Edgar Filing: MIDDLEFIELD BANC CORP

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 2001

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10
AMENDMENT NO. 1

GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934

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 44062-9263
(440) 632-1666
----------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

Securities to be registered pursuant to Section 12(b) of the Act: None
----

Securities to be registered pursuant to Section 12(g) of the Act:
common stock, without par value
-----------------------------------------------
(TITLE OF CLASS)

Correspondence concerning this Registration Statement should be sent to:

Thomas G. Caldwell With a Copy to:
President and Chief Executive Officer Francis X. Grady, Esq.
Middlefield Banc Corp. Grady & Associates
15985 East High Street 20950 Center Ridge Road, Suite 100
Middlefield, Ohio 44062-9263 Rocky River, Ohio 44116-4307
(440) 632-1666 (440) 356-7255

TABLE OF CONTENTS

CAPTION PAGE
---------------------------------------------------------------------------------------------------------- --------

Middlefield Banc Corp..................................................................................... 1
Risk Factors.............................................................................................. 1
Business.................................................................................................. 4
Middlefield Banc Corp............................................................................ 4
The Middlefield Banking Company.................................................................. 4
Market Area............................................................................. 4
Competition............................................................................. 4
Lending................................................................................. 5
Nonperforming Loans..................................................................... 8
Investments............................................................................. 11
Sources of Funds........................................................................ 15
Personnel............................................................................... 15
Supervision and Regulation....................................................................... 15
Regulation of Bank Holding Companies.................................................... 16
Federal Deposit Insurance............................................................... 18
Interstate Banking and Branching........................................................ 18
Capital................................................................................. 18
Limits on Dividends and Other Payments.................................................. 20
Transactions with Affiliates............................................................ 20
Community Reinvestment Act.............................................................. 20
Federal Home Loan Banks................................................................. 21
State Banking Regulation................................................................ 21
Monetary Policy......................................................................... 21
Financial Information..................................................................................... 21
Selected Financial Data of Middlefield........................................................... 21
Selected Quarterly Financial Data................................................................ 23
Management's Discussion and Analysis of Financial Condition and Results of Operations............ 23
Results of Operations................................................................... 23
Net Interest Income..................................................................... 24
Loan Loss Provision..................................................................... 26
Noninterest Income...................................................................... 26
Noninterest Expense..................................................................... 27
Provision for Income Taxes.............................................................. 27
Financial Condition..................................................................... 27
Liquidity............................................................................... 28
Capital Resources....................................................................... 30
New Accounting Pronouncements........................................................... 30
Impact of Inflation and Changing Prices................................................. 30
Quantitative and Qualitative Disclosures About Market Risk.............................. 30
Properties................................................................................................ 32
Security Ownership of Certain Beneficial Owners and Management............................................ 33
Directors and Executive Officers.......................................................................... 33
Directors........................................................................................ 33
Executive Officers........................................................................................ 35
Executive Compensation.................................................................................... 36
Certain Relationships and Related Party Transactions...................................................... 39
Legal Proceedings......................................................................................... 39
Market Price of and Dividends on Common Stock............................................................. 39
Description of Securities................................................................................. 41
Changes in Control............................................................................... 42
Indemnification of Directors and Officers................................................................. 45
Where to Find More Information............................................................................ 46
Forward-Looking Statements................................................................................ 47
Recent Sales of Unregistered Securities................................................................... 48
Independent Auditor's Report.............................................................................. F-1
Consolidated Financial Statements......................................................................... F-2
Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2001..................... F-25
Index to Exhibits

MIDDLEFIELD BANC CORP.

Incorporated in 1988 under the Ohio General Corporation Law,
Middlefield Banc Corp. is a one-bank holding company registered under the Bank
Holding Company Act of 1956. Its sole subsidiary is The Middlefield Banking
Company, an Ohio-chartered commercial bank that began operations in 1901. The
bank engages in a general commercial banking business through its main office
and three branch offices in northeastern Ohio. Our principal executive offices
are located at 15985 East High Street, Middlefield, Ohio 44062-9263, and our
telephone number is (440) 632-1666. The bank expects its website --
www.middlefieldbank.com -- to be operational by the end of the Summer of 2001,
offering online banking services to individuals and online cash management
services to business customers.

RISK FACTORS

Investment in Middlefield common stock involves risk, including the
risks described below.

OUR MARKET IS VERY COMPETITIVE

We face 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. Our 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. Our most direct competition for deposits has
historically come from commercial banks, savings banks, and savings and loan
associations. We face additional competition for deposits from non-depository
institutions such as mutual funds, securities and brokerage firms, and insurance
companies.

Competition among financial institutions and other financial service
organizations is increasing with the continuing consolidation of the financial
services industry. Additionally, legislative and regulatory changes could affect
competition. Congress' elimination in 1994 of many restrictions on interstate
branching could increase competition from large banks headquartered outside of
northeastern Ohio. Congress' repeal in late 1999 of the Glass-Steagall Act
(which had separated the commercial and investment banking industries) and
elimination of the barriers between the banking and insurance industries might
make competition even more intense. See, "BUSINESS -- SUPERVISION AND
REGULATION." Because of our smaller size, we may have less opportunity to take
advantage of the flexibility offered by that new legislation.

THE BANK 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 market in which The Middlefield Banking Company
operates has a high concentration of financial institutions. Many of the
financial institutions operating in our market are branches of significantly
larger institutions headquartered in Cleveland or in other major metropolitan
areas, with significantly greater financial resources and higher lending limits.
More geographically diversified than The Middlefield Banking Company, they are
therefore less vulnerable to adverse changes in our local economy. And many of
these institutions offer services that we do 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 than The Middlefield Banking Company can provide.
Likewise, some of the competitors are not subject to the same kind and amount of
regulatory restrictions and supervision to which The Middlefield Banking Company
is subject. Because The Middlefield Banking Company is smaller than many
commercial lenders in its market, it is on occasion prevented from making
commercial loans in amounts competitors can offer. The Middlefield Banking
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 Middlefield Banking 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 Middlefield Banking Company, or to provide products and
services that The

Middlefield Banking Company is not able to provide economically. We cannot
assure you that we will be able to develop and implement new technology-driven
products or services or that we will be successful in marketing these products
or services to customers.

Because of the demand for technology-driven products, banks rely
increasingly 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. We cannot assure you
that we will be able to successfully manage the risks associated with our
dependence on technology.

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

Middlefield Banc Corp. and The Middlefield Banking Company are and will
remain subject to extensive state and federal government supervision and
regulation. Affecting 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 funds administered
by the FDIC. Protection of stockholders is not a goal of banking regulation.

Applicable statutes, regulations, agency and court interpretations and
agency enforcement policies have undergone significant changes, some
retroactively applied, and could change significantly again. Changes in
applicable laws and regulatory policies could adversely affect the banking
industry generally or Middlefield and The Middlefield Banking Company in
particular. The burdens of federal and state banking regulation could place
banks in general at a competitive disadvantage compared to less regulated
competitors. We give you no assurance that we will be able to adapt successfully
to industry changes caused by governmental actions. See, "BUSINESS --
SUPERVISION AND REGULATION."

Federal and state banking agencies require banks and bank holding
companies to maintain 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.

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
maintain an allowance for loan losses based on historical experience, an
evaluation of economic conditions, and regular reviews of delinquencies and loan
portfolio quality, among other things. Our judgment about the adequacy of the
loan loss allowance is based on assumptions that we believe are reasonable but
that might nevertheless prove to be incorrect. We can give you no assurance that
the allowance will be sufficient to absorb future charge-offs. Additions to the
loan loss allowance could occur, which would decrease net income and capital.
See, "BUSINESS -- THE MIDDLEFIELD BANKING COMPANY -- Lending."

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. In the early
1990s, many banking organizations experienced historically high interest rate
spreads, meaning the difference between the interest rates earned on loans and
investments and the interest rates paid on deposits and borrowings. More
recently, however, interest rate spreads have generally narrowed due to changing
market conditions and competitive pricing pressures. It has become increasingly
difficult for depository institutions to maintain deposit growth at the same
rate as loan growth. Under these circumstances, to maintain deposit growth an
institution might have to offer more attractive deposit terms, further narrowing
the institution's interest rate spread. Middlefield cannot assure you that
interest rate spreads will not narrow even more or that higher interest rate
spreads will return. See, "FINANCIAL INFORMATION -- MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

2
5

Banks manage interest rate risk exposure by closely monitoring assets
and liabilities, altering from time to time the mix and maturity of loans,
investments and funding sources. Our existing asset/liability mix is such that
we are more likely to benefit from rising interest rates, rather than falling
rates. Changes in interest rates could result in an increase in higher-cost
deposit products within a bank's existing portfolio, as well as a flow of funds
away from bank accounts into direct investments (such as U.S. Government and
corporate securities, and other investment instruments such as mutual funds) if
the bank does not pay competitive interest rates. The percentage of household
financial assets held in the form of deposits is shrinking. Banking customers
are investing a growing portion of their financial assets in stocks, bonds,
mutual funds and retirement accounts. Changes in interest rates also affect the
volume of loans originated, as well as the value of loans and other
interest-earning assets, including investment securities.

AN ECONOMIC DOWNTURN IN OUR MARKET AREA WOULD ADVERSELY AFFECT OUR LOAN
PORTFOLIO AND OUR GROWTH PROSPECTS

Our lending market area is concentrated in northeastern Ohio,
particularly 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 downturn in the economy in our primary
lending area would adversely affect our operations and limit our future growth
potential.

MIDDLEFIELD COMMON STOCK IS VERY THINLY TRADED, AND IT IS THEREFORE SUSCEPTIBLE
TO WIDE PRICE SWINGS

Middlefield's common stock is not traded or authorized for quotation on
any exchanges or on Nasdaq. However, bid prices for Middlefield common stock
appear from time to time in the pink sheets under the symbol "MBCN." The "pink
sheets" is a static paper quotation service for over-the-counter securities that
is printed weekly and distributed by the National Quotation Bureau, LLC to
broker-dealers. 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 or Nasdaq.

The liquidity of the common stock depends upon the presence in the
marketplace of willing buyers and sellers. We cannot assure you that you will be
able to find a buyer for your shares. Two regional broker/dealers facilitate
trades of Middlefield common stock, matching interested buyers and sellers.

We currently do not intend to seek listing of the common stock on a
securities exchange and we do not intend to seek authorization for trading of
the shares on Nasdaq. Even if we successfully list the common stock on a
securities exchange or obtain Nasdaq trading authorization, we 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 common stock. We could
also fail subsequently to satisfy the standards for continued exchange listing
or Nasdaq trading, 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 or authorized for
Nasdaq trading 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 common stock as a long-term investment
and should be prepared to bear the economic risk of an investment in the common
stock for an indefinite period. Investors who need or desire to dispose of all
or a part of their investments in the common stock might not be able to do so
except by private, direct negotiations with third parties.

GOVERNMENT REGULATION COULD RESTRICT OUR ABILITY TO PAY CASH DIVIDENDS

Dividends from the bank are the only significant source of cash for
Middlefield. Statutory and regulatory limits could prevent the bank from paying
dividends or transferring funds to Middlefield. As of December 31, 2000 the bank
could have declared dividends of approximately $2.1 million to Middlefield
without having to obtain advance regulatory approval. We cannot assure you that
the bank's profitability will continue to allow it to pay dividends to
Middlefield, and we therefore cannot assure you that Middlefield will be able to
continue paying regular, quarterly cash dividends.

WE COULD INCUR LIABILITIES UNDER FEDERAL AND STATE ENVIRONMENTAL LAWS IF WE
FORECLOSE ON COMMERCIAL PROPERTIES

A high percentage of the bank'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 bank currently does not own any property acquired by foreclosure. However,
the bank has in the past and could again acquire property by

foreclosing on loans in default. Under federal and state environmental laws, the
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, they
might not be financially solvent or they might be unable to bear the full cost
of clean up. Regardless of whether it forecloses on property, 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.

MIDDLEFIELD DOES NOT HAVE ACQUISITION EXPERIENCE

Many financial institutions and holding companies achieve growth
through mergers and acquisitions. Although Middlefield has never undertaken
acquisition of another institution, from time to time Middlefield explores
potential acquisitions. Management holds informal discussions about possible
acquisitions of other institutions with some frequency, as it believes
management of many institutions do. In the vast majority of cases, however,
those discussions never progress beyond the most preliminary or exploratory
stages. Sometimes preliminary discussions do progress beyond that point, but for
one reason or another they nevertheless do not progress to the point of
negotiating terms of an acquisition. Discussions of this sort have become
routine among financial institutions both large and small. Investors may
generally assume that these discussions have occurred and will occur again, but
Middlefield cautions investors not to assume that discussions will actually lead
to an acquisition by Middlefield, although that could occur.

There are risks associated with assessing the values, strengths,
weaknesses and profitability of acquisition candidates, including adverse
short-term effects of acquisitions on operating results, diversion of
management's attention, dependence on retaining key personnel, and risks
associated with unanticipated problems. An acquisition's success depends in part
on the acquiror's ability to integrate the operations of the acquired
institution or assets and capitalize on synergies for cost savings. Without
experience integrating acquired companies, Middlefield therefore would face
greater risk that acquisition costs will exceed projections and that the
benefits will be less than projected or harder to attain.

BUSINESS
MIDDLEFIELD BANC CORP.

Middlefield became the holding company for The Middlefield Banking
Company in 1988. The principal source of Middlefield's income and funds is
earnings of and dividends paid by The Middlefield Banking Company. Middlefield's
business currently is limited to acting as holding company for the bank.
Middlefield currently does not plan to engage in any nonbanking activities,
although it may do so as opportunities arise. See, "BUSINESS -- SUPERVISION AND
REGULATION -- Regulation of Bank Holding Companies."

THE MIDDLEFIELD BANKING COMPANY

The Middlefield Banking Company was chartered under Ohio law in 1901.
The bank 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.

The bank engages in a general commercial banking business in
northeastern Ohio, offering commercial banking services principally to small and
medium-sized businesses, professionals and small business owners and retail
customers. The bank 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.

The bank'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.

MARKET AREA. The Middlefield Banking Company's market area consists
principally of Geauga, Portage, Trumbull, and Ashtabula Counties. Benefitting
from the area's proximity both to Cleveland and Akron, population and income
levels have maintained steady growth over the years.

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 Middlefield Banking 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 bank competes for deposits principally by offering customers personal
attention, a variety of banking services, attractive rates and strategically
located banking facilities. The bank 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.

LENDING -- Loan Portfolio Composition and Activity. The Middlefield
Banking 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 bank's loan policy aspires to a loan composition mix
consisting of approximately 60% to 70% residential real estate loans, 35% to 40%
commercial loans, consumer loans of 5% to 15%, and credit card accounts of up to
5%.

Although Ohio bank law imposes no material restrictions on the kinds of
loans The Middlefield Banking Company may make, real estate-based lending has
historically been the primary focus of the bank's lending. For prudential
reasons, the bank avoids 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 bank's real-estate secured loans are secured by real property in
northeastern Ohio. Ohio bank law does restrict the amount of loans an
Ohio-chartered bank such as The Middlefield Banking Company 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 Middlefield Banking Company's
lending. The Middlefield Banking Company can accommodate loan volumes exceeding
the legal lending limit by selling loan participations to other banks. The
Middlefield Banking Company's internal policy is to maintain its credit exposure
to any one borrower at less than $1.5 million, which is comfortably within the
range of the bank's legal lending limit.

The bank 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 bank's 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 bank'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.

The following table shows the composition of the loan portfolio in
dollar amounts and in percentages at December 31, 2000, 1999 and 1998, along
with a reconciliation to loans receivable, net.

LOAN PORTFOLIO COMPOSITION AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
--------------------------------- -------------------------------- -------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------------- --------------- -------------- -------------- ------------- ---------------

Type of loan:
Commercial and industrial.. $ 21,508 15.90 % $ 18,587 15.33 % $ 12,706 12.19 %
Real estate construction... 2,568 1.90 2,259 1.86 2,819 2.70
Mortgage:
Residential........... 101,404 74.95 89,263 73.63 76,229 73.11
Commercial............ 4,809 3.55 6,919 5.71 8,759 8.40
Consumer installment....... 5,015 3.70 4,200 3.47 3,754 3.60
--------------- --------------- -------------- -------------- ------------- ---------------
Total loans................ 135,304 100.00 % 121,228 100.00 % 104,267 100.00 %
=============== ============== ===============
Less:
Allowance for loan losses 2,037 1,756 1,539
--------------- -------------- -------------
Net loans.................. $ 133,267 $ 119,472 $ 102,728
=============== ============== =============

Net loans as a percent of total
assets..................... 75.51 % 72.18 % 66.04 %
=============== ============== =============

The following table presents maturity information for the loan
portfolio at December 31, 2000. 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, 2000
-------------------------------------------------------------------------------------
MORTGAGE
COMMERCIAL REAL ESTATE -------------------------- CONSUMER
(Dollars in thousands) AND INDUSTRIAL CONSTRUCTION RESIDENTIAL COMMERCIAL INSTALLMENT TOTAL
-------------- ------------ ----------- ---------- ----------- -----

Amount due:
In one year or less *........ $ 6,074 $ 1,842 $ 15,918 $ 2,083 $ 1,618 $ 27,535
After one year through five years 9,685 353 49,646 1,401 2,996 64,081
After five years............. 5,749 373 35,840 1,325 401 43,688
------------ ----------- ---------- ----------- ---------- ----------
Total amount due...... $ 21,508 $ 2,568 $ 101,404 $ 4,809 $ 5,015 $ 135,304
============ =========== ========== =========== ========== ==========

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

The following table shows the dollar amount of all loans due after
December 31, 2001 that have pre- determined interest rates and the dollar amount
of all loans due after December 31, 2001 that have floating or adjustable rates

(Dollars in thousands) FIXED RATES ADJUSTABLE RATES TOTAL
----------- ---------------- -----

Commercial and industrial................. $ 11,151 $ 4,283 $ 15,434
Real estate construction.................. 556 170 726
Mortgage:
Residential...................... 44,195 41,291 85,486
Commercial....................... 2,470 256 2,726
Consumer installment...................... 3,290 107 3,397
------------ ----------- ----------
Total............................ $ 61,662 $ 46,107 $ 107,769
============ =========== ==========

Residential Mortgage Loans. A significant portion of the bank's lending
consists of origination of conventional loans secured by 1-4 family real estate
located in Geauga, Portage, Trumbull, and Ashtabula Counties. These loans
approximated $101.4 million or 75.0% of the bank's total loan portfolio at
December 31, 2000.

The bank 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 bank 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 bank offers
residential real estate loans with terms of up to 30 years.

Before 1996, nearly all residential mortgage loans originated by the
bank were written on a balloon-note basis. During 1996, the bank began to
originate fixed-rate mortgage loans for maturities up to 20 years. In late 1998,
the bank began originating adjustable-rate mortgage loans and de-emphasized
balloon-note mortgages. Approximately 45.0% of the portfolio of conventional
mortgage loans secured by 1-4 family real estate at December 31, 2000 was
adjustable rate. The bank's mortgage loans are ordinarily retained in the loan
portfolio. The bank's residential mortgage loans have not been originated with
loan documentation that would permit their sale to Fannie Mae and Freddie Mac.

6
9

The bank'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 bank's home equity loans generally have
terms of 10 years.

At December 31, 2000 there were no loans secured by residential real
estate with outstanding balances more than 90 days delinquent or nonaccruing.

Commercial and Industrial Loans and Commercial Real Estate Loans. The
bank's commercial loan services include--

o accounts receivable, inventory and o short-term notes
working capital loans o selected guaranteed or subsidized loan programs
o renewable operating lines of credit for small businesses
o loans to finance capital equipment o loans to professionals
o term business loans o 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 bank makes agricultural loans, it currently
does not have a significant amount of agricultural loans. The primary risks 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 bank'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 $1 million or more. The fair market value of collateral for
collateralized commercial loans must exceed the bank'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 bank'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.

Real estate is commonly a material component of collateral for the
bank'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, 2000, commercial and commercial real estate loans
totaled $26.3 million, or 19.5% of the bank's total loan portfolio. There were
no loans secured by commercial and commercial real estate with outstanding
balances more than 90 days delinquent or nonaccruing.

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

o residential construction loans to borrowers who will occupy
the premises upon completion of construction,
o residential construction loans to builders,
o commercial construction loans, and
o 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 bank's fixed-rate and adjustable-rate construction

7
10

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 bank to make residential construction
loans without an existing written commitment for permanent financing. The bank's
loan policy provides that the bank 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, 2000, real estate construction loans totaled $2.6
million, or 1.9% of the bank's total loan portfolio. There were no real estate
construction loans with outstanding balances more than 90 days delinquent or
nonaccruing.

Consumer Installment Loans. The bank'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 bank does not currently do any indirect
lending. Unsecured consumer loans carry significantly higher interest rates than
secured loans. The bank maintains a higher loan loss allowance for consumer
loans, while maintaining strict credit guidelines when considering consumer loan
applications.

According to the bank'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, 2000, the bank had approximately $5.0 million in its
consumer installment loan portfolio, representing 3.7% of total loans. Consumer
installment loans of approximately $5,000 were over 90 days delinquent or
nonaccruing on that date, representing 0.01% 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 bank personnel and walk-in
customers.

When a loan request is made, the bank 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 bank's underwriting
guidelines are set by senior management and approved by the board. The loan
policy specifies each individual officer's loan approval authority, including
residential mortgage loans up to $200,000 for the Executive Vice President and
the Senior Retail Lender, and secured commercial loans up to $150,000 for the
Executive Vice President and the Senior Commercial Lender. 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 $250,000. The full
board acts as a loan committee for loans exceeding that amount.

Income from Lending Activities. The bank earns interest and fee income
from its lending activities. The bank receives fees for originating loans, which
fees, net of origination costs, are amortized over the life of the respective
loan. The bank 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. The accrual of interest is discontinued on a loan
when -- after considering economic and business conditions -- management
believes the borrower's financial condition is such that collection of interest
is doubtful. Interest received on nonaccrual loans is recorded as income against
principal according to management's judgment as to the collectibility of such
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 bank 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 bank 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 collateral. Impaired loans, or portions thereof, are charged off when the
bank determines that 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.

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 bank's attorney and delivered to the

borrower so that foreclosure proceedings may be initiated promptly, if
necessary. The bank also collects late charges on commercial loans.

When the bank 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.

The bank 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 certified public accounting firm
performs semi-annual loan reviews for the bank.

The bank had nonaccrual loans of $125,000 and $118,000 at December 31,
1999 and 1998, respectively. There were no loans on nonaccrual status at
December 31, 2000. Interest income recognized on such loans during all of the
periods was insignificant.

The following table summarizes nonperforming assets by category.

NONPERFORMING ASSETS AT DECEMBER 31,
---------------------------------------------
(Dollars in thousands) 2000 1999 1998
---------- ----------- ----------

LOANS ACCOUNTED FOR ON A NONACCRUAL BASIS:

Commercial and industrial........................................... $ -- $ 17 $ 35
Real estate-- construction.......................................... -- -- --
Real estate-- mortgage:
Residential...................................................... -- 103 83
Commercial....................................................... -- -- --
Consumer installment................................................ -- 5 --
---------- ----------- ----------
Total nonaccrual loans......................................... -- 125 118
---------- ----------- ----------
ACCRUING LOANS CONTRACTUALLY PAST DUE 90 DAYS OR MORE:

Commercial and industrial........................................... -- -- --
Real estate-- construction.......................................... -- -- --
Real estate-- mortgage:
Residential...................................................... -- -- 21
Commercial....................................................... -- -- --
Consumer installment................................................ 5 6 11
---------- ----------- ----------
Total accruing loans contractually past due 90 days or more.... 5 6 32
---------- ----------- ----------
Total nonperforming loans........................................... 5 131 150
Real estate owned................................................... -- -- --
Other nonperforming assets.......................................... -- -- --
---------- ----------- ----------
Total nonperforming assets..................................... $ 5 $ 131 $ 150
========== =========== ==========
Total nonperforming loans to total loans............................ -- 0.11 % 0.14 %
Total nonperforming loans to total assets .......................... -- 0.08 % 0.10 %
Total nonperforming assets to total assets.......................... -- 0.08 % 0.10 %

Allowance for Loan Losses. The allowance for loan losses represents the
amount that management estimates is 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,
past experience with losses, 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 formula allowance, and an
unallocated allowance.

When applicable, the specific allowance incorporates the results of
measuring impaired loans as provided in SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures." These accounting
standards prescribe the measurement methods, income recognition and disclosures
for 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 consideration of the
nature of the portfolio segments, changes in mix and volume of the loan
portfolio, and historical loan loss experience. In addition, management
considers industry standards and trends with respect to nonperforming loans and
its knowledge and experience with specific lending segments.

The unallocated allowance is based on management's evaluation of
existing economic and business conditions affecting the key lending areas of the
bank and other conditions, such as new loan products, credit quality trends,
collateral values, specific 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 unallocated allowance is subject to a higher degree of
uncertainty because it is not necessarily identified with specific problem
credits or portfolio segments.

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, 2000, 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 bank'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.

The allowance for loan losses as a percent of total loans remained
relatively constant at 1.51% at December 31, 2000 and 1.45% at December 31,
1999, while total loans increased by $14.1 million from $121.2 million at
December 31, 1999 to $135.3 million at December 31, 2000.

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

LOAN LOSS EXPERIENCE FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
----------- ------------ ------------

Allowance balance at beginning of period..................... $ 1,756 $ 1,539 $ 1,335
Loans charged off:
Commercial and industrial................................. (3) (22) (55)
Real estate-- construction................................ -- -- --
Real estate-- mortgage:
Residential......................................... -- (7) (7)
Commercial.......................................... -- -- --
Consumer installment ..................................... (52) (89) (77)
----------- ------------ ------------
Total loans charged off ............................... (55) (118) (139)
----------- ------------ ------------
Recoveries of loans previously charged off:
Commercial and industrial................................. 2 8 8
Real estate-- construction................................ -- -- --
Real estate-- mortgage:
Residential......................................... -- -- 42
Commercial.......................................... -- -- --
Consumer installment...................................... 59 31 23
----------- ------------ ------------
Total recoveries ...................................... 61 39 73
----------- ------------ ------------
Net loans recovered (charged off)............................ 6 (79) (66)
Provision for loan losses.................................... 275 296 270
----------- ------------ ------------
Allowance balance at end of period........................... $ 2,037 $ 1,756 $ 1,539
=========== ============ ============
Loans outstanding:
Average................................................... $ 128,661 $ 111,745 $ 96,815
End of period............................................. $ 135,304 $ 121,228 $ 104,267
Ratio of allowance for loan losses to loans outstanding at
end of period............................................... 1.51 % 1.45 % 1.48 %
Net recoveries (charge offs) to average loans................ -- % (0.07) % (0.07) %

10
13

The following table illustrates the allocation of the bank'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.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31,
---------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ---------------------------- ----------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO
(Dollars in thousands) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------- ------------ ------------ ------------ ------------ ------------

Type of loan:
Commercial and industrial... $ 723 15.90 % $ 340 15.33 % $ 300 12.19 %
Real estate--construction... 26 1.90 % 23 1.86 % 52 2.70 %
Real estate--mortgage:
Residential............. 684 74.95 % 721 73.63 % 552 73.11 %
Commercial.............. 281 3.55 % 331 5.71 % 398 8.40 %
Consumer installment........ 107 3.70 % 85 3.47 % 78 3.60 %
Unallocated................. 216 -- 256 -- 159 --
------------- ------------ ------------ ------------ ------------ ------------
Total............................ $ 2,037 100.00 % $ 1,756 100.00 % $ 1,539 100.00 %
============= ============ ============ ============ ============ ============

Classified Assets. FDIC regulations governing classification of assets
require nonmember commercial banks -- including The Middlefield Banking 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, and
to discourage 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 present 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 bank 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
institution's determination about classification of its assets and the amount of
its allowances is subject to review by the Federal Deposit Insurance
Corporation, 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. As of
December 31, 2000 classified assets were as follows:

CLASSIFIED ASSETS AT DECEMBER 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ -----------------------------
PERCENT OF PERCENT OF PERCENT OF
(Dollars in thousands) AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------- -------------- ------------- ------------- ------------ -------------

Classified loans:
Special mention...... $ 4,663 3.45 % $ 2,353 1.94 % $ 4,161 3.99 %
Substandard.......... 1,784 1.32 % 1,445 1.19 % 2,163 2.07 %
Doubtful............. 188 0.14 % 310 0.26 % 197 0.19 %
------------- -------------- ------------- ------------- ------------ -------------
Total.......... $ 6,635 4.91 % $ 4,108 3.39 % $ 6,521 6.25 %
============= ============== ============= ============= ============ =============

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 bank
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 bank's investment activities.

All securities-related activity is reported to the board of directors
of the bank. 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 bank's stated investment policy.

Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and the bank has the ability
at the time of purchase to hold a security until maturity or on a long-term
basis, the security is classified as held-to-maturity and is reflected on the
balance sheet at historical cost. 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 market value.

The following table sets forth the amortized cost and estimated market
value of the bank's investment portfolio at the dates indicated.

INVESTMENT PORTFOLIO AMORTIZED COST AND ESTIMATED VALUE AT DECEMBER 31,
---------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- ---------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---- ----- ------ ----- ---- ----- ------ -----

AVAILABLE FOR SALE:
U.S. Treasury securities...... $ -- $ -- $ -- $ -- $ 500 $ -- $ -- $ 500
U.S. Government agency
securities................. 3,990 71 (1) 4,060 3,985 -- (45) 3,940
Obligations of states and
political subdivisions:
Taxable.................... 1,458 12 (3) 1,467 957 6 (14) 949
Tax-exempt................. 3,685 42 (17) 3,710 3,550 5 (71) 3,484
Corporate securities.......... 701 3 (3) 701 952 -- (18) 934
Mortgage-backed securities.... 1,898 30 -- 1,928 -- -- -- --
--------- ------- -------- -------- -------- -------- -------- ---------
Total debt securities.... 11,732 158 (24) 11,866 9,944 11 (148) 9,807
Equity securities............. 913 -- -- 913 777 -- -- 777
--------- ------- -------- -------- -------- -------- -------- ---------
Total................ $ 12,645 $ 158 $ (24) $ 12,779 $ 10,721 $ 11 $ (148) $ 10,584
--------- ------- -------- -------- -------- -------- -------- ---------
HELD TO MATURITY:
U.S. Government agency
securities ................ $ 1,900 $ -- $ (9) $ 1,891 $ 3,031 $ -- $ (72) $ 2,959
Obligations of states and
political subdivisions:
Taxable.................... 3,723 18 (20) 3,721 3,994 3 (90) 3,907
Tax-exempt................. 7,481 26 (7) 7,500 9,275 18 (58) 9,235
Corporate securities.......... 4,525 8 (19) 4,514 5,712 1 (94) 5,619
Mortgage-backed securities.... 313 2 -- 315 -- -- -- --
--------- ------- -------- -------- -------- -------- -------- ---------
Total................ $ 17,942 $ 54 $ (55) $ 17,941 $ 22,012 $ 22 $ (314) $ 21,720
--------- ------- -------- -------- -------- -------- -------- ---------
TOTAL INVESTMENT SECURITIES... $ 30,587 $ 212 $ (79) $ 30,720 $ 32,733 $ 33 $ (462) $ 32,304
========= ======= ======= ======== ======== ======== ======= =========

INVESTMENT PORTFOLIO AMORTIZED COST AND ESTIMATED VALUE AT DECEMBER 31,
-----------------------------------------------------------------------
1998
-----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
---- ----- ------ -----

AVAILABLE FOR SALE:
U.S. Treasury securities...... $ 499 $ 5 $ -- $ 504
U.S. Government agency
securities................. 2,000 4 (1) 2,003
Obligations of states and
political subdivisions:
Taxable.................... 100 1 -- 101
Tax-exempt................. 750 5 -- 755
Corporate securities.......... 1,852 9 (2) 1,859
Mortgage-backed securities.... -- -- -- --
--------- ------- -------- --------
Total debt securities.... 5,201 24 (3) 5,222
Equity securities............. 636 -- -- 636
--------- ------- -------- --------
Total................ $ 5,837 $ 24 $ (3) $ 5,858
--------- ------- -------- --------
HELD TO MATURITY:
U.S. Government agency
securities................. $ 3,330 $ 19 $ (11) $ 3,338
Obligations of states and
political subdivisions:
Taxable.................... 5,575 117 (11) 5,681
Tax-exempt................. 13,482 208 (3) 13,687
Corporate securities.......... 9,049 100 (19) 9,130
Mortgage-backed securities.... -- -- -- --
--------- ------- -------- --------
Total................ $ 31,436 $ 444 $ (44) $ 31,836
--------- ------- -------- --------
TOTAL INVESTMENT SECURITIES... $ 37,273 $ 468 $ (47) $ 37,694
========= ======= ======= ========

The contractual maturity of investment securities at December 31, 2000
is shown below. 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.

DECEMBER 31, 2000
------------------------------------------------------------------------------------
MORE THAN FIVE TO TEN
ONE YEAR OR LESS MORE THAN ONE TO FIVE YEARS YEARS
------------------------ --------------------------- ---------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- -----

U.S. Government agency
securities................ $2,599 5.57% $ 3,361 6.17% $ -- --%
Obligations of states and
political subdivisions:
Taxable................ 1,982 6.70 3,208 6.10 -- --
Tax-exempt............. 2,348 6.64 8,196 6.50 547 8.58
Corporate securities...... 2,319 7.09 2,907 6.72 -- --
Mortgage-backed securities -- -- 473 5.50 440 5.00
------ ------- ----
Total..................... $9,248 6.46% $18,145 6.38% $987 6.98%
====== ==== ======= ==== ==== ====

DECEMBER 31, 2000
---------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES AND MORTGAGE-
MORE THAN TEN YEARS BACKED SECURITIES
--------------------- -----------------------------------------
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD MARKET VALUE
----- ----- ----- ----- ------------

U.S. Government agency
securities................ $ -- --% $ 5,960 5.91% $ 5,951
Obligations of states and
political subdivisions:
Taxable................ -- -- 5,190 6.33 5,188
Tax-exempt............. 100 9.85 11,191 6.66 11,210
Corporate securities...... -- -- 5,226 6.88 5,215
Mortgage-backed securities 1,328 6.06 2,241 5.73 2,243
------ ------- -------
Total..................... $1,428 6.33% $29,808 6.42% $29,807
====== ==== ======= ==== =======

As of December 31, 2000, the bank also held 91,290 shares of $100 par
value Federal Home Loan Bank of Cincinnati stock, which are restricted
securities. 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
bank's minimum investment in FHLB stock at December 31, 2000 was approximately
$912,900.

SOURCES OF FUNDS -- Deposit Accounts. Deposit accounts are a major
source of funds for the bank. The bank 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 bank also
provides travelers' checks, official checks, money orders, ATM services and IRA
accounts.

The following table shows the amount of time deposits of $100,000 or
more as of December 31, 2000, including certificates of deposit, by time
remaining until maturity.

MATURITY OF TIME DEPOSITS OF $100,000 OR
(Dollars in thousands) MORE AT DECEMBER 31, 2000
----------------------------------------
TIME REMAINING TO MATURITY AMOUNT PERCENT OF TOTAL
------------------------------------ -------- ----------------
Three months or less................ $ 2,047 17.76%
Over three through 12 months ....... 5,318 46.12
Over 12 months...................... 4,165 36.12
-------- ------
Total ......................... $ 11,530 100.00%
======== ======

Borrowings. Deposits and repayment of loan principal are the bank'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 meet the demand for loans or such general
business purposes, the bank can obtain funds from the FHLB of Cincinnati. In
addition to borrowing from the FHLB on a term-loan basis, the bank has a line of
credit with the FHLB that allows the bank to borrow in an amount up to 10.0 % of
the bank's total assets. Interest and principal are payable monthly, and the
line of credit is secured by a blanket pledge collateral agreement. At December
31, 2000, the bank had $9.9 million of FHLB borrowings outstanding. Middlefield
also has established a $2.0 million secured credit line through the discount
window with the Federal Reserve Bank of Cleveland and a $4.0 million line of
credit at an adjustable rate, currently 9.00 percent, from The State Bank and
Trust Company. At December 31, 2000 and 1999, there were no outstanding balances
on these lines.

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

2000 1999 1998
---------- ---------- ----------

Balance at year end........................ $ 543,222 $2,507,670 $ --
Average balance outstanding................ 1,059,042 143,438 54,082
Maximum month-end balance.................. 3,581,491 2,507,670 2,480,000
Weighted-average rate at year end.......... 5.43 % 4.75 % 5.62 %
Weighted average rate during the year...... 6.05 % 5.87 % 6.40 %

PERSONNEL. As of December 31, 2000 Middlefield and the bank had 60
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
Middlefield and the bank.

Middlefield is a bank holding company within the meaning of the Bank
Holding Company Act of 1956. As such, Middlefield 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.
Middlefield is required to file annual reports and other information with the
Federal Reserve. The Middlefield Banking Company is an Ohio-

15
18

chartered commercial bank. As a state-chartered, nonmember bank, the bank is
primarily regulated by the FDIC and by the Ohio Division of Financial
Institutions.

Middlefield and the bank are subject to federal banking laws, and the
bank is 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 bank 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 bank 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 Deposit Insurance Corporation Improvement Act of 1991
expanded significantly the authority of federal agencies to regulate the
activities of federally chartered and state-chartered financial institutions and
their holding companies. 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.

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 --

o 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),

o acquiring all or substantially all of the assets of another
bank, or

o 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 meeting 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 Middlefield will, or if no other person owns a greater
percentage of the class of voting securities, control is rebuttably 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.

Recent Legislation -- Financial Holding Companies. On November 12, 1999
the Gramm-Leach-Bliley Act became law, repealing 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
--

o financial in nature or incidental to that financial activity,
or

o 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.

Activities that are financial in nature include--

o acting as principal, agent or broker for insurance,

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

o 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.
A bank holding company cannot be a financial holding company unless it satisfies
the following criteria:

1) all of the depository institution subsidiaries must be well
capitalized and well managed,

2) the holding company must file with the Federal Reserve a
declaration that it elects to be a financial holding company
to engage in activities that would not have been permissible
before the Gramm-Leach-Bliley Act, and

3) all of the depository institution subsidiaries must have a
Community Reinvestment Act rating of "satisfactory" or better.

Middlefield is engaged solely in activities that were permissible for a
bank holding company before enactment of the Gramm-Leach-Bliley Act.
Middlefield's election to become a financial holding company recently became
effective, but Middlefield has no immediate plans to use the expanded authority
to engage in activities other than those in which it is currently engaged.

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. See " -- Capital." 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.

17
20

FEDERAL DEPOSIT INSURANCE. The FDIC insures deposits of federally
insured 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 $100,000 per depositor. The banks are required to pay semiannual
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 $0.00 for the highest-rated institutions to
$0.27 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.

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 the 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 meet 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
(0%, 20%, 50% and 100%). 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.

18
21
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 --

o the allowance for loan losses, up to a maximum of 1.25% of
risk-weighted assets,

o any qualifying perpetual preferred stock exceeding the amount
includable in Tier 1 capital,

o mandatory convertible securities, and

o 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, 2000, the bank was in compliance with all
regulatory capital requirements.

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 bank, as well as its total risk-based
capital ratio, Tier 1 capital ratio and leverage ratio as of December 31, 2000.

MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
AT DECEMBER 31, 2000 WELL CAPITALIZED ADEQUATELY CAPITALIZED
---------------------- ---------------------------- ----------------------------

Total Risk-Based Capital Ratio...... 17.75% 10.00 % 8.00 %
Tier 1 Risk-Based Capital Ratio..... 16.50% 6.00 % 4.00 %
Leverage Ratio...................... 10.32% 5.00 % 4.00 %

19
22

LIMITS ON DIVIDENDS AND OTHER PAYMENTS. Middlefield'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 bank. Under Ohio bank law,
an Ohio-chartered bank may not pay a cash dividend if the amount of the dividend
exceeds "undivided profits," which is defined in Ohio bank law to mean the
cumulative undistributed amount of the bank's net income. But with the approval
of two thirds of the outstanding shares and approval of the superintendent of
the Division of Financial Institutions, an Ohio-chartered bank may pay cash
dividends from surplus. Lastly, approval of the superintendent is also required
if the total of all dividends and distributions declared on the bank's shares in
any year exceeds the total of the bank's net income for the year plus retained
net income for the two preceding years.

State-chartered banks' ability to pay dividends may be affected also by
capital maintenance requirements of their primary federal bank regulatory agency
as well. See " -- Capital." Moreover, regulatory authorities may prohibit banks
and bank holding companies from paying dividends if payment of dividends would
constitute an unsafe and unsound banking practice.

A 1985 policy statement of the Federal Reserve Board provides 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.

TRANSACTIONS WITH AFFILIATES. Although the bank is not a member bank of
the Federal Reserve System, it is 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 it were a member bank. 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 --

o 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,

o impose restrictions on investments by a subsidiary bank in the
stock or securities of its holding company,

o impose restrictions on the use of a holding company's stock as
collateral for loans by the subsidiary bank, and

o 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 bank'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 bank'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 bank'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 any other purpose. 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.

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 meet 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 to be 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. Over the 23 years that the CRA has existed,
and particularly in the last few years, institutions have faced increasingly
difficult regulatory obstacles and public interest group objections in
connection with their regulatory applications, including institutions that have
received the highest possible CRA ratings.

A bank holding company cannot elect to be a "financial holding company"
-- with the expanded securities, insurance and other powers that designation
entails -- unless all of the depository institutions owned by the holding
company have a CRA rating of satisfactory or better. The Gramm-Leach-Bliley Act
also provides that a financial institution with total assets of $250 million or
less will be subject to CRA examinations no more frequently than every 5 years
if its most recent CRA rating was "outstanding," or every 4 years if its rating
was "satisfactory." Following a CRA examination as of August 10, 1999, the bank
received a rating of "Outstanding." Lastly, the Gramm-Leach-Bliley Act requires
public disclosure of private CRA agreements entered into between banking
organizations and other parties, and annual reporting by banking organizations
of actions taken under the private CRA agreements. This last provision of the
Gramm-Leach-Bliley Act addresses the increasingly common practice whereby a bank
or holding company undertaking acquisition of another bank or holding company
enters into an agreement with parties who might otherwise file with bank
regulators a CRA protest of the acquisition. The details of these agreements
have not been universally disclosed by acquiring institutions in the past.

FEDERAL HOME LOAN BANKS. The Federal Home Loan Banks serve as credit
sources for their members. As a member of the FHLB of Cincinnati, The
Middlefield Banking Company is required to maintain an investment in the capital
stock of the FHLB of Cincinnati in an amount calculated by reference to the
member institution's assets and the amount of loans, or "advances," from the
FHLB. The bank is in compliance with this requirement, with an investment in
FHLB stock of $912,900 at December 31, 2000. See, "BUSINESS -- THE MIDDLEFIELD
BANKING COMPANY -- Sources of Funds."

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.

STATE BANKING REGULATION. As an Ohio-chartered bank, the bank is
subject to regular examination by the Ohio Division of Financial Institutions.
State banking regulation affects the internal organization of the bank as well
as its 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 dealings 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.

FINANCIAL INFORMATION

SELECTED FINANCIAL DATA OF MIDDLEFIELD

The summary financial information to follow is not a substitute for
Middlefield's historical financial information and other detailed financial
information we provide elsewhere in this document. You should read the summary
financial information together with the historical financial information and
other detailed financial information we provide elsewhere in this document. We
derived the financial data from Middlefield's unaudited financial statements for
the three-month periods ended March 31, 2000 and 2001, and Middlefield's audited
financial statements for the fiscal years ended December 31, 1996 through 2000.
In the opinion of management, the unaudited data include all normal recurring
adjustments necessary to state fairly the quarterly information presented.

AS OF OR FOR THE THREE
MONTHS ENDED
MARCH 31, AS OF OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------- -----------------------------------------
(In thousands, except share and per share
amounts and ratios) 2001 2000 2000 1999
---- ---- ---- ----

INCOME STATEMENT DATA:
Interest income ....................................... $ 3,299 $ 3,050 $ 12,770 $ 11,449
Interest expense ...................................... 1,655 1,357 5,910 5,048
---------- ---------- ---------- ----------
Net interest income ................................... 1,644 1,693 6,860 6,400
Provision for loan losses ............................. 39 75 275 296
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ... 1,605 1,618 6,585 6,104
Noninterest income, including securities gains (losses) 259 220 983 804
Noninterest expense ................................... 1,090 1,045 4,409 4,254
---------- ---------- ---------- ----------
Income before income taxes ............................ 774 793 3,159 2,654
Income taxes .......................................... 237 236 923 735
---------- ---------- ---------- ----------
Net income ................................... $ 537 $ 557 $ 2,237 $ 1,920
========== ========== ========== ==========
BALANCE SHEET DATA:
Investment securities ................................. $ 29,862 $ 30,735 $ 30,724 $ 32,595
Loans, net ............................................ $ 134,796 $ 121,724 $ 133,267 $ 119,472
Total deposits ........................................ $ 151,771 $ 138,224 $ 147,166 $ 135,094
FHLB Cincinnati advances .............................. $ 9,804 $ 9,535 $ 9,862 $ 9,602
Total stockholders' equity ............................ $ 18,728 $ 16,788 $ 18,243 $ 17,689
Total assets .......................................... $ 181,375 $ 165,540 $ 176,489 $ 165,512
PER COMMON SHARE DATA: (1)
Basic net income ...................................... $ 0.49 $ 0.50 $ 2.02 $ 1.68
Diluted net income .................................... $ 0.49 $ 0.50 $ 2.02 $ 1.68
Book value ............................................ $ 16.98 $ 15.32 $ 16.54 $ 15.49
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic ................................................. 1,102,954 1,117,069 1,105,972 1,145,250
Diluted ............................................... 1,104,304 1,117,069 1,105,972 1,145,250
SELECTED RATIOS:
Return on average total stockholders' equity .......... 11.63 % 12.92 % 12.83 % 11.17 %
Return on average total assets ........................ 1.20 % 1.35 % 1.31 % 1.21 %
Dividend payout ratio ................................. 28.74 % 19.77 % 26.61 % 29.82 %
Efficiency ratio (2) .................................. 57.31 % 54.65 % 56.21 % 59.05 %
ASSET QUALITY RATIOS:
Reserve for loan losses to ending total loans ......... 1.50 % 1.50 % 1.51 % 1.45 %
Net loan charge-offs to average loans ................. 0.02 % (0.02) % -- % 0.07 %
CAPITAL RATIOS:
Average stockholders' equity to average assets ........ 10.38 % 9.88 % 10.20 % 10.83 %
Leverage ratio (3) .................................... 16.85 % 16.35 % 10.32 % 10.93 %
Total risk-based capital ratio (3) .................... 18.10 % 17.60 % 17.75 % 18.39 %

AS OF OR FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
(In thousands, except share and per share
amounts and ratios) 1998 1997 1996
---- ---- ----

INCOME STATEMENT DATA:
Interest income ....................................... $ 10,901 $ 10,600 $ 10,375
Interest expense ...................................... 5,085 5,084 4,985
---------- ---------- ----------
Net interest income ................................... 5,817 5,516 5,390
Provision for loan losses ............................. 270 200 351
---------- ---------- ----------
Net interest income after provision for loan losses ... 5,547 5,316 5,039
Noninterest income, including securities gains (losses) 599 546 586
Noninterest expense ................................... 3,825 3,493 3,246
---------- ---------- ----------
Income before income taxes ............................ 2,321 2,369 2,379
Income taxes .......................................... 630 624 657
---------- ---------- ----------
Net income ................................... $ 1,690 $ 1,745 $ 1,722
========== ========== ==========
BALANCE SHEET DATA:
Investment securities ................................. $ 37,435 $ 38,460 $ 35,698
Loans, net ............................................ $ 102,728 $ 88,320 $ 83,947
Total deposits ........................................ $ 128,828 $ 121,482 $ 119,254
FHLB Cincinnati advances .............................. $ 9,576 $ 4,849 $ --
Total stockholders' equity ............................ $ 16,657 $ 15,465 $ 14,136
Total assets .......................................... $ 155,558 $ 142,276 $ 133,867
PER COMMON SHARE DATA: (1)
Basic net income ...................................... $ 1.47 $ 1.52 $ 1.50
Diluted net income .................................... N/A N/A N/A
Book value ............................................ $ 14.50 $ 13.46 $ 12.30
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic ................................................. 1,148,676 1,148,676 1,148,676
Diluted ............................................... N/A N/A N/A
SELECTED RATIOS:
Return on average total stockholders' equity .......... 10.43 % 11.79 % 14.21 %
Return on average total assets ........................ 1.15 % 1.26 % 1.30 %
Dividend payout ratio ................................. 29.53 % 24.98 % 22.61 %
Efficiency ratio (2) .................................. 59.62 % 57.62 % 54.31 %
ASSET QUALITY RATIOS:
Reserve for loan losses to ending total loans ......... 1.48 % 1.49 % 1.34 %
Net loan charge-offs to average loans ................. 0.07 % -- % 0.33 %
CAPITAL RATIOS:
Average stockholders' equity to average assets ........ 11.04 % 10.72 % 9.15 %
Leverage ratio (3) .................................... 11.35 % 10.80 % 10.51 %
Total risk-based capital ratio (3) .................... 18.37 % 18.54 % 17.52 %

(1) Per share amounts are adjusted for a 10% stock dividend paid in 1998
and 1997 and a 2-for-1 stock split in 2000.
(2) Efficiency ratio is noninterest expense divided by the sum of net
interest income plus noninterest income minus nonrecurring items.
(3) Computed in accordance with Federal Reserve Board and FDIC guidelines.

22
25

SELECTED QUARTERLY FINANCIAL DATA

The following table shows quarterly results of operations for 2000 and
1999.

2000 QUARTERS 1999 QUARTERS
------------------------------------------------------ -----------------------------
(In thousands, except per
share data) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------ ----- ------ ----- ------ ----- ------ -----

Interest income ........... $3,310 $3,269 $3,141 $3,050 $2,954 $2,941 $2,838 $2,715
Net interest income ....... 1,709 1,726 1,732 1,693 1,675 1,674 1,585 1,466
Provision for loan losses.. 50 75 75 75 2 78 108 108
Income before income
taxes ............... 757 826 784 793 829 775 629 422
Net income ................ 556 572 552 557 567 559 469 324
Basic earnings per
common share (1) .... 0.50 0.52 0.50 0.50 0.50 0.49 0.41 0.28
Diluted earnings per
common share (1) .... 0.50 0.52 0.50 0.50 0.50 0.49 0.41 0.28

(1) Per share amounts are adjusted for a 2-for-1 stock split in 2000.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Middlefield conducts customary retail and commercial banking services
through its subsidiary bank, gathering deposits from the general public, and
applying those funds to the origination of loans for real estate, commercial,
and consumer loans and investments.

The bank's profitability depends primarily on net interest income,
which is the difference between--

1) interest income generated by interest-earning assets
(principally loans and investments), and

2) interest expense incurred on interest-bearing liabilities
(principally customer deposits and borrowed funds).

Net interest income is affected by the difference -- the "interest rate
spread" -- between rates of interest earned on interest-earning assets and rates
of interest paid on interest-bearing liabilities, as well as the relative
amounts of interest-earning assets and interest-bearing liabilities. Financial
institutions traditionally use interest rate spreads as a measure of net
interest income. Another indication of an institution's net interest income is
its "net yield on interest-earning assets" or "net interest margin," which is
net interest income divided by average interest-earning assets.

To a lesser extent, the bank's profitability is also affected by such
factors as the level of noninterest income and expenses, the provision for loan
losses, and the provision for income taxes. Noninterest income consists
primarily of service charges and fees on deposit accounts. Noninterest expense
consists primarily of salaries and employee benefits, professional fees,
equipment, occupancy-related expenses, data processing, advertising and other
operating expenses.

Middlefield's management's discussion and analysis of financial
condition and results of operations is presented to assist investors in
understanding Middlefield's consolidated financial condition and results of
operations for the fiscal years ended December 31, 2000, 1999 and 1998 and the
three months ended March 31, 2001 and 2000. This discussion should be read in
conjunction with the consolidated financial statements and related footnotes
presented elsewhere herein.

RESULTS OF OPERATIONS. Net income for the three months ended March 31,
2001 of $537,000 decreased slightly from $557,000 for the same period in 2000.
The $49,000 decrease in net interest income for the three months ended March 31,
2001 was primarily due to an increase in interest expense of $299,000 that was
partially offset by an increase of $249,000 in interest income. Basic and
diluted earnings per share declined slightly from $.50 per share in 2000 to $.49
per share in 2001.

Middlefield recorded net income of $2.2 million in 2000, which
represents an increase of $318,000, or 16.5%, over 1999. Net income for 1999
increased $229,000, or 13.5%, over 1998 to $1.9 million. These increases were
primarily due to increases of $460,000 and $584,000 in net interest income for
2000 and 1999, respectively, while offset somewhat by the costs associated with
operating a larger organization. Basic and diluted earnings per share have
increased each of the past three years to $1.47 per share, $1.68 per share, and
$2.02 per share, for 1998, 1999, and 2000, respectively.

NET INTEREST INCOME -- Three Months Ended March 31, 2001 Compared to
the Three Months Ended March 31, 2000. Net interest income for the three months
ended March 31, 2001 was $1,644,000, compared to $1,693,000 for the same period
in 2000. The increase in interest income for the first quarter of 2001 was
influenced mainly by increases in interest earned on loans receivable of
$261,000 and federal funds sold of $35,000, while offset by decreases in
interest earned on investment securities of $29,000 and interest-bearing
deposits in other institutions of $18,000. The increase in interest expense was
influenced by an increase in interest incurred on deposits of $311,000 that was
offset by a decrease in interest incurred on borrowings of $13,000. Interest
income and expense were both primarily driven by increases in the average
balances of related interest-earning assets and interest-bearing liabilities.
The average balances of loans receivable, specifically real estate mortgages,
increased $13.6 million, or 11.2%, to $135.6 million as of March 31, 2001, and
resulted in an increase in interest-earning assets of $13.5 million. Lessening
the impact of the increase in volume of interest-earning assets was a slight
decline on the tax-equivalent yield on interest earning assets to 7.90% for the
three-months ended March 31, 2001 from 7.97% for the same period ended 2000. In
addition, the average balance of time deposits increased $12.9 million, or
19.7%, to $78.4 million as of March 31, 2001, and resulted in an increase in
interest-bearing liabilities of $11.7 million. Middlefield's competitively
priced deposit products and continual marketing efforts contributed to the
overall increase in the cost of funds on interest-bearing deposits to 4.85% for
the three-month period ended March 31, 2001 from 4.35% for the same period ended
2000.

2000 Compared to 1999. Net interest income for 2000 was $6.9 million, a
7.2% increase over 1999. Interest income of $12.8 million in 2000 represents an
increase of $1.3 million, or 11.5%, over 1999. Interest expense of $5.9 million
in 2000 increased by $0.8 million, or 17.1%, over 1999. Although there was an
increase in general interest rate levels during these periods, interest income
and expense were both primarily driven by increases in the average balances of
related interest-earning assets and interest-bearing liabilities. The average
balances of loans receivable, specifically real estate mortgages, increased
$16.9 million, or 15.1%, to $128.7 million as of December 31, 2000. The
tax-equivalent yield on interest earning assets increased to 8.02% for the year
ended 2000 from 7.84% for the year ended 1999 and was mainly driven by a 16
basis-point increase in investment securities. Partially offsetting increases to
net interest income was an increase in the average balance of certificates of
deposit of $9.5 million, coupled with a 36 basis-point increase in the cost of
such funds. This increase to interest expense is attributed to marketing efforts
and higher-yielding promotional products, and resulted in an overall increase in
the cost of funds from 4.26% to 4.58% from 1999 to 2000.

1999 Compared to 1998. Net interest income for 1999 was $6.4 million, a
10.0% increase over 1998. Interest income of $11.4 million in 1999 represents an
increase of $547,000, or 5.0%, over 1998. Interest expense of $5.0 million in
1999 represents a $36,000 reduction, or 0.7%, from 1998. The increase in
interest income resulted almost entirely from an increase in the average
balances of interest-earning assets of $10.9 million. This consisted of an
increase in the average balance of loans receivable of $14.9 million, or 15.4%,
that was offset slightly by a decline in the average balances of investment
securities and other interest-earning assets totaling $4.0 million. The effects
of the overall increase in average interest-earning assets was reduced by a
decline in the tax-equivalent yield on interest earning assets from 8.07% in
1998 to 7.84% in 1999. This decrease was primarily stimulated by a 45 basis
point decline in the yield on loans receivable. Although there was an increase
in the average balances of interest-bearing liabilities of $8.3 million, a 35
basis-point decline in the average cost of funds netted a slight decrease in
interest expense.

24
27

Average Balances, Interest Rates and Yields. The following table sets
forth certain information relating to our average balance sheet, and it reflects
the average yield on assets and average cost of liabilities for the periods
indicated and the average yields earned and rates paid. Such yields are derived
by dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from daily
average balances.

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2000 1999
--------------------------------------- ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(Dollars in thousands) BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------- -------- ---------- ------- -------- ----------

INTEREST-EARNING ASSETS:
Loans receivable (1).................... $ 128,661 $ 10,853 8.44 % $ 111,745 $ 9,409 8.42 %
Investment securities................... 31,026 1,991 6.42 % 34,683 2,170 6.26 %
Other interest-earning assets (2)....... 2,969 196 6.60 % 3,554 172 4.84 %
--------- -------- -------- --------- -------- --------
Total interest-earning assets........ 162,656 13,040 8.02 % 149,982 11,751 7.84 %
-------- --------
NON-INTEREST-EARNING ASSETS............. 8,231 8,674
--------- ---------
Total assets......................... $ 170,887 $ 158,656
========= =========

INTEREST-BEARING LIABILITIES:
Interest-bearing demand................. $ 6,268 174 2.78 % $ 5,473 139 2.54 %
Money market............................ 10,310 308 2.99 % 15,249 454 2.98 %
Savings................................. 32,036 855 2.67 % 28,183 726 2.58 %
Certificates of deposit................. 69,866 3,975 5.69 % 60,390 3,220 5.33 %
Other borrowings........................ 10,641 598 5.62 % 9,224 509 5.52 %
--------- -------- -------- --------- -------- --------
Total interest-bearing liabilities... 129,121 5,910 4.58 % 118,519 5,048 4.26 %
-------- --------
NON INTEREST-BEARING LIABILITIES:
Other liabilities.................... 24,336 22,950
--------- ---------
Total liabilities.................. 153,457 141,469
--------- ---------
Stockholders' equity ................... 17,430 17,187
--------- ---------
Total liabilities and stockholders'
equity .............................. $ 170,887 $ 158,656
========= =========

Net interest income..................... $ 7,130 $ 6,703
======== ========

Interest rate spread (3)................ 3.44 % 3.58 %
======== ========
Net yield on interest-earning
assets (4)........................... 4.38 % 4.47 %
======== ========
Ratio of average interest-earning assets
to average interest-bearing
liabilities.......................... 125.97 % 126.55 %
======== ========

YEAR ENDED DECEMBER 31,
---------------------------------------
1998
---------------------------------------
AVERAGE AVERAGE
(Dollars in thousands) BALANCE INTEREST YIELD/COST
------- -------- ----------
INTEREST-EARNING ASSETS:
Loans receivable (1).................... $ 96,815 $ 8,591 8.87 %
Investment securities................... 37,921 2,337 6.16 %
Other interest-earning assets (2)....... 4,296 290 6.75 %
--------- -------- --------
Total interest-earning assets........ 139,032 11,218 8.07 %
--------
NON-INTEREST-EARNING ASSETS............. 7,902
---------
Total assets......................... $ 146,934
=========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand................. $ 5,760 200 3.47 %
Money market............................ 17,462 591 3.38 %
Savings................................. 23,950 711 2.97 %
Certificates of deposit................. 57,094 3,194 5.59 %
Other borrowings........................ 5,964 389 6.52 %
--------- -------- --------
Total interest-bearing liabilities... 110,230 5,085 4.61 %
--------
NON INTEREST-BEARING LIABILITIES:
Other liabilities.................... 20,489
---------
Total liabilities.................. 130,719
---------
Stockholders' equity ................... 16,215
---------
Total liabilities and stockholders'
equity .............................. $ 146,934
=========
Net interest income..................... $ 6,133
========
Interest rate spread (3)................ 3.46 %
========

Net yield on interest-earning
assets (4) .......................... 4.41 %
========
Ratio of average interest-earning assets
to average interest-bearing
liabilities.......................... 126.13 %
========

(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.

25
28

Rate/Volume Analysis. The following table sets forth certain
information regarding the changes in our interest income and interest expense
for the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume (changes in average volume multiplied by prior year rate),
and (2) changes in rates (changes in rate multiplied by prior year average
volume). Increases and decreases due to both rate and volume have been allocated
proportionally to the change due to volume and the change due to rate.

CHANGES IN NET INTEREST INCOME FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 VS. 1999 1999 VS. 1998
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------ ---------------------------------
(Dollars in thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----

Interest income attributable to:
Loans receivable........................ $ 1,427 $ 17 $ 1,444 $ 1,224 $ (406) $ 818
Investment securities................... (237) 58 (179) (203) 36 (167)
Other interest-earning assets........... (20) 44 24 (45) (73) (118)
------- ------- ------- ------- ------- -------
Total interest income................ 1,170 119 1,289 976 (443) 533
------- ------- ------- ------- ------- -------
Interest expense attributable to:
Interest-bearing demand................. 21 14 35 (10) (51) (61)
Money market............................ (148) 2 (146) (70) (67) (137)
Savings................................. 102 27 129 60 (45) 15
Certificates of deposit................. 529 226 755 138 (112) 26
Other interest-bearing liabilities...... 79 10 89 167 (47) 120
------- ------- ------- ------- ------- -------
Total interest expense............... 583 279 862 285 (322) (37)
------- ------- ------- ------- ------- -------
Change in net interest income.............. $ 587 $ (160) $ 427 $ 691 $ (121) $ 570
======= ====== ======= ======= ====== =======

LOAN LOSS PROVISION -- 2000 Compared to 1999. The provision for loan
losses was $275,000 in 2000, compared to $296,000 in 1999, a 7.1% reduction. 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. The change in the loan loss provision in
2000 was principally a result of a reduction in the amount of new commercial and
commercial real estate loans originated during 2000 as compared to 1999.
Furthermore, there was an improvement in asset quality reflected by a decrease
in nonperforming loans from $131,000 at the end of 1999 to $5,000 at the end of
2000.

1999 Compared to 1998. The provision for loan losses was $296,000 in
1999, compared to $270,000 in 1998, a 9.6% increase that primarily reflects
growth in the commercial and commercial real estate loan portfolios.

NONINTEREST INCOME -- Three Months Ended March 31, 2001 Compared to the
Three Months Ended March 31, 2000. Total noninterest income for the three-months
ended March 31, 2001 increased $39,000 as compared to the same period ended
2000. Noninterest income items are primarily comprised of service charges and
fees on deposit account activity, along with fee income derived from other
financial related services. Service fees on deposit accounts increased $33,000
and have progressively increased as the number of accounts and volume of related
transactions have increased.

2000 Compared to 1999. Total noninterest income was $983,000 in 2000,
an increase of 22.2% over 1999. The increase is accounted for principally by fee
income from deposit accounts, which grew commensurate with deposit growth.

1999 Compared to 1998. Total noninterest income was $804,000 in 1999, a
34.3% increase over 1998. There was an increase in service charges on deposit
accounts of 38.8% that was attributable to both an increase in the volume of
related transactions as well as to changes in the bank's fee schedule.

Transaction deposit accounts grew at a steady pace in 2000, 1999 and
1998. In general, management prices deposits at rates competitive with rates
offered by the leading banks in the bank's market, which rates tend to be
somewhat lower than rates offered by thrift institutions and credit unions. The
bank generally has not imposed service charges and fees to the same extent as
other local institutions. Although a wider range of service

charges and fees and higher service charges and fees would yield more income for
each dollar of deposits, imposing service charges and fees on a basis equivalent
to those imposed by many other area banks might adversely affect deposit growth.
To promote deposit growth and provide cross-selling opportunities to customers,
the bank has not adopted the most aggressive fee structure. Deposit growth has
been generated by developing strong customer relationships and cross-selling
deposit relationships to loan customers. Management intends to continue
promoting demand deposit products, particularly noninterest bearing deposit
products, in order to obtain additional interest-free lendable funds.

NONINTEREST EXPENSE -- Three Months Ended March 31, 2001 Compared to
the Three Months Ended March 31, 2000. Total noninterest expenses increased
$45,000 for the three-months ended March 31, 2001 as compared to the same period
ended 2000. Compensation and employee benefits increased $29,000 or 5.7%,
primarily as a result of normal merit raises. In addition, equipment expenses
and other expenses increased $13,000 and $8,000, respectively, as a result of
added capital expenditures in prior years from building and furnishing a new
branch office in Garrettsville, additional ATMs, increased transaction activity
from operating a larger organization, and marketing of the Bank's 100th
anniversary.

2000 Compared to 1999. Noninterest expense increased 3.6% to $4.4
million for the year ended December 31, 2000 as compared to $4.3 million for the
same period ended 1999. The change in total noninterest expense from 1999 to
2000 is attributed to a 12.1% increase in other expenses, which has increased
steadily year-to-year primarily as a result of the overall growth of the bank.
Such expenses include additional costs relating to an increase in volume of MAC
transactions, and increases in various professional fees and regulatory
assessments. The bank also accelerated computer equipment depreciation expense
in 2000 of approximately $55,000. There were smaller increases in equipment and
data processing expenses as a result of added capital expenditures in prior
years from building and furnishing a new branch office in Garrettsville,
additional ATMs, and increased transaction activity from operating a larger
organization. The bank will introduce internet banking and anticipates opening a
new branch office in Chardon, Ohio during the fourth quarter of 2001.

1999 Compared to 1998. Total noninterest expense was $4.3 million in
1999, an 11.2% increase over 1998. Salaries and employee benefits increased
$185,000, or 8.9%, due principally to the hiring of additional staff, higher
insurance benefit costs and normal merit raises. Data processing costs increased
$105,000 in 1999, mainly due to Y2K conversion costs. Occupancy expenses
increased $73,000, or 28.2%, in 1999, primarily related to operating a larger
organization that resulted from the opening of an additional branch during the
fourth quarter of 1998 and the expansion of the Garrettsville branch in 1999.
Equipment expense decreased $121,000, or 33.9%, in 1999, due to the acceleration
of maintenance contracts and depreciation expenses for obsolete equipment
stemming from the 1998 conversion to a third party processor. Other noninterest
expenses increased $195,000 or 24.3%, in 1999 as increases in advertising,
postage and supplies, telephone, and correspondent bank service charges resulted
from the general overall growth of the bank.

PROVISION FOR INCOME TAXES. The provision for income taxes fluctuated
in 2000, 1999 and 1998 in direct correlation to the changing level of
pre-taxable income during these periods.

FINANCIAL CONDITION -- Assets and Liabilities. Total assets increased
$4.9 million to $181.4 million at March 31, 2001 from $176.5 million at December
31, 2000. Cash and cash equivalents and net loans receivable increased $3.3
million and $1.5 million, respectively, and were funded by a $4.6 million net
increase in deposits.

Middlefield's total assets increased $11.0 million, or 6.6%, to $176.5
million at December 31, 2000, as compared to $165.5 million at December 31,
1999. Net loans receivable increased 11.6% to $133.3 million at December 31,
2000 and was funded primarily by a $12.1 million, or 8.9%, increase in customer
deposits, represented particularly by growth in time deposits.

The increase in net loans receivable resulted from the economic health
of Middlefield's market area and the strategic, service-oriented marketing
approach taken by management to meet the lending needs of the area. The majority
of lending activity is mortgage loans secured by one-to-four family residential
property. Such loans grew $12.1 to $101.4 million at December 31, 2000.
Management attributes the increases in residential real estate properties to
continued customer referrals and Middlefield's overall relationship with its
customers. As of December 31, 2000, Middlefield had additional commitments to
fund residential real estate loan demand of $2.0 million. Although growth in
commercial and commercial real estate loans remained relatively stable in 2000,
management is evaluating the needs for expansion of such services within its
market area. As of December 31, 2000, commercial and commercial real estate
loans totaled $26.3 million or 19.5% of the total loan portfolio.

At March 31, 2001, Middlefield's allowance for loan losses remained
relatively unchanged at $2.0 million. The allowance for loan losses represents
the amount that management estimates is 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

27
30

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, past experience with losses, 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
formula allowance, and an unallocated allowance.

Cash and cash equivalents increased to $8.1 million at March 31, 2001
from $4.8 million at December 31, 2000. Funding from deposit growth that was not
used to meet loan demand was temporarily invested in federal funds pending
management's review of market conditions for prudent investment opportunities.
Management believes that the liquidity needs of Middlefield are satisfied by the
current balance of cash and cash equivalents, readily available access to
traditional funding sources, FHLB advances, and the portion of the investment
and loan portfolios that mature within one year. These sources of funds will
enable Middlefield to meet cash obligations and off-balance sheet commitments as
they come due.

Total investment securities of $29.9 million remained relatively
unchanged at March 31, 2001 as the proceeds from maturities and principal
repayments were primarily reinvested in available for sale U.S. Government
Agency securities in general, and mortgage-backed securities in specific.
Management focused on supplementing loan demand primarily by lengthening the
maturities of the investment portfolio through an increase in higher yielding,
mortgage-backed securities. This has resulted in a slight shift in the
composition of the investment securities portfolio at March 31, 2001, as U.S.
Government Agency securities now comprise 31.9% of the total portfolio as
compared to 26.5% at December 31, 2000. Furthermore, available for sale
securities now comprise 48.8% of the investment securities portfolio as compared
to 41.3% at December 31, 2000.

Total investment securities decreased $1.9 million to $30.7 million at
December 31, 2000 as a result of principal repayments and maturities. Proceeds
that were not invested in mortgage-backed or municipal securities were primarily
used to supplement loan demand. The purchase of such investments had varying
maturities over 29 years. Furthermore, as of December 31, 2000, interest-bearing
deposits in other institutions decreased $2.4 million while cash and cash
equivalents increased $1.6 million. As funds became available from
interest-bearing deposits in other institutions and current liquidity needs were
met, excess funds were temporarily invested in federal funds sold.

Total deposits increased to $151.8 million at March 31, 2001 from
$147.2 million at December 31, 2000. Growth was primarily concentrated in time
deposits and resulted from continual marketing efforts by management. Time
deposits continue to account for approximately 52.5% of the total deposit
portfolio. Total deposits increased to $147.2 million at December 31, 2000 from
$135.1 million at December 31, 1999. As noted previously, this fluctuation was
driven by an increase in time deposits that was used to fund loan growth, as
well as to repay $2.0 million of short-term borrowings. Approximately $3.8
million resulted from two competitive rate certificate of deposit products with
terms of 13 and 21 months that were promoted within Portage County in an effort
to increase the customer deposit base. The remaining increase was due to the
continued marketing efforts of the bank coupled with a competitive rate product
portfolio.

Total stockholders' equity increased $485,000 to $18.7 million at March
31, 2001. Net income of $537,000 and increases in unrealized gains on investment
securities available for sale of $102,000, were offset somewhat by a dividend
payment of $154,000. Accumulated other comprehensive income increased as a
result of changes in the net unrealized gain on investment securities available
for sale due to fluctuations in interest rates.

Stockholder's equity increased to $18.2 million at December 31, 2000
from $17.7 million at December 31, 1999. The increase in stockholders' equity
was due to net income of $2.2 million, while offset somewhat by cash dividends
of $0.6 million and purchases of treasury stock totaling $1.3 million.

Because of interest rate volatility, accumulated other comprehensive
income could materially fluctuate for each interim period and year-end period
depending on economic and interest rate conditions. In addition, future dividend
policies will be determined by the board of directors based on the earnings and
financial condition of the Middlefield, including applicable governmental
regulations and policies. Middlefield will use treasury shares for general
corporate purposes, including the issuance of shares in connection with the
exercise of stock options.

LIQUIDITY. Like other financial institutions, the bank must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments and
expenses. Control of cash flow requires that the bank anticipate deposit flows
and loan payments. The primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, and FHLB borrowings.
These funds are used principally to originate loans and acquire investment
securities. As of December 31, 2000, the bank had commitments to extend credit
of $10.2 million. It is

28
31

typical for a portion of loan commitments to expire or terminate without
funding. Management believes the bank has adequate resources to meet its normal
funding requirements.

Liquidity management for Middlefield is measured and monitored on both
a short- and long-term basis, thereby allowing management to better understand
and react to emerging balance sheet trends. After assessing actual and projected
cash flow needs, management seeks to obtain funding at the most economical cost
to Middlefield. Both short- and long-term liquidity needs are addressed by
maturities and sales of investments securities, loan repayments and maturities,
and liquidating money market investments such as federal funds sold. The use of
these resources, in conjunction with access to credit, provides the core
ingredients to satisfy depositor, borrower and creditor needs.

The Middlefield Banking 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 bank's operating, investing, and
financing activities during any given period. At March 31, 2001, cash and cash
equivalents totaled $8.1 million or 4.5% of total assets, while investment
securities classified as available for sale totaled $15.2 million or 8.4% of
total assets. At December 31, 2000, cash and cash equivalents totaled $4.8
million or 2.7% of total assets, while investment securities classified as
available for sale totaled $12.8 million or 7.2% of total assets. Furthermore,
the bank maintains a credit facility with the Federal Home Loan Bank of
Cincinnati, which provides for immediately available advances from the FHLB in
an amount up to 10% of the bank's total assets. Advances under this credit
facility totaled $9.9 million at December 31, 2000. The bank has also
established a $2.0 million secured credit line through the discount window with
the Federal Reserve Bank of Cleveland and a $4.0 million line of credit with The
State Bank and Trust Company, an unaffiliated institution.

Operating activities provided net cash of $0.7 million for both three
month periods ended March 31, 2001 and 2000, generated principally from net
income of $0.5 million and $0.6 million, respectively. Net cash provided by
operating activities for 2000 totaled $3.0 million, as compared to $2.5 million
for 1999 and $2.4 million for 1998. Increases in net income during these periods
primarily were impacted by fluctuations in accrued interest receivable and
payable, as well as depreciation, amortization and accretion.

Investing activities consist primarily of loan originations and
repayments, and investment purchases and maturities. These activities used $1.6
million in funds during the first three months of 2001, principally for the
purchase of investment securities and the net origination of loans. For the same
three-month period in 2000, investing activities provided $0.4 million in funds,
principally from a decline in interest-bearing deposits in other institutions
and a reduction in investment securities purchased. These cash usages were
offset somewhat by an increase in net loan originations.

Net cash used for investing activities in 2000 totaled $9.8 million,
compared to $14.1 million in 1999 and $15.4 million in 1998. The decrease of
$4.3 million in 2000 was due to a net decline of $3.5 million in interest-
bearing deposits in other institutions, a reduction in investment securities
purchased of $7.3 million, and a decline in net loan originations of $2.8
million. Offsetting these declines in cash usages were reductions in proceeds
from repayments, maturities, and sales of investment securities totaling $9.7
million. In 1999, the decrease of $1.3 million primarily resulted from a net
increase in repayments, maturities, and sales of investment securities of $4.4
million that were offset by an increase in net cash used for loan originations
of $2.3 million.

Financing activities consist of the solicitation and repayment of
customer deposits, borrowings and repayments, treasury stock acquisitions, and
the payment of dividends. During the three months ended March 31, 2001, net cash
provided by financing activities totaled $4.3 million, principally derived from
an increase in deposit accounts. During the same period in 2000, net cash used
for financing activities was $0.3 million, and consisted of an increase in
deposit accounts that was offset by repayments on borrowings and the acquisition
of treasury stock.

Net cash provided by financing activities for 2000 totaled $8.5
million, compared to $8.0 million and $11.6 million for 1999 and 1998,
respectively. The increase of $0.5 million in 2000 resulted from a net increase
in deposits of $5.8 million that was offset partially by a net decrease in total
borrowings of $4.2 million, coupled with a net increase in treasury stock
activity of $1.0 million. Of the total deposit portfolio at December 31, 2000,
$76.5 million or 52.0% represents certificates of deposit; and of this amount
$49.3 million or 64.4% is due to mature in 2001. Consistent with experience,
management believes that the majority of maturing certificates of deposit will
be renewed at market rates of interest. In 1999, the total decrease of $3.6
million was primarily due to both a net reduction in proceeds from borrowings
and deposits of $2.2 million and $1.1 million, respectively.

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 bank's commitment to make loans, as well as management's assessment
of Middlefield's ability

29
32

to generate funds. Middlefield believes that it has sufficient liquidity to
satisfy estimated short-term and long-term funding needs.

CAPITAL RESOURCES. Middlefield is subject to federal regulations that
impose certain minimum capital requirements. Management monitors both
Middlefield's and the bank's Total risk-based, Tier I risk-based and Tier I
leverage capital ratios to assess compliance with regulatory guidelines. At
March 31, 2001, both Middlefield and the bank exceeded the minimum risk-based
and leverage capital ratio requirements. Middlefield's Total risk-based, Tier I
risk-based and Tier I leverage ratios were 18.10%, 16.85%, 10.38%, and the
bank's were 17.29%, 16.03%, 9.99%, respectively, at March 31, 2001.

NEW ACCOUNTING PRONOUNCEMENTS. Financial Accounting Standards Board
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (Statement No. 133), as amended by Financial Accounting Standards
Board Statement No. 138, "Accounting for Certain Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of Statement No. 133"
(Statement No. 138), is effective in 2001. It requires measuring and recording
the change in fair value of derivative instruments. Statement No. 133 is not
expected to materially affect Middlefield's financial position or results of
operations.

In September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." The Statement replaces Statement No. 125
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings based on a
control-oriented "financial-components" approach. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered and derecognizes liabilities when
extinguished. The provisions of Statement No. 140 are effective for transactions
occurring after March 31, 2001. This Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
adoption of the provisions of Statement No. 140 is not expected to have a
material impact on Middlefield's financial position or results of operations.

IMPACT OF INFLATION AND CHANGING PRICES. Middlefield's consolidated
financial statements and related data herein have been prepared in accordance
with generally accepted accounting principles, which require measurement of
financial condition and results of operations in terms of historical dollars,
without considering changes in the relative purchasing power of money over time
due to inflation.

Because the primary assets and liabilities of Middlefield and the bank
are monetary in nature, changes in the general level of prices for goods and
services have a relatively minor impact on total expenses. Increases in
operating expenses such as salaries and maintenance are in part attributable to
inflation. However, interest rates have a far more significant effect than
inflation on the performance of financial institutions, including the bank. See
"Quantitative and Qualitative Disclosures About Market Risk."

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Like other
financial institutions, the bank is subject to interest rate risk. The bank's
interest-earning assets could mature or reprice more rapidly than or on a
different basis from its interest-bearing liabilities (primarily borrowings and
deposits with short- and medium-term maturities) in a period of declining
interest rates. Although having assets that mature or reprice more frequently on
average than liabilities will be beneficial in times of rising interest rates,
that asset/liability structure will result in lower net interest income in
periods of declining interest rates.

Interest rate sensitivity, or interest rate risk, relates to the effect
of changing interest rates on net interest income. Interest-earning assets with
interest rates tied to the prime rate for example, or that mature in relatively
short periods of time, are considered interest-rate sensitive. Interest-bearing
liabilities with interest rates that can be repriced in a discretionary manner,
or that mature in relatively short periods of time, are also considered
interest-rate sensitive. The differences between interest-sensitive assets and
interest-sensitive liabilities over various time horizons are commonly referred
to as sensitivity gaps. As interest rates change, a sensitivity gap will have
either a favorable effect or an adverse effect on net interest income. A
negative gap -- with liabilities repricing more rapidly than assets -- generally
should have a favorable effect when interest rates are falling, and an adverse
effect when rates are rising. A positive gap -- with assets repricing more
rapidly than liabilities -- generally should have the opposite effect: an
adverse effect when rates are falling and a favorable effect when rates are
rising.

Middlefield and the bank have no financial instruments entered into for
trading purposes. Interest rates change daily on federal funds purchased and
sold. Federal funds are therefore the most sensitive to the market and have the
most stable fair values. Loans and deposits tied to indices such as the prime
rate or federal discount rate are also market sensitive, with stable fair
values. The least sensitive instruments include long-term, fixed-rate loans and
securities and fixed-rate savings deposits, which have the least stable fair
value. Management of maturity

distributions of assets and liabilities between these extremes is as important
as the balances maintained. Management of maturity distributions involves
matching interest rate maturities as well as principal maturities, and it
influences net interest income significantly. In periods of rapidly changing
interest rates, a negative or positive gap can cause major fluctuations in net
interest income and earnings. Managing asset and liability sensitivities to
enhance growth regardless of changes in market conditions is one of the
objectives of the bank's asset/liability management strategy.

Evaluating the bank's exposure to changes in interest rates is the
responsibility of the Asset/Liability Committee, a committee of bank directors
and officers. The members of the committee are Director Hunter (who serves as
Chairman) and Directors Caldwell, Frank, and Hasman. Officers serving on the
committee are Mr. Heslop, Mr. Stacy, Ms. Johnson, and Ms. Hetrick. The
Asset/Liability Committee assesses both the adequacy of the management process
used to control interest rate risk and the quantitative level of exposure,
ensuring that appropriate policies, procedures, management information systems
and internal controls are in place to maintain interest rate risk at appropriate
levels. Evaluating the quantitative level of interest rate risk exposure
requires assessment of existing and potential effects of changes in interest
rates on the bank's financial condition, including capital adequacy, earnings,
liquidity and asset quality.

The bank uses an asset/liability model to support its balance sheet
strategies. The bank uses gap analysis, net interest income simulations and the
economic value of equity to measure its interest rate risk. The table below
illustrates the maturities or repricing of the bank's assets and liabilities at
December 31, 2000, based upon the contractual maturity or contractual repricing
dates of loans and the contractual maturities of time deposits. Prepayment
assumptions have not been applied to fixed-rate mortgage loans. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less. Allocation of deposits other
than time deposits to the various maturity and repricing periods is based upon
management's best estimate.

MATURING OR REPRICING PERIODS
-------------------------------------------------------------------------
WITHIN 3 4 - 12 1 - 5 OVER 5
(Dollars in thousands) MONTHS MONTHS YEARS YEARS TOTAL
--------- --------- --------- --------- ---------

INTEREST-EARNING ASSETS:
Interest-bearing deposits in other institutions $ 2,223 $ 26 $ -- $ -- $ 2,249
Investment securities.......................... 2,485 6,635 18,714 2,753 30,587
Commercial and industrial loans (1)............ 5,572 7,598 4,617 3,721 21,508
Real estate construction loans (1)............. 366 1,476 353 373 2,568
Real estate mortgage loans (1)................. 16,946 21,822 53,231 14,214 106,213
Consumer installment loans (1)................. 715 1,370 1,866 1,064 5,015
--------- --------- --------- --------- ---------
Total interest-earning assets............ $ 28,307 $ 38,927 $ 78,781 $ 22,125 $ 168,140
--------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand........................ $ 917 $ 612 $ 1,223 $ 3,364 $ 6,116
Money market................................... 3,665 945 533 3,985 9,128
Savings........................................ 4,839 3,226 6,452 17,744 32,261
Time........................................... 12,474 36,767 27,264 -- 76,505
Short-term borrowings.......................... 543 -- -- -- 543
Other borrowings............................... 69 2,207 7,104 482 9,862
--------- --------- --------- --------- ---------
Total interest-bearing liabilities ...... $ 22,507 $ 43,757 $ 42,576 $ 25,575 $ 134,415
--------- --------- --------- --------- ---------
Interest sensitivity gap.......................... $ 5,800 $ (4,830) $ 36,205 $ (3,450) $ 33,725
========= ========= ========= ========= =========
Cumulative interest sensitivity gap............... $ 5,800 $ 970 $ 37,175 $ 33,725
Cumulative interest sensitivity gap
as a percent of total assets................... 3.29 % 0.55 % 21.06 % 19.11 %

(1) For purposes of the gap analysis, loans are not reduced by the
allowance for loan losses and nonperforming loans.

The bank's policy is that the one-year cumulative interest rate
sensitivity gap should generally be within a range of negative 20% to positive
20%. As the table above shows, the one-year gap was within this range as of
December 31, 2000, with a positive one-year gap of 0.55%. The cumulative gap at
December 31, 2000 is due principally to fixed-rate securities and loans in the
"over one year to five years" and "over five years" categories to maximize yield
on assets.

One way to minimize interest rate risk is to maintain a balanced or
matched interest-rate sensitivity position. However, profits are not always
maximized by matched funding. To increase net interest income, the bank
selectively mismatches asset and liability repricing to take advantage of
short-term interest rate movements. The

magnitude of the mismatch depends on a careful assessment of the risks presented
by forecasted interest rate movements. The risk inherent in such a mismatch, or
gap, is that interest rates may not move as anticipated.

Interest rate risk exposure is reviewed in quarterly meetings of the
Asset/Liability Committee. At each meeting, guidelines are established for the
following quarter and longer term exposure. Risk is mitigated by matching
maturities or repricing more closely. The bank does not use derivative financial
instruments to manage interest rate risk.

Limitations are inherent in any method of measuring interest rate risk.
Actual results can differ significantly from simulated results if, for example,
market conditions and management strategies vary from the assumptions used in
the analysis. The static "gap" analysis is based on assumptions concerning such
matters as when assets and liabilities will reprice in a changing interest rate
environment. Because these assumptions are no more than estimates, certain
assets and liabilities indicated as maturing or repricing within a stated period
might actually mature or reprice at different times and at different volumes
from those estimated. The actual prepayments and withdrawals experienced by the
bank after a change in interest rates could deviate significantly from those
assumed in calculating the data shown in the table. Adjustable-rate loans, for
example, commonly have provisions that limit changes in interest rates each time
the interest rate changes and on a cumulative basis over the life of the loan.
Also, the renewal or repricing of some assets and liabilities can be
discretionary and subject to competitive and other pressures. The ability of
many borrowers to service their debt could diminish after an interest rate
increase. Therefore, the gap table above does not and cannot necessarily
indicate the actual future impact of general interest movements on net interest
income.

Middlefield's use of a simulation model to better measure the impact of
interest rate changes on net interest income is incorporated into the risk
management process to effectively identify, measure, and monitor Middlefield's
risk exposure. Interest rate simulations using a variety of assumptions are
employed by Middlefield to evaluate its interest rate risk exposure. A shock
analysis at December 31, 2000 indicated that a 200 basis point movement in
interest rates in either direction would have had a minor impact on
Middlefield's anticipated net interest income and the market value of assets and
liabilities over the next 12 months, well within Middlefield's ability to manage
effectively.

PROPERTIES
The bank's offices are:

LOCATION COUNTY OWNED/LEASED OTHER INFORMATION
----------------------------- ------------------- ---------------- ---------------------------------------------

MAIN OFFICE:
15985 East High Street Geauga owned
Middlefield, Ohio 44062-1666

BRANCHES:
West Branch Geauga owned
15545 West High Street
Middlefield, Ohio

Garrettsville Branch
8058 State Street Portage owned
Garrettsville, Ohio

Mantua Branch Portage leased three-year lease expiring November 16, 2001, with
10519 South Main Street option to renew for eight consecutive three-year
Mantua, Ohio terms

Chardon Branch Geauga owned under construction, expected to open by the end of
348 Center Street 2001, total anticipated cost of approximately
Chardon, Ohio $676,000

At December 31, 2000 the net book value of the bank's investment in
premises and equipment totaled $5.4 million.

The bank's electronic data processing functions are performed under
contract with an electronic data processing services firm that performs services
for financial institutions throughout the Midwest.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below shows the beneficial ownership of Middlefield common
stock as of June 8, 2001 by

o each director of Middlefield and each executive officer
identified in the Summary Compensation Table below, and

o all directors and executive officers of Middlefield as a
group.

To the best of Middlefield's knowledge, no person owns beneficially
more than 5% of Middlefield's outstanding common stock. For purposes of this
table, a person is considered to beneficially own any shares over which he or
she exercises sole or shared voting or investment power or of which he or she
has the right to acquire beneficial ownership within 60 days. Unless otherwise
indicated, voting power and investment power are exercised solely by the person
named in the table or shared with members of his or her household. Shares deemed
to be outstanding for purposes of computing "Percent of Common Stock" are
calculated on the basis of 1,102,954 shares issued and outstanding, plus the
number of shares a person or group has the right to acquire within 60 days.

SHARES
ACQUIRABLE
WITHIN 60 PERCENT
SHARES DAYS BY OF
BENEFICIALLY EXERCISE OF COMMON
DIRECTORS AND NAMED EXECUTIVE OFFICERS OWNED OPTIONS (1) STOCK
------------------------------------------------------------------------ ------------- ---------------- -----------

Thomas G. Caldwell, Director, President and Chief Executive Officer..... 8,800 (2) 1,000 (9)
Richard T. Coyne, Director.............................................. 1,138 (3) 1,000 (9)
Frances H. Frank, Director.............................................. 6,564 (4) 1,000 (9)
Thomas C. Halstead, Director............................................ 8,226 (5) 1,000 (9)
George F. Hasman, Director.............................................. 5,570 1,000 (9)
James R. Heslop, II, Executive Vice President........................... 520 (6) 500 (9)
Donald D. Hunter, Director and Chairman of the Board.................... 14,896 (7) 1,000 1.4 %
Martin S. Paul, Director................................................ 20 1,000 (9)
Donald E. Villers, Director............................................. 7,130 (8) 1,000 (9)
------------- ---------- -------
All Middlefield directors and executive officers as a group (15 persons) 54,833 9,300 5.8 %
============= ========== =======

(1) Options granted under Middlefield's 1999 Stock Option and Incentive
Plan. Options granted under the Plan have a term of ten years, vesting
and becoming exercisable one year after the date of grant.
(2) Includes 100 shares held by Mr. Caldwell as custodian for his minor
children.
(3) Includes 80 shares held by Mr. Coyne as custodian for his
grandchildren.
(4) Includes 3,786 shares held by Mrs. Frank's spouse. Mrs. Frank disclaims
beneficial ownership of shares held by her spouse.
(5) Includes 2,722 shares held by Mr. Halstead's spouse and her trust.
(6) Includes 120 shares held by Mr. Heslop as custodian for his minor
children.
(7) Includes 7,210 shares held in trust by Mr. Hunter's spouse and 462
shares held by First United Methodist Church, for which Mr. Hunter acts
as Trustee. Mr. Hunter disclaims beneficial ownership of shares held in
trust by his spouse.
(8) Includes 4,906 shares held jointly by Mr. Villers with his spouse and
children and 614 shares held by Mr. Viller's spouse.
(9) Does not exceed 1%.

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS. Under Article III, Section 2 of Middlefield's Regulations,
the board may consist of no fewer than five and no more than 25 directors. The
precise number of directors may be fixed from time to time within that range by
the board, or by a majority vote of stockholders acting at an annual meeting.
The number of directors is currently fixed at 8, divided into two classes of
four directors serving staggered two-year terms. All eight Middlefield directors
are currently serving as directors of the bank also. However, bank directors are
elected annually and do not serve staggered terms.

Except as may be noted, there are no family relationships among any of
Middlefield's directors or executive officers. No director was selected or
serves under any arrangement or understanding with any other person. Except as
may be disclosed, none of Middlefield's directors and executive officers serves
as a director of (1) any company that has a class of securities registered under
or that is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, or (2) any investment company registered under the
Investment Company Act of 1940. None of Middlefield's directors or executive
officers have been involved in any legal proceedings concerning bankruptcy,
either individually or in respect of any businesses with which they have been
involved. None of them have been convicted of any crime, excluding traffic
violations and similar minor offenses.

33
36

CURRENT
DIRECTOR TERM
DIRECTORS AGE SINCE EXPIRES PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
------------------------- --- ----- ------- ----------------------------------------------------------

Thomas G. Caldwell....... 43 1997 2001 Mr. Caldwell is President and Chief Executive Officer of Middlefield
President and CEO and the bank. Mr. Caldwell served as Vice President of Middlefield
until October 2000, when he became its President and CEO as well

Richard T. Coyne......... 65 1997 2001 Mr. Coyne is the General Manager of Jaco Products, a production
plastics component manufacturer located in Middlefield, Ohio. He is
also President and a Trustee of the Geauga Park District Foundation,
Geauga County, Ohio

Donald D. Hunter......... 72 1977 2001 Mr. Hunter serves as Chairman of the Board of each of Middlefield
Chairman of the Board and the bank. He is co-owner of H&H Hardware, Inc. in Middlefield,
Ohio

Martin S. Paul........... 57 1998 2002 * Mr. Paul is Vice President of Paul's Lumber in Garrettsville, Ohio.
He is also a Trustee of Ohio Northern University in Ada, Ohio, a
Trustee of Robinson Memorial Hospital Foundation in Ravenna, Ohio
and President and Trustee of Hiram Community Trust in Hiram, Ohio

George F. Hasman......... 75 1989 2002 * Mr. Hasman was President of Middlefield until October 2000, but he
did not serve on a full-time basis. He previously served as Chairman
and President of The Twinsburg Banking Company, which was sold
to FirstMerit Corporation in 1982

Donald E. Villers........ 67 1987 2000 * Mr. Villers is retired, having previously served as a superintendent
with Copperweld Steel, from which he retired after 31 years of
service. Mr. Villers has been a Township Trustee of Parkman
Township in Geauga County, Ohio since 1988

Frances H. Frank......... 53 1995 2000 * Mrs. Frank is the Secretary and Treasurer of The Frank Agency, Inc.,
a general insurance agency located in Middlefield, Ohio

Thomas C. Halstead....... 69 1988 2000 * Mr. Halstead is co-owner of Settlers Farm, a retail shopping area
located in Middlefield, Ohio. He previously was owner of Settlers
Collections, a retail gift outlet

* Recent Board Reconstitution. Until the 2000 annual meeting held in May 2000
and a special meeting of stockholders held in June 2000, Middlefield's eight
directors were divided into three classes serving three-year terms. Under Ohio
law, a board having fewer than nine directors cannot be classified in this
manner. Since adoption of new Articles of Incorporation at the 2000 annual
meeting and new Regulations at the June 2000 special meeting, the board has been
divided into two classes serving two-year terms.

Directors Paul and Hasman were last elected by stockholders at the 1999
annual meeting. At that meeting, they were elected to serve until 2002 or until
their successors are elected and qualified. Directors Frank, Halstead and
Villers were last elected by stockholders at the 1997 annual meeting, for
three-year terms ending at the 2000 annual meeting or upon election and
qualification of their successors. Successors were not elected and qualified at
the 2000 annual meeting. Directors Frank, Halstead and Villers have therefore
continued to serve as Middlefield directors.

The previous governing documents of Middlefield replaced by stockholder
vote at the 2000 annual meeting and the June 2000 special meeting seriously
complicated Middlefield's corporate governance, and on the subject of board size
and composition and director terms they were unworkable, in Middlefield's
opinion. Middlefield's effort to obtain stockholder approval at the 2000 annual
meeting for reconstitution of its board -- at the same time Middlefield
separately proposed new Articles of Incorporation and new Regulations -- was not
successful. Instead, stockholders approved new Articles of Incorporation only,
which required approval of at least 75% of Middlefield's outstanding shares. By
contrast, the separate board-reconstitution proposal and the separate proposal
to adopt new Regulations required approval of at least 80% of Middlefield's
outstanding shares, but slightly less than 80% voted in favor. Directors
nominated for election as part of the board-reconstitution proposal therefore
were not elected at the 2000 annual meeting, and the new Regulations proposed
for adoption at the 2000 annual meeting were not approved.

But the new Articles of Incorporation that stockholders did approve
changed the approval requirement for new or amended Regulations from 80% to a
majority (provided the board first approves the new or amended regulations;
otherwise, two-thirds approval would be necessary). Therefore, Middlefield again
submitted new Regulations for stockholder approval at the June 2000 special
meeting, and the new Regulations were adopted by

majority vote of stockholders at that later meeting. With new governing
documents that more readily accommodate changes in board composition,
Middlefield expects to complete at its May 9, 2001 annual meeting the transition
begun last summer from a three-class board to a two-class board by proposing
that all directors be nominated for new or changed terms at the 2001 annual
meeting. At the 2001 annual meeting, Directors Caldwell, Coyne, Hunter and Paul
will stand for election to the class whose term expires at the 2003 annual
meeting. Directors Frank, Halstead, Hasman and Villers will stand for election
at the 2001 annual meeting to the class whose term expires at the 2002 annual
meeting initially, and thereafter every second year.

Board Committees and Meeting Attendance. The only committees of
Middlefield's board are the Compensation Committee and the Audit Committee. The
members of the Compensation Committee of Middlefield and the bank's compensation
committee are Directors Villers (who acts as chairman of the committee), Frank,
Halstead, and Paul. The Compensation Committee establishes the compensation of
the senior executive officers of Middlefield and the bank. The Compensation
Committee held two meetings in 2000. Neither Middlefield nor the bank has a
board nominating committee. The full board acts as a nominating committee,
selecting nominees for election as director.

The members of Middlefield's Audit Committee and the bank's audit
committee are Directors Hasman (who acts as chairman of the committee), Halstead
and Coyne. The Audit Committee is charged with examining or superintending the
examination or audit of assets, liabilities and results of operations on at
least an annual basis, reporting the results thereof to the board. The bank's
audit committee held four meetings in 2000. Middlefield's board organized a
separate audit committee in the second quarter of 2001.

Middlefield and the bank believe that none of the directors who serve
on the Audit Committee have a relationship with Middlefield or the bank that
would interfere with the exercise of independent judgment in carrying out their
responsibilities as director. None of them is or has for the past three years
been an employee of Middlefield or the bank, and no immediate family members of
any of them is or has for the past three years been an executive officer of
Middlefield or the bank. Although certain of the directors and their affiliates
are indebted to the bank for credit extended in the ordinary course of business,
payments made by them to Middlefield or the bank in the past three years have
not in any of those years exceeded the greater of 5% of the affiliates' revenues
or $200,000. In the opinion of Middlefield's board and the bank's board the
directors who serve on the Audit Committee are "independent directors," as that
term is defined in Rule 4200(a)(14) of the rules of the National Association of
Securities Dealers, Inc.

Middlefield's board held 14 meetings in 2000, and the bank's board held
40 meetings. The individuals who served in 2000 as directors of the bank and
Middlefield attended at least 75% of (1) the total number of meetings of the
board of each of Middlefield and the bank and (2) the total number of meetings
held by all committees on which he or she served.

Director Compensation. In 2000, each bank director received monthly
compensation of $1,050, less $100 for each board meeting not attended. The
Chairman of the Board received additional annual compensation of $2,400 paid by
Middlefield. Middlefield directors receive compensation of $200 for each meeting
attended. Directors who serve on the bank's Compensation, Audit and
Asset/Liability Committees earned additional compensation of $200 for each
committee meeting attended. Under Middlefield's 1999 Stock Option Plan, options
to acquire 1,000 shares of Middlefield common stock were granted effective June
14, 1999 to each Middlefield director who was not also a full-time officer or
employee of Middlefield or the bank. The exercise price of those options is
$31.75 per share. The 1999 Stock Option Plan provides for an automatic grant of
options on similar terms to any other nonemployee director elected or appointed
after the May 12, 1999 adoption of the 1999 Stock Option Plan but during the
term of the plan. In December 2000 each of Middlefield's seven non-employee
directors received an additional grant of options to acquire 390 shares,
exercisable at $24 per share.

Directors are also entitled to life insurance benefits under the bank's
group term life insurance program, paying benefits of $30,000 (or $15,000 in the
case of Directors Hasman and Hunter) to the director's beneficiaries if the
director dies while in service to the bank.

EXECUTIVE OFFICERS

The executive officers of Middlefield and the bank who do not also
serve as Middlefield directors are:

NAME AGE PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
------------------------------- -------- -------------------------------------------------------------------------

Jay P. Giles................... 51 Mr. Giles is Senior Vice President-- Senior Commercial Lender. He joined the bank in
September 1998, having previously served as Vice President and Senior Commercial
Lender at Huntington National Bank in Burton, Ohio since 1985

NAME AGE PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
------------------------------- --- -------------------------------------------------------------------------

James R. Heslop, II............ 47 Executive Vice President of The Middlefield Banking Company since 1996, Mr. Heslop
became Executive Vice President and Chief Operating Officer of Middlefield on October
30,2000. He became a director of the bank in July 1999. From July 1993 until joining
the bank in April 1996, Mr. Heslop was a director, President and Chief Executive Officer
of First County Bank in Chardon, Ohio, an institution with over $40 million total assets.
First County Bank is an affiliate of FNB Corporation of Hermitage, Pennsylvania

Teresa M. Hetrick.............. 37 Ms. Hetrick is Senior Vice President -- Operations/Administration. Ms. Hetrick served
as Vice President and Secretary of First County Bank in Chardon, Ohio before joining the
bank in December 1996

Jack L. Lester................. 55 Mr. Lester is Vice President -- Compliance and Security Officer. He joined the bank in
August 1990 as a loan officer and has served in his current position since 1991

Nancy C. Snow.................. 66 Ms. Snow is Vice President, Secretary and Branch Manager. She has been with the bank
since 1979, and has served in her current capacities since the mid-1980s

Donald L. Stacy................ 47 Mr. Stacy joined the bank in August 1999 and serves as its Chief Financial Officer. On
October 30, 2000 he was appointed as the Treasurer and Chief Financial Officer of
Middlefield. He previously served for twenty years with Security Dollar Bank and
Security Financial Corp. in Niles, Ohio, where he was Senior Vice President and
Treasurer

Alfred F. Thompson, Jr......... 41 Mr. Thompson is Vice President -- Senior Retail Lender. Mr. Thompson has been with
the bank since March 1996. He was promoted from loan officer to Assistant Vice
President in 1997, and promoted again to his current position in July 1998. Before
joining the bank, Mr. Thompson served as Loan Officer in the Small Banking Group of
National City Bank, Northeast

EXECUTIVE COMPENSATION

The following table shows compensation for services in all capacities
for the fiscal years ended December 31, 2000, 1999, and 1998 for the President
and Chief Executive Officer and for any other executive officer whose
compensation exceeded $100,000 during 2000, including salary and bonus.

SUMMARY COMPENSATION TABLE

Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- ------------------------- -------
($) (#)
($) Restricted Securities ($) ($)
Name and ($) ($) Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary(1) Bonus(2) Compensation(3) Awards Options Payouts Compensation(4)
------------------ ---- --------- -------- --------------- ------ ------- ------- ---------------

Thomas G. Caldwell 2000 $118,300 $ 0 (3) -- 2,500 -- $9,823
President and Chief 1999 $110,456 $19,977 (3) -- 1,000 -- $9,733
Executive Officer 1998 $101,626 $ 7,902 (3) -- -- -- $9,342

James R. Heslop, II 2000 $102,750 $ 0 (3) -- 2,500 -- $1,354
Executive Vice 1999 $ 87,784 $19,658 (3) -- 500 -- $1,086
President 1998 $ 74,077 $ 6,686 (3) -- -- -- $ 741

(1) Includes amounts deferred at the election of the named executive
officers pursuant to the 401(k) plan. Also includes fees for service as
a director of Middlefield or the bank.
(2) Represents profit sharing distributions and, in 1999 only, a $17,691
cash bonus paid to each of Messrs. Caldwell and Heslop.
(3) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of total salary and bonus.
(4) Represents matching contributions under the bank's 401(k) plan and, for
Mr. Caldwell, the $6,700 dollar value of insurance premiums paid in
each of 1998, 1999 and 2000. Mr. Caldwell's 401(k) plan matching
contribution in 2000 was $3,123, and Mr. Heslop's was $1,354.

Director George F. Hasman held the title of President until October
2000, but he did not serve as a full-time officer or employee. Mr. Hasman did
not receive compensation in his capacity as President. Instead, his compensation
was limited solely to the compensation he received as a director. In his
capacity as a director, Mr. Hasman was granted in 1999 an option to acquire
1,000 shares of Middlefield common stock. The option is

36
39

currently exercisable in full, at the exercise price of $31.75 per share. In
December 2000 he received an option to acquire an additional 390 shares of
Middlefield common stock, exercisable at $24 per share.

Life Insurance. Mr. Caldwell is the owner of a life insurance policy
for which The Middlefield Banking Company pays an annual premium of $6,700.
Issued in October 1995, the policy provides for an initial death benefit of
$250,000, increasing over time. Under a separate collateral assignment
agreement, Mr. Caldwell has assigned his interest in the policy to the bank as
security for the bank's interest in the policy death benefits. At Mr. Caldwell's
death, the bank will be reimbursed for premiums paid. Mr. Caldwell's
beneficiaries will receive the remainder of the policy death benefits.

Bank officers have life insurance benefits under a group term life
insurance program, paying benefits to the officer's beneficiaries if the officer
dies while employed by the bank, up to the lesser of (1) twice the officer's
annual salary at the time of death or (2) $240,000.

Stock Option Plan. Middlefield's 1999 Stock Option Plan provides for
the grant of options to acquire a maximum of 114,866 shares of common stock.
Options granted under the plan can be either incentive stock options or
non-qualified stock options. Options to acquire 20,980 shares of Middlefield
common stock were issued and outstanding as of April 11, 2001. The 1999 Stock
Option Plan also allows for the grant of stock appreciation rights, restricted
stock and performance unit awards, but the only grants made under the plan so
far are stock option grants.

Under the stock option plan, qualified stock options -- also commonly
known as incentive stock options or ISOs -- may be granted to Middlefield's or
the bank's officers and employees, and non-qualified stock options may be
granted to directors, officers and employees. No one individual may be granted
options to acquire more than 20% of the total shares acquirable by exercise of
options that may be granted under the plan. Similarly, all non-employee
directors as a group may be granted options to acquire no more than 20% of the
total shares acquirable by exercise of options that may be granted under the
plan. The stock option plan has a ten-year term, and it provides that options to
acquire no more than 10% of the total shares acquirable under the plan may be
granted in any one year. The plan is administered by a committee of at least 2
directors.

A qualified stock option, or incentive stock option, is an option that
satisfies the terms of Section 422 of the Internal Revenue Code of 1986. All
other options granted under the stock option plan are non-qualified options. All
options granted to officers and employees under the plan to date are incentive
stock options, and all options granted to non-employee directors are
non-qualified options. The exercise price of incentive stock options must be no
less than the fair market value of the shares on the date of grant (or 110% of
fair market value in the case of any incentive stock option grant to a holder of
more than 10% of Middlefield's common stock), and the exercise price of
non-qualified stock options must be no less than book value at the end of the
most recent fiscal year.

The committee administering the stock option plan determines the
vesting schedule of stock options. All stock options granted to date become
fully exercisable one year after the date of grant. Options granted under the
plan are not transferable except by will or the laws of descent and
distribution, and are exercisable during the option grantee's lifetime by the
option grantee only. Exercisable options not exercised within three months after
termination of the option holder's service expire, except in the case of the
option holder's death, in which case they expire after one year. If the option
holder's service is terminated for cause, all of his options expire immediately.
However, unexercisable options become fully exercisable if a tender offer for
Middlefield common stock occurs or if Middlefield's stockholders approve an
agreement whereby Middlefield ceases to be an independent, publicly owned
company or whereby Middlefield agrees to sale of substantially all of its
assets.

The following table shows stock option grants in 2000 to the
individual(s) named in the Summary Compensation Table.

NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS GRANTED EMPLOYEES PRICE PER
NAME IN 2000 IN 2000 SHARE EXPIRATION DATE
-------------------------- ----------------- ------------- ----------- -------------------

Thomas G. Caldwell........ 2,500 28.6 % $ 24.00 December 11, 2010
James R. Heslop, II....... 2,500 28.6 % $ 24.00 December 11, 2010

The following table shows the number of shares of Middlefield common
stock acquired during 2000 or acquirable upon exercise of options by the
individuals named in the Summary Compensation Table. The table also indicates
the extent to which the options were exercisable at December 31, 2000, as well
as the approximate value of the options based on the estimated fair market value
of Middlefield common stock on December 31, 2000.

SECURITIES UNDERLYING UNEXERCISED VALUE OF IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END (1)
SHARES ACQUIRED ------------------------------ -------------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ---------------- ----------------- ------------ -------------- ------------ ---------------

Thomas G. Caldwell.. 0 -- 1,000 2,500 $ 0 $ 0
James R. Heslop, II. 0 -- 500 2,500 $ 0 $ 0

(1) None of the stock options held by Mr. Caldwell or Mr. Heslop was
"in-the-money" at year end, and the value of their stock options is
therefore shown as zero. In general, a stock option is "in-the-money"
when the stock's market value exceeds the option exercise price. Value
of unexercised options equals the estimated fair market value of a
share acquirable upon exercise of an option at December 31, 2000, less
the exercise price per share, multiplied by the number of shares
acquirable upon exercise of the options. The stock options granted to
Mr. Caldwell and Mr. Heslop in 1999 are exercisable at the price of $31
per share, and the options granted to them in 2000 have an exercise
price of $24 per share. Middlefield common stock is not actively traded
and is not authorized for quotation or trading on any exchange or on
Nasdaq. Solely for purposes of the table and for no other purpose,
Middlefield estimated the per share market value of Middlefield common
stock on December 31, 2000 as $24. This is an estimate only and does
not necessarily reflect actual transactions in Middlefield common
stock. The estimate does not necessarily reflect the price stockholders
could obtain upon sale of their stock or the price at which shares of
Middlefield common stock may be acquired. The estimate should not be
taken to represent management or the board's estimate of the intrinsic
value or appropriate market value of the common stock.

Retirement Plan. The bank maintains a section 401(k) employee savings
and investment plan for substantially all employees and officers of the bank who
have more than one year of service. The bank's contribution to the plan is based
on 50% matching of voluntary contributions, up to 6% of compensation. An
eligible employee may contribute up to 15% of his or her salary. Employee
contributions are vested at all times. Bank contributions are fully vested after
6 years, vesting in 20% annual increments beginning with the second year.

Employment and Severance Agreements. Neither the bank nor Middlefield
has written employment agreements with officers. But on October 8, 1996
Middlefield and the bank entered into severance agreements with Thomas G.
Caldwell and James R. Heslop, II. Although the severance agreements terminate
when the executives reach age 65, the initial term of the agreement is three
years, renewing each year for an additional one-year term unless the board
determines that the executive has not met the requirements and standards of the
board and that the term therefore will not be extended.

The severance agreements provide that the executive will be entitled to
severance compensation if two conditions are satisfied:

1) a change in control occurs during the agreement's term, and
2) the executive is involuntarily terminated within one year
after the change in control or the executive voluntarily
terminates employment for "good reason" within one year after
the change in control.

The severance compensation will be paid in a lump sum in cash within 90
days after termination of the executive's employment. The amount of the
severance compensation will equal 24 times the average monthly salary paid to
the executive over the preceding five years. For this purpose, salary includes
the executive's base salary, board fees and any other cash compensation required
to be reported in the Summary Compensation Table. Middlefield and the bank have
also agreed to pay legal fees incurred by the executives associated with the
interpretation, enforcement, or defense of their rights under the severance
agreements if Middlefield or the bank initiates the legal proceeding but the
executive prevails.

The term "change in control" can be defined in a variety of ways from
one corporation to the next and from one benefit plan to the next. Under the
severance agreements, a change in control means any of the following events
occur --

o Merger: Middlefield merges into or consolidates with another
corporation, or merges another corporation into Middlefield,
with the result in either case that less than 50% of the total
voting power of the resulting corporation immediately after
the merger or consolidation is held by persons who were
Middlefield stockholders immediately before the merger or
consolidation,

o Acquisition of Significant Share Ownership: a person or group
of persons acting in concert acquires the power to vote 25% or
more of Middlefield's common stock,

o Acquisition of Control of Middlefield: Middlefield's board
determines (a) that a person has acquired the power to direct
Middlefield's management or policies and (b) that this
constitutes an acquisition of control for purposes of the Bank
Holding Company Act or the Change in Bank

38
41

Control Act and regulations thereunder. Under the Bank Holding
Company Act and the Change in Bank Control Act, control is
conclusively presumed to exist when an acquiror has 25%
ownership of a bank holding company, and control may be
rebuttably presumed to exist when the acquiror has 10%
ownership. Control determinations under the Bank Holding
Company Act and the Change in Bank Control Act are highly
dependent on the facts of each case and are not necessarily
based on stock ownership alone,

o Change in Board Composition: during any period of two
consecutive years, individuals who constituted Middlefield's
or the bank's board at the beginning of the two-year period
(including directors later elected by the board, or later
nominated by the board for election by stockholders, by a vote
of at least two-thirds (2/3) of the directors who were
directors at the beginning of the period) cease for any reason
to constitute at least a majority, or

o Sale of Assets: Middlefield sells to a third party
substantially all of its assets.

If Mr. Caldwell or Mr. Heslop terminates employment for "good reason"
within one year after a change in control, he will be entitled to severance
benefits just as if he were terminated involuntarily and without cause. Under
the severance agreements, "good reason" includes occurrence of any of the
following events without the executive's written consent--

o Change in Office or Position: a change in the executive's
status, title, position or responsibilities that, in the
executive's judgment, does not represent a promotion, or
assignment to him of responsibilities that are, in his
judgment, inconsistent with his status, title, position or
responsibilities,

o Salary Reduction: a reduction in the executive's base salary,

o Reduction of Benefits. The executive's benefits under employee
benefit plans are materially reduced, or

o Relocation of the Executive: the executive's principal place
of employment is relocated outside of Middlefield, Ohio.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The bank has deposit and lending relationships with directors and
officers of Middlefield, as well as with their affiliates. All loans to
directors, officers and their affiliates were made in the ordinary course of
business, on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal credit risk or present
other unfavorable features.

LEGAL PROCEEDINGS

From time to time the bank is 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 Middlefield or the
bank, either individually or in the aggregate.

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK

COMMON STOCK. Middlefield had approximately 540 stockholders of record
as of June 8, 2001. Middlefield common stock is traded very infrequently.
Although there is no established market for the common stock, bid prices are
quoted from time to time on the National Quotation Bureau's "pink sheets" under
the symbol "MBCN." The last trade of which Middlefield is aware occurred on May
7, 2001 at $27.50 per share. The following table shows the high and low bid
prices of and cash dividends paid on Middlefield common stock in 1999, 2000, and
the first quarter of 2001, adjusted for stock splits and stock dividends. This
does not reflect retail mark- up, mark-down or commissions and does not
necessarily represent actual transactions.

CASH
DIVIDENDS
HIGH BID LOW BID PER SHARE
----------- ----------- -------------
1999:
First Quarter............ $ 31.750 $ 30.125 $ 0.100
Second Quarter........... $ 31.000 $ 30.813 $ 0.100
Third Quarter............ $ 31.000 $ 30.000 $ 0.100
Fourth Quarter........... $ 31.000 $ 30.000 $ 0.200

2000:
First Quarter............ $ 31.000 $ 30.000 $ 0.100
Second Quarter........... $ 32.500 $ 31.000 $ 0.110
Third Quarter............ $ 31.000 $ 19.625 $ 0.115
Fourth Quarter........... $ 25.000 $ 24.000 $ 0.215

2001:
First Quarter............ $ 28.500 $ 24.000 $ 0.140

DIVIDENDS. Middlefield's current policy is to maintain a cash dividend
payout ratio of 25% to 35% of net earnings, adjusted for nonrecurring items.
Because Middlefield is dependent on its bank subsidiary for earnings and funds
necessary to pay dividends, the ability of Middlefield to pay dividends to its
stockholders is subject to bank regulatory restrictions. See, "BUSINESS --
SUPERVISION AND REGULATION - Limits on Dividends and Other Payments."

RESALES UNDER RULE 144 -- General Application of Rule 144. A person who
resells securities acquired directly or indirectly from an issuer or its
affiliate in a transaction or chain of transactions not involving a public
offering could be deemed to be an underwriter of those securities. Securities
acquired in this fashion from an issuer or an affiliate are defined in Rule 144
under the Securities Act of 1933 as "restricted securities." Registration of
that person's offer and sale of restricted securities under the Securities Act
of 1933 could be necessary, unless an exemption is available or unless the
person is able to rely on the safe harbor from treatment as an underwriter
provided by the Securities and Exchange Commission's Rule 144. Since Middlefield
became the holding company for The Middlefield Banking Company in 1988,
Middlefield has never undertaken a public offering of its securities.

Resale of Restricted Securities. Rule 144 imposes a one-year holding
period on restricted securities before they may be resold in reliance on the
safe-harbor exemption of Rule 144. And if restricted securities are held for two
years or more, the shares may be freely resold in reliance on Rule 144 without
compliance with the terms of Rule 144 (summarized below), other than the
provision of Rule 144 requiring that the shares be sold in unsolicited brokers'
transactions. But this dispensation from the requirements of Rule 144 does not
apply to resale of shares by affiliates or to resale of shares by persons who
were affiliates at any time within three months before the resale.

Resale of Shares by Affiliates. Offers and sales of shares by
Middlefield affiliates are subject to registration under the Securities Act of
1933, unless an exemption is available, including the exemption provided by Rule
144. Defined in Rule 144(a), the term "affiliate" generally includes directors
and executive officers of a company. An owner of more than 10% of a company's
shares can be considered an affiliate too. In summary terms, compliance with
Rule 144 requires satisfaction of the following conditions, in addition to a
holding period for restricted securities:

o CURRENT IN REPORTING OBLIGATION: under Rule 144(c), the issuer
must have securities registered under Section 12 of the
Securities Exchange Act of 1934, the issuer must have been
subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934 for at least 90 days
immediately before the sale, and the issuer must have been in
compliance with its reporting requirements under the
Securities Exchange Act of 1934 for the 12 months preceding
the proposed sale (or the period that the issuer has been
required to file reports under Section 13, if less than 12
months),

o VOLUME LIMITATION: the number of shares that may be sold in
any 3-month period is limited to the greater of (1) 1% of the
issuer's shares outstanding or (2) the average weekly trading
volume during the four calendar weeks preceding the sale, and

o MANNER OF SALE: the shares must be sold by a broker in a
routine open market transaction that does not involve the
solicitation of orders for purchase.

40
43

When this Form 10 becomes effective, which Middlefield expects to occur
in June 2001, Middlefield will have equity securities registered under Section
12 of the Securities Exchange Act of 1934, and Middlefield will thereafter be
required to file reports under Section 13 of that act. Middlefield has not
agreed to register the offer or sale of shares by any person. Although each
stockholder is responsible to determine his or her own holding period for
Middlefield common stock, Middlefield believes that most of its stockholders
have held Middlefield common stock for the minimum one-year holding period of
Rule 144(d). Stockholders who desire to sell their shares should consult their
own counsel concerning any restrictions on sale that might apply under federal
securities law. Stockholders who desire to sell their shares before
Middlefield's securities have been registered under the Securities Exchange Act
of 1934 for 90 days should consult their own counsel about whether information
concerning Middlefield available under Rule 15c2-11 satisfies the public
information requirement of Rule 144(c).

DESCRIPTION OF SECURITIES

The rights of Middlefield stockholders are governed by Middlefield's
Second Amended and Restated Articles of Incorporation, its Regulations, and by
the Ohio General Corporation Law. The following discussion of important
stockholder rights is merely a summary. It does not necessarily contain all of
the information that is important to you. You should read the Second Amended and
Restated Articles of Incorporation and Regulations of Middlefield, which are
included as exhibits to this registration statement. See, "WHERE TO FIND MORE
INFORMATION."

COMMON STOCK 5,000,000 shares of common stock authorized

Authorized shares generally may be issued and sold without
further stockholder action, provided that the issuance and
sale is made in compliance with the corporate governance
documents of Middlefield and the Ohio General Corporation
Law. Stockholder approval may be required in certain cases
under the Ohio General Corporation Law, for example if
16.7% or more of a corporation's shares are issued in a
merger

PAR VALUE No par value shares

PREEMPTIVE No preemptive rights
RIGHTS

CUMULATIVE No cumulative voting rights
VOTING

DIRECTORS Article III, Section 2(a) of the regulations provides for
at least 5 but no more than 25 directors. The precise
number of directors is fixed from time to time by the
board, or by stockholders acting at an annual meeting

CLASSIFIED Under Article III, Section 2(b) of the regulations,
BOARD directors will be (a) elected annually and not divided
into classes if there are fewer than 6 directors,
(b) divided into two classes serving two-year terms if
there are six or more -- but fewer than 9 -- directors,
and (c) divided into three classes serving three-year
terms if there are 9 or more directors

DIRECTOR Although Ohio General Corporation Law Section 1701.58(D)
REMOVAL provides that stockholders may remove any or all of the
directors with or without cause by the vote of the
holders of a majority of the voting power entitled to
elect directors, Article III, Section 5 of the regulations
provides that directors may be removed solely for good
cause

VOTING RIGHTS Holders of common stock are entitled to one vote per share
on any matter submitted to a vote of stockholders

DIVIDENDS The holders of common stock are entitled to receive
ratably dividends, if any, as may be declared from time to
time by the board out of funds legally available therefor.
Under Ohio General Corporation Law Section 1701.33(C), a
corporation may not pay a dividend when the corporation is
insolvent or if there are reasonable grounds to believe
that it will become insolvent as a result of the dividend

Dividends and distributions are also subject to bank
regulatory restrictions. See, "BUSINESS -- SUPERVISION AND
REGULATION -- Limits on Dividends and Other Payments."

SHARE As authorized by the board, except that a corporation may
REPURCHASES not repurchase its shares (a) if immediately thereafter
the corporation's assets would be less than its
liabilities and stated capital, or (b) if the corporation
is insolvent or if there are reasonable grounds to believe
that it will become insolvent as a result of the share
repurchase

AMENDMENT OF Amendment of Middlefield's articles of incorporation
GOVERNING generally requires the approval of a majority of shares
DOCUMENTS issued and outstanding and entitled to vote, but
approval of two thirds is necessary if the amendment has
to do with the Business Combination provisions of
Article Sixth. See "-- Changes in Control," below.

According to Article Seventh of Middlefield's articles of
incorporation, amendment of Middlefield's regulations
generally requires the approval of a majority of shares
issued and outstanding and entitled to vote, or two thirds
of the voting shares if the board has not first approved
the proposed amendment

41
44

INDEMNIFICATION Article VIII of the regulations provides that directors,
AND LIMITATIONS officers and employees shall be indemnified to the full
ON LIABILITY extent permitted by law

Middlefield also may purchase insurance covering actions
of directors, officers and employees

SPECIAL Special meetings may be called by the Chairman of the
MEETINGS OF Board or the President, by the Board acting at a meeting,
STOCKHOLDERS by a majority of directors acting without a meeting or by
stockholders who together hold at least 25% of the shares
outstanding and entitled to vote

STOCKHOLDER Regulations Article III, Section 4 provides that
NOMINATIONS stockholder nominations for director, and regulations
AND Article I, Section 8 provides that stockholder proposals
STOCKHOLDER for business to be acted on at an annual meeting, must be
PROPOSALS made in writing within a range of 60 to 120 days before
the corporation mails its proxy statement for the annual
meeting, based on the date of mailing in the preceding
year

ANTITAKEOVER Provisions of Middlefield's governing documents that could
PROVISIONS have an antitakeover effect include the following:
o the board's ability to issue authorized but unissued
shares of common stock without further stockholder
action
o the restrictions in the regulations on stockholder
proposals and stockholder nominations for director
o classified board of directors; no cumulative voting
o the articles of incorporation and regulations may be
amended by majority vote, but a higher voting
threshold (2/3) applies if the board does not first
approve the amendment
o directors may be removed solely for good cause
o the Business Combination provisions in Article Sixth
of the articles of incorporation, discussed in " --
Changes in Control" below

CHANGES IN CONTROL. Middlefield's articles of incorporation and
regulations contain a number of provisions that could have the effect of
delaying or making more difficult or costly an attempt to acquire control of
Middlefield.

Authorized but Unissued Shares. Authorized but unissued shares of
Middlefield common stock may be issued by the board without further stockholder
approval. When in the judgment of the board the action is in the best interest
of stockholders and Middlefield, the authorized but unissued common stock could
be used by the board for the purpose or with the effect of creating impediments
to or frustrating the attempts of persons seeking to gain control of
Middlefield. As a means to oppose a hostile takeover bid, unissued shares of
common stock could be privately placed by Middlefield with purchasers selected
by the board. The issuance of new shares could be used by Middlefield to dilute
the stock ownership of a person or entity seeking to obtain control, if the
board considers the change in control to be not in the best interests of
stockholders and Middlefield. Authorized but unissued capital stock could
discourage unsolicited takeover attempts, and could be used to delay or prevent
a change in control. This could frustrate stockholders' desire to receive the
premium for stock that is commonly paid in changes in control.

Director Nominations and Other Business Proposed for Stockholders'
Consideration. Article I, Section 8 of Middlefield's regulations require that
notice in writing of proposed stockholder nominations for the election of
directors and proposals for stockholder action be timely given before an annual
meeting. To be timely, the stockholder's notice must be received by
Middlefield's Secretary at least 60 days -- but no more than 120 days -- before
the date corresponding to the date on which Middlefield's proxy statement was
mailed to stockholders for the preceding year's annual meeting. The
stockholder's notice must contain information about the non-incumbent nominee or
stockholder proposal, including the nominee's name, age, business and residence
addresses, principal occupation, the number of shares beneficially owned by the
nominee and any other information of the kind required to be included in a proxy
statement soliciting proxies for election of the nominee. If the officer
presiding at a meeting determines that a person was not nominated or a proposal
was not presented in accordance with the foregoing procedures, the nominee would
not be eligible for election as a director and the proposal would not be
presented for stockholder action. You should refer to Article I, Section 8(d)
for a description of the information you must provide with a notice for proposed
stockholder action, and Article III, Section 4 for a description of the
information you must provide with a director nomination. The regulations also
provide in Article III, Section 2 that directors may be elected by stockholders
at annual meetings only.

The purpose of these director nomination and stockholder proposal
procedures is to preserve the board's opportunity to investigate -- and the
stockholders' opportunity to assess -- the competence, experience, integrity and
qualifications of a proposed nominee and the factors that are relevant to
consideration of a stockholder proposal. The board believes stockholder meetings
should be conducted in an orderly manner, and sufficient time should be allowed
for consideration of matters so that stockholders have ample time and
information to vote on an informed basis.

But these provisions could deter a stockholder from gaining control of
Middlefield by nominating his own director slate, by proposing stockholder
action from the floor of a meeting, or by instituting a proxy contest so close
in time to the date of a stockholders' meeting that inadequate information is
available to stockholders. And the nomination by stockholders of a person
otherwise qualified to serve as director might not be considered if the
nomination does not strictly comply with the procedures outlined in the
regulations. Also, this provision could make it easier for incumbent directors
to solicit proxies to resist a dissident slate of directors, and thereby retain
their status as directors, even if the dissident's nominations are in the best
interests of Middlefield and stockholders. In this sense, the provisions can be
considered advantageous to incumbent directors and executive officers, and could
discourage takeover attempts.

Classified Board. Middlefield's regulations provide for a classified
board, serving staggered terms of two years if there are fewer than nine
directors and three years if there are nine or more directors. Because one and
only one class of directors is elected at each annual meeting, a stockholder
seeking to change the composition of the board could be delayed in his efforts
to replace existing directors with his own nominees.

Amendment of Governing Documents. Middlefield's articles of
incorporation and regulations generally may be amended by a vote of a majority
of the voting power, except that (a) any amendment of the regulations would
require approval of two thirds of the voting power if the board does not first
approve the amendment, and (b) the Business Combination provisions in Article
Sixth of the articles of incorporation may not be amended unless holders of at
least two thirds of the shares vote in favor of amendment (along with a majority
of shares not held by the interested stockholder, unless the board also first
approves the amendment by a two-thirds vote).

Removal of Directors. Article III, Section 5 of Middlefield's
regulations provides that directors may be removed solely for good cause, and
removal of a director by stockholders requires the affirmative vote of the
holders of a majority of the voting power.

Business Combination Provisions of Article Sixth of the Articles of
Incorporation. Similar to the Merger Moratorium Act discussed below, Article
Sixth applies to two-step acquisition transactions. For example, an acquiror
could gain a significant toehold ownership interest in a company in a first step
at one price, and thereafter use the leverage of that ownership position in a
second-step acquisition of the remainder of the company at a lower price.
Sophisticated investors and arbitragers could profit by selling out to the
acquiror in the first step of the transaction, leaving the great bulk of
long-term stockholders and their individually small ownership stakes at the
mercy of the acquiror in the second step and without a disinterested Board to
protect minority stockholders' interests. All of the complexity and elaborate
definitions and voting requirements of Article Sixth's business combination
provisions exist to advance one simple goal: to prevent a person who has
accumulated a significant percentage interest in Middlefield (10% or more) from
using that ownership interest to his own advantage at the expense of other
stockholders. Oppression of long-term, smaller stockholders in the second step
of a two-step acquisition transaction is the outcome Article Sixth is intended
to avoid.

In summary, the business combination provisions of Article Sixth apply
to a transaction that constitutes a "Business Combination" and that involves an
"Interested Party." Defined in paragraph (e) of Article Sixth, the term
"Business Combination" includes mergers, a sale of assets and a variety of other
kinds of transactions involving an Interested Party, including reclassifications
and issuances of securities. The term "Interested Party" means any corporation,
person or entity that, together with its affiliates, beneficially owns 10% or
more of Middlefield's common stock.

If the party proposing to enter into a merger or similar transaction
with Middlefield is an Interested Party, Article Sixth could require approval of
two thirds of all shares of common stock issued and outstanding, plus a majority
of shares not held by the Interested Party. But there are two exceptions:

1) if the transaction is approved by the board before or at the
same time as the Interested Party becomes the owner of 10% or
more of Middlefield's common stock; and

2) if the board approves the transaction by a vote of two thirds
of its members and a majority of the so-called "Continuing
Directors," and if the per share price to be paid in the
transaction by the Interested Party is an amount, in cash,
equal to or greater than the highest price ever paid by the
Interested Party for his shares. Paragraph (f) of Article
Sixth defines the term "Continuing Director" to include any
person who was a director before the Interested Party owned 4%
of Middlefield's shares. A person recommended by a majority of
Continuing Directors to succeed a Continuing Director would
himself also be considered a Continuing Director.

43
46

If either of the two exceptions to the provisions of Article Sixth
applies, it is conceivable that no approval of Middlefield's stockholders would
be required at all. This is because the Ohio General Corporation Law does not
require stockholder approval for some of the transactions to which the business
combination provisions of Article Sixth apply.

Article Sixth creates incentive for an acquiror to negotiate the terms
of an acquisition directly with the board before the acquiror becomes a
significant stockholder. In contrast, bypassing approval of the board can have
adverse consequences, such as a higher stockholder approval threshold, a
requirement to pay a higher price than the acquiror might otherwise be willing
to pay, potential resistance by the board, greater potential for delays and
potentially higher transaction costs.

Article Sixth does not require a supermajority vote for a merger or
similar transaction with a party that is not a so-called "Interested Party."
Instead, the only stockholder vote required for a merger or similar transaction
with someone other than an Interested Party will be the stockholder vote -- if
any -- required by the Ohio General Corporation Law to be obtained. In many
cases, that required vote is two thirds of all issued and outstanding shares. In
some cases, approval of a majority of shares not held by the party to the
transaction will also be required, if the Ohio Control Share Acquisition Act
discussed below applies. And in other cases, no stockholder vote will be
required under the Ohio General Corporation Law. For example, the Ohio General
Corporation Law generally would not require a vote by stockholders of a
corporation for issuance of a small percentage of shares (5%, for example) or
for a merger in which the corporation is the surviving entity (provided the
surviving corporation does not issue or transfer to the other party in the
merger shares representing one-sixth or more of the voting power in the election
of the surviving corporation's directors).

Consideration of Constituencies Other than Stockholders. Section
1701.59 of the Ohio General Corporation Law permits the board to consider
constituencies other than stockholders in the board's deliberations over a
potential change in control. The board may consider the social, legal and
economic consequences of a change in control on employees and customers and on
the communities served by Middlefield and its subsidiaries, in addition to
considering the long-term and short-term interests of stockholders.

Ohio Control Share Acquisition Act. Contained in Section 1701.831 of
the Ohio General Corporation Law, the Control Share Acquisition Act requires
stockholder approval for transfers of corporate control. The Control Share
Acquisition Act provides generally that acquisitions of voting securities
resulting in the acquiring stockholder owning 20%, 33 1/3%, or 50% of the
outstanding voting securities of an issuing public corporation must be approved
in advance by the holders of a majority of the outstanding voting shares, and by
a majority of the portion of the outstanding voting shares that excludes
so-called "interested shares," a term defined below. The Control Share
Acquisition Act was intended to protect stockholders of Ohio corporations from
coercive tender offers. In general, an issuing public corporation is any Ohio
corporation that has 50 or more shareholders, provided the corporation has its
principal place of business, its principal offices, assets with substantial
value or a substantial percentage of its assets in Ohio. Middlefield is an
issuing public corporation.

The term "interested shares" means shares of the issuing public
corporation held by the acquiring stockholder, by officers of the issuing public
corporation, or by any employee of the issuing public corporation who is also a
director of the issuing public corporation. The term "interested shares" also
includes shares acquired by any person after the first date of public disclosure
of the acquisition and before the record date for the meeting at which the
acquisition will be voted upon, provided (a) the person paid over $250,000 for
the shares, or (b) the shares represent more than 0.5% of the outstanding shares
of the issuing public corporation.

A corporation's articles of incorporation or regulations may opt out of
the protection provided by the Control Share Acquisition Act, and in such a case
the Control Share Acquisition Act would not apply to acquisitions of that
corporation's shares. Middlefield's articles of incorporation and regulations do
not opt out of coverage under the Control Share Acquisition Act.

Ohio Merger Moratorium Act. Chapter 1704 of the Ohio Revised Code,
known as the Merger Moratorium Act, prevents an issuing public corporation from
entering into a business combination transaction with an interested stockholder
for a period of three years after the date of the transaction in which the
person became an interested stockholder. Mergers and a wide variety of other
kinds of transactions involving an interested stockholder would be considered
business combinations for purposes of the Merger Moratorium Act. If the business
combination or the interested stockholder's share acquisition is approved by the
directors, the three-year moratorium does not apply. In general, an interested
stockholder is one who can vote or direct the voting of 10% or more of the
issuing public corporation's stock in the election of directors.

The Merger Moratorium Act generally does not apply to issuing public
corporations that --

o do not have a class of voting securities traded on a national
securities exchange,

o do not have a class of voting securities registered under
Section 12(g) of the Securities Exchange Act of 1934, or

o are not required to file periodic reports and information
pursuant to Section 15(d) of the Securities Exchange Act of
1934.

Middlefield's common stock will be registered under Section 12(g) of
the Securities Exchange Act of 1934 when this Form 10 registration statement
becomes effective. Business combination transactions involving Middlefield and
an interested stockholder therefore could be subject to compliance with the Ohio
Merger Moratorium Act.

Like the Control Share Acquisition Act, the Merger Moratorium Act
provides that a corporation's articles of incorporation may opt out of the
protection provided by the statute, and in such a case the Merger Moratorium Act
would not apply to business combination transactions involving an interested
stockholder. Middlefield's articles of incorporation do not opt out of coverage
under the Merger Moratorium Act.

Ohio "Anti-Greenmail" Statute. Under Ohio Revised Code Section
1707.043, a public corporation formed in Ohio may recover profits that a
stockholder makes from a sale of the corporation's securities occurring within
18 after making a proposal to acquire control or publicly disclosing the
possibility of a proposal to acquire control. The corporation may not, however,
recover from a person who proves either --

o that his sole purpose in making the proposal was to succeed in
acquiring control of the corporation and there were reasonable
grounds to believe that he would acquire control of the
corporation, or

o that his purpose was not to increase any profit or decrease
any loss in the stock.

Also, the corporation may not obtain any recovery unless the aggregate
amount of the profit realized by such person exceeds $250,000. Any stockholder
may bring an action on behalf of the corporation if the corporation refuses to
bring an action to recover these profits. The party bringing an action may
recover his attorneys' fees if the court having jurisdiction over the action
orders recovery of profits. An Ohio corporation may elect not to be covered by
the "anti-greenmail" statute with an appropriate amendment of its articles of
incorporation or regulations. Middlefield has taken no action to opt out of the
"anti-greenmail" statute's coverage.

Regulatory Approval of Acquisitions. A company seeking to acquire
control of an Ohio bank or bank holding company must obtain approval of the
Federal Reserve Board and the Ohio Division of Financial Institutions.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VIII of Middlefield's regulations provides for indemnification
of directors, officers, employees and agents. The indemnification rights set
forth in the regulations and the Ohio General Corporation Law are not exclusive
of any other indemnification rights to which a director or officer may be
entitled under an indemnification agreement or board resolution. Middlefield may
purchase and maintain insurance on behalf of any director or officer against any
liability asserted against and incurred by him or her in any such capacity,
regardless of whether Middlefield would have had the power to indemnify against
that liability. Middlefield has purchased and maintains directors' and officers'
liability insurance. At the May 9, 2001 annual meeting, stockholders approved
the form and use of indemnification agreements for directors. Middlefield
subsequently entered into indemnification agreements with the directors and
executive officers identified herein. See, "DIRECTORS AND EXECUTIVE OFFICERS."
The form of indemnification agreement is included as an exhibit to this
registration statement. See, "WHERE TO FIND MORE INFORMATION."

Permitted Indemnification in General. Under Section 1701.13(E) of the
Ohio General Corporation Law, Ohio corporations may indemnify directors,
officers and agents within prescribed limits, and must indemnify them in some
circumstances.

Required Advancement of Directors' Expenses. The Ohio General
Corporation Law does not expressly authorize indemnification for settlements,
fines or judgments in the context of derivative suits (shareholders' lawsuits
brought on behalf of a corporation). However, Ohio corporations must advance
expenses, including attorneys' fees, incurred by directors -- but not officers
-- in defending an action, including a derivative action, if the director agrees
to cooperate with the corporation in the derivative action and agrees to repay
the amount advanced. The director would have to repay the amount advanced to him
if it is proved by clear and convincing evidence that his act or failure to act
was done (a) with deliberate intent to cause injury to the corporation or (b)
with reckless disregard for the corporation's best interests. But advancement of
expenses is not required if the corporation's articles of

incorporation or regulations explicitly state that it is not required --
Middlefield's governing documents do not do so.

No Indemnification in a Derivative Suit If the Director or Officer
Acted Negligently. The Ohio General Corporation Law does not authorize
indemnification of a director or officer in a derivative suit if his actions
were negligent or constituted misconduct. Indemnification in that case may be
ordered by a court, however.

Indemnification Is Required If the Director or Officer Is Successful on
the Merits. An Ohio corporation must indemnify a director, officer, employee or
agent who succeeds on the merits in a derivative suit or in a non- derivative
suit.

Indemnification Is Allowed If the Director or Officer Satisfied the
Ohio General Corporation Law Standard of Conduct, Even If He Is Not Successful
on the Merits. In all other cases, if a director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the company, indemnification is discretionary -- except as
otherwise provided by a corporation's articles of incorporation, code of
regulations or by contract (and advancement of directors' expenses is also not
discretionary).

Standard for Personal Liability of Directors for Monetary Damages.
According to Ohio General Corporation Law Section 1701.59(D), a director will
not be liable for monetary damages unless it is proved by clear and convincing
evidence that his action or failure to act was undertaken with deliberate intent
to cause injury to the corporation or with reckless disregard for the best
interest of the corporation. There is no comparable provision limiting the
liability of officers, employees or other agents of a corporation.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Middlefield or to an affiliate of Middlefield
under its articles of incorporation, regulations or otherwise,
Middlefield has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable.

WHERE TO FIND MORE INFORMATION

Middlefield provides to its stockholders an annual report containing
consolidated financial statements audited by its independent auditors.

Middlefield has filed with the Securities and Exchange Commission a
registration statement on Form 10 under the Securities Exchange Act of 1934.
When the Form 10 becomes effective, Middlefield common stock will be registered
under Section 12(g) of the Securities Exchange Act of 1934. Middlefield will be
subject to the reporting and informational requirements of the Securities
Exchange Act of 1934. Middlefield will be required to file reports, proxy
statements and other information with the Securities and Exchange Commission.

The Form 10 registration statement and the exhibits thereto, as well as
the annual and quarterly reports, proxy statements and other information filed
hereafter with the Securities and Exchange Commission by Middlefield under the
Securities Exchange Act of 1934 may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at

Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.
Washington, D.C. 20549

and at the regional offices of the Securities and Exchange Commission located at

Citicorp Center 7 World Trade Center
500 West Madison Street, Suite 1400 13th Floor
Chicago, Illinois 60661 New York, New York 10048

Copies of this material may also be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
Securities and Exchange Commission maintains an Internet web site containing
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission.
The address of that site is http://www.sec.gov. This Form 10 registration
statement, including all exhibits and amendments, is available on the SEC's web
site.

FORWARD-LOOKING STATEMENTS

This Form 10 registration statement contains forward-looking
statements. Forward-looking statements can be identified by terminology such as
"believes," "expects," "anticipates," "estimates," "intends," "should," "will,"
"plans," "potential" and similar words. Forward-looking statements are also
statements that are not statements of historical fact. Forward-looking
statements necessarily involve risks and uncertainties. They are merely
predictive or statements of probabilities, involving known and unknown risks,
uncertainties and other factors. Factors that may cause actual results to differ
materially from those contemplated by forward-looking statements include, among
others, the risks outlined in "RISK FACTORS" and the following possibilities --

1) competitive pressures in the banking industry increase
significantly,

2) actual collection of amounts on liquidation of collateral or
enforcement of guaranties is less than expected,

3) changes in prevailing interest rates reduce margins,

4) general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in a deterioration
in credit quality, among other things,

5) legislation or regulatory requirements or changes adversely
affect the businesses in which Middlefield is engaged,

6) changes in business conditions and inflation, and

7) changes in the securities markets.

If one or more of these risks of uncertainties occurs or if the
underlying assumptions prove incorrect, actual results in 2001 and beyond could
differ materially from those expressed in or implied by the 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 Middlefield's control.
Although Middlefield believes its estimates and assumptions are reasonable,
actual results could vary materially from those shown. Inclusion of
forward-looking information in this Form 10 registration statement does not
constitute a representation by Middlefield or any other person that the
indicated results will be achieved. Investors are cautioned not to place undue
reliance on forward-looking information.

The independent public accountants of Middlefield have not examined any
of the forward-looking statements included in this Form 10 registration
statement, nor have the accountants applied any auditing procedures to those
statements. Therefore, the accountants do not express an opinion or any other
form of assurance on them.

The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles ("GAAP"), which require the measurement of financial position and
operating results in terms of historical dollar amounts or estimated fair value,
without considering changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased cost of
Middlefield's operations. Unlike industrial companies, nearly all of the assets
and liabilities of Middlefield and the bank are monetary in nature. As a result,
changes in prevailing interest rates have a greater impact than inflation on
their performance. Interest rates do not necessarily move in the same direction
or to the same extent as the price of goods and services.

RECENT SALES OF UNREGISTERED SECURITIES

The following summarizes Middlefield's offers and sales of common stock
in the past three years. None of the offers or sales were registered under the
Securities Act of 1933.

Stock Options. Middlefield granted stock options in 1999 and 2000 to
directors, officers and employees under its 1999 Stock Option Plan. No stock
options had been exercised by June 8, 2001. The following table shows all stock
option grants made by Middlefield since the stock option plan was adopted in
1999:

EXERCISE
OPTION NUMBER OF SHARES ACQUIRABLE BY PRICE PER
OPTION GRANT DATE GRANTED TO TYPE EXERCISE OF OPTION GRANTED SHARE
---------------------- ------------------------------------ ---------- --------------------------------- -----------

June 14, 1999......... Director Coyne NQSO 1,000 $ 31.75
Director Frank NQSO 1,000 $ 31.75
Director Halstead NQSO 1,000 $ 31.75
Director Hasman NQSO 1,000 $ 31.75
Director Hunter NQSO 1,000 $ 31.75
Director Paul NQSO 1,000 $ 31.75
Director Villers NQSO 1,000 $ 31.75

November 23, 1999..... Thomas G. Caldwell, President and CEO ISO 1,000 $ 31.00
James R. Heslop, II, Executive V.P. ISO 500 $ 31.00
7 other officers ISO 1,400 total, of which 400 have since $ 31.00
been forfeited

December 11, 2000..... Director Coyne NQSO 390 $ 24.00
Director Frank NQSO 390 $ 24.00
Director Hasltead NQSO 390 $ 24.00
Director Hasman NQSO 390 $ 24.00
Director Hunter NQSO 390 $ 24.00
Director Paul NQSO 390 $ 24.00
Director Villers NQSO 390 $ 24.00
Thomas G. Caldwell, President and CEO ISO 2,500 $ 24.00
James R. Heslop, II, Executive V.P. ISO 2,500 $ 24.00
9 other officers ISO 3,750 total $ 24.00

For these offers and sales, Middlefield claims the exemptions from
registration set forth in Section 4(2) of the Securities Act of 1933, relating
to sales by an issuer not involving any public offering, Section 3(b) of the
Securities Act of 1933, relating to public offerings that are limited in amount,
Regulation D and the rules thereunder, relating to offers and sales to limited
numbers of people and accredited investors, and Rule 701 under the Securities
Act of 1933, covering offers and sales to directors, officers, employees, and
others.

Treasury Shares. From time to time Middlefield acquires shares of its
stock and holds the shares in its treasury. The following table summarizes
Middlefield's purchases and sales of treasury stock in 1999 and 2000. There were
no treasury stock purchases or sales in 1998, and there have been none in 2001.

PURCHASE NUMBER OF PRICE PER
DATE OR SALE SHARES SHARE SELLER OR PURCHASER(S)
-------------------- ------------ -------------- ------------ ----------------------------------------------

March 9, 1999 purchase 3,552 $ 31.00 regional broker/dealer

October 19, 1999 purchase 2,240 $ 31.00 regional broker/dealer

October 21, 1999 purchase 264 $ 31.00 regional broker/dealer

December 1, 1999 purchase 600 $ 31.00 individual stockholder

December 10, 1999 sale 230 $ 31.00 two local investors, one of whom is an executive
officer of The Middlefield Banking Company

December 23, 1999 purchase 2,506 $ 31.00 individual stockholder

December 24, 1999 sale 2,876 $ 31.00 five local investors, one of whom is a minor and
grandson of a director of Middlefield and the
bank, another of whom is a minor child of a
branch manager of the bank, and two of whom
were already Middlefield stockholders

December 31, 1999 purchase 726 $ 30.50 regional broker/dealer

February 4, 2000 purchase 40,340 $ 32.50 a trust stockholder

June 19, 2000 sale 1,000 $ 32.50 local investor who has been a Middlefield stockholder
for many years

December 6, 2000 sale 400 $ 30.00 regional broker/dealer

The sales of treasury stock were isolated transactions involving small
quantities of stock issued to a limited number of persons. Middlefield and the
bank did not solicit any purchases or offers to buy and did not engage any
person or firm to solicit purchases or offers on Middlefield's behalf. The
transactions were initiated by the purchasers. No underwriters or agents were
engaged for these issuances of securities, and no commissions or discounts were
paid or given by Middlefield or the bank. The transactions were engaged in by
Middlefield as an accommodation to persons who made known to Middlefield their
desire to buy its common stock, rather than for the purpose of raising capital
or as part of a plan of financing. None of the transactions involved a public
offering or distribution. And all of the investors whose identities are known to
Middlefield are permanent residents of the State of Ohio. Accordingly,
Middlefield claims reliance on the exemptions for offers and sales of securities
provided under Section 3 and Section 4 of the Securities Act of 1933, including
Section 3(a)(11), Section 3(b) and Section 4(2) thereof, and the rules and
regulations of the Securities and Exchange Commission thereunder, including
Regulation D and Rules 147 and 701.

49
52

MIDDLEFIELD BANC CORP.

MIDDLEFIELD, OHIO

AUDIT REPORT

DECEMBER 31, 2000

MIDDLEFIELD BANC CORP.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2000

Page
Number
----------------

Report of Independent Auditors F-1
Financial Statements
Consolidated Balance Sheet F-2
Consolidated Statement of Income F-3
Consolidated Statement of Changes in Stockholders' Equity F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - 24

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Middlefield Banc Corp.

We have audited the accompanying consolidated balance sheet of Middlefield Banc
Corp. and subsidiary as of December 31, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 subsidiary as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the three years in the period ending
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.

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

Wexford, PA
February 16, 2001

F-1

MIDDLEFIELD BANC CORP.
CONSOLIDATED BALANCE SHEET

December 31,
2000 1999
------------- -------------

ASSETS
Cash and due from banks ................................................. $ 3,574,875 $ 3,210,556
Federal funds sold ...................................................... 1,265,000 0
------------- -------------
Cash and cash equivalents ............................................... 4,839,875 3,210,556
Interest-bearing deposits in other institutions ......................... 984,441 3,345,522
Investment securities available for sale ................................ 12,781,237 10,582,688
Investment securities held to maturity (estimated market value
of $17,942,255 and $21,719,267) .................................... 17,942,310 22,011,951
Loans ................................................................... 135,304,215 121,227,878
Less allowance for loan losses .......................................... 2,037,322 1,756,137
------------- -------------
Net loans ........................................................... 133,266,893 119,471,741
Premises and equipment ....................................................... 5,432,472 5,619,269
Accrued interest and other assets ............................................ 1,241,585 1,270,726
------------- -------------
TOTAL ASSETS ........................................................ $ 176,488,813 $ 165,512,453
============= =============

LIABILITIES
Deposits:
Noninterest bearing demand .............................................. $ 23,155,904 $ 22,880,016
Interest-bearing demand ................................................. 6,116,094 4,362,509
Money market ............................................................ 9,127,760 12,490,025
Savings ................................................................. 32,260,775 30,474,288
Time .................................................................... 76,505,513 64,887,621
------------- -------------
Total deposits ...................................................... 147,166,046 135,094,459
Short-term borrowings ................................................... 543,222 2,507,670
Other borrowings ........................................................ 9,861,596 9,602,496
Accrued interest and other liabilities .................................. 674,587 618,773
------------- -------------
TOTAL LIABILITIES ................................................... 158,245,451 147,823,398
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized; 1,148,676 shares
issued ............................................................. 6,287,011 6,287,011
Retained earnings ....................................................... 13,343,980 11,702,564
Accumulated other comprehensive income (loss) ........................... 88,811 (90,631)
Treasury stock, at cost (45,722 and 6,782 shares) ....................... (1,476,440) (209,889)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .......................................... 18,243,362 17,689,055
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 176,488,813 $ 165,512,453
============= =============

See accompanying notes to consolidated financial statements.

F-2

MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF INCOME

Years Ended December 31,
2000 1999 1998
----------- ------------ -----------

INTEREST INCOME
Interest and fees on loans .................... $10,853,292 $ 9,408,603 $ 8,591,369
Interest-bearing deposits in other institutions 97,037 81,211 147,326
Federal funds sold ............................ 99,320 90,676 143,160
Investment securities:
Taxable interest .......................... 1,195,504 1,281,341 1,404,541
Tax-exempt interest ....................... 525,017 586,788 615,049
----------- ------------ -----------

Total interest income ............ 12,770,170 11,448,619 10,901,445
----------- ------------ -----------
INTEREST EXPENSE
Deposits ...................................... 5,311,657 4,539,351 4,695,850
Short-term borrowings ......................... 64,031 8,425 3,038
Other borrowings .............................. 534,196 500,500 385,727
----------- ------------ -----------
Total interest expense ........... 5,909,884 5,048,276 5,084,615
----------- ------------ -----------
NET INTEREST INCOME ................................ 6,860,286 6,400,343 5,816,830

Provision for loan losses .......................... 275,000 296,000 270,000
----------- ------------ -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....................... 6,585,286 6,104,343 5,546,830
----------- ------------ -----------
NONINTEREST INCOME
Service charges on deposit accounts ........... 823,888 667,220 480,582
Investment securities losses .................. 0 (606) 0
Other income .................................. 158,775 137,744 118,189
----------- ------------ -----------
Total noninterest income ......... 982,663 804,358 598,771
----------- ------------ -----------
NONINTEREST EXPENSE
Salaries and employee benefits ................ 2,240,522 2,258,779 2,073,567
Occupancy expense ............................. 320,539 334,199 260,733
Equipment expense ............................. 283,174 235,703 356,419
Data processing costs ......................... 240,658 208,525 103,227
Ohio state franchise tax ...................... 208,457 222,240 230,630
Other expense ................................. 1,115,267 994,928 800,243
----------- ------------ -----------
Total noninterest expense ........ 4,408,617 4,254,374 3,824,819
----------- ------------ -----------
Income before income taxes ......................... 3,159,332 2,654,327 2,320,782
Income taxes ....................................... 922,661 735,318 630,337
----------- ------------ -----------
NET INCOME ......................................... $ 2,236,671 $ 1,919,909 $ 1,690,445
=========== ============ ===========

EARNINGS PER COMMON SHARE
Basic ..................................... $ 2.02 $ 1.68 $ 1.47
Diluted ................................... 2.02 1.68 N/A

See accompanying notes to consolidated financial statements.

F-3

MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

ACCUMULATED
COMMON STOCK OTHER TOTAL COMPRE-
------------------------- RETAINED COMPREHENSSIVE TREASURY STOCKHOLDERS' HENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) STOCK EQUITY INCOME
----------- ----------- ------------ ------------- -------- ------------- -----------

Balance, December 31, 1997 ... 1,044,506 $ 3,656,718 $11,794,961 $ 13,576 0 $15,465,255
Net income ................... 1,690,445 1,690,445 $ 1,690,445
Other comprehensive income:
Unrealized gain on available
for sale securities net
of taxes of $161 ....... 312 312 312
-----------
Comprehensive income ......... $ 1,690,757
-----------
Cash dividends
($.44 per share) .......... (499,215) (499,215)
Stock dividend ............... 104,170 2,630,293 (2,630,293) 0 0
----------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1998 ... 1,148,676 6,287,011 10,355,898 13,888 0 16,656,797
Net income ................... 1,919,009 1,919,009 1,919,009
Other comprehensive income:
Unrealized loss on available
for sale securities net
of tax benefit of
$53,843 ................ (104,519) (104,519) (104,519)
-----------
Comprehensive income ......... $ 1,814,490
===========

Cash dividends ($.50 per share) (572,343) (572,343)
Purchase of treasury stock ... (306,175) (306,175)
Sale of treasury stock ....... 96,286 96,286
----------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1999 ... 1,148,676 6,287,011 11,702,564 (90,631) (209,889) 17,689,055
Net income ................... 2,236,671 2,236,671 2,236,671
Other comprehensive income:
Unrealized gain on available
for sale securities net
of taxes of $92,440 .... 179,442 179,442 179,442
----------
Comprehensive income ......... $ 2,416,113
===========

Cash dividends ($.54 per share) (595,255) (595,255)
Purchase of treasury stock ... (1,311,050) (1,311,050)
Sale of treasury stock ....... 44,499 44,499
----------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 2000 ... 1,148,676 $ 6,287,011 $13,343,980 $ 88,811 $(1,476,440) $18,243,362
=========== =========== =========== -------- =========== ===========

2000 1999 1998
-------- --------- --------

Components of comprehensive income:
Change in net unrealized gain (loss) on investments
available for sale .............................. $179,442 $(104,919) $312
Realized losses included in net income, net
of tax benefit of $206 ............................ 0 400 0
-------- --------- ----
Total ........................................... $179,442 $(104,519) $312
======== ========= ====

See accompanying notes to consolidated financial statements.

F-4
58
MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31,
2000 1999 1998
------------ ------------ ------------

OPERATING ACTIVITIES
Net income ....................................................... $ 2,236,671 $ 1,919,009 $ 1,690,445
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ................................... 275,000 296,000 270,000
Depreciation and amortization ............................... 352,613 287,641 319,617
Amortization of premium and discount on investment securities 75,563 93,664 104,552
Amortization of net deferred loan costs (fees) .............. 35,489 (112,126) (74,624)
Deferred income taxes ....................................... (87,521) (58,739) (63,599)
Decrease (increase) in accrued interest receivable .......... (59,663) 85,288 99,537
Increase in accrued interest payable ........................ 84,301 18,700 30,757
Other, net .................................................. 39,943 (19,320) 29,579
------------ ------------ ------------
Net cash provided by operating activities ............... 2,952,396 2,510,117 2,406,264
------------ ------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in interest-bearing deposits in ......... 2,361,081 (1,107,918) (842,604)
other institutions, net
Investment securities available for sale: ................... 766,880 4,931,129 6,060,071
Proceeds from repayments and maturities ................ (2,697,459) (9,970,951) (897,569)
Purchases .............................................. 0 149,885 0
Proceeds from sales
Investment securities held to maturity: ..................... 3,997,990 8,280,098 3,930,017
Proceeds from repayments and maturities ................ 0 0 (8,028,573)
Purchases .............................................. 0 1,054,648 0
Proceeds from sales .................................... (14,105,641) (16,927,161) (14,603,783)
Increase in loans, net ...................................... (150,361) (520,313) (986,186)
Purchase of premises and equipment
------------ ------------ ------------
Net cash used for investing activities .................. (9,827,510) (14,110,583) (15,368,627)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits .................................... 12,071,587 6,266,570 7,345,851
Increase (decrease) in short-term borrowings, net ........... (1,964,448) 2,507,670 0
Proceeds from other borrowings .............................. 2,000,000 1,000,000 6,000,000
Repayment of other borrowings ............................... (1,740,900) (973,706) (1,272,931)
Purchase of treasury stock .................................. (1,311,050) (306,175) 0
Sale of treasury stock ...................................... 44,499 96,286 0
Cash dividends .............................................. (595,255) (572,343) (499,215)
------------ ------------ ------------
Net cash provided by financing activities ............... 8,504,433 8,018,302 11,573,705
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ........ 1,629,319 (3,582,164) (1,388,658)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 3,210,556 6,792,720 8,181,378
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 4,839,875 $ 3,210,556 $ 6,792,720
============ ============ ============

SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings ..................... $ 5,825,583 $ 5,029,576 $ 5,053,858
Income taxes ............................................ 1,097,000 735,756 675,175

See accompanying notes to consolidated financial statements.

F-5

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

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 (the "Bank"). The
Bank is a state-chartered bank located in Ohio. The Company and its subsidiary
derive substantially all of their income from banking and bank-related services
which include interest earnings on residential real estate, commercial mortgage,
commercial, and consumer financings as well as interest earning on investment
securities and deposit services to its customers through four locations. The
Company is supervised by the Board of Governors of the Federal Reserve System,
while the Bank is 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
subsidiary, the Bank. Significant intercompany items have been eliminated in
preparing the consolidated financial statements.

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statement, 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 the interest 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 which is wholly-owned by other financial institutions. This equity
security is accounted for at cost and classified as equity securities available
for sale.

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 against principal according
to management's judgment as to the collectibility of such principal.

F-6

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 the 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.

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. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.

INCOME TAXES

The Company and the Bank 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.

EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share is 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.

F-7

61
MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK OPTIONS

The Company maintains a stock option plan for key officers, employees and
non-employee directors. When the exercise price of the Company's stock options
is greater than or equal to the market price of the underlying stock on the date
of the grant, no compensation expense is recognized in the Company's financial
statements. Pro forma net income and earnings per share are presented to reflect
the impact of the stock option plan assuming compensation expense had been
recognized based on the fair value of the stock options granted under the plan.

STOCKHOLDERS' EQUITY

On August 14, 2000, the Board of Directors approved a two-for-one stock split.
Average shares outstanding and all per share amounts included in the
consolidated financial statements are based on the increased number of shares
giving retroactive effect to the stock split.

During 1998, retroactive recognition was given for the elimination of the par
value of the Company's common stock. This caused surplus to be reduced to zero,
with the balance of $2,612,212 being reclassified to common stock. There was no
effect on total stockholders' equity.

CASH FLOW INFORMATION

The Company has defined cash and cash equivalents as those amounts included in
the balance sheet captions Cash and due from banks and Federal funds sold.

RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement No. 133), as amended
by Financial Accounting Standards Board Statement No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of Statement No. 133" (Statement No. 138), is effective in 2001, and
requires measuring and recording the change in fair value of derivative
instruments. Statement No. 133 is not expected to materially affect the
Company's financial position or results of operations.

F-8

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

extinguished. The provisions of Statement No. 140 are effective for transactions
occurring after March 31, 2001. This Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
adoption of the provisions of Statement No. 140 is not expected to have a
material impact on the Company's financial position or results of operations.

RECLASSIFICATION OF COMPARATIVE AMOUNTS

Certain items previously reported have been reclassified to conform with the
current year's format. Such reclassifications did not affect net income or
stockholders' equity.

2. EARNINGS PER SHARE

There are no convertible securities which 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.

2000 1999 1998
---------- ---------- ---------

Weighted-average common shares outstanding .................... 1,148,676 1,148,676 1,148,676
Average treasury stock shares ................................. (42,704) (3,426) N/A
---------- ---------- ---------
Weighted-average common shares and common stock
equivalents used to calculate basic earnings per share......... 1,105,972 1,145,250 1,148,676

Additional common stock equivalents (stock options) used
to calculate diluted earnings per share ....................... -- -- N/A
---------- ---------- ---------
Weighted-average common shares and common stock
equivalents used to calculate diluted earnings per share....... 1,105,972 1,145,250 N/A
========== ========= =========

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated market value of Investment securities available
for sale are as follows:

2000
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ----------- ------------

U.S. Government agency securities ............... $ 3,990,419 $ 70,843 $ (1,419) $ 4,059,843
Obligations of states and political subdivisions:
Taxable ................................ 1,458,400 11,744 (2,645) 1,467,499
Tax-exempt ............................. 3,685,472 42,258 (16,746) 3,710,984
Corporate securities ............................ 701,306 3,400 (2,800) 701,906
Mortgage-backed securities ...................... 1,898,177 29,928 -- 1,928,105
----------- -------- -------- -----------
Total debt securities .................. 11,733,774 158,173 (23,610) 11,868,337

Equity securities ............................... 912,900 -- -- 912,900
----------- -------- -------- -----------
Total ......................... $12,646,674 $158,173 $(23,610) $12,781,237
=========== ======== ======== ===========

F-9

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

3. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)

1999
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ---------- -------------

U.S. Treasury securities ........................ $ 499,750 $ 250 $ -- $ 500,000
U.S. Government agency securities ............... 3,984,640 -- (45,200) 3,939,440
Obligations of states and political subdivisions:
Taxable ................................ 956,782 6,074 (14,109) 948,747
Tax-exempt ............................. 3,550,001 5,019 (71,350) 3,483,670
Corporate securities ............................ 952,034 -- (18,003) 934,031
----------- ------- --------- -----------
Total debt securities .................. 9,943,207 11,343 (148,662) 9,805,888

Equity securities ............................... 776,800 -- -- 776,800
----------- ------- --------- -----------
Total ......................... $10,720,007 $11,343 $(148,662) $10,582,688
=========== ======= ========= ===========

The amortized cost and estimated market value of debt securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities will differ
form contractual maturities because borrowers may have the right to call or
repay obligations with or without call or prepayment penalties.

2000
--------------------------------------
Estimated Market
Amortized Cost Value
---------------- -----------------

Due in one year or less ............. 3,197,181 3,202,645
Due after one year through five years 6,726,243 6,804,532
Due after five through ten years .... 810,912 845,303
Due after ten years ................. 999,438 1,015,857
----------- -----------
Total ...................... $11,733,774 $11,868,337
=========== ===========

Investment securities with a carrying value of $6,633,661 and $4,342,453 at
December 31, 2000 and 1999, respectively, were pledged to secure deposits and
other purposes as required by law.

The following is a summary of proceeds received, gross gains, and gross losses
realized on the sale of investment securities available for sale for the year
ended December 31, 1999. The Company had no sales in 2000 and 1998.

1999
--------

Proceeds from sales ....................................... $149,885
Gross gains ............................................... --
Gross losses .............................................. 116

F-10

64
MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

4. INVESTMENT SECURITIES HELD TO MATURITY

The amortized cost and estimated market value of investment securities held to
maturity are as follows:

2000
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------

U.S. Government agency securities ............... $ 1,899,752 $ -- $ (8,565) $ 1,891,187
Obligations of states and political subdivisions:
Taxable ................................ 3,723,251 18,354 (19,685) 3,721,920
Tax-exempt ............................. 7,480,801 26,182 (7,420) 7,499,563
Corporate securities ............................ 4,525,466 7,829 (18,683) 4,514,612
Mortgage-backed securities ...................... 313,040 1,933 -- 314,973
----------- ------- -------- -----------
Total .................................. $17,942,310 $54,298 $(54,353) $17,942,255
=========== ======= ======== ===========

1999
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------

U.S. Government agency securities ............... $ 3,030,857 $ -- $ (72,008) $ 2,958,849
Obligations of states and political subdivisions:
Taxable ................................ 3,993,634 2,860 (89,625) 3,906,869
Tax-exempt ............................. 9,275,319 17,984 (58,468) 9,234,835
Corporate securities ............................ 5,712,141 858 (94,285) 5,618,714
----------- ------- --------- -----------
Total .................................. $22,011,951 $21,702 $(314,386) $21,719,267
=========== ======= ========= ===========

The amortized cost and estimated market value of debt securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
repay obligations with or without call or prepayment penalties.

ESTIMATED
AMORTIZED COST MARKET VALUE
---------------- -----------

Due in one year or less ............. 6,045,612 6,047,035
Due after one year through five years 11,342,616 11,336,036
Due after five through ten years .... 141,042 143,591
Due after ten years ................. 413,040 415,593
----------- -----------
Total ...................... $17,942,310 $17,942,255
=========== ===========

F-11

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

4. INVESTMENT SECURITIES HELD TO MATURITY (continued)

Investment securities held to maturity with carrying values of $7,741,881 and
$4,531,106 and estimated market values of $7,743,199 and $4,412,866 at December
31, 2000 and 1999, respectively, were pledged to secure public deposits and
other purposes required by law.

The following is a summary of proceeds received, gross gains, and gross losses
realized on the sale of investment securities held to maturity for the year
ended December 31, 1999. These sales occurred within 90 days of maturity of the
security. The Company had no sales in 2000 or 1998.

1999
-----------

Proceeds from sales............................... $ 1,054,648
Gross gains....................................... --
Gross losses...................................... 490

5. LOANS

Major classifications of loans are summarized as follows:

2000 1999
------------ -------------

Commercial and industrial ....... $ 21,508,391 $ 18,587,254
Real estate - construction ...... 2,568,095 2,258,917
Real estate - mortgage:
Residential ............ 101,403,937 89,262,855
Commercial ............. 4,809,088 6,919,271
Consumer installment ............ 5,014,704 4,199,581
------------ ------------
135,304,215 121,227,878
Less allowance for loan losses... 2,037,322 1,756,137
------------ ------------
Net loans .............. $133,266,893 $119,471,741
============ ============

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. Commercial, residential, consumer, and agricultural loans are
granted. Although the Company has a diversified loan portfolio at December 31,
2000 and 1999, loans outstanding to individuals and businesses are dependent
upon the local economic conditions in its immediate trade area.

6. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the years ended December 31, are as
follows:

2000 1999 1998
---------- ---------- ----------

Balance, January 1 ...................... $1,756,137 $1,538,726 $1,334,800
Add:
Provisions charged to operations 275,000 296,000 270,000
Recoveries ..................... 61,002 39,822 72,573
Less loans charged-off .................. 54,817 118,411 138,647
---------- ---------- ----------
Balance, December 31 .................... $2,037,322 $1,756,137 $1,538,726
========== ========== ==========

F-12

66
MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

7. PREMISES AND EQUIPMENT

Major classifications of premises and equipment are summarized as follows:

2000 1999
---------- ----------

Land and land improvements .......... $1,094,685 $1,094,685
Building and leasehold improvements . 5,203,258 5,187,773
Furniture, fixtures and equipment ... 1,977,013 1,926,925
Construction in-progress ............ 84,788 --
---------- ----------
8,359,744 8,209,383
Less accumulated depreciation ....... 2,927,272 2,590,114
---------- ----------
Total ...................... $5,432,472 $5,619,269
========== ==========

Construction in-progress represents the costs incurred to date for a new branch
office of the Bank with an anticipated completion date in 2001. Depreciation
charged to operations was $337,158 in 2000, $287,641 in 1999, and $319,617 in
1998.

8. OTHER ASSETS

The components of other assets are as follows:

2000 1999
---------- ----------

Accrued interest on investment securities $ 397,582 $ 440,131
Accrued interest on loans ............... 495,629 393,417
Deferred tax asset, net ................. 268,385 273,304
Other ................................... 79,989 163,874
---------- ----------
Total .......................... $1,241,585 $1,270,726
========== ==========

9. DEPOSITS

Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $11,529,786 and $9,874,865 at December 31, 2000
and 1999, respectively.

Maturities on time deposits of $100,000 or more at December 31, 2000 are as
follows:

Within three months .................... $ 2,047,325
Beyond three but within six months ..... 815,448
Beyond six but within twelve months..... 4,501,893
Beyond one year ........................ 4,165,120
-----------
Total ......................... $11,529,786
===========

F-13

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

10. SHORT-TERM BORROWINGS

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

2000 1999
---------- ----------

Balance at year-end ..................... $ 543,222 $2,507,670
Average balance outstanding ............. 1,059,042 143,438
Maximum month-end balance ............... 3,581,491 2,507,670
Weighted-average rate at year-end ....... 5.43% 4.75%
Weighted-average rate during the year.... 6.05% 5.87%

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

In 1998, the Company entered into a $4,000,000 line of credit at an adjustable
rate, currently 9.00 percent, from The State Bank and Trust Company. At December
31, 2000 and 1999, there were no outstanding balances on this line.

11. OTHER BORROWINGS

Other borrowings consist of fixed rate advances from the FHLB as follows:

Interest
Maturity Rate 2000 1999
------------------------------------------- -------- ---------- ----------

June 23, 2000 ............................. 6.25% $ -- $1,000,000
July 1, 2007 .............................. 6.40% 1,861,596 2,602,496
September 4, 2008.......................... 5.36% 4,000,000 4,000,000
October 2, 2008 ........................... 4.53% 2,000,000 --
July 28, 2010 ............................. 6.45% 2,000,000 2,000,000
---------- ----------
Total .......................... $9,861,596 $9,602,496
========== ==========

Advances from FHLB maturing July 1, 2007 require monthly principal and interest
payments and a 20 percent paydown of outstanding principal every July 1. Monthly
principal and interest payments are adjusted after each 20 percent paydown.
Under terms of a blanket agreement, collateral for the FHLB borrowings are
secured by certain qualifying assets of the Bank which consist principally of
first mortgage loans.

12. OTHER LIABILITIES

The components of other liabilities are as follows:

2000 1999
-------- --------

Accrued interest on deposits........ $568,277 $483,976
Other .............................. 106,310 134,797
-------- --------
Total .............................. $674,587 $618,773
======== ========

F-14

68
MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

13. INCOME TAXES

The provision for federal income taxes consists of:

2000 1999 1998
---------- -------- --------

Current payable.... $1,010,182 $794,057 $693,936
Deferred .......... (87,521) (58,739) (63,599)
---------- -------- --------
Total provision ... $ 922,661 $735,318 $630,337
========== ======== ========

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:

2000 1999
-------- --------

Deferred tax assets:
Allowance for loan losses ................. $621,654 $528,154
Net unrealized loss on securities ......... -- 46,689
-------- --------
Gross deferred tax assets ........ 621,654 574,843
-------- --------
Deferred tax liabilities:
Deferred origination fees, net ............ 141,232 138,043
Premises and equipment .................... 96,982 114,000
Net unrealized gain on securities ......... 45,751 --
Other ..................................... 69,304 49,496
-------- --------
Gross deferred tax liabilities.... 353,269 301,539
-------- --------
Net deferred tax assets .......... $268,385 $273,304
======== ========

No valuation allowance was established at December 31, 2000 and 1999 in view of
the Company's ability to carryback 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:

2000 1999 1998
-------------------------- --------------------------- --------------------------
% of Pre- % of Pre- % of Pre-
Amount tax income Amount tax income Amount tax income
----------- ---------- ---------- ---------- ---------- ----------

Provision at statutory rate ........ $1,074,173 34.0% $ 902,471 34.0% $ 789,066 34.0%
Tax-free income .................... (178,520) (5.7) (200,165) (7.5) (211,818) (9.1)
Nondeductible interest expense.. 19,966 0.6 24,813 0.9 31,808 1.4
Other .............................. 7,042 0.3 8,199 0.3 21,281 0.9
---------- ---- --------- ---- --------- ----
Actual tax expense and
effective rate ................... $ 922,661 29.2% $ 735,318 27.7% $ 630,337 27.2%
========== ==== ========= ==== ========= ====

F-15

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

14. EMPLOYEE BENEFITS

RETIREMENT PLAN

The Bank maintains a section 401(k) employee savings and investment plan for
substantially all employees and officers of the Bank with more than one year of
service. The Bank's contribution to the plan is 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 the Bank contributions are fully vested after 6 years beginning
at the second year in 20 percent increments. Contributions for 2000, 1999, and
1998 to this plan amounted to $44,411, $42,149, and $40,559, respectively.

STOCK OPTION PLAN

At the annual meeting in May 1999, the Board of Directors approved and
stockholders ratified the formation of the 1999 Stock Option Plan (the "Plan").
The Plan will provide for granting incentive stock options and non-qualified
stock options for key officers, employees and non-employee directors of the
Company. A total of 57,433 shares of authorized and unissued or issued common
stock are reserved for issuance under the Plan, which expires ten years from the
date of shareholder 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
2000 Exercise Price 1999 Exercise Price
------- -------------- ----- --------------

Outstanding, January 1 .... 9,900 $31.53 -- $ --
Granted ................... 11,480 24.00 9,900 31.53
Exercised ................. -- -- -- --
Forfeited ................. (400) 31.00 -- --
------- ------
Outstanding, December 31... 20,980 $27.42 9,900 $31.53
======= ======

Exercisable at year-end.... 9,500 31.55 -- --
======= ======

The following table summarizes the characteristics of stock options at
December 31, 2000:

Outstanding Exercisable
------------------------------------- -----------------------
Contractual Average Average
Exercise Average Exercise Exercise
Grant Date Price Shares Life Price Shares Price
-------------------- ------- ------ ----------- -------- ------ --------

June 14, 1999....... $31.75 7,000 8.45 $31.75 7,000 $31.75
November 23, 1999... 31.00 2,500 8.89 31.00 2,500 31.00
December 11, 2000... 24.00 11,480 9.95 24.00 -- --
------ -----
20,980 27.42 9,500 $31.55
====== =====

F-16

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

14. EMPLOYEE BENEFITS (CONTINUED)

STOCK OPTION PLAN (CONTINUED)

The Company accounts for the Plan under provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
this Opinion, no compensation expense has been recognized with respect to the
Plan because the exercise price fo the Company's employee stock options equals
the market price of the underlying stock on the grant date.

For purposes of computing pro forma 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 which can materially affect fair
value estimates. Therefore, the pro forma results are estimates of results of
operations as if compensation expense had been recognized for the stock option
plans. The fair value of each stock option granted was estimated using the
following weighted-average assumptions for grants in 1999: (1) expected dividend
yield was two percent; (2) risk-free interest rate of 5.34 percent; (3) expected
volatility of 5.00 percent; and (4) expected lives of options of ten years.

2000
----------

Net income applicable to common stock:
As reported..................................................... $2,236,671
Pro forma....................................................... 2,195,370
Basic net income per common share:
As reported..................................................... $ 2.02
Pro forma....................................................... 1.97
Diluted net income per common share:
As reported..................................................... $ 2.02
Pro forma....................................................... 1.97

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 comprised of the following:

2000 1999
------------ ------------

Commitments to extend credit............. $10,103,358 $12,148,878
Standby letters of credit................ 100,692 45,000
----------- -----------
Total.................................... $10,204,050 $12,193,878
=========== ===========

The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance sheet instruments. Generally, collateral is not required to
support financial instruments with credit risk. The terms are typically for a
one-year period with an annual renewal option subject to prior approval by
management.

F-17

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

15. COMMITMENTS (CONTINUED)

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit. Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party.

The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all commitments to
extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the contractual amounts do not necessarily
represent future funding requirements.

16. REGULATORY RESTRICTIONS

LOANS

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

DIVIDENDS

The Bank is subject to a dividend restriction which generally limits 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, the amount available for payment of
dividends in 2001 is $2,120,415 plus 2001 profits retained up to the date of the
dividend declaration.

17. REGULATORY CAPITAL

Federal regulations require the Company and the Bank 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, 2000 and 1999, the FDIC categorized the Bank 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 ten percent, six
percent, and five percent, respectively.

F-18

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

17. REGULATORY CAPITAL (CONTINUED)

The Company's actual capital ratios are presented in the following table which
shows the Company met all regulatory capital requirements. The capital position
of the Bank does not differ significantly from the Company's.

2000 1999
--------------------------- ----------------------------
Amount Ratio Amount Ratio
------------ ----- ------------ -----

Total Capital
(to Risk-weighted Assets)
-----------------------
Actual......................................... $19,534,601 17.75% $19,068,411 18.39%
For Capital Adequacy........................... 8,802,236 8.00 8,294,511 8.00
To Be Well Capitalized......................... 11,002,795 10.00 10,368,138 10.00

Tier I Capital
(to Risk-weighted Assets)
-----------------------
Actual......................................... $18,154,551 16.50% $17,779,686 17.15%
For Capital Adequacy........................... 4,401,118 4.00 4,147,255 4.00
To Be Well Capitalized......................... 6,601,677 6.00 6,220,883 6.00

Tier I Capital
(to Average Assets)
-----------------
Actual......................................... $18,154,551 10.32% $17,779,686 10.93%
For Capital Adequacy........................... 7,037,304 4.00 6,507,565 4.00
To Be Well Capitalized......................... 8,796,631 5.00 8,134,456 5.00

18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial instruments at December 31,
are as follows:

2000 1999
-------------------------------- ---------------------------------
Carrying Carrying
Value Fair Value Value Fair Value
------------- ------------- ------------- -------------

Financial assets:
Cash and due from banks ................ $ 3,574,875 $ 3,574,875 $ 3,210,556 $ 3,210,556
Interest-bearing deposits in other banks 984,441 984,441 3,345,522 3,345,522
Federal funds sold ..................... 1,265,000 1,265,000 -- --
Investment securities:
Available for sale ................ 12,781,237 12,781,237 10,582,688 10,582,688
Held to maturity .................. 17,942,310 17,942,255 22,011,951 21,719,267
Net loans .............................. 133,266,893 135,415,893 119,471,741 120,747,146
Accrued interest receivable ............ 893,211 893,211 833,548 833,548
------------ ------------ ------------ ------------
Total .............................. $170,707,967 $172,856,912 $159,456,006 $160,438,727
============ ============ ============ ============

Financial liabilities:
Deposits ............................... $147,166,046 $147,424,151 $135,094,459 $134,595,875
Short-term borrowings .................. 543,222 543,222 2,507,670 2,507,670
Other borrowings ....................... 9,861,596 9,907,000 9,602,496 9,013,319
Accrued interest payable ............... 568,277 568,277 483,976 483,976
------------ ------------ ------------ ------------
Total .............................. $158,139,141 $158,442,650 $147,688,601 $146,600,840
============ ============ ============ ============

F-19

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)

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. As 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.

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 DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER INSTITUTIONS,
FEDERAL FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, ACCRUED INTEREST PAYABLE, AND
SHORT-TERM BORROWINGS

The fair value is equal to the current carrying value.

INVESTMENT SECURITIES

The fair value of investment securities available for sale and held to maturity
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.

LOANS, DEPOSITS, AND OTHER BORROWINGS

The fair value of loans, certificates of deposit, and other borrowings is
estimated by discounting the future cash flows using a simulation model which
estimates future cash flows and constructs discount rates that consider
reinvestment opportunities, operating expenses, noninterest income, credit
quality, and prepayment risk. Demand, savings, and money market deposit accounts
are valued at the amount payable on demand as of year-end.

F-20

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

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.

19. PARENT COMPANY

Following are condensed financial statements for the Company.

CONDENSED BALANCE SHEET

December 31,
--------------------------------
2000 1999
------------ ------------

ASSETS
Cash and due from banks ........................... $ 502,849 $ 119,125
Interest-bearing deposits in other institutions.... 26,441 1,028,618
Investment in subsidiary bank ..................... 17,681,862 16,541,279
Other assets ...................................... 32,210 33
----------- -----------
TOTAL ASSETS ........................................... $18,243,362 $17,689,055
=========== ===========

STOCKHOLDERS' EQUITY ................................... $18,243,362 $17,689,055
=========== ===========

CONDENSED STATEMENT OF INCOME

Year Ended December 31,
----------------------------------------------
2000 1999 1998
----------- ----------- -----------

INCOME
Dividends from subsidiary bank .............................. $1,335,994 $ 765,617 $1,566,957
Interest income ............................................. 25,600 49,823 8,802
---------- ---------- ----------
Total income ............................................ 1,361,594 815,440 1,575,759
---------- ---------- ----------
EXPENSES ......................................................... 86,065 55,704 7,614
---------- ---------- ----------
Income before equity in undistributed net income of subsidiary.... 1,275,529 759,736 1,568,145
Equity in undistributed net income of subsidiary ................. 961,142 1,159,273 122,300
---------- ---------- ----------
NET INCOME ....................................................... $2,236,671 $1,919,009 $1,690,445
========== ========== ==========

F-21

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

19. PARENT COMPANY (CONTINUED)

CONDENSED STATEMENT OF CASH FLOWS

Year Ended December 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------

OPERATING ACTIVITIES
Net income .................................................... $ 2,236,671 $ 1,919,009 $ 1,690,445
Adjustments to reconcile net income to cash provided
by operating activities:
Equity in undistributed net income of subsidiary.......... (961,142) (1,159,273) (122,300)
Other .................................................... (32,176) (898) 612
----------- ----------- -----------
Net cash provided by operating activities ................. 1,243,353 758,838 1,568,757
----------- ----------- -----------
INVESTING ACTIVITIES
Decrease (increase) in interest-bearing deposits
in other institutions ....................................... 1,002,177 (389,814) (563,804)
Investment securities available for sale:
Proceeds from repayments and maturities .................. -- 1,500,000 --
Purchases ................................................ -- (1,500,000) --
Investment securities held to maturity:
Proceeds from repayments and maturities .................. -- 500,000 --
Purchases ................................................ -- -- (505,597)
----------- ----------- -----------
Net cash provided by (used for) investing activities...... 1,002,177 110,186 (1,069,401)
----------- ----------- -----------
FINANCING ACTIVITIES
Purchase of treasury stock .................................... (1,311,050) (306,175) --
Sale of treasury stock ........................................ 44,499 96,286 --
Cash dividends ................................................ (595,255) (572,343) (499,215)
----------- ----------- -----------
Net cash used for financing activities .................... (1,861,806) (782,232) (499,215)
----------- ----------- -----------
Increase in cash .......................................... 383,724 86,792 141
CASH AT BEGINNING OF YEAR .......................................... 119,125 32,333 32,192
----------- ----------- -----------
CASH AT END OF YEAR ................................................ $ 502,849 $ 119,125 $ 32,333
=========== =========== ===========

F-22

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Three Months Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
----------- ----------- ------------- ------------

Total interest income ................................... $3,050,487 $3,141,341 $3,268,702 $3,309,640
Total interest expense .................................. 1,357,310 1,409,416 1,542,773 1,600,385
---------- ---------- ---------- ----------
Net interest income ..................................... 1,693,177 1,731,925 1,725,929 1,709,255
Provision for loan losses ............................... 75,000 75,000 75,000 50,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses.. 1,618,177 1,656,925 1,650,929 1,659,255
Total noninterest income ................................ 219,897 224,333 247,238 291,195
Total noninterest expense ............................... 1,045,414 1,097,167 1,072,384 1,193,652
---------- ---------- ---------- ----------
Income before income taxes .............................. 792,660 784,091 825,783 756,798
Income taxes ............................................ 235,370 232,000 254,000 201,291
---------- ---------- ---------- ----------
Net income .............................................. $ 557,290 $ 552,091 $ 571,783 $ 555,507
========== ========== ========== ==========
Per share data:
Net income
Basic .............................................. $ 0.50 $ 0.50 $ 0.52 $ 0.50
Diluted ............................................ 0.50 0.50 0.52 0.50
Average shares outstanding
Basic .............................................. 1,117,069 1,101,675 1,101,554 1,101,663
Diluted ............................................ 1,117,069 1,101,675 1,101,554 1,101,663

F-23

MIDDLEFIELD BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

Three Months Ended
--------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------

Total interest income ................................ $ 2,715,174 $ 2,838,296 $ 2,941,186 $ 2,953,963
Total interest expense ............................... 1,249,587 1,253,208 1,266,810 1,278,671
----------- ----------- ----------- -----------
Net interest income .................................. 1,465,587 1,585,088 1,674,376 1,675,292
Provision for loan losses ............................ 108,000 108,000 78,000 2,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses... 1,357,587 1,477,088 1,596,376 1,673,292
Investment securities losses ......................... -- -- -- (606)
Total noninterest income ............................. 147,828 191,778 210,531 254,827
Total noninterest expense ............................ 1,083,977 1,040,348 1,031,520 1,098,529
----------- ----------- ----------- -----------
Income before income taxes ........................... 421,828 628,518 775,387 828,984
Income taxes ......................................... 97,556 160,000 216,000 261,762
----------- ----------- ----------- -----------
Net income ........................................... $ 323,882 $ 468,518 $ 559,387 $ 567,222
=========== =========== =========== ===========
Per share data:
Net income
Basic ........................................... $ 0.28 $ 0.41 $ 0.49 $ 0.50
Diluted ......................................... 0.28 0.41 0.49 0.50
Average shares outstanding
Basic ........................................... 1,147,808 1,145,124 1,145,124 1,142,993
Diluted ......................................... 1,147,808 1,145,124 1,145,124 1,142,993

F-24

MIDDLEFIELD BANC CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited)

March 31, 2000 December 31, 2000
-------------- -----------------

ASSETS
Cash and due from banks ...................................... $ 3,815,091 $ 3,574,875
Federal funds sold ........................................... 4,325,000 1,265,000
------------ ------------
Cash and cash equivalents .................................... 8,140,091 4,839,875
Interest-bearing deposits in other institutions .............. 984,441 984,441
Investment securities available for sale ..................... 14,249,335 11,868,337
Investment securities held to maturity (estimated market value
of $15,502,947 and $17,942,255) ......................... 15,613,917 17,942,310
Loans ........................................................ 136,844,756 135,304,215
Less allowance for loan losses ............................... 2,048,538 2,037,322
------------ ------------
Net loans ......................................................... 134,796,218 133,266,893
Premises and equipment ............................................ 5,484,895 5,432,472
Accrued interest and other assets ................................. 2,106,290 2,154,485
------------ ------------
TOTAL ASSETS ...................................................... $181,375,187 $176,488,813
============ ============

LIABILITIES
Deposits:
Noninterest bearing demand ................................... $ 21,811,983 23,155,904
Interest-bearing demand ...................................... 7,888,849 6,116,094
Money market ................................................. 8,585,625 9,127,760
Savings ...................................................... 33,731,454 32,260,775
Time ......................................................... 79,753,422 76,505,513
------------ ------------
Total deposits .................................................... 151,771,333 147,166,046
Short-term borrowings ........................................ 413,744 543,222
Other borrowings ............................................. 9,804,262 9,861,596
Accrued interest and other liabilities ....................... 657,715 674,587
------------ ------------
TOTAL LIABILITIES ................................................. 162,647,054 158,245,451
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,148,676 shares issued .................................... 6,287,011 6,287,011
Retained earnings ............................................ 13,726,823 13,343,980
Accumulated other comprehensive income ....................... 190,739 88,811
Treasury stock, at cost (45,722 shares) ...................... (1,476,440) (1,476,440)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ........................................ 18,728,133 18,243,362
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $181,375,187 $176,488,813
============ ============

See accompanying notes to unaudited consolidated financial statements.

F-25

MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

Three Months Ended March 31,
2001 2000
---------- ----------

INTEREST INCOME
Interest and fees on loans ............................. $2,821,950 $2,560,979
Interest-bearing deposits in other institutions.... 15,104 33,461
Federal funds sold ..................................... 42,667 7,342
Investment securities:
Taxable interest ............................................ 299,881 311,095
Tax-exempt interest ......................................... 119,824 137,610
---------- ----------
Total interest income ....................................... 3,299,426 3,050,487
---------- ----------
INTEREST EXPENSE
Deposits ............................................... 1,514,724 1,203,348
Short-term borrowings .................................. 4,894 31,860
Other borrowings ....................................... 136,008 122,102
---------- ----------
Total interest expense ...................................... 1,655,626 1,357,310
---------- ----------
NET INTEREST INCOME ......................................... 1,643,800 1,693,177

Provision for loan losses ................................... 39,000 75,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ................................ 1,604,800 1,618,177
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts .................... 222,041 188,596
Other income ........................................... 36,624 31,301
---------- ----------
Total noninterest income .................................... 258,665 219,897
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ......................... 545,367 516,008
Occupancy expense ...................................... 80,161 83,816
Equipment expense ...................................... 60,836 48,330
Data processing costs .................................. 64,914 64,989
Ohio state franchise tax ............................... 60,050 61,173
Other expense .......................................... 278,980 271,098
---------- ----------
Total noninterest expense ................................... 1,090,308 1,045,414
---------- ----------
Income before income taxes .................................. 773,157 792,660
Income taxes ................................................ 235,900 235,370
---------- ----------
NET INCOME .................................................. $ 537,257 $ 557,290
========== ==========

EARNINGS PER COMMON SHARE
Basic ....................................................... $ 0.49 $ 0.50
Diluted ..................................................... 0.49 0.50

See accompanying notes to unaudited consolidated financial statements.

F-26

MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS' COMPREHENSIVE
STOCK EARNINGS INCOME STOCK EQUITY INCOME
----------- ----------- ------------- ----------- ------------- -------------

Balance, December 31, 2000........ $ 6,287,011 $13,343,980 $ 88,811 $(1,476,440) $ 18,243,362
Net income........................ 537,257 537,257 $537,257

Other comprehensive income:
Unrealized gain on available
for sale securities net of
taxes of $52,508............. 101,928 101,928 101,928
--------
Comprehensive income.............. $639,185
========
Cash dividends ($.14 per share)... (154,414) (154,414)
----------- ----------- -------- ----------- -------------
Balance, March 31, 2001........... $ 6,287,011 $13,726,823 $190,739 $(1,476,440) $ 18,728,133
=========== =========== ======== =========== =============

See accompanying notes to unaudited consolidated financial statements.

F-27
81

MIDDLEFIELD BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Three Months Ended March 31,
2001 2000
----------- -----------

OPERATING ACTIVITIES
Net income .............................................................. $ 537,257 $ 557,290
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses .......................................... 39,000 75,000
Depreciation and amortization ...................................... 71,796 67,835
Amortization of premium and discount on investment securities ...... 12,116 16,830
Amortization of net deferred loan costs (fees) ..................... 9,204 5,320
Increase in accrued interest receivable ............................ (61,772) (31,801)
Increase (decrease) in accrued interest payable .................... 90,151 (20,855)
Other, net ......................................................... (32,363) 39,366
----------- -----------
Net cash provided by operating activities ............................... 665,389 708,985
----------- -----------
INVESTING ACTIVITIES
Decrease in interest-bearing deposits in other institutions, net.... 0 1,770,425
Investment securities available for sale:
Proceeds from repayments and maturities ....................... 1,368,956 500,000
Purchases ..................................................... (3,610,741) (221,400)
Investment securities held to maturity:
Proceeds from repayments and maturities ....................... 2,314,300 715,169
Increase in loans, net ............................................. (1,577,529) (2,333,006)
Purchase of premises and equipment ................................. (124,219) (24,693)
----------- -----------
Net cash provided by (used for) investing activities .................... (1,629,233) 406,495
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits ........................................... 4,605,288 3,129,985
Decrease in short-term borrowings, net ............................. (129,479) (1,971,785)
Repayment of other borrowings ...................................... (57,335) (67,236)
Purchase of treasury stock ......................................... 0 (1,311,051)
Cash dividends ..................................................... (154,414) (110,155)
----------- -----------
Net cash provided by (used for) financing activities .................... 4,264,060 (330,242)
----------- -----------
Increase in cash and cash equivalents ................................... 3,300,216 785,238
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 4,839,875 3,210,556
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 8,140,091 $ 3,995,794
=========== ===========

SUPPLEMENTAL INFORMATION Cash paid during the period for:
Interest on deposits and borrowings ..................................... $ 1,745,777 $ 1,336,455
Income taxes ............................................................ 0 35,000

See accompanying notes to unaudited consolidated financial statements.

F-28

MIDDLEFIELD BANC CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Middlefield")
includes its wholly-owned subsidiary, The Middlefield Banking Company (the
"Bank"). All significant intercompany items have been eliminated.

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions for Form 10-Q and Article 10 of Regulation S-X. In management's
opinion, the financial statements include all adjustments, consisting of normal
recurring adjustments, that Middlefield considers necessary to fairly state
Middlefield's financial position and the results of operations and cash flows.
The balance sheet at December 31, 2000, has been derived from the audited
financial statements at that date but does not include all of the necessary
informational disclosures and footnotes as required by generally accepted
accounting principles. The accompanying financial statements should be read in
conjunction with the financial statements and notes thereto included with
Middlefield's Amended Form 10. Certain amounts in the 2000 financial statements
have been reclassified to conform to 2001 presentation. The results of
Middlefield's operations for any interim period are not necessarily indicative
of the results of Middlefield's operations for any other interim period or for a
full fiscal year.

NOTE 2 -- EARNINGS PER SHARE

Middlefield provides dual presentation of Basic and Diluted earnings per share.
Basic earnings per share utilizes net income as reported as the numerator and
the actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants, and convertible
securities. For the three months ended March 31, 2001, the diluted number of
shares outstanding from employee stock options was 1,350. There was no diluted
effect for the three months ended March 31, 2000.

NOTE 3 -- COMPREHENSIVE INCOME

The components of comprehensive income consist exclusively of unrealized gains
and losses on available for sale securities. For the three months ended March
31, 2001, this activity is shown under the heading Comprehensive Income as
presented in the Consolidated Statement of Changes in Stockholders' Equity
(Unaudited). For the three months ended March 31, 2000, comprehensive income
totaled $429,330.

F-29

INDEX TO EXHIBITS

* 3.1 Second Amended and Restated Articles of Incorporation of
Middlefield Banc Corp.

* 3.2 Regulations of Middlefield Banc Corp.

* 4 Specimen common stock certificate

* 10.1 1999 Stock Option Plan of Middlefield Banc Corp.

* 10.2 Severance Agreement of President and Chief Executive Officer

* 10.3 Severance Agreement of Executive Vice President

* 10.4 Federal Home Loan Bank of Cincinnati Agreement for
Advances and Security Agreement dated September 14, 2000

10.5 Collateral Assignment Split Dollar Agreement between the
President and Chief Executive Officer and The Middlefield
Banking Company
* 21 Subsidiaries of Middlefield Banc Corp.

99.1 Form of Indemnification Agreement with directors of Middlefield
Banc Corp. and executive officers of Middlefield Banc Corp. and
The Middlefield Banking Company

-----------
* previously filed

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused Amendment No. 1 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.

MIDDLEFIELD BANC CORP.
(Registrant)

By: /s/ Thomas G. Caldwell
--------------------------------------
President and Chief Executive Officer

June 13, 2001