1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-30973
MBT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Michigan 38-3516922
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
102 E. Front Street
Monroe, Michigan 48161
(Address of principal executive offices)
(Zip Code)
(734) 241-3431
(Registrant's telephone number, including area code)
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.
Yes [X]
No [ ]
As of August 13, 2001, 19,960,000 shares of the Corporation's Common Stock, No
Par Value, were outstanding.
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
June 30, December 31,
2001 2000
---- ----
ASSETS
Cash and due from banks $ 48,973,775 $ 39,540,039
Federal funds sold 24,200,000 30,000,000
Investment securities-
Held to maturity-
Obligations of U.S. Government agencies (Market value of
$106,039,899 and $143,619,761, respectively) 106,127,228 145,789,314
Obligations of states and political subdivisions (Market value of
$124,838,326 and $134,663,547, respectively) 121,469,356 132,006,403
Other securities (Market value of $35,943,249 and
$56,164,298, respectively) 35,871,569 56,188,317
Available for sale-
Obligations of U.S. Government agencies 132,695,402 13,190,799
Other securities 88,983,628 105,230,516
Loans 833,753,102 812,122,817
Allowance for loan losses (13,138,616) (10,600,000)
Bank premises and equipment 13,477,781 13,689,558
Other real estate owned 2,494,262 2,672,624
Interest receivable and other assets 41,007,868 39,555,791
--------------- ---------------
Total assets $ 1,435,915,355 $ 1,379,386,178
=============== ===============
LIABILITIES
Non-interest bearing demand deposits $ 126,466,685 $ 132,388,525
Interest bearing demand deposits 62,541,181 64,747,991
Savings deposits 392,697,189 329,331,534
Other time deposits 459,498,067 468,128,395
--------------- ---------------
Total deposits 1,041,203,122 994,596,445
Federal Home Loan Bank advances 225,000,000 225,000,000
Interest payable and other liabilities 9,792,534 8,834,770
--------------- ---------------
Total liabilities 1,275,995,656 1,228,431,215
--------------- ---------------
STOCKHOLDERS' EQUITY
Common stock (no par value; 30,000,000 shares authorized,
19,960,000 and 20,000,000 shares outstanding, respectively) -- --
Surplus 61,970,000 62,500,000
Undivided profits 97,053,166 92,084,279
Net unrealized gains (losses) on securities
available for sale 896,533 (3,629,316)
--------------- ---------------
Total stockholders' equity 159,919,699 150,954,963
--------------- ---------------
Total liabilities and stockholders' equity $ 1,435,915,355 $ 1,379,386,178
=============== ===============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-2-
3
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
2001 2000
---- ----
INTEREST INCOME
Interest and fees on loans $ 18,660,267 $ 17,215,390
Interest on investment securities-
Obligations of U.S. Government agencies 3,586,346 2,938,581
Obligations of states and
political subdivisions 1,709,434 1,862,938
Other securities 2,243,795 2,326,409
Interest on Federal funds sold 81,355 26,258
------------ ------------
Total interest income 26,281,197 24,369,576
------------ ------------
INTEREST EXPENSE
Interest on deposits 9,849,897 9,632,582
Interest on borrowed funds 3,222,036 2,375,592
------------ ------------
Total interest expense 13,071,933 12,008,174
------------ ------------
NET INTEREST INCOME 13,209,264 12,361,402
PROVISION FOR LOAN LOSSES 900,000 1,500,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,309,264 10,861,402
------------ ------------
OTHER INCOME
Income from trust services 999,900 840,000
Service charges on deposit accounts 672,756 525,284
Security gains (losses) 47,281 (2,121)
Other 1,230,684 724,081
------------ ------------
Total other income 2,950,621 2,087,244
------------ ------------
OTHER EXPENSES
Salaries and employee benefits 3,426,186 3,162,818
Occupancy expense 509,332 491,080
Other 2,291,872 1,974,978
------------ ------------
Total other expenses 6,227,390 5,628,876
------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 9,032,495 7,319,770
PROVISION FOR INCOME TAXES 2,458,172 2,013,841
------------ ------------
NET INCOME $ 6,574,323 $ 5,305,929
============ ============
COMPREHENSIVE INCOME $ 7,437,626 $ 4,042,990
============ ============
BASIC EARNINGS PER SHARE (after deducting
preferred stock dividends) $ 0.33 $ 0.27
============ ============
DILUTED EARNINGS PER SHARE $ 0.33 $ 0.27
============ ============
COMMON STOCK DIVIDENDS DECLARED PER SHARE $ 0.13 $ 0.075
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-3-
4
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended June 30,
2001 2000
---- ----
INTEREST INCOME
Interest and fees on loans $ 37,427,644 $ 33,360,283
Interest on investment securities-
Obligations of U.S. Government agencies 6,476,954 6,265,147
Obligations of states and political subdivisions 3,456,269 3,858,711
Other securities 4,932,441 4,510,746
Interest on Federal funds sold 245,074 81,578
------------ ------------
Total interest income 52,538,382 48,076,465
------------ ------------
INTEREST EXPENSE
Interest on deposits 20,442,121 18,885,480
Interest on borrowed funds 6,410,103 4,376,248
------------ ------------
Total interest expense 26,852,224 23,261,728
------------ ------------
NET INTEREST INCOME 25,686,158 24,814,737
PROVISION FOR LOAN LOSSES 5,300,000 3,000,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,386,158 21,814,737
------------ ------------
OTHER INCOME
Income from trust services 1,999,800 1,680,000
Service charges on deposit accounts 1,336,814 1,048,572
Security gains (losses) 47,281 (6,347)
Other 2,023,512 1,316,652
------------ ------------
Total other income 5,407,407 4,038,877
------------ ------------
OTHER EXPENSES
Salaries and employee benefits 6,693,030 6,182,032
Occupancy expense 1,122,817 1,038,294
Other 4,560,728 4,143,443
------------ ------------
Total other expenses 12,376,575 11,363,769
------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 13,416,990 14,489,845
PROVISION FOR INCOME TAXES 3,649,403 3,931,264
------------ ------------
NET INCOME $ 9,767,587 $ 10,558,581
============ ============
COMPREHENSIVE INCOME $ 14,293,436 $ 8,434,491
============ ============
BASIC EARNINGS PER SHARE (after deducting
preferred stock dividends) $ 0.49 $ 0.53
============ ============
DILUTED EARNINGS PER SHARE $ 0.49 $ 0.53
============ ============
COMMON STOCK DIVIDENDS DECLARED PER SHARE $ 0.24 $ 0.15
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-4-
5
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2001 2000
---- ----
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Interest and fees received $ 51,197,504 $ 48,719,409
Other income received 5,360,126 4,045,224
Miscellaneous payments (2,226,254) (5,838,777)
Interest paid (27,303,014) (23,145,791)
Cash paid to employees and others (12,123,362) (10,039,762)
Income taxes paid (3,090,000) (3,478,000)
------------- -------------
Net cash provided by operating activities $ 11,815,000 $ 10,262,303
------------- -------------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held to maturity $ 366,975,782 $ 62,700,316
Proceeds from maturities of investment securities available for sale 7,000,000 12,500,000
Proceeds from sales of investment securities available for sale 34,317,090 7,973,761
Net increase in loans (24,901,959) (65,712,592)
Proceeds from sales of other real estate owned 656,008 1,216,832
Proceeds from sales of other assets 52,475
Purchase of investment securities held to maturity (295,568,269) (40,816,939)
Purchase of investment securities available for sale (137,600,626) (21,415,260)
Purchase of bank premises and equipment (788,442) (2,595,357)
------------- -------------
Net cash used for investing activities $ (49,857,941) $ (46,149,239)
------------- -------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Net increase (decrease) in demand, interest bearing demand, and savings deposits $ 55,237,005 $ (26,509,956)
Net increase (decrease) in other time deposits (8,630,328) 34,608,694
Net increase in Federal funds purchased -- 11,000,000
Net increase in Federal Home Loan Bank advances -- 25,000,000
Redemption of preferred stock -- (200,000)
Repurchase of common stock (530,000) --
Dividends paid (4,400,000) (4,505,200)
------------- -------------
Net cash provided by financing activities $ 41,676,677 $ 39,393,538
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 3,633,736 $ 3,506,602
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 69,540,039 37,829,665
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS $ 73,173,775 $ 41,336,267
============= =============
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 9,767,587 $ 10,558,581
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,000,218 893,790
Provision for loan losses 5,300,000 3,000,000
(Increase) decrease in net deferred Federal income tax asset 1,571,298 (1,843,887)
Amortization of investment premium and discount (855,684) 152,076
Net increase (decrease) in interest payable and other liabilities 957,764 (1,334,776)
Net increase in interest receivable and other assets (3,023,375) (4,108,665)
Net increase in deferred loan fees 8,218 286,086
Other (2,911,026) 2,659,098
------------- -------------
Net cash provided by operating activities $ 11,815,000 $ 10,262,303
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Transfer of loans to other assets $ -- $ 9,000
============= =============
Transfer of loans to other real estate owned $ 502,072 $ 549,359
============= =============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-5-
6
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Other Total
Undivided Comprehensive Stockholders'
Surplus Profits Income (Loss) Equity
-------------- -------------- ----------------- ---------------
BALANCE
DECEMBER 31, 2000 $ 62,500,000 $ 92,084,279 $ (3,629,316) $ 150,954,963
ADD (DEDUCT)
Net income for the six months 9,767,587 9,767,587
Dividends declared-
Common ($.24 per share) (4,798,700) (4,798,700)
Net unrealized gains on securities
available for sale, net of tax 4,525,849 4,525,849
Repurchase of common stock (530,000) (530,000)
-------------- -------------- ----------------- ---------------
BALANCE
JUNE 30, 2001 $ 61,970,000 $ 97,053,166 $ 896,533 $ 159,919,699
============== ============== ================= ===============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
-6-
7
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The unaudited consolidated financial statements include the accounts of MBT
Financial Corp. (the "Corporation") and its subsidiary, Monroe Bank & Trust (the
"Bank"). The Bank operates twenty-one offices in Monroe County, Michigan and one
office in Wayne County, Michigan. The Bank's primary source of revenue is from
providing loans to customers, who are predominantly small and middle-market
businesses and middle-income individuals.
At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust,
shareholders approved a proposal that resulted in the Bank reorganizing into a
one-bank holding company. The holding company formation involved merging Monroe
Bank & Trust with Monroe Interim Bank, a state chartered bank organized solely
for the purpose of this transaction. The merger of Monroe Bank & Trust and
Monroe Interim Bank, a combination of entities under common control, was treated
in a manner similar to a pooling of interests. The financial information for all
prior periods was restated in the unaudited consolidated financial statements
for MBT Financial Corp. to present the statements as if the merger had been in
effect for all periods presented.
The reorganization resulted in an exchange of the Monroe Bank & Trust common
stock for MBT Financial Corp. common stock. The exchange rate was two shares of
MBT Financial Corp. for each share of Monroe Bank & Trust. Monroe Bank & Trust
previously had 10,000,000 common shares authorized and outstanding, with a par
value of $3.125 per share. MBT Financial Corp. has 30,000,000 common shares
authorized, of which 20,000,000 were outstanding after the reorganization. The
MBT Financial Corp. common stock has no par value. Monroe Bank & Trust is now a
wholly owned subsidiary of MBT Financial Corp., a registered bank holding
company.
The accompanying unaudited consolidated financial statements of the Corporation
have been prepared in accordance with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, such information reflects all adjustments (consisting of normal
recurring adjustments), which are, in the opinion of Management, necessary for
fair statement of results for the interim periods.
Comprehensive Income is comprised of Net Income and Other Comprehensive Income,
which consists of the change in net unrealized gains (losses) on securities
available for sale, net of tax.
2. EARNINGS PER SHARE
The calculation of net income per common share for the quarters ended June 30 is
as follows:
2001 2000
---- ----
BASIC
Net income $ 6,574,323 $ 5,305,929
Less preferred dividends - -
-------------- --------------
Net income applicable to common stock $ 6,574,323 $ 5,305,929
-------------- --------------
Average common shares outstanding 19,995,165 20,000,000
-------------- --------------
Net income per common share - basic $ 0.33 $ 0.27
============== ==============
-7-
8
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2001 2000
-------------- --------------
DILUTED
Net income $ 6,574,323 $ 5,305,929
Less preferred dividends - -
-------------- --------------
Net income applicable to common stock $ 6,574,323 $ 5,305,929
-------------- --------------
Average common shares outstanding 19,995,165 20,000,000
Stock option adjustment - -
-------------- --------------
Average common shares outstanding - diluted 19,995,165 20,000,000
-------------- --------------
Net income per common share - diluted $ 0.33 $ 0.27
============== ==============
The calculation of net income per common share for the six months ended June 30
is as follows:
2001 2000
-------------- --------------
BASIC
Net income $ 9,767,587 $ 10,558,581
Less preferred dividends - 5,200
-------------- --------------
Net income applicable to common stock $ 9,767,587 $ 10,553,381
-------------- --------------
Average common shares outstanding 19,997,569 20,000,000
-------------- --------------
Net income per common share - basic $ 0.49 $ 0.53
============== ==============
2001 2000
-------------- --------------
DILUTED
Net income $ 9,767,587 $ 10,558,581
Less preferred dividends - 5,200
-------------- --------------
Net income applicable to common stock $ 9,767,587 $ 10,553,381
-------------- --------------
Average common shares outstanding 19,997,569 20,000,000
Stock option adjustment - -
-------------- --------------
Average common shares outstanding - diluted 19,997,569 20,000,000
-------------- --------------
Net income per common share - diluted $ 0.49 $ 0.53
============== ==============
On January 2, 2001, the Corporation issued options for 13,834 shares of its
common stock to its non-employee directors in accordance with the Long-Term
Incentive Compensation Plan that was approved by shareholders at the Annual
Meeting of Shareholders on April 6, 2000. The options were granted at a price of
$13.94, which was the fair market value of the Corporation's common stock on the
date the options were granted. On July 1, 2000, the Corporation issued options
for 126,600 shares of its common stock to certain key executives of the Bank in
accordance with the Long-Term Incentive Compensation Plan that was approved by
shareholders at the Annual Meeting of Shareholders on April 6, 2000. The options
were granted at the price of $18.125, which was the fair market value of the
Corporation's common stock on the date the options were granted. The average
market value of the common stock during the second quarter of 2001 was $13.31.
The average market value of the common stock during the first six months of 2001
was $13.84. All of the options granted as of June 30, 2001 have an anti-dilutive
effect on the calculation of earnings per share, and therefore have not been
included.
-8-
9
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
3. LOANS
The Bank grants commercial, consumer, and mortgage loans primarily to customers
in Monroe County, Michigan and surrounding areas. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on the automotive, manufacturing, and real
estate development economic sectors.
Loans consist of the following (000s omitted):
June 30, December 31,
2001 2000
------------------------------
Real estate loans $ 577,469 $ 547,286
Loans to finance agricultural production and
other loans to farmers 2,972 2,832
Commercial and industrial loans 153,835 151,734
Loans to individuals for household, family,
and other personal expenditures 101,122 111,504
All other loans (including overdrafts) 205 609
------------------------------
Total loans, gross 835,603 813,965
Less: Deferred loan fees 1,850 1,842
------------------------------
Total loans, net of deferred loan fees 833,753 812,123
Less: Allowance for loan losses 13,139 10,600
------------------------------
$ 820,614 $ 801,523
==============================
Loans are placed in a nonaccrual status when, in the opinion of Management, the
collection of additional interest is doubtful. In the opinion of Management, all
impaired loans are in nonaccrual status. Allowances for these loans are included
in the allowance for loan losses. All cash received on nonaccrual loans is
applied to the principal balance. Nonperforming assets consists of nonaccrual
loans, loans 90 days or more past due, restructured loans, real estate that has
been acquired in full or partial satisfaction of loan obligations or upon
foreclosure, and investments securities that are 90 days or more past due on the
interest or principal payments. The following table summarizes nonperforming
assets (000's omitted):
June 30, December 31,
2001 2000
-------------------------------
Nonaccrual loans $ 25,597 $ 17,161
Loans 90 days past due 48 193
Restructured loans 608 1,057
-------------------------------
Total nonperforming loans $ 26,253 $ 18,411
Other real estate owned 2,494 2,673
Nonperforming investment securities 540 542
-------------------------------
Total nonperforming assets $ 29,287 $ 21,626
===============================
Nonperforming assets to total assets 2.04% 1.57%
Allowance for loan losses to
nonperforming assets 44.86% 49.02%
-9-
10
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows (000's omitted):
June 30, December 31,
2001 2000
----------------------------------
Balance beginning of year $ 10,600 $ 9,900
Provision for loan losses 5,300 6,298
Loans charged off (3,314) (8,126)
Recoveries 553 2,528
----------------------------------
Balance end of period $ 13,139 $ 10,600
==================================
For each period, the provision for loan losses in the income statement results
from the combination of an estimate by Management of loan losses that occurred
during the current period and the ongoing adjustment of prior estimates of
losses occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an extensive
credit risk monitoring process that considers several factors including: current
economic conditions affecting the Bank's customers, the payment performance of
individual large loans and pools of homogeneous small loans, portfolio
seasoning, changes in collateral values, and detailed reviews of specific large
loan relationships. For large loans deemed to be impaired due to an expectation
that all contractual payments will probably not be received, impairment is
measured by comparing the Bank's recorded investment in the loan to the present
value of expected cash flows discounted at the loan's effective interest rate,
the fair value of the collateral, or the loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated statements
of condition. As the specific customer and amount of a loan loss is confirmed by
gathering additional information, taking collateral in full or partial
settlement of the loan, bankruptcy of the borrower, etc., the loan is charged
off, reducing the allowance for loan losses. If, subsequent to a charge off, the
Bank is able to collect additional amounts from the customer or obtain control
of collateral worth more than earlier estimated, a recovery is recorded.
-10-
11
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as of
June 30, 2001 and December 31, 2000 (000's omitted):
June 30, 2001 December 31, 2000
------------- -----------------
Amortized Fair Amortized Fair
Cost value Cost value
------------ ------------ ------------ ------------
Held to Maturity
Obligations of U.S. Government Agencies $ 106,127 $ 106,040 $ 145,789 $ 143,619
Obligations of States and Political
Subdivisions 121,469 124,838 132,007 134,664
Other Securities 35,872 35,943 56,188 56,164
----------------------------- -----------------------------
$ 263,468 $ 266,821 $ 333,984 $ 334,447
============================= =============================
Available for Sale
Obligations of U.S. Government Agencies $ 132,044 $ 132,695 $ 13,126 $ 13,191
Other Securities 88,256 88,984 110,879 105,230
----------------------------- -----------------------------
$ 220,300 $ 221,679 $ 124,005 $ 118,421
============================= =============================
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statements of condition.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for its other lending activities.
Financial instruments whose contractual amounts represent off-balance sheet
credit risk were as follows (000s omitted):
Contractual amount
--------------------------------
June 30, December 31,
2001 2000
--------------------------------
Commitments to extend credit:
Unused portion of commercial lines of credit $ 89,584 $ 110,558
Unused portion of credit card lines of credit 7,282 31,217
Unused portion of home equity lines of credit 14,024 12,887
Standby letters of credit and financial guarantees written 19,408 16,942
-11-
12
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Most
commercial lines of credit are secured by real estate mortgages or other
collateral, generally have fixed expiration dates or other termination clauses,
and require payment of a fee. Since the lines of credit may expire without being
drawn upon, the total committed amounts do not necessarily represent future cash
requirements. Credit card lines of credit have no established maturity dates,
but are payable on demand. Home equity lines of credit are secured by real
estate mortgages, have no established maturity dates, but are payable on demand.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of the collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on Management's credit evaluation of the
counterparty.
Standby letters of credit written are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements and
other business transactions.
-12-
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based on
various assumptions (some of which are beyond the Corporation's control), may
be identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "estimate,"
"anticipate," "continue," or similar terms or variations on those terms, or the
negative of these terms. Actual results could differ materially from those set
forth in forward-looking statements, due to a variety of factors, including, but
not limited to, those related to the economic environment, particularly in the
market areas in which the company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and
the integration of acquired businesses, credit risk management, asset/liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.
The Corporation does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
The Corporation experienced a small increase of $46.6 million in deposits since
the beginning of the year, representing a 4.7% increase. Demand Deposits
decreased $8.1 million while Savings Deposits increased $63.3 million and Other
Time Deposits decreased $8.6 million. Local loan demand has begun to moderate,
with Loans increasing only $21.6 million, or 2.7% since the beginning of the
year. The increase in deposits and a decrease of $5.8 million in Federal funds
sold funded the loan growth and the increase of $32.7 million in investment
securities.
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
A comparison of the income statements for the three months ended June 30, 2001
and 2000 shows a 7% increase in Net Interest Income. The largest interest
income dollar changes were in Interest and Fees on Loans, increasing
$1,445,000, or 8% and interest on Obligations of U.S. Government Agencies,
increasing $648,000, or 22%. The increase in Interest and Fees on Loans was the
result of an increase of $109 million, or 15% in average loans outstanding. The
average yield on these loans decreased from 8.82% to 8.34%. The increase in
interest on Obligations of U.S. Government Agencies was a result of an increase
of $39 million, or 22%, in the average investment in these securities. The
average yield on these investments was unchanged.
Average interest bearing deposits increased from $831 million to $907 million,
while at the same time the average cost of these deposits decreased from 4.66%
to 4.35%. The result was a small increase in Interest on Deposits of $217,000,
or 2%. Average borrowed funds increased from $157 million to $226 million while
the average cost of these borrowings decreased from 5.99% to 5.64%. The interest
expense related to these borrowings increased $846,000. The borrowings were
increased as the Bank expanded its leverage strategy, which utilizes Federal
Home Loan Bank advances to fund investment in loans and securities.
The Provision for Loan Losses decreased $600,000, or 40%. The Provision for Loan
Losses was higher in 2000 as faster loan growth necessitated an increase in the
Allowance for Loan Losses. Trust Income increased $160,000, or 19%, and Service
Charges on Deposit Accounts increased $147,000, or 28%, as a result of fee
increases implemented in the third quarter of 2000. Other
-13-
14
Income increased $507,000, or 70%, as a result of the sale of a portion of the
Bank's credit card portfolio, which was sold at a profit of $408,000 in the
second quarter of 2001.
Salaries and Employee Benefits increased $263,000, Occupancy Expense increased
$18,000, and Other Expenses increased $317,000, compared to the second quarter
of 2000.
As a result of the above activity, Income Before Provision for Income Taxes
showed a significant increase of $1,713,000, or 23%, and the Provision for
Income Taxes increased $444,000, or 22%. Net Income increased $1,268,000, or
24%.
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
A comparison of the income statements for the six months ended June 30, 2001
and 2000 shows a 4% increase in Net Interest Income. The largest interest
income dollar changes were in Interest and Fees on Loans, increasing
$4,067,000, or 12%, interest on Other Securities, increasing $422,000, or 9%,
and interest on Obligations of States and Political Subdivisions, decreasing
$402,000, or 10%. The increase in Interest and Fees on Loans was the result of
an increase of $118 million, or 16% in average loans outstanding. The average
yield on these loans decreased from 8.78% to 8.52%. The increase in interest on
Other Securities was the result of an increase of $24 million in the average
investment in Other Securities. The average yield on these investments
decreased from 7.31% to 7.02%. The decrease in interest on Obligation of States
and Political Subdivisions was the result of a decrease of $21 million, or 16%
in the average investment in Obligations of States and Political Subdivisions.
Average interest bearing deposits increased from $831 million to $901 million,
or 8%, while at the same time the average cost of these deposits was unchanged.
The result was an increase in Interest on Deposits of $1,557,000, or 8%. Average
borrowed funds increased from $146 million to $226 million while the average
cost of these borrowings decreased from 5.92% to 5.65%. The interest expense
related to these borrowings increased $2,034,000. The borrowings were
increased as the Bank expanded its leverage strategy, which utilizes Federal
Home Loan Bank advances to fund investment in loans and securities.
The Provision for Loan Losses increased $2.3 million, or 77% as the Allowance
for Loan Losses was increased significantly in the first quarter of 2001. The
Allowance for Loan Losses was increased $2.5 million, or 24% since December 31,
2000, in order to maintain its adequacy as the economy began showing signs of
weakening and nonperforming loans increased. The Allowance for Loan Losses is
now 1.58% of Loans, compared to 1.31% as of December 31, 2000. Nonperforming
assets, which consist of nonaccrual loans, loans 90 days past due, restructured
loans, other real estate owned, and investment securities in default, have
increased from $21.6 million at December 31, 2000 to $29.3 million at June 30,
2001. Nonaccrual loans account for $25.6 million of the nonperforming assets as
of June 30, 2001. Nonaccrual loans secured by real estate are $13.6 million, or
46% of the nonperforming assets.
Trust Income increased $320,000, or 19%, and Service Charges on Deposit
Accounts increased $288,000, or 27%, as the result of increases in the fees
charged. Other Income increased $707,000, or 54%, which is attributable to the
gain on the sale of a portion of the Bank's credit card portfolio in the second
quarter of 2001 and the Bank Owned Life Insurance (BOLI) that was purchased in
the third quarter of 2000. The gain on the sale of the portion of the credit
card portfolio was $408,000 and the amount of Other Income resulting from the
BOLI in the six months ended June 30, 2001 was $398,000.
Salaries and Employee Benefits increased $511,000, Occupancy Expense increased
$85,000, and Other Expenses increased $418,000, compared to the first six
months of 2000.
As a result of the above activity, Income Before Provision for Income Taxes
showed a small decrease of $1,073,000 or 7%, and the Provision for Income Taxes
decreased $282,000, or 7%. Net Income decreased $791,000, or 7%.
The Corporation has maintained sufficient liquidity to fund its loan growth and
allow for fluctuations in deposit levels. Internal sources of liquidity are
provided by the maturities of loans and securities as well as holdings of
securities Available for Sale. External sources of liquidity include a line of
credit with the Federal Home Loan Bank of Indianapolis, and the Federal funds
lines that have been established with correspondent banks.
Total stockholders' equity of the Corporation was $159,920,000 at June 30, 2001
and $150,955,000 at December 31, 2000. The ratio of equity to assets was 11.1%
at June 30, 2001 and 10.9% at December 31, 2000. Federal bank regulatory
agencies have set capital adequacy standards for Total Risk Based Capital, Tier
1 Based Capital, and Leverage Capital. These standards require banks to
maintain Leverage and Tier 1 ratios of at least 4% and a Total Capital ratio of
at least 8% to be adequately capitalized. The regulatory agencies consider a
bank to be well capitalized if its Total Risk Based Capital is at least 10% of
Risk Weighted Assets, Tier 1 Capital is at least 6% of Risk Weighted Assets,
and Leverage Capital Ratio is at least 5%. The following table summarizes the
capital ratios of the Bank:
June 30, 2001 December 31, 2000
------------- -----------------
Leverage Capital 11.1% 11.6%
Tier 1 Risk Based Capital 15.8% 15.3%
Total Risk Based Capital 17.0% 16.4%
At June 30, 2001 and December 31, 2000, the Bank was in compliance with the
capital guidelines and is considered "well-capitalized" under regulatory
standards.
Market risk for the Bank, as is typical for most banks, consists mainly of
interest rate risk and market price risk. The Bank's earnings and the economic
value of its equity are exposed to interest rate risk and market price risk,
and monitoring this risk is the responsibility of the Asset/Liability
Management Committee (ALCO) of the Bank. The market risk is monitored monthly
and has not changed significantly since year-end 2000.
The Corporation has maintained sufficient liquidity to fund its loan growth and
allow for fluctuations in deposit levels. Internal sources of liquidity are
provided by the maturities of loans and securities as well as holdings of
securities Available for Sale. External sources of liquidity include a line of
credit with the Federal Home Loan Bank of Indianapolis, and the Federal funds
lines that have been established with correspondent banks.
Total stockholders' equity of the Corporation was $159,920,000 at June 30, 2001
and $150,955,000 at December 31, 2000. The ratio of equity to assets was 11.1%
at June 30, 2001 and 10.9% at December 31, 2000. Federal bank regulatory
agencies have set capital adequacy standards for Total Risk Based Capital, Tier
1 Risk Based Capital, and Leverage Capital. These standards require banks to
maintain Leverage and Tier 1 ratios of at least 4% and a Total Capital ratio of
at least 8% to be adequately capitalized. The regulatory agencies consider a
bank to be well capitalized if its Total Risk Based Capital is at least 10% of
Risk Weighted Assets, Tier 1 Capital is at least 6% of Risk Weighted Assets, and
Leverage Capital Ratio is at least 5%. The following table summarizes the
capital ratios of the Bank:
June 30, 2001 December 31, 2000
------------- -----------------
Leverage Capital 11.1% 11.6%
Tier 1 Risk Based Capital 15.8% 15.3%
Total Risk Based Capital 17.0% 16.4%
At June 30, 2001 and December 31, 2000, the Bank was in compliance with the
capital guidelines and is considered "well-capitalized" under regulatory
standards.
Market risk for the Bank, as is typical for most banks, consists mainly of
interest rate risk and market price risk. The Bank's earnings and the economic
value of its equity are exposed to interest rate risk and market price risk, and
monitoring this risk is the responsibility of the Asset/Liability Management
Committee (ALCO) of the Bank. The market risk is monitored monthly and has not
changed significantly since year-end 2000.
-14-
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of MBT Financial Corp. was held on
May 17, 2001.
(b) The following directors were elected to a new term of office:
Connie S. Cape
Ronald J. Gruber
Thomas M. Huner
Gerald L. Kiser
Ronald D. LaBeau
Rocque E. Lipford
William D. McIntyre, Jr.
Michael J. Miller
Richard A. Sieb
Philip P. Swy
(c) The Annual Meeting of Shareholders of MBT Financial Corp. was held for
the following purposes:
1. To Elect a Board of Directors for the ensuing year;
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The results of the voting are as follows:
Proposal 1, Election of Directors:
Withhold
For Authority
----------------------------------------
Connie S. Cape 16,833,300 146,381
Ronald J. Gruber 16,842,168 137,513
Thomas M. Huner 16,834,720 144,961
Gerald L. Kiser 16,794,160 185,521
Ronald D. LaBeau 16,682,260 297,421
Rocque E. Lipford 15,276,436 1,703,245
William D. McIntyre, Jr. 15,622,352 1,357,329
Michael J. Miller 16,845,776 133,905
Richard A. Sieb 16,922,032 57,649
Philip P. Swy 16,848,708 130,973
-15-
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.2 Bylaws. Previously filed as Exhibit 3.2 to MBT Financial Corp.'s
Form 10-K Annual Report for its fiscal year ended December 31,
2000, here incorporated by reference, has been modified by
replacing Article II, Section 1, with the following:
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders of this Corporation for the purpose of electing
directors and transacting such other business as may come
before the meeting, shall be held on the first Thursday of May
in each year at such hour as may be designated on the call of
said meeting, or on such other date as may be fixed by the
Board of Directors by resolution from time to time.
(b) Reports on Form 8-K
MBT Financial Corp. filed the following report on Form 8-K since the end
of 2000:
Date of Event Reported Event Reported
---------------------- --------------
April 13, 2001 Item 9 - Regulation FD Disclosure, First Quarter
Earnings announcement
-16-
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBT Financial Corp.
-----------------------------------
(Registrant)
August 14, 2001 /s/ Ronald D. LaBeau
- ------------------ -----------------------------------
Date Ronald D. LaBeau
President
August 14, 2001 /s/ Eugene D. Greutman
- ------------------ -----------------------------------
Date Eugene D. Greutman
Treasurer
-17-