Exhibit 13

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

Middlefield Banc Corp.     2

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