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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(b) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 24, 2005
MFB CORP.
(Exact name of registrant as specified in its charter)
INDIANA
(State or other jurisdiction of incorporation)
0-23374 35-1907258
(Commission File Number) (IRS Employer Identification No.)
4100 Edison Lakes Parkway, Suite 300
P.O. Box 528
Mishawaka, Indiana 46546
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (574) 277-4200
Item 2.06 Material Impairments
Mishawaka, Indiana - MFB Corp. (NASDAQ/MFBC), parent company
of MFB Financial (the "Bank"), reported today that for the first quarter ended
December 31, 2004, it recorded a non-cash impairment charge through earnings of
$948,000 ($626,000 net of tax) for the decline in the value of $2.0 million of
Fannie Mae ("FNMA") and $2.0 million of Freddie Mac ("FHLMC") floating rate
preferred stock securities it holds. Management has chosen to conservatively
interpret current accounting guidance by recording the decline in value as
"other than temporary" impairment consistent with many other financial
institutions and investors in these securities. These two preferred stock issues
remain investment grade (FNMA-"A+" and FHLMC- "Aa3"), and have never defaulted
on payment. However, a recent downgrade in rating on the FNMA security due to
recently disclosed accounting issues and the duration of the suppressed market
value on both the FNMA and FHLMC securities led management to record the
write-down. The charge had no impact on the Company's capital position at
quarter end since market value declines were already being recognized as a mark
to market adjustment through capital on the balance sheet.
As a result of the impairment charge recorded, MFB Corp. is
reporting a consolidated net loss on an unaudited basis of ($110,000), or
($0.08) diluted loss per share for the three months ended December 31, 2004, a
decrease from net income of $619,000, or $0.45 diluted earnings per share for
the three months ended December 31, 2003. Without the impairment charge, net
income for the three months ended December 31, 2004 would have been $516,000, or
$0.38 diluted earnings per share.
Item 7. Financial Statements and Exhibits
(a) Press release dated January 25, 2005 announcing first quarter
earnings, impairment charge and quarterly dividend declaration.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ Charles J. Viater
------------------------------------
Charles J. Viater, President and CEO
Dated: January 25, 2005
Item 7(a)
January 25, 2005
Contact: Charles J. Viater
President/CEO
MFB CORP. ANNOUNCES FIRST QUARTER EARNINGS,
IMPAIRMENT CHARGE AND QUARTERLY DIVIDEND DECLARATION
Mishawaka, Indiana - MFB Corp. (NASDAQ/MFBC), parent company
of MFB Financial (the "Bank"), reported today that for the first quarter ended
December 31, 2004, it recorded a non-cash impairment charge through earnings of
$948,000 ($626,000 net of tax) for the decline in the value of $2.0 million of
Fannie Mae ("FNMA") and $2.0 million of Freddie Mac ("FHLMC") floating rate
preferred stock securities it holds. Management has chosen to conservatively
interpret current accounting guidance by recording the decline in value as
"other than temporary" impairment. These two preferred stock issues remain
investment grade (FNMA-"A+"and FHLMC- "Aa3"), and have never defaulted on
payment. However, a recent downgrade in rating on the FNMA security due to
recently disclosed accounting issues and the duration of the suppressed market
value on both the FNMA and FHLMC securities led management to record the
write-down. The charge had no impact on the Company's capital position at
quarter end since market value declines were already being recognized as a mark
to market adjustment through capital on the balance sheet.
As a result of the impairment charge recorded, MFB Corp. is
reporting a consolidated net loss on an unaudited basis of ($110,000), or
($0.08) diluted loss per share for the three months ended December 31, 2004, a
decrease from net income of $619,000, or $0.45 diluted earnings per share for
the three months ended December 31, 2003. Without the impairment charge, net
income for the three months ended December 31, 2004 would have been $516,000, or
$0.38 diluted earnings per share.
Charles Viater, President and CEO, stated that "It is under very
unusual circumstances that we have decided to record this non-cash impairment
charge on two widely held investment securities. Low coupon rates on these
floating rate instruments based on the historically low interest rate
environment as well as current and past accounting problems at FNMA and FHLMC
have suppressed the market value of these securities. As the coupon rates reset
at higher levels, the market value of these two securities are expected to
improve. This charge does not affect current or future core earnings. We are
pleased with core operating results for this quarter and related increased net
interest income and other noninterest income.
In addition, Mr. Viater announced today that the Board of Directors
has declared a cash dividend of $0.125 per share of common stock for the quarter
ended December 31, 2004. The dividend is payable on February 15, 2005 to holders
of record on February 1, 2005.
MFB Corp.'s net interest income before provision for loan losses for
the three month period ended December 31, 2004 totaled $3.6 million compared to
$2.8 million for the same period last year. The increase in net interest income
for the three month period was due to an increase in loan and investment
interest income, offset by an increase in FHLB advances and deposit interest
expenses. These increases were primarily attributable to the additional assets
and liabilities acquired from Sobieski Bank in August, 2004.
The provision for loan losses for the first quarter ended
December 31, 2004 was $300,000 for both the first quarter this year and last
year. The percentage of non-performing assets to loans remained constant at
1.11% at both December 31, 2004 and 2003.
Total noninterest income decreased from $1.5 million for the first
quarter last year to $375,000 for the first quarter this year primarily due to
the preferred equity security write down of $948,000 discussed above. An
impairment charge for the decline in the value of mortgage servicing rights
occurred in the quarter ended December 31, 2004 totaling $138,000. For the first
quarter last year a recovery of $168,000 was recorded on the fluctuating value
of these mortgage servicing rights. All other non-interest income increased from
$1.3 million last year to $1.5 million this year primarily due to increased
deposit fees.
Noninterest expense increased from $3.3 million for the first quarter
last year to $4.0 million for the first quarter this year. Occupancy expense
related to the operation of three acquired branches, the opening of another
branch and new Corporate offices was a significant contributor to this increase.
Other areas of increase were salaries and employee benefits, data processing,
deposit insurance, advertising, and consulting expenses related to two revenue
enhancement projects. Income tax expense has decreased from last year for the
three month period ended December 31 due to decreased income before income
taxes.
MFB Corp.'s total assets have increased to $528.3 million at
December 31, 2004 from $429.6 million at December 31, 2003. Total loans at
December 31, 2004 of $401.7 million increased from the $327.2 million at
December 31, 2003. Commercial loans increased from $140.0 million at December
31, 2003 to $169.0 million at December 31, 2004, consumer loans, including home
equity loans, increased from $30.6 million at December 31, 2003 to $40.2 million
at December 31, 2004 and mortgage loans increased from $156.5 million at
December 31, 2003 to $192.4 million at December 31, 2004. Investment securities
available for sale increased from $38.8 million at December 31, 2003 to $60.3
million at December 31, 2004. The primary reason for all of the asset increases
was the acquisition of certain assets from Sobieski Bank in August, 2004.
MFB Corp.'s allowance for loan losses at December 31, 2004 was
1.58% of loans compared to 1.64% at December 31, 2003. For the first quarter
ended December 31, 2004, net charge offs were $13,000 compared to $125,000 of
net charge offs for the quarter ended December 31, 2003. In management's
opinion, the allowance for loan losses is adequate to cover probable incurred
losses at December 31, 2004.
Total deposits increased from $294.4 million at December 31, 2003 to
$344.2 million at December 31, 2004 and Federal Home Loan Bank advances
increased from $98.0 million as of December 31, 2003 to $138.5 million as of
December 31, 2004. The increase in deposits and FHLB advances was primarily due
to the assumption of certain liabilities from Sobieski Bank as previously
mentioned.
Total shareholders' equity increased from $34.8 million at December
31, 2003 to $36.4 million at December 31, 2004. The book value of MFB Corp.
stock increased from $26.66 at December 31, 2003 to $27.35 at December 31, 2004.
MFB Corp.'s wholly-owned bank subsidiary, MFB Financial, provides
retail and business financial services to the Michiana area through its eleven
banking centers in St. Joseph and Elkhart counties.
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and December 31, 2003
(In thousands, except share information)
(Unaudited)
December December
2004 2003
ASSETS
Cash and due from financial institutions $ 6,241 $ 6,627
Interest - bearing deposits in other financial institutions - short term 12,272 21,287
----------------- -----------------
Total cash and cash equivalents 18,513 27,914
Securities available for sale 60,258 38,806
Other Investments 12,674 11,033
Loans held for sale 2,665 2,553
Mortgage Loans 192,422 156,508
Commercial Loans 169,025 140,071
Consumer Loans 40,248 30,629
----------------- -----------------
----------------- -----------------
Loans receivable 401,695 327,208
Less: allowance for loan losses (6,361) (5,373)
----------------- -----------------
Loan receivable, net 395,334 321,835
Premises and equipment, net 19,165 13,250
Mortgage servicing rights 1,979 1,613
Cash surrender value of life insurance 5,756 5,287
Goodwill 2,363 -
Other intangible assets 2,553 -
Other assets 7,050 7,268
----------------- -----------------
Total assets $ 528,310 $ 429,559
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand deposits $ 26,785 $ 27,135
Savings, NOW and MMDA deposits 131,449 111,803
Time deposits 186,015 155,425
----------------- -----------------
Total deposits 344,249 294,363
FHLB advances 97,990
138,542
Loans from correspondent banks 6,500 300
Accrued expenses and other liabilities 2,593 2,142
----------------- -----------------
Total liabilities 491,884 394,795
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417-12/31/04 and 12/31/03;
shares outstanding: 1,331,960-12/30/04 and 1,303,810-12/31/03 12,495 12,549
Retained earnings - substantially restricted 31,928 31,503
Accumulated other comprehensive income (loss),
net of tax of $(38) -12/31/04 and $(36) -12/31/03 (75) (768)
Treasury stock, 357,457 common shares - 12/31/04 and (7,922) (8,520)
385,607 common shares - 12/31/03, at cost
----------------- -----------------
Total shareholders' equity 36,426 34,764
----------------- -----------------
Total Liabilities and Shareholders' equity $ 528,310 $ 429,559
================= =================
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
Three months Ended December 31, 2004 and 2003
(in thousands, except per share information)
Three Months Ended
2004 2003
Total interest income $ 6,831 $ 5,527
Total interest expense 3,268 2,719
---------------- ---------------
---------------- ---------------
Net interest income 3,563 2,808
Provision for loan losses 300 300
---------------- ---------------
---------------- ---------------
Net interest income after provision for loan losses 3,263 2,508
Other non-interest income 1,461 1,306
Mortgage servicing impairment recovery (charge) (138) 168
Gain(losses) on investments securities (948) -
---------------- ---------------
---------------- ---------------
Total non-interest income 375 1,474
Salaries and employee benefits 1,856 1,732
Occupancy and equipment 787 532
Professional and consulting fees 238 137
Data processing expense 197 121
Other non-interest expense 913 733
---------------- ---------------
---------------- ---------------
Total non-interest expense 3,991 3,255
Income before taxes (353) 727
Income tax expense (benefit) (243) 108
---------------- ---------------
---------------- ---------------
Net Income $ (110) $ 619
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Basic Earnings (Loss) per common share $ (0.08) $ 0.48
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Diluted Earnings (Loss) per common share $ (0.08) $ 0.45
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