M
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) February 7, 2006
MFB Corp.
(Exact Name of Registrant as Specified in Its Charter)
Indiana 0-23374
(State or Other Jurisdiction of Incorporation) (Commission File Number)
35-1907258
(IRS Employer Identification No.)
4100 Edison Lakes Parkway, Suite 300,
P.O. Box 528, Mishawaka, Indiana 46546
(Address of Principal Executive Offices) (Zip Code)
(574) 277-4200
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Item 2. Results of Operations and Financial Condition.
MFB Corp., an Indiana corporation ("Registrant"), issued a press release which
was publicly disseminated on February 2, 2006 announcing its First Quarter
Earnings and Stock repurchase program. A copy of the press release is furnished
herewith as Exhibit 99.1. Pursuant to General Instruction B.6 of Form 8-K, this
exhibit is not "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, but is instead furnished as required by that instruction.
Item 2.06 Material Impairments
In connection with the ongoing preparation and review of MFB Corp.'s financial
statements for the quarter ended December 31, 2005, MFB Corp. (the "Company")
added $2,324,000 to its allowance for loan losses as the result of an impaired
commercial credit, resulting in an after-tax earnings charge of approximately
$1,411,000. This charge was related to management's assessment of a commercial
loan of $3.7 million to a business that is experiencing difficulties with
inventory management, trade accounts receivable collections, financial
reporting, and operating cash flow. This loan is primarily secured by inventory
and accounts receivable. After updating an analysis of the value of this
collateral, completing an assessment of the reliability and adequacy of
accounting systems and evaluating the recent financial performance of the
business, the Company determined that the additional charge to earnings with
respect to this loan was necessary. The loan has been placed on non-accrual
status and is now fully reserved. No charge off has been recorded on this
commercial loan because the Company cannot reasonably estimate at this time how
much of the loan it will ultimately recover.
The Company intends to pursue several possible courses of action to mitigate the
ultimate losses on these loans. However, it is currently too early to determine
if any of these actions will be successful.
To date, the Company has not incurred any material out-of-pocket expenditures
(including legal and accounting fees) in connection with the resolution of the
loan described above. The actual amount of such expenditures in the future could
vary, depending on the length of time and number of hours of professional
assistance required to finally resolve the loan, the nature of the proceedings
in which the loan is resolved, and other factors that can not be precisely
estimated.
Further information regarding the charges against income taken by the Company
for the quarter ended December 31, 2005, is set forth in a press release issued
on February 2, 2006, a copy of which is attached as Exhibit 99.1 and
incorporated herein by this reference.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Description
99.1 Press Release issued February 2, 2006.
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 hereto duly authorized.
Date: February 7, 2006 MFB Corp.
By: /s/ Charles J. Viater
Charles J. Viater,
President and CEO
Exhibit 99.1
February 2, 2006 Contact: Charles J. Viater
President/CEO
MFB CORP. ANNOUNCES FIRST QUARTER RESULTS
AND STOCK REPURCHASE PROGRAM
Mishawaka, Indiana - MFB Corp. (NASDAQ/MFBC), parent company of MFB
Financial (the "Bank"), reported today its consolidated financial results for
the three months ended December 31, 2005 as compared to the same period a year
ago. Subsequent to recording a significant addition to the Bank's loan loss
reserve related to a commercial loan this quarter, the consolidated net loss on
an unaudited basis for the quarter ended December 31, 2005 was $397,000 or $0.29
diluted loss per share compared to a net loss of $110,000 or $0.08 diluted loss
per share for the three months ended December 31, 2004. Excluding the impact of
the above, consolidated net income would have been approximately $1.014 million
or $0.73 diluted earnings per share for the three months ended December 31, 2005
and excluding a non-recurring, non-cash write down of investment securities in
the quarter ended December 31, 2004, net income would have been approximately
$516,000 or $0.38 diluted earnings per share for the three months ended December
31, 2004.
Charles J. Viater, President and CEO, stated that "Following the second
most profitable year in our history, net interest income and noninterest income
of the Bank remain strong and expenses have been held in check. The recent
action with respect to the commercial loan, discussed further below, was prudent
based upon management's on-going analysis of the business performance of that
client."
In addition, MFB Corp. announced today that the Board of Directors has
approved the repurchase, from time to time, on the open market of up to 5% of
the Corporation's outstanding shares of common stock, without par value, or
approximately 67,000 shares. Such purchases will be made subject to market
conditions in the open market or block transactions. Repurchases may begin as
early as February 6, 2006. According to Mr. Viater, the Board believes that the
Corporation's shares are currently undervalued by the market and that open
market purchases will have the potential effect of enhancing the book value per
share and the potential for growth in earnings per share of the Corporation's
remaining outstanding shares.
MFB Corp.'s net interest income before provision for loan losses for
the three month period ended December 31, 2005 totaled $3.5 million compared to
$3.6 million for the same period last year. The slight decrease in net interest
income was predominantly due to an increase in deposit interest expense offset
by an increase in investment interest income and a decrease in FHLB advance
interest expense.
The provision for loan losses was $2,055,000 for the quarter ended
December 31, 2005 compared to $300,000 for the same period last year. The
increase during the quarter ended December 31, 2005 was primarily related to
management's assessment of a commercial loan to a business that is experiencing
difficulties with inventory management, trade accounts receivable collections,
financial reporting, and operating cash flow. This loan is primarily secured by
inventory and accounts receivable. After updating our analysis of the value of
this collateral, completing an assessment of the reliability and adequacy of
accounting systems and evaluating the recent financial performance of the
business, the Bank determined that an additional charge to earnings in the
amount of $2,324,000 ($1,411,000 net of tax) for this loan was necessary. The
loan has been placed on non-accrual status and is now fully reserved. As a
direct result of the actions taken on this loan, the percentage of
non-performing assets to loans increased from 1.11% at December 31, 2004 to
2.58% at December 31, 2005. No charge off has been recorded on this commercial
loan because the Bank cannot reasonably estimate at this time how much of the
loan it will ultimately recover; had a charge off been recorded the
non-performing assets to loans percentage would have been 1.60% at December 31,
2005.
Noninterest income increased from $375,000 for the quarter ended
December 31, 2004 to $1.6 million for the quarter ended December 31, 2005. The
significant increase was primarily the result of the first quarter non-cash
impairment charge to earnings in December 2004 of $948,000 ($626,000 net of tax)
resulting from a decline in value of $2.0 million of Fannie Mae ("FNMA") and
$2.0 million of Freddie Mac ("FHLMC") floating rate preferred stock securities
MFB holds. The increase was also due to the quarterly valuation of the Mortgage
Servicing rights resulting in an impairment of $138,000 for the first quarter
last year compared to a recovery of $166,000 during the first quarter this year.
Noninterest expense remained consistent at $4.0 million for the
quarters ended December 31, 2005 and 2004. A reduction in professional and
consulting fees for the three month period ending December 31, 2005 was offset
by an increase in salaries and employee benefits, and occupancy and equipment
expense. Income tax benefit increased from last year for the three month period
ended December 31, 2005 due to increased loss before income taxes.
MFB Corp.'s total assets decreased from $554.9 million at September 30,
2005 to $530.1 million at December 31, 2005. A decrease in cash and cash
equivalents from $54.2 million at September 30, 2005 to $39.3 million at
December 31, 2005 was predominantly due to the payoff of FHLB advances totaling
$15 million during the quarter. Total loans at December 31, 2005 of $380.7
million decreased from the $390.7 million at September 30, 2005. Commercial
loans decreased from $157.8 million at September 30, 2005 to $150.2 million at
December 31, 2005; mortgage loans decreased from $192.0 million at September 30,
2005 to $189.5 million at December 31, 2005 and were offset by consumer loans,
including home equity loans, increasing slightly from $40.9 million at September
30, 2005 to $41.0 million at December 31, 2005. Investment securities available
for sale decreased from $63.6 million at September 30, 2005 to $63.3 million at
December 31, 2005.
MFB Corp.'s allowance for loan losses at December 31, 2005 was $8.4
million or 2.21% of loans compared to $6.4 million or 1.63% of loans at
September 30, 2005. For the first quarter ended December 31, 2005, net charge
offs were $7,000 compared to $146,000 net charge offs for the quarter ended
September 30, 2005. In management's opinion, the allowance for loan losses is
adequate to cover probable incurred losses at December 31, 2005.
Total deposits decreased from $374.4 million at September 30, 2005 to
$366.7 million at December 31, 2005 and Federal Home Loan Bank advances
decreased from $125.9 million as of September 30, 2005 to $110.2 million as of
December 31, 2005.
Total shareholders' equity decreased from $38.7 million at September 30, 2005 to
$37.8 million at December 31, 2005. The book value of MFB Corp.'s stock
decreased from $28.52 at September 30, 2005 to $27.89 at December 31, 2005.
MFB Corp.'s wholly-owned bank subsidiary, MFB Financial,
provides retail and business financial services to the Michiana area through its
eleven banking centers in St. Joseph and Elkhart counties and private client
services to the Indianapolis market through its office in Hamilton County.
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, 2005 and September 30, 2005
(in thousands except share information)
December 31, September 30,
2005 2005
----------------- -----------------
----------------- -----------------
Assets
Cash and due from financial institutions $ 6,419 $ 7,613
Interest - bearing deposits in other financial institutions - short term 32,885 46,596
----------------- -----------------
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Total cash and cash equivalents 39,304 54,209
Securities available for sale 63,279 63,575
Other Investments 12,471 12,514
Loans held for sale 2,036 407
Mortgage Loans 189,515 191,970
Commercial Loans 150,178 157,804
Consumer Loans 40,980 40,921
----------------- -----------------
----------------- -----------------
Loans receivable 380,673 390,695
Less: allowance for loan losses (8,436) (6,388)
----------------- -----------------
-----------------
Loan receivable, net 372,237 384,307
Premises and equipment, net 20,192 20,336
Mortgage servicing rights 2,474 2,341
Cash surrender value of life insurance 6,018 5,964
Goodwill 2,423 2,423
Other intangible assets 2,025 2,134
Other assets 7,593 6,667
-----------------
----------------- -----------------
Total assets $ 530,052 $ 554,877
================= =================
=================
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing demand deposits $ 35,957 $ 36,876
Savings, NOW and MMDA deposits 143,342 153,864
Time deposits 187,365 183,624
----------------- -----------------
-----------------
Total deposits 366,664 374,364
FHLB advances 110,216 125,854
Loans from correspondent banks 6,500 6,500
Trust Preferred Securities 5,000 5,000
Accrued expenses and other liabilities 3,861 4,486
----------------- -----------------
-----------------
Total liabilities 492,241 516,204
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417 - 12/31/05 and 09/30/05;
shares outstanding: 1,355,860 - 12/31/05 and 09/30/05 12,376 12,376
Additional Paid in Capital 15 -
Retained earnings - substantially restricted 33,460 34,027
Accumulated other comprehensive income (loss),
net of tax of ($357) - 12/31/05 and ($174) - 09/30/05 (620) (310)
Treasury stock, 333,557 common shares - 12/31/05 and 09/30/05, at cost (7,420) (7,420)
----------------- -----------------
-----------------
Total shareholders' equity 37,811 38,673
-----------------
----------------- -----------------
Total Liabilities and Shareholders' equity $ 530,052 $ 554,877
================= =================
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31, 2005 and 2004
(in thousands except per share information)
Three Months Ended
December 31,
2005 2004
-------------- -------------
-------------- -------------
Interest income
Loans receivable, including fees $ 6,042 $ 6,090
Securities - taxable 773 686
Other interest-bearing assets 350 55
-------------- -------------
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Total interest income 7,165 6,831
Interest expense
Deposits 2,236 1,613
FHLB advances and other borrowings 1,472 1,655
-------------- -------------
Total interest expense 3,708 3,268
-------------- -------------
-------------- -------------
Net interest income 3,457 3,563
Provision for loan losses 2,055 300
-------------- -------------
-------------- -------------
Net interest income after provision for 1,402 3,263
loan losses
Noninterest income
Service charges on deposit accounts 849 829
Trust fee income 100 99
Insurance commissions 48 50
Net realized gains from sales of loans 85 222
Mortgage servicing asset recovery (impairment) 166 (138)
Net gain (loss) on securities available for sale - (948)
Other income 368 261
-------------- -------------
-------------- -------------
Total noninterest income 1,616 375
Noninterest expense
Salaries and employee benefits 1,962 1,856
Occupancy and equipment 857 787
Professional and consulting fees 91 238
Data processing expense 214 197
Other expense 848 913
-------------- -------------
-------------- -------------
Total noninterest expense 3,972 3,991
Income (loss) before income taxes (954) (353)
Income tax expense (benefit) (557) (243)
-------------- -------------
-------------- -------------
Net income (loss) $ (397) $ (110)
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Basic earnings (loss) per common share $ (0.29) $ (0.08)
Diluted earnings (loss) per common share $ (0.29) $ (0.08)