8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________________ TO ____________________
Commission file number: 0-23374
MFB CORP.
(Exact name of registrant as specified in its charter)
Indiana 35-1907258
------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
121 South Church Street
P.O. Box 528
Mishawaka, Indiana 46546
(Address of principal executive offices,
including Zip Code)
(574) 255-3146
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act)
Yes ___ No X
-------
The number of shares of the registrant's common stock, without par value,
outstanding as of July 31, 2003 was 1,271,710.
MFB CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30 2003 (Unaudited) and September 30, 2002 3
Consolidated Statements of Income (Unaudited)
Three and nine months ended June 30, 2003 and 2002 4
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Unaudited) Three and nine months ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended June 30, 2003 and 2002 6
Notes to (Unaudited) Consolidated Financial Statements June 30, 2003 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 13
Results of Operations 13
Balance Sheet Composition 15
Liquidity and Capital Resources 16
Critical Accounting Policies 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 20
Part II. Other Information
Items 1-6. 21
Signatures 22
Certifications 23
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2003 and September 30, 2002
(In thousands, except share information) (Unaudited)
June 30, September 30,
2003 2002
ASSETS
Cash and due from financial institutions $ 11,374 $ 13,647
Interest - bearing deposits in other financial institutions - short term 20,947 13,935
----------------- -----------------
Total cash and cash equivalents 32,321 27,582
Securities available for sale 50,711 53,585
Interest-bearing time deposits in other financial institutions 1,000 500
Federal Home Loan Bank (FHLB) stock, at cost 6,391 6,308
Investment in limited partnership 2,603 2,713
Loans held for sale 1,586 6,404
Loans receivable 319,973 316,391
Less: allowance for loan losses (5,713) (5,143)
----------------- -----------------
Loan receivable, net 314,260 311,248
Accrued interest receivable 1,649 1,766
Premises and equipment, net 6,070 5,054
Mortgage servicing rights 907 1,617
Cash surrender value of life insurance 5,149 -
Other assets 3,697 4,423
----------------- -----------------
Total assets $ 426,344 $ 421,200
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand deposits $ 26,227 $ 20,270
Savings, NOW and MMDA deposits 101,841 86,559
Time deposits 156,569 157,548
----------------- -----------------
Total deposits 284,637 264,377
FHLB advances 119,215
103,790
Loans from Correspondent Banks 300 -
Advances from borrowers for taxes and insurance 661 1,414
Accrued expenses and other liabilities 4,211 2,242
----------------- -----------------
Total liabilities 393,599 387,248
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417-06/30/03 and 09/30/02;
shares outstanding: 1,267,610-06/30/03 and 1,330,049-09/30/02 12,766 12,880
Retained earnings - substantially restricted 30,055 29,183
Accumulated other comprehensive income (loss),
net of tax of $(133) -06/30/03 and $57 - 09/30/02 (764) (194)
Treasury stock, 421,807common shares - 06/30/03;
359,368 common shares - 09/30/02, at cost (9,312) (7,917)
----------------- -----------------
Total shareholders' equity 32,745 33,952
----------------- -----------------
Total Liabilities and Shareholders' equity $ 426,344 $ 421,200
================= =================
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and nine months ended June 30, 2003 and 2002
(in thousands except per share information)
Three Months Ended Nine Months Ended
June 30 June 30
2003 2002 2003 2002
Interest income
Loans receivable, including fees
Mortgage loans $ 2,212 $ 2,773 $ 7,045 $ 8,679
Consumer and other loans 434 481 1,378 1,511
Commercial loans 2,332 2,235 6,871 6,595
Securities - taxable 482 811 1,621 2,285
Other interest-bearing assets 127 65 278 354
Total interest income 5,587 6,365 17,193 19,424
Interest expense
Deposits 1,442 1,607 4,444 5,292
FHLB advances 1,623 1,689 4,992 5,069
Securities sold under agreements to repurchase - 36 - 129
Total interest expense 3,065 3,332 9,436 10,490
Net interest income 2,522 3,033 7,757 8,934
Provision for loan losses 110 2,235 1,010 2,919
Net interest income after provision for loan losses 2,412 798 6,747 6,015
Noninterest income
Service charges on deposit accounts 371 262 973 759
Trust fee income 132 53 358 168
Insurance commissions 46 47 130 116
Net realized gains from sales of loans 737 151 2,645 1,072
Loan servicing fees, net of amortization (320) 28 (697) (21)
Mortgage Servicing impairment charge (704) - (704) -
Gain (loss) on securities 0 (831) 40 (831)
Other income 149 37 422 104
Total noninterest income 411 (253) 3,167 1,367
Noninterest expense
Salaries and employee benefits 1,759 1,494 5,066 4,414
Occupancy and equipment 424 372 1,156 1,107
Data processing expense 127 172 488 500
Other expense 665 564 1,726 1,505
Total noninterest expense 2,975 2,602 8,436 7,526
Income (loss) before income taxes (152) (2,057) 1,478 (144)
Income tax expense (benefit) (213) (860) 186 (217)
Net income (loss) $ 61 $ (1,197) $ 1,292 $ 73
Basic earnings (loss) per common share $ .05 $ (0.90) $ 1.00 $ 0.05
Diluted earnings (loss) per common share $ .05 $ ( 0.90) $ .97 $ 0.05
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
Three and nine months ended June 30, 2003 and 2002
(In thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Balance at beginning of period $ 33,139 $ 34,618 $ 33,952 $ 34,380
Purchase of treasury stock - (250) (1,676) (431)
Stock option exercise 10 - 167 115
Cash dividends declared (139) (140) (420) (415)
Comprehensive income (loss):
Net income (loss) 61 (1,197) 1,292 73
Net change in net unrealized gains and losses
on securities available for sale, net of tax (326) 277 (570) (414)
effects
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Total comprehensive income (loss) (265) (920) 722 (341)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Balance at end of period $ 32,745 $ 33,308 $ 32,745 $ 33,308
=========== =========== =========== ===========
See accompanying notes to (unaudited) consolidated financial statement
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended June 30, 2003 and 2002
(In Thousands)
Nine Months Ended
June 30,
2003 2002
---- ----
Cash flows from operating activities
Net income $ 1,292 $ 73
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion 937 857
Provision for loan losses 1,010 2,919
Net (gains) losses from sales or valuation of securities available for sale (40) 831
Net realized gains from sales of loans (2,645) (1,072)
Amortization of mortgage servicing rights 999 225
Impairment of mortgage servicing rights 704 -
Origination of loans held for sale (71,651) (47,680)
Proceeds from sales of loans held for sale 87,778 49,845
Equity in loss of investment in limited partnership 111 129
Appreciation in cash surrender value of life insurance (149) -
Net change in:
Accrued interest receivable 117 (73)
Other assets 946 (1,132)
Accrued expenses and other liabilities 1,969 (76)
----------- -------------
Net cash from operating activities 21,378 4,846
Cash flows from investing activities
Net change in interest-bearing time deposits in other financial institutions - 500
Net change in loans receivable (13,679) (8,681)
Proceeds from:
Principal payments of mortgage-backed and related securities 24,549 17,205
Sales, Maturities and calls of securities available for sale 4,160 22,309
Purchase of:
Securities available for sale (27,152) (54,211)
Life insurance (5,000) -
FHLB stock (83) -
Interest-bearing time deposits in other financial institutions (500) -
Premises and equipment, net (1,356) (168)
----------- -------------
Net cash used in investing activities (19,061) (23,046)
Cash flows from financing activities
Purchase of MFB Corp common stock (1,676) (431)
Net change in deposits 20,260 10,484
Net change in securities sold under agreement to repurchase - (2,241)
Repayment of FHLB borrowings (15,425) (470)
Proceeds from other borrowings 300 -
Proceeds from exercise of stock options 136 90
Net change in advances from borrowers for taxes and insurance (753) (794)
Cash dividends paid (420) (415)
----------- -------------
Net cash from financing activities 2,422 6,223
----------- -------------
Net change in cash and cash equivalents 4,739 (11,977)
Cash and cash equivalents at beginning of period 27,582 34,223
----------- -------------
Cash and cash equivalents at end of period 32,321 $ 22,246
=========== =============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $7,639 $ 10,594
Income taxes 100 812
Supplemental schedule of noncash investing activities:
Transfer from Loans receivable to loans held for sale $9,657 $ -
MFB CORP. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Nature of Operations: MFB Corp. is an Indiana unitary savings and loan holding
company organized in 1993, and parent company of its wholly owned federal
savings bank subsidiary, MFB Financial (the "Bank"). MFB Corp. and the Bank
(collectively referred to as the "Company") conduct business from their main
office in Mishawaka, Indiana, and six branch locations in St. Joseph and Elkhart
Counties of Indiana. The Bank offers a variety of lending, deposit, trust and
other financial services to its retail and commercial customers. The Bank's
wholly-owned subsidiary, Mishawaka Financial Services, Inc., offers general
property, casualty and life insurance to customers in the Bank's market area.
The Bank's wholly-owned subsidiaries, MFB Investments I, Inc., MFB Investments
II, Inc. and MFB Investments, LP are Nevada corporations and a Nevada limited
partnership that manage the Bank's investment portfolio.
Basis of Presentation: The accompanying unaudited consolidated financial
statements were prepared in accordance with instructions for Form 10-Q and,
therefore, do not include all disclosures required by accounting principles
generally accepted in the United States of America for a complete presentation
of the financial statements. In the opinion of management, the consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the consolidated balance sheets of MFB Corp. and its subsidiary
MFB Financial as of June 30, 2003 and September 30, 2002, the consolidated
statements of income and the condensed
consolidated statements of changes in shareholders' equity for the three and
nine months ended June 30, 2003 and 2002 and the consolidated statements of cash
flows for the nine months ended June 30, 2003 and 2002. All significant
intercompany transactions and balances are eliminated in consolidation.
Reclassifications: Some items in the prior consolidated financial statements
have been reclassified to conform with the current presentation.
(Continued)
NOTE 2 - EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share shows the dilutive effect of additional potential
common shares issuable under stock options.
The computations of basic earnings (loss) per common share and diluted earnings
(loss) per common share for the periods ended June 30, 2003 and 2002 are
presented below.
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(in thousands except per share information)
Basic Earnings (Loss) Per Common Share
Numerator
Net income (loss) $ 61 $(1,197) $ 1,292 $ 73
=========== =========== ========== ============
Denominator
Weighted average common shares outstanding for
basic earnings (loss) per common share 1,267 1,330 1,288 1,336
=========== =========== ========== ============
Basic Earnings (Loss) Per Common Share $ 0.05 $(0.90) $ 1.00 $ 0.05
=========== =========== ========== ============
Diluted Earnings (Loss) Per Common Share
Numerator
Net income (loss) $ 61 $(1,197) $ 1,292 $ 73
=========== =========== ========== ============
Denominator
Weighted average common shares outstanding
for basic earnings (loss) per common share 1,267 1,330 1,288 1,336
Add: Dilutive effects of assumed exercises
of stock options 36 - 42 39
----------- ----------- ---------- ------------
Weighed average common and
dilutive potential common shares 1,303 1,330 1,330 1,375
outstanding
=========== =========== ========== ============
Diluted Earnings (Loss) Per Common Share $ 0.05 $(0.90) $ 0.97 $ 0.05
=========== =========== ========== ============
Stock options for 42,500 and 51,750 common shares for the three and nine months
ended June 30, 2003, respectively, and stock options for 193,650 and 64,667
common shares for the three and nine months ended June 30, 2002, respectively,
were not considered in computing diluted earnings per common share because they
were anti-dilutive.
NOTE 3 - SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
............................June 30, 2003............................
-------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 10,389 $ 258 $ - $ 10,647
Municipal bonds 347 23 - 370
Mortgage-backed 26,866 68 (257) 26,677
Corporate notes 9,768 245 (672) 9,341
------------ -------------- ------------- --------------
47,370 594 (929) 47,035
Marketable equity securities 4,237 - (561) 3,676
------------ -------------- ------------- --------------
$ 51,607 $ 594 $ (1,490) $ 50,711
============ ============== ============= ==============
..........................September 30, 2002.........................
------------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 12,485 $ 329 $ - $ 12,814
Municipal bonds 349 19 - 368
Mortgage-backed 26,771 272 (6) 27,037
Corporate notes 9,880 138 (609) 9,409
------------ -------------- ------------- --------------
49,485 758 (615) 49,628
Marketable equity securities 4,237 - (280) 3,957
------------ -------------- ------------- --------------
$ 53,722 $ 758 $ (895) $ 53,585
============ ============== ============= ==============
NOTE 4 - LOANS RECEIVABLE, NET
Loans receivable at June 30, 2003 and September 30, 2002 are summarized as
follows:
June 30, September 30,
2003 2002
----------------- ----------------
First mortgage loans (principally conventional) (in thousands)
Principal balances
Secured by one to four family residences $ 134,450 $ 146,942
Construction loans 20,654 15,863
Others 7,073 6,027
----------------- ----------------
162,177 168,832
Less un-disbursed portion of construction and other mortgage loans (18) (103)
----------------- ----------------
Total first mortgage loans 162,159 168,729
Commercial loans:
Principal balances
Commercial $ 51,592 $ 48,438
Commercial real estate 79,151 72,703
----------------- ----------------
----------------- ----------------
Total commercial loans 130,743 121,141
Consumer loans:
Home equity and second mortgage $ 22,387 $ 21,150
Other 5,508 6,165
----------------- ----------------
Total consumer loans 27,895 27,315
Net deferred loan origination fees (824) (794)
----------------- ----------------
Total loans receivable $ 319,973 $ 316,391
================= ================
Activity in the allowance for loan losses is summarized as follows for the nine
months ended June 30, 2003 and for the year ended September 30, 2002.
June 30, September 30,
2003 2002
---------------- -----------------
(in thousands)
Balance at beginning of period $ 5,143 $ 4,632
Provision for loan losses 1,010 3,370
Charge-offs (442) (2,873)
Recoveries 2 14
---------------- -----------------
Balance at end of period $ 5,713 $ 5,143
================ =================
NOTE 4 - LOANS RECEIVABLE, NET (continued)
Quarter Ended Year Ended
June 30, September 30,
Impaired loans were as follows: 2003 2002
------------------ ------------------
(in thousands)
Quarter-ended and year-end balances with no allocated allowance for loan losses $ - $ -
Quarter-ended and year-end loans with allocated allowances for loan losses 5,045 6,567
------------------ ------------------
Total $ 5,045 $ 6,567
================== ==================
Amount of the allowance for loan losses allocated $ 1,907 $ 1,773
Average of impaired loans 4,904 8,070
Interest income recognized during impairment 22 227
Cash-basis interest income recognized during impairment 12 226
Non-performing loans were as follows:
June 30, September 30,
2003 2002
------------------ ------------------
(in thousands)
Loans past due over 90 days still on accrual status $ - $ -
Non-accrual loans 3,704 5,464
------------------ ------------------
Total Non-performing loans $ 3,704 $ 5,464
================== ==================
NOTE 5 - STOCK BASED COMPENSATION
The Board of Directors of the Company has adopted the MFB Corp. Stock Option
Plans (the "Option Plans"). The number of options authorized under the Option
Plans totals 450,000 shares of common stock. Officers, employees and outside
directors of the Company and its subsidiary are eligible to participate in the
Option Plans. The option exercise price must be no less than 85% of the fair
market value of common stock on the date of the grant, and the option term
cannot exceed ten years and one day from the date of the grant. As of June 30,
2003, all options granted have an exercise price of at least 100% of the market
value of the common stock on the date of grant and no compensation expense was
recognized for stock options during the nine months ended June 30, 2003 and
2002.
Compensation expense under stock options is reported using the intrinsic value
method. No stock-based compensation cost is reflected in net income, as all
options granted had an exercise price equal to or greater than the market price
of the underlying common stock at date of grant. The following table illustrates
the effect on net income (loss) and earnings (loss) per share if expense was
measured using the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation.
Three Months Ending Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) as reported $ 61 $ (1,197) $ 1,292 $ 73
Less: Stock-based compensation
expense determined under fair value
based method 54 35 161 134
----------- ----------- ----------- ----------
Pro forma net income (loss) $ 7 $ (1,232) $ 1,131 $ (61)
Basic earnings (loss) per share as reported $ .05 $ (.90) $ 1.00 $ .05
Pro forma basic earnings (loss) per share .01 (.92) .88 (.05)
Diluted earnings (loss) per share as reported .05 (.90) .97 .05
Pro forma diluted earnings (loss) per share .01 (.92) .85 (.05)
The weighted average fair value of stock options granted during the nine months
ended June 30, 2003 and 2002 were $5.82 and $4.45. The fair value of options
granted during the nine months ended June 30, 2003 and 2002 were estimated using
an option pricing model with the following weighted average information as of
the grant dates:
June 30,
2003 2002
---- ----
Risk free rate of interest 3.72% 4.83%
Expected option life 8 years 8 years
Expected dividend yield 1.82% 2.17%
Expected volatility 23.23% 14.41%
In future years, as additional options are granted, the proforma effect on net
income and earnings per share may increase. Stock options are used to reward
directors and certain executive officers and provide them with an additional
equity interest. Options are issued for ten year periods and have varying
vesting schedules.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The principal business of MFB Financial has historically consisted of attracting
deposits from the general public and the small business community and making
loans secured by various types of collateral, including real estate and general
business assets. The Bank is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities, fee structures, and level of
personal income and savings. Lending activities are influenced by the demand for
funds, the number and quality of lenders, and regional economic cycles. Sources
of funds for lending activities of the Bank include deposits, borrowings,
payments on loans and income provided from operations.
The Company's earnings (losses) are primarily dependent upon the Bank's net
interest income, the difference between interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. The Company's earnings (losses) are also affected by
the Bank's provisions for loan losses, service charges, fee income, gains from
sales of loans, valuation and fees related to mortgage loan servicing
operations, income from subsidiaries activities, operating expenses and income
taxes.
RESULTS OF OPERATION
COMPARISON OF THREE AND NINE MONTHS ENDED JUNE 30, 2003 AND 2002
The Company's consolidated net income for the three months ended June 30, 2003
was $61,000 or $0.05 diluted earnings per common share, compared to net loss of
($1,197,000) million or $(0.90) diluted loss per share, for the three months
ended June 30, 2002. The Company's consolidated net income for the nine months
ended June 30, 2003 was $1.29 million or $0.97 diluted earnings per share,
compared to $73,000, or $0.05 diluted earnings per share, for the same period
last year.
The increase in net income over last year for both the three and nine months
periods ending June 30, 2003 was primarily due to a significant reduction in the
loan loss provision and increased non-interest income, offset by reduced net
interest income and increased non-interest expense. Both the third quarters
ending June 30, 2003 and 2002 had significant charges for declines in value of
assets held as discussed below.
Net interest income before provision for loan losses for the three month period
ended June 30, 2003 totaled $2.52 million compared to $3.03 million for the same
period one year ago. Total interest income for the third quarter decreased
$778,000 while total interest expense decreased $267,000 from the third quarter
last year as a result of greater sensitivity to interest rate declines of the
Company's interest earning assets over its interest bearing liabilities. For the
nine months ended June 30, 2003 net interest income declined from $8.93 million
last year to $7.76 million this year.
The provision for loan losses for the quarter ended June 30, 2003 was $110,000
compared to $2,235,000 for the same quarter last year. The provision for loan
losses for the nine months ended June 30, 2003 was $1,010,000 compared to
$2,919,000 for the same period last year. The significantly higher provision
last year for the three and nine months ended June 30, 2002 was primarily due to
a $750,000 charge on one specific commercial loan and a $770,000 charge to the
loan loss provision as a result of increasing loss allocations on specific
classified loans. The provision is based on the evaluation of many factors
including current economic conditions, changes in the character, mix and size of
the loan portfolio, current and past delinquency trends, adequacy of collateral
on loans, historical and estimated net charge-offs and the current level of
impaired loans and nonperforming loans. The Company's commercial loan portfolio
has continued to grow as a percentage of total loans.
Total non-interest income was $411,000 for the three months ended June 30, 2003
compared to ($253,000) for the three month period ending June 30, 2002. Net
income for the third quarter this year was impacted by a $704,000 non-cash
impairment charge related to the decline in the market value of servicing rights
associated with MFB Financials $161 million mortgage loan servicing portfolio.
Record low interest rate levels have significantly reduced the value of mortgage
servicing portfolios throughout the mortgage banking industry. During the third
quarter of last year, MFB Corp. recorded an $831,000 charge on the decline in
value of a $1.0 million WorldCom, Inc. corporate investment. Other non-interest
income (excluding gains and losses on securities and the mortgage servicing
impairment charge) has nearly doubled from the third quarter last year to the
third quarter this year, increasing from $578,000 to $1.12 million, and has
increased from $2.20 million for the nine months ended June 30, 2002 to $3.83
million for the nine months ended June 30, 2003. Significant growth occurred in
deposit fees, trust fees, gains on sales of mortgage loans and other fee income
for both the three and nine month periods. Net gains on loan sales totaling
$737,000 for the third quarter ended June 30, 2003 and $2.65 million for the
nine month period this year were up significantly over the same periods last
year. An increase in fixed rate mortgage origination volume and improved
secondary market pricing contributed to the increase over last year.
Non-interest expenses increased 14.3% from $2.60 million for the third quarter
ended June 30, 2002 to $2.98 million this current quarter. For the nine months
ended June 30, 2003 non-interest expense increased 12.1% from $7.53 million last
year to $8.44 million this year. These increases were primarily due to increases
in salaries and employee benefits and other expense. The significant growth in
salaries and benefits is the result of staffing several key positions in the
organization designed to position the bank for growth in the coming years. Other
expense has increased over last year primarily due to increases in advertising,
telephone, postage and real estate foreclosure expenses.
Primarily as a result of increased taxable income, income tax expense increased
for the three and nine months ended June 30, 2003, compared to the same periods
ended June 30, 2002.
BALANCE SHEET COMPOSITION
COMPARISON OF JUNE 30, 2003 TO SEPTEMBER 30, 2002
The Company's total assets increased $5.1 million from $421.2 million as of
September 30, 2002 to $426.3 million as of June 30, 2003.
Cash and cash equivalents increased from $27.6 million at September 30, 2002 to
$32.3 million at
June 30, 2003. Net cash from operating activities amounted to $21.4 million, net
cash from financing activities totaled $2.4 million and the net cash used in
investing activities amounted to $19.1 during the nine months ended June 30,
2003.
As of June 30, 2003, the total securities available for sale portfolio amounted
to $50.7 million, a decrease of $2.9 million from $53.6 million at September 30,
2002. The securities portfolio activity during that period included security
purchases of $27.2 million, security maturities and sales of $4.2 million, and
principal payments on mortgage-backed and related securities of $24.5 million.
As of June 30, 2003, loans receivable were $320.0 million, an increase of $3.6
million from $316.4 million at September 30, 2002. Commercial loans outstanding
increased by $9.6 million from $121.1 million at September 30, 2002 to $130.7
million at June 30, 2003. Due to increased volume of mortgage loans sold into
the secondary market, mortgage loans declined from $168.7 million at September
30, 2002 to $162.2 million at June 30, 2003. Consumer loans, including home
equity and second mortgages, increased $580,000 during the nine month period.
Loans held for sale at June 30, 2003 decreased to $1.6 million from $6.4 million
at September 30, 2002. Diversification of the mix of loans on the balance sheet
continues to be a focus to improve profit margins, control margin volatility and
to appeal to a broader range of customers and potential customers.
During the third quarter ended June 30, 2003, the Company completed secondary
market mortgage loan sales totaling $22.6 million and the net gains realized on
these loan sales were $737,000 including $283,000 related to recording mortgage
loans servicing rights. During the third quarter ended June 30, 2002 mortgage
loan sales of $8.6 million yielded net gains on loan sales of $151,000,
including $107,000 related to recording mortgage loan servicing rights. The
loans sold this year were primarily fixed rate mortgage loans with maturities of
fifteen years or longer. The sale of loan production serves as a source of
additional liquidity and management anticipates that the Company will continue
to deliver fixed rate loans to the secondary market to meet consumer demand,
manage interest rate risk, and diversify the asset mix of the Company. On a
non-recurring basis, to meet liquidity needs that arise, the Company may sell
certain adjustable rate loans from its portfolio.
The allowance for loan losses increased from $5.1 million, or 1.63% of loans, at
September 30, 2002 to $5.7 million or 1.79% of loans at June 30, 2003. The
increasing percentage of commercial loans in the portfolio has contributed to
the increase in the Company's allowance for loan losses. The allowance is
maintained through the provision for loan losses, which is charged to earnings.
During the nine month period ended June 30, 2003, $1,010,000 was added to the
loan loss reserve through the loan loss provision and a total of $440,000 of net
charge offs were recorded during the same period.
The Company's non-performing assets have decreased from $5.95 million at
September 30, 2002 to $4.24 million at June 30, 2003. The decrease was
attributable to partial liquidations on non-accrual loans and sales of other
real estate and non-performing securities. Impaired loans have decreased from
$6.6 million at September 30, 2002 to $5.0 million at June 30, 2003. In
management's opinion, the allowance for loan losses is adequate to cover
probable incurred losses at June 30, 2003.
Total liabilities increased from $387.2 million at September 30, 2002 to $393.6
million at June 30, 2003. Total deposits increased $20.2 million from $264.4
million at September 30, 2002 to $284.6 million at June 30, 2003.The increase
consisted of a $15.3 million increase in Savings, Now and MMDA deposits, $5.9
million increase in non-interest bearing demand deposits and $1.0 million
decrease in time deposits.
FHLB advances decreased from $119.2 million at September 30, 2002 to $103.8
million at June 30, 2003. The $103.8 million of Federal Home Loan Bank advances
have a weighted average interest rate of 5.46% and mature over the next nine
years. One $15.0 million advance carrying a rate of 6.60% matured in June, 2003.
A total of $5.8 million of the remaining advances mature in the next twelve
months.
Total shareholders' equity decreased from $34.0 million as of September 30, 2002
to $32.7 million as of June 30, 2003. Net income of $1.29 million was offset by
a reduction in the market value of available for sale securities of $570,000 net
of tax, cash dividend payments of $420,000 and the repurchase of 75,339 shares
of outstanding common stock during this period at a cost of $1.68 million. MFB
Corp's equity to assets ratio was 7.68% at June 30, 2003 compared to 8.06% at
September 30, 2002. The book value of MFB Corp. stock increased from $25.53 at
September 30, 2002 to $25.83 at June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity relates primarily to the Company's ability to fund loan demand, meet
deposit customers' withdrawal requirements and provide for operating expenses.
Assets used to satisfy these needs consist of cash, deposits with other
financial institutions, overnight interest-bearing deposits in other financial
institutions and securities available for sale. These assets are commonly
referred to as liquid assets.
Liquid assets were $84.0 million as of June 30, 2003 compared to $81.7 million
as of September 30, 2002. This $2.3 increase was primarily due to an increase in
short-term deposits with other financial institutions. The sale of fixed rate
loan production has provided a source of additional liquidity. Management
believes the liquidity level as of June 30, 2003 is sufficient to meet
anticipated cash needs.
Short-term borrowings or long-term debt, such as Federal Home Loan Bank
advances, are used to compensate for reduction in other sources of funds such as
deposits and to assist in asset/liability management. As of June 30, 2003, total
FHLB borrowings amounted to $103.8 million and were originally used primarily to
fund loan portfolio growth. The Bank had commitments to fund loan originations
with borrowers totaling $110.7 million at June 30, 2003, including $75.7 million
in available consumer and commercial lines and letters of credit. Certificates
of deposit scheduled to mature in one year or less totaled $51.1 million. Based
on historical experience, management believes that a significant portion of
maturing deposits will remain with the Bank. The Bank anticipates that it will
continue to have sufficient cash flow and other cash resources to meet current
and anticipated loan funding commitments, deposit customer withdrawal
requirements and operating expenses.
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
The Bank's actual capital and required capital amounts and ratios at June 30,
2003 and September 30, 2002 are presented below:
Actual Requirement for Capital Requirement to be
Well Capitalized Under
Prompt Corrective
Adequacy Purposes Actual Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of June 30, 2003
Total capital
(to risk weighted $ 35,568 12.24% $ 23,239 8.00% $ 29,048 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 32,263 11.11 11,619 4.00 17,429 6.00
assets)
Tier 1 (core) capital
(to adjusted total 32,263 7.58 17,029 4.00 21,287 5.00
assets)
As of September 30, 2002
Total capital
(to risk weighted $ 36,167 12.83% $ 22,553 8.00% $ 28,191 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 32,948 11.69 11,276 4.00 16,914 6.00
assets)
Tier 1 (core) capital
(to adjusted total 32,948 7.83 16,824 4.00 21,032 5.00
assets)
As of June 30, 2003, management is not aware of any current recommendations by
regulatory authorities which, if they were to be implemented, would have, or are
reasonably likely to have, a material adverse effect on the Company's liquidity,
capital resources or operations.
The forgoing discussion contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, which involve a number
of risks and uncertainties. A number of factors could cause results to differ
materially from the objectives and estimates expressed in such forward-looking
statements. These factors include, but are not limited to, changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area, changes in the position of banking regulators on the adequacy of
our allowance for loan losses and competition, changes in the value of the
Company's mortgage servicing rights, all or some of which could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. These factors should be considered in evaluating any
forward-looking statements, and undue reliance should not be placed on such
statements. MFB Corp. does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances which could affect these judgments
include, but without limitation, changes in interest rates, in the performance
of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan
losses, determining the fair value of securities and other financial instruments
and the valuation of mortgage servicing rights. The Company's critical
accounting policies are discussed in detail in the Annual Report for the year
ended September 30, 2002 (incorporated by reference as part of the Company's 10K
filing) in Note 1 of the Notes to the Consolidated Financial Statements under
"Securities," "Mortgage Banking Activities," and "Loans Receivable". If
Management were to underestimate the allowance for loan losses, earnings could
be reduced in the future as a result of greater than expected net loan losses.
Overestimations of the required allowance could result in future increases in
income, as loan loss recoveries increase or provisions for loan losses decrease.
Fluctuations in the fair value of securities will affect the level of capital in
the case of securities held for sale or earnings directly in the case of other
securities. Fluctuations in the valuation of mortgage servicing rights as a
result of market conditions or the level of interest rates will affect the
carrying value of that asset on the balance sheet as well as the income recorded
from loan servicing in the income statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities, primarily deposits and Federal Home Loan Bank
(FHLB) advances, reprice more rapidly, or at different rates than its
interest-earning assets.
A key element of the Company's asset/liability plan is to protect net earnings
by managing the maturity or repricing mismatch between its interest-earning
assets and rate-sensitive liabilities. The Company has sought to reduce exposure
to its earnings by holding adjustable rate loans and selling fixed rate loans
into the secondary market, and by extending funding maturities through the use
of FHLB advances and longer term certificates of deposit.
As part of its efforts to monitor and manage interest rate risk, the Company
uses the Net Portfolio Value ("NPV") methodology adopted by the Office of Thrift
Supervision (OTS) as part of its capital regulations. In essence, this approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance-sheet contracts. The difference as a percentage of
the value of assets is the NPV ratio which was 5.41% as of March 31, 2003 (the
most recently available data). Management and the Board of Directors review the
OTS measurements on a quarterly basis to determine whether the Company's
interest rate exposure is within the limits established by the Board of
Directors in the Company's interest rate risk policy.
The Company's asset/liability management strategy dictates acceptable limits on
the amounts of change in NPV given certain changes in interest rates. The table
presented here, as of March 31, 2003 (the most recently available data), is an
analysis of the Company's interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up 300 basis points and down 300 basis points. Due to the
abnormally low interest rate environment prevailing at March 31, 2003,
meaningful data was not available from the OTS model for the (-200) and (-300)
basis point scenario and therefore is not included in the table below.
(Dollars are in thousands)
Interest Rate Net Portfolio Value NPV as % of Portfolio
-------------------
Changes in Basis Value of Assets
------- ---------------
Points NPV
(Rate Shock) (1) $ Amount $ Change % Change Ratio Change (1)
- ----------------------------- ----------------- ---------------- ------------- ------------- -----------------
+300 25,308 1,431 6% 5.95% 53
+200 26,109 2,232 9% 6.05% 64
+100 25,760 1,883 8% 5.90% 49
0 23,878 - - 5.41% -
-100 20,516 (3,362) (14%) 4.61% (80)
(1) Expressed in basis points
As illustrated in the March 31, 2003 table, the Company's NPV will decline if
rates fall, and the NPV would increase if rates were to rise. Specifically, the
table indicates that at March 31, 2003, the Company's NPV was $23.9 million or
5.41% of the market value of portfolio assets. Based upon the assumptions
utilized, an immediate 100 basis point increase in market interest rates would
result in a $1.9 million or 8% increase in the Company's NPV and would result in
a 49 basis point or 8% increase in the Company's NPV ratio to 5.90%. Conversely,
an immediate 100 basis point decrease in market interest rates would result in a
$3.4 million or 14% decrease in the Company's NPV, and a 80 basis point or 14%
decrease in the Company's NPV ratio to 4.61%.
In evaluating the Company's interest rate risk exposure to interest rate
movements, certain shortcomings inherent in the method of analysis presented in
the foregoing table must be considered. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in interest rates. Additionally, certain assets, such as
adjustable rate mortgages (ARM'S), have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a significant change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed above.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase. The Company considers all of these factors
in monitoring its exposure to interest rate risk.
In addition to monitoring selected measures on NPV, management also monitors
effects on net interest income resulting from increases or decreases in rates.
This process is used in conjunction with NPV measures to identify excessive
interest rate risk. In managing its asset/liability mix, the Company, depending
on the relationship between long and short term interest rates, market
conditions and consumer preference, may place somewhat greater emphasis on
maximizing its net interest margin than on strictly matching the interest rate
sensitivity of its assets and liabilities. Management believes that the
increased net income which may result from an acceptable mismatch in the actual
maturity or repricing of its asset and liability portfolios can provide
sufficient returns to justify the increased exposure to sudden and unexpected
increases in interest rates which may result from such a mismatch. Management
believes that the Company's level of interest rate risk is acceptable under this
approach as well.
The Board of Directors and management of the Company believe that certain
factors afford the Company the ability to operate successfully despite its
exposure to interest rate risk. The Company manages its interest rate risk by
originating and selling the majority of its fixed rate one-to-four family real
estate loans. While the Company generally originates adjustable rate mortgage
loans for its own portfolio, fixed rate first mortgage loans may be retained in
the portfolio from time to time. Loans classified as held for sale as of June
30, 2003 totaled $1.6 million compared to $6.4 million at September 30, 2002.
The Company retains the servicing on the majority of loans sold in the secondary
market and, at June 30, 2003, $161.3 million in such loans were being serviced
for others.
The Company's investment strategy is to maintain a diversified portfolio of high
quality investments that minimize interest rate and credit risks while striving
to maximize investment return and to provide liquidity necessary to meet funding
needs. The Company's investment portfolio primarily consists of US government
and federal agency obligations, mortgage-backed securities and corporate note
obligations. The Company's policy dictates all securities must satisfy the
investment grade requirements of the Office of Thrift Supervision at the time of
purchase.
The Company's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. The Company offers a
range of maturities on its deposit products at competitive rates and monitors
the maturities on an ongoing basis.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended), as of the end of the most recent fiscal quarter covered by this
quarterly report (the "Evaluation Date"), have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were adequate
and are designed to ensure that material information relating to the Company
would be made known to such officers by others within the Company on a timely
basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal control over financial reporting identified in connection
with the Company's evaluation of controls that occurred during the Company's
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
31(1) Certification required by 17 C.F.R. ss. 240.13a-14(a).
31(2) Certification required by 17 C.F.R. ss. 240.13a-14(a).
32 Certification pursuant to 18 U.S.C.ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) MFB Corp. filed one Form 8-K report during the quarter ended
June 30, 2003. Date of report: April 23, 2003
Items reported: News release dated April 23,
2003 regarding the announcement of second
quarter earnings and announcement of a
cash dividend payable on May 20, 2003 to
holders of record on May 6, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MFB CORP.
Date /s/ 08/05/03 By /s/ Charles J Viater
--------- --------------------------------------------
Charles J. Viater
President and Chief Executive Officer
Date /s/ 08/05/03 By /s/ Thomas J Flournoy
--------- -------------------------------------------
Thomas J. Flournoy
Chief Financial Officer
Exhibit 31
CERTIFICATION
I, Charles J. Viater, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFB
Corp;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under
our supervision, 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 quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:__/s/ 08/05/03__ /s/ Charles J Viater
-----------------------------------
Charles J. Viater
Chief Executive Officer
Exhibit 31
CERTIFICATION
I, Thomas J. Flournoy, certify that:
6. I have reviewed this quarterly report on Form 10-Q of MFB
Corp;
7. Based on my knowledge, this 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 report;
8. Based on my knowledge, the financial statements, and other
financial information included in this 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 quarterly report.
9. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures or caused
such disclosure controls and procedures to be designed under
our supervision, 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 quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
10. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:___/s/ 08/05/03__ /s/ Thomas J Flournoy
-------------------------------------
Thomas J. Flournoy
Chief Financial Officer
Exhibit 32
CERTIFICATION
By signing below, each of the undersigned officers hereby certifies
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of MFB Corp.
Signed this 5th day of Auguts, 2003.
Thomas J. Flournoy Charles J. Viater
Chief Financial Officer Chief Executive Officer
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to MFB Corp. and will be retained by
MFB Corp. and furnished to the Securities and Exchange Commission or its staff
upon request.