MBN announces first quarter results



    TORONTO, March 14 /CNW/ -

    MESSAGE TO SHAREHOLDERS

    Revenue for Middlefield Bancorp Limited ("MBN" or the "Company") for the
first quarter of 2008 increased to $2.3 million, up from $0.7 million in the
comparable quarter last year. Investment income increased primarily as a
result of gains realized on the Company's investment portfolio.
    In light of the recent volatility in the equity markets the Company
maintained its defensive posture by remaining largely in cash and short-term
investments.
    As of January 31, 2008, MBN's balance sheet remained strong with no debt
and net liquid assets of $3.90 per share. Consolidated financial results are
attached.

    
    FINANCIAL SUMMARY

    -------------------------------------------------------------------------
    For the periods ended January 31
    (all amounts in thousands, except
     per share amounts)                                   2008          2007
    -------------------------------------------------------------------------
    Revenue                                          $   2,322     $     723
    Net income                                             785           157
    Diluted earnings per share                            0.09          0.02
    -------------------------------------------------------------------------
    


    MANAGEMENT'S DISCUSSION AND ANALYSIS
    January 31, 2008 and 2007 (unaudited)

    The following Management's Discussion and Analysis ("MD&A") should be
read in conjunction with the attached unaudited interim consolidated financial
statements that have been prepared by management and approved by the board of
directors. These statements have not been reviewed by MBN's external auditors.
Readers should also refer to the MD&A in MBN's 2007 Annual Report. Additional
information relating to MBN, including MBN's annual information form, is
available on SEDAR at www.sedar.com.
    The reader should be aware that historical results are not necessarily
indicative of future performance. This MD&A contains forward-looking
statements, including statements regarding expected future events, financial
results, objectives and opportunities of MBN, government actions and industry
performance, which are subject to substantial risks and uncertainties.
Forward-looking statements include statements that are predictive in nature,
that depend upon or refer to future events, results, expectations and
performance, or that include words such as "expects", "anticipates",
"intends", "will" or negative versions thereof and other similar wording. MBN
cautions that actual events, results, expectations or performance will be
affected by a number of factors (many of which are beyond its control) and may
differ materially from those based upon the forward-looking statements in the
MD&A, including as a result of: general economic, political, market and
business factors and conditions; commodity price fluctuations; interest and
foreign exchange rate fluctuations; statutory and regulatory developments;
unexpected judicial or regulatory proceedings; and catastrophic events.
Readers are cautioned that the foregoing list of factors is not exhaustive and
to avoid placing undue reliance on forward-looking statements due to the
inherent uncertainty of such statements. Forward-looking statements are based
on the estimates and opinions of MBN's management at the time the statements
were made. MBN does not undertake, and specifically disclaims, any obligation
to update or revise any forward-looking statements.

    RESULTS OF OPERATIONS

    MBN generated revenue of $2.3 million during the first quarter of 2008,
representing an increase of $1.6 million over the prior year comparable
period. The increase in investment income was primarily as a result of gains
realized on both long and short positions. In light of the recent volatility
in the equity markets the Company maintained its defensive posture by
remaining largely in cash and short-term investments.
    Production expenses in the first quarter of 2008 were comparable to last
year and primarily reflect fixed expenses related to maintaining the Company's
remaining oil and gas properties. General and administrative expenses in the
first quarter of 2008 increased $0.2 million to $0.5 million relative to the
first quarter of 2007, primarily as a result of the Company's increased share
of expenses of the variable interest entities ("VIEs") in which it invested.
Transaction costs, such as brokerage commissions, amounted to $43,000 in the
first quarter of 2008 compared to $11,000 in the comparable quarter last year.
The increase stemmed from the increased trading activity during 2008 to-date.
    Depreciation, depletion and accretion expenses in the first quarter of
2008 amounted to $68,000 compared to $5,000 in the comparable quarter of 2007.
The increase relates to the cost of reclamation of the oil and gas properties
in which 2M Energy Corp. ("2M") has an interest. The operators of the
properties incur these costs and also provide estimates of expected future
costs. As a result of 2M having no economically producible oil and gas
reserves, the entire increase in costs is expensed in the current period along
with accretion expenses in respect of the Company's asset retirement
obligations.
    An income tax expense of $0.2 million was recorded in the 2008 first
quarter as a result of the investment gains generated by the Company. The
comparable quarter in 2007 reflects a nominal income tax recovery stemming
from a loss for tax purposes in that quarter. Due to the Company's
consolidation of VIEs, revenue and expenses increased by $0.6 million and
$0.2 million respectively, in the first quarter of 2008 and by $0.4 million
and $0.1 million respectively, in the first quarter of last year. These
adjustments were offset by the deduction of the non-controlling interest and
thus, there was no impact on the net income of the Company.
    MBN recorded net income of $0.8 million or $0.09 per diluted share in the
first quarter of 2008 compared to $0.2 million or $0.02 per share on a diluted
basis in the prior year comparable quarter.

    
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                       2008              2007                     2006
                         Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2
    -------------------------------------------------------------------------
    Total Revenue     2,322    421    476    810    723    900    180    996
    Net Income
     (Loss):
      - Total           785   (343)    (6)   215    157  3,214    (47)   456
      - Per Common
         Share
        - Basic        0.09  (0.04)     -   0.02   0.02   0.36  (0.01)  0.05
        - Diluted      0.09  (0.04)     -   0.02   0.02   0.35  (0.01)  0.05
    -------------------------------------------------------------------------
    

    CAPITAL RE

SOURCES, LIQUIDITY AND CAPITAL EXPENDITURES Cash used in operating activities, including changes in non-cash operating working capital, totaled $22.7 million in the 2008 first quarter compared to cash provided of $0.5 million in the comparable 2007 period. The use of cash in the 2008 first quarter stems primarily from depositing margin with brokers. Cash provided by investing activities amounted to $20.2 million in the first quarter of 2008 compared to $1.3 million in the comparable quarter in 2007. The Company sold some of its investments in the first quarter of 2008 thus adding to its cash reserves. FINANCIAL POSITION MBN's working capital position was $35.0 million at January 31, 2008, up slightly from $34.2 million at the 2007 year end primarily due to earnings generated in the first quarter of 2008. Short-term investments increased 37% to $29.5 million at January 31, 2008 and were comprised of investments in money-market mutual funds, none of which include asset-backed commercial paper. Marketable securities of $0.4 million at January 31, 2008 were down 82% from the 2007 year end as a result of a movement into short-term investments and some short positions. Deposits with brokers net of the liability associated with covering the positions amounted to $5.1 million at the end of the 2008 first quarter, down from $7.2 million at October 31, 2007. Income taxes payable of $0.1 million at January 31, 2008 relates to taxable income generated by the investment gains realized in the first quarter. At the 2007 year end, income taxes recoverable of $0.1 million related to a loss for tax purposes that will be carried back to offset taxes paid in a prior year. Short-term future income tax assets in the amount of $0.2 million at January 31, 2008 stem from unrealized losses on investments and the expected cash outflows related to asset retirement obligations ("ARO"), both of which will be available for tax purposes to shelter future income. Long-term future income tax assets relate to tax shelter from resource pools and longer-term cash outflows in respect of ARO. Total future income tax assets remained relatively unchanged from year end at $0.4 million. The January 31, 2008 payables amounted to $0.8 million compared to $0.2 million at October 31, 2007. The increase was due primarily to an investment in marketable securities for which settlement occurred after quarter end. The current portion of the ARO increased to $340,000 at January 31, 2008 from $274,000 at the 2007 year end due to an increase in the estimated current costs associated with the reclamation of the oil and gas properties. Changes in respect of all other assets and liabilities during the quarter ended January 31, 2008 were minimal. The total number of common shares outstanding at January 31, 2008 and March 14, 2008 was 9.2 million. CRITICAL ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES Critical accounting estimates have been disclosed in the MD&A of the Company in its October 31, 2007 Annual Report. Effective November 1, 2007 the Company adopted three new presentation and disclosure standards in respect of managing capital, financial instruments and risks associated with financial instruments. RISK MANAGEMENT The risks and risk management procedures of the Company have been disclosed in its MD&A in the October 31, 2007 Annual Report. These risks and risk management procedures remain unchanged at present. OUTLOOK With significant cash and no debt, MBN is in an excellent position to capitalize on investment opportunities. We will continue to concentrate on those areas in which we possess the greatest expertise, including the resource and financial services sectors. We believe the current U.S. economic slowdown will continue to have negative near term implications for various sectors of the equity market, thereby creating attractive long and short investment opportunities for the Company. MBN remains committed to investing our capital with a view to maximizing shareholder value. Middlefield Bancorp trades on the TSX under the symbol "MBN". March 14, 2008 MIDDLEFIELD BANCORP LIMITED CONSOLIDATED BALANCE SHEETS (UNAUDITED) January 31, October 31, (All amounts in thousands) 2008 2007 ------------------------------------------------------------------------- ASSETS Current assets Cash $ 936 $ 3,451 Short-term investments(note 2) 29,498 21,549 Marketable securities(note 2) 364 2,062 Deposit with brokers(note 2) 41,026 18,142 Receivables - 90 Prepaid expenses 35 51 Income taxes recoverable - 90 Future income tax assets 247 186 ------------------------------------------------------------------------- 72,106 45,621 Property, plant and equipment, net 16 16 Future income tax assets 165 198 ------------------------------------------------------------------------- $ 72,287 $ 45,835 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Payables and accruals $ 775 $ 242 Asset retirement obligations 340 274 Investments sold short(note 2) 35,934 10,893 Income taxes payable 79 - ------------------------------------------------------------------------- 37,128 11,409 Asset retirement obligations 187 185 ------------------------------------------------------------------------- 37,315 11,594 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital(note 4) 12,244 12,269 Retained earnings 22,728 21,972 ------------------------------------------------------------------------- 34,972 34,241 ------------------------------------------------------------------------- $ 72,287 $ 45,835 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. Approved on behalf of the Board: "signed" "signed" Director: Murray J. Brasseur Director: George S. Dembroski MIDDLEFIELD BANCORP LIMITED CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED JANUARY 31 (UNAUDITED) (All amounts in thousands, except per share amounts) 2008 2007 ------------------------------------------------------------------------- Revenue Investment income (note 5) $ 2,322 $ 723 ------------------------------------------------------------------------- EXPENSES Production 12 15 General and administrative 515 288 Transaction costs 43 11 Foreign exchange loss (gain) 326 (1) Depreciation, depletion and accretion 68 5 ------------------------------------------------------------------------- 964 318 ------------------------------------------------------------------------- Income before income taxes and non-controlling interest 1,358 405 Income tax expense (recovery) 150 (9) ------------------------------------------------------------------------- Income before non-controlling interest 1,208 414 Non-controlling interest 423 257 ------------------------------------------------------------------------- Net income and comprehensive income 785 157 Retained earnings, beginning of period, as previously reported 21,972 22,143 Transition adjustment - financial instruments (1) - 10 ------------------------------------------------------------------------- Retained earnings, beginning of period, as adjusted 21,972 22,153 Repurchase of shares (29) (68) ------------------------------------------------------------------------- Retained earnings, end of period $ 22,728 $ 22,242 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share (note 6) $ 0.09 $ 0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings per share (note 6) $ 0.09 $ 0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The transition adjustment relates to the implementation of the new financial instruments accounting standards. Refer to the consolidated financial statements in the 2007 Annual Report. The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. MIDDLEFIELD BANCORP LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 31 (UNAUDITED) (All amounts in thousands) 2008 2007 ------------------------------------------------------------------------- OPERATING Net income $ 785 $ 157 Items not involving cash: Gain on sale of investments (1,654) (138) Unrealized loss (gain) on investments 224 (62) Depreciation, depletion and accretion 68 5 Future income tax expense (benefit) (27) 15 Stock-based compensation - 1 ------------------------------------------------------------------------- (604) (22) Net change in non-cash operating working capital (22,078) 521 ------------------------------------------------------------------------- (22,682) 499 ------------------------------------------------------------------------- INVESTING Proceeds from sale of investments 82,839 47,850 Purchase of investments (62,619) (46,511) Purchase of property, plant and equipment - (5) ------------------------------------------------------------------------- 20,220 1,334 ------------------------------------------------------------------------- FINANCING Repurchase of shares (53) (129) ------------------------------------------------------------------------- Net increase (decrease) in cash (2,515) 1,704 Cash, beginning of period 3,451 2,791 ------------------------------------------------------------------------- Cash, end of period $ 936 $ 4,495 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary disclosure of cash flow information: Income taxes paid $ - $ 759 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. MIDDLEFIELD BANCORP LIMITED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED 1. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of Middlefield Bancorp Limited (the "Company") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). They follow the same accounting policies and methods of application as the Company's consolidated financial statements for the year ended October 31, 2007 except for the changes in accounting policies described below. The Company's interim consolidated financial statements do not include all disclosures required by GAAP for annual financial statements and accordingly, should be read in conjunction with the consolidated financial statements for the year ended October 31, 2007 as set out on pages 8 to 17 of the Company's 2007 Annual Report. Significant Accounting Changes Capital Disclosures and Financial Instruments - Disclosures and Presentation On November 1, 2007, the Company adopted three new presentation and disclosure standards that were issued by the Canadian Institute of Chartered Accountants ("CICA"): Handbook section 1535, "Capital Disclosures", Handbook section 3862, "Financial Instruments - Disclosures" and Handbook section 3863, "Financial Instruments - Presentation". Section 1535 requires the disclosure of an entity's objectives, policies and processes for managing capital. Sections 3862 and 3863 replaced Handbook section 3861, "Financial Instruments - Disclosure and Presentation", revised and enhanced its disclosure requirements, and continued its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. 2. CARRYING VALUE AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following table provides a comparison of carrying and fair values of the Company's financial instruments as at January 31, 2008 and October 31, 2007: (all amounts in thousands) Carrying Value ------------------------------------- Financial instruments classified as ------------------------------------- As at January 31, Held-for Loans and Other Total fair 2008 -trading(1) receivables liabilities value ------------------------------------------------------------------------- Financial assets Cash $ 936 $ - $ - $ 936 Short-term investments 29,498 - - 29,498 Marketable securities 364 - - 364 Deposits with brokers - 41,026 - 41,026 Receivables - - - - Financial liabilities Payables and accruals - - 775 775 Investments sold short 35,934 - - 35,934 ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at October 31, 2007 ------------------------------------------------------------------------- Financial assets Cash $ 3,451 $ - $ - $ 3,451 Short-term investments 21,549 - - 21,549 Marketable securities 2,062 - - 2,062 Deposits with brokers - 18,142 - 18,142 Receivables - 90 - 90 Financial liabilities Payables and accruals - - 242 242 Investments sold short 10,893 - - 10,893 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Cash is designated as held-for-trading. All other financial assets and liabilities classified as held-for-trading are required to be so classified. The fair value of financial assets and liabilities "held-for-trading", which include cash, short-term investments, marketable securities and investments sold short, is determined as follows: (i) cash is at fair value, (ii) short-term investments represent investments in mutual funds which are valued based on the fund's reported net asset value, and (iii) marketable securities and investments sold short listed on a recognized public exchange are valued at their closing bid and ask price, respectively. Securities with no available bid/ask price are valued at their closing trade price. The fair value of "loans and receivables" and of "other liabilities" is amortized cost. For financial assets recorded on the consolidated balance sheets the carrying value reflects the maximum credit exposure. The "other liabilities" are payable within one year. 3. NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS The Company's investments in financial instruments classified as held-for-trading are made in accordance with the Company's risk management policies. The policies govern the responsibilities of the Company's investment committee as well as establish investment objectives, strategies, criteria and restrictions. The objectives of these policies are to identify and mitigate investment risk through a disciplined investment process and the appropriate structuring of each transaction. The most significant risks for the Company are commodity price risk, interest rate risk, foreign exchange rate risk and credit risk. a. Commodity price risk Commodity price risk describes the impact on investments, both long and short, due to volatility in commodity prices. With respect to long positions, rising commodity prices may increase the value of an investment while declining commodity prices may have the opposite effect. The Company's short selling activities are also affected by commodity prices. There is no assurance that securities will decrease in value during the period of a short sale enough to make a profit for the Company, and securities sold short may instead increase in value. The Company mitigates this risk by making investing decisions based upon various factors, including comprehensive fundamental analysis prepared by industry experts to forecast future commodity price movements, and by limiting the exposure to short sales. b. Interest rate risk Interest rate risk describes the Company's exposure to changes in the general level of interest rates. The general level of interest rates is in part affected by the rate of inflation. The earnings of the Company are positively correlated to interest rates. Rising interest rates serve to increase the Company's earnings while the reverse is true in a declining interest rate environment. The Company seeks to mitigate this risk through active management. c. Foreign exchange rate risk Foreign exchange rate risk describes the impact on the underlying value of equities due to foreign exchange rate movements. Foreign investments and commodities priced in foreign currencies are affected by changes in the value of the Canadian dollar compared to foreign currencies. As a result, foreign investments may experience devaluations in the short-term due to the appreciation of the Canadian dollar against other currencies. The Company uses active management to mitigate exposure to this risk. d. Credit risk Credit risk is the risk that the government or company issuing a fixed income security will be unable to make interest payments or pay back the original investment. There is also a risk that a lender of securities may go bankrupt and the Company may lose the collateral it has deposited with the lender. The Company mitigates these risks by using active management and by depositing collateral only with creditworthy lenders up to certain limits. 4. SHARE CAPITAL As at March 14, 2008 the Company had 9,201,848 common shares issued and outstanding and stock options outstanding for 175,000 common shares. 5. REVENUE FROM TRADING AND NON-TRADING FINANCIAL INSTRUMENTS Investment income includes both trading related revenue such as interest income, dividends, net gains on investments and changes in fair values as well as non-trading related interest income. (all amounts in thousands) 2008 2007 ------------------------------------------------------------------------- Held-for-trading financial instruments Net gains on investments $ 1,654 $ 138 Increase (decrease) in fair values (224) 62 Interest income 856 477 Dividends - 9 Other - 37 ------------------------------------------------------------------------- 2,286 723 Financial instruments measured at amortized cost Interest income 36 - ------------------------------------------------------------------------- $ 2,322 $ 723 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6. EARNINGS PER SHARE (all amounts in thousands, except per share amounts) 2008 2007 ------------------------------------------------------------------------- Net income and comprehensive income $ 785 $ 157 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average common shares outstanding for basic earnings per share 9,221 9,055 Add: Dilutive effect of stock options outstanding 7 168 ------------------------------------------------------------------------- Weighted average common shares outstanding for diluted earnings per share 9,228 9,223 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share $ 0.09 $ 0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings per share $ 0.09 $ 0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. CAPITAL MANAGEMENT The Company's objective when managing capital is to maximize shareholder value. This is accomplished by increasing the underlying value of the Company's assets through internal growth and investing the Company's capital profitably, and having that value reflected in the share price. The Company's investment strategy focuses on areas in which the Company has considerable expertise, such as financial services and oil and gas. 8. RECLASSIFICATIONS Certain prior period balances have been reclassified to conform with the current year presentation. CORPORATE INFORMATION Middlefield Bancorp Limited is a Canadian merchant bank managed by Middlefield Group. The Company's principal objective is to create long term shareholder value through a twofold strategy of strategic investing in businesses with strong management and exceptional prospects for longer term earnings growth and special situation investing where there is excellent potential for significant capital appreciation. Our aim is to produce a steady stream of growing earnings from strategic investments supplemented by earnings from special situation activities. The Company's board of directors and management include experienced and successful individuals who have committed their own capital to the Company. DIRECTORS LEGAL COUNSEL Thomas I.A. Allen, Q.C.(2) Ogilvy Renault Counsel, Ogilvy Renault AUDITORS Murray J. Brasseur Deloitte & Touche LLP Chairman and Director Middlefield Bancorp Limited BANKER Bank of Nova Scotia George S. Dembroski(1),(2) Corporate Director STOCK EXCHANGE LISTING Toronto Stock Exchange H. Roger Garland(1) Symbol: MBN Corporate Director HEAD OFFICE W. Garth Jestley One First Canadian Place President and Director 58th Floor Middlefield Bancorp Limited P.O. Box 192 Toronto, Ontario Charles B. Young(1),(2) M5X 1A6 Chairman, Ascend Capital Management Web Site: www.middlefield.com Email: invest@middlefield.com (1) Audit Committee Member (2) Corporate Governance Committee Member

For further information:

For further information: visit our website at www.middlefield.com or
contact W. Garth Jestley at (416) 847-5346

Organization Profile

MIDDLEFIELD BANCORP LIMITED

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