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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, 2002
Commission File Number: 000-30973
MBT FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-3516922
(State of Incorporation) (I.R.S. Employer Identification No.)
102 E. Front St.
Monroe, Michigan 48161
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (734) 241-3431
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Bank's knowledge, in a definitive proxy statement incorporated by
reference in Part III of the Form 10-K or any of the amendments of this Form
10-K. [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES __X__ NO ____.
As of June 30, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $271,061,574.
As of March 26, 2003, there were 19,110,441 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Stockholders to be held
May 1, 2003 are incorporated by reference into Part III of this report on Form
10-K.
1
Part I
Item 1. Business
GENERAL
MBT Financial Corp. (the "Corporation") operates as a bank holding company
headquartered in Monroe, Michigan. The Corporation was incorporated under the
laws of the State of Michigan in January 2000, at the direction of the
management of Monroe Bank & Trust (the "Bank"), for the purpose of becoming a
bank holding company by acquiring all the outstanding shares of Monroe Bank &
Trust. At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank &
Trust, shareholders approved a proposal that resulted in the Bank merging with
Monroe Interim Bank, a state chartered bank, which was a subsidiary of the
Corporation. On July 1, 2000, the merger of Monroe Bank & Trust and Monroe
Interim Bank was completed, with Monroe Bank & Trust becoming the wholly owned
subsidiary of MBT Financial Corp.
Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank
under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust
consolidated with Dansard Bank and moved to the present address of its main
office. Monroe Bank & Trust operated as a unit bank until 1950 when it opened
its first branch office in Ida, Michigan. It then continued its expansion to its
present total of 22 branch offices, including its main office. Monroe Bank &
Trust changed its name from "Monroe State Savings Bank" to "Monroe Bank & Trust"
in 1968.
Monroe Bank & Trust provides customary retail and commercial banking and trust
services to its customers, including checking and savings accounts, time
deposits, safe deposit facilities, commercial loans, personal loans, real estate
mortgage loans, installment loans, IRAs, ATM and night depository facilities,
treasury management services, telephone and internet banking, personal trust,
employee benefit and investment management services. Monroe Bank & Trust's
service areas are comprised of Monroe and Wayne counties in Southern Michigan.
Monroe Bank & Trust's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to applicable legal limits and Monroe Bank & Trust is
supervised and regulated by the FDIC and Michigan Office of Financial and
Insurance Services Division of Financial Institutions.
COMPETITION
MBT Financial Corp., through its subsidiary, Monroe Bank & Trust, operates in a
highly competitive industry. Monroe Bank & Trust's main competition comes from
other commercial banks, national or state savings and loan institutions,
securities brokers, mortgage bankers, finance companies and insurance companies.
Banks generally compete with other financial institutions through the banking
products and services offered, the pricing of services, the level of service
provided, the convenience and availability of services, and the degree of
expertise and personal manner in which these services are offered. Monroe Bank &
Trust encounters strong competition from most of the financial institutions in
Monroe Bank & Trust's extended market area.
The Bank's primary market area is Monroe County, Michigan. According to the most
recent market data, there are approximately seven other deposit taking/lending
institutions competing in the Bank's market. According to the most recent market
data for deposits, the Bank ranks first in market share with approximately 62%
of the market.
2
EMPLOYEES
MBT Financial Corp. has no employees other than its three officers, each of whom
is also an employee and officer of Monroe Bank & Trust and who serve in their
capacity as officers of MBT Financial Corp. without compensation. As of December
31, 2002, Monroe Bank & Trust had 358 full-time employees and 26 part-time
employees. Monroe Bank & Trust provides a number of benefits for its full-time
employees, including health and life insurance, workers' compensation, social
security, paid vacations, numerous bank services, and a 401(k) plan.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---------------------------- --- ------------------------
Ronald D. LaBeau 59 President
Thomas J. Bruck 57 Secretary
Eugene D. Greutman 54 Treasurer
The executive officers of the registrant are all executive officers of the
subsidiary bank and are not compensated by the registrant.
EXECUTIVE OFFICERS OF THE BANK
NAME AGE POSITION
- ---------------------------- --- ------------------------
Ronald D. LaBeau 59 President & Chief Executive Officer
H. Douglas Chaffin 46 Executive Vice President & Senior Lending
Manager
Thomas J. Bruck 57 Executive Vice President & Cashier
James E. Morr 56 Executive Vice President, Senior Trust
Officer & General Counsel
Eugene D. Greutman 54 Senior Vice President Finance
Herbert J. Lock 56 Senior Vice President & Investment Officer
There is no family relationship between any of the Directors or Executive
Officers of the registrant and there is no arrangement or understandings between
any of the Directors or Executive Officers and any other person pursuant to
which he was selected a Director or Executive Officer nor with any respect to
the term which each will serve in the capacities stated previously.
The Executive Officers of the Bank are elected to serve for a term of one year
at the Board of Directors Annual Organizational Meeting, held in May.
Ronald D. LaBeau was President & Chief Executive Officer in 2002, 2001, 2000,
and 1999, and Executive Vice President and Senior Loan Officer in 1998. H.
Douglas Chaffin joined the Bank in 2001 as Executive Vice President & Senior
Lending Manager. Eugene D. Greutman was Senior Vice President Finance in 2002,
2001 and 2000, and Senior Vice President and Controller in 1999 and 1998.
Herbert J. Lock was Senior Vice President and Investment Officer in 2002, 2001,
2000, and 1999, and Vice President, Investment and Trust Officer in 1998.
AVAILABLE INFORMATION
MBT Financial Corp. makes its annual report on Form 10-K, its quarterly reports
on Form 10-Q, its current reports on Form 8-K, and all amendments to those
reports available on its website, free of charge. The website address is
www.mbandt.com.
3
Item 2. Properties
MBT Financial Corp. does not conduct any business other than its ownership of
Monroe Bank & Trust's stock. MBT Financial Corp. operates its business from
Monroe Bank & Trust's main office facility. Monroe Bank & Trust operates its
business from its main office complex and 21 full service branches in the
counties of Monroe and Wayne, Michigan. In addition, MBT Credit Company, Inc., a
wholly owned subsidiary of Monroe Bank & Trust, operates a mortgage loan
origination office in Monroe, Michigan, and a loan and trust office in
Wyandotte, Michigan. The Bank owns its main office complex and 19 of its
branches. The remaining two branches and the two MBT Credit Company, Inc.
locations are leased.
Item 3. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
4
Part II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Common stock consists of 19,160,441 shares with a book value of $8.72. In 2000,
Monroe Bank & Trust reorganized into a one-bank holding company. This
reorganization resulted in an increase of 10,000,000 shares outstanding as each
share of Monroe Bank & Trust was exchanged for two shares of MBT Financial Corp.
Certain trading price information, as well as information on dividends declared,
have been restated to reflect the reorganization. Dividends declared on common
stock during 2002 amounted to $.54 per share. The common stock is traded over
the counter on the Electronic Bulletin Board under the symbol MBTF. Below is a
schedule of the high and low trading price for the past two years by quarter.
These prices represent those known to Management, but do not necessarily
represent all transactions that occurred.
2002 2001
High Low High Low
-----------------------------------------------------------------
1st quarter $ 14.60 $ 13.55 $ 16.50 $ 12.63
2nd quarter $ 14.38 $ 13.85 $ 13.99 $ 12.50
3rd quarter $ 14.00 $ 13.69 $ 15.59 $ 13.43
4th quarter $ 14.00 $ 13.20 $ 14.50 $ 13.50
Dividends declared during the past three years on a quarterly basis were as
follows:
2002 2001 2000
----------------------------------------------------
1st quarter $ 0.13 $ 0.11 $ 0.075
2nd quarter $ 0.13 $ 0.13 $ 0.075
3rd quarter $ 0.14 $ 0.13 $ 0.11
4th quarter $ 0.14 $ 0.13 $ 0.11
On February 29, 2000, Monroe Bank & Trust redeemed its preferred stock.
Preferred stock consisted of 2,000 shares with a par value of $100 per share.
Dividends paid on preferred stock during 2000 amounted to $2.60 per share. At
December 31, 2002 the Corporation's surplus account was $51,080,339 and
undivided profits account was $115,395,181. Total stockholders' equity was
increased by the amount of net unrealized losses on securities available for
sale of $524,123.
As of December 31, 2002, the number of common stockholders was 1,320.
Management's present expectation is that dividends will continue to be paid in
the future.
Item 6. Selected Financial Data
The selected financial data for the five years ended December 31, 2002 are
derived from the audited Consolidated Financial Statements of the Corporation.
The financial data set forth below contains only a portion of our financial
statements and should be read in conjunction with the Consolidated Financial
Statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this Form 10-K.
5
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Interest Income $ 84,603,932 $ 101,324,488 $ 99,569,664 $ 83,178,881 $ 77,766,275
Interest Expense 34,387,415 49,535,345 49,680,992 38,290,421 34,203,473
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 50,216,517 51,789,143 49,888,672 44,888,460 43,562,802
Provision for Loan Losses 6,101,316 7,399,901 6,298,461 9,388,041 3,217,544
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses 44,115,201 44,389,242 43,590,211 35,500,419 40,345,258
Other Income 12,790,820 10,650,797 8,708,702 6,920,016 6,964,982
Other Expenses 26,988,791 24,809,286 23,094,206 20,143,741 25,447,771
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Provision
for Income Taxes 29,917,230 30,230,753 29,204,707 22,276,694 21,862,469
Provision for
Income Taxes 8,113,585 8,306,553 8,031,184 5,207,362 5,301,810
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 21,803,645 $ 21,924,200 $ 21,173,523 $ 17,069,332 $ 16,560,659
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income available to
Common Shareholders $ 21,803,645 $ 21,924,200 $ 21,168,323 $ 17,060,332 $ 16,551,659
- ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE*
Basic Net Income $ 1.12 $ 1.10 $ 1.06 $ 0.85 $ 0.83
Diluted Net Income 1.12 1.10 1.06 0.85 0.83
Cash Dividends Declared 0.54 0.50 0.37 0.36 0.29
Book Value at Year End 8.72 8.19 7.55 6.98 6.56
Average Common Shares
Outstanding 19,458,737 19,933,580 20,000,000 20,000,000 20,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION (YEAR END)
Total Assets $1,409,694,446 $1,394,167,752 $1,379,386,178 $1,216,476,583 $1,075,268,496
Total Securities 539,737,231 497,501,256 452,405,349 449,579,083 330,821,064
Loans, Net of Deferred Loan Fees 773,805,181 787,825,052 812,122,817 703,381,905 691,005,829
Allowance for Loan Losses 12,400,000 13,000,000 10,600,000 9,900,000 11,100,000
Deposits 1,010,960,099 998,879,777 994,596,445 944,076,215 917,044,876
Borrowings 225,000,000 225,000,000 225,000,000 125,000,000 2,000,000
Total Shareholders' Equity 166,999,643 161,730,144 150,954,963 139,647,492 131,217,251
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Return on Average Assets 1.55% 1.56% 1.66% 1.52% 1.64%
Return on Average Equity 13.29% 13.70% 14.42% 11.99% 12.93%
Net Interest Margin 3.79% 3.88% 4.13% 4.19% 4.52%
Dividend Payout Ratio 47.99% 45.40% 34.95% 42.18% 35.02%
Allowance for Loan Losses
to Period End Loans 1.60% 1.65% 1.31% 1.41% 1.61%
Allowance for Loan Losses
to Non Performing Loans 27.93% 46.90% 51.53% 51.00% 134.07%
Non Performing Loans
to Period End Loans 5.74% 3.52% 2.53% 2.76% 1.20%
Net Charge Offs to Average Loans 0.87% 0.59% 0.73% 1.52% 0.35%
- ------------------------------------------------------------------------------------------------------------------------------------
* The reorganization into a one-bank holding company in 2000 resulted in an
exchange of Monroe Bank & Trust stock for MBT Financial Corp. stock. The
exchange rate was two shares of MBT Financial Corp. for each share of Monroe
Bank & Trust, causing an increase of 10,000,000 shares outstanding. All
per-share amounts have been restated to reflect this transaction.
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements contained in this report on Form 10-K or incorporated by
reference are not based on historical facts and are "forward-looking statements"
within the meaning of Section 21A of the Securities Exchange Act of 1934.
Forward-looking statements which are based on various assumptions (some of which
are beyond the Corporation's control), may be identified by reference to a
future period or periods, or by the use of forward-looking terminology, such as
"may," "will," "believe," "expect," "estimate," "anticipate," "continue," or
similar terms or variations on those terms, or the negative of these terms.
Actual results could differ materially from those set forth in forward-looking
statements, due to a variety of factors, including, but not limited to, those
related to the economic environment, particularly in the market areas in which
the company operates, competitive products and pricing, fiscal and monetary
policies of the U.S. Government, changes in government regulations affecting
financial institutions, including regulatory fees and capital requirements,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management, asset/liability management, the
financial and securities markets and the availability of and costs associated
with sources of liquidity.
Critical Accounting Policies - The Bank's Allowance for Loan Losses is a
"critical accounting estimate" because it is an estimate that is based on
assumptions that are highly uncertain, and if different assumptions were used or
if any of the assumptions used were to change, there could be a material impact
on the presentation of the Corporation's financial condition. These assumptions
include, but are not limited to, collateral values and the effect of economic
conditions on the financial condition of the borrowers. To determine the
Allowance for Loan Losses, the Bank estimates losses on all loans that are not
classified as substandard or doubtful by applying historical loss rates to these
loans in accordance with SFAS 5. In addition, all loans that are classified as
substandard or doubtful and any loans that are nonaccrual or renegotiated are
individually tested for impairment. Any amount of monetary impairment is
included in the Allowance for Loan Losses in accordance with SFAS 114.
Substandard, doubtful, nonaccrual, or renegotiated loans that do not have any
monetary impairment identified are assigned an allowance following the same
method as unclassified loans. Management is of the opinion that the Allowance
for Loan Losses of $12,400,000 as of December 31, 2002 was adequate but not
excessive.
Net Income increased significantly in 2000 as the Corporation produced record
earnings. Net Income increased $4,104,191, or 24%, compared to 1999, as interest
rates continued to rise. Deposits showed a small increase of 5%, as most of the
asset growth was funded by an increase of $100,000,000, or 80%, in advances from
the Federal Home Loan Bank. We experienced a significant increase of 16% in Net
Loans as the local economy continued its expansion. Most of the loan growth was
in loans secured by real estate, which increased 25%. Loans to individuals for
household, family, and other personal expenditures increased 4%, and commercial
and industrial loans decreased 4%. We increased our Allowance for Loan Losses
$700,000 over the prior year-end, as necessitated by the increase in Net Loans.
Income Before Provision for Income Taxes increased $6,928,013, or 31%, compared
to 1999. With a smaller average percentage investment in Obligations of States
and Political Subdivisions in 2000, the Provision for Income Taxes showed a
large increase of $2,823,822, or 54%. The effective tax rate increased from
23.4% to 27.5%.
Despite the slowdown in economic activity in 2001, we experienced our second
consecutive record earnings year as Net Income increased $750,677, or 4%,
compared to 2000. Deposits increased less than 1% and Total Assets increased
only 1%. Net Loans showed a slight decrease of 3% as commercial and industrial
loans decreased 34% and loans to individuals for household, family, and other
personal expenditures decreased 19%. Real estate loans showed a small increase
of 9%. Although Total Loans decreased, we increased our Allowance for Loan
Losses $2,400,000. This increase was necessary as the weak economic conditions
impacted the credit quality of many of our customers. Income Before Provision
for Income Taxes increased $1,026,046, or 4%, compared to 2000. With a slight
increase in
7
our investment in Obligations of States and Political Subdivisions, our
Provision for Income Taxes increased only $275,369, or 3%. The effective tax
rate remained at 27.5% in 2001.
Net Income decreased slightly in 2002 as we encountered continued low interest
rates and a sluggish national and local economy. Net Income decreased $120,555,
or less than 1%, compared to 2001. While Deposits and Total Assets each
increased 1%, Net Loans decreased 2%. Commercial and industrial loans decreased
8% and loans to individuals for household, family, and other personal
expenditures decreased 22% while real estate loans showed a slight increase of
3%. The decrease in loans was partially attributable to the transfer of
$12,932,423 of loans to other real estate and charge offs of $8,696,987, which
enabled us to reduce our allowance for loan losses $600,000. Income Before
Provision for Income Taxes decreased $313,523, or 1%, compared to 2001. A larger
percentage of our income was in interest on Obligations of States and Political
Subdivisions in 2002, resulting in a decrease of $192,968, or 2% in our
Provision for Income Taxes. The effective tax rate decreased from 27.5% in 2001
to 27.1% in 2002.
Earnings for the Bank are usually highly reflective of the Net Interest Income.
In 2000, interest rates climbed, with the prime rate increasing 100 basis points
in the first half of the year. Interest income increased $16.4 million, or 20%
compared to 1999 and interest expense increased $11.4 million, or 30%. As a
result, Net Interest Income increased $5.0 million, or 11% over 1999. Along with
a moderating Provision for Loan Losses, a significant increase in non-interest
income and a modest increase in non-interest expense, Net Income increased
significantly. In 2001, the Federal Open Market Committee of the Federal Reserve
attempted to prevent a recession by lowering the Federal Funds target rate 11
times, for a total of 475 basis points. Interest income increased only $1.8
million and interest expense decreased $146,000, compared to 2000. As a result,
Net Interest Income increased $1.9 million, or 4%. The Provision for Loan Losses
increased $1.1 million, as the Allowance for Loan Losses was increased.
Non-interest income increased $1.9 million and non-interest expense increased
$1.7 million. Income from trust services declined modestly due to a large amount
of estate settlement fees collected by the trust department in 2000 and the
declining market value of trust assets in 2001. The large increase in service
charges on deposit accounts was the result of increases in the rates charged for
deposit services and the implementation of new programs for overdrafts. Other
non-interest income increased due to increased fees on mortgage originations and
gains on the sales of portions of the consumer credit card and commercial lease
loan portfolios. These sales resulted in a gain of $717,000. The increase in
non-interest expense was primarily the result of an increase in Salaries and
Employee Benefits as staffing continued to increase in several areas. The small
increase in Net Interest Income, along with the significant increases in
Provision for Loan Losses and non-interest income, and the small increase in
non-interest expense, resulted in a small increase in Net Income. In 2002,
market interest rates remained at historically low levels, prompting many
borrowers to refinance their existing debt. The low interest rate environment
also resulted in an increase in the amount of investment securities called.
These factors lead to a decrease in the yield on earning assets from 7.4% in
2001 to 6.2% in 2002. Total Interest Income decreased $16.7 million while Total
Interest Expense decreased only $15.1 million, resulting in a decrease of $1.6
million in Net Interest Income. The Provision for Loan Losses decreased $1.3
million after the large increase in 2001. Other Income increased $2.1 million as
service charges on deposit accounts increased due to an overdraft program
started late in 2001 and security gains also increased. Non-interest expenses
increased 9% compared to 2001. Salaries and Employee Benefits increased 9% as
the Bank continued to add staff, particularly in the loan, credit analysis, and
loan review areas. This additional staff will allow the Bank to provide better
customer service to existing customers, resume the growth in the loan portfolio,
and improve the monitoring of existing credit relationships. Average cost of
interest bearing deposits was 4.8 %, 4.1%, and 2.4% for 2000, 2001, and 2002
respectively. Return on average assets for the same three years was 1.7%, 1.6%,
and 1.6%. The table below shows selected financial ratios for the same three
years.
8
2002 2001 2000
---- ---- ----
Return on Average Assets 1.6% 1.6% 1.7%
Return on Average Equity 13.3% 13.7% 14.4%
Dividend Payout Ratio 48.2% 45.4% 34.9%
Average Equity to Average Assets 11.3% 11.3% 11.5%
The following table shows average daily balances, interest income or expense
amounts, and the resulting average rates for interest earning assets and
interest bearing liabilities for the last three years. Also shown are the net
interest income, total interest rate spread, and the net interest margin for the
same periods.
Years Ended December 31,
----------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------ ---------------------------- -------------------------------
Average Interest Average Interest Average Interest
Daily Earned Average Daily Earned Average Daily Earned Average
(Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield Balance or Paid Yield
---------------------- ------------------------------ ---------------------------- -------------------------------
Investments
Obligations of US
Government Agencies 288,438 13,106 4.54% 203,450 13,081 6.43% 174,266 12,169 6.98%
Obligations of States &
Political
Subdivisions(1) 130,046 6,741 5.18% 127,640 6,822 5.34% 137,200 7,302 5.32%
Other Securities 105,876 5,028 4.75% 148,648 8,705 5.86% 123,032 9,145 7.43%
----------------------------- --------------------------- -------------------------------
Total Investments 524,360 24,875 4.74% 479,738 28,608 5.96% 434,498 28,616 6.59%
----------------------------- --------------------------- -------------------------------
Loans
Commercial 489,498 35,081 7.17% 520,498 43,307 8.32% 468,417 43,860 9.36%
Mortgage 160,764 13,333 8.29% 191,752 16,356 8.53% 179,427 14,867 8.29%
Consumer 118,026 10,766 9.12% 128,122 12,606 9.84% 120,853 11,917 9.86%
----------------------------- --------------------------- -------------------------------
Total Loans(2) 768,288 59,180 7.70% 840,372 72,269 8.60% 768,697 70,644 9.19%
Federal Funds Sold 32,950 549 1.67% 12,968 447 3.45% 4,861 310 6.38%
----------------------------- --------------------------- -------------------------------
Total Interest Earning Assets 1,325,598 84,604 6.38% 1,333,078 101,324 7.60% 1,208,056 99,570 8.24%
Cash & Due From Banks 30,306 34,200 34,215
Interest Receivable and Other
Assets 49,585 43,137 30,737
--------- ---------- -----------
Total Assets 1,405,489 1,410,415 1,273,008
========= ========== ===========
Savings Accounts 127,826 1,521 1.19% 117,429 2,453 2.09% 120,494 2,955 2.45%
NOW Accounts 66,648 752 1.13% 59,886 1,280 2.14% 61,901 1,476 2.38%
Money Market Deposits 336,370 5,661 1.68% 257,612 8,352 3.24% 189,655 7,714 4.07%
Certificates of Deposit 358,846 13,535 3.77% 462,121 24,543 5.31% 461,654 27,506 5.96%
Federal Funds Purchased 2,052 38 1.85% 562 27 4.80% 5,051 326 6.45%
FHLB Advances 225,000 12,880 5.72% 225,000 12,880 5.72% 161,038 9,704 6.03%
----------------------------- --------------------------- -------------------------------
Total Interest Bearing
Liabilities 1,116,742 34,387 3.08% 1,122,610 49,535 4.41% 999,793 49,681 4.97%
Non-interest Bearing Deposits 119,613 121,134 120,906
Other Liabilities 5,044 6,598 5,437
--------- ---------- -----------
Total Liabilities 1,241,399 1,250,342 1,126,136
Stockholders' Equity 164,090 160,073 146,872
--------- ---------- -----------
Total Liabilities &
Stockholders' Equity 1,405,489 1,410,415 1,273,008
========= ========== ===========
Net Interest Income 50,217 51,789 49,889
Interest Rate Spread 3.30% 3.19% 3.27%
Net Interest Income as a percent of
average earning assets 3.79% 3.88% 4.13%
9
(1)Interest income on Obligations of States and Political Subdivisions is not on
a taxable equivalent basis.
(2)Total Loans excludes Overdraft Loans, which are non-interest earning. These
loans are included in Other Assets. Total Loans includes nonaccrual loans. When
a loan is placed in nonaccrual status, all accrued and unpaid interest is
charged against interest income. Loans on nonaccrual status do not earn any
interest.
The following table summarizes the changes in interest income and interest
expense attributable to changes in interest rates and changes in the volume of
interest earning assets and interest bearing liabilities for the period
indicated:
Years Ended December 31,
-----------------------------------------------------------------------------------------
2002 versus 2001 2001 versus 2000 2000 versus 1999
------------------------------ --------------------------- ----------------------------
Changes due to Changes due to Changes due to
(Dollars in Thousands) increased (decreased) increased (decreased) increased (decreased)
- ---------------------- ------------------------------ --------------------------- ----------------------------
Interest Income Rate Volume Net Rate Volume Net Rate Volume Net
--------------- ------------------------------ --------------------------- ----------------------------
Investments
Obligations of US
Government Agencies (5,440) 5,464 24 (1,126) 2,038 912 732 2,018 2,750
Obligations of States &
Political Subdivisions (220) 140 (80) 39 (519) (480) 140 (1,096) (956)
Other Securities (1,172) (2,505) (3,677) (2,344) 1,904 (440) 1,723 3,368 5,091
------------------------------ --------------------------- --------------------------
Total Investments (6,832) 3,099 (3,733) (3,431) 3,423 (8) 2,595 4,290 6,885
------------------------------ --------------------------- --------------------------
Loans
Commercial (5,631) (2,595) (8,226) (5,448) 4,895 (553) 3,095 2,902 5,997
Mortgage (380) (2,643) (3,023) 469 1,020 1,489 (74) 1,519 1,445
Consumer (847) (993) (1,840) (29) 718 689 (64) 2,027 1,963
------------------------------ --------------------------- --------------------------
Total Loans (6,858) (6,231) (13,089) (5,008) 6,633 1,625 2,957 6,448 9,405
Federal Funds Sold (587) 689 102 (380) 517 137 72 29 101
------------------------------ --------------------------- --------------------------
Total Interest Income (14,277) (2,443) (16,720) (8,819) 10,573 1,754 5,624 10,767 16,391
Interest Expense
----------------
Savings Accounts (1,149) 217 (932) (426) (76) (502) (608) 67 (541)
NOW Accounts (673) 145 (528) (149) (47) (196) (21) 26 5
Money Market Deposits (5,244) 2,553 (2,691) (2,126) 2,764 638 675 (797) (122)
Certificates of Deposit (5,523) (5,485) (11,008) (2,992) 29 (2,963) 3,083 283 3,366
Federal Funds Purchased (62) 73 11 (9) (290) (299) 47 (24) 23
FHLB Advances 0 0 0 (677) 3,853 3,176 182 8,478 8,660
------------------------------ --------------------------- --------------------------
Total Interest Expense (12,651) (2,497) (15,148) (6,379) 6,233 (146) 3,358 8,033 11,391
------------------------------ --------------------------- --------------------------
Net Interest Income (1,626) 54 (1,572) (2,440) 4,340 1,900 2,266 2,734 5,000
============================== =========================== ==========================
Due to a variety of reasons, including volatile interest rates in the past and
successful bidding in securing local municipal deposits, we have attempted, for
the last several years, to maintain a liquid investment position. The percentage
of securities held as Available for Sale increased from 67% as of December 31,
2001 to 78% as of December 31, 2002. As reflected in Note 3 to the consolidated
financial statements, the percentage of securities that mature within five years
was 39% as of December 31, 2001 and 2002. The table below presents the scheduled
maturities for each of the investment categories, and
10
the average yield on the amounts maturing. The yields presented for the
Obligations of States and Political Subdivisions are not tax equivalent yields.
The interest income on these securities is exempt from federal income tax. The
Corporation's statutory federal income tax rate is thirty-five percent.
Maturing
---------------------------------------------------------------------------------------------------------
Within 1 year 1 - 5 years 5 - 10 Years Over 10 Years Non-Maturing Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
----------------- ----------------- --------------- ------------------ -------------- ---------------
(Dollars in Thousands)
Obligations of US
Government Agencies $ 25,206 2.72% $ 126,038 3.13% $ 27,306 5.65% $ 147,169 4.10% $ - 0.00% $ 325,719 3.75%
Obligations of
States & Political
Subdivisions 11,847 3.87% 36,818 5.40% 59,277 5.24% 20,036 5.11% - 0.00% 127,978 5.14%
Other Securities - 0.00% 8,051 7.23% 21,162 7.14% 44,493 2.95% 12,334 5.60% 86,040 4.76%
----------------- ----------------- --------------- ----------------- -------------- ---------------
Total $ 37,053 3.09% $ 170,907 3.81% $ 107,745 5.72% $ 211,698 3.95% $ 12,334 5.60% $ 539,737 4.24%
================= ================= =============== ================= ============== ===============
Our loan policies also reflect our awareness of the need for liquidity. We have
shortened the average terms for most of our loan portfolios, in particular real
estate mortgages, the majority of which are normally written for five years or
less. The following table shows the maturities or repricing opportunities
(whichever is earlier) for the Bank's interest earning assets and interest
bearing liabilities at December 31, 2002. The repricing assumptions shown are
consistent with those established by the Bank's Asset and Liability Management
Committee (ALCO). Savings accounts and regular NOW accounts are non-maturing,
variable rate deposits, which may reprice as often as weekly, but are not
included in the zero to six month category because in actual practice, these
deposits are only repriced if there is a large change in market interest rates.
The effect of including these accounts in the zero to six-month category is
depicted in a subsequent table. Super NOW accounts and Money Market deposits are
also non-maturing, variable rate deposits, however, these accounts are included
in the zero to six-month category because they may get repriced following
smaller changes in market rates.
11
Assets/Liabilities at December 31, 2002, Maturing or Repricing in:
--------------------------------------------------------------------------
0 - 6 6 - 12 1 - 2 2 - 5 Over 5 Total
(Dollars in Thousands) Months Months Years Years Years Amount
---------------------- -------- --------- -------- -------- --------- ---------
Interest Earning Assets
-----------------------
US Treas Secs & Obligations of
US Gov't Agencies 244,077 40,034 33,207 - 8,401 325,719
Obligations of States & Political
Subdivisions 17,192 9,790 19,125 - 81,871 127,978
Other Securities 49,945 - 16,000 8,000 12,095 86,040
Commercial Loans 229,512 30,172 64,395 134,930 6,882 465,891
Mortgage Loans 10,304 11,532 24,454 87,029 35,444 168,763
Consumer Loans 13,335 12,232 22,750 33,408 20,538 102,263
Federal Funds Sold 13,000 - - - - 13,000
-------- --------- -------- -------- --------- ---------
Total Interest Earning Assets 577,365 103,760 179,931 263,367 165,231 1,289,654
-------- --------- -------- -------- --------- ---------
Interest Bearing Liabilities
----------------------------
Interest Bearing Demand Deposits 58,141 - - - - 58,141
Savings Deposits 340,855 - - - - 340,855
Other Time Deposits 144,596 37,571 39,897 125,352 - 347,416
FHLB Advances - - - - 225,000 225,000
-------- --------- -------- -------- --------- ---------
Total Interest Bearing Liabilities 543,592 37,571 39,897 125,352 225,000 971,412
-------- --------- -------- -------- --------- ---------
Gap 33,773 66,189 140,034 138,015 (59,769) 318,242
Cumulative Gap 33,773 99,962 239,996 378,011 318,242 318,242
Sensitivity Ratio 1.06 2.76 4.51 2.10 0.73 1.33
Cumulative Sensitivity Ratio 1.06 1.17 1.39 1.51 1.33 1.33
If savings and regular NOW accounts were included in the zero to six months
category, the Bank's gap would be as shown in the following table:
Assets/Liabilities at December 31, 2002, Maturing or Repricing in:
--------------------------------------------------------------------------------------
0-6 6-12 1-2 2-5 Over 5
Months Months Years Years Years Total
----------- ------------ --------- ---------- ---------- -----------
Total Interest Earning Assets 577,365 103,760 179,931 263,367 165,231 1,289,654
Total Interest Bearing Liabilities 684,428 37,571 39,897 125,352 225,000 1,112,248
----------- ------------ --------- ---------- ---------- -----------
Gap (107,063) 66,189 140,034 138,015 (59,769) 177,406
Cumulative Gap (107,063) (40,874) 99,160 237,175 177,406 177,406
Sensitivity Ratio 0.84 2.76 4.51 2.10 0.73 1.16
Cumulative Sensitivity Ratio 0.84 0.94 1.13 1.27 1.16 1.16
The amount of loans due after one year with floating interest rates is
$212,681,000.
The following table shows the remaining maturity for Certificates of Deposit
with balances of $100,000 or more:
12
Year Ended December 31,
-----------------------------------------
(Dollars in Thousands) 2002 2001 2000
-------- --------- ----------
Maturing Within
3 Months 58,859 85,858 135,807
3 - 6 Months 7,456 20,816 41,163
6 - 12 Months 10,948 11,890 29,970
Over 12 Months 42,106 18,602 14,481
-------- --------- ----------
Total 119,369 137,166 221,421
========= ========= ==========
For 2003, we expect interest rates to remain low through the first three
quarters of the year, as the economic growth continues to be hindered by the
geopolitical risks. We believe that the monetary stimulus provided by the
Federal Reserve and the proposed fiscal stimulus will prevent a return to
recession in the national economy. We expect our region to continue to recover
slowly as the manufacturing sector, particularly automotive related, lags behind
other sectors. This may translate into continued slow local loan demand and low
deposit growth. We expect to open two full service branches in southern Wayne
County in 2003. These branches, along with the loan production office and
mortgage center opened in 2002 are expected to contribute to an increase in
loans and deposits in 2003. This increase in loans is expected to produce a
small increase in Net Interest Income. We believe that our Allowance for Loan
Losses provides adequate coverage for the losses in our portfolio, and we
anticipate a large decrease in the Provision for Loan Losses. Due to slower
mortgage refinance activity, we only expect a small increase in non-interest
income. Expenses related to our additional offices and staffing increases will
cause a modest increase in non-interest expenses. As a result, we expect a small
increase in Net Income.
13
The following is an analysis of the transactions in the allowance for loan
losses:
Year Ended December 31,
--------------------------------------------------------------------
(Dollars in Thousands) 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Balance Beginning of Period 13,000 10,600 9,900 11,100 10,200
Loans Charged Off
Domestic
Commercial, Financial, and Agricultural 4,383 3,399 7,035 10,599 3,213
Secured by Real Estate 2,859 1,242 -- 174 --
Loans to Individuals 1,455 1,523 1,091 783 665
Recoveries
Domestic
Commercial, Financial, and Agricultural 1,351 619 2,138 802 1,372
Secured by Real Estate 135 111 -- -- --
Loans to Individuals 510 434 390 166 188
-------- -------- -------- -------- --------
Net Loans Charged Off 6,701 5,000 5,598 10,588 2,318
Provision Charged to Operations 6,101 7,400 6,298 9,388 3,218
-------- -------- -------- -------- --------
Balance End of Period 12,400 13,000 10,600 9,900 11,100
======== ======== ======== ======== ========
Ratio of Net Loans Charged Off to
Average Total Loans Outstanding 0.87% 0.59% 0.73% 1.52% 0.35%
======== ======== ======== ======== ========
The following analysis shows the allocation of the allowance for loan losses:
Year Ended December 31,
----------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------------- -------------------- ----------------------- ----------------- ------------------
% of loans % of loans % of loans % of loans % of loans
$ to total $ to total $ to total $ to total $ to total
(Dollars in Thousands) Amount loans Amount loans Amount loans Amount loans Amount loans
-------------------- -------------------- ----------------------- ----------------- ------------------
Balance at end of
period applicable to:
Domestic
Commercial,
Financial, and
Agricultural 2,933 13.1% 4,119 13.8% 4,426 19.0% 6,059 22.6% 5,731 25.6%
Real Estate
- Construction 94 7.3% 260 6.0% 185 4.5% 57 3.5% 96 3.9%
Real Estate
- Mortgage 8,108 70.4% 8,038 68.6% 5,172 62.8% 3,429 58.6% 4,433 56.7%
Loans to
Individuals 1,265 9.2% 583 11.6% 817 13.7% 355 15.3% 840 13.8%
Foreign - 0.0% - 0.0% - 0.0% - 0.0% - 0.0%
-------------------- -------------------- ----------------------- ----------------- ------------------
Total 12,400 100.0% 13,000 100.0% 10,600 100.0% 9,900 100.0% 11,100 100.0%
==================== ==================== ======================= ================= ==================
Each period the provision for loan losses in the income statement results from
the combination of an estimate by Management of loan losses that occurred during
the current period and the ongoing adjustment of prior estimates of losses.
To serve as a basis for making this provision, the Bank maintains an extensive
credit risk monitoring process that considers several factors including: current
economic conditions affecting the Bank's customers, the payment performance of
individual loans and pools of homogeneous loans, portfolio seasoning, changes in
collateral values, and detailed reviews of specific loan relationships. For
loans deemed to be impaired due to an expectation that all contractual payments
will probably not be received, impairment is measured by comparing the Bank's
recorded investment in the loan to the present value of expected cash flows
discounted at the loan's effective interest rate, the fair value of the
collateral, or the loan's observable market price. Year-end nonperforming
assets, which include nonaccrual loans, loans ninety days or more past due,
renegotiated debt, nonaccrual securities, and other real estate owned, increased
$16.7 million, or 60% from 2001 to 2002. Nonperforming assets as a percent of
total assets at year-end increased from 2.0% in 2001 to 3.2% in 2002. The
Allowance for Loan Losses as a percent of nonperforming assets at year-end
decreased from 47% in 2001 to 28% in 2002.
The provision for loan losses increases the allowance for loan losses, a
valuation account which appears on the consolidated statements of condition. As
the specific customer and amount of a loan loss is
14
confirmed by gathering additional information, taking collateral in full or
partial settlement of the loan, bankruptcy of the borrower, etc., the loan is
charged off, reducing the allowance for loan losses. If, subsequent to a charge
off, the Bank is able to collect additional amounts from the customer or sell
collateral worth more than earlier estimated, a recovery is recorded.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Bank faces market risk to the extent that the fair values of its financial
instruments are affected by changes in interest rates. The Bank does not face
market risk due to changes in foreign currency exchange rates, commodity prices,
or equity prices. The asset and liability management process of the Bank seeks
to monitor and manage the amount of interest rate risk. This is accomplished by
analyzing the differences in repricing opportunities for assets and liabilities
(gap analysis, as shown in Item 7), by simulating operating results under
varying interest rate scenarios, and by estimating the change in the net present
value of the Bank's assets and liabilities due to interest rate changes.
Each month, the Asset and Liability Committee (ALCO), which includes the senior
management of the Bank, estimates the effect of interest rate changes on the
projected net interest income of the Bank. The sensitivity of the Bank's net
interest income to changes in interest rates is measured by using a computer
based simulation model to estimate the impact on earnings of a gradual increase
or decrease of 100 basis points in the prime rate. The net interest income
projections are compared to a base case projection, which assumes no changes in
interest rates. The table below summarizes the net interest income sensitivity
as of December 31, 2002 and 2001.
Base Rates Rates
(Dollars in Thousands) Projection Up 1% Down 1%
------------ -------- ---------
Year-End 2002 12 Month Projection
- ---------------------------------
Interest Income 78,601 85,829 76,840
Interest Expense 29,671 34,654 27,837
------------ -------- ---------
Net Interest Income 48,930 51,175 49,003
Percent Change From
Base Projection 4.6% 0.1%
ALCO Policy Limit (+/-) 5.0% 5.0%
Base Rates Rates
(Dollars in Thousands) Projection Up 1% Down 1%
---------------------- ------------ -------- ---------
Year-End 2001 12 Month Projection
- ---------------------------------
Interest Income 88,287 92,410 84,510
Interest Expense 37,013 40,229 34,783
------------ -------- ---------
Net Interest Income 51,274 52,181 49,727
Percent Change From Base Projection 1.8% -3.0%
ALCO Policy Limit (+/-) 5.0% 5.0%
The Bank's ALCO has established limits in the acceptable amount of interest rate
risk, as measured by the change in the Bank's projected net interest income, in
its policy. Throughout 2002, the estimated variability of the net interest
income was within the Bank's established policy limits.
The ALCO also monitors interest rate risk by estimating the effect of changes in
interest rates on the economic value of the Bank's equity each month. The actual
economic value of the Bank's equity is first determined by subtracting the fair
value of the Bank's liabilities from the fair value of the Bank's assets. The
fair values are determined in accordance with Statement of Financial Accounting
Standards Number 107, Disclosures about Fair Value of Financial Instruments. The
Bank estimates the interest
15
rate risk by calculating the effect of market interest rate shocks on the
economic value of its equity. For this analysis, the Bank assumes immediate
increases or decreases of 100 and 200 basis points in the prime lending rate.
The discount rates used to determine the present values of the loans and
deposits, as well as the prepayment rates for the loans, are based on
Management's expectations of the effect of the rate shock on the market for
loans and deposits. The table below summarizes the amount of interest rate risk
to the fair value of the Bank's assets and liabilities and to the economic value
of the Bank's equity.
Fair Value at December 31, 2002
-------------------------------
Rates
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
- ---------------------- ------------------------------------------------------------------
Assets 1,423,339 1,403,002 1,382,282 1,443,392 1,463,252
Liabilities 1,252,659 1,221,105 1,190,916 1,285,665 1,308,038
------------------------------------------------------------------
Stockholders' Equity 170,680 181,897 191,366 157,727 155,214
Change in Equity 6.6% 12.1% -7.6% -9.1%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
Fair Value at December 31, 2001
-------------------------------
Rates
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
- ---------------------- ------------------------------------------------------------------
Assets 1,443,434 1,413,138 1,386,039 1,468,405 1,491,722
Liabilities 1,234,305 1,201,405 1,170,838 1,269,827 1,304,571
------------------------------------------------------------------
Stockholders' Equity 209,129 211,733 215,201 198,578 187,151
Change in Equity 24.1% 26.1% 16.3% 9.7%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
The Bank's ALCO has established limits in the acceptable amount of interest rate
risk, as measured by the change in economic value of the Bank's equity, in its
policy. Throughout 2002, the estimated variability of the economic value of
equity was within the Bank's established policy limits.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
See Pages 19 - 41
16
Independent Auditor's Report
To the Board of Directors and Stockholders
MBT Financial Corp.
We have audited the accompanying consolidated balance sheet of MBT Financial
Corp. as of December 31, 2002 and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MBT
Financial Corp. as of December 31, 2002 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Plante & Moran, PLLC
Auburn Hills, Michigan
January 15, 2003
17
The following is a copy of a previously issued report and has not been reissued
by Arthur Andersen LLP.:
Report of Independent Public Accountants
To the Stockholders and Board of Directors,
MBT Financial Corp.:
We have audited the accompanying consolidated statements of condition of MBT
FINANCIAL CORP. (a Michigan corporation) and subsidiary as of December 31, 2001
and 2000, and the related consolidated statements of income, cash flows, and
changes in stockholders' equity for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Corporation's Management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by Management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MBT Financial Corp.
and subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Detroit, Michigan,
January 14, 2002.
18
CONSOLIDATED STATEMENTS OF CONDITION
- --------------------------------------------------------------------------------
DECEMBER 31,
2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 2) $ 30,617,744 $ 26,137,120
Federal funds sold 13,000,000 40,000,000
Investment securities (Notes 1, 3, and 12)-
Held to maturity-
Obligations of U.S. Government agencies (Estimated market
value of $648,639 and $30,197,409) 587,515 30,044,083
Obligations of states and political subdivisions (Estimated
market value of $117,967,604 and $131,920,520) 113,255,101 129,074,829
Other securities (Estimated market value of
$2,974,758 and $2,961,534) 2,976,323 2,968,261
Available for sale-
Obligations of U.S. Government agencies 325,131,327 225,705,947
Obligations of states and political subdivisions 14,722,946 8,142,334
Other securities 83,064,019 101,565,802
Loans (Notes 4 and 12) 773,360,172 786,223,795
Loans held for sale (Notes 1, 4, and 12) 445,009 1,601,257
Allowance for loan losses (Note 5) (12,400,000) (13,000,000)
Bank premises and equipment, net (Notes 1 and 6) 15,437,116 14,501,021
Other real estate owned (Note 1) 15,087,816 4,326,219
Interest receivable and other assets (Notes 7 and 13) 34,409,358 36,877,084
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,409,694,446 $ 1,394,167,752
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing demand deposits $ 123,596,144 $ 122,866,335
Interest bearing demand deposits 69,755,660 67,936,942
Savings deposits 470,192,391 439,381,209
Other time deposits (Notes 8 and 12) 347,415,904 368,695,291
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits (Note 8) 1,010,960,099 998,879,777
Federal Home Loan Bank advances (Notes 9 and 12) 225,000,000 225,000,000
Interest payable and other liabilities (Note 10) 6,734,704 8,557,831
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,242,694,803 1,232,437,608
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock (no par value; 30,000,000 shares authorized, 19,160,441
and 19,752,542 shares issued and outstanding) (Note 11) - -
Surplus 51,080,339 58,988,726
Undivided profits 115,395,181 104,055,944
Net unrealized gains (losses) on securities available
for sale, net of tax (Note 1) 524,123 (1,314,526)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (Note 14) 166,999,643 161,730,144
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,409,694,446 $ 1,394,167,752
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
19
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 59,179,975 $ 72,269,144 $ 70,643,404
Interest on investment securities-
Obligations of U.S. Government agencies 13,105,627 13,081,497 12,169,347
Obligations of states and
political subdivisions 6,740,834 6,821,370 7,301,903
Other securities 5,028,319 8,705,267 9,144,849
Interest on Federal funds sold 549,177 447,210 310,161
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 84,603,932 101,324,488 99,569,664
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits (Note 8) 21,469,234 36,627,461 39,651,368
Interest on borrowed funds (Note 9) 12,918,181 12,907,884 10,029,624
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 34,387,415 49,535,345 49,680,992
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 50,216,517 51,789,143 49,888,672
PROVISION FOR LOAN LOSSES (Note 5) 6,101,316 7,399,901 6,298,461
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 44,115,201 44,389,242 43,590,211
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Income from trust services 3,496,731 3,391,795 3,908,510
Service charges on deposit accounts 4,522,516 2,857,921 2,142,901
Security gains 1,324,909 416,657 18,237
Other (Note 7) 3,446,664 3,984,424 2,639,054
- --------------------------------------------------------------------------------------------------------------------------
Total other income 12,790,820 10,650,797 8,708,702
- --------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits (Note 10) 14,223,824 13,026,670 12,155,915
Occupancy expense 2,327,794 2,173,711 2,176,110
Other 10,437,173 9,608,905 8,762,181
- --------------------------------------------------------------------------------------------------------------------------
Total other expenses 26,988,791 24,809,286 23,094,206
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 29,917,230 30,230,753 29,204,707
PROVISION FOR INCOME TAXES (Note 13) 8,113,585 8,306,553 8,031,184
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 21,803,645 $ 21,924,200 $ 21,173,523
==========================================================================================================================
COMPREHENSIVE INCOME (Note 1) $ 23,642,294 $ 24,238,990 $ 18,912,671
==========================================================================================================================
BASIC EARNINGS PER COMMON SHARE (after
deducting preferred stock dividends) (Notes 11 and 15) $ 1.12 $ 1.10 $ 1.06
==========================================================================================================================
DILUTED EARNINGS PER COMMON SHARE (Note 15) $ 1.12 $ 1.10 $ 1.06
==========================================================================================================================
The accompanying notes are an integral part of these statements.
20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
OTHER TOTAL
PREFERRED COMMON UNDIVIDED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK SURPLUS PROFITS INCOME (LOSS) EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE
JANUARY 1, 2000 $ 200,000 $ - $ 62,500,000 $ 78,315,956 $ (1,368,464) $ 139,647,492
ADD (DEDUCT)
Comprehensive Income (Loss) (Note 1)
Net income for the year 21,173,523 21,173,523
Net unrealized losses on securities
available for sale (Note 1) (2,260,852) (2,260,852)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income (Loss) - - - 21,173,523 (2,260,852) 18,912,671
Redemption of preferred stock (Note 11) (200,000) (200,000)
Dividends declared-
Preferred ($2.60 per share) (5,200) (5,200)
Common ($.37 per share) (7,400,000) (7,400,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 2000 $ - $ - $ 62,500,000 $ 92,084,279 $ (3,629,316) $ 150,954,963
ADD (DEDUCT)
Comprehensive Income (Note 1)
Net income for the year 21,924,200 21,924,200
Net unrealized gains on securities
available for sale (Note 1) 2,314,790 2,314,790
- ------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income - - - 21,924,200 2,314,790 24,238,990
Repurchase of 247,458 shares of
common stock (Note 11) (3,511,274) (3,511,274)
Dividends declared-
Common ($.50 per share) (9,952,535) (9,952,535)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 2001 $ - $ - $ 58,988,726 $ 104,055,944 $ (1,314,526) $ 161,730,144
ADD (DEDUCT)
Comprehensive Income (Note 1)
Net income for the year 21,803,645 21,803,645
Net unrealized gains on securities
available for sale (Note 1) 1,838,649 1,838,649
- ------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income - - - 21,803,645 1,838,649 23,642,294
Repurchase of 592,101 shares of
common stock (Note 11) (7,908,387) (7,908,387)
Dividends declared-
Common ($.54 per share) (10,464,408) (10,464,408)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 2002 $ - $ - $ 51,080,339 $ 115,395,181 $ 524,123 $ 166,999,643
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Interest and fees received $ 83,249,922 $ 105,681,439 $ 99,953,089
Other income received 11,465,911 10,234,139 8,690,464
Interest paid (34,690,235) (50,590,873) (49,222,123)
Cash paid to employees and others (25,294,668) (20,971,749) (37,880,137)
Income taxes paid (8,869,859) (9,870,000) (6,738,000)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 25,861,071 $ 34,482,956 $ 14,803,293
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities held to maturity $ 59,979,550 $ 682,740,824 $ 113,817,025
Proceeds from maturities of investment
securities available for sale 479,090,000 291,958,080 15,498,313
Proceeds from sales of investment
securities available for sale 52,620,752 66,599,091 22,698,308
Net (increase) decrease in loans (5,572,182) 16,139,350 (116,259,518)
Proceeds from sales of other real estate owned 1,719,908 1,503,501 1,341,237
Proceeds from sales of other assets 112,826 87,475 11,000
Purchase of investment securities held to maturity (10,959,000) (468,825,048) (135,994,735)
Purchase of investment securities available for sale (616,156,466) (616,471,490) (22,586,160)
Purchase of bank premises and equipment (3,038,423) (2,806,962) (3,733,419)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities $ (42,203,035) $ (29,075,179) $(125,207,949)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Net increase in demand, interest bearing
demand, and savings deposits $ 33,359,709 $ 103,716,436 $ 12,458,519
Net increase (decrease) in other time deposits (21,279,387) (99,433,104) 38,061,711
Net increase in Federal Home Loan Bank advances - - 100,000,000
Redemption of preferred stock - - (200,000)
Repurchase of common stock (7,908,387) (3,511,274) -
Dividends paid (10,349,347) (9,582,754) (8,205,200)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities $ (6,177,412) $ (8,810,696) $ 142,115,030
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (22,519,376) $ (3,402,919) $ 31,710,374
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR (Note 1) 66,137,120 69,540,039 37,829,665
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 43,617,744 $ 66,137,120 $ 69,540,039
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 21,803,645 $ 21,924,200 $ 21,173,523
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,102,331 1,995,498 1,805,138
Provision for loan losses 6,101,316 7,399,901 6,298,461
Increase in cash surrender value of banked owned life insurance 797,437 765,515 199,014
Deferred Federal income taxes 1,607,000 (1,508,000) (301,000)
Amortization of investment premium and discount (2,657,213) 2,880,510 280,986
Net increase (decrease) in interest payable and other liabilities (1,823,127) (276,939) 1,081,894
Net (increase) decrease in interest receivable and other assets 421,162 2,174,614 (16,924,629)
Net increase (decrease) in deferred loan fees (45,687) (205,576) 358,300
Other (2,445,793) (666,767) 831,606
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 25,861,071 $ 34,482,956 $ 14,803,293
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Transfer of loans to other real estate owned $ 12,932,423 $ 3,216,263 $ 1,500,370
- ------------------------------------------------------------------------------------------------------------------------------------
Transfer of loans to other assets $ 4,000 $ 147,826 $ 61,475
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of MBT Financial
Corp. (the "Corporation") and its wholly owned subsidiary, Monroe Bank &
Trust (the "Bank"). The Bank includes the accounts of its wholly owned
subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services, Inc.
The Bank operates twenty-one offices in Monroe County, Michigan and one
office in Wayne County, Michigan. MBT Credit Company, Inc. operates a
mortgage loan office in Monroe County and a loan and trust office in Wayne
County. The Bank's primary source of revenue is from providing loans to
customers, who are predominantly small and middle-market businesses and
middle-income individuals. The Corporation's sole business segment is
community banking.
At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust,
shareholders approved a proposal that resulted in the Bank reorganizing
into a one-bank holding company. The holding company formation involved
merging Monroe Bank & Trust with Monroe Interim Bank, a state chartered
bank organized solely for the purpose of this transaction. The merger of
Monroe Bank & Trust and Monroe Interim Bank, a combination of entities
under common control, was treated in a manner similar to a pooling of
interests. The financial information for all prior periods was restated in
the consolidated financial statements for MBT Financial Corp. to present
the statements as if the merger had been in effect for all periods
presented.
The reorganization resulted in an exchange of the Monroe Bank & Trust
common stock for MBT Financial Corp. common stock. The exchange rate was
two shares of MBT Financial Corp. for each share of Monroe Bank & Trust.
Monroe Bank & Trust previously had 10,000,000 common shares authorized and
outstanding, with a par value of $3.125 per share. MBT Financial Corp. has
30,000,000 shares authorized, of which 19,160,441 are outstanding at
December 31, 2002. The MBT Financial Corp. common stock has no par value.
Monroe Bank & Trust is now a wholly owned subsidiary of MBT Financial
Corp., a registered bank holding company.
The accounting and reporting policies of the Bank conform to practice
within the banking industry and are in accordance with accounting
principles generally accepted in the United States. Preparation of
financial statements in conformity with generally accepted accounting
principles requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant changes in the
near term are the determination of the allowance for loan losses and the
valuation of other real estate owned.
The significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiary. All material intercompany transactions and
balances have been eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
INVESTMENT SECURITIES
Investment securities that are "held to maturity" are stated at cost, and
adjusted for accumulated amortization of premium and accretion of discount.
The Bank has the intention and, in
24
Management's opinion, the ability to hold these investment securities until
maturity. Investment securities that are "available for sale" are stated at
estimated market value, with the related unrealized gains and losses
reported as an amount, net of taxes, as a separate component of
stockholders' equity. The market value of securities is based on quoted
market prices. For securities that do not have readily available market
values, estimated market values are calculated based on the market values
of comparable securities. Gains and losses on the sale of securities are
determined using the specific identification method. Premiums and discounts
are recognized in interest income using the interest method over the term
of the security.
LOANS
The Bank grants mortgage, commercial, and consumer loans to customers.
Loans are reported at their outstanding unpaid principal balances, adjusted
for charge offs, the allowance for loan losses, and any deferred fees or
costs on originated loans. Interest income is accrued on the unpaid
principal balance. Loan origination fees, net of certain direct origination
costs, are decreased and recognized as an adjustment of the related loan
yield using the interest method.
The accrual of interest on loans is discontinued at the time the loan is 90
days delinquent unless the credit is well secured and in the process of
collection. In all cases, loans are placed on nonaccrual or charged off at
an earlier date if principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest
on these loans is accounted for on the cash basis or cost recovery method,
until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
LOANS HELD FOR SALE
Loans held for sale consist of fixed rate residential mortgage loans with
maturities of 15 to 30 years. Such loans are recorded at the lower of
aggregate cost or estimated fair value.
IMPAIRED LOANS
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by Management
in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case by case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including length of the delay, the reasons for the
delay, the borrower's prior payment record, and the amount of the shortfall
in relation to the principal and interest owed. Impairment is measured on a
loan by loan basis by either the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
FORECLOSED ASSETS (INCLUDES OTHER REAL ESTATE OWNED)
Assets acquired through, or in lieu of, loan foreclosure are held for sale
and are initially recorded at fair value at the date of the foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by Management and the assets are carried at the
lower of carrying amount or fair value less cost to sell. Revenue and
expenses from operations and changes in the valuation allowance are
included in net expenses from foreclosed assets.
25
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation of $20,453,911 in 2002 and $18,505,966 in 2001. The Bank uses
the straight-line method to provide for depreciation, which is charged to
operations over the estimated useful lives of the assets. Depreciation
expense amounted to $2,102,331 in 2002, $1,995,498 in 2001, and $1,805,138
in 2000.
The cost of assets retired and the related accumulated depreciation are
eliminated from the accounts and the resulting gains or losses are
reflected in operations in the year the assets are retired.
COMPREHENSIVE INCOME
Accounting principles generally require that revenue, expenses, gains, and
losses be included in net income. Certain changes in assets and
liabilities, however, such as unrealized gains and losses on securities
available for sale, are reported as a separate component of the equity
section of the balance sheet. Such items, along with net income, are
components of comprehensive income.
The components of accumulated other comprehensive income (loss) and related
tax effects are as follows:
2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities available for sale $ 806,343 $ (2,022,347) $ (5,583,563)
Tax effect (282,220) 707,821 1,954,247
----------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ 524,123 $ (1,314,526) $ (3,629,316)
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents include cash and due from banks and Federal funds
sold. Generally, cash equivalents have daily maturities.
STOCK-BASED COMPENSATION
The Corporation applies the intrinsic value method of APB Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock plans as allowed under SFAS 123, "Accounting for
Stock-Based Compensation."
CREDIT RELATED FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into commitments
to extend credit, including commitments under credit card agreements,
commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded when they are funded.
ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1999, the Bank adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 137 and
SFAS 138. The impact of SFAS 133 was not material to the Bank's financial
statements.
(2) CASH AND DUE FROM BANKS
The Bank is required by regulatory agencies to maintain legal reserve
requirements based on the level of balances in deposit categories. Cash
balances restricted from usage due to these requirements were $1,937,000
and $13,808,000 at December 31, 2002 and 2001, respectively. Cash and due
from banks includes deposits held at correspondent banks in excess of FDIC
insurance limits.
26
(3) INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as
of December 31, 2002 and 2001 (000's omitted):
HELD TO MATURITY
DECEMBER 31, 2002
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 588 $ 61 $ - $ 649
Obligations of States and Political
Subdivisions 113,255 4,793 (81) 117,967
Other Securities 2,976 1 (2) 2,975
- -----------------------------------------------------------------------------------------------------------------------
$ 116,819 $ 4,855 $ (83) $ 121,591
- -----------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2002
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 322,878 $ 2,270 $ (17) $ 325,131
Obligations of States and Political
Subdivisions 14,680 505 (462) 14,723
Other Securities 84,554 337 (1,827) 83,064
- ------------------------------------------------------------------------------------------------ ----------------------
$ 422,112 $ 3,112 $ (2,306) $ 422,918
- -----------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY
DECEMBER 31, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 30,044 $ 211 $ (58) $ 30,197
Obligations of States and Political
Subdivisions 129,075 3,245 (399) 131,921
Other Securities 2,968 - (7) 2,961
- -----------------------------------------------------------------------------------------------------------------------
$ 162,087 $ 3,456 $ (464) $ 165,079
- -----------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 226,027 $ 682 $ (1,003) $ 225,706
Obligations of States and Political
Subdivisions 8,646 - (504) 8,142
Other Securities 102,763 1,075 (2,272) 101,566
- -----------------------------------------------------------------------------------------------------------------------
$ 337,436 $ 1,757 $ (3,779) $ 335,414
- -----------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated market value of securities at December 31,
2002 and 2001, by contractual maturity, are shown below. Expected
maturities will differ from contractual
27
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties (000's omitted).
HELD TO MATURITY
DECEMBER 31, 2002 DECEMBER 31, 2001
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 11,813 $ 11,905 $ 15,812 $ 15,866
1 to 5 years 39,794 41,626 46,617 48,011
5 to 10 years 49,870 52,392 53,773 55,453
Over 10 years 15,342 15,668 45,885 45,749
- ------------------------------------------------------------------------------------------------------------------
$ 116,819 $ 121,591 $ 162,087 $ 165,079
- ------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2002 DECEMBER 31, 2001
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 25,175 $ 25,240 $ 5,206 $ 5,239
1 to 5 years 130,600 131,113 126,968 127,212
5 to 10 years 57,563 57,875 109,621 109,569
Over 10 years 196,520 196,356 83,391 81,118
Securities with no stated maturity 12,254 12,334 12,250 12,276
- ------------------------------------------------------------------------------------------------------------------
$ 422,112 $ 422,918 $ 337,436 $ 335,414
- ------------------------------------------------------------------------------------------------------------------
Investment securities carried at $283,965,618 and $176,302,554 were pledged
or set aside to secure borrowings, public and trust deposits, and for other
purposes required by law at December 31, 2002 and December 31, 2001,
respectively.
At December 31, 2002, Obligations of U. S. Government Agencies included
securities issued by the Federal Home Loan Bank with an estimated market
value of $181,865,055. At December 31, 2001, Obligations of U. S.
Government Agencies included securities issued by the Federal Home Loan
Bank with an estimated market value of $239,625,466.
Obligations of States and Political Subdivisions included securities
carried at $87,550 and $231,750 as of December 31, 2002 and December 31,
2001, respectively, that were more than ninety days past due on their
interest payments. These securities are in nonaccrual status. Due to the
decline in creditworthiness of the issuer, the securities were reclassified
from Held to Maturity to Available for Sale in 2001.
At December 31, 2002 and December 31, 2001, Other Securities Available for
Sale included Federal Home Loan Bank of Indianapolis common stock valued at
$11,250,000. This stock is recorded at cost and is restricted from sale.
28
(4) LOANS
Loans balances outstanding as of December 31 consist of the following:
2002 2001
- --------------------------------------------------------------------------------------------------
Real estate loans $ 610,530,112 $ 595,255,497
Loans to finance agricultural production and
other loans to farmers 2,181,725 2,855,577
Commercial and industrial loans 91,717,199 99,978,957
Loans to individuals for household, family,
and other personal expenditures 70,403,528 90,675,451
All other loans (including overdrafts) 563,349 695,988
- --------------------------------------------------------------------------------------------------
Total loans, gross $ 775,395,913 $ 789,461,470
Less: Deferred loan fees 1,590,732 1,636,418
- --------------------------------------------------------------------------------------------------
Total loans, net of deferred loan fees $ 773,805,181 $ 787,825,052
Less: Allowance for loan losses 12,400,000 13,000,000
- --------------------------------------------------------------------------------------------------
$ 761,405,181 $ 774,825,052
- --------------------------------------------------------------------------------------------------
The following is a summary of impaired loans:
Amounts in thousands 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Year-end impaired loans with no allowance for loan losses
allocated $ 37,201 $ 28,325 $ 11,647
Year-end impaired loans with allowance for loan losses allocated 60,898 56,107 25,919
Year-end allowance for loan losses allocated to impaired loans 7,291 8,012 5,458
Average investment in impaired loans 57,738 44,769 33,885
Interest income recognized on impaired loans 3,486 2,332 2,118
Cash basis interest income recognized on impaired loans during
the year 3,486 2,332 2,118
- ------------------------------------------------------------------------------------------------------------------
In 2001, the Bank sold the consumer portion of its credit card loan
portfolio. The amount of loans sold was $6,813,023 and the gain recognized
on the sale of these loans was $408,781. Also in 2001, the Bank sold a
portion of its commercial lease loans. The amount of loans sold was
$17,629,669 and the gain on the sale of these loans was $308,519. The gains
on these sales are included in other non-interest income. The Allowance for
Loan Losses on these loans sold was $410,000. The Bank allocated this
amount to the remainder of the loan portfolio.
Included in Loans are loans to certain officers, directors, and companies
in which such officers and directors have 10 percent or more beneficial
ownership in the aggregate amount of $11,551,831 and $19,491,938 at
December 31, 2002 and 2001, respectively. In 2002, new loans and other
additions amounted to $1,888,526, and repayments and other reductions
amounted to $9,828,633. In Management's judgment, these loans were made on
substantially the same terms and conditions as those made to other
borrowers, and do not represent more than the normal risk of collectibility
or present other unfavorable features.
Loans carried at $167,635,947 and $167,166,112 at December 31, 2002 and
2001, respectively, were pledged to secure Federal Home Loan Bank advances.
29
(5) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------
Balance beginning of year $ 13,000,000 $ 10,600,000 $ 9,900,000
Provision for loan losses 6,101,316 7,399,901 6,298,461
Loans charged off (8,696,987) (6,163,810) (8,126,386)
Recoveries 1,995,671 1,163,909 2,527,925
- -----------------------------------------------------------------------------------------------------------
Balance end of year $ 12,400,000 $ 13,000,000 $ 10,600,000
- -----------------------------------------------------------------------------------------------------------
Each period the provision for loan losses in the income statement results
from the combination of an estimate by Management of loan losses that
occurred during the current period and the ongoing adjustment of prior
estimates of losses occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an
extensive credit risk monitoring process that considers several factors
including: current economic conditions affecting the Bank's customers, the
payment performance of individual loans and pools of homogeneous loans,
portfolio seasoning, changes in collateral values, and detailed reviews of
specific loan relationships. For loans deemed to be impaired due to an
expectation that all contractual payments will probably not be received,
impairment is measured by comparing the Bank's recorded investment in the
loan to the present value of expected cash flows discounted at the loan's
effective interest rate, the fair value of the collateral, or the loan's
observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which appears on the consolidated statements of
condition. As the specific customer and amount of a loan loss is confirmed
by gathering additional information, taking collateral in full or partial
settlement of the loan, bankruptcy of the borrower, etc., the loan is
charged off, reducing the allowance for loan losses. If, subsequent to a
charge off, the Bank is able to collect additional amounts from the
customer or sell collateral worth more than earlier estimated, a recovery
is recorded.
(6) BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of year end are as follows:
2002 2001
- ---------------------------------------------------------------------------------------------
Land, buildings and improvements $ 19,539,400 $ 18,114,758
Equipment, furniture and fixtures 16,351,627 14,892,229
- ----------------------------------------------------------------------------------------------
Total Bank premises and equipment $ 35,891,027 $ 33,006,987
Less accumulated depreciation 20,453,911 18,505,966
- ----------------------------------------------------------------------------------------------
Bank premises and equipment, net $ 15,437,116 $ 14,501,021
- ----------------------------------------------------------------------------------------------
(7) INTEREST RECEIVABLE AND OTHER ASSETS
The Bank includes the cash surrender value of Bank Owned Life Insurance
(BOLI) in Interest Receivable and Other Assets on the accompanying
consolidated statements of condition. The cash surrender value of the BOLI
was $16,985,298 at December 31, 2002 and $15,458,861 at December 31, 2001.
The following is a description of the components of the BOLI:
DIRECTOR SPLIT-DOLLAR LIFE INSURANCE
On December 21, 2000, the Bank entered into director split-dollar life
insurance agreements with each of its ten directors. Under the split-dollar
agreement, the policy's interests are divided between the Bank and the
director. The Bank owns the cash surrender value, including the accumulated
policy earnings, with each director's beneficiaries receiving a fixed
amount that is
30
based on his or her years of director service and the Bank receiving the
remainder of the death benefits. The Bank fully paid the premiums for these
ten policies with one lump sum premium payment in the amount of $4,937,000.
The increase in cash surrender value is recorded as other non-interest
income. As of December 31, 2002, the Bank would not recover in full the
cash value from the Bank's portion of the policies' death benefits. During
2003, the Bank will adjust the policies to cover the cash surrender value.
The directors' death benefits are $500,000 for director service of less
than 3 years, $600,000 for service up to 5 years, $750,000 for service up
to 10 years, and $1,000,000 for director service of 10 years or more.
SALARY CONTINUATION AGREEMENT AND LIFE INSURANCE POLICY
The Bank entered into a Salary Continuation Agreement with Ronald D.
LaBeau, President and Chief Executive Officer of the Bank on December 27,
2000. This agreement provides that the Bank will pay an annual salary
continuation benefit of $139,600 to Mr. LaBeau or his designated
beneficiaries for 10 years after his retirement on or after reaching the
normal retirement age of 65.
At the same time it entered into the Salary Continuation Agreement with Mr.
LaBeau, the Bank purchased an insurance policy on Mr. LaBeau's life, with a
single premium payment of $5,880,000. The Bank expects to recover in full
the premium paid by it from the Bank's portion of the policy's death
benefits. If Mr. LaBeau dies before age 65 while in active service to the
Bank, his beneficiaries will receive life insurance proceeds of $958,837.
If he dies after retirement, his beneficiaries will receive any payments to
which Mr. LaBeau would have been entitled under the Salary Continuation
Agreement, but none of the life insurance proceeds.
The contractual entitlements under the Salary Continuation Agreement are
not funded. These contractual entitlements remain contractual liabilities
of Monroe Bank & Trust, payable upon Mr. LaBeau's termination of
employment. The life insurance policy is in addition to the split-dollar
insurance policy purchased by the Bank on Mr. LaBeau's life for his service
as a director, discussed previously, and the split-dollar insurance policy
discussed in "Executive Group Term Carve Out Split-Dollar Life Insurance
Agreements" below.
EXECUTIVE GROUP TERM CARVE OUT SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
In addition to insurance policies on the lives of the directors and the
President and Chief Executive Officer of the Bank, the Bank owns life
insurance on the lives of several executives, for which the Bank made
premium payments of $4,413,421 in the aggregate. The Bank and the
executives share rights to death benefits payable under the policies. An
executive's beneficiaries are entitled to an amount equal to two times the
executive's current annual salary, less $50,000 if he or she dies before
retirement, or equal to his or her annual salary at the time of termination
of employment if he or she dies after retirement. The Bank will receive the
remainder of the death benefits. The Bank expects to recover in full the
premium paid by it from the Bank's portion of the policy's death benefits
or upon the cancellation or purchase of the policies by the executives. The
executives also have life insurance under the Bank's group term life
insurance program for all employees, which pays benefits up to $50,000 to
the executive's beneficiaries if he or she dies while employed by the Bank.
(8) DEPOSITS
Interest expense on time certificates of deposit of $100,000 or more in the
year 2002 amounted to $3,997,632, as compared with $10,749,159 in 2001 and
$14,421,190 in 2000. At December 31, 2002, the balance of time certificates
of deposit of $100,000 or more was $119,368,515, as compared with
$137,166,164 at December 31, 2001. The amount of time deposits with a
31
remaining term of more than 1 year was $180,030,000 at December 31, 2002
and $131,645,000 at December 31, 2001. All time deposits have a remaining
term of less than 5 years. The following table shows the scheduled
maturities for Certificates of Deposit as of December 31, 2002:
$100,000 and
Under $100,000 over
------------------------------------------------------------
2003 $ 90,264,009 $ 77,262,716
2004 43,251,696 11,127,061
2005 44,912,395 14,746,562
2006 7,646,443 1,714,467
2007 41,972,846 14,517,709
Thereafter 0 0
------------------------------------------------------------
Total $ 228,047,389 $ 119,368,515
------------------------------------------------------------
(9) FEDERAL HOME LOAN BANK ADVANCES
As of December 31, 2002 and December 31, 2001, the Bank had ten loans from
the Federal Home Loan Bank of Indianapolis totaling $225,000,000. All of
these advances carry fixed rates of interest and contain a put option that
allows the FHLB to require repayment or conversion to a variable rate
advance each quarter. The average rate on the advances is 5.65%, and no
principal payments are required until the final maturities in 2009 and
2010. If converted by the FHLB, the interest rates would float quarterly at
rates ranging from 3 month LIBOR to 3 month LIBOR plus .02%
(10) RETIREMENT PLANS
In 2000, the Bank implemented a retirement plan that included both a money
purchase pension plan, as well as a voluntary profit sharing 401(k) plan
for all employees who meet certain age and length of service eligibility
requirements. In 2002, the Bank amended its retirement plan to freeze the
money purchase plan and retain the 401(k) plan. To ensure that the plan
meets the Safe Harbor provisions of the applicable sections of the Internal
Revenue Code, the Bank contributes an amount equal to four percent of the
employee's base salary to the 401(k) plan for all eligible employees. In
addition, an employee may contribute from 1 to 75 percent of his or her
base salary, up to a maximum of $11,000 in 2002. This annual contribution
limit increases by $1,000 each year until it reaches $15,000 in 2006. The
Bank matches the employee's elective contribution up to the first six
percent of the employee's annual base salary. Depending on the Bank's
profitability, an additional profit sharing contribution may be made by the
Bank to the 401(k) plan. The total retirement plan expense was $914,776 for
the year ended December 31, 2002, $800,549 for the year ended December 31,
2001, and $799,870 for the year ended December 31, 2000. This included a
three percent profit sharing contribution for each year.
The Bank has a postretirement benefit plan that generally provides for the
continuation of medical benefits for all employees who retire from the Bank
at age 55 or older, upon meeting certain length of service eligibility
requirements. The Bank does not fund its postretirement benefit obligation.
Rather, payments are made as costs are incurred by covered retirees. The
amount of benefits paid under the postretirement benefit plan was $83,774
in 2002, $71,249 in 2001, and $64,417 in 2000. The amount of insurance
premium paid by the Bank for retirees is capped at 200% of the cost of the
premium as of December 31, 1992.
32
A reconciliation of the accumulated postretirement benefit obligation
("APBO") to the amounts recorded in the consolidated statements of
condition in Interest Payable and Other Liabilities at December 31 is as
follows:
2002 2001
-------------------------------------------------------------------------------------------------------------------------
APBO $ 1,757,054 $ 1,513,401
Unrecognized net transition obligation (535,905) (589,495)
Unrecognized prior service costs (43,906) (47,740)
Unrecognized net gain 23,787 196,776
-------------------------------------------------------------------------------------------------------------------------
Liability recorded in the consolidated statements of condition $ 1,201,030 $ 1,072,942
-------------------------------------------------------------------------------------------------------------------------
The changes recorded in the accumulated postretirement benefit obligation
were as follows:
2002 2001
-------------------------------------------------------------------------------------------------------------------------
APBO at beginning of year $ 1,513,401 $ 1,426,448
Service cost 49,438 41,707
Interest cost 109,608 106,488
Actuarial loss 168,381 10,007
Benefits paid during year (83,774) (71,249)
-------------------------------------------------------------------------------------------------------------------------
APBO at end of year $ 1,757,054 $ 1,513,401
-------------------------------------------------------------------------------------------------------------------------
Components of the Bank's postretirement benefit expense were as follows:
2002 2001 2000
-------------------------------------------------------------------------------------------------------------------------
Service cost $ 49,438 $ 41,707 $ 38,952
Interest cost 109,608 106,488 99,307
Amortization of transition obligation 53,590 53,590 53,590
Prior service costs 3,834 3,834 3,834
Amortization of gains (4,608) (7,590) (17,994)
-------------------------------------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 211,862 $ 198,029 $ 177,689
-------------------------------------------------------------------------------------------------------------------------
The APBO as of December 31, 2002 and 2001 was calculated using assumed
discount rates of 6.75% and 7.25%, respectively. Health care costs were
assumed to rise 6.10% in 2003, with the assumed rate of increase decreasing
uniformly each year thereafter to a minimum of 5.50% in 2005 and
thereafter. To illustrate the significance of these assumptions, a rise in
the assumed rate of health care cost increases of 1.00% each year would
change the APBO as of December 31, 2002 by 0.88%, or $15,383.
(11) STOCKHOLDERS' EQUITY
On December 21, 2000, the Corporation's Board of Directors authorized the
repurchase of up to 2 million shares of MBT Financial Corp. common stock
during the two-year period beginning January 2, 2001. As of December 31,
2002, 839,559 shares had been repurchased at a total cost of $11,419,661.
On December 19, 2002, the Board of Directors extended the repurchase
program until December 31, 2004.
On July 1, 2000, the Bank merged with Monroe Interim Bank, becoming a
wholly owned subsidiary of the Corporation. The Corporation has 30,000,000
common shares authorized, with no par value. Shares issued and outstanding
were 19,160,441 as of December 31, 2002 and 19,752,542 as of December 31,
2001.
On February 29, 2000, the Bank redeemed its preferred stock. Preferred
stock consisted of 2,000 shares of $100 par value, non-voting, cumulative
preferred stock. The preferred stock was redeemed at its par value, plus
accrued dividends.
33
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain of the Bank's assets and liabilities are financial instruments that
have fair values that differ from their carrying values in the accompanying
consolidated statements of condition. These fair values, along with the
methods and assumptions used to estimate such fair values, are discussed
below. The fair values of all financial instruments not discussed below are
estimated to be equal to their carrying values as of December 31, 2002 and
2001.
INVESTMENT SECURITIES
Fair value for the Bank's investment securities was determined using the
market value at December 31, 2002 and 2001. These Estimated Market Values
are disclosed in Note 3.
LOANS, NET
The fair value of all loans is estimated by discounting the future cash
flows associated with the loans, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. The estimated fair value of loans at December
31, 2002, net of the allowance for loan losses, is $788,730,860, compared
to the carrying value of $761,405,181. The estimated fair value of loans at
December 31, 2001, net of the allowance for loan losses, was $776,550,136,
compared to the carrying value of $774,825,052.
OTHER TIME DEPOSITS
The fair value of other time deposits, consisting of fixed maturity
certificates of deposit, is estimated by discounting the related cash flows
using the rates currently offered for deposits of similar remaining
maturities. The estimated fair value of other time deposits at December 31,
2002 is $358,887,142, compared to the carrying value of $347,415,904. The
estimated fair value of other time deposits at December 31, 2001 was
$374,463,850, compared to the carrying value of $368,695,291.
FEDERAL HOME LOAN BANK ADVANCES
The Federal Home Loan Bank advances in the accompanying consolidated
statements of condition were all written with a put option that allows the
Federal Home Loan Bank to require repayment or conversion to a variable
rate advance. The fair value of these putable Federal Home Loan Bank
advances is estimated using the binomial lattice option pricing method. The
estimated fair value of Federal Home Loan Bank advances at December 31,
2002 is $260,257,000, compared to the carrying value of $225,000,000. The
estimated fair value of Federal Home Loan Bank advances at December 31,
2001 was $243,334,500, compared to the carrying value of $225,000,000.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair values of commitments to extend credit and standby letters of
credit and financial guarantees written are estimated using the fees
currently charged to engage into similar agreements. The fair values of
these instruments are not significant.
(13) FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed. The Corporation
and the Bank file a consolidated Federal income tax return.
34
The provision for Federal income taxes consists of the following:
2002 2001 2000
--------------------------------------------------------------------------------------------------------------------------
Federal income taxes currently payable (refundable) $ 6,506,585 $ 9,814,553 $ 8,332,184
Provision (credit) for deferred taxes on:
Book (over) under tax loan loss provision 210,000 (840,000) (245,000)
Accretion of bond discount 103,000 111,000 164,000
Net deferred loan origination fees 46,000 40,000 (125,000)
Nonaccrual loan interest income 990,000 (575,000) (387,000)
Accrued postretirement benefits (58,000) (84,000) (42,000)
Tax over (under) book depreciation 70,000 70,000 (305,000)
Alternative minimum tax - - 665,000
Other, net 246,000 (230,000) (26,000)
--------------------------------------------------------------------------------------------------------------------------
$ 8,113,585 $ 8,306,553 $ 8,031,184
--------------------------------------------------------------------------------------------------------------------------
The effective tax rate differs from the statutory rate applicable to
corporations as a result of permanent differences between accounting and
taxable income as follows:
2002 2001 2000
---------------------------------------------------------------------------------------------
Statutory rate 35.0 % 35.0 % 35.0 %
Municipal interest income (7.1) (7.0) (7.3)
Other, net (0.8) (0.5) (0.2)
---------------------------------------------------------------------------------------------
Effective tax rate 27.1 % 27.5 % 27.5 %
---------------------------------------------------------------------------------------------
The components of the net deferred Federal income tax asset (included in
Interest Receivable and Other Assets on the accompanying consolidated
statements of condition) at December 31 are as follows:
2002 2001
---------------------------------------------------------------------------------------------------------------
Deferred Federal income tax assets:
Allowance for loan losses $ 4,340,000 $ 4,550,000
Net deferred loan origination fees 558,000 604,000
Tax versus book depreciation differences 657,000 727,000
Nonaccrual loan interest income 168,000 1,158,000
Net unrealized losses on securities available for sale - 708,000
Accrued postretirement benefits 476,000 418,000
Other, net 43,000 289,000
---------------------------------------------------------------------------------------------------------------
$ 6,242,000 $ 8,454,000
Deferred Federal income tax liabilities:
Net unrealized gains on securities available for sale $ (282,000) $ -
Accretion of bond discount (587,000) (484,000)
---------------------------------------------------------------------------------------------------------------
$ (869,000) $ (484,000)
---------------------------------------------------------------------------------------------------------------
Net deferred Federal income tax asset $ 5,373,000 $ 7,970,000
---------------------------------------------------------------------------------------------------------------
(14) REGULATORY CAPITAL REQUIREMENTS
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory (and possibly
additional discretionary) actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation and the Bank must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
35
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the accompanying tables) of Total and Tier I capital to risk weighted
assets, and of Tier I capital to average assets.
As of December 31, 2002, the Corporation's capital ratios exceeded the required
minimums to be considered well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Corporation
must maintain minimum Total risk based, Tier I risk based, and Tier I leverage
ratios as set forth in the tables. There are no conditions or events since
December 31, 2002 that Management believes have changed the Corporation's
category. Management believes, as of December 31, 2002, that the Corporation
meets all capital adequacy requirements to which it is subject.
The Corporation's and Bank's actual capital amounts and ratios are also
presented in the table (000's omitted in dollar amounts).
Minimum to Qualify as
Actual Well Capitalized
------------------------ --------------------------
Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2002:
Total Capital to Risk-Weighted Assets
Consolidated $177,856 19.0% $ 93,525 10.0%
Monroe Bank & Trust 177,675 19.0% 93,525 10.0%
Tier 1 Capital to Risk-Weighted Assets
Consolidated 166,121 17.8% 56,115 6.0%
Monroe Bank & Trust 165,940 17.7% 56,115 6.0%
Tier 1 Capital to Average Assets
Consolidated 166,121 11.8% 70,610 5.0%
Monroe Bank & Trust 165,940 11.8% 70,610 5.0%
AS OF DECEMBER 31, 2001:
Total Capital to Risk-Weighted Assets
Consolidated $174,472 18.5% $ 94,492 10.0%
Monroe Bank & Trust 174,327 18.4% 94,492 10.0%
Tier 1 Capital to Risk-Weighted Assets
Consolidated 162,634 17.2% 56,695 6.0%
Monroe Bank & Trust 162,489 17.2% 56,695 6.0%
Tier 1 Capital to Average Assets
Consolidated 162,634 11.6% 70,250 5.0%
Monroe Bank & Trust 162,489 11.6% 70,250 5.0%
36
(15) EARNINGS PER SHARE
The calculation of earnings per common share for the years ended December
31 is as follows:
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
BASIC
Net income $ 21,803,645 $ 21,924,200 $ 21,173,523
Less preferred dividends - - 5,200
- --------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 21,803,645 $ 21,924,200 $ 21,168,323
- --------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,458,737 19,933,580 20,000,000
- --------------------------------------------------------------------------------------------------------------
Earnings per common share - basic $ 1.12 $ 1.10 $ 1.06
- --------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
DILUTED
Net income $ 21,803,645 $ 21,924,200 $ 21,173,523
Less preferred dividends - - 5,200
- --------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 21,803,645 $ 21,924,200 $ 21,168,323
- --------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,458,737 19,933,580 20,000,000
Stock option adjustment 933 180 -
- --------------------------------------------------------------------------------------------------------------
Average common shares outstanding - diluted 19,459,670 19,933,760 20,000,000
- --------------------------------------------------------------------------------------------------------------
Earnings per common share - diluted $ 1.12 $ 1.10 $ 1.06
- --------------------------------------------------------------------------------------------------------------
(16) STOCK-BASED COMPENSATION PLAN
The Long-Term Incentive Compensation Plan approved by shareholders at the
April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust
authorized the Board of Directors to grant nonqualified stock options to
key employees and non-employee directors. Such grants may be made until
January 2, 2010 for up to 1,000,000 shares of the Corporation's common
stock. The amount that may be awarded to any one individual is limited to
100,000 shares in any one calendar year.
Stock options granted under the plan have exercise prices equal to the fair
market value at the date of grant. Options granted under the plan may be
exercised for a period of no more than ten years from the date of grant.
One-third of the options granted to key employees in 2002 vest annually,
beginning December 31, 2002. The options granted to key employees in 2000
are vested as of December 31, 2002. The options granted to non-employee
directors in 2002 and 2001 vested on December 31, 2002 and December 31,
2001, respectively.
The Corporation applies the intrinsic value method of APB Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock plans as allowed under SFAS 123, "Accounting for
Stock-Based Compensation." Had compensation cost for the stock options
granted in 2002 and 2000 been determined consistent with the fair value
method of SFAS 123, pro forma net income for the years ended December 31
are shown in the table below.
2002 2001 2000
--------------------------------------------------------------------------------------------
Net Income as Reported $ 21,803,645 $ 21,924,200 $ 21,173,523
Pro Forma Adjustment
Due to Stock Options (350,328) (220,782) (91,360)
--------------------------------------------------------------------------------------------
Pro Forma Net Income $ 21,453,317 $ 21,703,418 $ 21,082,163
--------------------------------------------------------------------------------------------
Earning per Share as Reported
Basic $1.12 $1.10 $1.06
Diluted $1.12 $1.10 $1.06
Pro Forma Earnings per Share
Basic $1.10 $1.09 $1.05
Diluted $1.10 $1.09 $1.05
37
A summary of the status of stock options under the plan is presented in the
table below.
2002 2001 2000
--------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------------------------------------------------------------------------------------------------------------------------
Options Outstanding, January 1 140,434 $17.71 126,600 $18.13 - $0.00
Granted 183,515 13.85 13,834 13.94 126,600 18.13
Exercised - - - - - -
Cancelled - - - - - -
---------------------------------------------------------------------------------------------------------------------
Options Outstanding, December 31 323,949 $15.52 140,434 $17.71 126,600 $18.13
---------------------------------------------------------------------------------------------------------------------
Options Exercisable, December 31 212,617 $16.40 98,236 $17.54 42,203 $18.13
---------------------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of
Options Granted During Year $3.19 $3.82 $4.97
The option value for the options granted each year was calculated using the
Black-Scholes stock option pricing model. In making this calculation, it
was assumed for each year that the average exercise period was seven years.
For the options granted in 2002, it was assumed the volatility rate was
23.9%, the risk-free rate of return was 4.6%, and the dividend yield was
3.0%. For the options granted in 2001 and 2000, it was assumed the
volatility rate was 18.6%, the risk-free rate of return was 6.1% and the
dividend yield was 2.0%.
The options outstanding as of December 31, 2002 are exercisable at prices
ranging from $13.85 to $18.125. The options exercisable as of December 31,
2002 are exercisable at prices ranging from $13.85 to $18.125.
(17) PARENT COMPANY
Condensed parent company financial statements, which include transactions
with the subsidiary, are as follows:
STATEMENTS OF CONDITION
DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 2,714,674 $ 2,599,005
Investment in subsidiary bank 166,818,510 161,584,219
----------------------------------------------------------------------------------------------------
Total assets $169,533,184 $164,183,224
----------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable and other liabilities $ 2,533,542 $ 2,453,080
----------------------------------------------------------------------------------------------------
Total liabilities 2,533,542 2,453,080
----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Total stockholders' equity 166,999,642 161,730,144
----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $169,533,184 $164,183,224
----------------------------------------------------------------------------------------------------
38
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
2002 2001 2000
--------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from subsidiary bank $ 18,356,939 $ 13,194,219 $ 8,455,200
--------------------------------------------------------------------------------------------------------------------------
Total income 18,356,939 13,194,219 8,455,200
--------------------------------------------------------------------------------------------------------------------------
EXPENSE
Interest on other borrowed funds - - 3,900
Other expense 98,398 123,074 193,992
--------------------------------------------------------------------------------------------------------------------------
Total expense 98,398 123,074 197,892
--------------------------------------------------------------------------------------------------------------------------
Income before tax and equity in undistributed
net income of subsidiary bank 18,258,541 13,071,145 8,257,308
Income tax benefit (34,400) (44,700) (72,000)
--------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary bank 18,292,941 13,115,845 8,329,308
Equity in undistributed net income
of subsidiary bank 3,510,704 8,808,355 12,844,215
--------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 21,803,645 $ 21,924,200 $ 21,173,523
--------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2002 2001 2000
----------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 21,803,645 $ 21,924,200 $ 21,173,523
Equity in undistributed net income of subsidiary bank (3,510,704) (8,808,355) (12,844,215)
Net increase (decrease) in other liabilities 80,461 325,080 (872,000)
Net decrease in other assets - - 3,000,000
----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 18,373,402 $ 13,440,925 $ 10,457,308
----------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings $ - $ - $ 150,000
Repayments of short-term borrowings - - (150,000)
Repurchase of common stock (7,908,386) (3,511,274) -
Dividends paid (10,349,347) (9,582,754) (8,205,200)
----------------------------------------------------------------------------------------------------------
Net cash used for financing activities $(18,257,733) $(13,094,028) $ (8,205,200)
----------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 115,669 $ 346,897 $ 2,252,108
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 2,599,005 2,252,108 -
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,714,674 $ 2,599,005 $ 2,252,108
----------------------------------------------------------------------------------------------------------
Under current regulations, the Bank is limited in the amount it may loan to
the Corporation. Loans to the Corporation may not exceed ten percent of the
Bank's capital stock, surplus, and undivided profits plus the allowance for
loan losses. Loans from the Bank to the Corporation are required to be
collateralized. Accordingly, at December 31, 2002, Bank funds available for
loans to the Corporation amounted to $17,869,439. The Bank has not made any
loans to the Corporation.
Federal and state banking laws and regulations place certain restrictions
on the amount of dividends a bank may make to its parent company. Michigan
law limits the amount of dividends the Bank can pay to the Corporation
without regulatory approval to the sum of its current year
39
net income and its undivided profits for the two previous years.
Accordingly, the Bank can pay dividends of $11,834,217 in 2003, in addition
to its 2003 net income, without regulatory approval.
(18) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for its other lending
activities.
Financial instruments whose contractual amounts represent off-balance sheet
credit risk at December 31 were as follows:
CONTRACTUAL
AMOUNT
(IN THOUSANDS)
2002 2001
--------------------------------------------------------------------------------------------
Commitments to extend credit:
Unused portion of commercial lines of credit $97,402 $83,400
Unused portion of credit card lines of credit 10,018 9,394
Unused portion of home equity lines of credit 16,953 14,967
Standby letters of credit and financial guarantees written 17,320 17,968
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Most
commercial lines of credit are secured by real estate mortgages or other
collateral, generally have fixed expiration dates or other termination
clauses, and require payment of a fee. Since the lines of credit may expire
without being drawn upon, the total committed amounts do not necessarily
represent future cash requirements. Credit card lines of credit have
various established expiration dates, but are fundable on demand. Home
equity lines of credit are secured by real estate mortgages, a majority of
which have ten year expiration dates, but are fundable on demand. The Bank
evaluates each customer's creditworthiness on a case by case basis. The
amount of the collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on Management's credit evaluation of the
counter party.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements and other business transactions. Approximately $11,004,000 of
the letters of credit expires in 2003 and $6,316,000 extends for two to
five years. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
40
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2002 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------
Total Interest Income $ 21,726 $ 21,352 $ 21,163 $ 20,363
Total Interest Expense 9,074 8,775 8,567 7,971
- ----------------------------------------------------------------------------------------------------------------
Net Interest Income 12,652 12,577 12,596 12,392
Provision for Loan Losses 2,750 1,350 1,400 601
Other Income 2,776 3,294 3,032 3,689
Other Expenses 7,006 6,261 6,415 7,307
- ----------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 5,672 8,260 7,813 8,173
Provision For Income Taxes 1,560 2,244 2,133 2,177
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 4,112 $ 6,016 $ 5,680 $ 5,996
- ----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $ 0.21 $ 0.31 $ 0.29 $ 0.31
Diluted Earnings Per Common Share $ 0.21 $ 0.31 $ 0.29 $ 0.31
Dividends Declared Per Share $ 0.13 $ 0.13 $ 0.14 $ 0.14
2001 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------
Total Interest Income $ 26,257 $ 26,281 $ 25,492 $ 23,294
Total Interest Expense 13,780 13,072 12,147 10,536
- ----------------------------------------------------------------------------------------------------------------
Net Interest Income 12,477 13,209 13,345 12,758
Provision for Loan Losses 4,400 900 1,200 900
Other Income 2,456 2,950 2,740 2,505
Other Expenses 6,149 6,227 6,353 6,080
- ----------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 4,384 9,032 8,532 8,283
Provision For Income Taxes 1,191 2,458 2,133 2,525
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 3,193 $ 6,574 $ 6,399 $ 5,758
- ----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $ 0.16 $ 0.33 $ 0.31 $ 0.30
Diluted Earnings Per Common Share $ 0.16 $ 0.33 $ 0.31 $ 0.30
Dividends Declared Per Share $ 0.11 $ 0.13 $ 0.13 $ 0.13
(20) OPERATING LEASES
The Corporation has entered into lease commitments for office locations.
Rental expense charged to operations was $204,611, $147,942, and $154,919
for the years ended December 31, 2002, 2001, and 2000, respectively. The
future minimum lease payments are as follows:
Minimum
Year Payment
- -------------------------------
2003 $ 289,034
2004 225,383
2005 173,390
2006 71,906
2007 74,063
Thereafter 383,062
41
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On April 18, 2002, the Board of Directors of MBT Financial Corp. (the
"Corporation"), upon the recommendation of its Audit Committee, dismissed Arthur
Andersen LLP as the Corporation's independent public accountants and appointed
Plante & Moran, PLLC as its new independent public accountants for 2002. This
was disclosed in Form 8-K/A filed on April 30, 2002.
42
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
Information required by this item is incorporated by reference from the section
entitled "Election of Directors" in the Proxy Statement for the Annual Meeting
of Shareholders that is to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
Information required by this item is incorporated by reference from the section
entitled "Executive Compensation and Other Information" in the Proxy Statement
for the Annual Meeting of Shareholders that is to be filed with the Securities
and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference from the section
entitled "Ownership of Voting Shares" in the Proxy Statement for the Annual
Meeting of Shareholders that is to be filed with the Securities and Exchange
Commission.
Securities authorized for issuance under equity compensation plans as of
December 31, 2002 were as follows:
Number of securities
remaining available for
future issuance under
equity compensation plans
Number of securities to be issued Weighted average exercise price of (excluding securities
upon exercise of outstanding outstanding options, warrants, and reflected in the
options, warrants, and rights rights first column)
----------------------------------------------------------------------------------------------------
Equity Compensation plans
approved by security holders 323,949 $15.52 676,051
Equity Compensation plans
not approved by security
holders 0 0 0
Total 323,949 $15.52 676,051
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference from the section
entitled "Certain Transactions" in the Proxy Statement for the Annual Meeting of
Shareholders that is to be filed with the Securities and Exchange Commission.
Item 14. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Corporation,
based on an evaluation as of a date within 90 days prior to the filing date of
this report, have concluded that the Corporation's disclosure controls and
procedures effectively ensure that information required to be disclosed in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Commission's rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that information required to be
disclosed by the Corporation in the reports that it files or submits under the
Securities Exchange Act of 1934 is accumulated and communicated to the
Corporation's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes made in the Corporation's internal controls or
in other factors that could significantly affect these internal controls
subsequent to the date of the evaluation thereof performed by the Corporation's
Chief Executive Officer and Chief Financial Officer.
43
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Contents
Financial Statements
Reports of Independent Public Accountants -- Pages 17-18
Consolidated Statements of Condition as of December 31, 2002 and
2001 -- Page 19
Consolidated Statements of Income for the Years Ended December 31,
2002, 2001, and 2000 -- Page 20
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 2002, 2001, and 2000 -- Page 21
Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001, and 2000 -- Pages 22-23
Notes to Consolidated Financial Statements -- Pages 24-41
Financial Statement Schedules
(a) Securities -- Page 46
(b) Loans and Lease Financing Receivables -- Page 47
(c) Bank Premises and Equipment -- Included in Notes to Financial
Statements Note 6, Page 30
(d) Allowance for Loan Losses -- Included in Notes to Financial
Statements Note 5, Page 30
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 2002
Exhibits
The following exhibits are filed as a part of this report:
3.1 Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
3.2 Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000
and amended in Exhibit 3.2 to MBT Financial Corp.'s Form 10-Q for its
fiscal quarter ended June 30, 2001.
10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan. Previously filed as Exhibit 10.1 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.2 Monroe Bank & Trust Salary Continuation Agreement. Previously filed as Exhibit 10.2 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement. Previously filed as Exhibit 10.3 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
44
10.4 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.4 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.5 MBT Financial Corp. Employment Agreement. Previously filed as Exhibit 10.5 to MBT Financial Corp.'s
Form 10-Q for its fiscal quarter ended September 30, 2001.
10.6 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.6 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2001.
21 Subsidiaries of the Registrant. Previously filed as Exhibit 21 to MBT Financial Corp.'s Form 10-K for
its fiscal year ended December 31, 2000.
99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
45
SCHEDULE I
SECURITIES
(000's omitted)
Held to Maturity
---------------------------------------------------------------------------------
December 31, 2002 December 31, 2001 December 31, 2000
------------------------ ------------------------- ------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
------------ ---------- ----------- ---------- ---------- -----------
U.S. Government agency and corporation
obligations (excluding mortgage-backed
securities).................................. $ 503 $ 561 $ 29,903 $ 30,057 $ 145,622 $ 143,456
Securities issued by states and political
subdivisions in the U.S...................... 113,255 117,968 129,075 131,921 132,007 134,664
Pass-through mortgage-backed securities
(MBS)........................................ 85 88 141 140 167 163
Other domestic securities (debt and equity).. 2,976 2,975 2,968 2,961 56,188 56,164
------------ ---------- ----------- ---------- ---------- -----------
Total........................................ $ 116,819 $ 121,592 $ 162,087 $ 165,079 $ 333,984 $ 334,447
============ ========== =========== ========== ========== ===========
Pledged securities........................... $ 31,972 $ 33,672 $ 35,709 $ 36,775 $ 62,992 $ 63,181
============ ========== =========== ========== ========== ===========
Available for Sale
--------------------------------------------------------------------------------
December 31, 2002 December 31, 2001 December 31, 2000
-------------------------- ------------------------- ------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
------------- ----------- ------------ ----------- ----------- ----------
U.S. Government agency and corporation
obligations (excluding mortgage-backed
securities).................................. $ 321,772 $ 323,830 $ 224,910 $ 224,512 $ 11,999 $ 11,979
Securities issued by states and political
subdivisions in the U.S...................... 14,680 14,723 8,646 8,142 - -
Pass-through mortgage-backed securities
(MBS)........................................ 1,106 1,301 1,117 1,194 1,127 1,212
Other domestic securities (debt and equity).. 84,554 83,064 102,763 101,566 110,879 105,230
------------- ----------- ------------ ----------- ----------- -----------
Total........................................ $ 422,112 $ 422,918 $ 337,436 $ 335,414 $ 124,005 $ 118,421
============= =========== ============ =========== =========== ===========
Pledged securities........................... $ 249,436 $ 251,994 $ 140,945 $ 140,594 $ 2,998 $ 3,015
============= =========== ============ =========== =========== ===========
46
SCHEDULE II
LOANS AND LEASE FINANCING RECEIVABLES
(000's omitted)
Book Value at December 31,
-------------------------------------------------------------------
2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a)
------------- ----------- ------------ ----------- -----------
Loans secured by real estate:
Construction and land development.................. $ 56,780 $ 47,025 $ 36,146 $ 24,504 $ 27,100
Secured by farmland (including farm residential
and other improvements)............................ 7,925 6,172 4,354 3,774 3,945
Secured by 1-4 family residential
properties......................................... 258,157 275,489 275,299 214,358 202,926
Secured by multifamily (5 or more) residential
properties......................................... 6,810 6,714 3,322 3,673 3,166
Secured by nonfarm nonresidential
properties......................................... 280,136 258,879 227,024 190,588 182,348
Loans to finance agricultural production and other
loans to farmers....................................... 2,182 2,856 2,832 2,087 1,422
Commercial and industrial loans to U.S. addresses
(domicile)............................................. 90,838 99,186 150,805 156,489 171,919
Loans to individuals for household, family, and
other personal expenditures (includes purchased
paper):
Credit cards and related plans..................... 1,471 3,353 9,415 10,320 10,038
Other.............................................. 68,942 87,322 102,089 97,091 85,475
Nonrated industrial development obligations (other
than securities) of states and political subdivisions
in the U.S............................................. 67 133 228 380 676
Other loans:
Loans for purchasing or carrying securities
(secured and unsecured)............................ - - - 9 -
All other loans.................................... 497 696 609 109 1,994
Less: Any unearned income on loans................. - - - - 3
------------- ----------- ------------ ----------- -----------
Total loans and leases, net of unearned
income................................................. $ 773,805 $ 787,825 $ 812,123 $ 703,382 $ 691,006
============= =========== ============ =========== ============
Nonaccrual loans $ 22,332 $ 22,712 $ 17,161 $ 16,791 $ 5,269
Loans 90 days or more past due $ 81 $ 450 $ 193 $ 107 $ 40
Troubled debt restructurings $ 6,807 $ - $ 1,057 $ 1,281 $ 868
(a) Loan categories are presented net of deferred loan fees. The presentation
in Note 4 to the consolidated financial statements differs from this
schedule presentation by presenting the loan categories, gross, before
deferred loan fees have been subtracted.
47
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 27, 2003 MBT FINANCIAL CORP.
By: /s/ Eugene D. Greutman
-------------------------------
Eugene D. Greutman
Treasurer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Dated: March 27, 2003
By: /s/ Ronald D. LaBeau By: /s/ Eugene D. Greutman
----------------------------------- --------------------------------
Ronald D. LaBeau Eugene D. Greutman
Chairman, Chief Executive Treasurer
Officer & Director Chief Financial Officer
By: /s/ Connie S. Cape By: /s/ Gerald L. Kiser
----------------------------------- --------------------------------
Director Director
By: /s/ William D. McIntyre, Jr. By: /s/ Thomas M. Huner
----------------------------------- --------------------------------
Director Director
By: /s/ Richard A. Sieb
-----------------------------------
Director
48
CERTIFICATIONS
I, Ronald D. LaBeau, Chairman and Chief Executive Officer of MBT Financial
Corp., certify that:
1. I have reviewed this annual report on Form 10-K of MBT Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
1. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
1. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
March 27, 2003 /s/ Ronald D. LaBeau
- ----------------- -----------------------------------
Date Ronald D. LaBeau
Chairman &
Chief Executive Officer
49
I, Eugene D. Greutman, Treasurer and Chief Financial Officer of MBT Financial
Corp., certify that:
1. I have reviewed this annual report on Form 10-K of MBT Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
1. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
1. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
March 27, 2003 /s/ Eugene D. Greutman
- ----------------- -----------------------------------
Date Eugene D. Greutman
Treasurer &
Chief Financial Officer
50
10-K EXHIBIT INDEX
Exhibit
No. Description of Exhibits
- ------- ------------------------
3.1 Restated Articles of Incorporation of MBT Financial Corp. Previously filed as Exhibit 3.1 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
3.2 Bylaws of MBT Financial Corp. Previously filed as Exhibit 3.2 to MBT Financial Corp.'s Form 10-K for its fiscal year ended
December 31, 2000 and amended in Exhibit 3.2 to MBT Financial Corp.'s Form 10-Q for its fiscal quarter ended June 30, 2001.
10.1 MBT Financial Corp. Long-Term Incentive Compensation Plan. Previously filed as Exhibit 10.1 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.2 Monroe Bank & Trust Salary Continuation Agreement. Previously filed as Exhibit 10.2 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.3 Monroe Bank & Trust Split Dollar Life Insurance Agreement. Previously filed as Exhibit 10.3 to MBT
Financial Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.4 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.4 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2000.
10.5 MBT Financial Corp. Employment Agreement. Previously filed as Exhibit 10.5 to MBT Financial Corp.'s
Form 10-Q for its fiscal quarter ended September 30, 2001.
10.6 Monroe Bank & Trust Group Term Carve Out Plan. Previously filed as Exhibit 10.6 to MBT Financial
Corp.'s Form 10-K for its fiscal year ended December 31, 2001.
21 Subsidiaries of the Registrant. Previously filed as Exhibit 21 to MBT Financial Corp.'s Form 10-K for
its fiscal year ended December 31, 2000.
99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.