UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
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
incorporation or organization) Identification No.)
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102 E. FRONT STREET
MONROE, MICHIGAN 48161
(Address of principal executive offices)
(Zip Code)
(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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 5, 2008, there were 16,130,515 shares of the Company's Common Stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MBT FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 DECEMBER 31,
Dollars in thousands (UNAUDITED) 2007
-------------------- -------------- ------------
ASSETS
Cash and Cash Equivalents
Cash and due from banks $ 24,954 $ 25,113
---------- ----------
Total cash and cash equivalents 24,954 25,113
Securities - Held to Maturity 40,768 44,734
Securities - Available for Sale 390,114 380,238
Federal Home Loan Bank stock - at cost 13,086 13,086
Loans held for sale 206 1,431
Loans - Net 973,513 980,606
Accrued interest receivable and other assets 37,517 36,370
Bank Owned Life Insurance 42,864 42,509
Premises and Equipment - Net 32,428 32,719
---------- ----------
Total assets $1,555,450 $1,556,806
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 127,716 $ 141,115
Interest-bearing 967,889 968,865
---------- ----------
Total deposits 1,095,605 1,109,980
Federal Home Loan Bank advances 256,500 256,500
Federal funds purchased 26,900 13,300
Repurchase agreements 35,000 35,000
Interest payable and other liabilities 13,364 14,579
---------- ----------
Total liabilities 1,427,369 1,429,359
---------- ----------
STOCKHOLDERS' EQUITY
Common stock (no par value) -- --
Retained Earnings 129,780 129,917
Accumulated other comprehensive loss (1,699) (2,470)
---------- ----------
Total stockholders' equity 128,081 127,447
---------- ----------
Total liabilities and stockholders' equity $1,555,450 $1,556,806
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The accompanying notes to consolidated financial statements are integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
THREE MONTHS ENDED
MARCH 31,
------------------
Dollars in thousands, except per share data 2008 2007
------------------------------------------- ------- --------
INTEREST INCOME
Interest and fees on loans $16,428 $17,761
Interest on investment securities-
Tax-exempt 815 1,009
Taxable 4,956 4,915
Interest on federal funds sold 1 32
------- -------
Total interest income 22,200 23,717
------- -------
INTEREST EXPENSE
Interest on deposits 7,491 7,955
Interest on borrowed funds 4,256 4,579
------- -------
Total interest expense 11,747 12,534
------- -------
NET INTEREST INCOME 10,453 11,183
PROVISION FOR LOAN LOSSES 1,200 750
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,253 10,433
------- -------
OTHER INCOME
Income from wealth management services 1,127 1,067
Service charges and other fees 1,526 1,525
Net gain on sales of securities 25 --
Origination fees on mortgage loans sold 193 183
Bank owned life insurance income 355 296
Other 736 692
------- -------
Total other income 3,962 3,763
------- -------
OTHER EXPENSES
Salaries and employee benefits 5,582 5,449
Occupancy expense 995 880
Equipment expense 828 845
Marketing expense 241 252
Professional fees 469 370
Net loss on other real estate owned 35 18
Other 1,548 1,298
------- -------
Total other expenses 9,698 9,112
------- -------
INCOME BEFORE INCOME TAXES 3,517 5,084
INCOME TAX EXPENSE 870 1,381
------- -------
NET INCOME $ 2,647 $ 3,703
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.16 $ 0.22
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.16 $ 0.22
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COMMON STOCK DIVIDENDS DECLARED PER SHARE $ 0.18 $ 0.18
======= =======
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The accompanying notes to consolidated financial statements are integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED
MARCH 31,
--------------------
Dollars in thousands 2008 2007
-------------------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,647 $ 3,703
Adjustments to reconcile net income to net cash from
operating activities
Provision for loan losses 1,200 750
Depreciation 718 681
Increase in net deferred Federal income tax asset -- (228)
Net (accretion) amortization of investment premium
and discount 14 (87)
Net increase (decrease) in interest payable and
other liabilities (1,175) 1,293
Net (increase) decrease in interest receivable and
other assets (2,053) 3,311
Equity based compensation expense 90 170
Net (gain) loss on sale/settlement of securities (25) --
Increase in cash surrender value of life insurance (355) (296)
--------- --------
Net cash provided by operating activities $ 1,061 $ 9,297
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and redemptions of investment
securities held to maturity $ 3,967 $ 12,433
Proceeds from maturities and redemptions of investment
securities available for sale 114,997 4,271
Proceeds from sales of investment securities available
for sale 2,989 --
Net increase in loans 7,118 9,231
Proceeds from sales of other real estate owned 403 663
Proceeds from sales of other assets 89 26
Purchase of investment securities held to maturity -- (700)
Purchase of investment securities available for sale (126,707) (12,517)
Purchase of bank premises and equipment (427) (388)
--------- --------
Net cash provided by investing activities $ 2,429 $ 13,019
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits $ (14,375) $(19,847)
Net increase (decrease) in short term borrowings 13,600 (1,000)
Proceeds from issuance of common stock 29 28
Repurchase of common stock -- (968)
Dividends paid (2,903) (3,007)
--------- --------
Net cash used for financing activities $ (3,649) $(24,794)
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (159) $ (2,478)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,113 27,903
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,954 $ 25,425
========= ========
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The accompanying notes to consolidated financial statements are integral part of these statements.
MBT FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
ACCUMULATED
ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE
Dollars in thousands CAPITAL EARNINGS INCOME (LOSS) TOTAL
-------------------- ---------- -------- ------------- --------
BALANCE - JANUARY 1, 2008 $ -- $129,917 $(2,470) $127,447
Repurchase of Common Stock -- -- -- --
Issuance of Common Stock (3,324 shares) -- 29 -- 29
Equity Compensation -- 90 -- 90
Dividends declared ($0.18 per share) -- (2,903) -- (2,903)
Comprehensive income:
Net income -- 2,647 -- 2,647
Change in net unrealized loss on securities
available for sale - Net of tax effect of $(409) -- -- 760 760
Reclassification adjustment for gains included
in net income - Net of tax effect of $9 -- -- (15) (15)
Change in postretirement benefit obligation
Net of tax effect of ($14) -- -- 26 26
------ -------- ------- --------
Total Comprehensive Income 3,418
------ -------- ------- --------
BALANCE - MARCH 31, 2008 $ -- $129,780 $(1,699) $128,081
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The accompanying notes to consolidated financial statements are integral part of these statements.
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 "Company") 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 five branches in Wayne County, Michigan. MBT Credit Company, Inc. operates a mortgage loan office in Monroe 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 Company's sole business segment is community banking.
The accounting and reporting policies of the Bank conform to practice within the banking industry and are in accordance with accounting principles generally accepted in the United States. Preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term are the determination of the allowance for loan losses and the valuation of other real estate owned.
The accompanying unaudited consolidated financial statements of the Company 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.
The significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiary. All material intercompany transactions and balances have been eliminated.
COMPREHENSIVE INCOME
Accounting principles generally require that revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on securities available for sale and amounts recognized related to postretirement benefit plans (gains and losses, prior service costs, and transition assets or obligations), are reported as a direct adjustment to the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.
BUSINESS SEGMENTS
While the Company'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 Company's operations are considered by management to be aggregated in one reportable segment.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS 123(R), "Accounting for Stock Based Compensation" for all share based payments to employees, including grants of stock options and restricted stock units. The amount of compensation is measured at the fair value of the options
when granted, and this cost is expensed over the required service period, which is normally the vesting period of the options.
SFAS 123(R) applies to awards granted or modified after January 1, 2006. Compensation cost is also recorded for prior option grants that vest after the date of adoption. The compensation expense recorded under FAS 123(R) in the three months ended March 31, 2008 and March 31, 2007 was $90,000 and $170,000, respectively.
The weighted average fair value of options granted was $2.76 in 2007. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: expected option lives of seven years, expected volatility of 20.3%, and a risk-free interest rate of 4.7%.
FAIR VALUE
In February 2007, the Financial Accounting Standards Board "FASB" issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits companies to elect on an instrument by instruments basis to fair value certain financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. The election to fair value is generally irrevocable. FAS 159 is effective January 1, 2008 for calendar year companies with the option to early adopt as of January 1, 2007. Upon early adoption of FAS 159, the Corporation concurrently adopted the provisions of FAS 157, effective January 1, 2007.
The Corporation measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under FAS 159 as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments and available for sale securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Corporation uses various valuation techniques and assumptions when estimating fair value, which are in accordance with FAS 157.
In accordance with FAS 157, the Corporation applied the following fair value hierarchy:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Corporation's U.S. government agency securities, government sponsored mortgage backed securities, and mutual fund investments where quoted prices are available in an active market generally are classified within Level 1 of the fair value hierarchy.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Corporation's borrowed funds and investments in obligations of states and political subdivisions and trust preferred securities are generally classified in Level 2 of the fair value hierarchy. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Private equity investments are classified within Level 3 of the fair value hierarchy. Fair values are initially valued based on transaction price and are adjusted to reflect exit values.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Corporation considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Corporation looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Corporation looks to market observable data for similar assets or liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and the Corporation must use alternative valuation techniques to derive a fair value measurement.
ACCOUNTING PRONOUNCEMENTS
In April 2007, the Corporation elected early adoption of FAS 159 as of January 1, 2007. The Corporation did not select any financial assets or financial liabilities for fair value measurement, but elected early adoption in order to be able to apply the fair value option to financial assets and financial liabilities that may be acquired prior to the effective date of the statements.
2. EARNINGS PER SHARE
The calculation of net income per common share for the three months ended March 31 is as follows:
2008 2007
----------- -----------
BASIC
Net income $ 2,647,000 $ 3,703,000
Less preferred dividends -- --
----------- -----------
Net income applicable to common stock $ 2,647,000 $ 3,703,000
----------- -----------
Average common shares outstanding 16,127,047 16,686,983
----------- -----------
Earnings per common share - basic $ 0.16 $ 0.22
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2008 2007
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DILUTED
Net income $ 2,647,000 $ 3,703,000
Less preferred dividends -- --
----------- -----------
Net income applicable to common stock $ 2,647,000 $ 3,703,000
----------- -----------
Average common shares outstanding 16,127,047 16,686,983
Stock option adjustment 12,026 29,702
----------- -----------
Average common shares outstanding - diluted 16,139,073 16,716,685
----------- -----------
Earnings per common share - diluted $ 0.16 $ 0.22
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3. STOCK BASED COMPENSATION
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, 2008 602,143 $ 17.36
Granted -- --
Exercised -- --
Forfeited 58,334 16.90
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Options Outstanding, March 31, 2008 543,809 $ 17.41
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Options Exercisable, March 31, 2008 457,987 $ 17.75
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The total expense for equity based compensation was $90,000 in the first three months of 2008 and $170,000 in the first three months of 2007.
4. 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):
March 31, December 31,
2008 2007
--------- ------------
Residential real estate loans $481,005 $ 489,038
Non-residential real estate loans 340,574 357,622
Loans to finance agricultural production and
other loans to farmers 11,853 5,981
Commercial and industrial loans 121,118 107,375
Loans to individuals for household, family,
and other personal expenditures 36,922 40,705
All other loans (including overdrafts) 321 731
-------- ----------
Total loans, gross 991,793 1,001,452
Less: Deferred loan fees 597 624
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Total loans, net of deferred loan fees 991,196 1,000,828
Less: Allowance for loan losses 17,683 20,222
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$973,513 $ 980,606
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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 loan relationships over $250,000 that are classified by Management as nonperforming as well as selected performing accounts 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 consist of nonaccrual loans, loans 90 days or more past due, restructured loans, and other real estate owned. Other real estate owned includes real estate that has been acquired in full or partial satisfaction of loan obligations or upon foreclosure and real estate that the bank has purchased but no longer intends to use for bank premises.
The following table summarizes nonperforming assets (000's omitted):
March 31, December 31,
2008 2007
--------- ------------
Nonaccrual loans $37,814 $30,459
Loans 90 days past due 94 102
Restructured loans 1,679 3,367
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Total nonperforming loans $39,587 $33,928
Other real estate owned 13,884 10,626
Other assets 1,935 1,939
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Total nonperforming assets $55,406 $46,493
======= =======
Nonperforming assets to total assets 3.56% 2.99%
Allowance for loan losses to
nonperforming loans 44.67% 59.60%
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5. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows (000's omitted):
Three months ended Twelve months ended
March 31, 2008 December 31, 2007
------------------ -------------------
Balance beginning of year $20,222 $13,764
Provision for loan losses 1,200 11,407
Loans charged off (3,955) (6,386)
Recoveries 216 1,437
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Balance end of period $17,683 $20,222
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For each period, the provision for loan losses in the income statement is based on Management's estimate of the amount required to maintain an adequate Allowance for Loan Losses.
To serve as a basis for making this provision, the Bank maintains an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank's customers, the payment performance of individual loans and pools of homogeneous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific loan relationships. For loans deemed to be impaired due to an expectation that all contractual payments will probably not be received, impairment is measured by comparing the Bank's recorded investment in the loan to the present value of expected cash flows discounted at the loan's effective interest rate, 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. When it is determined that a customer will not repay a loan, the loan is charged off, reducing the Allowance for Loan Losses. If, subsequent to a charge off, the Bank is able to collect additional amounts from the customer or sell collateral worth more than earlier estimated, a recovery is recorded.
6. INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as of March 31, 2008 and December 31, 2007 (000's omitted):
March 31, 2008 December 31, 2007
------------------------ ------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
Held to Maturity
Obligations of U.S. Government Agencies $ 7 $ 8 $ 7 $ 8
Obligations of States and Political
Subdivisions 40,761 41,106 44,727 45,036
------- ------- ------- -------
$40,768 $41,114 $44,734 $45,044
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March 31, 2008 December 31, 2007
------------------------ ------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
Available for Sale
Obligations of U.S. Government Agencies $316,964 $319,249 $330,505 $330,178
Obligations of States and Political
Subdivisions 32,972 33,428 27,046 27,134
Other Securities 39,428 37,437 23,081 22,926
-------- -------- -------- --------
$389,364 $390,114 $380,632 $380,238
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The unrealized losses on investment securities are primarily the result of increases in market interest rates and not the result of credit quality of the issuers of the securities. The Company has the ability and intent to hold most of these securities until recovery, which may be until maturity. For securities in which the Company no longer has the intent to hold until recovery, the securities are treated as other than temporarily impaired and the amount of impairment is charged to earnings.
7. FAIR VALUE MEASUREMENTS
The following tables present information about the Company's assets measured at fair value on a recurring basis at March 31, 2008, and the valuation techniques used by the Company to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
Assets measured at fair value on a recurring basis are as follows (000's omitted):
Quoted Prices in
Active Markets for Significant Other Significant Balance at
Identical Assets Observable Inputs Unobservable March 31,
(Level 1) (Level 2) Inputs (Level 3) 2008
------------------ ----------------- ---------------- ----------
Investment Securities - Available for Sale $330,133 $59,385 $596 $390,114
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The changes in Level 3 assets measured at fair value on a recurring basis were (000's omitted):
Investment
Securities -
Available
for Sale
------------
BALANCE AT DECEMBER 31, 2007 $585
Total realized and unrealized gains (losses) included in income --
Total unrealized gains (losses) included in other comprehensive income 11
Net purchases, sales, calls and maturities --
Net transfers in/out of Level 3 --
----
BALANCE AT MARCH 31, 2008 $596
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Of the Level 3 assets that were still held by the Company at March 31, 2008, the unrealized gain for the three months ended March 31, 2008 was $6,000, which is recognized in other comprehensive income in the consolidated statements of financial condition. The Company did not have purchases or sales of Level 3 available for sale securities during the period.
Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets. As a result, the unrealized gains and losses for these assets presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.
Available for sale investment securities categorized as Level 3 assets consist of bonds issued by local municipalities. The Company estimates the fair value of these bonds based on the present value of expected future cash flows using management's best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality, and a discount rate commensurate with the current market and other risks involved.
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include held to maturity investments and loans. The Company estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections. In the quarter ended March 31, 2008, the Company recognized a non-cash impairment charge of $2,460,000 to adjust these assets to their fair values.
Assets measured at fair value on a nonrecurring basis are as follows (000's omitted):
Quoted Total
Prices in Losses
Active Significant for the
Markets for Other Significant period
Balance at Identical Observable Unobservable ended
March 31, Assets Inputs Inputs March 31,
2007 (Level 1) (Level 2) (Level 3) 2008
---------- ----------- ----------- ------------ ---------
Investment Securities - Held to Maturity $41,114 $ 8 $20,681 $20,425 $ --
Impaired loans accounted for under FAS 114 $37,039 $-- $ -- $37,039 $2,460
Loans held for sale $ 206 $-- $ -- $ 206 $ --
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Held to maturity investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. The Company estimates the fair value of these bonds based on the present value of expected future cash flows using management's best estimate of key assumptions, including forecasted interest yield and prepayment rates, credit quality and a discount rate commensurate with the current market and other risks involved.
Impaired loans accounted for under FAS 114 categorized as Level 3 assets consist of non-homogenous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of
payment streams, and estimated realizable values of available collateral (typically based on outside appraisals).
Other assets, including bank owned life insurance, intangible assets, and other assets acquired in business combinations, are also subject to periodic impairment assessments under other accounting principles generally accepted in the United States of America. These assets are not considered financial instruments. Effective February 12, 2008, the FASB issued a staff position, FSP FAS 157-2, which delayed the applicability of FAS 157 to non financial instruments. Accordingly, these assets have been omitted from the above disclosures.
8. 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
------------------------
March 31, December 31,
2008 2007
--------- ------------
Commitments to extend credit:
Unused portion of commercial lines of credit $79,458 $92,774
Unused portion of credit card lines of credit 6,171 5,988
Unused portion of home equity lines of credit 21,387 20,047
Standby letters of credit and financial guarantees written 10,008 9,994
All other off-balance sheet assets 4,019 3,555
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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, and generally have fixed expiration dates or other termination clauses. 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.
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
General
MBT Financial Corp. (the "Company) is a bank holding company with one subsidiary, Monroe Bank & Trust ("the Bank"). The Bank is a commercial bank with two wholly owned subsidiaries, MBT Credit Company, Inc. and MB&T Financial Services. MBT Credit Company, Inc. conducts lending operations for the Bank and MB&T Financial Services is an insurance agency which sells insurance policies to the Bank. The Bank operates 21 branch offices in Monroe County, Michigan and 5 offices in Wayne County, Michigan. The Bank's primary source of income is interest income on its loans and investments and its primary expense is interest expense on its deposits and borrowings.
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 Company'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, changes in the financial and securities markets, including changes with respect to the market value of our financial assets, the availability of and costs associated with sources of liquidity, and the ability of the Company to resolve or dispose of problem loans.
The Company 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.
Critical Accounting Policies
The Company's Allowance for Loan Losses is a "critical accounting estimate" because it is an estimate that is based on assumptions that are highly uncertain, and if different assumptions were used or if any of the assumptions used were to change, there could be a material impact on the presentation of the Company's financial condition. These assumptions include, but are not limited to, collateral values and the effect of economic conditions on the financial condition of the borrowers. To determine the Allowance for Loan Losses, the Company estimates losses on all loans that are not classified as non accrual or renegotiated by applying historical loss rates, adjusted for current conditions, to those loans in accordance with SFAS 5. In addition, all loans that are non accrual or renegotiated are individually tested for impairment. Any amount of monetary impairment is included in the Allowance for Loan Losses in accordance with SFAS 114.
Financial Condition
The flat yield curve environment that began in 2005 started to improve late in the third quarter of 2007, with the curve returning to a more typical slope in the fourth quarter of 2007 through the
first quarter of 2008. While the flat curve condition existed, the spread between the asset yields and funding costs was narrow, providing little opportunity for profitable growth without increasing exposure to interest rate risk. Throughout this period, the Company maintained a strategy of controlling the decline in its net interest margin by restricting its growth and changing the mix of its assets to increase the percent invested in loans. Although the shape of the yield curve now presents opportunity to increase bank assets profitably, the economic conditions have deteriorated and loan demand has decreased significantly.
Since December 31, 2007, total loans decreased $9.7 million (1.0%) due to the weak loan demand. Total cash and investments increased $5.8 million (1.2%), and total assets decreased $1.4 million (0.1%). Consumer loans decreased $3.8 million, or 9.3% due to a reduction in lending for autos and other personal expenditures, especially boats and recreational vehicles. Residential real estate secured loans decreased $8.0 million (1.6%) due to the low interest rate environment. Our residential real estate portfolio primarily consists of adjustable rate mortgages, and we sell most fixed rate mortgages we originate. Recently, 30 year fixed mortgage rates have been low enough that our adjustable rate customers have elected to refinance into fixed rate products. Deposits decreased $14.4 million, or 1.3%, due to a variety of factors, primarily including normal seasonal activity of large municipal depositors and aggressive certificate of deposit pricing strategies of some of the regional banks that have offices in our market area. Total capital increased $0.6 million or 0.5% even though dividends declared exceeded net income by $0.3 million, as accumulated other comprehensive income increased $0.8 million, primarily due to the increase in the value of securities available for sale. The capital to assets ratio increased from 8.19% at December 31, 2007 to 8.23% at March 31, 2008.
The amount of nonperforming assets ("NPAs") increased $8.9 million or 19.2% since year end. NPAs include non performing loans, which increased 16.7% from $33.9 million to $39.6 million, and Other Real Estate Owned and Other Assets ("OREO"), which increased from $12.6 million to $15.8 million. Total problem assets, which includes all NPAs and performing loans that are internally classified as substandard, increased $8.4 million, or 9.6%. The Company's Allowance for Loan and Lease Losses ("ALLL") decreased $2.5 million since December 31, 2007, as the amount of specific allocations required by FAS 114 decreased from $9.1 million to $6.7 million, mainly due to progress made in successfully resolving a large non performing asset. The FAS 5 portion of the allowance was unchanged as the decrease in the loan portfolio was offset by higher loss factors due to the weaker economic conditions and lower real estate values. The ALLL is now 1.78% of loans, compared to 2.02% at year end. The ALLL is 44.7% of NPLs, a decrease from 59.6% at year end. Because a significant portion of the Bank's lending is secured by real estate, we believe that at this level the ALLL adequately estimates the potential losses in the loan portfolio.
Results of Operations - First Quarter 2008 vs. First Quarter 2007
Net Interest Income - A comparison of the income statements for the three months ended March 31, 2007 and 2008 shows a decrease of $730,000, or 6.5% in Net Interest Income. Interest income on loans decreased $1.3 million or 7.5% even though the average loans outstanding increased $4.6 million as the average yield on loans decreased from 7.19% to 6.62%. The interest income on investments and fed funds sold decreased $184,000 as the yield on investments and fed funds sold decreased from 5.29% to 5.21%, and the average amount of investments and fed funds sold decreased $6.6 million. An improvement in the term structure of interest rates and a decrease in the overall level of interest rates allowed funding costs to decrease along with asset yields. The interest expense on deposits decreased $464,000 or 5.8% even though average deposits increased $9.8 million because the average cost of those deposits decreased from 2.91% to 2.72%. The cost of borrowed funds decreased $323,000 as the average
amount of borrowed funds decreased $830,000 million and the average cost of the borrowings decreased from 5.99% to 5.58%.
Provision for Loan Losses - The Provision for Loan Losses increased from $750,000 in the first quarter of 2007 to $1.2 million in the first quarter of 2008 due to increased non performing loans and weaker economic conditions. Net charge offs were $3.7 million during the first quarter of 2008, compared to $0.4 million in the first quarter of 2007. Each quarter, the Company conducts a review and analysis of its ALLL to ensure its adequacy. This analysis involves specific allocations for impaired credits and a general allocation for losses expected based on historical experience adjusted for current conditions.
Other Income - Non interest income increased $199,000 in the first quarter of 2008 compared to the first quarter of 2007. Wealth Management income increased $60,000, or 5.6% due to increases in rates charged. Bank Owned Life Insurance earnings increased $59,000 due to an increase in the investment in BOLI from $39.9 million as of March 31, 2007 to $42.9 million at March 31, 2008. Other income increased due to increased ATM and debit card activity.
Other Expenses - Total non interest expenses increased $586,000 or 6.4% compared to the first quarter of 2007 due to increases of $133,000 in salaries and benefits, $115,000 in occupancy, $99,000 in professional fees, and $239,000 in other expenses. Salaries and Employee Benefits increased $133,000, or 2.4%, even though the number of full time equivalent employees decreased from 429 to 380 due to annual rate increases, higher benefits costs, and some one time separation costs of $80,000. Occupancy expense increased $115,000 or 16.1% mainly due to accelerated depreciation of $55,000 on our temporary branch location in Petersburg, and higher snow removal expenses this year. Professional fees increased $99,000 due to credit related legal expenses. Various other expenses increased $239,000 primarily due to higher collection costs.
As a result of the above activity, the Income Before Income Taxes decreased $1.6 million to $3.5 million. The income tax expense decreased $511,000 from $1,381,000 to $870,000. The percent of our income that is derived from tax exempt sources increased, and our effective tax rate decreased from 27.2% last year to 24.7%. The Net Profit of $2.6 million is a decrease of $1.1 million from the profit of $3.7 million in the first quarter of 2007.
Liquidity and Capital
The Company 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, the Federal funds lines that have been established with correspondent banks, and Repurchase Agreements with money center banks that allow us to pledge securities as collateral for borrowings. As of March 31, 2008, the Bank utilized $256.5 million of its authorized limit of $275 million with the Federal Home Loan Bank of Indianapolis and $26.9 million of its $110 million of federal funds lines with its correspondent banks.
Total stockholders' equity of the Company was $128.1 million at March 31, 2008 and $127.4 million at December 31, 2007. The ratio of equity to assets was 8.2% at March 31, 2008 and December 31, 2007. 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 the Leverage Capital Ratio is at least 5%.
The following table summarizes the capital ratios of the Company:
Minimum to be Well
March 31, 2008 December 31, 2007 Capitalized
-------------- ----------------- ------------------
Leverage Capital 8.3% 8.4% 5.0%
Tier 1 Risk Based Capital 11.7% 11.8% 6.0%
Total Risk Based Capital 12.9% 13.1% 10.0%
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At March 31, 2008 and December 31, 2007, 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 2007.
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 three months of 2008, 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. 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 three months of 2008, 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, 2007.
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 March 31, 2008, 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 March 31, 2008, in alerting them in a timely manner 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 March 31, 2008, 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
MBT Financial Corp. and its subsidiaries are not a party to, nor is any of their property the subject of any material legal proceedings other than ordinary routine litigation incidental to their respective businesses, nor are any such proceedings known to be contemplated by governmental authorities.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors disclosed by the Company in its Report on Form 10-K for the fiscal year ended December 31, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company has a stock repurchase program which it publicly announced on January 22, 2008. On that date, the Board of Directors authorized the repurchase of 1 million of the Company's common shares, which authorization will expire on December 31, 2008. The Company did not repurchase any of its stock during the three months ended March 31, 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
No matters to be reported.
ITEM 6. 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.
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.
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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.
MBT Financial Corp.
(Registrant)
May 5, 2008 By /s/ H. Douglas Chaffin
Date -------------------------------------
H. Douglas Chaffin
President &
Chief Executive Officer
May 5, 2008 By /s/ John L. Skibski
Date -------------------------------------
John L. Skibski
Executive 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.
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.
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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 therefor 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. Filling of Vacancies. The Board of Directors of MBT Financial Corp. shall consist of not less than five (5) nor more than twelve (12) members, the exact number within such minimum limits to be fixed and determined from time to time by resolution of a majority of the Board of Directors. Vacancies occurring in the Board may be filled for the current year by appointment made by the remaining Directors; however, when a vacancy reduces the membership of the Board to less than five in number, the remaining Directors shall forthwith fill such vacancy in order to maintain a Board of at least five Directors.
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. 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
Shares of Capital Stock
Section 1. Certificates. Shares of the capital stock of the Corporation may be certificated or uncertificated. Each shareholder, upon written request to the transfer agent or registrar of the Corporation, shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate may bear the Corporation seal and shall be signed by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by corporation officers may be facsimiles if the certificate is manually countersigned by an authorized person on behalf of a transfer agent or registrar other than the Corporation or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law.
Section 2. Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred only on the books of the Corporation, if such shares are certificated, by the surrender to the Corporation or its transfer agent of the certificate therefore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, or upon proper instructions from the holder of uncertificated shares, in each case with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.
Section 3. 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 its 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 its 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. The Corporation shall provide indemnification to persons who serve or have served as directors, officers, employees or agents of the Corporation, and to persons who serve or have served at the request of the Corporation as directors, officers, employees, partners or agents of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, to the fullest extent permitted by the Business Corporation Act of Michigan, as the same now exists or may hereafter be amended. The Corporation shall indemnify each director of this Corporation, without any determination of whether the director has met the standard of conduct set forth in Sections 561 and 562 of the Business Corporation Act of Michigan and without an evaluation of the reasonableness of expenses and amounts paid in settlement, to the fullest extent permitted by subsection 564a(5) of the Business Corporation Act of Michigan or any successor provision of the Business Corporation Act of Michigan.
Section 2. Indemnification Contracts. In addition to the indemnification rights provided by the Restated Articles of Incorporation and these Bylaws, 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 3. 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 4. 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
Control Share Acquisitions
Chapter 7B, Sections 790 through 799, of the Michigan Business Corporation Act, known as the "Stacey, Bennett and Randall shareholder equity act", does not apply to control share acquisitions of shares of this Corporation.
ARTICLE XII
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 31.1
CERTIFICATIONS
I, H. Douglas Chaffin, President 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(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: May 5, 2008 /s/ H. Douglas Chaffin
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H. Douglas Chaffin
President 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(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: May 5, 2008 /s/ John L. Skibski
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John L. Skibski
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 March 31, 2008 as filed with the Securities and Exchange Commission (the "Report"), I, H. Douglas Chaffin, 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/ H. Douglas Chaffin ------------------------------------- H. Douglas Chaffin Chief Executive Officer May 5, 2008 |
A signed original of this written statement required by Section 906 has been provided to MBT Financial Corp. and will be retained by MBT Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
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 March 31, 2008 as filed with the Securities and Exchange Commission (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 May 5, 2008 |
A signed original of this written statement required by Section 906 has been provided to MBT Financial Corp. and will be retained by MBT Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.