10-K 1 k61392e10-k.txt FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission File Number: 000-30973 MBT FINANCIAL CORP. ------------------- (Exact Name of Registrant as Specified in its Charter) MICHIGAN 38-3516922 (State of Incorporation) (I.R.S. Employer Identification No.) 102 E. Front St. Monroe, Michigan 48161 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (734) 241-3431 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, No Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO ____ Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Bank's knowledge, in a definitive proxy statement incorporated by reference in Part III of the Form 10-K or any of the amendments of this Form 10-K. [ ]. As of March 26, 2001, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $270,000,000. As of March 26, 2001, there were 20,000,000 shares of Common Stock outstanding. 2 Part I Item 1. Business GENERAL MBT Financial Corp. (the "Corporation") operates as a bank holding company headquartered in Monroe, Michigan. The Corporation was incorporated under the laws of the State of Michigan in January 2000, at the direction of the management of Monroe Bank & Trust (the "Bank"), for the purpose of becoming a bank holding company by acquiring all the outstanding shares of Monroe Bank & Trust. At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust, shareholders approved a proposal that resulted in the Bank merging with Monroe Interim Bank, a state chartered bank, which was a subsidiary of the Corporation. On July 1, 2000, the merger of Monroe Bank & Trust and Monroe Interim Bank was completed, with Monroe Bank & Trust becoming the wholly owned subsidiary of MBT Financial Corp. Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust consolidated with Dansard Bank and moved to the present address of its main office. Monroe Bank & Trust operated as a unit bank until 1950 when it opened its first branch office in Ida, Michigan. It then continued its expansion to its present total of 22 branch offices, including its main office. Monroe Bank & Trust changed its name from "Monroe State Savings Bank" to "Monroe Bank & Trust" in 1968. Monroe Bank & Trust provides customary retail and commercial banking and trust services to its customers, including checking and savings accounts, time deposits, safe deposit facilities, commercial loans, personal loans, real estate mortgage loans, installment loans, IRAs, ATM and night depository facilities, personal trust, employee benefit and investment management services. Monroe Bank & Trust's service areas are comprised of Monroe and Wayne counties in Southern Michigan. Monroe Bank & Trust's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to applicable legal limits and Monroe Bank & Trust is supervised and regulated by the FDIC and Michigan Financial Institutions Bureau. COMPETITION MBT Financial Corp., through its subsidiary, Monroe Bank & Trust, operates in a highly competitive industry. Monroe Bank & Trust's main competition comes from other commercial banks, national or state savings and loan institutions, securities brokers, mortgage bankers, finance companies and insurance companies. Banks generally compete with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and personal manner in which these services are offered. Monroe Bank & Trust encounters strong competition from most of the financial institutions in Monroe Bank & Trust's extended market area. EMPLOYEES MBT Financial Corp. has no employees other than its three officers, each of whom is also an employee and officer of Monroe Bank & Trust and who serve in their capacity as officers of MBT Financial Corp. without compensation. As of December 31, 2000, Monroe Bank & Trust had 326 full-time employees and 18 part-time employees. Monroe Bank & Trust provides a number of benefits for its full-time employees, including health and life insurance, workers' compensation, social security, paid vacations, numerous bank services, a 401(k) plan and a Money Purchase Pension Plan. 2 3 Item 2. Properties MBT Financial Corp. does not conduct any business other than its ownership of Monroe Bank & Trust's stock. MBT Financial Corp. operates its business from Monroe Bank & Trust's main office facility. Monroe Bank & Trust operates its business from its main office complex and 21 full service branches and other office locations, described as follows, in the counties of Monroe and Wayne, Michigan. Main Office - 102 East Front Street, Monroe, Michigan. Two-story, brick office building, with a good size customer parking lot located at the rear of the building across the alley. North Monroe Branch - 1204 North Monroe Street, Monroe, Michigan. One-story, brick office building located on a large lot, the remainder of which is used for customer and employee parking. Orchard East Branch - 1102 East First Street, Monroe, Michigan. One-story, brick office building situated on two lots, the remainder of which is used for customer and employee parking. West Monroe Branch - 1500 North Custer Road, Monroe, Michigan. One-story, brick office building located on a large lot, the remainder of which is used for customer and employee parking. South Monroe Branch - Monroe Shopping Center - 1000 South Monroe Street, Monroe, Michigan. One-story, brick office building located on a lot, the remainder of which is used for customer and employee parking. South Dixie Branch - 14581 South Dixie Highway, Monroe, Michigan. One-story, brick office building located on a large "L" shaped lot, the remainder of which is used for customer and employee parking. Petersburg Branch - 15 Center Street, Petersburg, Michigan. One-story, brick office building situated on two lots, the remainder of which is used for customer and employee parking. Temperance Branch - 9007 Lewis Avenue, Temperance, Michigan. Two-story, masonry and wood office building situated on a lot, with parking facilities for both customers and employees located on another adjacent lot. Ida Branch - 2917 Lewis Avenue, Ida, Michigan. One-story, stone masonry office building located on three lots, the remainder of which is used for customer and employee parking. Lambertville Branch - 7365 Secor Road, Lambertville, Michigan. One-story, brick office building located on a lot, the remainder of which is used for customer and employee parking. Milan Branch - 14690 Sanford Road, Milan, Michigan. One-story, brick office building, with a community room for public use attached, located on a large lot, the remainder of which is used for customer and employee parking. North Dixie Branch - 3805 North Dixie Highway, Monroe, Michigan. One-story, brick and frame office building located on a lot, the remainder of which is used for customer and employee parking. South Rockwood Branch - 12754 North Dixie Highway, South Rockwood, Michigan. One-story brick office building located on a large lot, the remainder of which is used for customer and employee parking. 3 4 Frenchtown Square Branch - 2121 North Monroe Street, Monroe, Michigan. Approximately 1,424 square feet office leased in a one-story shopping mall. Carleton Branch - 12633 Grafton Road, Carleton, Michigan. One-story, brick office building located on a lot, the remainder of which is used for customer and employee parking. Bank Card Building - 118 East Front Street, Monroe, Michigan. Three-story, masonry office building, across the alley from the Main Office. Meier Building - 7 Washington Street, Monroe, Michigan. Three-story, masonry office building adjacent to the Main Office. Dundee Branch - 14077 South Custer Road, Dundee, Michigan. One-story, brick office building located on a large lot, the remainder of which is used for customer and employee parking. Elliott Building - 28 South Macomb Street, Monroe, Michigan. Two-story, office building with community room attached, located adjacent to the Main Office customer parking lot. Erie Branch - 9796 South Dixie Highway, Erie, Michigan. One-story, brick and masonry office building located on a small lot, the remainder of which is used for customer and employee parking. Bedford Branch - 6560 Lewis Avenue, Temperance, Michigan. Two-story, masonry and steel office building located on a large lot, the remainder of which is used for customer and employee parking. Newport Branch - 8799 Swan Creek Road, Newport, Michigan. One-story brick and vinyl sided office building situated on four lots, the remainder of which is used for customer and employee parking. Operations Center Building - 212 East Front Street, Monroe, Michigan. One-story, brick and masonry office building with a two-story masonry addition located on a large lot, the remainder of which is used for customer and employee parking. Nadeau Branch - 6000 North Monroe Street, Monroe, Michigan. Leased one-story brick office building situated on a large lot, the remainder of which is used for customer and employee parking. Flat Rock Branch - 28417 Telegraph Road, Flat Rock, Michigan. One-story brick office building situated on a large lot, the remainder of which is used for customer and employee parking. Raisinville Branch - 750 S. Raisinville Road, Monroe, Michigan. One-story brick office building situated on a large lot, the remainder of which is used for customer and employee parking. Item 3. Legal Proceedings NONE Item 4. Submission of Matters to a Vote of Security Holders. 4 5 NONE Part II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters The common stock consists of 20,000,000 shares with a book value of $7.55 per share. In 2000, Monroe Bank & Trust reorganized into a one-bank holding company. This reorganization resulted in an increase of 10,000,000 shares outstanding as each share of Monroe Bank & Trust was exchanged for two shares of MBT Financial Corp. Certain trading price information, as well as information on dividends declared, have been restated to reflect the reorganization. Dividends declared on common stock during 2000 amounted to $.37 per share. The common stock is traded over the counter on the Electronic Bulletin Board under the symbol MBTF. Below is a schedule of the high and low trading price for the past two years by quarter. These prices represent those known to Management, but do not necessarily represent all transactions that occurred.
2000 1999 High Low High Low ---------------------------------------------------------------------------------------- 1(st) quarter $ 21 5/16 $ 16 11/16 $ 25 $ 22 1/4 2(nd) quarter $ 19 $ 17 7/8 $ 25 $ 23 1/2 3(rd) quarter $ 20 1/4 $ 15 3/4 $ 24 1/8 $ 21 4(th) quarter $ 17 $ 12 1/2 $ 23 1/4 $ 21 7/16
Dividends declared during the past three years on a quarterly basis were as follows:
2000 1999 1998 ------------------------------------------------------------------ 1(st) quarter $.075 $.06 $ .05 2(nd) quarter $.075 $.075 $ .06 3(rd) quarter $.11 $.075 $ .06 4(th) quarter $.11 $.15 $ .12
On February 29, 2000, Monroe Bank & Trust redeemed its preferred stock. Preferred stock consisted of 2,000 shares with a par value of $100 per share. Dividends paid on preferred stock during the year amounted to $2.60 per share. At December 31, 2000 our surplus account stood at $62,500,000 and our undivided profits account stood at $92,084,279. Total stockholders' equity was reduced by the amount of net unrealized losses on securities available for sale of $3,629,316. As of December 31, 2000, the number of common stockholders was 1,233. Management's present expectation is that dividends will continue to be paid in the future. Item 6. Selected Financial Data The selected financial data for the five years ended December 31, 2000 are derived from the audited Consolidated Financial Statements of the Corporation. The financial data set forth below contains only a portion of our financial statements and should be read in conjunction with the Consolidated Financial Statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. 5 6 SELECTED CONSOLIDATED FINANCIAL DATA
2000 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------------------------- Interest Income $ 99,569,664 $ 83,178,881 $ 77,766,275 $ 71,952,004 $ 66,097,205 Interest Expense 49,680,992 38,290,421 34,203,473 31,455,077 28,960,155 -------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 49,888,672 $ 44,888,460 $ 43,562,802 $ 40,496,927 $ 37,137,050 Provision for Loan Losses 6,298,461 9,388,041 3,217,544 2,165,926 2,314,657 -------------------------------------------------------------------------------------------------------------------------------- Net Interest Income after Provision for Loan Losses $ 43,590,211 $ 35,500,419 $ 40,345,258 $ 38,331,001 $ 34,822,393 Other Income 8,708,702 6,920,016 6,964,982 4,296,142 4,222,256 Other Expenses 23,094,206 20,143,741 25,447,771 18,706,896 16,777,260 -------------------------------------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes $ 29,204,707 $ 22,276,694 $ 21,862,469 $ 23,920,247 $ 22,267,389 Provision for Income Taxes 8,031,184 5,207,362 5,301,810 6,067,965 5,765,645 -------------------------------------------------------------------------------------------------------------------------------- Net Income $ 21,173,523 $ 17,069,332 $ 16,560,659 $ 17,852,282 $ 16,501,744 -------------------------------------------------------------------------------------------------------------------------------- Dividends Declared per Share- Preferred Stock $ 2.60 $ 4.50 $ 4.50 $ 4.50 $ 4.50 -------------------------------------------------------------------------------------------------------------------------------- Common Stock(*) $ .37 $ .36 $ .29 $ .245 $ .22 ================================================================================================================================ Basic Earnings per Share, after Deducting Preferred Stock Dividends(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82 -------------------------------------------------------------------------------------------------------------------------------- Diluted Earnings per Share(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82 -------------------------------------------------------------------------------------------------------------------------------- Total Assets at Years Ended December 31 $1,379,386,178 $1,216,476,583 $1,075,268,496 $941,017,915 $898,300,160 --------------------------------------------------------------------------------------------------------------------------------
*Per-share amounts are based upon 20,000,000 common shares outstanding for each of the five years presented. The reorganization into a one-bank holding company in 2000 resulted in an exchange of Monroe Bank & Trust stock for MBT Financial Corp. stock. The exchange rate was two shares of MBT Financial Corp. stock for each share of Monroe Bank & Trust, causing an increase of 10,000,000 shares outstanding. All per-share amounts have been restated to reflect this transaction. 6 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations With the exception of historical information, the matters discussed or incorporated by reference in this Form 10-K may contain certain forward-looking statements that involve risk and uncertainties including, but not limited to, economic conditions, product demand and industry capability, competitive products and pricing, new product development, the regulatory and trade environment, and other risks indicated in filings with the Securities and Exchange Commission. We experienced a small decrease in earnings in 1998, as Net Income decreased $1,291,623, or 7%. Net Interest Income had a small increase of $3,065,875, or 8%, as interest rates showed a small decrease in the fourth quarter. The $58,526,540 increase in Net Loans, the $41,409,726 increase in Held to Maturity Obligations of U.S. Government Agencies, and the $34,140,651 increase in Other Securities were primarily funded by the 14% increase in deposits of $114,979,861. The local economy remained healthy and we had a small increase in real estate loans, a significant increase in commercial and industrial loans, and a modest increase in loans to individuals for household, family, and other personal expenditures. We increased our Allowance for Loan Losses $900,000, as a result of the growth in loans. Salaries and Employee Benefits increased 51% over last year, primarily as a result of charges related to the deferred compensation plan, as discussed in Note 9 to the consolidated financial statements. Income Before Provision for Income Taxes decreased $2,057,778, or 9%, compared to 1997, and with the increase in investment in Obligations of States and Political Subdivisions, our Provision for Income Taxes decreased $766,155, or 13%. Our effective tax rate was 24.2% in 1998. Earnings increased slightly in 1999, as Net Income increased $508,673, or 3%. Net Interest Income increased $1,325,658, or 3% as the Federal Reserve increased managed interest rates three times, by a total of 0.75% in the second half of the year. Two significant investment strategies that were developed to increase Net Interest Income were deployed by the Bank in the second half of 1999. The first involved reinvesting the maturities of our short term Held to Maturity Other Securities into Held to Maturity Obligations of U.S. Government Agencies. As a result, Held to Maturity Other Securities decreased $53,577,661, or 86% and Held to Maturity Obligations of U.S. Government Agencies increased $74,513,446, or 98%. The second strategy deployed involved the use of Federal Home Loan Bank advances to fund a portfolio of three to ten year, non-callable corporate bonds. This resulted in the creation of the $96,794,073 Available for Sale Other Securities portfolio. Net Loans showed a slight increase of $13,576,076, or 2%, as rising interest rates and increased competition affected our loan volume. We experienced a small increase in real estate loans, a small decrease in commercial and industrial loans, and a significant increase in loans to individuals for household, family, and other personal expenditures. The loan growth was funded primarily by a 3% increase in deposits. We increased our Provision for Loan Losses $6,170,497, or 192%, and loans charged off, net of recoveries, increased $8,270,497, or 357% as we recognized losses on several large non-performing commercial and industrial loans. This resulted in a decrease of $1,200,000, or 11%, in the Allowance for Loan Losses. Salaries and Employee Benefits decreased 37% due to the charges related to the deferred compensation plan in 1998, as mentioned above and discussed in Note 9 to the consolidated financial statements. Income Before Provision for Income Taxes increased $414,225, or 2%, compared to 1998, and with the slight increase in investment in Obligation of States and Political Subdivisions, our Provision for Income Taxes decreased $94,448, or 2%. Our effective tax rate was 23.4% in 1999. In 2000, Net Income increased significantly as the Corporation produced record earnings. Net Income increased $4,104,236, or 24%, compared to 1999, as interest rates continued to rise. Deposits showed a small increase of 5%, as most of the asset growth was funded by an increase of $100,000,000, or 80%, in advances from the Federal Home Loan Bank. We experienced a significant increase of 16% in Net Loans as the local economy continued its expansion. Most of the loan growth was in loans secured by real estate, which increased 25%. Loans to individuals for household, family and other personal expenditures increased 4%, and commercial and industrial loans decreased 4%. We increased our Allowance for Loan 7 8 Losses $700,000 over the prior year-end, as necessitated by the increase in Net Loans. Income Before Provision for Income Taxes increased $6,928,013, or 31%, compared to 1999, but with our smaller average percentage investment in Obligations of States and Political Subdivisions in 2000, our Provision for Income Taxes showed a large increase of $2,823,822, or 54%. Our effective tax rate increased from 23.4% to 27.5%. Earnings for the Bank are usually highly reflective of the Net Interest Income. In 1998, interest rates showed no movement until a small decrease in the fourth quarter, but with the increase in Provision for Loan Losses, as well as the large increase in expense associated with the deferred compensation plan termination, Net Income decreased 7%. In 1999, interest rates increased in the third and fourth quarters, but with the large decrease in Salaries and Employee Benefits, and the increase in Provision for Loan Losses, Net Income increased 3%. In 2000, interest rates continued to climb, with the prime rate increasing 100 basis points in the first half of the year. Interest income increased $16.4 million, or 20% compared to 1999. Approximately $10.8 million of that increase was due to the increase in interest earning assets and $5.6 million was due to the increase in yields on the assets. Interest expense increased $11.4 million, or 30%. Approximately $8.0 million of that increase was due to the increase in interest bearing liabilities and $3.4 million was due to the increase in interest rates. As a result, Net Interest Income increased $5.0 million, or 11% over 1999. Growth in the balance sheet accounted for $2.7 million of the increase while the higher interest rates accounted for $2.3 million of the increase. Along with a moderating Provision for Loan Losses, non-interest income increasing significantly and non-interest expense increasing only modestly, the result was a significant increase in Net Income. The significant increase in non-interest income was the result of estate settlement fees collected by the Trust department and an increase in service charges that was implemented late in the third quarter of 1999. The modest increase in non-interest expense was the result of an increase in salaries expense. Staffing was increased in several areas, including branch operations, as the Bank continued to grow. Average cost of interest bearing deposits was 4.5%, 4.4%, and 4.8% for 1998, 1999, and 2000, respectively. The table below shows selected financial ratios for the same three years.
2000 1999 1998 ---- ---- ---- Return on Average Assets 1.7% 1.5% 1.6% Return on Average Equity 14.4% 12.0% 12.9% Dividend Payout Ratio 34.9% 42.4% 34.9% Average Equity to Average Assets 11.5% 12.6% 12.6%
The following table shows average daily balances, interest income or expense amounts, and the resulting average rates for interest earning assets and interest bearing liabilities for the last three years. Also shown are the net interest income, total interest rates spread, and the net interest margin for the same periods. 8 9
Year Ended December 31, --------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------- ----------------------------- ----------------------------- Average Interest Average Interest Average Interest Daily Earned Average Daily Earned Average Daily Earned Average (Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield Balance or Paid Yield ----------------------------- ----------------------------- ----------------------------- Investments US Treas Secs & Obligations of US Gov't Agencies 174,266 12,169 6.98% 143,515 9,419 6.56% 84,141 5,239 6.23% Obligations of States & Political Subdivisions 137,200 7,302 5.32% 158,195 8,258 5.22% 141,963 7,675 5.41% Other Securities 123,032 9,145 7.43% 67,203 4,054 6.03% 65,072 3,990 6.13% ----------------------------- ----------------------------- ----------------------------- Total Investments 434,498 28,616 6.59% 368,913 21,731 5.89% 291,176 16,904 5.81% ----------------------------- ----------------------------- ----------------------------- Loans Commercial 468,417 43,860 9.36% 435,067 37,863 8.70% 404,594 37,060 9.16% Mortgage 179,427 14,867 8.29% 161,183 13,422 8.33% 167,954 14,269 8.50% Consumer 120,853 11,917 9.86% 100,406 9,954 9.91% 89,329 9,076 10.16% ----------------------------- ----------------------------- ----------------------------- Total Loans(1) 768,697 70,644 9.19% 696,656 61,239 8.79% 661,877 60,405 9.13% Federal Funds Sold 4,861 310 6.38% 4,276 209 4.89% 8,537 457 5.35% ----------------------------- ----------------------------- ----------------------------- Total Interest Earning Assets 1,208,056 99,570 8.24% 1,069,845 83,179 7.77% 961,590 77,766 8.09% Cash & Due From Banks 34,215 0 n/a 34,169 0 n/a 32,292 0 n/a Interest Receivable and Other Assets 30,737 0 n/a 21,645 0 n/a 18,973 0 n/a ----------------------------- ----------------------------- ----------------------------- Total Assets 1,273,008 99,570 7.82% 1,125,659 83,179 7.39% 1,012,855 77,766 7.68% ============================= ============================= ============================= Savings Accounts 120,494 2,955 2.45% 118,229 3,496 2.96% 106,679 3,207 3.01% NOW Accounts 61,901 1,476 2.38% 60,829 1,471 2.42% 54,385 1,313 2.41% Money Market Deposits 189,655 7,714 4.07% 211,139 7,836 3.71% 197,699 7,363 3.72% Certificates of Deposit 461,654 27,506 5.96% 456,303 24,140 5.29% 399,239 22,320 5.59% Federal Funds Purchased 5,051 326 6.45% 5,483 303 5.53% 661 36 5.45% FHLB Advances 161,038 9,704 6.03% 17,658 1,044 5.91% 0 0 n/a ----------------------------- ----------------------------- ----------------------------- Total Interest Bearing Liabilities 999,793 49,681 4.97% 869,641 38,290 4.40% 758,663 34,239 4.51% Non-interest Bearing Deposits 120,906 0 n/a 112,965 0 n/a 108,822 0 n/a Other Liabilities 5,437 0 n/a 680 0 n/a 17,284 0 n/a ----------------------------- ----------------------------- ----------------------------- Total Liabilities 1,126,136 49,681 4.41% 983,286 38,290 3.89% 884,769 34,239 3.87% Stockholders' Equity 146,872 0 n/a 142,373 0 n/a 128,086 0 n/a ----------------------------- ----------------------------- ----------------------------- Total Liabilities & Stockholders' Equity 1,273,008 49,681 3.90% 1,125,659 38,290 3.40% 1,012,855 34,239 3.38% ============================= ============================= ============================= Net Interest Income 49,889 44,889 43,527 Interest Rate Spread 3.27% 3.37% 3.58% Net Interest Margin 4.13% 4.20% 4.53%
(1) Total Loans excludes Overdraft Loans, which are non-interest earning. These loans are included in Other Assets. Total Loans includes nonaccrual loans. When a loan is placed in nonaccrual status, all accrued and unpaid interest is charged against interest income. Loans on nonaccrual status do not earn any interest. The following table summarizes the changes in interest income and interest expense attributable to changes in interest rates and changes in the volume of interest earning assets and interest bearing liabilities for the period indicated: 9 10
Year Ended December 31, ------------------------------------------------------------------------------------------------ 2000 versus 1999 1999 versus 1998 1998 versus 1997 --------------------------- --------------------------- ----------------------------- Changes due to Changes due to Changes due to increased (decreased) increased (decreased) increased (decreased) --------------------------- --------------------------- ----------------------------- (Dollars in Thousands) Rate Volume Total Rate Volume Total Rate Volume Total --------------------------- --------------------------- ----------------------------- Interest Income ------------------------------ Investments US Treas Secs & Obligations of US Gov't Agencies 732 2,018 2,750 483 3,697 4,180 (228) (2,717) (2,945) Obligations of States & Political Subdivisions 140 (1,096) (956) (294) 877 583 (293) 551 258 Other Securities 1,723 3,368 5,091 (67) 131 64 (556) 2,607 2,051 --------------------------- --------------------------- ----------------------------- Total Investments 2,595 4,290 6,885 122 4,705 4,827 (1,077) 441 (636) --------------------------- --------------------------- ----------------------------- Loans Commercial 3,095 2,902 5,997 (1,989) 2,791 802 (1,107) 6,486 5,379 Mortgage (74) 1,519 1,445 (272) (575) (847) (6) 330 324 Consumer (64) 2,027 1,963 (247) 1,125 878 (16) 509 493 --------------------------- --------------------------- ----------------------------- Total Loans 2,957 6,448 9,405 (2,508) 3,341 833 (1,129) 7,325 6,196 Federal Funds Sold 72 29 101 (19) (228) (247) (8) 262 254 --------------------------- --------------------------- ----------------------------- Total Interest Income 5,624 10,767 16,391 (2,405) 7,818 5,413 (2,214) 8,028 5,814 Interest Expense ------------------------------ Savings Accounts (608) 67 (541) (58) 347 289 (8) 125 117 NOW Accounts (21) 26 5 3 155 158 1 30 31 Money Market Deposits 675 (797) (122) (27) 500 473 263 1,273 1,536 Certificates of Deposit 3,083 283 3,366 (1,370) 3,190 1,820 (149) 1,213 1,064 Federal Funds Purchased 47 (24) 23 7 260 267 (2) (93) (95) FHLB Advances 182 8,478 8,660 1,044 0 1,044 0 0 0 --------------------------- --------------------------- ----------------------------- Total Interest Expense 3,358 8,033 11,391 (401) 4,452 4,051 105 2,548 2,653 --------------------------- --------------------------- ----------------------------- Net Interest Income 2,266 2,734 5,000 (2,004) 3,366 1,362 (2,319) 5,480 3,161 =========================== =========================== =============================
Due to a variety of reasons, including volatile interest rates in the past and successful bidding in securing local municipal deposits, we have attempted, for the last several years, to maintain a liquid investment position. Although the percentage of securities held as Available for Sale decreased from 31% as of December 31, 1999 to 26% as of December 31, 2000, we were able to maintain liquidity by investing in shorter-term securities. As reflected in Note 4 to the consolidated financial statements, the percentage of securities that mature within five years increased from 31% as of December 31, 1999 to 37% as of December 31, 2000. The table below presents the scheduled maturities for each of the investment categories, and the average yield on the amounts maturing. The yields presented for the Obligations of States and Political Subdivisions are not tax equivalent yields. The interest income on these securities is 10 11 exempt from federal income tax. The Corporation's marginal federal income tax rate is thirty-five percent.
Maturing --------------------------------------------------------------------------------------------------------------------------------- Within 1 year 1 - 5 years 5 - 10 Years Over 10 Years ----------------- ------------------ ------------------ ------------------ Amount Yield Amount Yield Amount Yield Amount Yield ----------------- ------------------ ------------------ ------------------ (Dollars in Thousands) ---------------------- US Treas Secs & Obligations of US Gov't Agencies $ - 0.00% $ 11,978 6.30% $ 50,619 7.52% $ 96,383 6.77% Obligations of States & Political Subdivisions 15,454 5.06% 36,114 5.47% 56,279 5.46% 24,159 5.28% Other Securities 51,225 7.82% 54,560 6.92% 43,357 7.58% - 0.00% ----------------- ------------------ ------------------ ------------------ Total $66,679 7.18% $102,652 6.34% $150,255 6.77% $120,542 6.47% ================= ================== ================== ================== Maturing ------------------------------------------------------------------------------- Non-Maturing Total ----------------- ------------------ Amount Yield Amount Yield ----------------- ------------------ (Dollars in Thousands) ---------------------- US Treas Secs & Obligations of US Gov't Agencies $ - 0.00% $158,980 6.97% Obligations of States & Political Subdivisions - 0.00% 132,006 4.42% Other Securities 12,277 8.03% 161,419 7.47% ----------------- ------------------ Total $12,277 8.03% $452,405 6.40% ================= ==================
Our loan policies also reflect our awareness for liquidity. We have shortened the average terms for most of our loan portfolios, in particular real estate mortgages, the majority of which are normally written for five years or less. Additionally, we increased our capacity to borrow Federal funds from our correspondent banks in 1999 and we increased our borrowing capacity with the Federal Home Loan Bank of Indianapolis. This provides additional liquidity without incurring the opportunity cost associated with holding short maturity investments. The following table shows the maturities or repricing opportunities (whichever is earlier) for the Bank's interest earning assets and interest bearing liabilities at December 31, 2000. The repricing assumptions shown are consistent with those established by the Bank's Asset/Liability Management Committee (ALCO). Savings accounts and regular NOW accounts are non-maturing, variable rate deposits, which may reprice as often as weekly, but are not included in the zero to six month category because in actual practice, these deposits are only repriced if there is a large change in market interest rates. Super NOW accounts and Money Market deposits are also non-maturing, variable rate deposits, however, these accounts are included in the zero to six month category because they may get repriced following smaller changes in market rates. 11 12
Assets/Liabilities at December 31, 2000, Maturing or Repricing in: ----------------------------------------------------------------------------- 0 - 6 6 - 12 1 - 2 2 - 5 Over 5 Total (Dollars in Thousands) Months Months Years Years Years Amount --------------------- -------- -------- ------- ------- ------- --------- Interest Earning Assets ------------------------------------ US Treas Secs & Obligations of US Gov't Agencies 35,536 13,696 4,417 9,050 96,281 158,980 Obligations of States & Political Subdivisions 17,708 5,576 14,506 51,034 43,182 132,006 Other Securities 63,502 - 5,000 52,933 39,984 161,419 Commercial Loans 192,417 43,014 61,753 168,165 19,762 485,111 Mortgage Loans 15,467 16,265 36,347 104,594 22,411 195,084 Consumer Loans 31,271 14,765 26,918 49,967 8,398 131,319 Federal Funds Sold 30,000 - - - - 30,000 -------- -------- ------- ------- ------- --------- Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919 -------- -------- ------- ------- ------- --------- Interest Bearing Liabilities ------------------------------------ Interest Bearing Demand Deposits 47,589 - - - - 47,589 Savings Deposits 213,995 - - - - 213,995 Other Time Deposits 259,857 122,779 61,225 24,267 - 468,128 FHLB Advances - - - - 225,000 225,000 -------- -------- ------- ------- ------- --------- Total Interest Bearing Liabilities 521,441 122,779 61,225 24,267 225,000 954,712 -------- -------- ------- ------- ------- --------- Gap (135,540) (29,463) 87,716 411,476 5,018 339,207 Cumulative Gap (135,540) (165,003) (77,287) 334,189 339,207 339,207 Sensitivity Ratio 0.74 0.76 2.43 17.96 1.02 1.36 Cumulative Sensitivity Ratio 0.74 0.74 0.89 1.46 1.36 1.36
If savings and regular NOW accounts were included in the zero to six months category, the Bank's gap would be as shown in the following table:
Assets/Liabilities at December 31, 2000, Maturing or Repricing in: --------------------------------------------------------------------------------- 0-6 6-12 1-2 2-5 Over 5 Months Months Years Years Years Total -------- -------- -------- ------- ------- --------- Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919 Total Interest Bearing Liabilities 653,937 122,779 61,225 24,267 225,000 1,087,208 -------- -------- -------- ------- ------- --------- Gap (268,036) (29,463) 87,716 411,476 5,018 206,711 Cumulative Gap (268,036) (297,499) (209,783) 201,693 206,711 206,711 Sensitivity Ratio 0.59 0.76 2.43 17.96 1.02 1.19 Cumulative Sensitivity Ratio 0.59 0.62 0.75 1.23 1.19 1.19
The amount of loans due after one year with floating interest rates is $222,709,000. 12 13 The following table shows the remaining maturity for Certificates of Deposit with balances of $100,000 or more:
Year Ended December 31, ---------------------------------------------- (Dollars in Thousands) 2000 1999 1998 --------------------- ------- ------- ------- Maturing Within 3 Months 135,807 150,870 130,279 3 - 6 Months 41,163 28,285 25,385 6 - 12 Months 29,970 13,721 20,600 Over 12 Months 14,481 14,015 15,992 ------- ------- ------- Total 221,421 206,891 192,256 ======= ======= =======
For 2001, we expect interest rates to decrease through the first half of the year. We anticipate that the falling rates will have the desired effect of preventing a recession in the national economy. However, we expect our region to experience lower growth than the national economy as the manufacturing sector, particularly automotive related, may be weaker than other sectors. This may translate into slower local loan demand and lower deposit growth. As a result of the decreasing interest rates and the slower loan growth mentioned above, we expect a small increase in Net Interest Income. Due to the weakening in the economy, we expect to incur an increase in the Provision for Loan Losses in order to maintain an adequate Allowance for Loan Losses. Anticipating no significant changes in non-interest income and non-interest expenses, we expect very little change in Net Income. The following is an analysis of the transactions in the allowance for loan losses:
Year Ended December 31, (Dollars in Thousands) 2000 1999 1998 1997 1996 --------------------- ------ ------ ------ ------ ------ Balance Beginning of Period 9,900 11,100 10,200 9,400 8,500 Loans Charged Off Domestic Commercial, Financial, and Agricultural 7,035 10,599 3,213 1,101 1,977 Real Estate - Construction - - - - - Real Estate - Mortgage - 174 - 222 - Installment Loans to Individuals 1,091 783 665 432 539 Lease Financing - - - - - Recoveries Domestic Commercial, Financial, and Agricultural 2,138 802 1,372 281 781 Real Estate - Construction - - - - - Real Estate - Mortgage - - - - 201 Installment Loans to Individuals 390 166 188 108 119 Lease Financing - - - - - ------ ------ ------ ------ ----- Net Loans Charged Off 5,598 10,588 2,318 1,366 1,415 Additions Charged to Operations 6,298 9,388 3,218 2,166 2,315 ------ ------ ------ ------ ----- Balance End of Period 10,600 9,900 11,100 10,200 9,400 ====== ====== ====== ====== ===== Ratio of Net Loans Charged Off to Average Total Loans Outstanding 0.73% 1.52% 0.35% 0.23% 0.28% ====== ====== ====== ====== =====
13 14 The following is an analysis of the balances in the allowance for loan losses:
Year Ended December 31, ------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------ ------------------------ ------------------------- $ % of loans $ % of loans $ % of loans (Dollars in Thousands) Amount to total loans Amount to total loans Amount to total loans ---------------------- ------------------------ ------------------------ ------------------------- Balance at end of period applicable to: Domestic Commercial, Financial, and Agricultural 4,426 19.0% 6,059 22.6% 5,731 25.6% Real Estate - Construction 185 4.5% 57 3.5% 96 3.9% Real Estate - Mortgage 5,172 62.8% 3,429 58.6% 4,433 56.7% Installment Loans to Individuals 817 13.7% 355 15.3% 840 13.8% Lease Financing - 0.0% - 0.0% - 0.0% Foreign - 0.0% - 0.0% - 0.0% ------------------ ------------------ ------------------ Total 10,600 100.0% 9,900 100.0% 11,100 100.0% =================== ================== ================== Year Ended December 31, ------------------------------------------------------ 1997 1996 ------------------------ ------------------------ $ % of loans $ % of loans (Dollars in Thousands) Amount to total loans Amount to total loans ---------------------- ------------------------ ------------------------ Balance at end of period applicable to: Domestic Commercial, Financial, and Agricultural 2,662 23.3% 3,322 25.7% Real Estate - Construction 90 3.4% 79 2.3% Real Estate - Mortgage 6,866 59.6% 4,942 59.0% Installment Loans to Individuals 582 13.7% 1,057 13.0% Lease Financing - 0.0% - 0.0% Foreign - 0.0% - 0.0% ------------------- ----------------- Total 10,200 100.0% 9,400 100.0% ==================== =================
Each period the provision for loan losses in the income statement results from the combination of an estimate by Management of loan losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods. To serve as a basis for making this provision, the Bank maintains an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank's customers, the payment performance of individual large loans and pools of homogeneous small loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific large loan relationships. For large loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the Bank's recorded investment in the loan to the present value of expected cash flows discounted at the loan's effective interest rate, the fair value of the collateral, or the loan's observable market price. Year-end nonperforming assets, which include nonaccrual loans and securities, and other real estate owned, increased $1,070,562, or 5.5% from 1999 to 2000. Nonperforming assets as a percent of total loans at year-end decreased from 2.7% in 1999 to 2.5% in 2000. The Allowance for Loan Losses as a percent of nonperforming assets at year-end increased from 51.3% in 1999 to 52.0% in 2000. The provision for loan losses increases the allowance for loan losses, a valuation account which is netted against loans on the consolidated statements of condition. As the specific customer and amount of a loan loss is confirmed by gathering additional information, taking collateral in full or partial settlement of the loan, bankruptcy of the borrower, etc., the loan is charged off, reducing the allowance for loan losses. If, subsequent to a charge off, the Bank is able to collect additional amounts from the customer or obtain control of collateral worth more than earlier estimated, a recovery is recorded. Prior to January 1, 2000, the Bank assessed its Information Technology (IT) systems, including hardware and software, to ensure that the century date change would not lead to problems such as system failures or erroneous results in calculations involving dates. Management also conferred with its third party vendors and customers to assess their Y2K readiness and tested non-IT systems. To date, there have not been any significant problems affecting the Bank or any of its customers or vendors. Item 7A. 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/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 (gap analysis, as shown in Item 7), by simulating operating results under varying interest rate scenarios, and by estimating the change in the net present value of the Bank's assets and liabilities due to interest rate changes. 14 15 Each month, the Asset/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 Bank's net interest income to changes in interest rates is measured by using a computer based simulation model to estimate the impact on earnings of a gradual increase or decrease of 100 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 table below summarizes the net interest income sensitivity as of December 31, 2000.
Base Rising Falling (Dollars in Thousands) Projection Rates Rates ---------------------- ---------- ------- ------- Year-End 2000 12 Month Projection --------------------------------- Interest Income 104,635 106,667 102,471 Interest Expense 53,190 54,952 50,620 -------- ------- ------- Net Interest Income 51,445 51,715 51,851 Percent Change From Base Projection 0.5% 0.8% ALCO Policy Limit (+/-) 5.0% 5.0% Base Rising Falling (Dollars in Thousands) Projection Rates Rates ---------------------- ---------- ------- ------- Year-End 1999 12 Month Projection --------------------------------- Interest Income 93,254 95,629 91,630 Interest Expense 43,367 44,346 42,757 -------- ------- ------- Net Interest Income 49,887 51,283 48,873 Percent Change From Base Projection 2.8% -2.0% ALCO Policy Limit (+/-) 5.0% 5.0%
The Bank's Asset/Liability Committee has established limits in the acceptable amount of interest rate risk, as measured by the change in the Bank's projected net interest income, in its policy. Throughout 2000, the estimated variability of the net interest income was within the Bank's established policy limits. The ALCO also monitors interest rate risk by estimating the effect of changes in interest rates on the economic value of the Bank's equity each month. The actual economic value of the Bank's equity is first determined by subtracting the fair value of the Bank's liabilities from the fair value of the Bank's 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 increases or decreases of 100 and 200 basis points in the prime lending rate. 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 Management's expectations of the effect of the 15 16 rate shock on the market for loans and deposits. The table below summarizes the amount of interest rate risk to the fair value of the Bank's assets and liabilities and to the economic value of the Bank's equity.
Fair Value at December 31, 2000 ------------------------------------------------------------------------------------ Rates ------------------------------------------------------------------------------------ (Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2% ---------------------- ------------------------------------------------------------------------------------ Assets 1,383,278 1,350,927 1,320,574 1,415,890 1,447,662 Liabilities 1,178,879 1,164,603 1,150,647 1,193,475 1,208,405 ------------------------------------------------------------------------------------ Stockholders' Equity 204,399 186,324 169,927 222,415 239,257 Change in Equity -8.8% -16.9% 8.8% 17.1% ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0% Fair Value at December 31, 1999 ------------------------------------------------------------------------------------ Rates ------------------------------------------------------------------------------------ (Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2% ---------------------- ------------------------------------------------------------------------------------ Assets 1,204,367 1,178,232 1,153,282 1,231,029 1,256,946 Liabilities 1,069,491 1,057,902 1,046,579 1,081,352 1,093,486 ------------------------------------------------------------------------------------ Stockholders' Equity 134,876 120,330 106,703 149,677 163,460 Change in Equity -10.8% -20.9% 11.0% 21.2% ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
The Bank's Asset/Liability Committee has established limits in the acceptable amount of interest rate risk, as measured by the change in economic value of the Bank's equity, in its policy. Throughout 2000, the estimated variability of the economic value of equity was within the Bank's established policy limits. Item 8. Financial Statements and Supplementary Data Financial Statements and Supplementary Data See Pages 17 - 36 16 17 Report of Independent Public Accountants To the Stockholders and Board of Directors, MBT FINANCIAL CORP.: We have audited the accompanying consolidated statements of condition of MBT FINANCIAL CORP. (a Michigan corporation) as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows, and changes in stockholders' equity for each of the three years in the period ended December 31, 2000. These consolidated financial statements and the schedules referred to below are the responsibility of the Bank's Management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MBT FINANCIAL CORP. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules on pages 53 through 55 are presented for purposes of complying with the rules and regulations of the Securities and Exchange Commission and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Detroit, Michigan, January 16, 2001. CONSOLIDATED STATEMENTS OF CONDITION 17 18
DECEMBER 31, 2000 1999 ------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks (Note 7) $ 39,540,039 $ 27,129,665 Federal funds sold 30,000,000 10,700,000 Investment securities (Notes 1, 4, and 5)- Held to maturity- Obligations of U.S. Government agencies (Market value of $143,619,761 and $141,169,675) 145,789,314 150,399,055 Obligations of states and political subdivisions (Market value of $134,663,547 and $152,505,653) 132,006,403 152,790,883 Other securities (Market value of $56,164,298 and $8,845,103) 56,188,317 8,955,703 Available for sale- Obligations of U.S. Government agencies 13,190,799 33,482,440 Obligations of states and political subdivisions - 7,156,929 Other securities 105,230,516 96,794,073 Loans (Notes 2 and 5) 812,122,817 703,381,905 Allowance for loan losses (Note 3) (10,600,000) (9,900,000) Bank premises and equipment (Note 1) 13,689,558 11,761,277 Other real estate owned (Note 1) 2,672,624 2,513,491 Interest receivable and other assets (Notes 6 and 15) 39,555,791 21,311,162 ------------------------------------------------------------------------------------------------------------ Total assets $1,379,386,178 $1,216,476,583 ============================================================================================================ LIABILITIES Non-interest bearing demand deposits $ 132,388,525 $ 128,816,650 Interest bearing demand deposits 64,747,991 65,226,636 Savings deposits 329,331,534 319,966,245 Other time deposits (Notes 5 and 10) 468,128,395 430,066,684 ------------------------------------------------------------------------------------------------------------ Total deposits (Note 10) $ 994,596,445 $ 944,076,215 Federal Home Loan Bank advances (Note 5) 225,000,000 125,000,000 Interest payable and other liabilities (Note 9) 8,834,770 7,752,876 ------------------------------------------------------------------------------------------------------------ Total liabilities $1,228,431,215 $1,076,829,091 ------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Cumulative preferred stock ($100 par value; 4 1/2% non-voting; authorized and outstanding - 2,000 shares as of December 31, 1999) (Note 8) $ - $ 200,000 Common stock (no par value; 30,000,000 shares authorized, 20,000,000 shares outstanding) (Note 8) - - Surplus (Note 8) 62,500,000 62,500,000 Undivided profits (Note 8) 92,084,279 78,315,956 Net unrealized losses on securities available for sale (Note 4) (3,629,316) (1,368,464) ------------------------------------------------------------------------------------------------------------ Total stockholders' equity (Note 11) $ 150,954,963 $ 139,647,492 ------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $1,379,386,178 $1,216,476,583 ============================================================================================================
The accompanying notes are an integral part of these statements. 18 19 CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $70,643,404 $61,238,028 $60,405,254 Interest on investment securities- U.S. Treasury securities - - 279,051 Obligations of U.S. Government agencies 12,169,347 9,419,491 4,960,159 Obligations of states and political subdivisions 7,301,903 8,258,158 7,675,082 Other securities 9,144,849 4,053,742 3,989,862 Interest on Federal funds sold 310,161 209,462 456,867 ------------------------------------------------------------------------------------------------------- Total interest income $99,569,664 $83,178,881 $77,766,275 ------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits (Note 10) $39,651,368 $36,943,501 $34,203,473 Interest on borrowed funds 10,029,624 1,346,920 - ------------------------------------------------------------------------------------------------------- Total interest expense $49,680,992 $38,290,421 $34,203,473 ------------------------------------------------------------------------------------------------------- NET INTEREST INCOME $49,888,672 $44,888,460 $43,562,802 PROVISION FOR LOAN LOSSES (Note 3) 6,298,461 9,388,041 3,217,544 ------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $43,590,211 $35,500,419 $40,345,258 ------------------------------------------------------------------------------------------------------- OTHER INCOME Income from trust services $ 3,908,510 $ 3,252,875 $ 3,740,267 Service charges on deposit accounts 2,142,901 1,849,863 1,788,860 Security gains 18,237 17,670 181,007 Other (Note 15) 2,639,054 1,799,608 1,254,848 ------------------------------------------------------------------------------------------------------- Total other income $ 8,708,702 $ 6,920,016 $ 6,964,982 ------------------------------------------------------------------------------------------------------- OTHER EXPENSES Salaries and employee benefits (Note 9) $12,155,915 $10,719,634 $17,047,731 Occupancy expense 2,176,110 1,929,017 1,773,623 Other 8,762,181 7,495,090 6,626,417 ------------------------------------------------------------------------------------------------------- Total other expenses $23,094,206 $20,143,741 $25,447,771 ------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES $29,204,707 $22,276,694 $21,862,469 PROVISION FOR INCOME TAXES (NOTE 6) 8,031,184 5,207,362 5,301,810 ------------------------------------------------------------------------------------------------------- Net Income $21,173,523 $17,069,332 $16,560,659 ------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (Note 1) $18,912,671 $15,639,241 $16,790,186 ------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE (after deducting preferred stock dividends) (Notes 8 and 12) $ 1.06 $ 0.85 $ 0.83 ------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE (Note 12) $ 1.06 $ 0.85 $ 0.83 -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 19 20 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Interest and fees received $ 99,953,089 $ 80,142,949 $ 76,992,619 Other income received 8,690,464 6,902,346 6,783,974 Miscellaneous payments (3,696,094) (55,985) (156,748) Interest paid (49,222,123) (37,828,114) (34,073,156) Cash paid to employees and others (34,184,043) (36,945,784) (16,335,612) Income taxes paid (6,738,000) (1,138,785) (8,267,617) ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460 ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Proceeds from maturities of investment securities held to maturity $ 113,817,025 $ 473,624,059 $ 557,617,089 Proceeds from maturities of investment securities available for sale 15,498,313 5,112,100 26,054,609 Proceeds from sales of investment securities available for sale 22,698,308 - - Net increase in loans (116,259,518) (25,106,838) (64,817,273) Proceeds from sales of other real estate owned 1,341,237 2,550,915 910,891 Proceeds from sales of other assets 11,000 - 7,500 Purchase of investment securities held to maturity (135,994,735) (501,530,247) (644,603,616) Purchase of investment securities available for sale (22,586,160) (98,582,395) (9,000,000) Purchase of bank premises and equipment (3,733,419) (3,832,992) (1,617,231) ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities $(125,207,949) $(147,765,398) $(135,448,031) ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Net increase in demand, interest bearing demand, and savings deposits $ 12,458,519 $ 2,783,201 $ 86,389,043 Net increase in other time deposits 38,061,711 24,248,138 28,590,818 Net decrease in Federal funds purchased - (2,000,000) - Net increase in Federal Home Loan Bank advances 100,000,000 125,000,000 - Redemption of preferred stock (200,000) - - Dividends paid (8,205,200) (6,609,000) (5,409,000) ---------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 142,115,030 $ 143,422,339 $ 109,570,861 ---------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 31,710,374 $ 6,733,568 $ (933,710) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 1) 37,829,665 31,096,097 32,029,807 ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 69,540,039 $ 37,829,665 $ 31,096,097 ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 20 21 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 1999 1998 -------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,173,523 $ 17,069,332 $ 16,560,659 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,805,138 1,422,238 1,197,618 Provision for loan losses 6,298,461 9,388,041 3,217,544 (Increase) decrease in net deferred Federal income tax asset (1,519,014) 4,778,545 (2,742,344) Amortization of investment premium and discount 280,986 435,995 (148,808) Net increase (decrease) in interest payable and other liabilities 1,081,894 (17,253,493) 8,289,534 Net increase in interest receivable and other assets (16,725,615) (4,965,123) (846,135) Net increase in deferred loan fees 358,300 46,714 3,899 Other 2,049,620 154,378 (588,507) -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460 -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Transfer of loans to other real estate owned $ 1,500,370 $ 2,094,007 $ 3,069,290 -------------------------------------------------------------------------------------------------------------------------------- Transfer of loans to other assets $ 61,475 $ 2,000 $ - --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 21 22 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Other Total Preferred Common Undivided Comprehensive Stockholders' Stock Stock Surplus Profits Income (Loss) Equity ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1998 $ 200,000 $ - $ 31,250,000 $ 88,953,965 $ (167,900) $ 120,236,065 Add (Deduct) Net income for the year 16,560,659 16,560,659 Transfer of undivided profits to surplus (Note 8) 31,250,000 (31,250,000) - Net unrealized gains on securities available for sale, net of tax (Note 4) 229,527 229,527 Dividends declared- Preferred ($4.50 per share) (9,000) (9,000) Common ($.29 per share*) (5,800,000) (5,800,000) ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1998 $ 200,000 $ - $ 62,500,000 $ 68,455,624 $ 61,627 $ 131,217,251 Add (Deduct) Net income for the year 17,069,332 17,069,332 Net unrealized losses on securities available for sale, net of tax (Note 4) (1,430,091) (1,430,091) Dividends declared- Preferred ($4.50 per share) (9,000) (9,000) Common ($.36 per share*) (7,200,000) (7,200,000) ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1999 $ 200,000 $ - $ 62,500,000 $ 78,315,956 $ (1,368,464) $ 139,647,492 Add (Deduct) Net income for the year 21,173,523 21,173,523 Net unrealized losses on securities available for sale, net of tax (Note 4) (2,260,852) (2,260,852) Redemption of preferred stock (Note 8) (200,000) (200,000) Dividends declared- Preferred ($2.60 per share) (5,200) (5,200) Common ($.37 per share*) (7,400,000) (7,400,000) ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 2000 $ - $ - $ 62,500,000 $ 92,084,279 $ (3,629,316) $ 150,954,963 -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of MBT Financial Corp. (the "Corporation") and its subsidiary, Monroe Bank & Trust (the "Bank"). The Bank operates twenty-one offices in Monroe County, Michigan and one office in Wayne County, Michigan. The Bank's primary source of revenue is from providing loans to customers, who are predominantly small and middle-market businesses and middle-income individuals. At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust, shareholders approved a proposal that resulted in the Bank reorganizing into a one-bank holding company. The holding company formation involved merging Monroe Bank & Trust with Monroe Interim Bank, a state chartered bank organized solely for the purpose of this transaction. The merger of Monroe Bank & Trust and Monroe Interim Bank, a combination of entities under common control, was treated in a manner similar to a pooling of interests. The financial information for all prior periods was restated in the consolidated financial statements for MBT Financial Corp. to present the statements as if the merger had been in effect for all periods presented. The reorganization resulted in an exchange of the Monroe Bank & Trust common stock for MBT Financial Corp. common stock. The exchange rate was two shares of MBT Financial Corp. for each share of Monroe Bank & Trust. Monroe Bank & Trust previously had 10,000,000 common shares authorized and outstanding, with a par value of $3.125 per share. MBT Financial Corp. has 30,000,000 shares authorized, of which 20,000,000 are outstanding. The MBT Financial Corp. common stock has no par value. Monroe Bank & Trust is now a wholly owned subsidiary of MBT Financial Corp., a registered bank holding company. The 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. The significant accounting policies are as follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Corporation and its subsidiary. All material intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. INVESTMENT SECURITIES Investment securities that are "held to maturity" are stated at cost, adjusted for accumulated amortization of premium and accretion of discount. The Bank has the intention and, in Management's opinion, the ability to hold these investment securities until maturity. Investment securities that are "available for sale" are stated at estimated market value, with the related unrealized gains and losses reported as an amount, net of taxes, as a separate component of stockholders' equity. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost, less accumulated depreciation of $16,510,468 in 2000 and $14,705,330 in 1999. The Bank uses both straight-line and declining-balance methods to provide for depreciation, which is charged to operations over the estimated useful lives of the assets. Depreciation expense amounted to $1,805,138 in 2000, $1,422,238 in 1999, and $1,197,618 in 1998. Expenditures for maintenance and repairs are charged to operations as incurred. The cost of assets retired and the related accumulated depreciation are eliminated from the accounts and the resulting gains or losses are reflected in operations in the year the assets are retired. OTHER REAL ESTATE OWNED 23 24 Other real estate owned is carried at the lesser of 80% of the appraised value of the property or the principal balance of the loan at the time of foreclosure. COMPREHENSIVE INCOME Comprehensive Income is comprised of Net Income and Other Comprehensive Income, which consists of the change in net unrealized gains (losses) on securities available for sale, net of tax. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, time deposits with other banks with maturities of less than three months, and Federal funds sold. (2) LOANS The Bank grants commercial, consumer, and mortgage loans primarily to customers in Monroe County, Michigan and surrounding areas. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on the automotive, manufacturing, and real estate development economic sectors. Loans at December 31 consist of the following:
2000 1999 ------------------------------------------------------------------------------------------------- Real estate loans $ 547,285,414 $ 437,867,480 Loans to finance agricultural production and other loans to farmers 2,831,759 2,086,851 Commercial and industrial loans 151,734,230 157,381,730 Loans to individuals for household, family, and other personal expenditures 111,504,134 107,411,553 All other loans (including overdrafts) 609,274 117,985 ------------------------------------------------------------------------------------------------- Total loans, gross $ 813,964,811 $ 704,865,599 Less: Deferred loan fees 1,841,994 1,483,694 ------------------------------------------------------------------------------------------------- Total loans, net of deferred loan fees $ 812,122,817 $ 703,381,905 Less: Allowance for loan losses 10,600,000 9,900,000 ------------------------------------------------------------------------------------------------- $ 801,522,817 $ 693,481,905 -------------------------------------------------------------------------------------------------
Loans are placed in a nonaccrual status when, in the opinion of Management, the collection of additional interest is doubtful. Loans in a nonaccrual status amounted to $17,161,449 and $16,791,776 at December 31, 2000 and 1999, respectively. In the opinion of Management, all impaired loans are in nonaccrual status. Allowances for these loans are included in the allowance for loan losses. All cash received on nonaccrual loans is applied to the principal balance. Included in loans are loans to certain officers, directors, and companies in which such officers and directors have 10 percent or more beneficial ownership in the aggregate amount of $24,448,451 and $17,112,941 at December 31, 2000 and 1999, respectively. In 2000, new loans and other additions amounted to $14,234,463, and repayments and other reductions amounted to $6,898,953. In Management's judgment, these loans were made on substantially the same terms and conditions as those made to other borrowers, and do not represent more than the normal risk of collectibility or present other unfavorable features. 24 25 (3) ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses was as follows:
2000 1999 1998 ----------------------------------------------------------------------------------------- Balance beginning of year $ 9,900,000 $ 11,100,000 $ 10,200,000 Provision for loan losses 6,298,461 9,388,041 3,217,544 Loans charged off (8,126,386) (11,556,352) (3,877,526) Recoveries 2,527,925 968,311 1,559,982 ----------------------------------------------------------------------------------------- Balance end of year $ 10,600,000 $ 9,900,000 $ 11,100,000 -----------------------------------------------------------------------------------------
Each period the provision for loan losses in the income statement results from the combination of an estimate by Management of loan losses that occurred during the current period and the ongoing adjustment of prior estimates of losses occurring in prior periods. To serve as a basis for making this provision, the Bank maintains an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank's customers, the payment performance of individual large loans and pools of homogeneous small loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific large loan relationships. For large loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the Bank's recorded investment in the loan to the present value of expected cash flows discounted at the loan's effective interest rate, the fair value of the collateral, or the loan's observable market price. The provision for loan losses increases the allowance for loan losses, a valuation account which is netted against loans on the consolidated statements of condition. As the specific customer and amount of a loan loss is confirmed by gathering additional information, taking collateral in full or partial settlement of the loan, bankruptcy of the borrower, etc., the loan is charged off, reducing the allowance for loan losses. If, subsequent to a charge off, the Bank is able to collect additional amounts from the customer or obtain control of collateral worth more than earlier estimated, a recovery is recorded. (4) INVESTMENT SECURITIES The following is a summary of the Bank's investment securities portfolio as of December 31, 2000 and 1999 (000's omitted):
HELD TO MATURITY DECEMBER 31, 2000 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 145,789 $ 295 $ (2,465) $ 143,619 Obligations of States and Political Subdivisions 132,007 3,265 (608) 134,664 Other Securities 56,188 - (24) 56,164 ------------------------------------------------------------------------------------------------------- $ 333,984 $ 3,560 $ (3,097) $ 334,447 -------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE DECEMBER 31, 2000 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 13,126 $ 102 $ (37) $ 13,191 Other Securities 110,879 1,192 (6,841) 105,230 ------------------------------------------------------------------------------------------------------- $ 124,005 $ 1,294 $ (6,878) $ 118,421 -------------------------------------------------------------------------------------------------------
25 26
HELD TO MATURITY DECEMBER 31, 1999 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 150,399 $ - $ (9,229) $ 141,170 Obligations of States and Political Subdivisions 152,791 1,231 (1,517) 152,505 Other Securities 8,956 7 (118) 8,845 ----------------------------------------------------------------------------------------------------------- $ 312,146 $ 1,238 $ (10,864) $ 302,520 ----------------------------------------------------------------------------------------------------------- AVAILABLE FOR SALE DECEMBER 31, 1999 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 34,088 $ - $ (606) $ 33,482 Obligations of States and Political Subdivisions 6,984 173 - 7,157 Other Securities 98,467 - (1,673) 96,794 ----------------------------------------------------------------------------------------------------------- $ 139,539 $ 173 $ (2,279) $ 137,433 ----------------------------------------------------------------------------------------------------------- HELD TO MATURITY DECEMBER 31, 2000 DECEMBER 31, 1999 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ----------------------------------------------------------------------------------------------------------- Maturing within 1 year $ 66,688 $ 66,657 $ 34,096 $ 34,101 1 to 5 years 39,108 39,886 32,604 33,015 5 to 10 years 108,940 110,905 110,326 109,618 Over 10 years 119,248 116,999 135,120 125,786 $ 333,984 $ 334,447 $ 312,146 $ 302,520 ----------------------------------------------------------------------------------------------------------- AVAILABLE FOR SALE DECEMBER 31, 2000 DECEMBER 31, 1999 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ----------------------------------------------------------------------------------------------------------- Maturing within 1 year $ 9 $ 9 $ 14,508 $ 14,452 1 to 5 years 66,943 63,615 59,220 58,674 5 to 10 years 43,761 41,400 53,674 52,174 Over 10 years 1,042 1,120 1,058 1,061 Securities with no stated maturity 12,250 12,277 11,079 11,072 ----------------------------------------------------------------------------------------------------------- $ 124,005 $ 118,421 $ 139,539 $ 137,433 -----------------------------------------------------------------------------------------------------------
At December 31, 2000, investment securities carried at $66,007,275 were pledged or set aside to secure public deposits and for other purposes as required by law. 26 27 At December 31, 2000, Obligations of States and Political Subdivisions included securities carried at $541,589 that were more than ninety days past due on their interest payments. These securities are in nonaccrual status. The Bank elected early adoption of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", effective April 1, 1999. The provisions of SFAS 133 required the Bank to recognize all derivative instruments as assets or liabilities in its statement of condition and to report them at their fair value. The provisions of SFAS 133 also allowed the Bank to reclassify securities that were classified as Held to Maturity to Available for Sale or Trading. Upon adoption of SFAS 133, the Bank reclassified certain Held to Maturity Obligations of States and Political Subdivisions as Available for Sale Obligations of States and Political Subdivisions. The value of the securities reclassified on April 1, 1999 was $7,990,185. (5) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Certain of the Bank's assets and liabilities which are financial instruments have fair values which differ from their carrying values in the accompanying consolidated statements of condition. 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 are estimated to be equal to their carrying values as of December 31, 2000 and 1999. INVESTMENT SECURITIES Fair value for the Bank's investment securities was determined using the market value at December 31, 2000 and 1999. These Estimated Market Values are disclosed in Note 4. 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. The estimated fair value of loans at December 31, 2000, net of the allowance for loan losses, is $796,811,809, compared to the carrying value of $801,522,817. The estimated fair value of loans at December 31, 1999, net of the allowance for loan losses, was $686,716,607, compared to the carrying value of $693,481,905. 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. The estimated fair value of other time deposits at December 31, 2000 is $466,499,557, compared to the carrying value of $468,128,395. The estimated fair value of other time deposits at December 31, 1999 was $428,520,407, compared to the carrying value of $430,066,684. FEDERAL HOME LOAN BANK ADVANCES The fair value of Federal Home Loan Bank advances is estimated by discounting the related cash flows using the rates at which the Bank would be able to obtain replacement advances for the remaining maturities. The estimated fair value of Federal Home Loan Bank advances at December 31, 2000 is $224,268,617, compared to the carrying value of $225,000,000. The estimated fair value of Federal Home Loan Bank advances at December 31, 1999 was $123,587,003, compared to the carrying value of $125,000,000. 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. 27 28 (6) FEDERAL INCOME TAXES Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Corporation and the Bank file a consolidated Federal income tax return. The provision for Federal income taxes consists of the following:
2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------ Federal income taxes currently payable (refundable) $ 8,332,184 $ (340,438) $ 8,167,610 Provision (credit) for deferred taxes on: Book (over) under tax loan loss provision (245,000) 420,000 (315,000) Accretion of bond discount 164,000 65,000 (27,000) Net deferred loan origination fees (125,000) (16,000) (1,000) Write down of other real estate - - 105,000 Nonaccrual loan interest income (387,000) (196,000) - Accrued postretirement benefits (42,000) (44,000) (42,000) Tax under book depreciation (305,000) (93,000) (54,000) Alternative minimum tax 665,000 (665,000) - Deferred compensation - 6,074,000 (2,526,000) Other (26,000) 2,800 (5,800) ------------------------------------------------------------------------------------------------------------------------------ $ 8,031,184 $ 5,207,362 $ 5,301,810 ------------------------------------------------------------------------------------------------------------------------------
The effective tax rate differs from the statutory rate applicable to corporations as a result of permanent differences between accounting and taxable income as follows:
2000 1999 1998 ------------------------------------------------------------------------------------------------------------- Statutory rate 35.0 % 35.0 % 35.0 % Michigan municipal interest income (2.9) (4.8) (4.4) Non-Michigan municipal interest income (4.4) (6.4) (6.2) Other (0.2) (0.4) (0.2) ------------------------------------------------------------------------------------------------------------- Effective tax rate 27.5 % 23.4 % 24.2 % -------------------------------------------------------------------------------------------------------------
The components of the net deferred Federal income tax asset (included in Interest Receivable and Other Assets on the accompanying consolidated statements of condition) at December 31 are as follows:
2000 1999 ------------------------------------------------------------------------------------------------------------- Deferred Federal income tax assets: Allowance for loan losses $ 3,710,000 $ 3,465,000 Net deferred loan origination fees 644,000 519,000 Bank premises and equipment basis differences 797,000 492,000 Nonaccrual loan interest income 583,000 196,000 Net unrealized losses on securities available for sale 1,954,000 736,000 Accrued postretirement benefits 334,000 292,000 Alternative minimum tax - 665,000 Other 59,000 33,000 ------------------------------------------------------------------------------------------------------------- $ 8,081,000 $ 6,398,000 Deferred Federal income tax liabilities: Accretion of bond discount $ (373,000) $ (209,000) ------------------------------------------------------------------------------------------------------------- $ (373,000) $ (209,000) ------------------------------------------------------------------------------------------------------------- Net deferred Federal income tax asset $ 7,708,000 $ 6,189,000 -------------------------------------------------------------------------------------------------------------
28 29 (7) RESTRICTIONS ON CASH AND DUE FROM BANKS The Bank is required by regulatory agencies to maintain legal reserve requirements based on the level of balances in deposit categories. Cash balances restricted from usage due to these requirements were $12,698,000 and $12,938,000 at December 31, 2000 and 1999, respectively. (8) STOCKHOLDERS' EQUITY On December 21, 2000, the Corporation's Board of Directors authorized the repurchase of up to 2 million shares of MBT Financial Corp. common stock during the two-year period beginning January 2, 2001. On July 1, 2000, the Bank merged with Monroe Interim Bank, becoming a wholly owned subsidiary of the Corporation. The Corporation has 30,000,000 common shares authorized, with no par value. As of December 31, 2000, 20,000,000 were issued and outstanding. On February 29, 2000, the Bank redeemed its preferred stock. Preferred stock consisted of 2,000 shares of $100 par value, non-voting, cumulative preferred stock. The preferred stock was redeemed at its par value, plus accrued dividends. On April 2, 1998, the Bank's Board of Directors approved the transfer of $31,250,000 to capital surplus fom undivided profits. (9) RETIREMENT PLANS In 2000, the Bank implemented a retirement plan that includes both a money purchase pension plan, as well as a voluntary profit sharing 401(k) plan for all employees who meet certain age and length of service eligibility requirements. The Bank contributes an amount equal to four percent of the employee's base salary to all eligible employees of the money purchase plan. For the 401(k) plan, an employee may contribute up to ten percent of his or her base salary, with the Bank matching the contribution up to the first six percent of the employee's annual contribution. Depending on the Bank's profitability, an additional profit sharing contribution may be made by the Bank to the 401(k) plan. The total retirement plan expense was $799,870 for the year ended December 31, 2000. This included a three percent profit sharing contribution for the year. In 1999 and 1998 the Bank had a profit sharing plan for all employees who met certain age and length of service eligibility requirements. An employee could contribute a minimum of six percent, but not more than ten percent of annual base salary, while the Bank`s contribution was fifteen percent of the employee's annual base salary. The expense attributable to the Bank's profit sharing plan was $609,142 in 1999 and $585,470 in 1998. Through October 14, 1998, the Bank maintained a deferred compensation plan for certain key officers under which the officers could defer a portion of their compensation in exchange for certain phantom stock rights. The value of the rights exchanged was equal to the average trading price for the month prior to exchange. The phantom stock rights entitled the holder to receive the benefit of all cash dividends on the common stock as well as the appreciation of that stock. The plan was terminated in October, 1998 upon approval of the Board of Directors. The expense related to the plan was approximately $7,234,000 in 1998. The total liability relating to the plan as of termination was approximately $17,356,000, which was distributed in the first quarter of 1999. The Bank has a postretirement benefit plan that generally provides for the continuation of medical benefits for all employees who retire from the Bank at age 55 or older, upon meeting certain length of service eligibility requirements. The Bank does not fund its postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees. The amount of benefits paid under the postretirement benefit plan was $64,417 in 2000, $58,826 in 1999, and $42,222 in 1998. A reconciliation of the accumulated postretirement benefit obligation ("APBO") to the amounts recorded in the consolidated statements of condition at December 31 is as follows:
2000 1999 ------------------------------------------------------------------------------------------------------------- APBO $ 1,426,448 $ 1,282,700 Unrecognized net transition obligation (643,085) (696,675) Unrecognized prior service costs (51,574) (55,408) Unrecognized net gain 214,373 302,273 ------------------------------------------------------------------------------------------------------------- Liability recorded in the consolidated statements of condition $ 946,162 $ 832,890 -------------------------------------------------------------------------------------------------------------
29 30 The changes recorded in the accumulated postretirement benefit obligation were as follows:
2000 1999 -------------------------------------------------------------------------------- APBO at beginning of year $ 1,282,700 $ 1,363,873 Service cost 38,952 40,722 Interest cost 99,307 89,085 Unrecognized prior service costs -- 55,408 Actuarial (gain) loss 69,906 (207,562) Benefits paid during year (64,417) (58,826) -------------------------------------------------------------------------------- APBO at end of year $ 1,426,448 $ 1,282,700 ================================================================================
Components of the Bank's postretirement benefit expense were as follows:
2000 1999 1998 -------------------------------------------------------------------------------- Service cost $ 38,952 $ 40,722 $ 35,204 Interest cost 99,307 89,085 82,601 Amortization of transition obligation 53,590 53,590 53,590 Prior service costs 3,834 -- -- Amortization of gains (17,994) -- (9,796) -------------------------------------------------------------------------------- Net postretirement benefit expense $ 177,689 $183,397 $ 161,599 ================================================================================
The APBO as of December 31, 2000 and 1999 was calculated using assumed discount rates of 7.50% and 7.75%, respectively. Health care costs were assumed to rise 6.70% in 2001, with the assumed rate of increase decreasing uniformly each year thereafter to a minimum of 5.50% in 2005 and thereafter. To illustrate the significance of these assumptions, a rise in the assumed rate of health care cost increases of 1.00% each year would change the APBO as of December 31, 2000 by 1.31%, or $18,739. (10) DEPOSITS Interest expense on time certificates of deposit of $100,000 or more in the year 2000 amounted to $14,421,190, as compared with $12,411,822 in 1999 and $11,071,564 in 1998. At December 31, 2000, the balance of time certificates of deposit of $100,000 or more was $221,421,310, as compared with $206,890,777 at December 31, 1999. (11) REGULATORY CAPITAL REQUIREMENTS The Corporation and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Corporation's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the accompanying tables) of Total and Tier I capital to risk weighted assets, and of Tier I capital to average assets. As of December 31, 2000, the Corporation's capital ratios exceeded the required minimums to be considered well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Corporation must maintain minimum Total risk based, Tier I risk based, and Tier I leverage ratios as set forth in the tables. There are no conditions or events since 30 31 December 31, 2000 that Management believes have changed the Corporation's category. Management believes, as of December 31, 2000, that the Corporation meets all capital adequacy requirements to which it is subject. The Corporation's actual capital amounts and ratios are also presented in the tables.
AS OF DECEMBER 31, 2000 TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------------------------------------------------------------------------------------------------------------------- Total Capital (to Risk Weighted Assets) $164,730 16.4% > $80,377 > 8.0% > $100,472 > 10.0% - - - - Tier I Capital (to Risk Weighted Assets) $154,118 15.3% > $40,189 > 4.0% > $ 60,283 > 6.0% - - - - Tier I Capital (to Average Assets) $154,118 11.6% > $52,957 > 4.0% > $ 66,197 > 5.0% - - - -
AS OF DECEMBER 31, 1999 TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------------------------------------------------------------------------------------------------------------------- Total Capital (to Risk Weighted Assets) $150,388 17.6% > $68,236 > 8.0% > $ 85,295 > 10.0% - - - - Tier I Capital (to Risk Weighted Assets) $140,288 16.4% > $34,118 > 4.0% > $ 51,177 > 6.0% - - - - Tier I Capital (to Average Assets) $140,288 12.0% > $46,821 > 4.0% > $ 58,526 > 5.0% - - - -
31 32 (12) EARNINGS PER SHARE The calculation of net income per common share for the years ended December 31 is as follows:
2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ BASIC Net income $21,173,523 $17,069,332 $16,560,659 Less preferred dividends 5,200 9,000 9,000 ------------------------------------------------------------------------------------------------------------------------------------ Net income applicable to common stock $21,168,323 $17,060,332 $16,551,659 ------------------------------------------------------------------------------------------------------------------------------------ Average common shares outstanding 20,000,000 20,000,000 20,000,000 ------------------------------------------------------------------------------------------------------------------------------------ Net income per common share - basic $ 1.06 $ 0.85 $ 0.83 ====================================================================================================================================
2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ DILUTED Net income $21,173,523 $17,069,332 $16,560,659 Less preferred dividends 5,200 9,000 9,000 ------------------------------------------------------------------------------------------------------------------------------------ Net income applicable to common stock $21,168,323 $17,060,332 $16,551,659 ------------------------------------------------------------------------------------------------------------------------------------ Average common shares outstanding 20,000,000 20,000,000 20,000,000 Stock option adjustment -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Average common shares outstanding - diluted 20,000,000 20,000,000 20,000,000 ------------------------------------------------------------------------------------------------------------------------------------ Net income per common share - diluted $ 1.06 $ 0.85 $ 0.83 ====================================================================================================================================
On July 1, 2000, the Corporation issued options for 126,600 shares of its common stock to certain key executives of the Bank in accordance with the Long-Term Incentive Compensation Plan that was approved by shareholders at the Annual Meeting of Shareholders on April 6, 2000. The options were granted at the price of $18.125, which was the fair market value of the Corporation's common stock on the date the options were granted. The average market value of the stock during 2000 was $16.81. The options granted as of December 31, 2000 have an anti-dilutive effect on the calculation of earnings per share, and therefore have not been included. (13) STOCK-BASED COMPENSATION PLAN The Long-Term Incentive Compensation Plan approved by shareholders at the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust authorized the Board of Directors to grant nonqualified stock options to key employees of the Bank. Such grants may be made until January 2, 2010 for up to 1,000,000 shares of the Corporation's common stock. The amount that may be awarded to any one individual is limited to 100,000 shares in any one calendar year. Stock options granted under the plan have exercise prices equal to the fair market value at the date of grant. Options granted under the plan may be exercised for a period of no more than ten years from the date of grant. One-third of the options granted in 2000 vest annually, beginning December 31, 2000. The Corporation applies the intrinsic value method of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock plans as allowed under SFAS Statement No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for the stock options granted in 2000 been determined consistent with the fair value method of SFAS No. 123, pro forma net income for the year ended December 31, 2000 would have been $21,082,289, basic earnings per share would have been $1.05, and diluted earnings per share would have been $1.05, compared to the reported net income of $21,173,523, basic earnings per share of $1.06, and diluted earnings per share of $1.06. During the year ended December 31, 2000, options were granted for 126,600 shares with an exercise price of $18.125. No options were exercised, cancelled, or lapsed, leaving options on 126,600 shares 32 33 outstanding at an exercise price of $18.125 as of December 31, 2000. Of the options outstanding, 42,203 were exercisable on December 31, 2000 at a price of $18.125. (14) PARENT COMPANY Condensed parent company financial statements, which include transactions with the subsidiary are as follows: BALANCE SHEET
DECEMBER 31, 2000 --------------------------------------------------------------------------- ASSETS Cash and due from banks $ 2,252,108 Investment in subsidiary bank 150,830,855 --------------------------------------------------------------------------- Total assets $153,082,963 =========================================================================== LIABILITIES Dividends payable and other liabilities $ 2,128,000 --------------------------------------------------------------------------- Total liabilities $ 2,128,000 --------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Total stockholders' equity $150,954,963 --------------------------------------------------------------------------- Total liabilities and stockholders' equity $153,082,963 ===========================================================================
STATEMENT OF INCOME
Year Ended December 31, 2000 --------------------------------------------------------------------------- INCOME Dividends from subsidiary bank $ 8,455,200 --------------------------------------------------------------------------- Total income $ 8,455,200 --------------------------------------------------------------------------- EXPENSE Interest on other borrowed funds $ 3,900 Other expense 193,992 --------------------------------------------------------------------------- Total expense $ 197,892 --------------------------------------------------------------------------- Income before tax and equity in undistributed net income of subsidiary bank $ 8,257,308 Income tax benefit (72,000) --------------------------------------------------------------------------- Income before equity in undistributed net income of subsidiary bank $ 8,329,308 Equity in undistributed net income of subsidiary bank 12,844,215 --------------------------------------------------------------------------- NET INCOME $ 21,173,523 ===========================================================================
33 34 STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000 --------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,173,523 Equity in undistributed net income of subsidiary bank (12,844,215) Net decrease in other liabilities (872,000) Net decrease in other assets 3,000,000 --------------------------------------------------------------------------- Net cash provided by operating activities $ 10,457,308 --------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from short-term borrowings $ 150,000 Repayments of short-term borrowings (150,000) Dividends paid (8,205,200) --------------------------------------------------------------------------- Net cash used for financing activities $ (8,205,200) --------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 2,252,108 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- --------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,252,108 ===========================================================================
Under current regulations, the Bank is limited in the amount it may loan to the Corporation. Loans to the Corporation may not exceed ten percent of the Bank's capital stock, surplus, and undivided profits plus the allowance for loan losses. Loans from the Bank to the Corporation are required to be collateralized. Federal and state banking laws and regulations place certain restrictions on the amount of dividends a bank may make to its parent company. The Bank can pay dividends of $23,504,547 in 2001, in addition to its 2001 net income, without regulatory approval. (15) INTEREST RECEIVABLE AND OTHER ASSETS The Bank includes the cash surrender value of Bank Owned Life Insurance (BOLI) in Interest Receivable and Other Assets on the accompanying consolidated statements of condition. The cash surrender value of the BOLI was $14,222,346 at December 31, 2000. The following is a description of the components of the BOLI. DIRECTOR SPLIT-DOLLAR LIFE INSURANCE On December 21, 2000, the Bank entered into director split-dollar life insurance agreements with each of its ten directors. Under the split-dollar agreement, the policy's interests are divided between the Bank and the director. The Bank owns the cash surrender value, including the accumulated policy earnings, with each director's beneficiaries receiving a fixed amount that is based on his or her years of director service and the Bank receiving the remainder of the death benefits. The Bank fully paid the premiums for these ten policies with one lump sum premium payment in the amount of $4,937,000. The increase in cash surrender value is recorded as "other non-interest income." The Bank expects to recover in full the cash value from the Bank's portion of the policies' death benefits. The directors' death 34 35 benefits are $500,000 for director service of less than 3 years, $600,000 for service up to 5 years, $750,000 for service up to 10 years, and $1,000,000 for director service of 10 years or more. SALARY CONTINUATION AGREEMENT AND LIFE INSURANCE POLICY The Bank entered into a Salary Continuation Agreement with Ronald D. LaBeau, President and Chief Executive Officer of the Bank on December 27, 2000. This agreement provides that the Bank will pay an annual salary continuation benefit of $139,600 to Mr. LaBeau or his designated beneficiaries for 10 years after his retirement on or after reaching the normal retirement age of 65. At the same time it entered into the Salary Continuation Agreement with Mr. LaBeau, the Bank purchased an insurance policy on Mr. LaBeau's life, with a single premium payment of $5,880,000. The Bank expects to recover in full the premium paid by it from the Bank's portion of the policy's death benefits. If Mr. LaBeau dies before age 65 while in active service to the Bank, his beneficiaries will receive life insurance proceeds of $958,837. If he dies after retirement, his beneficiaries will receive any payments to which Mr. LaBeau would have been entitled under the Salary Continuation Agreement, but none of the life insurance proceeds. The contractual entitlements under the Salary Continuation Agreement are not funded. These contractual entitlements remain contractual liabilities of Monroe Bank & Trust, payable upon Mr. LaBeau's termination of employment. The life insurance policy is in addition to the split-dollar insurance policy purchased by the Bank on Mr. LaBeau's life for his service as a director, discussed previously, and the split-dollar insurance policy discussed in "Executive Group Term Carve Out Split-Dollar Life Insurance Agreements" below. EXECUTIVE GROUP TERM CARVE OUT SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS In addition to insurance policies on the lives of the directors and the President and Chief Executive Officer of the Bank, the Bank owns life insurance on the lives of several executives, for which the Bank made a single premium payment of $3,213,421 in the aggregate. The Bank and the executives share rights to death benefits payable under the policies. An executive's beneficiaries are entitled to an amount equal to two times the executive's current annual salary, less $50,000 if he or she dies before retirement, or equal to his or her annual salary at the time of termination of employment if he or she dies after retirement. The Bank will receive the remainder of the death benefits. The Bank expects to recover in full the premium paid by it from the Bank's portion of the policy's death benefits or upon the cancellation or purchase of the policies by the executives. The executives also have life insurance benefits under the Bank's group term life insurance program for all employees, which pays benefits up to $50,000 to the executive's beneficiaries if he or she dies while employed by the Bank. (16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for its other lending activities. 35 36 Financial instruments whose contractual amounts represent off-balance sheet credit risk at December 31 were as follows:
CONTRACTUAL AMOUNT (IN THOUSANDS) 2000 1999 --------------------------------------------------------------------------------------- Commitments to extend credit: Unused portion of commercial lines of credit $110,558 $74,230 Unused portion of credit card lines of credit 31,217 29,115 Unused portion of home equity lines of credit 12,887 11,985 Standby letters of credit and financial guarantees written 16,942 11,834
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Most commercial lines of credit are secured by real estate mortgages or other collateral, generally have fixed expiration dates or other termination clauses, and require payment of a fee. Since the lines of credit may expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. Credit card lines of credit have no established maturity dates, but are payable on demand. Home equity lines of credit are secured by real estate mortgages, have no established maturity dates, but are payable on demand. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of the collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on Management's credit evaluation of the counterparty. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and other business transactions. Approximately $13,564,000 of the letters of credit expires in 2001, with $3,364,000 extending for two to five years, and $14,000 which have no specified expiration date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE 36 37 PART III Item 10. Directors and Executive Officers of the Registrant DIRECTORS OF THE REGISTRANT
PRINCIPAL OCCUPATION, 12/31/00, DIRECTOR, (PREVIOUS 5 YEARS) MONROE BANK & NAME (AGE) & DIRECTORSHIPS TRUST, SINCE ---------- --------------- ------------ Connie S. Cape (50) Health Care Consultant (2000 - present); Vice President 2000 Finance/Chief Financial Officer, Mercy Memorial Hospital (1996 - 2000) Ronald J. Gruber (61) President, MMB Group, Inc., a venture capital company (1998 - 1995 present); Chief Executive Officer & Managing Director, Brandenburg Securities, Ltd., an investment banking firm (1996 - 1997) Thomas M. Huner (51) President, Thomas M. Huner Builders, a home building company 2000 Gerald L. Kiser (54) President and Chief Operating Officer (1997- present), Executive 2000 Vice President and Chief Operating Officer (1997), Vice President - Operations (1996-1997), Vice President of Engineering & Development (1996), La-Z-Boy Inc., a furniture manufacturer; Director, La-Z-Boy Inc. Ronald D. LaBeau (57) President and Chief Executive Officer (1999 - present), 1998 Executive Vice President & Senior Loan Officer (1998), Vice President, Loans & Business Development (1996-1997), Monroe Bank & Trust Rocque E. Lipford (62) Attorney and Partner, Miller, Canfield, Paddock and Stone, 1981 P.L.C.; Director, La-Z-Boy Inc. William D. McIntyre, Jr. (65) President & Chief Executive Officer, Allegra Network, LLC, a 1971 franchisor of printing businesses (2000 - present); President & Chief Executive Officer, American Speedy Printing Centers, Inc., a printing shop franchisor (1996 - 2000) Michael J. Miller (52) Chief Executive Officer, Floral City Beverage, a beer wholesaler 2000 Richard A. Sieb (69) President, Sieb Plumbing & Heating Inc. and President, Nortel 1993 Inc., a recreational bowling establishment Philip P. Swy (47) President, Michigan Tube Swagers & Fabricators, Inc., a 1997 hospitality table and chair manufacturer and marketer
EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE POSITION --------------------------------- --- -------------------------------------------------
37 38 Ronald D. LaBeau 57 President Thomas J. Bruck 55 Secretary Eugene D. Greutman 52 Treasurer
The executive officers of the registrant are all executive officers of the subsidiary bank and are not compensated by the registrant. EXECUTIVE OFFICERS OF THE BANK
NAME AGE POSITION --------------------------------- --- ------------------------------------------------- Ronald D. LaBeau 57 President & Chief Executive Officer Thomas J. Bruck 55 Executive Vice President & Cashier James E. Morr 54 Executive Vice President, Senior Trust Officer & General Counsel Eugene D. Greutman 52 Senior Vice President Finance Herbert J. Lock 54 Senior Vice President & Investment Officer
There is no family relationship between any of the Directors or Executive Officers of the registrant and there is no arrangement or understandings between any of the Directors or Executive Officers and any other person pursuant to which he was selected a Director or Executive Officer nor with any respect to the term which each will serve in the capacities stated previously. The Executive Officers of the Bank are elected to serve for a term of one year at the Board of Directors Annual Organizational Meeting, held in April. Ronald D. LaBeau was President & Chief Executive Officer in 2000 and 1999, Executive Vice President and Senior Loan Officer in 1998 and Vice President, Loans and Business Development in 1997 and 1996. Thomas J. Bruck was Executive Vice President and Cashier in 2000, 1999, and 1998, and Senior Vice President and Cashier in 1997 and 1996. James E. Morr was Executive Vice President, Senior Trust Officer and General Counsel in 2000, 1999, and 1998, and Senior Vice President, Trust Officer and Legal Counsel in 1997 and 1996. Eugene D. Greutman was Senior Vice President Finance in 2000, and Senior Vice President and Controller in 1999, 1998, 1997, and 1996. Herbert J. Lock was Senior Vice President and Investment Officer in 2000 and 1999 and Vice President, Investment and Trust Officer in 1998, 1997, and 1996. 38 39 Item 11. Executive Compensation DIRECTOR COMPENSATION MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors of Monroe Bank & Trust has twelve monthly meetings, an additional organizational meeting in April each year, and other special meetings as required. As of December 31, 2000, Directors other than Mr. LaBeau were paid $750 for each meeting that they attended and a quarterly retainer fee of $1,500. In addition, the members of the following board committees receive the compensation indicated for each meeting attended: Audit Committee, $500 per meeting attended; Compensation Committee, $250 for each meeting attended; Nominating/Governance Committee, $250 per meeting attended; Trust Committee, $500 for each meeting attended; and Loan Review Committee, $500 for each meeting attended. As an employee, Mr. LaBeau does not receive any compensation for his service as a director. DIRECTOR SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS. In December 2000, Monroe Bank & Trust entered into director split-dollar life insurance agreements with each of its 10 directors. Under the split-dollar agreement, the policy interests are divided between the bank and the director. The bank owns the cash surrender value, including the accumulated policy earnings, with each director's beneficiaries receiving a fixed amount that is based on his or her years of director service and the bank receiving the remainder of the death benefits. The bank fully paid the premiums for these ten policies with one lump sum premium payment in the aggregate of $4,937,000. The bank determined that a lump sum premium is the most financially advantageous way to secure coverage because the premium paid is not an expense and the initial cash surrender value equals the premiums paid. Like any whole life insurance policy, the bank-owned life insurance policy contract has a cash surrender value that increases over time. The bank expects to recover in full premiums paid by it and the earnings credited to the cash value from the bank's portion of the policies' death benefits. The directors' death benefits are $500,000 for director service of less than 3 years, $600,000 for service up to 5 years, $750,000 for service up to 10 years, and $1,000,000 for director service of 10 years or more. The director's split-dollar death benefit will be paid directly by the insurance company to the named beneficiary, so the bank has no benefit obligation to the director. Because it is the intention of the bank to hold the bank-owned life insurance until the death of the insureds, the increase of cash surrender value should be tax-free income under current tax law. This compares to the taxable gain that the bank would recognize for assets in traditional taxable investments such as U.S. Treasury or agency securities. The collection of death benefits on the policies, which is likewise currently tax free under current federal and state income taxation, is expected to further enhance the bank's return. The Board believes that the bank-owned life insurance used to fund the director split-dollar plan, the salary continuation agreement for the benefit of the chief executive officer, and the group term carve-out insurance program established for executive officers allows the bank to cost effectively implement compensation programs that serve the vital purpose of attracting, retaining and rewarding valued director and executive officer service. LONG-TERM INCENTIVE COMPENSATION PLAN. Directors are eligible to receive grants of stock options, stock awards and restricted stock under the terms of the Long-Term Incentive Compensation Plan. For 2001, each non-employee director was given the opportunity to exchange all or a portion of his or her quarterly cash retainer for the year for an award of an option to purchase MBT stock under the Long-Term Incentive Compensation Plan, valued using the Black-Scholes stock option pricing model. Each non-employee director elected to receive stock options in place of quarterly cash retainer payments during 2001, with the exception of Mr. Swy, who elected to exchange eighty percent of his quarterly cash retainer payments for stock options. Accordingly, each non-employee director, with the exception of Mr. 39 40 Swy, has been awarded an option to purchase 1,572 common shares at a fair market value exercise price of $13.94 per share, which option vests on December 31, 2001 and has a term expiring January 2, 2011. Mr. Swy has been awarded an option to purchase 1,258 common shares on the same terms. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table summarizes the compensation paid to or earned by the Chief Executive Officer and each of the Bank's four other most highly compensated Executive Officers during the last three fiscal years. This information includes compensation of management by Monroe Bank & Trust. On July 1, 2000, Monroe Bank & Trust was reorganized into a bank holding company structure, with MBT Financial Corp. as the bank holding company for Monroe Bank & Trust. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ------------ ------ SECURITIES ALL OTHER UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($) (A) (B) --------------------------- ---- ---------- --------- ----------- ----------- Ronald D. LaBeau ....................................... 2000 $212,250 $226,564 35,000 $23,700 President and Chief Executive Officer 1999 198,962 136,651 0 21,429 1998 67,454 74,233 0 10,006 Thomas J. Bruck ........................................ 2000 $ 88,000 $ 73,843 19,600 $11,440 Executive Vice President and 1999 75,500 74,252 0 11,325 Cashier 1998 75,285 82,855 0 11,293 James E. Morr .......................................... 2000 $ 88,000 $ 73,843 19,600 $11,440 Executive Vice President, Senior 1999 74,000 72,770 0 11,100 Trust Officer and General Counsel 1998 70,962 78,140 0 10,644 Eugene D. Greutman ..................................... 2000 $ 85,000 $ 71,326 19,600 $11,050 Senior Vice President Finance 1999 72,800 71,637 0 10,920 1998 72,589 79,891 0 10,888 Herbert J. Lock ........................................ 2000 $ 74,000 $ 53,224 17,400 $ 9,620 Senior Vice President and Investment 1999 62,400 51,157 0 9,360 Officer 1998 61,331 59,548 0 9,200
(A) The amounts shown in this column for the most recently completed fiscal year were derived from the following: (1) contributions by Monroe Bank & Trust to the Monroe Bank & Trust 401(k) Plan: Mr. LaBeau, $15,300; Mr. Bruck, $7,920; Mr. Morr, $7,920; Mr. Greutman, $7,650; and Mr. Lock, $6,660; and (2) contributions by Monroe Bank & Trust to the Money Purchase Pension Plan of Monroe Bank & Trust: Mr. LaBeau, $8,400; Mr. Bruck, $3,520; Mr. Morr, $3,520; Mr. Greutman, $3,400; and Mr. Lock, $2,960. (B) In 2000 Monroe Bank & Trust purchased insurance policies on the lives of the named executive officers. Under the terms of the policies, the Bank is responsible for all of the premium costs but obtains a security interest in the insurance proceeds to ensure that the bank is reimbursed when proceeds become payable or when the policy is cancelled or purchased by the executive. Allocation of the proceeds is as follows: the Bank is first reimbursed for premiums paid; the executive then receives the benefits to which he is entitled; and the Bank receives the remainder, if any. The Bank made a single premium payment in the aggregate amount of $1,355,000 for the split dollar policies on the lives of the executive officers named in the Summary Compensation Table above. The insurance premium costs and 40 41 estimated dollar value of the benefits these policies may represent to the named executive officers are not reflected in the Summary Compensation Table. The Bank has purchased two additional separate policies on Mr. LaBeau's life. See, "Director Compensation--Director Split-Dollar Life Insurance Agreements" and "Executive Compensation--Salary Continuation Agreement and Life Insurance Policy" and "Executive Compensation--Executive Group Term Carve-out Split Dollar Life Insurance Agreements." The insurance premium costs and estimated dollar value of the benefits these policies may represent to Mr. LaBeau are likewise not reflected in the Summary Compensation Table. OPTION GRANTS TABLE. The following table presents information about stock options granted during 2000 to the five named executive officers. OPTION GRANTS TABLE OPTION GRANTS IN LAST FISCAL YEAR
GRANT DATE VALUE ---------------- INDIVIDUAL GRANTS --------------------------------------------------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS UNDERLYING GRANTED TO EXERCISE OR GRANT DATE OPTIONS EMPLOYEES IN BASE EXPIRATION ---------------- GRANTED (#)(1) FISCAL YEAR PRICE($/SH) DATE PRESENT NAME -------------- ------------- ----------- ----------- VALUE(2) ------------------------- ---------------- Ronald D. LaBeau 35,000 27.6% $18.125 6/30/10 $173,950 Thomas J. Bruck 19,600 15.5% $18.125 6/30/10 97,412 James E. Morr 19,600 15.5% $18.125 6/30/10 97,412 Eugene D. Greutman 19,600 15.5% $18.125 6/30/10 97,412 Herbert J. Lock 17.400 13.7% $18.125 6/30/10 86,478
(1) All options are nonqualified stock options which vest ratably over a three-year period commencing December 31, 2000. All options have an exercise price equal to the fair market value on the date of grant. The terms of the Corporation's Long-Term Incentive Compensation Plan provide that all options become exercisable in full in the event of a change in control as defined in the Long-Term Incentive Compensation Plan, or the death or disability of the option holder. (2) The option value was calculated to be $4.97 per share using the Black-Scholes stock option pricing model. In making this calculation, it was assumed that the average exercise period was seven years, the volatility rate was 18.6%, the risk-free rate of return was 6.1%, and the dividend yield was 2.0%. OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table presents information about stock options exercised during 2000 and unexercised stock options at December 31, 2000 for the five named executive officers. 41 42 OPTION EXERCISES AND YEAR-END VALUE TABLE AGGREGATED OPTION EXERCISES IN 2000 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT DECEMBER 31, 2000(#) DECEMBER 31, 2000($) ------------------------- ------------------------- SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ----------- -------- ------------------------- ------------------------- Ronald D. LaBeau 0 0 11,667 / 23,333 0 / 0 Thomas J. Bruck 0 0 6,534 / 13,066 0 / 0 James E. Morr 0 0 6,534 / 13,066 0 / 0 Eugene D. Greutman 0 0 6,534 / 13,066 0 / 0 Herbert J. Lock 0 0 5,800 / 11,600 0 / 0
LONG-TERM INCENTIVE COMPENSATION PLAN. MBT and its shareholders have adopted the Long-Term Incentive Compensation Plan. A total of 1,000,000 shares have been reserved for issuance under the Long-Term Incentive Compensation Plan, subject to adjustment if MBT's capitalization changes as a result of a stock split, stock dividend, recapitalization, merger or similar event. The plan provides for the award of stock options, stock or restricted stock to any MBT or Monroe Bank & Trust directors, officers, other key employees and consultants designated by a committee of MBT's Board consisting of outside directors, which administers the plan. The committee's authority includes the power to (a) determine who will receive awards under the plan, (b) establish the terms and conditions of awards and the schedule on which options become exercisable (or other awards vest), (c) determine the amount and form of awards, (d) interpret the plan and terms of awards, and (e) adopt rules for administration of the plan. The only awards made under the plan to date are awards of stock options. Stock options awarded under the plan have terms of up to 10 years and may be nonqualified stock options, meaning stock options that do not qualify under Section 422 of the Internal Revenue Code for the special tax treatment available for qualified, or "incentive," stock options. Nonqualified stock options may be granted to any eligible plan participant, but incentive stock options may be granted solely to employees of MBT or Monroe Bank & Trust. All stock option awards made to date are nonqualified stock options. The exercise price of incentive stock options may not be less than the fair market value of MBT's common stock on the date of grant, which under the terms of the plan means the average of the bid and asked prices or the fair market value determined by MBT's board if bid and asked prices are not available. The plan does not require that the exercise price of nonqualified stock options be at least equal to the fair market value on the grant date, but the exercise price of awards made to date is the fair market value on the date of grant. An option holder whose service terminates generally has one year after termination within which he may exercise options, forfeiting any options not exercised by the end of one year from termination. An option holder whose service is terminated for cause forfeits all unexercised stock options. SALARY CONTINUATION AGREEMENT AND LIFE INSURANCE POLICY. MBT and Monroe Bank & Trust entered into a Salary Continuation Agreement with Mr. LaBeau in December 2000, which provides that MBT and Monroe Bank & Trust will pay an annual salary continuation benefit of $139,600 to Mr. LaBeau or his designated beneficiaries for 10 years after his retirement on or after reaching the normal retirement age of 65. 42 43 For Mr. LaBeau's early retirement (before reaching age 65) or termination before his normal retirement age as a result of disability, the annual salary continuation benefit increases to $139,600 in the ninth year of the Salary Continuation Agreement (but is not actually payable until he reaches normal retirement age), as follows:
ANNUAL BENEFIT PAYABLE AFTER REACHING AGE 65 FOR EARLY RETIREMENT OR DISABILITY SALARY CONTINUATION OCCURRING ON OR AGREEMENT PLAN YEAR AFTER THE END OF ENDING DECEMBER 26, THE PLAN YEAR -------------------------- -------------------- 2001....................... $20,893 2002....................... 40,184 2003....................... 57,997 2004....................... 74,445 2005....................... 89,632 2006....................... 103,655 2007....................... 116,604 2008....................... 128,560 2009....................... 139,600
At the same time it entered into the Salary Continuation Agreement with Mr. LaBeau, the bank purchased an insurance policy on Mr. LaBeau's life, with a single-premium payment of $5,880,000. The bank expects to recover in full the premium paid by it from the bank's portion of the policy's death benefits. If Mr. LaBeau dies before age 65 but in active service to the bank, his beneficiaries will receive life insurance proceeds of $958,837. If he dies after retirement, his beneficiaries will receive any payments to which Mr. LaBeau would have been entitled under the Salary Continuation Agreement, but none of the life insurance proceeds. The bank purchased the insurance policy as an informal financing mechanism for the bank's Salary Continuation Agreement obligations arising out of Mr. LaBeau's death before retirement, as well as an investment to fund the bank's post-retirement payment obligations to Mr. LaBeau. Although the bank expects the policy on Mr. LaBeau's life to serve as a source of funds for death benefits payable under his Salary Continuation Agreement, Mr. LaBeau's contractual entitlements under the Salary Continuation Agreement are not funded. These contractual entitlements remain contractual liabilities of Monroe Bank & Trust, payable upon Mr. LaBeau's termination of employment. The life insurance policy is in addition to the split-dollar insurance policy purchased by the bank on Mr. LaBeau's life for his service as a director, discussed in "Director Compensation-Director Split-Dollar Life Insurance Agreements," and the split-dollar policy discussed in "Executive Compensation-- Executive Group Term Carve-out Split Dollar Life Insurance Agreements" below. This informally funded life insurance program is not expected to result in any material cost to MBT Financial Corp. or Monroe Bank & Trust. As noted previously in the discussion of "Director Compensation-Director Split-Dollar Life Insurance Agreements," the bank-owned life insurance policy is expected to have an increasing cash surrender value over time. The $5,880,000 insurance premium is 43 44 designed to earn sufficient income on the insurance policy's cash surrender value that will offset the after-tax expense of the accrual for the bank's supplemental executive retirement plan with Mr. LaBeau. EXECUTIVE GROUP TERM CARVE-OUT SPLIT DOLLAR LIFE INSURANCE AGREEMENTS. Adequate life insurance coverage for other key executives is an essential component of the compensation necessary to retain and reward excellent executive officer service. In addition to insurance policies on the lives of directors and the President and Chief Executive Officer, Monroe Bank & Trust owns additional insurance on the lives of Messrs. LaBeau, Bruck, Morr, Greutman and Lock, for which the bank made a single premium payment of $1,355,000 in the aggregate. The bank and the executives share rights to death benefits payable under the policies. An executive's beneficiaries are entitled to an aggregate amount equal to (a) twice the executive's current annual salary at the time of death, less $50,000, if he dies before retirement, and (b) the executive's current annual salary at the time his employment terminated if he dies after retirement or if his employment shall have previously terminated due to disability. The bank will receive the remainder of death benefits. The bank expects to recover in full the premium paid by it from the bank's portion of the policy's death benefits or upon the cancellation or purchase of the policies by the executives. The executives also have life insurance benefits under the bank's group term life insurance program for all employees, a program paying benefits up to $50,000 to an executive's beneficiaries if he dies while employed by the bank. The death benefit payable to the executive will be paid directly by the insurance company to the named beneficiary. As such, the bank has no benefit obligation to the participants in the executive group term carve-out split dollar life insurance plan. This bank-owned life insurance program is not expected to result in any material cost to MBT or the bank, and the bank-owned life insurance is expected to increase MBT's non-interest income in future operating periods. The executive group term carve-out split dollar life insurance plan was a replacement for the executives' participation in the bank's group term life insurance program (except for the non-taxable $50,000 group term life insurance death benefit). The executive group term carve-out split dollar life insurance plan provides comparable life insurance coverage to what the executives had under the bank's group term life insurance program for all employees, while reducing the annual increasing expense of group term life insurance and replacing it with an earning asset. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OVERVIEW AND PHILOSOPHY. The Board of Directors of MBT Financial Corp. has established a Compensation Committee. The Compensation Committee is responsible for developing and making recommendations to the Board with respect to MBT Financial Corp.'s executive compensation policies. There are no interlocking relationships between any members of the Compensation Committee. Pursuant to authority delegated by the Board, the Compensation Committee determines annually the compensation to be paid to the Chief Executive Officer and each other executive officer. The Compensation Committee also structures and monitors all contracts with executive officers which include the Salary Continuation Agreement with Mr. LaBeau and the split-dollar life insurance agreements. Compensation decisions with respect to executive officers are based upon the factors discussed below, rather than any obligation set forth in such contracts. The Compensation Committee has available to it an outside compensation consultant, and has worked with the consultant to gather comparative compensation data from independent sources and to develop a strategy which links pay to performance. 44 45 The objectives of MBT's executive compensation program are to: - Support the achievement of desired goals of MBT. - Provide compensation that will attract and retain superior talent and reward performance. - Align the executive officers' interests with those of shareholders by placing a significant portion of pay at risk with payout dependent upon corporate performance, both on a short-term and long-term basis. The executive compensation program provides an overall level of compensation opportunity that is competitive within the banking industry. Actual compensation levels may be greater or less than average competitive levels in surveyed companies based upon annual and long-term MBT performance, as well as individual performance. The Compensation Committee uses its discretion to set executive compensation where, in its judgment, external, internal or an individual's circumstances warrant. COMPENSATION MATTERS IN 2000. During 2000 the Compensation Committee increased the levels of base salary of the Chief Executive Officer and certain other Executive Officers. The increases in base salary were based upon an analysis of compensation levels for management performing similar functions at other banking companies of similar size and operations. The Board of Directors also changed the measurement of the performance of the Corporation for the purpose of determining the annual cash bonuses to be paid to employees, including the Chief Executive Officer and other Executive Officers, from return on assets to net operating income for the year 2000. The Compensation Committee views net operating income as a better measure of annual performance of the Corporation for purposes of providing annual cash bonuses to the Chief Executive Officer, other Executive Officers and employees of the Corporation. The Compensation Committee and the Board of Directors approved the Salary Continuation Agreement for the Chief Executive Officer and the Split-Dollar Life Insurance Policies for the Executive Officers that were implemented in 2000 to provide retirement income for the Chief Executive Officer and life insurance for the Executive Officers on a competitive basis as an important component of overall compensation. EXECUTIVE OFFICER COMPENSATION PROGRAM. MBT's executive officer compensation program is comprised of base salary, annual cash incentive compensation, longer-term incentive compensation in the form of stock options and various benefits. BASE SALARY. Base salary levels for MBT's executive officers are attempted to be set relative to companies in the banking industry of similar size and complexity of operations, as described above. In determining salaries, the Compensation Committee also takes into account individual experience and performance, MBT performance and specific issues particular to MBT. ANNUAL INCENTIVE COMPENSATION. The Monroe Bank & Trust Annual Incentive Plan is MBT's annual incentive program for all employees, including Executive Officers. The purpose of the plan is to provide direct financial incentives in the form of an annual cash bonus to executives to achieve MBT's annual goals. For 2000, the Compensation Committee recommended and the Board of Directors selected net operating income as the measurement of the Corporation's performance, with threshold and target goals set for determining cash bonus opportunities for all employees, including Executive Officers. The amount distributed to each participant in the Annual Incentive Plan is based on his or her base salary and is weighted to reflect each participant's ability to affect the performance of the Corporation, with the Chief Executive Officer having the largest weighting. For net operating income in excess of the target goal set, 45 46 each participant receives a ratable increase in his or her cash bonus. MBT exceeded its target goal for net operating income in 2000. The achievement of this corporate goal represented the entire cash bonus for each Executive Officer for 2000. LONG-TERM INCENTIVES. Stock options awarded in 2000 under the Long-Term Incentive Compensation Plan constitute MBT's long-term incentive plan for executive officers. The objectives of the stock option awards are to align executive and shareholder long-term interests by creating a strong and direct link between executive pay and shareholder return, and to enable executives to develop and maintain a long-term stock ownership position in MBT's common shares. The Long-Term Incentive Compensation Plan authorizes a committee of outside directors to award stock options and other stock compensation to key executives. Stock options awarded executive officers in 2000 were granted at an option price equal to the fair market value of MBT common shares on the date of grant, have ten-year terms and have exercise restrictions that lapse ratably over a three-year period. Awards are made at levels considered to be competitive within the banking industry. Significant stock option awards were made to the Executive Officers in 2000 to reflect the fact that they had not been given long-term incentive compensation prior to 2000. BENEFITS. MBT provides medical benefits to its executive officers that are generally available to all fulltime MBT employees. CHIEF EXECUTIVE OFFICER COMPENSATION. The base salary of Mr. LaBeau, MBT Financial Corp.'s President and Chief Executive Officer, was increased to $210,000, effective January, 2000, based upon the recommendation of an outside compensation consultant arising from its survey of other banking companies, as described above. Mr. LaBeau received a total of 35,000 stock options in 2000. These stock options were granted based upon the recommended range of stock options for the Chief Executive Officer contained in the compensation consultant's analysis, taking into account the consultant's survey of the practices of other banking companies, as described above. The Salary Continuation Agreement and split-dollar life insurance policies described above were provided to the Chief Executive Officer in 2000 in order to provide retirement and life insurance benefits on a competitive basis. In respect to the limits on deductibility for federal income tax purposes of compensation paid an executive officer in excess of $1 million, MBT intends to strive to structure components of its executive compensation to achieve maximum deductibility, while at the same time considering the goals of its executive compensation philosophy. MEMBERSHIP OF THE COMPENSATION COMMITTEE. MBT Financial Corp. directors serving on the Compensation Committee are named below: Richard A. Sieb, Chairman Gerald L. Kiser Ronald D. LaBeau William D. McIntyre, Jr. Michael J. Miller Philip P. Swy COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS Regulations of the Securities and Exchange Commission require the disclosure of any related party transactions with members of the Compensation Committee. During the past year, certain directors and 46 47 officers, including members of the Compensation Committee, and one or more of their associates may have been customers of and had business transactions with Monroe Bank & Trust. All loans included in such transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than normal risk of collectability or present other unfavorable features. It is expected that similar transactions will occur in the future. Although Mr. LaBeau served on the Compensation Committee, he did not participate in any discussions or decisions regarding his compensation. 47 48 PERFORMANCE GRAPHS The following graph compares the change in value that an investor would have realized (assuming reinvestment of dividends) by investing $100 in MBT Financial Corp. common stock, the NASDAQ Composite index, and the NASDAQ Bank index on December 31, 1995. [GRAPH]
NASDAQ NASDAQ MBT Bank Composite Financial Corp. ------------------------------------------- 1995 100.00 100.00 100.00 1996 126.16 122.71 118.74 1997 206.38 149.25 156.49 1998 182.09 208.40 338.10 1999 167.55 386.77 326.01 2000 192.14 234.81 207.70
48 49 The following graph shows Monroe Bank & Trust's Return on Assets (ROA) for the last five full years and the first nine months of 2000, annualized. The graph also includes the same information for Monroe Bank & Trust's peer group from the Uniform Bank Performance Report (UBPR). The UBPR is published by the Federal Financial Institutions Examination Council using data gathered from the Call Reports submitted by banks. The peer group for Monroe Bank & Trust for 1995 through 1997 includes all FDIC insured banks between $500 million and $1 billion in total assets. The peer group for Monroe Bank & Trust for 1998 through 2000 includes all FDIC insured banks between $1 billion and $3 billion in total assets. [GRAPH]
Monroe Bank Peer & Trust Group** 1995 1.93% 1.25% 1996 1.92% 1.30% 1997 1.94% 1.29% 1998 1.64% 1.30% 1999 1.52% 1.35% 2000* 1.67% 1.23%
ADDITIONAL INFORMATION ON MANAGEMENT Section 16 of the Securities Exchange Act of 1934 requires MBT Financial Corp.'s executive officers, directors and more than ten percent shareholders ("Insiders") to file with the Securities and Exchange Commission and MBT Financial Corp. reports of their ownership of MBT Financial Corp. securities. Based upon written representations and copies of reports furnished to MBT Financial Corp. by Insiders, all Section 16 reporting requirements applicable to Insiders during 2000 were satisfied on a timely basis, with the exception of one late report covering one transaction filed by Mr. Lock. 49 50 Item 12. Security Ownership of Certain Beneficial Owners and Management As of December 31, 2000, beneficial ownership in excess of five percent of the common stock is as follows:
TITLE OF NAME & ADDRESS OF AMOUNT & NATURE PERCENT CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS -------------- ---------------------------------- ------------------------- --------------------- Common Monroe Bank & Trust 6,795,918 shares(1) 34.0% 102 East Front Street Monroe, Michigan 48161
(1) These shares are held in various fiduciary capacities in the ordinary course of business under numerous trust relationships by Monroe Bank & Trust. As fiduciary, Monroe Bank & Trust has sole power to dispose of 5,726,634 of these shares, shared power to dispose of 1,069,284 of these shares, sole power to vote 5,726,634 of these shares, and shared power to vote 1,069,284 of these shares. The following table reflects the numbers of common shares beneficially owned by all directors and nominees, the executive officers named in the Summary Compensation Table, and all directors and executive officers of Monroe Bank & Trust as a group as of December 31, 2000.
COMMON SHARES NAME OF BENEFICIAL OWNER OWNED (1) PERCENT OF CLASS ------------------------------- ----------------------- -------------------- Thomas J. Bruck 195,026(2) * Connie S. Cape 5,100(3) * Eugene D. Greutman 58,334(4) * Ronald J. Gruber 8,900 * Thomas M. Huner 22,000(5) * Gerald L. Kiser 0 * Ronald D. LaBeau 61,191(6) * Rocque E. Lipford 23,394(7) * Herbert J. Lock 12,193(8) * William D. McIntyre, Jr. 68,256 * Michael J. Miller 16,318(9) * James E. Morr 51,894(10) * Richard A. Sieb 72,686(11) * Philip P. Swy 4,000 * All Directors and Executive 599,292 3.0% Officers as a Group (14 in group)
* Ownership is less than 1% of the class. (1) Except as otherwise noted, none of the named individuals shares with another person either voting or investment power as to the shares reported. (2) Includes 165,878 shares subject to shared voting and investment power and 6,534 shares subject to options which are exercisable within sixty days of December 31, 2000. (3) Includes 800 shares subject to shared voting and investment power. (4) Includes 51,800 shares subject to shared voting and investment power and 6,534 shares subject to options which are exercisable within sixty days of December 31, 2000. 50 51 (5) Includes 10,424 shares subject to shared voting and investment power. (6) Includes 10,806 shares subject to shared voting and investment power and 11,667 shares subject to options which are exercisable within sixty days of December 31, 2000. (7) Includes 400 shares subject to shared voting and investment power. (8) Includes 950 shares subject to shared voting and investment power and 5,800 shares subject to options which are exercisable within sixty days of December 31, 2000. (9) Includes 16,318 shares subject to shared voting and investment power. (10) Includes 4,256 shares subject to shared voting and investment power and 6,534 shares subject to options which are exercisable within sixty days of December 31, 2000. (11) Includes 55,490 shares subject to shared voting and investment power. Item 13. Certain Relationships and Related Transactions TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS Directors and executive officers of MBT and their associates were customers of, or had transactions with, Monroe Bank & Trust in the ordinary course of business during 2000. We expect additional transactions to take place in the future. All outstanding loans to directors and executive officers and their associates, commitments and sales, purchases and placements of investment securities and other financial instruments included in such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral where applicable, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features. In addition, Mr. Lipford is a partner in the law firm of Miller, Canfield, Paddock and Stone, P.L.C., which provides legal services to MBT and Monroe Bank & Trust. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Contents Financial Statements Report of Independent Public Accountants - Page 17 Consolidated Statements of Condition as of December 31, 2000 and 1999 - Page 18 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999, and 1998 - Page 19 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998 - Pages 20 - 21 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998 - Page 22 Notes to Consolidated Financial Statements - Pages 23 - 36 Financial Statement Schedules (a) Securities - Page 53 51 52 (b) Loans and Lease Financing Receivables - Page 54 (c) Bank Premises and Equipment - Page 55 (d) Allowance for Loan Losses - Included in Notes to Financial Statements Note 3, Page 25 Reports on Form 8-K MBT Financial Corp. filed the following report on Form 8-K during the last quarter of 2000: Date of Event Reported Event Reported ---------------------- -------------- December 22, 2000 Item 5 - Authorization of 2 million share repurchase plan Exhibits The following exhibits are filed as a part of this report: 3.1 Restated Articles of Incorporation of MBT Financial Corp. 3.2 Bylaws of MBT Financial Corp. 10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan 10.2 Monroe Bank & Trust Salary Continuation Agreement 10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement 10.4 Monroe Bank & Trust Group Term Carve Out Plan 21 Subsidiaries of the Registrant 52 53 SCHEDULE I SECURITIES (000's omitted)
Held to Maturity ---------------------------------------------------------------------- December 31, 2000 December 31, 1999 December 31, 1998 ----------------------- -------------------- --------------------- Estimated Estimated Estimated Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value ---------- -------- -------- -------- -------- -------- U.S. Government agency and corporation obligations (excluding mortgage-backed securities).......... $ 145,622 $143,456 $150,222 $141,004 $ 75,695 $ 75,843 Securities issued by states and political subdivisions in the U.S..................................... 132,007 134,664 152,791 152,505 155,868 162,042 Pass-through mortgage-backed securities (MBS)............... 167 163 177 166 191 189 Other domestic securities (debt and equity)................. 56,188 56,164 8,956 8,845 62,533 62,832 ---------- -------- -------- -------- -------- -------- Total....................................................... $ 333,984 $334,447 $312,146 $302,520 $294,287 $300,906 ========== ======== ======== ======== ======== ======== Pledged securities.......................................... $ 62,992 $ 63,181 $ 34,889 $ 33,497 $ 23,989 $ 25,385 ========== ======== ======== ======== ======== ========
Available for Sale -------------------------------------------------------------------- December 31, 2000 December 31, 1999 December 31, 1998 --------------------- ----------------- -------------------- Estimated Estimated Estimated Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value --------- -------- -------- -------- -------- -------- U.S. Government agency and corporation obligations (excluding mortgage-backed securities).......... $ 11,999 $ 11,979 $ 32,951 $ 32,345 $ 36,440 $ 36,534 Securities issued by states and political subdivisions in the U.S..................................... NONE NONE 6,984 7,157 NONE NONE Pass-through mortgage-backed securities (MBS)............... 1,127 1,212 1,137 1,137 NONE NONE Other domestic securities (debt and equity)................. 110,879 105,230 98,467 96,794 NONE NONE --------- -------- -------- -------- -------- -------- Total....................................................... $ 124,005 $118,421 $139,539 $137,433 $ 36,440 $ 36,534 ========= ======== ======== ======== ======== ======== Pledged securities.......................................... $ 2,998 $ 3,015 $ 18,961 $ 18,906 $ 14,456 $ 14,543 ========= ======== ======== ======== ======== ========
53 54 SCHEDULE II LOANS AND LEASE FINANCING RECEIVABLES (000's omitted)
December 31, --------------------------------------------------------- 2000 Book 1999 Book 1998 Book 1997 Book 1996 Book Value (a) Value (a) Value (a) Value (a) Value (a) -------- -------- -------- -------- -------- Loans secured by real estate: Construction and land development.................................... $ 36,146 $ 24,504 $ 27,100 $ 21,201 $ 12,593 Secured by farmland (including farm residential and other improvements).............................................. 4,354 3,774 3,945 5,110 4,335 Secured by 1-4 family residential properties......................... 275,299 214,358 202,926 209,934 175,732 Secured by multifamily (5 or more) residential....................... 3,322 3,673 3,166 2,881 2,806 Secured by nonfarm nonresidential.................................... 227,024 190,588 182,348 158,549 139,753 Loans to finance agricultural production and other loans to farmers........................................................ 2,832 2,087 1,422 1,342 1,827 Commercial and industrial loans to U.S. addresses....................... 150,805 156,489 171,919 144,316 136,062 Loans to individuals for household, family, and other personal expenditures (includes purchased paper): Credit cards and related plans....................................... 9,415 10,320 10,038 9,716 9,370 Other................................................................ 102,089 97,091 85,475 76,534 61,505 Nonrated industrial development obligations (other than securities) of states and political subdivisions in the U.S............. 228 380 676 924 1,318 Other loans: Loans for purchasing or carrying securities (secured and unsecured)....................................................... NONE 9 NONE NONE NONE All other loans...................................................... 609 109 1,994 1,084 1,708 Less: Any unearned income on loans...................................... NONE NONE 3 12 26 -------- -------- -------- -------- -------- Total loans and leases, net of unearned................................. $812,123 $703,382 $691,006 $631,579 $546,983 ======== ======== ======== ======== ======== Nonaccrual loans $ 17,161 $ 16,791 $ 5,269 $ 3,725 $ 2,907 Loans 90 days or more past due $ 193 $ 107 $ 40 $ 71 $ 29 Troubled debt restructurings $ 1,057 $ 1,281 $ 868 $ 1,434 $ 1,487
(a) Loan categories are presented net of deferred loan fees. The presentation in footnote #2, Notes To Consolidated Financial Statements, Page 24, differs from this schedule presentation, by presenting the loan categories, gross, before deferred loan fees have been subtracted. 54 55 SCHEDULE III BANK PREMISES AND EQUIPMENT
Amount at Accumulated Which Carried Depreciation on Consolidated Gross Book and Statement Classification Value (a) Amortization of Condition ---------------------------------------------------------------------- ----------- ----------- ----------- December 31, 2000 ----------------- Bank Premises $16,134,043 $ 6,431,875 $ 9,702,168 (including Land of $2,708,338) Equipment 14,065,983 10,078,593 3,987,390 Leasehold Improvements NONE NONE NONE ----------- ----------- ----------- $30,200,026 $16,510,468 $13,689,558 =========== =========== =========== December 31, 1999 ----------------- Bank Premises $14,817,580 $ 5,810,344 $ 9,007,236 (including Land of $2,708,338) Equipment 11,649,027 8,894,986 2,754,041 Leasehold Improvements NONE NONE NONE ----------- ----------- ----------- $26,466,607 $14,705,330 $11,761,277 =========== =========== ===========
(a) The gross book value of the Bank premises (including land and land improvements), equipment, and leasehold improvements is stated at cost. 55 56 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 30, 2001 MBT FINANCIAL CORP. By: /s/ Eugene D. Greutman --------------------------------------- Eugene D. Greutman Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated: March 30, 2001 By: /s/ Ronald D. LaBeau By: /s/ Eugene D. Greutman --------------------------------- -------------------------------- Ronald D. LaBeau Eugene D. Greutman President & Director Treasurer (principal executive officer) (principal financial officer) By: /s/ Ronald J. Gruber By: /s/ Rocque E. Lipford --------------------------------- -------------------------------- Ronald J. Gruber Rocque E. Lipford Director Director By: /s/ Michael J. Miller By: /s/ Richard A. Sieb --------------------------------- -------------------------------- Michael J. Miller Richard A. Sieb Director Director By: /s/ Philip P. Swy ----------------------------------------- Philip P. Swy Director 57 Exhibit Index The following exhibits are filed as a part of this report: 3.1 Restated Articles of Incorporation of MBT Financial Corp. 3.2 Bylaws of MBT Financial Corp. 10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan 10.2 Monroe Bank & Trust Salary Continuation Agreement 10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement 10.4 Monroe Bank & Trust Group Term Carve Out Plan 21 Subsidiaries of the Registrant