10-K

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, 2010

Commission File Number: 000-32561

Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio	34-1585111
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

15985 East High Street, Middlefield, Ohio 44062-0035
(440) 632-1666
(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: common stock, without par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by sections 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller 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

The aggregate market value on June 30, 2010 of common stock held by non-affiliates of the registrant was approximately $31.6 million. As of March 18, 2011, there were 1,644,209 shares of common stock issued and outstanding.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statements for the 2011 Annual Meeting of Shareholders are incorporated by reference in Part III of this report. Portions of the Annual Report to Shareholders for the year ended December 31, 2010 are incorporated by reference into Part I and Part II of this report.

TABLE OF CONTENTS

	Item 1 — Business
	Item 1.A — Risk Factors
	Item 2 — Properties
	Item 3 — Legal Proceedings
	Item 4 — Removed and Reserved
Part II
	Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	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
	Item 8 — Financial Statements and Supplementary Data
	Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A — Controls and Procedures
	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
Part IV
	Item 15 — Exhibits, Financial Statement Schedules
Signatures
Exhibit 10.26
Exhibit 13
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Item 1 — Business

Middlefield Banc Corp. Incorporated in 1988 under the Ohio General Corporation Law, Middlefield Banc Corp. (“Company”) is a two-bank and a one non-bank holding company registered under the Bank Holding Company Act of 1956. The Company’s three subsidiaries are:

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.
3.	EMORECO Inc., an Ohio asset resolution corporation headquartered in Middlefield, Ohio. EMORECO engages in the resolution and disposition of troubled assets in central Ohio. The principal executive office is located at 15985 East High Street, Middlefield, Ohio 44062-0035, and its telephone number is (440) 632-1666.

The Middlefield Banking Company. MBC was chartered under Ohio law in 1901. The Company became the holding company for MBC in 1988. MBC offers its customers a broad range of banking services, including checking, savings, and negotiable order of withdrawal (NOW) accounts; money market accounts; time certificates of deposit, commercial loans, real estate loans, and various types of consumer loans; safe deposit facilities, and travelers’ checks. MBC offers online banking and bill payment services to individuals and online cash management services to business customers through its website at www.middlefieldbank.com.

Engaged in a general commercial banking business in northeastern Ohio, MBC offers commercial banking services principally to small and medium-sized businesses, professionals and small business owners, and retail customers. MBC has developed and continues to monitor and update a marketing program to attract and retain consumer accounts, and to offer banking services and facilities compatible with the needs of its customers.

MBC’s loan products include operational and working capital loans; loans to finance capital purchases; term business loans; residential construction loans; selected guaranteed or subsidized loan programs for small businesses; professional loans; residential mortgage and commercial mortgage loans, and consumer installment loans to purchase automobiles, boats, and for home improvement and other personal expenditures. Although the bank makes agricultural loans, it currently has no significant agricultural loans.

Emerald Bank. The Company acquired EB on April 19, 2007 for a combination of cash and stock. EB operates as a separate commercial bank subsidiary of the Company, offering essentially the same range of products and services in central Ohio as MBC does in northeastern Ohio.

EMORECO. EMORECO was incorporated in Ohio as a de novo asset resolution company on November 2, 2009. The Company is the sole stockholder. On October 23, 2009 the Company received from the Federal Reserve Bank of Cleveland approval to establish an asset resolution subsidiary. Organized as an Ohio corporation under the name EMORECO, Inc. and wholly owned by the Company, the purpose of the asset resolution subsidiary is to maintain, manage, and ultimately dispose of nonperforming loans and real estate acquired by subsidiary banks as the result of borrower default on real-estate-secured loans. EMORECO’s assets consist of 26 nonperforming loans and three real estate development properties consisting of 18 lots transferred by EB. On November 12, 2009 EMORECO paid to EB a total of approximately $4.6 million for the nonperforming loans and real estate, using funds contributed by the Company, which were borrowed under lines of credit of the holding company. According to Federal law governing bank holding companies the real estate must be disposed of within two years after the properties were originally acquired by EB, which occurred in May and June of 2008, although limited extensions may be granted by the Federal Reserve Bank. Federal law governing bank holding companies also provides that a holding company subsidiary has limited real estate investment powers. EMORECO may only manage and maintain property and may not improve or develop property without advance approval of the Federal Reserve Bank.

Market Area. MBC’s market area consists principally of Geauga, Portage, Trumbull, and Ashtabula Counties. Benefiting from the area’s proximity both to Cleveland and Warren, population and income levels have maintained steady growth over the years. EB’s two offices are located in Franklin County, serving the central Ohio market. EMORECO’s market area is the same as the Banks.

Competition. The banking industry has been changing for many reasons, including continued consolidation within the banking industry, legislative and regulatory changes, and advances in technology. To deliver banking products and services more effectively and efficiently, banking institutions are opening in-store branches, installing more automated teller machines (ATMs) and investing in technology to permit telephone, personal computer, and internet banking. While all banks are experiencing the effects of the changing competitive and technological environment, the manner in which banks choose to compete is increasing the gap between large national and super-regional banks, on one hand, and community banks on the other. Large institutions are committed to becoming national or regional “brand names,” providing a broad selection of products at low cost and with advanced technology, while community banks provide most of the same products but with a commitment to personal service and with local ties to the customers and communities they serve. The Company seeks to take competitive advantage of its local orientation and community banking profile. It competes for loans principally through responsiveness to customers and its ability to communicate effectively with them and understand and address their needs. The Company competes for deposits principally by offering customers personal attention, a variety of banking services, attractive rates, and strategically located banking facilities. The Company seeks to provide high quality banking service to professionals and small and mid-sized businesses, as well as individuals, emphasizing quick and flexible responses to customer demands.

2

Forward-looking Statements. This document contains forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) about The Company and subsidiaries. Information incorporated in this document by reference, future filings by the Company on Form 10-Q and Form 8-K, and future oral and written statements by the Company and its management may also contain forward-looking statements. Forward-looking statements include statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, and deposit growth. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” and similar expressions are intended to identify these forward-looking statements.

Forward-looking statements are necessarily subject to many risks and uncertainties. A number of things could cause actual results to differ materially from those indicated by the forward-looking statements. These include the factors we discuss immediately below, those addressed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” other factors discussed elsewhere in this document or identified in our filings with the Securities and Exchange Commission, and those presented elsewhere by our management from time to time. Many of the risks and uncertainties are beyond our control. The following factors could cause our operating and financial performance to differ materially from the plans, objectives, assumptions, expectations, estimates, and intentions expressed in forward-looking statements:

• 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

Forward-looking statements are based on our beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions as of the date the statements are made. Investors should exercise caution because the Company cannot give any assurance that its beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions will be realized. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

Lending — Loan Portfolio Composition and Activity. The Company makes residential mortgage and commercial mortgage loans, home equity loans, secured and unsecured consumer installment loans, commercial and industrial loans, and real estate construction loans for owner-occupied and rental properties. The Company’s loan policy aspires to a loan composition mix consisting of approximately 50% to 60% residential real estate loans, 35% to 40% commercial loans, consumer loans of 5% to 15%, and credit card accounts of up to 5%. The lending policies of MBC and EB are essentially identical.

Although Ohio Bank law imposes no material restrictions on the kinds of loans the Company may make, real estate-based lending has historically been the Banks’ primary focus. For prudential reasons, the Banks avoid lending on the security of real estate located in regions with which the Bank is not familiar, and as a consequence almost all of the MBC’s real-estate secured loans are secured by real property in northeastern Ohio. EB’s lending is also predominantly real-estate secured lending. EB’s lending currently is concentrated in its Central Ohio market area, although previously EB had extended a number of real-estate secured loans in the southwestern Ohio market. Ohio Bank law does restrict the amount of loans an Ohio-chartered bank such as the Banks may make, however, providing generally that loans and extensions of credit to any one borrower may not exceed 15% of capital. An additional margin of 10% of capital is allowed for loans fully secured by readily marketable collateral. This 15% legal lending limit has not been a material restriction on the Banks’ lending. The Banks can accommodate loan volumes exceeding the legal lending limit by selling loan participations to other banks. MBCs’ and EBs’ internal policy is to maintain its credit exposure to any one borrower at less than $3.0 million and $1.2 million respectively, which is comfortably within the range of the Banks’ legal lending limit. As of December 31, 2010, MBC’s 15%-of-capital limit on loans to a single borrower was approximately $6.1 million and EB’s 15%-of-capital limit on loans to a single borrower was approximately $1.8 million.

The Company offers specialized loans for business and commercial customers, including equipment and inventory financing, real estate construction loans and Small Business Administration loans for qualified businesses. A substantial portion of the Banks’ commercial loans are designated as real estate loans for regulatory reporting purposes because they are secured by mortgages on real property. Loans of that type may be made for purpose of financing commercial activities, such as accounts receivable, equipment purchases and leasing, but they are secured by real estate to provide the Bank with an extra measure of security. Although these loans might be secured in whole or in part by real estate, they are treated in the discussions to follow as commercial and industrial loans. The Company’s consumer installment loans include secured and unsecured loans to individual borrowers for a variety of purposes, including personal, home improvements, revolving credit lines, autos, boats, and recreational vehicles.

3

The following table shows on a consolidated basis the composition of the loan portfolio in dollar amounts and in percentages at December 31, 2010, 2009, 2008, 2007 and 2006, along with a reconciliation to loans receivable, net.

	2010					2009					2008					2007					2006
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Type of loan:
Commercial and industrial	$	57,501		15.44		$	56,969		16.11		$	66,524		20.69		$	67,010		21.65		$	68,496		27.49
Real estate construction		15,845		4.25			7,837		2.22			7,965		2.48			6,704		2.17			2,458		0.99
Mortgage:
Residential		209,863		56.34			205,074		58.00			199,354		61.99			193,514		62.53			162,917		65.38
Commercial		84,304		22.63			78,763		22.27			42,789		13.31			36,818		11.90			9,949		3.99
Consumer installment		4,985		1.34			4,954		1.40			4,943		1.53			5,400		1.75			5,371		2.16
Total loans		372,498		100.00	%		353,597		100.00	%		321,575		100.00	%		309,446		100.00	%		249,191		100.00	%
Less:
Allowance for loan losses		6,221					4,937					3,557					3,299					2,849
Net loans	$	366,277				$	348,660				$	318,019				$	306,147				$	246,342

The following table presents on an consolidated basis maturity information for the loan portfolio at December 31, 2010. The table does not include prepayments or scheduled principal repayments. All loans are shown as maturing based on contractual maturities.

	Loan Portfolio Maturity at December 31, 2010
	Commercial
	and		Real Estate		Mortgage				Consumer
(Dollars in thousands)	Industrial		Construction		Residential		Commercial		Installment		Total
Amount due:
In one year or less	$	12,657	$	7,221	$	2,362	$	3,606	$	1,213	$	27,059
After one year through five years		16,675		680		12,921		5,426		3,294		38,996
After five years		28,169		7,944		194,580		75,272		478		306,443
Total amount due	$	57,501	$	15,845	$	209,863	$	84,304	$	4,985	$	372,498

Loans due on demand and overdrafts are included in the amount due in one year or less. The Company has no loans without a stated schedule of repayment or a stated maturity.

4

The following table shows on a consolidated basis the dollar amount of all loans due after December 31, 2010 that have pre-determined interest rates and the dollar amount of all loans due after December 31, 2010 that have floating or adjustable rates.

	Fixed		Adjustable
(Dollars in thousands)	Rate		Rate		Total
Commercial and industrial	$	25,188	$	32,313	$	57,501
Real estate construction		2,852		12,993		15,845
Mortgage:
Residential		24,701		185,162		209,863
Commercial		9,839		74,465		84,304
Consumer installment		4,813		172		4,985
	$	67,393	$	305,105	$	372,498

Residential Mortgage Loans. A significant portion of the Company’s lending consists of origination of conventional loans secured by 1-4 family real estate located in Franklin, Geauga, Portage, Trumbull, and Ashtabula Counties. These loans approximated $209.9 million or 56.3% of the Company’s total loan portfolio at December 31, 2010.

The Company makes loans of up to 80% of the value of the real estate and improvements securing a loan (the “loan-to-value” or “LTV” ratio) on 1-4 family real estate. The Company generally does not lend in excess of 80% of the appraised value or sales price (whichever is less) of the property unless additional collateral is obtained, thereby lowering the total LTV. The Company offers residential real estate loans with terms of up to 30 years.

Before 1996, nearly all residential mortgage loans originated by MBC were written on a balloon-note basis. During 1996, the Company began to originate fixed-rate mortgage loans for maturities up to 20 years. In late 1998, MBC began originating adjustable-rate mortgage loans and de-emphasized balloon-note mortgages. Approximately 88.2% of the portfolio of conventional mortgage loans secured by 1-4 family real estate at December 31, 2010 was adjustable rate. The Company’s mortgage loans are ordinarily retained in the loan portfolio. The Company’s residential mortgage loans have not been originated with loan documentation that would permit their sale to Fannie Mae and Freddie Mac.

The Company’s home equity loan policy generally allows for a loan of up to 85% of a property’s appraised value, less the principal balance of the outstanding first mortgage loan. The Company’s home equity loans generally have terms of 10 years.

At December 31, 2010, residential mortgage loans of approximately $11.7 million were over 90 days delinquent or non-accruing on that date, representing 6.0% of the residential mortgage loan portfolio.

Commercial and Industrial Loans and Commercial Real Estate Loans. The Company’s commercial loan services 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

Commercial real estate loans include commercial properties occupied by the proprietor of the business conducted on the premises, and income-producing or farm properties. Although the Company makes agricultural loans, it currently does not have a significant amount of agricultural loans. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Although commercial and commercial real estate loans generally bear somewhat more risk than single-family residential mortgage loans, commercial and commercial real estate loans tend to be higher yielding, tend to have shorter terms and commonly provide for interest-rate adjustments as prevailing rates change. Accordingly, commercial and commercial real estate loans enhance a lender’s interest rate risk management and, in management’s opinion, promote more rapid asset and income growth than a loan portfolio comprised strictly of residential real estate mortgage loans.

Although a risk of nonpayment exists for all loans, certain specific types of risks are associated with various kinds of loans. One of the primary risks associated with commercial loans is the possibility that the commercial borrower will not generate income sufficient to repay the loan. The Company’s loan policy provides that commercial loan applications must be supported by documentation indicating that there will be cash flow sufficient for the borrower to service the proposed loan. Financial statements or tax returns for at least three years must be submitted, and annual reviews are undertaken for loans of $150,000 or more. The fair market value of collateral for collateralized commercial loans must exceed the Company’s loan exposure. For this purpose fair market value is determined by independent appraisal or by the loan officer’s estimate employing guidelines established by the loan policy. Term loans not secured by real estate generally have terms of five years or less, unless guaranteed by the U.S. Small Business Administration or other governmental agency, and terms loans secured by collateral having a useful life exceeding five years may have longer terms. The Company’s loan policy allows for terms of up to 15 years for loans secured by commercial real estate, and one year for business lines of credit. The maximum loan-to-value ratio for commercial real estate loans is 75% of the appraised value or cost, whichever is less.

5

Real estate is commonly a material component of collateral for the Company’s loans, including commercial loans. Although the expected source of repayment of these loans is generally the operations of the borrower’s business or personal income, real estate collateral provides an additional measure of security. Risks associated with loans secured by real estate include fluctuating land values, changing local economic conditions, changes in tax policies, and a concentration of loans within a limited geographic area.

At December 31, 2010, commercial and commercial real estate loans totaled $141.8 million, or 38.1% of the Company’s total loan portfolio. At December 31, 2010, commercial and commercial real estate loans of approximately $3.7 million were over 90 days delinquent or non-accruing on that date, and represented 2.6% of the commercial and commercial real estate loan portfolios.

Real Estate Construction. The Company originates several different types of loans that it categorizes as construction loans, including —

• 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.

Because of the complex nature of construction lending, these loans are generally recognized as having a higher degree of risk than other forms of real estate lending. The Company’s fixed-rate and adjustable-rate construction loans do not provide for the same interest rate terms on the construction loan and on the permanent mortgage loan that follows completion of the construction phase of the loan. It is the norm for the Company to make residential construction loans without an existing written commitment for permanent financing. The Company’s loan policy provides that the Company may make construction loans with terms of up to one year, with a maximum loan-to-value ratio for residential construction of 80%.

At December 31, 2010, real estate construction loans totaled $15.8 million, or 4.3% of the Company’s total loan portfolio. At December 31, 2010, there were no real estate-construction loans over 90 days delinquent or non-accruing.

Consumer Installment Loan. The Company’s consumer installment loans include secured and unsecured loans to individual borrowers for a variety of purposes, including personal, home improvement, revolving credit lines, autos, boats, and recreational vehicles. The Company does not currently do any indirect lending. Unsecured consumer loans carry significantly higher interest rates than secured loans. The Company maintains a higher loan loss allowance for consumer loans, while maintaining strict credit guidelines when considering consumer loan applications.

According to the Company’s loan policy, consumer loans secured by collateral other than real estate generally may have terms of up to five years, and unsecured consumer loans may have terms up to two and one-half years. Real estate security generally is required for consumer loans having terms exceeding five years.

At December 31, 2010, the Company had approximately $5.0 million in its consumer installment loan portfolio, representing 1.3% of total loans. Consumer installment loans of approximately $12,000 were over 90 days delinquent or non-accruing on that date, representing 0.2% of the installment loan portfolio.

Loan Solicitation and Processing. Loan originations are developed from a number of sources, including continuing business with depositors, other borrowers and real estate builders, solicitations by Company personnel and walk-in customers.

When a loan request is made, the Company reviews the application, credit bureau reports, property appraisals or evaluations, financial information, verifications of income, and other documentation concerning the creditworthiness of the borrower, as applicable to each loan type. The Company’s underwriting guidelines are set by senior management and approved by the Board of Directors. The loan policy specifies each individual officer’s loan approval authority. Loans exceeding an individual officer’s approval authority are submitted to a committee consisting of loan officers, which has authority to approve loans up to $500,000. The full Board of Directors acts as a loan committee for loans exceeding that amount.

Income from Lending Activities. The Company earns interest and fee income from its lending activities. Net of origination costs, loan origination fees are amortized over the life of a loan. The Company also receives loan fees related to existing loans, including late charges. Income from loan origination and commitment fees and discounts varies with the volume and type of loans and commitments made and with competitive and economic conditions. Note 1 to the Consolidated Financial Statements included herein contains a discussion of the manner in which loan fees and income are recognized for financial reporting purposes.

Nonperforming Loans. Late charges on residential mortgages and consumer loans are assessed if a payment is not received by the due date plus a grace period. When an advanced stage of delinquency appears on a single-family loan and if repayment cannot be expected within a reasonable time or a repayment agreement is not entered into, a required notice of foreclosure or repossession proceedings may be prepared by the Company’s attorney and delivered to the borrower so that foreclosure proceedings may be initiated promptly, if necessary. The Company also collects late charges on commercial loans.

When the Company acquires real estate through foreclosure, voluntary deed, or similar means, it is classified as other real estate owned until it is sold. When property is acquired in this manner, it is recorded at the lower of cost (the unpaid principal balance at the date of acquisition) or fair value. Any subsequent write-down is charged to expense. All costs incurred from the date of acquisition to maintain the property are expensed. “Other real estate owned” is appraised during the foreclosure process, before acquisition. Losses are recognized for the amount by which the book value of the related mortgage loan exceeds the estimated net realizable value of the property.

6

The Company undertakes regular review of the loan portfolio to assess its risks, particularly the risks associated with the commercial loan portfolio. This includes annual review of every commercial loan representing credit exposure of $150,000 or more. An independent firm performs semi-annual loan reviews for the Company.

Classified Assets. FDIC regulations governing classification of assets require nonmember commercial banks — including the Company — to classify their own assets and to establish appropriate general and specific allowances for losses, subject to FDIC review. The regulations are designed to encourage management to evaluate assets on a case-by-case basis, discouraging automatic classifications. Under this classification system, problem assets of insured institutions are classified as “substandard,” “doubtful,” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses make collection of principal in full — on the basis of currently existing facts, conditions, and values — highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the Company to risk sufficient to warrant classification in one of the above categories, but that possess some weakness, are required to be designated “special mention” by management.

When an insured institution classifies assets as either “substandard” or “doubtful,” it may establish allowances for loan losses in an amount deemed prudent by management. When an insured institution classifies assets as “loss,” it is required either to establish an allowance for losses equal to 100% of that portion of the assets so classified or to charge off that amount. An FDIC-insured institution’s determination about classification of its assets and the amount of its allowances is subject to review by the FDIC, which may order the establishment of additional loss allowances. Management also employs an independent third party to semi-annually review and validate the internal loan review process and loan classifications.

The continued economic downturn has lead to an increase in the Company’s substandard loans. As of December 31, 2010 the unemployment rate in the Company’s market area was on average 1% higher than the national unemployment rate. Additionally the depressed real estate market has eroded the underlying collateral value of many of the loans in the Company’s portfolio. Loans secured by residential real estate and commercial real estate account for $15.4 million and $7.0 million of the substandard loans respectively. These amounts represent 80% of the Company’s substandard loans.

As of December 31, 2010, 2009, 2008, 2007, and 2006 consolidated classified assets were as follows:

	Classified Assets at December 31,
	2010					2009					2008					2007					2006
			Percent					Percent					Percent					Percent					Percent
			of total					of total					of total					of total					of total
(Dollars in thousands)	Amount		loans			Amount		loans			Amount		loans			Amount		loans			Amount		loans
Classified loans:
Special mention	$	2,868		0.77	%	$	4,322		1.22	%	$	5,134		1.60	%	$	5,302		1.71	%	$	7,394		2.97	%
Substandard		28,178		7.56	%		18,928		5.35	%		5,350		1.66	%		1,029		0.33	%		1,515		0.61	%
Doubtful		224		0.06	%		277		0.08	%		420		0.13	%		835		0			—		0.00	%
Loss		—		—			—		—			—		—			—		—			—		—
Total amount	$	31,270		8.39	%	$	23,527		6.65	%	$	10,904		3.39	%	$	7,166		2.31	%	$	8,909		3.58	%

Other than those disclosed above, the Company does not believe there are any loans classified for regulatory purposes as loss, doubtful, substandard, special mention or otherwise, which will result in losses or have a material impact on future operations, liquidity or capital reserves are not aware of any other information that causes us to have serious doubts as to the ability of borrowers in general to comply with repayment terms.

Investments. Investment securities provide a return on residual funds after lending activities. Investments may be in federal funds sold, corporate securities, U.S. Government and agency obligations, state and local government obligations and government-guaranteed, mortgage-backed securities. The Company generally does not invest in securities that are rated less than investment grade by a nationally recognized statistical rating organization. Ohio Bank law prescribes the kinds of investments an Ohio-chartered bank may make. Permitted investments include local, state, and federal government securities, mortgage-backed securities, and securities of federal government agencies. An Ohio-chartered bank also may invest up to 10% of its assets in corporate debt and equity securities, or a higher percentage in certain circumstances. Similar to the legal lending limit on loans to any one borrower, Ohio bank law also limits to 15% of capital the amount an Ohio-chartered bank may invest in the securities of any one issuer, other than local, state, and federal government and federal government agency issuers and mortgage-backed securities issuers. These Ohio bank law provisions have not been a material constraint upon the Company’s investment activities.

7

All securities-related activity is reported to the Company’s board of directors. General changes in investment strategy are required to be reviewed and approved by the board. Senior management can purchase and sell securities in accordance with the Company’s stated investment policy.

Management determines the appropriate classification of securities at the time of purchase. At this time the Company has no securities that are classified as held-to-maturity. Securities to be held for indefinite periods and not intended to be held to maturity or on a long-term basis are classified as available-for-sale. Available-for-sale securities are reflected on the balance sheet at their fair value.

The following table sets forth on a consolidated basis the amortized cost and fair value of the Company’s investment portfolio at the dates indicated.

	Investment Portfolio Amortized Cost and Fair Value at December 31,
	2010				2009				2008
	Amortized				Amortized				Amortized
(Dollars in thousands)	cost		Fair value		cost		Fair value		cost		Fair value
Available for Sale:
U.S. Government agency securities	$	33,332	$	32,603	$	18,657	$	18,330	$	4,377	$	4,504
Obligations of states and political subdivisions:
Taxable		7,371		7,417		3,451		3,375		500		496
Tax-exempt		69,363		69,463		52,752		53,346		44,328		43,684
Mortgage-backed securities		90,026		91,369		60,055		60,741		54,568		54,564
Equity securities		944		920		944		919		944		1,022
Total Investment Securities	$	201,036	$	201,772	$	135,859	$	136,711	$	104,717	$	104,270

8

The contractual maturity of investment securities at December 31, 2010 is shown below.

	December 31, 2010
	One year or less					More than one to five					More than five to ten					More than ten years					Total investment securities
	Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average			Market
(Dollars in thousands)	cost		yield			cost		yield			cost		yield			cost		yield			cost		yield			value
U.S. Government agency securities	$	—		—	%	$	747		3.00	%	$	1,000		3.75	%	$	31,585		3.63	%	$	33,332		3.62	%	$	32,603
Obligations of states and political subdivisions:
Taxable		—		—			—		—			504		5.00			6,867		5.58			7,371		5.54			7,417
Tax-exempt **		1,422		5.25			4,723		5.68			15,522		5.86			47,696		6.33			69,363		6.16			69,463
Mortgage-backed securities		127		4.23			254		4.13			4,371		5.77			85,274		4.10			90,026		4.19			91,369
Equity Securities		944		—			—		—			—		—			—		—			944		—			920
Total	$	2,493		3.21	%	$	5,724		5.26	%	$	21,397		5.72	%	$	171,422		4.69	%	$	201,036		4.80	%	$	201,772

** Tax equivalent yield

Expected maturities of investment securities could differ from contractual maturities because the borrower, or issuer, could have the right to call or prepay obligations with or without call or prepayment penalties. The average yields in the above table are not calculated on a tax equivalent basis.

As of December 31, 2010, the Company also held 18,872 shares of $100 par value Federal Home Loan Bank of Cincinnati stock, which is a restricted security. FHLB stock represents an equity interest in the FHLB, but it does not have a readily determinable market value. The stock can be sold at its par value only, and only to the FHLB or to another member institution. Member institutions are required to maintain a minimum stock investment in the FHLB, based on total assets, total mortgages, and total mortgage-backed securities. The Company’s minimum investment in FHLB stock at December 31, 2010 was approximately $1,887,200.

Sources of Funds — Deposit Accounts. Deposit accounts are a major source of funds for the Company. The Company offers a number of deposit products to attract both commercial and regular consumer checking and savings customers, including regular and money market savings accounts, NOW accounts, and a variety of fixed-maturity, fixed-rate certificates with maturities ranging from seven days to 60 months. These accounts earn interest at rates established by management based on competitive market factors and management’s desire to increase certain types or maturities of deposit liabilities. The Company also provides travelers’ checks, official checks, money orders, ATM services, and IRA accounts.

The following table shows on a consolidated basis the amount of time deposits of $100,000 or more as of December 31, 2010, including certificates of deposit, by time remaining until maturity.

(Dollar amounts in thousands)	Amount		Percent of Total
Within three months	$	11,832		12.93	%
Beyond three but within six months		8,413		9.20
Beyond six but within twelve months		16,427		17.96
Beyond one year		54,804		59.91
Total	$	91,476		100.00	%

Borrowings. Deposits and repayment of loan principal are the Company’s primary sources of funds for lending activities and other general business purposes. However, when the supply of lendable funds or funds available for general business purposes cannot satisfy the demand for loans or general business purposes, the Company can obtain funds from the FHLB of Cincinnati. Interest and principal are payable monthly, and the line of credit is secured by a blanket pledge collateral agreement. At December 31, 2010, MBC had $11.1 million of FHLB borrowings outstanding. The Company also has access to credit through the Federal Reserve Bank of Cleveland and other funding sources.

9

The outstanding balances and related information about short-term borrowings as of December 31, which includes securities sold under agreements to repurchase, lines of credit with other banks and Federal Funds purchased are summarized on a consolidated basis as follows:

(Dollar amounts in thousands)	2010			2009			2008
Balance at year-end	$	7,632		$	6,800		$	1,886
Average balance outstanding		7,320			2,281			2,967
Maximum month-end balance		8,178			7,406			6,058
Weighted-average rate at year-end		3.10	%		3.47	%		1.10	%
Weighted-average rate during the year		3.40	%		1.50	%		1.55	%

Personnel

As of December 31, 2010 the Company had 108 full-time equivalent employees. None of the employees is represented by a collective bargaining group. Management considers its relations with employees to be excellent.

Supervision and Regulation

The following discussion of bank supervision and regulation is qualified in its entirety by reference to the statutory and regulatory provisions discussed. Changes in applicable law or in the policies of various regulatory authorities could affect materially the business and prospects of the Company.

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956. As such, the Company is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System, acting primarily through the Federal Reserve Bank of Cleveland. The Company is required to file annual reports and other information with the Federal Reserve. Both bank subsidiaries are Ohio-chartered commercial banks. As a state-chartered, nonmember banks, the banks are primarily regulated by the FDIC and by the Ohio Division of Financial Institutions.

The Company and its subsidiary Banks are subject to federal banking laws, and the Company is also subject also to Ohio bank law. These federal and state laws are intended to protect depositors, not stockholders. Federal and state laws applicable to holding companies and their financial institution subsidiaries regulate the range of permissible business activities, investments, reserves against deposits, capital levels, lending activities and practices, the nature and amount of collateral for loans, establishment of branches, mergers, dividends, and a variety of other important matters. The Company is subject to detailed, complex, and sometimes overlapping federal and state statutes and regulations affecting routine banking operations. These statutes and regulations include but are not limited to state usury and consumer credit laws, the Truth-in-Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, and the Community Reinvestment Act. The Company must comply with Federal Reserve Board regulations requiring depository institutions to maintain reserves against their transaction accounts (principally NOW and regular checking accounts). Because required reserves are commonly maintained in the form of vault cash or in a noninterest-bearing account (or pass-through account) at a Federal Reserve Bank, the effect of the reserve requirement is to reduce an institution’s earning assets.

The Federal Reserve Board and the FDIC have extensive authority to prevent and to remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.

Effective February 11, 2010, the Board of Directors of the Company’s subsidiary, EB, entered into a Memorandum of Understanding (“MOU”) with the FDIC and the Ohio Division of Financial Institutions as a result of the joint examination by the FDIC and the Ohio Division of Financial Institutions completed in the fourth quarter of 2009. The MOU sets forth certain actions required to be taken by management of EB to rectify unsatisfactory conditions identified by the federal and state banking regulators that relate to EB’s concentration of credit for non-owner occupied 1 — 4 family residential mortgage loans. The MOU requires EB to reduce delinquent and classified loans and enhance credit administration for non-owner occupied residential real estate; to develop specific plans for the reduction of borrower indebtedness on classified and delinquent credits; to correct violations of laws and regulations listed in the joint examination report; to implement an earnings improvement plan; to maintain specified capital discussed below; to submit to the FDIC and the Ohio Division of Financial Institutions for review and comment a revised methodology for calculating and determining the adequacy of the allowance for loan losses; and to provide 30 days advance notification of proposed dividend payments.

The MOU requires that EB submit plans and report to the Ohio Division of Financial Institutions and the FDIC regarding EB’s loan portfolio and profit plan, among other matters. The MOU also requires that the Bank maintain its Tier I Leverage Capital ratio at not less than 9 percent.

10

The following table sets forth the capital requirements for EB under the FDIC regulations and EB’s capital ratios at December 31, 2010 and 2009:

FDIC Regulations
Capital	Adequately			Well			December 31,
Ratios	Capitalized			Capitalized			2010			2009
Leverage		4.00	%		5.00	%(1)		9.45	%		10.29	%
Risk-Based Capital:
Tier 1		4.00	%		6.00	%		13.26	%		13.63	%
Total		8.00	%		10.00	%		14.55	%		14.91	%

(1) 9 percent required by MOU.

Regulation of Bank Holding Companies — Bank and Bank Holding Company Acquisitions. The Bank Holding Company Act requires every bank holding company to obtain approval of the Federal Reserve before —

• 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.

The Federal Reserve will not approve an acquisition, merger, or consolidation that would have a substantially anticompetitive result, unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in satisfying the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in its review of acquisitions and mergers.

Additionally, the Bank Holding Company Act, the Change in Bank Control Act and the Federal Reserve Board’s Regulation Y require advance approval of the Federal Reserve to acquire “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of a class of voting securities of the bank holding company. If the holding company has securities registered under Section 12 of the Securities Exchange Act of 1934, as the Company does, or if no other person owns a greater percentage of the class of voting securities, control is presumed to exist if a person acquires 10% or more, but less than 25%, of any class of voting securities. Approval of the Ohio Division of Financial Institutions is also necessary to acquire control of an Ohio-chartered bank.

Nonbanking Activities. With some exceptions, the Bank Holding Company Act has for many years also prohibited a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve non-bank activities that, by statute or by Federal Reserve Board regulation or order, are held to be closely related to the business of banking or of managing or controlling banks. In making its determination that a particular activity is closely related to the business of banking, the Federal Reserve considers whether the performance of the activities by a bank holding company can be expected to produce benefits to the public — such as greater convenience, increased competition, or gains in efficiency in resources — that will outweigh the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest, or unsound banking practices. Some of the activities determined by Federal Reserve Board regulation to be closely related to the business of banking are: making or servicing loans or leases; engaging in insurance and discount brokerage activities; owning thrift institutions; performing data processing services; acting as a fiduciary or investment or financial advisor; and making investments in corporations or projects designed primarily to promote community welfare.

Financial Holding Companies. On November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing much of the 1933 Glass-Steagall Act’s separation of the commercial and investment banking industries. The Gramm-Leach-Bliley Act expands the range of nonbanking activities a bank holding company may engage in, while preserving existing authority for bank holding companies to engage in activities that are closely related to banking. The new legislation creates a new category of holding company called a “financial holding company.” Financial holding companies may engage in any activity that is —

• 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.

11

Activities that are financial in nature include —

• acting as principal, agent, or broker for insurance,

• underwriting, dealing in, or making a market in securities, and

• providing financial and investment advice.

The Federal Reserve Board and the Secretary of the Treasury have authority to decide that other activities are also financial in nature or incidental to financial activity, taking into account changes in technology, changes in the banking marketplace, competition for banking services, and so on. The Company is engaged solely in activities that were permissible for a bank holding company before enactment of the Gramm-Leach-Bliley Act. Federal Reserve Board rules require that all of the depository institution subsidiaries of a financial holding company be and remain well capitalized and well managed. If all depository institution subsidiaries of a financial holding company do not remain well capitalized and well managed, the financial holding company must enter into an agreement acceptable to the Federal Reserve Board, undertaking to comply with all capital and management requirements within 180 days. In the meantime the financial holding company may not use its expanded authority to engage in nonbanking activities without Federal Reserve Board approval and the Federal Reserve may impose other limitations on the holding company’s or affiliates’ activities. If a financial holding company fails to restore the well-capitalized and well-managed status of a depository institution subsidiary, the Federal Reserve may order divestiture of the subsidiary. Until recently the Company was been entitled to engage in the expanded range of activities in which a financial holding company, as defined in Federal Reserve Board rules, may engage. However, the Company has not taken advantage of that expanded authority and has elected to rescind its financial holding company status. The Company continues to be entitled to engage in activities deemed permissible to a bank holding company, as defined by Federal Reserve Board rules and the applicable laws of the United States.

Holding Company Capital and Source of Strength. The Federal Reserve considers the adequacy of a bank holding company’s capital on essentially the same risk-adjusted basis as capital adequacy is determined by the FDIC at the bank subsidiary level. In general, bank holding companies are required to maintain a minimum ratio of total capital to risk-weighted assets of 8% and Tier 1 capital — consisting principally of stockholders’ equity — of at least 4%. Bank holding companies are also subject to a leverage ratio requirement. The minimum required leverage ratio for the very highest rated companies is 3%, but as a practical matter the minimum required leverage ratio for most bank holding companies is 4% or higher. It is also Federal Reserve Board policy that bank holding companies serve as a source of strength for their subsidiary banking institutions.

Under Bank Holding Company Act section 5(e), the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary if the Federal Reserve Board determines that the activity or control constitutes a serious risk to the financial safety, soundness or stability of a subsidiary bank. And with the Federal Deposit Insurance Corporation Improvement Act of 1991’s addition of the prompt corrective action provisions to the Federal Deposit Insurance Act, section 38(f)(2)(I) of the Federal Deposit Insurance Act now provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

Liability of Commonly Controlled Institutions. Adding subsection (e) to section 5 of the Federal Deposit Insurance Act, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 allows the FDIC to demand from one institution payment for losses incurred or to be incurred by the FDIC because of the default of another institution or because of assistance provided by the FDIC to the other institution in danger of default, if the institutions are commonly controlled.

Federal Deposit Insurance. The FDIC insures deposits of banks, savings banks, and savings associations, and it safeguards the safety and soundness of the banking industry. Two separate insurance funds are maintained and administered by the FDIC. In general, bank deposits are insured through the Bank Insurance Fund. Deposits in savings associations are insured through the Savings Association Insurance Fund.

As an FDIC member institution, deposits in the bank are insured to a maximum of $250,000 per depositor. The $100,000 basic deposit insurance limit in place for many years was increased temporarily to $250,000 by the Emergency Economic Stabilization Act of 2008, which became law on October 3, 2008. On May 20, 2009 the $250,000 limit was extended to the end of 2013 by the Helping Families Save Their Homes Act. The banks are required to pay quarterly deposit insurance premium assessments to the FDIC. In general terms, each institution is assessed insurance premiums according to how much risk to the insurance fund the institution represents. Well-capitalized institutions with few supervisory concerns are assessed lower premiums than other institutions. The premium range is currently from $0.12 for the highest-rated institutions to $0.50 per $100 of domestic deposits.

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC also may suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital.

12

Interstate Banking and Branching. In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act eased restrictions on interstate banking. The Riegle-Neal Act allows the Federal Reserve to approve an application by an adequately capitalized and adequately managed bank holding company to acquire a bank located in a state other than the acquiring company’s home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve may not approve acquisition of a bank that has not been in existence for the minimum time period (up to five years) specified by the statutory law of the acquired, or “target,” bank’s state. The Riegle-Neal Act also prohibits the Federal Reserve from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank’s home state or in any state in which the target bank maintains a branch. The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank or bank holding company if the limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% statewide concentration limit contained in the Riegle-Neal Act.

Branching between states may be accomplished by merging commonly controlled banks located in different states into one legal entity. Branching may also be accomplished by establishing de novo branches or acquiring branches in another state. Under section 24(j) of the Federal Deposit Insurance Act, a branch of a bank operating out-of-state — in a “host state” — is subject to the law of the host state regarding community reinvestment, fair lending, consumer protection, and establishment of branches. The Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by state-chartered banks solely in states that specifically allow it. Ohio bank law allows de novo branching in Ohio by an out-of-state bank. The FDIC has adopted regulations under the Riegle-Neal Act to prohibit an out-of-state bank from using the new interstate branching authority primarily for the purpose of deposit production. These regulations include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to satisfy the credit needs of the communities served by the out-of-state bank.

Capital — Risk-Based Capital Requirements. The Federal Reserve Board and the FDIC employ similar risk-based capital guidelines in their examination and regulation of bank holding companies and financial institutions. If capital falls below the minimum levels established by the guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities. Failure to satisfy capital guidelines could subject a banking institution to a variety of enforcement actions by federal bank regulatory authorities, including the termination of deposit insurance by the FDIC and a prohibition on the acceptance of “brokered deposits.”

In the calculation of risk-based capital, assets and off-balance sheet items are assigned to broad risk categories, each with an assigned weighting. Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property, which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of or obligations guaranteed by the United States Treasury or United States Government agencies, which have a 0% risk-weight. Off-balance sheet items are also taken into account in the calculation of risk-based capital, with each class of off-balance sheet item being converted to a balance sheet equivalent according to established “conversion factors.” From these computations, the total of risk-weighted assets is derived. Risk-based capital ratios therefore state capital as a percentage of total risk-weighted assets and off-balance sheet items. The ratios established by guideline are minimums only.

Current risk-based capital guidelines require bank holding companies and banks to maintain a minimum risk-based total capital ratio equal to 8% and a Tier 1 capital ratio of 4%. Intangibles other than readily marketable mortgage servicing rights are generally deducted from capital. Tier 1 capital includes stockholders’ equity, qualifying perpetual preferred stock (within limits and subject to conditions, particularly if the preferred stock is cumulative preferred stock), and minority interests in equity accounts of consolidated subsidiaries, less intangibles, identified losses, investments in securities subsidiaries, and certain other assets. Tier 2 capital includes —

• 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.

The FDIC also employs a market risk component in its calculation of capital requirements for nonmember banks. The market risk component could require additional capital for general or specific market risk of trading portfolios of debt and equity securities and other investments or assets. The FDIC’s evaluation of an institution’s capital adequacy takes account of a variety of other factors as well, including interest rate risks to which the institution is subject, the level and quality of an institution’s earnings, loan and investment portfolio characteristics and risks, risks arising from the conduct of nontraditional activities, and a variety of other factors.

Accordingly, the FDIC’s final supervisory judgment concerning an institution’s capital adequacy could differ significantly from the conclusions that might be derived from the absolute level of an institution’s risk-based capital ratios. Therefore, institutions generally are expected to maintain risk-based capital ratios that exceed the minimum ratios discussed above. This is particularly true for institutions contemplating significant expansion plans and institutions that are subject to high or inordinate levels of risk. Moreover, although the FDIC does not impose explicit capital requirements on holding companies of institutions regulated by the FDIC, the FDIC can take account of the degree of leverage and risks at the holding company level. If the FDIC determines that the holding company (or another affiliate of the institution regulated by the FDIC) has an excessive degree of leverage or is subject to inordinate risks, the FDIC may require the subsidiary institution(s) to maintain additional capital or the FDIC may impose limitations on the subsidiary institution’s ability to support its weaker affiliates or holding company.

The banking agencies have also established a minimum leverage ratio of 3%, which represents Tier 1 capital as a percentage of total assets, less intangibles. However, for bank holding companies and financial institutions seeking to expand and for all but the most highly rated banks and bank holding companies, the banking agencies expect an additional cushion of at least 100 to 200 basis points. At December 31, 2010, the Company was in compliance with all regulatory capital requirements.

13

Prompt Corrective Action. To resolve the problems of undercapitalized institutions and to prevent a recurrence of the banking crisis of the 1980s and early 1990s, the Federal Deposit Insurance Corporation Improvement Act of 1991 established a system known as “prompt corrective action.” Under the prompt corrective action provisions and implementing regulations, every institution is classified into one of five categories, depending on its total risk-based capital ratio, its Tier 1 risk-based capital ratio, its leverage ratio, and subjective factors. The categories are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A financial institution’s operations can be significantly affected by its capital classification. For example, an institution that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized institution must guarantee, in part, aspects of the institution’s capital plan. Financial institution regulatory agencies generally are required to appoint a receiver or conservator shortly after an institution enters the category of weakest capitalization. The Federal Deposit Insurance Corporation Improvement Act of 1991 also authorizes the regulatory agencies to reclassify an institution from one category into a lower category if the institution is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. Undercapitalized institutions are required to take specified actions to increase their capital or otherwise decrease the risks to the federal deposit insurance funds.

The following table illustrates the capital and prompt corrective action guidelines applicable to the Company and its subsidiaries, as well as its total risk-based capital ratio, Tier 1 capital ratio and leverage ratio as of December 31, 2010.

	Middlefield Banc Corp.					The Middlefield Banking Co.					Emerald Bank
	December 31, 2010					December 31, 2010					December 31, 2010
(Dollar amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-weighted Assets)
Actual	$	45,424		11.69	%	$	38,335		11.48	%	$	7,340		14.55	%
For Capital Adequacy Purposes		31,075		8.00			26,707		8.00			4,036		8.00
To Be Well Capitalized		38,844		10.00			33,383		10.00			5,045		10.00
Tier I Capital (to Risk-weighted Assets)
Actual	$	40,552		10.44	%	$	34,241		10.26	%	$	6,691		13.26	%
For Capital Adequacy Purposes		15,537		4.00			13,353		4.00			2,018		4.00
To Be Well Capitalized		23,306		6.00			20,030		5.00			3,027		6.00
Tier I Capital (to Average Assets)
Actual	$	40,552		6.69	%	$	34,241		6.47	%	$	6,691		9.45	%
For Capital Adequacy Purposes		24,240		4.00			21,176		4.00			2,832		4.00
To Be Well Capitalized		30,300		5.00			26,471		5.00			3,540		5.00

Limits on Dividends and Other Payments. The Company’s ability to obtain funds for the payment of dividends and for other cash requirements depends on the amount of dividends that may be paid to it by the banks. Ohio bank law and FDIC policy are consistent, providing that banks generally may rely solely on current earnings for the payment of dividends. Under Ohio Revised Code section 1107.15(B) a dividend may be declared from surplus, meaning additional paid-in capital, with the approval of (x) the Ohio Superintendent of Financial Institutions and (y) the holders of two thirds of the bank’s outstanding shares. Superintendent approval is also necessary for payment of a dividend if the total of all cash dividends in a year exceeds the sum of (x) net income for the year and (y) retained net income for the two preceding years. Relying on 12 U.S.C. 1818(b), the FDIC may restrict a bank’s ability to pay a dividend if the FDIC has reasonable cause to believe that the dividend would constitute an unsafe and unsound practice. A bank’s ability to pay dividends may be affected also by the FDIC’s capital maintenance requirements and prompt corrective action rules. A bank may not pay a dividend if the bank is undercapitalized or if payment would cause the bank to become undercapitalized.

A 1985 policy statement of the Federal Reserve Board declares that a bank holding company should not pay cash dividends on common stock unless the organization’s net income for the past year is sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial condition.

14

Sarbanes-Oxley Act of 2002. The goals of the Sarbanes-Oxley Act enacted in 2002 are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures made under the securities laws. The proposed changes are intended to allow shareholders to monitor the performance of companies and directors more easily and efficiently.

The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC under the Securities Exchange Act of 1934. The Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC, securities exchanges, and Nasdaq to adopt extensive additional disclosure, corporate governance, and other related rules. The final scope of all of these new requirements is not yet clear. Some of the changes are effective already, but others will become effective in the future.

The Sarbanes-Oxley Act has an impact on a wide variety of corporate governance and disclosure issues, including the composition of audit committees, certification of financial statements by the chief executive officer and the chief financial officer, forfeiture of bonuses and profits made by directors and senior officers in the 12-month period covered by restated financial statements, a prohibition on insider trading during pension plan black-out periods, disclosure of off-balance sheet transactions, a prohibition on personal loans to directors and officers (excluding Federally insured financial institutions), expedited filing requirements for stock transaction reports by officers and directors, the formation of a public accounting oversight board, auditor independence, and various increased criminal penalties for violations of securities laws.

Transactions with Affiliates. Although the banks are not member banks of the Federal Reserve System, they are required by the Federal Deposit Insurance Act to comply with section 23A and section 23B of the Federal Reserve Act — pertaining to transactions with affiliates — as if they were member banks. These statutes are intended to protect banks from abuse in financial transactions with affiliates, preventing federally insured deposits from being diverted to support the activities of unregulated entities engaged in nonbanking businesses. An affiliate of a bank includes any company or entity that controls or is under common control with the bank. Generally, section 23A and section 23B of the Federal Reserve Act —

• 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.

The Company’s authority to extend credit to insiders — meaning executive officers, directors and greater than 10% stockholders — or to entities those persons control, is subject to section 22(g) and section 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these laws require insider loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans a bank may make to insiders based in part on the Company’s capital position, and require that specified approval procedures be followed. Loans to an individual insider may not exceed the legal limit on loans to any one borrower, which in general terms is 15% of capital but can be higher in some circumstances. And the aggregate of all loans to all insiders may not exceed the Company’s unimpaired capital and surplus. Insider loans exceeding the greater of 5% of capital or $25,000 must be approved in advance by a majority of the board, with any “interested” director not participating in the voting. Lastly, loans to executive officers are subject to special limitations. Executive officers may borrow in unlimited amounts to finance their children’s education or to finance the purchase or improvement of their residence, and they may borrow no more than $100,000 for most other purposes. Loans to executive officers exceeding $100,000 may be allowed if the loan is fully secured by government securities or a segregated deposit account. A violation of these restrictions could result in the assessment of substantial civil monetary penalties, the imposition of a cease-and-desist order or other regulatory sanctions.

Banking agency guidance for commercial real estate lending. In December 2006 the FDIC and other Federal banking agencies issued final guidance on sound risk management practices for concentrations in commercial real estate lending, including acquisition and development lending, construction lending, and other land loans, which recent experience has shown can be particularly high-risk lending. According to a 2009 FDIC publication, a majority of the community banks that became problem banks or failed in 2008 had similar risk profiles: the banks often had extremely high concentrations, relative to their capital, in residential acquisition, development, and construction lending, loan underwriting and credit administration functions at these institutions typically were criticized by examiners, and many of the institutions had exhibited rapid asset growth funded with brokered deposits.

The commercial real estate risk management guidance does not impose rigid limits on commercial real estate lending but does create a much sharper supervisory focus on the risk management practices of banks with concentrations in commercial real estate lending. According to the guidance, an institution that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its commercial real estate concentration risk —

• total reported loans for construction, land development, and other land represent 100% or more of the institution’s total capital, or

• total commercial real estate loans represent 300% or more of the institution’s total capital and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.

15

These measures are intended merely to enable the banking agencies to quickly identify institutions that could have an excessive commercial real estate lending concentration, potentially requiring close supervision to ensure that the institutions have sound risk management practices in place. Conversely, these measures do not imply that banks are authorized by the December 2006 guidance to accumulate a commercial real estate lending concentration up to the 100% and 300% thresholds.

Community Reinvestment Act. Under the Community Reinvestment Act of 1977 and implementing regulations of the banking agencies, a financial institution has a continuing and affirmative obligation — consistent with safe and sound operation — to address the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services it believes are best suited to its particular community. The CRA requires that bank regulatory agencies conduct regular CRA examinations and provide written evaluations of institutions’ CRA performance. The CRA also requires that an institution’s CRA performance rating be made public. CRA performance evaluations are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to Improve and Substantial Noncompliance.

Although CRA examinations occur on a regular basis, CRA performance evaluations have been used principally in the evaluation of regulatory applications submitted by an institution. CRA performance evaluations are considered in evaluating applications for such things as mergers, acquisitions, and applications to open branches.

MBC’s CRA performance evaluation dated July 24, 2008 states that MBC’s CRA rating is “Outstanding.” EB’s CRA performance evaluation dated April 17, 2006 states that EB’s CRA rating is “Satisfactory.”

Federal Home Loan Bank. The Federal Home Loan Bank serves as a credit source for their members. As a member of the FHLB of Cincinnati, both MBC and EB are required to maintain an investment in the capital stock of the FHLB of Cincinnati in an amount calculated by reference to its amount of loans, and or “advances,” from the FHLB. The Company is in compliance with this requirement, with an investment in FHLB stock on MBC’s part of $1.6 million and on EB’s part of $261,000 at December 31, 2010.

Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the Community Reinvestment Act and its record of lending to first-time home buyers.

Anti-money laundering and anti-terrorism legislation. The Bank Secrecy Act of 1970 requires financial institutions to maintain records and report transactions to prevent the financial institutions from being used to hide money derived from criminal activity and tax evasion. The Bank Secrecy Act establishes (a) record keeping requirements to assist government enforcement agencies with tracing financial transactions and flow of funds, (b) reporting requirements for Suspicious Activity Reports and Currency Transaction Reports to assist government enforcement agencies with detecting patterns of criminal activity, (c) enforcement provisions authorizing criminal and civil penalties for illegal activities and violations of the Bank Secrecy Act and its implementing regulations, and (d) safe harbor provisions that protect financial institutions from civil liability for their cooperative efforts.

The Treasury’s Office of Foreign Asset Control administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals based on U.S. foreign policy and national security goals. As a result, financial institutions must scrutinize transactions to ensure that they do not represent obligations of or ownership interests in entities owned or controlled by sanctioned targets.

Signed into law on October 26, 2001, the USA PATRIOT Act of 2001 is omnibus legislation enhancing the powers of domestic law enforcement organizations to resist the international terrorist threat to United States security. Title III of the legislation, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, most directly affects the financial services industry, enhancing the Federal government’s ability to fight money laundering through monitoring of currency transactions and suspicious financial activities. The Act has significant implications for depository institutions and other businesses involved in the transfer of money —

• a financial institution must establish due diligence policies, procedures, and controls reasonably designed to detect and report money laundering through correspondent accounts and private banking accounts,

• no bank may establish, maintain, administer, or manage a correspondent account in the United States for a foreign shell bank,

• financial institutions must abide by Treasury Department regulations encouraging financial institutions, their regulatory authorities, and law enforcement authorities to share information about individuals, entities, and organizations engaged in or suspected of engaging in terrorist acts or money laundering activities,

• financial institutions must follow Treasury Department regulations setting forth minimum standards regarding customer identification. These regulations require financial institutions to implement reasonable procedures for verifying the identity of any person seeking to open an account, maintain records of the information used to verify the person’s identity, and consult lists of known or suspected terrorists and terrorist organizations provided to the financial institution by government agencies,

• every financial institution must establish anti-money laundering programs, including the development of internal policies and procedures, designation of a compliance officer, employee training, and an independent audit function.

16

State Banking Regulation. As Ohio-chartered banks, the banks are subject to regular examination by the Ohio Division of Financial Institutions. State banking regulation affects the internal organization of the banks as well as their savings, lending, investment, and other activities. State banking regulation may contain limitations on an institution’s activities that are in addition to limitations imposed under federal banking law. The Ohio Division of Financial Institutions may initiate supervisory measures or formal enforcement actions, and if the grounds provided by law exist it may take possession and control of an Ohio-chartered bank.

Monetary Policy. The earnings of financial institutions are affected by the policies of regulatory authorities, including monetary policy of the Federal Reserve Board. An important function of the Federal Reserve System is regulation of aggregate national credit and money supply. The Federal Reserve Board accomplishes these goals with measures such as open market transactions in securities, establishment of the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of financial institutions’ loans, investments and deposits, and they also affect interest rates charged on loans or paid on deposits. Monetary policy is influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance, and fiscal policies of the United States government. Federal Reserve Board monetary policy has had a significant effect on the operating results of financial institutions in the past, and it can be expected to influence operating results in the future.

Item 1.A — Risk Factors

Risks Related to the Company’s Business

Continued negative developments in the financial industry and the domestic credit market may adversely affect the Company’s operations and results. Negative developments starting in the latter half of 2007 and continuing through 2010 in the credit and securitization markets have resulted in uncertainty in financial markets with the expectation of the general economic sluggishness continuing in 2011. Business activity across a wide range of industries and regions is declining. Unemployment has been persistently high. During 2010 the financial services industry was materially and adversely affected by the continued reduced values of nearly all asset classes. These negative developments were initially triggered by declines in home prices and the values of subprime residential mortgage loans, but quickly spread to other asset classes. Market conditions have also led to the failure or merger of a number of formerly prominent and large financial institutions in 2008. Nearly300 banks have failed in past two years. Furthermore, declining asset values on financial instruments, defaults on residential mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to decrease liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered significant losses and have become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral. If current levels of market disruption and volatility continue or worsen, there can be no assurance that the Company will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition, and results of operations.

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. In response to the difficult market and economic conditions affecting the banking system and financial markets, former President Bush signed the Emergency Economic Stabilization Act of 2008 (“EESA”) into law on October 3, 2008. The EESA authorizes the Treasury Department to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities, and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies, under a Troubled Asset Relief Program, or “TARP.” TARP was enacted to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. The Treasury Department established a voluntary Capital Purchase Program (“CPP”) under TARP to encourage eligible U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers. Under the CPP, the Treasury Department purchases senior preferred stock and warrants from participating financial institutions. We elected not to participate in the CPP because the Company believes the CPP’s restrictions on possible future dividend increases, the dilution to earnings, and the uncertainty surrounding future requirements of the CPP outweighed the benefits of participation.

The EESA has been followed by numerous actions by the Federal Reserve, the U.S. Congress, the Treasury Department, the FDIC, and the SEC to address the current liquidity and credit crisis that has followed the sub-prime mortgage meltdown that began in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) into law. The Recovery Act was implemented to provide $787 billion in funds to create and preserve jobs, promote economic recovery, spur technological advances in science and health, invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits, and stabilize state and local government budgets. The Recovery Act also contains provisions limiting, but not capping, executive compensation for all current and future TARP recipients until the institution has repaid the government.

The purpose of these legislative and regulatory actions is to stabilize U.S. financial markets. The U.S. Congress or federal bank regulatory agencies could adopt additional regulatory requirements or restrictions in response to the threats to the financial system and such changes may adversely affect the Company’s operations. In addition, the EESA and the Recovery Act may not have the intended beneficial impact on the financial markets or the banking industry. To the extent the market does not respond favorably to the legislative and regulatory initiatives described above, the Company prospects and results of operations would be adversely affected.

17

The Company operates in a highly competitive industry and market area. The U.S. financial system has become highly concentrated and has moved into a barbell-type structure. This structure is characterized at one end by a handful of large financial conglomerates and at the other end by thousands of community financial institutions spread across the U.S. According to the FDIC, the four largest banking companies control more than 40% of the nation’s deposits and more than 50% of the industry’s assets. While the nation’s largest banks have not been permitted to fail, community banks do fail with regularity. This policy disparity has entrenched an ongoing competitive inequity against community banks. In effect, government ownership of banks considered “too big to fail” may adversely impact the market for various bank products and services, many of which are considered the financial system’s most profitable.

The Company faces significant competition both in making loans and in attracting deposits. Competition is based on interest rates and other credit and service charges, the quality of services rendered, the convenience of banking facilities, the range and type of products offered and, in the case of loans to larger commercial borrowers, lending limits, among other factors. Competition for loans comes principally from commercial banks, savings banks, savings and loan associations, credit unions, mortgage banking companies, insurance companies, and other financial service companies. The Company’s most direct competition for deposits has historically come from commercial banks, savings banks, and savings and loan associations. Technology has also lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Larger competitors may be able to achieve economies of scale and, as a result, offer a broader range of products and services. The Company’s ability to compete successfully depends on a number of factors, including, among other things:

• 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.

Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect growth and profitability.

The Company may not be able to attract and retain skilled people. The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people can be intense and the Company may not be able to hire people or to retain them. The unexpected loss of the services of key personnel of the Company could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel. The Company does not currently have employment agreements or non-competition agreements with any of its senior officers.

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 northeastern Ohio and central Ohio markets in which the Company operates have high concentrations of financial institutions. Many of the financial institutions operating in our markets are branches of significantly larger institutions headquartered in Cleveland or in other major metropolitan areas, with significantly greater financial resources and higher lending limits. In addition, many of these institutions offer services that the Company does not or cannot provide. For example, the larger competitors’ greater resources offer advantages such as the ability to price services at lower, more attractive levels, and the ability to provide larger credit facilities. Because the Company is currently smaller than many commercial lenders in its market, it is on occasion prevented from making commercial loans in amounts competitors can offer. The Company accommodates loan volumes in excess of its lending limits from time to time through the sale of loan participations to other banks.

The business of banking is changing rapidly with changes in technology, which poses financial and technological challenges to small and mid-sized institutions. With frequent introductions of new technology-driven products and services, the banking industry is undergoing rapid technological changes. In addition to enhancing customer service, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Financial institutions’ success is increasingly dependent upon use of technology to provide products and services that satisfy customer demands and to create additional operating efficiencies. Many of the Company’s competitors have substantially greater resources to invest in technological improvements, which could enable them to perform various banking functions at lower costs than the Company, or to provide products and services that the Company is not able to economically provide. The Company cannot assure you that we will be able to develop and implement new technology-driven products or services or that the Company will be successful in marketing these products or services to customers. Because of the demand for technology-driven products, banks increasingly rely on unaffiliated vendors to provide data processing services and other core banking functions. The use of technology-related products, services, delivery channels, and processes exposes banks to various risks, particularly transaction, strategic, reputation, and compliance risk. The Company cannot assure you that we will be able to successfully manage the risks associated with our dependence on technology.

18

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. The Company and its subsidiaries are and will remain subject to extensive state and federal government supervision and regulation. This supervision and regulation affect many aspects of the banking business, including permissible activities, lending, investments, payment of dividends, the geographic locations in which our services can be offered, and numerous other matters. State and federal supervision and regulation are intended principally to protect depositors, the public, and the deposit insurance fund administered by the FDIC. Protection of stockholders is not a goal of banking regulation.

The burdens of federal and state banking regulation place banks in general at a competitive disadvantage compared to less regulated competitors. Applicable statutes, regulations, agency and court interpretations, and agency enforcement policies have undergone significant changes, and could change significantly again. Federal and state banking agencies also require banks and bank holding companies to maintain adequate capital. Failure to maintain adequate capital or to comply with applicable laws, regulations, and supervisory agreements could subject a bank or bank holding company to federal or state enforcement actions, including termination of deposit insurance, imposition of fines and civil penalties, and, in the most severe cases, appointment of a conservator or receiver for a depositary institution. Changes in applicable laws and regulatory policies could adversely affect the banking industry generally or the Company in particular. The Company gives you no assurance that we will be able to adapt successfully to industry changes caused by governmental actions.

Success in the banking industry requires disciplined management of lending risks. There are many risks in the business of lending, including risks associated with the duration over which loans may be repaid, risks resulting from changes in economic conditions, risks inherent in dealing with individual borrowers, and risks resulting from changes in the value of loan collateral. We attempt to mitigate this risk by a thorough review of the creditworthiness of loan customers. Nevertheless, there is risk that our credit evaluations will prove to be inaccurate due to changed circumstances or otherwise.

A critical resource for maintaining the safety and soundness of banks so that they can fulfill their basic function of financial intermediation, the allowance for possible loan losses is a reserve established through a provision for possible loan losses charged to expense that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. Current accounting standards for loan loss provisioning are based on the so-called “incurred loss” model. Under this model, a bank can reserve against a loan loss through a provision to the loan loss reserve only if that loss has been “incurred,” which means a loss that is probable and can be reasonably estimated. To meet that standard, banks have to document why a loss is probable and reasonably estimable, and the easiest way to do that is to refer to historical loss rates and the bank’s own prior loss experience with the type of asset in question. Banks are not limited to using historical experience in deciding the appropriate level of the loan loss reserve. In making these determinations, management can use judgment that takes into account other, forward-leaning factors, such as changes in underwriting standards and changes in the economic environment that would have an impact on loan losses. It is changes in the current economic environment that have led us, and may continue to lead management, to take provisions that are higher than our historical experience.

The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for possible loan losses. In addition, bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for possible loan losses, the Company will need additional provisions to increase the allowance for possible loan losses. Any increases in the allowance for possible loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations.

Changing interest rates have a direct and immediate impact on financial institutions. The risk of nonpayment of loans — or credit risk — is not the only lending risk. Lenders are subject also to interest rate risk. Fluctuating rates of interest prevailing in the market affect a bank’s net interest income, which is the difference between interest earned from loans and investments, on one hand, and interest paid on deposits and borrowings, on the other. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect (i) our ability to originate loans, (ii) the value of our interest-earning assets, and our ability to realize gains from the sale of such assets, (iii) our ability to obtain and retain deposits in competition with other available investment alternatives, and (iv) the ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. Although the Company believes that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities (which involves various estimates as to how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

19

A prolonged economic downturn in our market area would adversely affect our loan portfolio and our growth prospects. Our lending market area is concentrated in northeastern and central Ohio, particularly Franklin, Geauga, Portage, Trumbull, and Ashtabula Counties. A high percentage of our loan portfolio is secured by real estate collateral, primarily residential mortgage loans. Commercial and industrial loans to small and medium-sized businesses also represent a significant percentage of our loan portfolio. The asset quality of our loan portfolio is largely dependent upon the area’s economy and real estate markets. A prolonged economic downturn would likely contribute to the deterioration of the credit quality of our loan portfolio and reduce our level of customer deposits, which in turn would hurt our business. If the current economic downturn in the economy as a whole, or in the northeastern and central Ohio markets continues for a prolonged period, borrowers may be less likely to repay their loans as scheduled or at all. Moreover, the value of real estate or other collateral that may secure our loans could be adversely affected. Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies and geographic locations. A prolonged economic downturn could, therefore, result in losses that could materially and adversely affect our business.

The Company could incur liabilities under federal and state environmental laws if we foreclose on commercial properties. A high percentage of the Company’s loans are secured by real estate. Although the vast majority of these loans are residential mortgage loans with little associated environmental risk, some are commercial loans secured by property on which manufacturing and other commercial enterprises are carried on. The Company has in the past and could again acquire property by foreclosing on loans in default. Under federal and state environmental laws, a bank could face liability for some or all of the costs of removing hazardous substances, contaminants, or pollutants from properties acquired in this fashion. Although other persons might be primarily responsible for these costs, these persons might not be financially solvent or they might be unable to bear the full cost of clean-up. It is also possible that a lender exercising unusual influence over a borrower’s commercial activities could be required to bear a portion of the clean-up costs under federal or state environmental laws.

Changes in accounting standards could materially impact our consolidated financial statements. Our accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. The accounting standard setters, including the Financial Accounting Standards Board, the SEC, and other regulatory bodies, from time to time may change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. Management may be required to make difficult, subjective, or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions.

There are risks with respect to future expansion and acquisitions or mergers. The Company may seek in the future to acquire other financial institutions or parts of those institutions. The Company may also expand into new markets or lines of business or offer new products or services. These activities would involve a number of risks, including—

• 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.

There is also a risk that any expansion effort will not be successful.

Compliance with Sarbanes-Oxley Act will involve significant expenditures, and non-compliance may adversely affect us. The Sarbanes-Oxley Act of 2002 (“SOX”), and the related rules and regulations promulgated by the SEC that are now applicable to us, have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure practices. The Company has experienced, and expect to continue to experience, greater compliance costs, including costs related to internal controls, as a result of SOX. For example, for the year ended December 31, 2009, the Company was required to comply with Section 404 of SOX and management has issued a report on our internal controls over financial reporting. In 2011 our independent registered public accounting firm will be required to provide an attestation with respect to management’s report on our internal controls over financial reporting as of December 31, 2010. We expect the applicability of these rules and regulations to us will continue to increase our accounting, legal, and other costs, and to make some activities more difficult, time consuming, and costly. In the event that the Company is unable to maintain or achieve compliance with SOX and any related rules, it may be adversely affected.

20

The Company utilizes the Federal Home Loan Bank as an additional source of liquidity. The Middlefield Banking Company and Emerald Bank are members of the Federal Home Loan Bank (“FHLB”) of Cincinnati, which is one of the twelve regional banks comprising the FHLB System. The FHLB provides credit for member financial institutions. As a member of the FHLB, the Company is required to own stock in the FHLB in proportion to our borrowings. As of December 31, 2010, our investment in FHLB stock totaled $1.9 million. The Company is authorized to apply for advances from the FHLB, which are collateralized in the aggregate by loans, securities, FHLB stock, and by deposits with the FHLB. At December 31, 2010, the Company had approximately $11.1 million in FHLB advances. FHLB advances are only available to borrowers that meet certain conditions. If the Company were to cease meeting these conditions, our access to FHLB advances could be significantly reduced or eliminated.

The 12 FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB System. The U.S. government does not guarantee these obligations, and each of the 12 FHLBs are jointly and severally liable for repayment of each other’s debt. Therefore, the Company’s investment in the equity stock of the FHLB of Cincinnati could be adversely impacted by the operations of the other FHLBs. Certain FHLBs, including Cincinnati, have experienced lower earnings from time to time and paid out lower dividends to their members. If a FHLB’s capital drops below 4% of its assets, restrictions on the redemption or repurchase of member banks’ FHLB stock are imposed by law. Should the FHLBs be restricted from redeeming or repurchasing member banks’ FHLB stock due to adverse financial conditions affecting either individual FHLBs or the FHLB System as a whole, member banks may be required to recognize an impairment charge on their FHLB equity stock investments. Future problems at the FHLBs may impact the collateral necessary to secure borrowings and limit the borrowings extended to member banks, as well as require additional capital contributions by member banks. Should this occur, the Company’s short term liquidity needs could be negatively impacted. Should the Company be restricted from using FHLB advances due to weakness in the FHLB System or with the FHLB of Cincinnati, the Company may be forced to find alternative funding sources. These alternative funding sources may include seeking lines of credit with third party banks or the Federal Reserve Bank, borrowing under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling certain investment securities categorized as available-for-sale in order to maintain adequate levels of liquidity.

Our deposit insurance premium could be substantially higher in the future which would have an adverse effect on future earnings. As a result of EESA, the basic limit on federal deposit insurance coverage was temporarily raised from $100,000 to $250,000 per depositor. On May 20, 2009 the $250,000 limit was extended until the end of 2013 by the Helping Families Save Their Homes Act.

During the year ended December 31, 2010, the Company paid $714,000 in deposit insurance. Under the Federal Deposit Insurance Act, the FDIC, absent extraordinary circumstances, must establish and implement a plan to restore the deposit insurance reserve ratio to 1.15% of insured deposits, over a five-year period, at any time that the reserve ratio falls below 1.15%. The escalating pace of bank failures that began in 2008 has significantly increased the Deposit Insurance Fund’s loss provisions, resulting in a decline in the reserve ratio. The FDIC expects continued insured institution failures in the next few years, which likely will result in a continued decline in the reserve ratio.

On February 27, 2009, the FDIC adopted a final rule (i) modifying the risk-based assessment system and setting initial base assessment rates beginning April 1, 2009, at 12 to 45 basis points, (ii) extending the period of the restoration plan to seven years, and (iii) adopting an interim rule imposing an emergency 20 basis point special assessment on June 30, 2009, which will be collected on September 30, 2009, and allowing the FDIC to impose possible additional special assessments of up to 10 basis points thereafter to maintain public confidence in the Deposit Insurance Fund. Accordingly, increases in the deposit insurance premium assessment rate applicable to us will adversely impact our earnings.

As an alternative to imposing additional special assessments on insured depository institutions or borrowing from the U.S. Treasury, on November 12, 2009 the FDIC adopted a proposal to increase deposit insurance assessments effective on January 1, 2011 and to require all insured depository institutions to prepay by the end of 2009 their deposit insurance assessments for the fourth quarter of 2009 and for the entirety of 2010 through 2012. Institutions record the prepaid FDIC insurance assessments as an asset as of December 31, 2009, later charging the assessments to expense in the periods to which the assessments apply. On December 31, 2009 MBC prepaid an assessment of $2.3 million for the period 2010 through 2012 and EB prepaid an assessment of $275,000 for the period 2010 through 2012.

Government regulation could restrict our ability to pay cash dividends. Dividends from the banks are the only significant source of cash for the Company. Statutory and regulatory limits could prevent the banks from paying dividends or transferring funds to the Company. As of December 31, 2010, MBC could have declared dividends of approximately $2.6 million in the aggregate to Company without having to obtain advance regulatory approval. The Company cannot assure you that the Banks’ profitability will continue to allow dividends to the Company, and the Company therefore cannot assure you that the Company will be able to continue paying regular, quarterly cash dividends. Because of the MOU, EB may not pay dividends to the Company unless EB first gives notice to the FDIC and the Ohio Division of Financial Institutions. The Company anticipates that for as long as the MOU is in force EB will not pay dividends to the Company but will instead retain earnings, if any, for the purpose of maintaining capital.

21

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 not a bank deposit and, therefore, is not insured against loss by the Federal Deposit Insurance Corporation (FDIC), any other deposit insurance fund or by any other public or private entity. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.

The Company’s common stock is very thinly traded, and it is therefore susceptible to wide price swings. The Company’s common stock is not traded or authorized for quotation on any exchanges, including Nasdaq. However, bid prices for Company common stock appear from time to time in the OTCQB under the symbol “MBCN.” OTCQB is for domestic (U.S.) companies registered with and reporting to the Securities and Exchange Commission or a banking or insurance regulator. Thinly traded, illiquid stocks are more susceptible to significant and sudden price changes than stocks that are widely followed by the investment community and actively traded on an exchange. The liquidity of the Company’s common stock depends upon the presence in the marketplace of willing buyers and sellers. The Company cannot assure you that you will be able to find a buyer for your shares. Two regional broker/dealers facilitate trades of the company common stock, matching interested buyers and sellers. The Company currently does not intend to seek listing of the Company’s common stock on Nasdaq or on another securities exchange. Even if we successfully list the Company’s common stock on a securities exchange, the Company nevertheless could not assure you that an organized public market for the securities will develop or that there will be any private demand for the Company’ common stock. The Company could also fail subsequently to satisfy the standards for continued exchange listing, such as standards having to do with the minimum number of public shareholders or the aggregate market value of publicly held shares. A stock that is not listed on a securities exchange might not be accepted as collateral for loans. If accepted as collateral, the stock’s value could nevertheless be substantially discounted. Consequently, investors should regard the Company’s common stock as a long-term investment and should be prepared to bear the economic risk for an indefinite period. Investors who need or desire to dispose of all or a part of their investments in the Company’s common stock might not be able to do so except by private, direct negotiations with third parties.

22

Item 2 — Properties

The Company’s offices are:

Location	County	Owned/Leased	Other Information
Main Office: 15985 East High Street Middlefield, Ohio	Geauga	Owned
Branches: West Branch 15545 West High Street Middlefield, Ohio	Geauga	Owned
Garrettsville Branch 8058 State Street Garrettsville, Ohio	Portage	Owned
Mantua Branch 10519 South Main Street Mantua, Ohio	Portage	Leased	three-year lease renewed in November 2010, with option to renew for five additional consecutive three-year terms
Chardon Branch 348 Center Street Chardon, Ohio	Geauga	Owned
Orwell Branch 30 South Maple Avenue Orwell, Ohio	Ashtabula	Owned
Newbury Branch 11110 Kinsman Road Newbury, Ohio	Geauga	Leased	ten-year lease dated December 2006, with option to renew for four additional consecutive five-year terms
Cortland Branch 3450 Niles Cortland Road Cortland, Ohio	Trumbull	Owned
Emerald Bank 6215 Perimeter Drive Dublin, OH	Franklin	Leased	twenty-year lease dated Febuary 2004, with the option to purchase after the tenth year
Westerville Branch (Emerald Bank) 17 North State Street Westerville, OH	Franklin	Owned

At December 31, 2010 the net book value of the Company’s investment in premises and equipment totaled $8.4 million.

Item 3 — Legal Proceedings

From time to time the Company and the banks are involved in various legal proceedings that are incidental to its business. In the opinion of management, no current legal proceedings are material to the financial condition of Company or the banks, either individually or in the aggregate.

Item 4 — Removed and Reserved

23

Part II

Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information relating to the market for Middlefield’s common equity and related shareholder matters appears under “Market for the Companies’ Common Equity and Related Stockholder Matters” in the Companies’ 2010 Annual Report to Shareholders and is incorporated herein by reference. Information relating to dividend restrictions for Registrant’s common stock appears under” Supervision and Regulation.”

Equity Compensation Plan information

The following table provides information as of December 31, 2010 with respect to shares of common stock that may be issued under the Company’s existing equity plans which have been previously approved by the stockholders.

	Number of				Remaining Available
	Securities				for Future Issuance
	to be Issued Upon		Weighted-Average		Under Equity
	Exercise of		Exercise Price of		Compensation Plans
	Outstanding		Outstanding		(Excluding Securities
Plan Category	Options or Rights		Options or Rights		Reflected in Column A)
Equity compensation plans approved by security holders:
1999 Stock Option Plan		65,577		27.87		0
2007 Omnibus Equity Plan		23,500		23.00		70,923
Total		89,077		27.87		70,923

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6 — Selected Financial Data

The above-captioned information appears under “Selected Financial Data” in the Companies’ 2010 Annual Report to Shareholders and is incorporated herein by reference.

Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The above-captioned information appears under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Companies’ 2010 Annual Report to Shareholders and is incorporated herein by reference.

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

The above-captioned information appears under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section “Interest Rate Sensitivity Simulation Analysis in the Companies’ 2010 Annual Report to Shareholders and is incorporated herein by reference.

Item 8 — Financial Statements and Supplementary Data

The Consolidated Financial Statements of the Company and its’ subsidiaries, together with the report thereon by S.R. Snodgrass, A.C. appears in the Companies’ 2010 Annual Report to Shareholders and are incorporated herein by reference. Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

24

Item 9A — Controls and Procedures

(a)	Disclosure Controls and Procedures
	The 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 Reporting
	Management’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. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c)	Changes to Internal Control Over Financial Reporting
	There were no changes in the Company’s internal control over financial reporting during the three months ended December 31, 2010 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

Incorporated by reference to the definitive proxy statement for the 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2010.

Item 11 — Executive Compensation

Incorporated by reference to the definitive proxy statement for the 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2010.

Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference to the definitive proxy statement for the 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2010. The information required by this item concerning Equity Compensation Plan information is presented under the caption “EQUITY COMPENSATION PLAN INFORMATION” contained in Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”.

Item 13 — Certain Relationships and Related Transactions

Incorporated by reference to the definitive proxy statement for the 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2010.

Item 14 — Principal Accountant Fees and Services

Incorporated by reference to the definitive proxy statement for the 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2010.

25

Part IV

Item 15 — Exhibits, Financial Statement Schedules

(a)(1) Financial Statements

Index to Consolidated Financial Statements:

Consolidated Financial Statements as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010:

Report of Independent Registered Public Accounting firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

Financial Statement Schedules have been omitted because they are not applicable or the required information is shown elsewhere in the document in the Financial Statements or Notes thereto, or in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(a)(3) Exhibits

See the list of exhibits below

(b) Exhibits Required by Item 601 of Regulation S-K

exhibit
number		description	location
	3.1	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, 2006
	3.2	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, 2001
	4.0	Specimen stock certificate	Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
	4.1	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, 2006

26

exhibit
number			description	location
	4.2		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, 2006
	4.3		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, 2006
	10.1.0	*	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
	10.1.1	*	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, 2008
	10.2	*	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, 2008
	10.3	*	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, 2008
	10.4.0	*	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, 2008
	10.4.1	*	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, 2008
	10.4.2		[reserved]
	10.4.3	*	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, 2008
	10.4.4	*	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, 2008
	10.5		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, 2001
	10.6	*	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, 2008
	10.7	*	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, 2008
	10.8	*	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, 2008
	10.9	*	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, 2002

27

exhibit
number			description	location
	10.10	*	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, 2002
	10.11	*	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
	10.12	*	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, 2008
	10.13	*	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, 2004
	10.14	*	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, 2004
	10.15	*	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, 2004
	10.16		[reserved]
	10.17	*	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, 2004
	10.18		[reserved]
	10.19	*	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, 2004
	10.20	*	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, 2004
	10.21	*	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, 2001
	10.22	*	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, 2005
	10.23	*	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, 2008

28

exhibit
number			description	location
	10.24	*	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
	10.25	*	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, 2008
	10.26	*	Executive Deferred Compensation Agreement with Jay P. Giles	filed herewith
	13		Portions of the Annual Report for the year ended December 31, 2010 incorporated by reference into this Form 10-K	filed herewith
	21		Subsidiaries of Middlefield Banc Corp.	filed herewith
	23		Consent of S.R. Snodgrass, A.C., independent auditors of Middlefield Banc Corp.	filed herewith
	31.1		Rule 13a-14(a) certification of Chief Executive Officer	filed herewith
	31.2		Rule 13a-14(a) certification of Chief Financial Officer	filed herewith
	32		Rule 13a-14(b) certification	filed herewith

* management contract or compensatory plan or arrangement

29

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Middlefield Banc Corp.
By:	/s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer March 18, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

30

/s/ Thomas G. Caldwell Thomas G. Caldwell President, Chief Executive Officer, and Director	March 18, 2011
/s/ Donald L. Stacy Donald L. Stacy, Treasurer and Chief Financial Officer (Principal accounting and financial officer)	March 18, 2011
/s/ Richard T. Coyne Richard T. Coyne, Chairman of the Board	March 18, 2011
/s/ Frances H. Frank Frances H. Frank, Director	March 18, 2011
/s/ James R. Heslop, II James R. Heslop, II, Executive Vice President, Chief Operating Officer, and Director	March 18, 2011
/s/ Kenneth E. Jones Kenneth E Jones, Director	March 18, 2011
/s/ James J. McCaskey James J. McCaskey, Director	March 18, 2011
/s/ Carolyn J. Turk Carolyn J. Turk, Director	March 18, 2011
/s/ William J. Skidmore William J. Skidmore, Director	March 18, 2011
/s/ Robert W. Toth Robert W. Toth, Director	March 18, 2011

31

EX-10.26

Exhibit 10.26

The Middlefield Banking Company
Executive Deferred Compensation Agreement

This Executive Deferred Compensation Agreement (this “Agreement”) is entered into as of this 22nd day of September, 2010, by and between The Middlefield Banking Company, an Ohio-chartered bank (the “Bank”), and Jay P. Giles, Senior Vice President of the Bank (the “Executive”).

Whereas, the Executive has contributed substantially to the Bank’s success and the Bank desires that the Executive remain in its employ,

Whereas, to encourage the Executive to remain a Bank employee, the Bank desires to establish a noncontributory, defined contribution arrangement to provide a supplemental retirement income opportunity for the Executive, with contributions made solely by the Bank and benefits payable out of the Bank’s general assets,

Whereas, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Bank, is contemplated insofar as the Bank is concerned, and

Whereas, the parties hereto intend that this Agreement shall be considered an unfunded and noncontributory arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and to be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status.

Now Therefore, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Bank hereby agree as follows.

Article 1
Definitions

1.1 “Account Balance” means the Bank’s accounting of Annual Contributions made by the Bank, plus accrued interest.

1.2 “Annual Contribution” means the amount credited to the Account Balance after the end of each Plan Year for which the Performance Goals are achieved. The Annual Contribution is conditional on achievement of the Performance Goals, except that the Annual Contribution amount in any Plan Year shall not be less than 5% or more than 15% of the Executive’s Base Annual Salary. In its discretion, the Bank’s board of directors may increase or decrease the amount of the Annual Contribution, but the Annual Contribution amount shall be changed no more frequently than annually.

1.3 “Base Annual Salary” means compensation of the type required to be reported as salary according to Securities and Exchange Commission Rule 229.402(c) (17 CFR 229.402(c)), specifically column (c) of that rule’s Summary Compensation Table (or any successor provision).

1.4 “Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive, determined according to Article 5.

1.5 “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs, and returns to the Plan Administrator to designate one or more Beneficiaries.

1.6 “Change in Control” shall mean a change in control as defined in Internal Revenue Code section 409A and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including —

(a) Change in ownership: a change in ownership of Middlefield Banc Corp., an Ohio corporation of which the Bank is a wholly owned subsidiary, occurs on the date any one person or group accumulates ownership of Middlefield Banc Corp. stock constituting more than 50% of the total fair market value or total voting power of Middlefield Banc Corp. stock,

(b) Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield Banc Corp. stock possessing 30% or more of the total voting power of Middlefield Banc Corp., or (y) a majority of Middlefield Banc Corp.’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield Banc Corp.’s board of directors, or

(c) Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield Banc Corp.’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield Banc Corp. assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield Banc Corp.’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield Banc Corp.’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

1.7 “Code” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and guidance of general application issued thereunder by the Department of the Treasury.

1.8 “Effective Date” means January 1, 2010, 2010.

1.9 “Normal Retirement Age” means age 65.

1.10 “Performance Goals” means the performance criteria set forth in Schedule A attached to this Agreement and incorporated herein by this reference, which criteria have been established by the Bank’s board of directors. The Performance Goals may be changed by the board of directors no more frequently than annually. If the performance criteria are changed, a new Schedule A shall be substituted for and shall supersede the old Schedule A, and the new Schedule A shall be deemed to be incorporated by reference herein and to be a part of this Agreement. A change in Performance Goals shall not become effective for the Plan Year in which the change is made unless the change is made on or before March 31 of the Plan Year. The Plan Administrator shall have sole authority to determine whether the Performance Goals have been achieved for any Plan Year. The Plan Administrator’s determination that the Performance Goals for a Plan Year have or have not been achieved shall be conclusive and binding.

2

1.11 “Plan Administrator” or “Administrator” means the plan administrator described in Article 8.

1.12 “Plan Year” means the calendar year. The first Plan Year shall begin on the Effective Date and end on December 31, 2010.

1.13 “Separation from Service” means the Executive’s service as an executive or independent contractor to the Bank and any member of a controlled group, as defined in Code section 414, terminates for any reason, other than because of a leave of absence approved by the Bank or the Executive’s death. If there is a dispute about the Executive’s status or the date of the Executive’s Separation from Service, the Bank shall have the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.

1.14 “Termination with Cause” and “Cause” shall have the same definition specified in any effective severance or employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank or between the Executive and Middlefield Banc Corp. If the Executive is not a party to a severance or employment agreement containing a definition, Termination with Cause means the Bank terminates the Executive’s employment because of —

(a) the Executive’s gross negligence or gross neglect of duties or intentional and material failure to perform stated duties after written notice thereof, or

(b) disloyalty or dishonesty by the Executive in the performance of duties or breach of the Executive’s fiduciary duties for personal profit, in any case whether in the Executive’s capacity as a director or officer, or

(c) intentional wrongful damage by the Executive to the business or property of the Bank or its affiliates, including without limitation the reputation of the Bank, which in the judgement of the Bank causes material harm to the Bank or affiliates, or

(d) a willful violation by the Executive of any applicable law or significant policy of the Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement of policy, or final cease-and-desist order of any governmental agency or body having regulatory authority over the Bank, or

(e) the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of the Bank, under the Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or employees, or

(f) the Executive is removed from office or permanently prohibited from participating in the Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(g) conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more.

3

Article 2
Deferral Account

2.1 Annual Contribution. The Bank shall establish an Account Balance on its books. Within three months after the end of each Plan Year the Bank shall credit the Annual Contribution to the Account Balance provided the Performance Goals were achieved for the Plan Year. Contributions to the Account Balance by the Executive are prohibited. Discretionary contributions by the Bank are likewise prohibited. The Annual Contribution shall not be made by the Bank for the Plan Year in which the Executive attains Normal Retirement Age or for any year thereafter. However, if the Performance Goals are achieved for the Plan Year in which the Executive attains Normal Retirement Age (and if Separation from Service does not occur before Normal Retirement Age), the Bank shall make a final contribution in an amount equal to the Annual Contribution multiplied by a percentage. The percentage shall equal the number of days in the Plan Year before the Executive attained Normal Retirement Age divided by 365. No Annual Contributions shall be made by the Bank for the Plan Year in which the Executive’s death or Separation from Service occurs or for any year thereafter (except for a final contribution for the year in which the Executive attains Normal Retirement Age, unless Separation from Service occurs before Normal Retirement Age).

2.2 Interest. At the end of each Plan Year and until the first to occur of (x) Normal Retirement Age, (y) the Executive’s death, or (z) the Executive’s Separation from Service, interest is to be credited on the Account Balance at an annual rate of interest for that Plan Year, compounded monthly on the first day of the month, equal to the prime interest rate as published in The Wall Street Journal (the “Index”). After the first to occur of (x) Normal Retirement Age, (y) the Executive’s death, or (z) the Executive’s Separation from Service, interest shall be credited on the Account Balance at an annual rate equal to the yield on a 20-year corporate bond rated Aa by Moody’s, rounded to the nearest ¹/4%.

2.3 Statement of Account. Within 120 days after the end of each Plan Year, the Bank shall provide to the Executive a statement of the Account Balance at the end of the Plan Year. Each annual statement of the Account Balance shall supersede the previous year’s statement of the Account Balance.

2.4 Accounting Device Only. The Account Balance is solely a device for measuring amounts to be paid under this Agreement. The Account Balance is not a trust fund of any kind. The Executive is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere promise by the Bank to pay benefits. The Executive’s rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Executive’s creditors.

4

Article 3
Benefits During Lifetime

3.1 Normal Retirement Age. Unless Separation from Service or a Change in Control occurs before Normal Retirement Age, when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the Account Balance as of the end of the month in which the Executive attains Normal Retirement Age, instead of any other benefit under this Agreement. Beginning on the first day of the month after the month in which the Executive attains Normal Retirement Age, the Account Balance shall be paid to the Executive in 180 substantially equal monthly installments. The Bank shall credit interest according to the formula of section 2.2, compounded monthly, until the Account Balance is paid in full. If the Executive’s Separation from Service is a Termination with Cause, no further benefits shall be paid under this Agreement and this Agreement shall terminate.

3.2 Separation from Service. If Separation from Service occurs before Normal Retirement Age for reasons other than death, instead of any other benefit under this Agreement the Bank shall pay to the Executive the Account Balance as of the end of the month immediately before the month in which payments commence, unless the Change-in-Control benefit shall have been paid under section 3.3. Beginning on the first day of the later of (x) the seventh month after the month in which Separation from Service occurs or (y) the month after the month in which the Executive attains Normal Retirement Age, the Bank shall pay the Account Balance in 180 substantially equal monthly installments. The Bank shall credit interest according to the formula of section 2.2, compounded monthly, until the Account Balance is paid in full.

3.3 Change in Control. If a Change in Control occurs both before the Executive attains Normal Retirement Age and before the Executive’s Separation from Service, instead of any other benefit payable under this Agreement the Bank shall pay to the Executive the entire Account Balance in a single lump sum within three days after the Change in Control. Payment of the Change-in-Control benefit shall fully discharge the Bank from all obligations under this Agreement, except the legal fee reimbursement obligation under section 9.11.

3.4 Payout of Normal Retirement Benefit or Separation from Service Benefit after a Change in Control. If when a Change in Control occurs the Executive is receiving the benefit under section 3.1, the Bank shall pay the remaining benefits to the Executive in a single lump sum within three business days after the Change in Control. If when a Change in Control occurs the Executive is receiving or is entitled at Normal Retirement Age to receive the benefit under section 3.2, the Bank shall pay the remaining benefits to the Executive in a single lump sum within three business days after the later of (x) the date of the Change in Control or (y) the first day of the seventh month after the month in which the Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result of a Change in Control shall be an amount equal to the Account Balance remaining unpaid.

3.5 One Benefit Only. Despite anything to the contrary in this Agreement, the Executive and Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the first event to occur that is dealt with by this Agreement. Except as provided in section 3.4, later occurrence of events dealt with by this Agreement shall not entitle the Executive or Beneficiary to other or additional benefits under this Agreement.

3.6 Savings Clause Relating to Compliance with Code Section 409A. Despite any contrary provision of this Agreement, if when the Executive’s employment terminates the Executive is a specified employee, as defined in Code section 409A, and if any payments under Article 3 of this Agreement will result in additional tax or interest to the Executive because of section 409A, the Executive shall not be entitled to the payments under Article 3 until the earliest of (x) the date that is at least six months after termination of the Executive’s employment for reasons other than the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not result in additional tax or interest to the Executive under section 409A. If any provision of this Agreement would subject the Executive to additional tax or interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain to the maximum extent practicable the original intent of the applicable provision without subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur any additional compensation expense as a result of the reformed provision.

5

Article 4
Death Benefits

After the Executive’s death, the Bank shall pay to the Executive’s Beneficiary the Account Balance as of the date of the Executive’s death. The Account Balance shall be paid to the Executive’s Beneficiary in a single lump sum 90 days after the date of the Executive’s death. However, if the Executive dies after termination of this Agreement under Article 6, the Executive’s Beneficiary shall be entitled to no benefits under this Agreement.

Article 5
Beneficiaries

5.1 Beneficiary Designations. The Executive shall have the right to designate at any time a Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designation under any other benefit plan of the Bank in which the Executive participates.

5.2 Beneficiary Designation Change. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before the Executive’s death.

5.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted, and acknowledged in writing by the Plan Administrator or its designated agent.

5.4 No Beneficiary Designation. If the Executive dies without a valid beneficiary designation or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be paid to the Executive’s estate.

5.5 Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a person incapable of handling the disposition of his or her property, the Bank may pay the benefit to the guardian, legal representative, or person having the care or custody of the minor, incapacitated person, or incapable person. The Bank may require proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of the benefit. Distribution shall completely discharge the Bank from all liability for the benefit.

6

Article 6
General Limitations

6.1 Termination with Cause. Despite any contrary provision of this Agreement, the Bank shall not pay any benefit under this Agreement and this Agreement shall terminate if Separation from Service is a Termination with Cause.

6.2 Misstatement. No benefits shall be paid under this Agreement if the Executive makes any material misstatement of fact on any application or resume provided to the Bank, on any application for life insurance purchased by the Bank, or on any application for benefits provided by the Bank.

6.3 Removal. Despite any contrary provision of this Agreement, if the Executive is removed from office or permanently prohibited from participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

6.4 Default. Despite any contrary provision of this Agreement, if the Bank is in “default” or “in danger of default”, as those terms are defined in of section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.

Article 7
Claims and Review Procedures

7.1 Claims Procedure. Any person who has not received benefits under this Agreement that he or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.

7.1.1 Initiation — written claim. The claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If the claim relates to the contents of a notice received by the claimant, the claim must be made within 60 days after the notice was received by the claimant. All other claims must be made within 180 days after the date of the event that caused the claim to arise. The claim must state with particularity the determination desired by the claimant.

7.1.2 Timing of Administrator response. The Administrator shall respond to the claimant within 90 days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional 90 days by notifying the claimant in writing, before the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

7

7.1.3 Notice of decision. If the Administrator denies part or all of the claim, the Administrator shall notify the claimant in writing of the denial. The Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth —

(a) The specific reasons for the denial,

(b) A reference to the specific provisions of this Agreement on which the denial is based,

(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

(d) An explanation of the Agreement’s review procedures and the time limits applicable to such procedures, and

(e) A statement of the claimant’s right to bring a civil action under ERISA section 502(a) after an adverse benefit determination on review.

7.2 Review Procedure. If the Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Administrator of the denial, as follows.

7.2.1 Initiation — written request. To initiate the review, the claimant must file with the Administrator a written request for review within 60 days after receiving the Administrator’s notice of denial.

7.2.2 Additional submissions — information access. The claimant shall then have the opportunity to submit written comments, documents, records, and other information relating to the claim. Upon request and free of charge, the Administrator shall also provide the claimant reasonable access to and copies of all documents, records, and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

7.2.3 Considerations on review. In considering the review, the Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether the information was submitted or considered in the initial benefit determination.

7.2.4 Timing of Administrator response. The Administrator shall respond in writing to the claimant within 60 days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional 60 days by notifying the claimant in writing before the end of the initial 60-day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

7.2.5 Notice of decision. The Administrator shall notify the claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) The specific reasons for the denial,

(b) A reference to the specific provisions of the Agreement on which the denial is based,

(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

(d) A statement of the claimant’s right to bring a civil action under ERISA section 502(a).

8

Article 8
Administration of Agreement

8.1 Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator consisting of the board or such committee or persons as the board shall appoint. The Executive may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion and authority to (x) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Agreement and (y) decide or resolve any and all questions that may arise, including interpretations of this Agreement.

8.2 Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Bank.

8.3 Binding Effect of Decisions. The decision or action of the Plan Administrator concerning any question arising out of the administration, interpretation, and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Agreement. Neither the Executive nor any Beneficiary shall be deemed to have any right, vested or unvested, regarding the continuing effect of any decision or action of the Plan Administrator.

8.4 Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members.

8.5 Bank Information. To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the retirement, death, or Separation from Service of the Executive and such other pertinent information as the Plan Administrator may reasonably require.

Article 9
Miscellaneous

9.1 Amendments and Termination. This Agreement may be amended solely by a written agreement signed by the Bank and by the Executive. Except for the case of Termination with Cause, this Agreement shall not be terminated unless the Account Balance is first paid to the Executive or the Executive’s Beneficiary.

9.2 Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, successors, administrators, and transferees.

9

9.3 Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the Bank’s business or assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent the Bank would be required to perform this Agreement had no succession occurred.

9.4 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Bank nor does it interfere with the Bank’s right to discharge the Executive. It also does not require the Executive to remain an employee or interfere with the Executive’s right to terminate employment at any time.

9.5 Non-Transferability. Benefits under this Agreement may not be sold, transferred, assigned, pledged, attached, or encumbered.

9.6 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

9.7 Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of Ohio, except to the extent the laws of the United States of America otherwise require.

9.8 Unfunded Arrangement. The Executive and the Beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to which the Executive and the Beneficiary have no preferred or secured claim.

9.9 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth.

9.10 Tax Consequences. The Bank does not insure or guarantee the tax consequences of payments provided hereunder for matters beyond its control. The Executive certifies that the Executive’s decision to defer receipt of compensation is not due to reliance on financial, tax, or legal advice given by the Bank or any of its employees, agents, accountants, or legal advisors.

10

9.11 Payment of Legal Fees. The Bank is aware that after a Change in Control management of the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny the Executive the benefits intended under this Agreement. In these circumstances the purpose of this Agreement would be frustrated. The Bank desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. The Bank desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) the Bank has failed to comply with any of its obligations under this Agreement, or (y) the Bank or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at the Bank’s expense as provided in this section 9.11, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against the Bank or any director, officer, stockholder, or other person affiliated with the Bank, in any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank and any counsel chosen by the Executive under this section 9.11, the Bank irrevocably consents to the Executive entering into an attorney-client relationship with that counsel, and the Bank and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by the Bank on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. The Bank’s obligation to pay the Executive’s legal fees under this section 9.11 operates separately from and in addition to any legal fee reimbursement obligation the Bank may have with the Executive under any separate employment, severance, or other agreement between the Executive and the Bank. Despite anything in this section 9.11 to the contrary however, the Bank shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

9.12 Severability. If any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall continue in full force and effect to the full extent consistent with law. If any provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the provision not held invalid, and the remainder of such provision together with all other provisions of this Agreement shall continue in full force and effect to the full extent consistent with law.

9.13 Waiver. A waiver by either party of any of the terms or conditions of this Agreement in any one instance shall not be considered a waiver of the terms or conditions for the future or a waiver of any subsequent breach. All remedies, rights, undertakings, obligations, and agreements contained in this Agreement shall be cumulative, and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party.

9.14 Captions and Counterparts. Captions in this Agreement are included for convenience only and shall not affect the interpretation or construction of the Agreement or any of its provisions. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single agreement.

9.15 Notice. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Bank at the time of the delivery of such notice, and properly addressed to the Bank if addressed to the Board of Directors, The Middlefield Banking Company, 15985 East High Street, Middlefield, Ohio 44062-0035.

11

9.16 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations. The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules, and regulations will continue in effect in their current form. If that assumption materially changes and the change has a material detrimental effect on this Agreement, the Bank reserves the right to terminate or modify this Agreement accordingly, subject to the written consent of the Executive, which shall not be unreasonably withheld. This section 9.16 shall become null and void effective immediately after a Change in Control.

In Witness Whereof, the Executive and a duly authorized Bank officer have executed this Executive Deferred Compensation Agreement as of the date first written above.

Executive:	Bank: The Middlefield Banking Company
/s/ Jay P. Giles
Jay P. Giles	By:	/s/ Thomas Caldwell Its: President and C.E.O.

12

The Middlefield Banking Company
Executive Deferred Compensation Agreement
Beneficiary Designation

I designate the following as beneficiary under this Executive Deferred Compensation Agreement of benefits payable after my death.

Primary: Jay P. Giles, or successor, as Trustee of Jay P. Giles Declaration of Trust dated March 24, 2000.

Contingent: None.

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature:	/s/ Jay P. Giles
	Jay P. Giles
Date:	September 22, 2010

Received by the Bank this 22nd day of September, 2010

By:	/s/ Thomas Caldwell
	Title: President and C.E.O.

13

The Middlefield Banking Company
Executive Deferred Compensation Agreement

Schedule A
Performance Goals

The Bank’s board of directors shall establish Performance Goals, which may be absolute performance targets taking the Bank’s performance only into account, or relative targets taking the Bank’s performance into account relative to a peer group of companies, or a combination of both. The measures of performance used to establish Performance Goals shall not change from one Plan Year to the next unless the board of directors concludes that compelling reasons exist to use different or additional measures of performance. If performance relative to a peer group is used, the peer group analysis selected by the board of directors shall not be changed from one Plan Year to the next unless the board of directors concludes that the peer group being employed is no longer representative of the Bank’s actual peer group of companies, or alternatively, the company preparing the peer group analysis ceases to exist or no longer prepares peer group analyses.

For the first Plan Year, the Executive will receive an Annual Contribution amount equal to 5% of the Executive’s Base Annual Salary. For every Plan Year after the first Plan Year unless changed by the board of directors under section 1.10 of the Agreement, the Performance Goals are —

			Annual Contribution for Achievement
Performance Target #1	Performance Goal #1		of Performance Goal #1
Bank’s Target Net Income for Plan Year	$	4,151,000	2.5% of the Executive’s Base Annual Salary
Bank’s Net Income for Plan Year Is Equal to or Greater than —	$	4,192,510	3.5% of the Executive’s Base Annual Salary
Bank’s Net Income for Plan Year Is Equal to or Greater than —	$	4,234,020	4.5% of the Executive’s Base Annual Salary
Bank’s Net Income for Plan Year Is Equal to or Greater than —	$	4,275,530	5.5% of the Executive’s Base Annual Salary
Bank’s Net Income for Plan Year Is Equal to or Greater than —	$	4,317,040	6.5% of the Executive’s Base Annual Salary
Bank’s Net Income for Plan Year Is Equal to or Greater than —	$	4,358,550	7.5% of the Executive’s Base Annual Salary

The Bank’s target net income for Performance Goal #1 is $4,151,000. At a minimum, the Executive is entitled to an Annual Contribution for Performance Goal #1 equal to 2.5% of Base Annual Salary. For the Executive to receive a greater Annual Contribution under Performance Goal #1, the Bank’s net income for the Plan Year must meet or exceed 101% of the Bank’s target net income for the Plan Year. For every additional 1% that the Bank’s target net income is achieved or exceeded in any Plan Year, up to 105%, the Executive’s Annual Contribution amount also increases by 1%. Thus, the maximum Annual Contribution for achievement of Performance Goal #1 is 7.5% of the Executive’s Base Annual Salary. The Bank and the Executive agree that the Bank’s net income for the Plan Year shall be derived from the quarterly reports of condition filed with the FDIC under the Federal Deposit Insurance Act section 7(a), 12 U.S.C. 1817(a), and FDIC rules, 12 CFR Part 304.

14

		Annual Contribution for Achievement
Performance Target #2	Performance Goal #2	of Performance Goal #2
Bank’s Target Peer Rank	Overall Ranking in Top 50% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report	2.5% of the Executive’s Base Annual Salary
Bank Has An —	Overall Ranking in Top 60% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report	3.5% of the Executive’s Base Annual Salary
Bank Has An —	Overall Ranking in Top 70% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report	4.5% of the Executive’s Base Annual Salary
Bank Has An —	Overall Ranking in Top 80% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report	5.5% of the Executive’s Base Annual Salary
Bank Has An —	Overall Ranking in Top 90% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report	6.5% of the Executive’s Base Annual Salary
Bank Has An —	Overall Ranking in Top 100% of Ohio-Headquartered Commercial Banks as established using the Uniform Bank Performance Report [ranked #1]	7.5% of the Executive’s Base Annual Salary

The Bank’s target Peer Rank for Performance Goal #2 is an overall ranking in the top 50% of all Ohio-headquartered publicly traded commercial banks as established using the Uniform Bank Performance Report (“UBPR”) as reported on the Federal Financial Institutions Examination Council’s website at www.ffiec.gov/UBPR.htm. The UBPR is an analytical tool created for bank supervisory, examination, and management purposes. In a concise format, the UPBR shows the impact of management decisions and economic conditions on a bank’s performance and balance-sheet composition. The performance and composition data contained in the report can be used as an aid in evaluating the adequacy of earnings, liquidity, capital, asset and liability management, and growth management.

15

At a minimum, the Executive’s Annual Contribution in any Plan Year shall not be less than 5% of the Executive’s Base Annual Salary (i.e., the 2.5% of Base Annual Salary Annual Contribution under Performance Goal #1 plus the 2.5% of Base Annual Salary Annual Contribution under Performance Goal #2). At a maximum, the Executive’s Annual Contribution in any Plan Year shall not exceed 15% of the Executive’s Base Annual Salary (i.e., the 7.5% of Base Annual Salary Annual Contribution under Performance Goal #1 plus the 7.5% of Base Annual Salary Annual Contribution under Performance Goal #2).

Changes in the Performance Goals approved by the board of directors shall become effective no more frequently than annually. The Plan Administrator’s determination that the Performance Goals for a Plan Year have or have not been achieved shall be conclusive and binding.

16

EX-13

Exhibit 13

Full page graphic with searchable text ANNUAL REPORT MIDDLE FIELD BANC CORP.

Full page graphic with searchable text

Statistical Summary	2
Decade of Progress	4
Shareholder Information	8
Letter to Our Shareholders	10
Letter from the Chairman	12
Middlefield Banc Corp. Board of Directors	13
Financials	16
Emerald Bank Directors & Officers	74
Emerald Bank Staff & Branch Locations	75
The Middlefield Banking Company Staff	76
The Middlefield Banking Company Officers	77
The Middlefield Banking Company Branch Locations	78

Net Income (in thousands) Total Assets (in thousands) Equity Capital (in thousands) Net Loans Outstanding (in thousands) Basic Earnings Per Share Dividends Per Share

Middlefield Banc Corp.     2

Book Value Per Share Return on Average Assets Return on Average Equity

2010 Annual Report     3

(Dollar amounts in thousands)	2001			2002			2003
Interest Income	$	13,707		$	14,120		$	14,647
Interest Expense		6,748			6,148			5,725
Net Interest Income		6,959			7,972			8,922
Provision for Loan Loss		170			300			315
Net Interest Income After Provision for Loan Losses		6,789			7,672			8,607
Noninterest Income, Including Security Gains/Losses		1,194			1,143			1,428
Noninterest Expense		4,741			5,206			6,105
Income Before Income Taxes		3,242			3,609			3,930
Income Taxes		971			1,108			1,131
Net Income	$	2,271		$	2,501		$	2,799
Total Assets	$	197,858		$	226,245		$	262,369
Deposits		167,383			187,384			219,840
Equity Capital		19,787			21,746			23,504
Loans Outstanding, Net		150,766			172,643			190,359
Allowance For Loan Losses		2,062			2,300			2,521
Net Charge Offs (Recoveries)		145			62			94
Full Time Employees (Average Equivalents)		64			66			72
Number of Offices		5			5			6
Earnings Per Share	$	1.54		$	1.68		$	1.89
Dividends Per Share		0.52			0.58			0.65
Book Value Per Share		13.93			15.35			16.49
Dividends Pay-out Ratio		34.00	%		34.30	%		34.37	%
Cash Dividends Paid	$	772		$	858		$	962
Return on Average Assets		1.22	%		1.17	%		1.13	%
Return on Average Equity		11.89	%		12.08	%		12.39	%

Middlefield Banc Corp.     4

2004			2005			2006			2007			2008			2009			2010
$	15,733		$	17,379		$	19,494		$	24,873		$	26,038		$	26,051		$	29,094
	5,769			6,655			8,567			13,531			14,058			11,783			10,945
	9,964			10,724			10,927			11,342			11,980			14,268			18,149
	174			302			60			430			608			2,578			3,580
	9,790			10,422			10,867			10,912			11,372			11,690			14,569
	1,779			2,119			2,427			2,632			2,226			2,668			2,623
	6,966			7,425			7,938			9,373			10,596			12,650			14,763
	4,603			5,116			5,356			4,171			3,002			1,708			2,429
	1,330			1,415			1,472			796			387			(73	)		(88	)
$	3,273		$	3,701		$	3,884		$	3,375		$	2,615		$	1,781		$	2,517
$	291,214		$	311,214		$	340,604		$	434,273		$	467,847		$	558,658		$	632,197
	239,885			249,450			271,050			362,918			394,819			487,106			565,251
	24,822			27,289			30,464			34,962			35,059			36,707			38,022
	213,030			231,214			246,342			306,147			318,019			348,660			366,277
	2,623			2,841			2,849			3,299			3,557			4,937			6,221
	72			84			52			423			351			1,198			2,296
	73			75			80			91			101			106			108
	6			6			8			9			10			10			10
$	2.18		$	2.50		$	2.60		$	2.17		$	1.72		$	1.15		$	1.60
	0.72			0.80			0.87			0.94			1.03			1.04			1.04
	17.67			19.25			20.30			22.56			22.83			23.46			23.90
	32.72	%		31.69	%		33.43	%		43.07	%		60.25	%		90.28	%		65.04	%
$	1,071		$	1,173		$	1,299		$	1,454		$	1,575		$	1,608		$	1,637
	1.17	%		1.23	%		1.22	%		0.85	%		0.58	%		0.36	%		0.41	%
	13.36	%		14.43	%		13.59	%		10.06	%		7.91	%		4.90	%		6.44	%

NOTES: (1) The above per share amounts have been restated to 5% stock dividends paid in 2002, 2003, 2004, 2005, 2006 and 2007.

2010 Annual Report     5

Corporate Headquarters

The Corporation’s headquarters is located at:

Middlefield Banc Corp.
15985 East High Street
P.O. Box 35
Middlefield, Ohio 44062
888.801.1666 • 440.632.1666
fax 440.632.1700

Form 10-K and 10-Q Availability

A copy of Middlefield Banc Corp.’s Annual Report on Form 10-K and Quarterly Reports on 10-Q filed with the Securities and Exchange Commission will be furnished to any shareholder, free of charge, upon written or e-mail request to:

Donald L. Stacy
Treasurer and CFO
Middlefield Banc Corp.
P.O. Box 35
Middlefield, Ohio 44062
or dstacy@middlefieldbank.com

Market Makers

The symbol for Middlefield Banc Corp. common stock is MBCN and the CUSIP is 596304204.

Sweney Cartwright & Co.
17 South High Street
Columbus, Ohio 43215
614.228.5391 • 800.334.7481

Stifel, Nicolaus & Co., Inc.
18 Columbia Turnpike
Florham, NJ 07932
800.342.2325

Howe Barnes Hoefer & Arnett, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
312.655.3000

Notice of Annual Meeting

The Annual Meeting of Shareholders of Middlefield Banc Corp. will be held at 1:00 p.m. on Wednesday, May 11, 2011, at:

Sun Valley Banquet and Party Center
10000 Edwards Lane
Aurora, Ohio 44202

Transfer Agent and Registrar

American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
877.366.6443

Independent Auditors

S.R. Snodgrass, A. C.
2100 Corporate Drive, Suite 400
Wexford, Pennsylvania 15090-7647
724.934.0344

Internet Information

Information on the company and its subsidiary banks is available on the Internet at www.middlefieldbank.com and www.emeraldbank.com.

Dividend Payment Dates

Subject to action by the Board of Directors, Middlefield Banc Corp. will pay dividends in March, June, September, and December.

Middlefield Banc Corp.     8

Dividend Reinvestment and Stock Purchase Plan

Shareholders may elect to reinvest their dividends in additional shares of Middlefield Banc Corp.’s common stock through the company’s Dividend Reinvestment Plan. To arrange automatic purchase of shares with quarterly dividend proceeds, please call 888.801.1666.

Direct Deposit of Dividends

The direct deposit program, which is offered at no charge, provides for automatic deposit of quarterly dividends directly to a checking or savings account with The Middlefield Banking Company or Emerald Bank. For information regarding this program, please call 888.801.1666.

Market for Middlefield’s Common Equity & Related Stockholder Matters

Middlefield had approximately 1,051 stockholders of record as of February 9, 2011. There is no established market for Middlefield common stock. The stock is traded very infrequently. Bid prices are quoted from time to time on the National Quotation Bureau’s “pink sheets” under the symbol “MBCN.” The following table shows the high and low bid prices of and cash dividends paid on Middlefield common stock in 2010 and 2009, adjusted for stock splits and stock dividends. This information does not reflect retail mark-up, markdown or commissions, and does not necessarily represent actual transactions.

					Cash
	High		Low		Dividends
	Bid		Bid		per share
2010
First Quarter	$	24.50	$	19.50	$	0.26
Second Quarter	$	23.00	$	18.67	$	0.26
Third Quarter	$	20.00	$	16.99	$	0.26
Fourth Quarter	$	18.00	$	16.25	$	0.26
2009
First Quarter	$	22.50	$	20.00	$	0.26
Second Quarter	$	23.00	$	19.50	$	0.26
Third Quarter	$	19.50	$	15.25	$	0.26
Fourth Quarter	$	24.00	$	14.99	$	0.26

2010 Annual Report     9

Thomas G. Caldwell — President and Chief Executive Officer

To our Shareholders and Friends

We are pleased to provide you with this report on our company’s financial performance and condition. While the year just ended remained far from “business as usual”, we realize that 2010 was a good year for Middlefield Banc Corp. and its shareholders.

Net income for 2010 was $2.5 million, or $1.60 per diluted share. This represents an increase of $736,000, from our 2009 results. The largest contributing factor was a solid improvement of nearly $3.9 million in our net interest income. Partially offsetting this impact were higher costs related to credit quality. These credit quality costs are found in both the provision for loan losses, costs associated with other real estate owned, and certain other expenses including legal fees. While not yet to the earnings level of 2008, we believe that our course is set to continue the positive earnings trends.

Total assets at year-end 2010 set another record for your company, finishing at $632.2 million. This growth of $73.5 million was fueled by continued growth in core deposit levels. As you review the Decade of Progress, you will note that 2002 was the first year that we reached $200 million of assets. We have now nearly tripled that level in eight years.

Growth has been found at both banking affiliates. Emerald Bank concluded 2010 with total assets of $76.6 million. This is over twice the size of Emerald at the time of acquisition in April 2007. The Middlefield Banking Company grew 14.3% during the year to end with total assets of $549.6 million.

Our results do, however, reflect continued difficult conditions in our markets and the banking industry. Significant new Federal legislation and the associated rising costs of compliance, a continued pattern of historically low interest rates, increased provisions for loan losses, and soft loan demand were only a few of the obstacles addressed by your management team. Unfortunately, a number of these issues seem certain to remain in 2011.

As an outgrowth of the economic uncertainty over the last few years, Congress, in 2010, passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While this legislation may have been designed to target financial companies deemed too big to fail, it has also brought an entirely new set of rules and regulations to all within the financial services industry. Many of the requirements are still to be promulgated, but the one certainty is that we will experience an increase in our cost structure as we strive to remain in compliance.

Although the Federal Reserve has held interest rates at historically low levels, we have continued to experience an absence of significant loan demand. As we reported last year in these pages, we continue to actively seek good lending relationships. However, many of the businesses within our markets remain reticent to borrow, citing sustained economic weakness and the uncertainty of greater governmental interference.

Middlefield Banc Corp.     10

During 2010, our provision for loan losses totaled nearly $3.6 million. Net loans charged off were $2.4 million, as loans on nonaccrual status reached $18.4 million. Nearly two-thirds of this amount was centered in residential mortgages. This concentration within this segment of our loan portfolio continues to be reflective of the unemployment and underemployment found in the northeastern and central Ohio markets.

As we look toward 2011 and beyond, we are focused on certain key strategic priorities. Sound asset quality, organizational synergies, organic growth, and the potential for acquisitions are at the forefront of our efforts. We firmly believe that steps we have taken during 2010 place us firmly on track to achieve our desired results. Although we have higher credit quality costs, our credit underwriting remains conservatively sound. We have also taken the opportunity to attract experienced bankers to fill key positions, which both addresses current issues and positions us for the future.

With efficient follow-through, our course has been charted to remain a strong community-based financial services company. Our management team has shown its strength by successfully navigating troubled waters for the last few years. Going forward, we will continue to support our team with high quality operations supported by a distinguished line of products and services.

I would like to express sincere appreciation to Frances H. Frank, who will be retiring from the Board of Directors at the 2011 Annual Meeting of Shareholders. Having first joined the boards of Middlefield Banc Corp. and The Middlefield Banking Company in 1995, Fran has contributed greatly to our company during her tenure. Her common sense approach to community banking will be sorely missed. We are indebted to her for her wise counsel and wish her well in her retirement.

Our enthusiasm and excitement for the future continues unabated. Our foundation and fundamentals are sound. Our disciplined approach to serving our markets should continue to serve us well.

We are sincerely appreciative of your continued confidence in our abilities and performance. As stewards of your investment, providing you with a safe investment and a sound return is paramount to our efforts. Delivering only the highest quality of financial services is a cornerstone of our dedication to ensuring that Middlefield Banc Corp. remains safe, solid, and sound.

Sincerely,

Thomas G. Caldwell
President and Chief Executive Officer

2010 Annual Report     11

Richard T. Coyne — Chairman, Board of Directors

Chairman’s Report to the Shareholders

Last year we promised to improve on our weaknesses and work tirelessly towards making 2010 a better year. We delivered on our promises. Our total assets exceed $632 million, loans increased by 5.0%, and total deposits reached $563 million.

The real story of 2010 is the successes delivered by our employees. Programs like “Need a friend in the Lending Business” and “Let us help with your Financial Roadmap” were very successful. These programs were designed to meet the needs of our customers in every community we serve. Our loan and deposit growth is directly traceable to the dedication and effort of our employees at both operating companies, Emerald Bank and The Middlefield Banking Company.

We are building on a 100 year tradition when our bankers at our many branches deliver on the community bank concept of neighbor helping neighbor.

We expect new challenges in 2011, but we are prepared to work through each new situation as we make your bank a company that will deliver continued stockholder value.

Thank you for your support of the Middlefield Banc Corp.

Sincerely yours,

Richard T. Coyne
Chairman, Board of Directors

Middlefield Banc Corp.     12

Board of Directors

	Richard T. Coyne — 1997 Chairman, Board of Directors, Middlefield Banc Corp. The Middlefield Banking Company Retired: Jaco Products and Capital Plastics		Carolyn J. Turk, C.P.A. — 2004 Controller Molded Fiber Glass Companies
	Frances H. Frank — 1995 Secretary Treasurer The Frank Agency, Inc.		William J. Skidmore — 2007 Northeast Ohio Senior District Manager Waste Management of Ohio, Inc.
	Thomas G. Caldwell — 1997 President and Chief Executive Officer Middlefield Banc Corp. The Middlefield Banking Company		Kenneth E. Jones — 2008 President Chesapeake Financial Advisors
	James R. Heslop, II — 2001 Executive Vice President Chief Operating Officer Middlefield Banc Corp. The Middlefield Banking Company		Robert W. Toth — 2009 Retired: Gold Key Processing, Ltd
	James J. McCaskey — 2004 President McCaskey Landscape and Design, LLC		Eric W. Hummel* — 2009 President Hummel Construction

*     denotes The Middlefield Banking Company Director only

2010 Annual Report     13

Consolidated Financial Statements	16
Notes to Consolidated Financial Statements	20
Management’s Discussion and Analysis	52

(Dollar amounts in thousands)	December 31,
Consolidated Balance Sheet	2010			2009
ASSETS
Cash and due from banks	$	10,473		$	12,909
Federal funds sold		20,162			28,123
Interest-bearing deposits in other institutions		—			121
Cash and cash equivalents		30,635			41,153
Investment securities available for sale		201,772			136,711
Loans		372,498			353,597
Less allowance for loan losses		6,221			4,937
Net loans		366,277			348,660
Premises and equipment		8,179			8,394
Goodwill		4,559			4,559
Bank-owned life insurance		7,979			7,707
Accrued interest and other assets		12,796			11,474
TOTAL ASSETS	$	632,197		$	558,658
LIABILITIES
Deposits:
Non-interest-bearing demand	$	53,391		$	44,387
Interest-bearing demand		48,869			38,111
Money market		71,105			56,451
Savings		146,993			107,358
Time		244,893			240,799
Total deposits		565,251			487,106
Short-term borrowings		7,632			6,800
Other borrowings		19,321			25,865
Accrued interest and other liabilities		1,971			2,180
TOTAL LIABILITIES		594,175			521,951
STOCKHOLDERS’ EQUITY
Common stock, no par value; 10,000,000 shares authorized, 1,780,553 and 1,754,112 shares issued		28,429			27,919
Retained earnings		15,840			14,960
Accumulated other comprehensive income		487			562
Treasury stock, at cost; 189,530 shares in 2010 and 2009		(6,734	)		(6,734	)
TOTAL STOCKHOLDERS’ EQUITY		38,022			36,707
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	632,197		$	558,658

See accompanying notes to the consolidated financial statements.

Middlefield Banc Corp.     16

(Dollar amounts in thousands, except per share data)	Year Ended December 31,
Consolidated Statement of Income	2010			2009			2008
INTEREST INCOME
Interest and fees on loans	$	21,084		$	20,271		$	21,426
Interest-bearing deposits in other institutions		15			15			13
Federal funds sold		52			20			135
Investment securities:
Taxable interest		5,185			3,794			2,538
Tax-exempt interest		2,650			1,882			1,810
Dividends on stock		108			69			116
TOTAL INTEREST INCOME		29,094			26,051			26,038
INTEREST EXPENSE
Deposits		9,504			10,296			12,352
Short term borrowings		249			34			46
Other borrowings		642			919			1,121
Trust preferred securities		550			534			539
TOTAL INTEREST EXPENSE		10,945			11,783			14,058
NET INTEREST INCOME		18,149			14,268			11,980
Provision for loan losses		3,580			2,578			608
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		14,569			11,690			11,372
NONINTEREST INCOME
Service charges on deposit accounts		1,784			1,905			1,888
Investment securities gains/(losses), net		11			(14	)		(344	)
Earnings on bank-owned life insurance		273			266			287
Other income		555			511			395
TOTAL NONINTEREST INCOME		2,623			2,668			2,226
NONINTEREST EXPENSE
Salaries and employee benefits		6,411			5,938			4,912
Occupancy expense		946			928			886
Equipment expense		626			509			539
Data processing costs		743			917			803
Ohio state franchise tax		348			493			468
Federal deposit insurance expense		1,166			707			188
Professional Fees		678			673			586
Loss on sale of other real estate owned		783			183			—
Other expense		3,062			2,302			2,214
TOTAL NONINTEREST EXPENSE		14,763			12,650			10,596
Income before income taxes		2,429			1,708			3,002
Income taxes (benefit)		(88	)		(73	)		387
NET INCOME	$	2,517		$	1,781		$	2,615
EARNINGS PER SHARE
Basic	$	1.60		$	1.15		$	1.72
Diluted		1.60			1.15			1.69
DIVIDENDS DECLARED PER SHARE	$	1.04		$	1.04		$	1.03

See accompanying notes to the consolidated financial statements.

2010 Annual Report     17

(Dollar amounts in thousands,								Accumulated
except dividend per share amount)								Other						Total
Consolidated Statement of	Common Stock				Retained			Comprehensive			Treasury			Stockholders’			Comprehensive
Changes in Stockholders’ Equity	Shares		Amount		Earnings			Income (Loss)			Stock			Equity			Income
Balance, December 31, 2007	$	1,701,546	$	26,650	$	13,747		$	(53	)	$	(5,383	)	$	34,961
Net income						2,615									2,615		$	2,615
Other comprehensive income:
Unrealized gain on available for sale securities, net of reclassification adjustment, net of tax benefit of $125									(242	)					(242	)		(242	)
Comprehensive income																	$	2,373
Exercise of stock options		992		20											20
Expense related to stock options				15											15
Purchase of treasury stock (37,785 shares)												(1,351	)		(1,351	)
Dividend reinvestment and purchase plan		22,843		616											616
Cash dividends ($1.03 per share)						(1,576	)								(1,576	)
Balance, December 31, 2008	$	1,725,381	$	27,301	$	14,786		$	(295	)	$	(6,734	)	$	35,058
Net income						1,781									1,781		$	1,781
Other comprehensive income:
Unrealized gain on available for sale securities, net of reclassification adjustment, net of taxes of $445									857						857			857
Comprehensive income																	$	2,638
Expense related to stock options				61											61
Dividend reinvestment and purchase plan		28,731		557											557
Cash dividends ($1.04 per share)						(1,607	)								(1,607	)
Balance, December 31, 2009	$	1,754,112	$	27,919	$	14,960		$	562		$	(6,734	)	$	36,707
Net income						2,517									2,517		$	2,517
Other comprehensive income:
Unrealized loss on available for sale securities, net of reclassification adjustment, net of taxes of $39									(75	)					(75	)		(75	)
Comprehensive income																	$	2,442
Dividend reinvestment and purchase plan		26,441		510											510
Cash dividends ($1.04 per share)						(1,637	)								(1,637	)
Balance, December 31, 2010	$	1,780,553	$	28,429	$	15,840		$	487		$	(6,734	)	$	38,022
								2010			2009			2008
Components of comprehensive income (loss):
Change in net unrealized gain (loss) on investments available for sale								$	(68	)	$	848		$	(469	)
Realized losses (gains) included in net income, net of taxes of ($4), $5, and $117									(7	)		9			227
TOTAL								$	(75	)	$	857		$	(242	)

See accompanying notes to the consolidated financial statements.

Middlefield Banc Corp.     18

(Dollar amounts in thousands)	Year Ended December 31,
Consolidated Statement of Cash Flows	2010			2009			2008
OPERATING ACTIVITIES
Net income	$	2,517		$	1,781		$	2,615
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,580			2,578			608
Depreciation and amortization		740			680			645
Amortization of premium and discount on investment securities		6			(483	)		183
Amortization of deferred loan fees, net		(58	)		(68	)		(144	)
Investment securities (gains) losses, net		(11	)		14			344
Earnings on bank-owned life insurance		(273	)		(266	)		(287	)
Deferred income taxes		(777	)		(469	)		(270	)
Compensation for stock option expense		—			61			15
Loss on other real estate owned		783			183			—
Decrease (increase) in accrued interest receivable		(847	)		35			94
Decrease in accrued interest payable		(115	)		(394	)		(210	)
Decrease (increase) in prepaid federal deposit insurance		727			(2,499	)		(43	)
Other, net		(538	)		(19	)		(353	)
Net cash provided by operating activities		5,734			1,134			3,197
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from repayments and maturities		42,815			20,674			16,913
Purchases		(113,860	)		(52,163	)		(39,062	)
Proceeds from sale of securities		5,874			816			2,953
Increase in loans, net		(22,992	)		(34,493	)		(13,388	)
Purchase of Federal Home Loan Bank stock		—			(14	)		(142	)
Purchase of premises and equipment		(327	)		(467	)		(1,408	)
Proceeds from the sale of other real estate owned		932			100			—
Net cash used for investing activities		(87,558	)		(65,547	)		(34,134	)
FINANCING ACTIVITIES
Net increase in deposits		78,145			92,286			25,806
Increase in short-term borrowings, net		832			4,913			375
Proceeds from other borrowings		—			—			13,500
Repayment of other borrowings		(6,544	)		(8,038	)		(11,992	)
Purchase of treasury stock		—			—			(1,351	)
Exercise of stock options		—			—			20
Proceeds from dividend reinvestment and purchase plan		510			557			616
Cash dividends		(1,637	)		(1,607	)		(1,576	)
Net cash received from deposit acquisition		—			—			5,179
Net cash provided by financing activities		71,306			88,111			30,577
Increase (decrease) in cash and cash equivalents		(10,518	)		23,698			(360	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		41,153			17,455			17,815
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	30,635		$	41,153		$	17,455
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	11,060		$	12,177		$	14,269
Income taxes		850			275			600
Non-cash investing transactions:
Transfers from loans to other real estate owned	$	2,110		$	1,872		$	1,106
Loans to facilitate the sale of other real estate owned		257			531			—

See accompanying notes to the consolidated financial statements.

2010 Annual Report     19

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:

Nature of Operations and Basis of Presentation

Middlefield Banc Corp. (the “Company”) is an Ohio corporation organized to become the holding company of The Middlefield Banking Company (“MBC”). MBC is a state-chartered bank located in Ohio. On April 19, 2007, Middlefield Banc Corp. acquired Emerald Bank (“EB”), an Ohio-chartered commercial bank headquartered in Dublin, Ohio. On October 23, 2009, the Company established an asset resolution subsidiary named EMORECO, Inc. The Company and its subsidiaries derive substantially all of their income from banking and bank-related services, which includes interest earnings on residential real estate, commercial mortgage, commercial and consumer financings as well as interest earnings on investment securities and deposit services to its customers through ten locations. The Company is supervised by the Board of Governors of the Federal Reserve System, while MBC and EB are subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Ohio Division of Financial Institutions.

The consolidated financial statements of the Company include its wholly owned subsidiaries, MBC, EB, and EMORECO, Inc. (the “Banks”). Significant intercompany items have been eliminated in preparing the consolidated financial statements.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates.

Investment Securities

Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using a level yield method and recognized as adjustments of interest income. Certain other debt securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized. Realized security gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.

Common stock of the Federal Home Loan Bank (“FHLB”) represents ownership in an institution that is wholly owned by other financial institutions. This equity security is accounted for at cost and classified with other assets. While the Federal Home Loan Banks have been negatively impacted by the current economic conditions, the Federal Home Loan Bank of Cincinnati has reported profits for 2009 and 2008, remains in compliance with regulatory capital and liquidity requirements, and continues to pay dividends on the stock and make redemptions at the par value. With consideration given to these factors, management concluded that the stock was not impaired at December 31, 2010 or 2009.

Middlefield Banc Corp.     20

Securities are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. For debt securities, management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more-likely-than-not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the investor does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings.

Loans

Loans are reported at their principal amount net of the allowance for loan losses. Interest income is recognized as income when earned on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield. Management is amortizing these amounts over the contractual life of the related loans.

Allowance for Loan Losses

The allowance for loan losses represents the amount which management estimates is adequate to provide for probable loan losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses which is charged to operations. The provision is based on management’s periodic evaluation of the adequacy of the allowance for loan losses, which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant change in the near term.

A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Management has determined that first mortgage loans on one-to-four family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are to be collectively evaluated. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of delay. All loans identified as impaired are evaluated independently by management. The Company estimates credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Impaired loans, or portions thereof, are charged off when it is determined a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan, in which case the portion of the payment related to interest is recognized as income.

Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed.

2010 Annual Report     21

Premises and Equipment

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

Goodwill

The Company accounts for goodwill using a two-step process for testing the impairment of goodwill on at least an annual basis. This approach could cause more volatility in the Company’s reported net income because impairment losses, if any, could occur irregularly and in varying amounts. The Company performs an annual impairment analysis of goodwill. No impairment of goodwill was recognized in any of the periods presented.

Intangible Assets

Intangible assets include core deposit intangibles, which are a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangibles are being amortized to expense over a 10 year life on a straight-line basis. The recoverability of the carrying value of intangible assets is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense.

Bank-Owned Life Insurance (“BOLI”)

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

Other Real Estate Owned

Real estate properties acquired through foreclose are initially recorded at the lower of cost or fair values at the date of foreclosure, establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of cost or fair value less estimated cost to sell. Revenue and expenses from operations of the properties, gains or losses on sales and additions to the valuation allowance are included in operating results.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Middlefield Banc Corp.     22

Earnings Per Share

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share are calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and convertible securities are adjusted in the denominator.

Stock-Based Compensation

The Company accounts for stock compensation based on the grant date fair value of all share-based payment awards that are expected to vest, including employee share options to be recognized as employee compensation expense over the requisite service period.

The cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as financing cash flows. There were no excess tax benefits recognized in 2010, 2009 and 2008.

For purposes of computing results, the Company estimated the fair values of stock options using the Black-Scholes option-pricing model. The model requires the use of subjective assumptions that can materially affect fair value estimates. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. The fair value of each stock option granted was estimated using the following weighted-average assumptions:

	Expected						Expected Life
Grant Year	Dividend Yield		Risk-Free Interest Rate		Expected Volatility		(in years)
2008		8.54		3.53 – 3.73		33.29		9.94

During the years ended December 31, 2010, 2009, and 2008, the Company recorded $0, $60,588, and $15,048 of compensation cost related to vested share-based compensation awards granted in 2008 and 2007. As of December 31, 2010, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in 2010 that is expected to be recognized in 2011.

The weighted-average fair value of each stock option granted for 2008 was $2.70. The total intrinsic value of options exercised during the years ended December 31, 2008, was $5,000.

Cash Flow Information

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

Advertising Costs

Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $401,000, $371,000, and $373,000, for 2010, 2009, and 2008, respectively.

Reclassification of Comparative Amounts

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

2010 Annual Report     23

Recent Accounting Pronouncements

In December 2009, the Financial Accounting Standards Board (“FASB”) issued ASU 2009-16, Accounting for Transfer of Financial Assets. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASU 2009-16 is effective for annual periods beginning after November 15, 2009, and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash — a consensus of the FASB Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-05, Compensation — Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that, for certain shareholders, escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single Asset — a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 clarifies the treatment for a modified loan that was acquired as part of a pool of assets.

Middlefield Banc Corp.     24

Refinancing or restructuring the loan does not make it eligible for removal from the pool, the FASB said. The amendment will be effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010, or later and are not expected to have a significant impact on the Company’s financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company is currently evaluating the impact the adoption of this guidance will have on the Company’s financial position or results of operations.

In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies and is not expected to have a significant impact on the Company’s financial statements.

In August 2010, the FASB issued ASU 2010-22, Technical Corrections to SEC Paragraphs — An announcement made by the staff of the U.S. Securities and Exchange Commission. This ASU amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics, and is not expected to have a significant impact on the Company’s financial statements.

In September 2010, the FASB issued ASU 2010-25, Plan Accounting — Defined Contribution Pension Plans. The amendments in this ASU require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. The amendments in this update are effective for fiscal years ending after December 15, 2010, and are not expected to have a significant impact on the Company’s financial statements.

In October 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. This ASU addresses the diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, and are not expected to have a significant impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more-likely-than-not that a goodwill impairment exists. In determining whether it is more-likely-than-not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities. This ASU is not expected to have a significant impact on the Company’s financial statements.

2010 Annual Report     25

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material and nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

2. ACQUISITIONS

On November 9, 2008, EB completed its acquisition of certain deposit liabilities attributable to a third-party financial institution’s branch office located in Westerville, Ohio. The acquisition included management personnel, certain other assets and retail deposits of approximately $5.9 million. EB recorded goodwill and core deposit intangible of approximately $355,000.

3. EARNINGS PER SHARE

There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	2010			2009			2008
Weighted-average common shares outstanding		1,764,743			1,736,769			1,710,861
Average treasury stock shares		(189,530	)		(189,530	)		(177,888	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		1,575,213			1,547,239			1,532,973
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		608			740			13,440
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		1,575,821			1,547,979			1,546,413

Options to purchase 89,077 shares of common stock at prices ranging from $22.33 to $40.24 were outstanding during the year ended December 31, 2010, but were not included in the computation of diluted earnings per share as they were anti-dilutive due to the strike price being greater than the average market price as of December 31, 2010. Options to purchase 89,077 shares of common stock at prices ranging from $22.33 to $40.24 were outstanding during the year ended December 31, 2009, but were not included in the computation of diluted earnings per share as they were anti-dilutive due to the strike price being greater than the average market price as of December 31, 2009. Options to purchase 40,307 shares of common stock at prices ranging from $30.45 to $40.24 were outstanding during the year ended December 31, 2008, but were not included in the computation of diluted earnings per share as they were anti-dilutive due to the strike price being greater than the average market price as of December 31, 2008.

Middlefield Banc Corp.     26

4. INVESTMENT SECURITIES AVAILABLE FOR SALE

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2010 (Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	33,332	$	111	$	(840	)	$	32,603
Obligations of states and political subdivisions:
Taxable		7,371		80		(34	)		7,417
Tax-exempt		69,363		1,058		(958	)		69,463
Mortgage-backed securities		90,026		2,325		(982	)		91,369
Total debt securities		200,092		3,574		(2,814	)		200,852
Equity securities		944		80		(104	)		920
Total	$	201,036	$	3,654	$	(2,918	)	$	201,772

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2009 (Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	18,657	$	38	$	(365	)	$	18,330
Obligations of states and political subdivisions:
Taxable		3,451		10		(86	)		3,375
Tax-exempt		52,752		943		(349	)		53,346
Mortgage-backed securities		60,055		1,816		(1,130	)		60,741
Total debt securities		134,915		2,807		(1,930	)		135,792
Equity securities		944		80		(105	)		919
Total	$	135,859	$	2,887	$	(2,035	)	$	136,711

The amortized cost and fair value of debt securities at December 31, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	1,549	$	1,580
Due after one year through five years		5,724		6,010
Due after five years through ten years		21,397		22,111
Due after ten years		171,422		171,151
Total	$	200,092	$	200,852

Investment securities with an approximate carrying value of $51,734,000 and $37,365,000 at December 31, 2010 and 2009, respectively, were pledged to secure deposits and other purposes as required by law.

2010 Annual Report     27

Proceeds from sales of investment securities available for sale were $5,874,000 during 2010. Gross gains and gross losses realized were $74,000 and $29,000, respectively, during 2010. Proceeds from sales of investment securities available for sale were $816,000 during 2009. Gross gains and gross losses realized were $74,000 and $0, respectively, during 2009. Proceeds from sales of investment securities available for sale were $2,953,000 during 2008. Gross gains and gross losses realized were $35,000 and $2,000, respectively, during 2008.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2010 and 2009.

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2010 (Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	24,406	$	(840	)	$	—	$	—		$	24,406	$	(840	)
Obligations of states and political subdivisions		35,846		(940	)		439		(52	)		36,285		(992	)
Mortgage-backed securities		28,302		(665	)		2,480		(317	)		30,782		(982	)
Equity securities		—		—			590		(104	)		590		(104	)
Total	$	88,554	$	(2,445	)	$	3,509	$	(473	)	$	92,063	$	(2,918	)

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2009 (Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	17,134	$	(365	)	$	—	$	—		$	17,134	$	(365	)
Obligations of states and political subdivisions		21,593		(314	)		1,417		(121	)		23,010		(435	)
Mortgage-backed securities		18,509		(334	)		4,064		(796	)		22,573		(1,130	)
Equity securities		581		(68	)		8		(37	)		589		(105	)
Total	$	57,817	$	(1,081	)	$	5,489	$	(954	)	$	63,306	$	(2,035	)

There were 138 and 103 securities that were considered temporarily impaired at December 31, 2010 and 2009.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (OTTI) pursuant to FASB ASC Topic 320 Investments — Debt and Equity Securities. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The accounting literature requires the Company to assess whether the unrealized loss is other-than-temporary. Prior to the adoption of FSP FAS 115-2, which was subsequently incorporated into FASB ASC Topic 320 Investments — Debt and Equity Securities, unrealized losses that were determined to be temporary were recorded, net of tax, in other comprehensive income for available for sale securities, whereas unrealized losses related to held-to-maturity securities determined to be temporary were not recognized. Regardless of whether the security was classified as available for sale or held to maturity, unrealized losses that were determined to be other than temporary were recorded to earnings. An unrealized loss was considered other than temporary if (i) it was probable that the holder would not collect all amounts due according to the contractual terms of the debt security, or (ii) the fair value was below the amortized cost of the debt security for a prolonged period of time and the Company did not have the positive intent and ability to hold the security until recovery or maturity.

Middlefield Banc Corp.     28

The Company adopted this ASC during the second quarter of 2009 which amended the OTTI model for debt securities. Under the new guidance, OTTI losses must be recognized in earnings if an investor has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

Under this ASC, an unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying consolidated statement of income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 91.7 percent of the total available-for-sale portfolio as of December 31, 2010, and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of significant unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company’s assessment was concentrated mainly on private-label collateralized mortgage obligations of approximately $16.6 million, for which the Company evaluates credit losses on a quarterly basis. Gross unrealized gain and loss positions related to these private-label collateralized mortgage obligations amounted to $1,019,000 and $328,000, respectively. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default, and significant changes in prepayment assumptions.

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities.

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

The Company’s investment in one private-label collateralized mortgage obligations with a carrying value of $899,000 was impaired in 2010 as a result of the Company’s determination that declines in their fair value were other than temporary. As a result of this determination, the Company recognized an $35,000 before tax, non-cash charge, which was recorded as a reduction to noninterest income.

The Company’s investment in two private-label collateralized mortgage obligations with a carrying value of $1.1 million were impaired in 2009 as a result of the Company’s determination that declines in their fair value were other than temporary. As a result of this determination, the Company recognized a $88,000 before tax, non-cash charge, which was recorded as a reduction to noninterest income.

2010 Annual Report     29

5. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at December 31 are summarized as follows (in thousands):

	2010		2009
Commercial and industrial	$	57,501	$	56,969
Real estate — construction		15,845		7,837
Real estate — mortgage:
Residential		209,863		205,074
Commercial		84,304		78,763
Consumer installment		4,985		4,954
		372,498		353,597
Less allowance for loan losses		6,221		4,937
Net loans	$	366,277	$	348,660

The Company’s primary business activity is with customers located within its local trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio at December 31, 2010 and 2009, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area.

The following table summarizes the primary segments of the loan portfolio as of December 31, 2010 (in thousands):

	Commercial		Real Estate-						Consumer
Real Estate-Mortgage	& Industrial		Construction		Residential		Commercial		Installment		Total
Total loans	$	57,501	$	15,845	$	209,863	$	84,304	$	4,985	$	372,498
Individually evaluated for impairment		5,477		1,299		4,329		6,266		17		17,388
Collectively evaluated for impairment		52,024		14,546		205,534		78,038		4,968		355,110

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (C & I), Real Estate Construction, Real Estate — Mortgage, which is further segmented into Residential and Commercial real estate, and Consumer Installment Loans. The commercial and industrial (C&I) loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purposed of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $150,000 and if the loan is either in nonaccrual status or is risk-rated Special Mention or Substandard and is greater than 90 days past due. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the

Middlefield Banc Corp.     30

probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of larger relationship that is impaired.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan with the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2010 (in thousands):

	Impaired Loans
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
For the Year Ended December 31, 2010	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	2,494	$	2,503	$	—	$	2,157	$	—
Real estate — construction		618		614		—		543		—
Real estate — mortgage:
Residential		—		—		—		—		—
Commercial		1,764		1,758		—		1,372		—
With an allowance recorded:
Commercial and industrial	$	655	$	657	$	203	$	629	$	—
Real estate — construction		—		—		—		—		—
Real estate — mortgage:
Residential		594		594		221		594		—
Commercial		1,556		1,556		188		663		—
Total:
Commercial and industrial	$	3,149	$	3,160	$	203	$	2,786	$	—
Real estate — construction		618		614		—		543		—
Real estate — mortgage:
Residential		594		594		221		594		—
Commercial		3,320		3,314		188		2,035		—

The table above includes troubled debt restructuring loans of $1,664,000 as of December 31, 2010.

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands):

	2009		2008
Average recorded investment in impaired loans	$	3,842	$	1,887
Interest income recognized on impaired loans		33		13

2010 Annual Report     31

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

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships $200,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company has an experienced Loan Review Department that continually reviews and assesses loans within the portfolio. The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass rating and the criticized categories of Special Mention, Substandard, and Doubtful within the internal risk rating system as of December 31, 2010 (in thousands):

			Special						Total
December 31, 2010	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	52,008	$	903	$	4,366	$	224	$	57,501
Real estate — construction		14,481		—		1,364		—		15,845
Real estate — mortgage:
Residential		192,823		1,601		15,439		—		209,863
Commercial		76,979		353		6,972		—		84,304
Consumer installment		4,937		11		37		—		4,985
Total:	$	341,228	$	2,868	$	28,178	$	224	$	372,498

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2010 (in thousands):

			30-59 Days		60-89 Days		90 Days+		Total Past				Total
December 31, 2010	Current		Past Due		Past Due		Past Due		Due		Non-Accrual		Loans
Commercial and industrial	$	53,712	$	473	$	776	$	—	$	1,249	$	2,540	$	57,501
Real estate — construction		15,197		—		—		—		—		648		15,845
Real estate — mortgage:
Residential		193,647		2,950		1,580		—		4,530		11,686		209,863
Commercial		79,120		1,607		65		—		1,672		3,513		84,305
Consumer installment		4,858		102		12		—		114		12		4,984
Total:	$	346,534	$	5,132	$	2,433	$	—	$	7,565	$	18,399	$	372,498

Middlefield Banc Corp.     32

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $470,000 in 2010; $683,000 in 2009; and $393,000 in 2008.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Company’s ALL.

Loans that are collectively evaluated for impairment are analyzed, with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity at the purpose code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer and Commercial pools currently utilize a rolling eight quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor, because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry, and/ or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

Changes in the allowance for loan losses for the years ended December 31 are as follows (in thousands):

	2010		2009		2008
Balance, January 1	$	4,937	$	3,557	$	3,299
Add:
Provisions charged to operations		3,580		2,578		608
Recoveries		74		89		65
Less loans charged off		2,370		1,287		415
Balance, December 31	$	6,221	$	4,937	$	3,557

2010 Annual Report     33

6. PREMISES AND EQUIPMENT

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

(Dollar amounts in thousands)	2010		2009
Land and land improvements	$	1,898	$	1,898
Building and leasehold improvements		8,815		8,954
Furniture, fixtures, and equipment		2,685		4,481
		13,397		15,333
Less accumulated depreciation and amortization		5,218		6,939
Total	$	8,179	$	8,394

Depreciation charged to operations was $542,000 in 2010, $521,000 in 2009, and $518,000 in 2008.

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill totaled $4,559,000 at each of the years ended December 31, 2010 and December 31, 2009. During 2008, the Company recorded goodwill totaling $187,000 in connection with the acquisition of a third-party financial institution’s branch office.

The Company recorded core deposit intangibles in 2008 of $109,000 in connection with the acquisitions of a third-party financial institution’s branch office.

Core deposit intangible assets are amortized on a straight-line basis over their estimated lives of ten years. Amortization expense totaled $40,000 in 2010; $40,000 in 2009; and $30,000 in 2008. The estimated aggregate future amortization expense for core deposit intangible assets as of December 31, 2010, is as follows (in thousands):

2011	$	39,762
2012		39,762
2013		39,762
2014		39,762
2015		39,762
Thereafter		76,104
	$	274,914

Middlefield Banc Corp.     34

8. OTHER ASSETS

The components of other assets are as follows:

(Dollar amounts in thousands)	2010		2009
FHLB stock	$	1,887	$	1,887
Accrued interest on investment securities		1,222		671
Accrued interest on loans		1,037		1,045
Deferred tax asset, net		2,611		1,611
Prepaid federal deposit insurance		1,684		2,776
Other real estate owned		2,302		2,164
Other		2,053		1,320
Total	$	12,796	$	11,474

9. DEPOSITS

Time deposits at December 31, 2010, mature $113,070,000, $35,479,000, $38,605,000, $19,413,000, and $38,326,000 during 2011, 2012, 2013, 2014, and 2015, respectively.

The aggregate of all time deposit accounts of $100,000 or more amounted to $91,476,000 and $82,345,000 at December 31, 2010 and 2009, respectively.

Maturities on time deposits of $100,000 or more at December 31, 2010, are as follows:

			Percent of
(Dollar amounts in thousands)	Amount		Total
Within three months	$	11,832		12.93	%
Beyond three but within six months		8,413		9.20
Beyond six but within twelve months		16,427		17.96
Beyond one year		54,804		59.91
Total	$	91,476		100.00	%

10. SHORT-TERM BORROWINGS

The outstanding balances and related information of short-term borrowings, which includes securities sold under agreements to repurchase, short-term borrowings from other banks, and federal funds purchased, are summarized as follows:

(Dollar amounts in thousands)	2010			2009			2008
Balance at year-end	$	7,632		$	6,800		$	1,886
Average balance outstanding		7,320			2,281			2,967
Maximum month-end balance		8,178			7,406			6,058
Weighted-average rate at year-end		3.10	%		3.47	%		1.10	%
Weighted-average rate during the year		3.40	%		1.50	%		1.55	%

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

2010 Annual Report     35

The Company maintains a $4,000,000 line of credit at an adjustable rate, currently 3.76 percent, from Lorain National Bank and a $3,000,000 line of credit at an adjustable rate, currently at 4.00 percent, from Liberty Bank N.A. At December 31, 2010, 2009, and 2008, outstanding borrowings under these lines were $5,700,000, $5,700,000, and $0, respectively.

11. OTHER BORROWINGS

Other borrowings consist of advances from the FHLB and subordinated debt as follows:

					Weighted-
(Dollar amounts in thousands)	Maturity range				average			Stated interest rate range
Description	from		to		interest			from			to			2010		2009
Fixed rate		—		—		—	%		—	%		—	%	$	—	$	1,250
Fixed rate amortizing		02/01/12		10/01/28		3.96			2.70			4.48			9,073		12,367
Convertible		10/09/12		10/09/12		4.14			4.14			4.14			2,000		4,000
Junior subordinated debt		12/21/37		12/21/37		6.58			6.58			6.58			8,248		8,248
														$	19,321	$	25,865

The scheduled maturities of other borrowings are as follows:

	2010
(Dollar amounts in thousands)			Weighted-
Year Ending December 31,	Amount		Average Rate
2011	$	2,496		3.93	%
2012		3,854		4.04
2013		1,362		3.95
2014		984		3.99
2015		685		4.01
Beyond 2015		9,940		6.14
	$	19,321		5.10	%

The Company entered into a ten-year “Convertible Select” fixed commitment advance arrangement with the FHLB. Rates may be reset at the FHLB’s discretion on a quarterly basis based on the three-month LIBOR rate. At each rate change, the Company may exercise a put option and satisfy the obligation without penalty.

Fixed rate amortizing advances from the FHLB require monthly principal and interest payments and an annual 20 percent pay-down of outstanding principal. Monthly principal and interest payments are adjusted after each 20 percent pay-down. Under terms of a blanket agreement, collateral for the FHLB borrowings are secured by certain qualifying assets of the Company, which consist principally of first mortgage loans or mortgage-backed securities. Under this credit arrangement, the Company has a remaining borrowing capacity of approximately $70.0 million at December 31, 2010.

In December 2006, the Company formed a special purpose entity (“Entity”) to issue $8,000,000 of floating rate, obligated mandatorily redeemable securities and $248,000 in common securities as part of a pooled offering. The rate is fixed through January 2012 at 6.58 percent and floats quarterly thereafter, equal to LIBOR plus 1.67 percent. The Entity may redeem them, in whole or in part, at face value after January 30, 2012. The Company borrowed the proceeds of the issuance from the Entity in December 2006 in the form of an $8,248,000 note payable, which is included in the liabilities section of the Company’s Consolidated Balance Sheet. Debt issue costs of $248,000 have been capitalized and are being amortized through the first call date.

Middlefield Banc Corp.     36

12. OTHER LIABILITIES

The components of other liabilities are as follows:

	2010		2009
Accrued interest payable	$	790	$	905
Other		1,181		1,275
Total	$	1,971	$	2,180

13. INCOME TAXES

The provision (benefit) for federal income taxes consists of:

(Dollar amounts in thousands)	2010			2009			2008
Current payable	$	689		$	396		$	657
Deferred		(777	)		(469	)		(270	)
Total provision (benefit)	$	(88	)	$	(73	)	$	387

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

(Dollar amounts in thousands)	2010		2009
Deferred tax assets:
Allowance for loan losses	$	2,115	$	1,530
Supplemental retirement plan		168		149
Alternative minimum tax credits		353		268
Investment security basis adjustment		171		158
Nonaccrual interest income		272		—
Deferred origination fees, net		69		18
Net operating losses		294		399
Other		157		78
Gross deferred tax assets		3,599		2,600
Deferred tax liabilities:
Premises and equipment		287		215
Net unrealized gain on securities		148		290
FHLB stock dividends		225		225
Intangibles		159		63
Other		65		12
Gross deferred tax liabilities		884		805
Net deferred tax assets	$	2,715	$	1,795

2010 Annual Report     37

No valuation allowance was established at December 31, 2010 and 2009, in view of the Company’s ability to carry-back to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The reconciliation between the federal statutory rate and the Company’s effective consolidated income tax rate is as follows:

	2010						2009						2008
				% of						% of						% of
				Pre-tax						Pre-tax						Pre-tax
(Dollar amounts in thousands)	Amount			Income			Amount			Income			Amount			Income
Provision at statutory rate	$	827			34.0	%	$	581			34.0	%	$	1,021			34.0	%
Tax-free income		(993	)		(40.9	)		(729	)		(42.7	)		(713	)		(23.8	)
Nondeductible interest expense		76			3.1			73			4.3			96			3.2
Other		2			0.2			2			0.1			(17	)		(0.7	)
Actual tax expense and effective rate	$	(88	)		(3.6	)%	$	(73	)		(4.3	)%	$	387			12.7	%

ASC 740-10 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. At December 31, 2010 and December 31, 2009, the Company had no ASC 740-10 unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next 12 months. The Company recognizes interest and penalties on unrecognized tax benefits as a component of income tax expense. The Company and the Banks are subject to U.S. federal income tax as well as an income tax in the state of Ohio, and the Banks are subject to a capital-based franchise tax in the state of Ohio. The Company and the Banks are no longer subject to examination by taxing authorities for years before December 31, 2007.

14. EMPLOYEE BENEFITS

Retirement Plan

The Banks maintain section 401(k) employee savings and investment plans for all full-time employees and officers of the Banks with more than one year of service. The Banks’ contributions to the plans are based on 50 percent matching of voluntary contributions up to 6 percent of compensation. An eligible employee can contribute up to 15 percent of salary. Employee contributions are vested at all times, and MBC contributions are fully vested after six years beginning at the second year in 20 percent increments. EB contributions are vested at 25 percent for less than a year of employment, 50 percent after one year, 75 percent after two years, and fully vested after three years. Contributions for 2010, 2009, and 2008 to these plans amounted to $106,000, $96,000, and $96,000, respectively.

Middlefield Banc Corp.     38

Supplemental Retirement Plan

MBC maintains a Directors’ Retirement Plan to provide postretirement payments over a ten-year period to members of the Board of Directors who have completed five or more years of service. The plan requires payment of 25 percent of the final average annual board fees paid to a director in the three years preceding the director’s retirement.

The following table illustrates the components of the net periodic pension cost for the Directors’ Retirement Plan for the years ended:

(Dollar amounts in thousands)	2010		2009		2008
Components of net periodic pension costs:
Service cost	$	1	$	6	$	12
Interest cost		13		13		13
Net periodic pension cost	$	14	$	19	$	25

Executive Deferred Compensation Plan

During 2006, MBC implemented an Executive Deferred Compensation Plan (the “Plan”) to provide post-retirement payments to members of senior management. The Plan agreements are noncontributory, defined contribution arrangements that provide supplemental retirement income benefits to five officers, with contributions made solely by the Banks. During 2010, 2009, and 2008, MBC contributed $92,000, $67,000, and $26,000, respectively, to the Plan.

Stock Option and Restricted Stock Plan

The Company maintains a stock option and restricted stock plan (“the Plan”) for granting incentive stock options, nonqualified stock options, and restricted stock for key officers and employees and nonemployee directors of the Company. A total of 160,000 shares of authorized and unissued or issued common stock are reserved for issuance under the Plan, which expires ten years from the date of stockholder ratification. The per share exercise price of an option granted will not be less than the fair value of a share of common stock on the date the option is granted. No option shall become exercisable earlier than one year from the date the Plan was approved by the stockholders.

The following table presents share data related to the outstanding options:

				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	2010			Price		2009			Price
Outstanding, January 1		99,219		$	26.85		110,465		$	27.21
Granted		—			—		—			—
Exercised		—			—		—			—
Forfeited		(10,142	)		17.90		(11,246	)		30.34
Outstanding, December 31		89,077			27.87		99,219			26.85
Exercisable at year-end		89,077			27.87		99,219			26.85

2010 Annual Report     39

The following table summarizes the characteristics of stock options at December 31, 2010:

			Outstanding						Exercisable
					Contractual		Average				Average
	Exercise				Average		Exercise				Exercise
Grant Date	Price		Shares		Life		Price		Shares		Price
December 9, 2002	$	22.33		9,426	$	1.94		22.33	$	9,426		22.33
December 8, 2003		24.29		20,663		2.94		24.29		20,663		24.29
May 12, 2004		27.35		907		3.33		27.35		907		27.35
December 13, 2004		30.45		12,958		3.95		30.45		12,958		30.45
December 14, 2005		36.73		8,485		4.95		36.73		8,485		36.73
December 10, 2006		40.24		3,675		5.95		40.24		3,675		40.24
April 19, 2007		37.33		3,639		6.31		37.33		3,639		37.73
May 16, 2007		37.48		1,337		6.41		37.48		1,337		37.48
December 10, 2007		37.00		3,150		6.95		37.00		3,150		37.00
January 2, 2008		36.25		1,337		7.12		36.25		1,337		36.25
November 10, 2008		23.00		23,500		7.95		23.00		23,500		23.00
				89,077						89,077

For the years ended December 31, 2010, 2009, and 2008, the Company granted 110, 150, and 150, respectively, of common stock under the restricted stock plan. The Company recognizes compensation expense in the amount of fair value of the common stock at the grant date and as an addition to stockholders’ equity.

15. COMMITMENTS

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

(Dollar amounts in thousands)	2010		2009
Commitments to extend credit	$	68,972	$	59,498
Standby letters of credit		789		351
Total	$	69,761	$	59,849

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

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

Middlefield Banc Corp.     40

Leasing Arrangements

The Company leases certain of its banking facilities under operating leases which contain certain renewal options. As of December 31, 2010, approximate future minimum rental payments, including the renewal options under these leases, are as follows (in thousands):

2011	$	205
2012		217
2013		219
2014		221
2015		226
Thereafter		628

The above amounts represent minimum rentals not adjusted for possible future increases due to escalation provisions and assume that all renewal option periods will be exercised by the Company. Rent expense approximated $234,000 and $246,000 for the years ended December 31, 2010 and 2009.

16. REGULATORY RESTRICTIONS

The Company is subject to the regulatory requirements of the Federal Reserve System as a multi-bank holding company. The affiliate banks are subject to regulations of the Federal Deposit Insurance Corporation (FDIC) and the State of Ohio, Division of Financial Institutions.

Effective February 11, 2010, the Board of Directors of the Company’s subsidiary, EB, entered into a Memorandum of Understanding (“MOU”) with the FDIC and the Ohio Division of Financial Institutions as a result of the joint examination by the FDIC and the Ohio Division of Financial Institutions completed in the fourth quarter of 2009. The MOU sets forth certain actions required to be taken by management of EB to rectify unsatisfactory conditions identified by the federal and state banking regulators that relate to EB’s concentration of credit for non-owner-occupied one-to-four family residential mortgage loans. The MOU requires EB to reduce delinquent and classified loans and enhance credit administration for non-owner-occupied residential real estate; to develop specific plans for the reduction of borrower indebtedness on classified and delinquent credits; to correct violations of laws and regulations listed in the joint examination report; to implement an earnings improvement plan; to maintain specified capital discussed below; to submit to the FDIC and the Ohio Division of Financial Institutions for review and comment a revised methodology for calculating and determining the adequacy of the allowance for loan losses; and to provide 30 days’ advance notification of proposed dividend payments.

Compliance with the terms of the MOU is a high priority for the Company. In anticipation of the requirements that would be imposed by the MOU executed February 11, 2010, management devoted significant resources to the preceding matters during the fiscal year ended December 31, 2009, and continued to do so during 2010. Specific actions taken included the evaluation and reorganization of lending and credit administration personnel, retention of collection and workout personnel, and the sale of $4.6 million of nonperforming assets to a sister, nonbank-asset resolution subsidiary established late in the fourth quarter of 2009. In 2009, the Company invested $1.25 million in EB in the form of capital infusions to maintain Tier I capital at the level expected by the FDIC and the Ohio Division of Financial Institutions.

The MOU requires that EB submit plans and report to the Ohio Division of Financial Institutions and the FDIC regarding EB’s loan portfolio and profit plan, among other matters. The MOU also requires that EB maintain its Tier I Leverage Capital ratio at not less than 9 percent. At December 31, 2010, the ratio was 9.45 percent.

2010 Annual Report     41

Cash Requirements

The district Federal Reserve Bank requires the Bank to maintain certain average reserve balances. As of December 31, 2010 and 2009, the Company had required reserves of $4,625,000 and $2,910,000 comprised vault cash and a depository amount held with the Federal Reserve Bank.

Loans

Federal law prevents the Company from borrowing from the Banks unless the loans are secured by specific obligations. Further, such secured loans are limited in amount of 10 percent of the Banks’ common stock and capital surplus.

Dividends

MBC and EB are subject to dividend restrictions that generally limit the amount of dividends that can be paid by an Ohio state-chartered bank. Under the Ohio Banking Code, cash dividends may not exceed net profits as defined for that year combined with retained net profits for the two preceding years less any required transfers to surplus. Under this formula, for MBC, the amount available for payment of dividends for 2011 approximates $4,187,000 plus 2011 profits retained up to the date of the dividend declaration. For EB, the amount available for payment of dividends for 2011 is $0 until the net deficit for the two preceding years of $1,616,000 is overcome.

17. REGULATORY CAPITAL

Federal regulations require the Company and the Banks to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average total assets.

In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any institution fail to meet the requirements to be considered “adequately capitalized,” it would become subject to a series of increasingly restrictive regulatory actions.

As of December 31, 2010 and 2009, the FDIC categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be at least 10 percent, 6 percent, and 5 percent, respectively.

The Company’s and its subsidiaries’ actual capital ratios are presented in the following table that shows that all regulatory capital requirements were met as of December 31, 2010.

Middlefield Banc Corp.     42

	Middlefield Banc Corp.					The Middlefield Banking Co.					Emerald Bank
	December 31,					December 31,					December 31,
	2010					2010					2010
(Dollar amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-weighted Assets)
Actual	$	45,424		11.69	%	$	38,335		11.48	%	$	7,340		14.55	%
For Capital Adequacy Purposes		31,075		8.00			26,707		8.00			4,036		8.00
To Be Well Capitalized		38,844		10.00			33,383		10.00			5,045		10.00
Tier I Capital (to Risk-weighted Assets)
Actual	$	40,552		10.44	%	$	34,241		10.26	%	$	6,691		13.26	%
For Capital Adequacy Purposes		15,537		4.00			13,353		4.00			2,018		4.00
To Be Well Capitalized		23,306		6.00			20,030		5.00			3,027		6.00
Tier I Capital (to Average Assets)
Actual	$	40,552		6.69	%	$	34,241		6.47	%	$	6,691		9.45	%
For Capital Adequacy Purposes		24,240		4.00			21,176		4.00			2,832		4.00
To Be Well Capitalized		30,300		5.00			26,471		5.00			3,540		5.00

The Company’s and its subsidiaries’ actual capital ratios are presented in the following table that shows that all regulatory capital requirements were met as of December 31, 2009.

	Middlefield Banc Corp.					The Middlefield Banking Co.					Emerald Bank
	December 31,					December 31,					December 31,
	2009					2009					2009
(Dollar amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-weighted Assets)
Actual	$	43,549		12.34	%	$	34,838		11.47	%	$	7,067		14.91	%
For Capital Adequacy Purposes		28,243		8.00			24,306		8.00			3,793		8.00
To Be Well Capitalized		35,304		10.00			30,382		10.00			4,741		10.00
Tier I Capital (to Risk-weighted Assets)
Actual	$	39,121		11.08	%	$	31,640		10.41	%	$	6,460		13.63	%
For Capital Adequacy Purposes		14,121		4.00			12,153		4.00			1,896		4.00
To Be Well Capitalized		21,182		6.00			18,229		6.00			2,845		6.00
Tier I Capital (to Average Assets)
Actual	$	39,121		7.99	%	$	31,640		7.45	%	$	6,460		10.29	%
For Capital Adequacy Purposes		19,583		4.00			16,984		4.00			2,510		4.00
To Be Well Capitalized		24,479		5.00			21,230		5.00			3,138		5.00

2010 Annual Report     43

18. REORGANIZATION

On October 23, 2009, the Company received from the Federal Reserve Bank of Cleveland approval to establish an asset resolution subsidiary. Organized as an Ohio corporation under the name EMORECO, Inc. and wholly owned by the Company, the purpose of the asset resolution subsidiary is to maintain, manage, and ultimately dispose of nonperforming loans and real estate acquired by subsidiary banks as the result of borrower default on real-estate-secured loans. EMORECO’s assets consist of 26 nonperforming loans and three real estate development properties consisting of 18 lots transferred by Emerald Bank. EMORECO paid to Emerald Bank a total of approximately $4.6 million for the nonperforming loans and real estate, using funds contributed by the Company, which were borrowed under lines of credit of the holding company. According to Federal law governing bank holding companies, the real estate must be disposed of within two years after the properties were originally acquired by Emerald Bank, which occurred in May and June of 2008, although limited extensions may be granted by the Federal Reserve Bank. Federal law governing bank holding companies also provides that a holding company subsidiary has limited real estate investment powers. EMORECO may only manage and maintain property and may not improve or develop property without advance approval of the Federal Reserve Bank.

Until recently, Middlefield Banc Corp. has been entitled to engage in the expanded range of activities in which a financial holding company, as defined in Federal Reserve Board rules, may engage. However, Middlefield Banc Corp. has not taken advantage of that expanded authority and has elected to rescind its financial holding company status. Middlefield Banc Corp. continues to be entitled to engage in activities deemed permissible to a bank holding company, as defined by Federal Reserve Board rules and the applicable laws of the United States.

19. FAIR VALUE DISCLOSURE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels defined by U.S. generally accepted accounting principles are as follows:

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:	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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

Middlefield Banc Corp.     44

The following table presents the assets reported on the balance sheet at their fair value as of December 31, 2010 and 2009, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	December 31, 2010
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets Measured on a Recurring Basis:
U.S. government agency securities	$	—	$	32,603	$	—	$	32,603
Obligations of states and political subdivisions		—		76,880		—		76,880
Mortgage-backed securities		—		91,369		—		91,369
Total debt securities		—		200,852		—		200,852
Equity securities		920		—		—		920
Total	$	920	$	200,852	$	—	$	201,772

	December 31, 2009
	Level I		Level II		Level III		Total
Assets Measured on a Recurring Basis:
U.S. government agency securities	$	—	$	18,330	$	—	$	18,330
Obligations of states and political subdivisions		—		56,721		—		56,721
Mortgage-backed securities		—		60,741		—		60,741
Total debt securities		—		135,792		—		135,792
Equity securities		919		—		—		919
Total	$	919	$	135,792	$	—	$	136,711

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

Gains and losses (realized and unrealized) included in earnings (or changes in net assets) for the year ended December 31, 2010, are reported as investment securities gains (losses), net on the Consolidated Statement of Income.

The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value as of December 31, 2010 and 2009, by level within the fair value hierarchy. Impaired loans that are collateral-dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

2010 Annual Report     45

	December 31, 2010
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	—	$	4,312	$	2,758	$	7,070
Other real estate owned		—		2,302		—		2,302

	December 31, 2009
	Level I		Level II		Level III		Total
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	—	$	5,644	$	149	$	5,793
Other real estate owned		—		2,164		—		2,164

The estimated fair value of the Company’s financial instruments at December 31 is as follows:

	December 31,
	2010				2009
	Carrying		Fair		Carrying		Fair
(Dollar amounts in thousands)	Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	30,635	$	30,635	$	41,153	$	41,153
Investment securities available for sale		201,772		201,772		136,711		136,711
Net loans		366,277		347,599		348,660		332,401
Bank-owned life insurance		7,979		7,979		7,707		7,707
Federal Home Loan Bank stock		1,887		1,887		1,887		1,887
Accrued interest receivable		2,259		2,259		1,411		1,411
Financial liabilities:
Deposits	$	565,251	$	570,471	$	487,106	$	491,436
Short-term borrowings		7,632		7,632		6,800		6,800
Other borrowings		19,321		19,801		25,865		27,356
Accrued interest payable		790		790		905		905

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

Middlefield Banc Corp.     46

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Fair value for certain private-label collateralized mortgage obligations were determined utilizing discounted cash flow models, due to the absence of a current market to provide reliable market quotes for the instruments.

Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Deposits and Other Borrowed Funds

The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of year-end.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 15.

2010 Annual Report     47

20. PARENT COMPANY

Following are condensed financial statements for the Company.

(Dollar amounts in thousands)	December 31,
CONDENSED BALANCE SHEET	2010		2009
ASSETS
Cash and due from banks	$	257	$	979
Interest-bearing deposits in other institutions		—		121
Investment securities available for sale		920		919
Investment in non-bank subsidiary		3,385		4,543
Investment in subsidiary bank		46,666		43,951
Other assets		840		248
TOTAL ASSETS	$	52,068	$	50,761
LIABILITIES
Trust preferred securities	$	8,248	$	8,248
Short-term borrowings		5,700		5,700
Other liabilities		98		106
TOTAL LIABILITIES		14,046		14,054
STOCKHOLDERS’ EQUITY		38,022		36,707
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	52,068	$	50,761

(Dollar amounts in thousands)	Year Ended December 31,
CONDENSED STATEMENT OF INCOME	2010			2009			2008
INCOME
Dividends from subsidiary bank	$	2,061		$	2,189		$	2,184
Interest income		3			9			10
Other		17			—			5
TOTAL INCOME		2,081			2,198			2,199
EXPENSES
Interest expense		773			547			539
Other		270			266			379
TOTAL INCOME		1,043			813			918
Income before income tax benefit		1,038			1,385			1,281
Income tax benefit		(348	)		(273	)		(323	)
Income before equity in undistributed net income of subsidiaries		1,386			1,658			1,604
Equity in undistributed net income of subsidiaries		1,131			123			1,011
NET INCOME	$	2,517		$	1,781		$	2,615

Middlefield Banc Corp.     48

(Dollar amounts in thousands)	Year Ended December 31,
CONDENSED STATEMENT OF CASH FLOWS	2010			2009			2008
OPERATING ACTIVITIES
Net income	$	2,517		$	1,781		$	2,615
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of Middlefield Banking Company		(2,582	)		(1,604	)		(982	)
Equity in undistributed net income of Emerald Bank		292			1,325			(29	)
Equity in undistributed net income of EMORECO		1,159			156			—
Compensation expense on stock options		—			61			15
Other		(602	)		(125	)		168
Net cash provided by operating activities		784			1,594			1,787
INVESTING ACTIVITIES
Investment in subsidiary bank		(500	)		(1,250	)		—
Investment in non-bank subsidiary		—			(4,700	)		—
Net cash (used for) investing activities		(500	)		(5,950	)		—
FINANCING ACTIVITIES
Net increase in short-term borrowings		—			5,700			—
Purchase of treasury stock		—			—			(1,351	)
Exercise of stock options		—			—			21
Proceeds from dividend reinvestment plan		510			557			616
Cash dividends		(1,637	)		(1,608	)		(1,576	)
Net cash provided by (used for) financing activities		1,127			4,649			(2,290	)
Increase (decrease) in cash		(843	)		293			(503	)
CASH AT BEGINNING OF YEAR		1,100			807			1,310
CASH AT END OF YEAR	$	257		$	1,100		$	807

21. SUBSEQUENT EVENTS

In reliance on the Rule 506 private offering exemption in the Securities and Exchange Commission’s Regulation D, in the first quarter of 2011 the Company sold a total of 36,500 shares of common stock at the cash purchase price of $16 per share. The shares were offered and sold solely to investors qualifying as accredited investors under Rule 501(a) of Regulation D, including directors and executive officers. After commissions payable to the Company’s sales agent, the net proceeds to the Company from these sales were approximately $300,000. The additional capital will be used for general corporate purposes and to support subsidiary bank capital.

2010 Annual Report     49

22. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

	Three Months Ended
	March 31,		June 30,		September 30,			December 31,
(Dollar amounts in thousands)	2010		2010		2010			2010
Total interest income	$	6,924	$	7,332	$	7,368		$	7,470
Total interest expense		2,869		2,747		2,752			2,577
Net interest income		4,055		4,585		4,616			4,893
Provision for loan losses		439		690		1,226			1,225
Net interest income after provision for loan losses		3,616		3,895		3,390			3,668
Total noninterest income		609		685		695			634
Total noninterest expense		3,558		3,828		3,742			3,635
Income before income taxes		667		752		343			667
Income taxes		22		38		(120	)		(28	)
Net income	$	645	$	714	$	463		$	695
Per share data:
Net income
Basic	$	0.41	$	0.46	$	0.29		$	0.44
Diluted		0.41		0.46		0.29			0.44
Average shares outstanding
Basic		1,565,454		1,570,852		1,578,832			1,575,213
Diluted		1,567,441		1,572,084		1,578,832			1,575,821

	Three Months Ended
	March 31,		June 30,			September 30,			December 31,
(Dollar amounts in thousands)	2009		2009			2009			2009
Total interest income	$	6,324	$	6,305		$	6,647		$	6,775
Total interest expense		3,111		2,934			2,861			2,877
Net interest income		3,213		3,371			3,786			3,898
Provision for loan losses		154		260			1,346			818
Net interest income after provision for loan losses		3,059		3,111			2,440			3,080
Total noninterest income		624		636			690			718
Total noninterest expense		2,996		3,303			3,040			3,311
Income before income taxes		687		444			90			487
Income taxes		84		(17	)		(123	)		(17	)
Net income	$	603	$	461		$	213		$	504
Per share data:
Net income
Basic	$	0.39	$	0.30		$	0.14		$	0.32
Diluted		0.39		0.30			0.14			0.32
Average shares outstanding
Basic		1,536,930		1,541,960			1,551,056			1,547,239
Diluted		1,541,247		1,543,538			1,551,069			1,551,069

Middlefield Banc Corp.     50

Board of Directors and Stockholders
Middlefield Banc Corp.

We have audited the accompanying consolidated balance sheet of Middlefield Banc Corp. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Middlefield Banc Corp. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ending December 31, 2010, in conformity with U.S. generally accepted accounting principles.

Wexford, PA
March 4, 2011

2010 Annual Report     51

Overview

The consolidated review and analysis of Middlefield Banc Corp. (“Company”) is intended to assist the reader in evaluating the performance of the Company for the years ended December 31, 2010, 2009, and 2008. This information should be read in conjunction with the consolidated financial statements and accompanying notes to the financial statements.

The Company is an Ohio corporation organized to become the holding company of The Middlefield Banking Company (“MBC”). MBC is a state-chartered bank located in Ohio. On April 19, 2007, the Company acquired Emerald Bank (“EB”), an Ohio-chartered commercial bank headquartered in Dublin, Ohio. On October 23, 2009, the Company established an asset resolution subsidiary named EMORECO, Inc. The Company and its two banking subsidiaries derive substantially all of their income from banking and bank-related services, which includes interest earnings on residential real estate, commercial mortgage, commercial and consumer financings as well as interest earnings on investment securities and deposit services to its customers through ten locations. The Company is supervised by the Board of Governors of the Federal Reserve System, while the banks are subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Ohio Division of Financial Institutions. MBC and EB are members of the Federal Home Loan Bank (“FHLB”) of Cincinnati, which is one of the 12 regional banks comprising the FHLB System.

This Management’s Discussion and Analysis section of the Annual Report contains forward-looking statements. Forward-looking statements are based upon a variety of estimates and assumptions. The estimates and assumptions involve judgments about a number of things, including future economic, competitive, and financial market conditions and future business decisions. These matters are inherently subject to significant business, economic, and competitive uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. Although the Company believes its estimates and assumptions are reasonable, actual results could vary materially from those shown. Inclusion of forward-looking information does not constitute a representation by the Company or any other person that the indicated results will be achieved. Investors are cautioned not to place undue reliance on forward-looking information.

These forward-looking statements may involve significant risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results in these forward-looking statements.

Significant Factors Affecting Financial Results

On October 23, 2009, MBC received from the Federal Reserve Bank of Cleveland approval to establish an asset resolution subsidiary. Organized as an Ohio corporation under the name EMORECO, Inc. and wholly owned by the Company, the purpose of the asset resolution subsidiary is to maintain, manage, and ultimately dispose of nonperforming loans and real estate acquired by subsidiary banks as the result of borrower default on real-estate-secured loans. EMORECO’s assets consist of 26 nonperforming loans and three real estate development properties consisting of 18 lots transferred by EB. EMORECO paid to EB a total of approximately $4.5 million for the nonperforming loans and real estate, using funds contributed by the Company, which were borrowed under its lines of credit. Federal law governing bank holding companies provides that a holding company subsidiary has limited real estate investment powers. EMORECO may only manage and maintain property and may not improve or develop property without advance approval of the Federal Reserve Bank.

Middlefield Banc Corp.     52

Effective February 11, 2010, the Board of Directors of the Company’s subsidiary, EB, entered into a Memorandum of Understanding (“MOU”) with the FDIC and the Ohio Division of Financial Institutions as a result of the joint examination by the FDIC and the Ohio Division of Financial Institutions completed in the fourth quarter of 2009. The MOU sets forth certain actions required to be taken by management of EB to rectify unsatisfactory conditions identified by the federal and state banking regulators that relate to EB’s concentration of credit for non-owner-occupied, one-to-four-family residential mortgage loans. The MOU requires EB to reduce delinquent and classified loans and enhance credit administration for non-owner-occupied residential real estate; to develop specific plans for the reduction of borrower indebtedness on classified and delinquent credits; to correct violations of laws and regulations listed in the joint examination report; to implement an earnings improvement plan; to maintain specified capital discussed below; to submit to the FDIC and the Ohio Division of Financial Institutions for review and comment a revised methodology for calculating and determining the adequacy of the allowance for loan losses; and to provide 30 days’ advance notification of proposed dividend payments. The MOU also requires EB to maintain a Tier I leverage capital ratio of at least 9 percent. EB is required by the terms of the MOU to submit updated plans to the Ohio Division of Financial Institutions and the FDIC regarding EB’s loan portfolio and profit plan, among other matters.

Compliance with the terms of the MOU is a high priority for the Company. Specific actions taken include the evaluation and reorganization of lending and credit administration personnel, the retention of collection and workout personnel, and the sale of nonperforming assets of approximately $4.5 million to EMORECO. To maintain EB’s Tier I capital at the level required by the MOU, the Company has restrained EB’s growth and has contributed to EB capital of $1.25 million in 2009 and $500,000 in 2010. As of December 31, 2010, EB’s Tier I leverage capital ratio was 9.45 percent.

In 2010 the Company continued to feel the impact of the recession that began in late 2007, with reduced loan demand and fewer good lending opportunities, sluggish local and regional economies, a depressed residential and commercial real estate market, and elevated unemployment levels. These factors have contributed to significant growth in our nonperforming assets, including loans in nonaccrual status and real estate acquired in satisfaction of defaulted debt. The growth of nonperforming assets has affected both EB and MBC. MBC, especially, experienced significant growth both in 2009 and in 2010, particularly with growth in interest-bearing deposits. As a result, the regulatory capital ratios of MBC and the Company as a whole declined in 2010, although by the end of 2010 MBC had begun to reverse that trend by restraining deposit growth.

Both MBC and the Company are implementing plans to reduce substandard assets and to maintain regulatory capital at elevated levels. The goal of the elevated capital levels is to account for the ongoing economic stress in the markets in which the Company and its subsidiary banks operate and to account for the growth that has already occurred in substandard and other nonperforming assets. MBC has also hired additional staff to enhance the ongoing monitoring and management of the credit portfolio generally as well as nonperforming assets in particular. In addition, in January of 2011, the Company’s board established a goal to achieve by December 31, 2011, and to maintain indefinitely thereafter Tier I leverage capital of 7.25 percent and total risk-based capital of 12 percent, both at the level of the Company and at MBC. The parent company board also affirmed the goal of restraining growth at the level of the subsidiary banks to promote achievement of these elevated capital level targets. The Company’s Tier I leverage capital was 6.69 percent as of December 31, 2010, with total risk-based capital of 11.69 percent. MBC’s Tier I leverage capital was 6.47 percent as of December 31, 2010, with total risk-based capital of 11.48 percent. No assurance can be given that capital enhancement and capital maintenance measures taken already or that are being taken will enable the Company and MBC to achieve their 7.25 percent Tier I leverage capital ratio and 12 percent total risk-based capital ratio goals as of year-end 2011, along with EB’s minimum 9 percent Tier I leverage capital requirement. Additional measures to achieve the capital goals could potentially be necessary, such as a reduction of dividends, but the Company is optimistic that the Company, MBC, and EB will achieve their capital goals based on the capital enhancement and maintenance measures taken already and being taken in 2011.

Consequently, for the immediate future, capital enhancement and reduction of nonperforming assets are a higher priority than growth. The Company does not anticipate significant deposit growth, and the percentage of assets represented by the securities portfolio will continue to exceed historical levels until loan demand in the Company’s markets recovers. An increase in loan demand and in the availability of high-quality lending opportunities depends on improvement in a broad range of economic factors in the markets in which the Company operates, including employment levels and the condition of the residential and commercial real estate markets in northeastern Ohio and in central Ohio.

2010 Annual Report     53

Critical Accounting Policies

Allowance for loan losses

Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio.

Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment, which is affected by changing economic conditions and various external factors and which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged off and reduced by loans charged off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of “Notes to Consolidated Financial Statements” commencing on the previous pages of this Annual Report.

The allowance for loan loss balance as of December 31, 2010, totaled $6.2 million, representing a $1.3 million increase from the end of 2009. For the year of 2010, the provision for loan losses was $3.6 million, which represented an increase of $1.0 million from the $2.6 million provided during 2009. This level of provision during 2010 is reflective of the persistent economic conditions adversely impacting the market areas served by the Company’s affiliate banks, which have caused nonperforming loans to increase. Asset quality is a high-priority in our overall business plan as it relates to long-term asset growth projections. During 2010, net charge-offs increased by $1.1 million compared with 2009. Two key ratios to monitor asset quality performance are net charge-offs/average loans and the allowance for loan losses/nonperforming loans. At year-end 2010, these ratios were 0.63 percent and 31.1 percent, respectively, compared with 0.36 percent and 30.3 percent in 2009.

Valuation of Securities

Securities are classified as held-to-maturity or available-for-sale on the date of purchase. Only those securities classified as held-to-maturity are reported at amortized cost. Available-for-sale and trading securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income, net of related deferred income taxes, on the Consolidated Balance Sheets and noninterest income in the Consolidated Statements of Income, respectively. The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments. Realized securities gains or losses are reported within noninterest income in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. Available-for-sale securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within noninterest income in the Consolidated Statements of Income. The Company believes the price movements in these securities are dependent upon the movement in market interest rates. The Company’s management also maintains the intent and ability to hold securities in an unrealized loss position to the earlier of the recovery of losses or maturity.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (OTTI). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. Generally accepted accounting principles require the Company to assess whether the unrealized loss is other-than-temporary.

Middlefield Banc Corp.     54

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more-likely-than-not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 91.7 percent of the total available-for-sale portfolio as of December 31, 2010, and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of significant unrealized loss positions within the obligations of the state and political subdivisions security portfolio. The Company’s assessment of expected credit losses was concentrated mainly on private-label collateralized mortgage obligations of approximately $16.6 million, for which the Company evaluates credit losses on a quarterly basis. Gross unrealized gain and loss positions related to these private-label collateralized mortgage obligations amounted to $1.0 million and $328,000, respectively. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near-term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions.

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities.

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

As of December 31, 2010, there was one available-for-sale debt security with an unrealized loss that had suffered OTTI which resulted in a $35,000 non-cash charge against noninterest income.

Refer to Note 4 in the consolidated financial statements.

Income Taxes

The Company estimates income tax expense based on amounts expected to be owed to the various tax jurisdictions in which the Company conducts business. On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current estimate of the amount and components of net income, tax credits and the applicable statutory tax rates expected for the full year. The estimated income tax expense is recorded in the Consolidated Statements of Income.

Deferred income tax assets and liabilities are determined using the balance sheet method and are reported in accrued taxes, interest, and expenses in the Consolidated Balance Sheets. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities and recognizes enacted changes in tax rates and laws. Deferred tax assets are recognized to the extent they exist and are subject to a valuation allowance based on management’s judgment that realization is more-likely-than-not.

Accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in accrued taxes, interest, and expenses in the Consolidated Balance Sheets. The Company evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent, and other information, and maintains tax accruals consistent with its evaluation of these relative risks and merits. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities, and changes to statutory, judicial, and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred taxes and accrued taxes as well as the current period’s income tax expense and can be significant to the operating results of the Company.

2010 Annual Report     55

Changes in Financial Condition

General. The Company’s total assets increased $73.5 million, or 13.2 percent, to $632.2 million at December 31, 2010, from $558.7 million at December 31, 2009. This increase was composed of a net increase in investment securities of $65.1 million and net loans receivable of $17.6 million. This increase was partially offset by a decrease in cash and cash equivalents of $10.5 million.

The increase in the Company’s total assets reflects a corresponding increase in total liabilities of $72.2 million, or 13.8 percent, to a total balance of $594.2 million at December 31, 2010, from $522.0 million at December 31, 2009. The Company also experienced an increase in total stockholders’ equity of $1.3 million.

The increase in total liabilities was primarily due to deposit growth for the year. Total deposits increased $78.1 million, or 16.0 percent, to $565.2 million at December 31, 2010, from $487.1 million as of December 31, 2009. The net increase in total stockholders’ equity can be attributed to an increase in common stock and net income less dividends paid.

Cash on hand, interest-earning deposits, and federal funds sold. Cash and due from banks, interest-earning deposits, and federal funds sold represent cash equivalents, which decreased a combined $10.5 million, or 25.6 percent, to $30.7 million at December 31, 2010, from $41.2 million at December 31, 2009. Deposits from customers into savings and checking accounts, loan and security repayments, and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases, and repayments of borrowed funds. The net decrease in 2010 can be attributed principally to a decrease in federal funds sold balances of $8.0 million, or 28.3 percent.

Securities. Management’s goal in structuring the portfolio is to maintain a prudent level of liquidity while providing an acceptable rate of return, without sacrificing asset quality. Maturing securities have historically provided sufficient liquidity. The balance of total securities increased $65.1 million, or 47.6 percent, as compared with 2009, with the ratio of securities to total assets also increasing to 31.9 percent at December 31, 2010, compared with 24.5 percent at December 31, 2009. This trend of higher-security investments was driven by an increase in mortgage-backed securities of $30.6 million, or 50.4 percent, as compared with year-end 2009. The growth in this segment of investments was the result of attractive yield opportunities and a desire to increase diversification within the Company’s securities portfolio. This growth was supported by an increase in obligations of state and political subdivisions securities and U.S. government agency securities of $20.2 million, or 35.5 percent, and $14.3 million, or 77.4 percent, respectively, from year-end 2009.

The Company continues to benefit from the advantages of mortgage-backed securities, which totaled $91.4 million, or 45.3 percent, of the Company’s total investment portfolio at December 31, 2010. The primary advantage of mortgage-backed securities has been the increased cash flows due to the more rapid (monthly) repayment of principal as compared with other types of investment securities, which deliver proceeds upon maturity or call date. The weighted-average federal tax equivalent (“FTE”) yield on all debt securities at year-end 2010 was 5.19 percent, as compared with 6.03 percent at year-end 2009 and 5.48 percent at year-end 2008. While the Company’s focus is to generate interest revenue primarily through loan growth, management will continue to invest excess funds in securities when opportunities arise.

Middlefield Banc Corp.     56

The majority of all of the Company’s securities are valued based on prices compiled by third-party vendors using observable market data. However, certain securities are less actively traded and do not always have quoted market prices. The determination of their fair value, therefore, requires judgment, since this determination may require benchmarking to similar instruments or analyzing default and recovery rates. Examples include certain collateralized mortgage and debt obligations and high-yield debt securities

Loans receivable. The loans receivable category consists primarily of single-family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers’ businesses or to finance investor-owned rental properties and commercial loans to finance the business operations and, to a lesser extent, construction and consumer loans. Net loans receivable increased $17.6 million, or 5.1 percent, to $366.3 million at December 31, 2010, from $348.7 million at December 31, 2009. Included in this growth were increases in real estate construction, commercial real estate, and residential real estate loans of $8.0, $5.5, and $4.8 million, respectively.

The product mix in the loan portfolio includes commercial loans comprising 15.5 percent, construction loans 4.3 percent, residential real estate loans 56.3 percent, commercial real estate loans 22.6 percent, and consumer loans 1.3 percent at December 31, 2010, compared with 16.1 percent, 2.2 percent, 58.0 percent, 22.3 percent and 1.4 percent, respectively, at December 31, 2009.

Loans contributed 72.5 percent of total interest income in 2010 and 77.8 percent in 2009. The loan portfolio yield of 5.82 percent in 2010 was 50 basis points greater than the average yield for total interest earning assets. Management recognizes that, while the loan portfolio holds some of the Company’s highest-yielding assets, it is inherently the most risky portfolio. Accordingly, management attempts to balance credit risk versus return with conservative credit standards. Management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process. Because of the Company’s increased levels of nonperforming assets, management has recently implemented additional procedures to make certain that MBC obtains current borrower financial information on an annual basis throughout the life of the loan obligation.

To minimize risks associated with changes in the borrower’s future repayment capacity, the Company generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral.

The Company will continue to monitor the relatively mild pace of its loan portfolio growth during 2011. The Company’s lending markets remain challenging and have impacted loan growth due to increased payoffs and a flat-to-declining level of loan originations during 2010. The Company anticipates total loan growth to be marginal, with volume to continue at a flat-to-moderate pace throughout 2011. The Company remains committed to sound underwriting practices without sacrificing asset quality and avoiding exposure to unnecessary risk that could weaken the credit quality of the portfolio.

FHLB stock. FHLB stock remained unchanged at $1.9 million at December 31, 2010, when compared with the prior year.

Goodwill. Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed annually for impairment and any such impairment is recognized in the period identified by a charge to earnings. In assessing goodwill for impairment, management estimates the fair value of the Company’s banking subsidiary to which the goodwill relates. To arrive at fair value estimates, management considers prices received upon sale of other banking institutions of similar size and with similar operating results. Purchase prices as a multiple of earnings, book value, tangible book value, and deposits are considered and applied to the Company’s banking subsidiary. The process of evaluating goodwill for impairment requires management to make significant estimates and judgments. The use of different estimates, judgments, or approaches to estimate fair value could result in a different conclusion regarding impairment of goodwill. Based on the analysis, management has determined that there is no goodwill impairment.

2010 Annual Report     57

The Company annually utilizes the services of an independent third party that is regarded in the banking industry as an expert in valuing core deposits and monitoring the ongoing value of core deposit intangibles and goodwill on an annual basis. Goodwill balances were unchanged in 2010.

Bank-owned life insurance. Bank-owned life insurance (“BOLI”) is universal life insurance, purchased by the Company, on the lives of the Company’s officers. The beneficial aspects of these universal life insurance policies are tax-free earnings and a tax-free death benefit, which are realized by the Company as the owner of the policies. BOLI increased by $272,000 to $8.0 million as of December 31, 2010, from $7.7 million at the end of 2009 as a result of the earnings of the underlying insurance policies.

Deposits. Interest-earning assets are funded generally by both interest-bearing and non-interest-bearing core deposits. Deposits are influenced by changes in interest rates, economic conditions, and competition from other banks. The Company considers various sources when evaluating funding needs including, but not limited to, deposits, which represented 95.4 percent of the Company’s total funding sources at December 31, 2010. The deposit base consists of demand deposits, savings, money market accounts, and time deposits. Total deposits increased $78.1 million, or 16.0 percent, to $565.2 million at December 31, 2010, from $487.1 million at December 31, 2009.

Time deposits, particularly certificates of deposit (“CDs”), remain the most significant source of funding for the Company’s earning assets, making up 43.3 percent of total deposits. During 2010, time deposits increased $4.1 million, or 1.7 percent, from year-end 2009. This increase was the smallest increase in both dollar amount and percentage of any of the Bank’s deposit products. This is primarily due to the historically low market interest rates on CDs, leaving customers’ looking for more liquid deposit types.

Complementing the increase in time deposits was the increase in the Company’s savings balances, which were up $39.6 million, or 36.9 percent, to finish at $147.0 million at year-end 2010 as compared with $107.4 million at year-end 2009. Also adding to the Company’s deposit growth for the year was the increase in money market accounts, which were up $14.7 million, or 26.0 percent, from year-end 2009. Demand deposit accounts increased $19.8 million when compared with the prior year. The Company will continue to experience increased competition for deposits in its market areas, which could challenge net growth in its deposit balances. The Company will continue to evaluate its deposit portfolio mix to properly utilize both retail and wholesale funds to support earning assets and minimize interest costs.

Borrowed funds. The Company utilizes short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances, junior subordinated debt, lines of credit from other banks, and repurchase agreement borrowings. Borrowed funds decreased $5.7 million, or 17.4 percent, to $27.0 million at December 31, 2010, from $32.7 million at December 31, 2009. FHLB advances declined $6.5 million, with short-term borrowings increasing $832,000.

Stockholders’ equity. The Company maintains a capital level that exceeds regulatory requirements as a margin of safety for its depositors and shareholders. All of the capital ratios exceeded the regulatory well capitalized guidelines. EB is required by the terms of its MOU to maintain Tier 1 leverage capital of at least 9 percent. To account for the ongoing economic stress in the markets in which the Company and its subsidiary banks operate and to account for the growth that has already occurred in substandard and other nonperforming assets, the Company’s board has established a goal to achieve Tier I leverage capital of at least 7.25 percent and total risk-based capital of at least 12 percent by December 31, 2011, both on the part of the Company and MBC. Shareholders’ equity totaled $38.0 million at December 31, 2010, compared with $36.7 million at December 31, 2009, which represents growth of 3.5 percent. Contributing most to this increase was year-to-date net income of $2.5 million. Offsetting the growth in capital were cash dividends paid of $1.6 million, or $1.04 per share, year-to-date.

Middlefield Banc Corp.     58

The Company maintains a dividend reinvestment and stock purchase plan. The plan allows shareholders to purchase additional shares of company stock. A benefit of the plan is to permit the shareholders to reinvest cash dividends as well as make supplemental purchases without the usual payment of brokerage commissions. During 2010, shareholders invested more than $510,000 through the dividend reinvestment and stock purchase plan. These proceeds resulted in the issuance of 26,441 new shares at an average price of $19.40.

Average balance sheet and yield/rate analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread, and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully tax equivalent basis utilizing a federal tax rate of 34 percent.

	For The Year Ended December 31,
	2010							2009							2008
	Average				Average			Average				Average			Average				Average
	Balance		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	$	362,239	$	21,084		5.82	%	$	335,714	$	20,271		6.04	%	$	317,226	$	21,426		6.75	%
Investments securities (3)		177,377		7,835		5.19	%		110,142		5,676		6.03	%		96,277		4,349		5.48	%
Interest-bearing deposits with other banks		32,466		175		0.54	%		16,078		104		0.64	%		7,701		263		3.41	%
Total interest-earning assets		572,082		29,094		5.32	%		461,934		26,051		5.85	%		421,204		26,038		6.40	%
Noninterest-earning assets		39,896							33,777							29,658
Total assets		611,978							495,711							450,862
Interest-bearing liabilities:
Interest-bearing demand deposits	$	43,714		394		0.90	%	$	32,609		318		0.98	%	$	24,178		297		1.23	%
Money market deposits		66,392		942		1.42	%		37,200		760		2.04	%		25,042		783		3.13	%
Savings deposits		130,107		1,616		1.24	%		87,295		1,371		1.57	%		70,868		1,363		1.92	%
Certificates of deposit		248,445		6,552		2.64	%		225,821		7,847		3.47	%		216,732		9,909		4.57	%
Borrowings		30,865		1,441		4.67	%		32,071		1,487		4.63	%		36,229		1,706		4.70	%
Total interest-bearing liabilities		519,523		10,945		2.11	%		414,996		11,783		2.84	%		373,049		14,058		3.77	%
Noninterest-bearing liabilities
Other liabilities		53,350							44,358							44,762
Stockholders’ equity		39,105							36,357							33,051
Total liabilities and stockholders’ equity	$	611,978						$	495,711						$	450,862
Net interest income			$	18,149						$	14,268						$	11,980
Interest rate spread (1)						3.22	%						3.01	%						2.63	%
Net yield on interest-earning assets (2)						3.41	%						3.30	%						3.06	%
Ratio of average interest-earning assets to average interest-bearing liabilities						110.12	%						111.31	%						112.91	%

(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 $1,365, $969, and $932 for 2010, 2009, and 2008 respectively.

2010 Annual Report     59

	2010 versus 2009									2009 versus 2008
	Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars in thousands)									(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	1,602		$	(789	)	$	813		$	1,249		$	(2,404	)	$	(1,155	)
Investments securities		4,057			(1,898	)		2,159			760			567			1,327
Interest-bearing deposits with other banks		106			(35	)		71			286			(445	)		(159	)
Total interest-earning assets		5,765			(2,722	)		3,043			2,295			(2,282	)		13
Interest-bearing liabilities:
Interest-bearing demand deposits		108			(32	)		76			104			(83	)		21
Money market deposits		597			(416	)		181			381			(404	)		(23	)
Savings deposits		672			(427	)		245			315			(307	)		8
Certificates of deposit		786			(2,081	)		(1,295	)		415			(2,480	)		(2,065	)
Borrowings		(56	)		11			(45	)		(195	)		(21	)		(216	)
Total interest-bearing liabilities		2,107			(2,945	)		(838	)		1,020			(3,295	)		(2,275	)
Net interest income	$	3,658		$	223		$	3,881		$	1,275		$	1,013		$	2,288

Changes in Results of Operations

2010 Results Compared to 2009 Results

General. The Company posted net income of $2.5 million, compared with $1.8 million for the year ended December 31, 2009. On a per share basis, 2010 earnings were $1.60 per diluted share, representing an increase from the $1.15 per diluted share for the year ended December 31, 2009. The return on average equity for the year ended December 31, 2010, was 6.44 percent and its return on average assets was 0.41 percent. The $736,000 or 41.3 percent improvement in net income between 2010 and 2009 can be attributed to an increase in net interest income of $3.9 million. This increase was partially offset by an increase in noninterest expense of $2.1 million and an increase of $1.0 million in provision for loan losses.

Net interest income. Net interest income, which is the Company’s largest revenue source, is the difference between interest income on earning assets and interest expense paid on liabilities. Net interest income is affected by the changes in interest rates and the composition of interest earning assets and interest-bearing liabilities. Net interest income increased by $3.9 million in 2010 to $18.1 million compared with $14.3 million for 2009. This increase is the net result of a $3.0 million rise in interest income which was supported by a decline in interest expense of $838,000. Interest-earning assets averaged $572.1 million during 2010, representing a $110.1 million, or 23.8 percent, increase since year-end 2009. The Company’s average interest-bearing liabilities increased 25.2 percent from $415.0 million in 2009 to $519.5 million in 2010.

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The interest-bearing funds are composed of deposits, short-term borrowings, and long-term debt. Interest paid for the use of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits and stockholders’ equity, require no interest expense and, therefore, contribute significantly to net interest income.

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two key performance indicators- net interest spread and net interest margin. The net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin represents the overall profit margin: net interest income as a percentage of total interest-earning assets. This performance indicator gives effect to interest earned for all investable funds, including the substantial volume of interest-free funds. For 2010 the net interest margin, measured on a fully taxable equivalent basis, increased to 3.41 percent, compared with 3.30 percent in 2009.

Middlefield Banc Corp.     60

Interest income. Interest income increased $3.0 million to $29.1 million for 2010, which was partially attributed to an $813,000 increase in interest and fees on loans that was complemented by an increase in interest on investment securities. The change in interest income on securities was attributable to an increase in the average balance of investment securities of $67.2 million, or 61.0 percent, to $177.4 million for the year ended December 31, 2010, as compared with $110.1 million for the year ended December 31, 2009. The growth was offset by a decrease in the investment security yield to 5.19 percent for 2010, compared with 6.03 percent for 2009.

Interest and fees on loans increased $813,000 to $21.1 million for 2010, compared with $20.3 million for 2009. This increase was primarily attributable to the growth of the average balance of loans of $26.5 million to $362.2 million for the year ended December 31, 2010, as compared with $335.7 million for the year ended December 31, 2009, which was offset by a decline in the loan yield to 5.82 percent for 2010, compared with 6.04 percent for 2009. This decline was due to the fact that a large percentage of the loan portfolio uses the prime rate as its index. Loans continued to reprice to the historically low 3.25 percent prime rate throughout 2010.

Interest expense. Interest expense decreased $838,000, or 7.1 percent, to $10.9 for 2010, compared with $11.8 million for 2009. This change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, which was more than offset by a 73-basis-point decline in the rate paid on these liabilities. For the year ended December 31, 2010, the average balance of interest-bearing liabilities grew by $104.5 million to $519.5 million as compared with $415.0 million for the year ended December 31, 2009. Interest incurred on deposits declined by $792,000 for the year from $10.3 million in 2009 to $9.5 million for year-end 2010. The change in deposit expense was due to an increase in the average balance of $105.7 million in 2010, which was more than offset by a 75-basis-point decline during the year. Interest incurred on FHLB advances, repurchase agreements, junior subordinated debt, and other borrowings declined $45,000, or 3.0 percent, to $1.4 million for 2010, compared with $1.5 million for 2009. The decline was mitigated by a four-basis-point increase in the rate paid on these borrowings during the year.

Loan loss provision. The provision for loan losses is an operating expense recorded to maintain the related balance sheet allowance for loan losses at an amount considered adequate to cover probable losses incurred in the normal course of lending. The provision for loan losses at December 31, 2010, was $3.6 million compared with $2.6 million in 2009. The loan loss provision is based upon management’s assessment of a variety of factors, including types and amounts of nonperforming loans, historical loss experience, collectibility of collateral values and guaranties, pending legal action for collection of loans and related guaranties, and current economic conditions. The loan loss provision reflects management’s judgment of the current period cost-of-credit risk inherent in the loan portfolio. Although management believes the loan loss provision has been sufficient to maintain an adequate allowance for loan losses, actual loan losses could exceed the amounts that have been charged to operations.

Our asset quality numbers reflect the continued environment of sustained economic weakness, including continued high unemployment, increased levels of under-employment, and lower real estate values. In our northeastern Ohio markets, credit issues are tied to owner occupied residential properties. In contrast, our central Ohio market is reporting delinquencies tied to non-owner occupied residential properties. We believe that it is prudent, in light of the increased amount of nonperforming loans, to operate with higher levels of general loan loss reserves. During 2011, we will continue to provide a higher than historic level of provision to address credit quality issues.

2010 Annual Report     61

The increased loan loss provision, which has outpaced loan charge-offs, has substantially strengthened the allowance for loan losses. The ratio of the allowance for loan losses to total loans increased to 1.67 percent of total loans at December 31, 2010, compared with the 1.40 percent at December 31, 2009. During the fourth quarter of 2009, the Company created a new entity, EMORECO, Inc., which is designed to aid in troubled asset resolution. During November 2009, EMORECO purchased $4.6 million of nonperforming assets from EB. The Company provided $720,000 in support of loans held in EMORECO in 2010.

Noninterest income. Noninterest income decreased $45,000, or 1.7 percent, to $2.6 million for 2010 compared with $2.7 million for 2009. The decrease is due to a reduction in service charges on deposit accounts of $121,000. This decline is the result of changes in federal regulations regarding the collection of overdraft fees. This decrease was partially offset by the collection of rent on other real estate owned properties, a net gain of $11,000 on the sale of investment securities, and a $7,000 increase in income on bank-owned insurance policies.

Noninterest expense. Operating expenses increased $2.1 million, or 16.7 percent, to $14.8 million for 2010 compared with $12.7 million for 2009. Expense increases in salaries and employee benefits of $473,000 were the result of the addition of employees due to the growth of the Company and increases in employees’ health benefits. FDIC assessments increased $459,000 in 2010 as a result of the deposit growth for the year. Losses on the sale of other real estate owned increased $600,000, or 327.9 percent, to $783,000 when compared with the prior year. This increase reflects the Company’s active pursuit of sales opportunities of other real estate owned properties and a conservative approach in valuing these properties. Included in this total is the Company’s non-bank asset resolution subsidiary EMORECO, which had $730,000 in losses on the sale of other real estate owned. Other expenses increased to $3.1 million, up $760,000, or 33.0 percent, compared with the 2009 balance of $2.3 million. Included in this amount are expenses related to delinquent loans, foreclosures, and other real estate owned, which totaled $565,000, an increase of $521,000 over the prior year, which represents 62.5 percent of the increase. EMORECO had $353,000 in loan and other real estate owned expenses as of December 31, 2010. Based on the number of nonperforming loans, management believes that the higher-than-historic expenses related to asset quality will continue into 2011. Offsetting these increases is a reduction of $174,000 in data-processing costs, which occurred when the Company changed data processors in April 2010 and resulted in a more favorable data-processing contract. Additionally, the Company received Ohio state franchise tax refunds, which resulted in a $145,000 decrease when compared with 2009.

Provision for income taxes. The provision for income taxes decreased $15,000, or 20.5 percent, to a tax benefit of $88,000 for 2010, compared with a tax benefit of $73,000 in 2009. This decrease was due to an increase in pretax income of $721,000 during 2010. This increase was offset by the increase in non-taxable income from obligations of states and political subdivisions to $2.7 million, an increase of $768,000 when compared with 2009. The Company’s effective federal income tax rate in 2010 was (3.6) percent compared to (4.3) percent in 2009.

2009 Results Compared to 2008 Results

General. The Company posted net income of $1.8 million, compared with $2.6 million for the year ended December 31, 2008. On a per share basis, 2009 earnings were $1.15 per diluted share, representing a decrease from the $1.69 per diluted share for the year ended December 31, 2008. The return on average equity for the year ended December 31, 2009, was 4.90 percent and its return on average assets was 0.36 percent. The $834,000, or 31.9 percent, decline in net income between 2009 and 2008 can primarily be attributed to an increase in total noninterest expense of $2.1 million and provision for loan losses of $2.0 million. This decrease was partially offset by a reduction of interest expense of $2.3 million and an increase of $442,000 in noninterest income.

Net interest income. Net interest income, which is the Company’s largest revenue source, is the difference between interest income on earning assets and interest expense paid on liabilities. Net interest income is affected by the changes in interest rates and the composition of interest earning assets and interest-bearing liabilities. Net interest income increased by $2.3 million in 2009 to $14.3 million, compared with $12.0 million for 2008. This increase is the net result of a $13,000 rise in interest income, which was supported by a major decline in interest expense of $2.3 million. Interest-earning assets averaged $461.9 million during 2009, representing a $40.7 million, or 9.7 percent, increase since year-end 2008. The Company’s average interest-bearing liabilities increased 11.2 percent, from $373.1 million in 2008 to $415.0 million in 2009.

Middlefield Banc Corp.     62

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The interest-bearing funds are composed of deposits, short-term borrowings, and long-term debt. Interest paid for the use of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits and stockholders’ equity, require no interest expense and, therefore, contribute significantly to net interest income.

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two key performance indicators- net interest spread and net interest margin. The net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin represents the overall profit margin: net interest income as a percentage of total interest-earning assets. This performance indicator gives effect to interest earned for all investable funds, including the substantial volume of interest-free funds. For 2009 the net interest margin, measured on a fully taxable equivalent basis, increased to 3.30 percent, compared with 3.06 percent in 2008.

Interest income. Interest income increased $13,000 to $26.1 million for 2009, which was attributed to a $1.2 million decline in interest and fees on loans that was offset by an increase in interest on investment securities. The change in interest income on securities was primarily attributable to an increase in the average balance of investment securities of $13.9 million, or 14.4 percent, to $110.1 million for the year ended December 31, 2009, as compared with $96.3 million for the year ended December 31, 2008. In addition to growth there was also an increase in the investment security yield to 6.03 percent for 2009, compared with 5.48 percent for 2008.

Interest and fees on loans declined $1.1 million to $20.3 million for 2009, compared with $21.4 million for 2008. This decrease was primarily attributable to the growth of the average balance of loans of $18.5 million to $335.7 million for the year ended December 31, 2009, as compared with $317.2 million for the year ended December 31, 2008, which was offset by a decline in the loan yield to 6.04 percent for 2009, compared with 6.75 percent for 2008. This decline was due to the fact that a large percentage of the loan portfolio uses the prime rate as its index. The prime rate averaged 3.25 percent in 2009 as compared to 5.09 percent in 2008.

Interest expense. Interest expense decreased $2.3 million, or 16.2 percent, to $11.8 for 2009, compared with $14.1 million for 2008. This change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, which was more than offset by a 93-basis-point decline in the rate paid on these liabilities. For the year ended December 31, 2009, the average balance of interest-bearing liabilities grew by $42.0 million to $415.0 million, as compared with $373.1 million for the year ended December 31, 2008. Interest incurred on deposits declined by $2.1 million for the year from $12.4 million in 2008 to $10.3 million for year-end 2009. The change in deposit expense was due to an increase in the average balance of $46.1 million in 2009, which was more than offset by a 98-basis-point decline during the year. Interest incurred on FHLB advances, repurchase agreements, junior subordinated debt, and other borrowings declined $216,000, or 12.7 percent, to $1.5 million for 2009, compared with $1.7 million for 2008. The decline was also attributable to a seven-basis-point decrease in the rate paid on these borrowing during the year.

Loan loss provision. The provision for loan losses is an operating expense recorded to maintain the related balance sheet allowance for loan losses at an amount considered adequate to cover probable losses incurred in the normal course of lending. The provision for loan losses at December 31, 2009, was $2,578,000 compared with $608,000 in 2008. The loan loss provision is based upon management’s assessment of a variety of factors, including types and amounts of nonperforming loans, historical loss experience, collectability of collateral values and guaranties, pending legal action for collection of loans and related guaranties, and current economic conditions. The loan loss provision reflects management’s judgment of the current period cost-of-credit risk inherent in the loan portfolio. Although management believes the loan loss provision has been sufficient to maintain an adequate allowance for loan losses, actual loan losses could exceed the amounts that have been charged to operations.

2010 Annual Report     63

Our asset quality numbers reflect the continued environment of sustained economic weakness, including continued high unemployment, increased levels of under-employment, and lower real estate values. In our northeastern Ohio markets, credit issues are tied to owner-occupied residential properties. In contrast, our central Ohio market is reporting delinquencies tied to non-owner-occupied residential properties. We believe that it is prudent, in light of the increased amount of nonperforming loans, to operate with higher levels of general loan loss reserves.

The increased loan loss provision, which has significantly outpaced loan charge-offs, has substantially strengthened the allowance for loan losses. The ratio of the allowance for loan losses to total loans increased to 1.40 percent of total loans at December 31, 2009, compared with the 1.28 percent reported at September 30, 2009, and 1.11 percent at December 31, 2008. During the fourth quarter of 2009, the Company created a new entity, EMORECO, Inc., which is designed to aid in troubled asset resolution. During November 2009, EMORECO purchased $4.6 million of nonperforming assets from EB.

Noninterest income. Noninterest income increased $442,000, or 19.8 percent, to $2.7 million for 2009 compared with $2.2 million for 2008. Earnings on bank-owned life insurance were lower, reflective of the current interest rate environment. During 2008, the Company recognized a charge for other-than-temporary impairment on securities of $376,000. A similar charge, in the amount of $88,000, was recognized in 2009. Management has concluded that it is probable that there has been an adverse change in estimated cash flows for those securities, which management deemed to be other-than-temporarily impaired in accordance with generally accepted accounting principles.

Noninterest expense. Operating expenses increased $2.0 million, or 19.4 percent, to $12.7 million for 2009 compared with $10.6 million for 2008. Expense increases in salaries and employee benefits of $1.0 million, occupancy expense of $43,000, and data processing costs of $114,000 during 2009 are all directly related to the growth of the Company. MBC opened its Cortland office in June 2008, while EB acquired an office in Westerville in November 2008. Both of these actions, while expanding the Company’s footprint, contributed to the higher expense levels. The premium for FDIC insurance increased 276.5 percent in 2009 to $707,000 compared with $188,000 for 2008.

Provision for income taxes. The provision for income taxes declined $460,000, or 118.8 percent, to a benefit of ($73,000) for 2009, compared with $387,000 for 2008. This decrease was primarily the result of a decline in income before taxes of $1.3 million, or 43.1 percent, to $1.7 million for 2009, compared with $3.0 million for 2008. The Company’s effective federal income tax rate in 2009 was (4.3) percent compared with 12.9 percent in 2008.

Asset and Liability Management

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives, and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing or maturity of interest-earning assets and the repricing or maturity of its interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while, at the same time, extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in strong asset/liability management in order to insulate the Company from material and prolonged increases in interest rates. As a result of this policy, the Company emphasizes a larger, more diversified portfolio of residential mortgage loans in the form of mortgage-backed securities. Mortgage-backed securities generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Company.

Middlefield Banc Corp.     64

The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors and senior management. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies which were implemented by the Company over the past few years.

Interest Rate Sensitivity Simulation Analysis

The Company utilizes income simulation modeling in measuring its interest rate risk and managing its interest rate sensitivity. The Asset and Liability Management Committee of the Company believes that simulation modeling enables the Company to more accurately evaluate and manage the possible effects on net interest income due to the exposure to changing market interest rates, the slope of the yield curve and different loan and mortgage-backed security prepayment, and deposit decay assumptions under various interest rate scenarios.

Earnings simulation modeling and assumptions about the timing and variability of cash flows are critical in net portfolio equity valuation analysis. Particularly important are the assumptions driving mortgage prepayments and the assumptions about expected attrition of the core deposit portfolios. These assumptions are based on the Company’s historical experience and industry standards and are applied consistently across the different rate risk measures.

The Company has established the following guidelines for assessing interest rate risk:

Net interest income simulation. Given a 200-basis-point parallel gradual increase or decrease in market interest rates, net interest income may not change by more than 10% for a one-year period.

Portfolio equity simulation. Portfolio equity is the net present value of the Company’s existing assets and liabilities. Given a 200-basis-point immediate and permanent increase or decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity.

The following table presents the simulated impact of a 200-basis-point upward or downward shift of market interest rates on net interest income and the change in portfolio equity. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2010, remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the December 31, 2010, levels for net interest income, and portfolio equity. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at December 31, 2010, for portfolio equity:

	Increase			Decrease
	+200 BP			-200 BP
Net interest income—increase (decrease)		(0.04	)%		1.81	%
Portfolio equity—increase (decrease)		(17.50	)%		(7.48	)%

2010 Annual Report     65

Allowance for loan losses. The allowance for loan losses represents the amount management estimates are adequate to provide for probable losses inherent in the loan portfolio as of the balance sheet date. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses, which is charged to operations. The provision is based on management’s periodic evaluation of the adequacy of the allowance for loan losses, taking into account the overall risk characteristics of the various portfolio segments, the Company’s loan loss experience, the impact of economic conditions on borrowers, and other relevant factors. The estimates used to determine the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant change in the near term. The total allowance for loan losses is a combination of a specific allowance for identified problem loans, a general allowance for homogeneous loan pools, and an unallocated allowance.

In 2010, the combination of sustained weakness in commercial real estate values and a sluggish economy continued to have an adverse impact on the financial condition of commercial borrowers. These factors resulted in the Company downgrading loan quality ratings of several commercial loans during the year. The distressed commercial real estate market also caused certain existing impaired commercial real estate loans to become under-collateralized during the year, resulting in the loans being charged down to the estimated net realizable value of the underlying collateral.

At December 31, 2010, the Company’s allowance for loan losses showed an increase of $1.3 million, for a balance of $6.2 million compared with $4.9 million from December 31, 2009. The allowance now represents 1.67 percent of the gross loan portfolio as compared with 1.40 percent for the previous year. The increase in the allowance for loan losses was necessitated by loan downgrades and an increase to specific reserves for impaired commercial real estate loans discussed above, coupled with the impact of charge-offs remaining at an elevated level. Net loan charge-offs totaled $2.3 million, or 0.63 percent of average loans, in 2010, compared with $1.2 million, or 0.36 percent, for 2009. To maintain the adequacy of the allowance for loan losses, the Company recorded a yearly provision for loan loss of $3.6 million versus $2.6 million for 2009.

The specific allowance incorporates the results of measuring impaired loans. The formula allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management’s determination of the amounts necessary for concentrations and changes in mix and volume of the loan portfolio, and consideration of historical loss experience.

The non-specific allowance is determined based upon management’s evaluation of existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends, collateral values, unique industry conditions within portfolio segments that existed as of the balance sheet date, and the impact of those conditions on the collectibility of the loan portfolio. Management reviews these conditions quarterly. The non-specific allowance is subject to a higher degree of uncertainty because it considers risk factors that may not be reflected in the historical loss factors.

Although management believes that it uses the best information available to make such determinations and that the allowance for loan losses was adequate at December 31, 2010, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy and employment could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Company’s loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

Middlefield Banc Corp.     66

The following table sets forth information concerning the Company’s allowance for loan losses at the dates and for the periods presented.

	For the Years Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Allowance balance at beginning of period	$	4,937		$	3,557		$	3,299
Loans charged off:
Commercial and industrial		(450	)		(217	)		(278	)
Real estate — construction		—			—			—
Real estate — mortgage:
Residential		(1,433	)		(768	)		(2	)
Commercial		(428	)		(81	)		—
Consumer installment		(59	)		(221	)		(135	)
Total loans charged off		(2,370	)		(1,287	)		(415	)
Recoveries of loans previously charged off:
Commercial and industrial		40			33			30
Real estate — construction		—			—			—
Real estate — mortgage:
Residential		—			—			2
Commercial		—			—			—
Consumer installment		34			56			33
Total recoveries		74			89			65
Net loans charged off		(2,296	)		(1,198	)		(350	)
Provision for loan losses		3,580			2,578			608
Allowance balance at end of period	$	6,221		$	4,937		$	3,557
Loans outstanding:
Average	$	362,239		$	335,714		$	317,226
End of period		372,498			353,597			321,575
Ratio of allowance for loan losses to loans outstanding at end of period		1.67	%		1.40	%		1.11	%
Net charge offs to average loans		(0.63	)		(0.36	)		(0.11	)

The following table illustrates the allocation of the Company’s allowance for probable loan losses for each category of loan for each reported period. The allocation of the allowance to each category is not necessarily indicative of future loss in a particular category and does not restrict our use of the allowance to absorb losses in other loan categories.

	At December 31,
	2010					2009					2008
			Percent of					Percent of					Percent of
			Loans in Each					Loans in Each					Loans in Each
			Category to					Category to					Category to
	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans
	(Dollars in thousands)					(Dollars in thousands)					(Dollars in thousands)
Type of Loans:
Commercial and industrial	$	1,234		15.4	%	$	864		16.1	%	$	961		20.7	%
Real estate — construction		356		4.3			—		2.2			—		2.5
Mortgage:
Residential		3,392		56.3			2,816		58.0			2,048		62.0
Commercial		1,143		22.6			1,198		22.3			521		13.3
Consumer installment		96		1.4			59		1.4			27		1.5
Total	$	6,221		100	%	$	4,937		100	%	$	3,557		100	%

2010 Annual Report     67

Nonperforming assets. Nonperforming assets included nonaccrual loans, troubled debt restructuring (“TDR”), renegotiated loans, loans 90 days or more past due, other real estate, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. TDRs are those loans which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The Company had 13 TDRs with a combined principal balance of $1.6 million as of December 31, 2010. Nonperforming loans amounted to $20.0 million, or 5.4 percent, and $16.3 million, or 4.6 percent of total loans, at December 31, 2010 and December 31, 2009, respectively. The increase in nonperforming assets has occurred primarily in commercial and one-to-four-family real estate loans and other real estate owned. Nonperforming loans secured by real estate totaled $16.2 million as of December 31, 2010, up $3.3 million from $12.9 million at December 31, 2009. The depressed state of the economy and persistently high levels of unemployment have contributed to this trend, as well as the decline in the housing market across our geographic footprint that reflected declining home prices and increasing inventories of houses for sale. Real estate owned is written down to fair value at its initial recording and continually monitored.

A major factor in determining the appropriateness of the allowance for loan losses is the type of collateral which secures the loans. Of the total nonperforming loans at December 31, 2010, 80.8 percent were secured by real estate. Although this does not insure against all losses, the real estate provides substantial recovery, even in a distressed-sale and declining-value environment. In response to the poor economic conditions which have eroded the performance of the Company’s loan portfolio, additional resources have been allocated to the loan workout process. The Company’s objective is to work with the borrower to minimize the burden of the debt service and to minimize the future loss exposure to the Company.

The following table summarizes nonperforming assets by category.

	At December 31,
	2010			2009			2008
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial and industrial	$	2,540		$	2,960		$	1,530
Real estate — construction		648			248			469
Real estate — mortgage:
Residential		11,686			10,134			3,902
Commercial		3,513			1,175			351
Consumer installment		12			2			2
Total non-accrual loans		18,399			14,519			6,254
Troubled debt restructuring:
Commercial and industrial		619			—			—
Real estate — construction		—			—			—
Real estate — mortgage:
Residential		530			—			—
Commercial		428			—			—
Consumer installment		10			—			—
Total troubled debt restructuring		1,587			—			—
Accruing loans which are contractually past due 90 days or more:
Commercial and industrial		—			9			558
Real estate — construction		—			205			—
Real estate — mortgage:
Residential		—			441			1,659
Commercial		—			1,111			—
Consumer installment		—			—			9
Total accruing loans which are contractually past due 90 days or more		—			1,766			2,226
Total nonperforming loans	$	19,986		$	16,285		$	8,480
Real estate owned		2,302			2,164			1,106
Total nonperforming assets	$	22,288		$	18,450		$	9,586
Total nonperforming loans to total loans		5.37	%		4.61	%		2.64	%
Total nonperforming loans to total assets		3.16	%		2.92	%		1.81	%
Total nonperforming assets to total assets		3.53	%		3.30	%		2.05	%

Middlefield Banc Corp.   68

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Payments received on nonaccrual loans are recorded as income or applied against principal according to management’s judgment as to the collectibility of principal.

A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Management has determined that first mortgage loans on one-to-four family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are to be collectively evaluated. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. Management evaluates all loans identified as impaired individually. The Company estimates credit losses on impaired loans based on the present value of expected cash flows, or the fair value of the underlying collateral if loan repayment is expected to come from the sale or operation of the collateral. Impaired loans, or portions thereof, are charged off when it is determined a realized loss has occurred. Until that time, an allowance for loan losses is maintained for estimated losses.

Unless otherwise required by the loan terms, cash receipts on impaired loans are applied first to accrued interest receivable except when an impaired loan is also a nonaccrual loan, in which case the portion of the payment related to interest is recognized as income.

Interest income recognized on nonaccrual loans during all of the periods was insignificant. Management is not aware of any trends or uncertainties related to any loans classified as doubtful or substandard that might have a material effect on earnings, liquidity, or capital resources.

Liquidity and Capital Resources

Liquidity. Management’s objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of bank customers, such as borrowings or deposit withdrawals, as well as the Company’s own financial commitments. The principal sources of liquidity are net income, loan payments, maturing and principal reductions on securities and sales of securities available for sale, federal funds sold, and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds; the ability to borrow funds under line of credit agreements with correspondent banks; a borrowing agreement with the Federal Home Loan Bank of Cincinnati, Ohio, and the adjustment of interest rates to obtain deposits. Management believes that the Company has the capital adequacy, profitability, and reputation to meet the current and projected needs of its customers.

We manage liquidity based upon factors that include the amount of core deposits as a percentage of total deposits, the level of diversification of our funding sources, the allocation and amount of our deposits among deposit types, the short-term funding sources used to fund assets, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold, and the repricing characteristics and maturities of our assets when compared with the repricing characteristics of our liabilities and other factors.

2010 Annual Report   69

The Company’s liquid assets consist of cash and cash equivalents, which include investments in very short-term investments (i.e., Federal funds sold) and investment securities classified as available for sale. The level of these assets is dependent on the Company’s operating, investing, and financing activities during any given period. At December 31, 2010, cash and cash equivalents totaled $30.6 million, or 4.8 percent of total assets, while investment securities classified as available for sale totaled $201.8 million, or 31.9 percent of total assets. Management believes that the liquidity needs of the Company are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, FHLB advances, junior subordinated debt, and the portion of the investment and loan portfolios that mature within one year. These sources of funds will enable the Company to meet cash obligations and off-balance sheet commitments as they come due.

Operating activities provided net cash of $5.7 million, $1.1 million, and $3.2 million for 2010, 2009, and 2008, respectively, generated principally from net income of $2.5 million, $1.8 million, and $2.6 million in each of these respective periods.

Investing activities used $87.6 million, which consisted primarily of loan originations and repayments and investment purchases and maturities. These cash usages primarily consisted of loan increases of $23.0 million, as well as investment purchases of $113.9 million. Partially offsetting the usage of investment activities is $42.8 million of proceeds from investment security maturities and repayments. For the same period ended 2009, investing activities used $65.5 million in funds, principally for the net origination of loans and the purchase of investment securities of $34.5 million and $52.2 million, respectively. During the same period ended 2008, cash usages primarily consisted of loan originations of $13.4 million as well as investment purchases of $39.1 million.

Financing activities consist of the solicitation and repayment of customer deposits, borrowings and repayments, treasury stock activity, and the payment of dividends. During 2010, net cash provided by financing activities totaled $71.3 million, principally derived from an increase in deposit accounts of $78.1 million and offset by $6.5 million to repay FHLB borrowings. During 2009, net cash provided by financing activities totaled $88.1 million, principally derived from an increase in deposit accounts and offset by the repayment of other borrowings. During the same period ended 2008, net cash provided by financing activities was $30.6 million, principally derived from an increase in deposit accounts.

Liquidity may be adversely affected by unexpected deposit outflows, excessive interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable, based in part on the Company’s commitment to make loans, as well as management’s assessment of the Company’s ability to generate funds. The Company anticipates that it will have sufficient liquidity to satisfy estimated short-term and long-term funding needs.

Capital Resources. The Company’s primary source of capital has been retained earnings. Historically, the Company has generated net retained income to support normal growth and expansion. Management has developed a capital planning policy to not only ensure compliance with regulations, but also to ensure capital adequacy for future expansion.

The Company and its subsidiaries are subject to federal regulations imposing minimum capital requirements. Management monitors both the Company’s and banks’ Total risk-based, Tier I risk-based, and Tier I leverage capital ratios to assess compliance with regulatory guidelines. At December 31, 2010, both the Company and its subsidiaries exceeded the minimum risk-based and leverage capital ratio requirements. The Company’s Total risk-based, Tier I risk-based, and Tier I leverage ratios were 11.79 percent, 10.53 percent, and 6.73 percent at December 31, 2010. MBC’s Total risk-based, Tier I risk-based, and Tier I leverage ratios were 11.55 percent, 10.32 percent, and 6.50 percent, and EB’s were 14.63 percent, 13.34 percent, and 9.50 percent, respectively, at December 31, 2010.

Middlefield Banc Corp.   70

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

The Company had approximately 1,052 stockholders of record as of January 21, 2011. There is no established market for the Company’s common stock. The stock is traded very infrequently. Bid prices are quoted from time to time in the “pink sheets” under the symbol “MBCN.” The “pink sheets” is a quotation service for over-the-counter securities that is maintained by Pink OTC Markets Inc., a privately owned company. The following table shows the high and low bid prices of and cash dividends paid on the Company’s common stock in 2010 and 2009, adjusted for stock splits and stock dividends. This information does not reflect retail mark-up, markdown, or commissions, and does not necessarily represent actual transactions.

					Cash
	High		Low		Dividends
	Bid		Bid		Per share
2010
First Quarter	$	24.50	$	19.50	$	0.26
Second Quarter	$	23.00	$	18.67	$	0.26
Third Quarter	$	20.00	$	16.99	$	0.26
Fourth Quarter	$	18.00	$	16.25	$	0.26
2009
First Quarter	$	22.50	$	20.00	$	0.26
Second Quarter	$	23.00	$	19.50	$	0.26
Third Quarter	$	19.50	$	15.25	$	0.26
Fourth Quarter	$	24.00	$	14.99	$	0.26

2010 Annual Report   71

Board of Directors

Kenneth E. Jones — 2004
Chairman, Board of Directors, Emerald Bank
President
Chesapeake Financial Advisors

George J. Kontogiannis, AIA — 2004
Chief Executive Officer
The Kontogiannis Companies

Joseph C. Zanetos — 2004
President
Anthony-Thomas Candy Co.

Clayton W. Rose, III, C.P.A. — 2006
Shareholder
Rea & Associates, Inc.

Thomas G. Caldwell — 2007
President and Chief Executive Officer
Middlefield Banc Corp.
The Middlefield Banking Company

Richard T. Coyne — 2007
Chairman, Board of Directors, Middlefield Banc Corp.
The Middlefield Banking Company
Retired: Jaco Products and Capital Plastics

James L. Long — 2008
President and Chief Executive Officer
Emerald Bank

Officers

James L. Long — 2008
President and Chief Executive Officer

Donald L. Stacy — 2007
Chief Financial Officer and Treasurer

Joe T.Glassco- 2009
Vice President
Commercial Lender

Charles T. Woodson — 2008
Assistant Vice President
Westerville Branch Manager

Laura E. Neale-2010
Assistant Vice President
Commercial Lender

Barbara J. Howard — 2004
Administrative Officer
Accountingo

Jessica L. Vituccio — 2009
Administrative Officer
Loan Specialist

Melody A. Askey — 2009
Compliance Officer

Middlefield Banc Corp.   74

Staff

Dublin Office:
Megan Davie — 2010 — Branch Supervisor
Elaine Gaub — 2005 — Customer Services
Marcia Boatwright — 2009 — Customer Services

Westerville Branch:
Lisa Stokes — 2006 — Teller Supervisor
Rebekah Bolton — 2008 — Customer Services
Valorie Thorpe — 2010 — Customer Services

Branch Locations

Dublin Branch Drive up ATM
6215 Perimeter Drive
Dublin, Ohio 43017
614.793.4631 • fax: 614.793.8922

Westerville Branch Drive up ATM
17 North State Street
Westerville, Ohio 43081
614.890.7832 • fax: 614.890.4633

2010 Annual Report   75

Staff

Main Office:
Mary Gerbasi — 2010 — Branch Manager
Louise Fenselon — 1984 — Head Teller
Bonnie Steele — 1985 — Customer Service Representative
Diana Koller — 1998 — Teller
Rachel Reese — 2005 — Teller
Amanda Howes — 2006 — Teller
Jenna Janssen — 2006 — Receptionist
Kristina Stephens — 2006 — CSR/Licensed Annuity Specialist
Linda Chandler — 2007 — Teller
Rachel DeYoung — 2010 — Teller*
Cheryl Kleinhenz — 2010 — Teller*
Andrea Scheid — 2010 — Teller*
Ryan Stuver — 2010 — Teller

West Branch:
Patti Haendel — 1982 — CSR / Licensed Annuity Specialist
Rachel Lilly — 1985 — Head Teller
Amy Kothera — 2006 — Teller
Brenda Bowden — 2008 — Teller
Bethany Rowland — 2008 — Teller
Melissa Mathews — 2009 — Teller
Karrie Simcox — 2009 — Teller*

Garrettsville Branch:
Gretchen Cram — 2008 — Branch Manager
Vickie Moss — 1998 — Teller
Colleen Steele — 1998 — Head Teller
Dawn Semich — 2005 — CSR / Licensed Annuity Specialist
LynnRae Derthick — 2006 — Teller
Leah McPhail — 2006 — Teller*
Brittany Lee — 2010 — Teller*
Sherry Myers — 2010 — Teller*

Mantua Branch:
Rebecca Reinard — 2002 — Teller
Jodie Lawless — 2004 — Customer Service Representative
Allen Jenkins, Jr — 2010 — Teller*

Chardon Branch:
Amanda DiMeolo — 2001 — CSR/Licensed Annuity Specialist
Gretchen Mihalic — 2001 — Teller*
Beverly Palinsky — 2005 — Teller*
Dottie Brown — 2006 — Head Teller
Dianne Knuth — 2009 — Teller*
Jean Maur — 2010 — Teller

Orwell Branch:
Jessica Slusher — 2006 — Teller*
Lisa Swango — 2006 — CSR/Licensed Annuity Specialist
Melissa Gay — 2008 — Teller*
Denise Smith — 2009 — Teller
Sue Haehn — 2010 — Teller*

Newbury Branch:
Kathy Shanholtzer — 2007 — Branch Manager
Diane Thomas — 2006 — Teller*
Jodi Fisher — 2008 — Head Teller
Helen Milburn — 2008 — Customer Service Representative
Marlene Stefancin — 2009 — Teller*

Cortland Branch:
Jeanette Meardith — 2006 — Teller
Shannon Smith — 2009 — Teller
Tami Davenport — 2010 — Teller*
Angie Lewis — 20 1 0 — Customer Service Representative

Loan Department:
Helen Stowe — 1985 — Loan Administrative Assistant
Jane Armstrong — 1998 — Lender
Vivian Helmick — 1998 — Loan Administrative Assistant
Carolyn Fackler — 2001 — Loan Administrative Assistant
Sue Trumbull — 2005 — Loan Administrative Assistant
Joan Limpert — 2006 — Loan Administrative Assistant
Brian Martinko — 2006 — Lender
Darleen Beaver — 2007 — Loan Receptionist
Linda Hammel — 2008 — Loan Collection Manager
Terry Lehmann — 2009 — Credit Analyst
J Thomas Browne — 2010 — Credit Analyst
Carmella Honkala — 2010 — Loan Administrative Assistant
Michael Morrison — 2010 — Special Assets Manager
Brett Richey — 2010 — Special Assets Manager
Mark Sawyer — 2010 — Loan Department Supervisor

Operations:
Karen Westover — 1983 — Bookkeeper
Pamela Malcuit — 1989 — Bookkeeper
Donna Williams — 1990 — Bookkeeper
Lauren Harth — 1995 — Audit Assistant*
Tara Morgan — 1997 — Proof Operator
Bonnie Hofstetter — 1998 — Courier*
Lisa Sanborn — 2000 — Electronic Banking Specialist
Marcia Dziczkowski — 2008 — Float Teller
David Harth — 2008 — Facility Manager
Sherry Krok — 2008 — Bookkeeper
Carrie Reiter — 2008 — Courier*
Donna Marcello — 2009 — Float Teller
Dale Moore — 2009 — Computer Support Technician
Michael Wolf — 2009 — Accounting Specialist
David Krems — 2010 — Float Teller
Noelle McLure — 2010 — Customer Support Specialist

Financial Services:
Thomas Hart — 2004 — Financial Consultant

* denotes part time

Middlefield Banc Corp.   76

Officers

Thomas G. Caldwell — 1986
President and Chief Executive Officer

James R. Heslop, II — 1996
Executive Vice President
Chief Operating Officer

Teresa M. Hetrick — 1996
Senior Vice President
Operations/ Administration

Jay P. Giles — 1998
Senior Vice President
Senior Lender

Donald L. Stacy — 1999
Senior Vice President
Chief Financial Officer

Dennis E. Linville — 2006
Senior Vice President
Area Executive

Kathleen M. Johnson — 1971
Vice President
Chief Accounting Officer

Joann Vance — 1986
Vice President
Human Resource Administrator

Alfred F. Thompson, Jr. — 1996
Vice President
Loan Administration

Sharon R. Jarold — 2001
Vice President/ Lending

Thomas N. Munson — 2003
Vice President/ Lending

Matthew E. Bellin — 2006
Vice President
Commercial Lender

Felicia M. Hough — 2009
Vice President
Regional Branch Administration

Courtney M. Erminio — 2010
Vice President
Risk Officer

Karen D. Branham — 1983
Assistant Vice President
Bookkeeping Manager

Gail A. Neikirk — 1983
Assistant Vice President
Executive Secretary

Thomas R. Neikirk — 1994
Assistant Vice President
West Branch Manager

Marlin J. Moschell — 2000
Assistant Vice President
Orwell Lending Officer

Kevin J.Mitchell — 2007
Assistant Vice President
Orwell Branch Manager

Kathy Vanek — 1998
Banking Officer
Cortland Branch Manager

Joan L. Sweet — 2002
Banking Officer
Mantua Branch Manager

Jean M. Carter — 2009
Banking Officer
Chardon Branch Manager

Melody A. Askey — 2005
Compliance/CRA Officer

2010 Annual Report   77

Main Office Walk up ATM
15985 East High Street, P.O. Box 35
Middlefield, Ohio 44062
888.801.1666 • 440.632.1666 • fax: 440.632.1700

Garrettsville Branch Drive up ATM
8058 State Street
Garrettsville, Ohio 44231
888.801.2121 • 330.527.2121 • fax: 330.527.4210

Chardon Branch Drive up ATM
348 Center Street, P.O. Box 1078
Chardon, Ohio 44024
888.801.1666 • 440.286.1222 • fax: 440.286.1111

Newbury Branch Drive up ATM
11110 Kinsman Road, Suite 1, P.O. Box 208
Newbury, Ohio 44065
888.801.1666 • 440.564.7000 • fax: 440.564.7004

Middlefield Banc Corp.   78

Middlefield West Branch Drive up ATM
15545 West High Street, P.O. Box 35
Middlefield, Ohio 44062
888.801.1666 • 440.632.1666 • fax: 440.632.9781

Mantua Branch Walk up ATM
10519 Main Street, P.O. Box 648
Mantua, Ohio 44255
877.274.0881 • 330.274.0881 • fax: 330.274.0883

Orwell Branch Drive up ATM
30 South Maple Street, P.O. Box 66
Orwell, Ohio 44076
888.801.1666 • 440.437.7200 • fax: 440.437.1111

Cortland Branch Drive up ATM
3450 Niles-Cortland Road, P.O. Box 636
Cortland, Ohio 44410
888.801.1666 • 330.637.3208 • fax: 330.637.3207

2010 Annual Report   79

Main Office	Mantua Branch	Newbury Branch
15985 East High Street	10519 Main Street	111 10 Kinsman Road
440.632.1666	330.274.0881	440.564.7000
West Branch	Chardon Branch	Cortland Branch
15545 West High	348 Center Street	3450 Niles-Cortland Road
Street 440.632.1666	440.286.1222	330.637.3208
Garrettsville Branch	Orwell Branch
8058 State Street	30 South Maple Street
330.527.2121	440.437.7200

Dublin Branch	Westerville Branch
6215 Perimeter Drive	17 North State Street
614.793.4631	614.890.7832

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 5), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course by management or employees in the normal course of performing their assigned functions.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2010, the Company’s internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

By:	/s/ Thomas G. Caldwell Thomas G. Caldwell
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: March 18, 2011
By:	/s/ Donald L. Stacy Donald L. Stacy
	Treasurer
	(Principal Financial & Accounting Officer)
Date: March 18, 2011

EX-21

Exhibit 21

Middlefield Banc Corp. Subsidiaries

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.

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.

3 On October 23, 2009 Middlefield received from the Federal Reserve Bank of Cleveland approval to establish an asset resolution subsidiary. Organized as an Ohio corporation under the name EMORECO, Inc. and wholly owned by Middlefield Banc Corp, the purpose of the asset resolution subsidiary is to maintain, manage, and ultimately dispose of nonperforming loans and real estate acquired by subsidiary banks as the result of borrower default on real-estate-secured loans.

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form S–8 No. 333–65432 and on Form S-3D No. 333-96579) on Middlefield Banc Corp. of our report dated March 4, 2011, relating to our audit of the consolidated financial statements, which is incorporated by reference in the Annual Report on Form 10-K of Middlefield Banc Corp. for the year ended December 31, 2010.

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

Wexford, PA
March 21, 2011

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

I, Thomas G. Caldwell, certify that:

1. I have reviewed this Form 10-K for the year ended December 31, 2010 of Middlefield Banc Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 3/18/11	/s/ Thomas G. Caldwell
	Thomas G. Caldwell.
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial and Accounting Officer

I, Donald L. Stacy, certify that:

1. I have reviewed this Form 10-K for the year ended December 31, 2010 of Middlefield Banc Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 3/18/11	/s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Middlefield Banc Corp. (the “Company”) on Form 10-K for the period ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Thomas G. Caldwell, President, and Donald L. Stacy, Chief Financial Officer, certify, pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Thomas G. Caldwell	/s/ Donald L. Stacy
Thomas G. Caldwell	Donald L. Stacy
President and Chief Executive Officer	Principal Financial and Accounting Officer

March 18, 2011

A signed original of this written statement required by Section 906 has been provided to Middlefield Banc Corp. and will be retained by Middlefield Banc Corp. and furnished to the Securities and Exchange Commission or its staff upon request