e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2009
Or
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o |
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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)
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Michigan
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38-3516922 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
102 E. Front Street
Monroe, Michigan 48161
(Address of principal executive offices)
(Zip Code)
(734) 241-3431
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller accelerated filer in Rule 12b-2 of the Exchange Act
(check one).
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Large accelerated filer o
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Accelerated Filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of August 6, 2009, there were 16,192,352 shares of the Companys Common Stock outstanding.
TABLE OF CONTENTS
Part I Financial Information
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Item 1. |
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Financial Statements |
MBT FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
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June 30, 2009 |
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Dollars in thousands |
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(Unaudited) |
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December 31, 2008 |
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ASSETS |
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Cash and Cash Equivalents |
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Cash and due from banks |
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Non-interest bearing |
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$ |
18,047 |
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$ |
24,463 |
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Interest bearing |
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5,513 |
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26,323 |
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Total cash and cash equivalents |
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23,560 |
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50,786 |
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Securities
- Held to Maturity |
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40,578 |
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46,840 |
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Securities
- Available for Sale |
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351,473 |
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406,117 |
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Federal Home
Loan Bank stock - at cost |
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13,086 |
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13,086 |
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Loans held for sale |
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825 |
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784 |
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Loans - Net |
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885,656 |
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922,420 |
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Accrued interest receivable and other assets |
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46,517 |
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43,973 |
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Bank Owned Life Insurance |
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47,592 |
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45,488 |
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Premises and
Equipment - Net |
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32,295 |
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32,907 |
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Total assets |
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$ |
1,441,582 |
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$ |
1,562,401 |
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LIABILITIES |
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Deposits: |
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Non-interest bearing |
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$ |
128,254 |
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$ |
144,585 |
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Interest-bearing |
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911,225 |
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991,493 |
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Total deposits |
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1,039,479 |
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1,136,078 |
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Federal Home Loan Bank advances |
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248,500 |
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261,500 |
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Repurchase agreements |
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30,000 |
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30,000 |
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Interest payable and other liabilities |
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13,593 |
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13,846 |
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Total liabilities |
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1,331,572 |
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1,441,424 |
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STOCKHOLDERS EQUITY |
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Common stock
(no par value; 30,000,000 shares authorized, 16,178,121 and 16,148,482 shares issued and
outstanding) |
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496 |
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321 |
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Retained Earnings |
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115,832 |
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122,896 |
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Accumulated other comprehensive loss |
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(6,318 |
) |
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(2,240 |
) |
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Total stockholders equity |
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110,010 |
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120,977 |
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Total liabilities and
stockholders equity |
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$ |
1,441,582 |
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$ |
1,562,401 |
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The accompanying notes to consolidated financial statements are integral part of these statements.
-2-
MBT FINANCIAL CORP.
CONSOLIDATED
STATEMENTS OF INCOME - UNAUDITED
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Three Months Ended June 30, |
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Dollars in thousands, except per share data |
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2009 |
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2008 |
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Interest Income |
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Interest and fees on loans |
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$ |
13,165 |
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$ |
15,771 |
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Interest on investment securities- |
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Tax-exempt |
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865 |
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818 |
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Taxable |
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3,828 |
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4,798 |
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Interest on balances due from banks |
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12 |
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Total interest income |
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17,870 |
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21,387 |
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Interest Expense |
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Interest on deposits |
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4,582 |
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6,368 |
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Interest on borrowed funds |
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3,103 |
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3,892 |
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Total interest expense |
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7,685 |
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10,260 |
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Net Interest Income |
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10,185 |
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11,127 |
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Provision For Loan Losses |
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8,000 |
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2,700 |
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Net Interest Income After |
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Provision For Loan Losses |
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2,185 |
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8,427 |
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Other Income |
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Income from wealth management services |
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906 |
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1,119 |
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Service charges and other fees |
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1,432 |
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1,586 |
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Net gain on sales of securities |
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50 |
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23 |
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Origination fees on mortgage loans sold |
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122 |
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91 |
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Bank owned life insurance income |
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296 |
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275 |
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Other |
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824 |
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764 |
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Total other income |
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3,630 |
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3,858 |
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Other Expenses |
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Salaries and employee benefits |
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5,400 |
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5,441 |
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Occupancy expense |
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727 |
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916 |
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Equipment expense |
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771 |
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848 |
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Marketing expense |
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279 |
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356 |
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Professional fees |
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409 |
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455 |
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Collection expenses |
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101 |
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95 |
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Net loss on other real estate owned |
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4,174 |
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354 |
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Other real estate owned expenses |
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467 |
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432 |
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FDIC Deposit Insurance Assessment |
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1,250 |
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|
136 |
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Other |
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1,011 |
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1,130 |
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Total other expenses |
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14,589 |
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10,163 |
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Income (Loss) Before Income Taxes |
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(8,774 |
) |
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2,122 |
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Income Tax Expense (Benefit) |
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(3,401 |
) |
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|
404 |
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Net Income (Loss) |
|
$ |
(5,373 |
) |
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$ |
1,718 |
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Basic Earnings (Loss) Per Common Share |
|
$ |
(0.33 |
) |
|
$ |
0.11 |
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Diluted Earnings (Loss) Per Common Share |
|
$ |
(0.33 |
) |
|
$ |
0.11 |
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Common Stock Dividends Declared Per Share |
|
$ |
0.01 |
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$ |
0.18 |
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|
The accompanying notes to consolidated financial statements are integral part of these statements.
-3-
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
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Six Months Ended June 30, |
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Dollars in thousands, except per share data |
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2009 |
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2008 |
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Interest Income |
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Interest and fees on loans |
|
$ |
26,765 |
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$ |
32,199 |
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Interest on investment securities- |
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Tax-exempt |
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|
1,742 |
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|
1,633 |
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Taxable |
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|
8,328 |
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9,754 |
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Interest on balances due from banks |
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27 |
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Interest on federal funds sold |
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1 |
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Total interest income |
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36,862 |
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43,587 |
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Interest Expense |
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Interest on deposits |
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10,106 |
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13,859 |
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Interest on borrowed funds |
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6,358 |
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|
8,148 |
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Total interest expense |
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16,464 |
|
|
|
22,007 |
|
|
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|
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Net Interest Income |
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|
20,398 |
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|
21,580 |
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Provision For Loan Losses |
|
|
12,200 |
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|
3,900 |
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|
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Net Interest Income After |
|
|
|
|
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Provision For Loan Losses |
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|
8,198 |
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|
|
17,680 |
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|
|
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Other Income |
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|
|
|
|
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Income from trust services |
|
|
1,820 |
|
|
|
2,246 |
|
Service charges and other fees |
|
|
2,788 |
|
|
|
3,112 |
|
Net gain on sales of securities |
|
|
656 |
|
|
|
48 |
|
Other Than Temporary Impairments on securities |
|
|
(6,400 |
) |
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|
Portion of loss recognized in other comprehensive income |
|
|
5,631 |
|
|
|
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|
Origination fees on mortgage loans sold |
|
|
231 |
|
|
|
284 |
|
Bank Owned Life Insurance income |
|
|
665 |
|
|
|
630 |
|
Other |
|
|
1,570 |
|
|
|
1,500 |
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|
Total other income |
|
|
6,961 |
|
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|
7,820 |
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|
|
|
|
|
|
|
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Other Expenses |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
10,834 |
|
|
|
11,023 |
|
Occupancy expense |
|
|
1,641 |
|
|
|
1,911 |
|
Equipment expense |
|
|
1,619 |
|
|
|
1,676 |
|
Marketing expense |
|
|
521 |
|
|
|
597 |
|
Professional fees |
|
|
867 |
|
|
|
924 |
|
Collection expense |
|
|
564 |
|
|
|
427 |
|
Net loss on other real estate |
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|
6,030 |
|
|
|
389 |
|
Other real estate owned expense |
|
|
766 |
|
|
|
588 |
|
FDIC deposit insurance assessment |
|
|
1,686 |
|
|
|
168 |
|
Other |
|
|
2,058 |
|
|
|
2,158 |
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|
Total other expenses |
|
|
26,586 |
|
|
|
19,861 |
|
|
|
|
|
|
|
|
|
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|
Income (Loss) Before Income Taxes |
|
|
(11,427 |
) |
|
|
5,639 |
|
Income Tax Expense (Benefit) |
|
|
(4,687 |
) |
|
|
1,274 |
|
|
Net Income (Loss) |
|
$ |
(6,740 |
) |
|
$ |
4,365 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Common Share |
|
$ |
(0.42 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Common Share |
|
$ |
(0.42 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
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|
Common Stock Dividends Declared Per Share |
|
$ |
0.02 |
|
|
$ |
0.36 |
|
|
The accompanying notes to consolidated financial statements are integral part of these statements.
-4-
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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|
|
|
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|
Six Months Ended June 30, |
|
Dollars in thousands |
|
2009 |
|
|
2008 |
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(6,740 |
) |
|
$ |
4,365 |
|
Adjustments to reconcile net income (loss) to net cash from operating activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
12,200 |
|
|
|
3,900 |
|
Depreciation |
|
|
1,135 |
|
|
|
1,454 |
|
(Increase) decrease in net deferred Federal income tax asset |
|
|
(4,302 |
) |
|
|
239 |
|
Net (accretion) amortization of investment premium and discount |
|
|
107 |
|
|
|
15 |
|
Writedowns of Other Real Estate Owned |
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|
5,201 |
|
|
|
|
|
Net increase (decrease) in interest payable and other liabilities |
|
|
(589 |
) |
|
|
175 |
|
Net increase in interest receivable and other assets |
|
|
(3,241 |
) |
|
|
(4,728 |
) |
Equity based compensation expense |
|
|
72 |
|
|
|
135 |
|
Net gain on sale/settlement of securities |
|
|
(656 |
) |
|
|
(48 |
) |
Other Than Temporary Impairment of investment securities |
|
|
769 |
|
|
|
|
|
Increase in cash surrender value of life insurance |
|
|
(665 |
) |
|
|
(630 |
) |
|
Net cash provided by operating activities |
|
$ |
3,291 |
|
|
$ |
4,877 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and redemptions of investment securities held to maturity |
|
$ |
8,105 |
|
|
$ |
6,879 |
|
Proceeds from maturities and redemptions of investment securities available for sale |
|
|
100,201 |
|
|
|
153,865 |
|
Proceeds from sales of investment securities available for sale |
|
|
52,589 |
|
|
|
2,989 |
|
Net decrease in loans |
|
|
24,523 |
|
|
|
6,391 |
|
Proceeds from sales of other real estate owned |
|
|
3,226 |
|
|
|
1,548 |
|
Proceeds from sales of other assets |
|
|
112 |
|
|
|
96 |
|
Purchase of investment securities held to maturity |
|
|
(1,837 |
) |
|
|
(150 |
) |
Purchase of Bank Owned Life Insurance |
|
|
(1,439 |
) |
|
|
|
|
Purchase of investment securities available for sale |
|
|
(104,310 |
) |
|
|
(164,903 |
) |
Purchase of bank premises and equipment |
|
|
(576 |
) |
|
|
(967 |
) |
|
Net cash provided by investing activities |
|
$ |
80,594 |
|
|
$ |
5,748 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net decrease in deposits |
|
$ |
(96,599 |
) |
|
$ |
(44,210 |
) |
Net increase in short term borrowings |
|
|
|
|
|
|
41,200 |
|
Net decrease in securities sold under agreements to repurchase |
|
|
|
|
|
|
(5,000 |
) |
Net decrease in Federal Home Loan Bank borrowings |
|
|
(13,000 |
) |
|
|
|
|
Proceeds from issuance of common stock |
|
|
103 |
|
|
|
64 |
|
Dividends paid |
|
|
(1,615 |
) |
|
|
(5,806 |
) |
|
Net cash used for financing activities |
|
$ |
(111,111 |
) |
|
$ |
(13,752 |
) |
|
|
|
|
|
|
|
|
|
|
Net Decrease In Cash and Cash Equivalents |
|
$ |
(27,226 |
) |
|
$ |
(3,127 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning Of Period |
|
|
50,786 |
|
|
|
25,113 |
|
|
Cash And Cash Equivalents At End Of Period |
|
$ |
23,560 |
|
|
$ |
21,986 |
|
|
The accompanying notes to consolidated financial statements are integral part of these statements.
-5-
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY - UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
Dollars in thousands |
|
Stock |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
|
Balance - January 1, 2009 |
|
$ |
321 |
|
|
$ |
122,896 |
|
|
$ |
(2,240 |
) |
|
$ |
120,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock (38,795 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards (15,000 shares) |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
45 |
|
Other stock issued (23,795 shares) |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.02 per share) |
|
|
|
|
|
|
(324 |
) |
|
|
|
|
|
|
(324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
(6,740 |
) |
|
|
|
|
|
|
(6,740 |
) |
Change in
net unrealized loss on securities available for sale - Net of tax effect of $1,241 |
|
|
|
|
|
|
|
|
|
|
(2,306 |
) |
|
|
(2,306 |
) |
Change in
net unrealized loss on securities available for sale for which a
portion of an other-than-temporary impairment has been recognized in
earnings - Net of tax effect of $1,068 |
|
|
|
|
|
|
|
|
|
|
(1,983 |
) |
|
|
(1,983 |
) |
Reclassification
adjustment for losses included in net income - Net of tax effect of $(39) |
|
|
|
|
|
|
|
|
|
|
73 |
|
|
|
73 |
|
Change in
postretirement benefit obligation Net of tax effect of $(74) |
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
138 |
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2009 |
|
$ |
496 |
|
|
$ |
115,832 |
|
|
$ |
(6,318 |
) |
|
$ |
110,010 |
|
|
The accompanying notes to consolidated financial statements are integral part of these statements.
-6-
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
Company) and its subsidiary, Monroe Bank & Trust (the Bank). The Bank includes the accounts of
its wholly owned subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services, Inc. The Bank
operates eighteen branches in Monroe County, Michigan and seven branches in Wayne County, Michigan.
MBT Credit Company, Inc. operates a mortgage loan office in Monroe County. The Banks primary
source of revenue is from providing loans to customers, who are predominantly small and
middle-market businesses and middle-income individuals. The Companys sole business segment is
community banking.
The accounting and reporting policies of the Bank conform to practice within the banking industry
and are in accordance with accounting principles generally accepted in the United States.
Preparation of financial statements in conformity with generally accepted accounting principles
requires Management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are particularly susceptible to
significant changes in the near term are the determination of the allowance for loan losses and the
valuation of other real estate owned.
The accompanying unaudited consolidated financial statements of the Company 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.
The significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiary. All
material intercompany transactions and balances have been eliminated.
COMPREHENSIVE INCOME
Accounting principles generally require that revenue, expenses, gains, and losses be included in
net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses
on securities available for sale and amounts recognized related to postretirement benefit plans
(gains and losses, prior service costs, and transition assets or obligations), are reported as a
direct adjustment to the equity section of the balance sheet. Such items, along with net income,
are components of comprehensive income.
BUSINESS SEGMENTS
While the Companys chief decision makers monitor the revenue streams of various products and
services, operations are managed and financial performance is evaluated on a company wide basis.
Accordingly, all of the Companys operations are considered by management to be aggregated in one
reportable segment.
FAIR VALUE
In February 2007, the Financial Accounting Standards Board FASB issued FAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits companies to
elect on an instrument by instrument basis to fair value certain financial assets and
-7-
financial liabilities with changes in fair value recognized in earnings as they occur. The election
to fair value is generally irrevocable. In April 2007, the Corporation elected early adoption of
FAS 159 as of January 1, 2007. The Corporation did not select any financial assets or financial
liabilities for fair value measurement, but elected early adoption in order to be able to apply the
fair value option to financial assets and financial liabilities that may be acquired prior to the
effective date of the statements. Upon early adoption of FAS 159, the Corporation concurrently
adopted the provisions of FAS 157, effective January 1, 2007.
The Corporation measures or monitors many of its assets and liabilities on a fair value basis. Fair
value is used on a recurring basis for assets and liabilities that are elected to be accounted for
under FAS 159 as well as for certain assets and liabilities in which fair value is the primary
basis of accounting. Examples of these include derivative instruments and available for sale
securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or
liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair
value include certain loans held for sale accounted for on a lower of cost or market basis. Fair
value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Depending
on the nature of the asset or liability, the Corporation uses various valuation techniques and
assumptions when estimating fair value, which are in accordance with FAS 157.
In accordance with FAS 157, the Corporation applied the following fair value hierarchy:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets. The Corporations U.S. government agency securities,
government sponsored mortgage backed securities, and mutual fund investments where quoted prices
are available in an active market generally are classified within Level 1 of the fair value
hierarchy.
Level 2 Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument. The
Corporations borrowed funds and investments in obligations of states and political subdivisions
are generally classified in Level 2 of the fair value hierarchy. Fair values for these instruments
are estimated using pricing models, quoted prices of securities with similar characteristics, or
discounted cash flows.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair
value measurement. Private equity investments and trust preferred collateralized debt obligations
are classified within Level 3 of the fair value hierarchy. Fair values are initially valued based
on transaction price and are adjusted to reflect exit values.
When determining the fair value measurements for assets and liabilities required or permitted to be
recorded at and/or marked to fair value, the Corporation considers the principal or most
advantageous market in which it would transact and considers assumptions that market participants
would use when pricing the asset or liability. When possible, the Corporation looks to active and
observable markets to price identical assets or liabilities. When identical assets and liabilities
are not traded in active markets, the Corporation looks to market observable data for similar
assets or liabilities. Nevertheless, certain assets and liabilities are not actively traded in
observable markets and the Corporation must use alternative valuation techniques to derive a fair
value measurement.
ACCOUNTING PRONOUNCEMENTS
On April 9, 2009, the FASB issued FASB Staff Positions FSP 157-4, FSP FAS 107-1 and APB 28-1, and
FSP FAS 115-2 and FAS 124-2. These FSPs, regarding fair value measurement and
-8-
disclosure, are effective for interim and annual periods beginning on or after June 15, 2009. The
Company elected early adoption beginning with the first quarter of 2009, and the appropriate
disclosures are contained in these financial statements.
In May 2009, the FASB issued Statement of Financial Accounting Standard No. 165, Subsequent Events
(FAS 165). FAS 165 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued. Specifically, FAS
165 defines: 1) the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, 2) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements, and 3)
the disclosure that an entity should make about events or transactions that occurred after the
balance sheet date. Management has reviewed events occurring through August 7, 2009, the date the
financial statements were issued, and no subsequent events occurred that requiring disclosure or
accrual.
In June 2009, the FASB issued Statement of Financial Accounting Standard No. 168, The FASB
Accounting Standards of Codification and the Hierarchy of Generally Accepted Accounting Principles
- a replacement of FASB Statement No. 162. The FASB Accounting Standards of Codification will
become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized
by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. On the effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become non-authoritative. This
Statement is effective for financial statements issued for interim and annual periods ending after
September 15, 2009. The Company will comply with the requirements of the Statement beginning in the
third quarter of 2009.
2. EARNINGS PER SHARE
The calculation of net income per common share for the three months ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Basic |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,373,000 |
) |
|
$ |
1,718,000 |
|
Less preferred dividends |
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock |
|
$ |
(5,373,000 |
) |
|
$ |
1,718,000 |
|
|
Average common shares outstanding |
|
|
16,182,528 |
|
|
|
16,130,806 |
|
|
Earnings (loss) per common share - basic |
|
$ |
(0.33 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Diluted |
|
|
|
|
|
|
|
|
Net income |
|
$ |
(5,373,000 |
) |
|
$ |
1,718,000 |
|
Less preferred dividends |
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
(5,373,000 |
) |
|
$ |
1,718,000 |
|
|
Average common shares outstanding |
|
|
16,182,528 |
|
|
|
16,130,806 |
|
Stock option adjustment |
|
|
|
|
|
|
31,375 |
|
|
Average common shares outstanding - diluted |
|
|
16,182,528 |
|
|
|
16,162,181 |
|
|
Earnings per common share - diluted |
|
$ |
(0.33 |
) |
|
$ |
0.11 |
|
|
The calculation of net income per common share for the six months ended June 30 is as follows:
-9-
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Basic |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(6,740,000 |
) |
|
$ |
4,365,000 |
|
Less preferred dividends |
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock |
|
$ |
(6,740,000 |
) |
|
$ |
4,365,000 |
|
|
Average common shares outstanding |
|
|
16,174,231 |
|
|
|
16,128,926 |
|
|
Earnings (loss) per common share - basic |
|
$ |
(0.42 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Diluted |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(6,740,000 |
) |
|
$ |
4,365,000 |
|
Less preferred dividends |
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock |
|
$ |
(6,740,000 |
) |
|
$ |
4,365,000 |
|
|
Average common shares outstanding |
|
|
16,174,231 |
|
|
|
16,128,926 |
|
Stock option adjustment |
|
|
|
|
|
|
31,375 |
|
|
Average common shares outstanding - diluted |
|
|
16,174,231 |
|
|
|
16,160,301 |
|
|
Earnings (loss) per common share - diluted |
|
$ |
(0.42 |
) |
|
$ |
0.27 |
|
|
3. STOCK BASED COMPENSATION
Stock
Options - The following table summarizes the options that have been granted to non-employee
directors and certain key executives in accordance with the Long-Term Incentive Compensation Plan
that was approved by shareholders at the Annual Meeting of Shareholders on April 6, 2000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Shares |
|
Exercise Price |
|
Options Outstanding, January 1, 2009
|
|
|
541,976 |
|
|
$ |
17.42 |
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Options Outstanding, June 30, 2009
|
|
|
541,976 |
|
|
$ |
17.42 |
|
|
Options Exercisable, June 30, 2009
|
|
|
513,646 |
|
|
$ |
17.54 |
|
|
Restricted
Stock Unit Awards - On January 2, 2009, performance restricted stock units were
awarded to certain key executives in accordance with the MBT 2008 Stock Incentive Plan that was
approved by shareholders on May 1, 2008. Each restricted stock unit (RSU) is equivalent to one
share of MBT Financial Corp. common stock. Stock will be issued to the participants following a
three year performance period that ends on December 31, 2011 based on the cumulative earnings per
share during that three year period. The RSUs vest on December 31, 2011. There were 19,800 RSUs
granted, and none will be considered vested and earned for payment if the Companys three year
cumulative earnings per share are less than $0.05. The amount of RSUs that will vest on December
31, 2011 is based on the three year cumulative earnings per share achieved by the company during
the vesting period as shown in the following schedule:
|
|
|
Three Year Cumulative Fully Diluted EPS for the |
|
|
Performance Period Ending December 31, 2011 |
|
Percent PSUs Vested |
|
$0.15
|
|
100% |
$0.10
|
|
75% |
$0.05
|
|
50% |
Restricted
Stock Awards - On January 2, 2009, 15,000 restricted shares were awarded to certain
key executives in accordance with the MBT 2008 Stock Incentive Plan that was approved by
shareholders on May 1, 2008. The restricted shares will vest on December 31, 2011.
Stock
Only Stock Appreciation Rights (SOSARs) - On January 2, 2009, Stock Only Stock Appreciation
Rights (SOSARs) were awarded to certain key executives in accordance with the
-10-
MBT 2008 Stock Incentive Plan that was approved by shareholders on May 1, 2008. The SOSARs
have a term of ten years and vest in three equal annual installments beginning December 31, 2009.
SOSARs granted under the plan are structured as fixed grants with the exercise price equal to the
market value of the underlying stock on the date of the grant.
On January 2, 2009, Stock Only Stock Appreciation Rights (SOSARs) were awarded to certain directors
in exchange for a portion of their retainer in accordance with the MBT 2008 Stock Incentive Plan
that was approved by shareholders on May 1, 2008. The SOSARs have a term of ten years and vest on
December 31, 2009. SOSARs granted under the plan are structured as fixed grants with the exercise
price equal to the market value of the underlying stock on the date of the grant.
The fair value of $0.52 for the SOSARs was estimated at the date of the grant, using the
Black-Scholes option pricing model, with the following assumptions: expected option lives of 7
years, expected volatility of 25.8%, a risk free rate of 3.38% and dividend yield of 4.87%. The
following table summarizes the SOSARs that have been granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
SOSARs Outstanding, January 1, 2009 |
|
|
99,500 |
|
|
$ |
8.53 |
|
Granted |
|
|
141,500 |
|
|
|
3.03 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
9,500 |
|
|
|
5.06 |
|
|
SOSARs Outstanding, June 30, 2009 |
|
|
231,500 |
|
|
$ |
5.31 |
|
|
SOSARs Exercisable, June 30, 2009 |
|
|
35,345 |
|
|
$ |
8.53 |
|
|
The total expense for equity based compensation was $40,000 in the second quarter of 2009 and
$45,000 in the second quarter of 2008. The total expense for equity based compensation was $80,000
in the first six months of 2009 and $135,000 in the first six months of 2008.
4. LOANS
The Bank
grants commercial, consumer, and mortgage loans primarily to customers in Monroe County,
Michigan, southern Wayne 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, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
Residential real estate loans |
|
$ |
413,216 |
|
|
$ |
439,133 |
|
Non-farm, non-residential real estate loans |
|
|
351,356 |
|
|
|
352,935 |
|
Loans to
finance agricultural production and other loans to farmers |
|
|
9,790 |
|
|
|
9,763 |
|
Commercial and industrial loans |
|
|
110,182 |
|
|
|
109,495 |
|
Loans to
individuals for household, family, and other personal expenditures |
|
|
25,275 |
|
|
|
29,901 |
|
All other loans (including overdrafts) |
|
|
460 |
|
|
|
384 |
|
|
|
|
Total loans, gross |
|
|
910,279 |
|
|
|
941,611 |
|
Less: Deferred loan fees |
|
|
748 |
|
|
|
663 |
|
|
|
|
Total loans, net of deferred loan fees |
|
|
909,531 |
|
|
|
940,948 |
|
Less: Allowance for loan losses |
|
|
23,875 |
|
|
|
18,528 |
|
|
|
|
|
|
$ |
885,656 |
|
|
$ |
922,420 |
|
|
|
|
-11-
Loans are placed in a nonaccrual status when, in the opinion of Management, the collection of
additional interest is doubtful. All loan relationships over $250,000 that are classified by
Management as nonperforming as well as selected performing accounts are reviewed for impairment.
Allowances for loans determined to be impaired are included in the allowance for loan losses. All
cash received on nonaccrual loans is applied to the principal balance. Nonperforming assets
consist of nonaccrual loans, loans 90 days or more past due, restructured loans, and other real
estate owned. Other real estate owned includes real estate that has been acquired in full or
partial satisfaction of loan obligations or upon foreclosure and real estate that the bank has
purchased but no longer intends to use for bank premises.
The following table summarizes nonperforming assets (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
Nonaccrual loans |
|
$ |
61,917 |
|
|
$ |
47,872 |
|
Loans 90 days past due |
|
|
300 |
|
|
|
93 |
|
Restructured loans |
|
|
7,552 |
|
|
|
5,811 |
|
|
|
|
Total nonperforming loans |
|
$ |
69,769 |
|
|
$ |
53,776 |
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
16,189 |
|
|
|
17,156 |
|
Other assets |
|
|
2,081 |
|
|
|
2,055 |
|
Nonperforming investment securities |
|
|
945 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
88,984 |
|
|
$ |
72,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets |
|
|
6.17 |
% |
|
|
4.67 |
% |
Allowance
for loan losses to nonperforming loans |
|
|
34.22 |
% |
|
|
34.45 |
% |
5. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses during the quarter ended June 30 was as follows (000s
omitted):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
Balance beginning of quarter |
|
$ |
21,753 |
|
|
$ |
17,683 |
|
Provision for loan losses |
|
|
8,000 |
|
|
|
2,700 |
|
Loans charged off |
|
|
(6,334 |
) |
|
|
(2,607 |
) |
Recoveries |
|
|
456 |
|
|
|
317 |
|
|
|
|
Balance end of period |
|
$ |
23,875 |
|
|
$ |
18,093 |
|
|
|
|
Activity in the allowance for loan losses during the six months ended June 30 was as follows (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
Balance beginning of year |
|
$ |
18,528 |
|
|
$ |
20,222 |
|
Provision for loan losses |
|
|
12,200 |
|
|
|
3,900 |
|
Loans charged off |
|
|
(7,909 |
) |
|
|
(6,562 |
) |
Recoveries |
|
|
1,056 |
|
|
|
533 |
|
|
|
|
Balance end of period |
|
$ |
23,875 |
|
|
$ |
18,093 |
|
|
|
|
For each period, the provision for loan losses in the income statement is based on
Managements estimate of the amount required to maintain an adequate Allowance for Loan Losses.
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 Banks customers, the payment performance of individual loans and pools of
-12-
homogeneous loans,portfolio seasoning, changes in collateral values, and detailed reviews of specific loan
relationships. For loans deemed to be impaired due to an expectation that all contractual payments
will probably not be received, impairment is measured by comparing the Banks recorded investment
in the loan to the present value of expected cash flows discounted at the loans effective interest
rate, or the fair value of the collateral, or the loans 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. When it is determined that a
customer will not repay a loan, 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
sell collateral worth more than earlier estimated, a recovery is recorded.
6. INVESTMENT SECURITIES
The following is a summary of the Banks investment securities portfolio as of June 30, 2009
and December 31, 2008 (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Obligations
of U.S. Government Agencies |
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7 |
|
Obligations
of States and Political Subdivisions |
|
|
40,571 |
|
|
|
187 |
|
|
|
(447 |
) |
|
|
40,311 |
|
|
|
|
$ |
40,578 |
|
|
$ |
187 |
|
|
$ |
(447 |
) |
|
$ |
40,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Obligations
of U.S. Government Agencies |
|
$ |
274,014 |
|
|
$ |
6,561 |
|
|
$ |
(590 |
) |
|
$ |
279,985 |
|
Obligations
of States and Political Subdivisions |
|
|
45,240 |
|
|
|
531 |
|
|
|
(456 |
) |
|
|
45,315 |
|
Trust Preferred CDO Securities |
|
|
24,311 |
|
|
|
|
|
|
|
(10,701 |
) |
|
|
13,610 |
|
Corporate Debt Securities |
|
|
11,756 |
|
|
|
|
|
|
|
(2,241 |
) |
|
|
9,515 |
|
Other Securities |
|
|
2,974 |
|
|
|
74 |
|
|
|
|
|
|
|
3,048 |
|
|
|
|
$ |
358,295 |
|
|
$ |
7,166 |
|
|
$ |
(13,988 |
) |
|
$ |
351,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
December 31, 2008 |
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Obligations
of U.S. Government Agencies |
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7 |
|
Obligations
of States and Political Subdivisions |
|
|
46,833 |
|
|
|
214 |
|
|
|
(1,011 |
) |
|
|
46,036 |
|
|
|
|
$ |
46,840 |
|
|
$ |
214 |
|
|
$ |
(1,011 |
) |
|
$ |
46,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Obligations
of U.S. Government Agencies |
|
$ |
322,767 |
|
|
$ |
6,915 |
|
|
$ |
(11 |
) |
|
$ |
329,671 |
|
Obligations
of States and Political Subdivisions |
|
|
40,999 |
|
|
|
541 |
|
|
|
(426 |
) |
|
|
41,114 |
|
Trust Preferred CDO Securities |
|
|
25,132 |
|
|
|
|
|
|
|
(5,761 |
) |
|
|
19,371 |
|
Corporate Debt Securities |
|
|
15,170 |
|
|
|
|
|
|
|
(1,654 |
) |
|
|
13,516 |
|
Other Securities |
|
|
2,386 |
|
|
|
59 |
|
|
|
|
|
|
|
2,445 |
|
|
|
|
$ |
406,454 |
|
|
$ |
7,515 |
|
|
$ |
(7,852 |
) |
|
$ |
406,117 |
|
|
The investment securities portfolio is evaluated for impairment throughout the year.
Impairment is recorded against individual securities, unless the decrease in fair value is
attributable to interest rates or the lack of an active market, and Management determines that the
Company does not intend to sell the investments and it is not more likely than not that the Company
will be required to sell the investments before a recovery of their amortized costs bases, which
may be maturity. The following table shows the gross unrealized losses and fair value of the
Companys investments with unrealized losses that are not deemed to be other than temporarily
impaired (in thousands), aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at June 30, 2009 and December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Aggregate |
|
|
Unrealized |
|
|
Aggregate |
|
|
Unrealized |
|
|
Aggregate |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Obligations
of United States Government Agencies |
|
$ |
43,790 |
|
|
$ |
590 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,790 |
|
|
$ |
590 |
|
Obligations
of States and Political Subdivisions |
|
|
13,009 |
|
|
|
402 |
|
|
|
13,498 |
|
|
|
501 |
|
|
|
26,507 |
|
|
|
903 |
|
Trust Preferred CDO Securities |
|
|
|
|
|
|
|
|
|
|
13,610 |
|
|
|
10,701 |
|
|
|
13,610 |
|
|
|
10,701 |
|
Corporate Debt Securities |
|
|
878 |
|
|
|
67 |
|
|
|
8,638 |
|
|
|
2,174 |
|
|
|
9,516 |
|
|
|
2,241 |
|
|
|
|
$ |
57,677 |
|
|
$ |
1,059 |
|
|
$ |
35,746 |
|
|
$ |
13,376 |
|
|
$ |
93,423 |
|
|
$ |
14,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Aggregate |
|
|
Unrealized |
|
|
Aggregate |
|
|
Unrealized |
|
|
Aggregate |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Obligations
of United States Government Agencies |
|
$ |
8,791 |
|
|
$ |
4 |
|
|
$ |
1,500 |
|
|
$ |
7 |
|
|
$ |
10,291 |
|
|
$ |
11 |
|
Obligations
of States and Political Subdivisions |
|
|
20,707 |
|
|
|
1,211 |
|
|
|
3,878 |
|
|
|
226 |
|
|
|
24,585 |
|
|
|
1,437 |
|
Trust Preferred CDO Securities |
|
|
6,605 |
|
|
|
2,474 |
|
|
|
12,766 |
|
|
|
3,287 |
|
|
|
19,371 |
|
|
|
5,761 |
|
Corporate Debt Securities |
|
|
12,516 |
|
|
|
1,654 |
|
|
|
|
|
|
|
|
|
|
|
12,516 |
|
|
|
1,654 |
|
|
|
|
$ |
48,619 |
|
|
$ |
5,343 |
|
|
$ |
18,144 |
|
|
$ |
3,520 |
|
|
$ |
66,763 |
|
|
$ |
8,863 |
|
|
The amount of investment securities issued by government agencies, states, and political
subdivisions with unrealized losses and the amount of unrealized losses on those investment
securities are primarily the result of market interest rates and not the result of the credit
quality of the issuers of the securities. Because the Company does not intend to sell the
investments and it is not more likely than not that the Company will be required to sell the
investments before recovery of their amortized cost bases, which may be maturity, the company does
not consider those investments to be other than temporarily impaired at June 30, 2009.
-14-
The Trust Preferred CDO 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 whether the impairment is not other-than-temporary, the
Company analyzed each securitys expected cash flows. The assumptions used in the cash flow
analysis were developed following a review of the financial condition of the individual obligors in
the pools. The analysis concluded that disruption of our cash flows due to defaults by issuers was
currently not expected to occur in the four securities owned. As a result of uncertainties in the
market place affecting companies in the financial services industry, it is at least reasonably
possible that a change in the estimate will occur in the near term. Because the Company does not
intend to sell the investments and it is not more likely than not that the Company will be required
to sell the investments before recovery of their amortized cost bases, which may be maturity, the
company does not consider those investments to be other than temporarily impaired at June 30, 2009.
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 December, 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 unrealized losses on investment securities are primarily the result of increases in market
interest rates and not the result of credit quality of the issuers of the securities. Because the
Company does not intend to sell the investments and it is not more likely than not that the Company
will be required to sell the investments before recovery of their amortized cost bases, which may
be maturity, the company does not consider those investments to be other than temporarily impaired
at June 30, 2009.
7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain of the Banks assets and liabilities are financial instruments that have fair values
that differ from their carrying values in the accompanying consolidated balance sheets. These
fair values, along with the methods and assumptions used to estimate such fair values, are
discussed below. The fair values of all financial instruments not discussed below (Cash and
cash equivalents, Federal funds sold, Federal Home Loan Bank stock, Accrued interest
receivable and other assets, Bank Owned Life Insurance, Federal funds purchased, and Interest
payable and other liabilities) are estimated to be equal to their carrying amounts as of June
30, 2009 and December 31, 2008.
INVESTMENT SECURITIES
Fair value for the Banks investment securities was determined using the market value in
active markets, where available. When not available, fair values are estimated using the fair
value hierarchy. In the fair value hierarchy, Level 2 fair values are determined using
observable inputs other than Level 1 market prices, such as quoted prices for similar assets.
Level 3 values are determined using unobservable inputs, such as discounted cash flow
projections. These Estimated Market Values are disclosed in Note 6. The fair value disclosures
required by FAS 157 are in Note 8.
-15-
LOANS, NET
The fair value of all loans is estimated by discounting the future cash flows associated with
the loans, using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
OTHER TIME DEPOSITS
The fair value of other time deposits, consisting of fixed maturity certificates of deposit,
is estimated by discounting the related cash flows using the rates currently offered for
deposits of similar remaining maturities.
FHLB ADVANCES AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
A portion of the Federal Home Loan Bank advances in the accompanying consolidated balance
sheets were written with a put option that allows the Federal Home Loan Bank to require
repayment or conversion to a variable rate advance. The fair value of these putable Federal
Home Loan Bank advances is estimated using the binomial lattice option pricing method.
The fair value of fixed and variable rate Federal Home Loan Bank advances and Securities Sold
under Repurchase Agreements, is estimated by discounting the related cash flows using the
rates currently available for borrowings of similar remaining maturities.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair values of commitments to extend credit and standby letters of credit and financial
guarantees written are estimated using the fees currently charged to engage into similar
agreements. The fair values of these instruments are not significant.
The carrying amounts and approximate fair values as of June 20, 2009 and December 31, 2008 are
as follows (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
23,560 |
|
|
$ |
23,560 |
|
|
$ |
50,786 |
|
|
$ |
50,786 |
|
Securities |
|
|
392,051 |
|
|
|
391,791 |
|
|
|
452,957 |
|
|
|
452,160 |
|
Federal Home Loan Bank Stock |
|
|
13,086 |
|
|
|
13,086 |
|
|
|
13,086 |
|
|
|
13,086 |
|
Loans, net |
|
|
885,656 |
|
|
|
889,561 |
|
|
|
922,420 |
|
|
|
953,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, NOW,
savings and money market savings deposits |
|
|
592,390 |
|
|
|
592,390 |
|
|
|
621,762 |
|
|
|
621,762 |
|
Other time deposits |
|
|
447,089 |
|
|
|
455,601 |
|
|
|
514,316 |
|
|
|
521,272 |
|
Borrowed funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate FHLB Advances |
|
|
110,000 |
|
|
|
117,580 |
|
|
|
123,000 |
|
|
|
131,491 |
|
Fixed Rate FHLB Advances |
|
|
8,500 |
|
|
|
8,649 |
|
|
|
8,500 |
|
|
|
8,800 |
|
Putable FHLB Advances |
|
|
130,000 |
|
|
|
136,033 |
|
|
|
130,000 |
|
|
|
138,870 |
|
Repurchase Agreements |
|
|
30,000 |
|
|
|
35,075 |
|
|
|
30,000 |
|
|
|
33,840 |
|
8. FAIR VALUE MEASUREMENTS
The following tables present information about the Companys assets measured at fair value on a
recurring basis at June 30, 2009, and the valuation techniques used by the Company to determine
those fair values.
-16-
In general, fair values determined by Level 1 inputs use quoted prices in active markets for
identical assets that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or
indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and
other inputs such as interest rates and yield curves that are observable at commonly quoted
intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where
there is little, if any, market activity for the related asset.
In instances where inputs used to measure fair value fall into different levels in the above fair
value hierarchy, fair value measurements in their entirety are categorized based on the lowest
level input that is significant to the valuation. The Companys assessment of the significance of
particular inputs to these fair value measurements requires judgment and considers factors
specific to each asset.
Assets measured at fair value on a recurring basis are as follows (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
Significant |
|
|
|
|
|
|
in Active Markets |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
for Identical |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Balance at June |
|
|
|
Assets (Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
30, 2009 |
|
Investment
Securities - Available for Sale |
|
$ |
291,147 |
|
|
$ |
46,716 |
|
|
$ |
13,610 |
|
|
$ |
351,473 |
|
The changes in Level 3 assets measured at fair value on a recurring basis were (000s
omitted):
|
|
|
|
|
|
|
Investment |
|
|
|
Securities - |
|
|
|
Available for Sale |
|
Balance at December 31, 2008 |
|
$ |
19,746 |
|
Total realized and unrealized gains (losses) included in income |
|
|
(769 |
) |
Total unrealized gains (losses) included in other
comprehensive income |
|
|
(5,367 |
) |
Net purchases, sales, calls and maturities |
|
|
|
|
Net transfers in/out of Level 3 |
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
13,610 |
|
Of the Level 3 assets that were held by the Company at June 30, 2009, the unrealized loss for
the six months ended June 30, 2009 was $5,367,000, which is recognized in other comprehensive
income in the consolidated statements of financial condition. The Company did not have any sales
or purchases of Level 3 available for sale securities during the period.
Both observable and unobservable inputs may be used to determine the fair value of positions
classified as Level 3 assets. As a result, the unrealized gains and losses for these assets
presented in the tables above may include changes in fair value that were attributable to both
observable and unobservable inputs.
The Company owns pooled Trust Preferred Securities (TRUPs) with a fair value of $13,610,000 as of
June 30, 2009. Trading of these types of securities is only conducted on a distress sale or forced
liquidation basis. As a result, the Company measures the fair values of these assets using Level 3
inputs, specifically discounted cash flow projections.
The Company also has assets that under certain conditions are subject to measurement at fair value
on a nonrecurring basis. These assets include loans and Other Real Estate Owned. The Company
estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow
projections.
-17-
Assets measured at fair value on a nonrecurring basis are as follows (000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
Total Losses for |
|
|
Total Losses for |
|
|
|
Balance at |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
the three months |
|
|
the six months |
|
|
|
June 30, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
ended June 30, 2009 |
|
|
ended June 30, 2009 |
|
Impaired loans
accounted for under
FAS 114 |
|
$ |
53,574 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,574 |
|
|
$ |
3,162 |
|
|
$ |
6,670 |
|
Other Real Estate Owned |
|
$ |
16,189 |
|
|
$ |
|
|
|
$ |
16,189 |
|
|
$ |
|
|
|
$ |
4,174 |
|
|
$ |
6,030 |
|
Impaired loans accounted for under FAS 114 categorized as Level 3 assets consist of
non-homogenous loans that are considered impaired. The Company estimates the fair value of the
loans based on the present value of expected future cash flows using managements best estimate of
key assumptions. These assumptions include future payment ability, timing of payment streams, and
estimated realizable values of available collateral (typically based on outside appraisals). Other
Real Estate Owned (OREO) consists of property received in full or partial satisfaction of a
receivable. The Company utilizes independent appraisals to estimate the fair value of OREO
properties.
8. 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 Banks 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, |
|
|
|
2009 |
|
|
2008 |
|
|
Commitments to extend credit: |
|
|
|
|
|
|
|
|
Unused portion of commercial lines of credit |
|
$ |
63,439 |
|
|
$ |
62,537 |
|
Unused portion of credit card lines of credit |
|
|
5,751 |
|
|
|
5,872 |
|
Unused portion of home equity lines of credit |
|
|
17,229 |
|
|
|
20,200 |
|
Standby letters of credit and financial guarantees written |
|
|
6,279 |
|
|
|
7,297 |
|
All other off-balance sheet assets |
|
|
5,144 |
|
|
|
3,682 |
|
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, and generally have fixed expiration dates or
other termination clauses. 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 various established expiration dates, but are fundable on demand. Home equity lines of
credit are secured by real estate mortgages, a majority of which have ten year expiration dates,
but are fundable on demand. The Bank evaluates each customers 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 Managements credit evaluation of the counterparty.
-18-
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.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
MBT Financial Corp. (the Company) is a bank holding company with one subsidiary, Monroe Bank &
Trust (the Bank). The Bank is a commercial bank with two wholly owned subsidiaries, MBT Credit
Company, Inc. and MB&T Financial Services. MBT Credit Company, Inc. conducts lending operations for
the Bank and MB&T Financial Services is an insurance agency which sells insurance policies to the
Bank. The Bank operates 18 branch offices in Monroe County, Michigan and 7 offices in Wayne County,
Michigan. The Banks primary source of income is interest income on its loans and investments and
its primary expense is interest expense on its deposits and borrowings.
The ongoing challenges in the national economy generally and in the southeast Michigan economy in
particular, with increasing unemployment and decreasing real estate values, continue to have a
negative impact on our performance. We monitor the quality of our loan portfolios closely, and we
decided that the decrease in real estate values necessitated write downs of some of our Other Real
Estate Owned this quarter. The decrease in the value of real estate collateral also required an
increase in the allowance for loan losses. Our Allowance for Loan Losses is now $23.9 million, or
2.62% of loans. Non performing assets (NPAs) increased from $79.0 million to $89.0 million during
the quarter, as non performing loans increased $13.6 million and OREO decreased $3.6 million. Total
Problem Assets, which includes non performing assets and problem loans that are still performing,
decreased $6.1 million, or 3.9% during the quarter
Net Interest Income decreased $942,000 compared to the second quarter of 2008 as the net interest
margin and the average earning assets decreased. The provision for loan losses increased from $2.7
million in the second quarter of 2008 to $8 million in 2009 to cover the net charge offs of $5.9
million and to fund the increase in the Allowance for Loan Losses mentioned above. Non interest
income decreased $228,000 compared to last year as Wealth Management fees decreased due to lower
market values for investments and NSF fees decreased due to a significant decrease in overdraft
activity. We are beginning to see the benefits of our cost reduction initiatives. However, credit
related expenses and an increase in FDIC insurance costs caused total non interest expenses to
increase $4.4 million. We expect credit related expenses to remain high, but we expect to see
meaningful expense improvement in most other areas.
Our capital levels remain strong, and well above regulatory minimums required to be considered a
well-capitalized institution. As of June 30, 2009 our total capital was $110,010,000. We believe
that we have ample liquidity to meet the needs of our qualified loan customers, and continue to
maintain a financially sound and solvent balance sheet. Due to the low level of earnings last year,
and the continued poor earnings and economic outlook, our board of directors decided to reduce the
quarterly dividend from $0.09 to $0.01 in 2009. Even with the loss of $0.33 per share during the
second quarter, the dividend reduction and a reduction in our assets allowed us to maintain capital
ratios in excess of the minimum to be considered well capitalized by regulators. Our board will
continue to evaluate all options concerning the payment of our dividend each quarter.
-19-
In May, 2009 the Bank agreed to an informal memorandum of understanding with its regulators to
establish, among other things, reporting regularly to the regulators about our operations,
financial condition, and efforts to mitigate risks. As a part of this informal program the Bank
has agreed to take certain actions to improve the Banks credit administration and to develop a
written plan to attain a minimum Tier 1 Leverage Capital ratio of 8%. Management developed a
capital plan that was approved by the Companys Board and timely submitted to its regulatory
agencies. A failure to meet its commitment regarding these corrective actions could result in more
formal regulatory actions. The Banks Tier 1 Leverage Capital ratio was 7.83% as of June 30, 2009.
Bank management and its Board of Directors have been targeting its capital ratio to the 8% level
since 2007, and believe that its current plan for risk mitigation, profitability, and capital
management will allow the company to achieve this target during 2009.
Critical Accounting Policies
The Companys Allowance for Loan Losses is a critical accounting estimate because it is an
estimate that is based on assumptions that are highly uncertain, and if different assumptions were
used or if any of the assumptions used were to change, there could be a material impact on the
presentation of the Companys financial condition. These assumptions include, but are not limited
to, collateral values and the effect of economic conditions on the financial condition of the
borrowers. To determine the Allowance for Loan Losses, the Company estimates losses on all loans
that are not classified as non accrual or renegotiated by applying historical loss rates, adjusted
for current conditions, to those loans in accordance with SFAS 5. In addition, all loans that are
non accrual or renegotiated are individually tested for impairment. Any amount of monetary
impairment is included in the Allowance for Loan Losses in accordance with SFAS 114.
Recently Adopted Accounting Pronouncements
In April 2009, the FASB issued three FASB Staff Positions (FSPs) intended to provide additional
application guidance and enhance disclosures regarding fair value measurements and impairments of
securities. FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,
provides guidelines for making fair value measurements more consistent with the principles
presented in FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting
by increasing the frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create
greater clarity and consistency in accounting for and presenting impairment losses on securities.
These FSPs are effective for interim or annual periods beginning after June 15, 2009. The Company
elected early adoption of these three FSPs in the first quarter of 2009.
Financial Condition
Economic conditions remained weak during the second quarter of 2009. Rising unemployment and
decreasing property values resulted in decreases in loans and an increase in nonperforming assets
during the quarter. We continued to use maturities and sales of investments to decrease our
borrowings and brokered certificates of deposits, which has helped preserve our net interest
margin. This has also resulted in a decrease in total assets, which has enabled us to maintain a
high capital ratio even though our capital decreased due to the loss. The decrease in earning
assets resulted in a decrease in net interest income, and the poor economic conditions caused a
significantly larger provision for loan losses, and higher credit related non interest expenses.
While some lending opportunities exist, the economy is expected to remain weak in our market
-20-
area into 2010. The Company expects low or slightly negative deposit and asset growth for the rest
of 2009 and intends to continue to focus efforts on credit quality, capital management, and risk
mitigation.
Since December 31, 2008, total loans decreased $31.4 million (3.3%) due to the weak loan demand.
Total cash and investments decreased $88.1 million (17.1%), and total assets decreased $120.8
million (7.7%). Residential real estate secured loans decreased $25.9 million (5.9%) due to a
decrease in residential development activity. Deposits decreased $96.6 million, or 8.5%, due to
continued reduction in the amount of brokered certificates of deposit and a less competitive
pricing strategy which is designed to reduce the amount of deposits and the average cost of
deposits while managing our interest rate risk. Total capital decreased $11.0 million or 9.1%
because of the net loss of $6.7 million, and the $4.1 million decrease in accumulated other
comprehensive income (AOCI). AOCI decreased due to the decrease in the value of securities
available for sale. Total capital decreased at a higher rate than total assets causing the capital
to assets ratio to decrease from 7.74% at December 31, 2008 to 7.63% at June 30, 2009.
The amount of nonperforming assets (NPAs) increased $16.0 million or 21.9% since year end. NPAs
include non performing loans, which increased 29.7% from $53.8 million to $69.8 million, and Other
Real Estate Owned and Other Assets (OREO), which was unchanged at $19.2 million. Total problem
assets, which includes all NPAs and performing loans that are internally classified as substandard,
increased $11.1 million, or 8.1%. The Companys Allowance for Loan and Lease Losses (ALLL)
increased $5.3 million since December 31, 2008, as the amount of specific allocations required by
FAS 114 increased from $5.2 million to $11.4 million, mainly due to decreased values of real estate
collateral. The FAS 5 portion of the allowance decreased slightly from $13.2 million to $12.5
million because the impact of the decrease in the size of the loan portfolio was greater than the
impact of the increase in the loss factors. The loss factors, which include five year loss
averages, and adjustments for various current factors, such as recent delinquency and charge off
trends and national and local economic conditions, were increased due to the weak economic
conditions and declining real estate values. The ALLL is now 2.62% of loans, compared to 1.97% at
year end. The ALLL is 34.2% of NPLs, compared to 34.4% at year end. We believe that at this level
the ALLL adequately estimates the potential losses in the loan portfolio.
Results of Operations Second Quarter 2009 vs. Second Quarter 2008
Net Interest Income A comparison of the income statements for the three months ended June 30,
2008 and 2009 shows a decrease of $942,000, or 8.5% in Net Interest Income. Interest income on
loans decreased $2.6 million or 16.5% as the average loans outstanding decreased $74.1 million and
the average yield on loans decreased from 6.39% to 5.75%. The interest income on investments, fed
funds sold, and interest bearing balances due from banks decreased $911,000 as the average amount
of investments, fed funds sold, and interest bearing balances due from banks decreased $12.1
million and the yield decreased from 5.13% to 4.41%. An improvement in the term structure of
interest rates and a decrease in the overall level of interest rates allowed funding costs to
decrease faster than asset yields. The interest expense on deposits decreased $1.8 million or 28.0%
as the average deposits decreased $21.6 million and the average cost of those deposits decreased
from 2.38% to 1.74%. The cost of borrowed funds decreased $0.8 million as the average amount of
borrowed funds decreased $45.4 million and the average cost of the borrowings decreased from 4.75%
to 4.38%.
Provision for Loan Losses The Provision for Loan Losses increased from $2.7 million in the second
quarter of 2008 to $8.0 million in the second quarter of 2009 due to increased non performing loans
and weaker economic conditions. Net charge offs were $5.9 million during the second quarter of
2009, compared to $2.3 million in the second quarter of 2008. Each quarter,
-21-
the Company conducts a review and analysis of its ALLL to ensure its adequacy. This analysis
involves specific allocations for impaired credits and a general allocation for losses expected
based on historical experience adjusted for current conditions.
Other
Income Non interest income decreased $228,000 or 5.9% compared to the second quarter of
2008. Although we have been successful in attracting new business in our Wealth Management Group,
income decreased 19.0% due to decreasing market values of investments. Service charges and other
fees decreased $154,000, or 9.7%, primarily due to a decrease in NSF fees on checking accounts.
Mortgage loan activity increased in the second quarter of 2009 due to an increase in the number of
refinances, and the origination fees on mortgage loans sold increased $31,000, or 34.1%.
Other Expenses Total non interest expenses increased $4.4 million or 43.6% compared to the
second quarter of 2008 primarily due to higher credit related expenses and an increase in our FDIC
insurance assessment. Salaries and Employee Benefits decreased $41,000, or 0.8%, primarily due to a
reduction in the incentive compensation accrual. Occupancy expense decreased $189,000 or 20.6% due
to lower depreciation, maintenance, and property tax expenses. Equipment expenses decreased
$77,000, or 9.1% due to a decrease of $59,000 in depreciation expense. The advertising program was
reduced in 2009, resulting in a decrease of $77,000, or 21.6% in marketing expense. Losses on OREO
transactions increased $3.8 million compared to the second quarter last year due to a loss of $1.8
million on 37 properties sold at an auction in the second quarter of 2009. We also wrote down the
carrying values of several properties this year due to the continued decline in market values. The
properties sold had quarterly carrying costs of approximately $58,000. FDIC insurance premium
expense increased $1.1 million due to a special assessment of $663,000 in the second quarter of
2009, an increase in our regular assessment rate from 7 basis points to nearly 22 basis points, and
because the Bank utilized its remaining assessment credits in 2008. Excluding the OREO losses and
expenses and the FDIC assessments, non interest expenses decreased $543,000, or 5.9%.
As a result of the above activity, the Income Before Income Taxes decreased $10.9 million to a loss
of $8.8 million. The income tax expense decreased $3.8 million from $0.4 million to a benefit of
$3.4 million. The Net Loss of $5.4 million is a decrease of $7.1 million from the profit of $1.7
million in the second quarter of 2008.
Results of Operations Six Months Ended June 30, 2009 vs. June 30, 2008
Net Interest Income A comparison of the income statements for the six months ended June 30, 2008
and 2009 shows a decrease of $1.2 million, or 5.5% in Net Interest Income. Interest income on loans
decreased $5.4 million or 16.9% as the average loans outstanding decreased $68.7 million and the
average yield on loans decreased from 6.51% to 5.82%. The interest income on investments, fed funds
sold, and interest bearing balances due from banks decreased $1.3 million even though the average
amount of investments, fed funds sold, and interest bearing balances due from banks increased $6.1
million as the yield decreased from 5.17% to 4.53%. An improvement in the term structure of
interest rates and a decrease in the overall level of interest rates allowed funding costs to
decrease faster than asset yields. The interest expense on deposits decreased $3.8 million or 27.1%
as the average deposits decreased $15.3 million and the average cost of those deposits decreased
from 2.55% to 1.89%. The cost of borrowed funds decreased $1.8 million as the average amount of
borrowed funds decreased $29.6 million and the average cost of the borrowings decreased from 5.15%
to 4.44%.
Provision for Loan Losses The Provision for Loan Losses increased from $3.9 million in the first
six months of 2008 to $12.2 million in the first six months of 2009 due to increased non
-22-
performing loans and weaker economic conditions. Net charge offs were $6.9 million during the first
six months of 2009, compared to $6.0 million in the first six months of 2008.
Other Income Non interest income, excluding securities transactions, decreased $698,000 or 9.0%
compared to the first six months of 2008. Although we have been successful in attracting new
business in our Wealth Management Group, income decreased $426,000, or 19.0% due to decreasing
market values of investments. Service charges and other fees decreased $324,000, or 10.4%,
primarily due to a decrease in NSF fees on checking accounts. Mortgage loan activity increased in
the second quarter of 2009, but the first half of 2009 was considerably slower than the first half
of 2008, and the origination fees on mortgage loans sold decreased $53,000, or 18.7%.
Other Expenses Total non interest expenses increased $6.7 million or 33.9% compared to the first
six months of 2008 primarily due to higher credit related expenses and an increase in our FDIC
insurance assessment. Salaries and Employee Benefits decreased $189,000, or 1.7%, primarily due to
a reduction in the incentive compensation accrual. Occupancy expense decreased $270,000 or 14.1%
due to lower depreciation, maintenance, and property tax expenses. The advertising program was
reduced in 2009, resulting in a decrease of $76,000, or 12.7% in marketing expense. Losses on OREO
transactions increased $5.6 million compared to the second quarter last year due to a loss of $1.8
million on 37 properties sold at an auction in the second quarter of 2009 and the write down of
$835,000 on a property sold in the first quarter of 2009. We also wrote down the carrying values of
several properties this year due to the continued decline in market values. FDIC insurance premium
expense increased $1.5 million due to a special assessment of $663,000 in the second quarter of
2009, an increase in our regular assessment rate from 7 basis points to nearly 22 basis points in
the second quarter of 2009, and because the Bank utilized its remaining assessment credits in the
first six months of 2008.
As a result of the above activity, the Income Before Income Taxes decreased $17.1 million to a loss
of $11.4 million. The income tax expense decreased $6.0 million from $1.3 million to a benefit of
$4.7 million. The Net Loss of $6.7 million is a decrease of $11.1 million from the profit of $4.4
million in the first six months of 2008.
Cash Flows
Cash flows from operating activities decreased from $4.9 million in the first six months of 2008 to
$3.3 million in the first six months of 2009 due to the decrease in net income and the increase in
the net deferred federal income tax asset. Cash flows provided by investing activities increased
from $5.7 million in the first six months of 2008 to $80.6 million in the first six months of 2009
primarily due to a decrease in the amount of investment securities purchased, an increase in the
amount of investment securities sold, and a decrease in loans in the first six months of 2009. A
significant portion of the investment activity proceeds was used to fund the reduction in deposits.
The amount of cash used for financing activities increased from $13.8 million in the first six
months of 2008 to $111.1 million in the first six months of 2009 as the decrease in deposits
increased from $44.2 million in 2008 to $96.6 million in 2009. Also, the increase in short term
borrowing was $41.2 million in 2008, compared to zero in 2009, and Federal Home Loan Bank advances
decreased $13.0 million in 2009. This is a result of the Banks efforts to improve its capital
position and net interest margin by reducing higher cost funding and lower yield assets.
Liquidity and Capital
The Company maintains sufficient liquidity to fund its lending activity 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
-23-
include a line of credit with the Federal Home Loan Bank of Indianapolis, the Federal funds
line that has been established with our correspondent bank, and Repurchase Agreements with money
center banks that allow us to pledge securities as collateral for borrowings. As of June 30, 2009,
the Bank utilized $248.5 million of its authorized limit of $275 million with the Federal Home Loan
Bank of Indianapolis and none of its $25 million of federal funds line with a correspondent bank.
The Companys Funds Management Policy includes guidelines for desired amounts of liquidity and
capital. The Funds Management Policy also includes contingency plans for liquidity and capital that
specify actions to take if liquidity and capital ratios violate the guidelines. Throughout the
second quarter of 2009 the Company was in compliance with its Funds Management Policy regarding
liquidity and capital.
Total stockholders equity of the Company was $110.0 million at June 30, 2009 and $121.0 million at
December 31, 2008. The ratio of equity to assets was 7.6% at June 30, 2009 and 7.7% at December 31,
2008. 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 the Leverage Capital Ratio is at least 5%.
The following table summarizes the capital ratios of the Company and the Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum to Qualify as |
|
|
|
Actual |
|
|
Well Capitalized |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
Ratio |
|
|
As of June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
129,791 |
|
|
|
11.93 |
% |
|
$ |
108,796 |
|
|
|
10 |
% |
Monroe Bank & Trust |
|
|
128,647 |
|
|
|
11.83 |
% |
|
|
108,703 |
|
|
|
10 |
% |
Tier 1 Capital to Risk-Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
116,028 |
|
|
|
10.66 |
% |
|
|
65,277 |
|
|
|
6 |
% |
Monroe Bank & Trust |
|
|
114,895 |
|
|
|
10.57 |
% |
|
|
65,222 |
|
|
|
6 |
% |
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
116,028 |
|
|
|
7.91 |
% |
|
|
73,381 |
|
|
|
5 |
% |
Monroe Bank & Trust |
|
|
114,895 |
|
|
|
7.83 |
% |
|
|
73,337 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum to Qualify as |
|
|
|
Actual |
|
|
Well Capitalized |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
136,286 |
|
|
|
12.74 |
% |
|
$ |
106,980 |
|
|
|
10 |
% |
Monroe Bank & Trust |
|
|
134,853 |
|
|
|
12.62 |
% |
|
|
106,895 |
|
|
|
10 |
% |
Tier 1 Capital to Risk-Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
122,820 |
|
|
|
11.48 |
% |
|
|
64,188 |
|
|
|
6 |
% |
Monroe Bank & Trust |
|
|
121,398 |
|
|
|
11.36 |
% |
|
|
64,137 |
|
|
|
6 |
% |
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
122,820 |
|
|
|
7.82 |
% |
|
|
78,543 |
|
|
|
5 |
% |
Monroe Bank & Trust |
|
|
121,398 |
|
|
|
7.73 |
% |
|
|
78,495 |
|
|
|
5 |
% |
At June 30, 2009 and December 31, 2008, 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 Banks 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
-24-
Asset/Liability Management Committee (ALCO) of the Bank. The Banks market risk is monitored
monthly and it has not changed significantly since year-end 2008.
Forward-Looking Statements
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
Companys 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, expect, 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, changes in the financial and securities markets, including changes with
respect to the market value of our financial assets, the availability of and costs associated with
sources of liquidity, and the ability of the Company to resolve or dispose of problem loans.
The Company 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Bank faces market risk to the extent that the fair values of its financial instruments are
affected by changes in interest rates. The Bank does not face market risk due to changes in foreign
currency exchange rates, commodity prices, or equity prices. The asset and liability management
process of the Bank seeks to monitor and manage the amount of interest rate risk. This is
accomplished by analyzing the differences in repricing opportunities for assets and liabilities, by
simulating operating results under varying interest rate scenarios, and by estimating the change in
the net present value of the Banks assets and liabilities due to interest rate changes.
Each month, the Asset and Liability Committee (ALCO), which includes the senior management of the
Bank, estimates the effect of interest rate changes on the projected net interest income of the
Bank. The sensitivity of the Banks net interest income to changes in interest rates is measured by
using a computer based simulation model to estimate the impact on earnings of gradual increases or
decreases of 100, 200, and 300 basis points in the prime rate. The net interest income projections
are compared to a base case projection, which assumes no changes in interest rates.
The Banks ALCO has established limits in the acceptable amount of interest rate risk, as measured
by the change in the Banks projected net interest income, in its policy. At the end of 2008, the
estimated variability of the net interest income exceeded the Banks established policy limits for
the minus 200 and minus 300 basis point rate scenarios. For the first six months of 2009, the
estimated variability of the net interest income exceeded the Banks established policy limit for
the minus 300 basis point rate scenario. Because current interest rates are at historically low
levels, it is not probable that rates would decrease 300 basis points, and the ALCO determined that
no corrective action is required.
-25-
The ALCO also monitors interest rate risk by estimating the effect of changes in interest rates on
the economic value of the Banks equity each month. The actual economic value of the Banks equity
is first determined by subtracting the fair value of the Banks liabilities from the fair value of
the Banks assets. The fair values are determined in accordance with Statement of Financial
Accounting Standards Number 107, Disclosures about Fair Value of Financial Instruments. The Bank
estimates the interest rate risk by calculating the effect of market interest rate shocks on the
economic value of its equity. For this analysis, the Bank assumes immediate parallel shifts of plus
or minus 100, 200, and 300 basis points in interest rates. The discount rates used to determine the
present values of the loans and deposits, as well as the prepayment rates for the loans, are based
on Managements expectations of the effect of the rate shock on the market for loans and deposits.
The Banks interest rate risk, as measured by the net interest income and economic value of equity
simulations, has not changed significantly from December 31, 2008.
Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Companys disclosure controls and
procedures as of June 30, 2009, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2009, in alerting them in a timely manner to
material information relating to the Company (including its consolidated subsidiaries) required to
be included in the Companys periodic SEC filings.
There was no change in the Companys internal control over financial reporting that occurred during
the Companys fiscal quarter ended June 30, 2009, that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
MBT Financial Corp. and its subsidiaries are not a party to, nor is any of their property the
subject of any material legal proceedings other than ordinary routine litigation incidental to
their respective businesses, nor are any such proceedings known to be contemplated by governmental
authorities.
Item 1A. Risk Factors
There have been no material changes in the risk factors disclosed by the Company in its Report on
Form 10-K for the fiscal year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
-26-
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of MBT Financial Corp. was held on May 7, 2009. The following
directors were elected to a new term of office:
Peter H. Carlton
H. Douglas Chaffin
Joseph S. Daly
Edwin L. Harwood
Thomas M. Huner
Rocque E. Lipford
William D. McIntyre, Jr.
Michael J. Miller
Debra J. Shah
John L. Skibski
Philip P. Swy
Karen M. Wilson
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 |
|
|
|
|
Peter H. Carlton |
|
|
11,134,854 |
|
|
|
2,422,895 |
|
H. Douglas Chaffin |
|
|
11,031,438 |
|
|
|
2,526,311 |
|
Joseph S. Daly |
|
|
9,871,357 |
|
|
|
3,686,392 |
|
Edwin L. Harwood |
|
|
12,316,832 |
|
|
|
1,240,917 |
|
Thomas M. Huner |
|
|
12,109,276 |
|
|
|
1,448,473 |
|
Rocque E. Lipford |
|
|
8,657,637 |
|
|
|
4,900,112 |
|
William D. McIntyre, Jr. |
|
|
10,220,790 |
|
|
|
3,336,959 |
|
Michael J. Miller |
|
|
11,080,327 |
|
|
|
2,477,422 |
|
Debra J. Shah |
|
|
10,744,431 |
|
|
|
2,813,318 |
|
John L. Skibski |
|
|
12,149,292 |
|
|
|
1,408,457 |
|
Philip P. Swy |
|
|
12,033,803 |
|
|
|
1,523,946 |
|
Karen M. Wilson |
|
|
10,739,996 |
|
|
|
2,817,753 |
|
Item 5. Other Information
No matters to be reported.
-27-
Item 6. Exhibits
The following exhibits are filed as a part of this report:
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit
3.1 to MBT Financial Corp.s Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to
MBT Financial Corp.s Form 10-Q for its quarter ended March 31, 2008. |
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification by Chief Executive Officer required by Securities and Exchange
Commission Rule 13a-14. |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Certification by Chief Financial Officer required by Securities and Exchange
Commission Rule 13a-14. |
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
32.2 |
|
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
-28-
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.
|
|
|
|
|
|
|
|
|
|
|
MBT Financial
Corp. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
August 7,
2009
|
|
|
|
By
|
|
/s/ H. Douglas Chaffin |
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
H. Douglas Chaffin
President & Chief Executive Officer |
|
|
|
|
|
|
|
August 7,
2009
|
|
|
|
By
|
|
/s/ John L. Skibski |
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
John L. Skibski
Executive Vice President and Chief Financial Officer |
-29-
Exhibit Index
|
|
|
Exhibit Number |
|
Description of Exhibits |
3.1
|
|
Restated Articles of Incorporation of MBT Financial Corp.
Previously filed as Exhibit 3.1 to MBT Financial Corp.s
Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
3.2
|
|
Amended and Restated Bylaws of MBT Financial Corp.
Previously filed as Exhibit 3.2 to MBT Financial Corp.s
Form 10-Q for its quarter ended March 31, 2008. |
|
|
|
31.1
|
|
Certification by Chief Executive Officer required by
Securities and Exchange Commission Rule 13a-14. |
|
|
|
31.2
|
|
Certification by Chief Financial Officer required by
Securities and Exchange Commission Rule 13a-14. |
|
|
|
32.1
|
|
Certification by Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as enacted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification by Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as enacted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
-30-