Middlefield Banc (MBCN) 10-Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20552

FORM 10 - Q

þ QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

Commission File Number 33-23094

Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

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

15985 East High Street, Middlefield, Ohio 44062-9263
(Address of principal executive offices)

(440) 632-1666
(Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                              YESþ NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Act)

                              YESo NOþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                              YESo NOþ

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicle date:

Class: Common Stock, without par value
Outstanding at November 10, 2005: 1,367,503

MIDDLEFIELD BANC CORP.

INDEX

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 Exhibit 31 302 Certification-CEO

 Exhibit 31.1 302 Certification - CFO

 Exhibit 32 906 Certifications - CEO and CFO

 Exhibit 99.2 Report of Independent Reg. Public Acct. Firm

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET
(Unaudited)

	September 30,			December 31,
	2005			2004
ASSETS
Cash and due from banks	$	6,108,540		$	5,926,282
Investment securities available for sale		59,953,883			57,240,965
Investment securities held to maturity (estimated market value of $238,965 and $243,810)		221,441			221,412
Loans		225,849,676			215,653,283
Less allowance for loan losses		2,736,459			2,623,431
Net loans		223,113,217			213,029,852
Premises and equipment		6,590,323			6,617,594
Bank-owned life insurance		5,579,999			5,424,304
Accrued interest and other assets		3,754,241			2,753,577
TOTAL ASSETS	$	305,321,644		$	291,213,986
LIABILITIES
Deposits:
Noninterest-bearing demand	$	38,673,001		$	36,331,809
Interest-bearing demand		8,834,416			8,817,873
Money market		14,338,961			15,666,730
Savings		66,244,617			75,280,343
Time		120,075,692			103,788,696
Total deposits		248,166,687			239,885,451
Short-term borrowings		2,196,742			1,871,763
Other borrowings		27,242,436			23,683,324
Accrued interest and other liabilities		1,029,983			951,424
TOTAL LIABILITIES		278,635,848			266,391,962
STOCKHOLDERS’ EQUITY
Common stock, no par value; 10,000,000 shares authorized, 1,366,246 and 1,355,488 shares issued		13,235,160			12,815,927
Retained earnings		16,754,124			15,004,552
Accumulated other comprehensive loss		(333,716	)		(28,683	)
Treasury stock, at cost 89,333 shares		(2,969,772	)		(2,969,772	)
TOTAL STOCKHOLDERS’ EQUITY		26,685,796			24,822,024
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	305,321,644		$	291,213,986

See accompanying unaudited notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
INTEREST INCOME
Interest and fees on loans	$	3,846,492	$	3,432,153	$	11,065,258	$	10,115,762
Interest-bearing deposits in other institutions		6,521		1,538		10,461		3,539
Federal funds sold		7,401		10,884		31,057		28,046
Investment securities:
Taxable interest		321,517		354,392		1,041,027		1,050,915
Tax-exempt interest		226,283		166,645		621,423		429,556
Dividends on FHLB stock		19,178		12,964		48,761		38,883
Total interest income		4,427,392		3,978,576		12,817,987		11,666,701
INTEREST EXPENSE
Deposits		1,377,349		1,246,617		4,041,713		3,642,941
Short-term borrowings		25,911		304		60,140		1,143
Other borrowings		260,162		209,550		738,223		607,419
Total interest expense		1,663,422		1,456,471		4,840,076		4,251,503
NET INTEREST INCOME		2,763,970		2,522,105		7,977,911		7,415,198
Provision for loan losses		75,000		51,000		195,000		111,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,688,970		2,471,105		7,782,911		7,304,198
NONINTEREST INCOME
Service charges on deposit accounts		425,966		371,495		1,167,988		1,034,095
Earnings on bank-owned life insurance		52,705		53,114		155,684		167,970
Other income		80,604		59,635		243,222		164,787
Total noninterest income		559,275		484,244		1,566,894		1,366,852
NONINTEREST EXPENSE
Salaries and employee benefits		933,808		941,353		2,758,504		2,652,971
Occupancy expense		115,631		114,691		374,994		378,011
Equipment expense		112,019		94,948		327,133		288,208
Data processing costs		145,777		125,077		443,775		339,038
Ohio state franchise tax		90,000		82,500		270,000		247,500
Other expense		484,769		444,989		1,567,114		1,361,755
Total noninterest expense		1,882,004		1,803,558		5,741,520		5,267,483
Income before income taxes		1,366,241		1,151,791		3,608,285		3,403,567
Income taxes		390,000		330,000		1,001,000		988,000
NET INCOME	$	976,241	$	821,791	$	2,607,285	$	2,415,567
EARNINGS PER SHARE
Basic	$	0.77	$	0.63	$	2.05	$	1.87
Diluted		0.75		0.63		2.02		1.86
DIVIDENDS DECLARED PER SHARE		0.24		0.21		0.68		0.61

See accompanying unaudited notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

						Accumulated
						Other						Total
	Common		Retained			Comprehensive			Treasury			Stockholders’			Comprehensive
	Stock		Earnings			Loss			Stock			Equity			Income
Balance, December 31, 2004	$	12,815,927	$	15,004,552		$	(28,683	)	$	(2,969,772	)	$	24,822,024
Net income				2,607,285									2,607,285		$	2,607,285
Other comprehensive loss:
Unrealized loss on available for sale securities net of taxes of $157,138							(305,033	)					(305,033	)		(305,033	)
Comprehensive income															$	2,302,252
Common stock issued		212,848											212,848
Dividend reinvestment plan		206,385											206,385
Cash dividends ($0.675 per share)				(857,713	)								(857,713	)
Balance, September 30, 2005	$	13,235,160	$	16,754,124		$	(333,716	)	$	(2,969,772	)	$	26,685,796

See accompanying unaudited notes to the consolidated financial statements.

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,			September 30,
	2005			2004
OPERATING ACTIVITIES
Net income	$	2,607,285		$	2,415,567
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		195,000			111,000
Depreciation and amortization		334,769			311,026
Amortization of premium and discount on investment securities		213,550			187,430
Amortization of net deferred loan fees		(100,379	)		(105,386	)
Earnings on bank-owned life insurance		(155,684	)		(167,970	)
Increase in accrued interest receivable		(338,076	)		(331,811	)
Increase (decrease) in accrued interest payable		82,135			97,307
Deferred Taxes, net		(157,108	)		(83,108	)
Other, net		(305,729	)		133,293
Net cash provided by operating activities		2,375,763			2,567,348
INVESTING ACTIVITIES
Increase in interest-bearing deposits in other institutions, net		90,183			(73,428	)
Investment securities available for sale:
Proceeds from repayments and maturities		6,925,090			9,416,139
Purchases		(10,313,758	)		(15,274,302	)
Investment securities held to maturity:
Proceeds from repayments and maturities		—			1,299,000
Increase in loans, net		(10,177,986	)		(16,277,471	)
Purchase of Federal Home Loan Bank stock		(46,200	)		(39,100	)
Purchase of premises and equipment		(307,498	)		(171,139	)
Net cash used for investing activities		(13,830,169	)		(21,120,301	)
FINANCING ACTIVITIES
Net increase in deposits		8,281,236			18,899,181
Decrease in short-term borrowings, net		324,979			(341,938	)
Repayment of other borrowings		(9,440,888	)		(4,707,907	)
Proceeds from other borrowings		13,000,000			11,000,000
Common stock issued		212,848			191,539
Proceeds from dividend reinvestment plan		206,385			156,266
Cash dividends		(857,713	)		(785,767	)
Net cash provided by financing activities		11,726,847			24,411,374
Increase in cash and cash equivalents		272,441			5,858,421
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,311,776			4,886,453
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,584,217		$	10,744,874
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	4,922,211		$	4,348,810
Income taxes		1,075,000			930,000

See accompanying notes to unaudited consolidated financial statements.

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

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

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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, 2004, 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 U. S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with Middlefield’s Form 10-K (File No. 33-23094). 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 — STOCK-BASED COMPENSATION

The Company maintains a stock option plan for key officers, employees, and non-employee directors. Had compensation expense for the stock option plans been recognized in accordance with the fair value accounting provisions of FAS No. 123,Accounting for Stock-Based Compensation, net income applicable to common stock, basic, and diluted net income per common share would have been as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Net income, as reported:	$	976,241	$	821,791	$	2,607,285	$	2,415,567
Less proforma expense related to stock options		10,891		28,519		35,099		57,038
Proforma net income	$	965,350	$	793,272	$	2,572,186	$	2,358,529
Basic net income per common share:
As reported	$	0.77	$	0.63	$	2.05	$	1.87
Pro forma		0.76		0.61		2.02		1.82
Diluted net income per common share:
As reported	$	0.75	$	0.63	$	2.02	$	1.86
Pro forma		0.75		0.61		1.99		1.81

NOTE 3 — 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.

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Weighted average common shares outstanding		1,364,098			1,351,724			1,360,510			1,347,781
Average treasury stock shares		(89,333	)		(55,309	)		(89,333	)		(55,309	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share		1,274,765			1,296,415			1,271,177			1,292,472
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		20,642			8,180			19,468			7,668
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		1,295,407			1,304,594			1,290,645			1,300,140

Supplemental Retirement Plan

Effective December 1, 2001, the Bank adopted a Directors Retirement Plan to provide post-retirement payments over a ten-year period to members of the Board of Directors who have completed five or more years of service. The Plan requires payment of 25 percent of the final average annual board fees paid to a director in the three years preceding the director’s retirement.

The following table illustrates the components of the net periodic pension cost for the Directors retirement plans as of September 30, 2005:

	Directors’ Retirement Plan				Directors’ Retirement Plan
	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	Sept. 30, 2005		Sept. 30, 2004		Sept. 30, 2005		Sept. 30, 2004
Components of net periodic pension cost
Service cost	$	3,189	$	6,421	$	9,567	$	19,263
Interest cost	$	2,488	$	2,095	$	7,464	$	6,285
Net periodic pension cost	$	5,677	$	8,516	$	17,031	$	25,548

NOTE 4 — COMPREHENSIVE INCOME

The components of comprehensive income consist exclusively of unrealized gains and losses on available for sale securities. For the Nine months ended September 30, 2005, this activity is shown under the heading Comprehensive Income as presented in the Consolidated Statement of Changes in Stockholders’ Equity (Unaudited). For the Nine months ended September 30, 2004, comprehensive income totaled $2,302,252.

NOTE 5 — COMMITMENTS

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

	September 30,		December 31,
	2005		2004
Commitments to extend credit	$	40,632,654	$	33,925,423
Standby letters of credit		150,000		222,675
Total	$	40,782,654	$	34,148,098

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

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

The Company’s subsidiary bank offers limited overdraft protection as a non-contractual courtesy, which is available to individually/jointly owned accounts in good standing for personal or household use. The Company reserves the right to discontinue this service without prior notice. The available amount of overdraft protection on depositors’ accounts at June 30, 2005 totaled $2,958,000. The total balance of courtesy overdrafts used as of September 30, 2005 was $9,941 or less than 1% of the total aggregate overdraft protection available to depositors.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The MD&A should be read in conjunction with the notes and financial statements presented in this report.

CHANGES IN FINANCIAL CONDITION

General.The Company’s assets increased by $14.1 million or 4.8% from December 31, 2004 to September 30, 2005 to a balance of $305.3 million. Loans receivable, investment securities and accrued interest and other assets, increased $10.2 million, $2.7 million and $1.0 million respectively. The increase in total assets reflects a corresponding increase in total liabilities of $12.2 million or 4.6% and an increase in stockholders’ equity of $1.9 million or 7.5%. The increase in total liabilities was primarily the result of growth in deposits of $8.2 million along with an increase in borrowings from the Federal Home Loan Bank of Cincinnati. The increase in common stock was the result of increases in additional paid in capital and retained earnings of $419,000 and $1.8 million, respectively, as well as an offset by the increase in comprehensive loss of $305,000.

Cash on hand and due from banks.Cash on hand and due from banks represent cash equivalents. Cash equivalents increased a combined

$182,000 or 3.1% to $6.2 million at September 30, 2005 from $5.9 million at December 31, 2004. Deposits from customers into savings and checking accounts, loan and security repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases and repayments of borrowed funds. The increase for the first Nine months can principally be attributed to increases in deposits.

Securities.The Company’s securities portfolio increased by $2.7 million or 4.7% to $60.2 million at September 30, 2005 from $57.4 million at December 31, 2004. During the first three quarters ended September 30, 2005 the Company recorded purchases of available for sale securities of $10.3 million, consisting of purchases of government agencies and municipal bonds. Offsetting the purchases of securities were repayments and maturities of securities of $6.9 million during the Nine months ended September 30, 2005. In addition, the securities portfolio decreased approximately $305,000 due to decreases in the market value. These fair value adjustments represent temporary fluctuations resulting from changes in market rates in relation to average yields in the available for sale portfolio. If securities are held to their respective maturity dates, no fair value gain or loss is realized.

Loans receivable.The loans receivable category consists primarily of single family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers businesses or to finance investor-owned rental properties, and to a lesser extent commercial and consumer loans. Loans receivable increased $10.2 million or 4.7% to $225.8 million at September 30, 2005 from $215.7 million at December 31, 2004. Included in this increase were increases in commercial loans of $9.4 million or 15.8% and home equity loans of $2.3 million or 11.1%, as well as decreases in mortgage loans of $2.0 million during the Nine months ended September 30, 2005. The Corporation’s lending philosophy is to focus on the commercial loan portfolio and to attempt to grow the portfolio. To attract and build the commercial loan portfolio, the Corporation has taken a proactive approach in contacting new and current clients to ensure that the Corporation is servicing its client’s needs. These lending relationships generally offer more attractive returns than residential loans and also offer opportunities for attracting larger balance deposit relationships. However, the shift in loan portfolio mix from residential real estate to commercial oriented loans may increase credit risk.

Non-performing loans.Non-performing loans included non-accrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans, and repossessed assets. A loan is classified as non-accrual when, in the opinion of management, there are serious doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deterioration of the borrower. Non-performing loans amounted to $1.6 million or 0.70% and $1.5 million or 0.68% of total loans at September 30, 2005 and December 31, 2004, respectively. The increase for the year was due in part to a loan secured by commercial real estate with minimal loss anticipated.

Deposits.The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds totaling $248.2 million or 89.4% of the Company’s total funding sources at September 30, 2005. Total deposits increased $8.3 million or 3.5% to $248.2 million at September 30, 2005 from $239.9 million at December 31, 2004. The increase in deposits is primarily related to the growth of certificates of deposits that totaled $120.1 million at September 30, 2005 an increase of $16.3 million or 15.7% for the year. Demand deposit accounts increased $2.4 million or 5.2, while money market and saving deposits decreased $1.3 million, or 8.5%, and $9.0 million, or 12.0%, respectively, during the Nine months ended September 30, 2005.

Borrowed funds.The Company utilizes short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances and repurchase agreements. Borrowed funds increased $3.9 million or 15.2% to $29.4 million at September 30, 2005 from $25.6 million at December 31, 2004. FHLB advances increased $3.6 million or 15% while short-term borrowings increased $325,000 or 17.4%. The increase in FHLB advances was a result of the funding needs to support the growth of the loan and investment portfolio during the first nine months of the year.

Stockholders’ equity.Stockholders’ equity increased $1.9 million or 7.5% to $26.7 million at September 30, 2005 from $24.8 million at December 31, 2004. The increase in stockholders’ equity was the result of increases in additional common stock and retained earnings of $419,000 and $1.8 million, respectively, as well as, a offset by an increase in accumulated other comprehensive loss of $305,000. The change in other comprehensive loss was the result of an increase in the mark to market of the Company’s securities available for sale portfolio.

RESULTS OF OPERATIONS

General.The Company recorded net income of $976,000 and $2,607,000 for the three and Nine months ended September 30, 2005, respectively, as compared to net income of $822,000 and $2,416,000, respectively, for the same periods in the prior year. The $154,000, or 18.8% increase in net income for the quarter ended September 30, 2005, as compared to the same period in the prior year was primarily attributable to an increase in net interest income after provision for loan losses of $218,000 and a increase in non-interest income of $75,000, partially offset by a increase in non-interest expense of $78,000 and an increase in provision for income taxes of $60,000.

Net interest income.Net interest income, the primary source of revenue for the Company, is determined by the Company’s 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 in order 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. Historically from an interest rate risk perspective, it has been management’s perception that differing interest rate environments can cause sensitivity to the Company’s net interest income, these being extended low long-term interest rates or rapidly rising short-term interest rates. Net interest income increased $242,000 or 9.6% to $2.8 million for the three months ended September 30, 2005, compared to $2.5 million for the same period in the prior year. This increase in net interest income can be attributed to an increase in interest income of $449,000, partially offset by an increase in interest expense of $207,000. Net interest income increased $563,000, or 7.6%, for the Nine months ended September 30, 2005 compared to the same period in the prior year. This increase in net interest income can be attributed to an increase in interest income of $1.2 million partially offset by an increase in interest expense of $589,000. Even though the Company showed an increase in net interest income, a slight decline in net interest margin was experienced for the nine months. This was a result in an increase in the cost of interest-bearing liabilities of 14 basis points to 2.74% for the nine months ended September 30, 2005 compared to 2.60% for the same period in the prior year. This increase in the cost of funds was partially offset by an increase in the yield on interest earning assets of 8 basis points to 6.19% for the year ended September 30, 2005 compared to 6.11% for the same period in the prior year. For the quarter the company experienced an improved net interest margin. This was a result in an increase in the yield on interest earning assets of 32 basis points to 6.34% for the three months ended September 30, 2005 compared to 6.02 for the same period in the prior year. This increase in the yield on interest earning assets was partially offset by an increase in the cost of funds of 20 basis points to 2.80% for the quarter ended September 30, 2005 compared to 2.60% for the same period in the prior year.

Interest income.Interest income increased $449,000, or 11.3%, for the three months ended September 30, 2005, compared to the same period in the prior year. This increase can be attributed to increases in interest earned on loans receivable and securities available for sale of $414,000 and $21,000, respectively.

Interest earned on loans receivable increased $414,000, or 12.1%, for the three months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the average balance of loans outstanding of $17.4 million, or 8.4%, to $224.3 million for the three months ended September 30, 2005 compared to $206.9 million for the same period in the prior year. The improvement in loan interest income was also attributed to a 23 basis point the rise in the yield on the loans to 6.86% for the three months ended September 30, 2005 from 6.63% for the same period in the prior year.

Interest earned on securities increased $27,000 for the three months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily the result of an improvement in the average balance of the securities portfolio of $3.3 million to $60.1 million at September 30, 2005 from $56.9 million for the same period in the prior year. The improvement can also be credited to the increase in the tax equivalent yield on securities to 4.42% for the three months ended September 30, 2005 from 4.17% for the same period in the prior year.

Interest income increased $1.2 million, or 9.9%, for the Nine months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the average balance of loans outstanding of $19.4 million to $220.8 million for the Nine months ended September 30, 2005 compared to $201.5 million for the same period in the prior year. Interest income was also improved by an increase in the yield on the earning assets to 6.19% for the Nine months ended September 30, 2005 from 6.11% for the same period in the prior year.

Interest earned on securities increased $182,000, or 12.6%, for the Nine months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the average balance of investment securities of $5.8 million, or 10.9%, to $59.3 million for the Nine months ended September 30, 2005 compared to $53.5 million for the same period in the prior year. The improvement can also be attributed the an increase in the tax equivalent yield on securities to 4.46% for the Nine months ended September 30, 2005 from 4.34% for the same period in the prior year.

Interest expense.Interest expense increased $207,000, or 14.24%, for the three months ended September 30, 2005, compared to the same period in the prior year. This increase in interest expense can be attributed to increases in interest incurred on deposits, short-term borrowing and other borrowing $131,000, $26,000 and $51,000, respectively.

Interest incurred on deposits, the largest component of the Company’s interest-bearing liabilities, increased $131,000, or 10.4%, for the three months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the cost of interest-bearing deposits to 2.63% from 2.45% for the quarters ended September 30, 2005 and 2004, respectively. Additionally the average balance of interest-bearing deposits increased by $6.1 million, or 3.0%, to $209.5 million for the three months ended September 30, 2005, compared to $203.3 million for the same period in the prior year. The Company diligently monitors the interest rates on its products as well as the rates being offered by its competition and utilizing rate surveys to keep its total interest expense costs down.

Interest incurred on borrowed funds, increased $76,000, or 36.3%, for the three months ended September 30, 2005, compared the same period in the prior year. This increase was primarily attributable to an increase in the average balance to $27.9 million from $20.5 million for the quarters ended September 30, 2005 and 2004, respectively. Adding to the increase in the cost of funds was the rise in the cost of borrowed funds to 4.12% from 4.09% for the quarters ended September 30, 2005 and 2004, respectively. This increase is reflected in the quarterly rate volume report presented below which depicts that the increase to the costs associated with the interest-bearing liabilities.

Interest expense increased $589,000, or 13.8%, for the Nine months ended September 30, 2005, compared to the same period in the prior year. This increase in interest expense can be attributed to increases in interest incurred on deposits, short-term borrowing and other borrowing of $399,000, $59,000 and $131,000, respectively.

Interest incurred on deposits, the largest component of the Company’s interest-bearing liabilities, increased $399,000, or 11.0%, for the Nine months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the cost of interest-bearing deposits to 2.57% for the Nine months ended September 30, 2005 compared to 2.45% for the same period in the prior year. In addition to the increase in the cost of interest-bearing deposits was an increase in the average balance of interest-bearing deposits of $11.5 million, or 5.8%, to $209.8 million for the Nine months ended September 30, 2005, compared to $198.3 million for the same period in the prior year.

Interest incurred on borrowed funds increased $190,000, or 31.2%, for the Nine months ended September 30, 2005, compared to the same period in the prior year. This increase was primarily attributable to an increase in the average balance of borrowed funds of $6.2 million, or 32.0%, to $25.7 million for the Nine months ended September 30, 2005, compared to $19.5 million for the Nine months ended September 30, 2004. Partially offsetting the increase in the cost of these funds was a decrease in the cost of these funds to 4.14% for the Nine months ended September 30, 2005, compared to 4.16% for the same period in the prior year.

Provision for loan losses.The provision for loan losses for the quarter ended September 30, 2005 is the result of normal operations for the quarter and YTD. In determining the appropriate level of allowance for loan losses, management considers historical loss experience, the financial condition of borrowers, economic conditions (particularly as they relate to markets where the Company originates loans), the status of non-performing assets, the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio. The Company’s total allowance for losses on loans at September 30, 2005 and December 31, 2004 amounted to $2.7 million or 1.21% and $2.6 million or 1.22%, respectively, of the Company’s total loan portfolio. The Company’s allowance for losses on loans as a percentage of non-performing loans was 174.3% and 213.9% at September 30, 2005 and December 31, 2004, respectively.

Non-interest income.Non-interest income increased $75,000 or 15.5% to $559,000 for the three months ended September 30, 2005, compared to $485,000 for the same period in the prior year. This increase can be attributed primarily to increases in fees and service charges, and other income of $54,000 and $21,000, respectively.

Fees and service charges increased $54,000 or 14.7% to $426,000 for the three months ended September 30, 2005, compared to $371,000 for the same period in the prior year. Other income increased $21,000 or 35.2% to $81,000 for the three months ended September 30, 2005, compared to $60,000 for the same period in the prior year. Revenue from investment services represented the majority of this quarterly growth.

Non-interest income increased $200,000 or 14.6% to $1.6 million for the Nine months ended September 30, 2005, compared to $1.4 million for the same period in the prior year. This increase can be attributed primarily to increases in fees and service charges and other income of $134,000 and $78,000, respectively. Partially offsetting these increases was a decrease to earnings on bank-owned life insurance (BOLI) of $12,000.

Fees and service charges increased $134,000 or 12.9% to $1.2 million for the Nine months ended September 30, 2005, compared to $1.0 million for the same period in the prior year. The increase to fees generated from checking accounts is a result of the Company introducing a new overdraft service in the second quarter of 2004.

Non-interest expense.Non-interest expense increased $78,000 or 4.4% to $1.9 million for the three months ended September 30, 2005, from $1.8 million for the same period in the prior year. This increase was the result of increases in other expense, data processing cost and equipment expense of $40,000, $21,000 and $17,000, respectively. The change in data processing cost was due to the added expense of new accounts and products for the period. The change in other cost was in part due to the expense of an internal switch to new documents needed for our check and document imaging equipment purchase in the 4^th quarter of 2004.

Non-interest expense increased $474,000 or 9.0% to $5.7 million for the Nine months ended September 30, 2005, from $5.3 million for the same period in the prior year. This increase was the result of increases in other expense, salaries and employee benefits and data processing costs of $205,000, $106,000 and $105,000, respectively. The change in other cost was in part due to the expense of an internal switch to new documents needed for our check and document imaging equipment purchase in the 4^th quarter of 2004. The increase to compensation and

employee benefits is primarily related to increases in health care costs and retirement plans as well as normal salary increases between the periods. The change in data processing cost was due to the added expense of new accounts and products for the period.

Provision for income taxes.Income tax expense totaled $1.0 million for the first nine months of 2005 and $988,000 for the first nine months of 2004, an increase of $13 thousand or 1.3%. The effective tax rate for the first nine months of 2005 was 27.7% compared to 29% for the same time in 2004. Income tax expense totaled $390 thousand for the quarter ended September 30, 2005 and $330 thousand for the quarter ended September 30, 2004, an increase of 18.2%. This decrease in the effective tax rate for the first nine months is a result of the Corporation’s increased purchases of tax-exempt municipal securities.

CRITICAL ACCOUNTING ESTIMATES

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2005, have remained unchanged from December 31, 2004.

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 non-accrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully tax equivalent basis utilizing a federal tax rate of 34%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

	For the Three Months Ended September 30,
	2005							2004
					(3)							(3)
	Average				Average			Average				Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
	(Dollars in thousands)							(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	224,274	$	3,846		6.86	%	$	206,931	$	3,432		6.63	%
Investments securities		60,128		548		4.42	%		56,862	$	521		4.17	%
Interest-bearing deposits with other banks		2,267		33		5.82	%		5,326	$	25		1.88	%
Total interest-earning assets		286,669		4,427		6.34	%		269,119		3,978		6.02	%
Noninterest-earning assets		16,976							15,728
Total assets	$	303,645						$	284,847
Interest-bearing liabilities:
Interest — bearing demand deposits	$	9,548		20		0.84	%	$	8,932		14		0.63	%
Money market deposits		14,680		70		1.91	%		14,433		66		1.83	%
Savings deposits		67,815		246		1.45	%		76,485		274		1.43	%
Certificates of deposit		117,442		1,040		3.54	%		103,497		892		3.45	%
Borrowings		27,862		287		4.12	%		20,519		210		4.09	%
Total interest-bearing liabilities		237,347	$	1,663		2.80	%		223,866	$	1,456		2.60	%
Noninterest-bearing liabilities
Other liabilities		39,839							36,068
Stockholders’ equity		26,459							24,913
Total liabilities and stockholders’ equity	$	303,645						$	284,847
Net interest income			$	2,764						$	2,522
Interest rate spread (2)						3.54	%						3.42	%

	For the Three Months Ended September 30,
	2005					2004
			(3)					(3)
	Average		Average			Average		Average
	Balance	Interest	Yield/Cost			Balance	Interest	Yield/Cost
	(Dollars in thousands)					(Dollars in thousands)
Net yield on interest-earning assets (3)				4.02	%				3.85	%
Ratio of average interest-earning assets to average interest-bearing liabilities				120.78	%				120.21	%

(1)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(2)	Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

(3) Average yields are computed using annualized interest income and expense for the periods.

	For the Nine Months Ended September 30,
	2005							2004
					(3)							(3)
	Average				Average			Average				Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
	(Dollars in thousands)							(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	220,824	$	11,065		6.68	%	$	201,473	$	10,116		6.69	%
Investments securities		59,293		1,663		4.46	%		53,460		1,519		4.34	%
Interest-bearing deposits with other banks		2,955		90		4.06	%		5,429		67		1.65	%
Total interest-earning assets		283,072		12,818		6.19	%		260,362		11,702		6.11	%
Noninterest-earning assets		16,871							16,092
Total assets	$	299,943						$	276,454
Interest-bearing liabilities:
Interest — bearing demand deposits	$	9,370		54		0.77	%	$	8,658		40		0.62	%
Money market deposits		15,508		217		1.87	%		14,874		203		1.82	%
Savings deposits		71,170		779		1.46	%		72,248		752		1.39	%
Certificates of deposit		113,745		2,991		3.51	%		102,482		2,648		3.45	%
Borrowings		25,708		799		4.14	%		19,489		608		4.16	%
Total interest-bearing liabilities		235,501		4,840		2.74	%		217,751		4,251		2.60	%
Noninterest-bearing liabilities
Other liabilities		39,261							34,285
Stockholders’ equity		25,181							24,418
Total liabilities and stockholders’ equity	$	299,943						$	276,454
Net interest income			$	7,978						$	7,451
Interest rate spread (1)						3.45	%						3.50	%
Net yield on interest-earning assets (2)						3.91	%						3.93	%
Ratio of average interest-earning assets to average interest-bearing liabilities						120.20	%						119.57	%

(1)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(2)	Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.
(3)	Average yields are computed using annualized interest income and expense for the periods.

Analysis of Changes in Net Interest Income.The following tables analyzes the changes in interest income and interest expense, between the three and Nine month periods ended September 30, 2005 and 2004, in terms of: (1) changes in 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 change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax equivalent basis.

		Three Months ended,
		September 30,
		2005 versus 2004
		Increase (decrease) due to
		Volume				Rate				Total
		(Dollars in thousands)
Interest-earning assets:
Loans receivable		$	288			$	126			$	414
Investments securities		$	34		(	$	7	)		$	27
Interest-bearing deposits with other banks	(	$	14	)		$	22			$	8
Total interest-earning assets			307				142				449
Interest-bearing liabilities:
Interest — bearing demand deposits		$	1			$	5			$	6
Money market deposits		$	1			$	3			$	4
Savings deposits	(	$	31	)		$	3		(	$	28	)
Certificates of deposit		$	120			$	28			$	148
Borrowings		$	75			$	2			$	77
Total interest-bearing liabilities			166				41				207
Net interest income		$	141			$	101			$	242

		Nine Months ended,
		September 30,
		2005 versus 2004
		Increase (decrease) due to
		Volume				Rate			Total
		(Dollars in thousands)
Interest-earning assets:
Loans receivable		$	972		(	$	23	)	$	949
Investments securities		$	190		(	$	46	)	$	144
Interest-bearing deposits with other banks	(	$	31	)		$	54		$	23
Total interest-earning assets			1,131				(15	)		1,116
Interest-bearing liabilities:
Interest — bearing demand deposits		$	3			$	11		$	14
Money market deposits		$	9			$	5		$	14
Savings deposits	(	$	11	)		$	38		$	27
Certificates of deposit		$	291			$	52		$	343
Borrowings		$	194		(	$	3	)	$	191
Total interest-bearing liabilities			486				103			589
Net interest income		$	645		(	$	118	)	$	527

LIQUIDITY

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

For the Nine months ended September 30, 2005, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the provision for loan losses, net amortization of securities and net changes in other assets and liabilities. Cash and cash equivalents increased as a result of the purchasing of government agency securities. 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 in nature. The consolidated financial statements and related financial data are presented in accordance with U.S. GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of 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 effect 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 one-bank holding company. The affiliate bank is subject to regulations of the Federal Deposit Insurance Corporation (FDIC) and the State of Ohio, Division of Financial Institutions.

REGULATORY CAPITAL REQUIREMENTS

The Company is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Banks’ operations.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion and plans for capital restoration are required.

The minimum requirements are:

	Total			Tier 1			Total
	Capital to			Capital to			Capital to
	Risk-Weighted			Risk-Weighted			Average
	Assets			Assets			Assets
Well capitalized		10.00	%		6.00	%		5.00	%
Adequately capitalized		8.00	%		4.00	%		4.00	%
Undercapitalized		6.00	%		3.00	%		3.00	%

The following table illustrates the Company’s risk-weighted capital Ratios:

	September
(in thousands)	2005
Tier 1 capital	$	26,483
Total risk-based capital	$	29,058
Risk weighted assets	$	205,399
Average total assets	$	302,702
Tier 1 capital to average assets		8.75	%
Tier 1 risk-based capital ratio		12.89	%
Total risk-based capital ratio		14.15	%

Item 3 Quantitative and Qualitative Disclosures about Market Risk

ASSET AND LIABILITY MANAGEMENT

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

The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of four outside directors, the President and Chief Executive Officer, Executive/Vice President/ Chief Operating Officer, Senior Vice President/Chief Financial Officer and Senior Vice President/Commercial Lending. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies, which were implemented by the Company over the past few years. These strategies have included: (i) an emphasis on the investment in adjustable-rate and shorter duration mortgage-backed securities; (ii) an emphasis on the origination of single-family residential adjustable-rate mortgages (ARMs), residential construction loans and commercial real estate loans, which generally have adjustable or floating interest rates and/or shorter maturities than traditional single-family residential loans, and consumer loans, which generally have shorter terms and higher interest rates than mortgage loans; (iii) increase the duration of the liability base of the Company by extending the maturities of savings deposits, borrowed funds and repurchase agreements.

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

Earnings at risk: short-term IRR

By most definitions, accounting or otherwise, when we communicate something as short-term, we usually refer to a time frame of one year or less. When measuring IRR from an earnings perspective, this same concept applies. Short-term interest rate risk is measured by initially establishing a one year earnings forecast. Since IRR is a measure of possible loss caused by interest rate changes, we model two instantaneous, parallel “shocks” to the base set of rates and then we re-compute the expected earnings. Common practice is to use +/-200bp movements. The earnings at risk is the largest negative change between the base forecast and one of the “shock” scenarios. The measure is usually stated as a percentage change from the base income.

Economic Value of Equity (EVE) at risk

As a means for evaluating long-term IRR, an economic perspective is necessary. This approach focuses on the value of the bank in today’s interest rate environment and that value’s sensitivity to changes in interest rates. This concept is known as Economic Value of Equity (or EVE)

at Risk. It requires a complete present value balance sheet to be constructed. This is done by scheduling the cash flows of all assets and liabilities and applying a set of discount rates to develop the present values. The economic value of equity (EVE) is the difference between the present value of assets and liabilities. (Equity = Assets - Liabilities). Similar to earnings at risk, two interest rate shocks are applied to the base set of rates and all present values are re-computed. EVE at risk is the largest negative change in value between the base and one of the shock scenarios. This is usually stated as a percentage change from the base EVE.

The following table presents the simulated impact of a 200 basis point upward and a 200 basis point downward shift of market interest rates on net interest income and the change in portfolio equity. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at September 30, 2005 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the September 30, 2005 levels for net interest income. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at September 30, 2005 for portfolio equity:

	Increase			Decrease
	+200			-200
	BP			BP
Net interest income — increase (decrease)		7.65	%		(9.24	)%
Portfolio equity — increase (decrease)		(0.38	)%		(2.25	)%

ITEM 4.

Controls and Procedures Disclosure

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(e) and 15d-14(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Corporation’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Corporation’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults by the Company on its senior securities

None

Item 4. Submission of matters to a vote of security holders

None

Item 5. Other information

None

Item 6. Exhibits

(a) The following exhibits are included in this Report or incorporated herein by reference:

3.1	Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp. *
3.2	Regulations of Middlefield Banc Corp. *
4	Specimen 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	Severance Agreement of Vice President *
10.7	Director Retirement Agreement with Richard T. Coyne *
10.8	Director Retirement Agreement with Francis H. Frank *
10.9	Director Retirement Agreement with Thomas C. Halstead *
10.10	Director Retirement Agreement with George F. Hasman *
10.11	Director Retirement Agreement with Donald D. Hunter *
10.12	Director Retirement Agreement with Martin S. Paul *
10.13	Director Retirement Agreement with Donald E. Villers *
10.14	DBO Agreement with Donald L. Stacy **
10.15	DBO Agreement with Jay P. Giles **
10.16	DBO Agreement with Alfred S. Thompson, Jr. **
10.17	DBO Agreement with Nancy C. Snow **
10.18	DBO Agreement with Teresa M. Hetrick **
10.19	DBO Agreement with Jack L. Lester **
10.20	DBO Agreement with James R. Heslop, II **

10.21	DBO Agreement with Thomas G. Caldwell **
31	Certification Pursuant to Section 302 of the Securities Exchange Act of 1934 — Thomas G. Caldwell
31.1	Certification Pursuant to Section 302 of the Securities Exchange Act of 1934 — Donald L. Stacy
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.
99.1	Form of Indemnification Agreement with directors of Middlefield Banc Corp. and executive officers of Middlefield Banc Corp. and The Middlefield Banking Company ***
99.2	Independent Accountants Report

*	Incorporated by reference to the identically numbered exhibit to the December 31, 2001 Form 10-K (File No. 033-23094) filed with the SEC on March 28, 2002.
**	Incorporated by reference to the identically numbered exhibit to the December 31, 2003 Form 10-K (File No. 000-32561) filed with the SEC on March 30, 2004.
***	Incorporated by reference to the identically numbered exhibit to Amendment No. 1 of the registration statement on Form 10 (File No. 033-23094) filed on September 14, 2001 .

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized.

	MIDDLEFIELD BANC CORP.
Date: November 10, 2005	By: /s/ Thomas G. CaldwellThomas G. Caldwell President and Chief Executive Officer
Date: November 10, 2005	By: /s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer