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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File Number: 000-30973
MBT FINANCIAL CORP.
-------------------
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-3516922
(State of Incorporation) (I.R.S. Employer Identification No.)
102 E. Front St.
Monroe, Michigan 48161
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (734) 241-3431
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Bank's knowledge, in a definitive proxy statement incorporated by
reference in Part III of the Form 10-K or any of the amendments of this Form
10-K. [ ].
As of March 26, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $270,000,000.
As of March 26, 2001, there were 20,000,000 shares of Common Stock outstanding.
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Part I
Item 1. Business
GENERAL
MBT Financial Corp. (the "Corporation") operates as a bank holding company
headquartered in Monroe, Michigan. The Corporation was incorporated under the
laws of the State of Michigan in January 2000, at the direction of the
management of Monroe Bank & Trust (the "Bank"), for the purpose of becoming a
bank holding company by acquiring all the outstanding shares of Monroe Bank &
Trust. At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank &
Trust, shareholders approved a proposal that resulted in the Bank merging with
Monroe Interim Bank, a state chartered bank, which was a subsidiary of the
Corporation. On July 1, 2000, the merger of Monroe Bank & Trust and Monroe
Interim Bank was completed, with Monroe Bank & Trust becoming the wholly owned
subsidiary of MBT Financial Corp.
Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank
under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust
consolidated with Dansard Bank and moved to the present address of its main
office. Monroe Bank & Trust operated as a unit bank until 1950 when it opened
its first branch office in Ida, Michigan. It then continued its expansion to its
present total of 22 branch offices, including its main office. Monroe Bank &
Trust changed its name from "Monroe State Savings Bank" to "Monroe Bank & Trust"
in 1968.
Monroe Bank & Trust provides customary retail and commercial banking and trust
services to its customers, including checking and savings accounts, time
deposits, safe deposit facilities, commercial loans, personal loans, real estate
mortgage loans, installment loans, IRAs, ATM and night depository facilities,
personal trust, employee benefit and investment management services. Monroe Bank
& Trust's service areas are comprised of Monroe and Wayne counties in Southern
Michigan.
Monroe Bank & Trust's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to applicable legal limits and Monroe Bank & Trust is
supervised and regulated by the FDIC and Michigan Financial Institutions Bureau.
COMPETITION
MBT Financial Corp., through its subsidiary, Monroe Bank & Trust, operates in a
highly competitive industry. Monroe Bank & Trust's main competition comes from
other commercial banks, national or state savings and loan institutions,
securities brokers, mortgage bankers, finance companies and insurance companies.
Banks generally compete with other financial institutions through the banking
products and services offered, the pricing of services, the level of service
provided, the convenience and availability of services, and the degree of
expertise and personal manner in which these services are offered. Monroe Bank &
Trust encounters strong competition from most of the financial institutions in
Monroe Bank & Trust's extended market area.
EMPLOYEES
MBT Financial Corp. has no employees other than its three officers, each of whom
is also an employee and officer of Monroe Bank & Trust and who serve in their
capacity as officers of MBT Financial Corp. without compensation. As of December
31, 2000, Monroe Bank & Trust had 326 full-time employees and 18 part-time
employees. Monroe Bank & Trust provides a number of benefits for its full-time
employees, including health and life insurance, workers' compensation, social
security, paid vacations, numerous bank services, a 401(k) plan and a Money
Purchase Pension Plan.
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Item 2. Properties
MBT Financial Corp. does not conduct any business other than its ownership of
Monroe Bank & Trust's stock. MBT Financial Corp. operates its business from
Monroe Bank & Trust's main office facility. Monroe Bank & Trust operates its
business from its main office complex and 21 full service branches and other
office locations, described as follows, in the counties of Monroe and Wayne,
Michigan.
Main Office - 102 East Front Street, Monroe, Michigan. Two-story, brick office
building, with a good size customer parking lot located at the rear of the
building across the alley.
North Monroe Branch - 1204 North Monroe Street, Monroe, Michigan. One-story,
brick office building located on a large lot, the remainder of which is used for
customer and employee parking.
Orchard East Branch - 1102 East First Street, Monroe, Michigan. One-story, brick
office building situated on two lots, the remainder of which is used for
customer and employee parking.
West Monroe Branch - 1500 North Custer Road, Monroe, Michigan. One-story, brick
office building located on a large lot, the remainder of which is used for
customer and employee parking.
South Monroe Branch - Monroe Shopping Center - 1000 South Monroe Street, Monroe,
Michigan. One-story, brick office building located on a lot, the remainder of
which is used for customer and employee parking.
South Dixie Branch - 14581 South Dixie Highway, Monroe, Michigan. One-story,
brick office building located on a large "L" shaped lot, the remainder of which
is used for customer and employee parking.
Petersburg Branch - 15 Center Street, Petersburg, Michigan. One-story, brick
office building situated on two lots, the remainder of which is used for
customer and employee parking.
Temperance Branch - 9007 Lewis Avenue, Temperance, Michigan. Two-story, masonry
and wood office building situated on a lot, with parking facilities for both
customers and employees located on another adjacent lot.
Ida Branch - 2917 Lewis Avenue, Ida, Michigan. One-story, stone masonry office
building located on three lots, the remainder of which is used for customer and
employee parking.
Lambertville Branch - 7365 Secor Road, Lambertville, Michigan. One-story, brick
office building located on a lot, the remainder of which is used for customer
and employee parking.
Milan Branch - 14690 Sanford Road, Milan, Michigan. One-story, brick office
building, with a community room for public use attached, located on a large lot,
the remainder of which is used for customer and employee parking.
North Dixie Branch - 3805 North Dixie Highway, Monroe, Michigan. One-story,
brick and frame office building located on a lot, the remainder of which is used
for customer and employee parking.
South Rockwood Branch - 12754 North Dixie Highway, South Rockwood, Michigan.
One-story brick office building located on a large lot, the remainder of which
is used for customer and employee parking.
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Frenchtown Square Branch - 2121 North Monroe Street, Monroe, Michigan.
Approximately 1,424 square feet office leased in a one-story shopping mall.
Carleton Branch - 12633 Grafton Road, Carleton, Michigan. One-story, brick
office building located on a lot, the remainder of which is used for customer
and employee parking.
Bank Card Building - 118 East Front Street, Monroe, Michigan. Three-story,
masonry office building, across the alley from the Main Office.
Meier Building - 7 Washington Street, Monroe, Michigan. Three-story, masonry
office building adjacent to the Main Office.
Dundee Branch - 14077 South Custer Road, Dundee, Michigan. One-story, brick
office building located on a large lot, the remainder of which is used for
customer and employee parking.
Elliott Building - 28 South Macomb Street, Monroe, Michigan. Two-story, office
building with community room attached, located adjacent to the Main Office
customer parking lot.
Erie Branch - 9796 South Dixie Highway, Erie, Michigan. One-story, brick and
masonry office building located on a small lot, the remainder of which is used
for customer and employee parking.
Bedford Branch - 6560 Lewis Avenue, Temperance, Michigan. Two-story, masonry and
steel office building located on a large lot, the remainder of which is used for
customer and employee parking.
Newport Branch - 8799 Swan Creek Road, Newport, Michigan. One-story brick and
vinyl sided office building situated on four lots, the remainder of which is
used for customer and employee parking.
Operations Center Building - 212 East Front Street, Monroe, Michigan. One-story,
brick and masonry office building with a two-story masonry addition located on a
large lot, the remainder of which is used for customer and employee parking.
Nadeau Branch - 6000 North Monroe Street, Monroe, Michigan. Leased one-story
brick office building situated on a large lot, the remainder of which is used
for customer and employee parking.
Flat Rock Branch - 28417 Telegraph Road, Flat Rock, Michigan. One-story brick
office building situated on a large lot, the remainder of which is used for
customer and employee parking.
Raisinville Branch - 750 S. Raisinville Road, Monroe, Michigan. One-story brick
office building situated on a large lot, the remainder of which is used for
customer and employee parking.
Item 3. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
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NONE
Part II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters
The common stock consists of 20,000,000 shares with a book value of $7.55 per
share. In 2000, Monroe Bank & Trust reorganized into a one-bank holding company.
This reorganization resulted in an increase of 10,000,000 shares outstanding as
each share of Monroe Bank & Trust was exchanged for two shares of MBT Financial
Corp. Certain trading price information, as well as information on dividends
declared, have been restated to reflect the reorganization. Dividends declared
on common stock during 2000 amounted to $.37 per share. The common stock is
traded over the counter on the Electronic Bulletin Board under the symbol MBTF.
Below is a schedule of the high and low trading price for the past two years by
quarter. These prices represent those known to Management, but do not
necessarily represent all transactions that occurred.
2000 1999
High Low High Low
----------------------------------------------------------------------------------------
1(st) quarter $ 21 5/16 $ 16 11/16 $ 25 $ 22 1/4
2(nd) quarter $ 19 $ 17 7/8 $ 25 $ 23 1/2
3(rd) quarter $ 20 1/4 $ 15 3/4 $ 24 1/8 $ 21
4(th) quarter $ 17 $ 12 1/2 $ 23 1/4 $ 21 7/16
Dividends declared during the past three years on a quarterly basis were
as follows:
2000 1999 1998
------------------------------------------------------------------
1(st) quarter $.075 $.06 $ .05
2(nd) quarter $.075 $.075 $ .06
3(rd) quarter $.11 $.075 $ .06
4(th) quarter $.11 $.15 $ .12
On February 29, 2000, Monroe Bank & Trust redeemed its preferred stock.
Preferred stock consisted of 2,000 shares with a par value of $100 per share.
Dividends paid on preferred stock during the year amounted to $2.60 per share.
At December 31, 2000 our surplus account stood at $62,500,000 and our undivided
profits account stood at $92,084,279. Total stockholders' equity was reduced by
the amount of net unrealized losses on securities available for sale of
$3,629,316.
As of December 31, 2000, the number of common stockholders was 1,233.
Management's present expectation is that dividends will continue to be paid in
the future.
Item 6. Selected Financial Data
The selected financial data for the five years ended December 31, 2000 are
derived from the audited Consolidated Financial Statements of the Corporation.
The financial data set forth below contains only a portion of our financial
statements and should be read in conjunction with the Consolidated Financial
Statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this Form 10-K.
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SELECTED CONSOLIDATED FINANCIAL DATA
2000 1999 1998 1997 1996
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Interest Income $ 99,569,664 $ 83,178,881 $ 77,766,275 $ 71,952,004 $ 66,097,205
Interest Expense 49,680,992 38,290,421 34,203,473 31,455,077 28,960,155
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 49,888,672 $ 44,888,460 $ 43,562,802 $ 40,496,927 $ 37,137,050
Provision for Loan Losses 6,298,461 9,388,041 3,217,544 2,165,926 2,314,657
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses $ 43,590,211 $ 35,500,419 $ 40,345,258 $ 38,331,001 $ 34,822,393
Other Income 8,708,702 6,920,016 6,964,982 4,296,142 4,222,256
Other Expenses 23,094,206 20,143,741 25,447,771 18,706,896 16,777,260
- --------------------------------------------------------------------------------------------------------------------------------
Income before Provision
for Income Taxes $ 29,204,707 $ 22,276,694 $ 21,862,469 $ 23,920,247 $ 22,267,389
Provision for
Income Taxes 8,031,184 5,207,362 5,301,810 6,067,965 5,765,645
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 21,173,523 $ 17,069,332 $ 16,560,659 $ 17,852,282 $ 16,501,744
- --------------------------------------------------------------------------------------------------------------------------------
Dividends Declared per Share-
Preferred Stock $ 2.60 $ 4.50 $ 4.50 $ 4.50 $ 4.50
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock(*) $ .37 $ .36 $ .29 $ .245 $ .22
================================================================================================================================
Basic Earnings per Share,
after Deducting Preferred
Stock Dividends(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82
- --------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets at Years
Ended December 31 $1,379,386,178 $1,216,476,583 $1,075,268,496 $941,017,915 $898,300,160
- --------------------------------------------------------------------------------------------------------------------------------
*Per-share amounts are based upon 20,000,000 common shares outstanding for each
of the five years presented. The reorganization into a one-bank holding company
in 2000 resulted in an exchange of Monroe Bank & Trust stock for MBT Financial
Corp. stock. The exchange rate was two shares of MBT Financial Corp. stock for
each share of Monroe Bank & Trust, causing an increase of 10,000,000 shares
outstanding. All per-share amounts have been restated to reflect this
transaction.
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
With the exception of historical information, the matters discussed or
incorporated by reference in this Form 10-K may contain certain forward-looking
statements that involve risk and uncertainties including, but not limited to,
economic conditions, product demand and industry capability, competitive
products and pricing, new product development, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
We experienced a small decrease in earnings in 1998, as Net Income decreased
$1,291,623, or 7%. Net Interest Income had a small increase of $3,065,875, or
8%, as interest rates showed a small decrease in the fourth quarter. The
$58,526,540 increase in Net Loans, the $41,409,726 increase in Held to Maturity
Obligations of U.S. Government Agencies, and the $34,140,651 increase in Other
Securities were primarily funded by the 14% increase in deposits of
$114,979,861. The local economy remained healthy and we had a small increase in
real estate loans, a significant increase in commercial and industrial loans,
and a modest increase in loans to individuals for household, family, and other
personal expenditures. We increased our Allowance for Loan Losses $900,000, as a
result of the growth in loans. Salaries and Employee Benefits increased 51% over
last year, primarily as a result of charges related to the deferred compensation
plan, as discussed in Note 9 to the consolidated financial statements. Income
Before Provision for Income Taxes decreased $2,057,778, or 9%, compared to 1997,
and with the increase in investment in Obligations of States and Political
Subdivisions, our Provision for Income Taxes decreased $766,155, or 13%. Our
effective tax rate was 24.2% in 1998.
Earnings increased slightly in 1999, as Net Income increased $508,673, or 3%.
Net Interest Income increased $1,325,658, or 3% as the Federal Reserve increased
managed interest rates three times, by a total of 0.75% in the second half of
the year. Two significant investment strategies that were developed to increase
Net Interest Income were deployed by the Bank in the second half of 1999. The
first involved reinvesting the maturities of our short term Held to Maturity
Other Securities into Held to Maturity Obligations of U.S. Government Agencies.
As a result, Held to Maturity Other Securities decreased $53,577,661, or 86% and
Held to Maturity Obligations of U.S. Government Agencies increased $74,513,446,
or 98%. The second strategy deployed involved the use of Federal Home Loan Bank
advances to fund a portfolio of three to ten year, non-callable corporate bonds.
This resulted in the creation of the $96,794,073 Available for Sale Other
Securities portfolio. Net Loans showed a slight increase of $13,576,076, or 2%,
as rising interest rates and increased competition affected our loan volume. We
experienced a small increase in real estate loans, a small decrease in
commercial and industrial loans, and a significant increase in loans to
individuals for household, family, and other personal expenditures. The loan
growth was funded primarily by a 3% increase in deposits. We increased our
Provision for Loan Losses $6,170,497, or 192%, and loans charged off, net of
recoveries, increased $8,270,497, or 357% as we recognized losses on several
large non-performing commercial and industrial loans. This resulted in a
decrease of $1,200,000, or 11%, in the Allowance for Loan Losses. Salaries and
Employee Benefits decreased 37% due to the charges related to the deferred
compensation plan in 1998, as mentioned above and discussed in Note 9 to the
consolidated financial statements. Income Before Provision for Income Taxes
increased $414,225, or 2%, compared to 1998, and with the slight increase in
investment in Obligation of States and Political Subdivisions, our Provision for
Income Taxes decreased $94,448, or 2%. Our effective tax rate was 23.4% in 1999.
In 2000, Net Income increased significantly as the Corporation produced record
earnings. Net Income increased $4,104,236, or 24%, compared to 1999, as interest
rates continued to rise. Deposits showed a small increase of 5%, as most of the
asset growth was funded by an increase of $100,000,000, or 80%, in advances from
the Federal Home Loan Bank. We experienced a significant increase of 16% in Net
Loans as the local economy continued its expansion. Most of the loan growth was
in loans secured by real estate, which increased 25%. Loans to individuals for
household, family and other personal expenditures increased 4%, and commercial
and industrial loans decreased 4%. We increased our Allowance for Loan
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Losses $700,000 over the prior year-end, as necessitated by the increase in Net
Loans. Income Before Provision for Income Taxes increased $6,928,013, or 31%,
compared to 1999, but with our smaller average percentage investment in
Obligations of States and Political Subdivisions in 2000, our Provision for
Income Taxes showed a large increase of $2,823,822, or 54%. Our effective tax
rate increased from 23.4% to 27.5%.
Earnings for the Bank are usually highly reflective of the Net Interest Income.
In 1998, interest rates showed no movement until a small decrease in the fourth
quarter, but with the increase in Provision for Loan Losses, as well as the
large increase in expense associated with the deferred compensation plan
termination, Net Income decreased 7%. In 1999, interest rates increased in the
third and fourth quarters, but with the large decrease in Salaries and Employee
Benefits, and the increase in Provision for Loan Losses, Net Income increased
3%. In 2000, interest rates continued to climb, with the prime rate increasing
100 basis points in the first half of the year. Interest income increased $16.4
million, or 20% compared to 1999. Approximately $10.8 million of that increase
was due to the increase in interest earning assets and $5.6 million was due to
the increase in yields on the assets. Interest expense increased $11.4 million,
or 30%. Approximately $8.0 million of that increase was due to the increase in
interest bearing liabilities and $3.4 million was due to the increase in
interest rates. As a result, Net Interest Income increased $5.0 million, or 11%
over 1999. Growth in the balance sheet accounted for $2.7 million of the
increase while the higher interest rates accounted for $2.3 million of the
increase. Along with a moderating Provision for Loan Losses, non-interest income
increasing significantly and non-interest expense increasing only modestly, the
result was a significant increase in Net Income. The significant increase in
non-interest income was the result of estate settlement fees collected by the
Trust department and an increase in service charges that was implemented late in
the third quarter of 1999. The modest increase in non-interest expense was the
result of an increase in salaries expense. Staffing was increased in several
areas, including branch operations, as the Bank continued to grow. Average cost
of interest bearing deposits was 4.5%, 4.4%, and 4.8% for 1998, 1999, and 2000,
respectively. The table below shows selected financial ratios for the same three
years.
2000 1999 1998
---- ---- ----
Return on Average Assets 1.7% 1.5% 1.6%
Return on Average Equity 14.4% 12.0% 12.9%
Dividend Payout Ratio 34.9% 42.4% 34.9%
Average Equity to Average Assets 11.5% 12.6% 12.6%
The following table shows average daily balances, interest income or expense
amounts, and the resulting average rates for interest earning assets and
interest bearing liabilities for the last three years. Also shown are the net
interest income, total interest rates spread, and the net interest margin for
the same periods.
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Year Ended December 31,
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2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Average Interest Average Interest Average Interest
Daily Earned Average Daily Earned Average Daily Earned Average
(Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield Balance or Paid Yield
----------------------------- ----------------------------- -----------------------------
Investments
US Treas Secs & Obligations
of US Gov't Agencies 174,266 12,169 6.98% 143,515 9,419 6.56% 84,141 5,239 6.23%
Obligations of States &
Political Subdivisions 137,200 7,302 5.32% 158,195 8,258 5.22% 141,963 7,675 5.41%
Other Securities 123,032 9,145 7.43% 67,203 4,054 6.03% 65,072 3,990 6.13%
----------------------------- ----------------------------- -----------------------------
Total Investments 434,498 28,616 6.59% 368,913 21,731 5.89% 291,176 16,904 5.81%
----------------------------- ----------------------------- -----------------------------
Loans
Commercial 468,417 43,860 9.36% 435,067 37,863 8.70% 404,594 37,060 9.16%
Mortgage 179,427 14,867 8.29% 161,183 13,422 8.33% 167,954 14,269 8.50%
Consumer 120,853 11,917 9.86% 100,406 9,954 9.91% 89,329 9,076 10.16%
----------------------------- ----------------------------- -----------------------------
Total Loans(1) 768,697 70,644 9.19% 696,656 61,239 8.79% 661,877 60,405 9.13%
Federal Funds Sold 4,861 310 6.38% 4,276 209 4.89% 8,537 457 5.35%
----------------------------- ----------------------------- -----------------------------
Total Interest Earning Assets 1,208,056 99,570 8.24% 1,069,845 83,179 7.77% 961,590 77,766 8.09%
Cash & Due From Banks 34,215 0 n/a 34,169 0 n/a 32,292 0 n/a
Interest Receivable and Other
Assets 30,737 0 n/a 21,645 0 n/a 18,973 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Assets 1,273,008 99,570 7.82% 1,125,659 83,179 7.39% 1,012,855 77,766 7.68%
============================= ============================= =============================
Savings Accounts 120,494 2,955 2.45% 118,229 3,496 2.96% 106,679 3,207 3.01%
NOW Accounts 61,901 1,476 2.38% 60,829 1,471 2.42% 54,385 1,313 2.41%
Money Market Deposits 189,655 7,714 4.07% 211,139 7,836 3.71% 197,699 7,363 3.72%
Certificates of Deposit 461,654 27,506 5.96% 456,303 24,140 5.29% 399,239 22,320 5.59%
Federal Funds Purchased 5,051 326 6.45% 5,483 303 5.53% 661 36 5.45%
FHLB Advances 161,038 9,704 6.03% 17,658 1,044 5.91% 0 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Interest Bearing
Liabilities 999,793 49,681 4.97% 869,641 38,290 4.40% 758,663 34,239 4.51%
Non-interest Bearing Deposits 120,906 0 n/a 112,965 0 n/a 108,822 0 n/a
Other Liabilities 5,437 0 n/a 680 0 n/a 17,284 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Liabilities 1,126,136 49,681 4.41% 983,286 38,290 3.89% 884,769 34,239 3.87%
Stockholders' Equity 146,872 0 n/a 142,373 0 n/a 128,086 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Liabilities &
Stockholders' Equity 1,273,008 49,681 3.90% 1,125,659 38,290 3.40% 1,012,855 34,239 3.38%
============================= ============================= =============================
Net Interest Income 49,889 44,889 43,527
Interest Rate Spread 3.27% 3.37% 3.58%
Net Interest Margin 4.13% 4.20% 4.53%
(1) Total Loans excludes Overdraft Loans, which are non-interest earning. These
loans are included in Other Assets. Total Loans includes nonaccrual loans. When
a loan is placed in nonaccrual status, all accrued and unpaid interest is
charged against interest income. Loans on nonaccrual status do not earn any
interest.
The following table summarizes the changes in interest income and interest
expense attributable to changes in interest rates and changes in the volume of
interest earning assets and interest bearing liabilities for the period
indicated:
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Year Ended December 31,
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2000 versus 1999 1999 versus 1998 1998 versus 1997
--------------------------- --------------------------- -----------------------------
Changes due to Changes due to Changes due to
increased (decreased) increased (decreased) increased (decreased)
--------------------------- --------------------------- -----------------------------
(Dollars in Thousands) Rate Volume Total Rate Volume Total Rate Volume Total
--------------------------- --------------------------- -----------------------------
Interest Income
- ------------------------------
Investments
US Treas Secs & Obligations
of US Gov't Agencies 732 2,018 2,750 483 3,697 4,180 (228) (2,717) (2,945)
Obligations of States &
Political Subdivisions 140 (1,096) (956) (294) 877 583 (293) 551 258
Other Securities 1,723 3,368 5,091 (67) 131 64 (556) 2,607 2,051
--------------------------- --------------------------- -----------------------------
Total Investments 2,595 4,290 6,885 122 4,705 4,827 (1,077) 441 (636)
--------------------------- --------------------------- -----------------------------
Loans
Commercial 3,095 2,902 5,997 (1,989) 2,791 802 (1,107) 6,486 5,379
Mortgage (74) 1,519 1,445 (272) (575) (847) (6) 330 324
Consumer (64) 2,027 1,963 (247) 1,125 878 (16) 509 493
--------------------------- --------------------------- -----------------------------
Total Loans 2,957 6,448 9,405 (2,508) 3,341 833 (1,129) 7,325 6,196
Federal Funds Sold 72 29 101 (19) (228) (247) (8) 262 254
--------------------------- --------------------------- -----------------------------
Total Interest Income 5,624 10,767 16,391 (2,405) 7,818 5,413 (2,214) 8,028 5,814
Interest Expense
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Savings Accounts (608) 67 (541) (58) 347 289 (8) 125 117
NOW Accounts (21) 26 5 3 155 158 1 30 31
Money Market Deposits 675 (797) (122) (27) 500 473 263 1,273 1,536
Certificates of Deposit 3,083 283 3,366 (1,370) 3,190 1,820 (149) 1,213 1,064
Federal Funds Purchased 47 (24) 23 7 260 267 (2) (93) (95)
FHLB Advances 182 8,478 8,660 1,044 0 1,044 0 0 0
--------------------------- --------------------------- -----------------------------
Total Interest Expense 3,358 8,033 11,391 (401) 4,452 4,051 105 2,548 2,653
--------------------------- --------------------------- -----------------------------
Net Interest Income 2,266 2,734 5,000 (2,004) 3,366 1,362 (2,319) 5,480 3,161
=========================== =========================== =============================
Due to a variety of reasons, including volatile interest rates in the past and
successful bidding in securing local municipal deposits, we have attempted, for
the last several years, to maintain a liquid investment position. Although the
percentage of securities held as Available for Sale decreased from 31% as of
December 31, 1999 to 26% as of December 31, 2000, we were able to maintain
liquidity by investing in shorter-term securities. As reflected in Note 4 to the
consolidated financial statements, the percentage of securities that mature
within five years increased from 31% as of December 31, 1999 to 37% as of
December 31, 2000. The table below presents the scheduled maturities for each of
the investment categories, and the average yield on the amounts maturing. The
yields presented for the Obligations of States and Political Subdivisions are
not tax equivalent yields. The interest income on these securities is
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exempt from federal income tax. The Corporation's marginal federal income tax
rate is thirty-five percent.
Maturing
- ---------------------------------------------------------------------------------------------------------------------------------
Within 1 year 1 - 5 years 5 - 10 Years Over 10 Years
----------------- ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
----------------- ------------------ ------------------ ------------------
(Dollars in Thousands)
----------------------
US Treas Secs & Obligations of
US Gov't Agencies $ - 0.00% $ 11,978 6.30% $ 50,619 7.52% $ 96,383 6.77%
Obligations of States & Political
Subdivisions 15,454 5.06% 36,114 5.47% 56,279 5.46% 24,159 5.28%
Other Securities 51,225 7.82% 54,560 6.92% 43,357 7.58% - 0.00%
----------------- ------------------ ------------------ ------------------
Total $66,679 7.18% $102,652 6.34% $150,255 6.77% $120,542 6.47%
================= ================== ================== ==================
Maturing
- -------------------------------------------------------------------------------
Non-Maturing Total
----------------- ------------------
Amount Yield Amount Yield
----------------- ------------------
(Dollars in Thousands)
----------------------
US Treas Secs & Obligations of
US Gov't Agencies $ - 0.00% $158,980 6.97%
Obligations of States & Political
Subdivisions - 0.00% 132,006 4.42%
Other Securities 12,277 8.03% 161,419 7.47%
----------------- ------------------
Total $12,277 8.03% $452,405 6.40%
================= ==================
Our loan policies also reflect our awareness for liquidity. We have shortened
the average terms for most of our loan portfolios, in particular real estate
mortgages, the majority of which are normally written for five years or less.
Additionally, we increased our capacity to borrow Federal funds from our
correspondent banks in 1999 and we increased our borrowing capacity with the
Federal Home Loan Bank of Indianapolis. This provides additional liquidity
without incurring the opportunity cost associated with holding short maturity
investments. The following table shows the maturities or repricing opportunities
(whichever is earlier) for the Bank's interest earning assets and interest
bearing liabilities at December 31, 2000. The repricing assumptions shown are
consistent with those established by the Bank's Asset/Liability Management
Committee (ALCO). Savings accounts and regular NOW accounts are non-maturing,
variable rate deposits, which may reprice as often as weekly, but are not
included in the zero to six month category because in actual practice, these
deposits are only repriced if there is a large change in market interest rates.
Super NOW accounts and Money Market deposits are also non-maturing, variable
rate deposits, however, these accounts are included in the zero to six month
category because they may get repriced following smaller changes in market
rates.
11
12
Assets/Liabilities at December 31, 2000, Maturing or Repricing in:
-----------------------------------------------------------------------------
0 - 6 6 - 12 1 - 2 2 - 5 Over 5 Total
(Dollars in Thousands) Months Months Years Years Years Amount
--------------------- -------- -------- ------- ------- ------- ---------
Interest Earning Assets
- ------------------------------------
US Treas Secs & Obligations of
US Gov't Agencies 35,536 13,696 4,417 9,050 96,281 158,980
Obligations of States & Political
Subdivisions 17,708 5,576 14,506 51,034 43,182 132,006
Other Securities 63,502 - 5,000 52,933 39,984 161,419
Commercial Loans 192,417 43,014 61,753 168,165 19,762 485,111
Mortgage Loans 15,467 16,265 36,347 104,594 22,411 195,084
Consumer Loans 31,271 14,765 26,918 49,967 8,398 131,319
Federal Funds Sold 30,000 - - - - 30,000
-------- -------- ------- ------- ------- ---------
Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919
-------- -------- ------- ------- ------- ---------
Interest Bearing Liabilities
- ------------------------------------
Interest Bearing Demand Deposits 47,589 - - - - 47,589
Savings Deposits 213,995 - - - - 213,995
Other Time Deposits 259,857 122,779 61,225 24,267 - 468,128
FHLB Advances - - - - 225,000 225,000
-------- -------- ------- ------- ------- ---------
Total Interest Bearing Liabilities 521,441 122,779 61,225 24,267 225,000 954,712
-------- -------- ------- ------- ------- ---------
Gap (135,540) (29,463) 87,716 411,476 5,018 339,207
Cumulative Gap (135,540) (165,003) (77,287) 334,189 339,207 339,207
Sensitivity Ratio 0.74 0.76 2.43 17.96 1.02 1.36
Cumulative Sensitivity Ratio 0.74 0.74 0.89 1.46 1.36 1.36
If savings and regular NOW accounts were included in the zero to six months
category, the Bank's gap would be as shown in the following table:
Assets/Liabilities at December 31, 2000, Maturing or Repricing in:
---------------------------------------------------------------------------------
0-6 6-12 1-2 2-5 Over 5
Months Months Years Years Years Total
-------- -------- -------- ------- ------- ---------
Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919
Total Interest Bearing Liabilities 653,937 122,779 61,225 24,267 225,000 1,087,208
-------- -------- -------- ------- ------- ---------
Gap (268,036) (29,463) 87,716 411,476 5,018 206,711
Cumulative Gap (268,036) (297,499) (209,783) 201,693 206,711 206,711
Sensitivity Ratio 0.59 0.76 2.43 17.96 1.02 1.19
Cumulative Sensitivity Ratio 0.59 0.62 0.75 1.23 1.19 1.19
The amount of loans due after one year with floating interest rates is
$222,709,000.
12
13
The following table shows the remaining maturity for Certificates of Deposit
with balances of $100,000 or more:
Year Ended December 31,
----------------------------------------------
(Dollars in Thousands) 2000 1999 1998
--------------------- ------- ------- -------
Maturing Within
3 Months 135,807 150,870 130,279
3 - 6 Months 41,163 28,285 25,385
6 - 12 Months 29,970 13,721 20,600
Over 12 Months 14,481 14,015 15,992
------- ------- -------
Total 221,421 206,891 192,256
======= ======= =======
For 2001, we expect interest rates to decrease through the first half of the
year. We anticipate that the falling rates will have the desired effect of
preventing a recession in the national economy. However, we expect our region to
experience lower growth than the national economy as the manufacturing sector,
particularly automotive related, may be weaker than other sectors. This may
translate into slower local loan demand and lower deposit growth. As a result of
the decreasing interest rates and the slower loan growth mentioned above, we
expect a small increase in Net Interest Income. Due to the weakening in the
economy, we expect to incur an increase in the Provision for Loan Losses in
order to maintain an adequate Allowance for Loan Losses. Anticipating no
significant changes in non-interest income and non-interest expenses, we expect
very little change in Net Income.
The following is an analysis of the transactions in the allowance for loan
losses:
Year Ended December 31,
(Dollars in Thousands) 2000 1999 1998 1997 1996
--------------------- ------ ------ ------ ------ ------
Balance Beginning of Period 9,900 11,100 10,200 9,400 8,500
Loans Charged Off
Domestic
Commercial, Financial, and Agricultural 7,035 10,599 3,213 1,101 1,977
Real Estate - Construction - - - - -
Real Estate - Mortgage - 174 - 222 -
Installment Loans to Individuals 1,091 783 665 432 539
Lease Financing - - - - -
Recoveries
Domestic
Commercial, Financial, and Agricultural 2,138 802 1,372 281 781
Real Estate - Construction - - - - -
Real Estate - Mortgage - - - - 201
Installment Loans to Individuals 390 166 188 108 119
Lease Financing - - - - -
------ ------ ------ ------ -----
Net Loans Charged Off 5,598 10,588 2,318 1,366 1,415
Additions Charged to Operations 6,298 9,388 3,218 2,166 2,315
------ ------ ------ ------ -----
Balance End of Period 10,600 9,900 11,100 10,200 9,400
====== ====== ====== ====== =====
Ratio of Net Loans Charged Off to
Average Total Loans Outstanding 0.73% 1.52% 0.35% 0.23% 0.28%
====== ====== ====== ====== =====
13
14
The following is an analysis of the balances in the allowance for loan losses:
Year Ended December 31,
-------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ -------------------------
$ % of loans $ % of loans $ % of loans
(Dollars in Thousands) Amount to total loans Amount to total loans Amount to total loans
---------------------- ------------------------ ------------------------ -------------------------
Balance at end of period applicable to:
Domestic
Commercial, Financial, and Agricultural 4,426 19.0% 6,059 22.6% 5,731 25.6%
Real Estate - Construction 185 4.5% 57 3.5% 96 3.9%
Real Estate - Mortgage 5,172 62.8% 3,429 58.6% 4,433 56.7%
Installment Loans to Individuals 817 13.7% 355 15.3% 840 13.8%
Lease Financing - 0.0% - 0.0% - 0.0%
Foreign - 0.0% - 0.0% - 0.0%
------------------ ------------------ ------------------
Total 10,600 100.0% 9,900 100.0% 11,100 100.0%
=================== ================== ==================
Year Ended December 31,
------------------------------------------------------
1997 1996
------------------------ ------------------------
$ % of loans $ % of loans
(Dollars in Thousands) Amount to total loans Amount to total loans
---------------------- ------------------------ ------------------------
Balance at end of period applicable to:
Domestic
Commercial, Financial, and Agricultural 2,662 23.3% 3,322 25.7%
Real Estate - Construction 90 3.4% 79 2.3%
Real Estate - Mortgage 6,866 59.6% 4,942 59.0%
Installment Loans to Individuals 582 13.7% 1,057 13.0%
Lease Financing - 0.0% - 0.0%
Foreign - 0.0% - 0.0%
------------------- -----------------
Total 10,200 100.0% 9,400 100.0%
==================== =================
Each period the provision for loan losses in the income statement results from
the combination of an estimate by Management of loan losses that occurred during
the current period and the ongoing adjustment of prior estimates of losses
occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an extensive
credit risk monitoring process that considers several factors including: current
economic conditions affecting the Bank's customers, the payment performance of
individual large loans and pools of homogeneous small loans, portfolio
seasoning, changes in collateral values, and detailed reviews of specific large
loan relationships. For large loans deemed to be impaired due to an expectation
that all contractual payments will probably not be received, impairment is
measured by comparing the Bank's recorded investment in the loan to the present
value of expected cash flows discounted at the loan's effective interest rate,
the fair value of the collateral, or the loan's observable market price.
Year-end nonperforming assets, which include nonaccrual loans and securities,
and other real estate owned, increased $1,070,562, or 5.5% from 1999 to 2000.
Nonperforming assets as a percent of total loans at year-end decreased from 2.7%
in 1999 to 2.5% in 2000. The Allowance for Loan Losses as a percent of
nonperforming assets at year-end increased from 51.3% in 1999 to 52.0% in 2000.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated statements
of condition. As the specific customer and amount of a loan loss is confirmed by
gathering additional information, taking collateral in full or partial
settlement of the loan, bankruptcy of the borrower, etc., the loan is charged
off, reducing the allowance for loan losses. If, subsequent to a charge off, the
Bank is able to collect additional amounts from the customer or obtain control
of collateral worth more than earlier estimated, a recovery is recorded.
Prior to January 1, 2000, the Bank assessed its Information Technology (IT)
systems, including hardware and software, to ensure that the century date change
would not lead to problems such as system failures or erroneous results in
calculations involving dates. Management also conferred with its third party
vendors and customers to assess their Y2K readiness and tested non-IT systems.
To date, there have not been any significant problems affecting the Bank or any
of its customers or vendors.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Bank faces market risk to the extent that the fair values of its financial
instruments are affected by changes in interest rates. The Bank does not face
market risk due to changes in foreign currency exchange rates, commodity prices,
or equity prices. The asset/liability management process of the Bank seeks to
monitor and manage the amount of interest rate risk. This is accomplished by
analyzing the differences in repricing opportunities for assets and liabilities
(gap analysis, as shown in Item 7), by simulating operating results under
varying interest rate scenarios, and by estimating the change in the net present
value of the Bank's assets and liabilities due to interest rate changes.
14
15
Each month, the Asset/Liability Committee (ALCO), which includes the senior
management of the Bank, estimates the effect of interest rate changes on the
projected net interest income of the Bank. The sensitivity of the Bank's net
interest income to changes in interest rates is measured by using a computer
based simulation model to estimate the impact on earnings of a gradual increase
or decrease of 100 basis points in the prime rate. The net interest income
projections are compared to a base case projection, which assumes no changes in
interest rates. The table below summarizes the net interest income sensitivity
as of December 31, 2000.
Base Rising Falling
(Dollars in Thousands) Projection Rates Rates
---------------------- ---------- ------- -------
Year-End 2000 12 Month Projection
- ---------------------------------
Interest Income 104,635 106,667 102,471
Interest Expense 53,190 54,952 50,620
-------- ------- -------
Net Interest Income 51,445 51,715 51,851
Percent Change From Base Projection 0.5% 0.8%
ALCO Policy Limit (+/-) 5.0% 5.0%
Base Rising Falling
(Dollars in Thousands) Projection Rates Rates
---------------------- ---------- ------- -------
Year-End 1999 12 Month Projection
- ---------------------------------
Interest Income 93,254 95,629 91,630
Interest Expense 43,367 44,346 42,757
-------- ------- -------
Net Interest Income 49,887 51,283 48,873
Percent Change From Base Projection 2.8% -2.0%
ALCO Policy Limit (+/-) 5.0% 5.0%
The Bank's Asset/Liability Committee has established limits in the acceptable
amount of interest rate risk, as measured by the change in the Bank's projected
net interest income, in its policy. Throughout 2000, the estimated variability
of the net interest income was within the Bank's established policy limits.
The ALCO also monitors interest rate risk by estimating the effect of changes in
interest rates on the economic value of the Bank's equity each month. The actual
economic value of the Bank's equity is first determined by subtracting the fair
value of the Bank's liabilities from the fair value of the Bank's assets. The
fair values are determined in accordance with Statement of Financial Accounting
Standards Number 107, Disclosures about Fair Value of Financial Instruments. The
Bank estimates the interest rate risk by calculating the effect of market
interest rate shocks on the economic value of its equity. For this analysis, the
Bank assumes immediate increases or decreases of 100 and 200 basis points in the
prime lending rate. The discount rates used to determine the present values of
the loans and deposits, as well as the prepayment rates for the loans, are based
on Management's expectations of the effect of the
15
16
rate shock on the market for loans and deposits. The table below summarizes the
amount of interest rate risk to the fair value of the Bank's assets and
liabilities and to the economic value of the Bank's equity.
Fair Value at December 31, 2000
------------------------------------------------------------------------------------
Rates
------------------------------------------------------------------------------------
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
---------------------- ------------------------------------------------------------------------------------
Assets 1,383,278 1,350,927 1,320,574 1,415,890 1,447,662
Liabilities 1,178,879 1,164,603 1,150,647 1,193,475 1,208,405
------------------------------------------------------------------------------------
Stockholders' Equity 204,399 186,324 169,927 222,415 239,257
Change in Equity -8.8% -16.9% 8.8% 17.1%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
Fair Value at December 31, 1999
------------------------------------------------------------------------------------
Rates
------------------------------------------------------------------------------------
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
---------------------- ------------------------------------------------------------------------------------
Assets 1,204,367 1,178,232 1,153,282 1,231,029 1,256,946
Liabilities 1,069,491 1,057,902 1,046,579 1,081,352 1,093,486
------------------------------------------------------------------------------------
Stockholders' Equity 134,876 120,330 106,703 149,677 163,460
Change in Equity -10.8% -20.9% 11.0% 21.2%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
The Bank's Asset/Liability Committee has established limits in the acceptable
amount of interest rate risk, as measured by the change in economic value of the
Bank's equity, in its policy. Throughout 2000, the estimated variability of the
economic value of equity was within the Bank's established policy limits.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
See Pages 17 - 36
16
17
Report of Independent Public Accountants
To the Stockholders and Board of Directors,
MBT FINANCIAL CORP.:
We have audited the accompanying consolidated statements of condition of MBT
FINANCIAL CORP. (a Michigan corporation) as of December 31, 2000 and 1999, and
the related consolidated statements of income, cash flows, and changes in
stockholders' equity for each of the three years in the period ended December
31, 2000. These consolidated financial statements and the schedules referred to
below are the responsibility of the Bank's Management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MBT FINANCIAL CORP. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules on pages 53 through 55 are presented
for purposes of complying with the rules and regulations of the Securities and
Exchange Commission and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Detroit, Michigan,
January 16, 2001.
CONSOLIDATED STATEMENTS OF CONDITION
17
18
DECEMBER 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 7) $ 39,540,039 $ 27,129,665
Federal funds sold 30,000,000 10,700,000
Investment securities (Notes 1, 4, and 5)-
Held to maturity-
Obligations of U.S. Government agencies (Market value
of $143,619,761 and $141,169,675) 145,789,314 150,399,055
Obligations of states and political subdivisions (Market
value of $134,663,547 and $152,505,653) 132,006,403 152,790,883
Other securities (Market value of $56,164,298
and $8,845,103) 56,188,317 8,955,703
Available for sale-
Obligations of U.S. Government agencies 13,190,799 33,482,440
Obligations of states and political subdivisions - 7,156,929
Other securities 105,230,516 96,794,073
Loans (Notes 2 and 5) 812,122,817 703,381,905
Allowance for loan losses (Note 3) (10,600,000) (9,900,000)
Bank premises and equipment (Note 1) 13,689,558 11,761,277
Other real estate owned (Note 1) 2,672,624 2,513,491
Interest receivable and other assets (Notes 6 and 15) 39,555,791 21,311,162
- ------------------------------------------------------------------------------------------------------------
Total assets $1,379,386,178 $1,216,476,583
============================================================================================================
LIABILITIES
Non-interest bearing demand deposits $ 132,388,525 $ 128,816,650
Interest bearing demand deposits 64,747,991 65,226,636
Savings deposits 329,331,534 319,966,245
Other time deposits (Notes 5 and 10) 468,128,395 430,066,684
- ------------------------------------------------------------------------------------------------------------
Total deposits (Note 10) $ 994,596,445 $ 944,076,215
Federal Home Loan Bank advances (Note 5) 225,000,000 125,000,000
Interest payable and other liabilities (Note 9) 8,834,770 7,752,876
- ------------------------------------------------------------------------------------------------------------
Total liabilities $1,228,431,215 $1,076,829,091
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Cumulative preferred stock ($100 par value; 4 1/2% non-voting;
authorized and outstanding - 2,000 shares as of
December 31, 1999) (Note 8) $ - $ 200,000
Common stock (no par value; 30,000,000 shares authorized,
20,000,000 shares outstanding) (Note 8) - -
Surplus (Note 8) 62,500,000 62,500,000
Undivided profits (Note 8) 92,084,279 78,315,956
Net unrealized losses on securities
available for sale (Note 4) (3,629,316) (1,368,464)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity (Note 11) $ 150,954,963 $ 139,647,492
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,379,386,178 $1,216,476,583
============================================================================================================
The accompanying notes are an integral part of these statements.
18
19
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $70,643,404 $61,238,028 $60,405,254
Interest on investment securities-
U.S. Treasury securities - - 279,051
Obligations of U.S. Government agencies 12,169,347 9,419,491 4,960,159
Obligations of states and
political subdivisions 7,301,903 8,258,158 7,675,082
Other securities 9,144,849 4,053,742 3,989,862
Interest on Federal funds sold 310,161 209,462 456,867
- -------------------------------------------------------------------------------------------------------
Total interest income $99,569,664 $83,178,881 $77,766,275
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits (Note 10) $39,651,368 $36,943,501 $34,203,473
Interest on borrowed funds 10,029,624 1,346,920 -
- -------------------------------------------------------------------------------------------------------
Total interest expense $49,680,992 $38,290,421 $34,203,473
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $49,888,672 $44,888,460 $43,562,802
PROVISION FOR LOAN LOSSES (Note 3) 6,298,461 9,388,041 3,217,544
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $43,590,211 $35,500,419 $40,345,258
- -------------------------------------------------------------------------------------------------------
OTHER INCOME
Income from trust services $ 3,908,510 $ 3,252,875 $ 3,740,267
Service charges on deposit accounts 2,142,901 1,849,863 1,788,860
Security gains 18,237 17,670 181,007
Other (Note 15) 2,639,054 1,799,608 1,254,848
- -------------------------------------------------------------------------------------------------------
Total other income $ 8,708,702 $ 6,920,016 $ 6,964,982
- -------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits (Note 9) $12,155,915 $10,719,634 $17,047,731
Occupancy expense 2,176,110 1,929,017 1,773,623
Other 8,762,181 7,495,090 6,626,417
- -------------------------------------------------------------------------------------------------------
Total other expenses $23,094,206 $20,143,741 $25,447,771
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $29,204,707 $22,276,694 $21,862,469
PROVISION FOR INCOME TAXES (NOTE 6) 8,031,184 5,207,362 5,301,810
- -------------------------------------------------------------------------------------------------------
Net Income $21,173,523 $17,069,332 $16,560,659
- -------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (Note 1) $18,912,671 $15,639,241 $16,790,186
- -------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (after deducting
preferred stock dividends) (Notes 8 and 12) $ 1.06 $ 0.85 $ 0.83
- -------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE (Note 12) $ 1.06 $ 0.85 $ 0.83
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
19
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Interest and fees received $ 99,953,089 $ 80,142,949 $ 76,992,619
Other income received 8,690,464 6,902,346 6,783,974
Miscellaneous payments (3,696,094) (55,985) (156,748)
Interest paid (49,222,123) (37,828,114) (34,073,156)
Cash paid to employees and others (34,184,043) (36,945,784) (16,335,612)
Income taxes paid (6,738,000) (1,138,785) (8,267,617)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities held to maturity $ 113,817,025 $ 473,624,059 $ 557,617,089
Proceeds from maturities of investment
securities available for sale 15,498,313 5,112,100 26,054,609
Proceeds from sales of investment
securities available for sale 22,698,308 - -
Net increase in loans (116,259,518) (25,106,838) (64,817,273)
Proceeds from sales of other real estate owned 1,341,237 2,550,915 910,891
Proceeds from sales of other assets 11,000 - 7,500
Purchase of investment securities held to maturity (135,994,735) (501,530,247) (644,603,616)
Purchase of investment securities available for sale (22,586,160) (98,582,395) (9,000,000)
Purchase of bank premises and equipment (3,733,419) (3,832,992) (1,617,231)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities $(125,207,949) $(147,765,398) $(135,448,031)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Net increase in demand, interest bearing
demand, and savings deposits $ 12,458,519 $ 2,783,201 $ 86,389,043
Net increase in other time deposits 38,061,711 24,248,138 28,590,818
Net decrease in Federal funds purchased - (2,000,000) -
Net increase in Federal Home Loan Bank advances 100,000,000 125,000,000 -
Redemption of preferred stock (200,000) - -
Dividends paid (8,205,200) (6,609,000) (5,409,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 142,115,030 $ 143,422,339 $ 109,570,861
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 31,710,374 $ 6,733,568 $ (933,710)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR (Note 1) 37,829,665 31,096,097 32,029,807
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 69,540,039 $ 37,829,665 $ 31,096,097
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
20
21
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 21,173,523 $ 17,069,332 $ 16,560,659
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,805,138 1,422,238 1,197,618
Provision for loan losses 6,298,461 9,388,041 3,217,544
(Increase) decrease in net deferred Federal income tax asset (1,519,014) 4,778,545 (2,742,344)
Amortization of investment premium and discount 280,986 435,995 (148,808)
Net increase (decrease) in interest payable and other liabilities 1,081,894 (17,253,493) 8,289,534
Net increase in interest receivable and other assets (16,725,615) (4,965,123) (846,135)
Net increase in deferred loan fees 358,300 46,714 3,899
Other 2,049,620 154,378 (588,507)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Transfer of loans to other real estate owned $ 1,500,370 $ 2,094,007 $ 3,069,290
- --------------------------------------------------------------------------------------------------------------------------------
Transfer of loans to other assets $ 61,475 $ 2,000 $ -
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
21
22
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Other Total
Preferred Common Undivided Comprehensive Stockholders'
Stock Stock Surplus Profits Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
January 1, 1998 $ 200,000 $ - $ 31,250,000 $ 88,953,965 $ (167,900) $ 120,236,065
Add (Deduct)
Net income for the year 16,560,659 16,560,659
Transfer of undivided
profits to surplus (Note 8) 31,250,000 (31,250,000) -
Net unrealized gains on securities
available for sale, net of tax (Note 4) 229,527 229,527
Dividends declared-
Preferred ($4.50 per share) (9,000) (9,000)
Common ($.29 per share*) (5,800,000) (5,800,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1998 $ 200,000 $ - $ 62,500,000 $ 68,455,624 $ 61,627 $ 131,217,251
Add (Deduct)
Net income for the year 17,069,332 17,069,332
Net unrealized losses on securities
available for sale, net of tax (Note 4) (1,430,091) (1,430,091)
Dividends declared-
Preferred ($4.50 per share) (9,000) (9,000)
Common ($.36 per share*) (7,200,000) (7,200,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1999 $ 200,000 $ - $ 62,500,000 $ 78,315,956 $ (1,368,464) $ 139,647,492
Add (Deduct)
Net income for the year 21,173,523 21,173,523
Net unrealized losses on securities
available for sale, net of tax (Note 4) (2,260,852) (2,260,852)
Redemption of preferred stock (Note 8) (200,000) (200,000)
Dividends declared-
Preferred ($2.60 per share) (5,200) (5,200)
Common ($.37 per share*) (7,400,000) (7,400,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 2000 $ - $ - $ 62,500,000 $ 92,084,279 $ (3,629,316) $ 150,954,963
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of MBT Financial
Corp. (the "Corporation") and its subsidiary, Monroe Bank & Trust (the
"Bank"). The Bank operates twenty-one offices in Monroe County, Michigan
and one office in Wayne County, Michigan. The Bank's primary source of
revenue is from providing loans to customers, who are predominantly small
and middle-market businesses and middle-income individuals.
At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust,
shareholders approved a proposal that resulted in the Bank reorganizing
into a one-bank holding company. The holding company formation involved
merging Monroe Bank & Trust with Monroe Interim Bank, a state chartered
bank organized solely for the purpose of this transaction. The merger of
Monroe Bank & Trust and Monroe Interim Bank, a combination of entities
under common control, was treated in a manner similar to a pooling of
interests. The financial information for all prior periods was restated in
the consolidated financial statements for MBT Financial Corp. to present
the statements as if the merger had been in effect for all periods
presented.
The reorganization resulted in an exchange of the Monroe Bank & Trust
common stock for MBT Financial Corp. common stock. The exchange rate was
two shares of MBT Financial Corp. for each share of Monroe Bank & Trust.
Monroe Bank & Trust previously had 10,000,000 common shares authorized and
outstanding, with a par value of $3.125 per share. MBT Financial Corp. has
30,000,000 shares authorized, of which 20,000,000 are outstanding. The MBT
Financial Corp. common stock has no par value. Monroe Bank & Trust is now a
wholly owned subsidiary of MBT Financial Corp., a registered bank holding
company.
The accounting and reporting policies of the Bank conform to practice
within the banking industry and are in accordance with accounting
principles generally accepted in the United States. Preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiary. All material intercompany transactions and
balances have been eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
INVESTMENT SECURITIES
Investment securities that are "held to maturity" are stated at cost,
adjusted for accumulated amortization of premium and accretion of discount.
The Bank has the intention and, in Management's opinion, the ability to
hold these investment securities until maturity. Investment securities that
are "available for sale" are stated at estimated market value, with the
related unrealized gains and losses reported as an amount, net of taxes, as
a separate component of stockholders' equity.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation of $16,510,468 in 2000 and $14,705,330 in 1999. The Bank uses
both straight-line and declining-balance methods to provide for
depreciation, which is charged to operations over the estimated useful
lives of the assets. Depreciation expense amounted to $1,805,138 in 2000,
$1,422,238 in 1999, and $1,197,618 in 1998.
Expenditures for maintenance and repairs are charged to operations as
incurred. The cost of assets retired and the related accumulated
depreciation are eliminated from the accounts and the resulting gains or
losses are reflected in operations in the year the assets are retired.
OTHER REAL ESTATE OWNED
23
24
Other real estate owned is carried at the lesser of 80% of the appraised
value of the property or the principal balance of the loan at the time of
foreclosure.
COMPREHENSIVE INCOME
Comprehensive Income is comprised of Net Income and Other Comprehensive
Income, which consists of the change in net unrealized gains (losses) on
securities available for sale, net of tax.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, time deposits with other banks with maturities of
less than three months, and Federal funds sold.
(2) LOANS
The Bank grants commercial, consumer, and mortgage loans primarily to
customers in Monroe County, Michigan and surrounding areas. Although the
Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on the automotive,
manufacturing, and real estate development economic sectors.
Loans at December 31 consist of the following:
2000 1999
- -------------------------------------------------------------------------------------------------
Real estate loans $ 547,285,414 $ 437,867,480
Loans to finance agricultural production and
other loans to farmers 2,831,759 2,086,851
Commercial and industrial loans 151,734,230 157,381,730
Loans to individuals for household, family,
and other personal expenditures 111,504,134 107,411,553
All other loans (including overdrafts) 609,274 117,985
- -------------------------------------------------------------------------------------------------
Total loans, gross $ 813,964,811 $ 704,865,599
Less: Deferred loan fees 1,841,994 1,483,694
- -------------------------------------------------------------------------------------------------
Total loans, net of deferred loan fees $ 812,122,817 $ 703,381,905
Less: Allowance for loan losses 10,600,000 9,900,000
- -------------------------------------------------------------------------------------------------
$ 801,522,817 $ 693,481,905
- -------------------------------------------------------------------------------------------------
Loans are placed in a nonaccrual status when, in the opinion of Management,
the collection of additional interest is doubtful. Loans in a nonaccrual
status amounted to $17,161,449 and $16,791,776 at December 31, 2000 and
1999, respectively. In the opinion of Management, all impaired loans are in
nonaccrual status. Allowances for these loans are included in the allowance
for loan losses. All cash received on nonaccrual loans is applied to the
principal balance.
Included in loans are loans to certain officers, directors, and companies
in which such officers and directors have 10 percent or more beneficial
ownership in the aggregate amount of $24,448,451 and $17,112,941 at
December 31, 2000 and 1999, respectively. In 2000, new loans and other
additions amounted to $14,234,463, and repayments and other reductions
amounted to $6,898,953. In Management's judgment, these loans were made on
substantially the same terms and conditions as those made to other
borrowers, and do not represent more than the normal risk of collectibility
or present other unfavorable features.
24
25
(3) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
2000 1999 1998
- -----------------------------------------------------------------------------------------
Balance beginning of year $ 9,900,000 $ 11,100,000 $ 10,200,000
Provision for loan losses 6,298,461 9,388,041 3,217,544
Loans charged off (8,126,386) (11,556,352) (3,877,526)
Recoveries 2,527,925 968,311 1,559,982
- -----------------------------------------------------------------------------------------
Balance end of year $ 10,600,000 $ 9,900,000 $ 11,100,000
- -----------------------------------------------------------------------------------------
Each period the provision for loan losses in the income statement results
from the combination of an estimate by Management of loan losses that
occurred during the current period and the ongoing adjustment of prior
estimates of losses occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an
extensive credit risk monitoring process that considers several factors
including: current economic conditions affecting the Bank's customers, the
payment performance of individual large loans and pools of homogeneous
small loans, portfolio seasoning, changes in collateral values, and
detailed reviews of specific large loan relationships. For large loans
deemed to be impaired due to an expectation that all contractual payments
will probably not be received, impairment is measured by comparing the
Bank's recorded investment in the loan to the present value of expected
cash flows discounted at the loan's effective interest rate, the fair value
of the collateral, or the loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated
statements of condition. As the specific customer and amount of a loan loss
is confirmed by gathering additional information, taking collateral in full
or partial settlement of the loan, bankruptcy of the borrower, etc., the
loan is charged off, reducing the allowance for loan losses. If, subsequent
to a charge off, the Bank is able to collect additional amounts from the
customer or obtain control of collateral worth more than earlier estimated,
a recovery is recorded.
(4) INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as
of December 31, 2000 and 1999 (000's omitted):
HELD TO MATURITY
DECEMBER 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 145,789 $ 295 $ (2,465) $ 143,619
Obligations of States and Political
Subdivisions 132,007 3,265 (608) 134,664
Other Securities 56,188 - (24) 56,164
- -------------------------------------------------------------------------------------------------------
$ 333,984 $ 3,560 $ (3,097) $ 334,447
- -------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 13,126 $ 102 $ (37) $ 13,191
Other Securities 110,879 1,192 (6,841) 105,230
- -------------------------------------------------------------------------------------------------------
$ 124,005 $ 1,294 $ (6,878) $ 118,421
- -------------------------------------------------------------------------------------------------------
25
26
HELD TO MATURITY
DECEMBER 31, 1999
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 150,399 $ - $ (9,229) $ 141,170
Obligations of States and Political
Subdivisions 152,791 1,231 (1,517) 152,505
Other Securities 8,956 7 (118) 8,845
- -----------------------------------------------------------------------------------------------------------
$ 312,146 $ 1,238 $ (10,864) $ 302,520
- -----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 1999
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 34,088 $ - $ (606) $ 33,482
Obligations of States and Political
Subdivisions 6,984 173 - 7,157
Other Securities 98,467 - (1,673) 96,794
- -----------------------------------------------------------------------------------------------------------
$ 139,539 $ 173 $ (2,279) $ 137,433
- -----------------------------------------------------------------------------------------------------------
HELD TO MATURITY
DECEMBER 31, 2000 DECEMBER 31, 1999
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 66,688 $ 66,657 $ 34,096 $ 34,101
1 to 5 years 39,108 39,886 32,604 33,015
5 to 10 years 108,940 110,905 110,326 109,618
Over 10 years 119,248 116,999 135,120 125,786
$ 333,984 $ 334,447 $ 312,146 $ 302,520
- -----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2000 DECEMBER 31, 1999
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 9 $ 9 $ 14,508 $ 14,452
1 to 5 years 66,943 63,615 59,220 58,674
5 to 10 years 43,761 41,400 53,674 52,174
Over 10 years 1,042 1,120 1,058 1,061
Securities with no stated maturity 12,250 12,277 11,079 11,072
- -----------------------------------------------------------------------------------------------------------
$ 124,005 $ 118,421 $ 139,539 $ 137,433
- -----------------------------------------------------------------------------------------------------------
At December 31, 2000, investment securities carried at $66,007,275 were
pledged or set aside to secure public deposits and for other purposes as
required by law.
26
27
At December 31, 2000, Obligations of States and Political Subdivisions
included securities carried at $541,589 that were more than ninety days
past due on their interest payments. These securities are in nonaccrual
status.
The Bank elected early adoption of SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", effective April 1, 1999. The
provisions of SFAS 133 required the Bank to recognize all derivative
instruments as assets or liabilities in its statement of condition and to
report them at their fair value. The provisions of SFAS 133 also allowed
the Bank to reclassify securities that were classified as Held to Maturity
to Available for Sale or Trading. Upon adoption of SFAS 133, the Bank
reclassified certain Held to Maturity Obligations of States and Political
Subdivisions as Available for Sale Obligations of States and Political
Subdivisions. The value of the securities reclassified on April 1, 1999 was
$7,990,185.
(5) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain of the Bank's assets and liabilities which are financial
instruments have fair values which differ from their carrying values in the
accompanying consolidated statements of condition. These fair values, along
with the methods and assumptions used to estimate such fair values, are
discussed below. The fair values of all financial instruments not discussed
below are estimated to be equal to their carrying values as of December 31,
2000 and 1999.
INVESTMENT SECURITIES
Fair value for the Bank's investment securities was determined using the
market value at December 31, 2000 and 1999. These Estimated Market Values
are disclosed in Note 4.
LOANS, NET
The fair value of all loans is estimated by discounting the future cash
flows associated with the loans, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. The estimated fair value of loans at December
31, 2000, net of the allowance for loan losses, is $796,811,809, compared
to the carrying value of $801,522,817. The estimated fair value of loans at
December 31, 1999, net of the allowance for loan losses, was $686,716,607,
compared to the carrying value of $693,481,905.
OTHER TIME DEPOSITS
The fair value of other time deposits, consisting of fixed maturity
certificates of deposit, is estimated by discounting the related cash flows
using the rates currently offered for deposits of similar remaining
maturities. The estimated fair value of other time deposits at December 31,
2000 is $466,499,557, compared to the carrying value of $468,128,395. The
estimated fair value of other time deposits at December 31, 1999 was
$428,520,407, compared to the carrying value of $430,066,684.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of Federal Home Loan Bank advances is estimated by
discounting the related cash flows using the rates at which the Bank would
be able to obtain replacement advances for the remaining maturities. The
estimated fair value of Federal Home Loan Bank advances at December 31,
2000 is $224,268,617, compared to the carrying value of $225,000,000. The
estimated fair value of Federal Home Loan Bank advances at December 31,
1999 was $123,587,003, compared to the carrying value of $125,000,000.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair values of commitments to extend credit and standby letters of
credit and financial guarantees written are estimated using the fees
currently charged to engage into similar agreements. The fair values of
these instruments are not significant.
27
28
(6) FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed. The Corporation
and the Bank file a consolidated Federal income tax return.
The provision for Federal income taxes consists of the following:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Federal income taxes currently payable (refundable) $ 8,332,184 $ (340,438) $ 8,167,610
Provision (credit) for deferred taxes on:
Book (over) under tax loan loss provision (245,000) 420,000 (315,000)
Accretion of bond discount 164,000 65,000 (27,000)
Net deferred loan origination fees (125,000) (16,000) (1,000)
Write down of other real estate - - 105,000
Nonaccrual loan interest income (387,000) (196,000) -
Accrued postretirement benefits (42,000) (44,000) (42,000)
Tax under book depreciation (305,000) (93,000) (54,000)
Alternative minimum tax 665,000 (665,000) -
Deferred compensation - 6,074,000 (2,526,000)
Other (26,000) 2,800 (5,800)
- ------------------------------------------------------------------------------------------------------------------------------
$ 8,031,184 $ 5,207,362 $ 5,301,810
- ------------------------------------------------------------------------------------------------------------------------------
The effective tax rate differs from the statutory rate applicable to
corporations as a result of permanent differences between accounting and
taxable income as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Statutory rate 35.0 % 35.0 % 35.0 %
Michigan municipal interest income (2.9) (4.8) (4.4)
Non-Michigan municipal interest income (4.4) (6.4) (6.2)
Other (0.2) (0.4) (0.2)
- -------------------------------------------------------------------------------------------------------------
Effective tax rate 27.5 % 23.4 % 24.2 %
- -------------------------------------------------------------------------------------------------------------
The components of the net deferred Federal income tax asset (included in
Interest Receivable and Other Assets on the accompanying consolidated
statements of condition) at December 31 are as follows:
2000 1999
- -------------------------------------------------------------------------------------------------------------
Deferred Federal income tax assets:
Allowance for loan losses $ 3,710,000 $ 3,465,000
Net deferred loan origination fees 644,000 519,000
Bank premises and equipment basis differences 797,000 492,000
Nonaccrual loan interest income 583,000 196,000
Net unrealized losses on securities available for sale 1,954,000 736,000
Accrued postretirement benefits 334,000 292,000
Alternative minimum tax - 665,000
Other 59,000 33,000
- -------------------------------------------------------------------------------------------------------------
$ 8,081,000 $ 6,398,000
Deferred Federal income tax liabilities:
Accretion of bond discount $ (373,000) $ (209,000)
- -------------------------------------------------------------------------------------------------------------
$ (373,000) $ (209,000)
- -------------------------------------------------------------------------------------------------------------
Net deferred Federal income tax asset $ 7,708,000 $ 6,189,000
- -------------------------------------------------------------------------------------------------------------
28
29
(7) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required by regulatory agencies to maintain legal reserve
requirements based on the level of balances in deposit categories. Cash
balances restricted from usage due to these requirements were $12,698,000
and $12,938,000 at December 31, 2000 and 1999, respectively.
(8) STOCKHOLDERS' EQUITY
On December 21, 2000, the Corporation's Board of Directors authorized the
repurchase of up to 2 million shares of MBT Financial Corp. common stock
during the two-year period beginning January 2, 2001.
On July 1, 2000, the Bank merged with Monroe Interim Bank, becoming a
wholly owned subsidiary of the Corporation. The Corporation has 30,000,000
common shares authorized, with no par value. As of December 31, 2000,
20,000,000 were issued and outstanding.
On February 29, 2000, the Bank redeemed its preferred stock. Preferred
stock consisted of 2,000 shares of $100 par value, non-voting, cumulative
preferred stock. The preferred stock was redeemed at its par value, plus
accrued dividends.
On April 2, 1998, the Bank's Board of Directors approved the transfer of
$31,250,000 to capital surplus fom undivided profits.
(9) RETIREMENT PLANS
In 2000, the Bank implemented a retirement plan that includes both a money
purchase pension plan, as well as a voluntary profit sharing 401(k) plan
for all employees who meet certain age and length of service eligibility
requirements. The Bank contributes an amount equal to four percent of the
employee's base salary to all eligible employees of the money purchase
plan. For the 401(k) plan, an employee may contribute up to ten percent of
his or her base salary, with the Bank matching the contribution up to the
first six percent of the employee's annual contribution. Depending on the
Bank's profitability, an additional profit sharing contribution may be made
by the Bank to the 401(k) plan. The total retirement plan expense was
$799,870 for the year ended December 31, 2000. This included a three
percent profit sharing contribution for the year.
In 1999 and 1998 the Bank had a profit sharing plan for all employees who
met certain age and length of service eligibility requirements. An employee
could contribute a minimum of six percent, but not more than ten percent of
annual base salary, while the Bank`s contribution was fifteen percent of
the employee's annual base salary. The expense attributable to the Bank's
profit sharing plan was $609,142 in 1999 and $585,470 in 1998.
Through October 14, 1998, the Bank maintained a deferred compensation plan
for certain key officers under which the officers could defer a portion of
their compensation in exchange for certain phantom stock rights. The value
of the rights exchanged was equal to the average trading price for the
month prior to exchange. The phantom stock rights entitled the holder to
receive the benefit of all cash dividends on the common stock as well as
the appreciation of that stock. The plan was terminated in October, 1998
upon approval of the Board of Directors. The expense related to the plan
was approximately $7,234,000 in 1998. The total liability relating to the
plan as of termination was approximately $17,356,000, which was distributed
in the first quarter of 1999.
The Bank has a postretirement benefit plan that generally provides for the
continuation of medical benefits for all employees who retire from the Bank
at age 55 or older, upon meeting certain length of service eligibility
requirements. The Bank does not fund its postretirement benefit obligation.
Rather, payments are made as costs are incurred by covered retirees. The
amount of benefits paid under the postretirement benefit plan was $64,417
in 2000, $58,826 in 1999, and $42,222 in 1998.
A reconciliation of the accumulated postretirement benefit obligation
("APBO") to the amounts recorded in the consolidated statements of
condition at December 31 is as follows:
2000 1999
- -------------------------------------------------------------------------------------------------------------
APBO $ 1,426,448 $ 1,282,700
Unrecognized net transition obligation (643,085) (696,675)
Unrecognized prior service costs (51,574) (55,408)
Unrecognized net gain 214,373 302,273
- -------------------------------------------------------------------------------------------------------------
Liability recorded in the consolidated statements of condition $ 946,162 $ 832,890
- -------------------------------------------------------------------------------------------------------------
29
30
The changes recorded in the accumulated postretirement benefit obligation
were as follows:
2000 1999
--------------------------------------------------------------------------------
APBO at beginning of year $ 1,282,700 $ 1,363,873
Service cost 38,952 40,722
Interest cost 99,307 89,085
Unrecognized prior service costs -- 55,408
Actuarial (gain) loss 69,906 (207,562)
Benefits paid during year (64,417) (58,826)
--------------------------------------------------------------------------------
APBO at end of year $ 1,426,448 $ 1,282,700
================================================================================
Components of the Bank's postretirement benefit expense were as follows:
2000 1999 1998
--------------------------------------------------------------------------------
Service cost $ 38,952 $ 40,722 $ 35,204
Interest cost 99,307 89,085 82,601
Amortization of transition obligation 53,590 53,590 53,590
Prior service costs 3,834 -- --
Amortization of gains (17,994) -- (9,796)
--------------------------------------------------------------------------------
Net postretirement benefit expense $ 177,689 $183,397 $ 161,599
================================================================================
The APBO as of December 31, 2000 and 1999 was calculated using assumed
discount rates of 7.50% and 7.75%, respectively. Health care costs were
assumed to rise 6.70% in 2001, with the assumed rate of increase decreasing
uniformly each year thereafter to a minimum of 5.50% in 2005 and
thereafter. To illustrate the significance of these assumptions, a rise in
the assumed rate of health care cost increases of 1.00% each year would
change the APBO as of December 31, 2000 by 1.31%, or $18,739.
(10) DEPOSITS
Interest expense on time certificates of deposit of $100,000 or more in the
year 2000 amounted to $14,421,190, as compared with $12,411,822 in 1999 and
$11,071,564 in 1998. At December 31, 2000, the balance of time certificates
of deposit of $100,000 or more was $221,421,310, as compared with
$206,890,777 at December 31, 1999.
(11) REGULATORY CAPITAL REQUIREMENTS
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory (and possibly
additional discretionary) actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation must meet specific capital
guidelines that involve quantitative measures of the Corporation's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Corporation's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth
in the accompanying tables) of Total and Tier I capital to risk weighted
assets, and of Tier I capital to average assets.
As of December 31, 2000, the Corporation's capital ratios exceeded the
required minimums to be considered well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Corporation must maintain minimum Total risk based, Tier I
risk based, and Tier I leverage ratios as set forth in the tables. There
are no conditions or events since
30
31
December 31, 2000 that Management believes have changed the Corporation's
category. Management believes, as of December 31, 2000, that the
Corporation meets all capital adequacy requirements to which it is subject.
The Corporation's actual capital amounts and ratios are also presented in
the tables.
AS OF DECEMBER 31, 2000
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $164,730 16.4% > $80,377 > 8.0% > $100,472 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $154,118 15.3% > $40,189 > 4.0% > $ 60,283 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $154,118 11.6% > $52,957 > 4.0% > $ 66,197 > 5.0%
- - - -
AS OF DECEMBER 31, 1999
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $150,388 17.6% > $68,236 > 8.0% > $ 85,295 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $140,288 16.4% > $34,118 > 4.0% > $ 51,177 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $140,288 12.0% > $46,821 > 4.0% > $ 58,526 > 5.0%
- - - -
31
32
(12) EARNINGS PER SHARE
The calculation of net income per common share for the years ended December
31 is as follows:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC
Net income $21,173,523 $17,069,332 $16,560,659
Less preferred dividends 5,200 9,000 9,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $21,168,323 $17,060,332 $16,551,659
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 20,000,000 20,000,000 20,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share - basic $ 1.06 $ 0.85 $ 0.83
====================================================================================================================================
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTED
Net income $21,173,523 $17,069,332 $16,560,659
Less preferred dividends 5,200 9,000 9,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $21,168,323 $17,060,332 $16,551,659
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 20,000,000 20,000,000 20,000,000
Stock option adjustment -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding - diluted 20,000,000 20,000,000 20,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted $ 1.06 $ 0.85 $ 0.83
====================================================================================================================================
On July 1, 2000, the Corporation issued options for 126,600 shares of its
common stock to certain key executives of the Bank in accordance with the
Long-Term Incentive Compensation Plan that was approved by shareholders at
the Annual Meeting of Shareholders on April 6, 2000. The options were
granted at the price of $18.125, which was the fair market value of the
Corporation's common stock on the date the options were granted. The
average market value of the stock during 2000 was $16.81. The options
granted as of December 31, 2000 have an anti-dilutive effect on the
calculation of earnings per share, and therefore have not been included.
(13) STOCK-BASED COMPENSATION PLAN
The Long-Term Incentive Compensation Plan approved by shareholders at the
April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust
authorized the Board of Directors to grant nonqualified stock options to
key employees of the Bank. Such grants may be made until January 2, 2010
for up to 1,000,000 shares of the Corporation's common stock. The amount
that may be awarded to any one individual is limited to 100,000 shares in
any one calendar year.
Stock options granted under the plan have exercise prices equal to the fair
market value at the date of grant. Options granted under the plan may be
exercised for a period of no more than ten years from the date of grant.
One-third of the options granted in 2000 vest annually, beginning December
31, 2000.
The Corporation applies the intrinsic value method of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock plans as allowed under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
stock options granted in 2000 been determined consistent with the fair
value method of SFAS No. 123, pro forma net income for the year ended
December 31, 2000 would have been $21,082,289, basic earnings per share
would have been $1.05, and diluted earnings per share would have been
$1.05, compared to the reported net income of $21,173,523, basic earnings
per share of $1.06, and diluted earnings per share of $1.06.
During the year ended December 31, 2000, options were granted for 126,600
shares with an exercise price of $18.125. No options were exercised,
cancelled, or lapsed, leaving options on 126,600 shares
32
33
outstanding at an exercise price of $18.125 as of December 31, 2000. Of the
options outstanding, 42,203 were exercisable on December 31, 2000 at a
price of $18.125.
(14) PARENT COMPANY
Condensed parent company financial statements, which include transactions
with the subsidiary are as follows:
BALANCE SHEET
DECEMBER 31,
2000
---------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 2,252,108
Investment in subsidiary bank 150,830,855
---------------------------------------------------------------------------
Total assets $153,082,963
===========================================================================
LIABILITIES
Dividends payable and other liabilities $ 2,128,000
---------------------------------------------------------------------------
Total liabilities $ 2,128,000
---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Total stockholders' equity $150,954,963
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $153,082,963
===========================================================================
STATEMENT OF INCOME
Year Ended
December 31,
2000
---------------------------------------------------------------------------
INCOME
Dividends from subsidiary bank $ 8,455,200
---------------------------------------------------------------------------
Total income $ 8,455,200
---------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds $ 3,900
Other expense 193,992
---------------------------------------------------------------------------
Total expense $ 197,892
---------------------------------------------------------------------------
Income before tax and equity in undistributed
net income of subsidiary bank $ 8,257,308
Income tax benefit (72,000)
---------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary bank $ 8,329,308
Equity in undistributed net income
of subsidiary bank 12,844,215
---------------------------------------------------------------------------
NET INCOME $ 21,173,523
===========================================================================
33
34
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
2000
---------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 21,173,523
Equity in undistributed net income of subsidiary bank (12,844,215)
Net decrease in other liabilities (872,000)
Net decrease in other assets 3,000,000
---------------------------------------------------------------------------
Net cash provided by operating activities $ 10,457,308
---------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings $ 150,000
Repayments of short-term borrowings (150,000)
Dividends paid (8,205,200)
---------------------------------------------------------------------------
Net cash used for financing activities $ (8,205,200)
---------------------------------------------------------------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 2,252,108
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR --
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,252,108
===========================================================================
Under current regulations, the Bank is limited in the amount it may loan to
the Corporation. Loans to the Corporation may not exceed ten percent of the
Bank's capital stock, surplus, and undivided profits plus the allowance for
loan losses. Loans from the Bank to the Corporation are required to be
collateralized.
Federal and state banking laws and regulations place certain restrictions
on the amount of dividends a bank may make to its parent company. The Bank
can pay dividends of $23,504,547 in 2001, in addition to its 2001 net
income, without regulatory approval.
(15) INTEREST RECEIVABLE AND OTHER ASSETS
The Bank includes the cash surrender value of Bank Owned Life Insurance
(BOLI) in Interest Receivable and Other Assets on the accompanying
consolidated statements of condition. The cash surrender value of the BOLI
was $14,222,346 at December 31, 2000. The following is a description of the
components of the BOLI.
DIRECTOR SPLIT-DOLLAR LIFE INSURANCE
On December 21, 2000, the Bank entered into director split-dollar life
insurance agreements with each of its ten directors. Under the split-dollar
agreement, the policy's interests are divided between the Bank and the
director. The Bank owns the cash surrender value, including the accumulated
policy earnings, with each director's beneficiaries receiving a fixed
amount that is based on his or her years of director service and the Bank
receiving the remainder of the death benefits. The Bank fully paid the
premiums for these ten policies with one lump sum premium payment in the
amount of $4,937,000.
The increase in cash surrender value is recorded as "other non-interest
income." The Bank expects to recover in full the cash value from the Bank's
portion of the policies' death benefits. The directors' death
34
35
benefits are $500,000 for director service of less than 3 years, $600,000
for service up to 5 years, $750,000 for service up to 10 years, and
$1,000,000 for director service of 10 years or more.
SALARY CONTINUATION AGREEMENT AND LIFE INSURANCE POLICY
The Bank entered into a Salary Continuation Agreement with Ronald D.
LaBeau, President and Chief Executive Officer of the Bank on December 27,
2000. This agreement provides that the Bank will pay an annual salary
continuation benefit of $139,600 to Mr. LaBeau or his designated
beneficiaries for 10 years after his retirement on or after reaching the
normal retirement age of 65.
At the same time it entered into the Salary Continuation Agreement with Mr.
LaBeau, the Bank purchased an insurance policy on Mr. LaBeau's life, with a
single premium payment of $5,880,000. The Bank expects to recover in full
the premium paid by it from the Bank's portion of the policy's death
benefits. If Mr. LaBeau dies before age 65 while in active service to the
Bank, his beneficiaries will receive life insurance proceeds of $958,837.
If he dies after retirement, his beneficiaries will receive any payments to
which Mr. LaBeau would have been entitled under the Salary Continuation
Agreement, but none of the life insurance proceeds.
The contractual entitlements under the Salary Continuation Agreement are
not funded. These contractual entitlements remain contractual liabilities
of Monroe Bank & Trust, payable upon Mr. LaBeau's termination of
employment. The life insurance policy is in addition to the split-dollar
insurance policy purchased by the Bank on Mr. LaBeau's life for his
service as a director, discussed previously, and the split-dollar insurance
policy discussed in "Executive Group Term Carve Out Split-Dollar Life
Insurance Agreements" below.
EXECUTIVE GROUP TERM CARVE OUT SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
In addition to insurance policies on the lives of the directors and the
President and Chief Executive Officer of the Bank, the Bank owns life
insurance on the lives of several executives, for which the Bank made a
single premium payment of $3,213,421 in the aggregate. The Bank and the
executives share rights to death benefits payable under the policies. An
executive's beneficiaries are entitled to an amount equal to two times the
executive's current annual salary, less $50,000 if he or she dies before
retirement, or equal to his or her annual salary at the time of termination
of employment if he or she dies after retirement. The Bank will receive the
remainder of the death benefits. The Bank expects to recover in full the
premium paid by it from the Bank's portion of the policy's death benefits
or upon the cancellation or purchase of the policies by the executives. The
executives also have life insurance benefits under the Bank's group term
life insurance program for all employees, which pays benefits up to $50,000
to the executive's beneficiaries if he or she dies while employed by the
Bank.
(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for its other lending
activities.
35
36
Financial instruments whose contractual amounts represent off-balance sheet
credit risk at December 31 were as follows:
CONTRACTUAL
AMOUNT
(IN THOUSANDS)
2000 1999
---------------------------------------------------------------------------------------
Commitments to extend credit:
Unused portion of commercial lines of credit $110,558 $74,230
Unused portion of credit card lines of credit 31,217 29,115
Unused portion of home equity lines of credit 12,887 11,985
Standby letters of credit and financial guarantees written 16,942 11,834
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Most
commercial lines of credit are secured by real estate mortgages or other
collateral, generally have fixed expiration dates or other termination
clauses, and require payment of a fee. Since the lines of credit may expire
without being drawn upon, the total committed amounts do not necessarily
represent future cash requirements. Credit card lines of credit have no
established maturity dates, but are payable on demand. Home equity lines of
credit are secured by real estate mortgages, have no established maturity
dates, but are payable on demand. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of the collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on Management's credit evaluation of the counterparty.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements and other business transactions. Approximately $13,564,000 of
the letters of credit expires in 2001, with $3,364,000 extending for two to
five years, and $14,000 which have no specified expiration date. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
36
37
PART III
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS OF THE REGISTRANT
PRINCIPAL OCCUPATION, 12/31/00, DIRECTOR,
(PREVIOUS 5 YEARS) MONROE BANK &
NAME (AGE) & DIRECTORSHIPS TRUST, SINCE
---------- --------------- ------------
Connie S. Cape (50) Health Care Consultant (2000 - present); Vice President 2000
Finance/Chief Financial Officer, Mercy Memorial Hospital (1996
- 2000)
Ronald J. Gruber (61) President, MMB Group, Inc., a venture capital company (1998 - 1995
present); Chief Executive Officer & Managing Director,
Brandenburg Securities, Ltd., an investment banking firm (1996
- 1997)
Thomas M. Huner (51) President, Thomas M. Huner Builders, a home building company 2000
Gerald L. Kiser (54) President and Chief Operating Officer (1997- present), Executive 2000
Vice President and Chief Operating Officer (1997), Vice
President - Operations (1996-1997), Vice President of
Engineering & Development (1996), La-Z-Boy Inc., a furniture
manufacturer; Director, La-Z-Boy Inc.
Ronald D. LaBeau (57) President and Chief Executive Officer (1999 - present), 1998
Executive Vice President & Senior Loan Officer (1998), Vice
President, Loans & Business Development (1996-1997), Monroe
Bank & Trust
Rocque E. Lipford (62) Attorney and Partner, Miller, Canfield, Paddock and Stone, 1981
P.L.C.; Director, La-Z-Boy Inc.
William D. McIntyre, Jr. (65) President & Chief Executive Officer, Allegra Network, LLC, a 1971
franchisor of printing businesses (2000 - present); President &
Chief Executive Officer, American Speedy Printing Centers,
Inc., a printing shop franchisor (1996 - 2000)
Michael J. Miller (52) Chief Executive Officer, Floral City Beverage, a beer wholesaler 2000
Richard A. Sieb (69) President, Sieb Plumbing & Heating Inc. and President, Nortel 1993
Inc., a recreational bowling establishment
Philip P. Swy (47) President, Michigan Tube Swagers & Fabricators, Inc., a 1997
hospitality table and chair manufacturer and marketer
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------
37
38
Ronald D. LaBeau 57 President
Thomas J. Bruck 55 Secretary
Eugene D. Greutman 52 Treasurer
The executive officers of the registrant are all executive officers of the
subsidiary bank and are not compensated by the registrant.
EXECUTIVE OFFICERS OF THE BANK
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------
Ronald D. LaBeau 57 President & Chief Executive Officer
Thomas J. Bruck 55 Executive Vice President & Cashier
James E. Morr 54 Executive Vice President, Senior Trust
Officer & General Counsel
Eugene D. Greutman 52 Senior Vice President Finance
Herbert J. Lock 54 Senior Vice President & Investment Officer
There is no family relationship between any of the Directors or Executive
Officers of the registrant and there is no arrangement or understandings between
any of the Directors or Executive Officers and any other person pursuant to
which he was selected a Director or Executive Officer nor with any respect to
the term which each will serve in the capacities stated previously.
The Executive Officers of the Bank are elected to serve for a term of one year
at the Board of Directors Annual Organizational Meeting, held in April.
Ronald D. LaBeau was President & Chief Executive Officer in 2000 and 1999,
Executive Vice President and Senior Loan Officer in 1998 and Vice President,
Loans and Business Development in 1997 and 1996. Thomas J. Bruck was Executive
Vice President and Cashier in 2000, 1999, and 1998, and Senior Vice President
and Cashier in 1997 and 1996. James E. Morr was Executive Vice President, Senior
Trust Officer and General Counsel in 2000, 1999, and 1998, and Senior Vice
President, Trust Officer and Legal Counsel in 1997 and 1996. Eugene D. Greutman
was Senior Vice President Finance in 2000, and Senior Vice President and
Controller in 1999, 1998, 1997, and 1996. Herbert J. Lock was Senior Vice
President and Investment Officer in 2000 and 1999 and Vice President, Investment
and Trust Officer in 1998, 1997, and 1996.
38
39
Item 11. Executive Compensation
DIRECTOR COMPENSATION
MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors of Monroe Bank &
Trust has twelve monthly meetings, an additional organizational meeting in April
each year, and other special meetings as required. As of December 31, 2000,
Directors other than Mr. LaBeau were paid $750 for each meeting that they
attended and a quarterly retainer fee of $1,500. In addition, the members of the
following board committees receive the compensation indicated for each meeting
attended: Audit Committee, $500 per meeting attended; Compensation Committee,
$250 for each meeting attended; Nominating/Governance Committee, $250 per
meeting attended; Trust Committee, $500 for each meeting attended; and Loan
Review Committee, $500 for each meeting attended. As an employee, Mr. LaBeau
does not receive any compensation for his service as a director.
DIRECTOR SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS. In December 2000, Monroe Bank &
Trust entered into director split-dollar life insurance agreements with each of
its 10 directors. Under the split-dollar agreement, the policy interests are
divided between the bank and the director. The bank owns the cash surrender
value, including the accumulated policy earnings, with each director's
beneficiaries receiving a fixed amount that is based on his or her years of
director service and the bank receiving the remainder of the death benefits. The
bank fully paid the premiums for these ten policies with one lump sum premium
payment in the aggregate of $4,937,000. The bank determined that a lump sum
premium is the most financially advantageous way to secure coverage because the
premium paid is not an expense and the initial cash surrender value equals the
premiums paid. Like any whole life insurance policy, the bank-owned life
insurance policy contract has a cash surrender value that increases over time.
The bank expects to recover in full premiums paid by it and the earnings
credited to the cash value from the bank's portion of the policies' death
benefits. The directors' death benefits are $500,000 for director service of
less than 3 years, $600,000 for service up to 5 years, $750,000 for service up
to 10 years, and $1,000,000 for director service of 10 years or more.
The director's split-dollar death benefit will be paid directly by the insurance
company to the named beneficiary, so the bank has no benefit obligation to the
director. Because it is the intention of the bank to hold the bank-owned life
insurance until the death of the insureds, the increase of cash surrender value
should be tax-free income under current tax law. This compares to the taxable
gain that the bank would recognize for assets in traditional taxable investments
such as U.S. Treasury or agency securities. The collection of death benefits on
the policies, which is likewise currently tax free under current federal and
state income taxation, is expected to further enhance the bank's return.
The Board believes that the bank-owned life insurance used to fund the director
split-dollar plan, the salary continuation agreement for the benefit of the
chief executive officer, and the group term carve-out insurance program
established for executive officers allows the bank to cost effectively implement
compensation programs that serve the vital purpose of attracting, retaining and
rewarding valued director and executive officer service.
LONG-TERM INCENTIVE COMPENSATION PLAN. Directors are eligible to receive grants
of stock options, stock awards and restricted stock under the terms of the
Long-Term Incentive Compensation Plan. For 2001, each non-employee director was
given the opportunity to exchange all or a portion of his or her quarterly cash
retainer for the year for an award of an option to purchase MBT stock under the
Long-Term Incentive Compensation Plan, valued using the Black-Scholes stock
option pricing model. Each non-employee director elected to receive stock
options in place of quarterly cash retainer payments during 2001, with the
exception of Mr. Swy, who elected to exchange eighty percent of his quarterly
cash retainer payments for stock options. Accordingly, each non-employee
director, with the exception of Mr.
39
40
Swy, has been awarded an option to purchase 1,572 common shares at a fair market
value exercise price of $13.94 per share, which option vests on December 31,
2001 and has a term expiring January 2, 2011. Mr. Swy has been awarded an option
to purchase 1,258 common shares on the same terms.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table summarizes the compensation paid
to or earned by the Chief Executive Officer and each of the Bank's four other
most highly compensated Executive Officers during the last three fiscal years.
This information includes compensation of management by Monroe Bank & Trust. On
July 1, 2000, Monroe Bank & Trust was reorganized into a bank holding company
structure, with MBT Financial Corp. as the bank holding company for Monroe Bank
& Trust.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------ ------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($) (A) (B)
- --------------------------- ---- ---------- --------- ----------- -----------
Ronald D. LaBeau ....................................... 2000 $212,250 $226,564 35,000 $23,700
President and Chief Executive Officer 1999 198,962 136,651 0 21,429
1998 67,454 74,233 0 10,006
Thomas J. Bruck ........................................ 2000 $ 88,000 $ 73,843 19,600 $11,440
Executive Vice President and 1999 75,500 74,252 0 11,325
Cashier 1998 75,285 82,855 0 11,293
James E. Morr .......................................... 2000 $ 88,000 $ 73,843 19,600 $11,440
Executive Vice President, Senior 1999 74,000 72,770 0 11,100
Trust Officer and General Counsel 1998 70,962 78,140 0 10,644
Eugene D. Greutman ..................................... 2000 $ 85,000 $ 71,326 19,600 $11,050
Senior Vice President Finance 1999 72,800 71,637 0 10,920
1998 72,589 79,891 0 10,888
Herbert J. Lock ........................................ 2000 $ 74,000 $ 53,224 17,400 $ 9,620
Senior Vice President and Investment 1999 62,400 51,157 0 9,360
Officer 1998 61,331 59,548 0 9,200
(A) The amounts shown in this column for the most recently completed fiscal
year were derived from the following: (1) contributions by Monroe Bank &
Trust to the Monroe Bank & Trust 401(k) Plan: Mr. LaBeau, $15,300; Mr.
Bruck, $7,920; Mr. Morr, $7,920; Mr. Greutman, $7,650; and Mr. Lock,
$6,660; and (2) contributions by Monroe Bank & Trust to the Money Purchase
Pension Plan of Monroe Bank & Trust: Mr. LaBeau, $8,400; Mr. Bruck, $3,520;
Mr. Morr, $3,520; Mr. Greutman, $3,400; and Mr. Lock, $2,960.
(B) In 2000 Monroe Bank & Trust purchased insurance policies on the lives of
the named executive officers. Under the terms of the policies, the Bank is
responsible for all of the premium costs but obtains a security interest in
the insurance proceeds to ensure that the bank is reimbursed when proceeds
become payable or when the policy is cancelled or purchased by the
executive. Allocation of the proceeds is as follows: the Bank is first
reimbursed for premiums paid; the executive then receives the benefits to
which he is entitled; and the Bank receives the remainder, if any. The Bank
made a single premium payment in the aggregate amount of $1,355,000 for the
split dollar policies on the lives of the executive officers named in the
Summary Compensation Table above. The insurance premium costs and
40
41
estimated dollar value of the benefits these policies may represent to the
named executive officers are not reflected in the Summary Compensation
Table. The Bank has purchased two additional separate policies on Mr.
LaBeau's life. See, "Director Compensation--Director Split-Dollar Life
Insurance Agreements" and "Executive Compensation--Salary Continuation
Agreement and Life Insurance Policy" and "Executive Compensation--Executive
Group Term Carve-out Split Dollar Life Insurance Agreements." The insurance
premium costs and estimated dollar value of the benefits these policies may
represent to Mr. LaBeau are likewise not reflected in the Summary
Compensation Table.
OPTION GRANTS TABLE. The following table presents information about stock
options granted during 2000 to the five named executive officers.
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
GRANT DATE VALUE
----------------
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE EXPIRATION ----------------
GRANTED (#)(1) FISCAL YEAR PRICE($/SH) DATE PRESENT
NAME -------------- ------------- ----------- ----------- VALUE(2)
- ------------------------- ----------------
Ronald D. LaBeau 35,000 27.6% $18.125 6/30/10 $173,950
Thomas J. Bruck 19,600 15.5% $18.125 6/30/10 97,412
James E. Morr 19,600 15.5% $18.125 6/30/10 97,412
Eugene D. Greutman 19,600 15.5% $18.125 6/30/10 97,412
Herbert J. Lock 17.400 13.7% $18.125 6/30/10 86,478
(1) All options are nonqualified stock options which vest ratably over a
three-year period commencing December 31, 2000. All options have an
exercise price equal to the fair market value on the date of grant. The
terms of the Corporation's Long-Term Incentive Compensation Plan provide
that all options become exercisable in full in the event of a change in
control as defined in the Long-Term Incentive Compensation Plan, or the
death or disability of the option holder.
(2) The option value was calculated to be $4.97 per share using the
Black-Scholes stock option pricing model. In making this calculation, it
was assumed that the average exercise period was seven years, the
volatility rate was 18.6%, the risk-free rate of return was 6.1%, and the
dividend yield was 2.0%.
OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table presents
information about stock options exercised during 2000 and unexercised stock
options at December 31, 2000 for the five named executive officers.
41
42
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN 2000 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000(#) DECEMBER 31, 2000($)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
Ronald D. LaBeau 0 0 11,667 / 23,333 0 / 0
Thomas J. Bruck 0 0 6,534 / 13,066 0 / 0
James E. Morr 0 0 6,534 / 13,066 0 / 0
Eugene D. Greutman 0 0 6,534 / 13,066 0 / 0
Herbert J. Lock 0 0 5,800 / 11,600 0 / 0
LONG-TERM INCENTIVE COMPENSATION PLAN. MBT and its shareholders have adopted the
Long-Term Incentive Compensation Plan. A total of 1,000,000 shares have been
reserved for issuance under the Long-Term Incentive Compensation Plan, subject
to adjustment if MBT's capitalization changes as a result of a stock split,
stock dividend, recapitalization, merger or similar event. The plan provides for
the award of stock options, stock or restricted stock to any MBT or Monroe Bank
& Trust directors, officers, other key employees and consultants designated by a
committee of MBT's Board consisting of outside directors, which administers the
plan. The committee's authority includes the power to (a) determine who will
receive awards under the plan, (b) establish the terms and conditions of awards
and the schedule on which options become exercisable (or other awards vest), (c)
determine the amount and form of awards, (d) interpret the plan and terms of
awards, and (e) adopt rules for administration of the plan. The only awards made
under the plan to date are awards of stock options.
Stock options awarded under the plan have terms of up to 10 years and may be
nonqualified stock options, meaning stock options that do not qualify under
Section 422 of the Internal Revenue Code for the special tax treatment available
for qualified, or "incentive," stock options. Nonqualified stock options may be
granted to any eligible plan participant, but incentive stock options may be
granted solely to employees of MBT or Monroe Bank & Trust. All stock option
awards made to date are nonqualified stock options. The exercise price of
incentive stock options may not be less than the fair market value of MBT's
common stock on the date of grant, which under the terms of the plan means the
average of the bid and asked prices or the fair market value determined by MBT's
board if bid and asked prices are not available. The plan does not require that
the exercise price of nonqualified stock options be at least equal to the fair
market value on the grant date, but the exercise price of awards made to date is
the fair market value on the date of grant.
An option holder whose service terminates generally has one year after
termination within which he may exercise options, forfeiting any options not
exercised by the end of one year from termination. An option holder whose
service is terminated for cause forfeits all unexercised stock options.
SALARY CONTINUATION AGREEMENT AND LIFE INSURANCE POLICY. MBT and Monroe Bank &
Trust entered into a Salary Continuation Agreement with Mr. LaBeau in December
2000, which provides that MBT and Monroe Bank & Trust will pay an annual salary
continuation benefit of $139,600 to Mr. LaBeau or his designated beneficiaries
for 10 years after his retirement on or after reaching the normal retirement age
of 65.
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For Mr. LaBeau's early retirement (before reaching age 65) or termination before
his normal retirement age as a result of disability, the annual salary
continuation benefit increases to $139,600 in the ninth year of the Salary
Continuation Agreement (but is not actually payable until he reaches normal
retirement age), as follows:
ANNUAL BENEFIT
PAYABLE AFTER
REACHING AGE 65
FOR EARLY
RETIREMENT OR
DISABILITY
SALARY CONTINUATION OCCURRING ON OR
AGREEMENT PLAN YEAR AFTER THE END OF
ENDING DECEMBER 26, THE PLAN YEAR
-------------------------- --------------------
2001....................... $20,893
2002....................... 40,184
2003....................... 57,997
2004....................... 74,445
2005....................... 89,632
2006....................... 103,655
2007....................... 116,604
2008....................... 128,560
2009....................... 139,600
At the same time it entered into the Salary Continuation Agreement with Mr.
LaBeau, the bank purchased an insurance policy on Mr. LaBeau's life, with a
single-premium payment of $5,880,000. The bank expects to recover in full the
premium paid by it from the bank's portion of the policy's death benefits. If
Mr. LaBeau dies before age 65 but in active service to the bank, his
beneficiaries will receive life insurance proceeds of $958,837. If he dies after
retirement, his beneficiaries will receive any payments to which Mr. LaBeau
would have been entitled under the Salary Continuation Agreement, but none of
the life insurance proceeds.
The bank purchased the insurance policy as an informal financing mechanism for
the bank's Salary Continuation Agreement obligations arising out of Mr. LaBeau's
death before retirement, as well as an investment to fund the bank's
post-retirement payment obligations to Mr. LaBeau. Although the bank expects the
policy on Mr. LaBeau's life to serve as a source of funds for death benefits
payable under his Salary Continuation Agreement, Mr. LaBeau's contractual
entitlements under the Salary Continuation Agreement are not funded. These
contractual entitlements remain contractual liabilities of Monroe Bank & Trust,
payable upon Mr. LaBeau's termination of employment. The life insurance policy
is in addition to the split-dollar insurance policy purchased by the bank on Mr.
LaBeau's life for his service as a director, discussed in "Director
Compensation-Director Split-Dollar Life Insurance Agreements," and the
split-dollar policy discussed in "Executive Compensation-- Executive Group Term
Carve-out Split Dollar Life Insurance Agreements" below.
This informally funded life insurance program is not expected to result in any
material cost to MBT Financial Corp. or Monroe Bank & Trust. As noted previously
in the discussion of "Director Compensation-Director Split-Dollar Life Insurance
Agreements," the bank-owned life insurance policy is expected to have an
increasing cash surrender value over time. The $5,880,000 insurance premium is
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designed to earn sufficient income on the insurance policy's cash surrender
value that will offset the after-tax expense of the accrual for the bank's
supplemental executive retirement plan with Mr. LaBeau.
EXECUTIVE GROUP TERM CARVE-OUT SPLIT DOLLAR LIFE INSURANCE AGREEMENTS. Adequate
life insurance coverage for other key executives is an essential component of
the compensation necessary to retain and reward excellent executive officer
service. In addition to insurance policies on the lives of directors and the
President and Chief Executive Officer, Monroe Bank & Trust owns additional
insurance on the lives of Messrs. LaBeau, Bruck, Morr, Greutman and Lock, for
which the bank made a single premium payment of $1,355,000 in the aggregate. The
bank and the executives share rights to death benefits payable under the
policies. An executive's beneficiaries are entitled to an aggregate amount equal
to (a) twice the executive's current annual salary at the time of death, less
$50,000, if he dies before retirement, and (b) the executive's current annual
salary at the time his employment terminated if he dies after retirement or if
his employment shall have previously terminated due to disability. The bank will
receive the remainder of death benefits. The bank expects to recover in full the
premium paid by it from the bank's portion of the policy's death benefits or
upon the cancellation or purchase of the policies by the executives. The
executives also have life insurance benefits under the bank's group term life
insurance program for all employees, a program paying benefits up to $50,000 to
an executive's beneficiaries if he dies while employed by the bank.
The death benefit payable to the executive will be paid directly by the
insurance company to the named beneficiary. As such, the bank has no benefit
obligation to the participants in the executive group term carve-out split
dollar life insurance plan. This bank-owned life insurance program is not
expected to result in any material cost to MBT or the bank, and the bank-owned
life insurance is expected to increase MBT's non-interest income in future
operating periods. The executive group term carve-out split dollar life
insurance plan was a replacement for the executives' participation in the bank's
group term life insurance program (except for the non-taxable $50,000 group term
life insurance death benefit). The executive group term carve-out split dollar
life insurance plan provides comparable life insurance coverage to what the
executives had under the bank's group term life insurance program for all
employees, while reducing the annual increasing expense of group term life
insurance and replacing it with an earning asset.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY. The Board of Directors of MBT Financial Corp. has
established a Compensation Committee. The Compensation Committee is responsible
for developing and making recommendations to the Board with respect to MBT
Financial Corp.'s executive compensation policies. There are no interlocking
relationships between any members of the Compensation Committee.
Pursuant to authority delegated by the Board, the Compensation Committee
determines annually the compensation to be paid to the Chief Executive Officer
and each other executive officer. The Compensation Committee also structures and
monitors all contracts with executive officers which include the Salary
Continuation Agreement with Mr. LaBeau and the split-dollar life insurance
agreements. Compensation decisions with respect to executive officers are based
upon the factors discussed below, rather than any obligation set forth in such
contracts.
The Compensation Committee has available to it an outside compensation
consultant, and has worked with the consultant to gather comparative
compensation data from independent sources and to develop a strategy which links
pay to performance.
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45
The objectives of MBT's executive compensation program are to:
- - Support the achievement of desired goals of MBT.
- - Provide compensation that will attract and retain superior talent and
reward performance.
- - Align the executive officers' interests with those of shareholders by
placing a significant portion of pay at risk with payout dependent upon
corporate performance, both on a short-term and long-term basis.
The executive compensation program provides an overall level of compensation
opportunity that is competitive within the banking industry. Actual compensation
levels may be greater or less than average competitive levels in surveyed
companies based upon annual and long-term MBT performance, as well as individual
performance. The Compensation Committee uses its discretion to set executive
compensation where, in its judgment, external, internal or an individual's
circumstances warrant.
COMPENSATION MATTERS IN 2000. During 2000 the Compensation Committee increased
the levels of base salary of the Chief Executive Officer and certain other
Executive Officers. The increases in base salary were based upon an analysis of
compensation levels for management performing similar functions at other
banking companies of similar size and operations.
The Board of Directors also changed the measurement of the performance of the
Corporation for the purpose of determining the annual cash bonuses to be paid to
employees, including the Chief Executive Officer and other Executive Officers,
from return on assets to net operating income for the year 2000. The
Compensation Committee views net operating income as a better measure of annual
performance of the Corporation for purposes of providing annual cash bonuses to
the Chief Executive Officer, other Executive Officers and employees of the
Corporation.
The Compensation Committee and the Board of Directors approved the Salary
Continuation Agreement for the Chief Executive Officer and the Split-Dollar Life
Insurance Policies for the Executive Officers that were implemented in 2000 to
provide retirement income for the Chief Executive Officer and life insurance for
the Executive Officers on a competitive basis as an important component of
overall compensation.
EXECUTIVE OFFICER COMPENSATION PROGRAM. MBT's executive officer compensation
program is comprised of base salary, annual cash incentive compensation,
longer-term incentive compensation in the form of stock options and various
benefits.
BASE SALARY. Base salary levels for MBT's executive officers are attempted to be
set relative to companies in the banking industry of similar size and complexity
of operations, as described above. In determining salaries, the Compensation
Committee also takes into account individual experience and performance, MBT
performance and specific issues particular to MBT.
ANNUAL INCENTIVE COMPENSATION. The Monroe Bank & Trust Annual Incentive Plan is
MBT's annual incentive program for all employees, including Executive Officers.
The purpose of the plan is to provide direct financial incentives in the form of
an annual cash bonus to executives to achieve MBT's annual goals. For 2000, the
Compensation Committee recommended and the Board of Directors selected net
operating income as the measurement of the Corporation's performance, with
threshold and target goals set for determining cash bonus opportunities for all
employees, including Executive Officers. The amount distributed to each
participant in the Annual Incentive Plan is based on his or her base salary and
is weighted to reflect each participant's ability to affect the performance of
the Corporation, with the Chief Executive Officer having the largest weighting.
For net operating income in excess of the target goal set,
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46
each participant receives a ratable increase in his or her cash bonus. MBT
exceeded its target goal for net operating income in 2000. The achievement of
this corporate goal represented the entire cash bonus for each Executive Officer
for 2000.
LONG-TERM INCENTIVES. Stock options awarded in 2000 under the Long-Term
Incentive Compensation Plan constitute MBT's long-term incentive plan for
executive officers. The objectives of the stock option awards are to align
executive and shareholder long-term interests by creating a strong and direct
link between executive pay and shareholder return, and to enable executives to
develop and maintain a long-term stock ownership position in MBT's common
shares.
The Long-Term Incentive Compensation Plan authorizes a committee of outside
directors to award stock options and other stock compensation to key executives.
Stock options awarded executive officers in 2000 were granted at an option price
equal to the fair market value of MBT common shares on the date of grant, have
ten-year terms and have exercise restrictions that lapse ratably over a
three-year period. Awards are made at levels considered to be competitive within
the banking industry. Significant stock option awards were made to the Executive
Officers in 2000 to reflect the fact that they had not been given long-term
incentive compensation prior to 2000.
BENEFITS. MBT provides medical benefits to its executive officers that are
generally available to all fulltime MBT employees.
CHIEF EXECUTIVE OFFICER COMPENSATION. The base salary of Mr. LaBeau, MBT
Financial Corp.'s President and Chief Executive Officer, was increased to
$210,000, effective January, 2000, based upon the recommendation of an outside
compensation consultant arising from its survey of other banking companies, as
described above. Mr. LaBeau received a total of 35,000 stock options in 2000.
These stock options were granted based upon the recommended range of stock
options for the Chief Executive Officer contained in the compensation
consultant's analysis, taking into account the consultant's survey of the
practices of other banking companies, as described above. The Salary
Continuation Agreement and split-dollar life insurance policies described above
were provided to the Chief Executive Officer in 2000 in order to provide
retirement and life insurance benefits on a competitive basis.
In respect to the limits on deductibility for federal income tax purposes of
compensation paid an executive officer in excess of $1 million, MBT intends to
strive to structure components of its executive compensation to achieve maximum
deductibility, while at the same time considering the goals of its executive
compensation philosophy.
MEMBERSHIP OF THE COMPENSATION COMMITTEE. MBT Financial Corp. directors serving
on the Compensation Committee are named below:
Richard A. Sieb, Chairman
Gerald L. Kiser
Ronald D. LaBeau
William D. McIntyre, Jr.
Michael J. Miller
Philip P. Swy
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Regulations of the Securities and Exchange Commission require the disclosure of
any related party transactions with members of the Compensation Committee.
During the past year, certain directors and
46
47
officers, including members of the Compensation Committee, and one or more of
their associates may have been customers of and had business transactions with
Monroe Bank & Trust. All loans included in such transactions were made in the
ordinary course of business and on substantially the same terms, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other persons, and did not involve more than normal
risk of collectability or present other unfavorable features. It is expected
that similar transactions will occur in the future. Although Mr. LaBeau served
on the Compensation Committee, he did not participate in any discussions or
decisions regarding his compensation.
47
48
PERFORMANCE GRAPHS
The following graph compares the change in value that an investor would have
realized (assuming reinvestment of dividends) by investing $100 in MBT Financial
Corp. common stock, the NASDAQ Composite index, and the NASDAQ Bank index on
December 31, 1995.
[GRAPH]
NASDAQ NASDAQ MBT
Bank Composite Financial Corp.
- -------------------------------------------
1995 100.00 100.00 100.00
1996 126.16 122.71 118.74
1997 206.38 149.25 156.49
1998 182.09 208.40 338.10
1999 167.55 386.77 326.01
2000 192.14 234.81 207.70
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The following graph shows Monroe Bank & Trust's Return on Assets (ROA) for the
last five full years and the first nine months of 2000, annualized. The graph
also includes the same information for Monroe Bank & Trust's peer group from the
Uniform Bank Performance Report (UBPR). The UBPR is published by the Federal
Financial Institutions Examination Council using data gathered from the Call
Reports submitted by banks. The peer group for Monroe Bank & Trust for 1995
through 1997 includes all FDIC insured banks between $500 million and $1 billion
in total assets. The peer group for Monroe Bank & Trust for 1998 through 2000
includes all FDIC insured banks between $1 billion and $3 billion in total
assets.
[GRAPH]
Monroe Bank Peer
& Trust Group**
1995 1.93% 1.25%
1996 1.92% 1.30%
1997 1.94% 1.29%
1998 1.64% 1.30%
1999 1.52% 1.35%
2000* 1.67% 1.23%
ADDITIONAL INFORMATION ON MANAGEMENT
Section 16 of the Securities Exchange Act of 1934 requires MBT
Financial Corp.'s executive officers, directors and more than ten percent
shareholders ("Insiders") to file with the Securities and Exchange Commission
and MBT Financial Corp. reports of their ownership of MBT Financial Corp.
securities. Based upon written representations and copies of reports furnished
to MBT Financial Corp. by Insiders, all Section 16 reporting requirements
applicable to Insiders during 2000 were satisfied on a timely basis, with the
exception of one late report covering one transaction filed by Mr. Lock.
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50
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 2000, beneficial ownership in excess of five percent
of the common stock is as follows:
TITLE OF NAME & ADDRESS OF AMOUNT & NATURE PERCENT
CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
-------------- ---------------------------------- ------------------------- ---------------------
Common Monroe Bank & Trust 6,795,918 shares(1) 34.0%
102 East Front Street
Monroe, Michigan 48161
(1) These shares are held in various fiduciary capacities in the ordinary
course of business under numerous trust relationships by Monroe Bank &
Trust. As fiduciary, Monroe Bank & Trust has sole power to dispose of
5,726,634 of these shares, shared power to dispose of 1,069,284 of these
shares, sole power to vote 5,726,634 of these shares, and shared power to
vote 1,069,284 of these shares.
The following table reflects the numbers of common shares beneficially owned by
all directors and nominees, the executive officers named in the Summary
Compensation Table, and all directors and executive officers of Monroe Bank &
Trust as a group as of December 31, 2000.
COMMON SHARES
NAME OF BENEFICIAL OWNER OWNED (1) PERCENT OF CLASS
- ------------------------------- ----------------------- --------------------
Thomas J. Bruck 195,026(2) *
Connie S. Cape 5,100(3) *
Eugene D. Greutman 58,334(4) *
Ronald J. Gruber 8,900 *
Thomas M. Huner 22,000(5) *
Gerald L. Kiser 0 *
Ronald D. LaBeau 61,191(6) *
Rocque E. Lipford 23,394(7) *
Herbert J. Lock 12,193(8) *
William D. McIntyre, Jr. 68,256 *
Michael J. Miller 16,318(9) *
James E. Morr 51,894(10) *
Richard A. Sieb 72,686(11) *
Philip P. Swy 4,000 *
All Directors and Executive 599,292 3.0%
Officers as a Group
(14 in group)
* Ownership is less than 1% of the class.
(1) Except as otherwise noted, none of the named individuals shares with
another person either voting or investment power as to the shares
reported.
(2) Includes 165,878 shares subject to shared voting and investment power
and 6,534 shares subject to options which are exercisable within sixty
days of December 31, 2000.
(3) Includes 800 shares subject to shared voting and investment power.
(4) Includes 51,800 shares subject to shared voting and investment power
and 6,534 shares subject to options which are exercisable within sixty
days of December 31, 2000.
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(5) Includes 10,424 shares subject to shared voting and investment power.
(6) Includes 10,806 shares subject to shared voting and investment power
and 11,667 shares subject to options which are exercisable within
sixty days of December 31, 2000.
(7) Includes 400 shares subject to shared voting and investment power.
(8) Includes 950 shares subject to shared voting and investment power and
5,800 shares subject to options which are exercisable within sixty
days of December 31, 2000.
(9) Includes 16,318 shares subject to shared voting and investment power.
(10) Includes 4,256 shares subject to shared voting and investment power
and 6,534 shares subject to options which are exercisable within sixty
days of December 31, 2000.
(11) Includes 55,490 shares subject to shared voting and investment power.
Item 13. Certain Relationships and Related Transactions
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of MBT and their associates were customers of,
or had transactions with, Monroe Bank & Trust in the ordinary course of business
during 2000. We expect additional transactions to take place in the future. All
outstanding loans to directors and executive officers and their associates,
commitments and sales, purchases and placements of investment securities and
other financial instruments included in such transactions were made in the
ordinary course of business, on substantially the same terms, including interest
rates and collateral where applicable, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than normal
risk of collectibility or present other unfavorable features. In addition, Mr.
Lipford is a partner in the law firm of Miller, Canfield, Paddock and Stone,
P.L.C., which provides legal services to MBT and Monroe Bank & Trust.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Contents
Financial Statements
Report of Independent Public Accountants - Page 17
Consolidated Statements of Condition as of December 31, 2000
and 1999 - Page 18
Consolidated Statements of Income for the Years Ended December 31,
2000, 1999, and 1998 - Page 19
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999, and 1998 - Pages 20 - 21
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 2000, 1999, and 1998 - Page 22
Notes to Consolidated Financial Statements - Pages 23 - 36
Financial Statement Schedules
(a) Securities - Page 53
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(b) Loans and Lease Financing Receivables - Page 54
(c) Bank Premises and Equipment - Page 55
(d) Allowance for Loan Losses - Included in Notes to Financial Statements
Note 3, Page 25
Reports on Form 8-K
MBT Financial Corp. filed the following report on Form 8-K during the last
quarter of 2000:
Date of Event Reported Event Reported
---------------------- --------------
December 22, 2000 Item 5 - Authorization of 2 million share
repurchase plan
Exhibits
The following exhibits are filed as a part of this report:
3.1 Restated Articles of Incorporation of MBT Financial Corp.
3.2 Bylaws of MBT Financial Corp.
10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan
10.2 Monroe Bank & Trust Salary Continuation Agreement
10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement
10.4 Monroe Bank & Trust Group Term Carve Out Plan
21 Subsidiaries of the Registrant
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53
SCHEDULE I
SECURITIES
(000's omitted)
Held to Maturity
----------------------------------------------------------------------
December 31, 2000 December 31, 1999 December 31, 1998
----------------------- -------------------- ---------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---------- -------- -------- -------- -------- --------
U.S. Government agency and corporation
obligations (excluding mortgage-backed securities).......... $ 145,622 $143,456 $150,222 $141,004 $ 75,695 $ 75,843
Securities issued by states and political
subdivisions in the U.S..................................... 132,007 134,664 152,791 152,505 155,868 162,042
Pass-through mortgage-backed securities (MBS)............... 167 163 177 166 191 189
Other domestic securities (debt and equity)................. 56,188 56,164 8,956 8,845 62,533 62,832
---------- -------- -------- -------- -------- --------
Total....................................................... $ 333,984 $334,447 $312,146 $302,520 $294,287 $300,906
========== ======== ======== ======== ======== ========
Pledged securities.......................................... $ 62,992 $ 63,181 $ 34,889 $ 33,497 $ 23,989 $ 25,385
========== ======== ======== ======== ======== ========
Available for Sale
--------------------------------------------------------------------
December 31, 2000 December 31, 1999 December 31, 1998
--------------------- ----------------- --------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- -------- -------- -------- -------- --------
U.S. Government agency and corporation
obligations (excluding mortgage-backed securities).......... $ 11,999 $ 11,979 $ 32,951 $ 32,345 $ 36,440 $ 36,534
Securities issued by states and political
subdivisions in the U.S..................................... NONE NONE 6,984 7,157 NONE NONE
Pass-through mortgage-backed securities (MBS)............... 1,127 1,212 1,137 1,137 NONE NONE
Other domestic securities (debt and equity)................. 110,879 105,230 98,467 96,794 NONE NONE
--------- -------- -------- -------- -------- --------
Total....................................................... $ 124,005 $118,421 $139,539 $137,433 $ 36,440 $ 36,534
========= ======== ======== ======== ======== ========
Pledged securities.......................................... $ 2,998 $ 3,015 $ 18,961 $ 18,906 $ 14,456 $ 14,543
========= ======== ======== ======== ======== ========
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SCHEDULE II
LOANS AND LEASE FINANCING RECEIVABLES
(000's omitted)
December 31,
---------------------------------------------------------
2000 Book 1999 Book 1998 Book 1997 Book 1996 Book
Value (a) Value (a) Value (a) Value (a) Value (a)
-------- -------- -------- -------- --------
Loans secured by real estate:
Construction and land development.................................... $ 36,146 $ 24,504 $ 27,100 $ 21,201 $ 12,593
Secured by farmland (including farm residential
and other improvements).............................................. 4,354 3,774 3,945 5,110 4,335
Secured by 1-4 family residential properties......................... 275,299 214,358 202,926 209,934 175,732
Secured by multifamily (5 or more) residential....................... 3,322 3,673 3,166 2,881 2,806
Secured by nonfarm nonresidential.................................... 227,024 190,588 182,348 158,549 139,753
Loans to finance agricultural production and other
loans to farmers........................................................ 2,832 2,087 1,422 1,342 1,827
Commercial and industrial loans to U.S. addresses....................... 150,805 156,489 171,919 144,316 136,062
Loans to individuals for household, family, and other
personal expenditures (includes purchased paper):
Credit cards and related plans....................................... 9,415 10,320 10,038 9,716 9,370
Other................................................................ 102,089 97,091 85,475 76,534 61,505
Nonrated industrial development obligations (other than
securities) of states and political subdivisions in the U.S............. 228 380 676 924 1,318
Other loans:
Loans for purchasing or carrying securities (secured
and unsecured)....................................................... NONE 9 NONE NONE NONE
All other loans...................................................... 609 109 1,994 1,084 1,708
Less: Any unearned income on loans...................................... NONE NONE 3 12 26
-------- -------- -------- -------- --------
Total loans and leases, net of unearned................................. $812,123 $703,382 $691,006 $631,579 $546,983
======== ======== ======== ======== ========
Nonaccrual loans $ 17,161 $ 16,791 $ 5,269 $ 3,725 $ 2,907
Loans 90 days or more past due $ 193 $ 107 $ 40 $ 71 $ 29
Troubled debt restructurings $ 1,057 $ 1,281 $ 868 $ 1,434 $ 1,487
(a) Loan categories are presented net of deferred loan fees. The presentation
in footnote #2, Notes To Consolidated Financial Statements, Page 24,
differs from this schedule presentation, by presenting the loan categories,
gross, before deferred loan fees have been subtracted.
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SCHEDULE III
BANK PREMISES AND EQUIPMENT
Amount at
Accumulated Which Carried
Depreciation on Consolidated
Gross Book and Statement
Classification Value (a) Amortization of Condition
- ---------------------------------------------------------------------- ----------- ----------- -----------
December 31, 2000
- -----------------
Bank Premises $16,134,043 $ 6,431,875 $ 9,702,168
(including Land of $2,708,338)
Equipment 14,065,983 10,078,593 3,987,390
Leasehold Improvements NONE NONE NONE
----------- ----------- -----------
$30,200,026 $16,510,468 $13,689,558
=========== =========== ===========
December 31, 1999
- -----------------
Bank Premises $14,817,580 $ 5,810,344 $ 9,007,236
(including Land of $2,708,338)
Equipment 11,649,027 8,894,986 2,754,041
Leasehold Improvements NONE NONE NONE
----------- ----------- -----------
$26,466,607 $14,705,330 $11,761,277
=========== =========== ===========
(a) The gross book value of the Bank premises (including land and land
improvements), equipment, and leasehold improvements is stated at cost.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 30, 2001 MBT FINANCIAL CORP.
By: /s/ Eugene D. Greutman
---------------------------------------
Eugene D. Greutman
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Dated: March 30, 2001
By: /s/ Ronald D. LaBeau By: /s/ Eugene D. Greutman
--------------------------------- --------------------------------
Ronald D. LaBeau Eugene D. Greutman
President & Director Treasurer
(principal executive officer) (principal financial officer)
By: /s/ Ronald J. Gruber By: /s/ Rocque E. Lipford
--------------------------------- --------------------------------
Ronald J. Gruber Rocque E. Lipford
Director Director
By: /s/ Michael J. Miller By: /s/ Richard A. Sieb
--------------------------------- --------------------------------
Michael J. Miller Richard A. Sieb
Director Director
By: /s/ Philip P. Swy
-----------------------------------------
Philip P. Swy
Director
57
Exhibit Index
The following exhibits are filed as a part of this report:
3.1 Restated Articles of Incorporation of MBT Financial Corp.
3.2 Bylaws of MBT Financial Corp.
10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan
10.2 Monroe Bank & Trust Salary Continuation Agreement
10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement
10.4 Monroe Bank & Trust Group Term Carve Out Plan
21 Subsidiaries of the Registrant