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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 June 30, 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)
4100 Edison Lakes Parkway Suite 300
P.O. Box 528
Mishawaka, Indiana 46546
(Address of principal executive offices,
including Zip Code)
(574) 277-4200
(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, 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
June 30, 2004 (Unaudited) and September 30, 2003 3
Consolidated Statements of Income (Unaudited)
Three and nine months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Three and nine months ended June 30, 2004 and 2003 5
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended June 30, 2004 and 2003 6
Notes to (Unaudited) Consolidated Financial Statements June 30, 2004 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
General 14
Results of Operations 14
Balance Sheet Composition 15
Liquidity and Capital Resources 16
Critical Accounting Policies 18
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, 2004 and September 30, 2003
(In thousands, except share information) (Unaudited)
June 30, September 30,
2004 2003
----------------- -----------------
----------------- -----------------
ASSETS
Cash and due from financial institutions $ 7,348 $ 13,881
Interest - bearing deposits in other financial institutions - short term 7,696 26,476
----------------- -----------------
Total cash and cash equivalents 15,044 40,357
Securities available for sale 31,263 40,029
Interest-bearing time deposits in other financial institutions 1,501 1,001
Federal Home Loan Bank (FHLB) stock, at cost 6,708 6,471
Investment in limited partnership 2,367 2,548
Loans held for sale 1,636 6,625
Loans receivable 345,294 318,154
Less: allowance for loan losses (5,373) (5,198)
----------------- -----------------
Loan receivable, net 339,921 312,956
Accrued interest receivable 1,445 1,522
Premises and equipment, net 14,526 6,090
Mortgage servicing rights 1,940 1,373
Cash surrender value of life insurance 5,392 5,217
Other assets 6,190 4,434
----------------- -----------------
Total assets $ 427,933 $ 428,623
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand deposits $ 30,081 $ 26,481
Savings, NOW and MMDA deposits 111,536 107,341
Time deposits 148,186 158,284
----------------- -----------------
Total deposits 289,803 292,106
FHLB advances 97,860 98,790
Loans from correspondent banks - 300
Advances from borrowers for taxes and insurance 1,577 1,153
Accrued expenses and other liabilities 2,977 2,023
----------------- -----------------
Total liabilities 392,217 394,372
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized;
shares issued: 1,689,417-6/30/04 and 9/30/03;
shares outstanding: 1,329,060-6/30/04 and 1,287,710-9/30/03 12,486 12,560
Retained earnings - substantially restricted 32,147 31,022
Accumulated other comprehensive income (loss),
net of tax of $(69) -6/30/04 and $(36) - 9/30/03 (934) (466)
Treasury stock, 360,357 common shares - 6/30/04;
401,707 common shares - 9/30/03, at cost (7,983) (8,865)
----------------- -----------------
Total shareholders' equity 35,716 34,251
----------------- -----------------
Total Liabilities and Shareholders' equity $ 427,933 $ 428,623
================= =================
See accompanying notes to (unaudited) consolidated financial statements
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and nine months ended June 30, 2004 and 2003
(in thousands except per share information)
Three Months Ended Nine Months Ended
June 30, June 30,
2004 2003 2004 2003
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Interest income
Loans receivable, including fees
Mortgage loans $ 2,192 $ 2,356 $ 6,588 $ 7,448
Consumer and other loans 454 434 1,362 1,378
Commercial loans 2,503 2,332 7,274 6,871
Securities - taxable 324 483 1,125 1,630
Other interest-bearing assets 32 127 129 270
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total interest income 5,505 5,732 16,478 17,597
Interest expense
Deposits 1,333 1,442 4,004 4,445
FHLB advances 1,364 1,623 4,111 4,992
------------ ------------- -------------- --------------
Total interest expense 2,697 3,065 8,115 9,437
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net interest income 2,808 2,667 8,363 8,160
Provision for loan losses 150 110 650 1,010
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net interest income after provision for loan losses 2,658 2,557 7,713 7,150
Noninterest income
Service charges on deposit accounts 793 371 2,214 973
Trust fee income 148 132 405 358
Insurance commissions 60 46 152 131
Net realized gains from sales of loans 265 737 810 2,645
Loan servicing fees, net of amortization (40) (320) (52) (698)
Mortgage servicing recovery (impairment) 466 (704) 464 (704)
charge
Gain (loss) on securities (109) - (109) 40
Other income 177 124 545 366
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total noninterest income 1,760 386 4,429 3,111
Noninterest expense
Salaries and employee benefits 1,749 1,759 5,147 5,066
Occupancy and equipment 642 425 1,863 1,156
Data processing expense 175 127 452 488
Other expense 1,007 784 2,765 2,073
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Total noninterest expense 3,573 3,095 10,227 8,783
Income (loss) before income taxes 845 (152) 1,915 1,478
Income tax expense (credit) 238 (213) 336 186
------------ ------------- -------------- --------------
------------ ------------- -------------- --------------
Net income $ 607 $ 61 $ 1,579 $ 1,292
============ ============= ============== ==============
============ ============= ============== ==============
Basic earnings per common share $ 0.46 $ 0.05 $ 1.20 $ 1.00
Diluted earnings per common share $ 0.44 $ 0.05 $ 1.15 $ 0.97
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, 2004 and 2003
(In thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
Balance at beginning of period $ 35,366 $ 33,139 $ 34,251 $ 33,952
Purchase of treasury stock - - - (1,676)
Stock option exercise - 10 808 167
Cash dividends declared (159) (139) (458) (420)
Comprehensive income (loss):
Net income 607 61 1,579 1,292
Net change in net unrealized gains and losses
on securities available for sale, net of tax (98) (326) (464) (570)
effects
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Total comprehensive income (loss) 509 (265) 1,115 722
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Balance at end of period $ 35,716 $ 32,745 $ 35,716 $ 32,745
=========== =========== ========== ==========
See accompanying notes to (unaudited) consolidated financial statement
MFB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended June 30, 2004 and 2003
Nine Months Ended
June 30,
2004 2003
---- ----
Cash flows from operating activities
Net income $ 1,579 $ 1,292
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization, net of accretion 836 937
Provision for loan losses 650 1010
Net loss (gain) from sales or valuation of securities available for sale 109 (40)
Net realized gains from sales of loans (810) (2,645)
Amortization of mortgage servicing rights 358 999
Impairment of mortgage servicing rights, net of recovery (464) 704
Origination of loans held for sale (31,870) (71,651)
Proceeds from sales of loans held for sale 37,210 87,778
Proceeds from sales of fixed assets 318 -
Loss on sales of fixed assets 46 -
Equity in loss of investment in limited partnership 181 111
Appreciation in cash surrender value of life insurance (175) (149)
Net change in:
Accrued interest receivable 77 117
Other assets (1,433) 946
Accrued expenses and other liabilities 954 1,969
------------- -- --------------
Net cash from operating activities 7,566 21,378
Cash flows from investing activities
Net change in interest-bearing time deposits in other financial institutions (500) (500)
Net change in loans receivable (27,615) (13,679)
Proceeds from:
Principal payments of mortgage-backed and related securities 6,756 24,549
Sales of securities available for sale - 160
Maturities and calls of securities available for sale 7,944 4,000
Purchase of:
Securities available for sale (6,798) (27,152)
Life insurance - (5,000)
FHLB stock (237) (83)
Premises and equipment, net (9,385) (1,356)
------------- -- --------------
Net cash from investing activities (29,835) (19,061)
Cash flows from financing activities
Purchase of MFB Corp common stock - (1,676)
Net change in deposits (2,303) 20,260
Repayment of FHLB and other borrowings (16,230) (15,425)
Proceeds from other borrowings 15,000 300
Proceeds from exercise of stock options 523 136
Net change in advances from borrowers for taxes and insurance 424 (753)
Cash dividends paid (458) (420)
------------- -- --------------
------------- -- --------------
Net cash from financing activities (3,044) 2,422
------------- -- --------------
------------- -- --------------
Net change in cash and cash equivalents (25,313) 4,739
Cash and cash equivalents at beginning of period 40,357 27,582
------------- -- --------------
Cash and cash equivalents at end of period $ 15,044 $ 32,321
============= == ==============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $7,966 $ 7,639
Income taxes 515 100
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
June 30, 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. 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, 2004 and September 30, 2003, the consolidated
statements of income and the condensed consolidated statements of changes in
shareholders' equity for the three and nine months ended June 30, 2004 and 2003
and the consolidated statements of cash flows for the nine months ended June 30,
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 June 30, 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 nine months ended June 30, 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 Nine months ended
June 30 June 30
(in thousands except per share information)
2004 2003 2004 2003
---- ---- ---- ----
Net Income as reported $ 607 $ 61 $ 1,579 $ 1,292
Less: Stock-based compensation expense determined
under fair value based method 68 54 189 161
-------------- ------------ ------------ ---------------
-------------- ------------ ------------ ---------------
Pro-forma net income 539 7 1,390 1,131
============== ============ ============ ===============
============== ============ ============ ===============
Basic earnings per share as reported $ 0.46 $ 0.05 $ 1.20 $ 1.00
Pro-forma basic earnings per share 0.41 0.01 1.06 0.88
Diluted earnings per share as reported 0.44 0.05 1.15 0.97
Pro-forma diluted earnings per share 0.39 0.01 1.01 0.85
The weighted average fair value of stock options granted during the nine months
ended June 30, 2004 and 2003 were $10.00 and $5.82 The fair value of options
granted during the nine months ended June 30, 2004 and 2003 were estimated using
an option pricing model with the following weighted average information as of
the grant dates:
June 30,
2004 2003
---- ----
Risk free rate of interest 4.13% 3.72%
Expected option life 8 years 8 years
Expected dividend yield 1.43% 1.82%
Expected volatility 24.58% 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 nine month periods ended June 30, 2004 and 2003
are presented below.
Three Months Ended Nine months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
In thousands except per share information
Basic Earnings Per Common Share
Numerator
Net income $ 607 $ 61 $ 1,579 $ 1,292
=========== =========== =========== ============
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,329 1,267 1,312 1,288
=========== =========== =========== ============
Basic Earnings Per Common Share $ 0.46 $0.05 $1.20 $1.00
=========== =========== =========== ============
Diluted Earnings Per Common Share
Numerator
Net income $ 607 $ 61 $ 1,579 $ 1,292
=========== =========== =========== ============
Denominator
Weighted average common shares outstanding for basic
earnings per common share 1,329 1,267 1,312 1,288
Add: Dilutive effects of assumed exercises of stock
options 57 36 64 42
----------- ----------- ----------- ------------
Weighed average common and dilutive potential common
shares outstanding 1,386 1,303 1,376 1,330
=========== =========== =========== ============
Diluted Earnings Per Common Share $ 0.44 $0.05 $1.15 $0.97
=========== =========== =========== ============
Stock options for 5,000 common shares for the three and nine months ended June
30, 2004 and stock options for 42,500 and 51,750 common shares for the three and
nine months ended June 30, 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:
............................June 30, 2004............................
-------------
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities
U.S. Government and federal agencies $ 5,446 $ 61 (12) $ 5,495
Municipal bonds 344 9 - 353
Mortgage-backed 12,616 37 (176) 12,477
Corporate notes 9,732 130 (252) 9,610
------------ -------------- ------------- --------------
28,138 237 (440) 27,935
Marketable equity securities 4,128 - (800) 3,328
------------ -------------- ------------- --------------
$32,266 $ 237 $ (1,240) $ 31,263
============ ============== ============= ==============
..........................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 June 30, 2004, marketable equity securities with a cost basis of $4.1 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 $1.2 million, $800,000 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.
Management recorded a loss on securities for the third quarter ended June 30,
2004 totaling $109,000 which is the result of a write down of a corporate stock
held by MFB Corp. based on current estimates of fair value.
Related to the unrealized losses at June 30, 2004 for debt securities classified
as corporate notes, $186,000 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 June 30, 2004 and September 30, 2003 are summarized as
follows:
June 30, September 30,
2004 2003
----------------- ----------------
First mortgage loans (principally conventional) (in thousands)
Principal balances
Secured by one to four family residences $ 136,015 $ 129,472
Construction loans 23,889 22,066
Others 5,471 6,728
----------------- ----------------
165,375 158,266
Less undisbursed portion of construction and other mortgage loans 355 62
----------------- ----------------
Total first mortgage loans 165,020 158,328
Commercial loans:
Principal balances
Commercial $ 57,815 $ 49,709
Commercial real estate 88,748 80,914
----------------- ----------------
----------------- ----------------
Total commercial loans 146,563 130,623
Consumer loans:
Home equity and second mortgage $ 27,827 $ 24,535
Other 6,705 5,489
----------------- ----------------
Total consumer loans 34,532 30,024
Net deferred loan origination fees (821) (821)
----------------- ----------------
Total loans receivable $ 345,294 $ 318,154
================= ================
Activity in the allowance for loan losses is summarized as follows for the nine
months ended June 30, 2004 and for the year ended September 30, 2003.
June 30, September 30,
2004 2003
---------------- -----------------
(in thousands)
Balance at beginning of period $ 5,198 $ 5,143
Provision for loan losses 650 1,110
Charge-offs (491) (1,388)
Recoveries 16 333
---------------- -----------------
Balance at end of period $ 5,373 $ 5,198
================ =================
NOTE 4 - LOANS RECEIVABLE, NET (continued)
Quarter Ended Year Ended
June 30, 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 1,993 4,027
------------------ ------------------
Total $ 1,993 $ 4,027
================== ==================
Amount of the allowance for loan losses allocated $ 750 $ 1,370
Average of impaired loans 2,153 5,233
Interest income recognized during impairment 20 82
Cash-basis interest income recognized during impairment 20 66
Non-performing assets were as follows:
June 30, September 30,
2004 2003
------------------ ------------------
(in thousands)
Loans past due over 90 days still on accrual status $ - $ -
Non-accrual loans 1,787 3,844
------------------ ------------------
------------------ ------------------
Total non-performing loans 1,787 3,844
------------------ ------------------
------------------ ------------------
Other real estate 1,551 705
------------------ ------------------
------------------ ------------------
Total non-performing assets $ 3,338 $ 4,549
================== ==================
NOTE 5 - PREMISES AND EQUIPMENT, NET
June 30, September 30,
Premises and equipment are summarized as follows: 2004 2003
------------------ ------------------
(in thousands)
Land $ 3,582 $ 1,851
Building and improvements 10,113 4,607
Furniture and equipment 5,066 3,707
Total 18,761 10,165
Accumulated depreciation and amortization (4,235) (4,075)
Total Premises and Equipment $ 14,526 $ 6,090
----------- ------------
Depreciation and amortization of premises and equipment included in occupancy
and equipment expense was approximately $570,000 for the nine months ended June
30, 2004 and $392,000 for the nine months ended June 30, 2003.
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 charge and 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.
On August 6, 2004, MFB Financial acquired certain assets and assumed certain
liabilities of Sobieski Bank, pursuant to a previously announced transaction
(the "Acquisition"). Under the terms of the agreement, MFB Financial paid
Sobieski Bank $1.156 million, subject to post closing adjustments to be
finalized within the next 5 days. As of June 30, 2004, Sobieski Bank, located in
South Bend, Indiana, had approximately $105.1 million of assets and
approximately $102.4 million of liabilities. Among items excluded from the
Acquisition were certain 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 was structured as an asset purchase and MFB Financial generally did
not assume any of any of Sobieski's contingent liabilities. Sobieski Bank and
its holding company, Sobieski Bancorp, Inc., have agreed to indemnify and
protect MFB Financial against liabilities not assumed by MFB Financial in the
transaction. As a result of the transaction, the Company is expected to increase
its total assets to approximately $548 million. MFB Financial is now operating
the three Sobieski Bank retail offices as branch facilities under the MFB
Financial name. The acquisition expands MFB Financial's offering of retail and
small business financial services to eleven banking centers in the St. Joseph
and Elkhart county metropolitan area.
RESULTS OF OPERATIONS
COMPARISON OF THREE AND NINE MONTHS ENDED JUNE 30, 2004 AND 2003
The Company's consolidated net income for the three months ended June 30, 2004
was $607,000 or $0.44 diluted earnings per common share, compared to net income
of $61,000 or $0.05 diluted earnings per share, for the three months ended June
30, 2003. The Company's consolidated net income for the nine months ended June
30, 2004 was $1.58 million or $1.15 diluted earnings per share, compared to net
income of $1.29 million, or $.97 diluted earnings per share, for the same period
last year. MFB Corp's increase in net income for the third fiscal quarter from
the prior comparable period was primarily attributable to an increase in net
interest income, increase in noninterest income, offset by an increase in
noninterest expense. The increase in net income for the nine months ended June
30, 2004, over the same period last year was due to the decrease in provision
for loan losses, an increase in net interest income, increased noninterest
income, offset by the increase in non interest expense. Both the three and nine
month periods ended June 30, 2004 experienced higher income tax expense due to
the increased income before income taxes.
MFB Corp's net interest income before provision for loan losses for the three
month period ended June 30, 2004 totaled $2.8 million compared to $2.7 million
for the same period last year. For the nine month period ended June 30, 2004,
net interest income before provision for loan losses totaled $8.4 million
compared to $8.2 million for the same period last year. The increase in net
interest income is primarily from reduced interest expense on FHLB advances
partially offset by a reduction in mortgage loan and investment income for both
the three and nine months periods.
The provision for loan losses for the third quarter ended June 30, 2004 was
$150,000 compared to $110,000 for the third quarter last year. For the nine
months ended June 30, 2004, the provision for loan losses was $650,000 compared
to $1.01 million 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 third quarter ended June 30, 2004, net charge offs were
$97,000. There were no net charge offs for the quarter ended June 30, 2003. Year
to date net charge offs for the nine months ended June 30, 2004 total $475,000
compared to $440,000 for the same period last year.
Total noninterest income increased to $1.8 million from $386,000 from the third
quarter last year to the third quarter this year. For the nine months ended June
30, 2004, total noninterest income was $4.4 million, an increase over the $3.1
million for the same period last year. Other noninterest income increased from
$1.1 million to $1.4 million from the third quarter last year to the third
quarter this year. For the nine months ended June 30, 2004, other noninterest
income was $4.1 million, an increase over the $3.8 million for the same period
last year. New and increased service fees on deposit accounts and rental income
significantly contributed to the increases for the three and nine month periods.
These increases were partially offset by a decline in gains on sale of mortgage
loans from last year. A mortgage servicing rights valuation recovery occurred in
the third quarter ended June 30, 2004 totaling $466,000 compared to an
impairment charge of $704,000 on those mortgage servicing rights for the third
quarter last year. For the nine months ended June 30, 2004, the mortgage
servicing rights recovery was $464,000 compared to the impairment charge of
$704,000. The impairment and recovery on mortgage servicing rights is related to
the decline and subsequent recovery in the market value of servicing rights
associated with MFB Financial's $174 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 net income has been significantly affected by this volatility. The
loss on securities for the third quarter ended June 30, 2004 totaling $109,000
is the result of a write down of a corporate stock held by MFB Corp based on
current estimates of fair value.
Noninterest expense increased from $3.1 million for the third quarter last year
to $3.6 million for the third quarter this year. For the nine months ended June
30, 2004, total noninterest expense was $10.2 million, an increase over the $8.8
million for the same period last year. The increase for both the three and nine
months periods were primarily due to increased occupancy and equipment for a new
branch opening and the new corporate headquarters, and consulting expenses paid
for two major projects.
BALANCE SHEET COMPOSITION
COMPARISON OF JUNE 30, 2004 TO SEPTEMBER 30, 2003
The Company's total assets decreased slightly from $428.6 million as of
September 30, 2003 to $427.9 million as of June 30, 2004.
Cash and cash equivalents decreased from $40.3 million at September 30, 2003 to
$15.0 million at
June 30, 2004. Net cash from operating activities amounted to $7.5 million,
offset by net cash used in financing activities totaling $3.0 million and net
cash used in investing activities amounting to $29.8 million during the nine
months ended June 30, 2004.
As of June 30, 2004, the total securities available for sale portfolio amounted
to $31.3 million, a decrease of $8.7 million from $40.0 million at September 30,
2003. The securities portfolio activity during that period included security
purchases of $6.8 million, security maturities and sales of $7.9 million,
principal payments on mortgage-backed and related securities of $6.8 million, a
decline in mark to market valuation of $501,000 and amortization of $361,000.
Premises and equipment increased from $ 6.1 million at September 30, 2003 to
$14.5 million at June 30, 2004 primarily due to MFB Financial's $7.3 million
acquisition of the former National Steel Corporation's headquarters building in
October, 2003. MFB has relocated its administrative staff and operation
personnel to a portion of the building. Additionally, $1.2 million of the
increase relates to the opening of a new branch office and renovations completed
to an existing office in the quarter ended March, 2004.
As of June 30, 2004, loans receivable were $345.3 million, an increase of $27.1
million from $318.2 million at September 30, 2003. Commercial loans outstanding
increased by $15.9 million from $130.6 million at September 30, 2003 to $146.5
million at June 30, 2004. Mortgage loans increased from $158.3 million at
September 30, 2003 to $165.0 million at June 30, 2004. Consumer loans, including
home equity and second mortgages, increased $4.5 million during the nine month
period. Loans held for sale at June 30, 2004 decreased to $1.6 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 third quarter ended June 30, 2004, the Company completed secondary
market mortgage loan sales totaling $12.2 million and the net gains realized on
these loan sales were $265,000 including $153,000 related to recording mortgage
loans servicing rights. During the 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. This reduction is due to the slow
down in the refinance activities that have occurred in the last twelve 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 $5.4 million or 1.56% of loans at June 30, 2004. The
allowance is maintained through the provision for loan losses, which is charged
to earnings. The Company's nonperforming assets have decreased from $4.5 million
at September 30, 2003 to $3.3 million at June 30, 2004. Impaired loans have
decreased from $3.8 million at September 30, 2003 to $1.8 million at June 30,
2004 due to loan charge offs and acquiring title of real estate collateral on
two commercial loans 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 June 30, 2004.
Total liabilities decreased from $394.4 million at September 30, 2003 to $392.2
million at June 30, 2004. Total deposits decreased $2.3 million from $292.1
million at September 30, 2003 to $289.8 million at June 30, 2004. The decrease
primarily consisted of a $10.1 million decrease in time deposits, offset by a
$3.6 million increase in noninterest bearing demand deposits and a $4.2 million
increase in Savings, Now and MMDA deposits.
FHLB advances decreased slightly from $98.8 million at September 30, 2003 to
$97.9 million at June 30, 2004. The $97.9 million of Federal Home Loan Bank
advances have a weighted average interest rate of 5.52% and mature over the next
nine years. A total of $5.2 million of the advances mature in the next twelve
months.
Total shareholders' equity increased from $34.3 million as of September 30, 2003
to $35.7 million as of June 30, 2004 primarily attributed to the net income of
$1.6 million. MFB Corp's equity to assets ratio was 8.35% at June 30, 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 $26.87 at June 30, 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 $47.8 million as of June 30, 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 and to fund loan growth.
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 June 30, 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 June 30, 2004, total FHLB borrowings
amounted to $97.9 million and were originally used primarily to fund loan
portfolio growth. The Bank had commitments to fund loan originations with
borrowers totaling $92.5 million at June 30, 2004, including $63.6 million in
available consumer and commercial lines and letters of credit. Certificates of
deposit scheduled to mature in one year or less totaled $77.5 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 rations at June 30,
2004 and September 30, 2003 are presented below:
Requirement to be
Well Capitalized Under
Requirement for Capital Prompt Corrective
Actual Adequacy Purposes Actual Provisions
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2004
Total capital
(to risk weighted $ 36,994 11.60% $ 25,511 8.00% $ 31,889 10.00%
assets)
Tier 1 (core) capital
(to risk weighted 34,190 10.42 12,776 4.00 19,134 6.00
assets)
Tier 1 (core) capital
(to adjusted total 34,190 7.99 17,102 4.00 21,384 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 June 30, 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 securities available for sale, 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 9.24% as of March 31, 2004 (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 March 31, 2004 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, 2004 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 38,209 (3,055) (7%) 8.90% (34)
+200 40,290 (974) (2%) 9.25% 1
+100 41,484 220 1% 9.40% 16
0 41,264 - - 9.24% -
-100 39,033 (2,232) (5%) 8.68% (56)
(1) Expressed in basis points
As illustrated in the March 31, 2004 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 March 31, 2004, the
Company's NPV was $41.3 million or 9.24% 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 $220,000 or 1% increase in
the Company's NPV and a 16 basis point increase in the Company's NPV ratio to
9.40%. An immediate 100 basis point decrease in market interest rates would
result in a $2.2 million or 5% decrease in the Company's NPV, and a 56 basis
point decrease in the Company's NPV ratio to 8.68%. 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 March 31, 2004.
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, 2004 totaled $1.6 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 June 30, 2004, $173.5 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 reports during the quarter ended
June 30, 2004. Date of report: April 21, 2004
Items reported: News release dated April 21, 2004 regarding the
announcement of second
quarter earnings and announcement of a cash
dividend payable on May 18, 2004 to holders of
record on May 4, 2004.
Date of report: April 26, 2004
Items reported: News release dated April 26, 2004
regarding announcement of MFB Corporation
and Sobieski Bancorp purchase and
assumption agreement.
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: 08/13/04 By /s/ Charles J Viater
Charles J. Viater
President and Chief Executive Officer
Date: 08/13/04 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:08/13/04 /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:08/13/04 /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 13th day of August, 2004.
/s/ Thomas J Flournoy /s/ Charles J Viater
Thomas J. Flournoy Charles J. Viater
Chief Financial Officer Chief Executive Officer
(Title) (Title)
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.