MBT Financial 10Q 2013 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, 2013

¨ 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 incorporation or organization)		(I.R.S. Employer 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. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller accelerated filer” in Rule 12b-2 of the Exchange Act (check one).

Large accelerated filer ¨ Accelerated Filer ¨

Non-accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of November 14, 2013, there were 17,919,876 shares of the Company’s Common Stock outstanding.

Part I Financial Information

Item 1. Financial Statements

MBT FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

Dollars in thousands	September 30, 2013 (Unaudited)		December 31, 2012

ASSETS
Cash and Cash Equivalents
Cash and due from banks
Non-interest bearing	$	13,928	$	17,116
Interest bearing		21,506		95,391
Total cash and cash equivalents		35,434		112,507

Securities - Held to Maturity		31,881		38,786
Securities - Available for Sale		403,440		393,767
Federal Home Loan Bank stock - at cost		10,605		10,605

Loans held for sale		166		1,520

Loans		610,928		627,249
Allowance for Loan Losses		(16,766)		(17,299)
Loans - Net		594,162		609,950

Accrued interest receivable and other assets		33,658		10,037
Other Real Estate Owned		10,801		14,262
Bank Owned Life Insurance		50,143		49,111
Premises and Equipment - Net		27,842		28,050
Total assets	$	1,198,132	$	1,268,595

LIABILITIES
Deposits:
Non-interest bearing	$	187,009	$	183,016
Interest-bearing		867,134		865,814
Total deposits		1,054,143		1,048,830

Federal Home Loan Bank advances		12,000		107,000
Repurchase agreements		15,000		15,000
Interest payable and other liabilities		16,165		14,191
Total liabilities		1,097,308		1,185,021

STOCKHOLDERS' EQUITY
Common stock (no par value; 50,000,000 shares authorized, 17,917,512 and 17,396,179 shares issued and outstanding)		4,280		2,397
Retained earnings		105,177		81,280
Unearned compensation		(10)		(27)
Accumulated other comprehensive loss		(8,623)		(76)
Total stockholders' equity		100,824		83,574
Total liabilities and stockholders' equity	$	1,198,132	$	1,268,595

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

	-2-

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - UNAUDITED

	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per share data		2013		2012		2013		2012

Interest Income
Interest and fees on loans	$	7,605	$	8,696	$	23,106	$	26,773
Interest on investment securities-
Tax-exempt		313		341		946		1,076
Taxable		1,821		1,894		5,383		6,023
Interest on balances due from banks		25		56		131		145
Total interest income		9,764		10,987		29,566		34,017

Interest Expense
Interest on deposits		1,033		1,488		3,361		4,964
Interest on borrowed funds		192		878		1,533		2,720
Total interest expense		1,225		2,366		4,894		7,684

Net Interest Income		8,539		8,621		24,672		26,333
Provision For Loan Losses		200		1,550		2,100		4,850

Net Interest Income After
Provision For Loan Losses		8,339		7,071		22,572		21,483

Other Income
Income from wealth management services		1,078		1,063		3,256		2,859
Service charges and other fees		1,128		1,177		3,228		3,392
Debit card income		513		490		1,521		1,490
Net gain on sales of securities available for sale		142		99		306		1,239
Origination fees on mortgage loans sold		133		298		606		624
Bank owned life insurance income		363		375		1,117		1,078
Other		759		521		2,059		1,582
Total other income		4,116		4,023		12,093		12,264

Other Expenses
Salaries and employee benefits		5,310		5,069		15,847		15,128
Occupancy expense		737		707		2,146		2,058
Equipment expense		650		677		2,024		2,226
Marketing expense		180		151		548		524
Professional fees		527		534		1,578		1,646
Collection expenses		54		28		156		188
Net loss on other real estate owned		632		373		1,339		872
Other real estate owned expenses		162		350		829		1,258
FDIC Deposit Insurance Assessment		695		694		2,078		2,067
Other		1,016		1,106		3,018		3,356
Total other expenses		9,963		9,689		29,563		29,323

Income Before Income Taxes		2,492		1,405		5,102		4,424
Income Tax Expense (Benefit)		(18,795)		17		(18,795)		1,566
Net Income	$	21,287	$	1,388	$	23,897	$	2,858

Other Comprehensive Income (Loss) - Net of Tax
Unrealized gains (losses) on securities		463		894		(8,437)		1,048
Reclassification adjustment for gains included in net income		(94)		(66)		(202)		(818)
Postretirement benefit liability		31		52		92		156
Total Other Comprehensive Income (Loss) - Net of Tax		400		880		(8,547)		386

Comprehensive Income	$	21,687	$	2,268	$	15,350	$	3,244

Basic Earnings Per Common Share	$	1.19	$	0.08	$	1.34	$	0.16

Diluted Earnings Per Common Share	$	1.17	$	0.08	$	1.33	$	0.16

Common Stock Dividends Declared Per Share	$	-	$	-	$	-	$	-

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

	-3-

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

							Accumulated
							Other
	Common Stock		Retained		Unearned		Comprehensive
Dollars in thousands	Common Stock		Earnings		Compensation		Income (Loss)		Total
Balance - January 1, 2013	$	2,397	$	81,280	$	(27)	$	(76)	$	83,574

Issuance of Common Stock SOSARs exercised (936 shares)		4		-		-		-		4
Other stock issued (520,397 shares, net of costs of $18)		1,796		-		-		-		1,796

Equity Compensation		83		-		17		-		100

Comprehensive income:
Net income		-		23,897		-		-		23,897
Other comprehensive loss - net of tax		-		-		-		(8,547)		(8,547)
Total Comprehensive Loss										15,350

Balance - September 30, 2013	$	4,280	$	105,177	$	(10)	$	(8,623)	$	100,824

							Accumulated
							Other
	Common		Retained		Unearned		Comprehensive
Dollars in thousands	Stock		Earnings		Compensation		Income (Loss)		Total
Balance - January 1, 2012	$	2,099	$	72,735	$	(87)	$	964	$	75,711

Issuance of Common Stock (32,334 shares)		56		-		-		-		56
Equity Compensation		32		-		55		-		87

Comprehensive income:
Net income		-		2,858		-		-		2,858
Other comprehensive loss - net of tax		-		-		-		386		386
Total Comprehensive Income										3,244

Balance - September 30, 2012	$	2,187	$	75,593	$	(32)	$	1,350	$	79,098

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

	-4-

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

	Nine Months Ended September 30,
Dollars in thousands	2013		2012

Cash Flows from Operating Activities
Net Income	$	23,897	$	2,858
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses		2,100		4,850
Depreciation		1,416		1,477
Deferred income tax benefit		(18,795)		-
Net amortization of investment premium and discount		1,415		1,513
Writedowns of Other Real Estate Owned		1,539		1,291
Net increase in interest payable and other liabilities		2,140		1,542
Net (increase) decrease in interest receivable and other assets		(739)		1,294
Equity based compensation expense		209		132
Net gain on sale/settlement of securities		(306)		(1,239)
Increase in cash surrender value of life insurance		(1,032)		(1,078)
Net cash provided by operating activities	$	11,844	$	12,640

Cash Flows from Investing Activities
Proceeds from maturities and redemptions of investment securities held to maturity	$	18,214	$	12,423
Proceeds from maturities and redemptions of investment securities available for sale		65,077		229,516
Proceeds from sales of investment securities available for sale		56,433		32,824
Net decrease in loans		10,840		15,814
Proceeds from sales of other real estate owned		6,345		8,813
Proceeds from sales of other assets		245		99
Purchase of investment securities held to maturity		(11,309)		(5,089)
Purchase of investment securities available for sale		(145,382)		(286,957)
Purchase of bank premises and equipment		(1,358)		(339)
Net cash provided by (used for) investing activities	$	(895)	$	7,104

Cash Flows from Financing Activities
Net increase (decrease) in deposits	$	5,313	$	(1,900)
Repayment of long term debt		(135)		-
Repayment of Federal Home Loan Bank borrowings		(95,000)		-
Repayment of repurchase agreements		-		(5,000)
Proceeds from issuance of common stock		1,800		56
Net cash used for financing activities	$	(88,022)	$	(6,844)

Net Increase (Decrease) in Cash and Cash Equivalents	$	(77,073)	$	12,900

Cash and Cash Equivalents at Beginning of Period		112,507		75,995
Cash and Cash Equivalents at End of Period	$	35,434	$	88,895

Supplemental Cash Flow Information
Cash paid for interest	$	5,055	$	7,793
Cash paid for federal income taxes	$	-	$	69

Supplemental Schedule of Non Cash Investing Activities
Transfer of loans to other real estate owned	$	4,078	$	6,741
Transfer of loans to other assets	$	124	$	145

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

	-5-

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 subsidiary, MB&T Financial Services, Inc. The Bank operates seventeen branches in Monroe County, Michigan, seven branches in Wayne County, Michigan, and 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, the valuation of other real estate owned, the deferred tax asset valuation allowance, and the fair value of investment securities.

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.

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.

FAIR VALUE

The Corporation measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under The Fair Value Option as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments and available for sale securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Corporation uses various valuation techniques and assumptions when estimating fair value.

	-6-

The Corporation applied the following fair value hierarchy:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Corporation’s mutual fund investments where quoted prices are available in an active market generally are classified within Level 1 of the fair value hierarchy.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Corporation’s borrowed funds and investments in U.S. government agency securities, government sponsored mortgage backed securities, and obligations of states and political subdivisions are generally classified in Level 2 of the fair value hierarchy. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Private equity investments and trust preferred collateralized debt obligations are classified within Level 3 of the fair value hierarchy. Fair values are initially valued based on transaction price and are adjusted to reflect exit values.

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Corporation considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Corporation looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Corporation looks to market observable data for similar assets or liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and the Corporation must use alternative valuation techniques to derive a fair value measurement.

ACCOUNTING PRONOUNCEMENTS

No recent accounting pronouncements are expected to have a significant impact on the Corporation’s financial statements.

2. EARNINGS PER SHARE

The calculations of earnings per common share are as follows:

	For the three months ended Sept. 30,				For the nine months ended Sept. 30,
	2013		2012		2013		2012
Basic
Net income	$	21,287,000	$	1,388,000	$	23,897,000	$	2,858,000
Average common shares outstanding		17,912,946		17,321,337		17,779,924		17,313,965
Earnings per common share - basic	$	1.19	$	0.08	$	1.34	$	0.16

Diluted
Net income	$	21,287,000	$	1,388,000	$	23,897,000	$	2,858,000
Average common shares outstanding		17,912,946		17,321,337		17,779,924		17,313,965
Equity compensation		266,389		81,316		253,463		50,916
Average common shares outstanding - diluted		18,179,335		17,402,653		18,033,387		17,364,881
Earnings per common share - diluted	$	1.17	$	0.08	$	1.33	$	0.16

	-7-

3. STOCK BASED COMPENSATION

Stock Options - The following table summarizes the options that had been granted 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.

		Weighted Average
	Shares	Exercise Price
Options Outstanding, January 1, 2013	396,835	$	17.57
Granted	-		-
Exercised	-		-
Forfeited	63,335		13.20
Options Outstanding, September 30, 2013	333,500	$	18.40
Options Exercisable, September 30, 2013	333,500	$	18.40

Stock Only Stock Appreciation Rights (SOSARs) - On January 2, 2013, 106,000 Stock Only Stock Appreciation Rights (SOSARs) were awarded to certain executives in accordance with the MBT 2008 Stock Incentive Plan that was approved by shareholders on May 1, 2008. The SOSARs have a term of ten years and vest in three equal annual installments beginning on December 31, 2013. The fair value of $1.43 for the SOSARs was estimated at the date of the grant, using the Black-Scholes option pricing model, with the following assumptions: expected option lives of 7 years, expected volatility of 62.09%, a risk free interest rate of 1.25% and dividend yield of 0.00%.

On January 2, 2013, 6,369 SOSARs were issued to a director in exchange for $10,000 of his 2013 annual retainer. The SOSARs have a term of ten years and vest on December 31, 2013.

SOSARs granted under the plan are structured as fixed grants with the exercise price equal to the market value of the underlying stock on the date of the grant.

The following table summarizes the SOSARs that have been granted:

		Weighted Average
	Shares	Exercise Price
SOSARs Outstanding, January 1, 2013	410,666	$	3.53
Granted	112,369		2.35
Exercised	3,498		2.36
Forfeited	4,000		3.03
SOSARs Outstanding, September 30, 2013	515,537	$	3.28
SOSARs Exercisable, September 30, 2013	318,466	$	4.00

Restricted Stock Unit Awards – On January 2, 2013, performance restricted stock units were awarded to certain key executive officers in accordance with the MBT 2008 Stock Incentive Plan that was approved by shareholders on May 1, 2008. Each Restricted Stock Unit (RSU) is equivalent to one share of MBT Financial Corp. common stock. Stock will be issued to the participants following a two year performance period that ends on December 31, 2014. Up to 50% of the aggregate RSUs granted may be earned in each year of the performance period subject to satisfying weighted performance thresholds. Earned RSUs vest on December 31, 2015.

The total expense for equity based compensation was $71,000 in the third quarter of 2013 and $41,000 in the third quarter of 2012. The total expense for equity based compensation was $216,000 in the first nine months of 2013 and $131,000 in the first nine months of 2012.

	-8-

4. LOANS

The Bank makes commercial, consumer, and mortgage loans primarily to customers in Monroe County, Michigan, southern and western 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,
	2013		2012
Residential real estate loans	$	231,544	$	240,332
Commercial and Construction real estate loans		283,832		301,433
Agriculture and agricultural real estate loans		15,322		12,004
Commercial and industrial loans		65,253		58,194
Loans to individuals for household, family, and other personal expenditures		14,977		15,286
Total loans, gross	$	610,928	$	627,249
Less: Allowance for loan losses		16,766		17,299
	$	594,162	$	609,950

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 and all renegotiated loans are reviewed for impairment each quarter. 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, nonaccrual investment securities, and other real estate owned. Other real estate owned includes real estate that has been 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,
	2013			2012
Nonaccrual loans	$	28,010		$	31,343
Loans 90 days past due and accruing		4			1
Restructured loans		29,926			38,460
Total nonperforming loans	$	57,940		$	69,804

Other real estate owned		10,801			14,262
Other assets		39			32
Nonperforming investment securities		3,320			3,045
Total nonperforming assets	$	72,100		$	87,143

Nonperforming assets to total assets		6.02	%		6.87	%
Allowance for loan losses to nonperforming loans		28.94	%		24.78	%

	-9-

5. ALLOWANCE FOR LOAN LOSSES

The Company separates its loan portfolio into segments to perform the calculation and analysis of the allowance for loan losses. The six segments analyzed are Agriculture and Agricultural Real Estate, Commercial, Commercial Real Estate, Construction Real Estate, Residential Real Estate, and Consumer and Other. The Agriculture and Agricultural Real Estate segment includes all loans to finance agricultural production and all loans secured by agricultural real estate. This segment does not include loans to finance agriculture that are secured by residential real estate, which are included in the Residential Real Estate segment. The Commercial segment includes loans to finance commercial and industrial businesses that are not secured by real estate. The Commercial Real Estate segment includes loans secured by non-farm, non-residential real estate. The Construction Real Estate segment includes loans to finance construction and land development. This includes residential and commercial construction and land development. The Residential Real Estate segment includes all loans, other than construction loans, that are secured by single family and multi family residential real estate properties. The Consumer and Other segment includes all loans not included in any other segment. These are primarily loans to consumers for household, family, and other personal expenditures, such as autos, boats, and recreational vehicles.

Activity in the allowance for loan losses during the three and nine months ended September 30, 2013 was as follows (000s omitted):

	Agriculture
	and
	Agricultural				Commercial		Construction		Residential		Consumer and
	Real Estate		Commercial		Real Estate		Real Estate		Real Estate		Other		Total
Allowance for loan losses: For the three months ended September 30, 2013
Beginning Balance	$	109	$	2,442	$	7,556	$	1,889	$	4,787	$	412	$	17,195
Charge-offs		-		(162)		(728)		(30)		(351)		(53)		(1,324)
Recoveries		-		24		427		49		162		33		695
Provision		28		(409)		453		(278)		24		382		200
Ending balance	$	137	$	1,895	$	7,708	$	1,630	$	4,622	$	774	$	16,766

Allowance for loan losses: For the nine months ended September 30, 2013
Beginning Balance	$	76	$	2,224	$	7,551	$	2,401	$	4,715	$	332	$	17,299
Charge-offs		-		(564)		(2,596)		(67)		(1,167)		(190)		(4,584)
Recoveries		-		287		717		337		481		129		1,951
Provision		61		(52)		2,036		(1,041)		593		503		2,100
Ending balance	$	137	$	1,895	$	7,708	$	1,630	$	4,622	$	774	$	16,766

Allowance for loan losses as of September 30, 2013
Ending balance individually evaluated for impairment	$	1	$	1,133	$	2,893	$	1,333	$	1,750	$	110	$	7,220
Ending balance collectively evaluated for impairment		136		762		4,815		297		2,872		664		9,546
Ending balance	$	137	$	1,895	$	7,708	$	1,630	$	4,622	$	774	$	16,766

Loans as of September 30, 2013
Ending balance individually evaluated for impairment	$	424	$	3,175	$	35,769	$	5,704	$	16,122	$	363	$	61,557
Ending balance collectively evaluated for impairment		14,898		62,078		232,999		9,360		215,422		14,614		549,371
Ending balance	$	15,322	$	65,253	$	268,768	$	15,064	$	231,544	$	14,977	$	610,928

	-10-

Activity in the allowance for loan losses during the three and nine months ended September 30, 2012 was as follows (000s omitted):

	Agriculture
	and
	Agricultural					Commercial		Construction		Residential		Consumer and
	Real Estate		Commercial			Real Estate		Real Estate		Real Estate		Other		Total

Allowance for loan losses: For the three months ended September 30, 2012
Beginning Balance	$	-	$	2,781		$	8,737	$	2,011	$	5,643	$	314	$	19,486
Charge-offs		-		(68)			(1,337)		(429)		(225)		(97)		(2,156)
Recoveries		-		77			13		66		54		33		243
Provision		13		110			1,706		23		(668)		366		1,550
Ending balance	$	13	$	2,900		$	9,119	$	1,671	$	4,804	$	616	$	19,123

Allowance for loan losses: For the nine months ended September 30, 2012
Beginning Balance	$	64	$	2,184		$	9,351	$	2,632	$	6,227	$	407	$	20,865
Charge-offs		-		(330)	��		(4,399)		(1,030)		(1,420)		(178)		(7,357)
Recoveries		-		246			35		207		157		120		765
Provision		(51)		800			4,132		(138)		(160)		267		4,850
Ending balance	$	13	$	2,900		$	9,119	$	1,671	$	4,804	$	616	$	19,123

Allowance for loan losses as of September 30, 2012
Ending balance individually evaluated for impairment	$	-	$	1,809		$	3,483	$	772	$	1,575	$	75	$	7,714
Ending balance collectively evaluated for impairment		13		1,091			5,636		899		3,229		541		11,409
Ending balance	$	13	$	2,900		$	9,119	$	1,671	$	4,804	$	616	$	19,123

Loans as of September 30, 2012
Ending balance individually evaluated for impairment	$	784	$	5,196		$	41,684	$	6,607	$	17,600	$	263	$	72,134
Ending balance collectively evaluated for impairment		13,976		53,787			251,586		11,892		230,555		15,797		577,593
Ending balance	$	14,760	$	58,983		$	293,270	$	18,499	$	248,155	$	16,060	$	649,727

Each period the provision for loan losses in the income statement results from the combination of an estimate by Management of loan losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods.

The provision for loan losses increases the allowance for loan losses, a valuation account which appears on the consolidated balance sheets. As the specific customer and amount of a loan loss is confirmed by gathering additional information, taking collateral in full or partial settlement of the loan, bankruptcy of the borrower, etc., 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.

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.

The Company utilizes an internal loan grading system to assign a risk grade to all commercial loans, all renegotiated loans, and each commercial credit relationship. Grades 1 through 4 are considered “pass” credits and grades 5 through 9 are considered “watch” credits and are subject to greater scrutiny. Loans with grades 6 and higher are considered substandard and most are evaluated for impairment. A description of the general characteristics of each grade is as follows:

• Grade 1 – Excellent – Loans secured by marketable collateral, with adequate margin, or supported by strong financial statements. Probability of serious financial deterioration is unlikely. Possess a sound repayment source and a secondary source. This classification will also include all loans secured by certificates of deposit or cash equivalents.

	-11-

• Grade 2 – Satisfactory – Loans that have less than average risk and clearly demonstrate adequate debt service coverage. These loans may have some vulnerability, but are sufficiently strong to have minimal deterioration if adverse factors are encountered, and are expected to be fully collectable.

• Grade 3 – Average – Loans that have a reasonable amount of risk and may exhibit vulnerability to deterioration if adverse factors are encountered. These loans should demonstrate adequate debt service coverage but warrant a higher level of monitoring to ensure that weaknesses do not advance.

• Grade 4 – Pass/Watch – Loans that are considered “pass credits” yet appear on the “watch list”. Credit deficiency or potential weakness may include a lack of current or complete financial information. The level of risk is considered acceptable so long as the loan is given additional management supervision.

• Grade 5 – Watch – Loans that possess some credit deficiency or potential weakness that if not corrected, could increase risk in the future. The source of loan repayment is sufficient but may be considered inadequate by the Bank’s standards.

• Grade 6 – Substandard – Loans that exhibit one or more of the following characteristics: (1) uncertainty of repayment from primary source and financial deterioration currently underway; (2) inadequate current net worth and paying capacity of the obligor; (3) reliance on secondary source of repayment such as collateral liquidation or guarantees; (4) distinct possibility the Bank will sustain loss if deficiencies are not corrected; (5) unusual courses of action are needed to maintain probability of repayment; (6) insufficient cash flow to repay principal but continuing to pay interest; (7) the Bank is subordinated or unsecured due to flaws in documentation; (8) loans are restructured or are on nonaccrual status due to concessions to the borrower when compared to normal terms; (9) the Bank is contemplating foreclosure or legal action due to deterioration in the loan; or (10) there is deterioration in conditions and the borrower is highly vulnerable to these conditions.

• Grade 7 – Doubtful – Loans that exhibit one or more of the following characteristics: (1) loans with the weaknesses of Substandard loans and collection or liquidation is not probable to result in payment in full; (2) the primary source of repayment is gone and the quality of the secondary source is doubtful; or (3) the possibility of loss is high, but important pending factors may strengthen the loan.

• Grades 8 & 9 - Loss – Loans are considered uncollectible and of such little value that carrying them on the Bank’s financial statements is not feasible.

The assessment of compensating factors may result in a rating plus or minus one grade from those listed above. These factors include, but are not limited to collateral, guarantors, environmental conditions, history, plan/projection reasonableness, quality of information, and payment delinquency.

	-12-

The portfolio segments in each credit risk grade as of September 30, 2013 are as follows (000s omitted):

Credit Quality Indicators as of September 30, 2013

Credit Risk by Internally Assigned Grade

	Agriculture
	and
	Agricultural				Commercial		Construction		Residential		Consumer and
	Real Estate		Commercial		Real Estate		Real Estate		Real Estate		Other		Total
Not Rated	$	191	$	3,285	$	-	$	2,603	$	143,422	$	10,257	$	159,758
1		-		3,927		-		-		-		194		4,121
2		83		122		961		-		145		-		1,311
3		761		3,732		10,519		111		1,266		-		16,389
4		12,343		37,416		170,821		3,587		51,951		73		276,191
5		1,024		13,228		44,483		3,806		8,610		3,931		75,082
6		920		3,543		41,984		4,957		26,150		522		78,076
7		-		-		-		-		-		-		-
8		-		-		-		-		-		-		-
9		-		-		-		-		-		-		-
Total	$	15,322	$	65,253	$	268,768	$	15,064	$	231,544	$	14,977	$	610,928

Performing	$	14,814	$	62,544	$	238,413	$	9,159	$	213,849	$	14,209	$	552,988
Nonperforming		508		2,709		30,355		5,905		17,695		768		57,940
Total	$	15,322	$	65,253	$	268,768	$	15,064	$	231,544	$	14,977	$	610,928

The portfolio segments in each credit risk grade as of December 31, 2012 are as follows (000s omitted):

Credit Quality Indicators as of December 31, 2012

Credit Risk by Internally Assigned Grade

	Agriculture
	and
	Agricultural				Commercial		Construction		Residential		Consumer and
	Real Estate		Commercial		Real Estate		Real Estate		Real Estate		Other		Total
Not Rated	$	126	$	4,182	$	-	$	2,927	$	159,743	$	10,706	$	177,684
1		-		2,977		-		-		-		-		2,977
2		48		114		1,850		82		731		-		2,825
3		880		4,894		10,735		163		1,885		7		18,564
4		9,907		29,935		167,207		3,184		40,392		16		250,641
5		322		9,713		45,262		5,086		8,426		3,940		72,749
6		721		6,379		57,960		6,977		29,155		617		101,809
7		-		-		-		-		-		-		-
8		-		-		-		-		-		-		-
9		-		-		-		-		-		-		-
Total	$	12,004	$	58,194	$	283,014	$	18,419	$	240,332	$	15,286	$	627,249

Performing	$	11,397	$	54,730	$	246,107	$	10,783	$	219,753	$	14,675	$	557,445
Nonperforming		607		3,464		36,907		7,636		20,579		611		69,804
Total	$	12,004	$	58,194	$	283,014	$	18,419	$	240,332	$	15,286	$	627,249

Loans are considered past due when contractually required payment of interest or principal has not been received. The amount classified as past due is the entire principal balance outstanding of the loan, not just the amount of payments that are past due. The following is a summary of past due loans as of September 30, 2013 and December 31, 2012 (000s omitted):

	-13-

													Recorded
													Investment >90
	30-59 Days		60-89 Days		>90 Days Past								Days Past Due
September 30, 2013	Past Due		Past Due		Due		Total Past Due		Current		Total Loans		and Accruing

Agriculture and Agricultural Real Estate	$	230	$	88	$	84	$	402	$	14,920	$	15,322	$	-
Commercial		354		223		296		873		64,380		65,253		4
Commercial Real Estate		4,964		658		4,154		9,776		258,992		268,768		-
Construction Real Estate		100		-		1,273		1,373		13,691		15,064		-
Residential Real Estate		2,984		1,246		3,430		7,660		223,884		231,544		-
Consumer and Other		127		38		206		371		14,606		14,977		-
Total	$	8,759	$	2,253	$	9,443	$	20,455	$	590,473	$	610,928	$	4

													Recorded
													Investment >90
	30-59 Days		60-89 Days		>90 Days Past								Days Past Due
December 31, 2012	Past Due		Past Due		Due		Total Past Due		Current		Total Loans		and Accruing

Agriculture and Agricultural Real Estate	$	208	$	-	$	145	$	353	$	11,651	$	12,004	$	-
Commercial		927		19		1,100		2,046		56,148		58,194		1
Commercial Real Estate		1,789		930		11,350		14,069		268,945		283,014		-
Construction Real Estate		127		1,437		1,867		3,431		14,988		18,419		-
Residential Real Estate		5,738		978		3,121		9,837		230,495		240,332		-
Consumer and Other		222		61		164		447		14,839		15,286		-
Total	$	9,011	$	3,425	$	17,747	$	30,183	$	597,066	$	627,249	$	1

Loans are placed on non-accrual status when, in the opinion of Management, the collection of additional interest is doubtful. Loans are automatically placed on non-accrual status upon becoming ninety days past due, however, loans may be placed on non-accrual status regardless of whether or not they are past due. All cash received on non-accrual loans is applied to the principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following is a summary of non-accrual loans as of September 30, 2013 and December 31, 2012 (000s omitted):

		September 30, 2013		December 31, 2012
Agriculture and Agricultural Real Estate	$	84	$	198
Commercial		991		1,578
Commercial Real Estate		16,099		17,950
Construction Real Estate		2,349		3,438
Residential Real Estate		8,048		7,870
Consumer and Other		439		309
Total	$	28,010	$	31,343

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, the fair value of the collateral, or the loan’s observable market price.

	-14-

The following is a summary of impaired loans as of September 30, 2013 and 2012 (000s omitted):

									Interest				Interest
							Average		Income		Average		Income
							Recorded		Recognized in		Recorded		Recognized in
			Unpaid				Investment for		the Three		Investment for		the Nine
	Recorded		Principal		Related		the Three		Months		the Nine		Months
September 30, 2013	Investment		Balance		Allowance		Months Ended		Ended		Months Ended		Ended

With no related allowance recorded:
Agriculture and Agricultural Real Estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial		1,513		1,628		-		1,728		21		1,562		55
Commercial Real Estate		18,913		23,082		-		19,544		228		20,004		629
Construction Real Estate		1,903		3,133		-		2,302		23		2,452		91
Residential Real Estate		8,168		8,952		-		8,586		97		8,656		293
Consumer and Other		29		30		-		31		1		31		3

With an allowance recorded:
Agriculture and Agricultural Real Estate		424		424		1		424		4		724		28
Commercial		1,662		1,746		1,133		1,695		16		1,739		53
Commercial Real Estate		16,856		20,639		2,893		18,660		148		19,226		594
Construction Real Estate		3,801		4,401		1,333		4,077		191		4,197		292
Residential Real Estate		7,954		8,373		1,750		8,141		91		8,347		264
Consumer and Other		334		332		110		332		5		339		14

Total:
Agriculture and Agricultural Real Estate	$	424	$	424	$	1	$	424	$	4	$	724	$	28
Commercial		3,175		3,374		1,133		3,423		37		3,301		108
Commercial Real Estate		35,769		43,721		2,893		38,204		376		39,230		1,223
Construction Real Estate		5,704		7,534		1,333		6,379		214		6,649		383
Residential Real Estate		16,122		17,325		1,750		16,727		188		17,003		557
Consumer and Other		363		362		110		363		6		370		17


										Interest				Interest
								Average		Income		Average		Income
				Unpaid				Recorded		Recognized in		Recorded		Recognized in
		Recorded		Principal		Related		Investments for		the Three		Investment for		the Nine
		Investment as		Balance as of		Allowance as		the Three		Months		the Nine		Months
		of December		December 31,		of December		Months Ended		Ended Sept		Months Ended		Ended Sept.
		31, 2012		2012		31, 2012		Sept. 30, 2012		30, 2012		Sept. 30, 2012		30, 2012

With no related allowance recorded:
Agriculture and Agricultural Real Estate		$	409	$	923	$	-	$	836	$	12	$	833	$	42
Commercial			2,540		2,961		-		280		8		320		24
Commercial Real Estate			17,153		21,317		-		16,117		166		16,698		465
Construction Real Estate			1,007		1,375		-		419		2		419		5
Residential Real Estate			9,013		10,390		-		9,997		132		10,443		446
Consumer and Other			-		-		-		86		1		88		3

With an allowance recorded:
Agriculture and Agricultural Real Estate			-		-		-		-		-		-		-
Commercial			1,979		2,157		1,316		4,853		50		4,650		170
Commercial Real Estate			19,318		26,508		2,084		27,183		220		27,015		817
Construction Real Estate			6,403		9,060		1,820		6,791		40		6,891		166
Residential Real Estate			9,038		9,520		1,994		9,094		94		9,144		298
Consumer and Other			389		383		124		178		3		181		9

Total:
Agriculture and Agricultural Real Estate		$	409	$	923	$	-	$	836	$	12	$	833	$	42
Commercial			4,519		5,118		1,316		5,133		58		4,970		194
Commercial Real Estate			36,471		47,825		2,084		43,300		386		43,713		1,282
Construction Real Estate	��		7,410		10,435		1,820		7,210		42		7,310		171
Residential Real Estate			18,051		19,910		1,994		19,091		226		19,587		744
Consumer and Other			389		383		124		264		4		269		12

	-15-

The Bank may agree to modify the terms of a loan in order to improve the Bank’s ability to collect amounts due. These modifications may include reduction of the interest rate, extension of the loan term, or in some cases, reduction of the principal balance. Modifications that are performed due to the debtor’s financial difficulties are considered Troubled Debt Restructurings (“TDRs”).

Loans that have been classified as TDRs during the three and nine month periods ended September 30, 2013 and September 30, 2012 are as follows (000s omitted from dollar amounts):

	Three months ended					Nine months ended
	September 30, 2013					September 30, 2013
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Recorded		Recorded			Recorded		Recorded
	Number of	Principal		Principal		Number of	Principal		Principal
	Contracts	Balance		Balance		Contracts	Balance		Balance
Agriculture and Agricultural Real Estate	-	$	-	$	-	-	$	-	$	-
Commercial	6		1,044		636	13		1,398		787
Commercial Real Estate	3		480		301	10		2,527		1,646
Construction Real Estate	-		-		-	-		-		-
Residential Real Estate	8		685		665	24		2,131		1,801
Consumer and Other	1		10		9	5		276		34
Total	18	$	2,219	$	1,611	52	$	6,332	$	4,268

	Three months ended					Nine months ended
	September 30, 2012					September 30, 2012
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Recorded		Recorded			Recorded		Recorded
	Number of	Principal		Principal		Number of	Principal		Principal
	Contracts	Balance		Balance		Contracts	Balance		Balance
Agriculture and Agricultural Real Estate	-	$	-	$	-	-	$	-	$	-
Commercial	3		168		163	9		950		553
Commercial Real Estate	5		4,030		4,030	14		6,433		6,075
Construction Real Estate	-		-		-	5		2,686		2,633
Residential Real Estate	3		743		743	17		2,450		2,403
Consumer and Other	1		44		43	3		71		69
Total	12	$	4,985	$	4,979	48	$	12,590	$	11,733

The Bank considers TDRs that become past due under the modified terms as defaulted. The following is a summary of loans that became TDRs during the three and nine month periods ended September 30, 2013 that subsequently defaulted (000s omitted):

	Three months ended			Nine months ended
	September 30, 2013			September 30, 2013
		Recorded			Recorded
	Number of	Principal		Number of	Principal
	Contracts	Balance		Contracts	Balance
Agriculture and Agricultural Real Estate	-	$	-	-	$	-
Commercial	2		12	2		12
Commercial Real Estate	-		-	-		-
Construction Real Estate	-		-	-		-
Residential Real Estate	-		-	2		36
Consumer and Other	-		-	-		-
Total	2	$	12	4	$	48

There were no loans that became TDRs during the nine month period ended September 30, 2012 that subsequently defaulted during the three and nine month periods ended September 30, 2012.

The Company has allocated $ 6,088,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings at September 30, 2013. In addition, there are no commitments to lend additional amounts to borrowers that are classified as troubled debt restructurings as of September 30, 2013 and September 30, 2012.

	-16-

6. INVESTMENT SECURITIES

The following is a summary of the Bank’s investment securities portfolio as of September 30, 2013 and December 31, 2012 (000’s omitted):

	Held to Maturity
	September 30, 2013
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	31,381	$	618	$	(352)	$	31,647
Corporate Debt Securities		500		-		-		500
	$	31,881	$	618	$	(352)	$	32,147

		Available for Sale
		September 30, 2013
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Obligations of U.S. Government Agencies	$	271,737	$	1,708	$	(8,771)	$	264,674
Mortgage Backed Securities issued by U.S. Government Agencies		102,497		1,284		(1,235)		102,546
Obligations of States and Political Subdivisions		15,519		314		(121)		15,712
Trust Preferred CDO Securities		9,513		-		(3,652)		5,861
Corporate Debt Securities		11,967		135		(32)		12,070
Equity Securities		2,580		78		(81)		2,577
	$	413,813	$	3,519	$	(13,892)	$	403,440

	Held to Maturity
	December 31, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	38,286	$	1,380	$	(36)	$	39,630
Corporate Debt Securities		500		-		-		500
	$	38,786	$	1,380	$	(36)	$	40,130

	-17-

	Available for Sale
	December 31, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Obligations of U.S. Government Agencies	$	222,099	$	3,442	$	(90)	$	225,451
Mortgage Backed Securities issued by U.S. Government Agencies		127,082		2,826		(90)		129,818
Obligations of States and Political Subdivisions		17,804		630		(64)		18,370
Trust Preferred CDO Securities		9,525		-		(4,119)		5,406
Corporate Debt Securities		11,961		156		(40)		12,077
Equity Securities		2,580		173		(108)		2,645
	$	391,051	$	7,227	$	(4,511)	$	393,767

The amortized cost and estimated market values of securities by contractual maturity as of September 30, 2013 are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held to Maturity				Available for Sale
			Estimated				Estimated
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
Contractual maturity in 1 year or less	$	3,560	$	3,586	$	1,401	$	1,406
After 1 year through five years		13,178		13,397		65,780		65,479
After 5 years through 10 years		11,088		11,108		223,767		217,766
After 10 years		4,055		4,056		17,788		13,666
Total		31,881		32,147		308,736		298,317
Mortgage Backed Securities		-		-		102,497		102,546
Securities with no stated maturity		-		-		2,580		2,577
Total	$	31,881	$	32,147	$	413,813	$	403,440

The investment securities portfolio is evaluated for impairment throughout the year. Impairment is recorded against individual securities, unless the decrease in fair value is attributable to interest rates or the lack of an active market, and Management determines that the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before a recovery of their amortized costs bases, which may be maturity. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2013 and December 31, 2012.

	-18-

		September 30, 2013
		Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Aggregate		Unrealized		Aggregate		Unrealized		Aggregate		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of United States Government Agencies	$	209,712	$	8,771	$	-	$	-	$	209,712	$	8,771
Mortgage Backed Securities issued by U.S. Government Agencies		52,167		1,096		7,233		139		59,400		1,235
Obligations of States and
Political Subdivisions		14,070		409		2,675		64		16,745		473
Trust Preferred CDO Securities		-		-		5,861		3,652		5,861		3,652
Corporate Debt Securities		1,970		32		-		-		1,970		32
Equity Securities		-		-		459		81		459		81
	$	277,919	$	10,308	$	16,228	$	3,936	$	294,147	$	14,244

	December 31, 2012
	Less than 12 months					12 months or longer				Total
			Gross				Gross				Gross
	Aggregate		Unrealized		Aggregate		Unrealized		Aggregate		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of United States Government Agencies	$	29,499	$	89	$	1,111	$	1	$	30,610	$	90
Mortgage Backed Securities issued by U.S. Government Agencies		22,217		90		-		-		22,217		90
Obligations of States and
Political Subdivisions		7,801		90		1,540		10		9,341		100
Trust Preferred CDO Securities		-		-		5,406		4,119		5,406		4,119
Corporate Debt Securities		1,960		40		-		-		1,960		40
Equity Securities		-		-		432		108		432		108
	$	61,477	$	309	$	8,489	$	4,238	$	69,966	$	4,547

The amount of investment securities issued by government agencies, states, and political subdivisions with unrealized losses and the amount of unrealized losses on those investment securities are primarily the result of market interest rates and not the result of the credit quality of the issuers of the securities. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at September 30, 2013. As of September 30, 2013 and December 31, 2012, there were 178 and 42 securities in an unrealized loss position, respectively.

The Trust Preferred CDO Securities consist of three pooled trust Preferred Collateralized Debt Obligations (CDOs). These CDOs are debt securities issued by special purpose entities that own trust preferred stock issued by banks and insurance companies. The trust preferred stock owned by the special purpose entities is the collateral that backs the debt securities we own. The three pooled CDOs that we own have each been in an unrealized loss position for more than 12 months. These securities have final maturity dates of 2033, 2035, and 2037. The main reasons for the impairment are the overall decline in market values for financial industry securities and the lack of an active market for these types of securities in particular.

	-19-

To determine whether or not the impairment is other-than-temporary, the Company utilizes a third party valuation service to conduct a fair value analysis of each individual security. The other-than-temporary-impairment analysis of each of the CDO securities owned by the Company is conducted by projecting the expected cash flows from the security, discounting the cash flows to determine the present value of the cash flows, and comparing the present value to the amortized cost to determine if there is impairment. The cash flow projection for each security is developed using estimated prepayment speeds, estimated rates at which payments will be deferred, estimated rates at which issuers will default, and the severity of the losses on the securities which default. Prepayment estimates are negatively impacted by the lack of an active market for issuers to refinance their trust preferred securities; however, prepayment of trust preferred securities is expected to increase due to recent restrictions on the treatment of trust preferred debt as regulatory capital.

The size and creditworthiness of each institution in the CDO pool are the most significant pieces of evidence in estimating prepayment speeds. Deferral and default rates are the key drivers of the cash flow projections for each of the securities. Deferral of interest payments is allowed for up to five years, and estimates of deferral rates are determined by examining the current deferral status of the issuers, the current financial condition of the issuers, and the historical deferral levels of the issuers in each CDO pool. Key evidence examined includes whether or not an issuer has received TARP funding, the most recent credit ratings from outside services, stock price information, capitalization, asset quality, profitability, and liquidity. The most significant evidence in estimating deferrals is the comparison of key financial ratios to industry benchmarks. Near term (next 12 months) deferral rates are estimated for each security by analyzing the credit characteristics of each individual issuer in the pool. When an issuer is expected to defer interest payments, the analysis assumes that the deferral will continue for the entire five year period allowed and then, depending on the individual credit characteristics of that issuer, begin performing or move to default. Longer term annual default rates for each CDO are estimated using the credit analysis of each individual issuer compared to industry benchmarks to modify the historical default rates of financial companies. Finally, loss severity is estimated using analytical research provided by Standard and Poor’s and Moody’s, which supports the assumption that a small percentage of defaulted trust preferred securities recover without loss. The projected cash flows are discounted using the contractual rate of each security.

In the Other-Than-Temporary-Impairment (OTTI) analysis of our CDO securities as of December 31, 2009, it was expected that there would be cash flow disruptions on two of the CDOs we own. These credit losses were recorded through a charge to earnings in 2009. In subsequent analyses in 2010, 2011, 2012, and 2013 the expectation of a disruption of cash flows diminished on both of these CDO securities, with one of the securities no longer expected to experience a disruption of cash flow. The present value of the expected cash flows is at least as great as the amortized costs bases following the charges to earnings recorded in 2009, therefore no additional charges to earnings have been recorded.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value, as defined in ASC Topic 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for market activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value is used on a recurring basis for Available for Sale Securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis. Depending on the nature of the asset or liability, the Corporation uses various valuation techniques and assumptions when estimating fair value.

	-20-

The Corporation applied the following fair value hierarchy:

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012, and the valuation techniques used by the Company to determine those fair values.

									Total
	Carrying								Estimated
September 30, 2013	Value		Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and due from banks	$	35,434	$	35,434	$	-	$	-	$	35,434
Securities - Held to Maturity
Obligations of States and Political Subdivisions		31,381		-		31,647		-		31,647
Corporate Debt Securities		500		-		500		-		500

Securities - Available for Sale
Obligations of U.S. Government Agencies		264,674		-		264,674		-		264,674
MBS issued by U.S. Government Agencies		102,546		-		102,546		-		102,546
Obligations of States and Political Subdivisions		15,712		-		15,712		-		15,712
Trust Preferred CDO Securities		5,861		-		-		5,861		5,861
Corporate Debt Securities		12,070		-		12,070		-		12,070
Other Securities		2,577		2,118		459		-		2,577

Federal Home Loan Bank Stock		10,605		-		10,605		-		10,605
Loans Held for Sale		166		-		-		166		166
Loans, net		594,162		-		-		604,867		604,867
Accrued Interest Receivable		3,766		-		3,766		-		3,766

Financial Liabilities:
Noninterest Bearing Deposits		187,009		187,009		-		-		187,009
Interest Bearings Deposits		867,134		-		871,104		-		871,104
Borrowed funds
FHLB Advances		12,000		-		12,001		-		12,001
Repurchase Agreements		15,000		-		16,464		-		16,464
Accrued Interest Payable		192		-		192		-		192

	-21-


	Carrying								Estimated
December 31, 2012	Value		Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and due from banks	$	112,507	$	112,507	$	-	$	-	$	112,507
Securities - Held to Maturity
Obligations of States and Political Subdivisions		38,286		-		40,130		-		40,130
Corporate Debt Securities		500		-		500		-		500

Securities - Available for Sale
Obligations of U.S. Government Agencies		225,451		-		225,451		-		225,451
MBS issued by U.S. Government Agencies		129,818		-		129,818		-		129,818
Obligations of States and Political Subdivisions		18,370		-		18,370		-		18,370
Trust Preferred CDO Securities		5,406		-		-		5,406		5,406
Corporate Debt Securities		12,077		-		12,077		-		12,077
Other Securities		2,645		2,213		432		-		2,645

Federal Home Loan Bank Stock		10,605		-		10,605		-		10,605
Loans Held for Sale		1,520		-		-		1,520		1,520
Loans, net		609,950		-		-		627,171		627,171
Accrued Interest Receivable		3,457		-		3,457		-		3,457

Financial Liabilities:
Noninterest Bearing Deposits		183,016		183,016		-		-		183,016
Interest Bearings Deposits		865,814		-		872,070		-		872,070
Borrowed funds
FHLB Advances		107,000		-		107,785		-		107,785
Repurchase Agreements		15,000		-		17,141		-		17,141
Accrued Interest Payable		353		-		353		-		353

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.

The changes in Level 3 assets measured at fair value on a recurring basis were (000’s omitted):

Investment Securities - Available for Sale	2013		2012
Balance at January 1	$	5,406	$	5,467
Total realized and unrealized gains (losses) included in income		(12)		(12)
Total unrealized gains (losses) included in other comprehensive income		467		(296)
Net purchases, sales, calls and maturities		-		-
Net transfers in/out of Level 3		-		-
Balance at September 30	$	5,861	$	5,159

The Company did not recognize any unrealized losses on its Level 3 Available for Sale investment securities in other comprehensive income in the consolidated statements of financial condition for the nine months ended September 30, 2013. The Company did not have any sales or purchases of Level 3 available for sale securities during the period.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets. As a result, the unrealized gains and losses for these assets presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

The Company owns pooled Trust Preferred Securities (“TRUPs”) with a fair value of $5,861,000 as of September 30, 2013. Trading of these types of securities has increased recently but is primarily conducted on a distress sale or forced liquidation basis. As a result, the Company measures the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

	-22-

The Company also has assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis. These assets include loans and Other Real Estate Owned. The Company estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

Assets measured at fair value on a nonrecurring basis are as follows (000’s omitted):

			Quoted Prices in
	Balance at		Active Markets for		Significant Other		Significant
	September 30,		Identical Assets		Observable Inputs		Unobservable
	2013		(Level 1)		(Level 2)		Inputs (Level 3)

Impaired loans	$	61,557	$	-	$	-	$	61,557
Other Real Estate Owned	$	10,801	$	-	$	-	$	10,801

			Quoted Prices in
	Balance at		Active Markets for		Significant Other		Significant
	December 31,		Identical Assets		Observable Inputs		Unobservable
	2012		(Level 1)		(Level 2)		Inputs (Level 3)

Impaired loans	$	67,249	$	-	$	-	$	67,249
Other Real Estate Owned	$	14,262	$	-	$	-	$	14,262

Impaired loans categorized as Level 3 assets consist of non-homogenous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). Other Real Estate Owned (OREO) consists of property received in full or partial satisfaction of a receivable. The Company utilizes independent appraisals to estimate the fair value of OREO properties.

9. 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):

	-23-

	Contractual Amount
	September 30,		December 31,
	2013		2012
Commitments to extend credit:
Unused portion of commercial lines of credit	$	57,096	$	59,826
Unused portion of credit card lines of credit		3,109		3,048
Unused portion of home equity lines of credit		16,097		16,356
Standby letters of credit and financial guarantees written		3,815		3,730
All other off-balance sheet commitments		-		-

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

Introduction

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 a wholly owned subsidiary, MB&T Financial Services. MB&T Financial Services is an insurance agency which sells insurance policies to the Bank. The Bank operates 17 branch offices in Monroe County, Michigan and 7 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. The discussion and analysis should be read in conjunction with the accompanying consolidated statements and footnotes.

Executive Overview

The Bank is operated as a community bank, primarily providing loan, deposit, and wealth management products and services to the people, businesses, and communities in its market area. In addition to our commitment to our mission of serving the needs of our local communities, we are focused on improving asset quality, profitability, and capital.

The net profit of $21,287,000 for the quarter ended September 30, 2013 was significantly impacted by the Company’s elimination of the valuation allowance on its deferred tax asset. In 2010 the Company established a valuation allowance against its deferred tax asset due to its recent operating losses and uncertainty about its ability to utilize its tax loss carry forwards. In 2012, following six consecutive quarterly profits and based on its expectations for future earnings, the Company reversed $5 million of its then $24.2 million valuation allowance. This quarter the company achieved its ninth consecutive quarterly profit and has achieved a cumulative profit for the past twelve quarters. In addition, the Company has exceeded its earnings projections for 2013 and revised its future earnings projections. Based on this information, the Company has determined that it more likely than not will be able to fully utilize its tax loss carry forwards and determined that it was appropriate to reverse the remaining $18.8 million deferred tax asset valuation allowance by recording a credit to tax expense during the quarter.

	-24-

The national economic recovery is continuing slowly, and the recovery in southeast Michigan is gaining strength. Local unemployment rates improved significantly since 2011, and while they are now comparable to the state and national averages, they remain above the historical norms. Commercial and residential development property values are beginning to improve slightly, but remain below pre-recession levels. Our total problem assets, which include nonperforming loans, other real estate owned, non accrual investments, and performing loans that are internally classified as potential problems, improved significantly during the third quarter of 2013. Problem assets went down $14.4 million, or 12.5% during the third quarter of 2013, and decreased $30.5 million or 23.1% compared to a year ago. Overall asset quality has improved over the past year and net charge offs were only $629,000 in the third quarter of 2013. Improving economic conditions and improving historical loss ratios enabling us to decrease our Allowance for Loan and Lease Losses (ALLL) from $17.2 million to $16.8 million in the third quarter. The loan portfolio held for investment decreased during the quarter, and the ALLL as a percent of loans decreased slightly from 2.79% to 2.74%. We anticipate that the recovery in our local markets will continue at a slow pace into 2014, which may result in increased lending activity and problem asset reductions. We will continue to focus our efforts on improving asset quality, maintaining liquidity, strengthening capital, and controlling expenses.

Net Interest Income decreased $82,000 compared to the third quarter of 2012 as the average earning assets decreased $60.5 million but the net interest margin increased from 3.05% to 3.17%. The decrease in the average earning assets was due to the use of short term investments to pay off maturing borrowings in the second quarter of 2013. The cost of those borrowings was higher than the yield on the assets used to retire the borrowings, and this caused the net interest margin to increase. The provision for loan losses decreased $1.35 million compared to the third quarter of 2012 as decreases in the historical loss rates and in the amount of loans compared to a year ago decreased the amount of ALLL required. Non interest income for the quarter increased $93,000, primarily due to an increase in rent income on Other Real Estate Owned. Non interest expenses increased $274,000, as salaries and employee benefits increased and losses on sales of other real estate owned (OREO) increased. The increase in OREO losses was due to the write down of one large commercial real estate property in the third quarter of 2013, and we expect credit related expenses to improve into 2014.

Critical Accounting Policies

The Company’s Allowance for Loan Losses, Deferred Tax Asset Valuation Allowance, Fair Value of Investment Securities, and Other Real Estate Owned are “critical accounting estimates” because they are estimates that are 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, the effect of economic conditions on the financial condition of the borrowers, the Company, and the issuers of investment securities, market interest rates, and projected earnings for the Company.

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, adjusted for current conditions, to those loans. In addition, all non accrual loan relationships over $250,000 that are classified by Management as nonperforming as well as selected performing accounts and all renegotiated loans are individually tested for impairment. Any amount of monetary impairment is included in the Allowance for Loan Losses.

	-25-

Income tax accounting standards require companies to assess whether a valuation allowance should be established against deferred tax assets based on the consideration of all evidence using a “more likely than not” standard. We reviewed our deferred tax asset, considering both positive and negative evidence and analyzing changes in near term market conditions as well as other factors that may impact future operating results. Significant negative evidence is our net operating losses for the years 2009 through 2011, combined with a difficult economic environment and the slow pace of the economic recovery in southeast Michigan. Positive evidence includes our history of strong earnings prior to 2008, our ninth consecutive quarterly profit in the third quarter of 2013, our cumulative pre tax profits in the last twelve quarters, our strong capital position, our improving core earnings, our improving asset quality, our non interest expense control initiatives, and our projections for future taxable earnings. Based on our analysis of the evidence, we believed that it was appropriate to eliminate our valuation allowance in the third quarter of 2013.

To determine the fair value of investment securities, the Company utilizes quoted prices in active markets for identical assets, quoted prices for similar assets in active markets, or discounted cash flow calculations for investments where there is little, if any, market activity for the asset.

To determine the fair value of Other Real Estate Owned, the Company utilizes independent appraisals to estimate the fair value of the property.

Financial Condition

National economic conditions began to recover in the second half of 2009, but regional conditions remained weak through 2010. Local unemployment and property values stabilized during 2011 and began to improve in 2012. The economic environment in southeast Michigan is continuing to slowly improve, and we expect the slow recovery to continue in our market area throughout 2013. Management intends to continue to focus efforts on improving credit quality, managing capital, and mitigating enterprise risk.

With respect to credit quality, our nonperforming assets (“NPAs”) decreased 8.6% during the quarter, from $78.9 million to $72.1 million, and total problem assets decreased from $115.7 million to $101.3 million. Both of these measures were impacted by a small number of large credit relationships, and both reflect improvement compared to a year ago. Over the last twelve months, NPAs decreased $17.3 million, or 19.4%, with nonperforming loans decreasing 20.4% from $72.7 million to $57.9 million, and Other Real Estate Owned (“OREO”) decreasing 21.4% from $13.8 million to $10.8 million. Total problem assets, which includes all NPAs and performing loans that are internally classified as substandard, decreased $30.5 million, or 23.1%. The Company’s Allowance for Loan and Lease Losses (“ALLL”) decreased $2.4 million over the last four quarters due to a decrease in the size of the portfolio and an improvement in the quality of the assets in the loan portfolio. The ALLL is now 2.74% of loans, down from 2.94% at September 30, 2012. The ALLL is 28.94% of nonperforming loans (“NPLs”), compared to 24.78% at year end and 26.29% at September 30, 2012. In light of current economic conditions, we believe that this level of ALLL adequately estimates the potential losses in the loan portfolio.

	-26-

Since December 31, 2012, total loans held for investment decreased 2.6% because new loan activity was not sufficient to cover payments received and other reductions. New loan production increased in the second and third quarters of 2013, but payoffs of some large problem credit relationships resulted in a net reduction of total loans held for investment. As local economic activity increases, the amount of loans in our pipeline is increasing, and new loan production may exceed run off, resulting in an increase in loans outstanding.

Since December 31, 2012, deposits increased $5.3 million, or 0.5% due to normal seasonal fluctuations in local deposit activity. We repaid $95.0 million of borrowings from the Federal Home Loan Bank of Indianapolis in the second quarter of 2013. This reduction in funding was offset by a reduction in cash and investment securities, causing our total assets to decrease $70.5 million, or 5.6% since the end of 2012. The cost of the non deposit funding exceeded the yield on the assets utilized to pay off the debt, so this reduction in assets improved our net interest income in the third quarter of 2013. Our net interest margin improved from 2.92% in the second quarter of 2013 to 3.17% in the third quarter, and our net interest income increased from $8.1 million in the second quarter of 2013 to $8.5 million in the third quarter of 2013. The Company expects deposit funding to remain relatively stable for the next few quarters.

Total capital increased $17.3 million, or 20.6%, during the first nine months of 2013 as the profit of $23.9 million and a private placement stock offering of $1.7 million were partially offset by the decrease of $8.5 million in the accumulated other comprehensive income (AOCI). AOCI decreased mainly due to a decrease in the value of our securities available for sale. The increase in capital and the decrease in total assets caused the capital to assets ratio to increase from 6.59% at December 31, 2012 to 8.42% at September 30, 2013.

Results of Operations – Third Quarter 2013 vs. Third Quarter 2012

Net Interest Income - A comparison of the income statements for the three months ended September 30, 2012 and 2013 shows a decrease of $82,000, or 1.0%, in Net Interest Income. Interest income on loans decreased $1.1 million or 12.5% as the average loans outstanding decreased $49.7 million and the average yield on loans decreased from 5.23% to 4.94%. The interest income on investments, fed funds sold, and interest bearing balances due from banks decreased $132,000 as the average amount of investments, fed funds sold, and interest bearing balances due from banks decreased $10.7 million and the yield decreased from 1.88% to 1.81%. The yield on investments decreased because the Company is maintaining its strong liquidity position by keeping its excess funds in low yielding short term investments and deposits in the Federal Reserve Bank. A continued low overall level of interest rates and the maturity of some high cost borrowings helped reduce the funding costs. The interest expense on deposits decreased $455,000 or 30.6% even though the average deposits increased $35.6 million because the average cost of deposits decreased from 0.58% to 0.39%. The cost of borrowed funds decreased $686,000 as the average amount of borrowed funds decreased $96.6 million and the average cost of the borrowings decreased from 2.83% to 2.82%.

Provision for Loan Losses - The Provision for Loan Losses decreased from $1.55 million in the third quarter of 2012 to $200,000 in the third quarter of 2013. Net charge offs were $629,000 during the third quarter of 2013, compared to $1.9 million in the third quarter of 2012. Each quarter, the Company conducts a review and analysis of its ALLL to determine 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. Due to a decrease in the size of the portfolio, an improvement in portfolio risk indicators, and a decrease in the historical loss percentages, the amount of provision required to maintain an adequate ALLL in the third quarter of 2013 decreased 87.1% compared to the amount required in the third quarter of 2012. The ALLL is 2.74% of loans as of September 30, 2013, and, in light of current economic conditions, we believe that at this level the ALLL adequately estimates the potential losses in our loan portfolio.

	-27-

Other Income – Non interest income increased $93,000, or 2.3% compared to the third quarter of 2012. Service charges and other fees decreased $49,000, or 4.2% due to a decrease in the amount of checking account overdraft activity. Debit card income increased $23,000 or 4.7% as debit card usage continues to grow. Securities gains increased $43,000 as the Bank sold available for sale securities in the third quarter of 2013 in order to maintain adequate cash liquidity. Origination fees on mortgage loans sold decreased $165,000, or 55.4% as a sharp increase in market interest rates near the end of the second quarter of 2013 significantly decreased mortgage refinance activity in the third quarter of 2013. Other non interest income increased $238,000 primarily due to higher rental income on OREO properties.

Other Expenses – Total non interest expenses increased $274,000, or 2.8% compared to the third quarter of 2012. Salaries and Employee Benefits increased $241,000, or 4.8%, as salaries increased due to an increase in the number of employees, annual merit increases, and the reinstatement of the accrual for the officer incentive program. Occupancy expense increased $30,000 due to higher maintenance costs. Equipment expense decreased $27,000 due to lower computer and data processing expenses. Marketing expense increased $29,000 due to higher advertising and sales promotion expenses. Losses on Other Real Estate Owned (OREO) properties increased $259,000 compared to the third quarter of 2012 mainly due to a valuation adjustment on one large commercial real estate property. Other OREO expenses decreased $188,000 as property tax expense decreased due to the reduction in the amount of properties owned.

As a result of the above activity, the Profit Before Income Taxes in the third quarter of 2013 was $2,492,000, an increase of $1,087,000 compared to the pre tax profit of $1,405,000 in the third quarter of 2012. Since 2010, the Company has maintained a valuation allowance against all or part of its deferred tax asset. This quarter, after a review of the positive and negative evidence, we determined that it is more likely than not that we will utilize all of our net operating loss carry forwards before they expire. As a result, we decided that it was appropriate to reverse the remaining deferred tax asset valuation allowance of $18.8 million by recording a credit to federal income tax expense. If we did not have the valuation allowance reversal and the benefit of the NOL carry forward, we would have incurred a federal income tax expense for the quarter of $634,000, for an effective tax rate of 25.4%. The income tax expense of $17,000 that was recorded in the third quarter of 2012 was for an Alternative Minimum Tax payment. The Net profit for the third quarter of 2013 was $21,287,000, an increase of 1,433.6% compared to the net profit of $1,388,000 in the third quarter of 2012.

Results of Operations – Nine months ended September 30, 2013 vs. Nine months ended September 30, 2012

Net Interest Income - A comparison of the income statements for the nine months ended September 30, 2012 and 2013 shows a decrease of $1,661,000, or 6.3%, in Net Interest Income. Interest income on loans decreased $3.7 million or 13.7% as the average loans outstanding decreased $50.3 million and the average yield on loans decreased from 5.36% to 5.01%. The interest income on investments, fed funds sold, and interest bearing balances due from banks decreased $784,000 as the average amount of investments, fed funds sold, and interest bearing balances due from banks increased $36.4 million but the yield decreased from 2.03% to 1.68%. The yield on investments decreased because the Company increased its strong liquidity position in 2013 by keeping its excess funds in low yielding short term investments and deposits in the Federal Reserve Bank. A continued low overall level of interest rates and the maturity of some high cost borrowings and brokered certificates of deposit helped reduce the funding costs. The interest expense on deposits decreased $1,603,000 or 32.3% even though the average deposits increased $30.2 million because the average cost of deposits decreased from 0.65% to 0.43%. The cost of borrowed funds decreased $1,187,000 as the average amount of borrowed funds decreased $50.6 million and the average cost of the borrowings decreased from 2.89% to 2.72%.

	-28-

Provision for Loan Losses - The Provision for Loan Losses decreased from $4.85 million in the first nine months of 2012 to $2.1 million in the first nine months of 2013. Net charge offs were $2.6 million during the first nine months of 2013, compared to $6.6 million in the first nine months of 2012. Each quarter, the Company conducts a review and analysis of its ALLL to determine 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. Due to a decrease in the size of the portfolio, an improvement in portfolio risk indicators, and a decrease in the historical loss percentages, the amount of provision required to maintain an adequate ALLL in the first nine months of 2013 decreased 56.7% compared to the amount required in the first nine months of 2012. The ALLL is 2.74% of loans as of September 30, 2013, and, in light of current economic conditions, we believe that at this level the ALLL adequately estimates the potential losses in our loan portfolio.

Other Income – Non interest income decreased $171,000, or 1.4% compared to the first nine months of 2012. The income in the first nine months of 2012 included gains on securities transactions that were the result of restructuring activity in the investment portfolio. Excluding securities gains in both years, non interest income increased $762,000 or 6.9%. Wealth management income increased $397,000 due to an increase in the market value of assets managed, new business brought in to the bank, and the effect of a non recurring charge to income in 2012. Service charges on deposit accounts decreased $164,000, or 4.8% compared to 2012 due a decrease in deposit account overdraft activity in 2013. Other non interest income increased $477,000 primarily due to higher income on brokerage services and higher rental income on OREO properties.

Other Expenses – Total non interest expenses increased $240,000, or 0.8% compared to the first nine months of 2012. Salaries and Employee Benefits increased $719,000, or 4.8%, as salaries increased due to an increase in the number of employees, annual merit increases, and the reinstatement of the officer incentive plan. Equipment expense decreased $202,000 due to lower computer and data processing expenses. Losses on Other Real Estate Owned (OREO) properties increased $467,000 compared to the first nine months of 2012 due to valuation write downs of properties owned and liquidation of some large properties at losses in an auction in 2013. Other OREO expenses decreased $429,000 as property tax and maintenance costs were lower due to the decrease in the number of properties owned. Other non interest expense decreased $338,000, or 10.1% in the first nine months of 2013 due to lower directors’ fees and lower debit card fraud losses.

As a result of the above activity, the Profit Before Income Taxes in the first nine months of 2013 was $5,102,000, an increase of $678,000 compared to the pre tax profit of $4,424,000 in the first nine months of 2012. Since 2010, the Company maintained a valuation allowance against all or part of its deferred tax asset. In the third quarter of 2013, after a review of the positive and negative evidence, we determined that it is more likely than not that we will utilize all of our net operating loss carry forwards before they expire. As a result, we decided that it was appropriate to reverse the remaining deferred tax asset valuation allowance of $18.8 million by recording a credit to federal income tax expense in the third quarter of 2013. If we did not have the valuation allowance reversal and the benefit of the NOL carry forward, we would have incurred a federal income tax expense for the nine months of $1,086,000, for an effective tax rate of 21.3%. The income tax expense of $1,566,000 that was recorded in the first nine months of 2012 was primarily to accrue for an estimated audit adjustment. The Net profit for the first nine months of 2013 was $23,897,000, an increase of 736.1% compared to the net profit of $2,858,000 in the first nine months of 2012.

	-29-

Cash Flows

Cash flows provided by operating activities decreased $0.8 million compared to the first nine months of 2012 as the increase in net income was due to improvements in non cash items, including the decrease in the provision for loan losses and the increase in the deferred tax asset. Cash flows from investing activities decreased $8.0 million in the first nine months of 2013 compared to the first nine months of 2012 mainly because the amount of securities maturing or redeemed prior to maturity decreased $158.6 million because the increase in market interest rates in 2013 caused a decrease in early redemptions. This was partially offset by an increase of $23.6 million in sales of investment securities and a decrease of $135.4 million in purchases of investment securities. The amount of cash used for financing activities increased $81.2 million primarily due to the repayment of $95.0 million of maturing Federal Home Loan Bank advances in the first nine months of 2013. The amount of cash provided from deposit growth was $7.2 million higher in the first nine months of 2013 than in the first nine months of 2012. The Company also issued $1.7 million of common stock in a private placement in the first nine months of 2013. Total cash and cash equivalents decreased $77.1 million in the first nine months of 2013 compared to the increase of $12.9 million in the first nine months of 2012 mainly due to the use of cash to pay off maturing debt in 2013.

Deferred Tax Asset Valuation Allowance

ASC 740 guidance requires that a corporation assess whether a valuation allowance should be established against its deferred tax asset based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, the corporation should consider both positive and negative evidence and analyze changes in near term market conditions as well as other factors which may impact future operating results. The Company first established a valuation allowance of $13.8 million against its $17 million deferred tax asset effective December 31, 2009. The valuation allowance was increased to 100% of the $20.9 million deferred tax asset effective December 31, 2010. The valuation allowance was maintained at 100% of the deferred tax asset, which increased to $24.2 million during 2011. Based on its evaluation of the positive and negative evidence, the Company determined that it would utilize a significant portion of its net operating loss carry forwards in future periods and that it was “more likely than not” that it would utilize a portion of its deferred tax assets. As a result, management elected to reduce the Company’s deferred tax asset valuation allowance by $5 million as of December 31, 2012.

The negative evidence evaluated as of September 30, 2013 consists primarily of the economic conditions and the Company’s financial results during the 2008-2010 period. In 2008, the southeast Michigan region led the nation into a prolonged recession due to weak sales in the automotive sector. In the years leading up to the recession, housing values increased rapidly, and when unemployment began to rise, the housing market suffered and real estate values declined. The decline in real estate values resulted in an abrupt reduction in mortgage loan originations and the ability of homeowners to use the equity in their homes to fund their spending. The Bank’s loan portfolio primarily consisted of loans secured by real estate, including residential and commercial development and 1-4 family residential property, and we experienced significant increases in defaults in these loans. Non performing loans as a percent of total loans increased from 3.39% as of December 2007 to 10.84% as of December 31, 2010, and net charge offs as a percent of average loans increased from 0.49% in 2007 to 2.89% in 2010. Due to the deterioration of the Bank’s loan portfolio, we needed to increase our allowance for loan losses from $13.8 million at the end of 2006 to $24.1 million at the end of 2009. This required an increase in our provision for loan losses from $11.4 million in 2007 to $36.0 million in 2009, and our net income decreased from a profit of $7.7 million in 2007 to a loss of $34.3 million in 2009. Recent negative evidence includes the slow pace of the economic recovery and the uncertainty of the economic conditions in southeast Michigan due to the bankruptcy of the City of Detroit. Although the Company does not have any direct exposure to the City of Detroit, the impact of the bankruptcy on the region’s economy is currently unknown.

	-30-

The positive evidence evaluated as of September 30, 2013 consists of the improvements in the economic conditions beginning in 2011, the improvements in the Bank’s asset quality and earnings beginning in 2011 and continuing through the first three quarters of 2013, the expectations of future earnings improvements for the Company, and the Company’s long history of strong financial performance prior to 2008. During the recession, the national unemployment rate increased from 5.0% at the end of 2007 to its peak of 10.0% in October, 2009. Since the recovery began, the national unemployment rate declined to 7.2% at the end of the third quarter of 2013. During the same period, the unemployment rate for Michigan increased from 7.2% to a high of 14.2% in August, 2009 and has declined to 9.0% in the third quarter of 2013. From December 2007 to December 2009, the Case Shiller housing price index for southeast Michigan decreased 29.8%, and from that point, the index recovered 27.5% as of August 2013. These economic improvements have resulted in asset quality and earnings improvements at the Bank. Problem assets declined $53.9 million, or 34.7% from 2010 to September 2013 and net charge offs decreased from 3.36% of loans in 2009 to 0.64% through the first three quarters of 2013, annualized. The improvement in asset quality has enabled the Bank to reduce its allowance for loan losses 21.0% over the same period. The asset quality improvement has led to an improvement in earnings for the Company, which has posted nine consecutive quarterly profits and has positive cumulative earnings for twelve quarters. Prior to 2008, the Company had consistently strong financial performance, and since its incorporation has not had any net operating loss carry forwards expire unused. Throughout the recent economic challenges, the Company maintained strong core earnings and only experienced losses recently due to high credit related costs. With the asset quality improving and credit costs returning to normal levels, the Company expects its profits to continue to grow for the foreseeable future. The Company operates thorough and detailed Asset/Liability Management and budgeting models and has historically been able to accurately forecast its earnings. The current five year financial projections indicate that the Company will be able to utilize a all of its net operating loss carry forwards, making it “more likely than not” that the Company will be able to realize its deferred tax assets. Based on its evaluation of the positive and negative evidence, the Company elected to eliminate its deferred tax asset valuation allowance by recording a tax benefit of $18.8 million as of September 30, 2013.

Liquidity and Capital

The Company believes it has sufficient liquidity to fund its lending activity and allow for fluctuations in deposit levels. Internal sources of liquidity include the maturities of loans and securities in the ordinary course of business as well as our available for sale securities portfolio. External sources of liquidity include a line of credit with the Federal Home Loan Bank of Indianapolis, the Federal funds line that has been established with our correspondent bank, and Repurchase Agreements with money center banks that allow us to pledge securities as collateral for borrowings. As of September 30, 2013, the Bank utilized $12 million of its authorized limit of $265 million with the Federal Home Loan Bank of Indianapolis, none of its $10 million overdraft line of credit with the Federal Home Loan Bank of Indianapolis, and none of its $25 million of federal funds line with a correspondent bank. The Company periodically draws on its overdraft line and fed funds line to ensure that funding will be available if needed.

The Company’s Funds Management Policy includes guidelines for desired amounts of liquidity and capital. The Funds Management Policy also includes contingency plans for liquidity and capital that specify actions to take if liquidity and capital ratios fall below the levels contained in the policy. Throughout the first nine months of 2013 the Company was in compliance with its Funds Management Policy regarding liquidity and capital.

	-31-

Total stockholders’ equity of the Company was $100.8 million at September 30, 2013 and $83.6 million at December 31, 2012. The increases in common stock and retained earnings of $1.9 million and $23.9 million, respectively, were partially offset by an increase of $8.5 million in the Accumulated Other Comprehensive Loss (AOCL). Longer term market interest rates increased sharply in the middle of 2013, causing a decrease in the value of our securities that are classified as Available For Sale. The increase in the unrealized loss on AFS securities caused the increase in AOCL. Total equity increased $17.3 million and total assets decreased $70.5 million, so the ratio of equity to assets increased sharply to 8.42% at September 30, 2013 from 6.59% at December 31, 2012.

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 and the Bank:

	Actual				Minimum to Qualify as Well Capitalized
	Amount		Ratio		Amount		Ratio
As of September 30, 2013:
Total Capital to Risk-Weighted Assets
Consolidated	$	98,419	12.74	%	$	77,265		10	%
Monroe Bank & Trust		97,112	12.59	%		77,138		10	%
Tier 1 Capital to Risk-Weighted Assets
Consolidated		88,669	11.48	%		46,359		6	%
Monroe Bank & Trust		87,343	11.32	%		46,283		6	%
Tier 1 Capital to Average Assets
Consolidated		88,669	7.57	%		58,578		5	%
Monroe Bank & Trust		87,343	7.46	%		58,539		5	%

	Actual					Minimum to Qualify as Well Capitalized
	Amount		Ratio			Amount		Ratio
As of December 31, 2012:
Total Capital to Risk-Weighted Assets
Consolidated	$	89,615		11.53	%	$	77,691		10	%
Monroe Bank & Trust		88,992		11.46	%		77,623		10	%
Tier 1 Capital to Risk-Weighted Assets
Consolidated		79,776		10.27	%		46,615		6	%
Monroe Bank & Trust		79,113		10.19	%		46,574		6	%
Tier 1 Capital to Average Assets
Consolidated		79,776		6.43	%		62,041		5	%
Monroe Bank & Trust		79,113		6.38	%		62,008		5	%

	-32-

On July 12, 2010, the Bank entered into a Consent Order with its state and federal regulators. While the Bank is under the Consent Order, it is classified as “adequately capitalized” even though its ratios meet the “well capitalized” guidelines. The Consent Order requires the Bank to raise its Tier 1 Leverage ratio to 9% and its Total Risk Based Capital Ratio to 12%. As of September 30, 2013, the Bank is in compliance with the Total Risk Based Capital Ratio requirement but not in compliance with the Tier 1 Leverage Ratio requirement of the Consent Order. The table below indicates the amount of capital the Bank needed to be in compliance with the Consent Order as of September 30, 2013:

	Actual Capital					Minimum Capital Required by Consent Order					Additional Capital Required to Comply with
	Amount		Ratio			Amount		Ratio			Consent Order
Tier 1 Capital to Average Assets	$	87,343		7.46	%	$	105,369		9	%	$	18,026

The Company increased its common shares authorized in 2011 and is continuing to monitor the capital market conditions. Since the date that the Consent Order was issued and up through the end of the most recent fiscal year, the Company has not believed that the market conditions were suitable for a bank holding company of our size located in the Midwest to conduct an offering large enough to generate the amount of capital required to comply with the Consent Order. While under the Consent Order, the Company completed two private placement offerings, raising a total of $3.1 million, of which $2.5 million has been invested in the Bank.

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 2012.

Internal Revenue Service Audit

Since the fourth quarter of 2010, the Internal Revenue Service (IRS) has been conducting an audit of our tax returns for the 2004, 2005, 2007, 2008, 2009, and 2010 tax years. The IRS is nearing completion of the audit and has proposed adjustments to our taxable income, mainly challenging our treatment of interest on non accrual loans, OREO valuations, OREO carrying costs, and loan charge-offs. Although our loan charge-offs were in compliance with state and federal bank regulatory agency guidelines, the IRS examining agent conducting the audit has called into question the deductibility of certain charge-offs for income tax purposes based on the facts and circumstances of a loan at the time of the charge-off and certain differences between tax and financial accounting for charge-offs. We believe that the charge-off deductions were proper when taken, and our belief is supported by confirmation of our charge off methodology by our federal and state banking regulators.

According to ASC 740, Accounting for Uncertainty in Income Taxes, an entity is required to evaluate the validity of uncertain tax positions and determine if the relevant taxing authority would conclude that it is more likely than not (greater than fifty percent) that the position taken will be sustained, based upon technical merits, upon examination. We have reviewed our tax positions and have concluded that it is appropriate to record a liability for potential reimbursement to the IRS.

Since the audit began in 2010, the Company has incurred over $200,000 of professional fees expenses with its accountants and lawyers for assistance in resolution. In order to resolve the audit without incurring significant additional expenses, the Company offered a settlement proposal to the IRS in the third quarter of 2012. The Company’s proposal resulted in a current tax liability of $2.0 million. The Company has concluded that its offer to settle of $2.0 million is the best estimate of potential liability at this time. The Company expects the audit to be resolved without incurring significant additional tax or professional fees expenses.

	-33-

Although the timing of the resolution and/or closure of the audit remains highly uncertain, the Company believes it is reasonably possible that the IRS will conclude this audit within the next three months. Adjustments could be necessary in future periods to the estimated potential federal income tax payable noted above based on issues raised by the IRS. Management will re-evaluate the estimate quarterly based on current, relevant facts.

Forward-Looking Statements

Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E 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 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.

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.

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 both gradual and sudden increases or decreases of 100, 200, 300, and 400 basis points in the interest rates. The net interest income projections are compared to a base case projection, which assumes no changes in interest rates.

	-34-

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 2013, the Bank’s interest rate risk has remained within its 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 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 Bank estimates the interest rate risk by calculating the effect of market interest rate changes on that economic value of its equity. For this analysis, the Bank assumes immediate parallel shifts of plus or minus 100, 200, and 300 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 changes on the market for loans and deposits. In addition, each quarter, the Bank conducts additional analyses that utilize other rate scenarios, such as larger shifts in rates and changes in the shape of the yield curve, to assess the Bank’s exposure to interest rate risk in stress scenarios.

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, 2012.

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, 2013, 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, 2013, 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, 2013, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

Not applicable for smaller reporting companies.

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

None.

Item 3. Defaults Upon Senior Securities

None.

	-35-

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

No matters to be reported.

Item 6. Exhibits

	3.1	Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT Financial Corp.’s Form 10-Q for its quarter ended June 30, 2011.

	3.2	Amended and Restated Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT Financial Corp.’s Form 10-Q for its quarter ended March 31, 2008.

	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.

	101.INS	XBRL Instance Document ⁽¹⁾

	101.SCH	XBRL Taxonomy Extension Schema Document ⁽¹⁾

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document⁽¹⁾

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

(1)

Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

	-36-

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 thereunto duly authorized.

	MBT Financial Corp.
	(Registrant)

November 14, 2013	By	/s/ H. Douglas Chaffin
Date	H. Douglas Chaffin
	President &
	Chief Executive Officer

November 14, 2013	By	/s/ John L. Skibski
Date	John L. Skibski
	Executive Vice President and
	Chief Financial Officer

	-37-

Exhibit Index

Exhibit Number		Description of Exhibits
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.

101.INS		XBRL Instance Document⁽¹⁾

101.SCH		XBRL Taxonomy Extension Schema Document⁽¹⁾

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document⁽¹⁾

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document⁽¹⁾

101.LAB		XBRL Taxonomy Extension Label Linkbase Document⁽¹⁾

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document⁽¹⁾

(1)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

MBT Financial (MBTF) Inactive 10-Q2013 Q3 Quarterly report

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