
    
    
    7,257
    
    
    
    161
    
    
    
    4.46
    %
    
    
    15,644
    
    
    
    418
    
    
    
    5.39
    %Total interest-earning assets
    
    
    417,787
    
    
    
    13,110
    
    
    
    6.52
    %
    
    
    355,418
    
    
    
    11,627
    
    
    
    6.84
    %Noninterest-earning assets
    
    
    27,172
    
    
    
    
    
    
    
    
    
    
    
    16,405Total assets
    
    $
    444,958
    
    
    
    
    
    
    
    
    
    
    $
    371,823Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    21,983
    
    
    
    142
    
    
    
    1.30
    %
    
    $
    12,765
    
    
    
    174
    
    
    
    2.75
    %Money market deposits
    
    
    23,732
    
    
    
    391
    
    
    
    3.31
    %
    
    
    25,286
    
    
    
    544
    
    
    
    4.34
    %Savings deposits
    
    
    72,750
    
    
    
    765
    
    
    
    2.11
    %
    
    
    60,742
    
    
    
    614
    
    
    
    2.04
    %Certificates of deposit
    
    
    215,103
    
    
    
    5,134
    
    
    
    4.79
    %
    
    
    160,278
    
    
    
    3,852
    
    
    
    4.85
    %Borrowings
    
    
    34,460
    
    
    
    839
    
    
    
    4.88
    %
    
    
    38,178
    
    
    
    955
    
    
    
    5.04
    %Total interest-bearing liabilities
    
    
    368,029
    
    
    
    7,272
    
    
    
    3.96
    %
    
    
    297,249
    
    
    
    6,139
    
    
    
    4.16
    %Noninterest-bearing liabilitiesOther liabilities
    
    
    42,632
    
    
    
    
    
    
    
    
    
    
    
    42,225Stockholders equity
    
    
    34,298
    
    
    
    
    
    
    
    
    
    
    
    32,349Total liabilities and stockholders equity
    
    $
    444,958
    
    
    
    
    
    
    
    
    
    
    $
    371,823Net interest income
    
    
    
    
    
    $
    5,838
    
    
    
    
    
    
    
    
    
    
    $
    5,488Interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.56
    %
    
    
    
    
    
    
    
    
    
    
    2.68
    %Net yield on interest-earning assets (3)
    
    
    
    
    
    
    
    
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.52
    %
    
    
    
    
    
    
    
    
    
    
    119.57
    %
 
 (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
    
    
    1,595
    
    
    
    -593
    
    
    
    1,002Investments securities
    
    
    700
    
    
    
    36
    
    
    
    737Interest-bearing deposits with other banks
    
    
    -224
    
    
    
    -33
    
    
    
    -257Total interest-earning assets
    
    
    2,071
    
    
    
    -589
    
    
    
    1,483Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    126
    
    
    
    -157
    
    
    
    -32Money market deposits
    
    
    -33
    
    
    
    -119
    
    
    
    -153Savings deposits
    
    
    121
    
    
    
    30
    
    
    
    151Certificates of deposit
    
    
    1,318
    
    
    
    -36
    
    
    
    1,282Borrowings
    
    
    -93
    
    
    
    -23
    
    
    
    -116Total interest-bearing liabilities
    
    
    1,438
    
    
    
    -305
    
    
    
    1,133Net interest income
    
    $
    633
    
    
    $
    (283
    )
    
    $
    350
 LIQUIDITY
   INFLATION
   16




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##### Table of Contents



REGULATORY MATTERS
  REGULATORY CAPITAL REQUIREMENTS
    Middlefield Banc Corp.
    
    
    The Middlefield Banking Co.
    
    
    Emerald BankJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2008
    
    
    2008Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital
(to Risk-weighted Assets)Actual
    
    $
    41,035,367
    
    
    
    13.74
    %
    
    $
    32,669,936
    
    
    
    12.72
    %
    
    $
    7,889,294
    
    
    
    18.90
    %For Capital Adequacy
Purposes
    
    
    23,892,006
    
    
    
    8.00
    
    
    
    20,549,680
    
    
    
    8.00
    
    
    
    3,340,185
    
    
    
    8.00To Be Well Capitalized
    
    
    29,865,008
    
    
    
    10.00
    
    
    
    25,687,100
    
    
    
    10.00
    
    
    
    4,175,231
    
    
    
    10.00Tier I Capital
(to Risk-weighted Assets)Actual
    
    $
    37,429,476
    
    
    
    12.53
    %
    
    $
    29,761,596
    
    
    
    11.59
    %
    
    $
    7,367,331
    
    
    
    17.65
    %For Capital Adequacy Purposes
    
    
    11,946,003
    
    
    
    4.00
    
    
    
    10,274,840
    
    
    
    4.00
    
    
    
    1,670,092
    
    
    
    4.00To Be Well Capitalized
    
    
    17,919,005
    
    
    
    6.00
    
    
    
    15,412,260
    
    
    
    5.00
    
    
    
    2,505,139
    
    
    
    6.00Tier I Capital
(to Average Assets)Actual
    
    $
    37,429,476
    
    
    
    8.58
    %
    
    $
    29,761,596
    
    
    
    7.67
    %
    
    $
    7,367,331
    
    
    
    14.25
    %For Capital Adequacy
Purposes
    
    
    17,457,155
    
    
    
    4.00
    
    
    
    15,519,053
    
    
    
    4.00
    
    
    
    2,067,342
    
    
    
    4.00To Be Well Capitalized
    
    
    21,821,444
    
    
    
    5.00
    
    
    
    19,398,817
    
    
    
    5.00
    
    
    
    2,584,177
    
    
    
    5.00
  17




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 ASSET AND LIABILITY MANAGEMENT
    Net interest income simulation.
 Portfolio equity simulation.
  Increase
    
    
    Decrease200
    
    
    200BP
    
    
    BPNet interest income  increase (decrease)
    
    
    (1.7
    )%
    
    
    (0.9
    )%Portfolio equity  increase (decrease)
    
    
    (12.6
    )%
    
    
    (0.3
    )%
  18




---



##### Table of Contents



Item 4.   Controls and Procedures Disclosure
    Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of
    
    
    Maximum Number ofShares Purchased
    
    
    Shares that May YetTotal Number of
    
    
    Average Price Paid
    
    
    Part of Publicly
    
    
    Be Purchased UnderDate
    
    Shares Purchased
    
    
    Per Share
    
    
    Announced Program
    
    
    the ProgramMay 5, 2008
    
    
    2,003
    
    
    
    36.75
    
    
    
    
    
    
    
    76,936May 8, 2008
    
    
    2,000
    
    
    
    37.00
    
    
    
    
    
    
    
    76,936May 14, 2008
    
    
    19,145
    
    
    
    35.00
    
    
    
    19,145
    
    
    
    57,791June 13, 2008
    
    
    507
    
    
    
    34.50
    
    
    
    507
    
    
    
    57,284June 16, 2008
    
    
    667
    
    
    
    34.50
    
    
    
    667
    
    
    
    56,617
  19




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##### Table of Contents



Item 3. Defaults by the Company on its senior securities
  
 Item 4. Submission of matters to a vote of security holders
   Name
    
    Shares For
    
    
    Shares WithheldFrancis H. Frank
    
    
    1,097,750
    
    
    
    7,924Kenneth E. Jones
    
    
    1,094,608
    
    
    
    11,066James McCaskey
    
    
    1,046,324
    
    
    
    59,350
   
 Item 5. Other information
   20




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##### Table of Contents



Item 6. Exhibits
 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:   August 12, 2008
    By:
    /s/ Thomas G. CaldwellThomas G. CaldwellPresident and Chief Executive OfficerDate:   August 12, 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