MBT Financial (MBTF) 10-Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2007

Or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-30973

MBT FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Michigan	38-3516922
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

102 E. Front Street
Monroe, Michigan 48161
(Address of principal executive offices)
(Zip Code)

(734) 241-3431
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).

Large accelerated filero           Accelerated Filerþ           Non-accelerated filero

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

As of November 7, 2007, there were 16,135,715 shares of the Company’s Common Stock outstanding.

TABLE OF CONTENTS

Part I Financial Information
	Item 1. Financial Statements
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
Part II Other Information
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits
Exhibit Index
Certification by Chief Executive Officer Required by Rule 13a-14
Certification by Chief Financial Officer Required by Rule 13a-14
Certification by Chief Executive Officer Pursuant to Section 906
Certification by Chief Financial Officer Pursuant to Section 906

Part I Financial Information

Item 1. Financial Statements

MBT FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS

	September 30, 2007			December 31,
Dollars in thousands	(Unaudited)			2006
ASSETS
Cash and Cash Equivalents
Cash and due from banks	$	31,165		$	27,903
Total cash and cash equivalents		31,165			27,903
Securities — Held to Maturity		49,857			64,938
Securities — Available for Sale		367,548			374,087
Federal Home Loan Bank stock — at cost		13,086			13,086
Loans held for sale		625			721
Loans — Net		993,927			984,513
Accrued interest receivable and other assets		28,801			27,961
Bank Owned Life Insurance		42,174			39,631
Premises and Equipment — Net		33,051			33,979
Total assets	$	1,560,234		$	1,566,819
LIABILITIES
Deposits:
Non-interest bearing	$	139,579		$	158,688
Interest-bearing		970,495			957,369
Total deposits		1,110,074			1,116,057
Federal Home Loan Bank advances		256,500			256,500
Federal funds purchased		11,700			3,500
Repurchase agreements		35,000			40,000
Interest payable and other liabilities		15,309			14,700
Total liabilities		1,428,583			1,430,757
STOCKHOLDERS’ EQUITY
Common stock (no par value)		—			—
Additional paid-in capital		141			6,979
Retained Earnings		135,729			134,162
Accumulated other comprehensive loss		(4,219	)		(5,079	)
Total stockholders’ equity		131,651			136,062
Total liabilities and stockholders’ equity	$	1,560,234		$	1,566,819

The accompanying notes to consolidated financial statements are integral part of these statements.

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MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

	Three Months Ended September 30,
Dollars in thousands, except per share data	2007		2006
Interest Income
Interest and fees on loans	$	18,116	$	18,080
Interest on investment securities-
Tax-exempt		875		1,041
Taxable		4,541		5,039
Interest on federal funds sold		25		5
Total interest income		23,557		24,165
Interest Expense
Interest on deposits		8,277		7,954
Interest on borrowed funds		4,612		4,831
Total interest expense		12,889		12,785
Net Interest Income		10,668		11,380
Provision For Loan Losses		1,000		7,950
Net Interest Income After
Provision For Loan Losses		9,668		3,430
Other Income (Loss)
Income from trust services		1,171		1,060
Service charges and other fees		1,599		1,591
Net gain (loss) on sales of securities		4		6
Origination fees on mortgage loans sold		169		152
Bank owned life insurance income		329		310
Other		656		604
Total other income		3,928		3,723
Other Expenses
Salaries and employee benefits		5,363		4,728
Occupancy expense		845		805
Equipment expense		780		723
Marketing expense		426		351
Professional fees		369		614
Net (gain) loss on other real estate owned		12		593
Other		1,447		1,604
Total other expenses		9,242		9,418
Income (Loss) Before Income Taxes		4,354		(2,265	)
Income Tax Expense (Benefit)		1,173		(1,147	)
Net Income (Loss)	$	3,181	$	(1,118	)
Basic Earnings (Loss) Per Common Share	$	0.20	$	(0.07	)
Diluted Earnings (Loss) Per Common Share	$	0.20	$	(0.07	)
Common Stock Dividends Declared Per Share	$	0.18	$	0.18

The accompanying notes to consolidated financial statements are integral part of these statements.

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MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

	Nine Months Ended September 30,
Dollars in thousands, except per share data	2007		2006
Interest Income
Interest and fees on loans	$	53,628	$	53,089
Interest on investment securities-
Tax-exempt		2,755		3,283
Taxable		14,038		15,401
Interest on federal funds sold		141		60
Total interest income		70,562		71,833
Interest Expense
Interest on deposits		24,213		22,717
Interest on borrowed funds		13,711		13,646
Total interest expense		37,924		36,363
Net Interest Income		32,638		35,470
Provision For Loan Losses		2,500		15,300
Net Interest Income After
Provision For Loan Losses		30,138		20,170
Other Income
Income from trust services		3,389		3,192
Service charges and other fees		4,698		4,621
Net gain (loss) on sales of securities		96		(4,901	)
Origination fees on mortgage loans sold		562		428
Bank Owned Life Insurance income		959		885
Other		2,106		1,842
Total other income		11,810		6,067
Other Expenses
Salaries and employee benefits		16,411		15,246
Occupancy expense		2,569		2,284
Equipment expense		2,475		2,268
Marketing expense		1,047		1,069
Professional fees		1,145		1,230
Net (gain) loss on other real estate		22		1,830
Other		3,964		4,032
Total other expenses		27,633		27,959
Income Before Income Taxes		14,315		(1,722	)
Income Tax Expense (Benefit)		3,896		(1,754	)
Net Income	$	10,419	$	32
Basic Earnings Per Common Share	$	0.63	$	—
Diluted Earnings Per Common Share	$	0.63	$	—
Common Stock Dividends Declared Per Share	$	0.54	$	0.52

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MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

	Nine Months Ended September 30,
Dollars in thousands	2007			2006
Cash Flows from Operating Activities
Net Income	$	10,419		$	32
Adjustments to reconcile net income to net cash from operating activities
Depreciation		2,030			1,889
Provision for loan losses		2,500			15,300
Increase in net deferred Federal income tax asset		(475	)		(1,300	)
Net amortization of investment premium and discount		(253	)		(23	)
Net increase in interest payable and other liabilities		949			452
Net increase in interest receivable and other assets		(2,184	)		(6,226	)
Equity Compensation		502			360
Net (gain) loss on sales of securities		(96	)		4,901
Increase in cash surrender value of life insurance		(959	)		(885	)
Net cash provided by operating activities	$	12,433		$	14,500
Cash Flows from Investing Activities
Proceeds from maturities and redemptions of investment securities held to maturity	$	19,818		$	18,639
Proceeds from maturities and redemptions of investment securities available for sale		23,290			6,401
Proceeds from sales of investment securities available for sale		47,737			130,652
Net increase in loans		(11,818	)		(34,987	)
Proceeds from sales of other real estate owned		1,482			5,279
Proceeds from sales of other assets		219			83
Purchase of investment securities held to maturity		(4,757	)		(3,724	)
Purchase of bank owned life insurance		(1,584	)		(2,238	)
Purchase of investment securities available for sale		(63,137	)		(84,568	)
Purchase of bank premises and equipment		(1,344	)		(8,558	)
Net cash provided by investing activities	$	9,906		$	26,979
Cash Flows from Financing Activities
Net decrease in deposits	$	(5,983	)	$	(59,926	)
Net increase in short term borrowings		8,200			16,100
Net increase (decrease) in securities sold under repurchase agreements		(5,000	)		5,000
Proceeds from issuance of common stock		87			210
Repurchase of common stock		(7,427	)		(5,651	)
Dividends paid		(8,954	)		(8,692	)
Net cash used for financing activities	$	(19,077	)	$	(52,959	)
Net Increase (Decrease) In Cash and Cash Equivalents	$	3,262		$	(11,480	)
Cash and Cash Equivalents at Beginning Of Period		27,903			37,330
Cash And Cash Equivalents At End Of Period	$	31,165		$	25,850

The accompanying notes to consolidated financial statements are integral part of these statements.

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MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY — UNAUDITED

							Accumulated
	Additional						Other
	Paid-in			Retained			Comprehensive
Dollars in thousands	Capital			Earnings			Income (Loss)			Total
Balance — January 1, 2007	$	6,979		$	134,162		$	(5,079	)	$	136,062
Repurchase of Common Stock (571,662 shares)		(7,427	)		—			—			(7,427	)
Issuance of Common Stock (6,565 shares)		87			—			—			87
Equity Compensation		502			—			—			502
Dividends declared ($0.54 per share)		—			(8,852	)		—			(8,852	)
Comprehensive income:
Net income		—			10,419			—			10,419
Change in net unrealized loss on securities available for sale — Net of tax effect of $(343)		—			—			639			639
Change in postretirement benefit obligation Net of tax effect of ($119)		—			—			221			221
Total Comprehensive Income											11,279
Balance — September 30, 2007	$	141		$	135,729		$	(4,219	)	$	131,651

The accompanying notes to consolidated financial statements are integral part of these statements.

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MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The unaudited consolidated financial statements include the accounts of MBT Financial Corp. (the “Company”) and its subsidiary, Monroe Bank & Trust (the “Bank”). The Bank includes the accounts of its wholly owned subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services, Inc. The Bank operates twenty-one branches in Monroe County, Michigan and five branches in Wayne County, Michigan. MBT Credit Company, Inc. operates a mortgage loan office in Monroe County. The Bank’s primary source of revenue is from providing loans to customers, who are predominantly small and middle-market businesses and middle-income individuals. The Company’s sole business segment is community banking.

The accounting and reporting policies of the Bank conform to practice within the banking industry and are in accordance with accounting principles generally accepted in the United States. Preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term are the determination of the allowance for loan losses and the valuation of other real estate owned.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of Management, necessary for fair statement of results for the interim periods.

The significant accounting policies are as follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its subsidiary. All material intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

COMPREHENSIVE INCOME

Accounting principles generally require that revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on securities available for sale and amounts recognized related to postretirement benefit plans (gains and losses, prior service costs, and transition assets or obligations), are reported as a direct adjustment to the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

BUSINESS SEGMENTS

While the Company’s chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a company wide basis. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable segment.

STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS 123(R), “Accounting for Stock Based Compensation” for all share based payments to employees, including grants of stock options and

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restricted stock units. The amount of compensation is measured at the fair value of the options when granted, and this cost is expensed over the required service period, which is normally the vesting period of the options.

SFAS 123(R) applies to awards granted or modified after January 1, 2006. Compensation cost is also recorded for prior option grants that vest after the date of adoption. The compensation expense recorded under FAS 123(R) in the nine months ended September 30, 2007 and September 30, 2006 was $502,000 and $360,000, respectively.

The weighted average fair value of options granted was $2.76 in 2007 and $3.61 in 2006. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: expected option lives of seven years for both years; expected volatility of 20.3% in 2007 and 22.9% in 2006; and risk-free interest rates of 4.7% in 2007 and 4.5% in 2006.

ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board “FASB” issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Calendar year companies are able to adopt FAS 159 for their first quarter 2007 financial statements.

FAS 159 allows the Company to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes to that item’s fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities.

In April 2007, the Company elected early adoption of FAS 159 as of January 1, 2007. The Company did not select any financial assets or financial liabilities for fair value measurement, but elected early adoption in order to be able to apply the fair value option to financial assets and financial liabilities that may be acquired prior to the effective date of the statements.

In September 2006, FASB issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about the use of fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Upon adoption of FAS 159, the Company concurrently adopted the provisions of FAS 157, effective January 1, 2007. Accordingly, the Company has developed a framework to measure the fair value of financial assets and financial liabilities. Upon election to apply fair value measurement of financial assets or financial liabilities, the Company will expand disclosures in accordance with the requirements of FAS 157.

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2. EARNINGS PER SHARE

The calculation of net income per common share for the three months ended September 30 is as follows:

	2007		2006
Basic
Net income (loss)	$	3,181,000	$	(1,118,000	)
Less preferred dividends		—		—
Net income (loss) applicable to common stock	$	3,181,000	$	(1,118,000	)
Average common shares outstanding		16,288,696		16,872,826
Earnings (loss) per common share — basic	$	0.20	$	(0.07	)

	2007		2006
Diluted
Net income (loss)	$	3,181,000	$	(1,118,000	)
Less preferred dividends		—		—
Net income (loss) applicable to common stock	$	3,181,000	$	(1,118,000	)
Average common shares outstanding		16,288,696		16,872,826
Stock option adjustment		21,583		21,678
Average common shares outstanding — diluted		16,310,279		16,894,504
Earnings (loss) per common share — diluted	$	0.20	$	(0.07	)

The calculation of net income per common share for the nine months ended September 30 is as follows:

	2007		2006
Basic
Net income	$	10,419,000	$	32,000
Less preferred dividends		—		—
Net income applicable to common stock	$	10,419,000	$	32,000
Average common shares outstanding		16,509,813		16,983,826
Earnings per common share — basic	$	0.63	$	—

	2007		2006
Diluted
Net income	$	10,419,000	$	32,000
Less preferred dividends		—		—
Net income applicable to common stock	$	10,419,000	$	32,000
Average common shares outstanding		16,509,813		16,983,826
Stock option adjustment		21,583		26,447
Average common shares outstanding — diluted		16,531,396		17,010,273
Earnings per common share — diluted	$	0.63	$	0.00

3. STOCK BASED COMPENSATION

The following table summarizes the options that have been granted to non-employee directors and certain key executives in accordance with the Long-Term Incentive Compensation Plan that was approved by shareholders at the Annual Meeting of Shareholders on April 6, 2000.

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			Weighted Average
	Shares		Exercise Price
Options Outstanding, January 1, 2007		510,143	$	17.73
Granted		94,500		15.33
Exercised		—		—
Forfeited		—		—
Options Outstanding, September 30, 2007		604,643	$	17.36
Options Exercisable, September 30, 2007		407,991	$	17.32

On January 2, 2007, performance restricted stock units were awarded to certain key executives in accordance with the Long-Term Incentive Compensation Plan that was approved by shareholders at the Annual Meeting of Shareholders on April 6, 2000. Each performance stock unit (PSU) is equivalent to one share of MBT Financial Corp. common stock. Stock will be issued to the participants following a three year performance period that ends on December 31, 2009 based on the cumulative earnings per share during that three year period. The PSUs vest on December 31, 2009. There were 23,800 PSUs granted, and none will be considered vested and earned for payment if the Company’s three year cumulative earnings per share are less than $2.91. The expense recorded for the PSUs in accordance with FAS 123(R) was $40,000 in the first nine months of 2007. The total expense for equity based compensation was $502,000 in the first nine months of 2007 and $360,000 in the first nine months of 2006.

4. LOANS

The Bank grants commercial, consumer, and mortgage loans primarily to customers in Monroe County, Michigan, southern Wayne County, Michigan, and surrounding areas. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the automotive, manufacturing, and real estate development economic sectors.

Loans consist of the following (000s omitted):

	September 30,		December 31,
	2007		2006
Residential real estate loans	$	495,357	$	513,289
Non-residential real estate loans		358,691		328,145
Loans to finance agricultural production and other loans to farmers		6,571		3,739
Commercial and industrial loans		103,192		97,959
Loans to individuals for household, family, and other personal expenditures		44,738		55,443
All other loans (including overdrafts)		315		473
Total loans, gross		1,008,864		999,048
Less: Deferred loan fees		614		771
Total loans, net of deferred loan fees		1,008,250		998,277
Less: Allowance for loan losses		14,323		13,764
	$	993,927	$	984,513

Loans are placed in a nonaccrual status when, in the opinion of Management, the collection of additional interest is doubtful. All loan relationships over $250,000 that are classified by Management as nonperforming as well as selected performing accounts are reviewed for impairment. Allowances for loans determined to be impaired are included in the allowance for loan losses. All cash received on nonaccrual loans is applied to the principal balance. Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due, restructured loans, and other real estate owned. Other real estate owned includes real estate that has been

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acquired in full or partial satisfaction of loan obligations or upon foreclosure and real estate that the bank has purchased but no longer intends to use for bank premises.

The following table summarizes nonperforming assets (000’s omitted):

	September 30,			December 31,
	2007			2006
Nonaccrual loans	$	26,440		$	19,152
Loans 90 days past due		105			69
Restructured loans		938			888
Total nonperforming loans	$	27,483		$	20,109
Other real estate owned		6,389			2,432
Total nonperforming assets	$	33,872		$	22,541
Nonperforming assets to total assets		2.17	%		1.44	%
Allowance for loan losses to nonperforming assets		42.29	%		61.06	%

5. ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows (000’s omitted):

	Nine months ended			Twelve months ended
	September 30, 2007			December 31, 2006
Balance beginning of year	$	13,764		$	13,625
Provision for loan losses		2,500			16,475
Loans charged off		(3,183	)		(18,377	)
Recoveries		1,242			2,041
Balance end of period	$	14,323		$	13,764

For each period, the provision for loan losses in the income statement is based on Management’s estimate of the amount required to maintain an adequate Allowance for Loan Losses.

To serve as a basis for making this provision, the Bank maintains an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank’s customers, the payment performance of individual loans and pools of homogeneous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific loan relationships. For loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the Bank’s recorded investment in the loan to the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, or the loan’s observable market price.

The provision for loan losses increases the Allowance for Loan Losses, a valuation account which is netted against loans on the consolidated statements of condition. When it is determined that a customer will not repay a loan, the loan is charged off, reducing the Allowance for Loan Losses. If, subsequent to a charge off, the Bank is able to collect additional amounts from the customer or sell collateral worth more than earlier estimated, a recovery is recorded.

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6. INVESTMENT SECURITIES

The following is a summary of the Bank’s investment securities portfolio as of September 30, 2007 and December 31, 2006 (000’s omitted):

	September 30, 2007				December 31, 2006
	Amortized		Estimated		Amortized		Estimated
	Cost		Market Value		Cost		Market Value
Held to Maturity
Obligations of U.S. Government Agencies	$	9	$	9	$	10	$	10
Obligations of States and Political Subdivisions		49,848		50,069		64,928		65,330
	$	49,857	$	50,078	$	64,938	$	65,340

	September 30, 2007				December 31, 2006
	Amortized		Estimated		Amortized		Estimated
	Cost		Market Value		Cost		Market Value
Available for Sale
Obligations of U.S. Government Agencies	$	322,716	$	319,903	$	326,808	$	322,934
Obligations of States and Political Subdivisions		25,738		25,630		23,226		23,129
Other Securities		22,063		22,015		28,004		28,024
	$	370,517	$	367,548	$	378,038	$	374,087

The unrealized losses on investment securities are primarily the result of increases in market interest rates and not the result of credit quality of the issuers of the securities. The Company has the ability and intent to hold most of these securities until recovery, which may be until maturity. For securities in which the Company no longer has the intent to hold until recovery, the securities are treated as other than temporarily impaired and the amount of impairment is charged to earnings.

7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for its other lending activities.

Financial instruments whose contractual amounts represent off-balance sheet credit risk were as follows (000s omitted):

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	Contractual Amount
	September 30,		December 31,
	2007		2006
Commitments to extend credit:
Unused portion of commercial lines of credit	$	76,404	$	100,265
Unused portion of credit card lines of credit		5,878		5,802
Unused portion of home equity lines of credit		20,746		20,873
Standby letters of credit and financial guarantees written		11,511		12,234
All other off-balance sheet assets		3,622		3,922

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Most commercial lines of credit are secured by real estate mortgages or other collateral, and generally have fixed expiration dates or other termination clauses. Since the lines of credit may expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. Credit card lines of credit have various established expiration dates, but are fundable on demand. Home equity lines of credit are secured by real estate mortgages, a majority of which have ten year expiration dates, but are fundable on demand. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of the collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on Management’s credit evaluation of the counterparty.

Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and other business transactions.

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

General

MBT Financial Corp. (the “Company) is a bank holding company with one subsidiary, Monroe Bank & Trust (“the Bank”). The Bank is a commercial bank with two wholly owned subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services. MBT Credit Company, Inc. conducts lending operations for the Bank and MB&T Financial Services is an insurance agency which sells insurance policies to the Bank. The Bank operates 21 branch offices in Monroe County, Michigan and 5 offices in Wayne County, Michigan. The Bank’s primary source of income is interest income on its loans and investments and its primary expense is interest expense on its deposits and borrowings.

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond the Company’s control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired

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businesses, credit risk management, asset/liability management, changes in the financial and securities markets, including changes with respect to the market value of our financial assets, the availability of and costs associated with sources of liquidity, and the ability of the Company to resolve or dispose of problem loans.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Critical Accounting Policies

The Company’s Allowance for Loan Losses is a “critical accounting estimate” because it is an estimate that is based on assumptions that are highly uncertain, and if different assumptions were used or if any of the assumptions used were to change, there could be a material impact on the presentation of the Company’s financial condition. These assumptions include, but are not limited to, collateral values and the effect of economic conditions on the financial condition of the borrowers. To determine the Allowance for Loan Losses, the Company estimates losses on all loans that are not classified as non accrual or renegotiated by applying historical loss rates to those loans in accordance with SFAS 5. In addition, all loans that are non accrual or renegotiated are individually tested for impairment. Any amount of monetary impairment is included in the Allowance for Loan Losses in accordance with SFAS 114.

Financial Condition

The flat yield curve environment that began in 2005 started to improve late in the third quarter of 2007. When the flat curve condition existed, the spread between the asset yields and funding costs was narrow, providing little opportunity for profitable growth without increasing exposure to interest rate risk. Throughout this period, the Company maintained a strategy of controlling the decline in its net interest margin by restricting its growth and changing the mix of its assets to increase the percent invested in loans. Compared to September 30, 2006, the loan to asset ratio increased from 63.5% to 64.7% and total assets decreased $28.1 million.

Since December 31, 2006, total loans increased only $9.9 million (1.0%) as weak regional economic conditions resulted in slower loan demand. Total cash and investments decreased $18.4 million (3.8%), and total assets decreased $6.6 million (0.4%). Consumer loans decreased $10.7 million, or 19.3% due to a reduction in lending for autos and other personal expenditures. Loan growth efforts are focused on real estate secured loans, particularly home equity lending. Deposits decreased $6.0 million, or 0.5%, due to the pricing strategies designed to restrict our certificate of deposit growth and control our interest expense. Total capital decreased $4.4 million or 3.2% as the Company repurchased 571,662 shares of its stock for $7.4 million, net income exceeded dividends declared by $1.6 million, and accumulated other comprehensive income increased $0.9 million, primarily due to the increase in the value of securities available for sale. The capital to assets ratio decreased from 8.68% at December 31, 2006 to 8.44% at September 30, 2007.

The amount of nonperforming assets (“NPAs”) increased $11.3 million or 50.3% since year end. NPAs include non performing loans, which increased 36.7% from $20.1 million to $27.5 million, and Other Real Estate Owned (“OREO”), which increased from $2.4 million to $6.4 million. Total problem assets, which includes all NPAs and performing loans internally classified as substandard, only increased $4.5 million, or 7.2%. The Company’s Allowance for Loan and Lease Losses (“ALLL”) increased $559,000 since December 31, 2006, as the provision for loan losses exceeded the net charge offs during the first three quarters of 2007. The ALLL is now 1.42% of loans, compared to 1.38% at year end. The ALLL is 42.3% of NPAs, a decrease from 61.1% at

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year end. Because a significant portion of the Bank’s lending is secured by real estate, we believe that at this level the ALLL adequately estimates the potential losses in the loan portfolio.

Results of Operations — Third Quarter 2007 vs. Third Quarter 2006

Net Interest Income — A comparison of the income statements for the three months ended September 30, 2006 and 2007 shows a decrease of $712,000, or 6.3% in Net Interest Income. Interest income on loans increased $36,000 or 0.2% as the average loans outstanding decreased $15.1 million but the average yield on loans increased from 6.99% to 7.11%. The interest income on investments and fed funds sold decreased $664,000 as the yield on investments and fed funds sold decreased from 5.30% to 5.28%, and the average amount of investments and fed funds sold decreased $46.4 million. The term structure of interest rates and the local competitive market for deposits caused funding costs to rise faster than asset yields. The interest expense on deposits increased $323,000, or 4.1% as average deposits decreased $27.4 million but the average cost of those deposits increased from 2.83% to 3.02%. The cost of borrowed funds decreased $219,000 as the average amount of borrowed funds decreased $26.2 million and the average cost of the borrowings increased from 5.88% to 6.10%.

Provision for Loan Losses — The Provision for Loan Losses decreased from $8.0 million in the third quarter of 2006 to $1.0 million in the third quarter of 2007 due to a charge related to the sale of $25 million in problem assets in the third quarter of 2006. The provision in the third quarter of 2007 was $250,000 higher than the first two quarters of 2007 in order to increase our Allowance for Loan Losses as regional economic conditions remain weaker than the rest of the country and our non performing loans increased. Net charge offs were $757,000 during the third quarter of 2007, compared to $11.9 million in the third quarter of 2006. Each quarter, the Company conducts a review and analysis of its ALLL to ensure its adequacy. This analysis involves specific allocations for impaired credits and a general allocation for losses expected based on historical experience adjusted for current conditions.

Other Income — Non interest income increased $205,000 in the third quarter of 2007 compared to the third quarter of 2006 mainly due to an increase of $111,000, or 10.5% in Wealth Management income. This increase is due to increases in rates charged and market values of wealth management accounts. Bank Owned Life Insurance earnings increased due to an increase in the investment in BOLI from $39.4 million as of September 30, 2006 to $42.2 million at September 30, 2007. Other income increased due to increased ATM and debit card activity.

Other Expenses — Total non interest expenses decreased $176,000 or 1.9% compared to the third quarter of 2006 due to a decrease of $581,000 in losses and write downs on Other Real Estate Owned. Excluding the OREO activity, non interest expenses increased $405,000, or 4.6%. Salaries and Employee Benefits increased $635,000, or 13.4%, as the incentive compensation accrual increased $187,000, the number of full time equivalent employees increased from 416 to 426, and the FAS 123(R) expense increased $42,000. Business development and marketing expense increased $75,000, or 21.4% mainly due to advertising expenses for our new Performance Checking product and costs associated with the debit card rewards program. Professional fees decreased $245,000 due to expenses related to the sale of problem assets in the third quarter of 2006. Various other expenses decreased $60,000, or 1.9%.

As a result of the above activity, the Income Before Income Taxes increased $6.6 million to $4.4 million. The income tax expense increased $2.3 million from a benefit of $1.1 million to an expense of $1.2 million, and reflects an effective tax rate of 26.9%. The Net Profit of $3.2 million is an improvement of $4.3 million from the Loss of $1.1 million in the third quarter of 2006.

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Results of Operations — Nine Months Ended September 30, 2007 vs. September 30, 2006

Net Interest Income — A comparison of the income statements for the nine months ended September 30, 2006 and 2007 shows a decrease of $2.8 million, or 8.0% in Net Interest Income. Interest income on loans increased $539,000 or 1.0% as the average loans outstanding decreased $14.2 million but the average yield on loans increased from 7.00% to 7.17%. Even though the yield on investments and fed funds sold increased from 5.10% to 5.28%, the interest income on investments and fed funds sold decreased $1.8 million as the average amount of investments and fed funds sold decreased $62.7 million. The yields on assets increased slightly due to the increases in market interest rates and the restructuring of the investment portfolio that was completed early in the third quarter of 2006. Shorter term market interest rates have increased more rapidly than the longer term rates, causing funding costs to rise faster than asset yields. The interest expense on deposits increased $1.5 million, or 6.6% even though average deposits decreased $46.2 million because the average cost of those deposits increased from 2.68% to 2.98%. The cost of borrowed funds increased $65,000 as the average amount of borrowed funds decreased $19.4 million while the average cost of the borrowings increased from 5.68% to 6.07%.

Provision for Loan Losses — The Provision for Loan Losses decreased from $15.3 million in the first three quarters of 2006 to $2.5 million in the first three quarters of 2007 due to losses related to the sale of problem assets 2006. The provision in 2007 has been sufficient to provide for the net charge offs and to increase our Allowance for Loan Losses as regional economic conditions remain weaker than the rest of the country. Net charge offs were $1.9 million during the first nine months of 2007, compared to $15.4 million in the first nine months of 2006. Each quarter, the Company conducts a review and analysis of its ALLL to ensure its adequacy. This analysis involves specific allocations for impaired credits and a general allocation for losses expected based on historical experience adjusted for current conditions.

Other Income — Non interest income increased $5.7 million in the first nine months of 2007 compared to the first nine months of 2006 mainly due to a charge of $5.0 million to restructure a portion of the investment portfolio in 2006. Excluding securities transactions, non interest income increased $746,000, or 6.8%. Wealth Management income increased $197,000, or 6.2%, Origination Fees and Gains on Mortgage Loans Sold increased $134,000, or 31.3%, and Bank Owned Life Insurance earnings increased $74,000 due to an increase in the investment in BOLI. Other income increased due to increased ATM and debit card activity.

Other Expenses — Total non interest expenses decreased $326,000 or 1.2% compared to the first nine months of 2006 due to losses of $1.8 million on sales and write downs of Other Real Estate Owned in 2006. Excluding the OREO activity, non interest expenses increased $1.5 million, or 5.7%. Salaries and Employee Benefits increased $1.2 million, or 7.6%, due to an increase of $352,000 in the incentive compensation accrual, an increase in the number of full time equivalent employees from 417 to 427, and an increase of $143,000 in the FAS 123(R) expense. Occupancy Expense increased $285,000, or 12.5%, compared to the first nine months of 2006 as depreciation increased due to the new headquarters building completed in the third quarter of 2006. Various other expenses increased $32,000, or 0.4%.

As a result of the above activity, the Income Before Income Taxes increased $16.0 million to $14.3 million. The income tax expense increased $5.7 million from a benefit of $1.8 million to an expense of $3.9 million, and reflects a year to date effective tax rate of 27.2%. The Net Profit of $10.4 million is an increase of $10.4 million compared to the profit of $32,000 earned in the first nine months of 2006.

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Liquidity and Capital

The Company has maintained sufficient liquidity to fund its loan growth and allow for fluctuations in deposit levels. Internal sources of liquidity are provided by the maturities of loans and securities as well as holdings of securities Available for Sale. External sources of liquidity include a line of credit with the Federal Home Loan Bank of Indianapolis, the Federal funds lines that have been established with correspondent banks, and Repurchase Agreements with money center banks that allow us to pledge securities as collateral for borrowings. As of September 30, 2007, the Bank utilized $256.5 million of its authorized limit of $275 million with the Federal Home Loan Bank of Indianapolis and $11.7 million of its $110 million of federal funds lines with its correspondent banks.

Total stockholders’ equity of the Company was $131.7 million at September 30, 2007 and $136.1 million at December 31, 2006. The ratio of equity to assets was 8.4% at September 30, 2007 and 8.7% at December 31, 2006. Federal bank regulatory agencies have set capital adequacy standards for Total Risk Based Capital, Tier 1 Risk Based Capital, and Leverage Capital. These standards require banks to maintain Leverage and Tier 1 ratios of at least 4% and a Total Capital ratio of at least 8% to be adequately capitalized. The regulatory agencies consider a bank to be well capitalized if its Total Risk Based Capital is at least 10% of Risk Weighted Assets, Tier 1 Capital is at least 6% of Risk Weighted Assets, and the Leverage Capital Ratio is at least 5%.

The following table summarizes the capital ratios of the Company:

							Minimum to be Well
	September 30, 2007			December 31, 2006			Capitalized
Leverage Capital		8.9	%		8.9	%		5.0	%
Tier 1 Risk Based Capital		12.3	%		12.8	%		6.0	%
Total Risk Based Capital		13.5	%		14.0	%		10.0	%

At September 30, 2007 and December 31, 2006, the Bank was in compliance with the capital guidelines and is considered “well-capitalized” under regulatory standards.

Market risk for the Bank, as is typical for most banks, consists mainly of interest rate risk and market price risk. The Bank’s earnings and the economic value of its equity are exposed to interest rate risk and market price risk, and monitoring this risk is the responsibility of the Asset/Liability Management Committee (ALCO) of the Bank. The Bank’s market risk is monitored monthly and it has not changed significantly since year-end 2006.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Bank faces market risk to the extent that the fair values of its financial instruments are affected by changes in interest rates. The Bank does not face market risk due to changes in foreign currency exchange rates, commodity prices, or equity prices. The asset and liability management process of the Bank seeks to monitor and manage the amount of interest rate risk. This is accomplished by analyzing the differences in repricing opportunities for assets and liabilities, by simulating operating results under varying interest rate scenarios, and by estimating the change in the net present value of the Bank’s assets and liabilities due to interest rate changes.

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Each month, the Asset and Liability Committee (ALCO), which includes the senior management of the Bank, estimates the effect of interest rate changes on the projected net interest income of the Bank. The sensitivity of the Bank’s net interest income to changes in interest rates is measured by using a computer based simulation model to estimate the impact on earnings of a gradual increase or decrease of 100 basis points in the prime rate. The net interest income projections are compared to a base case projection, which assumes no changes in interest rates.

The Bank’s ALCO has established limits in the acceptable amount of interest rate risk, as measured by the change in the Bank’s projected net interest income, in its policy. Throughout the first nine months of 2007, the estimated variability of the net interest income was within the Bank’s established policy limits.

The ALCO also monitors interest rate risk by estimating the effect of changes in interest rates on the economic value of the Bank’s equity each month. The actual economic value of the Bank’s equity is first determined by subtracting the fair value of the Bank’s liabilities from the fair value of the Bank’s assets. The fair values are determined in accordance with Statement of Financial Accounting Standards Number 107, Disclosures about Fair Value of Financial Instruments. The Bank estimates the interest rate risk by calculating the effect of market interest rate shocks on the economic value of its equity. For this analysis, the Bank assumes immediate parallel shifts of plus or minus 100 and 200 basis points in interest rates. The discount rates used to determine the present values of the loans and deposits, as well as the prepayment rates for the loans, are based on Management’s expectations of the effect of the rate shock on the market for loans and deposits.

The Bank’s ALCO has established limits in the acceptable amount of interest rate risk, as measured by the change in economic value of the Bank’s equity, in its policy. Throughout the first nine months of 2007, the estimated variability of the economic value of equity was within the Bank’s established policy limits.

The Bank’s interest rate risk, as measured by the net interest income and economic value of equity simulations, has not changed significantly from December 31, 2006.

Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2007, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2007, in alerting them in a timely manner to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2007, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II Other Information

Item 1. Legal Proceedings

MBT Financial Corp. and its subsidiaries are not a party to, nor is any of their property the subject of any material legal proceedings other than ordinary routine litigation incidental to their respective businesses, nor are any such proceedings known to be contemplated by governmental authorities.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed by the Company in its Report on Form 10-K for the fiscal year ended December 31, 2006.

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

The Company has a stock repurchase program which it publicly announced on January 9, 2007. On that date, the Board of Directors authorized the repurchase of 1 million of the Company’s common shares, which authorization will expire on December 31, 2007. The following table summarizes the open-market and privately negotiated stock repurchase activity of the Company during the three months ended September 30, 2007:

					Total Number of Shares		Maximum Number of
			Average		Purchased as Part of		Shares that May Yet
	Total Number of		Price Paid		Publicly Announced		Be Purchased Under
	Shares Purchased		per Share		Plans or Programs		the Plans or Programs
July 1, 2007 - July 31, 2007		—	$	—		—		661,400
August 1, 2007 - August 31, 2007		112,000	$	12.50		112,000		549,400
September 1, 2007 - September 30, 2007		121,062	$	12.15		121,062		428,338
Total		233,062	$	12.32		233,062

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

No matters to be reported.

Item 6. Exhibits

The following exhibits are filed as a part of this report:

3.1	Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT Financial Corp.’s Form 10-K for its fiscal year ended December 31, 2000.
3.2	Amended and Restated Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT Financial Corp.’s Form 10-K for its fiscal year ended December 31, 2004.
31.1	Certification by Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14.
31.2	Certification by Chief Financial Officer required by Securities and Exchange Commission Rule 13a-14.

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32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

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

		MBT Financial Corp.(Registrant)
November 7, 2007Date	By	/s/ H. Douglas ChaffinH. Douglas Chaffin
		President & Chief Executive Officer
November 7, 2007	By	/s/ John L. Skibski
Date		John L. Skibski
		Executive Vice President and Chief Financial Officer

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Exhibit Index

Exhibit Number	Description of Exhibits
3.1	Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT Financial Corp.’s Form 10-K for its fiscal year ended December 31, 2000.
3.2	Amended and Restated Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT Financial Corp.’s Form 10-K for its fiscal year ended December 31, 2004.
31.1	Certification by Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14.
31.2	Certification by Chief Financial Officer required by Securities and Exchange Commission Rule 13a-14.
32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.