FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2003
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-30973
MBT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Michigan 38-3516922
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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(734) 241-3431
(Registrant's telephone number, including area code)
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of October 27, 2003, there were 19,115,141 shares of the Corporation's Common Stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CONDITION
(AMOUNTS IN THOUSANDS)
September 30, December 31,
2003 2002
---- ----
ASSETS
Cash and due from banks $ 27,074 $ 30,618
Federal funds sold 22,600 13,000
Investment securities
Held to maturity-
Obligations of U.S. Government agencies (Estimated market value
of $603 and $649) 546 588
Obligations of states and political subdivisions (Estimated market
value of $100,585 and $117,967) 96,663 113,255
Other securities (Estimated market value of $3,130
and $2,975) 2,982 2,976
Available for sale-
Obligations of U.S. Government agencies 320,324 325,131
Obligations of states and political subdivisions 25,856 14,723
Other securities 73,579 83,064
Loans 838,648 773,360
Loans held for sale 411 445
Allowance for loan losses (18,773) (12,400)
Bank premises and equipment, net 17,883 15,437
Other real estate owned 11,578 15,088
Bank Owned Life Insurance 32,895 16,985
Interest receivable and other assets 18,954 17,424
------------- -------------
Total assets $ 1,471,220 $ 1,409,694
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LIABILITIES
Non-interest bearing demand deposits $ 132,174 $ 123,596
Interest bearing demand deposits 64,317 69,756
Savings deposits 539,634 470,192
Other time deposits 334,137 347,416
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Total deposits 1,070,262 1,010,960
Federal funds purchased 0 0
Federal Home Loan Bank advances 225,000 225,000
Interest payable and other liabilities 7,053 6,735
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Total liabilities 1,302,315 1,242,695
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STOCKHOLDERS' EQUITY
Common stock (no par value; 30,000,000 shares authorized,
19,113,521 and 19,160,441 shares issued and outstanding) 0 0
Surplus 50,458 51,080
Undivided profits 119,988 115,395
Net unrealized gains (losses) on securities
available for sale, net of tax (1,541) 524
------------- -------------
Total stockholders' equity 168,905 166,999
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Total liabilities and stockholders' equity $ 1,471,220 $ 1,409,694
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The accompanying notes to consolidated financial statements are an integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
2003 2002
---- ----
INTEREST INCOME
Interest and fees on loans $ 13,782 $ 15,102
Interest on investment securities-
Obligations of U.S. Government agencies 3,069 3,032
Obligations of states and political subdivisions 1,524 1,668
Other securities 906 1,093
Interest on Federal funds sold 18 268
------------- -------------
Total interest income 19,299 21,163
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INTEREST EXPENSE
Interest on deposits 3,865 5,318
Interest on borrowed funds 2,659 3,249
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Total interest expense 6,524 8,567
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NET INTEREST INCOME 12,775 12,596
PROVISION FOR LOAN LOSSES 6,325 1,400
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,450 11,196
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OTHER INCOME
Income from trust services 761 956
Service charges on deposit accounts 1,417 1,175
Security gains 454 33
Other 1,250 868
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Total other income 3,882 3,032
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OTHER EXPENSES
Salaries and employee benefits 4,064 3,548
Occupancy expense 626 535
Other 2,990 2,332
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Total other expenses 7,680 6,415
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INCOME BEFORE PROVISION FOR
INCOME TAXES 2,652 7,813
PROVISION FOR INCOME TAXES 679 2,133
------------- -------------
NET INCOME $ 1,973 $ 5,680
============= =============
COMPREHENSIVE INCOME (LOSS) $ (1,629) $ 5,934
============= =============
BASIC EARNINGS PER COMMON SHARE $ 0.10 $ 0.29
============= =============
DILUTED EARNINGS PER COMMON SHARE $ 0.10 $ 0.29
============= =============
COMMON STOCK DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.14
============= =============
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The accompanying notes to consolidated financial statements are an integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30,
2003 2002
---- ----
INTEREST INCOME
Interest and fees on loans $ 41,778 $ 44,877
Interest on investment securities-
Obligations of U.S. Government agencies 9,382 9,836
Obligations of states and political subdivisions 4,704 5,085
Other securities 2,905 3,901
Interest on Federal funds sold 109 542
------------- -------------
Total interest income 58,878 64,241
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INTEREST EXPENSE
Interest on deposits 12,365 16,779
Interest on borrowed funds 8,832 9,637
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Total interest expense 21,197 26,416
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NET INTEREST INCOME 37,681 37,825
PROVISION FOR LOAN LOSSES 7,975 5,500
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 29,706 32,325
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OTHER INCOME
Income from trust services 2,454 2,596
Service charges on deposit accounts 3,966 3,299
Security gains 868 771
Other 3,313 2,437
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Total other income 10,601 9,103
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OTHER EXPENSES
Salaries and employee benefits 12,422 10,681
Occupancy expense 1,933 1,583
Other 8,281 7,418
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Total other expenses 22,636 19,682
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INCOME BEFORE PROVISION FOR
INCOME TAXES 17,671 21,746
PROVISION FOR INCOME TAXES 4,860 5,937
------------- -------------
NET INCOME $ 12,811 $ 15,809
============= =============
COMPREHENSIVE INCOME $ 10,746 $ 17,478
============= =============
BASIC EARNINGS PER COMMON SHARE $ 0.67 $ 0.81
============= =============
DILUTED EARNINGS PER COMMON SHARE $ 0.67 $ 0.81
============= =============
COMMON STOCK DIVIDENDS DECLARED PER SHARE $ 0.43 $ 0.40
============= =============
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The accompanying notes to consolidated financial statements are an integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Nine Months Ended September 30,
2003 2002
---- ----
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 12,811 $ 15,809
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,759 1,446
Provision for loan losses 7,975 5,500
(Increase) decrease in net deferred Federal income tax asset (1,424) 1,154
Amortization of investment premium and discount 75 (2,475)
Net increase (decrease) in interest payable and other liabilities 318 (1,040)
Net (increase) decrease in interest receivable and other assets (106) 596
Net increase (decrease) in deferred loan fees 84 (4)
Other (4,790) (1,687)
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Net cash provided by operating activities $ 16,702 $ 19,299
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CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from maturities and redemptions of investment securities held to maturity $ 22,518 $ 53,419
Proceeds from maturities and redemptions of investment securities available for sale 343,870 336,125
Proceeds from sales of investment securities available for sale 166,685 28,671
Net (increase) decrease in loans (65,010) 2,826
Proceeds from sales of other real estate owned 5,509 1,465
Proceeds from sales of other assets 13 113
Purchase of investment securities held to maturity (4,705) (6,704)
Purchase of investment securities available for sale (510,964) (470,454)
Purchase of bank premises and equipment (4,205) (2,636)
Purchase of bank owned life insurance (15,000) 0
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Net cash used for investing activities $ (61,289) $ (57,175)
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CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Net increase in deposits $ 59,302 $ 67
Net increase in Federal funds purchased 0 13,300
Proceeds from issuance of common stock 186 0
Repurchase of common stock (808) (6,713)
Dividends paid (8,037) (7,652)
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Net cash provided by financing activities $ 50,643 $ (998)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 6,056 $ (38,874)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 43,618 66,137
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CASH AND CASH EQUIVALENTS AT END OF NINE MONTHS $ 49,674 $ 27,263
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The accompanying notes to consolidated financial statements are an integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Other Total
Common Undivided Comprehensive Stockholders'
Stock Surplus Profits Income (Loss) Equity
---------- ---------- ---------- ------------- -------------
BALANCE
JANUARY 1, 2003 $ 0 $ 51,080 $ 115,395 $ 524 $ 166,999
ADD (DEDUCT)
Net income for the year 12,811 12,811
Net unrealized losses on securities
available for sale, net of tax (2,065) (2,065)
Repurchase of 60,000 shares of
common stock (808) (808)
Issuance of common stock under
stock option plans 186 186
Dividends declared-
Common ($.43 per share) (8,218) (8,218)
---------- ---------- ---------- ---------- ----------
BALANCE
SEPTEMBER 30, 2003 $ 0 $ 50,458 $ 119,988 $ (1,541) $ 168,905
========== ========== ========== ========== ==========
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The accompanying notes to consolidated financial statements are an integral part of this statement.
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The unaudited consolidated financial statements include the accounts of MBT Financial Corp. (the "Corporation") and its 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 branches in Monroe County, Michigan and three branches in Wayne County, Michigan. MBT Credit Company, Inc. operates a mortgage loan office in Monroe County and a loan production 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 unaudited 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 common shares authorized, of which 19,113,521 are outstanding at September 30, 2003. 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 accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of Management, necessary for fair statement of results for the interim periods.
Comprehensive Income (Loss) is comprised of Net Income and Other Comprehensive Income, which consists of the change in net unrealized gains (losses) on securities available for sale, net of tax.
Business Segments - While the Corporation's chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a company wide basis. Accordingly, all of the Corporation's operations are considered by management to be aggregated in one reportable segment.
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. EARNINGS PER SHARE
The calculation of net income per common share for the quarters ended September 30 is as follows:
2003 2002
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BASIC
Net income $ 1,973,000 $ 5,680,000
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Net income applicable to common stock $ 1,973,000 $ 5,680,000
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Average common shares outstanding 19,115,234 19,304,661
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Earnings per common share - basic $ 0.10 $ 0.29
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2003 2002
------------- -------------
DILUTED
Net income $ 1,973,000 $ 5,680,000
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Net income applicable to common stock $ 1,973,000 $ 5,680,000
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Average common shares outstanding 19,115,234 19,304,661
Stock option adjustment 18,387 -
------------- -------------
Average common shares outstanding - diluted 19,133,621 19,304,661
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Earnings per common share - diluted $ 0.10 $ 0.29
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The calculation of net income per common share for the nine months ended September 30 is as follows:
2003 2002
------------- -------------
BASIC
Net income $ 12,811,000 $ 15,809,000
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Net income applicable to common stock $ 12,811,000 $ 15,809,000
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Average common shares outstanding 19,120,212 19,544,769
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Earnings per common share - basic $ 0.67 $ 0.81
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2003 2002
------------- -------------
DILUTED
Net income $ 12,811,000 $ 15,809,000
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Net income applicable to common stock $ 12,811,000 $ 15,809,000
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Average common shares outstanding 19,120,212 19,544,769
Stock option adjustment 15,352 -
------------- -------------
Average common shares outstanding - diluted 19,135,564 19,544,769
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Earnings per common share - diluted $ 0.67 $ 0.81
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The following table summarizes the options that have been granted to non-employee directors and certain key executives in accordance with the Long-Term Incentive Compensation Plan that was approved by shareholders at the Annual Meeting of Shareholders on April 6, 2000.
Weighted Average
Shares Exercise Price
-----------------------------------------------------------------------
Options Outstanding, January 1 323,949 $ 15.52
Granted 179,500 13.20
Exercised 11,814 13.87
Cancelled 3,000 13.85
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Options Outstanding, September 30 488,635 $ 15.56
-------------------------------------------------------------------
Options Exercisable, September 30 199,801 $ 16.56
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MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
3. LOANS
The Bank grants commercial, consumer, and mortgage loans primarily to customers in Monroe County, Michigan, southern Wayne County, Michigan, and surrounding areas. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on the automotive, manufacturing, and real estate development economic sectors.
Loans consist of the following (000s omitted):
September 30, December 31,
2003 2002
-------------------------------
Real estate loans $ 673,554 $ 610,530
Loans to finance agricultural production and
other loans to farmers 3,071 2,182
Commercial and industrial loans 95,051 91,717
Loans to individuals for household, family,
and other personal expenditures 68,689 70,404
All other loans (including overdrafts) 369 563
-------------------------------
Total loans, gross 840,734 775,396
Less: Deferred loan fees 1,675 1,591
-------------------------------
Total loans, net of deferred loan fees 839,059 773,805
Less: Allowance for loan losses 18,773 12,400
-------------------------------
$ 820,286 $ 761,405
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Loans are placed in a nonaccrual status when, in the opinion of Management, the collection of additional interest is doubtful. All loans internally classified by Management as substandard or doubtful are reviewed for impairment. Allowances for loans determined to be impaired are included in the allowance for loan losses. All cash received on nonaccrual loans is applied to the principal balance. Nonperforming assets consists of nonaccrual loans, loans 90 days or more past due, restructured loans, real estate that has been acquired in full or partial satisfaction of loan obligations or upon foreclosure, and investment securities that are 90 days or more past due on the interest or principal payments. The following table summarizes nonperforming assets (000's omitted):
September 30, December 31,
2003 2002
-------------------------------
Nonaccrual loans $ 38,854 $ 22,332
Loans 90 days past due 111 81
Restructured loans 7,023 6,807
-------------------------------
Total nonperforming loans $ 45,988 $ 29,220
Other real estate owned 11,578 15,088
Nonperforming investment securities 79 88
-------------------------------
Total nonperforming assets $ 57,645 $ 44,396
===============================
Nonperforming assets to total assets 3.92% 3.15%
Allowance for loan losses to
nonperforming assets 32.57% 27.93%
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MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows (000's omitted):
September 30, December 31,
2003 2002
-------------------------------
Balance beginning of year $ 12,400 $ 13,000
Provision for loan losses 7,975 6,101
Loans charged off (2,204) (8,697)
Recoveries 602 1,996
-------------------------------
Balance end of period $ 18,773 $ 12,400
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For 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, or the fair value of the collateral, or the loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a valuation account which is netted against loans on the consolidated statements of condition. As the specific customer and amount of a loan loss is confirmed by gathering additional information, taking collateral in full or partial settlement of the loan, bankruptcy of the borrower, etc., the loan is charged off, reducing the allowance for loan losses. If, subsequent to a charge off, the Bank is able to collect additional amounts from the customer or sell collateral worth more than earlier estimated, a recovery is recorded.
5. INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as of September 30, 2003 and December 31, 2002 (000's omitted):
September 30, 2003 December 31, 2002
------------------ -----------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------------------------- -----------------------------
Held to Maturity
Obligations of U.S. Government Agencies $ 546 $ 603 $ 588 $ 649
Obligations of States and Political
Subdivisions 96,663 100,585 113,255 117,967
Other Securities 2,982 3,130 2,976 2,975
----------------------------- -----------------------------
$ 100,191 $ 104,318 $ 116,819 $ 121,591
============================= =============================
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MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
September 30, 2003 December 31, 2002
------------------ -----------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------------------------- -----------------------------
Available for Sale
Obligations of U.S. Government Agencies $ 322,875 $ 320,324 $ 322,878 $ 325,131
Obligations of States and Political
Subdivisions 25,865 25,856 14,680 14,723
Other Securities 73,389 73,579 84,554 83,064
----------------------------- -----------------------------
$ 422,129 $ 419,759 $ 422,112 $ 422,918
============================= =============================
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6. 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 were as follows (000s omitted):
Contractual Amount
-------------------------------
September 30, December 31,
2003 2002
-------------------------------
Commitments to extend credit:
Unused portion of commercial lines of credit $ 114,278 $ 97,402
Unused portion of credit card lines of credit 9,935 10,018
Unused portion of home equity lines of credit 17,072 16,953
Standby letters of credit and financial guarantees written 19,943 17,320
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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 counterparty.
MBT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein 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.
The Corporation does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
The Corporation's total deposits increased $59.3 million, or 5.9% since the beginning of the year. Demand Deposits increased $3.1 million, Savings Deposits increased $69.4 million while Other Time Deposits decreased $13.3 million. Deposits have migrated from Other Time Deposits to Savings Deposits as customers have elected to keep their money in more liquid accounts during this period of low interest rates. In order to control our interest rate risk and to prevent a rapid increase in our interest expense, we lowered our savings rates and raised our longer term certificate rates during the third quarter. The deposit growth, along with a $19.8 million decrease in investments, was used to fund increases of $55.9 million in loans, $9.6 million in federal funds sold, and $15.9 million in Bank Owned Life Insurance (BOLI). Local loan demand began to increase in the second quarter, and our expansion into the Southern Wayne County area contributed significantly to the loan growth.
RESULTS OF OPERATIONS
A comparison of the income statements for the three months ended September 30, 2003 and 2002 shows a 1.4% increase in Net Interest Income. Interest and fees on loans decreased $1.3 million, or 8.7% and interest on investment securities and fed funds sold decreased $0.5 million, or 9.0%. Although average loans outstanding increased $63.5 million, the average yield on those loans decreased from 7.45% to 6.16%. Although the average investment portfolio increased $39.1 million, the yield on investments decreased from 4.62% to 4.06%. Most of our commercial loan rates are based on the prime rate, which remains at a historically low level. We expect to see our loan yields continue to decline until the prime rate increases, which we do not anticipate will occur until the second half of 2004. Investment yields are market driven, and they are already starting to increase. Despite this, we expect our investment yields to continue to decline in the fourth quarter as older, higher yielding assets mature and are replaced with lower yielding securities.
Average deposits increased from $1.013 billion in the third quarter of 2002 to $1.046 billion in the third quarter of 2003, while at the same time the average cost of these deposits decreased from 2.08% to 1.47%. The result was a decrease in Interest on Deposits of $1.5 million, or 27.3%. Average borrowed funds increased from $225.4 million in the third quarter of 2002 to $237.6
million in the third quarter of 2003, while the average cost of these borrowings decreased from 5.72% to 4.44%. This reduction in the cost of the borrowed funds was due to the refinancing of some of our Federal Home Loan Bank advances and an increase in the use of federal funds borrowed. The cost of deposits should continue to decline in the fourth quarter, but we anticipate a slight increase in the cost of borrowed funds as we do not expect to borrow any federal funds. The net interest margin decreased from 3.53% in the third quarter of 2002 to 3.42% in the third quarter of 2003. The loan yields and net interest margin will be negatively impacted in the fourth quarter by the low interest rate environment and the increase in the amount of loans that are in nonaccrual status.
The Provision for Loan Losses increased $4.9 million as the Corporation decided to add $5.5 million to its allowance for loan losses due to the deterioration of a relationship with a large commercial customer. The Allowance for Loan Losses is now $18.8 million, or 2.2% of total loans. Although the allowance is only 32.6% of nonperforming assets, management believes the allowance is adequate due to the underlying collateral securing the nonperforming loans. The $13.9 million increase in nonaccrual loans was mainly attributable to 5 large commercial credits, which other than the one mentioned previously, are adequately collateralized. These credits were originated prior to improvements in our underwriting and monitoring systems that took place in the last few years. Although the current economy continues to provide some uncertainty, we believe that the loans placed on the books in recent years are less susceptible to losses of this type.
Trust Income decreased 20.4%, as the Bank collected a nonrecurring fee in the third quarter of 2002. Service Charges on Deposit Accounts increased 20.6%, due to increases in overdraft activity and changes in fees. Other income increased 44.0%. This was due to the continued low interest rate environment, which has allowed mortgage loan origination fees to remain strong, and an increase in the Bank's investment in BOLI. Gains on the sale of securities increased as the Bank sold securities to fund increases in loans.
Salaries and Employee Benefits increased 14.5%, and Occupancy Expense increased 17.0%, largely due to the Bank's expansion into the southern Wayne County area. The Bank now operates two full service branches and a loan and trust production office in Wayne County. As of September 30, 2003, the Wyandotte branch, which opened in the first quarter, has $11.5 million in deposits, and the Trenton branch, which opened in the third quarter, has $4.0 million in deposits. Other Expenses increased $658,000, or 28.2%, largely due to OREO related expenses, and legal and other professional fees. These results were consistent with our expectations for the quarter.
As a result of the above activity, Income Before Provision for Income Taxes decreased $5.2 million, or 66.1%. The Provision for Income Taxes decreased $1.5 million, or 68.2%, and reflects an anticipated annual effective tax rate of 27.5%.
For the nine months ended September 30, 2003 versus 2002, Net Interest Income decreased $144,000, or 0.4%. Interest and fees on loans decreased $3.1 million, or 6.9% and interest on investment securities and fed funds sold decreased $2.3 million, or 11.7%. Although average loans outstanding increased $42.5 million, the average yield on those loans decreased from 7.82% to 6.89%. The average investment portfolio increased $27.5 million while the yield on investments decreased from 4.91% to 4.21%. This decline was consistent with our expectations, and we anticipate that it will continue, at a slower pace, through the fourth quarter of this year. Even if the economic recovery continues, we do not expect increases in managed interest rates in the near future. We expect the recent improvement in market interest rates to lessen the impact on the investment portfolio yield.
Average deposits increased from $1.009 billion in the first nine months of 2002 to $1.038 billion in the first nine months of 2003, while at the same time the average cost of deposits decreased from 2.22% to 1.59%. The result was a decrease in Interest on Deposits of $4.4 million, or 26.3%. Average borrowed funds increased from $225.2 million in the first nine months of 2002 to $235.8
million in the first nine months of 2003 while the average cost of these borrowings decreased from 5.72% to 5.01%.
The Provision for Loan Losses increased $2.5 million, or 45.0% due to the additional provision in the third quarter of 2003. Management believes that the Allowance for Loan Losses is adequate, and does not anticipate the need for further sizeable increases. Service Charges on Deposit Accounts increased 20.2%, due to increases in overdraft activity and changes in fees. Other income increased $876,000, or 35.9%. This was due to the continued low interest rate environment, which allowed mortgage loan origination fees to remain strong through the first eight months of the year. Mortgage origination fees account for $394,000 of this increase. We expect the mortgage origination income to decline significantly in the fourth quarter of 2003.
Salaries and Employee Benefits increased $1.7 million, and Occupancy Expense increased $350,000, largely due to the Bank's expansion into the southern Wayne County area. These results were consistent with our expectations for the first three quarters of the year, and we do not anticipate significant increases from these levels in the fourth quarter.
As a result of the above activity, Income Before Provision for Income Taxes decreased $4.1 million, or 18.7%. The Provision for Income Taxes decreased $1.1 million, or 18.1%, and reflects our anticipated annual effective tax rate of 27.5%. Net Income for the nine months decreased $3.0 million, or 19.0% compared to last year.
LIQUIDITY AND CAPITAL
The Corporation has maintained sufficient liquidity to fund its loan growth and allow for fluctuations in deposit levels. Internal sources of liquidity are provided by the maturities of loans and securities as well as holdings of securities Available for Sale. External sources of liquidity include a line of credit with the Federal Home Loan Bank of Indianapolis, and the Federal funds lines that have been established with correspondent banks.
Total stockholders' equity of the Corporation was $168.9 million at September 30, 2003 and $167.0 million at December 31, 2002. The ratio of equity to assets was 11.5% at September 30, 2003 and 11.8% at December 31, 2002. Federal bank regulatory agencies have set capital adequacy standards for Total Risk Based Capital, Tier 1 Risk Based Capital, and Leverage Capital. These standards require banks to maintain Leverage and Tier 1 ratios of at least 4% and a Total Capital ratio of at least 8% to be adequately capitalized. The regulatory agencies consider a bank to be well capitalized if its Total Risk Based Capital is at least 10% of Risk Weighted Assets, Tier 1 Capital is at least 6% of Risk Weighted Assets, and Leverage Capital Ratio is at least 5%.
The following table summarizes the capital ratios of the Bank:
Minimum to be Well
September 30, 2003 December 31, 2002 Capitalized
------------------ ----------------- ------------------------------
Leverage Capital 11.6% 11.8% 5.0%
Tier 1 Risk Based Capital 17.1% 17.8% 6.0%
Total Risk Based Capital 18.4% 19.0% 10.0%
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At September 30, 2003 and December 31, 2002, the Bank was in compliance with the capital guidelines and is considered "well-capitalized" under regulatory standards.
Market risk for the Bank, as is typical for most banks, consists mainly of interest rate risk and market price risk. The Bank's earnings and the economic value of its equity are exposed to interest rate risk and market price risk, and monitoring this risk is the responsibility of the Asset/Liability Management Committee (ALCO) of the Bank. The Bank's market risk is monitored monthly and it has not changed significantly since year-end 2002.
ITEM 3. 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, 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 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 the first nine months of 2003, the estimated variability of the net interest income was within the Bank's established policy limits.
The ALCO also monitors interest rate risk by estimating the effect of changes in interest rates on the economic value of the Bank's equity each month. The actual economic value of the Bank's equity is first determined by subtracting the fair value of the Bank's liabilities from the fair value of the Bank's assets. The fair values are determined in accordance with Statement of Financial Accounting Standards Number 107, Disclosures about Fair Value of Financial Instruments. The Bank estimates the interest rate risk by calculating the effect of market interest rate shocks on the economic value of its equity. For this analysis, the Bank assumes immediate parallel shifts of plus or minus 100 and 200 basis points in interest rates. Currently, the minus 200 shift does not produce meaningful results. 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 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 the first nine months of 2003, the estimated variability of the economic value of equity was within the Bank's established policy limits.
The Bank's interest rate risk, as measured by the net interest income and economic value of equity simulations, has not changed significantly from December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2003, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2003, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.
There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended September 30, 2003, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation may from time to time be involved in legal proceedings occurring in the ordinary course of business which in the aggregate involve amounts which are believed by management to be immaterial to the financial condition of the Corporation. The Corporation is not currently involved in any legal proceedings which management believes are of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On October 28, 2003, we announced the plans of our current Chairman and Chief Executive Officer, Ronald D. LaBeau, to retire effective April 2, 2004. We anticipate the H. Douglas Chaffin, our current President and Chief Operating Officer will succeed Mr. LaBeau as Chief Executive Officer. However, our board of directors has not yet acted to elect a successor to Mr. LaBeau as Chief Executive Officer.
The Company's press release announcing Mr. LaBeau's retirement is filed as Exhibit 99.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 Amended and Restated Bylaws of MBT Financial Corp.
10.1 Supplemental Executive Retirement Agreement
10.2 Split Dollar Agreement
31.1 Certification by Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14.
31.2 Certification by Chief Financial Officer required by Securities and Exchange Commission Rule 13a-14.
32.1 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.
32.2 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.
99 Press Release announcing retirement of Ronald D. LaBeau, Chairman and Chief Executive Officer.
(b) Reports on Form 8-K
MBT Financial Corp. filed the following report on Form 8-K during the quarter ended September 30, 2003:
Date of Event Reported Event Reported
July 14, 2003 Items 9 and 12 - Regulation FD Disclosure, and
Disclosure of Results of Operations and Financial
Condition, Second Quarter 2003 Earnings Announcement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
October 29, 2003 /s/ Ronald D. LaBeau
Date ----------------------------------
Ronald D. LaBeau
Chairman &
Chief Executive Officer
October 29, 2003 /s/ John L. Skibski
Date ----------------------------------
John L. Skibski
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number 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 Amended and Restated Bylaws of MBT Financial Corp.
10.1 Supplemental Executive Retirement Agreement
10.2 Split Dollar Agreement
31.1 Certification by Chief Executive Officer required by
Securities and Exchange Commission Rule 13a-14.
31.2 Certification by Chief Financial Officer required by
Securities and Exchange Commission Rule 13a-14.
32.1 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.
32.2 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 Press Release announcing retirement of Ronald D. LaBeau,
Chairman and Chief Executive Officer.
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
MBT FINANCIAL CORP.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation shall be at such place in the County of Monroe, State of Michigan, as may be designated from time to time by the Board of Directors.
Section 2. Other Offices. The Corporation shall also have offices at such other places without, as well as within, the State of Michigan, as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of this Corporation for the purpose of electing directors and transacting such other business as may come before the meeting, shall be held on the first Thursday of May in each year at such hour as may be designated on the call of said meeting, or on such other date as may be fixed by the Board of Directors by resolution from time to time.
Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by a majority of the Board of Directors acting with or without a meeting, or upon receipt of a request in writing, stating the purpose or purposes thereof, and signed by shareholders of record owning a majority of the issued and outstanding voting shares of the corporation.
Section 3. Place of Meetings. Meetings of shareholders shall be held at the principal office of the Corporation unless the Board of Directors decides that a meeting shall be held at some other place within or without the State of Michigan and causes the notices thereof to so state.
Section 4. Notice of Meetings. Unless waived, a written, printed, or typewritten notice of each annual or special meeting stating the day, hour, and place and the purpose or purposes thereof shall be served upon or mailed to each shareholder of record (a) as of the day preceding the day on which notice is given or (b) if a record date therefore is duly fixed, of record as of said date. Notice of such meeting shall be mailed, postage prepaid, at least ten (10) days prior to the date thereof. If mailed, it shall be directed to a shareholder at his address as the name appears upon the records of the Corporation.
At an annual or special meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before the meeting, business must be: (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors or, with respect to a special meeting, in the notice of
meeting called by shareholders in accordance with these Bylaws, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a shareholder. For business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
later than sixty (60) nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting or, if the date of the annual
meeting is changed by more than twenty (20) days from such anniversary date,
within ten (10) days after the date the Corporation mails or otherwise gives
notice of the date of such meeting. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting: (w) a brief description of the business desired to be brought
before the annual meeting, (x) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (y) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (z) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 4 or as required by law. The chairperson of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
Section 5. Waiver of Notice. Any shareholder, either before or after any meeting, may waive any notice required to be given by law or under these Bylaws; and whenever all of the shareholders entitled to vote shall meet in person or by proxy and consent to holding a meeting, it shall be valid for all purposes without call or notice, and at such meeting any action may be taken.
Section 6. Quorum. A majority of all of the shares of the outstanding capital stock entitled to vote at the meeting, represented in person or by proxy, shall constitute a quorum at any meeting of the shareholders, unless otherwise provided by law; but the chairperson of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time, whether or not there is such a quorum.
Section 7. Proxies. Any shareholder of record who is entitled to attend a shareholders' meeting, or to vote thereat or to assent or give consents in writing, shall be entitled to be represented at such meetings or to vote thereat or to assent or give consent in writing, as the case may be, or to exercise any other of his rights, by proxy or proxies. Any proxy authorized as permitted by the Michigan Business Corporation Act shall be valid.
No appointment of a proxy shall be valid after the expiration of eleven (11) months after it is made, unless the writing specifies the date on which it is to expire or the length of time it is to continue in force.
Section 8. Voting. At any meeting of the shareholders, each shareholder of the Corporation shall, except as otherwise provided by law or by the Articles of Incorporation or by these Bylaws, be entitled to one (1) vote in person or by proxy for each share of the Corporation registered in his name on the books of the Corporation: (a) on the record date for the determination of shareholders entitled to vote at such meeting, notwithstanding the prior or subsequent sale, or other disposal of such share or shares or transfer of the same on the books of the Corporation on or after the record date; or (b) if no such record date shall have been fixed, then at the time of such meeting.
Section 9. Action Without Meeting. Any action which may be authorized or taken at any meeting of shareholders may be authorized or taken without a meeting in a writing or writings signed by shareholders in accordance with the provisions of the Articles of Incorporation. Such writing or writings shall be filed with or entered upon the records of the Corporation.
ARTICLE III
Directors
Section 1. Number of Directors. The number of directors constituting
the entire Board shall be determined from time to time by a majority vote of the
whole Board of Directors of the Corporation and such exact number shall be ten
(10) until otherwise so determined.
Section 2. Election and Term of Directors. Directors shall be elected to hold office until the next annual meeting and until their successors are elected and qualified.
Section 3. Nominations for the Board. Nominations for the election of directors may be made by the Board of Directors or by a shareholder entitled to vote in the election of directors. A shareholder entitled to vote in the election of directors, however, may make such a nomination only if written notice of such shareholder's intent to do so has been given, either by personal delivery or by United States mail, postage prepaid, and received by the Corporation (a) with respect to an election to be held at an annual meeting of shareholders, not later than sixty (60) nor
more than ninety (90) days prior to the first anniversary of the preceding
year's annual meeting (or, if the date of the annual meeting is changed by more
than twenty (20) days from such anniversary date, within ten (10) days after the
date the Corporation mails or otherwise gives notice of the date of such
meeting), and (b) with respect to an election to be held at a special meeting of
shareholders called for that purpose, not later than the close of business on
the tenth (10th) day following the date on which notice of the special meeting
was first mailed to the shareholders by the Corporation. Each shareholder's
notice of intent to make a nomination shall set forth: (i) the name(s) and
address(es) of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (ii) a representation that the shareholder
(a) is a holder of record of stock of the Corporation entitled to vote at such
meeting, (b) will continue to hold such stock through the date on which the
meeting is held, and (c) intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (iii) a description
of all arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination is to be made by the shareholder; (iv) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to Regulation 14A
promulgated under Section 14 of the Securities Exchange Act of 1934, as amended,
as now in effect or hereafter modified; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the qualifications of such proposed
nominee to serve as a director. No person shall be eligible for election as a
director unless nominated (i) by a shareholder in accordance with the foregoing
procedure or (ii) by the Board of Directors.
Section 4. Vacancies. In case of any vacancy in the Board of Directors, through death, resignation, disqualification, increase in the number of directors or other cause, the remaining directors, by an affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired portion of the term of the Director whose place is vacant until the election and qualification of his successor.
Section 5. Removal. A director may be removed in accordance with the provisions of the Michigan Business Corporation Act.
ARTICLE IV
Powers, Meeting, and Compensation of Directors
Section 1. Meetings of the Board. A meeting of the Board of Directors shall be held immediately following the adjournment of each shareholders' meeting at which directors are elected and notice of such meeting need not be given.
The Board of Directors may, by bylaws or resolution, provide for other meetings of the Board.
Special meetings of the Board of Directors may be held at any time upon call of the Chairman of the Board of Directors, President, Executive Vice President (if one is appointed and serving at such time), Senior Vice President (if one is appointed and serving at such time), or any two (2) members of the Board.
Notice of any special meeting of the Board of Directors shall be mailed to each director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telecopy, or be given personally or by telephone, not later than the day before the day on which the meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes thereof. Notice of any meeting of the Board need not be given to any director, however, if waived by him in writing or by telephonic communication whether before or after such meeting is held, or if he shall be present at such meeting; and any meeting of the Board shall be a legal meeting without any notice thereof having been given, if all the directors shall be present thereat.
Meetings of the Board shall be held at the office of the Corporation, or at such other place, within or without the State of Michigan, as the Board may determine from time to time and as may be specified in the notice thereof. Meetings of the Board of Directors may also be held by the utilization of simultaneous telephonic communications linking all directors present at such meetings, and all such business conducted via such telephonic communication shall be considered legally enforceable by the Corporation.
Section 2. Quorum. A majority of the Board of Directors serving in such capacity shall constitute a quorum for the transaction of business, provided that whenever less than a quorum is present at the time and place appointed for any meeting of the Board, a majority of those present may adjourn the meeting from time to time, without notice other than by announcement at the meeting, until a quorum shall be present.
Section 3. Action without Meeting. Any action may be authorized or taken without a meeting in a writing or writings signed by all the directors, which writing or writings shall be filed with or entered upon the records of the Corporation.
Section 4. Compensation. The directors shall receive compensation for their services in an amount fixed by resolution of the Board of Directors.
ARTICLE V
Committees
Section 1. Committees. The Board of Directors may by resolution provide such standing or special committees as it deems desirable, and discontinue the same at its pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the Board of Directors. Vacancies in such committees may be filled by the Board of Directors.
ARTICLE VI
Officers
Section 1. General Provisions. The Board of Directors shall elect a President, such number of Vice Presidents as the Board may from time to time determine, a Secretary and Treasurer, and, in its discretion, a Chairman of the Board of Directors and any number of Vice Chairmen of the Board of Directors. If no Chairman of the Board is elected by the Board of Directors, the President of the Corporation shall act as presiding officer of the Corporation. The Board of Directors may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine.
Section 2. Terms of Office. The officers of the Corporation shall hold office at the pleasure of the Board of Directors and, unless sooner removed by the Board of Directors, until the regular meeting of the Board of Directors immediately following their election and until their successors are chosen and qualified.
A vacancy in any office, however created, may be filled by the Board of Directors.
ARTICLE VII
Duties of Officers
Section 1. Chairman of the Board. The Chairman of the Board, if one is elected, shall preside at all meetings of the shareholders and Board of Directors and shall have such other powers and duties as may be prescribed by the Board of Directors or by law.
Section 2. Vice Chairman of the Board. The Vice Chairman of the Board, if one is elected, shall preside at all meetings of the shareholders and the Board of Directors, in the absence of the Chairman of the Board. If more than one Vice Chairman is elected, the Vice Chairman designated by the Board shall preside at meetings of the shareholders and the Board of Directors, in the absence of the Chairman of the Board. The Vice Chairman shall have such powers and duties as may be prescribed by the Board of Directors, or prescribed by the Chairman of the Board, or by law.
Section 3. President. The President shall exercise supervision over the business of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. In the absence of a Chairman of the Board or if a Chairman of the Board shall not have been elected and a Vice Chairman shall not have been elected, the President shall preside at meetings of the shareholders and Board of Directors. He shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, contracts, notes and other instruments requiring his signature; and shall have all the powers and duties prescribed by law and such others as the Board of Directors may from time to time assign to him.
Section 4. Vice Presidents. The Vice Presidents shall perform such duties as are conferred upon them by these Bylaws or as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board or the President. At the request of the President, or in his absence or disability, the Vice President, designated by the President (or in the absence of such designation, the Vice President designated by the Board), shall perform all the duties of the President, and when so acting, shall have all the powers of the President. The authority of Vice Presidents to sign in the name of the Corporation all certificates for shares and authorized deeds, mortgages, bonds, contracts, notes and other instruments, shall be coordinated with like authority of the President. Any one or more of the Vice Presidents may be designated as an "Executive Vice President" or a "Senior Vice President."
Section 5. The Secretary. The Secretary shall issue notices of all meetings for which notice shall be required to be given, shall keep the minutes of all meetings, shall have charge of the corporate seal, if any, and corporate record books, shall cause to be prepared for each meeting of shareholders the list of shareholders entitled to vote thereat, and shall have such other duties and powers as may be assigned to or vested in him by the Board of Directors or the President.
Section 6. The Treasurer. The Treasurer shall have the custody of all moneys and securities of the Corporation and shall keep adequate and correct accounts of the Corporation's business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital and shares. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer in such depositories as the Board of Directors may from time to time designate. The Treasurer shall have such other duties and powers as may be assigned to or vested in him by the Board of Directors or the President.
Section 7. Assistant and Subordinate Officers. The Board of Directors may elect such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the Board of Directors and perform such duties as the Board of Directors may prescribe.
The Board of Directors may, from time to time, authorize any officers to appoint and remove assistant and subordinate officers, to prescribe their authority and duties, and to fix their compensation.
Section 8. Duties of Officers May be Delegated. In the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties of such officer to any other officer, or to any director.
ARTICLE VIII
Certificates for Shares
Section 1. Form and Execution. Certificates for shares shall be issued to each shareholder in such form as shall be approved by the Board of Directors. Such certificates shall be signed by the Chairman of the Board of Directors or the President or a Vice President and by the Secretary of the Corporation, which certificates shall certify the number and class of shares held by the shareholder in the Corporation, but no certificates for shares shall be delivered until such shares are fully paid. Any or all of the signatures on the certificate may be a facsimile. Although any officer of the Corporation whose manual or facsimile signature is affixed to a share certificate
shall cease to be such officer before the certificate is delivered, such certificate, nevertheless, shall be effective in all respects when delivered.
Such certificate for shares shall be transferable in person or by attorney, but, except as hereinafter provided in the case of lost, mutilated or destroyed certificates, no transfers of shares shall be entered upon the records of the Corporation until the previous certificates, if any, given for the same shall have been surrendered and canceled.
Section 2. Lost, Mutilated or Destroyed Certificates. If any certificate for shares is lost, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof, upon such terms and conditions as it may deem advisable. The Board of Directors in it discretion may refuse to issue such new certificates until the Corporation has been indemnified by a final order or decree of a court of competent jurisdiction and may, in it sole discretion, require a bond prior to issuance of any such new certificate.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of December in each year, or on such other day as may be fixed from time to time by the Board of Directors.
ARTICLE X
Indemnification
Section 1. Indemnification Contracts. In addition to the indemnification rights provided by the Restated Articles of Incorporation, the Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, and whether for profit or not, providing for indemnification rights to the fullest extent permitted by the Business Corporation Act of Michigan, as the same now exists or may hereafter be amended.
Section 2. Insurance. The Corporation shall maintain insurance to the extent that it is reasonably available and the premium costs are not disproportionate to the amount of coverage provided, at its expense, to protect itself and any such director or officer of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Business Corporation Act of Michigan.
Section 3. Effect of Amendment. Any amendment, repeal or modification of any provision of this Article X by the shareholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification.
ARTICLE XI
Amendments
These Bylaws may be altered, amended, or repealed by: (a) the action by written consent of the shareholders in lieu of a meeting; or (b) the action by written consent of the Board of Directors in lieu of a meeting; or (c) by an affirmative vote of a majority of the shareholders or directors at a regular meeting or at a special meeting called for that purpose.
EXHIBIT 10.1
MONROE BANK & TRUST
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is adopted this 1st day of July, 2003, by and between MONROE BANK & TRUST, a state-chartered commercial bank located in Monroe, Michigan (the "Company"), and H. DOUGLAS CHAFFIN (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the Company is willing to provide supplemental retirement benefits to the Executive. The Company will pay the benefits from its general assets.
AGREEMENT
The Company and the Executive agree as follows:
ARTICLE 1
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1 "Code" means the Internal Revenue Code of 1986, as amended.
1.2 "Disability" means the Executive's suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive totally and permanently disabled. The Executive must submit proof to the Company of the carrier's or Social Security Administration's determination upon the request of the Company.
1.3 "Early Termination" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, or Termination for Cause.
1.4 "Early Termination Date" means the month, day and year in which Early Termination occurs.
1.5 "Effective Date" means July 1, 2003.
1.6 "Final Pay" means the total annual base salary payable to the
Executive at the rate in effect at Termination of Employment. Final Pay shall
not be reduced for any salary reduction contributions to: (i) cash or deferred
arrangements under Section 401(k) of the Code; (ii) a cafeteria plan under
Section 125 of the Code; or (iii) a deferred compensation plan that is not
qualified under Section 401(a) of the Code.
1.7 "Normal Retirement Age" means the Executive's 65th birthday.
1.8 "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment.
1.9 "Plan Year" means a twelve-month period commencing on July 1 and ending on June 30 of each year. The initial Plan Year shall commence on the Effective Date of this Agreement.
1.10 "Termination for Cause" See Article 5.
1.11 "Termination of Employment" means that the Executive ceases to be employed by the Company for any reason, voluntary or involuntary, other than by reason of a leave of absence approved by the Company.
ARTICLE 2
BENEFITS DURING LIFETIME
2.1 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is 65 percent of the Executive's Final Pay, as set forth on Schedule A, attached hereto and incorporated by reference herein, and as revised and updated by the Company from time to time, reduced by:
(a) fifty percent (50%) of the primary Social Security benefit payable (before earnings reduction) to the Executive or which would be payable if applied for by the Executive upon his Normal Retirement Age;
(b) the annual amount of benefits payable to the Executive upon his Normal Retirement Age (whether or not actually paid) from the Company's qualified pension plan (the "Pension Plan"); and
(c) the annual amount of benefits payable to the Executive upon his Normal Retirement Age, on a single life annuity basis, attributable to the portion of the Executive's account balances arising from employer contributions (but excluding the portion of such balances arising from employee salary reduction contributions) from the Bank's Section 401(k) plan.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments commencing with the month following the Executive's Normal Retirement Date. The annual benefit shall be paid to the Executive for a period of 10 years.
2.2 Early Termination Benefit. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement.
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is an amount equal to the "Accrual Balance" determined as of the Company's fiscal year end immediately preceding the Executive's Early Termination Date, as set forth on Schedule A, attached hereto and incorporated by reference herein, and as revised and updated by the Company from time to time. The Executive shall begin to vest in said Accrual Balance commencing on the date of Ronald D. LaBeau's retirement, subject to the following vesting schedule:
PLAN YEARS SINCE
LABEAU'S RETIREMENT VESTED PERCENTAGE
----------------------------------------
0 - 4 0%
----------------------------------------
5 or more 100%
----------------------------------------
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2.2.2 Payment of Benefit. The Company shall pay the benefit to the Executive by calculating a fixed annuity payable in 120 monthly installments, crediting interest on the unpaid balance at an annual rate of 6.75 percent, compounded monthly. The monthly installments shall be payable on the first day of each month commencing with the month following Normal Retirement Age.
2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to
Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement.
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is an amount equal to the "Accrual Balance" determined as of the Company's fiscal year end immediately preceding the date the Executive's Termination of Employment occurs, as set forth on Schedule A, attached hereto and incorporated by reference herein, and as revised and updated by the Company from time to time.
2.3.2 Payment of Benefit. The Company shall pay the benefit to the Executive by calculating a fixed annuity payable in 120 monthly installments, crediting interest on the unpaid balance at an annual rate of 6.75 percent, compounded monthly. The monthly installments shall be payable on the first day of each month commencing with the month following Normal Retirement Age.
ARTICLE 3
DEATH BENEFITS
3.1 Death During Active Service. If the Executive dies while in the active service of the Company, no benefit shall be payable under this Agreement.
3.2 Death During Payment of a Benefit. If the Executive dies after any benefit payments have commenced under Article 2 of this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.
3.3 Death After Termination of Employment But Before Payment of a Benefit Commences. If the Executive is entitled to a benefit under Article 2 of this Agreement, but dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Executive's beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death.
ARTICLE 4
BENEFICIARIES
4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and received by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
ARTICLE 5
GENERAL LIMITATIONS
5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Executive's employment for:
(a) Gross negligence or gross neglect of duties;
(b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or
(c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company.
5.2 Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on an employment application or resume provided to the Company, or on any application for any benefits provided by the Company to the Executive.
5.3 Competition After Termination of Employment. The Company shall not pay any benefit under this Agreement if the Executive, within 12 months following Termination of Employment, without the prior written consent of the Company, engages in, becomes interested in, directly or indirectly, as a sole proprietor, as a partner in a partnership, or as a substantial shareholder in a corporation, or becomes associated with, in the capacity of employee, director, officer, principal, agent, trustee or in any other capacity whatsoever, any enterprise conducted in the trading area (a 50 mile radius) of the business of the Company, which enterprise is, or may deemed to be, competitive with any business carried on by the Company as of the date of termination of the Executive's employment or retirement. This section shall not apply following a Change of Control.
ARTICLE 6
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. An Executive or beneficiary ("claimant") who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:
6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits.
6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of the Agreement on which the
denial is based;
(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;
(d) An explanation of the Agreement's review procedures and the time limits applicable to such procedures; and
(e) A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:
6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review.
6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.
6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of the Agreement on which the denial is based;
(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits; and
(d) A statement of the claimant's right to bring a civil action under ERISA Section 502(a).
ARTICLE 7
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive.
Notwithstanding the previous paragraph in this Article 7, the Company may amend or terminate this Agreement at any time if, pursuant to legislative, judicial or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Executive prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Company (other than the financial impact of paying the benefits).
ARTICLE 8
MISCELLANEOUS
8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees.
8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company" as used in this Agreement shall be deemed to refer to the successor or survivor company.
8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Michigan, except to the extent preempted by the laws of the United States of America.
8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.
8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
(a) Establishing and revising the method of accounting for the Agreement;
(b) Maintaining a record of benefit payments;
(c) Establishing rules and prescribing any forms necessary or desirable to administer
the Agreement; and
(d) Interpreting the provisions of the Agreement.
8.10 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under this Agreement. It may delegate to others certain aspects of the management and operational responsibilities including the employment of advisors and the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the Executive and the Company have signed this Agreement.
EXECUTIVE: COMPANY:
MONROE BANK & TRUST
/s/ H. Douglas Chaffin By: /s/ John L. Skibski
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H. Douglas Chaffin Title: Senior Vice President & Controller
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Exhibit 10.2
MONROE BANK & TRUST
SPLIT DOLLAR AGREEMENT
THIS AGREEMENT is adopted this 1st day of July, 2003, by and between MONROE BANK & TRUST, a state-chartered commercial bank located in Monroe, Michigan (the "Company"), and H. DOUGLAS CHAFFIN (the "Executive"). This Agreement shall append the Split Dollar Endorsement entered into on even date herewith or as subsequently amended, by and between the aforementioned parties.
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the Company is willing to divide the death proceeds of life insurance policies on the Executive's life. The Company will pay life insurance premiums from its general assets.
AGREEMENT
The Company and the Executive agree as follows:
ARTICLE 1
GENERAL DEFINITIONS
The following terms shall have the meanings specified:
1.1 "Insured" means the Executive.
1.2 "Insurer" means each life insurance carrier that has a Split Dollar Policy Endorsement attached to this Agreement.
1.3 "Normal Retirement Age" means the Executive's 65th birthday.
1.4 "Policy" or "Policies" means the specific life insurance policy or policies issued by the Insurer.
1.5 "Termination of Employment" means the Executive ceasing to be employed by the Company for any reason whatsoever, other than by reason of an approved leave of absence.
ARTICLE 2
POLICY OWNERSHIP/INTERESTS
2.1 Company Ownership. The Company is the sole owner of the Policies and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policies after the Interest of the Executive or the Executive's transferee has been paid according to Section 2.2 below.
2.2 Executive's Interest. The Executive shall have the right to designate the beneficiary of an amount of death proceeds equal to the "Accrual Balance" projected to be accrued at the Executive's Normal Retirement Age, as set forth on Schedule A attached to the Monroe Bank & Trust Supplemental Executive Retirement Agreement dated July 1, 2003 between the Company and the Executive and incorporated by reference herein, and as revised and updated by the Company from time to time. The Executive shall also have the right to elect and change settlement options that may be permitted. However, the Executive, the Executive's transferee or the Executive's beneficiary shall have no rights or interests in the Policies with respect to that portion of the death proceeds designated in this section 2.2 upon the Executive's Termination of Employment.
2.3 Option to Purchase. The Company shall not sell, surrender, or transfer ownership of the Policy while this Agreement is in effect without first giving the Executive or the Executive's transferee the option to purchase the Policy for a period of 60 days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policy.
This provision shall not impair the right of the Company to terminate this Agreement.
ARTICLE 3
PREMIUMS
3.1 Premium Payment. The Company shall pay any premiums due on the Policy.
3.2 Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the amount of the current term rate for the Executive's age multiplied by the aggregate death benefit payable to the Executive's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority.
3.3 Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis.
ARTICLE 4
ASSIGNMENT
The Executive may assign without consideration all of the Executive's interests in the Policy and in this Agreement to any person, entity or trust. In the event the Executive transfers all of the Executive's interest in the Policy, then all of the Executive's interest in the Policy and in the Agreement shall be vested in the Executive's transferee, who shall be substituted as a party hereunder and the Executive shall have no further interest in the Policy or in this Agreement.
ARTICLE 5
INSURER
The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement.
ARTICLE 6
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. Any person or entity who has not received benefits under the Agreement that he or she believes should be paid (the "claimant") shall make a claim for such benefits as follows:
6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits.
6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial,
(b) A reference to the specific provisions of the Agreement on which the denial is based,
(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,
(d) An explanation of the Agreement's review procedures and the time limits applicable to such procedures, and
(e) A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:
6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review.
6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.
6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.
6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial,
(b) A reference to the specific provisions of the Agreement on which the denial is based,
(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and
(d) A statement of the claimant's right to bring a civil action under ERISA Section 502(a).
ARTICLE 7
AMENDMENTS AND TERMINATION
This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive. However, unless otherwise agreed to by the Company and the Executive, this Agreement will automatically terminate upon the Executive's Termination of Employment.
ARTICLE 8
MISCELLANEOUS
8.1 Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary.
8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.
8.3 Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Michigan, except to the extent preempted by the laws of the United States of America.
8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company.
8.5 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand.
8.6 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.
8.7 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:
(a) Interpreting the provisions of this Agreement;
(b) Establishing and revising the method of accounting for this Agreement;
(c) Maintaining a record of benefit payments; and
(d) Establishing rules and prescribing any forms necessary or desirable to administer this Agreement.
8.8 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.
EXECUTIVE: COMPANY:
MONROE BANK & TRUST
/s/ H. Douglas Chaffin By: /s/ John L. Skibski
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H. Douglas Chaffin Title: Senior Vice President & Controller
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EXHIBIT 31.1
CERTIFICATIONS
I, Ronald D. LaBeau, Chairman and Chief Executive Officer of MBT Financial Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of MBT Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [THIS PARAGRAPH INTENTIONALLY LEFT BLANK.]
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: October 29, 2003 /s/ Ronald D. LaBeau
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Ronald D. LaBeau
Chairman and Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATIONS
I, John L. Skibski, Chief Financial Officer of MBT Financial Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of MBT Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [THIS PARAGRAPH INTENTIONALLY LEFT BLANK.]
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: October 29, 2003 /s/ John L. Skibski
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John L. Skibski
Senior Vice President and
Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MBT Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald D. LaBeau, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Ronald D. LaBeau --------------------------- Ronald D. LaBeau Chief Executive Officer October 29, 2003 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MBT Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John L. Skibski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John L. Skibski ----------------------------- John L. Skibski Chief Financial Officer October 29, 2003 |
EXHIBIT 99
MONROE BANK & TRUST (MBT) ANNOUNCES THE
RETIREMENT OF RONALD D. LABEAU
MONROE, MICHIGAN - At the October 23, 2003 Board meeting of Monroe Bank & Trust (MBT) and MBT Financial Corp., Mr. Ronald D. LaBeau, Chairman and Chief Executive Officer, informed the Board that he will be retiring effective April 2, 2004. Mr. LaBeau has been in the CEO position since December 1998. During his tenure, the bank has grown from slightly over one billion dollars in assets to nearly 1.5 billion dollars.
"Ron's strategic vision and leadership skills, along with his unparalleled industry experience have led MBT to exponential growth in recent years," said Doug Chaffin, President and COO. "We wish Ron success and happiness in all of his future endeavors."
Ron LaBeau, a Monroe native, has 35 years in the financial industry, beginning his career in 1968 at First National Bank of Monroe (subsequently Security Bank of Monroe and First of America) where he began as a loan officer and progressed to President, Chief Executive Officer. Mr. LaBeau held the position of Executive Vice President, Senior Lending Officer in Southern Monroe County at MBT prior to being appointed to President, CEO in 1998.
Mr. LaBeau stated, "I informed the Board that once succession management was established and a successor was ready to assume control of the company, that I would step down and retire from both the bank and the Board. That time is at hand. I feel that H. Douglas Chaffin has the ability to lead this Corporation into the future. He possesses the requisite business knowledge in the financial services sector to lead and grow this community oriented bank franchise. He understands the importance of customer service and the necessity of technological product offerings, which are the basis of the success that our bank has enjoyed. I am confident the company will continue to thrive under his leadership."
Mr. Chaffin joined MBT in 2001 as Executive Vice President and Senior Lending Manager, responsible for overseeing the bank's entire lending function, including Commercial, Mortgage, and Consumer lending. In January, 2003, Mr. Chaffin was promoted to President, Chief Operating Officer. Doug Chaffin has previously held executive positions in financial institutions including Huntington National Bank, Lincoln Financial Corporation, American Fletcher National Bank, and LaFayette National Bank.
Founded in 1858, Monroe Bank & Trust is one of the nation's largest community banks, with $1.5 billion in assets plus nearly $1 billion in trust assets. MBT is a full-service bank, offering a broad range of services, from personal and business accounts to complete credit options and the area's largest Trust Department. With 24 offices, 34 ATMs, PhoneLink telephone banking and eLink online banking, MBT is the area's most accessible bank.
MBT is proud to be an active supporter of the community through contributions, reinvestment, civic involvement and ENLIST, its employee volunteer program. MBT is a wholly owned subsidiary of MBT Financial Corp., a single bank holding company headquartered in Monroe, Michigan. Visit MBT's web site at www.MBandT.com.