10-K 1 k68549e10-k.txt ANNUAL REPORT FOR THE FISCAL YEAR ENDED 12/31/01 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, 2001 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 27, 2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $285,106,332. As of March 27, 2002, there were 19,730,542 shares of Common Stock outstanding. 1 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, treasury management services, telephone and internet banking, 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 Office of Financial and Insurance Services Division of Financial Institutions. 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, 2001, Monroe Bank & Trust had 317 full-time employees 2 and 22 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. 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. 3 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. 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. 4 Item 3. Legal Proceedings NONE Item 4. Submission of Matters to a Vote of Security Holders. NONE 5 Part II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters Common stock consists of 19,752,542 shares with a book value of $8.19. 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 2001 amounted to $.50 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.
2001 2000 High Low High Low ------------------------------------------------------------------------------ 1st quarter $ 16.50 $ 12.63 $ 21.31 $ 16.69 2nd quarter $ 13.99 $ 12.50 $ 19.00 $ 17.88 3rd quarter $ 15.59 $ 13.43 $ 20.25 $ 15.75 4th quarter $ 14.50 $ 13.50 $ 17.00 $ 12.50
Dividends declared during the past three years on a quarterly basis were as follows:
2001 2000 1999 -------------------------------------------------------------------------------- 1st quarter $ .11 $.075 $ .06 2nd quarter $ .13 $.075 $ .075 3rd quarter $ .13 $.11 $ .075 4th quarter $ .13 $.11 $ .15
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 2000 amounted to $2.60 per share. At December 31, 2001 the Corporation's surplus account was $58,988,726 and undivided profits account was $104,055,944. Total stockholders' equity was reduced by the amount of net unrealized losses on securities available for sale of $1,314,526. As of December 31, 2001, the number of common stockholders was 1,320. Management's present expectation is that dividends will continue to be paid in the future. 6 Item 6. Selected Financial Data The selected financial data for the five years ended December 31, 2001 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. SELECTED CONSOLIDATED FINANCIAL DATA
2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------ Interest Income $ 101,324,488 $ 99,569,664 $ 83,178,881 $ 77,766,275 $ 71,952,004 Interest Expense 49,535,345 49,680,992 38,290,421 34,203,473 31,455,077 ------------------------------------------------------------------------------------------------------------------------ Net Interest Income 51,789,143 49,888,672 44,888,460 43,562,802 40,496,927 Provision for Loan Losses 7,399,901 6,298,461 9,388,041 3,217,544 2,165,926 ------------------------------------------------------------------------------------------------------------------------ Net Interest Income after Provision for Loan Losses 44,389,242 43,590,211 35,500,419 40,345,258 38,331,001 Other Income 10,650,797 8,708,702 6,920,016 6,964,982 4,296,142 Other Expenses 24,809,286 23,094,206 20,143,741 25,447,771 18,706,896 ------------------------------------------------------------------------------------------------------------------------ Income before Provision for Income Taxes 30,230,753 29,204,707 22,276,694 21,862,469 23,920,247 Provision for Income Taxes 8,306,553 8,031,184 5,207,362 5,301,810 6,067,965 ------------------------------------------------------------------------------------------------------------------------ Net Income $ 21,924,200 $ 21,173,523 $ 17,069,332 $ 16,560,659 $ 17,852,282 ------------------------------------------------------------------------------------------------------------------------ Dividends Declared per Share- Preferred Stock $ - $ 2.60 $ 4.50 $ 4.50 $ 4.50 ------------------------------------------------------------------------------------------------------------------------ Common Stock(*) $ .50 $ .37 $ .36 $ .29 $ .245 ------------------------------------------------------------------------------------------------------------------------ Basic Earnings per Common Share, after Deducting Preferred Stock Dividends(*) $ 1.10 $ 1.06 $ 0.85 $ 0.83 $ 0.89 ------------------------------------------------------------------------------------------------------------------------ Diluted Earnings per Common Share(*) $ 1.10 $ 1.06 $ 0.85 $ 0.83 $ 0.89 ------------------------------------------------------------------------------------------------------------------------ Total Assets at Years Ended December 31 $ 1,394,167,752 $1,379,386,178 $1,216,476,583 $1,075,268,496 $ 941,017,915 ------------------------------------------------------------------------------------------------------------------------
(*) Per-share amounts are based upon 19,933,580 average common shares outstanding for 2001 and 20,000,000 average common shares outstanding for 1997 through 2000. 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. 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. 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. 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 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. Income Before Provision for Income Taxes increased $414,225, or 2%, compared to 1998, and with the slight increase in investment in Obligations of States and Political Subdivisions, the Provision for Income Taxes decreased $94,448, or 2%. The effective tax rate was 23.4% in 1999. In 2000, Net Income increased significantly as the Corporation produced record earnings. Net Income increased $4,104,191, 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 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 a smaller average percentage investment in Obligations of States and Political Subdivisions in 2000, the Provision for Income Taxes showed a large increase of $2,823,822, or 54%. The effective tax rate increased from 23.4% to 27.5%. Despite the slowdown in economic activity in 2001, we experienced our second consecutive record earnings year as Net Income increased $750,677, or 4%, compared to 2000. Deposits increased less than 1% and Total Assets increased only 1%. Net Loans showed a slight decrease of 3% as commercial and industrial loans decreased 34% and loans to individuals for household, family, and other personal expenditures decreased 19%. Real estate loans showed a small increase of 9%. Although Total Loans decreased, we increased our Allowance for Loan Losses $2,400,000. This increase was necessary as the 8 weak economic conditions impacted the credit quality of many of our customers. Income Before Provision for Income Taxes increased $1,026,046, or 4%, compared to 2000, and with a slight increase in our investment in Obligations of States and Political Subdivisions, our Provision for Income Taxes increased only $275,369, or 3%. The effective tax rate remained at 27.5% in 2001. Earnings for the Bank are usually highly reflective of the Net Interest Income. 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 and interest expense increased $11.4 million, or 30%. As a result, Net Interest Income increased $5.0 million, or 11% over 1999. 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. In 2001, the Federal Open Market Committee of the Federal Reserve attempted to prevent a recession by lowering the Federal Funds target rate 11 times, for a total of 475 basis points. Interest income increased only $1.8 million and interest expense decreased $146,000, compared to 2000. As a result, Net Interest Income increased $1.9 million, or 4%. The Provision for Loan Losses increased $1.1 million, as the Allowance for Loan Losses was increased. Non-interest income increased $1.9 million and non-interest expense increased $1.7 million. Income from trust services declined modestly due to a large amount of estate settlement fees collected by the trust department in 2000 and the declining market value of trust assets in 2001. The large increase in service charges on deposit accounts was the result of increases in the rates charged for deposit services and the implementation of new programs for overdrafts. Other non-interest income increased due to increased fees on mortgage originations and gains on the sales of portions of the consumer credit card and commercial lease loan portfolios. These sales resulted in a gain of $717,000. The increase in non-interest expense was primarily the result of an increase in Salaries and Employee Benefits as staffing continued to increase in several areas. The small increase in Net Interest Income, along with the significant increases in Provision for Loan Losses and non-interest income, and the small increase in non-interest expense, resulted in a small increase in Net Income. Average cost of interest bearing deposits was 4.4%, 4.8%, and 4.1% for 1999, 2000, and 2001, respectively. The table below shows selected financial ratios for the same three years.
2001 2000 1999 ---- ---- ---- Return on Average Assets 1.6% 1.7% 1.5% Return on Average Equity 13.7% 14.4% 12.0% Dividend Payout Ratio 45.4% 34.9% 42.4% Average Equity to Average Assets 11.3% 11.5% 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 rate spread, and the net interest margin for the same periods. 9
Years Ended December 31, ------------------------------------------------------------------------- 2001 2000 ------------------------------------- --------------------------------- Average Interest Average Interest Daily Earned Average Daily Earned Average (Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield ---------------------- ------------------------------------- --------------------------------- Investments Obligations of US Government Agencies 203,450 13,081 6.43% 174,266 12,169 6.98% Obligations of States & Political Subdivisions(1) 127,640 6,822 5.34% 137,200 7,302 5.32% Other Securities 148,648 8,705 5.86% 123,032 9,145 7.43% ------------------------------------------------------------------------- Total Investments 479,738 28,608 5.96% 434,498 28,616 6.59% ------------------------------------------------------------------------- Loans Commercial 520,498 43,307 8.32% 468,417 43,860 9.36% Mortgage 191,752 16,356 8.53% 179,427 14,867 8.29% Consumer 128,122 12,606 9.84% 120,853 11,917 9.86% ------------------------------------------------------------------------- Total Loans(2) 840,372 72,269 8.60% 768,697 70,644 9.19% Federal Funds Sold 12,968 447 3.45% 4,861 310 6.38% ------------------------------------------------------------------------- Total Interest Earning Assets 1,333,078 101,324 7.60% 1,208,056 99,570 8.24% Cash & Due From Banks 34,200 34,215 Interest Receivable and Other Assets 43,137 30,737 ----------- ----------- Total Assets 1,410,415 1,273,008 =========== =========== Savings Accounts 117,429 2,453 2.09% 120,494 2,955 2.45% NOW Accounts 59,886 1,280 2.14% 61,901 1,476 2.38% Money Market Deposits 257,612 8,352 3.24% 189,655 7,714 4.07% Certificates of Deposit 462,121 24,543 5.31% 461,654 27,506 5.96% Federal Funds Purchased 562 27 4.80% 5,051 326 6.45% FHLB Advances 225,000 12,880 5.72% 161,038 9,704 6.03% ------------------------------------------------------------------------- Total Interest Bearing Liabilities 1,122,610 49,535 4.41% 999,793 49,681 4.97% Non-interest Bearing Deposits 121,134 120,906 Other Liabilities 6,598 5,437 ----------- ----------- Total Liabilities 1,250,342 1,126,136 Stockholders' Equity 160,073 146,872 ----------- ----------- Total Liabilities & Stockholders' Equity 1,410,415 1,273,008 =========== =========== Net Interest Income 51,789 49,889 Interest Rate Spread 3.19% 3.27% Net Interest Income as a percent of average earning assets 3.88% 4.13% Years Ended December 31, ------------------------------------ 1999 ------------------------------------ Average Interest Daily Earned Average (Dollars in Thousands) Balance or Paid Yield ---------------------- ------------------------------------ Investments Obligations of US Government Agencies 143,515 9,419 6.56% Obligations of States & Political Subdivisions(1) 158,195 8,258 5.22% Other Securities 67,203 4,054 6.03% ------------------------------------ Total Investments 368,913 21,731 5.89% ------------------------------------ Loans Commercial 435,067 37,863 8.70% Mortgage 161,183 13,422 8.33% Consumer 100,406 9,954 9.91% ------------------------------------ Total Loans(2) 696,656 61,239 8.79% Federal Funds Sold 4,276 209 4.89% ------------------------------------ Total Interest Earning Assets 1,069,845 83,179 7.77% Cash & Due From Banks 34,169 Interest Receivable and Other Assets 21,645 ----------- Total Assets 1,125,659 =========== Savings Accounts 118,229 3,496 2.96% NOW Accounts 60,829 1,471 2.42% Money Market Deposits 211,139 7,836 3.71% Certificates of Deposit 456,303 24,140 5.29% Federal Funds Purchased 5,483 303 5.53% FHLB Advances 17,658 1,044 5.91% ------------------------------------ Total Interest Bearing Liabilities 869,641 38,290 4.40% Non-interest Bearing Deposits 112,965 Other Liabilities 680 ----------- Total Liabilities 983,286 Stockholders' Equity 142,373 ----------- Total Liabilities & Stockholders' Equity 1,125,659 =========== Net Interest Income 44,889 Interest Rate Spread 3.37% Net Interest Income as a percent of average earning assets 4.20%
(1) Interest income on Obligations of States and Political Subdivisions is not on a taxable equivalent basis. 10 (2) 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:
Years Ended December 31, ------------------------------------------------------------------------------------------ 2001 versus 2000 2000 versus 1999 1999 versus 1998 ---------------------------- ----------------------------- ----------------------------- Changes due to Changes due to Changes due to increased (decreased) increased (decreased) increased (decreased) ---------------------------- ----------------------------- ----------------------------- (Dollars in Thousands) Rate Volume Net Rate Volume Net Rate Volume Net ---------------------- ---------------------------- ----------------------------- ----------------------------- Interest Income --------------------------------- Investments Obligations of US Government Agencies (1,126) 2,038 912 732 2,018 2,750 483 3,697 4,180 Obligations of States & Political Subdivisions 39 (519) (480) 140 (1,096) (956) (294) 877 583 Other Securities (2,344) 1,904 (440) 1,723 3,368 5,091 (67) 131 64 ---------------------------- ----------------------------- ----------------------------- Total Investments (3,431) 3,423 (8) 2,595 4,290 6,885 122 4,705 4,827 ---------------------------- ----------------------------- ----------------------------- Loans Commercial (5,448) 4,895 (553) 3,095 2,902 5,997 (1,989) 2,791 802 Mortgage 469 1,020 1,489 (74) 1,519 1,445 (272) (575) (847) Consumer (29) 718 689 (64) 2,027 1,963 (247) 1,125 878 ---------------------------- ----------------------------- ----------------------------- Total Loans (5,008) 6,633 1,625 2,957 6,448 9,405 (2,508) 3,341 833 Federal Funds Sold (380) 517 137 72 29 101 (19) (228) (247) ---------------------------- ----------------------------- ----------------------------- Total Interest Income (8,819) 10,573 1,754 5,624 10,767 16,391 (2,405) 7,818 5,413 Interest Expense --------------------------------- Savings Accounts (426) (76) (502) (608) 67 (541) (58) 347 289 NOW Accounts (149) (47) (196) (21) 26 5 3 155 158 Money Market Deposits (2,126) 2,764 638 675 (797) (122) (27) 500 473 Certificates of Deposit (2,992) 29 (2,963) 3,083 283 3,366 (1,370) 3,190 1,820 Federal Funds Purchased (9) (290) (299) 47 (24) 23 7 260 267 FHLB Advances (677) 3,853 3,176 182 8,478 8,660 1,044 0 1,044 ---------------------------- ----------------------------- ----------------------------- Total Interest Expense (6,379) 6,233 (146) 3,358 8,033 11,391 (401) 4,452 4,051 ---------------------------- ----------------------------- ----------------------------- Net Interest Income (2,440) 4,340 1,900 2,266 2,734 5,000 (2,004) 3,366 1,362 ============================ ============================= =============================
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 11 position. The percentage of securities held as Available for Sale increased from 26% as of December 31, 2000 to 67% as of December 31, 2001. As reflected in Note 4 to the consolidated financial statements, the percentage of securities that mature within five years increased from 37% as of December 31, 2000 to 39% as of December 31, 2001. 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 exempt from federal income tax. The Corporation's statutory 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) ---------------------- Obligations of US Government Agencies $ - 0.00% $ 108,764 3.12% $ 86,001 6.40$ 60,985 6.67% Obligations of States & Political Subdivisions 15,891 3.83% 39,248 5.41% 56,065 5.40% 26,013 5.08% Other Securities 5,161 6.91% 25,815 6.84% 21,276 6.91% 40,006 3.83% ------------------ ------------------- ------------------- ------------------ Total $21,052 4.59% $ 173,827 4.19% $163,342 6.12$ 127,004 5.45% ================== =================== =================== ================== Maturing --------------------------------------- Non-Maturing Total Amount Yield Amount Yield -------------------- ------------------ (Dollars in Thousands) ---------------------- Obligations of US Government Agencies $ - 0.00% $ 255,750 5.07% Obligations of States & Political Subdivisions - 0.00% 137,217 5.16% Other Securities 12,276 6.65% 104,534 5.68% ----------------- ------------------ Total $12,276 6.65% $ 497,501 5.22% ================= ==================
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. 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, 2001. The repricing assumptions shown are consistent with those established by the Bank's Asset and 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. The effect of including these accounts in the zero to six-month category is depicted in a subsequent table. 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. 12
Assets/Liabilities at December 31, 2001, 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 187,709 24,674 18,023 43 25,301 255,750 Obligations of States & Political Subdivisions 21,040 5,666 20,223 53,950 36,338 137,217 Other Securities 43,750 5,000 23,960 3,000 28,824 104,534 Commercial Loans 211,291 26,199 59,472 164,632 4,354 465,948 Mortgage Loans 12,517 14,267 31,041 88,303 30,063 176,191 Consumer Loans 22,683 14,154 26,101 42,047 17,995 122,980 Federal Funds Sold 40,000 - - - - 40,000 ---------- ---------- --------- --------- ---------- ------------ Total Interest Earning Assets 538,990 89,960 178,820 351,975 142,875 1,302,620 ---------- ---------- --------- --------- ---------- ------------ Interest Bearing Liabilities ---------------------------------------- Interest Bearing Demand Deposits 54,541 - - - - 54,541 Savings Deposits 318,440 - - - - 318,440 Other Time Deposits 208,693 50,945 38,831 70,226 - 368,695 FHLB Advances - - - - 225,000 225,000 ---------- ---------- --------- --------- ---------- ------------ Total Interest Bearing Liabilities 581,674 50,945 38,831 70,226 225,000 966,676 ---------- ---------- --------- --------- ---------- ------------ Gap (42,684) 39,015 139,989 281,749 (82,125) 335,944 Cumulative Gap (42,684) (3,669) 136,320 418,069 335,944 335,944 Sensitivity Ratio 0.93 1.77 4.61 5.01 0.64 1.35 Cumulative Sensitivity Ratio 0.93 0.99 1.20 1.56 1.35 1.35
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, 2001, Maturing or Repricing in: -------------------------------------------------------------------------------- 0-6 6-12 1-2 2-5 Over 5 Months Months Years Years Years Total ---------- ---------- --------- --------- ---------- ------------ Total Interest Earning Assets 538,990 89,960 178,820 351,975 142,875 1,302,620 Total Interest Bearing Liabilities 715,846 50,945 38,831 70,226 225,000 1,100,848 ---------- ---------- --------- --------- ---------- ------------ Gap (176,856) 39,015 139,989 281,749 (82,125) 201,772 Cumulative Gap (176,856) (137,841) 2,148 283,897 201,772 201,772 Sensitivity Ratio 0.75 1.77 4.61 5.01 0.64 1.18 Cumulative Sensitivity Ratio 0.75 0.82 1.00 1.32 1.18 1.18
The amount of loans due after one year with floating interest rates is $183,786,000. 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) 2001 2000 1999 ---------------------- ------------ ------------ ------------ Maturing Within 3 Months 85,858 135,807 150,870 3 - 6 Months 20,816 41,163 28,285 6 - 12 Months 11,890 29,970 13,721 Over 12 Months 18,602 14,481 14,015 ------------ ------------ ------------ Total 137,166 221,421 206,891 ============ ============ ============
For 2002, we expect interest rates to stabilize through the first half of the year, and then increase as the economic recovery progresses in the second half. We believe that the Federal Reserve's actions in 2001 prevented a prolonged recession in the national economy. However, we expect our region to recover more slowly than the national economy as the manufacturing sector, particularly automotive related, might lag behind other sectors. This may translate into continued slow local loan demand and low deposit growth. As a result of the expected increasing interest rates and the slow loan growth mentioned above, we expect a small increase in Net Interest Income. Due to the slow recovery in the local economy, and the uncertain financial viability of borrowers in certain industries, 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 a small increase in Net Income. The following is an analysis of the transactions in the allowance for loan losses:
Year Ended December 31, ------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 1998 1997 ---------------------- --------- --------- --------- --------- --------- Balance Beginning of Period 10,600 9,900 11,100 10,200 9,400 Loans Charged Off Domestic Commercial, Financial, and Agricultural 3,399 7,035 10,599 3,213 1,101 Secured by Real Estate 1,242 - 174 - 222 Loans to Individuals 1,523 1,091 783 665 432 Recoveries Domestic Commercial, Financial, and Agricultural 619 2,138 802 1,372 281 Secured by Real Estate 111 - - - - Loans to Individuals 434 390 166 188 108 --------- --------- --------- --------- --------- Net Loans Charged Off 5,000 5,598 10,588 2,318 1,366 Provision Charged to Operations 7,400 6,298 9,388 3,218 2,166 --------- --------- --------- --------- --------- Balance End of Period 13,000 10,600 9,900 11,100 10,200 ========= ========= ========= ========= ========= Ratio of Net Loans Charged Off to Average Total Loans Outstanding 0.59% 0.73% 1.52% 0.35% 0.23% ========= ========= ========= ========= =========
14 The following analysis shows the allocation of the allowance for loan losses:
Year Ended December 31, --------------------------------------------------------------------------------- 2001 2000 1999 ------------------------- ------------------------- ------------------------- $ % 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 4,119 13.8% 4,426 19.0% 6,059 22.6% Real Estate - Construction 260 6.0% 185 4.5% 57 3.5% Real Estate - Mortgage 8,038 68.6% 5,172 62.8% 3,429 58.6% Loans to Individuals 583 11.6% 817 13.7% 355 15.3% Foreign - 0.0% - 0.0% - 0.0% ------------------------- ------------------------- ------------------------- Total 13,000 100.0% 10,600 100.0% 9,900 100.0% ========================= ========================= ========================= ----------------------------------------------------- 1998 1997 ------------------------- -------------------------- $ % 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 5,731 25.6% 2,662 23.3% Real Estate - Construction 96 3.9% 90 3.4% Real Estate - Mortgage 4,433 56.7% 6,866 59.6% Loans to Individuals 840 13.8% 582 13.7% Foreign - 0.0% - 0.0% ------------------------- -------------------------- Total 11,100 100.0% 10,200 100.0% ========================= ==========================
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. 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, loans ninety days or more past due, renegotiated debt, nonaccrual securities, and other real estate owned, increased $6.1 million, or 28% from 2000 to 2001. Nonperforming assets as a percent of total assets at year-end increased from 1.6% in 2000 to 2.0% in 2001. The Allowance for Loan Losses as a percent of nonperforming assets at year-end decreased from 49% in 2000 to 47% in 2001. 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 sell collateral worth more than earlier estimated, a recovery is recorded. 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 and liability management process of the Bank seeks to monitor and manage the amount of interest rate risk. This is accomplished by analyzing the differences in repricing opportunities for assets and liabilities (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. 15 Each month, the Asset and Liability Committee (ALCO), which includes the senior management of the Bank, estimates the effect of interest rate changes on the projected net interest income of the Bank. The sensitivity of the 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, 2001.
Base Rates Rates (Dollars in Thousands) Projection Up 1% Down 1% ---------------------- -------------- ------------- ------------- Year-End 2001 12 Month Projection Interest Income 88,287 92,410 84,510 Interest Expense 37,013 40,229 34,783 -------------- ------------- ------------- Net Interest Income 51,274 52,181 49,727 Percent Change From Base Projection 1.8% -3.0% ALCO Policy Limit (+/-) 5.0% 5.0% Base Rates Rates (Dollars in Thousands) Projection Up 1% Down 1% ---------------------- -------------- ------------- ------------- 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%
The Bank's ALCO 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 2001, 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 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. 16
Fair Value at December 31, 2001 ------------------------------- Rates (Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2% ---------------------- -------------------------------------------------------------------------- Assets 1,443,434 1,413,138 1,386,039 1,468,405 1,491,722 Liabilities 1,234,305 1,201,405 1,170,838 1,269,827 1,304,571 -------------------------------------------------------------------------- Stockholders' Equity 209,129 211,733 215,201 198,578 187,151 Change in Equity 1.2% 2.9% -5.0% -10.5% ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0% Fair Value at December 31, 2001 ------------------------------- 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% -16.7% 8.8% 17.1% ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
The Bank's ALCO 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 2001, 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 19 - 39 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, 2001 and 2000, 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, 2001. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of MBT FINANCIAL CORP. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, 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 consolidated financial statements taken as a whole. The schedules on pages 55 through 57 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 14, 2002. 18 CONSOLIDATED STATEMENTS OF CONDITION ================================================================================
DECEMBER 31, 2001 2000 -------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks (Note 7) $ 26,137,120 $ 39,540,039 Federal funds sold 40,000,000 30,000,000 Investment securities (Notes 1, 4, and 5)- Held to maturity- Obligations of U.S. Government agencies (Estimated market value of $30,197,409 and $143,619,761) 30,044,083 145,789,314 Obligations of states and political subdivisions (Estimated market value of $131,920,520 and $134,663,547) 129,074,829 132,006,403 Other securities (Estimated market value of $2,961,534 and $56,164,298) 2,968,261 56,188,317 Available for sale- Obligations of U.S. Government agencies 225,705,947 13,190,799 Obligations of states and political subdivisions 8,142,334 - Other securities 101,565,802 105,230,516 Loans (Notes 2 and 5) 787,825,052 812,122,817 Allowance for loan losses (Note 3) (13,000,000) (10,600,000) Bank premises and equipment, net (Note 1) 14,501,021 13,689,558 Other real estate owned (Note 1) 4,326,219 2,672,624 Interest receivable and other assets (Notes 6 and 15) 36,877,084 39,555,791 -------------------------------------------------------------------------------------------------------------- Total assets $ 1,394,167,752 $ 1,379,386,178 ============================================================================================================== LIABILITIES Non-interest bearing demand deposits $ 122,866,335 $ 132,388,525 Interest bearing demand deposits 67,936,942 64,747,991 Savings deposits 439,381,209 329,331,534 Other time deposits (Notes 5 and 10) 368,695,291 468,128,395 -------------------------------------------------------------------------------------------------------------- Total deposits (Note 10) 998,879,777 994,596,445 Federal Home Loan Bank advances (Notes 5 and 17) 225,000,000 225,000,000 Interest payable and other liabilities (Note 9) 8,557,831 8,834,770 -------------------------------------------------------------------------------------------------------------- Total liabilities 1,232,437,608 1,228,431,215 -------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock (no par value; 30,000,000 shares authorized, 19,752,542 and 20,000,000 shares issued and outstanding) (Note 8) - - Surplus 58,988,726 62,500,000 Undivided profits 104,055,944 92,084,279 Net unrealized losses on securities available for sale, net of tax (Note 4) (1,314,526) (3,629,316) -------------------------------------------------------------------------------------------------------------- Total stockholders' equity (Note 11) 161,730,144 150,954,963 -------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,394,167,752 $ 1,379,386,178 ==============================================================================================================
The accompanying notes are an integral part of these statements. 19 CONSOLIDATED STATEMENTS OF INCOME ================================================================================
YEARS ENDED DECEMBER 31, 2001 2000 1999 ---------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 72,269,144 $ 70,643,404 $ 61,238,028 Interest on investment securities- Obligations of U.S. Government agencies 13,081,497 12,169,347 9,419,491 Obligations of states and political subdivisions 6,821,370 7,301,903 8,258,158 Other securities 8,705,267 9,144,849 4,053,742 Interest on Federal funds sold 447,210 310,161 209,462 ---------------------------------------------------------------------------------------------------- Total interest income 101,324,488 99,569,664 83,178,881 ---------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits (Note 10) 36,627,461 39,651,368 36,943,501 Interest on borrowed funds (Note 17) 12,907,884 10,029,624 1,346,920 ---------------------------------------------------------------------------------------------------- Total interest expense 49,535,345 49,680,992 38,290,421 ---------------------------------------------------------------------------------------------------- NET INTEREST INCOME 51,789,143 49,888,672 44,888,460 PROVISION FOR LOAN LOSSES (Note 3) 7,399,901 6,298,461 9,388,041 ---------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 44,389,242 43,590,211 35,500,419 ---------------------------------------------------------------------------------------------------- OTHER INCOME Income from trust services 3,391,795 3,908,510 3,252,875 Service charges on deposit accounts 2,857,921 2,142,901 1,849,863 Security gains 416,657 18,237 17,670 Other (Note 15) 3,984,424 2,639,054 1,799,608 ---------------------------------------------------------------------------------------------------- Total other income 10,650,797 8,708,702 6,920,016 ---------------------------------------------------------------------------------------------------- OTHER EXPENSES Salaries and employee benefits (Note 9) 13,026,670 12,155,915 10,719,634 Occupancy expense 2,173,711 2,176,110 1,929,017 Other 9,608,905 8,762,181 7,495,090 ---------------------------------------------------------------------------------------------------- Total other expenses 24,809,286 23,094,206 20,143,741 ---------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 30,230,753 29,204,707 22,276,694 PROVISION FOR INCOME TAXES (Note 6) 8,306,553 8,031,184 5,207,362 ---------------------------------------------------------------------------------------------------- NET INCOME $ 21,924,200 $ 21,173,523 $ 17,069,332 ---------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (Note 1) $ 24,238,990 $ 18,912,671 $ 15,639,241 ---------------------------------------------------------------------------------------------------- BASIC EARNINGS PER COMMON SHARE (after deducting preferred stock dividends) (Notes 8 and 12) $ 1.10 $ 1.06 $ 0.85 ---------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER COMMON SHARE (Note 12) $ 1.10 $ 1.06 $ 0.85 ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 20 CONSOLIDATED STATEMENTS OF CASH FLOWS ================================================================================
YEARS ENDED DECEMBER 31, 2001 2000 1999 ---------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Interest and fees received $ 105,681,439 $ 99,953,089 $ 80,142,949 Other income received 10,234,139 8,690,464 6,902,346 Miscellaneous receipts (payments) 2,499,645 (3,696,094) (55,985) Interest paid (50,590,873) (49,222,123) (37,828,114) Cash paid to employees and others (23,471,394) (34,184,043) (36,945,784) Income taxes paid (9,870,000) (6,738,000) (1,138,785) ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 34,482,956 $ 14,803,293 $ 11,076,627 ---------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Proceeds from maturities of investment securities held to maturity $ 682,740,824 $ 113,817,025 $ 473,624,059 Proceeds from maturities of investment securities available for sale 291,958,080 15,498,313 5,112,100 Proceeds from sales of investment securities available for sale 66,599,091 22,698,308 - Net (increase) decrease in loans 16,139,350 (116,259,518) (25,106,838) Proceeds from sales of other real estate owned 1,503,501 1,341,237 2,550,915 Proceeds from sales of other assets 87,475 11,000 - Purchase of investment securities held to maturity (468,825,048) (135,994,735) (501,530,247) Purchase of investment securities available for sale (616,471,490) (22,586,160) (98,582,395) Purchase of bank premises and equipment (2,806,962) (3,733,419) (3,832,992) ---------------------------------------------------------------------------------------------------- Net cash used for investing activities $ (29,075,179) $(125,207,949) $(147,765,398) ---------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Net increase in demand, interest bearing demand, and savings deposits $ 103,716,436 $ 12,458,519 $ 2,783,201 Net increase (decrease) in other time deposits (99,433,104) 38,061,711 24,248,138 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) - Repurchase of common stock (3,511,274) - - Dividends paid (9,582,754) (8,205,200) (6,609,000) ---------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities $ (8,810,696) $ 142,115,030 $ 143,422,339 ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (3,402,919) $ 31,710,374 $ 6,733,568 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 1) 69,540,039 37,829,665 31,096,097 ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 66,137,120 $ 69,540,039 $ 37,829,665 ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 21 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ================================================================================
YEARS ENDED DECEMBER 31, 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,924,200 $ 21,173,523 $ 17,069,332 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,995,498 1,805,138 1,422,238 Provision for loan losses 7,399,901 6,298,461 9,388,041 (Increase) decrease in net deferred Federal income tax asset (261,422) (1,519,014) 4,778,545 Amortization of investment premium and discount 2,880,510 280,986 435,995 Net increase (decrease) in interest payable and other liabilities (276,939) 1,081,894 (17,253,493) Net (increase) decrease in interest receivable and other assets 2,940,129 (16,725,615) (4,965,123) Net increase (decrease) in deferred loan fees (205,576) 358,300 46,714 Other (1,913,345) 2,049,620 154,378 ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 34,482,956 $ 14,803,293 $ 11,076,627 ------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Transfer of loans to other real estate owned $ 3,216,263 $ 1,500,370 $ 2,094,007 ------------------------------------------------------------------------------------------------------------------------- Transfer of loans to other assets $ 147,826 $ 61,475 $ 2,000 -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 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, 1999 $ 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 ADD (DEDUCT) Net income for the year 21,924,200 21,924,200 Net unrealized gains on securities available for sale, net of tax (Note 4) 2,314,790 2,314,790 Repurchase of 247,458 shares of common stock (Note 8) (3,511,274) (3,511,274) Dividends declared- Common ($.50 per share) (9,952,535) (9,952,535) ------------------------------------------------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 2001 $ - $ - $ 58,988,726 $104,055,944 $ (1,314,526) $ 161,730,144 ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 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 19,752,542 are outstanding at December 31, 2001. 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. A material estimate that is particularly susceptible to significant changes in the near term relates to the determination of the allowance for loan losses. 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, and 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. The market value of securities is based on quoted market prices. For securities that do not have readily available market values, estimated market values are calculated based on the market values of comparable securities. 24 Gains and losses on the sale of securities are determined using the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the term of the security. INTEREST INCOME ON LOANS Interest income on loans is recorded on an accrual basis. Origination fees and certain direct costs are deferred and accounted for as an adjustment to the yield in accordance with SFAS 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost, less accumulated depreciation of $18,505,966 in 2001 and $16,510,468 in 2000. 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 $1,995,498 in 2001, $1,805,138 in 2000, and $1,422,238 in 1999. 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 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. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include cash and due from banks and Federal funds sold. Generally, cash equivalents have daily maturities. (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:
2001 2000 --------------------------------------------------------------------------------------- Real estate loans $ 595,255,497 $ 547,285,414 Loans to finance agricultural production and other loans to farmers 2,855,577 2,831,759 Commercial and industrial loans 99,978,957 151,734,230 Loans to individuals for household, family, and other personal expenditures 90,675,451 111,504,134 All other loans (including overdrafts) 695,988 609,274 --------------------------------------------------------------------------------------- Total loans, gross $ 789,461,470 $ 813,964,811 Less: Deferred loan fees 1,636,418 1,841,994 --------------------------------------------------------------------------------------- Total loans, net of deferred loan fees $ 787,825,052 $ 812,122,817 Less: Allowance for loan losses 13,000,000 10,600,000 --------------------------------------------------------------------------------------- $ 774,825,052 $ 801,522,817 =======================================================================================
25 To reduce risk related to the use of credit related financial instruments, the Bank might deem it necessary to obtain collateral. The amount and nature of the collateral obtained is based on the Bank's credit evaluation of the customer. Collateral held varies but may include cash, securities, accounts receivable, inventory, property, plant and equipment, and real estate. 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 $22,712,019 and $17,161,449 at December 31, 2001 and 2000, 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. In 2001, the Bank sold the consumer portion of its credit card loan portfolio. The amount of loans sold was $6,813,023 and the gain recognized on the sale of these loans was $408,781. Also in 2001, the Bank sold a portion of its commercial lease loans. The amount of loans sold was $17,629,669 and the gain on the sale of these loans was $308,519. The gains on these sales are included in other non-interest income. The Allowance for Loan Losses on these loans sold was $410,000. The Bank allocated this amount to the remainder of the loan portfolio. 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 $19,491,938 and $24,448,451 at December 31, 2001 and 2000, respectively. In 2001, new loans and other additions amounted to $4,923,676, and repayments and other reductions amounted to $9,880,189. 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. At December 31, 2001, loans carried at $166,533,386 were pledged to secure Federal Home Loan Bank advances. (3) Allowance For Loan Losses Activity in the allowance for loan losses was as follows:
2001 2000 1999 ----------------------------------------------------------------------------------------- Balance beginning of year $ 10,600,000 $ 9,900,000 $ 11,100,000 Provision for loan losses 7,399,901 6,298,461 9,388,041 Loans charged off (6,163,810) (8,126,386) (11,556,352) Recoveries 1,163,909 2,527,925 968,311 ----------------------------------------------------------------------------------------- Balance end of year $ 13,000,000 $ 10,600,000 $ 9,900,000 =========================================================================================
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. 26 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 sell 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, 2001 and 2000 (000's omitted):
HELD TO MATURITY DECEMBER 31, 2001 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------------------------------------------ Obligations of U.S. Government Agencies $ 30,044 $ 211 $ (58) $ 30,197 Obligations of States and Political Subdivisions 129,075 3,245 (399) 131,921 Other Securities 2,968 - (7) 2,961 ------------------------------------------------------------------------------------------------------ $ 162,087 $ 3,456 $ (464) $ 165,079 ====================================================================================================== AVAILABLE FOR SALE DECEMBER 31, 2001 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------------------------------------------------------------------------------------------------ Obligations of U.S. Government Agencies $ 226,027 $ 682 $ (1,003) $ 225,706 Obligations of States and Political Subdivisions 8,646 - (504) 8,142 Other Securities 102,763 1,075 (2,272) 101,566 ------------------------------------------------------------------------------------------------------ $ 337,436 $ 1,757 $ (3,779) $ 335,414 ====================================================================================================== 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 ======================================================================================================
27
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 ====================================================================================================== HELD TO MATURITY DECEMBER 31, 2001 DECEMBER 31, 2000 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ------------------------------------------------------------------------------------------------------ Maturing within 1 year $ 15,812 $ 15,866 $ 66,688 $ 66,657 1 to 5 years 46,617 48,011 39,108 39,886 5 to 10 years 53,773 55,453 108,940 110,905 Over 10 years 45,885 45,749 119,248 116,999 ------------------------------------------------------------------------------------------------------ $ 162,087 $ 165,079 $ 333,984 $ 334,447 ====================================================================================================== AVAILABLE FOR SALE DECEMBER 31, 2001 DECEMBER 31, 2000 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ------------------------------------------------------------------------------------------------------ Maturing within 1 year $ 5,206 $ 5,239 $ 9 $ 9 1 to 5 years 126,968 127,212 66,943 63,615 5 to 10 years 109,621 109,569 43,761 41,400 Over 10 years 83,391 81,118 1,042 1,120 Securities with no stated maturity 12,250 12,276 12,250 12,277 ------------------------------------------------------------------------------------------------------ $ 337,436 $ 335,414 $ 124,005 $ 118,421 ======================================================================================================
At December 31, 2001, investment securities carried at $176,302,554 were pledged or set aside to secure public deposits and for other purposes as required by law. At December 31, 2001, Obligations of U. S. Government Agencies included securities issued by the Federal Home Loan Bank with an estimated market value of $239,625,466. At December 31, 2000, Obligations of U. S. Government Agencies included securities issued by the Federal Home Loan Bank with an estimated market value of $149,508,389. At December 31, 2001, Obligations of States and Political Subdivisions included securities carried at $231,750 that were more than ninety days past due on their interest payments. These securities are in nonaccrual status. Due to the decline in creditworthiness of the issuer, the securities were reclassified from Held to Maturity to Available for Sale. The impact of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138, was not material to the Bank's financial statements. At December 31, 2001 and December 31, 2000, Other Securities Available for Sale included Federal Home Loan Bank of Indianapolis common stock valued at $11,250,000. This stock is recorded at cost and is restricted from sale. 28 (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, 2001 and 2000. INVESTMENT SECURITIES Fair value for the Bank's investment securities was determined using the market value at December 31, 2001 and 2000. 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, 2001, net of the allowance for loan losses, is $776,550,136, compared to the carrying value of $774,825,052. The estimated fair value of loans at December 31, 2000, net of the allowance for loan losses, was $796,811,809, compared to the carrying value of $801,522,817. 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, 2001 is $374,463,850, compared to the carrying value of $368,695,291. The estimated fair value of other time deposits at December 31, 2000 was $466,499,557, compared to the carrying value of $468,128,395. FEDERAL HOME LOAN BANK ADVANCES The Federal Home Loan Bank advances in the accompanying consolidated statements of condition were all written with a put option that allows the Federal Home Loan Bank to require repayment or conversion to a variable rate advance. The fair value of these putable Federal Home Loan Bank advances is estimated using the binomial lattice option pricing method. The estimated fair value of Federal Home Loan Bank advances at December 31, 2001 is $243,452,000, compared to the carrying value of $225,000,000. The estimated fair value of Federal Home Loan Bank advances at December 31, 2000 was $232,813,000, compared to the carrying value of $225,000,000. 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. (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. 29 The provision for Federal income taxes consists of the following:
2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------ Federal income taxes currently payable (refundable) $ 9,814,553 $ 8,332,184 $ (340,438) Provision (credit) for deferred taxes on: Book (over) under tax loan loss provision (840,000) (245,000) 420,000 Accretion of bond discount 111,000 164,000 65,000 Net deferred loan origination fees 40,000 (125,000) (16,000) Nonaccrual loan interest income (575,000) (387,000) (196,000) Accrued postretirement benefits (84,000) (42,000) (44,000) Tax over (under) book depreciation 70,000 (305,000) (93,000) Alternative minimum tax - 665,000 (665,000) Deferred compensation - - 6,074,000 Other, net (230,000) (26,000) 2,800 ------------------------------------------------------------------------------------------------------------------------ $ 8,306,553 $ 8,031,184 $ 5,207,362 ========================================================================================================================
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:
2001 2000 1999 ----------------------------------------------------------------------------- Statutory rate 35.0 % 35.0 % 35.0 % Municipal interest income (7.0) (7.3) (11.2) Other, net (0.5) (0.2) (0.4) ----------------------------------------------------------------------------- Effective tax rate 27.5 % 27.5 % 23.4 % =============================================================================
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:
2001 2000 ----------------------------------------------------------------------------------------------------- Deferred Federal income tax assets: Allowance for loan losses $ 4,550,000 $ 3,710,000 Net deferred loan origination fees 604,000 644,000 Tax versus book depreciation differences 727,000 797,000 Nonaccrual loan interest income 1,158,000 583,000 Net unrealized losses on securities available for sale 708,000 1,954,000 Accrued postretirement benefits 418,000 334,000 Other, net 289,000 59,000 ----------------------------------------------------------------------------------------------------- $ 8,454,000 $ 8,081,000 Deferred Federal income tax liabilities: Accretion of bond discount $ (484,000) $ (373,000) ----------------------------------------------------------------------------------------------------- $ (484,000) $ (373,000) ----------------------------------------------------------------------------------------------------- Net deferred Federal income tax asset $ 7,970,000 $ 7,708,000 =====================================================================================================
(7) 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 $13,808,000 and $12,698,000 at December 31, 2001 and 2000, respectively. Cash and due from banks includes deposits held at correspondent banks in excess of FDIC insurance limits. 30 (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. As of December 31, 2001, 247,458 shares had been repurchased at a total cost of $3,511,274. 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. Shares issued and outstanding were 19,752,542 as of December 31, 2001 and 20,000,000 as of December 31, 2000. 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. (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 $800,549 for the year ended December 31, 2001 and $799,870 for the year ended December 31, 2000. This included a three percent profit sharing contribution for each year. In 1999, 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. 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 $71,249 in 2001, $64,417 in 2000, and $58,826 in 1999. A reconciliation of the accumulated postretirement benefit obligation ("APBO") to the amounts recorded in the consolidated statements of condition in Interest Payable and Other Liabilities at December 31 is as follows:
2001 2000 ----------------------------------------------------------------------------------------------------- APBO $ 1,513,401 $ 1,426,448 Unrecognized net transition obligation (589,495) (643,085) Unrecognized prior service costs (47,740) (51,574) Unrecognized net gain 196,776 214,373 ----------------------------------------------------------------------------------------------------- Liability recorded in the consolidated statements of condition $ 1,072,942 $ 946,162 =====================================================================================================
31 The changes recorded in the accumulated postretirement benefit obligation were as follows:
2001 2000 -------------------------------------------------------------------------------------------- APBO at beginning of year $ 1,426,448 $ 1,282,70 Service cost 41,707 38,952 Interest cost 106,488 99,307 Actuarial loss 10,007 69,906 Benefits paid during year (71,249) (64,417) -------------------------------------------------------------------------------------------- APBO at end of year $ 1,513,401 $ 1,426,44 ============================================================================================
Components of the Bank's postretirement benefit expense were as follows:
2001 2000 1999 ---------------------------------------------------------------------------------------- Service cost $ 41,707 $ 38,952 $ 40,722 Interest cost 106,488 99,307 89,085 Amortization of transition obligation 53,590 53,590 53,590 Prior service costs 3,834 3,834 - Amortization of gains (7,590) (17,994) - ---------------------------------------------------------------------------------------- Net postretirement benefit expense $ 198,029 $ 177,689 $ 183,397 ========================================================================================
The APBO as of December 31, 2001 and 2000 was calculated using assumed discount rates of 7.25% and 7.50%, respectively. Health care costs were assumed to rise 6.40% in 2002, 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, 2001 by 1.34%, or $20,211. (10) Deposits Interest expense on time certificates of deposit of $100,000 or more in the year 2001 amounted to $10,749,159, as compared with $14,421,190 in 2000 and $12,411,822 in 1999. At December 31, 2001, the balance of time certificates of deposit of $100,000 or more was $137,166,164, as compared with $221,421,310 at December 31, 2000. The amount of time deposits with a remaining term of more than 1 year was $131,645,000 at December 31, 2001 and $88,097,000 at December 31, 2000. All time deposits have a remaining term of less than 5 years. (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 and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 32 Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank 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, 2001, 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 December 31, 2001 that Management believes have changed the Corporation's category. Management believes, as of December 31, 2001, that the Corporation meets all capital adequacy requirements to which it is subject. The Corporation's and Bank's actual capital amounts and ratios are also presented in the table (000s omitted in dollar amounts).
Minimum to Qualify as Actual Well Capitalized --------------------------------------------------------------------------------------------------- Amount Ratio Amount Ratio --------------------------------------------------------------------------------------------------- AS OF DECEMBER 31, 2001: Total Capital to Risk-Weighted Assets Consolidated $ 174,472 18.5% $ 94,492 10.0% Monroe Bank & Trust 174,327 18.4% 94,492 10.0% Tier 1 Capital to Risk-Weighted Assets Consolidated 162,634 17.2% 56,695 6.0% Monroe Bank & Trust 162,489 17.2% 56,695 6.0% Tier 1 Capital to Average Assets Consolidated 162,634 11.6% 70,250 5.0% Monroe Bank & Trust 162,489 11.6% 70,250 5.0% AS OF DECEMBER 31, 2000: Total Capital to Risk-Weighted Assets Consolidated $ 164,730 16.4% $ 100,472 10.0% Monroe Bank & Trust 164,606 16.4% 100,472 10.0% Tier 1 Capital to Risk-Weighted Assets Consolidated 154,118 15.3% 60,283 6.0% Monroe Bank & Trust 153,994 15.3% 60,283 6.0% Tier 1 Capital to Average Assets Consolidated 154,118 11.6% 66,197 5.0% Monroe Bank & Trust 153,994 11.6% 66,197 5.0%
33 (12) Earnings Per Share The calculation of earnings per common share for the years ended December 31 is as follows:
2001 2000 1999 ------------------------------------------------------------------------------------------------------------------ BASIC Net income $21,924,200 $21,173,523 $17,069,332 Less preferred dividends - 5,200 9,000 ------------------------------------------------------------------------------------------------------------------ Net income applicable to common stock $21,924,200 $21,168,323 $17,060,332 ------------------------------------------------------------------------------------------------------------------ Average common shares outstanding 19,933,580 20,000,000 20,000,000 ------------------------------------------------------------------------------------------------------------------ Earnings per common share - basic $ 1.10 $ 1.06 $ 0.85 ================================================================================================================== 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------ DILUTED Net income $21,924,200 $21,173,523 $17,069,332 Less preferred dividends - 5,200 9,000 ------------------------------------------------------------------------------------------------------------------ Net income applicable to common stock $21,924,200 $21,168,323 $17,060,332 ------------------------------------------------------------------------------------------------------------------ Average common shares outstanding 19,933,580 20,000,000 20,000,000 Stock option adjustment 180 - - ------------------------------------------------------------------------------------------------------------------ Average common shares outstanding - diluted 19,933,760 20,000,000 20,000,000 ------------------------------------------------------------------------------------------------------------------ Earnings per common share - diluted $ 1.10 $ 1.06 $ 0.85 ==================================================================================================================
On January 2, 2001, the Corporation issued options for 13,834 shares of its common stock to its non-employee directors in accordance with the Long-Term Incentive Compensation Plan and the Retainer Exchange Agreements. In accordance with the agreement, each director was permitted to exchange a specified percentage of their quarterly retainer earned during 2001 for an option to acquire shares of common stock. The options were granted at a price of $13.94, which was the fair market value of the Corporation's common stock on the date the options were granted. On July 1, 2000, the Corporation issued options for 126,600 shares of its common stock to certain key executives of the Bank in accordance with the Long-Term Incentive Compensation Plan. 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 was $14.12 during 2001 and $16.81 during 2000. The options granted on July 1, 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 and non-employee directors. 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 to key employees in 2000 vest annually, beginning December 31, 2000. The options granted to non-employee directors in 2001 vested on December 31, 2001. 34 The Corporation applies the intrinsic value method of APB Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock plans as allowed under SFAS 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 123, pro forma net income for the years ended December 31, 2001 and December 31, 2000 are shown in the table below.
2001 2000 --------------------------------------------------------------------------------------- Net Income as Reported $ 21,924,200 $ 21,173,523 Pro Forma Adjustment Due to Stock Options (220,782) (91,360) --------------------------------------------------------------------------------------- Pro Forma Net Income $ 21,703,418 $ 21,082,163 ======================================================================================= Earning per Share as Reported Basic $ 1.10 $ 1.06 Diluted $ 1.10 $ 1.06 Pro Forma Earnings per Share Basic $ 1.09 $ 1.05 Diluted $ 1.09 $ 1.05
A summary of the status of stock options under the plan at December 31, 2001 and 2000, and changes during the years then ended are presented in the table below.
2001 2000 ------------------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price ------------------------------------------------------------------------------------------------------------------------- Options Outstanding, January 1 126,600 $ 18.13 - $ - Granted 13,834 13.94 126,600 18.13 Exercised - - - - Cancelled - - - - ------------------------------------------------------------------------------------------------------------------------- Options Outstanding, December 31 140,434 $ 17.72 126,600 $ 18.13 ------------------------------------------------------------------------------------------------------------------------- Options Exercisable, December 31 98,236 $ 17.53 42,203 $ 18.13 =========================================================================================================================
The option value for the options granted in 2001 and 2000 was calculated to be $3.82 and $4.97 per share, respectively, using the Black-Scholes stock option pricing model. In making this calculation, it was assumed for both years 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%. (14) Parent Company Condensed parent company financial statements, which include transactions with the subsidiary, are as follows: 35 STATEMENTS OF CONDITION
December 31, 2001 2000 ----------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 2,599,005 $ 2,252,108 Investment in subsidiary bank 161,584,219 150,830,855 ----------------------------------------------------------------------------------------- Total assets $164,183,224 $153,082,963 ========================================================================================= LIABILITIES Dividends payable and other liabilities $ 2,453,080 $ 2,128,000 ----------------------------------------------------------------------------------------- Total liabilities 2,453,080 2,128,000 ----------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Total stockholders' equity 161,730,144 150,954,963 ----------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $164,183,224 $153,082,963 =========================================================================================
STATEMENTS OF INCOME
Years Ended December 31, 2001 2000 ------------------------------------------------------------------------------------------ INCOME Dividends from subsidiary bank $ 13,194,219 $ 8,455,200 ----------------------------------------------------------------------------------------- Total income 13,194,219 8,455,200 ----------------------------------------------------------------------------------------- EXPENSE Interest on other borrowed funds - 3,900 Other expense 123,074 193,992 ----------------------------------------------------------------------------------------- Total expense 123,074 197,892 ----------------------------------------------------------------------------------------- Income before tax and equity in undistributed net income of subsidiary bank 13,071,145 8,257,308 Income tax benefit (44,700) (72,000) ----------------------------------------------------------------------------------------- Income before equity in undistributed net income of subsidiary bank 13,115,845 8,329,308 Equity in undistributed net income of subsidiary bank 8,808,355 12,844,215 ----------------------------------------------------------------------------------------- NET INCOME $ 21,924,200 $ 21,173,523 =========================================================================================
36 STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 2000 --------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,924,200 $ 21,173,523 Equity in undistributed net income of subsidiary bank (8,808,355) (12,844,215) Net increase (decrease) in other liabilities 325,080 (872,000) Net decrease in other assets - 3,000,000 --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 13,440,925 $ 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) Repurchase of common stock (3,511,274) - Dividends paid (9,582,754) (8,205,200) --------------------------------------------------------------------------------------------------------- Net cash used for financing activities $(13,094,028) $ (8,205,200) --------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 346,897 $ 2,252,108 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,252,108 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,599,005 $ 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. The Bank has not made any loans to the corporation. 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 $21,652,570 in 2002, in addition to its 2002 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 $15,458,861 at December 31, 2001 and $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 37 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 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 premium payments of $3,684,421 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 38 contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for its other lending activities. Financial instruments whose contractual amounts represent off-balance sheet credit risk at December 31 were as follows:
Contractual Amount (in thousands) 2001 2000 ------------------------------------------------------------------------------------------------- Commitments to extend credit: Unused portion of commercial lines of credit $ 83,400 $110,558 Unused portion of credit card lines of credit 9,394 31,217 Unused portion of home equity lines of credit 14,967 12,887 Standby letters of credit and financial guarantees written 17,968 16,942
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 customer to a third being drawn upon, the total committed amounts do not necessarily represent future cash requirements. Credit card lines of credit have no established expiration dates, but are fundable on demand. Home equity lines of credit are secured by real estate mortgages, have no established expiration dates, but are fundable 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 party. Those guarantees are primarily issued to support public and private borrowing arrangements and other business transactions. Approximately $11,604,000 of the letters of credit expires in 2002 and $6,364,000 extends for two to five years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. (17) Federal Home Loan Bank Advances As of December 31, 2001 and December 31, 2000, the Bank had ten loans from the Federal Home Loan Bank of Indianapolis totaling $225,000,000. All of these advances carry fixed rates of interest and contain a put option that allows the FHLB to require repayment or conversion to a variable rate advance each quarter. The average rate on the advances is 5.65%, and the final maturities are in 2009 and 2010. If converted by the FHLB, the interest rates would float quarterly at rates ranging from 3 month LIBOR to 3 month LIBOR plus .02% 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE 40 PART III Item 10. Directors and Executive Officers of the Registrant DIRECTORS OF THE REGISTRANT
PRINCIPAL OCCUPATION, 12/31/01, DIRECTOR, (PREVIOUS 5 YEARS) MONROE BANK & NAME (AGE) & DIRECTORSHIPS TRUST, SINCE ---------- --------------- ------------ Connie S. Cape (51) Health Care Consultant (2000 - present); Vice President 2000 Finance/Chief Financial Officer, Mercy Memorial Hospital (1997 - 2000) Ronald J. Gruber (62) President, MMB Group, Inc., a venture capital company (1998 - 1995 present); Chief Executive Officer & Managing Director, Brandenburg Securities, Ltd., an investment banking firm (1997) Thomas M. Huner (52) President, Thomas M. Huner Builders, a home building company 2000 Gerald L. Kiser (55) President and Chief Operating Officer (1997- present), 2000 Executive Vice President and Chief Operating Officer (1997), Vice President - Operations (1997), La-Z-Boy Inc., a furniture manufacturer; Director, La-Z-Boy Inc. Ronald D. LaBeau (58) President and Chief Executive Officer (1999 - present), 1998 Executive Vice President & Senior Loan Officer (1998), Vice President, Loans & Business Development (1997), Monroe Bank & Trust Rocque E. Lipford (63) Attorney and Partner, Miller, Canfield, Paddock and Stone, 1981 P.L.C.; Director, La-Z-Boy Inc. William D. McIntyre, Jr. (66) 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 (1997 - 2000) Michael J. Miller (53) Chief Executive Officer, Floral City Beverage, a beer wholesaler 2000 Richard A. Sieb (70) President, Sieb Plumbing & Heating Inc. and President, Nortel 1993 Inc., a recreational bowling establishment Philip P. Swy (48) President, Michigan Tube Swagers & Fabricators, Inc., a 1997 hospitality table and chair manufacturer and marketer
41 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION ------------------------------------------------- --- ------------------------------------------- Ronald D. LaBeau 58 President Thomas J. Bruck 56 Secretary Eugene D. Greutman 53 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 58 President & Chief Executive Officer H. Douglas Chaffin 45 Executive Vice President & Senior Lending Manager Thomas J. Bruck 56 Executive Vice President & Cashier James E. Morr 55 Executive Vice President, Senior Trust Officer & General Counsel Eugene D. Greutman 53 Senior Vice President Finance Herbert J. Lock 55 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 May. Ronald D. LaBeau was President & Chief Executive Officer in 2001, 2000, and 1999, Executive Vice President and Senior Loan Officer in 1998, and Vice President, Loans and Business Development in 1997. H. Douglas Chaffin joined the Bank in 2001 as Executive Vice President & Senior Lending Manager. Thomas J. Bruck was Executive Vice President and Cashier in 2001, 2000, 1999, and 1998, and Senior Vice President and Cashier in 1997. James E. Morr was Executive Vice President, Senior Trust Officer and General Counsel in 2001, 2000, 1999, and 1998, and Senior Vice President, Trust Officer and Legal Counsel in 1997. Eugene D. Greutman was Senior Vice President Finance in 2001 and 2000, and Senior Vice President and Controller in 1999, 1998, and 1997. Herbert J. Lock was Senior Vice President and Investment Officer in 2001, 2000, and 1999, and Vice President, Investment and Trust Officer in 1998 and 1997. 42 Item 11. Executive Compensation GENERAL. The following information relates to compensation of management for the years ended December 31, 2001, 2000 and 1999, unless otherwise noted below. 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 as the bank holding company for Monroe Bank & Trust. EXECUTIVE COMPENSATION. The following table sets forth the annual and long-term compensation for MBT's Chief Executive Officer and the four highest paid executive officers, as well as the total compensation paid to each individual during the last three fiscal years. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------- ----------- SECURITIES ALL OTHER UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($) (A) --------------------------- ---- ---------- --------- ----------- ------- Ronald D. LaBeau............................... 2001 $218,400 $222,359 0 $25,075 President and Chief Executive Officer 2000 212,250 226,564 35,000 23,700 1999 198,962 136,651 0 21,429 Thomas J. Bruck................................ 2001 $90,800 $71,902 0 $12,264 Executive Vice President and Cashier 2000 88,000 73,843 19,600 11,440 1999 75,500 74,252 0 11,325 James E. Morr.................................. 2001 $90,800 $71,902 0 $12,249 Executive Vice President, Senior Trust 2000 88,000 73,843 19,600 11,440 Officer and General Counsel 1999 74,000 72,770 0 11,100 Eugene D. Greutman............................. 2001 $87,700 $69,448 0 $11,683 Senior Vice President Finance 2000 85,000 71,326 19,600 11,050 1999 72,800 71,637 0 10,920 Herbert J. Lock................................ 2001 $76,900 $52,196 0 $10,411 Senior Vice President and Investment Officer 2000 74,000 53,224 17,400 9,620 1999 62,400 51,157 0 9,360
(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, $8,172; Mr. Morr, $8,172; Mr. Greutman, $7,893; and Mr. Lock, $6,921; (2) contributions by Monroe Bank & Trust to the Money Purchase Pension Plan of Monroe Bank & Trust: Mr. LaBeau, $6,800; Mr. Bruck, $3,632; Mr. Morr, $3,632; Mr. Greutman, $3,508; and Mr. Lock, $3,076; and (3) the economic benefit of life insurance coverage provided for the executive officers: for the benefit of Mr. LaBeau, $2,975; for the benefit of Mr. Bruck, $460; for the benefit of Mr. Morr, $445; for the benefit of Mr. Greutman, $282; and for the benefit of Mr. Lock, $414. 43 OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table presents information about stock options exercised during 2001 and unexercised stock options at December 31, 2001 for the five named executive officers. OPTION EXERCISES AND YEAR-END VALUE TABLE AGGREGATED OPTION EXERCISES IN 2001 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT DECEMBER 31, 2001(#) DECEMBER 31, 2001($) -------------------- -------------------- SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ----------- -------- ------------------------- ------------------------- Ronald D. LaBeau 0 0 23,334 / 11,666 0 / 0 Thomas J. Bruck 0 0 13,067 / 6,533 0 / 0 James E. Morr 0 0 13,067 / 6,533 0 / 0 Eugene D. Greutman 0 0 13,067 / 6,533 0 / 0 Herbert J. Lock 0 0 11,600 / 5,800 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. 44 SALARY CONTINUATION AGREEMENT. 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. 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:
SALARY CONTINUATION ANNUAL BENEFIT AGREEMENT PLAN YEAR PAYABLE AFTER ENDING DECEMBER 26, REACHING AGE 65 FOR EARLY RETIREMENT OR DISABILITY OCCURRING ON OR AFTER THE END OF 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
BANK OWNED LIFE INSURANCE. MBT has split-dollar life insurance agreements with its directors and executive officers. The economic benefit (the imputed income amount of this insurance) for the year 2001 to MBT's Chief Executive Officer and its other four highest paid executive officers is included in the amounts for each of these executive officers set forth in the Summary Compensation Table under the column "All Other Compensation." The economic benefit (the imputed income amount of this insurance) for the year 2001 to each director other than Mr. LaBeau is as follows: Ms. Cape, $367; Mr. Gruber, $1,513; Mr. Huner, $375; Mr. Kiser, $438; Mr. Lipford, $2,255; Mr. McIntyre, $3,071; Mr. Miller, $449; Mr. Sieb, $3,286; and Mr. Swy, $424. The insurance policies provide death benefits to the executive's beneficiaries of (a) twice the executive's current annual salary at the time of death, less $50,000, if he dies before retirement or, (b) the executive's annual salary at the time his employment terminated if he dies after retirement or if his employment has been terminated due to disability. An additional policy provides Mr. LaBeau's beneficiaries life insurance proceeds of $958,837 if he dies before age 65 while in active service to MBT. 45 The directors' death benefits under the policy provided for them, which also covers Mr. LaBeau, 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. DIRECTOR COMPENSATION Directors of MBT other than Mr. LaBeau are compensated for all services as a director in the following manner: eligible directors receive $750 per board meeting attended and are entitled to receive 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 per meeting attended; Nominating/Governance Committee, $250 per meeting attended; Trust Committee, $500 per meeting attended; and Loan Review Committee, $500 per meeting attended. As an employee, Mr. LaBeau does not receive any compensation for his service as a director. Directors receive life insurance benefits as explained above under the caption, "Bank Owned Life Insurance." 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 and 2002, 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. Each non-employee director elected to receive stock options in place of quarterly cash retainer payments in 2002. In January 2001, each non-employee director, with the exception of Mr. Swy, was awarded an option to purchase 1,572 common shares at a fair market value exercise price of $13.94 per share, which option vested on December 31, 2001 and has a term expiring January 2, 2011. Mr. Swy was awarded an option to purchase 1,258 common shares on the same terms. In January 2002, each non-employee director was awarded an option to purchase 1,835 shares at a fair market value exercise price of $13.85 per share, which option vests on December 31, 2002, and has a term expiring January 2, 2012. 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. 46 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. The Compensation Committee also uses its discretion to set executive compensation based upon individual performance. COMPENSATION MATTERS IN 2001. During 2001 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 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 was based on net operating income for the year 2001. 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 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 2001, 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, each participant receives a ratable increase in his or her cash bonus. MBT exceeded its target goal for net operating income in 2001. The achievement of this corporate goal represented the entire cash bonus for each Executive Officer for 2001. LONG-TERM INCENTIVES. Stock options awarded 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. 47 The Long-Term Incentive Compensation Plan authorizes a committee of outside directors to award stock options and other stock compensation to key executives. Awards are made at levels considered to be competitive within the banking industry. No stock options were awarded in 2001 to Executive Officers. 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, was increased to $218,400, effective January, 2001, based upon the recommendation of an outside compensation consultant arising from its survey of other banking companies, as described above. 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 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. 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, 1996. MBT FINANCIAL CORP. COMPARISON OF CUMULATIVE TOTAL RETURN TO SHAREHOLDERS DECEMBER 31, 1996 THROUGH DECEMBER 31, 2001
NASDAQ NASDAQ MBT Bank Composite Financial Corp. ------------------------------------------- 1996 100.00 100.00 100.00 1997 163.59 121.64 131.80 1998 144.33 169.84 284.75 1999 132.81 315.20 274.56 2000 152.30 191.36 173.18 2001 165.05 151.07 187.56
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 2001, 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 1996 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 2001 includes all FDIC insured banks between $1 billion and $3 billion in total assets. MONROE BANK & TRUST COMPARISON OF RETURN ON ASSETS (ROA) 1996 THROUGH 2001*
Monroe Bank Peer & Trust Group** 1996 1.92% 1.30% 1997 1.94% 1.29% 1998 1.64% 1.26% 1999 1.52% 1.31% 2000 1.67% 1.21% 2001* 1.51% 1.17%
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 2001 were satisfied on a timely basis with the exception of Mr. Miller who filed three late reports covering three transactions in 2001 and one late report for one transaction in 2000. 50 Item 12. Security Ownership of Certain Beneficial Owners and Management As of December 31, 2001, beneficial ownership in excess of five percent of the common stock is as follows:
AMOUNT & NATURE TITLE OF NAME & ADDRESS OF OF BENEFICIAL PERCENT CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS -------------- ---------------------------------- ------------------------ -------------- Common Monroe Bank & Trust 6,226,479 shares(1) 31.5% 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 3,944,908 of these shares, shared power to dispose of 2,281,571 of these shares, sole power to vote 3,944,908 of these shares, and shared power to vote 2,281,571 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, 2001.
COMMON SHARES NAME OF BENEFICIAL OWNER OWNED (1) PERCENT OF CLASS ---------------------------------- ----------------------------- ---------------------- Thomas J. Bruck 201,579(2) 1.0% Connie S. Cape 7,472(3) * Eugene D. Greutman 64,867(4) * Ronald J. Gruber 10,772(5) * Thomas M. Huner 23,572(6) * Gerald L. Kiser 3,572(7) * Ronald D. LaBeau 73,158(8) * Rocque E. Lipford 24,966(9) * Herbert J. Lock 18,178(10) * William D. McIntyre, Jr. 69,828(11) * Michael J. Miller 22,941(12) * James E. Morr 58,721(13) * Richard A. Sieb 74,258(14) * Philip P. Swy 5,258(15) * All Directors and Executive 659,142 3.3% Officers as a Group (15 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 165,898 shares subject to shared voting and investment power and 13,067 shares subject to options which are presently exercisable. 51 (3) Includes 1,600 shares subject to shared voting and investment power and 1,572 shares subject to options which are presently exercisable. (4) Includes 51,800 shares subject to shared voting and investment power and 13,067 shares subject to options which are presently exercisable. (5) Includes 1,572 shares subject to options which are presently exercisable. (6) Includes 10,424 shares subject to shared voting and investment power and 1,572 shares subject to options which are presently exercisable. (7) Includes 1,572 shares subject to options which are presently exercisable. (8) Includes 10,946 shares subject to shared voting and investment power and 23,334 shares subject to options which are presently exercisable. (9) Includes 400 shares subject to shared voting and investment power and 1,572 shares subject to options which are presently exercisable. (10) Includes 950 shares subject to shared voting and investment power and 11,600 shares subject to options which are presently exercisable. (11) Includes 1,572 shares subject to options which are presently exercisable. (12) Includes 21,369 shares subject to shared voting and investment power and 1,572 shares subject to options which are presently exercisable. (13) Includes 4,324 shares subject to shared voting and investment power and 13,067 shares subject to options which are presently exercisable. (14) Includes 55,490 shares subject to shared voting and investment power and 1,572 shares subject to options which are presently exercisable. (15) Includes 1,258 shares subject to options which are presently exercisable. 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 2001. 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. 52 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Contents Financial Statements Report of Independent Public Accountants - Page 18 Consolidated Statements of Condition as of December 31, 2001 and 2000 - Page 19 Consolidated Statements of Income for the Years Ended December 31, 2001, 2000, and 1999 - Page 20 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999 - Pages 21 - 22 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2001, 2000, and 1999 - Page 23 Notes to Consolidated Financial Statements - Pages 24 - 39 Financial Statement Schedules (a) Securities - Page 55 (b) Loans and Lease Financing Receivables - Page 56 (c) Bank Premises and Equipment - Page 57 (d) Allowance for Loan Losses - Included in Notes to Financial Statements Note 3, Page 26 Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 2001 Exhibits The following exhibits are filed as a part of this report: 3.1 Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 3.2 Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000 and amended in Exhibit 3.2 to MBT Financial Corp.'s Form 10-Q for its fiscal quarter ended June 30, 2001. 10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan. Previously filed as Exhibit 10.1 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 10.2 Monroe Bank & Trust Salary Continuation Agreement. Previously filed as Exhibit 10.2 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 53 10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement. Previously filed as Exhibit 10.3 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 10.4 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.4 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 10.5 MBT Financial Corp. Employment Agreement. Previously filed as Exhibit 10.5 to MBT Financial Corp.'s Form 10-Q for its fiscal quarter ended September 30, 2001. 10.6 Addition to Monroe Bank & Trust Group Term Carve Out Plan. 21 Subsidiaries of the Registrant. Previously filed as Exhibit 21 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 99 Letter to Securities and Exchange Commission pursuant to Temporary Note 3T to Article 3 of Regulation S-X. 54 SCHEDULE I SECURITIES (000's omitted)
Held to Maturity ---------------------------------------------------------------------------- December 31, 2001 December 31, 2000 December 31, 1999 ------------------------ ------------------------ ------------------------ 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) ... $ 29,903 $ 30,057 $145,622 $143,456 $150,222 $141,004 Securities issued by states and political subdivisions in the U.S .............................. 129,075 131,921 132,007 134,664 152,791 152,505 Pass-through mortgage-backed securities (MBS) ........ 141 140 167 163 177 166 Other domestic securities (debt and equity) .......... 2,968 2,961 56,188 56,164 8,956 8,845 -------- -------- -------- -------- -------- -------- Total ................................................ $162,087 $165,079 $333,984 $334,447 $312,146 $302,520 ======== ======== ======== ======== ======== ======== Pledged securities ................................... $ 35,709 $ 36,775 $ 62,992 $ 63,181 $ 34,889 $ 33,497 ======== ======== ======== ======== ======== ======== Available for Sale ---------------------------------------------------------------------------- December 31, 2001 December 31, 2000 December 31, 1999 ------------------------ ------------------------ ------------------------ 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) ... $224,910 $224,512 $ 11,999 $ 11,979 $ 32,951 $ 32,345 Securities issued by states and political subdivisions in the U.S .............................. 8,646 8,142 - - 6,984 7,157 Pass-through mortgage-backed securities (MBS) ........ 1,117 1,194 1,127 1,212 1,137 1,137 Other domestic securities (debt and equity) .......... 102,763 101,566 110,879 105,230 98,467 96,794 -------- -------- -------- -------- -------- -------- Total ................................................ $337,436 $335,414 $124,005 $118,421 $139,539 $137,433 ======== ======== ======== ======== ======== ======== Pledged securities ................................... $140,945 $140,594 $ 2,998 $ 3,015 $ 18,961 $ 18,906 ======== ======== ======== ======== ======== ========
55 SCHEDULE II LOANS AND LEASE FINANCING RECEIVABLES (000's omitted)
Book Value at December 31, ------------------------------------------------------------- 2001 (a) 2000 (a) 1999 (a) 1998 (a) 1997 (a) --------- -------- -------- -------- -------- Loans secured by real estate: Construction and land development ............................... $ 47,025 $ 36,146 $ 24,504 $ 27,100 $ 21,201 Secured by farmland (including farm residential and other improvements) ......................................... 6,172 4,354 3,774 3,945 5,110 Secured by 1-4 family residential properties .................... 275,489 275,299 214,358 202,926 209,934 Secured by multifamily (5 or more) residential properties ....... 6,714 3,322 3,673 3,166 2,881 Secured by nonfarm nonresidential properties .................... 258,879 227,024 190,588 182,348 158,549 Loans to finance agricultural production and other loans to farmers .................................................. 2,856 2,832 2,087 1,422 1,342 Commercial and industrial loans to U.S. addresses (domicile)....... 99,186 150,805 156,489 171,919 144,316 Loans to individuals for household, family, and other personal expenditures (includes purchased paper): Credit cards and related plans .................................. 3,353 9,415 10,320 10,038 9,716 Other ........................................................... 87,322 102,089 97,091 85,475 76,534 Nonrated industrial development obligations (other than securities) of states and political subdivisions in the U.S. ...... 133 228 380 676 924 Other loans: Loans for purchasing or carrying securities (secured and unsecured) .................................................. - - 9 - - All other loans ................................................. 696 609 109 1,994 1,084 Less: Any unearned income on loans ................................ - - - 3 12 -------- -------- -------- -------- -------- Total loans and leases, net of unearned income .................... $787,825 $812,123 $703,382 $691,006 $631,579 ======== ======== ======== ======== ======== Nonaccrual loans .................................................. $ 22,712 $ 17,161 $ 16,791 $ 5,269 $ 3,725 Loans 90 days or more past due .................................... $ 450 $ 193 $ 107 $ 40 $ 71 Troubled debt restructurings ...................................... $ - $ 1,057 $ 1,281 $ 868 $ 1,434
(a) Loan categories are presented net of deferred loan fees. The presentation in Note 2 to the consolidated financial statements differs from this schedule presentation by presenting the loan categories, gross, before deferred loan fees have been subtracted. 56 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, 2001 ----------------- Bank Premises $ 18,114,759 $ 7,110,281 $ 11,004,478 (including Land of $2,708,338) Equipment 14,892,229 11,395,686 3,496,543 Leasehold Improvements - - - ------------- ------------ ------------ $ 33,006,988 $ 18,505,967 $ 14,501,021 ============= ============ ============ 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 - - - ------------- ------------ ------------ $ 30,200,026 $ 16,510,468 $ 13,689,558 ============= ============ ============
(a) The gross book value of the Bank premises (including land and land improvements), equipment, and leasehold improvements is stated at cost. 57 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 26, 2002 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 26, 2002 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/ Thomas M. Huner By: /s/ Gerald L. Kiser ----------------------------------- ----------------------------- Thomas M. Huner Gerald L. Kiser Director Director By: /s/ Connie S. Cape By: /s/ Philip P. Swy ----------------------------------- ---------------------------- Connie S. Cape Philip P. Swy Director Director By: /s/ Richard A. Sieb ----------------------------------- Richard A. Sieb Director