SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MFB Corp.
(Name Of Registrant As Specified In Its Charter)
MFB Corp.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
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applies: N/A
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
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state how it was determined): N/A
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
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offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
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(4) Date Filed:
MFB CORP.
121 South Church Street
Mishawaka, Indiana 46544
(574) 255-3146
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held On January 20, 2004
Notice is hereby given that the Annual Meeting of Shareholders of MFB Corp.
(the "Holding Company") will be held at the McKinley Branch Office of MFB
Financial at 411 W. McKinley Avenue, Mishawaka, Indiana 46545, on Tuesday,
January 20, 2004, at 7:00 p.m., Eastern Standard Time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of two directors of the Holding
Company to serve three-year terms expiring in 2007.
2. Ratification of Auditors. Ratification of the appointment of Crowe,
Chizek and Company LLC ("Crowe Chizek") as auditors for MFB Corp. for
the fiscal year ending September 30, 2004.
3. Other Business. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on December 5, 2003, are
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
A copy of our Annual Report for the fiscal year ended September 30, 2003,
is enclosed. The Annual Report is not a part of the proxy soliciting material
enclosed with this letter.
By Order of the Board of Directors
/s/ Charles J. Viater
Charles J. Viater, President and
Chief Executive Officer
Mishawaka, Indiana
December 15, 2003
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
MFB CORP.
121 South Church Street
Mishawaka, Indiana 46544
(574) 255-3146
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PROXY STATEMENT
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FOR
ANNUAL MEETING OF SHAREHOLDERS
January 20, 2004
This Proxy Statement is being furnished to the holders of common stock,
without par value (the "Common Stock"), of MFB Corp. (the "Holding Company"), an
Indiana corporation, in connection with the solicitation of proxies by the Board
of Directors of the Holding Company to be voted at the Annual Meeting of
Shareholders to be held at 7:00 p.m., Eastern Standard Time, on January 20,
2004, at the McKinley Branch Office of MFB Financial at 411 W. McKinley Avenue,
Mishawaka, Indiana, and at any adjournment of such meeting. The principal asset
of the Holding Company consists of 100% of the issued and outstanding shares of
common stock, $.01 par value per share, of MFB Financial. This Proxy Statement
is expected to be mailed to the shareholders on or about December 15, 2003.
The proxy solicited hereby, if properly signed and returned to the Holding
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for each of the matters described below and, upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Holding Company
written notice thereof (M. Gilbert Eberhart, 121 South Church Street, Mishawaka,
Indiana 46544), (ii) submitting a duly executed proxy bearing a later date, or
(iii) by appearing at the Annual Meeting and giving the Secretary notice of his
or her intention to vote in person. Proxies solicited hereby may be exercised
only at the Annual Meeting and any adjournment thereof and will not be used for
any other meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on December 5, 2003
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 1,301,210 shares of the Common Stock issued and
outstanding, and the Holding Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting on all matters properly presented at the Annual Meeting. The holders of
over 50% of the outstanding shares of Common Stock as of the Voting Record Date
must be present in person or by proxy at the Annual Meeting to constitute a
quorum. In determining whether a quorum is present, shareholders who abstain,
cast broker non-votes, or withhold authority to vote on one or more director
nominees will be deemed present at the Annual Meeting.
The following table sets forth certain information regarding the beneficial
ownership at the Common Stock as of December 5, 2003, by each person who is
known by the Holding Company to own beneficially 5% or more of the Common Stock.
Unless otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
Number of Shares
Name and Address of of Common Stock Percent of
Beneficial Owner (1) Beneficially Owned Class (2)
- -------------------------------------- ------------------ ----------
Jeffrey L. Gendell (3) 67,721 (3) 5.2%
Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830
First Manhattan Co., General Partner (4) 72,383 (4) 5.6%
437 Madison Avenue
New York, New York 10022
Charles J. Viater 122,613 (5) 8.8%
121 South Church Street
Mishawaka, Indiana 46544
Home Federal Savings Bank, Trustee (6) 128,476 (6) 9.9%
501 Washington Street
Columbus, Indiana 47201
- ------------------
(1) The information in this chart is based on Schedule 13D and 13G reports
filed by the above-listed persons with the Securities and Exchange
Commission and subsequent communications from such persons. It does not
reflect any changes in those shareholdings which may have occurred since
the date of such filings or communications.
(2) Based upon 1,301,210 shares of Common Stock outstanding which does not
include options for 207,450 shares of Common Stock granted to certain
directors, officers and employees of the Holding Company and MFB Financial.
(3) These shares are held by Tontine Financial Partners, L.P., a Delaware
limited partnership. Tontine Management, L.L.C., a limited liability
company organized under Delaware law, is its general partner and Mr.
Gendell is the managing member of the general partner. These persons share
voting and investment power with respect to the shares.
(4) First Manhattan Co. is a securities broker and dealer and investment
advisor. First Manhattan Co. is the general partner of the limited
partnerships that own these shares. First Manhattan Co. has sole voting and
dispositive power with respect to the shares listed above.
(5) Includes 7,764 whole shares allocated to Mr. Viater under the MFB Financial
Employee Stock Ownership Plan and Trust (the "ESOP") as of September 30,
2002, 2,746 whole shares allocated to his account under the MFB Financial
Employees' Savings & Profit Sharing Plan and Trust (the "401(k) Plan") as
of September 30, 2003, and 89,619 shares subject to stock options granted
under the MFB Corp. Stock Option Plan (the "Option Plan") and the MFB Corp.
1997 Option Plan (the "1997 Option Plan"). Does not include 32,381 shares
subject to stock options granted under the 1997 Option Plan and the MFB
Corp. 2002 Stock Option Plan (the "2002 Option Plan"), which are not
exercisable within 60 days of the Voting Record Date.
(6) These shares are held by the Trustee of the Holding Company's Employee
Stock Ownership Plan as of September 30, 2002. The employees participating
in that Plan are entitled to instruct the Trustee how to vote shares held
in their accounts under the Plan. Unallocated shares held in a suspense
account under the Plan are required under the Plan terms to be voted by the
Trustee in the same proportion as allocated shares are voted.
PROPOSAL I-- ELECTION OF DIRECTORS
The Board of Directors currently consists of seven members. All of the
directors except Charles J. Viater meet the standards for independence of Board
members set forth in the Listing Standards for the National Association of
Securities Dealers. The By-Laws provide that the Board of Directors is to be
divided into three classes as nearly equal in number as possible. The members of
each class are to be elected for a term of three years and until their
successors are elected and qualified. One class of directors is to be elected
annually. Directors must have their principal domicile in St. Joseph County,
Indiana, must have had a loan or deposit relationship with MFB Financial for a
continuous period of 12 months prior to their nomination to the board, and
non-employee directors must have served as a member of a civic or community
organization based in St. Joseph County, Indiana for at least a continuous
period of 12 months during the five years prior to their nomination to the
Board. The nominees for director this year are Christine A. Lauber and Reginald
H. Wagle, each of whom is a current director of the Holding Company. If elected
by the shareholders at the Annual Meeting, the terms of Ms. Lauber and Mr. Wagle
will expire in 2007.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees listed below. If any
person named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxy holders will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why the nominees listed below may not be
able to serve as directors if elected.
The following table sets forth certain information regarding the nominees
for the position of director of the Holding Company, including the number and
percent of shares of Common Stock beneficially owned by such persons as of the
Voting Record Date. Unless otherwise indicated, each nominee has sole investment
and/or voting power with respect to the shares shown as beneficially owned by
him. No nominee for director is related to any other nominee for director or
executive officer of the Holding Company by blood, marriage, or adoption, and
there are no arrangements or understandings between any nominee and any other
person pursuant to which such nominee was selected. The table also sets forth
the number of shares of Holding Company Common Stock beneficially owned by all
directors and executive officers of the Holding Company as a group.
Director Common Stock
Director of of the Beneficially
Expiration of MFB Holding Owned as of
Term as Financial Company December 5, Percentage
Name Director Since Since 2003 (1) of Class
- ---- ------------- ----------- -------- ------------- ----------
Director Nominees:
Christine A. Lauber 2007 1998 1998 12,200 (2) .9%
Reginald H. Wagle 2007 1982 1994 34,100 (3) 2.6%
Directors:
M. Gilbert Eberhart, DDS 2006 1979 1994 41,900 3.2%
Thomas F. Hums 2005 1961 1994 30,748 (4) 2.4%
Jonathan E. Kintner, O.D. 2006 1977 1994 30,140 (5) 2.3%
Michael J. Marien 2005 1987 1994 38,180 (6) 2.9%
Charles J. Viater 2005 1995 1995 122,613 (7) 8.8%
Executive Officers:
Donald R. Kyle 12,912 (8) 1.0%
Thomas J. Flournoy 3,850 (9) .3%
All directors and executive officers
as a group (9 persons) 326,643 (10) 22.7%
___________________
(1) Based upon information furnished by the respective director nominees. Under
applicable regulations, shares are deemed to be beneficially owned by a
person if he or she directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not he or she has any economic power
with respect to the shares. Includes shares beneficially owned by members
of the immediate families of the director nominees residing in their homes.
(2) Includes 12,000 shares subject to a stock option granted under the 1997
Option Plan.
(3) Includes 19,200 shares held jointly by Mr. Wagle and his spouse and 12,000
shares subject to a stock option granted under the Option Plan.
(4) Of these shares, 15,750 are held in a trust of which Mr. Hums is trustee
and beneficiary and 6,250 are held in a trust of which Mr. Hums' spouse is
trustee and beneficiary.
(5) Of these shares, 2,700 shares are subject to a stock option granted under
the Option Plan.
(6) Of these shares, 6,000 are subject to a stock option granted under the
Option Plan.
(7) Includes 7,764 whole shares allocated to Mr. Viater under the ESOP as of
September 30, 2002, 2,746 whole shares allocated to his account under the
401(k) Plan as of September 30, 2003, and 89,619 shares subject to stock
options granted under the Option Plan and the 1997 Option Plan. Does not
include 32,381 shares subject to stock options granted under the 1997
Option Plan and the 2002 Option Plan which are not exercisable within 60
days of the Voting Record Date.
(8) Includes 11,000 shares subject to stock options granted under the 1997
Option Plan and the 2002 Option Plan, 646 shares allocated to Mr. Kyle
under the 401(k) Plan as of September 30, 2003, and 266 shares allocated to
Mr. Kyle under the ESOP as of September 30, 2002. Does not include 1,500
shares subject to stock options granted under the 2002 Option Plan which
are not exercisable within 60 days of the Voting Record Date.
(9) Includes 3,700 shares subject to stock options granted under the 1997
Option Plan and the 2002 Option Plan. Does not include 5,800 shares subject
to stock options granted under the 2002 Option Plan which are not
exercisable within 60 days of the Voting Record Date.
(10) The total of such shares includes 137,019 shares subject to stock options
granted under the Holding Company's Option Plans, 8,030 shares allocated to
such persons under the ESOP as of September 30, 2002, and 3,392 shares
allocated to such persons under the 401(k) Plan as of September 30, 2003.
Presented below is certain information concerning the directors and
director nominees of the Holding Company:
M. Gilbert Eberhart, DDS (age 69) has served as Secretary of MFB Financial
since 1987 and of the Holding Company since its inception. He is also a dentist
based in Mishawaka.
Thomas F. Hums (age 70) served as President and Chief Executive Officer of
MFB Financial from 1972 until September 1995 and as President and Chief
Executive Officer of the Holding Company from its inception until September,
1995. He is the current Chairman of the Holding Company and of MFB Financial.
Jonathan E. Kintner, O.D. (age 60) has a private practice of optometry in
Mishawaka.
Christine A. Lauber (age 58) has served as a certified public accountant in
private practice in South Bend, Indiana for more than the last five years. She
also serves as President of Automated Information Management, Inc. (payroll
management services, South Bend, Indiana).
Michael J. Marien (age 55) has served as an Account Manager for IT/Signode
Corp., a division of Illinois Tool Works (packaging of steel industry products
and services, Glenview, Illinois), for more than the past five years.
Charles J. Viater (age 49) has served as the President and Chief Executive
Officer of the Holding Company and of MFB Financial since September, 1995.
Reginald H. Wagle (age 61) has served as Vice President of Memorial Health
Foundation since 1992. Until 1992, he was a free-lance political consultant and
until 1991, he also served as District Director for the Office of United States
Representative John P. Hiler, Third Congressional District of Indiana.
THE DIRECTORS WILL BE ELECTED UPON RECEIPT OF A PLURALITY OF VOTES CAST AT
THE ANNUAL SHAREHOLDERS MEETING. PLURALITY MEANS THAT INDIVIDUALS WHO RECEIVE
THE LARGEST NUMBER OF VOTES CAST ARE ELECTED UP TO THE MAXIMUM NUMBER OF
DIRECTORS TO BE CHOSEN AT THE MEETING. ABSTENTIONS, BROKER NON-VOTES, AND
INSTRUCTIONS ON THE ACCOMPANYING PROXY TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR
MORE OF THE NOMINEES WILL RESULT IN THE RESPECTIVE NOMINEE RECEIVING FEWER
VOTES. HOWEVER, THE NUMBER OF VOTES OTHERWISE RECEIVED BY THE NOMINEE WILL NOT
BE REDUCED BY SUCH ACTION.
The Board of Directors and its Committees
During the fiscal year ended September 30, 2003, the Board of Directors of
the Holding Company met or acted by written consent 14 times. No director
attended fewer than 75% of the aggregate total number of meetings during the
last fiscal year of the Board of Directors of the Holding Company held while he
served as director and of meetings of committees which he served during that
fiscal year. The Board of Directors of the Holding Company has an Audit
Committee and a Compensation Committee. All committee members are appointed by
the Board of Directors.
The Audit Committee, which has been established in accordance with ss.
3(a)(58)(A) of the Securities Exchange Act of 1934, recommends the appointment
of the Holding Company's independent accountants, and meets with them to outline
the scope and review the results of such audit. The members of the Audit
Committee are Christine A. Lauber, Thomas F. Hums and Reginald H. Wagle. The
Audit Committee held five meetings during the fiscal year ended September 30,
2003.
The Compensation Committee administers the Holding Company's stock option
plans and determines the compensation of the Holding Company's officers. The
members of that Committee are Messrs. Eberhart, Kintner, Marien, Wagle and Hums
and Ms. Lauber. All of these Committee members meet the standards for
independence for compensation committee members set forth in the Listing
Standards of the National Association of Securities Dealers. The Compensation
Committee held one meeting during the fiscal year ended September 30, 2003.
The Corporation's Nominating Committee nominated the slate of directors set
forth in the Proxy Statement. The Nominating Committee held one meeting during
the fiscal year ended September 30, 2003. The members of this Nominating
Committee were Mr. Eberhart, Mr. Kintner, and Mr. Marien. All of these members
meet the standards for independence for nominating committee members set forth
in the Listing Standards of the National Association of Securities Dealers.
Although the Committee will consider nominees recommended by shareholders, it
has not actively solicited recommendations for nominees from shareholders nor
has it established procedures for this purpose. Article III, Section 12 of the
Holding Company's By-Laws provides that shareholders entitled to vote for the
election of directors may name nominees for election to the Board of Directors
but there are certain requirements that must be satisfied in order to do so.
Among other things, written notice of a proposed nomination must be received by
the Secretary of the Holding Company not less than 120 days prior to the Annual
Meeting; provided, however, that in the event that less than 130 days' notice or
public disclosure of the date of the meeting is given or made to shareholders
(which notice or public disclosure includes the date of the Annual Meeting
specified in the Holding Company's By-Laws if the Annual Meeting is held on such
date), notice must be received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made.
Audit Committee Report, Charter, and Independence
Audit Committee Report. The Audit Committee reports as follows with respect
to the audit of the Holding Company's financial statements for the fiscal year
ended September 30, 2003, included in the Holding Company's Shareholder Annual
Report accompanying this Proxy Statement ("2003 Audited Financial Statements"):
The Committee has reviewed and discussed the Holding Company's 2003 Audited
Financial Statements with the Holding Company's management.
The Committee has discussed with its independent auditors (Crowe, Chizek
and Company LLC) the matters required to be discussed by Statement on Auditing
Standards 61, which include, among other items, matters related to the conduct
of the audit of the Holding Company's financial statements.
The Committee has received written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1
(which relates to the auditor's independence from the Holding Company and its
related entities) and has discussed with the auditors the auditors' independence
from the Holding Company.
Based on review and discussions of the Holding Company's 2003 Audited
Financial Statements with management and discussions with the independent
auditors, the Audit Committee recommended to the Board of Directors that the
Holding Company's 2003 Audited Financial Statements be included in the Holding
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2003.
This Report is respectfully submitted by the Audit Committee of the Holding
Company's Board of Directors.
Audit Committee Members
-----------------------
Christine A. Lauber
Thomas F. Hums
Reginald H. Wagle
Audit Committee Charter. The Board of Directors has adopted a written
charter for the Audit Committee. The Board of Directors reviews and approves
changes to the Audit Committee Charter annually. A copy of that Charter is
attached hereto as Exhibit A.
Independence of Audit Committee Members. The Holding Company's Audit
Committee is comprised of Messrs. Thomas F. Hums and Reginald H. Wagle and Ms.
Christine A. Lauber. Each of these members meets the requirements for
independence for Audit Committee members set forth in the Listing Standards of
the National Association of Securities Dealers. In addition, the Board of
Directors has determined that Christine A. Lauber is a "financial expert" as
that term is defined in Item 401(h)(2) of Regulation S-K promulgated under the
Securities Exchange Act of 1934.
Management Remuneration and Related Transactions
Joint Report of the Compensation Committee and the Stock Compensation
Committee
The Board of Directors of MFB Financial reviews payroll costs, establishes
policies and objectives relating to compensation, and is advised of aggregate
budgeted amounts for the salaries of all employees, other than officers of the
Holding Company. Beginning in 2004, all decisions relating to salary of the
Holding Company's officers, including its Named Executive Officers, are to be
determined by the Holding Company's Compensation Committee. The Compensation
Committee members are Ms. Lauber and Messrs. Eberhart, Kintner, Marien, Wagle
and Hums. In approving the salaries of executive officers, the Compensation
Committee has access to and reviews compensation data for comparable financial
institutions in the Midwest. Moreover, from time to time the Committee reviews
information provided to its members by independent compensation consultants in
making its decisions. The Holding Company's Compensation Committee also
administers the Holding Company's stock option plans.
The objectives of the Board of Directors and the Compensation Committee
with respect to executive compensation are the following:
(1) provide compensation opportunities comparable to those offered by
other similarly situated financial institutions in order to be able to
attract and retain talented executives who are critical to the Holding
Company's long-term success;
(2) reward executive officers based upon their ability to achieve
short-term and long-term strategic goals and objectives and to enhance
shareholder value; and
(3) align the interests of the executive officers with the long-term
interests of shareholders by granting stock options which will become
more valuable to the executives as the value of the Holding Company's
shares increases.
At present, the Holding Company's executive compensation program is
comprised of base salary, annual incentive bonuses and long-term incentive
bonuses in the form of stock options. Reasonable base salaries are awarded based
on salaries paid by comparable financial institutions, particularly in the
Midwest, and individual performance.
Base Salary. Base salary levels of the Holding Company's executive officers
are intended to be comparable to those offered by similar financial institutions
in the Midwest. In determining base salaries, the Holding Company's Compensation
Committee also takes into account individual experience and performance.
Mr. Charles J. Viater was the Holding Company's Chief Executive Officer
throughout fiscal 2003. Mr. Viater's salary was increased from $191,784 in
fiscal 2002 to $196,000 in fiscal 2003. In recommending this increase, the Board
of Directors of the Holding Company, excluding Mr. Viater, considered the
Holding Company's financial performance for the prior fiscal year.
Stock Options. The Holding Company's stock option plans serve as long-term
incentive plans for executive officers and other key employees. These plans
align executive and shareholder long-term interests by creating a strong and
direct link between executive pay and shareholder return, and enable executives
to acquire a significant ownership position in the Holding Company's Common
Stock. Stock options are granted at the prevailing market price and will only
have a value to the executives if the stock price increases. The Compensation
Committee determines the number of option grants to be made to executive
officers based on the practices of comparable financial institutions as well as
the executive's level of responsibility and contributions to the Holding
Company.
Mr. Viater received a grant of options for 50,000 shares at an option price
per share equal to the fair market value of a share on the date of grant during
fiscal year 2003. See "Management Remuneration and Related Transactions-- Stock
Options."
Finally, the Board of Directors notes that Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code), in certain circumstances, limits
to $1 million the deductibility of compensation, including stock-based
compensation, paid to top executives by public companies. None of the
compensation paid to the executive officers named in the compensation table
below in the last fiscal year exceeded the threshold for deductibility under
section 162(m).
The Board of Directors and the Compensation Committee believe that linking
executive compensation to corporate performance results in a better alignment of
compensation with corporate goals and the interests of the Holding Company's
shareholders. As performance goals are met or exceeded, most probably resulting
in increased value to shareholders, executives are rewarded commensurately. The
Committee members believe that compensation levels during fiscal 2003 for
executives and for the chief executive officer adequately reflect the Holding
Company's compensation goals and policies.
Compensation Committee Members
------------------------------
Gilbert Eberhart, DDS
Thomas F. Hums
Jonathan E. Kintner, O.D.
Christine A. Lauber
Michael J. Marien
Reginald H. Wagle
Remuneration of Named Executive Officer
During the fiscal year ended September 30, 2003, no cash compensation was
paid directly by the Holding Company to any of its executive officers. Each of
such officers was compensated by MFB Financial.
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the Holding Company and its
subsidiaries for the last three fiscal years of (1) the person who served as
chief executive officer of the Holding Company during the fiscal year ended
September 30, 2003, and (2) each other executive officer of the Holding Company
who earned over $100,000 in salary and bonuses during that fiscal year (the
"Named Executive Officers").
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards
----------------------- Other ---------------------- All
Annual Restricted Securities Other
Name and Fiscal Compen- Stock Underlying Compen-
Principal Position Year Salary ($)(1) Bonus ($) sation($)(2) Awards($) Options(#) sation($)(3)
- ------------------ ------ ------------- --------- ------------ ---------- ---------- ------------
Charles J. Viater, 2003 $211,150 $45,000 -- -- 50,000 (4) $10,673
President and Director 2002 $206,109 $25,650 -- -- -- $ 7,017
2001 $192,273 $36,450 -- -- -- $19,889
Donald R. Kyle, 2003 $123,000 $13,600 -- -- 1,500 (5) $ 4,385
Executive Vice 2002 $119,039 $ 5,500 -- -- 2,000 (6) $ 3,877
President and Chief 2001 $117,308 $12,000 -- -- -- $ 5,758
Operating Officer
Thomas J. Flournoy, 2003 $105,000 $12,000 -- -- 1,500 (5) $ 5,558
Vice President and
Chief Financial Officer
____________________
(1) Includes fees received for service on MFB Financial's Board of Directors.
(2) The Named Executive Officers of the Holding Company receive certain
perquisites, but the incremental cost of providing such perquisites does
not exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(3) Includes MFB Financial's contributions on behalf of the Named Executive
Officers to the 401(k) Plan.
(4) Options for 1,429 shares became fully vested on May 19, 2003. Options for
4,694 shares vest on the first day of January in 2004, 2005 and 2006.
Options for 11,496 shares vest on the 19th day of November in 2003 and
2004. Options for 11,497 shares vest on November 19, 2005.
(5) These options became fully vested on May 19, 2003.
(6) These options became fully vested on June 18, 2002.
Stock Options
The following table sets forth information related to options granted
during fiscal year 2003 to the Named Executive Officers.
Option Grants - Last Fiscal Year
Individual Grants
% of Total
Options Granted Exercise or
Options to Employees Base Price Expiration Grant Date
Name Granted (#)(1) In Fiscal Year ($/Share) (2) Date Value (5)
- ------------------ -------------- --------------- ------------- ------------- ----------
Charles J. Viater 50,000 84.75% $21.30 11/18/2012 (3) $291,000
Donald R. Kyle 1,500 2.54% $21.30 11/18/2012 (4) $ 8,730
Thomas J. Flournoy 1,500 2.54% $21.30 11/18/2012 (4) $ 8,730
________________
(1) Options to acquire shares of the Holding Company's Common Stock.
(2) The option exercise price may be paid in cash or with the approval of the
Compensation Committee in shares of the Holding Company's Common Stock or a
combination thereof. The option exercise price equaled the market value of
a share of the Holding Company's Common Stock on the date of grant.
(3) Options for 1,429 shares became fully vested on May 19, 2003. Options for
4,694 shares vest on the first day of January in 2004, 2005 and 2006.
Options for 11,496 shares vest on the 19th day of November in 2003 and
2004. Options for 11,497 shares vest on November 19, 2005.
(4) Mr. Kyle's and Mr. Flournoy's options became exercisable on May 19, 2003.
(5) This column sets forth the present value of the options on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 1.82%, risk-free rate of return of 3.72%,
expected volatility of 23.23% and expected life of options of eight years.
The following table includes the number of shares covered by stock options
held by the Named Executive Officers as of September 30, 2003. Also reported are
the values for "in-the-money" options (options whose exercise price is lower
than the market value of the shares at fiscal year end) which represent the
spread between the exercise price of any such existing stock options and the
fiscal year-end market price of the stock. The Named Executive Officers did not
exercise any stock options during the fiscal year.
Outstanding Stock Option Grants and Value Realized As Of 9/30/03
Number of Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End (1)
------------------------------ ---------------------------------
Name Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ------------------ ----------- ---------------- ------------- -----------------
Charles J. Viater 70,194 51,806 $772,323 $553,677
Donald R. Kyle 11,000 -- $114,888 --
Thomas J. Flournoy 2,600 4,400 $ 30,625 $ 58,300
_____________
(1) Amounts reflecting gains on outstanding options are based on the closing
price per share for the shares on September 30, 2003, which was $32.00 per
share.
(2) The shares represented could not be acquired by the Named Executive Officer
as of September 30, 2003.
Employment Contracts
MFB Financial has entered into a three-year employment contracts with Mr.
Viater, the Holding Company's President and Chief Executive Officer, Mr. Kyle,
the Holding Company's Executive Vice President, and Mr. Flournoy, the Holding
Company's Vice President and Chief Financial Officer (collectively, the
"Employees"). The contracts extend monthly for an additional month to maintain
their three-year term if the Board of Directors of MFB Financial determines to
so extend them, unless notice not to extend is properly given by either party to
the contract. The Employees receive salary under the contracts equal to their
current salary subject to increases approved by the Board of Directors. The
contracts also provide, among other things, for other fringe benefits and
benefit plans available to MFB Financial's employees. The Employees may
terminate their employment upon sixty days' written notice to MFB Financial. MFB
Financial may discharge any of them for cause (as defined in the contract) at
any time or in certain events specified by OTS regulations. If MFB Financial
terminates Mr. Kyle's or Mr. Flournoy's employment for other than cause or if
Mr. Kyle or Mr. Flournoy terminates his own employment for cause (as defined in
the contract), he will receive his base compensation under the contract for an
additional three years if the termination follows a change of control of the
Holding Company (as defined below) or for the remaining term of the contract, if
the termination does not follow a change of control. If MFB Financial terminates
Mr. Viater's employment without cause or if Mr. Viater terminates his own
contract for cause (as defined in the contract), Mr. Viater will receive his
base compensation plus the incentive bonus he received for the tax year
preceding the date of termination (1) for three years if the termination follows
a change of control of the Holding Company (as defined below) or for the
remaining term of the contract, if the termination does not follow a change of
control. In addition, during such periods, each Employee will continue to
participate in MFB Financial's group insurance plans or receive comparable
benefits. Moreover, within a period of three months after such termination
following a change of control, the Employees will have the right to cause MFB
Financial to purchase any stock options they hold for a price equal to the fair
market value (as defined in the contact) of the shares subject to such options
minus their option price. If the payments provided for in the contract, together
with any other payments made to the Employees by MFB Financial, are deemed to be
payments in violation of the "golden parachute" rules of the Code, such payments
will be reduced to the largest amount which would not cause MFB Financial to
lose a tax deduction for such payments under those rules. As of the date hereof,
the cash compensation which would be paid under the contracts if the three-year
payment obligation were triggered under the contracts would be $588,000 to Mr.
Viater, $369,000 to Mr. Kyle, and $315,000 to Mr. Flournoy. For purposes of this
employment contract, a change of control of the Holding Company is generally an
acquisition of control, as defined in regulations issued under the Change in
Bank Control Act and the Savings and Loan Holding Company Act. The employment
contracts provide MFB Financial protection of its confidential business
information and protection from competition by the Employees should they
voluntarily terminate their employment without cause or be terminated by MFB
Financial for cause.
Compensation of Directors
All directors of MFB Financial receive an annual fee of $5,500, plus a fee
of $750 per Board meeting attended. Each Board member is also paid $400 for each
special meeting attended. Members of Board Committees, who are not employees of
MFB Financial, are paid a separate fee of $50 per meeting. As Chairman of the
Board of MFB Financial, Mr. Hums receives additional directors' fees of $3,400
per year. As Chair of the Audit Committee, Ms. Lauber receives additional
directors' fees of $2,500 per year.
Directors of the Holding Company are not currently paid directors' fees.
The Holding Company may, if it believes it is necessary to attract qualified
directors or otherwise beneficial to the Holding Company, adopt a policy of
paying directors' fees.
Pension Plan
On April 1, 2003, MFB Financial terminated its qualified noncontributory
multiple-employer defined benefit pension plan covering substantially all of its
employees. The plan was administered by the trustees of the Financial
Institutions Retirement Fund. There was no separate valuation of plan benefits
nor segregation of plan assets specifically for MFB Financial because the plan
was a multiple-employer plan and separate actuarial valuations are not made with
respect to each employer nor are the plan assets so segregated. At termination,
the Holding Company made a contribution of $148,000 to the Fund as part of the
termination agreement to cover the deficit between the vested benefits and the
value of the Company' s calculated portion of the total plan assets. Pension
plan expense for the year ended September 30, 2003, was approximately $148,000.
Performance Graph
The following graph shows the performance of the Holding Company's Common
Stock since September 30, 1998, in comparison to the NASDAQ Stock market - U.S.
Index and the NASDAQ Bank Index.
[GRAPH OMITTED]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG MFB CORP., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ BANK INDEX
Cumulative Total Return
-----------------------------------------------------
9/98 9/99 9/00 9/01 9/02 9/03
MFB CORP. 100.00 97.92 87.98 99.02 115.45 171.89
NASDAQ STOCK MARKET (U.S.) 100.00 163.12 217.03 88.74 69.90 106.49
NASDAQ BANK 100.00 106.49 114.14 129.44 136.65 159.10
* $100 invested on 9/30/98 in stock or index-
including reinvestment of dividends.
Fiscal year ending September 30.
Transactions With Certain Related Persons
MFB Financial has followed a policy of offering to its directors and
executive officers real estate mortgage loans secured by their principal
residence and other loans. These loans are made in the ordinary course of
business with the same collateral, interest rates and underwriting criteria as
those of comparable transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable features.
Compensation Committee Interlocks and Insider Participation
Beginning in 2004, the Compensation Committee which consists of all of the
outside directors of the Holding Company, will determine the compensation of all
of the Holding Company's officers. Mr. Hums, who is a member of the Committee,
is a former officer of the Holding Company, having retired in 1995.
PROPOSAL II - RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has renewed the Holding Company's arrangement with
Crowe Chizek to be its auditors for the fiscal year ending September 30, 2004,
subject to the ratification of the Holding Company's stockholders. A
representative of Crowe Chizek is expected to attend the Meeting to respond to
appropriate questions and to make a statement if desired.
Audit Fees
The firm of Crowe Chizek served as our independent public accountants for
each of our last two fiscal years ended September 30, 2002 and 2003. The
aggregate fees billed by Crowe Chizek for the audit of our financial statements
included in our annual report on Form 10-K and for the review of our financial
statements included in our quarterly reports on Form 10-Q for our fiscal years
ended September 30, 2002 and 2003, were $23,800 and $25,100, respectively.
Audit-Related Fees
The aggregate fees billed in each of fiscal 2002 and 2003 for assurance and
related services by Crowe Chizek that are reasonably related to the audit or
review of our financial statements and that were not covered in the Audit Fees
disclosure above were $51,034 and $45,150.
Tax Fees
The aggregate fees billed in each of fiscal 2002 and 2003 for professional
services rendered by Crowe Chizek for tax compliance, tax advice or tax planning
were $8,450 and $12,725, respectively.
All Other Fees
During fiscal 2002 or 2003 and prior to May 6, 2003, $70,169 and $11,154 in
fees, respectively, were billed for additional professional services rendered by
Crowe Chizek not included in the disclosure above. Services rendered included
consulting services.
Our independent auditors performed all work described above with their
respective full-time, permanent employees.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"), requires that the Holding Company's officers and directors and
persons who own more than 10% of the Holding Company's Common Stock file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish the Holding Company with copies of
all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Holding Company believes that for the
fiscal year ended September 30, 2003, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were satisfied in a timely manner.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have presented at the next
Annual Meeting of the Holding Company must be received at the main office of the
Holding Company for inclusion in the proxy statement no later than 120 days in
advance of December 15, 2004. Any such proposal should be sent to the attention
of the Secretary of the Holding Company at 121 South Church Street, Mishawaka,
Indiana 46544, and will be subject to the requirements of the proxy rules under
the Securities Exchange Act of 1934 and, as with any shareholder proposal
(regardless of whether included in the Holding Company's proxy materials), the
Holding Company's articles of incorporation, by-laws and Indiana law.
A shareholder proposal being submitted for presentation at the Annual
Meeting but not for inclusion in the Holding Company's proxy statement and form
of proxy, will normally be considered untimely if it is received by the Holding
Company later than 120 days prior to the Annual Meeting. If, however, less than
130 days' notice or prior public disclosure of the date of the next Annual
Meeting is given or made to shareholders (which notice or public disclosure of
the date of the meeting shall include the date of the Annual Meeting specified
in publicly available By-Laws, if the Annual Meeting is held on such date), such
proposal shall be considered untimely if it is received by the Holding Company
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
If the Holding Company receives notice of such proposal after such time, each
proxy that the Holding Company receives will confer upon it the discretionary
authority to vote on the proposal in the manner the proxies deem appropriate,
even though there is no discussion of the proposal in the Holding Company's
proxy statement for the next Annual Meeting.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than those matters described in the Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Holding Company.
The Holding Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of the Common Stock. In addition to
solicitation by mail, directors, officers, and employees of the Holding Company
may solicit proxies personally or by telephone without additional compensation.
Each shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed envelope.
By Order of the Board of Directors
/s/ Charles J. Viater
Charles J. Viater, President
December 15, 2003
Exhibit A
AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the board of directors to be known as the
audit committee. The audit committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member. Each member
shall be generally knowledgeable in finance and auditing matters and at least
one member shall have accounting or related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the audit committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal audit function, and the financial management
of the corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices are in accordance with all
requirements and are of the highest quality. This charter will be reviewed
annually and updated as necessary.
In carrying out these responsibilities, the audit committee will:
o Oversee all aspects of the corporation's relationship with the
independent auditors of the corporation's financial statements.
o Select the independent auditors and determine the scope of work
performed and procedures utilized.
o Review with auditors and management of the corporation the conclusion
of any audit including any comments or recommendations of the
independent auditors.
o Review financial statements contained in the annual report to
shareholders with management and independent auditors prior to their
release.
o Review the quarterly release of financial information with independent
auditors and management.
o Oversee the adequacy and effectiveness of the accounting and financial
controls of the corporation.
o Review accounting and financial human resources as necessary.
o Elicit recommendations for improvement from independent auditors,
internal auditors, financial management and regulators.
o Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgement, that is appropriate.
o Oversee the adequacy and effectiveness of the internal audit function.
o Review the independence and authority of its reporting obligations.
o Review audit plans for the coming year and the coordination of such
plans with the independent auditors.
o Receive and review progress reports and a summary of findings from
completed internal audit activities.
o Meet with internal auditors to discuss comments and recommendations.
o Submit the minutes of all meetings of the audit committee to the board
of directors.
o Perform such other functions as assigned by law, the company's charter
or bylaws, or the board of directors.
The committee shall meet at least four times per year or more frequently as
circumstances require. The committee may ask members of management or others to
attend the meeting and provide pertinent information as necessary. The
membership of the audit committee shall consist of at least three independent
members of the board of directors who shall serve at the pleasure of the board