-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VApQbKWmhzizYLwDscJEUtJKMdpddRhERhSORJHjionNuwUIu8KBK2eK0ayGajPM EIEWsRNOcOJv7uEfvAKhQQ== 0000950124-03-000969.txt : 20030331 0000950124-03-000969.hdr.sgml : 20030331 20030328174714 ACCESSION NUMBER: 0000950124-03-000969 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MBT FINANCIAL CORP CENTRAL INDEX KEY: 0001118237 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 383516922 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30973 FILM NUMBER: 03626586 BUSINESS ADDRESS: STREET 1: 102 EAST FRONT STREET CITY: MONROE STATE: MI ZIP: 48161 BUSINESS PHONE: 7342422893 MAIL ADDRESS: STREET 1: 102 EAST FRONT STREET CITY: MONROE STATE: MI ZIP: 48161 10-K 1 k74354e10vk.txt ANNUAL REPORT 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, 2002 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. [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES __X__ NO ____. As of June 30, 2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $271,061,574. As of March 26, 2003, there were 19,110,441 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Annual Meeting of Stockholders to be held May 1, 2003 are incorporated by reference into Part III of this report on Form 10-K. 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. The Bank's primary market area is Monroe County, Michigan. According to the most recent market data, there are approximately seven other deposit taking/lending institutions competing in the Bank's market. According to the most recent market data for deposits, the Bank ranks first in market share with approximately 62% of the market. 2 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, 2002, Monroe Bank & Trust had 358 full-time employees and 26 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, and a 401(k) plan. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION - ---------------------------- --- ------------------------ Ronald D. LaBeau 59 President Thomas J. Bruck 57 Secretary Eugene D. Greutman 54 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 59 President & Chief Executive Officer H. Douglas Chaffin 46 Executive Vice President & Senior Lending Manager Thomas J. Bruck 57 Executive Vice President & Cashier James E. Morr 56 Executive Vice President, Senior Trust Officer & General Counsel Eugene D. Greutman 54 Senior Vice President Finance Herbert J. Lock 56 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 2002, 2001, 2000, and 1999, and Executive Vice President and Senior Loan Officer in 1998. H. Douglas Chaffin joined the Bank in 2001 as Executive Vice President & Senior Lending Manager. Eugene D. Greutman was Senior Vice President Finance in 2002, 2001 and 2000, and Senior Vice President and Controller in 1999 and 1998. Herbert J. Lock was Senior Vice President and Investment Officer in 2002, 2001, 2000, and 1999, and Vice President, Investment and Trust Officer in 1998. AVAILABLE INFORMATION MBT Financial Corp. makes its annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to those reports available on its website, free of charge. The website address is www.mbandt.com. 3 Item 2. Properties MBT Financial Corp. does not conduct any business other than its ownership of Monroe Bank & Trust's stock. MBT Financial Corp. operates its business from Monroe Bank & Trust's main office facility. Monroe Bank & Trust operates its business from its main office complex and 21 full service branches in the counties of Monroe and Wayne, Michigan. In addition, MBT Credit Company, Inc., a wholly owned subsidiary of Monroe Bank & Trust, operates a mortgage loan origination office in Monroe, Michigan, and a loan and trust office in Wyandotte, Michigan. The Bank owns its main office complex and 19 of its branches. The remaining two branches and the two MBT Credit Company, Inc. locations are leased. Item 3. Legal Proceedings NONE Item 4. Submission of Matters to a Vote of Security Holders. NONE 4 Part II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters Common stock consists of 19,160,441 shares with a book value of $8.72. 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 2002 amounted to $.54 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.
2002 2001 High Low High Low ----------------------------------------------------------------- 1st quarter $ 14.60 $ 13.55 $ 16.50 $ 12.63 2nd quarter $ 14.38 $ 13.85 $ 13.99 $ 12.50 3rd quarter $ 14.00 $ 13.69 $ 15.59 $ 13.43 4th quarter $ 14.00 $ 13.20 $ 14.50 $ 13.50
Dividends declared during the past three years on a quarterly basis were as follows:
2002 2001 2000 ---------------------------------------------------- 1st quarter $ 0.13 $ 0.11 $ 0.075 2nd quarter $ 0.13 $ 0.13 $ 0.075 3rd quarter $ 0.14 $ 0.13 $ 0.11 4th quarter $ 0.14 $ 0.13 $ 0.11
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, 2002 the Corporation's surplus account was $51,080,339 and undivided profits account was $115,395,181. Total stockholders' equity was increased by the amount of net unrealized losses on securities available for sale of $524,123. As of December 31, 2002, the number of common stockholders was 1,320. Management's present expectation is that dividends will continue to be paid in the future. Item 6. Selected Financial Data The selected financial data for the five years ended December 31, 2002 are derived from the audited Consolidated Financial Statements of the Corporation. The financial data set forth below contains only a portion of our financial statements and should be read in conjunction with the Consolidated Financial Statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. 5 SELECTED CONSOLIDATED FINANCIAL DATA - --------------------------------------------------------------------------------
2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF INCOME Interest Income $ 84,603,932 $ 101,324,488 $ 99,569,664 $ 83,178,881 $ 77,766,275 Interest Expense 34,387,415 49,535,345 49,680,992 38,290,421 34,203,473 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income 50,216,517 51,789,143 49,888,672 44,888,460 43,562,802 Provision for Loan Losses 6,101,316 7,399,901 6,298,461 9,388,041 3,217,544 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income after Provision for Loan Losses 44,115,201 44,389,242 43,590,211 35,500,419 40,345,258 Other Income 12,790,820 10,650,797 8,708,702 6,920,016 6,964,982 Other Expenses 26,988,791 24,809,286 23,094,206 20,143,741 25,447,771 - ------------------------------------------------------------------------------------------------------------------------------------ Income before Provision for Income Taxes 29,917,230 30,230,753 29,204,707 22,276,694 21,862,469 Provision for Income Taxes 8,113,585 8,306,553 8,031,184 5,207,362 5,301,810 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 21,803,645 $ 21,924,200 $ 21,173,523 $ 17,069,332 $ 16,560,659 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income available to Common Shareholders $ 21,803,645 $ 21,924,200 $ 21,168,323 $ 17,060,332 $ 16,551,659 - ------------------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE* Basic Net Income $ 1.12 $ 1.10 $ 1.06 $ 0.85 $ 0.83 Diluted Net Income 1.12 1.10 1.06 0.85 0.83 Cash Dividends Declared 0.54 0.50 0.37 0.36 0.29 Book Value at Year End 8.72 8.19 7.55 6.98 6.56 Average Common Shares Outstanding 19,458,737 19,933,580 20,000,000 20,000,000 20,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CONDITION (YEAR END) Total Assets $1,409,694,446 $1,394,167,752 $1,379,386,178 $1,216,476,583 $1,075,268,496 Total Securities 539,737,231 497,501,256 452,405,349 449,579,083 330,821,064 Loans, Net of Deferred Loan Fees 773,805,181 787,825,052 812,122,817 703,381,905 691,005,829 Allowance for Loan Losses 12,400,000 13,000,000 10,600,000 9,900,000 11,100,000 Deposits 1,010,960,099 998,879,777 994,596,445 944,076,215 917,044,876 Borrowings 225,000,000 225,000,000 225,000,000 125,000,000 2,000,000 Total Shareholders' Equity 166,999,643 161,730,144 150,954,963 139,647,492 131,217,251 - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL RATIOS Return on Average Assets 1.55% 1.56% 1.66% 1.52% 1.64% Return on Average Equity 13.29% 13.70% 14.42% 11.99% 12.93% Net Interest Margin 3.79% 3.88% 4.13% 4.19% 4.52% Dividend Payout Ratio 47.99% 45.40% 34.95% 42.18% 35.02% Allowance for Loan Losses to Period End Loans 1.60% 1.65% 1.31% 1.41% 1.61% Allowance for Loan Losses to Non Performing Loans 27.93% 46.90% 51.53% 51.00% 134.07% Non Performing Loans to Period End Loans 5.74% 3.52% 2.53% 2.76% 1.20% Net Charge Offs to Average Loans 0.87% 0.59% 0.73% 1.52% 0.35% - ------------------------------------------------------------------------------------------------------------------------------------
* 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. 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained in this report on Form 10-K or incorporated by reference are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond the Corporation's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. Critical Accounting Policies - The Bank's Allowance for Loan Losses is a "critical accounting estimate" because it is an estimate that is based on assumptions that are highly uncertain, and if different assumptions were used or if any of the assumptions used were to change, there could be a material impact on the presentation of the Corporation's financial condition. These assumptions include, but are not limited to, collateral values and the effect of economic conditions on the financial condition of the borrowers. To determine the Allowance for Loan Losses, the Bank estimates losses on all loans that are not classified as substandard or doubtful by applying historical loss rates to these loans in accordance with SFAS 5. In addition, all loans that are classified as substandard or doubtful and any loans that are nonaccrual or renegotiated are individually tested for impairment. Any amount of monetary impairment is included in the Allowance for Loan Losses in accordance with SFAS 114. Substandard, doubtful, nonaccrual, or renegotiated loans that do not have any monetary impairment identified are assigned an allowance following the same method as unclassified loans. Management is of the opinion that the Allowance for Loan Losses of $12,400,000 as of December 31, 2002 was adequate but not excessive. Net Income increased significantly in 2000 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. 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 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. With a slight increase in 7 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. Net Income decreased slightly in 2002 as we encountered continued low interest rates and a sluggish national and local economy. Net Income decreased $120,555, or less than 1%, compared to 2001. While Deposits and Total Assets each increased 1%, Net Loans decreased 2%. Commercial and industrial loans decreased 8% and loans to individuals for household, family, and other personal expenditures decreased 22% while real estate loans showed a slight increase of 3%. The decrease in loans was partially attributable to the transfer of $12,932,423 of loans to other real estate and charge offs of $8,696,987, which enabled us to reduce our allowance for loan losses $600,000. Income Before Provision for Income Taxes decreased $313,523, or 1%, compared to 2001. A larger percentage of our income was in interest on Obligations of States and Political Subdivisions in 2002, resulting in a decrease of $192,968, or 2% in our Provision for Income Taxes. The effective tax rate decreased from 27.5% in 2001 to 27.1% in 2002. Earnings for the Bank are usually highly reflective of the Net Interest Income. In 2000, interest rates climbed, 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, a significant increase in non-interest income and a modest increase in non-interest expense, Net Income increased significantly. 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. In 2002, market interest rates remained at historically low levels, prompting many borrowers to refinance their existing debt. The low interest rate environment also resulted in an increase in the amount of investment securities called. These factors lead to a decrease in the yield on earning assets from 7.4% in 2001 to 6.2% in 2002. Total Interest Income decreased $16.7 million while Total Interest Expense decreased only $15.1 million, resulting in a decrease of $1.6 million in Net Interest Income. The Provision for Loan Losses decreased $1.3 million after the large increase in 2001. Other Income increased $2.1 million as service charges on deposit accounts increased due to an overdraft program started late in 2001 and security gains also increased. Non-interest expenses increased 9% compared to 2001. Salaries and Employee Benefits increased 9% as the Bank continued to add staff, particularly in the loan, credit analysis, and loan review areas. This additional staff will allow the Bank to provide better customer service to existing customers, resume the growth in the loan portfolio, and improve the monitoring of existing credit relationships. Average cost of interest bearing deposits was 4.8 %, 4.1%, and 2.4% for 2000, 2001, and 2002 respectively. Return on average assets for the same three years was 1.7%, 1.6%, and 1.6%. The table below shows selected financial ratios for the same three years. 8
2002 2001 2000 ---- ---- ---- Return on Average Assets 1.6% 1.6% 1.7% Return on Average Equity 13.3% 13.7% 14.4% Dividend Payout Ratio 48.2% 45.4% 34.9% Average Equity to Average Assets 11.3% 11.3% 11.5%
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.
Years Ended December 31, ---------------------------------------------------------------------------------------------- 2002 2001 2000 ------------------------------ ---------------------------- ------------------------------- Average Interest Average Interest Average Interest Daily Earned Average Daily Earned Average Daily Earned Average (Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield Balance or Paid Yield ---------------------- ------------------------------ ---------------------------- ------------------------------- Investments Obligations of US Government Agencies 288,438 13,106 4.54% 203,450 13,081 6.43% 174,266 12,169 6.98% Obligations of States & Political Subdivisions(1) 130,046 6,741 5.18% 127,640 6,822 5.34% 137,200 7,302 5.32% Other Securities 105,876 5,028 4.75% 148,648 8,705 5.86% 123,032 9,145 7.43% ----------------------------- --------------------------- ------------------------------- Total Investments 524,360 24,875 4.74% 479,738 28,608 5.96% 434,498 28,616 6.59% ----------------------------- --------------------------- ------------------------------- Loans Commercial 489,498 35,081 7.17% 520,498 43,307 8.32% 468,417 43,860 9.36% Mortgage 160,764 13,333 8.29% 191,752 16,356 8.53% 179,427 14,867 8.29% Consumer 118,026 10,766 9.12% 128,122 12,606 9.84% 120,853 11,917 9.86% ----------------------------- --------------------------- ------------------------------- Total Loans(2) 768,288 59,180 7.70% 840,372 72,269 8.60% 768,697 70,644 9.19% Federal Funds Sold 32,950 549 1.67% 12,968 447 3.45% 4,861 310 6.38% ----------------------------- --------------------------- ------------------------------- Total Interest Earning Assets 1,325,598 84,604 6.38% 1,333,078 101,324 7.60% 1,208,056 99,570 8.24% Cash & Due From Banks 30,306 34,200 34,215 Interest Receivable and Other Assets 49,585 43,137 30,737 --------- ---------- ----------- Total Assets 1,405,489 1,410,415 1,273,008 ========= ========== =========== Savings Accounts 127,826 1,521 1.19% 117,429 2,453 2.09% 120,494 2,955 2.45% NOW Accounts 66,648 752 1.13% 59,886 1,280 2.14% 61,901 1,476 2.38% Money Market Deposits 336,370 5,661 1.68% 257,612 8,352 3.24% 189,655 7,714 4.07% Certificates of Deposit 358,846 13,535 3.77% 462,121 24,543 5.31% 461,654 27,506 5.96% Federal Funds Purchased 2,052 38 1.85% 562 27 4.80% 5,051 326 6.45% FHLB Advances 225,000 12,880 5.72% 225,000 12,880 5.72% 161,038 9,704 6.03% ----------------------------- --------------------------- ------------------------------- Total Interest Bearing Liabilities 1,116,742 34,387 3.08% 1,122,610 49,535 4.41% 999,793 49,681 4.97% Non-interest Bearing Deposits 119,613 121,134 120,906 Other Liabilities 5,044 6,598 5,437 --------- ---------- ----------- Total Liabilities 1,241,399 1,250,342 1,126,136 Stockholders' Equity 164,090 160,073 146,872 --------- ---------- ----------- Total Liabilities & Stockholders' Equity 1,405,489 1,410,415 1,273,008 ========= ========== =========== Net Interest Income 50,217 51,789 49,889 Interest Rate Spread 3.30% 3.19% 3.27% Net Interest Income as a percent of average earning assets 3.79% 3.88% 4.13%
9 (1)Interest income on Obligations of States and Political Subdivisions is not on a taxable equivalent basis. (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, ----------------------------------------------------------------------------------------- 2002 versus 2001 2001 versus 2000 2000 versus 1999 ------------------------------ --------------------------- ---------------------------- Changes due to Changes due to Changes due to (Dollars in Thousands) increased (decreased) increased (decreased) increased (decreased) - ---------------------- ------------------------------ --------------------------- ---------------------------- Interest Income Rate Volume Net Rate Volume Net Rate Volume Net --------------- ------------------------------ --------------------------- ---------------------------- Investments Obligations of US Government Agencies (5,440) 5,464 24 (1,126) 2,038 912 732 2,018 2,750 Obligations of States & Political Subdivisions (220) 140 (80) 39 (519) (480) 140 (1,096) (956) Other Securities (1,172) (2,505) (3,677) (2,344) 1,904 (440) 1,723 3,368 5,091 ------------------------------ --------------------------- -------------------------- Total Investments (6,832) 3,099 (3,733) (3,431) 3,423 (8) 2,595 4,290 6,885 ------------------------------ --------------------------- -------------------------- Loans Commercial (5,631) (2,595) (8,226) (5,448) 4,895 (553) 3,095 2,902 5,997 Mortgage (380) (2,643) (3,023) 469 1,020 1,489 (74) 1,519 1,445 Consumer (847) (993) (1,840) (29) 718 689 (64) 2,027 1,963 ------------------------------ --------------------------- -------------------------- Total Loans (6,858) (6,231) (13,089) (5,008) 6,633 1,625 2,957 6,448 9,405 Federal Funds Sold (587) 689 102 (380) 517 137 72 29 101 ------------------------------ --------------------------- -------------------------- Total Interest Income (14,277) (2,443) (16,720) (8,819) 10,573 1,754 5,624 10,767 16,391 Interest Expense ---------------- Savings Accounts (1,149) 217 (932) (426) (76) (502) (608) 67 (541) NOW Accounts (673) 145 (528) (149) (47) (196) (21) 26 5 Money Market Deposits (5,244) 2,553 (2,691) (2,126) 2,764 638 675 (797) (122) Certificates of Deposit (5,523) (5,485) (11,008) (2,992) 29 (2,963) 3,083 283 3,366 Federal Funds Purchased (62) 73 11 (9) (290) (299) 47 (24) 23 FHLB Advances 0 0 0 (677) 3,853 3,176 182 8,478 8,660 ------------------------------ --------------------------- -------------------------- Total Interest Expense (12,651) (2,497) (15,148) (6,379) 6,233 (146) 3,358 8,033 11,391 ------------------------------ --------------------------- -------------------------- Net Interest Income (1,626) 54 (1,572) (2,440) 4,340 1,900 2,266 2,734 5,000 ============================== =========================== ==========================
Due to a variety of reasons, including volatile interest rates in the past and successful bidding in securing local municipal deposits, we have attempted, for the last several years, to maintain a liquid investment position. The percentage of securities held as Available for Sale increased from 67% as of December 31, 2001 to 78% as of December 31, 2002. As reflected in Note 3 to the consolidated financial statements, the percentage of securities that mature within five years was 39% as of December 31, 2001 and 2002. The table below presents the scheduled maturities for each of the investment categories, and 10 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 Non-Maturing Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield ----------------- ----------------- --------------- ------------------ -------------- --------------- (Dollars in Thousands) Obligations of US Government Agencies $ 25,206 2.72% $ 126,038 3.13% $ 27,306 5.65% $ 147,169 4.10% $ - 0.00% $ 325,719 3.75% Obligations of States & Political Subdivisions 11,847 3.87% 36,818 5.40% 59,277 5.24% 20,036 5.11% - 0.00% 127,978 5.14% Other Securities - 0.00% 8,051 7.23% 21,162 7.14% 44,493 2.95% 12,334 5.60% 86,040 4.76% ----------------- ----------------- --------------- ----------------- -------------- --------------- Total $ 37,053 3.09% $ 170,907 3.81% $ 107,745 5.72% $ 211,698 3.95% $ 12,334 5.60% $ 539,737 4.24% ================= ================= =============== ================= ============== ===============
Our loan policies also reflect our awareness of the need 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, 2002. 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. 11
Assets/Liabilities at December 31, 2002, 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 244,077 40,034 33,207 - 8,401 325,719 Obligations of States & Political Subdivisions 17,192 9,790 19,125 - 81,871 127,978 Other Securities 49,945 - 16,000 8,000 12,095 86,040 Commercial Loans 229,512 30,172 64,395 134,930 6,882 465,891 Mortgage Loans 10,304 11,532 24,454 87,029 35,444 168,763 Consumer Loans 13,335 12,232 22,750 33,408 20,538 102,263 Federal Funds Sold 13,000 - - - - 13,000 -------- --------- -------- -------- --------- --------- Total Interest Earning Assets 577,365 103,760 179,931 263,367 165,231 1,289,654 -------- --------- -------- -------- --------- --------- Interest Bearing Liabilities ---------------------------- Interest Bearing Demand Deposits 58,141 - - - - 58,141 Savings Deposits 340,855 - - - - 340,855 Other Time Deposits 144,596 37,571 39,897 125,352 - 347,416 FHLB Advances - - - - 225,000 225,000 -------- --------- -------- -------- --------- --------- Total Interest Bearing Liabilities 543,592 37,571 39,897 125,352 225,000 971,412 -------- --------- -------- -------- --------- --------- Gap 33,773 66,189 140,034 138,015 (59,769) 318,242 Cumulative Gap 33,773 99,962 239,996 378,011 318,242 318,242 Sensitivity Ratio 1.06 2.76 4.51 2.10 0.73 1.33 Cumulative Sensitivity Ratio 1.06 1.17 1.39 1.51 1.33 1.33
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, 2002, Maturing or Repricing in: -------------------------------------------------------------------------------------- 0-6 6-12 1-2 2-5 Over 5 Months Months Years Years Years Total ----------- ------------ --------- ---------- ---------- ----------- Total Interest Earning Assets 577,365 103,760 179,931 263,367 165,231 1,289,654 Total Interest Bearing Liabilities 684,428 37,571 39,897 125,352 225,000 1,112,248 ----------- ------------ --------- ---------- ---------- ----------- Gap (107,063) 66,189 140,034 138,015 (59,769) 177,406 Cumulative Gap (107,063) (40,874) 99,160 237,175 177,406 177,406 Sensitivity Ratio 0.84 2.76 4.51 2.10 0.73 1.16 Cumulative Sensitivity Ratio 0.84 0.94 1.13 1.27 1.16 1.16
The amount of loans due after one year with floating interest rates is $212,681,000. The following table shows the remaining maturity for Certificates of Deposit with balances of $100,000 or more: 12
Year Ended December 31, ----------------------------------------- (Dollars in Thousands) 2002 2001 2000 -------- --------- ---------- Maturing Within 3 Months 58,859 85,858 135,807 3 - 6 Months 7,456 20,816 41,163 6 - 12 Months 10,948 11,890 29,970 Over 12 Months 42,106 18,602 14,481 -------- --------- ---------- Total 119,369 137,166 221,421 ========= ========= ==========
For 2003, we expect interest rates to remain low through the first three quarters of the year, as the economic growth continues to be hindered by the geopolitical risks. We believe that the monetary stimulus provided by the Federal Reserve and the proposed fiscal stimulus will prevent a return to recession in the national economy. We expect our region to continue to recover slowly as the manufacturing sector, particularly automotive related, lags behind other sectors. This may translate into continued slow local loan demand and low deposit growth. We expect to open two full service branches in southern Wayne County in 2003. These branches, along with the loan production office and mortgage center opened in 2002 are expected to contribute to an increase in loans and deposits in 2003. This increase in loans is expected to produce a small increase in Net Interest Income. We believe that our Allowance for Loan Losses provides adequate coverage for the losses in our portfolio, and we anticipate a large decrease in the Provision for Loan Losses. Due to slower mortgage refinance activity, we only expect a small increase in non-interest income. Expenses related to our additional offices and staffing increases will cause a modest increase in non-interest expenses. As a result, we expect a small increase in Net Income. 13 The following is an analysis of the transactions in the allowance for loan losses:
Year Ended December 31, -------------------------------------------------------------------- (Dollars in Thousands) 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Balance Beginning of Period 13,000 10,600 9,900 11,100 10,200 Loans Charged Off Domestic Commercial, Financial, and Agricultural 4,383 3,399 7,035 10,599 3,213 Secured by Real Estate 2,859 1,242 -- 174 -- Loans to Individuals 1,455 1,523 1,091 783 665 Recoveries Domestic Commercial, Financial, and Agricultural 1,351 619 2,138 802 1,372 Secured by Real Estate 135 111 -- -- -- Loans to Individuals 510 434 390 166 188 -------- -------- -------- -------- -------- Net Loans Charged Off 6,701 5,000 5,598 10,588 2,318 Provision Charged to Operations 6,101 7,400 6,298 9,388 3,218 -------- -------- -------- -------- -------- Balance End of Period 12,400 13,000 10,600 9,900 11,100 ======== ======== ======== ======== ======== Ratio of Net Loans Charged Off to Average Total Loans Outstanding 0.87% 0.59% 0.73% 1.52% 0.35% ======== ======== ======== ======== ========
The following analysis shows the allocation of the allowance for loan losses:
Year Ended December 31, ---------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------------------- -------------------- ----------------------- ----------------- ------------------ % of loans % of loans % of loans % of loans % of loans $ to total $ to total $ to total $ to total $ to total (Dollars in Thousands) Amount loans Amount loans Amount loans Amount loans Amount loans -------------------- -------------------- ----------------------- ----------------- ------------------ Balance at end of period applicable to: Domestic Commercial, Financial, and Agricultural 2,933 13.1% 4,119 13.8% 4,426 19.0% 6,059 22.6% 5,731 25.6% Real Estate - Construction 94 7.3% 260 6.0% 185 4.5% 57 3.5% 96 3.9% Real Estate - Mortgage 8,108 70.4% 8,038 68.6% 5,172 62.8% 3,429 58.6% 4,433 56.7% Loans to Individuals 1,265 9.2% 583 11.6% 817 13.7% 355 15.3% 840 13.8% Foreign - 0.0% - 0.0% - 0.0% - 0.0% - 0.0% -------------------- -------------------- ----------------------- ----------------- ------------------ Total 12,400 100.0% 13,000 100.0% 10,600 100.0% 9,900 100.0% 11,100 100.0% ==================== ==================== ======================= ================= ==================
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 loans and pools of homogeneous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific loan relationships. For loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the 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 $16.7 million, or 60% from 2001 to 2002. Nonperforming assets as a percent of total assets at year-end increased from 2.0% in 2001 to 3.2% in 2002. The Allowance for Loan Losses as a percent of nonperforming assets at year-end decreased from 47% in 2001 to 28% in 2002. The provision for loan losses increases the allowance for loan losses, a valuation account which appears on the consolidated statements of condition. As the specific customer and amount of a loan loss is 14 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. 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, 2002 and 2001.
Base Rates Rates (Dollars in Thousands) Projection Up 1% Down 1% ------------ -------- --------- Year-End 2002 12 Month Projection - --------------------------------- Interest Income 78,601 85,829 76,840 Interest Expense 29,671 34,654 27,837 ------------ -------- --------- Net Interest Income 48,930 51,175 49,003 Percent Change From Base Projection 4.6% 0.1% ALCO Policy Limit (+/-) 5.0% 5.0% 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%
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 2002, 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 15 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.
Fair Value at December 31, 2002 ------------------------------- Rates (Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2% - ---------------------- ------------------------------------------------------------------ Assets 1,423,339 1,403,002 1,382,282 1,443,392 1,463,252 Liabilities 1,252,659 1,221,105 1,190,916 1,285,665 1,308,038 ------------------------------------------------------------------ Stockholders' Equity 170,680 181,897 191,366 157,727 155,214 Change in Equity 6.6% 12.1% -7.6% -9.1% 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 1,443,434 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 24.1% 26.1% 16.3% 9.7% 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 2002, 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 - 41 16 Independent Auditor's Report To the Board of Directors and Stockholders MBT Financial Corp. We have audited the accompanying consolidated balance sheet of MBT Financial Corp. as of December 31, 2002 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MBT Financial Corp. as of December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Plante & Moran, PLLC Auburn Hills, Michigan January 15, 2003 17 The following is a copy of a previously issued report and has not been reissued by Arthur Andersen LLP.: 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) and subsidiary 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 financial statements are the responsibility of the Corporation's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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. and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their 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. /s/ Arthur Andersen LLP Detroit, Michigan, January 14, 2002. 18 CONSOLIDATED STATEMENTS OF CONDITION - --------------------------------------------------------------------------------
DECEMBER 31, 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks (Note 2) $ 30,617,744 $ 26,137,120 Federal funds sold 13,000,000 40,000,000 Investment securities (Notes 1, 3, and 12)- Held to maturity- Obligations of U.S. Government agencies (Estimated market value of $648,639 and $30,197,409) 587,515 30,044,083 Obligations of states and political subdivisions (Estimated market value of $117,967,604 and $131,920,520) 113,255,101 129,074,829 Other securities (Estimated market value of $2,974,758 and $2,961,534) 2,976,323 2,968,261 Available for sale- Obligations of U.S. Government agencies 325,131,327 225,705,947 Obligations of states and political subdivisions 14,722,946 8,142,334 Other securities 83,064,019 101,565,802 Loans (Notes 4 and 12) 773,360,172 786,223,795 Loans held for sale (Notes 1, 4, and 12) 445,009 1,601,257 Allowance for loan losses (Note 5) (12,400,000) (13,000,000) Bank premises and equipment, net (Notes 1 and 6) 15,437,116 14,501,021 Other real estate owned (Note 1) 15,087,816 4,326,219 Interest receivable and other assets (Notes 7 and 13) 34,409,358 36,877,084 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,409,694,446 $ 1,394,167,752 - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES Non-interest bearing demand deposits $ 123,596,144 $ 122,866,335 Interest bearing demand deposits 69,755,660 67,936,942 Savings deposits 470,192,391 439,381,209 Other time deposits (Notes 8 and 12) 347,415,904 368,695,291 - ---------------------------------------------------------------------------------------------------------------------------- Total deposits (Note 8) 1,010,960,099 998,879,777 Federal Home Loan Bank advances (Notes 9 and 12) 225,000,000 225,000,000 Interest payable and other liabilities (Note 10) 6,734,704 8,557,831 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,242,694,803 1,232,437,608 - ---------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock (no par value; 30,000,000 shares authorized, 19,160,441 and 19,752,542 shares issued and outstanding) (Note 11) - - Surplus 51,080,339 58,988,726 Undivided profits 115,395,181 104,055,944 Net unrealized gains (losses) on securities available for sale, net of tax (Note 1) 524,123 (1,314,526) - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity (Note 14) 166,999,643 161,730,144 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,409,694,446 $ 1,394,167,752 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 19 CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 59,179,975 $ 72,269,144 $ 70,643,404 Interest on investment securities- Obligations of U.S. Government agencies 13,105,627 13,081,497 12,169,347 Obligations of states and political subdivisions 6,740,834 6,821,370 7,301,903 Other securities 5,028,319 8,705,267 9,144,849 Interest on Federal funds sold 549,177 447,210 310,161 - -------------------------------------------------------------------------------------------------------------------------- Total interest income 84,603,932 101,324,488 99,569,664 - -------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits (Note 8) 21,469,234 36,627,461 39,651,368 Interest on borrowed funds (Note 9) 12,918,181 12,907,884 10,029,624 - -------------------------------------------------------------------------------------------------------------------------- Total interest expense 34,387,415 49,535,345 49,680,992 - -------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 50,216,517 51,789,143 49,888,672 PROVISION FOR LOAN LOSSES (Note 5) 6,101,316 7,399,901 6,298,461 - -------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 44,115,201 44,389,242 43,590,211 - -------------------------------------------------------------------------------------------------------------------------- OTHER INCOME Income from trust services 3,496,731 3,391,795 3,908,510 Service charges on deposit accounts 4,522,516 2,857,921 2,142,901 Security gains 1,324,909 416,657 18,237 Other (Note 7) 3,446,664 3,984,424 2,639,054 - -------------------------------------------------------------------------------------------------------------------------- Total other income 12,790,820 10,650,797 8,708,702 - -------------------------------------------------------------------------------------------------------------------------- OTHER EXPENSES Salaries and employee benefits (Note 10) 14,223,824 13,026,670 12,155,915 Occupancy expense 2,327,794 2,173,711 2,176,110 Other 10,437,173 9,608,905 8,762,181 - -------------------------------------------------------------------------------------------------------------------------- Total other expenses 26,988,791 24,809,286 23,094,206 - -------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 29,917,230 30,230,753 29,204,707 PROVISION FOR INCOME TAXES (Note 13) 8,113,585 8,306,553 8,031,184 - -------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 21,803,645 $ 21,924,200 $ 21,173,523 ========================================================================================================================== COMPREHENSIVE INCOME (Note 1) $ 23,642,294 $ 24,238,990 $ 18,912,671 ========================================================================================================================== BASIC EARNINGS PER COMMON SHARE (after deducting preferred stock dividends) (Notes 11 and 15) $ 1.12 $ 1.10 $ 1.06 ========================================================================================================================== DILUTED EARNINGS PER COMMON SHARE (Note 15) $ 1.12 $ 1.10 $ 1.06 ==========================================================================================================================
The accompanying notes are an integral part of these statements. 20 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
OTHER TOTAL PREFERRED COMMON UNDIVIDED COMPREHENSIVE STOCKHOLDERS' STOCK STOCK SURPLUS PROFITS INCOME (LOSS) EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JANUARY 1, 2000 $ 200,000 $ - $ 62,500,000 $ 78,315,956 $ (1,368,464) $ 139,647,492 ADD (DEDUCT) Comprehensive Income (Loss) (Note 1) Net income for the year 21,173,523 21,173,523 Net unrealized losses on securities available for sale (Note 1) (2,260,852) (2,260,852) - ------------------------------------------------------------------------------------------------------------------------------------ Total Comprehensive Income (Loss) - - - 21,173,523 (2,260,852) 18,912,671 Redemption of preferred stock (Note 11) (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) Comprehensive Income (Note 1) Net income for the year 21,924,200 21,924,200 Net unrealized gains on securities available for sale (Note 1) 2,314,790 2,314,790 - ------------------------------------------------------------------------------------------------------------------------------------ Total Comprehensive Income - - - 21,924,200 2,314,790 24,238,990 Repurchase of 247,458 shares of common stock (Note 11) (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 ADD (DEDUCT) Comprehensive Income (Note 1) Net income for the year 21,803,645 21,803,645 Net unrealized gains on securities available for sale (Note 1) 1,838,649 1,838,649 - ------------------------------------------------------------------------------------------------------------------------------------ Total Comprehensive Income - - - 21,803,645 1,838,649 23,642,294 Repurchase of 592,101 shares of common stock (Note 11) (7,908,387) (7,908,387) Dividends declared- Common ($.54 per share) (10,464,408) (10,464,408) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 2002 $ - $ - $ 51,080,339 $ 115,395,181 $ 524,123 $ 166,999,643 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 21 CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Interest and fees received $ 83,249,922 $ 105,681,439 $ 99,953,089 Other income received 11,465,911 10,234,139 8,690,464 Interest paid (34,690,235) (50,590,873) (49,222,123) Cash paid to employees and others (25,294,668) (20,971,749) (37,880,137) Income taxes paid (8,869,859) (9,870,000) (6,738,000) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities $ 25,861,071 $ 34,482,956 $ 14,803,293 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Proceeds from maturities of investment securities held to maturity $ 59,979,550 $ 682,740,824 $ 113,817,025 Proceeds from maturities of investment securities available for sale 479,090,000 291,958,080 15,498,313 Proceeds from sales of investment securities available for sale 52,620,752 66,599,091 22,698,308 Net (increase) decrease in loans (5,572,182) 16,139,350 (116,259,518) Proceeds from sales of other real estate owned 1,719,908 1,503,501 1,341,237 Proceeds from sales of other assets 112,826 87,475 11,000 Purchase of investment securities held to maturity (10,959,000) (468,825,048) (135,994,735) Purchase of investment securities available for sale (616,156,466) (616,471,490) (22,586,160) Purchase of bank premises and equipment (3,038,423) (2,806,962) (3,733,419) - ------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities $ (42,203,035) $ (29,075,179) $(125,207,949) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Net increase in demand, interest bearing demand, and savings deposits $ 33,359,709 $ 103,716,436 $ 12,458,519 Net increase (decrease) in other time deposits (21,279,387) (99,433,104) 38,061,711 Net increase in Federal Home Loan Bank advances - - 100,000,000 Redemption of preferred stock - - (200,000) Repurchase of common stock (7,908,387) (3,511,274) - Dividends paid (10,349,347) (9,582,754) (8,205,200) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities $ (6,177,412) $ (8,810,696) $ 142,115,030 - ------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (22,519,376) $ (3,402,919) $ 31,710,374 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 1) 66,137,120 69,540,039 37,829,665 - ------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 43,617,744 $ 66,137,120 $ 69,540,039 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 22 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) - -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,803,645 $ 21,924,200 $ 21,173,523 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,102,331 1,995,498 1,805,138 Provision for loan losses 6,101,316 7,399,901 6,298,461 Increase in cash surrender value of banked owned life insurance 797,437 765,515 199,014 Deferred Federal income taxes 1,607,000 (1,508,000) (301,000) Amortization of investment premium and discount (2,657,213) 2,880,510 280,986 Net increase (decrease) in interest payable and other liabilities (1,823,127) (276,939) 1,081,894 Net (increase) decrease in interest receivable and other assets 421,162 2,174,614 (16,924,629) Net increase (decrease) in deferred loan fees (45,687) (205,576) 358,300 Other (2,445,793) (666,767) 831,606 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 25,861,071 $ 34,482,956 $ 14,803,293 - -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Transfer of loans to other real estate owned $ 12,932,423 $ 3,216,263 $ 1,500,370 - ------------------------------------------------------------------------------------------------------------------------------------ Transfer of loans to other assets $ 4,000 $ 147,826 $ 61,475 - ------------------------------------------------------------------------------------------------------------------------------------
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 wholly owned subsidiary, Monroe Bank & Trust (the "Bank"). The Bank includes the accounts of its wholly owned subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services, Inc. The Bank operates twenty-one offices in Monroe County, Michigan and one office in Wayne County, Michigan. MBT Credit Company, Inc. operates a mortgage loan office in Monroe County and a loan and trust office in Wayne County. 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. The Corporation's sole business segment is community banking. 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 19,160,441 are outstanding at December 31, 2002. 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. Material estimates that are particularly susceptible to significant changes in the near term are the determination of the allowance for loan losses and the valuation of other real estate owned. The 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 24 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. 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. LOANS The Bank grants mortgage, commercial, and consumer loans to customers. Loans are reported at their outstanding unpaid principal balances, adjusted for charge offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are decreased and recognized as an adjustment of the related loan yield using the interest method. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. LOANS HELD FOR SALE Loans held for sale consist of fixed rate residential mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the lower of aggregate cost or estimated fair value. IMPAIRED LOANS A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. FORECLOSED ASSETS (INCLUDES OTHER REAL ESTATE OWNED) Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of the foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by Management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. 25 BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost, less accumulated depreciation of $20,453,911 in 2002 and $18,505,966 in 2001. The Bank uses the straight-line method to provide for depreciation, which is charged to operations over the estimated useful lives of the assets. Depreciation expense amounted to $2,102,331 in 2002, $1,995,498 in 2001, and $1,805,138 in 2000. 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. COMPREHENSIVE INCOME Accounting principles generally require that revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on securities available for sale, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The components of accumulated other comprehensive income (loss) and related tax effects are as follows:
2002 2001 2000 ---------------------------------------------------------------------------------------------------------------------- Unrealized gains (losses) on securities available for sale $ 806,343 $ (2,022,347) $ (5,583,563) Tax effect (282,220) 707,821 1,954,247 ---------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income (loss) $ 524,123 $ (1,314,526) $ (3,629,316) ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include cash and due from banks and Federal funds sold. Generally, cash equivalents have daily maturities. STOCK-BASED COMPENSATION 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." CREDIT RELATED FINANCIAL INSTRUMENTS In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under credit card agreements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded. ACCOUNTING PRONOUNCEMENTS Effective April 1, 1999, the Bank adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138. The impact of SFAS 133 was not material to the Bank's financial statements. (2) 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 $1,937,000 and $13,808,000 at December 31, 2002 and 2001, respectively. Cash and due from banks includes deposits held at correspondent banks in excess of FDIC insurance limits. 26 (3) INVESTMENT SECURITIES The following is a summary of the Bank's investment securities portfolio as of December 31, 2002 and 2001 (000's omitted):
HELD TO MATURITY DECEMBER 31, 2002 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE - ----------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 588 $ 61 $ - $ 649 Obligations of States and Political Subdivisions 113,255 4,793 (81) 117,967 Other Securities 2,976 1 (2) 2,975 - ----------------------------------------------------------------------------------------------------------------------- $ 116,819 $ 4,855 $ (83) $ 121,591 - -----------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE DECEMBER 31, 2002 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE - ----------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 322,878 $ 2,270 $ (17) $ 325,131 Obligations of States and Political Subdivisions 14,680 505 (462) 14,723 Other Securities 84,554 337 (1,827) 83,064 - ------------------------------------------------------------------------------------------------ ---------------------- $ 422,112 $ 3,112 $ (2,306) $ 422,918 - -----------------------------------------------------------------------------------------------------------------------
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 - -----------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated market value of securities at December 31, 2002 and 2001, by contractual maturity, are shown below. Expected maturities will differ from contractual 27 maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (000's omitted).
HELD TO MATURITY DECEMBER 31, 2002 DECEMBER 31, 2001 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE - ------------------------------------------------------------------------------------------------------------------ Maturing within 1 year $ 11,813 $ 11,905 $ 15,812 $ 15,866 1 to 5 years 39,794 41,626 46,617 48,011 5 to 10 years 49,870 52,392 53,773 55,453 Over 10 years 15,342 15,668 45,885 45,749 - ------------------------------------------------------------------------------------------------------------------ $ 116,819 $ 121,591 $ 162,087 $ 165,079 - ------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE DECEMBER 31, 2002 DECEMBER 31, 2001 ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE - ------------------------------------------------------------------------------------------------------------------ Maturing within 1 year $ 25,175 $ 25,240 $ 5,206 $ 5,239 1 to 5 years 130,600 131,113 126,968 127,212 5 to 10 years 57,563 57,875 109,621 109,569 Over 10 years 196,520 196,356 83,391 81,118 Securities with no stated maturity 12,254 12,334 12,250 12,276 - ------------------------------------------------------------------------------------------------------------------ $ 422,112 $ 422,918 $ 337,436 $ 335,414 - ------------------------------------------------------------------------------------------------------------------
Investment securities carried at $283,965,618 and $176,302,554 were pledged or set aside to secure borrowings, public and trust deposits, and for other purposes required by law at December 31, 2002 and December 31, 2001, respectively. At December 31, 2002, Obligations of U. S. Government Agencies included securities issued by the Federal Home Loan Bank with an estimated market value of $181,865,055. 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. Obligations of States and Political Subdivisions included securities carried at $87,550 and $231,750 as of December 31, 2002 and December 31, 2001, respectively, 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 in 2001. At December 31, 2002 and December 31, 2001, 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 (4) LOANS Loans balances outstanding as of December 31 consist of the following:
2002 2001 - -------------------------------------------------------------------------------------------------- Real estate loans $ 610,530,112 $ 595,255,497 Loans to finance agricultural production and other loans to farmers 2,181,725 2,855,577 Commercial and industrial loans 91,717,199 99,978,957 Loans to individuals for household, family, and other personal expenditures 70,403,528 90,675,451 All other loans (including overdrafts) 563,349 695,988 - -------------------------------------------------------------------------------------------------- Total loans, gross $ 775,395,913 $ 789,461,470 Less: Deferred loan fees 1,590,732 1,636,418 - -------------------------------------------------------------------------------------------------- Total loans, net of deferred loan fees $ 773,805,181 $ 787,825,052 Less: Allowance for loan losses 12,400,000 13,000,000 - -------------------------------------------------------------------------------------------------- $ 761,405,181 $ 774,825,052 - --------------------------------------------------------------------------------------------------
The following is a summary of impaired loans:
Amounts in thousands 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Year-end impaired loans with no allowance for loan losses allocated $ 37,201 $ 28,325 $ 11,647 Year-end impaired loans with allowance for loan losses allocated 60,898 56,107 25,919 Year-end allowance for loan losses allocated to impaired loans 7,291 8,012 5,458 Average investment in impaired loans 57,738 44,769 33,885 Interest income recognized on impaired loans 3,486 2,332 2,118 Cash basis interest income recognized on impaired loans during the year 3,486 2,332 2,118 - ------------------------------------------------------------------------------------------------------------------
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 $11,551,831 and $19,491,938 at December 31, 2002 and 2001, respectively. In 2002, new loans and other additions amounted to $1,888,526, and repayments and other reductions amounted to $9,828,633. 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. Loans carried at $167,635,947 and $167,166,112 at December 31, 2002 and 2001, respectively, were pledged to secure Federal Home Loan Bank advances. 29 (5) ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses was as follows:
2002 2001 2000 - ----------------------------------------------------------------------------------------------------------- Balance beginning of year $ 13,000,000 $ 10,600,000 $ 9,900,000 Provision for loan losses 6,101,316 7,399,901 6,298,461 Loans charged off (8,696,987) (6,163,810) (8,126,386) Recoveries 1,995,671 1,163,909 2,527,925 - ----------------------------------------------------------------------------------------------------------- Balance end of year $ 12,400,000 $ 13,000,000 $ 10,600,000 - -----------------------------------------------------------------------------------------------------------
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 loans and pools of homogeneous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific loan relationships. For loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the Bank's recorded investment in the loan to the present value of expected cash flows discounted at the loan's effective interest rate, the fair value of the collateral, or the loan's observable market price. The provision for loan losses increases the allowance for loan losses, a valuation account which appears 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. (6) BANK PREMISES AND EQUIPMENT Bank premises and equipment as of year end are as follows:
2002 2001 - --------------------------------------------------------------------------------------------- Land, buildings and improvements $ 19,539,400 $ 18,114,758 Equipment, furniture and fixtures 16,351,627 14,892,229 - ---------------------------------------------------------------------------------------------- Total Bank premises and equipment $ 35,891,027 $ 33,006,987 Less accumulated depreciation 20,453,911 18,505,966 - ---------------------------------------------------------------------------------------------- Bank premises and equipment, net $ 15,437,116 $ 14,501,021 - ----------------------------------------------------------------------------------------------
(7) 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 $16,985,298 at December 31, 2002 and $15,458,861 at December 31, 2001. 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 30 based on his or her years of director service and the Bank receiving the remainder of the death benefits. The Bank fully paid the premiums for these ten policies with one lump sum premium payment in the amount of $4,937,000. The increase in cash surrender value is recorded as other non-interest income. As of December 31, 2002, the Bank would not recover in full the cash value from the Bank's portion of the policies' death benefits. During 2003, the Bank will adjust the policies to cover the cash surrender value. 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 $4,413,421 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 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. (8) DEPOSITS Interest expense on time certificates of deposit of $100,000 or more in the year 2002 amounted to $3,997,632, as compared with $10,749,159 in 2001 and $14,421,190 in 2000. At December 31, 2002, the balance of time certificates of deposit of $100,000 or more was $119,368,515, as compared with $137,166,164 at December 31, 2001. The amount of time deposits with a 31 remaining term of more than 1 year was $180,030,000 at December 31, 2002 and $131,645,000 at December 31, 2001. All time deposits have a remaining term of less than 5 years. The following table shows the scheduled maturities for Certificates of Deposit as of December 31, 2002:
$100,000 and Under $100,000 over ------------------------------------------------------------ 2003 $ 90,264,009 $ 77,262,716 2004 43,251,696 11,127,061 2005 44,912,395 14,746,562 2006 7,646,443 1,714,467 2007 41,972,846 14,517,709 Thereafter 0 0 ------------------------------------------------------------ Total $ 228,047,389 $ 119,368,515 ------------------------------------------------------------
(9) FEDERAL HOME LOAN BANK ADVANCES As of December 31, 2002 and December 31, 2001, 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 no principal payments are required until the final maturities 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% (10) RETIREMENT PLANS In 2000, the Bank implemented a retirement plan that included 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. In 2002, the Bank amended its retirement plan to freeze the money purchase plan and retain the 401(k) plan. To ensure that the plan meets the Safe Harbor provisions of the applicable sections of the Internal Revenue Code, the Bank contributes an amount equal to four percent of the employee's base salary to the 401(k) plan for all eligible employees. In addition, an employee may contribute from 1 to 75 percent of his or her base salary, up to a maximum of $11,000 in 2002. This annual contribution limit increases by $1,000 each year until it reaches $15,000 in 2006. The Bank matches the employee's elective contribution up to the first six percent of the employee's annual base salary. 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 $914,776 for the year ended December 31, 2002, $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. 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 $83,774 in 2002, $71,249 in 2001, and $64,417 in 2000. The amount of insurance premium paid by the Bank for retirees is capped at 200% of the cost of the premium as of December 31, 1992. 32 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:
2002 2001 ------------------------------------------------------------------------------------------------------------------------- APBO $ 1,757,054 $ 1,513,401 Unrecognized net transition obligation (535,905) (589,495) Unrecognized prior service costs (43,906) (47,740) Unrecognized net gain 23,787 196,776 ------------------------------------------------------------------------------------------------------------------------- Liability recorded in the consolidated statements of condition $ 1,201,030 $ 1,072,942 -------------------------------------------------------------------------------------------------------------------------
The changes recorded in the accumulated postretirement benefit obligation were as follows:
2002 2001 ------------------------------------------------------------------------------------------------------------------------- APBO at beginning of year $ 1,513,401 $ 1,426,448 Service cost 49,438 41,707 Interest cost 109,608 106,488 Actuarial loss 168,381 10,007 Benefits paid during year (83,774) (71,249) ------------------------------------------------------------------------------------------------------------------------- APBO at end of year $ 1,757,054 $ 1,513,401 -------------------------------------------------------------------------------------------------------------------------
Components of the Bank's postretirement benefit expense were as follows:
2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------- Service cost $ 49,438 $ 41,707 $ 38,952 Interest cost 109,608 106,488 99,307 Amortization of transition obligation 53,590 53,590 53,590 Prior service costs 3,834 3,834 3,834 Amortization of gains (4,608) (7,590) (17,994) ------------------------------------------------------------------------------------------------------------------------- Net postretirement benefit expense $ 211,862 $ 198,029 $ 177,689 -------------------------------------------------------------------------------------------------------------------------
The APBO as of December 31, 2002 and 2001 was calculated using assumed discount rates of 6.75% and 7.25%, respectively. Health care costs were assumed to rise 6.10% in 2003, 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, 2002 by 0.88%, or $15,383. (11) 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, 2002, 839,559 shares had been repurchased at a total cost of $11,419,661. On December 19, 2002, the Board of Directors extended the repurchase program until December 31, 2004. 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 19,160,441 as of December 31, 2002 and 19,752,542 as of December 31, 2001. 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. 33 (12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Certain of the Bank's assets and liabilities are financial instruments that have fair values that 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, 2002 and 2001. INVESTMENT SECURITIES Fair value for the Bank's investment securities was determined using the market value at December 31, 2002 and 2001. These Estimated Market Values are disclosed in Note 3. 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, 2002, net of the allowance for loan losses, is $788,730,860, compared to the carrying value of $761,405,181. The estimated fair value of loans at December 31, 2001, net of the allowance for loan losses, was $776,550,136, compared to the carrying value of $774,825,052. 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, 2002 is $358,887,142, compared to the carrying value of $347,415,904. The estimated fair value of other time deposits at December 31, 2001 was $374,463,850, compared to the carrying value of $368,695,291. 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, 2002 is $260,257,000, compared to the carrying value of $225,000,000. The estimated fair value of Federal Home Loan Bank advances at December 31, 2001 was $243,334,500, 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. (13) 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. 34 The provision for Federal income taxes consists of the following:
2002 2001 2000 -------------------------------------------------------------------------------------------------------------------------- Federal income taxes currently payable (refundable) $ 6,506,585 $ 9,814,553 $ 8,332,184 Provision (credit) for deferred taxes on: Book (over) under tax loan loss provision 210,000 (840,000) (245,000) Accretion of bond discount 103,000 111,000 164,000 Net deferred loan origination fees 46,000 40,000 (125,000) Nonaccrual loan interest income 990,000 (575,000) (387,000) Accrued postretirement benefits (58,000) (84,000) (42,000) Tax over (under) book depreciation 70,000 70,000 (305,000) Alternative minimum tax - - 665,000 Other, net 246,000 (230,000) (26,000) -------------------------------------------------------------------------------------------------------------------------- $ 8,113,585 $ 8,306,553 $ 8,031,184 --------------------------------------------------------------------------------------------------------------------------
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:
2002 2001 2000 --------------------------------------------------------------------------------------------- Statutory rate 35.0 % 35.0 % 35.0 % Municipal interest income (7.1) (7.0) (7.3) Other, net (0.8) (0.5) (0.2) --------------------------------------------------------------------------------------------- Effective tax rate 27.1 % 27.5 % 27.5 % ---------------------------------------------------------------------------------------------
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:
2002 2001 --------------------------------------------------------------------------------------------------------------- Deferred Federal income tax assets: Allowance for loan losses $ 4,340,000 $ 4,550,000 Net deferred loan origination fees 558,000 604,000 Tax versus book depreciation differences 657,000 727,000 Nonaccrual loan interest income 168,000 1,158,000 Net unrealized losses on securities available for sale - 708,000 Accrued postretirement benefits 476,000 418,000 Other, net 43,000 289,000 --------------------------------------------------------------------------------------------------------------- $ 6,242,000 $ 8,454,000 Deferred Federal income tax liabilities: Net unrealized gains on securities available for sale $ (282,000) $ - Accretion of bond discount (587,000) (484,000) --------------------------------------------------------------------------------------------------------------- $ (869,000) $ (484,000) --------------------------------------------------------------------------------------------------------------- Net deferred Federal income tax asset $ 5,373,000 $ 7,970,000 ---------------------------------------------------------------------------------------------------------------
(14) 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. 35 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, 2002, 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, 2002 that Management believes have changed the Corporation's category. Management believes, as of December 31, 2002, 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 (000's omitted in dollar amounts).
Minimum to Qualify as Actual Well Capitalized ------------------------ -------------------------- Amount Ratio Amount Ratio ---------------------------------------------------------------------------------------------------------- AS OF DECEMBER 31, 2002: Total Capital to Risk-Weighted Assets Consolidated $177,856 19.0% $ 93,525 10.0% Monroe Bank & Trust 177,675 19.0% 93,525 10.0% Tier 1 Capital to Risk-Weighted Assets Consolidated 166,121 17.8% 56,115 6.0% Monroe Bank & Trust 165,940 17.7% 56,115 6.0% Tier 1 Capital to Average Assets Consolidated 166,121 11.8% 70,610 5.0% Monroe Bank & Trust 165,940 11.8% 70,610 5.0% 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%
36 (15) EARNINGS PER SHARE The calculation of earnings per common share for the years ended December 31 is as follows:
2002 2001 2000 - -------------------------------------------------------------------------------------------------------------- BASIC Net income $ 21,803,645 $ 21,924,200 $ 21,173,523 Less preferred dividends - - 5,200 - -------------------------------------------------------------------------------------------------------------- Net income applicable to common stock $ 21,803,645 $ 21,924,200 $ 21,168,323 - -------------------------------------------------------------------------------------------------------------- Average common shares outstanding 19,458,737 19,933,580 20,000,000 - -------------------------------------------------------------------------------------------------------------- Earnings per common share - basic $ 1.12 $ 1.10 $ 1.06 - --------------------------------------------------------------------------------------------------------------
2002 2001 2000 - -------------------------------------------------------------------------------------------------------------- DILUTED Net income $ 21,803,645 $ 21,924,200 $ 21,173,523 Less preferred dividends - - 5,200 - -------------------------------------------------------------------------------------------------------------- Net income applicable to common stock $ 21,803,645 $ 21,924,200 $ 21,168,323 - -------------------------------------------------------------------------------------------------------------- Average common shares outstanding 19,458,737 19,933,580 20,000,000 Stock option adjustment 933 180 - - -------------------------------------------------------------------------------------------------------------- Average common shares outstanding - diluted 19,459,670 19,933,760 20,000,000 - -------------------------------------------------------------------------------------------------------------- Earnings per common share - diluted $ 1.12 $ 1.10 $ 1.06 - --------------------------------------------------------------------------------------------------------------
(16) 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 2002 vest annually, beginning December 31, 2002. The options granted to key employees in 2000 are vested as of December 31, 2002. The options granted to non-employee directors in 2002 and 2001 vested on December 31, 2002 and December 31, 2001, respectively. 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 2002 and 2000 been determined consistent with the fair value method of SFAS 123, pro forma net income for the years ended December 31 are shown in the table below.
2002 2001 2000 -------------------------------------------------------------------------------------------- Net Income as Reported $ 21,803,645 $ 21,924,200 $ 21,173,523 Pro Forma Adjustment Due to Stock Options (350,328) (220,782) (91,360) -------------------------------------------------------------------------------------------- Pro Forma Net Income $ 21,453,317 $ 21,703,418 $ 21,082,163 -------------------------------------------------------------------------------------------- Earning per Share as Reported Basic $1.12 $1.10 $1.06 Diluted $1.12 $1.10 $1.06 Pro Forma Earnings per Share Basic $1.10 $1.09 $1.05 Diluted $1.10 $1.09 $1.05
37 A summary of the status of stock options under the plan is presented in the table below.
2002 2001 2000 -------------------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------------------------------------------------------------------------------------------------------------------------- Options Outstanding, January 1 140,434 $17.71 126,600 $18.13 - $0.00 Granted 183,515 13.85 13,834 13.94 126,600 18.13 Exercised - - - - - - Cancelled - - - - - - --------------------------------------------------------------------------------------------------------------------- Options Outstanding, December 31 323,949 $15.52 140,434 $17.71 126,600 $18.13 --------------------------------------------------------------------------------------------------------------------- Options Exercisable, December 31 212,617 $16.40 98,236 $17.54 42,203 $18.13 --------------------------------------------------------------------------------------------------------------------- Weighted Average Fair Value of Options Granted During Year $3.19 $3.82 $4.97
The option value for the options granted each year was calculated using the Black-Scholes stock option pricing model. In making this calculation, it was assumed for each year that the average exercise period was seven years. For the options granted in 2002, it was assumed the volatility rate was 23.9%, the risk-free rate of return was 4.6%, and the dividend yield was 3.0%. For the options granted in 2001 and 2000, it was assumed the volatility rate was 18.6%, the risk-free rate of return was 6.1% and the dividend yield was 2.0%. The options outstanding as of December 31, 2002 are exercisable at prices ranging from $13.85 to $18.125. The options exercisable as of December 31, 2002 are exercisable at prices ranging from $13.85 to $18.125. (17) PARENT COMPANY Condensed parent company financial statements, which include transactions with the subsidiary, are as follows: STATEMENTS OF CONDITION
DECEMBER 31, 2002 2001 ---------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 2,714,674 $ 2,599,005 Investment in subsidiary bank 166,818,510 161,584,219 ---------------------------------------------------------------------------------------------------- Total assets $169,533,184 $164,183,224 ---------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable and other liabilities $ 2,533,542 $ 2,453,080 ---------------------------------------------------------------------------------------------------- Total liabilities 2,533,542 2,453,080 ---------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Total stockholders' equity 166,999,642 161,730,144 ---------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $169,533,184 $164,183,224 ----------------------------------------------------------------------------------------------------
38 STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002 2001 2000 -------------------------------------------------------------------------------------------------------------------------- INCOME Dividends from subsidiary bank $ 18,356,939 $ 13,194,219 $ 8,455,200 -------------------------------------------------------------------------------------------------------------------------- Total income 18,356,939 13,194,219 8,455,200 -------------------------------------------------------------------------------------------------------------------------- EXPENSE Interest on other borrowed funds - - 3,900 Other expense 98,398 123,074 193,992 -------------------------------------------------------------------------------------------------------------------------- Total expense 98,398 123,074 197,892 -------------------------------------------------------------------------------------------------------------------------- Income before tax and equity in undistributed net income of subsidiary bank 18,258,541 13,071,145 8,257,308 Income tax benefit (34,400) (44,700) (72,000) -------------------------------------------------------------------------------------------------------------------------- Income before equity in undistributed net income of subsidiary bank 18,292,941 13,115,845 8,329,308 Equity in undistributed net income of subsidiary bank 3,510,704 8,808,355 12,844,215 -------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 21,803,645 $ 21,924,200 $ 21,173,523 --------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 2001 2000 ---------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 21,803,645 $ 21,924,200 $ 21,173,523 Equity in undistributed net income of subsidiary bank (3,510,704) (8,808,355) (12,844,215) Net increase (decrease) in other liabilities 80,461 325,080 (872,000) Net decrease in other assets - - 3,000,000 ---------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 18,373,402 $ 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 (7,908,386) (3,511,274) - Dividends paid (10,349,347) (9,582,754) (8,205,200) ---------------------------------------------------------------------------------------------------------- Net cash used for financing activities $(18,257,733) $(13,094,028) $ (8,205,200) ---------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 115,669 $ 346,897 $ 2,252,108 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,599,005 2,252,108 - ---------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,714,674 $ 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. Accordingly, at December 31, 2002, Bank funds available for loans to the Corporation amounted to $17,869,439. 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. Michigan law limits the amount of dividends the Bank can pay to the Corporation without regulatory approval to the sum of its current year 39 net income and its undivided profits for the two previous years. Accordingly, the Bank can pay dividends of $11,834,217 in 2003, in addition to its 2003 net income, without regulatory approval. (18) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for its other lending activities. Financial instruments whose contractual amounts represent off-balance sheet credit risk at December 31 were as follows:
CONTRACTUAL AMOUNT (IN THOUSANDS) 2002 2001 -------------------------------------------------------------------------------------------- Commitments to extend credit: Unused portion of commercial lines of credit $97,402 $83,400 Unused portion of credit card lines of credit 10,018 9,394 Unused portion of home equity lines of credit 16,953 14,967 Standby letters of credit and financial guarantees written 17,320 17,968
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Most commercial lines of credit are secured by real estate mortgages or other collateral, generally have fixed expiration dates or other termination clauses, and require payment of a fee. Since the lines of credit may expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. Credit card lines of credit have various established expiration dates, but are fundable on demand. Home equity lines of credit are secured by real estate mortgages, a majority of which have ten year expiration dates, but are fundable on demand. The Bank evaluates each 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 counter party. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and other business transactions. Approximately $11,004,000 of the letters of credit expires in 2003 and $6,316,000 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. 40 (19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2002 FIRST SECOND THIRD FOURTH - ---------------------------------------------------------------------------------------------------------------- Total Interest Income $ 21,726 $ 21,352 $ 21,163 $ 20,363 Total Interest Expense 9,074 8,775 8,567 7,971 - ---------------------------------------------------------------------------------------------------------------- Net Interest Income 12,652 12,577 12,596 12,392 Provision for Loan Losses 2,750 1,350 1,400 601 Other Income 2,776 3,294 3,032 3,689 Other Expenses 7,006 6,261 6,415 7,307 - ---------------------------------------------------------------------------------------------------------------- Income Before Provision For Income Taxes 5,672 8,260 7,813 8,173 Provision For Income Taxes 1,560 2,244 2,133 2,177 - ---------------------------------------------------------------------------------------------------------------- Net Income $ 4,112 $ 6,016 $ 5,680 $ 5,996 - ---------------------------------------------------------------------------------------------------------------- Basic Earnings Per Common Share $ 0.21 $ 0.31 $ 0.29 $ 0.31 Diluted Earnings Per Common Share $ 0.21 $ 0.31 $ 0.29 $ 0.31 Dividends Declared Per Share $ 0.13 $ 0.13 $ 0.14 $ 0.14 2001 FIRST SECOND THIRD FOURTH - ---------------------------------------------------------------------------------------------------------------- Total Interest Income $ 26,257 $ 26,281 $ 25,492 $ 23,294 Total Interest Expense 13,780 13,072 12,147 10,536 - ---------------------------------------------------------------------------------------------------------------- Net Interest Income 12,477 13,209 13,345 12,758 Provision for Loan Losses 4,400 900 1,200 900 Other Income 2,456 2,950 2,740 2,505 Other Expenses 6,149 6,227 6,353 6,080 - ---------------------------------------------------------------------------------------------------------------- Income Before Provision For Income Taxes 4,384 9,032 8,532 8,283 Provision For Income Taxes 1,191 2,458 2,133 2,525 - ---------------------------------------------------------------------------------------------------------------- Net Income $ 3,193 $ 6,574 $ 6,399 $ 5,758 - ---------------------------------------------------------------------------------------------------------------- Basic Earnings Per Common Share $ 0.16 $ 0.33 $ 0.31 $ 0.30 Diluted Earnings Per Common Share $ 0.16 $ 0.33 $ 0.31 $ 0.30 Dividends Declared Per Share $ 0.11 $ 0.13 $ 0.13 $ 0.13
(20) OPERATING LEASES The Corporation has entered into lease commitments for office locations. Rental expense charged to operations was $204,611, $147,942, and $154,919 for the years ended December 31, 2002, 2001, and 2000, respectively. The future minimum lease payments are as follows:
Minimum Year Payment - ------------------------------- 2003 $ 289,034 2004 225,383 2005 173,390 2006 71,906 2007 74,063 Thereafter 383,062
41 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On April 18, 2002, the Board of Directors of MBT Financial Corp. (the "Corporation"), upon the recommendation of its Audit Committee, dismissed Arthur Andersen LLP as the Corporation's independent public accountants and appointed Plante & Moran, PLLC as its new independent public accountants for 2002. This was disclosed in Form 8-K/A filed on April 30, 2002. 42 PART III Item 10. Directors and Executive Officers of the Registrant Directors of the Registrant Information required by this item is incorporated by reference from the section entitled "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders that is to be filed with the Securities and Exchange Commission. Item 11. Executive Compensation Information required by this item is incorporated by reference from the section entitled "Executive Compensation and Other Information" in the Proxy Statement for the Annual Meeting of Shareholders that is to be filed with the Securities and Exchange Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this item is incorporated by reference from the section entitled "Ownership of Voting Shares" in the Proxy Statement for the Annual Meeting of Shareholders that is to be filed with the Securities and Exchange Commission. Securities authorized for issuance under equity compensation plans as of December 31, 2002 were as follows:
Number of securities remaining available for future issuance under equity compensation plans Number of securities to be issued Weighted average exercise price of (excluding securities upon exercise of outstanding outstanding options, warrants, and reflected in the options, warrants, and rights rights first column) ---------------------------------------------------------------------------------------------------- Equity Compensation plans approved by security holders 323,949 $15.52 676,051 Equity Compensation plans not approved by security holders 0 0 0 Total 323,949 $15.52 676,051
Item 13. Certain Relationships and Related Transactions Information required by this item is incorporated by reference from the section entitled "Certain Transactions" in the Proxy Statement for the Annual Meeting of Shareholders that is to be filed with the Securities and Exchange Commission. Item 14. Controls and Procedures The Chief Executive Officer and Chief Financial Officer of the Corporation, based on an evaluation as of a date within 90 days prior to the filing date of this report, have concluded that the Corporation's disclosure controls and procedures effectively ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Corporation's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes made in the Corporation's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation thereof performed by the Corporation's Chief Executive Officer and Chief Financial Officer. 43 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Contents Financial Statements Reports of Independent Public Accountants -- Pages 17-18 Consolidated Statements of Condition as of December 31, 2002 and 2001 -- Page 19 Consolidated Statements of Income for the Years Ended December 31, 2002, 2001, and 2000 -- Page 20 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002, 2001, and 2000 -- Page 21 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000 -- Pages 22-23 Notes to Consolidated Financial Statements -- Pages 24-41 Financial Statement Schedules (a) Securities -- Page 46 (b) Loans and Lease Financing Receivables -- Page 47 (c) Bank Premises and Equipment -- Included in Notes to Financial Statements Note 6, Page 30 (d) Allowance for Loan Losses -- Included in Notes to Financial Statements Note 5, Page 30 Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 2002 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. 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.
44 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 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.6 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2001. 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. 99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
45 SCHEDULE I SECURITIES (000's omitted)
Held to Maturity --------------------------------------------------------------------------------- December 31, 2002 December 31, 2001 December 31, 2000 ------------------------ ------------------------- ------------------------ 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).................................. $ 503 $ 561 $ 29,903 $ 30,057 $ 145,622 $ 143,456 Securities issued by states and political subdivisions in the U.S...................... 113,255 117,968 129,075 131,921 132,007 134,664 Pass-through mortgage-backed securities (MBS)........................................ 85 88 141 140 167 163 Other domestic securities (debt and equity).. 2,976 2,975 2,968 2,961 56,188 56,164 ------------ ---------- ----------- ---------- ---------- ----------- Total........................................ $ 116,819 $ 121,592 $ 162,087 $ 165,079 $ 333,984 $ 334,447 ============ ========== =========== ========== ========== =========== Pledged securities........................... $ 31,972 $ 33,672 $ 35,709 $ 36,775 $ 62,992 $ 63,181 ============ ========== =========== ========== ========== ===========
Available for Sale -------------------------------------------------------------------------------- December 31, 2002 December 31, 2001 December 31, 2000 -------------------------- ------------------------- ------------------------ 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).................................. $ 321,772 $ 323,830 $ 224,910 $ 224,512 $ 11,999 $ 11,979 Securities issued by states and political subdivisions in the U.S...................... 14,680 14,723 8,646 8,142 - - Pass-through mortgage-backed securities (MBS)........................................ 1,106 1,301 1,117 1,194 1,127 1,212 Other domestic securities (debt and equity).. 84,554 83,064 102,763 101,566 110,879 105,230 ------------- ----------- ------------ ----------- ----------- ----------- Total........................................ $ 422,112 $ 422,918 $ 337,436 $ 335,414 $ 124,005 $ 118,421 ============= =========== ============ =========== =========== =========== Pledged securities........................... $ 249,436 $ 251,994 $ 140,945 $ 140,594 $ 2,998 $ 3,015 ============= =========== ============ =========== =========== ===========
46 SCHEDULE II LOANS AND LEASE FINANCING RECEIVABLES (000's omitted)
Book Value at December 31, ------------------------------------------------------------------- 2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a) ------------- ----------- ------------ ----------- ----------- Loans secured by real estate: Construction and land development.................. $ 56,780 $ 47,025 $ 36,146 $ 24,504 $ 27,100 Secured by farmland (including farm residential and other improvements)............................ 7,925 6,172 4,354 3,774 3,945 Secured by 1-4 family residential properties......................................... 258,157 275,489 275,299 214,358 202,926 Secured by multifamily (5 or more) residential properties......................................... 6,810 6,714 3,322 3,673 3,166 Secured by nonfarm nonresidential properties......................................... 280,136 258,879 227,024 190,588 182,348 Loans to finance agricultural production and other loans to farmers....................................... 2,182 2,856 2,832 2,087 1,422 Commercial and industrial loans to U.S. addresses (domicile)............................................. 90,838 99,186 150,805 156,489 171,919 Loans to individuals for household, family, and other personal expenditures (includes purchased paper): Credit cards and related plans..................... 1,471 3,353 9,415 10,320 10,038 Other.............................................. 68,942 87,322 102,089 97,091 85,475 Nonrated industrial development obligations (other than securities) of states and political subdivisions in the U.S............................................. 67 133 228 380 676 Other loans: Loans for purchasing or carrying securities (secured and unsecured)............................ - - - 9 - All other loans.................................... 497 696 609 109 1,994 Less: Any unearned income on loans................. - - - - 3 ------------- ----------- ------------ ----------- ----------- Total loans and leases, net of unearned income................................................. $ 773,805 $ 787,825 $ 812,123 $ 703,382 $ 691,006 ============= =========== ============ =========== ============ Nonaccrual loans $ 22,332 $ 22,712 $ 17,161 $ 16,791 $ 5,269 Loans 90 days or more past due $ 81 $ 450 $ 193 $ 107 $ 40 Troubled debt restructurings $ 6,807 $ - $ 1,057 $ 1,281 $ 868
(a) Loan categories are presented net of deferred loan fees. The presentation in Note 4 to the consolidated financial statements differs from this schedule presentation by presenting the loan categories, gross, before deferred loan fees have been subtracted. 47 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 27, 2003 MBT FINANCIAL CORP. By: /s/ Eugene D. Greutman ------------------------------- Eugene D. Greutman Treasurer Chief Financial Officer 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 27, 2003 By: /s/ Ronald D. LaBeau By: /s/ Eugene D. Greutman ----------------------------------- -------------------------------- Ronald D. LaBeau Eugene D. Greutman Chairman, Chief Executive Treasurer Officer & Director Chief Financial Officer By: /s/ Connie S. Cape By: /s/ Gerald L. Kiser ----------------------------------- -------------------------------- Director Director By: /s/ William D. McIntyre, Jr. By: /s/ Thomas M. Huner ----------------------------------- -------------------------------- Director Director By: /s/ Richard A. Sieb ----------------------------------- Director
48 CERTIFICATIONS I, Ronald D. LaBeau, Chairman and Chief Executive Officer of MBT Financial Corp., certify that: 1. I have reviewed this annual report on Form 10-K of MBT Financial Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 1. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 1. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. March 27, 2003 /s/ Ronald D. LaBeau - ----------------- ----------------------------------- Date Ronald D. LaBeau Chairman & Chief Executive Officer 49 I, Eugene D. Greutman, Treasurer and Chief Financial Officer of MBT Financial Corp., certify that: 1. I have reviewed this annual report on Form 10-K of MBT Financial Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 1. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 1. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. March 27, 2003 /s/ Eugene D. Greutman - ----------------- ----------------------------------- Date Eugene D. Greutman Treasurer & Chief Financial Officer 50 10-K EXHIBIT INDEX
Exhibit No. Description of Exhibits - ------- ------------------------ 3.1 Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000. 3.2 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. 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 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.6 to MBT Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2001. 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. 99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
EX-99.1 3 k74354exv99w1.txt CERTIFICATION BY CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of MBT Financial Corp. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald D. LaBeau, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ronald D. LaBeau - -------------------------------- Ronald D. LaBeau Chief Executive Officer March 27, 2003 51 EX-99.2 4 k74354exv99w2.txt CERTIFICATION BY CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of MBT Financial Corp. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eugene D. Greutman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Eugene D. Greutman - -------------------------------- Eugene D. Greutman Chief Financial Officer March 27, 2003 52 -----END PRIVACY-ENHANCED MESSAGE-----