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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED December 31, 2004
-----------------
OR
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________________ TO ____________________
Commission file number: 0-23374
MFB CORP.
(Exact name of registrant as specified in its charter)
Indiana 35-1907258
------- ----------
or other jurisdiction of (I.R.S. Employer
ation or organization Identification Number)
4100 Edison Lakes Parkway Suite 300
P.O. Box 528
Mishawaka, Indiana 46546
(Address of principal executive offices,
including Zip Code)
(574) 277-4200
(Registrant's telephone number, including area code)
None
Former name, former address and former fiscal year, if changed since last
report)
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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act)
Yes ___ No _X_
The number of shares of the registrant's common stock, without par value,
outstanding as of January 31, 2005 was 1,331,960.
MFB CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 2004 (Unaudited) and September 30, 2004 3
Consolidated Statements of Income (Unaudited)
Three months ended December 31, 2004 and 2003 4
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited) Three months ended December 31, 2004 and 2003 5
Consolidated Statements of Cash Flows (Unaudited)
Three months ended December 31, 2004 and 2003 6
Notes to (Unaudited) Consolidated Financial Statements December 31, 2004 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
General 13
Results of Operations 13
Balance Sheet Composition 14
Liquidity and Capital Resources 15
Critical Accounting Policies 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 19
Part II. Other Information
Items 1-6. 20
Signatures 21
Certifications 22
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and September 30, 2004
(In thousands, except share information)
(Unaudited)
December 31, September 30,
2004 2004
----------------- -----------------
----------------- -----------------
ASSETS
Cash and due from financial institutions $ 6,241 $ 9,524
Interest - bearing deposits in other financial institutions - short term 12,272 19,071
----------------- -----------------
Total cash and cash equivalents 18,513 28,595
Securities available for sale 60,258 66,021
Other Investments 12,674 12,628
Loans held for sale 2,665 1,034
Mortgage Loans 192,422 200,340
Commercial Loans 169,025 160,604
Consumer Loans 40,248 38,980
----------------- -----------------
----------------- -----------------
Loans receivable 401,695 399,924
Less: allowance for loan losses (6,361) (6,074)
----------------- -----------------
Loan receivable, net 395,334 393,850
Premises and equipment, net 19,165 19,384
Mortgage servicing rights 1,979 2,092
Cash surrender value of life insurance 5,756 5,707
Goodwill 2,363 2,363
Other intangible assets 2,553 2,693
Other assets 7,050 6,855
----------------- -----------------
Total assets $ 528,310 $ 541,222
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand deposits $ 26,785 $ 31,658
Savings, NOW and MMDA deposits 131,449 136,099
Time deposits 186,015 190,136
----------------- -----------------
Total deposits 344,249 357,893
FHLB advances 133,443
138,542
Loans from correspondent banks 6,500 6,500
Accrued expenses and other liabilities 2,593 7,480
----------------- -----------------
Total liabilities 491,884 505,316
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417-12/31/04 and 9/30/04;
shares outstanding: 1,331,960-12/31/04 and 1,329,060-9/30/04 12,495 12,486
Retained earnings - substantially restricted 31,928 32,195
Accumulated other comprehensive income (loss),
net of tax of ($38) -12/31/04 and $38 - 9/30/04 (75) (792)
Treasury stock, 357,457 common shares - 12/31/04;
360,357 common shares - 9/30/04, at cost (7,922) (7,983)
----------------- -----------------
Total shareholders' equity 36,426 35,906
----------------- -----------------
Total Liabilities and Shareholders' equity $ 528,310 $ 541,222
================= =================
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended December 31, 2004 and 2003
(in thousands except per share information)
Three Months Ended
December 31,
2004 2003
------------ -------------
------------ -------------
Interest income
Loans receivable, including fees $ 6,090 $ 5,065
Securities - taxable 686 410
Other interest-bearing assets 55 52
------------ -------------
------------ -------------
Total interest income 6,831 5,527
Interest expense
Deposits 1,613 1,347
FHLB advances and other borrowings 1,655 1,372
------------ -------------
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
Noninterest income
Service charges on deposit accounts 829 689
Trust fee income 99 126
Insurance commissions 50 50
Net realized gains from sales of loans 222 310
Mortgage servicing recovery (impairment) (138) 168
Net gain (loss) on securities available for (948) -
sale
Other 261 131
------------ -------------
------------ -------------
Total noninterest income 375 1,474
Noninterest expense
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 expense 913 733
------------ -------------
------------ -------------
Total noninterest expense 3,991 3,255
Income (loss) before income taxes (353) 727
Income tax expense (credit) (243) 108
------------ -------------
------------ -------------
Net income (loss) $ (110) $ 619
============ =============
============ =============
Basic earnings (loss) per common share $ (0.08) $ 0.48
Diluted earnings (loss) per common share $ (0.08) $ 0.45
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
Three months ended December 31, 2004 and 2003
(In thousands)
Three Months Ended
December 31,
2004 2003
---- ----
Balance at beginning of period $ 35,906 $ 34,251
Stock option exercise 70 338
Cash dividends declared (157) (142)
Comprehensive income (loss):
Net income (loss) (110) 619
Net change in net unrealized gains and losses
on securities available for sale, net of
reclassification adjustments and tax effects 717 (302)
----------- -----------
----------- -----------
Total comprehensive income (loss) 607 317
----------- -----------
----------- -----------
Balance at end of period $ 36,426 $ 34,764
=========== ===========
See accompanying notes to (unaudited) consolidated financial statement
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended December 31, 2004 and 2003
Three Months Ended
December 31,
2004 2003
---- ----
Cash flows from operating activities
Net income $ (110) $ 619
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion 470 397
Provision for loan losses 300 300
Net loss (gain) on securities available for sale 948 -
Net realized gains from sales of loans (222) (310)
Accretion of intangible assets and purchase adjustments (86) -
Origination of loans held for sale (11,380) (10,644)
Impairment of mortgage servicing rights, net of recovery 138 (168)
Proceeds from sales of loans held for sale 9,850 14,843
Equity in loss of investment in limited partnership 47 68
Appreciation in cash surrender value of life insurance (49) (70)
Stock dividend paid by FHLB (93) (81)
Net change in:
Accrued interest receivable 52 3
Other assets (164) (1,217)
Accrued expenses and other liabilities (2,613) (46)
--------------- --------------
Net cash used in operating activities (2,912) 3,694
Cash flows from investing activities
Net change in interest-bearing time deposits in other financial institutions - (1,000)
Net change in loans receivable (1,932) (9,179)
Proceeds from:
Principal payments of mortgage-backed and related securities 3,292 2,320
Maturities and calls of securities available for sale 2,100 500
Purchase of:
Securities available for sale - (1,997)
Premises and equipment, net (92) (7,347)
------------- --------------
Net cash from investing activities 3,368 (16,703)
Cash flows from financing activities
Net change in deposits (13,468) 2,257
Repayment of FHLB and other borrowings (18,200) (800)
Proceeds from FHLB and other borrowings 23,500 -
Proceeds from exercise of stock options 61 239
Net change in advances from borrowers for taxes and insurance (2,274) (988)
Cash dividends paid (157) (142)
--------------- --------------
--------------- --------------
Net cash used in financing activities (10,538) 566
--------------- --------------
--------------- --------------
Net change in cash and cash equivalents (10,082) (12,443)
Cash and cash equivalents at beginning of period 40,357
28,595
--------------- --------------
Cash and cash equivalents at end of period $ 18,513 $ 27,914
=============== ==============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 2,538 $ 2,650
Income taxes - 90
Supplemental schedule of noncash investing activities:
Transfer from:
Loans receivable to loans held for sale $ - $ 1,200
Loans receivable to other real estate owned - -
MFB CORP. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Nature of Operations: MFB Corp. is an Indiana unitary savings and loan holding
company organized in 1993, and parent company of its wholly owned federal
savings bank subsidiary, MFB Financial (the "Bank"). MFB Corp. and the Bank
(collectively referred to as the "Company") conduct business from their
corporate office in Mishawaka, Indiana, and eleven branch locations in St.
Joseph and Elkhart Counties of Indiana. The Bank offers a variety of lending,
deposit, trust and other financial services to its retail and business
customers. The Bank's wholly-owned subsidiary, Mishawaka Financial Services,
Inc., offers general property, casualty and life insurance to customers in the
Bank's market area. The Bank's wholly-owned subsidiaries, MFB Investments I,
Inc., MFB Investments II, Inc. and MFB Investments, LP are Nevada corporations
and a Nevada limited partnership that manage the Bank's investment portfolio.
Basis of Presentation: The accompanying unaudited consolidated financial
statements were prepared in accordance with instructions for Form 10-Q and,
therefore, do not include all disclosures required by accounting principles
generally accepted in the United States of America for a complete presentation
of the financial statements. In the opinion of management, the consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the consolidated balance sheets of MFB Corp. and its subsidiary
MFB Financial as of December 31, 2004 and September 30, 2004, the consolidated
statements of income, the condensed consolidated statements of changes in
shareholders' equity and the consolidated statements of cash flows for the
three months ended December 31, 2004 and 2003. All significant intercompany
transactions and balances are eliminated in consolidation.
Reclassifications: Items in the prior consolidated financial statements are
reclassified to conform with the current presentation.
Stock Based Compensation: The Board of Directors of the Company has adopted
three stock option plans (the "Option Plans"). The number of options authorized
under the Option Plans totals 450,000 shares of common stock. Officers,
employees and outside directors of the Company and its subsidiary are eligible
to participate in the Option Plans. The option exercise price has always been
the fair market value of common stock on the date of the grant, and the option
term cannot exceed ten years and one day from the date of the grant. As of
December 31, 2004, all options granted have an exercise price of at least 100%
of the market value of the common stock on the date of grant and no compensa-
tion expense was recognized for stock options for the three months ended
December 31, 2004 and 2003.
Compensation expense under stock options is reported using the intrinsic value
method. No stock-based compensation cost is reflected in net income, as all
options granted had an exercise price equal to or greater than the market price
of the underlying common stock at date of grant. The following table illustrates
the effect on net income and earnings per share if expense was measured using
the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation.
Three Months ended
December 31
(in thousands except per
share information)
2004 2003
---- ----
Net Income (loss) as reported $ (110) $ 619
Less: Stock-based compensation expense determined
under fair value based method 34 49
------------ -----------
------------ -----------
Pro-forma net income (loss) (144) 570
============ ===========
============ ===========
Basic earnings (loss) per share as reported $ (0.08) $ 0.48
Pro-forma basic earnings (loss) per share (0.11) 0.44
Diluted earnings (loss) per share as reported (0.08) 0.45
Pro-forma diluted earnings (loss) per share (0.11) 0.42
No stock options were granted during the quarter ended December 31, 2004. The
weighted average fair value of stock options granted during the three months
ended December 31, 2003 was $9.59 The fair value of options granted during the
three months ended December 31, 2003 was estimated using an option pricing model
with the following weighted average information as of the grant dates:
December 31,
2003
Risk free rate of interest 4.21%
Expected option life 8 years
Expected dividend yield 1.37%
Expected volatility 23.91%
In future years, as additional options are granted, the proforma effect on net
income and earnings per share may increase. Stock options are used to reward
directors and certain executive officers and provide them with an additional
equity interest. Options are issued for ten year periods and have varying
vesting schedules.
NOTE 2 - EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per common share shows the dilutive effect of additional
potential common shares issuable under stock options.
The computations of basic earnings (loss) per common share and diluted earnings
(loss) per common share for the three month periods ended December 31, 2004 and
2003 are presented below.
Three Months Ended
December 31,
2004 2003
---- ----
Basic Earnings (loss) Per Common Share
Numerator
Net income (loss) $ (110) $ 619
=========== ===========
Denominator
Weighted average common shares outstanding
for basic earnings (loss) per common share 1,332 1,295
=========== ===========
Basic Earnings (loss) Per Common Share $ (0.08) $0.48
=========== ===========
Diluted Earnings (loss) Per Common Share
Numerator
Net income (loss) $ (110) $ 619
=========== ===========
Denominator
Weighted average common shares outstanding
for basic earnings (loss) per common share 1,332 1,295
Add: Dilutive effects of assumed exercises
of stock options - 69
--------- -----------
Weighed average common and dilutive
potential common shares outstanding 1,332 1,364
=========== ===========
Diluted Earnings (loss) Per Common Share $(0.08) $0.45
=========== ===========
There were no antidilutive stock options for the three months ended December
31, 2003.
NOTE 3 - SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
..........................December 31, 2004..........................
-----------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 7,161 $ 22 $ (23) $ 7,160
Municipal bonds 343 10 - 353
Mortgage-backed 41,949 158 (157) 41,950
Corporate notes 7,737 119 (241) 7,615
------------ -------------- ------------- --------------
57,190 309 (421) 57,078
Marketable equity securities 3,180 - - 3,180
------------ -------------- ------------- --------------
$60,370 $ 309 $ (421) $ 60,258
============ ============== ============= ==============
..........................September 30, 2004.........................
------------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 9,304 $ 54 $ (6) $ 9,352
Municipal bonds 343 13 - 356
Mortgage-backed 45,266 232 (93) 45,405
Corporate notes 7,734 132 (211) 7,655
------------ -------------- ------------- --------------
62,647 431 (310) 62,768
Marketable equity securities 4,128 - (875) 3,253
------------ -------------- ------------- --------------
$ 66,775 $ 431 $ (1,185) $ 66,021
============ ============== ============= ==============
Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
At December 31, 2004, management 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. The recent downgrade in
rating on the FNMA security due to recently disclosed accounting issues, the
duration of the suppressed market value on both the FNMA and FHLMC securities
and inability to project when market value recovery would occur led management
to record the write-down. The unrealized losses on marketable equity securities
decreased from $875,000 at September 30, 2004 to $-0- at December 31, 2004 as a
result of the non-cash impairment charge. The fair value of the FNMA and FHLMC
securities was $3.05 million at December 31, 2004. The remaining $128,000 in
marketable equity securities is a corporate stock held at the holding company at
December 31, 2004.
Related to the unrealized losses for debt securities classified as corporate
notes, $186,000 at December 31, 2004 of unrealized losses is attributable to a
trust preferred bond issued by a regional banking organization. This unrealized
loss is primarily attributable to the low interest rate environment, and the
variable interest rate structure of the bond. Such interest rate adjustments
resulted in coupons being set at a level lower than today's market. As interest
rates rise and the bonds coupon rate increases, management anticipates recovery
of the unrealized losses. Management has the ability to hold this bond to
maturity, at which time the face value of the bond would be realized. Credit
issues are not considered to be a significant factor relative to the current
unrealized losses.
NOTE 4 - LOANS RECEIVABLE, NET
Loans receivable at December 31, 2004 and September 30, 2004 are summarized as
follows:
December 31, September 30,
2004 2004
----------------- ----------------
(in thousands)
First mortgage loans (principally conventional)
Principal balances
Secured by one to four family residences $ 174,657 $ 176,817
Construction loans 14,758 20,259
Others 3,546 3,899
----------------- ----------------
192,961 200,975
Net deferred loan origination fees (548) (556)
Undisbursed portion of construction and other mortgage loans 9 (139)
----------------- ----------------
Total first mortgage loans 192,422 200,340
Commercial loans:
Principal balances
Commercial $ 68,043 $ 61,753
Commercial real estate 101,534 99,198
----------------- ----------------
----------------- ----------------
169,577 160,951
Net deferred loan origination fees (331) (347)
Undisbursed portion of commercial loans (221) -
----------------- ----------------
----------------- ----------------
Total commercial loans 169,025 160,604
Consumer loans:
Home equity and second mortgage $ 33,440 $ 32,007
Other 6,736 6,973
----------------- ----------------
40,176 38,980
Net deferred loan origination fees 20 -
Undisbursed portion of consumer loans loans 52 -
----------------- ----------------
----------------- ----------------
Total consumer loans 40,248 38,980
----------------- ----------------
Total loans receivable $ 401,695 $ 399,924
================= ================
Activity in the allowance for loan losses is summarized as follows for the three
months ended December 31, 2004 and for the year ended September 30, 2004.
December 31, September 30,
2004 2004
---------------- -----------------
(in thousands)
Balance at beginning of period $ 6,074 $ 5,198
Provision for loan losses 300 800
Acquired allowance for loan losses - 602
Charge-offs (14) (543)
Recoveries 1 17
--------------- --------------
Balance at end of period $ 6,361 $ 6,074
================ =================
NOTE 4 - LOANS RECEIVABLE, NET (continued)
Quarter Ended Year Ended
December 31, September 30,
Impaired loans were as follows: 2004 2004
------------------ ------------------
(in thousands)
Quarter-ended and year-end balances with no allocated allowance for loan losses
$ - $ -
Quarter-ended and year-end loans with allocated allowances for loan losses 2,489 2,217
------------------ ------------------
Total $ 2,489 $ 2,217
================== ==================
Amount of the allowance for loan losses allocated $ 1,075 $ 995
Average of impaired loans 2,503 2,506
Interest income recognized during impairment 20 82
Cash-basis interest income recognized during impairment 18 73
Non-performing assets were as follows:
December 31, September 30,
2004 2004
------------------ ------------------
(in thousands)
Loans past due over 90 days still on accrual status $ - $ -
Non-accrual loans 3,011 2,719
------------------ ------------------
------------------ ------------------
Total non-performing loans 3,011 2,719
------------------ ------------------
------------------ ------------------
Other real estate 1,471 1,527
------------------ ------------------
------------------ ------------------
Total non-performing assets $ 4,482 $ 4,246
================== ==================
NOTE 5 - PREMISES AND EQUIPMENT, NET
December 31, September 30,
Premises and equipment are summarized as follows: 2004 2004
------------------ ------------------
(in thousands)
Land $ 4,493 $ 4,493
Building and improvements 13,217 13,187
Furniture and equipment 6,378 6,319
----------- -------------
Total 24,088 23,999
Accumulated depreciation and amortization (4,923) (4,615)
----------- -------------
Total Premises and Equipment $ 19,165 $ 19,384
----------- -------------
Depreciation and amortization of premises and equipment included in occupancy
and equipment expense was approximately $307,000 for the three months ended
December 31, 2004 and $182,000 for the three months ended December 31, 2003.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The principal business of MFB Financial has historically consisted of attracting
deposits from the general public and the business community and making loans
secured by various types of collateral, including real estate and general
business assets. The Bank is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities, fee structures, and level of
personal income and savings. Lending activities are influenced by the demand for
funds, the number and quality of lenders, and regional economic cycles. Sources
of funds for lending activities of the Bank include deposits, borrowings,
payments on loans, sales of loans and income provided from operations.
The Company's earnings are primarily dependent upon the Bank's net interest
income, the difference between interest income and interest expense. Interest
income is a function of the balances of loans and investments outstanding during
a given period and the yield earned on such loans and investments. Interest
expense is a function of the amount of deposits and borrowings outstanding
during the same period and interest rates paid on such deposits and borrowings.
The Company's earnings are also affected by the Bank's provisions for loan
losses, service charge and fee income, gains from sales of loans, valuation and
fees related to mortgage loan servicing operations, income from subsidiaries'
activities, operating expenses and income taxes.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
The Company's consolidated net loss for the three months ended December 31, 2004
was ($110,000) or ($0.08) diluted loss per common share, compared to net income
of $619,000 or $0.45 diluted earnings per share, for the three months ended
December 31, 2003. During the first quarter ended December 31, 2004, MFB Corp.
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 an "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, the duration of the suppressed market value on both the FNMA
and FHLMC securities and inability to project when market value recovery would
occur 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 equity capital
on the balance sheet. 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. MFB Corp's decrease in net income for the first fiscal
quarter from the prior comparable period was primarily attributable to decline
in noninterest income due to the impairment charge mentioned above and an
impairment charge on the Company's mortgage servicing rights. In addition,
noninterest expense increased from last year, offset by an increase in net
interest income. The three months period ended December 31, 2004 experienced a
decline in income tax expense compared to last year due to the change in income
(loss) before income taxes.
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 interest on FHLB advances and deposit interest
expense. The increases were primarily attributable to the additional assets and
liabilities acquired from Sobieski Bank in August, 2004.
The provision for loan losses 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. A mortgage servicing
rights valuation impairment charge occurred in the quarter ended December 31,
2004 totaling $138,000 compared to a recovery of $168,000 for the first quarter
last year. All other noninterest 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 expenses related to
the operation of three acquired branches, the opening of another branch and new
Corporate offices were the significant contributors 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.
As reported in two separate press releases and on Form 8k filings dated January
31, 2005 and February 2, 2005, MFB Corp. has entered into two long term lease
arrangements at its new corporate offices with new tenants. The tenants are
expected to begin occupying the rented space during the Company's third fiscal
quarter ended June 30, 2005. Rental income for that space is expected to
approximate $100,000 for the fiscal year ended September 30, 2005 and $275,000
for the fiscal year ended September 30, 2006. The tenants will both compensate
MFB for their share of specified operating expenses based on occupied square
footage pursuant to the terms of the leases.
BALANCE SHEET COMPOSITION
COMPARISON OF DECEMBER 31, 2004 TO SEPTEMBER 30, 2004
The Company's total assets decreased from $541.2 million as of September 30,
2004 to $528.3 million as of December 31, 2004.
Cash and cash equivalents decreased from $28.6 million at September 30, 2004 to
$18.5 million at
December 31, 2004. Net cash used in operating activities amounted to $2.9
million and net cash used in financing activities totalled $10.5 million, offset
by net cash from investing activities amounting to $3.3 million during the three
months ended December 31, 2004.
As of December 31, 2004, the total securities available for sale portfolio
amounted to $60.3 million, a decrease of $5.7 million from $66.0 million at
September 30, 2004. The securities portfolio activity during that period
included security maturities and sales of $2.1 million and principal payments on
mortgage-backed and related securities of $3.3 million.
Premises and equipment decreased from $19.4 million at September 30, 2004 to
$19.2 million at December 31, 2004 primarily due to depreciation of $309,000.
As of December 31, 2004, loans receivable were $401.7 million, an increase of
$1.8 million from $399.9 million at September 30, 2004. Commercial loans
outstanding increased by $8.4 million from $160.6 million at September 30, 2004
to $169.0 million at December 31, 2004. Consumer loans, including home equity
and second mortgages, increased $1.3 million during the three month period.
Mortgage loans decreased by $7.9 from $200.3 million at September 30, 2004 to
$192.4 million at December 31, 2004 due primarily to a decline in builder
construction loans. Loans held for sale at December 31, 2004 increased to $2.7
million from $1.0 million at September 30, 2004. Diversification of the mix of
loans on the balance sheet continues to be a focus to improve profit margins,
control margin volatility and to appeal to a broader range of existing and
potential customers.
During the first quarter ended December 31, 2004, the Company completed
secondary market mortgage loan sales totaling $9.9 million and the net gains
realized on these loan sales were $222,000 including $124,000 related to
recording mortgage loans servicing rights. During the quarter ended December 31,
2003, the Company completed secondary market mortgage loan sales totaling $14.8
million and the net gains realized on these loan sales were $310,000 including
$184,000 related to recording mortgage loans servicing rights. The loans sold
this year were primarily fixed rate mortgage loans with maturities of fifteen
years or longer. The sale of loan production serves as a source of additional
liquidity and management anticipates that the Company will continue to deliver
fixed rate loans to the secondary market to meet consumer demand, manage
interest rate risk, and diversify the asset mix of the Company. On a
non-recurring basis, to meet liquidity needs that arise, the Company may sell
certain adjustable rate loans from its portfolio.
The allowance for loan losses increased from $6.1 million, or 1.53% of loans, at
September 30, 2004 to $6.4 million or 1.58% of loans at December 31, 2004. The
increase is primarily attributable to the growing commercial loan portfolio. The
allowance is maintained through the provision for loan losses, which is charged
to earnings. The Company's nonperforming assets have increased from $4.2 million
at September 30, 2004 to $4.5 million at December 31, 2004. Impaired loans were
$2.5 million for December 31, 2004 and $2.2 million for September 30, 2004. In
management's opinion, the allowance for loan losses is adequate to cover
probable incurred losses at December 31, 2004.
Total liabilities decreased from $505.3 million at September 30, 2004 to $491.9
million at December 31, 2004. Total deposits decreased $13.6 million from $357.9
million at September 30, 2004 to $344.2 million at December 31, 2004. The
decrease consisted of a $4.9 million decrease in time deposits, a $4.1 million
decrease in noninterest bearing demand deposits and a $4.6 million decrease in
Savings, Now and MMDA deposits. The decline was partially attributable to a
reduction in public fund deposits and customer tax payments. FHLB advances
increased from $133.4 million at September 30, 2004 to $138.5 million at
December 31, 2004. The $138.5 million of Federal Home Loan Bank advances have a
weighted average interest rate of 5.41% and mature over the next seven years. A
total of $23.5 million of the advances mature in the next twelve months. Accrued
liabilities and expenses declined from $7.5 million in September 2004 to $2.6
million in December 2004. This decline is the result of payments for borrowers
for property tax payments in November 2004.
Total shareholders' equity increased from $35.9 million as of September 30, 2004
to $36.4 million as of December 31, 2004. MFB Corp's equity to assets ratio was
6.89% at December 31, 2004 compared to 6.61% at September 30, 2004. The book
value of MFB Corp. stock increased from $27.02 at September 30, 2004 to $27.35
at December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity relates primarily to the Company's ability to fund loan demand, meet
deposit customers' withdrawal requirements and provide for operating expenses.
Assets used to satisfy these needs consist of cash, deposits with other
financial institutions, overnight interest-bearing deposits in other financial
institutions and securities available for sale. These assets are commonly
referred to as liquid assets.
Liquid assets were $80.2 million as of December 31, 2004 compared to $96.1
million as of September 30, 2004. This decrease was due to the reduction in
deposits of $13.6 million between December 31, 2004 and September 30, 2004 which
led to a reduction in cash and cash equivalents of $10.1 million over that same
period. Management believes the liquidity level as of December 31, 2004 is
sufficient to meet anticipated cash needs.
Short-term borrowings or long-term debt, such as Federal Home Loan Bank
advances, are used to supplement other sources of funds such as deposits and to
assist in asset/liability management. As of December 31, 2004, total FHLB
borrowings amounted to $138.5 million and were originally used primarily to fund
loan portfolio growth. The Bank had commitments to fund loan originations with
borrowers totaling $88.4 million at December 31, 2004, including $67.7 million
in available consumer and commercial lines and letters of credit. Certificates
of deposit scheduled to mature in one year or less totaled $108.3 million. Based
on historical experience, management believes that a significant portion of
maturing deposits will remain with the Bank. The Bank anticipates that it will
continue to have sufficient cash flow and other cash resources to meet current
and anticipated loan funding commitments, deposit customer withdrawal
requirements and operating expenses.
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
"well-capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized," although these terms are
not used to represent overall financial condition. If not "well capitalized,"
regulatory approval is required to accept brokered deposits. If
"undercapitalized," capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
The Bank's actual capital and required capital amounts and ratios at December
31, 2004 and September 30,2004 are presented below:
below:
Requirement to be
Well Capitalized Under
Requirement for Capital Prompt Corrective
Actual Adequacy Purposes Actual Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2004
Total capital
(to risk weighted assets) $ 37,761 10.18% $ 29,685 8.00% $37,106 10.00%
Tier 1 (core) capital
(to risk weighted assets) 34,151 8.98 14,842 4.00 22,264 6.00
Tier 1 (core) capital
(to adjusted total assets) 34,151 6.55 21,139 4.00 26,057 5.00
As of September 30, 2004
Total capital
(to risk weighted assets) $ 36,870 10.04% $ 29,368 8.00% $36,710 10.00%
Tier 1 (core) capital
(to risk weighted assets) 33,562 8.88 14,684 4.00 22,026 6.00
Tier 1 (core) capital
to adjusted total assets) 33,562 6.29 21,334 4.00 26,668 5.00
As of December 31, 2004, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have, or
are reasonably likely to have, a material adverse effect on the Company's
liquidity, capital resources or operations.
The forgoing discussion contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which involve a number
of risks and uncertainties. A number of factors could cause results to differ
materially from the objectives and estimates expressed in such forward-looking
statements. These factors include, but are not limited to, changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area, changes in the position of banking regulators on the adequacy of
our allowance for loan losses, changes in the value of the Company's mortgage
servicing rights and securities available for sale, and competition, all or some
of which could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. These factors should be
considered in evaluating any forward-looking statements, and undue reliance
should not be placed on such statements. MFB Corp. does not undertake and
specifically disclaims any obligation to update any forward-looking statements
to reflect occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances which could affect these judgments
include, but without limitation, changes in interest rates, in the performance
of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan
losses, determining the fair value of securities available for sale and other
financial instruments and the valuation of mortgage servicing rights.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs, less recoveries. Management estimates
the allowance for loan losses balance required by evaluating current economic
conditions, changes in character and size of the loan portfolio, delinquencies
and adequacy of loan collateral securing loan delinquencies, historical and
estimated charge offs and other pertinent information derived from a review of
the loan portfolio. Allocations of the allowance for loan losses may be made for
specific loans, but the entire allowance for loan losses is available for any
loan that, in management's judgment, should be charged-off. Loan losses are
charged against the allowance for loan losses when management believes the loan
balance is uncollectible.
A loan is impaired when the full payment of principal and interest is not
expected to be paid in accordance with the original terms of the loan.
Impairment is evaluated in total for small-balance loans of similar nature such
as residential mortgage and consumer loans, and on an individual loan basis for
commercial loans. If a loan is impaired, a portion of the allowance for loan
losses is allocated so that the loan is reported on a net basis at the present
value of estimated future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected solely from the collateral.
Fair Value of Securities Available for Sale: Securities available for sale are
carried at fair value, with unrealized holding gains and losses reported
separately in accumulated other comprehensive income (loss), net of tax. The
Company obtains market values from a third party on a monthly basis in order to
adjust the securities to fair value. Additionally, securities available for sale
are required to be written down to fair value when a decline in fair value is
not temporary; therefore, future changes in the fair value of securities could
have a significant impact on the Company's results. In determining whether a
market value decline is other than temporary, management considers the reason
for the decline, the extent of the decline and the duration of the decline.
Other comprehensive income (loss), net of tax, totaled $717,000 and ($302,000)
for the three months ended December 31, 2004 and 2003, respectively. The
increase in the other comprehensive income (loss), net of tax is primarily the
result of the impairment write down for securities mentioned in Note 3.
Mortgage Servicing Rights: Servicing rights represent both purchased rights and
the allocated value of servicing rights retained on loans sold. Servicing rights
are expensed in proportion to, and over the period of, estimated net servicing
revenues. Impairment is evaluated based on the fair value of the rights,
determined using prices for similar assets with similar characteristics or
discounted cash flows using market based assumptions. Any impairment of a
grouping is reported as a valuation allowance. Changes in interest rates and the
level of refinance activity can have volatile effects on the carrying value of
servicing rights. The Company obtains an outside appraisal on a quarterly basis
from a national firm who specializes in mortgage servicing valuation. This
valuation is used to evaluate the Company's mortgage servicing rights asset for
impairment. As December 31, 2004, mortgage servicing rights had a carrying value
of $1.98 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to interest rate risk to the extent that its
interest-bearing liabilities, primarily deposits and Federal Home Loan Bank
(FHLB) advances, reprice more rapidly or at different rates than its
interest-earning assets.
A key element of the Company's asset/liability plan is to protect net earnings
by managing the maturity or repricing mismatch between its interest-earning
assets and rate-sensitive liabilities. Historically, the Company has sought to
reduce exposure to its earnings through the use of adjustable rate loans and
through the sale of fixed rate loans in the secondary market, and by extending
funding maturities through the use of FHLB advances.
As part of its efforts to monitor and manage interest rate risk, the Company
uses the Net Portfolio Value ("NPV") methodology adopted by the Office of Thrift
Supervision (OTS) as part of its capital regulations. In essence, this approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance-sheet contracts. The difference is the NPV, which
was 8.72% as of September 30, 2004, down slightly from 9.05% at September 30,
2003. Management and the Board of Directors review the OTS measurements on a
quarterly basis to determine whether the Company's interest rate exposure is
within the limits established by the Board of Directors in the Company's
interest rate risk policy.
The Company's asset/liability management strategy dictates acceptable limits on
the amounts of change in NPV given certain changes in interest rates. The tables
presented here, as of September 30, 2004, is an analysis of the Company's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point increments, up 300 basis
points and down 100 basis points (Due to the abnormally low interest rate
environment at September 30, 2004, data was not available from the OTS for the
shift downward in rates by 200 and 300 basis points).
As illustrated in the September 30, 2004 table below, the Company's interest
rate risk is sensitive to both rising and declining rates. The decline in NPV
with a rate reduction is due to the change in value of fixed rate Federal Home
Loan Bank borrowings that would occur. The decline in NPV with a rate increase
is due to the relative volume of mortgage assets with fixed rate characteristics
in the OTS model over the volume of liabilities with fixed rate characteristics.
September 30, 2004
Change in (Dollars in Thousands)
Interest Rates NPV as % of Portfolio
In Basis Net Portfolio Value Value of Assets
Points --------------------------------- ---------------------
NPV
(Rate Shock) (1) $ Amount $ Change % Change Ratio %Change (1)
---------- --- -------- -------- -------- ----- -----------
+300 $ 36,125 $(12,586) (26)% 6.80% (192) bp
+200 41,987 (6,725) (14) 7.76 (96) bp
+100 46,357 (2,355) (5) 8.42 (30) bp
0 48,712 - - 8.72 -
(100) 47,138 (1,574) (3) 8.37 (35) bp
(1) Expressed in basis points
Specifically, the September 30, 2004 table indicates that the Company's NPV was
$48.7 million or 8.72% of the market value of portfolio assets. Based upon the
assumptions utilized, an immediate 200 basis point increase in market interest
rates would result in a $6.7 million or 14% decrease in the Company's NPV and
would result in a 96 basis point decrease in the Company's NPV ratio to 7.76%.
Also, an immediate 100 basis point decrease in market interest rates would
result in a $1.6 million or 3% decrease in the Company's NPV, and a 35 basis
point decrease in the Company's NPV ratio to 8.37%.
In evaluating the Company's interest rate risk exposure to interest rate
movements, certain shortcomings inherent in the method of analysis presented in
the foregoing table must be considered. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in interest rates. Additionally, certain assets, such as
adjustable rate mortgages (ARM'S), have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a significant change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed above.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase. The Company considers all of these factors
in monitoring its exposure to interest rate risk.
In addition to monitoring selected measures on NPV, management also monitors
effects on net interest income resulting from increases or decreases in rates.
This process is used in conjunction with NPV measures to identify excessive
interest rate risk. In managing its asset/liability mix, the Company, depending
on the relationship between long and short term interest rates, market
conditions and consumer preference, may place somewhat greater emphasis on
maximizing its net interest margin than on strictly matching the interest rate
sensitivity of its assets and liabilities. Management believes that the
increased net income which may result from an acceptable mismatch in the actual
maturity or repricing of its asset and liability portfolios can provide
sufficient returns to justify the increased exposure to sudden and unexpected
increases in interest rates which may result from such a mismatch. Management
believes that the Company's level of interest rate risk is acceptable under this
approach as well.
The Board of Directors and management of the Company believe that certain
factors afford the Company the ability to operate successfully despite its
exposure to interest rate risk. The Company manages its interest rate risk by
originating and selling the majority of its fixed rate one-to-four family real
estate loans. While the Company generally originates adjustable rate mortgage
loans for its own portfolio, fixed rate first mortgage loans may be retained in
the portfolio from time to time. Loans classified as held for sale as of
December 31, 2004 totaled $2.7 million compared to $1.0 million at September 30,
2004. The Company retains the servicing on the majority of loans sold in the
secondary market and, at December 31, 2004, $208.0 million in such loans were
being serviced for others.
The Company's investment strategy is to maintain a diversified portfolio of high
quality investments that minimize interest rate and credit risks while striving
to maximize investment return and to provide liquidity necessary to meet funding
needs. The Company's investment portfolio primarily consists of US government
and federal agency obligations, mortgage-backed securities and corporate note
obligations. The Company's policy dictates all securities must satisfy the
investment grade requirements of the Office of Thrift Supervision at the time of
purchase.
The Company's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. The Company offers a
range of maturities on its deposit products at competitive rates and monitors
the maturities on an ongoing basis.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections 13a-15(e) and 15d-15(e) of regulations promulgated under the Securities
Exchange Act of 1934, as amended), as of the end of the most recent fiscal
quarter covered by this quarterly report (the "Evaluation Date"), have concluded
that as of the Evaluation Date, the Company's disclosure controls and procedures
were adequate and are designed to ensure that material information relating to
the Company would be made known to such officers by others within the Company on
a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal control over financial reporting identified in connection
with the Company's evaluation of controls that occurred during the Company's
last fiscal quarter 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.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits.
10(1) Lease dated January 28, 2005 between MFB Financial and May
Oberfell, Lorber.**
10(2) Lease dated January 26, 2005 between MFB Financial and
Mellinger Financial Services, Inc.**
10(3) Form of Incentive Stock Option Agreement
10(4) Form of Non-Qualified Stock Option Agreement
10(5) MFB Financial Bank Incentive Plan (For All Non-BIC Program
Employees-Executive Managment)
31(1) Certification required by 17 C.F.R.ss. 240.13a-14(a).
31(2) Certification required by 17 C.F.R.ss. 140.13a-14(a).
32 Certification pursuant to 18 U.S.C.ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2004.
**Portions of the referenced Exhibit have been omitted and filed
separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment in accordance
with Exchange Act Rule 24b-2
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.
MFB CORP.
Date: 02/14/05 By /s/ Charles J Viater
-------- -----------------------------------------
Charles J. Viater
President and Chief Executive Officer
Date: 02/14/05 By /s/ Thomas J. Flournoy
-------- -----------------------------------------
Thomas J. Flournoy
Chief Financial Officer
Exhibit 31
CERTIFICATION
I, Charles J. Viater, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFB Corp;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:___02/14/05_______________ /s/ Charles J Viater
--------------------------------
Charles J. Viater
Chief Executive Officer
Exhibit 31
CERTIFICATION
I, Thomas J. Flournoy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFB Corp;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered
by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:__02/14/05_______________ /s/ Thomas J Flournoy
-------------------------------
Thomas J. Flournoy
Chief Financial Officer
Exhibit 32
CERTIFICATION
By signing below, each of the undersigned officers hereby certifies
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2004, that, to his knowledge, (i) this report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of MFB Corp.
Signed this 14th day of February, 2005.
/s/ Thomas J Flournoy /s/ Charles J Viater
- ----------------------------- -------------------------------
Thomas J. Flournoy Charles J. Viater
Chief Financial Officer Chief Executive Officer
- ----------------------------- -------------------------------
(Title) (Title)
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to MFB Corp. and will be retained by
MFB Corp. and furnished to the Securities and Exchange Commission or its staff
upon request.