(MBT LOGO) 102 E. FRONT STREET
(MONROE BANK & TRUST(R)) MONROE, MICHIGAN 48161
TELEPHONE: (734) 241-3431
December 5, 2008
Hugh West
Accounting Branch Chief
Division of Corporate Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: MBT Financial Corp.
Form 10-K for the Fiscal Year Ended December 31, 2007
Forms 10-Q for Fiscal Quarter Ended March 31, 2008
June 30, 2008 and September 30, 2008
SEC File No. 0-30973
Dear Mr. West:
We are in receipt of the letter from the Staff of the Securities Exchange
Commission, dated November 24, 2008, regarding our annual report on Form 10-K
for the fiscal year ended December 31, 2007 and the quarterly reports on Form
10-Q for the fiscal quarters ended March 31, 2008, June 30, 2008, and September
30, 2008. We have included the Staff's comments before each of our responses.
In some of our responses, we have agreed to change the disclosures in our future
filings. We are doing that in order to improve our disclosures, and not because
we believe our filings are materially deficient or inaccurate.
Form 10-K
Management's Discussion and Analysis, page 20
1. WE NOTE THAT YOU RECORDED A LARGE PROVISION FOR LOAN LOSSES DURING THE
FOURTH QUARTER DUE TO AN INCREASE IN NON-PERFORMING ASSETS AND TO
INCREASE THE GENERAL ALLOCATION PORTION OF THE ALLOWANCE FOR LOAN
LOSSES DUE TO CONCERNS ABOUT REGIONAL ECONOMIC CONDITIONS AND LOCAL
REAL ESTATE VALUES. WE ALSO NOTE THE INCREASE IN NON-PERFORMING ASSETS
DURING THE THIRD QUARTER. GIVEN THE LARGE INCREASE IN NON-PERFORMING
ASSETS DURING THE THIRD QUARTER, TELL US HOW YOU DETERMINED ADDITIONAL
PROVISION FOR LOAN LOSSES WAS NOT REQUIRED DURING THAT QUARTER.
Management's Response:
The increase in non-performing assets in the third quarter was mainly due to the
addition of two residential development accounts to the non-accrual category.
These loans,
totaling $7 million, were sufficiently secured by real estate collateral, and
did not require an addition to the allowance for loan losses. The increase in
non-performing assets in the fourth quarter was primarily due to the addition of
an $8 million loan to an automotive supplier. A significant customer of this
company filed for bankruptcy, which had a negative impact on the value of the
accounts receivable, inventory, and equipment that collateralized the loan. This
decreased collateral value necessitated an increase of about $5 million in the
allowance for loan losses.
Form 10-Q for Fiscal Quarter Ended September 30, 2008
Note 1 - Basis of Presentation and Accounting Policies
Fair Value, page 7
2. PLEASE REVISE YOUR DISCLOSURES IN FUTURE FILINGS TO CLARIFY THAT YOUR
TRUST PREFERRED SECURITIES ARE CLASSIFIED IN LEVEL 3, RATHER THAN
LEVEL 2 OF THE FAIR VALUE HIERARCHY.
Management's Response:
We will revise the disclosure in Note 1 that describes the fair value hierarchy
to clearly identify that trust preferred securities are now classified as Level
3, rather than Level 2.
Note 5 - Allowance for Loan Losses, page 12
3. WE NOTE YOUR LOAN CHARGE-OFFS EXCEEDED YOUR PROVISION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2008 BY APPROXIMATELY $2.5 MILLION. PLEASE
TELL US WHY YOU BELIEVE THE PROVISION AND OVERALL ALLOWANCE IS
APPROPRIATE, GIVEN THE LEVEL OF CHARGE-OFFS AND THE CONTINUED INCREASE
IN NON-PERFORMING LOANS. FOR EXAMPLE, TELL US IF THE CHARGED-OFF LOANS
WERE PROVIDED FOR IN PRIOR PERIODS.
Management's Response:
During the nine month period ended September 30, 2008, we charged-off $3 million
of the loan to the automotive supplier mentioned in response number 1 above. We
provided $5 million for that credit in the fourth quarter of 2007.
Note 6 - Investment Securities, page 12
4. PLEASE TELL US, AND IN FUTURE FILINGS DISCLOSE THE NATURE OF YOUR
"OTHER" AVAILABLE-FOR-SALE INVESTMENT SECURITIES. ADDITIONALLY, AS THE
UNREALIZED LOSSES ON "OTHER SECURITIES" MAKE UP THE LARGEST PORTION OF
UNREALIZED LOSSES ON ALL OF YOUR AVAILABLE-FOR-SALE INVESTMENT
SECURITIES, REVISE YOUR DISCUSSION REGARDING OTHER-THAN-TEMPORARY
IMPAIRMENTS TO DISCUSS IN DETAIL, THE INFORMATION YOU CONSIDERED IN
REACHING THE CONCLUSION THAT THE IMPAIRMENTS WITHIN THE "OTHER
SECURITIES" CATEGORY ARE NOT OTHER THAN TEMPORARY. REFER TO PARAGRAPH
17B OF FSP 115-1/124-1. PROVIDE US WITH YOUR PROPOSED FUTURE
DISCLOSURE.
Management's Response:
The "other" securities primarily consist of corporate bonds and pooled trust
preferred CDOs. The following table is a revision of the September 30, 2008
disclosure. We will use this format for our disclosure in the future, beginning
with the 2008 Form 10-K:
September 30, 2008 December 31, 2007
------------------------ ------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
Available for Sale
Obligations of U.S. Government Agencies $271,204 $270,984 $330,505 $330,178
Obligations of States and Political
Subdivisions 39,406 38,524 27,046 27,134
Trust Preferred Securities 25,148 20,881 20,044 19,865
Corporate Debt Securities 15,138 12,578 1,024 1,026
Other Securities 2,386 2,420 2,013 2,035
-------- -------- -------- --------
$353,282 $345,387 $380,632 $380,238
======== ======== ======== ========
We will expand the other-than-temporary impairment discussion beginning with the
2008 Form 10-K. That disclosure will follow the format of the revised September
30, 2008 Form 10-Q discussion:
The Trust Preferred Securities are issued by companies in the
financial services industry, including banks, thrifts, and insurance
companies. Each of the four securities owned by the Company is in an
unrealized loss position. The main reasons for the impairment are the
overall decline in market values for financial industry securities and
the lack of an active market for these types of securities in
particular. In determining that the impairment is not
other-than-temporary, the Company analyzed each security's expected
cash flows. The assumptions used in the cash flow analysis were
developed following a review of the financial condition of the banks
in the pools. The analysis concluded that disruption of our cash flows
due to defaults by issuers was not likely to occur.
The Corporate Debt Securities consist of senior unsecured debt issued
by regional banks and bank holding companies. The market values for
these securities have declined over the last several months due to
larger credit spreads on financial sector debt. The Company owns six
bonds with maturities ranging from January, 2009 to February, 2019.
The Company monitors the financial condition of each issuer by
reviewing financial statements and industry analyst reports, and
believes that the each of the issuers will be able to fulfill the
obligations of these securities. The Company has the ability to hold
these securities until they recover, which could be at their maturity
dates.
Note 7 - Fair Value Measurements, page 13
5. WE NOTE THAT DURING THE THIRD QUARTER, THE COMPANY CHANGED ITS
METHODOLOGY FOR CALCULATING THE FAIR VALUES OF AVAILABLE-FOR-SALE
INVESTMENT SECURITIES ISSUED BY LOCAL MUNICIPALITIES FROM USING THE
PRESENT VALUE OF EXPECTED FUTURE CASH FLOWS TO A YIELD CURVE PRICING
MATRIX. FURTHER, WE NOTE THE COMPANY HOLDS, WHAT APPEARS TO BE THE
SAME TYPE OF HELD-TO-MATURITY INVESTMENT SECURITIES, BUT CONTINUES TO
ESTIMATE THE FAIR VALUES OF THOSE SECURITIES (ON A NON-RECURRING
BASIS-I.E. FOR PURPOSES OF MEASURING IMPAIRMENT) USING THE PRESENT
VALUE OF EXPECTED FUTURE CASH FLOWS. PLEASE TELL US WHY YOU FEEL IT IS
APPROPRIATE TO CALCULATE THE FAIR VALUE OF THE SAME TYPE OF SECURITIES
USING DIFFERENT METHODOLOGIES. REFER TO PARAGRAPH 20 OF SFAS 157.
Management's Response:
The available-for-sale investment securities classified in Level 2 are bonds
with single maturity dates, which make it possible to price them using a yield
curve matrix. The held-to-maturity investment securities classified as Level 3
consist of loans to local municipalities and school districts. These loans
include lines of credit and amortizing notes, which are more appropriately
valued using the discounted cash flow method.
The Company acknowledges that:
- The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
- Staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
- The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Please contact me at (734) 242-1879 if you have any questions or if you would
like further information about this response.
Sincerely,
/s/ John L. Skibski
- -------------------------------------
John L. Skibski
Executive Vice President &
Chief Financial Officer