13
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 June 30, 2005
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
------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation 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 July 31, 2005 was 1,353,460.
MFB CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
June 30, 2005 and September 30, 2004 3
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended June 30, 2005 and 2004 4
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Three and Nine Months Ended June 30, 2005 and 2004 5
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended June 30, 2005 and 2004 6
Notes to (Unaudited) Consolidated Financial Statements June 30, 2005 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 18
Part II. Other Information
Items 1-6. 19
Signatures 22
Certifications 21
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2005 and September 30, 2004
(in thousands except per share information)
(Unaudited)
June 30, September 30,
2005 2004
----------------- -----------------
----------------- -----------------
Assets
Cash and due from financial institutions $ 6,900 $ 9,524
Interest - bearing deposits in other financial institutions - short term 17,894 19,071
----------------- -----------------
Total cash and cash equivalents 24,794 28,595
Securities available for sale 50,689 66,021
Other Investments 12,574 12,628
Loans held for sale 1,886 1,034
Mortgage Loans 191,842 200,705
Commercial Loans 172,593 160,182
Consumer Loans 39,063 39,037
----------------- -----------------
----------------- -----------------
Loans receivable 403,498 399,924
Less: allowance for loan losses (6,442) (6,074)
----------------- -----------------
Loan receivable, net 397,056 393,850
Premises and equipment, net 19,853 19,384
Mortgage servicing rights 2,062 2,092
Cash surrender value of life insurance 5,877 5,707
Goodwill 2,423 2,423
Other intangible assets 2,274 2,693
Other assets 6,981 6,795
----------------- -----------------
Total assets $ 526,469 $ 541,222
================= =================
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing demand deposits $ 30,326 $ 31,658
Savings, NOW and MMDA deposits 131,075 136,099
Time deposits 188,323 190,136
----------------- -----------------
Total deposits 349,724 357,893
FHLB advances 129,055 133,443
Loans from correspondent banks 6,500 6,500
Accrued expenses and other liabilities 3,567 7,480
----------------- -----------------
Total liabilities 488,846 505,316
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417 - 06/30/05 and 9/30/04;
shares outstanding: 1,353,460 - 06/30/05 and 1,329,060 - 9/30/04 12,371 12,486
Retained earnings - substantially restricted 33,000 32,195
Accumulated other comprehensive income (loss),
net of tax of ($148) - 06/30/05 and $38 - 9/30/04 (278) (792)
Treasury stock, 335,957 common shares - 06/30/05;
360,357 common shares - 9/30/04, at cost (7,470) (7,983)
----------------- -----------------
Total shareholders' equity 37,623 35,906
----------------- -----------------
Total Liabilities and Shareholders' equity $ 526,469 $ 541,222
================= =================
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and Nine Months Ended June 30, 2005 and 2004
(in thousands except per share information)
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Interest income
Loans receivable, including fees $ 6,314 $ 5,149 $ 18,426 $ 15,224
Securities - taxable 610 324 1,937 1,125
Other interest-bearing assets 53 32 145 129
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Total interest income 6,977 5,505 20,508 16,478
Interest expense
Deposits 1,693 1,333 4,900 4,004
FHLB advances and other borrowings 1,532 1,364 4,806 4,111
-------------- --------------
-------------- ------------- -------------- --------------
Total interest expense 3,225 2,697 9,706 8,115
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Net interest income 3,752 2,808 10,802 8,363
Provision for loan losses 361 150 632 650
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Net interest income after provision for 3,391 2,658 10,170 7,713
loan losses
Noninterest income
Service charges on deposit accounts 831 793 2,417 2,214
Trust fee income 100 148 300 405
Insurance commissions 53 60 153 152
Net realized gains from sales of loans 221 265 622 810
Mortgage servicing asset recovery (impairment) (107) 466 (86) 464
Net (loss) on securities available for sale - (109) (948) (109)
Other 178 137 644 493
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Total noninterest income 1,276 1,760 3,102 4,429
Noninterest expense
Salaries and employee benefits 1,953 1,749 5,617 5,147
Occupancy and equipment 645 642 2,298 1,863
Professional and consulting fees 153 242 524 586
Data processing expense 164 175 559 452
Other expense 970 765 2,811 2,179
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Total noninterest expense 3,885 3,573 11,809 10,227
Income before income taxes 782 845 1,463 1,915
Income tax expense 168 238 163 336
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Net income $ 614 $ 607 $ $ 1,579
1,300
============== ============= ============== ==============
============== ============= ============== ==============
Basic earnings per common share $ 0.45 $ 0.46 $ 0.97 $ 1.20
Diluted earnings per common share $ 0.44 $ 0.44 $ 0.94 $ 1.15
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
Three and Nine Months Ended June 30, 2005 and 2004
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Balance at beginning of period $ 37,105 $ 35,366 $ 35,906 $ 34,251
Stock option exercise - - 398 808
Cash dividends declared (169) (159) (495) (458)
Comprehensive income:
Net income 614 607 1,300 1,579
Net change in net unrealized gains and losses
on securities available for sale, net of
reclassification adjustments and tax effects 73 (98) 514 (464)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Total comprehensive income 687 509 1,814 1,115
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Balance at end of period $ 37,623 $ 35,716 $ 37,623 $ 35,716
=========== =========== ========== ==========
See accompanying notes to (unaudited) consolidated financial statement
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended June 30, 2005 and 2004
(in thousands)
Nine Months Ended
June 30,
2005 2004
------------- --------------
------------- --------------
Cash flows from operating activities
Net income $ 1,300 $ 1,579
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion 1,112 836
Provision for loan losses 632 650
Net loss (gain) on securities available for sale 948 109
Net realized gains from sales of loans (622) (810)
Amortization of mortgage servicing rights 290 358
Accretion of intangible assets and purchase adjustments (259) -
Origination of loans held for sale (29,679) (31,870)
Impairment (recovery) of mortgage servicing rights 86 (464)
Proceeds from sales of loans held for sale 29,104 37,210
Proceeds from sales of fixed assets - 318
Loss on sales of fixed assets - 46
Equity in loss of investment in limited partnership 242 181
Appreciation in cash surrender value of life insurance (170) (175)
Stock dividend paid by FHLB (188) (237)
Net change in:
Accrued interest receivable (90) 77
Other assets 99 (1,433)
Accrued expenses and other liabilities (1,818) 954
------------- --------------
Net cash from operating activities 987 7,329
Cash flows from investing activities
Net change in interest-bearing time deposits in other financial institutions - (500)
Net change in loans receivable (4,282) (27,615)
Proceeds from:
Principal payments of mortgage-backed and related securities 9,587 6,756
Maturities and calls of securities available for sale 4,945 7,944
Purchase of:
Securities available for sale - (6.798)
Premises and equipment, net (1,415) (9,385)
------------- --------------
Net cash from investing activities 8,835 (29,598)
Cash flows from financing activities
Net change in deposits (7,640) (2,303)
Repayment of FHLB and other borrowings (77,885) (16,230)
Proceeds from FHLB and other borrowings 74,100 15,000
Proceeds from exercise of stock options 392 523
Net change in advances from borrowers for taxes and insurance (2,095) 424
Cash dividends paid (495) (458)
------------- --------------
------------- --------------
Net cash used in financing activities (13,623) (3,044)
------------- --------------
------------- --------------
Net change in cash and cash equivalents (3,801) (25,313)
Cash and cash equivalents at beginning of period 40,357
28,595
------------- --------------
Cash and cash equivalents at end of period $ $ 15,044
24,794
============= ==============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ $ 7,966
9,794
Income taxes 515
175
Supplemental schedule of noncash investing activities:
Transfer from:
Loans receivable to loans held for sale $ 851 $ -
Loans receivable to other real estate owned 25 1,256
MFB CORP. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
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 June 30, 2005 and September 30, 2004, the consolidated
statements of income and the condensed consolidated statements of changes in
shareholders' equity for the three and nine months ended June 30, 2005 and 2004
and the consolidated statements of cash flows for the nine months ended June 30,
2005 and 2004. 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.
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 Nine Months Ended
June 30 June 30
(in thousands except per share information)
2005 2004 2005 2004
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
Net Income as reported $ 614 $ 607 $ 1,300 $ 1,579
Less: Stock-based compensation expense determined under fair value
based method 35 68 104 189
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
Pro-forma net income 579 539 1,196 1,390
============= ============ ============= ==============
============= ============ ============= ==============
Basic earnings per share as reported $ 0.45 $ 0.46 $ 0.97 $ 1.20
Pro-forma basic earnings per share 0.43 0.41 0.89 1.06
Diluted earnings per share as reported 0.44 0.44 0.94 1.15
Pro-forma diluted earnings per share 0.42 0.39 0.87 1.01
No stock options were granted during the nine months ended June 30, 2005. The
weighted average fair value of stock options granted during the nine months
ended June 30, 2004 was $9.96. The fair value of options granted during the nine
months ended June 30, 2004 was estimated using an option pricing model with the
following weighted average information as of the grant dates:
June 30,
2004
Risk free rate of interest 4.11%
Expected option life 8 years
Expected dividend yield 1.44%
Expected volatility 24.53%
FASB Statement No. 123, Revised, requires all public companies to record
compensation cost for stock options provided to employees in return for employee
service. The cost is measured at the fair value of the options when granted, and
this cost is expensed over the employee service period, which is normally the
vesting period of the options. This will apply to awards granted or modified on
or after that date of adoption which is October 1, 2005. Compensation cost will
also be recorded for prior option grants that vest after the date of adoption.
The effect on results of operations will depend on the level of future option
grants and the calculation of the fair value of the options granted at such
future dates, as well as the vesting periods provided, and so the effect cannot
currently be predicted.
NOTE 2 - EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share shows the dilutive effect of additional potential
common shares issuable under stock options.
The computations of basic earnings per common share and diluted earnings per
common share for the three month and nine month periods ended June 30, 2005 and
2004 are presented below.
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share information)
2005 2004 2005 2004
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Basic Earnings Per Common Share
Numerator
Net income $ 614 $ 607 $ 1,300 $ 1,579
=========== =========== =========== ============
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,353 1,329 1,343 1,312
=========== =========== =========== ============
Basic Earnings Per Common Share $ 0.45 $0.46 $ $1.20
0.97
=========== =========== =========== ============
Diluted Earnings Per Common Share
Numerator
Net income $ 614 $ 607 $ 1,300 $ 1,579
=========== =========== =========== ============
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,353 1,329 1,343 1,312
Add: Dilutive effects of assumed exercises of stock
options 31 57 37 64
----------- ----------- ----------- ------------
Weighed average common and dilutive potential common
shares outstanding 1,384 1,386 1,380 1,376
=========== =========== =========== ============
Diluted Earnings Per Common Share $ 0.44 $0.44 $ 0.94 $1.15
=========== =========== =========== ============
Stock options for 26,500 common shares for the three and nine months ended June
30, 2005 were not considered in computing diluted earnings per share because
they were antidilutive. There were 5,000 shares during the three and nine months
ended June 30, 2004 that were not considered in computing diluted earnings per
share because they were antidilutive.
NOTE 3 - SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
June 30, 2005
-------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 4,256 $ - $ (32) $ 4,224
Municipal bonds 341 10 - 351
Mortgage-backed 35,599 79 (252) 35,426
Corporate notes 7,742 61 (303) 7,500
------------ -------------- ------------- --------------
47,938 150 (587) 47,501
Marketable equity securities 3,180 28 (20) 3,188
------------ -------------- ------------- --------------
$51,118 $ 178 $ (607) $50,689
============ ============== ============= ==============
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 downgrade in rating on
the FNMA security due to 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. Subsequent to the non-cash impairment charge, the values of the
securities have increased slightly by $8,000.
Related to the unrealized losses for debt securities classified as corporate
notes at June 30, 2005, $221,000 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. Due to increasing
interest rates the values of mortgage-backed securities have declined since
September 30, 2004 resulting in an unrealized loss of $252,000 at June 30, 2005
compared to an unrealized loss of $93,000 at September 30, 2004. Credit issues
are not considered to be a significant factor relative to the current unrealized
losses.
NOTE 4 - LOANS RECEIVABLE, NET
Loans receivable at June 30, 2005 and September 30, 2004 are summarized as
follows:
June 30, September 30,
2005 2004
----------------- ----------------
First mortgage loans (principally conventional) (in thousands)
Principal balances
Secured by one to four family residences $169,056 $ 177,286
Construction loans 19,962 20,259
Other 3,365 3,899
----------------- ----------------
192,383 201,444
Net deferred loan origination fees (519) (558)
Less undisbursed portion of construction and other mortgage loans (22) (181)
----------------- ----------------
Total first mortgage loans 191,842 200,705
Commercial loans :
Principal balances
Commercial $ 72,220 $ 61,752
Commercial real estate 100,668 98,738
----------------- ----------------
----------------- ----------------
172,888 160,490
Net deferred loan origination fees (295) (308)
----------------- ----------------
Total commercial loans 172,593 160,182
Consumer loans:
Home equity and second mortgage 32,383 $ 32,006
Other 6,667 7,008
----------------- ----------------
39,050 39,014
Net deferred loan origination costs 13 23
----------------- ----------------
Total consumer loans 39,063 39,037
----------------- ----------------
Total loans receivable $ 403,498 $ 399,924
================= ================
Activity in the allowance for loan losses is summarized as follows for the nine
months ended June 30, 2005 and 2004.
June 30, June 30,
2005 2004
---------------- -----------------
(in thousands)
Balance at beginning of period $ 6,074 $ 5,198
Provision for loan losses 632 650
Charge-offs (347) (491)
Recoveries 83 16
---------------- -----------------
Balance at end of period $ 6,442 $ 5,373
================ =================
NOTE 4 - LOANS RECEIVABLE, NET (continued)
Quarter Ended Year Ended
June 30, September 30,
Impaired loans were as follows: 2005 2004
------------------ ------------------
(in thousands)
Period end loans with no allocated allowance for loan losses $ - $ -
Period end loans with allocated allowances for loan losses 2,470 2,217
------------------ ------------------
Total impaired loans $ 2,470 $ 2,217
================== ==================
Amount of the allowance for loan losses allocated $ 970 $ 995
Average of impaired loans 2,589 2,506
Interest income recognized during impairment 23 82
Cash-basis interest income recognized during impairment 19 73
Non-performing assets were as follows:
June 30, September 30,
2005 2004
------------------ ------------------
(in thousands)
Loans past due over 90 days still on accrual status $ 2,109 $ -
Non-accrual loans 2,051 2,719
------------------ ------------------
------------------ ------------------
Total non-performing loans 4,160 2,719
Other real estate 1,408 1,527
------------------ ------------------
------------------ ------------------
Total non-performing assets $ 5,568 $ 4,246
================== ==================
NOTE 5 - PREMISES AND EQUIPMENT, NET
June 30, September 30,
Premises and equipment are summarized as follows: 2005 2004
------------------ ------------------
(in thousands)
Land $ 4,490 $ 4,493
Building and improvements 13,322 13,187
Furniture and equipment 7,580 6,319
------------------ ------------------
------------------ ------------------
Total 25,392 23,999
Accumulated depreciation and amortization (5,539) (4,615)
------------------ ------------------
------------------ ------------------
Total Premises and Equipment $ 19,853 $ 19,384
================== ==================
Depreciation and amortization of premises and equipment included in occupancy
and equipment expense was approximately $937,000 for the nine months ended June
30, 2005 and $570,000 for the nine months ended June 30, 2004.
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.
On July 29, 2005, MFB Corp. ("MFB") entered into several agreements providing
for the private placement of $5.0 million in Fixed/Floating Rate Capital
Securities (the "Capital Securities"). The Capital Securities were issued by
MFB's newly formed Delaware trust subsidiary, MFBC Statutory Trust I (the
"Trust"), to First Tennessee Bank National Association (the "Purchaser"). MFB
bought $155,000 in Fixed/Floating Rate Common Securities (the "Common
Securities") from the Trust. The proceeds of the sale of Capital Securities and
Common Securities were used by the Trust to purchase $5,155,000 in principal
amount of Fixed/Floating Rate Subordinated Debt Securities (the "Debentures")
from MFB pursuant to an Indenture (the "Indenture") between MFB and Wilmington
Trust Company as trustee (the "Trustee").
The Common Securities will mature in 30 years, will require quarterly
distributions and will bear a fixed rate of interest of 6.22% per annum for the
first five years, resetting quarterly thereafter at the prevailing three-month
LIBOR rate plus 1.7% per annum. Interest on the Capital Securities and Common
Securities is payable quarterly in arrears each September 15, December 15, March
15, and June 15, commencing September 15, 2010. MFB may redeem the Capital
Securities and the Common Securities, in whole or in part, without penalty, on
or after September 15, 2010, or earlier upon the occurrence of certain events
specified in the Indenture with the payment of a premium upon redemption.
RESULTS OF OPERATIONS
COMPARISON OF THREE AND NINE MONTHS ENDED JUNE 30, 2005 AND 2004
The Company's consolidated net income for the three months ended June 30, 2005
was $614,000 or $0.44 diluted earnings per common share, compared to net income
of $607,000 or $0.44 diluted earnings per share, for the three months ended June
30, 2004. The Company's consolidated net income for the nine months ended June
30, 2005 was $1.3 million or $0.94 diluted earnings per share, compared to net
income of $1.6 million or $1.15 diluted earnings per share, for the same period
last year. MFB Corp.'s increase in net income for the third fiscal quarter from
the prior comparable period was primarily attributable to an increase in net
interest income, offset by an increase in the provision for loan losses, a
decrease in noninterest income and an increase in noninterest expense. The
decrease in net income for the nine months ended June 30, 2005, over the same
period last year was due to an increase in noninterest expense and a decrease in
noninterest income, offset by the increase in net interest income and a decrease
in the provision for loan losses.
MFB Corp's net interest income before provision for loan losses for the three
month period ended June 30, 2005 totaled $3.8 million compared to $2.8 million
for the same period last year. For the nine month period ended June 30, 2005,
net interest income before provision for loan losses totaled $10.8 million
compared to $8.4 million for the same period last year. The increase in net
interest income for both the three and nine 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 for the third quarter ended June 30, 2005 was
$361,000 compared to $150,000 for the third quarter last year. For the nine
months ended June 30, 2005, the provision for loan losses was $632,000 compared
to $650,000 for the same period last year. The provision is based on several
factors including the current economic environment, current and past delinquency
trends, change in the character and mix of the loan portfolio, adequacy of
collateral on loans and historical and estimated loan charge offs. The increase
for the third quarter ended June 30, 2005 was primarily related to a loan to a
rapidly growing computer assembly and distribution company that is experiencing
cash flow difficulties. The management of the bank is actively assessing the
collateral quality of this borrower and believes the loan loss allowance
established is adequate to cover any estimated losses based on its current
analysis. For the third quarter ended June 30, 2005, net charge offs were
$119,000 compared to $97,000 for the same period last year. Year to date net
charge offs for the nine months ended June 30, 2005 totaled $263,000 compared to
$475,000 for the same period last year.
Total noninterest income decreased from $1.8 million for the third quarter last
year to $1.3 million for the third quarter this year primarily due to the
mortgage servicing rights impairment of $107,000 compared to a recovery of
$466,000 last year offset by a net loss on securities last year of $109,000 with
no losses in 2005. Noninterest income of $3.1 million for the nine months ended
June 30, 2005 decreased from the $4.4 million for the nine months ended June 30,
2004. 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. For the nine months ended June 30, 2005 a mortgage servicing asset
impairment of $86,000 was recorded compared to a recovery of $464,000 for the
same period last year.
Noninterest expense increased from $3.6 million for the third quarter last year
to $3.9 million for the third quarter this year. For the nine months ended June
30 noninterest expense increased from $10.2 million last year to $11.8 million
for the same period this year. Salaries and employee benefits, data processing,
deposit insurance, advertising and amortization of purchase adjustments related
to the acquisition of Sobieski in August 2004 were the significant contributors
to these increases for the quarter and year to date periods in 2005. Other areas
of increase were occupancy expenses related to the operation of three acquired
branches and the opening of another branch and new Corporate offices
BALANCE SHEET COMPOSITION
COMPARISON OF JUNE 30, 2005 TO SEPTEMBER 30, 2004
The Company's total assets decreased from $541.2 million as of September 30,
2004 to $526.5 million as of June 30, 2005.
Cash and cash equivalents decreased from $28.6 million at September 30, 2004 to
$24.8 million at
June 30, 2005. Net cash from operating activities amounted to $987,000 and net
cash from investing activities totaled $8.8 million, offset by net cash used in
financing activities amounting to $13.6 million during the nine months ended
June 30, 2005.
As of June 30, 2005, the total securities available for sale portfolio amounted
to $50.7 million, a decrease of $15.3 million from $66.0 million at September
30, 2004. The securities portfolio activity during that period included
principal payments on mortgage-backed and related securities of $9.6 million and
maturities and calls of securities available for sale of $4.9 million.
Premises and equipment increased from $19.4 million at September 30, 2004 to
$19.9 million at June 30, 2005 primarily due to purchases of $1.4 million.
As of June 30, 2005, loans receivable were $403.5 million, an increase from the
$399.9 million at September 30, 2004. Commercial loans outstanding increased by
$12.4 million from $160.2 million at September 30, 2004 to $172.6 million at
June 30, 2005. Consumer loans, including home equity and second mortgages,
increased $26,000 during the nine month period. Mortgage loans decreased by $8.9
from $200.7 million at September 30, 2004 to $191.8 million at June 30, 2005.
Contributing to the decline in the Mortgage loan portfolio is a reduction in the
amount of loans retained in the Company's portfolio, a decrease in the amount of
residential construction and a decrease in the amount of multi-family
residential mortgages. Loans held for sale at June 30, 2005 increased to $1.9
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 third quarter ended June 30, 2005, the Company completed secondary
market mortgage loan sales totaling $10.0 million and the net gains realized on
these loan sales were $221,000 including $125,000 related to recording mortgage
servicing rights. During the quarter ended June 30, 2004, the Company completed
secondary market mortgage loan sales totaling $12.2 million and the net gains
realized on these loan sales were $265,000 including $153,000 related to
recording mortgage 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.
The allowance for loan losses increased from $6.1 million, or 1.52% of loans, at
September 30, 2004 to $6.4 million or 1.60% of loans at June 30, 2005. The
allowance is maintained through the provision for loan losses, which is charged
to earnings. The increase for the quarter ending June 30, 2005 is primarily
related to the rapidly growing computer company referenced earlier. As a further
result, the Company's nonperforming assets have increased from $4.2 million at
September 30, 2004 to $5.6 million at June 30, 2005. In management's opinion,
the allowance for loan losses is adequate to cover probable incurred losses at
June 30, 2005.
Total liabilities decreased from $505.3 million at September 30, 2004 to $488.8
million at June 30, 2005. Total deposits decreased $8.2 million from $357.9
million at September 30, 2004 to $349.7 million at June 30, 2005. The decrease
consisted of a $1.8 million decrease in time deposits, a $1.3 million decrease
in noninterest bearing demand deposits and a $5.1 million decrease in Savings,
Now and MMDA deposits. The decline was partially attributable to a reduction in
public fund deposits and customer real estate and personal property tax
payments. FHLB advances decreased from $133.4 million at September 30, 2004 to
$129.1 million at June 30, 2005. The $129.1 million of Federal Home Loan Bank
advances have a weighted average interest rate of 5.38% and mature over the next
seven years. A total of $15.5 million of the advances with a weighted average
interest rate of 5.76% mature in the next twelve months. Accrued liabilities and
expenses declined from $7.5 million at September 30, 2004 to $3.6 million at
June 30, 2005. This decline is primarily the result of disbursements from escrow
for borrowers for Indiana property tax payments in November 2004 and the Spring
of 2005.
Total shareholders' equity increased from $35.9 million as of September 30, 2004
to $37.6 million as of June 30, 2005. MFB Corp's equity to assets ratio was
7.15% at June 30, 2005 compared to 6.63% at September 30, 2004. The book value
of MFB Corp. stock increased from $27.02 at September 30, 2004 to $27.80 at June
30, 2005.
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 $77.0 million as of June 30, 2005 compared to $96.1 million
as of September 30, 2004. This decrease was primarily due to the use of cash for
financing activities. Management believes the liquidity level as of June 30,
2005 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 June 30, 2005, total FHLB borrowings
amounted to $129.1 million and were originally used primarily to fund loan
portfolio growth. The Bank had commitments to fund loan originations with
borrowers totaling $101.5 million at June 30, 2005, including $83.2 million in
available consumer and commercial lines and letters of credit. Certificates of
deposit scheduled to mature in one year or less totaled $81.0 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
June 30, 2005 and September 30, 2004 are presented 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 June 30, 2005
Total capital
(to risk weighted $ 39,874 10.78% $ 29,583 8.00% $ 36,979 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 36,053 9.55 14,791 4.00 22,187 6.00
assets)
Tier 1 (core) capital
(to adjusted total 36,053 6.94 20,780 4.00 25,975 5.00
assets)
As of September 30, 2004
Total capital
(to risk weighted $ 36,870 10.04% $ 29,368 8.00% $ 36,710 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 33,562 8.88 14,684 4.00 22,026 6.00
assets)
Tier 1 (core) capital
(to adjusted total 33,562 6.29 21,334 4.00 26,668 5.00
assets)
As of June 30, 2005, 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 foregoing 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.
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
increased from 8.72% at September 30, 2004 to 10.23% at March 31, 2005.
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. In Management's opinion, there have been no significant shifts in
position since March 31, 2005.
The Company's asset/liability management strategy dictates acceptable limits on
the amounts of change in NPV given certain changes in interest rates. The table
presented here, as of March 31, 2005, 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 200 basis points (due to the low interest rate environment at March 31,
2005, data was not available from the OTS for the shift downward in rates 300
basis points).
As illustrated in the March 31, 2005 table below, the Company's interest rate
risk is sensitive to both rising and declining rates for shifts over 200 basis
points and only slightly sensitive for shifts of 100 basis points or below. 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.
March 31, 2005
(dollars in thousands)
Change in NPV as % of Portfolio
Interest Rates Net Portfolio Value Value of Assets
- ---------------- ----------------------------------------------- ------------------------------
(Rate Shock) (1) $ Amount $ Change % Change NPV Ratio Change (1)
- ----------- --- -------- -------- -------- --------- ---------
+300 bp $ 38,773 $ (15,911) (29)% 7.64% (259) bp
+200 bp 45,458 (9,225) (17) 8.79 (144) bp
+100 bp 51,107 (3,577) (7) 9.71 (52) bp
0 54,683 - - 10.23 - bp
(100) bp 54,613 (70) 0 10.12 (11) bp
(200) bp 49,664 (5,019) (9) 9.19 (104) bp
(1) Expressed in basis points
Specifically, the March 31, 2005 table indicates that the Company's NPV was
$54.7 million or 10.23% 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 17% decrease in the Company's NPV to $45.5 million and
would result in a 144 basis point decrease in the Company's NPV ratio to 8.79%.
An immediate 200 basis point decrease in market interest rates would result in a
9% decrease in the Company's NPV to $49.7 million and would result in a 104
basis point decrease in the Company's NPV ratio to 9.19%.
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 June
30, 2005 totaled $1.9 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 June 30, 2005, $208.5 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 interim principal 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.
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.
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: 08/12/05 By /s/ Charles J Viater
--------------------------------------------
Charles J. Viater
President and Chief Executive Officer
Date: 08/12/05 By /s/ Terry L Clark
--------------------------------------------
Terry L. Clark
Vice President and Controller
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:08/12/05 /s/ Charles J Viater
--------------------------------------
Charles J. Viater
Chief Executive Officer
Exhibit 31
CERTIFICATION
I, Terry L. Clark, 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:08/12/05 /s/ Terry L. Clark
--------------------------------------
Terry L. Clark
Controller
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 12th day of August, 2005.
/s/ Terry L. Clark /s/ Charles J Viater
- ----------------------------------- -------------------------
Terry L Clark Charles J. Viater
Controller 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.