MIDDLEFIELD BANC CORP Management Report and Analysis of Financial Position and Operating Results (Form 10-Q)

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The information contained or incorporated by reference in this report on Form
10-Q contains forward-looking statements, including certain plans, expectations,
goals, and projections, which are subject to numerous assumptions, risks, and
uncertainties. Actual results could differ materially from those contained or
implied by such statements for a variety of factors, including changes in
economic conditions, movements in interest rates, competitive pressures on
product pricing and services, success and timing of business strategies, the
nature, extent, and timing of government actions and reforms, and extended
disruption of vital infrastructure and the impact of the COVID-19 pandemic. The
Company could experience further adverse effects on its business, financial
condition, results of operations, and cash flows. While it is impossible to know
the impact of COVID-19 on the Company's future operations, the Company is
disclosing potentially material items of which it is aware.



All forward-looking statements included in this report on Form 10-Q are based on
information available at the time of the report. Middlefield Banc Corp. assumes
no obligation to update any forward-looking statement.



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CHANGES IN FINANCIAL POSITION


Overview



The following is management's discussion and analysis of certain significant
factors which have affected the financial condition and results of operations of
the Company as reflected in the unaudited consolidated balance sheet as of
September 30, 2021, as compared with December 31, 2020, and operating results
for the three and nine-month periods ended September 30, 2021, and 2020.  These
comments should be read in conjunction with the Company's unaudited consolidated
financial statements and accompanying notes appearing elsewhere herein.



This discussion contains certain performance measures determined by methods
other than under GAAP. Management of the Company uses these non-GAAP measures in
its analysis of the Company's performance. These measures are useful when
evaluating the underlying performance and efficiency of the Company's operations
and balance sheet. The Company's management believes that these non-GAAP
measures provide a greater understanding of ongoing operations, enhance
comparability of results with prior periods and demonstrate the effects of
significant gains and charges in the current period. The Company's management
believes that investors may use these non-GAAP financial measures to evaluate
the Company's financial performance without the impact of unusual items that may
obscure trends in the Company's underlying performance. These disclosures should
not be viewed as a substitute for financial measures determined under GAAP, nor
are they necessarily comparable to non-GAAP performance measures that may be
presented by other companies. Non-GAAP measures include tangible book value per
common share, return on average tangible common equity, and pre-tax,
pre-provision income. The Company calculates the regulatory capital ratios using
current regulatory report instructions. The Company's management uses these
measures to assess the quality of capital and believes that investors may find
them useful in their evaluation of the Company. These capital measures may or
may not be necessarily comparable to similar capital measures that may be
presented by other companies.



Nine-month 2021 Financial Highlights (on an annual basis, unless otherwise noted):

? Net result of $ 13.8 million, Where $ 2.19 per diluted share driven by a record

third quarter result of $ 5.2 million, or a recording $ 0.85 per diluted share

? Net interest margin improved 23 basis points to 3.79% from 3.56%

  ? Total noninterest income was up 29.5% to $5.7 million


  ? Pre-tax, pre-provision(1) income increased 22.0% to $17.7 million


  ? Return on average assets increased to 1.34% from 0.61%


  ? Return on average equity increased to 12.58% from 5.48%

? Return on average tangible equity (1) increased to 14.20% from 6.22%

  ? The efficiency ratio improved to 56.42%, compared to 58.59%


  ? Year-to-date net charge-offs declined 96.0% to $125,000

? Middlefield has repurchased 346,103 shares since the start of the year, including

    165,058 shares repurchased during the 2021 third quarter




  (1) See reconciliation of non-GAAP measures in following tables




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(Dollar amounts in thousands, except per share and share amounts, unaudited)
                                                      For the Three Months Ended                                       For the Nine Months Ended
                         September 30,       June 30,        March 31,       December 31,       September 30,      September 30,       September 30,
                             2021              2021            2021              2020               2020                2021               2020
Per common share data
Net income per common
share - basic           $          0.85     $      0.70     $      0.65     $         0.39     $          0.29     $         2.20     $          0.92
Net income per common
share - diluted         $          0.85     $      0.70     $      0.65     $         0.39     $          0.29     $         2.19     $          0.92
Dividends declared
per share               $          0.16     $      0.16     $      0.16     $         0.15     $          0.15     $         0.48     $          0.45
Book value per share
(period end)            $         24.13     $     23.50     $     22.80     $        22.54     $         22.27     $        24.13     $         22.27
Tangible book value
per share (period
end) (2) (3)            $         21.39     $     20.82     $     20.17     $        19.91     $         19.63     $        21.39     $         19.63
Dividends declared      $           978     $     1,004     $     1,016     $          957     $           957     $        2,998     $         2,877
Dividend yield                     2.66 %          2.72 %          3.10 %             2.65 %              3.09 %             2.69 %              3.11 %
Dividend payout ratio             18.79 %         22.69 %         24.38 %            38.45 %             51.65 %            21.73 %             49.10 %
Average shares
outstanding - basic           6,136,648       6,297,071       6,364,132          6,378,706           6,376,291          6,265,803           6,387,581
Average shares
outstanding - diluted         6,157,181       6,312,230       6,378,493          6,397,681           6,385,765          6,287,556           6,397,674
Period ending shares
outstanding                   6,054,083       6,215,511       6,344,657          6,379,323           6,378,110          6,054,083           6,378,110

Selected ratios
Return on average
assets                             1.51 %          1.30 %          1.22 %             0.72 %              0.54 %             1.34 %              0.61 %
Return on average
equity                            13.95 %         12.10 %         11.65 %             6.76 %              5.11 %            12.58 %              5.48 %
Return on average
tangible common
equity (2) (4)                    15.71 %         13.65 %         13.17 %             7.64 %              5.79 %            14.20 %              6.22 %
Efficiency (1)                    54.15 %         57.28 %         57.91 %            59.29 %             51.96 %            56.42 %             58.59 %
Equity to assets at
period end                        10.69 %         10.74 %         10.42 %            10.33 %             10.41 %            10.69 %             10.41 %
Noninterest expense
to average assets                  0.58 %          0.58 %          0.60 %             0.57 %              0.52 %             1.76 %              1.70 %




(1) The efficiency ratio is calculated
by dividing noninterest expense less
amortization of intangibles by the sum
of net interest income on a fully
taxable equivalent basis plus
noninterest income
(2) See reconciliation of non-GAAP
measures below
(3) Calculated by dividing tangible
common equity by shares outstanding
(4) Calculated by dividing annualized
net income for each period by average
tangible common equity




                                                    For the Three Months Ended                                         For the Nine Months Ended
                        September 30,       June 30,       March 31,       December 31,       September 30,      September 30,           September 30,
Yields                      2021              2021           2021              2020               2020                2021                   2020
Interest-earning
assets:
Loans receivable (2)              4.74 %         4.43 %          4.48 %             4.28 %              4.48 %             4.54 %                  4.64 %
Investment
securities (2)                    3.37 %         3.47 %          3.75 %             3.65 %              3.66 %             3.51 %                  3.68 %
Interest-earning
deposits with other
banks                             0.21 %         0.18 %          0.20 %             0.21 %              0.27 %             0.20 %                  0.56 %
Total
interest-earning
assets                            4.20 %         4.05 %          4.11 %             4.00 %              4.23 %             4.12 %                  4.38 %
Deposits:
Interest-bearing
demand deposits                   0.12 %         0.12 %          0.16 %             0.21 %              0.32 %             0.13 %                  0.36 %
Money market
deposits                          0.46 %         0.46 %          0.47 %             0.53 %              0.70 %             0.47 %                  1.00 %
Savings deposits                  0.06 %         0.06 %          0.07 %             0.11 %              0.20 %             0.06 %                  0.29 %
Certificates of
deposit                           1.08 %         1.19 %          1.28 %             1.56 %              1.77 %             1.19 %                  1.97 %
Total
interest-bearing
deposits                          0.41 %         0.46 %          0.53 %             0.70 %              0.93 %             0.47 %                  1.14 %
Non-Deposit Funding:
Borrowings                        1.13 %         1.18 %          1.10 %             0.95 %              0.45 %             1.14 %                  0.73 %
Total
interest-bearing
liabilities                       0.42 %         0.47 %          0.54 %             0.71 %              0.91 %             0.48 %                  1.12 %
Cost of deposits                  0.30 %         0.34 %          0.40 %             0.54 %              0.72 %             0.35 %                  0.89 %
Cost of funds                     0.31 %         0.35 %          0.41 %             0.55 %              0.71 %             0.35 %                  0.88 %
Net interest margin
(1)                               3.91 %         3.72 %          3.73 %             3.49 %              3.57 %             3.79 %                  3.56 %




(1) Net interest margin represents net
interest income as a percentage of average
interest-earning assets.
(2) Tax-equivalent adjustments to calculate
the yield on tax-exempt securities and
loans were determined using an effective
tax rate of 21%.




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Reconciliation of
Common Stockholders'
Equity to Tangible
Common Equity                                          For the Three Months Ended                                       For the Nine Months Ended
(Dollar amounts in
thousands, unaudited)     September 30,       June 30,        March 31,    

the 31st of December, September 30, September 30, September 30,

                              2021              2021            2021              2020               2020                2021               2020

Stockholders' Equity
(GAAP)                   $       146,055     $   146,044     $   144,670     $      143,810     $       142,056     $      146,055     $       142,056
Less Goodwill and
other intangibles                 16,555          16,635          16,715             16,795              16,878             16,555              16,878
Tangible Common Equity
(Non-GAAP)               $       129,500     $   129,409     $   127,955     $      127,015     $       125,178     $      129,500     $       125,178

Shares outstanding             6,054,083       6,215,511       6,344,657          6,379,323           6,378,110          6,054,083           6,378,110
Tangible book value
per share (Non-GAAP)     $         21.39     $     20.82     $     20.17     $        19.91     $         19.63     $        21.39     $         19.63




Reconciliation of
Average Equity to
Return on Average
Tangible Common
Equity                                             For the Three Months Ended                                       For the Nine Months Ended

                        September 30,      June 30,      March 31,       December 31,       September 30,      September 30,         September 30,
                            2021             2021           2021             2020               2020                2021                 2020

Average
Stockholders' Equity
(GAAP)                 $       148,048     $ 146,719     $  145,065     $      146,374     $       144,167     $      146,611       $       142,949
Less Average
Goodwill and other
intangibles                     16,594        16,674         16,754             16,836              16,919             16,674                17,002
Average Tangible
Common Equity
(Non-GAAP)             $       131,454     $ 130,045     $  128,311     $      129,538     $       127,248     $      129,937       $       125,947

Net income             $         5,204     $   4,425     $    4,167     $        2,489     $         1,853     $       13,796       $         5,860
Return on average
tangible common
equity (annualized)
(Non-GAAP)                       15.71 %       13.65 %        13.17 %             7.64 %              5.79 %            14.20 %                6.22 %




Reconciliation of
Pre-Tax
Pre-Provision Income
(PTPP)                                              For the Three Months Ended                                       For the Nine Months Ended

                        September 30,       June 30,       March 31,      December 31,       September 30,      September 30,        September 30,
                            2021              2021           2021             2020               2020                2021                 2020

Net income             $         5,204     $    4,425     $     4,167     $       2,489     $         1,853     $       13,796       $        5,860
Add Income Taxes                 1,174            968             896               467                 295              3,038                  934
Add Provision for
loan losses                          -            200             700             2,100               4,000                900                7,740
PTPP                   $         6,378     $    5,593     $     5,763     $       5,056     $         6,148     $       17,734       $       14,534




General. The Company's total assets ended the September 30, 2021 quarter at
$1.37 billion, a decrease of $26.1 million from December 31, 2020. For the same
period, cash and cash equivalents increased $19.9 million, or 17.7%, while net
loans decreased $94.6 million, or 8.7%, offset by an increase of $48.7 million
in investments. Total liabilities decreased $28.4 million or 2.3%, while
stockholders' equity increased $2.2 million, or 1.6%.



Cash and cash equivalents. Cash and cash equivalents increased $19.9 million to
$132.4 million on September 30, 2021, from $112.4 million on December 31, 2020.
Deposits from customers into savings and checking accounts, loan and securities
repayments, and proceeds from borrowed funds typically increase these accounts.
Decreases result from customer withdrawals, new loan originations, security
purchases, and repayments of borrowed and brokered funds. Cash remains elevated
and can be traced to pandemic-related government stimulus. This resulted in
increased deposits, as both retail and commercial customers keep excess funds in
liquid deposits accounts. The increase in cash and cash equivalents since
December 31, 2020, is due to the forgiveness of PPP loans.



The Company will continue to hold elevated levels of cash and cash equivalents
to meet the demands of customers during the economic downturn. The Company
monitors cash and cash equivalents daily to ensure adequate liquidity positions
are maintained while searching for quality earning assets for excess funds.



Investment securities. Investment securities available for sale on September 30,
2021, totaled $163.1 million, an increase of $48.7 million, or 42.6%, from
$114.4 million on December 31, 2020. During this period, the Company recorded
repayments, calls, and maturities of $9.5 million and a net unrealized holding
loss through AOCI of $853,000. Securities purchased were $59.4 million, and
there were no sales of securities for the nine months ended September 30, 2021.
The Company recorded $223,000 in gains on equity securities as of September 30,
2021, on the Company's Consolidated Statement of Income and Consolidated
Statement of Cash Flows. The gain on equity securities is the result of fair
value marks of the equity securities held during these nine months.



On September 30, 2021, the Company held $32.3 million of subordinated debt in
other banks, as compared to $21.3 million on December 31, 2020. The average
yield on this portfolio was 4.90% on September 30, 2021, as compared to 5.19% on
December 31, 2020.



Periodically, management reviews the entire municipal bond portfolio to assess
credit quality. Each security held in this portfolio is assessed on attributes
that have historically influenced default incidences in the municipal market,
such as sector, security, impairment filing, timeliness of disclosure, external
credit assessment(s), credit spread, state, vintage, and underwriter. Municipal
bonds compose 73% of the overall portfolio. These investments have historically
proven to have extremely low credit risk.



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Loans receivable. The loans receivable category consists primarily of
single-family mortgage loans used to purchase or refinance personal residences
located within the Company's market area, commercial and industrial loans, home
equity lines of credit, and commercial real estate loans used to finance
properties that are used in the borrowers' businesses, or to finance
investor-owned rental properties, and, to a lesser extent, construction and
consumer loans. The portfolio is well dispersed geographically. Net loans
receivable decreased $94.6 million, or 8.7%, to $996.0 million as of September
30, 2021. The following table summarizes fluctuation within the primary segments
of the loan portfolio (in thousands):



                               September 30,       December 31,
                                   2021                2020          $ change       % change
Commercial real estate:
Owner occupied                $       110,883     $      103,121     $   7,762            7.5 %
Non-owner occupied                    310,222            309,424           798            0.3 %
Multifamily                            30,762             39,562        (8,800 )        -22.2 %
Residential real estate               232,020            233,995        (1,975 )         -0.8 %
Commercial and industrial             163,052            232,044       (68,992 )        -29.7 %
Home equity lines of credit           105,450            112,543        (7,093 )         -6.3 %
Construction and Other                 49,378             63,573       (14,195 )        -22.3 %
Consumer installment                    8,515              9,823        (1,308 )        -13.3 %
Total loans                   $     1,010,282     $    1,104,085     $ (93,803 )         -8.5 %




The decrease in the commercial and industrial portfolio includes the forgiveness
of PPP loans of $129.8 million during the nine months ended September 30, 2021.
The Company expects muted loan growth through the remainder of the year as a
result of excess liquidity throughout the economy.



The Company's Mortgage Banking operation generates loans for sale to the Federal
Home Loan Mortgage Corporation ("Freddie Mac"). Loans held for sale on September
30, 2021 totaled $676,000, a decrease of $202,000, or 23.0%, from December 31,
2020. This decrease is the result of decreased activity due to fewer refinance
opportunities. The Company recorded proceeds from the sale of $31.6 million of
these loans for $1.1 million in gains on the sale of loans as of September 30,
2021, on the Company's Consolidated Statement of Cash Flows.



The federal banking regulators have issued guidance for those institutions which
are deemed to have concentrations in commercial real estate lending. According
to the supervisory criteria contained in the guidance for identifying
institutions with a potential commercial real estate concentration risk,
institutions that have (1) total reported loans for construction, land
development, and other land acquisitions which represent 100% or more of an
institution's total risk-based capital; or (2) total commercial real estate
loans representing 300% or more of the institution's total risk-based capital
and the institution's commercial real estate loan portfolio has increased 50% or
more during the prior 36 months are identified as having potential commercial
real estate concentration risk. Institutions that are deemed to have
concentrations in commercial real estate lending are expected to employ
heightened levels of risk management concerning their commercial real estate
portfolios and may be required to hold higher levels of capital. The Company,
like many community banks, has a concentration in commercial real estate loans,
and the Company has experienced growth in its commercial real estate portfolio
in recent years. On September 30, 2021, non-owner-occupied commercial real
estate loans (including construction, land, and land development loans)
represent 270.3% of total risk-based capital. Construction, land, and land
development loans represent 32.6% of total risk-based capital. Management has
extensive experience in commercial real estate lending, and has implemented and
continues to maintain heightened risk management procedures and strong
underwriting criteria for its commercial real estate portfolio. Loan monitoring
practices include but are not limited to periodic stress testing analysis to
evaluate changes to cash flows, owing to interest rate increases and declines in
net operating income. Nevertheless, we may be required to maintain higher levels
of capital as a result of our commercial real estate concentrations, which could
require us to obtain additional capital, and may adversely affect shareholder
returns. The Company has an extensive capital planning policy, which includes
pro forma projections including stress testing within which the Board of
Directors has established internal minimum targets for regulatory capital ratios
that are more than well-capitalized ratios.



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The Company monitors fluctuations in unused commitments on a daily basis in order to identify potentially significant drawdowns on existing credit lines. At
September 30, 2021, unused credit line commitments increased $ 13.9 million, or 4.2%, of December 31, 2020.



Allowance for Loan and Lease Losses and Asset Quality. The allowance for loan
and lease losses increased $775,000, or 5.8%, to $14.2 million on September 30,
2021, from $13.5 million on December 31, 2020. For the three months ended
September 30, 2021, net loan recoveries totaled $34,000, or 0.01% of average
loans, annualized, compared to net charge-offs of $2.9 million, or 1.01% of
average loans, annualized, for the same period in 2020. No provision was needed
during the three months ended September 30, 2021, to maintain the allowance for
loan and lease losses. For the nine months ended September 30, 2021, net loan
charge-offs totaled $125,000, or 0.02% of average loans, annualized, compared to
net charge-offs of $3.1 million, or 0.39% of average loans, annualized, for the
same period in 2020. To maintain the allowance for loan and lease losses, the
Company recorded a provision for loan loss of $900,000 during the nine months
ended September 30, 2021. The ratio of the allowance for loan and lease losses
to nonperforming loans was 209.1% for the three months ended September 30, 2021,
compared to 169.8% for the same period in the prior year. This is due to the
allowance being adjusted to address the economic slowdown since the beginning of
the COVID-19 pandemic. Additionally, the decrease in the PPP loans increased the
reserve percentage because these loans had low reserve.



Management analyzes the adequacy of the allowance for loan and lease losses
regularly through reviews of the performance of the loan portfolio considering
economic conditions, changes in interest rates and the effect of such changes on
real estate values, and changes in the amount and composition of the loan
portfolio. The allowance for loan and lease losses is a significant estimate
that is particularly susceptible to changes in the near term. Management's
analysis includes a review of all loans designated as impaired, historical loan
loss experience, the estimated fair value of the underlying collateral, economic
conditions, current interest rates, trends in the borrower's industry, and other
factors that management believes warrant recognition in providing for an
appropriate allowance for loan and lease losses. Future additions or reductions
to the allowance for loan and lease losses will be dependent on these factors.
Additionally, the Company uses an outside party to conduct an independent review
of commercial and commercial real estate loans that is designed to validate
management conclusions of risk ratings and the appropriateness of the allowance
allocated to these loans. The Company uses the results of this review to help
determine the effectiveness of policies and procedures and to assess the
adequacy of the allowance for loan and lease losses allocated to these types of
loans. Management believes the allowance for loan and lease losses is
appropriately stated on September 30, 2021. Based on the variables involved and
management's judgments about uncertain outcomes, the determination of the
allowance for loan and lease losses is considered a critical accounting policy.



Goodwill. The carrying value of goodwill was $15.1 million on September 30,
2021, and December 31, 2020. The Company performs a periodic quantitative
analysis of goodwill using multiple approaches. The primary methodology is the
discounted cash flow approach, while also considering a market approach of
comparing to multiples of similar public companies as well as market price with
control premiums.



Each of the valuation methods used by the Company requires significant
assumptions. Depending on the specific method, assumptions are made regarding
growth rates, discount rates for cash flows, control premiums, and selected
multiples. Changes to any of the assumptions could result in significantly
different results. Based on the most recent analysis performed as of March 31,
2020, the Company determined that goodwill was not impaired. The Company also
performed a qualitative assessment of goodwill as of September 30, 2021, with no
resulting goodwill impairment.



Nonperforming assets. Nonperforming assets include nonaccrual loans, loans 90
days or more past due, other real estate owned, and repossessed assets. Real
estate owned is written down to fair value at its initial recording and
continually monitored for changes in fair value. A loan is classified as
nonaccrual when, in the opinion of management, there are serious doubts about
the collectability of interest and principal. 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 principal and interest is doubtful. Payments received on nonaccrual loans are
applied against the principal until doubt about collectability ceases.



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                                                            Asset Quality History

(Dollar amounts in        September 30,                                             December 31,      September 30,
thousands)                    2021           June 30, 2021      March 31, 2021          2020              2020

Non-performing loans $ 6,806 $ 7,760 $ 8,958 $ 7,858 $ 6,690
Other real estate held

           7,090               7,090               7,372             7,387             7,391

Non-performing assets $ 13,896 $ 14,850 $ 16,330 $ 15,245 $ 14,081

Allowance for loan and
lease losses                     14,234              14,200              14,122            13,459            11,359

Reports :

Nonperforming loans to
total loans                        0.67 %              0.73 %              0.81 %            0.71 %            0.59 %
Nonperforming assets to
total assets                       1.02 %              1.09 %              1.18 %            1.10 %            1.03 %
Allowance for loan and
lease losses to total
loans                              1.41 %              1.34 %              1.28 %            1.22 %            1.01 %
Allowance for loan and
lease losses to
nonperforming loans              209.14 %            182.99 %            157.65 %          171.28 %          169.79 %




Nonperforming loans exclude TDRs that are performing under their terms over a
prescribed period. TDRs are those loans which the Company, for economic or legal
reasons related to a borrower's financial difficulties, grants a concession to
the borrower that the Company would not otherwise consider. The Company has 27
TDRs accruing interest with a balance of $2.4 million as of September 30, 2021.
A TDR that yields a market interest rate at the time of restructuring and is in
compliance with its modified terms is no longer reported as a TDR in calendar
years after the year in which the restructuring took place. To comply with its
modified terms, a loan that is a TDR must not be in nonaccrual status and must
be current or less than 30 days past due on its contractual principal and
interest payments under the modified repayment terms. Nonperforming loans
secured by real estate totaled $6.4 million as of September 30, 2021, from $7.2
million on December 31, 2020.



A major factor in determining the appropriateness of the allowance for loan and
lease losses is the type of collateral that secures the loans. Of the total
nonperforming loans on September 30, 2021, 94.5% were secured by real estate.
Although this does not insure against all losses, real estate typically provides
for at least partial recovery, even in a distressed-sale and declining-value
environment. The Company's objective is to minimize the future loss exposure of
the Company.


The ratio of the allowance for losses on loans and leases to total loans increased from 1.22% to December 31, 2020, at 1.41% from September 30, 2021.



Deposits. The Company considers various sources when evaluating funding needs,
including but not limited to deposits, which are a significant source of funds,
totaling $1.20 billion or 98.9% of the Company's total average funding sources
at September 30, 2021. Total deposits decreased $24.6 million on September 30,
2021, from $1.23 billion on December 31, 2020. The following table summarizes
fluctuation within the primary segments of the deposit portfolio (in thousands):



                              September 30,      December 31
                                  2021               2020         $ Change       % Change
Deposits:
Noninterest-bearing demand   $       316,770     $    291,347     $  25,423            8.7 %
Interest-bearing demand              237,576          195,722        41,854           21.4 %
Money market                         178,423          198,493       (20,070 )        -10.1 %
Savings                              256,114          243,888        12,226            5.0 %
Time                                 211,674          295,750       (84,076 )        -28.4 %
Total deposits                     1,200,557        1,225,200       (24,643 )         -2.0 %



The Company has experienced an outflow of maturing term deposits into other products due to the current low interest rate environment. The Company uses certain non-core financing instruments to increase its balance sheet and maintain liquidity. These deposits, either from a broker or from a registration service, were $ 15.4 million to September 30, 2021, compared to $ 66.9 million to December 31, 2020.



Borrowed funds. The Company uses short-term and long-term borrowings as another
source of funding for asset growth and liquidity needs. These borrowings
primarily include advances from the Federal Home Loan Bank of Cincinnati (the
"FHLB"), subordinated debt, short-term borrowings from other banks, and federal
funds purchased. Other borrowings decreased $4.1 million, or 23.9%, to $13.0
million as of September 30, 2021, from $17.0 million as of December 31, 2020.



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Stockholders' equity. Stockholders' equity increased $2.2 million, or 1.6%, to
$146.0 million at September 30, 2021 from $143.8 million at December 31, 2020.
This increase was mostly the result of an increase in retained earnings of $10.8
million, net of a decrease in AOCI of $674,000, and an increase in treasury
stock of $8.1 million. The change in retained earnings is due to the
year-to-date net income offset by dividends paid, the change in AOCI is due to
fair value adjustments of available-for-sale securities, and the change in
treasury stock is due to the Company repurchasing 346,103 of its outstanding
shares during the nine months ended September 30, 2021.



RESULTS OF OPERATIONS



General. Net income for the three months ended September 30, 2021, was $5.2
million, a $3.4 million, or 180.8%, increase from the amount earned during the
same period in 2020. Diluted earnings per share for the quarter increased to
$0.85, compared to $0.29 from the same period in 2020. Net income for the nine
months ended September 30, 2021, was $13.8 million, a $7.9 million, or 135.4%,
increase from the amount earned during the same period in 2020. Diluted earnings
per share for these nine months increased to $2.19, compared to $0.92 from the
same period in 2020.



The Company's annualized return on average assets ("ROA") and return on average
equity ("ROE") for the quarter were 1.51% and 13.95%, respectively, compared
with 0.54% and 5.11% for the same period in 2020. The Company's ROA and ROE for
the nine months were 1.34% and 12.58%, respectively, compared with 0.61% and
5.48% for the same period in 2020.



Net interest income. Net interest income, the primary source of revenue for the
Company, is determined by the interest rate spread, which is defined as the
difference between income on earning assets and the cost of funds supporting
those assets, and the relative amounts of interest-earning assets and
interest-bearing liabilities. Management periodically adjusts the mix of assets
and liabilities, as well as the rates earned or paid on those assets and
liabilities, to manage and improve net interest income. The level of interest
rates and changes in the amount and composition of interest-earning assets and
liabilities affect the Company's net interest income. Management's goal is to
maintain a balance between steady net interest income growth and the risks
associated with interest rate fluctuations.



Net interest income for the three months ended September 30, 2021, totaled $12.5
million, an increase of 10.0% from that reported in the comparable period of
2020. The net interest margin was 3.91% for the third quarter of 2021, an
increase from the 3.57% reported for the same quarter of 2020. The increase in
the net interest margin is attributable to a decrease in the average balance of
certificates of deposit of $131.7 million, an increase in the average balance of
investments of $42.7 million, an increase of 26 basis points in the yield on
loans, and a decrease of 69 basis points on the yield on certificates of
deposit. These are partially offset by a decrease in the average loan balance of
$93.8 million.



Net interest income for the nine months ended September 30, 2021, totaled $36.3
million, an increase of 13.0% from that reported in the comparable period of
2020. The net interest margin was 3.79% for the nine months ended September 30,
2021, an increase from the 3.56% reported for the same period of 2020. The
increase in the net interest margin is attributable to a decrease in yield on
certificates of deposits and money market deposits of 78 and 53 basis points,
respectively, as well as a decrease in the average balance of certificates of
deposits of $117.5 million. These are partially offset by a decrease in the loan
yield of 10 basis points.



The Company's net interest margin is subject to fluctuation as a result of PPP
loan forgiveness. As the Company is in an asset-sensitive position, reductions
in market interest rates harm margin as the Company's interest-earning assets
reprice faster than its interest-bearing liabilities. Much of our asset
sensitivity is due to commercial loans that have variable interest rates. Both
loan types have floor rates. The benefit of these floors is more evident if the
Federal Reserve maintains short-term interest rates at current levels.



Interest and dividend income. Interest and dividend income decreased $60,000, or
0.4%, for the three months ended September 30, 2021, compared to the same period
in the prior year. This is attributable to a decrease in interest and fees on
loans of $345,000 and is partially offset by an increase in taxable interest on
investment securities of $212,000. Net interest earned on securities increased
by $267,000 for the three months ended September 30, 2021, when compared to the
same period in the prior year. The average balance of investment securities
increased $42.7 million, or 38.2%, while the 3.37% yield on the investment
portfolio decreased by 29 basis points, from 3.66%, for the same period in the
prior year. The decrease in the average loan balance for the three months ended
September 30, 2021, is due in part to the forgiveness of PPP loans, from which
the related gross deferred fee income was $1.3 million.



                                       39
--------------------------------------------------------------------------------




Interest and dividend income decreased $146,000, or 0.4%, for the nine months
ended September 30, 2021, compared to the same period in the prior year. This is
attributable to a decrease in interest and fees on loans of $652,000, partially
offset by an increase in taxable interest on investment securities of $629,000.
Net interest earned on securities increased by $581,000 for the nine months
ended September 30, 2021, when compared to the same period in the prior year.
The average balance of investment securities increased $27.0 million, or 24.9%,
while the 3.51% yield on the investment portfolio decreased by 17 basis points,
from 3.68%, for the same period in the prior year. The change in the average
loan balance for the nine months ended September 30, 2021, is due in part to the
issuance of PPP loans, from which the related gross deferred fee income was $3.6
million.



Interest expense. Interest expense decreased by $1.2 million, or 55.7%, for the
three months ended September 30, 2021, compared to the same period in the prior
year. This decrease is attributable to a decrease in the average balance of
certificates of deposits of $131.7 million, or 37.6%. This decrease is further
attributable to decreases of 69, 24, and 20 basis points in certificates of
deposit, money markets, and interest-bearing demand deposits, respectively.



Interest expense decreased by $4.3 million, or 57.0%, for the nine months ended
September 30, 2021, compared to the same period in the prior year. This decrease
is attributable to a decrease in the average balance of certificates of deposits
of $117.5 million, or 32.8%. This decrease is further attributable to decreases
of 78, 53, 23, and 23 basis points in certificates of deposit, money markets,
savings, and interest-bearing demand deposits, respectively.



Variations in costs are due to falling interest rates on deposit products in response to the unprecedented reduction in the target federal funds interest rate, as well as other lingering effects of the COVID pandemic -19.



Provision for loan losses. The provision for loan losses represents the charge
to income necessary to adjust the allowance for loan and lease losses to an
amount that represents management's assessment of the estimated probable
incurred credit losses inherent in the loan portfolio. Each quarter, management
reviews estimated probable incurred credit losses in the loan portfolio. Based
on this review, no provision was recorded for the quarter ended September 30,
2021, a decrease of $4.0 million from the quarter ended September 30, 2020.
While the prior period provision was mostly attributable to the pandemic, the
lack of provision for this quarter was impacted by credit quality and low loan
growth.



A provision for loan losses of $900,000 was recorded for the nine months ended
September 30, 2021, a decrease of $6.8 million from the same period in 2020.
While the prior period provision was mostly attributable to the pandemic, the
provision for this period was impacted by credit quality and low loan growth.



The ALLL to total loans for the quarter ended September 30, 2021, was 1.41%,
compared to 1.01% during the same period in the prior year. The Company remains
confident in its conservative and disciplined approach to credit and risk
management.



With the passage of the PPP, administered by the Small Business Administration
("SBA"), the Company has actively participated in assisting its customers with
applications for resources through the program. On September 30, 2021, the
Company carried $54.2 million of PPP loans classified as C&I loans for reporting
purposes. Loans funded through the PPP program are fully guaranteed by the U.S.
government. This guarantee exists at the inception of the loans and throughout
the lives of the loans and was not entered into separately and apart from the
loans. ASC 326 requires credit enhancements that mitigate credit losses, such as
the U.S. government guarantee on PPP loans, to be considered in estimating
credit losses. The guarantee is considered "embedded" and, therefore, is
considered when estimating credit loss on the PPP loans. Although the loans are
fully guaranteed by the U.S. government and absent any specific loss information
about any of our PPP loans, the Company does provide a $217,000 qualitative
provision for loan losses on its PPP loans on September 30, 2021.



Noninterest income. Noninterest income increased by $10,000, or 0.55%, for the
three months ended September 30, 2021, over the comparable 2020 period. This
increase was the result of an increase in service charges on deposit accounts of
$185,000, or 26.8%, which is partially due to cash management fees relating to
cannabis-related business. The increase is also the result of an increase of a
$130,000 gain on equity securities. These increases are offset by a decrease of
$351,000 in gain on loan sales, resulting from the decrease in demand for
residential refinances.



Noninterest income increased $1.3 million, or 29.5%, during the nine months
ended September 30, 2021, over the comparable 2020 period. This increase was the
result of increases in service charges on deposit accounts and earnings on
bank-owned life insurance of $709,000, or 39.2%, and $119,000, or 37.1%,
respectively. There was also an increase in gain on equity securities of
$380,000. The increase in service charges is due to cash management fees on
cannabis-related business accounts and the increase in earnings on bank-owned
life insurance is due to a payout on a claim.



Noninterest expense. Noninterest expense of $7.9 million for the third quarter
of 2021 was 13.0%, or $916,000, higher than the third quarter of 2020. Salaries
and employee benefits increased $1.0 million, or 29.1%, and gain on other real
estate owned increased $234,000, partially offset by a decrease in professional
fees of $153,000, or 52.9%. The salary increase is mostly due to an increase in
profit sharing expense, recognition of deferred PPP costs, and a restricted
stock expense. The change in gains on other real estate owned was the result of
an aggregate loss in the previous year. The decrease in consulting fees results
from lower legal and consulting fees relative to the same period in the previous
year.



                                       40
--------------------------------------------------------------------------------




Noninterest expense of $24.2 million for the nine months ended September 30,
2021, was 10.3%, or $2.3 million, higher than the same period in 2020. Salaries
and employee benefits increased $1.9 million, or 16.7%, and gain on other real
estate owned increased $334,000, partially offset by a decrease in professional
fees of $129,000, or 12.8%. The salary increase is mostly due to an increase in
profit sharing expense, recognition of deferred PPP costs, and a restricted
stock expense. The change in gains on other real estate owned was the result of
an aggregate loss in the previous year. The decrease in consulting fees results
from lower legal and consulting fees relative to the same period in the previous
year.



Provision for income taxes. The Company recognized $1.2 million in income tax
expense, which reflected an effective tax rate of 18.4% for the three months
ended September 30, 2021, as compared to $295,000 with an effective tax rate of
13.7% for the comparable 2020 period. The Company recognized $3.0 million in
income tax expense, which reflected an effective tax rate of 18.0% for the nine
months ended September 30, 2021, as compared to $934,000 with an effective tax
rate of 13.7% for the comparable 2020 period. The increase in the effective tax
rate is due to the increase in taxable income.



                                       41
--------------------------------------------------------------------------------




Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for the periods indicated, information concerning the total dollar amounts of
interest income from interest-earning assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resultant average costs, net interest income, interest rate spread and the
net interest margin earned on average interest-earning assets. For purposes of
this table, average balances are calculated using monthly averages and the
average loan balances include nonaccrual loans and exclude the allowance for
loan and lease losses, and interest income includes accretion of net deferred
loan fees. Yields on tax-exempt securities and loans (tax-exempt for federal
income tax purposes) are shown on a fully tax-equivalent basis utilizing a
federal tax rate of 21%. Yields and rates have been calculated on an annualized
basis utilizing monthly interest amounts.



                                                          For the Three Months Ended September 30,
                                                    2021                                            2020

                                   Average                        Average          Average                        Average
(Dollars in thousands)             Balance        Interest       Yield/Cost        Balance        Interest       Yield/Cost
Interest-earning assets:
Loans receivable (3)             $ 1,027,935     $   12,258             4.74 %   $ 1,121,763     $   12,603             4.48 %
Investment securities (3)            154,718          1,134             3.37 %       111,994            867             3.66 %
Interest-earning deposits with
other banks (4)                      105,910             55             0.21 %        53,826             37             0.27 %
Total interest-earning assets      1,288,563         13,447             4.20 %     1,287,583         13,507             4.23 %
Noninterest-earning assets            82,952                                          66,836
Total assets                     $ 1,371,515                                     $ 1,354,419
Interest-bearing liabilities:
Interest-bearing demand
deposits                         $   225,264     $       67             0.12 %   $   149,048     $      120             0.32 %
Money market deposits                182,831            214             0.46 %       176,136            312             0.70 %
Savings deposits                     253,960             38             0.06 %       223,507            113             0.20 %
Certificates of deposit              218,323            596             1.08 %       349,981          1,561             1.77 %
Short-term borrowings                      -              -             0.00 %        19,740             14             0.28 %
Other borrowings                      12,999             37             1.13 %        17,130             28             0.65 %
Total interest-bearing
liabilities                          893,377            952             0.42 %       935,542          2,148             0.91 %
Noninterest-bearing
liabilities:
Noninterest-bearing demand
deposits                             323,726                                         270,868
Other liabilities                      6,364                                           1,756
Stockholders' equity                 148,048                                         146,253
Total liabilities and
stockholders' equity             $ 1,371,515                                     $ 1,354,419
Net interest income                              $   12,495                                      $   11,359
Interest rate spread (1)                                                3.78 %                                          3.32 %
Net interest margin (2)                                                 3.91 %                                          3.57 %
Ratio of average
interest-earning assets to
average interest-bearing
liabilities                                                           144.24 %                                        137.63 %



--------------------------------------------------------------------------------
(1) Interest rate spread
represents the difference
between the average yield
on interest-earning assets
and the average cost of
interest-bearing
liabilities.
(2) Net interest margin
represents net interest
income as a percentage of
average interest-earning
assets.
(3) Tax-equivalent
adjustments to calculate
the yield on tax-exempt
securities and loans were
$195 and $186 for the three
months ended September 30,
2021 and 2020,
respectively.
(4) Includes dividends
received on restricted
stock.




                                       42
--------------------------------------------------------------------------------




Analysis of Changes in Net Interest Income. The following table analyzes the
changes in interest income and interest expense, between the three-month periods
ended September 30, 2021, and 2020, in terms of (1) changes in the volume of
interest-earning assets and interest-bearing liabilities and (2) changes in
yields and rates. The table reflects the extent to which changes in the
Company's interest income and interest expense are attributable to changes in
rate (change in rate multiplied by prior period volume), changes in volume
(changes in volume multiplied by prior period rate), and changes attributable to
the combined impact of volume/rate (change in rate multiplied by the change in
volume). The changes attributable to the combined impact of volume/rate are
allocated consistently between the volume and rate variances.



                                                      2021 versus 2020

                                                 Increase (decrease) due to
(Dollars in thousands)                         Volume        Rate        Total

Interest-earning assets:
Loans receivable                             $   (1,060 )   $   715     $   (345 )
Investment securities                               394        (127 )        267
Interest-earning deposits with other banks           35         (17 )       

18

Total interest-earning assets                      (631 )       571         

(60)


Interest-bearing liabilities:
Interest-bearing demand deposits                     61        (114 )        (53 )
Money market deposits                                12        (110 )        (98 )
Savings deposits                                     15         (90 )        (75 )
Certificates of deposit                            (587 )      (378 )       (965 )
Short-term borrowings                               (14 )         -          (14 )
Other borrowings                                     (7 )        16            9
Total interest-bearing liabilities                 (520 )      (676 )     (1,196 )


Net interest income                          $     (111 )   $ 1,247     $  1,136




                                       43
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Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for the periods indicated, information concerning the total dollar amounts of
interest income from interest-earning assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resultant average costs, net interest income, interest rate spread and the
net interest margin earned on average interest-earning assets. For purposes of
this table, average balances are calculated using monthly averages and the
average loan balances include nonaccrual loans and exclude the allowance for
loan and lease losses, and interest income includes accretion of net deferred
loan fees. Yields on tax-exempt securities and loans (tax-exempt for federal
income tax purposes) are shown on a fully tax-equivalent basis utilizing a
federal tax rate of 21%. Yields and rates have been calculated on an annualized
basis utilizing monthly interest amounts.



                                                           For the Nine Months Ended September 30,
                                                    2021                                            2020

                                   Average                        Average          Average                        Average
(Dollars in thousands)             Balance        Interest       Yield/Cost        Balance        Interest       Yield/Cost
Interest-earning assets:
Loans receivable (3)             $ 1,070,058     $   36,310             4.54 %   $ 1,065,964     $   36,962             4.64 %
Investment securities (3)            135,522          3,074             3.51 %       108,551          2,493             3.68 %
Interest-earning deposits with
other banks (4)                       94,955            141             0.20 %        51,361            216             0.56 %
Total interest-earning assets      1,300,535         39,525             4.12 %     1,225,876         39,671             4.38 %
Noninterest-earning assets            74,883                                          64,938
Total assets                     $ 1,375,418                                     $ 1,290,814
Interest-bearing liabilities:
Interest-bearing demand
deposits                         $   211,797            209             0.13 %   $   130,886     $      349             0.36 %
Money market deposits                187,945            655             0.47 %       166,193          1,246             1.00 %
Savings deposits                     254,574            123             0.06 %       201,871            443             0.29 %
Certificates of deposit              240,582          2,143             1.19 %       358,048          5,269             1.97 %
Short-term borrowings                    113              -                -          30,174             81             0.36 %
Other borrowings                      13,440            115             1.14 %        15,149            166             1.46 %
Total interest-bearing
liabilities                          908,451          3,245             0.48 %       902,321          7,554             1.12 %
Noninterest-bearing
liabilities:
Noninterest-bearing demand
deposits                             314,172                                         242,951
Other liabilities                      6,184                                           2,593
Stockholders' equity                 146,611                                         142,949
Total liabilities and
stockholders' equity             $ 1,375,418                                     $ 1,290,814
Net interest income                              $   36,280                                      $   32,117
Interest rate spread (1)                                                3.64 %                                          3.26 %
Net interest margin (2)                                                 3.79 %                                          3.56 %
Ratio of average
interest-earning assets to
average interest-bearing
liabilities                                                           143.16 %                                        135.86 %



--------------------------------------------------------------------------------
(1) Interest rate spread
represents the difference
between the average yield
on interest-earning assets
and the average cost of
interest-bearing
liabilities.
(2) Net interest margin
represents net interest
income as a percentage of
average interest-earning
assets.
(3) Tax-equivalent
adjustments to calculate
the yield on tax-exempt
securities and loans were
$542 and $565 for the nine
months ended September 30,
2021 and 2020,
respectively.
(4) Includes dividends
received on restricted
stock.




                                       44
--------------------------------------------------------------------------------




Analysis of Changes in Net Interest Income. The following table analyzes the
changes in interest income and interest expense, between the nine-month periods
ended September 30, 2021, and 2020, in terms of (1) changes in the volume of
interest-earning assets and interest-bearing liabilities and (2) changes in
yields and rates. The table reflects the extent to which changes in the
Company's interest income and interest expense are attributable to changes in
rate (change in rate multiplied by prior period volume), changes in volume
(changes in volume multiplied by prior period rate), and changes attributable to
the combined impact of volume/rate (change in rate multiplied by the change in
volume). The changes attributable to the combined impact of volume/rate are
allocated consistently between the volume and rate variances.



                                                      2021 versus 2020

                                                 Increase (decrease) due to
(Dollars in thousands)                        Volume         Rate        Total

Interest-earning assets:
Loans receivable                             $     142     $   (794 )   $   (652 )
Investment securities                              742         (161 )        581

Interest-bearing deposits with other banks 183 (258)

  (75 )
Total interest-earning assets                    1,067       (1,213 )       

(146)


Interest-bearing liabilities:
Interest-bearing demand deposits                   218         (358 )       (140 )
Money market deposits                              163         (754 )       (591 )
Savings deposits                                   114         (434 )       (320 )
Certificates of deposit                         (1,731 )     (1,395 )     (3,126 )
Short-term borrowings                              (81 )          -          (81 )
Other borrowings                                   (19 )        (32 )        (51 )
Total interest-bearing liabilities              (1,336 )     (2,973 )     (4,309 )


Net interest income                          $   2,403     $  1,760     $  4,163




                                       45
--------------------------------------------------------------------------------


LIQUIDITY



Management's objective in managing liquidity is maintaining the ability to
continue meeting the cash flow needs of banking customers, such as borrowings or
deposit withdrawals, as well as the Company's financial commitments. The
principal sources of liquidity are net income, loan payments, maturing and
principal reductions on securities and sales of securities available for sale,
federal funds sold, and cash and deposits with banks. The Company offers a line
of retail deposit products created to align with customer expectations while
expanding the Company's core funding base. Along with its liquid assets, the
Company has additional sources of liquidity available to ensure that adequate
funds are available as needed. These include, but are not limited to, the
purchase of federal funds, the ability to borrow funds under line of credit
agreements with correspondent banks and a borrowing agreement with the FHLB, and
the adjustment of interest rates to obtain depositors. Management believes the
Company has the capital adequacy, profitability, and reputation to meet the
current and projected needs of its customers.



On September 30, 2021, the additional borrowing capacity at the FHLB was $424.6
million, as compared to $401.7 million on December 31, 2020. For the nine months
ended September 30, 2021, wholesale funding decreased by $51.6 million. The
Company also has the option of borrowing from the Federal Reserve discount
window with any assets not currently pledged elsewhere. Management believes that
the combination of high levels of potentially liquid assets, cash flows from
operations, and additional borrowing capacity provided Middlefield Bank with
strong liquidity as of September 30, 2021. Although the Company currently
exhibits strong liquidity, management will continue to monitor liquidity in
future periods to look for signs of stress resulting from the COVID-19 pandemic.



For the nine months ended September 30, 2021, the adjustments to reconcile net
income to net cash from operating activities consisted mainly of depreciation
and amortization of premises and equipment and software, the provision for loan
losses, net amortization of securities, earnings on bank-owned life insurance,
accretion of net deferred loan fees, and net changes in other assets and
liabilities. For a more detailed illustration of sources and uses of cash, refer
to the Condensed Consolidated Statements of Cash Flows.



INFLATION



Substantially all of the Company's assets and liabilities relate to banking
activities and are monetary. The consolidated financial statements and related
financial data are presented following GAAP. GAAP currently requires the Company
to measure the financial position and results of operations in terms of
historical dollars, except securities available for sale, impaired loans, and
other real estate loans that are measured at fair value. Changes in the value of
money due to rising inflation can cause purchasing power loss.



Management's opinion is that movements in interest rates affect the financial
condition and results of operations to a greater degree than changes in the rate
of inflation. It should be noted that interest rates and inflation do affect
each other, but do not always move in correlation with each other. The Company's
ability to match the interest sensitivity of its financial assets to the
interest sensitivity of its liabilities in its asset/liability management may
tend to minimize the effect of changes in interest rates on the Company's
performance.



REGULATORY MATTERS



The Company is subject to the regulatory requirements of the Federal Reserve
System as a bank holding company. The bank subsidiary is subject to regulations
of the Federal Deposit Insurance Corporation ("FDIC") and the Ohio Division of
Financial Institutions.



The Federal Reserve Board and the FDIC have extensive authority to prevent and
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.


REGULATORY CAPITAL REQUIREMENTS



Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank and thrift holding companies. The net
unrealized gain or loss on available-for-sale securities is generally not
included in computing regulatory capital. To avoid limitations on capital
distributions, including dividend payments, Middlefield Bank and the Company
must each hold a capital conservation buffer above the adequately capitalized
risk-based capital ratios. Within the tabular presentation that follows is the
adequately capitalized ratio plus a 2.50% capital conservation buffer.



                                       46
--------------------------------------------------------------------------------




Middlefield Bank and the Company met each of the well-capitalized ratio
guidelines on September 30, 2021. The following table indicates the capital
ratios for Middlefield Bank and the Company on September 30, 2021, and December
31, 2020.



                                                           As of September 30, 2021
                                                       Tier 1 Risk          Common           Total Risk
                                       Leverage           Based          Equity Tier 1         Based
The Middlefield Banking Company              9.69 %           12.31 %             12.31 %          13.56 %
Middlefield Banc Corp.                       9.94 %           12.63 %             11.87 %          13.88 %
Adequately capitalized ratio                 4.00 %            6.00 %              4.50 %           8.00 %
Adequately capitalized ratio plus
fully phased-in capital
conservation buffer                          4.00 %            8.50 %              7.00 %          10.50 %
Well-capitalized ratio (Bank only)           5.00 %            8.00 %              6.50 %          10.00 %




                                                           As of December 31, 2020
                                                       Tier 1 Risk          Common           Total Risk
                                       Leverage           Based          Equity Tier 1         Based
The Middlefield Banking Company              9.45 %           11.47 %             11.47 %          12.68 %
Middlefield Banc Corp.                      10.22 %           11.68 %             10.96 %          12.88 %
Adequately capitalized ratio                 4.00 %            6.00 %              4.50 %           8.00 %
Adequately capitalized ratio plus
fully phased-in capital
conservation buffer                          4.00 %            8.50 %              7.00 %          10.50 %
Well-capitalized ratio (Bank only)           5.00 %            8.00 %       

6.50% 10.00%

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