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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 March 31, 2004
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 April 30, 2004 was 1,329,060.
MFB CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2004 (Unaudited) and September 30, 2003 3
Consolidated Statements of Income (Unaudited)
Three and six months ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited) Three and six months ended March 31, 2004 and 2003 5
Consolidated Statements of Cash Flows (Unaudited)
Six months ended March 31, 2004 and 2003 6
Notes to (Unaudited) Consolidated Financial Statements March 31, 2004 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
General 15
Results of Operations 15
Balance Sheet Composition 16
Liquidity and Capital Resources 17
Critical Accounting Policies 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 21
Part II. Other Information
Items 1-6. 22
Signatures 23
Certifications 24
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2004 and September 30, 2003
(In thousands, except share information) (Unaudited)
March 31, September 30,
2004 2003
ASSETS
Cash and due from financial institutions $ 6,576 $ 13,881
Interest - bearing deposits in other financial institutions - short term 17,185 26,476
----------------- -----------------
Total cash and cash equivalents 23,761 40,357
Securities available for sale 34,021 40,029
Interest-bearing time deposits in other financial institutions 1,501 1,001
Federal Home Loan Bank (FHLB) stock, at cost 6,634 6,471
Investment in limited partnership 2,445 2,548
Loans held for sale 2,902 6,625
Loans receivable 331,861 318,154
Less: allowance for loan losses (5,320) (5,198)
----------------- -----------------
Loan receivable, net 326,541 312,956
Accrued interest receivable 1,470 1,522
Premises and equipment, net 14,670 6,090
Mortgage servicing rights 1,472 1,373
Cash surrender value of life insurance 5,337 5,217
Other assets 5,780 4,434
----------------- -----------------
Total assets $ 426,534 $ 428,623
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand deposits $ 26,820 $ 26,481
Savings, NOW and MMDA deposits 110,582 107,341
Time deposits 151,801 158,284
----------------- -----------------
Total deposits 289,203 292,106
FHLB advances 97,990 98,790
Loans from correspondent banks - 300
Advances from borrowers for taxes and insurance 954 1,153
Accrued expenses and other liabilities 3,021 2,023
----------------- -----------------
Total liabilities 391,168 394,372
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417-03/31/04 and 9/30/03;
shares outstanding: 1,329,060-03/31/04 and 1,287,710-9/30/03 12,486 12,560
Retained earnings - substantially restricted 31,699 31,022
Accumulated other comprehensive income (loss),
net of tax of $(12) -03/31/04 and $(36) - 9/30/03 (836) (466)
Treasury stock, 360,357 common shares - 03/31/04;
401,707 common shares - 9/30/03, at cost (7,983) (8,865)
----------------- -----------------
Total shareholders' equity 35,366 34,251
----------------- -----------------
Total Liabilities and Shareholders' equity $ 426,534 $ 428,623
================= =================
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and six months ended March 31, 2004 and 2003
(in thousands except per share information)
Three Months Ended Six Months Ended
March 31 March 31,
2004 2003 2004 2003
Interest income
Loans receivable, including fees
Mortgage loans $ 2,159 $ 2,374 $ 4,396 $ 5,092
Consumer and other loans 452 448 908 944
Commercial loans 2,399 2,248 4,771 4,539
Securities - taxable 391 550 801 1,147
Other interest-bearing assets 45 71 97 143
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total interest income 5,446 5,691 10,973 11,865
Interest expense
Deposits 1,324 1,447 2,671 3,003
FHLB advances 1,375 1,666 2,747 3,369
------------ ------------- -------------- --------------
Total interest expense 2,699 3,113 5,418 6,372
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net interest income 2,747 2,578 5,555 5,493
Provision for loan losses 200 450 500 900
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net interest income after provision for loan losses 2,547 2,128 5,055 4,593
Noninterest income
Service charges on deposit accounts 732 305 1,421 602
Trust fee income 131 124 257 226
Insurance commissions 42 44 92 84
Net realized gains from sales of loans 235 934 545 1,908
Loan servicing fees, net of amortization 7 (184) (12) (377)
Mortgage servicing impairment charge (170) - (2) -
Gain on securities - - - 40
Other income 218 195 368 242
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total noninterest income 1,195 1,418 2,669 2,725
Noninterest expense
Salaries and employee benefits 1,666 1,699 3,398 3,307
Occupancy and equipment 689 392 1,221 731
Data processing expense 156 191 277 361
Other expense 888 703 1,758 1,289
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total noninterest expense 3,399 2,985 6,654 5,688
Income before income taxes 343 561 1,070 1,630
Income tax expense (credit) (10) 91 98 399
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net income $ 353 $ 470 $ 972 $ 1,231
============ ============= ============== ==============
============ ============= ============== ==============
Basic earnings per common share $ 0.27 $ 0.37 $ 0.75 $ 0.95
Diluted earnings per common share $ 0.26 $ 0.36 $ 0.71 $ 0.92
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
Three and six months ended March 31, 2004 and 2003
(In thousands)
Three Months Ended Six Months Ended
March 31, March 31
2004 2003 2004 2003
---- ---- ---- ----
Balance at beginning of period $ 34,764 $ 33,503 $ 34,251 $ 33,952
Purchase of treasury stock - (605) - (1,676)
Stock option exercise 474 128 808 157
Cash dividends declared (157) (141) (299) (281)
Comprehensive income:
Net income 353 470 972 1,231
Net change in net unrealized gains and losses
on securities available for sale, net of tax (68) (216) (366) (244)
effects
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Total comprehensive income 285 254 606 987
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Balance at end of period $ 35,366 $ 33,139 $ 35,366 $ 33,139
=========== =========== ========== ==========
See accompanying notes to (unaudited) consolidated financial statement
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, 2004 and 2003
Six Months Ended
March 31,
2004 2003
---- ----
Cash flows from operating activities
Net income $ 972 $ 1,231
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion 585 618
Provision for loan losses 500 900
Net gains from sales or valuation of securities available for sale - (40)
Net realized gains from sales of loans (545) (1,908)
Amortization of mortgage servicing rights 207 574
Impairment of mortgage servicing rights, net of recovery 2 -
Origination of loans held for sale (20,901) (50,729)
Proceeds from sales of loans held for sale 24,861 64,816
Equity in loss of investment in limited partnership 103 71
Appreciation in cash surrender value of life insurance (120) (82)
Net change in:
Accrued interest receivable 52 131
Other assets (1,085) 811
Accrued expenses and other liabilities 998 (10)
------------- -- --------------
Net cash from operating activities 5,629 16,383
Cash flows from investing activities
Net change in interest-bearing time deposits in other financial institutions (500) -
Net change in loans receivable (14,085) (1,476)
Proceeds from:
Principal payments of mortgage-backed and related securities 3,843 13,916
Sales of securities available for sale - 160
Maturities and calls of securities available for sale 7,444 3,000
Purchase of:
Securities available for sale (5,798) (11,816)
Life insurance - (5,000)
FHLB stock (163) -
Premises and equipment, net (8,988) (379)
------------- -- --------------
Net cash from investing activities (18,247) (1,595)
Cash flows from financing activities
Purchase of MFB Corp common stock - (1,676)
Net change in deposits (2,903) 14,987
Repayment of FHLB and other borrowings (1,100) (300)
Proceeds from other borrowings - 300
Proceeds from exercise of stock options 523 127
Net change in advances from borrowers for taxes and insurance (199) (150)
Cash dividends paid (299) (281)
------------- -- --------------
------------- -- --------------
Net cash from financing activities (3,978) 13,007
------------- -- --------------
------------- -- --------------
Net change in cash and cash equivalents (16,596) 27,795
Cash and cash equivalents at beginning of period 40,357 27,582
------------- -- --------------
Cash and cash equivalents at end of period $ 23,761 $ 55,377
============= == ==============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $5,275 $ 6,063
Income taxes 470 -
Supplemental schedule of noncash investing activities:
Transfer from:
Loans receivable to loans held for sale $ - $ 9,657
Loans receivable to other real estate owned 1,256 365
MFB CORP. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
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 eight branch locations in St. Joseph and
Elkhart Counties of Indiana. A new branch facility was opened in South Bend,
Indiana on January 20, 2004. 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 March 31, 2004 and September 30, 2003, the consolidated
statements of income and the condensed consolidated statements of changes in
shareholders' equity for the three and six months ended March 31, 2004 and 2003
and the consolidated statements of cash flows for the six months ended March 31,
2004 and 2003. All significant intercompany transactions and balances are
eliminated in consolidation.
Reclassifications: Items in the prior consolidated financial statements are
reclassified to conform with the current presentation.
Stock Based Compensation: The Board of Directors of the Company has adopted
three 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 March 31, 2004, 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 for the six months ended
March 31, 2004 and 2003.
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 and earnings per share if expense was measured using
the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation.
Three Months ended Six Months ended
March 31 March 31
(in thousands)
2004 2003 2004 2003
---- ---- ---- ----
Net Income as reported $ 353 $ 470 $ 972 $ 1,231
Less: Stock-based compensation expense determined
under fair value based method 72 67 121 106
-------------- ------------ ------------ ---------------
-------------- ------------ ------------ ---------------
Pro-forma net income 281 403 851 1,125
============== ============ ============ ===============
============== ============ ============ ===============
Basic earnings per share as reported $ 0.27 $ 0.37 $ 0.75 $ 0.95
Pro-forma basic earnings per share 0.21 0.32 0.65 0.87
Diluted earnings per share as reported 0.26 0.36 0.71 0.92
Pro-forma diluted earnings per share 0.20 0.31 0.62 0.84
The weighted average fair value of stock options granted during the six months
ended March 31, 2004 and 2003 were $9.59 and $5.82 The fair value of options
granted during the six months ended March 31, 2004 and 2003 were estimated using
an option pricing model with the following weighted average information as of
the grant dates:
March 31,
2004 2003
---- ----
Risk free rate of interest 4.21% 3.72%
Expected option life 8 years 8 years
Expected dividend yield 1.37% 1.82%
Expected volatility 23.91% 23.23%
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.
NOTE 2 - EARNINGS 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 per common share and diluted earnings per
common share for the three and six month periods ended March 31, 2004 and 2003
are presented below.
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
(in thousands except per share information)
Basic Earnings Per Common Share
Numerator
Net income $ 353 $ 470 $ 972 $ 1,231
=========== =========== =========== ===========
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,311 1,280 1,303 1,298
=========== =========== =========== ===========
Basic Earnings Per Common Share $ 0.27 $0.37 $0.75 $0.95
=========== =========== =========== ===========
Diluted Earnings Per Common Share
Numerator
Net income $ 353 $ 470 $ 972 $ 1,231
=========== =========== =========== ===========
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,311 1,280 1,303 1,298
Add: Dilutive effects of assumed exercises of stock
options 66 38 68 37
----------- ----------- ----------- -----------
Weighed average common and dilutive potential common
shares outstanding 1,377 1,318 1,371 1,335
=========== =========== =========== ===========
Diluted Earnings Per Common Share $ 0.26 $0.36 $0.71 $0.92
=========== =========== =========== ===========
Stock options for 42,500 common shares for the three and six months ended March
31, 2003 were not considered in computing diluted earnings per share because
they were antidilutive.
NOTE 3 - SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
...........................March 31, 2004............................
--------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 4,947 $ 118 - $ 5,065
Municipal bonds 345 19 - 364
Mortgage-backed 15,604 41 (38) 15,607
Corporate notes 9,730 215 (373) 9,572
------------ -------------- ------------- --------------
30,626 393 (411) 30,608
Marketable equity securities 4,237 - (824) 3,413
------------ -------------- ------------- --------------
$ 34,863 $ 393 $ (1,235) $ 34,021
============ ============== ============= ==============
..........................September 30, 2003.........................
------------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 9,369 $ 194 $ - 9,563
Municipal bonds 346 23 - 369
Mortgage-backed 16,808 68 (106) 16,770
Corporate notes 9,771 196 (481) 9,486
------------ -------------- ------------- --------------
36,294 481 (587) 36,188
Marketable equity securities 4,237 - (396) 3,841
------------ -------------- ------------- --------------
$ 40,531 $ 481 $ (983) $ 40,029
============ ============== ============= ==============
Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
At March 31, 2004, marketable equity securities with a cost basis of $4.2
million have unrealized losses of 19% of the Company's cost basis. These
securities have had continued unrealized losses for over one year. Management
believes the declines in market value are temporary, as discussed below.
Of the total gross unrealized losses of $824,000, approximately $700,000 relates
to the reduced value of floating rate preferred stock of government sponsored
agencies. This decline in value is primarily attributable to the current level
of interest rates, and the timing of scheduled coupon adjustments, which occur
every one to two years. Such adjustments resulted in coupons being set at a
level lower than today's market. Credit issues are not considered to be a
significant factor relative to the current unrealized losses. As the level of
interest rates rise, and coupons are adjusted, management anticipates recovery
of the current unrealized losses.
Approximately $124,000 of the unrealized loss at March 31, 2004 is attributable
to an equity investment in a company whose net assets are being sold or
liquidated over a period of time. Based on management's analysis of information
currently available from the issuer of the shares and management's ability and
intent to hold this investment for sufficient time for the forecasted recovery
to take place, management considers the unrealized loss to be temporary, with
anticipated recovery taking place as the company's net assets are sold or
liquidated, and proceeds are distributed to shareholders.
Related to the unrealized losses at March 31, 2004 for debt securities
classified as corporate notes, $303,000 of unrealized losses is attributable to
a trust preferred bond issued by a regional banking organization. This
unrealized loss is primarily attributable to the low interest rate environment,
and the variable interest rate structure of the bond. Such interest rate
adjustments resulted in coupons being set at a level lower than today's market.
As interest rates rise and the bond's coupon rate increases, management
anticipates recovery of the unrealized losses. Management has the ability to
hold this bond to maturity, at which time the face value of the bond would be
realized. Credit issues are not considered to be a significant factor relative
to the current unrealized losses.
NOTE 4 - LOANS RECEIVABLE, NET
Loans receivable at March 31, 2004 and September 30, 2003 are summarized as
follows:
March 31, September 30,
2004 2003
----------------- ----------------
First mortgage loans (principally conventional) (in thousands)
Principal balances
Secured by one to four family residences $ 129,113 $ 129,472
Construction loans 19,509 22,066
Others 6,345 6,728
----------------- ----------------
154,967 158,266
Less undisbursed portion of construction and other mortgage loans (72) 62
----------------- ----------------
Total first mortgage loans 154,895 158,328
Commercial loans:
Principal balances
Commercial $ 59,021 $ 49,709
Commercial real estate 87,287 80,914
----------------- ----------------
----------------- ----------------
Total commercial loans 146,308 130,623
Consumer loans:
Home equity and second mortgage $ 26,187 $ 24,535
Other 5,282 5,489
----------------- ----------------
Total consumer loans 31,469 30,024
Net deferred loan origination fees (811) (821)
----------------- ----------------
Total loans receivable $ 331,861 $ 318,154
================= ================
Activity in the allowance for loan losses is summarized as follows for the three
months ended March 31, 2004 and for the year ended September 30, 2003.
March 31, September 30,
2004 2003
---------------- -----------------
(in thousands)
Balance at beginning of period $ 5,373 $ 5,143
Provision for loan losses 200 1,110
Charge-offs (253) (1,388)
Recoveries - 333
---------------- -----------------
Balance at end of period $ 5,320 $ 5,198
================ =================
NOTE 4 - LOANS RECEIVABLE, NET (continued)
Quarter Ended Year Ended
March 31, September 30,
Impaired loans were as follows: 2004 2003
------------------ ------------------
(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 2,445 4,027
------------------ ------------------
Total $ 2,445 $ 4,027
================== ==================
Amount of the allowance for loan losses allocated $ 800 $ 1,370
Average of impaired loans 2,117 5,233
Interest income recognized during impairment 34 82
Cash-basis interest income recognized during impairment 34 66
Non-performing assets were as follows:
March 31, September 30,
2004 2003
------------------ ------------------
(in thousands)
Loans past due over 90 days still on accrual status $ - $ -
Non-accrual loans 2,257 3,844
------------------ ------------------
------------------ ------------------
Total non-performing loans 2,257 3,844
------------------ ------------------
------------------ ------------------
Other real estate 1,786 705
------------------ ------------------
------------------ ------------------
Total non-performing assets $ 4,043 $ 4,549
================== ==================
NOTE 5 - SUBSEQUENT EVENTS
MFB Corporation and Sobieski Bancorp, Inc., parent companies of MFB Financial
and Sobieski Bank, respectively, have entered into an agreement dated April 25,
2004 whereby MFB Financial will acquire certain assets and assume certain
liabilities of Sobieski Bank. Under the terms of the agreement, MFB Financial
will pay Sobieski Bank $1.03 million (subject to certain adjustments). As of
December 31, 2003, Sobieski Bank had approximately $110.5 million in assets and
approximately $106.1 million of liabilities, including $71.7 million in
deposits. Among items excluded from the acquisition under the agreement are
approximately $7.6 million (net book value after allowances and charge-offs as
of January 31, 2004) of troubled and/or substandard assets, including certain
commercial loans, real estate owned, assets seized in connection with litigation
related to fraudulent activity affecting Sobieski Bank, and other items. The
transaction is structured as an asset purchase and MFB Financial generally will
not assume any of Sobieski's contingent liabilities. The acquisition is expected
to close in the quarter ended September 30, 2004. The transactions are subject
to Sobieski Bank maintaining a minimum capital level at closing, approval by the
shareholders of Sobieski as well as regulatory authorities and other customary
conditions for transactions of this nature.
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 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, sales of loans and income provided from operations.
The Company's earnings 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 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 OPERATIONS
COMPARISON OF THREE AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003
The Company's consolidated net income for the three months ended March 31, 2004
was $353,000 or $0.26 diluted earnings per common share, compared to net income
of $470,000 or $0.36 diluted earnings per share, for the three months ended
March 31, 2003. The Company's consolidated net income for the six months ended
March 31, 2004 was $972,000 or $0.71 diluted earnings per share, compared to net
income of $1.23 million, or $.92 diluted earnings per share, for the same period
last year. MFB Corp's decrease in net income for the second fiscal quarter from
the prior comparable period was primarily attributable to an increase in
noninterest expense and a decrease in noninterest income, offset by a decrease
in the provision for loan losses. The decrease in net income for the six months
ended March 31, 2004, over the same period last year was due to the increase in
noninterest expense offset by the decrease in the provision for loan losses.
Both the three and six month periods ended March 31, 2004 experienced lower
income tax expense due to the reduced income before income taxes.
MFB Corp's net interest income before provision for loan losses for the three
month period ended March 31, 2004 totaled $2.7 million compared to $2.6 million
for the same period last year. For the six month period ended March 31, 2004,
net interest income before provision for loan losses totaled $5.6 million
compared to $5.5 million for the same period last year.
The provision for loan losses for the second quarter ended March 31, 2004 was
$200,000 compared to $450,000 for the second quarter last year. For the six
months ended March 31, 2004, the provision for loan losses was $500,000 compared
to $900,000 for the same period last year. The decreased provision for this year
is based on several factors including the current economic environment, current
and past delinquency trends, change in the character and mix of the loan
portfolio, adequacy of collateral on loans and historical and estimated loan
charge offs. For the second quarter ended March 31, 2004, net charge offs were
$253,000, of which $200,000 was related to one commercial loan which had been
specifically provided for in prior year loan loss provisions. Net charge offs
were $428,000 for the quarter ended March 31, 2003. Year to date net charge offs
for the six months ended March 31, 2004 total $378,000 compared to $440,000 for
the same period last year
Noninterest income decreased from $1.4 million to $1.2 million from the second
quarter last year to the second quarter this year. Deposit fees have increased
to $732,000 from $305,000 for the prior year quarter but were offset by the
significant reduction in gains on sales of mortgage loans and an impairment
charge on mortgage servicing rights. The increase in deposit fees is primarily a
result of increased service charges on accounts. The impairment on mortgage
servicing rights is related to the decline in the market value of servicing
rights associated with MFB Financial's $173 million mortgage loan servicing
portfolio. The values of mortgage servicing portfolios, which are significantly
dependent on estimated loan prepayment speeds, have been volatile in the past
two years. MFB Corp's quarterly net income has been significantly affected by
this volatility as well as the decline in the mortgage originations sold to the
secondary market. Noninterest income of $2.7 million for the six months ended
March 31, 2004 was comparable to the $2.7 million for the six months ended March
31, 2003. For this period, increased deposit fees were offset by a reduction in
gains on sales of mortgage loans.
Noninterest expense increased 14% from $3.0 million for the second quarter last
year to $3.4 million for the second quarter this year. For the six months ended
March 31, 2004 noninterest expense increased 17% year to date from the prior
year. The increases for both the three month and six month periods were
primarily due to increased occupancy and equipment expense for a new branch
opening and the new corporate headquarters, and consulting expenses paid for two
major projects.
BALANCE SHEET COMPOSITION
COMPARISON OF MARCH 31, 2004 TO SEPTEMBER 30, 2003
The Company's total assets decreased slightly from $428.6 million as of
September 30, 2003 to $426.5 million as of March 31, 2004.
Cash and cash equivalents decreased from $40.4 million at September 30, 2003 to
$23.8 million at
March 31, 2004. Net cash from operating activities amounted to $5.6 million, net
cash used in financing activities totaled $4.0 million and the net cash used in
investing activities amounted to $18.2 million during the three months ended
March 31, 2004.
As of March 31, 2004, the total securities available for sale portfolio amounted
to $34.0 million, a decrease of $6.0 million from $40.0 million at September 30,
2003. The securities portfolio activity during that period included security
purchases of $5.8 million, security maturities and sales of $7.4 million,
principal payments on mortgage-backed and related securities of $3.8 million, a
decline in mark to market valuation of $340,000 and amortization of $260,000.
Premises and equipment increased from $ 6.1 million at September 30, 2003 to
$14.7 million at March 31, 2004 primarily due to MFB Financial's $7.3 million
acquisition of the former National Steel Corporation's headquarters building in
October, 2003. A portion of the facility is currently being leased and MFB is
currently in the process of relocating its administrative staff and operation
personnel to another portion of the building. In addition, MFB opened a new
branch on the south side of South Bend Indiana.
As of March 31, 2004, loans receivable were $331.9 million, an increase of $13.8
million from $318.1 million at September 30, 2003. Commercial loans outstanding
increased by $15.7 million from $130.6 million at September 30, 2003 to $146.3
million at March 31, 2004. Mortgage loans declined from $158.3 million at
September 30, 2003 to $154.9 million at March 31, 2004. Consumer loans,
including home equity and second mortgages, increased $1.7 million during the
six month period. Loans held for sale at March 31, 2004 decreased to $2.9
million from $6.6 million at September 30, 2003. 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 existing and
potential customers.
During the second quarter ended March 31, 2004, the Company completed secondary
market mortgage loan sales totaling $9.9 million and the net gains realized on
these loan sales were $235,000 including $124,000 related to recording mortgage
loans servicing rights. During the quarter ended March 31, 2003, the Company
completed secondary market mortgage loan sales totaling $29.6 million and the
net gains realized on these loan sales were $934,000 including $283,000 related
to recording mortgage loans servicing rights. This reduction is due to the slow
down in the refinance activities that have occurred in the last six months. 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 $5.2 million, or 1.63% of loans, at
September 30, 2003 to $5.3 million or 1.60% of loans at March 31, 2004. The
allowance is maintained through the provision for loan losses, which is charged
to earnings. During the three month period ended March 31, 2004, $200,000 was
added to the loan loss reserve through the loan loss provision. The Company's
non-performing assets have decreased from $4.5 million at September 30, 2003 to
$4.0 million at March 31, 2004. Impaired loans have decreased from $4.0 million
at September 30, 2003 to $2.4 million at March 31, 2004 due to loan charge offs
and acquiring title of real estate collateral on two commercial loan and
transferring that collateral to other real estate owned. In management's
opinion, the allowance for loan losses is adequate to cover probable incurred
losses at March 31, 2004.
Total liabilities decreased from $394.4 million at September 30, 2003 to $391.2
million at March 31, 2004. Total deposits decreased $2.9 million from $292.1
million at September 30, 2003 to $289.2 million at March 31, 2004. The decrease
primarily consisted of a $6.5 million decrease in time deposits, offset by a
$3.3 million increase in Savings, Now and MMDA deposits.
FHLB advances decreased slightly from $98.8 million at September 30, 2003 to
$98.0 million at March 31, 2004. The $98.0 million of Federal Home Loan Bank
advances have a weighted average interest rate of 5.48% and mature over the next
nine years. A total of $200,000 of the advances mature in the next twelve
months.
Total shareholders' equity increased from $34.3 million as of September 30, 2003
to $35.4 million as of March 31, 2004 primarily attributed to the net income of
$972,000. MFB Corp's equity to assets ratio was 8.29% at March 31, 2004 compared
to 7.99% at September 30, 2003. The book value of MFB Corp. stock increased from
$26.60 at September 30, 2003 to $26.61 at March 31, 2004.
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 $59.3 million as of March 31, 2004 compared to $81.4 million
as of September 30, 2003. This decrease was partially due to the purchase of a
new corporate headquarters building for $7.3 million. The sale of fixed rate
loan production has also decreased significantly, as previously mentioned, which
has also contributed to the decline in liquid assets. Management believes the
liquidity level as of March 31, 2004 is sufficient to meet anticipated cash
needs.
Short-term borrowings or long-term debt, such as Federal Home Loan Bank
advances, are used to supplement other sources of funds such as deposits and to
assist in asset/liability management. As of March 31, 2004, total FHLB
borrowings amounted to $98.0 million and were originally used primarily to fund
loan portfolio growth. The Bank had commitments to fund loan originations with
borrowers totaling $95.1 million at March 31, 2004, including $61.6 million in
available consumer and commercial lines and letters of credit. Certificates of
deposit scheduled to mature in one year or less totaled $72.0 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 not "well 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 March 31,
2004 and September 30, 2003 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 March 31, 2004
Total capital
(to risk weighted $ 36,386 11.69% $ 24,891 8.00% $ 31,114 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 33,700 10.51 12,446 4.00 18,668 6.00
assets)
Tier 1 (core) capital
(to adjusted total 33,700 7.91 17,032 4.00 21,289 5.00
assets)
As of September 30, 2003
Total capital
(to risk weighted $ 36,346 12.41% $ 23,435 8.00% $ 29,294 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 33,268 11.36 11,718 4.00 17,576 6.00
assets)
Tier 1 (core) capital
(to adjusted total 33,268 7.77 17,116 4.00 21,395 5.00
assets)
As of March 31, 2004, 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, changes in the value of the Company's mortgage
servicing rights, and competition, 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, 2003 (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 mortgage loans and selling fixed rate
mortgage 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 9.70% as of December 31, 2003
(the most recently available data), an increase from the 9.05% NPV at September
30,2003. 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 December 31, 2003 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 December 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 39,283 (4,399) (10%) 9.09% (61)
+200 41,807 (1,874) (4%) 9.53% (17)
+100 43,477 (204) 0% 9.77% 7
0 43,681 - - 9.70% -
-100 41,882 (1,799) (4%) 9.22% (48)
(1) Expressed in basis points
As illustrated in the December 31, 2003 table, the Company's interest rate risk
is sensitive to declining rates. This is largely due to the decrease in value of
fixed rate Federal Home Loan Bank borrowings that would occur with a rate
reduction. Specifically, the table indicates that at December 31, 2003, the
Company's NPV was $43.7 million or 9.70% 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 $204,000 decrease in the
Company's NPV and would result in an 7 basis point increase in the Company's NPV
ratio to 9.77%. An immediate 100 basis point decrease in market interest rates
would result in a $1.8 million or 4% decrease in the Company's NPV, and a 48
basis point decrease in the Company's NPV ratio to 9.22%. Additionally, as
indicated in the table, the Company's interest rate risk is sensitive to a
significant rise in interest rates (i.e. 300 basis point rate shock). This is
due to a higher relative volume of assets with fixed rate characteristics per
the OTS model than liabilities with fixed rate characteristics as of December
31, 2003.
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 March
31, 2004 totaled $2.9 million compared to $6.6 million at September 30, 2003.
The Company retains the servicing on the majority of loans sold in the secondary
market and, at March 31, 2004, $173.0 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 regulations promulgated under 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, Use of Proceeds and Issuer Purchases of Equity
securities.
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
2004.
(b) MFB Corp. filed two Form 8-K report during the quarter ended
March 31, 2004.
Date of report: January 23, 2004
Items reported: News release dated January 23, 2004 regarding
the announcement of first quarter earnings and
announcement of a cash dividend payable on
February 17, 2004 to holders of record on
February 3, 2004.
Date of report: March 8,2004
Items reported: News release dated March 8, 2004 regarding
the announcement of an addition to the Board
of Directors
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 05/13/04 By /s/ Charles J Viater
--------- -------------------------------
Charles J. Viater
President and Chief Executive Officer
Date 05/13/04 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 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;
3. 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 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/05/13/04___ /s/Charles J. Viater
----------------------------------
Charles J. Viater
Chief Executive Officer
Exhibit 31
CERTIFICATION
I, Thomas J. Flournoy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFB
Corp;
2. 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;
3. 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 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/05/13/04___ /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 2004, that, to his 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 13 day of May, 2004.
/s/Thomas J. Flournoy /s/ Charles J Viater
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.