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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File Number: 000-30973
MBT FINANCIAL CORP.
-------------------
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-3516922
(State of Incorporation) (I.R.S. Employer Identification No.)
102 E. Front St.
Monroe, Michigan 48161
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (734) 241-3431
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Bank's knowledge, in a definitive proxy statement incorporated by
reference in Part III of the Form 10-K or any of the amendments of this Form
10-K. [ ].
As of March 26, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $270,000,000.
As of March 26, 2001, there were 20,000,000 shares of Common Stock outstanding.
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Part I
Item 1. Business
GENERAL
MBT Financial Corp. (the "Corporation") operates as a bank holding company
headquartered in Monroe, Michigan. The Corporation was incorporated under the
laws of the State of Michigan in January 2000, at the direction of the
management of Monroe Bank & Trust (the "Bank"), for the purpose of becoming a
bank holding company by acquiring all the outstanding shares of Monroe Bank &
Trust. At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank &
Trust, shareholders approved a proposal that resulted in the Bank merging with
Monroe Interim Bank, a state chartered bank, which was a subsidiary of the
Corporation. On July 1, 2000, the merger of Monroe Bank & Trust and Monroe
Interim Bank was completed, with Monroe Bank & Trust becoming the wholly owned
subsidiary of MBT Financial Corp.
Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank
under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust
consolidated with Dansard Bank and moved to the present address of its main
office. Monroe Bank & Trust operated as a unit bank until 1950 when it opened
its first branch office in Ida, Michigan. It then continued its expansion to its
present total of 22 branch offices, including its main office. Monroe Bank &
Trust changed its name from "Monroe State Savings Bank" to "Monroe Bank & Trust"
in 1968.
Monroe Bank & Trust provides customary retail and commercial banking and trust
services to its customers, including checking and savings accounts, time
deposits, safe deposit facilities, commercial loans, personal loans, real estate
mortgage loans, installment loans, IRAs, ATM and night depository facilities,
personal trust, employee benefit and investment management services. Monroe Bank
& Trust's service areas are comprised of Monroe and Wayne counties in Southern
Michigan.
Monroe Bank & Trust's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to applicable legal limits and Monroe Bank & Trust is
supervised and regulated by the FDIC and Michigan Financial Institutions Bureau.
COMPETITION
MBT Financial Corp., through its subsidiary, Monroe Bank & Trust, operates in a
highly competitive industry. Monroe Bank & Trust's main competition comes from
other commercial banks, national or state savings and loan institutions,
securities brokers, mortgage bankers, finance companies and insurance companies.
Banks generally compete with other financial institutions through the banking
products and services offered, the pricing of services, the level of service
provided, the convenience and availability of services, and the degree of
expertise and personal manner in which these services are offered. Monroe Bank &
Trust encounters strong competition from most of the financial institutions in
Monroe Bank & Trust's extended market area.
EMPLOYEES
MBT Financial Corp. has no employees other than its three officers, each of whom
is also an employee and officer of Monroe Bank & Trust and who serve in their
capacity as officers of MBT Financial Corp. without compensation. As of December
31, 2000, Monroe Bank & Trust had 326 full-time employees and 18 part-time
employees. Monroe Bank & Trust provides a number of benefits for its full-time
employees, including health and life insurance, workers' compensation, social
security, paid vacations, numerous bank services, a 401(k) plan and a Money
Purchase Pension Plan.
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Item 2. Properties
MBT Financial Corp. does not conduct any business other than its ownership of
Monroe Bank & Trust's stock. MBT Financial Corp. operates its business from
Monroe Bank & Trust's main office facility. Monroe Bank & Trust operates its
business from its main office complex and 21 full service branches and other
office locations, described as follows, in the counties of Monroe and Wayne,
Michigan.
Main Office - 102 East Front Street, Monroe, Michigan. Two-story, brick office
building, with a good size customer parking lot located at the rear of the
building across the alley.
North Monroe Branch - 1204 North Monroe Street, Monroe, Michigan. One-story,
brick office building located on a large lot, the remainder of which is used for
customer and employee parking.
Orchard East Branch - 1102 East First Street, Monroe, Michigan. One-story, brick
office building situated on two lots, the remainder of which is used for
customer and employee parking.
West Monroe Branch - 1500 North Custer Road, Monroe, Michigan. One-story, brick
office building located on a large lot, the remainder of which is used for
customer and employee parking.
South Monroe Branch - Monroe Shopping Center - 1000 South Monroe Street, Monroe,
Michigan. One-story, brick office building located on a lot, the remainder of
which is used for customer and employee parking.
South Dixie Branch - 14581 South Dixie Highway, Monroe, Michigan. One-story,
brick office building located on a large "L" shaped lot, the remainder of which
is used for customer and employee parking.
Petersburg Branch - 15 Center Street, Petersburg, Michigan. One-story, brick
office building situated on two lots, the remainder of which is used for
customer and employee parking.
Temperance Branch - 9007 Lewis Avenue, Temperance, Michigan. Two-story, masonry
and wood office building situated on a lot, with parking facilities for both
customers and employees located on another adjacent lot.
Ida Branch - 2917 Lewis Avenue, Ida, Michigan. One-story, stone masonry office
building located on three lots, the remainder of which is used for customer and
employee parking.
Lambertville Branch - 7365 Secor Road, Lambertville, Michigan. One-story, brick
office building located on a lot, the remainder of which is used for customer
and employee parking.
Milan Branch - 14690 Sanford Road, Milan, Michigan. One-story, brick office
building, with a community room for public use attached, located on a large lot,
the remainder of which is used for customer and employee parking.
North Dixie Branch - 3805 North Dixie Highway, Monroe, Michigan. One-story,
brick and frame office building located on a lot, the remainder of which is used
for customer and employee parking.
South Rockwood Branch - 12754 North Dixie Highway, South Rockwood, Michigan.
One-story brick office building located on a large lot, the remainder of which
is used for customer and employee parking.
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Frenchtown Square Branch - 2121 North Monroe Street, Monroe, Michigan.
Approximately 1,424 square feet office leased in a one-story shopping mall.
Carleton Branch - 12633 Grafton Road, Carleton, Michigan. One-story, brick
office building located on a lot, the remainder of which is used for customer
and employee parking.
Bank Card Building - 118 East Front Street, Monroe, Michigan. Three-story,
masonry office building, across the alley from the Main Office.
Meier Building - 7 Washington Street, Monroe, Michigan. Three-story, masonry
office building adjacent to the Main Office.
Dundee Branch - 14077 South Custer Road, Dundee, Michigan. One-story, brick
office building located on a large lot, the remainder of which is used for
customer and employee parking.
Elliott Building - 28 South Macomb Street, Monroe, Michigan. Two-story, office
building with community room attached, located adjacent to the Main Office
customer parking lot.
Erie Branch - 9796 South Dixie Highway, Erie, Michigan. One-story, brick and
masonry office building located on a small lot, the remainder of which is used
for customer and employee parking.
Bedford Branch - 6560 Lewis Avenue, Temperance, Michigan. Two-story, masonry and
steel office building located on a large lot, the remainder of which is used for
customer and employee parking.
Newport Branch - 8799 Swan Creek Road, Newport, Michigan. One-story brick and
vinyl sided office building situated on four lots, the remainder of which is
used for customer and employee parking.
Operations Center Building - 212 East Front Street, Monroe, Michigan. One-story,
brick and masonry office building with a two-story masonry addition located on a
large lot, the remainder of which is used for customer and employee parking.
Nadeau Branch - 6000 North Monroe Street, Monroe, Michigan. Leased one-story
brick office building situated on a large lot, the remainder of which is used
for customer and employee parking.
Flat Rock Branch - 28417 Telegraph Road, Flat Rock, Michigan. One-story brick
office building situated on a large lot, the remainder of which is used for
customer and employee parking.
Raisinville Branch - 750 S. Raisinville Road, Monroe, Michigan. One-story brick
office building situated on a large lot, the remainder of which is used for
customer and employee parking.
Item 3. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
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NONE
Part II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters
The common stock consists of 20,000,000 shares with a book value of $7.55 per
share. In 2000, Monroe Bank & Trust reorganized into a one-bank holding company.
This reorganization resulted in an increase of 10,000,000 shares outstanding as
each share of Monroe Bank & Trust was exchanged for two shares of MBT Financial
Corp. Certain trading price information, as well as information on dividends
declared, have been restated to reflect the reorganization. Dividends declared
on common stock during 2000 amounted to $.37 per share. The common stock is
traded over the counter on the Electronic Bulletin Board under the symbol MBTF.
Below is a schedule of the high and low trading price for the past two years by
quarter. These prices represent those known to Management, but do not
necessarily represent all transactions that occurred.
2000 1999
High Low High Low
----------------------------------------------------------------------------------------
1(st) quarter $ 21 5/16 $ 16 11/16 $ 25 $ 22 1/4
2(nd) quarter $ 19 $ 17 7/8 $ 25 $ 23 1/2
3(rd) quarter $ 20 1/4 $ 15 3/4 $ 24 1/8 $ 21
4(th) quarter $ 17 $ 12 1/2 $ 23 1/4 $ 21 7/16
Dividends declared during the past three years on a quarterly basis were
as follows:
2000 1999 1998
------------------------------------------------------------------
1(st) quarter $.075 $.06 $ .05
2(nd) quarter $.075 $.075 $ .06
3(rd) quarter $.11 $.075 $ .06
4(th) quarter $.11 $.15 $ .12
On February 29, 2000, Monroe Bank & Trust redeemed its preferred stock.
Preferred stock consisted of 2,000 shares with a par value of $100 per share.
Dividends paid on preferred stock during the year amounted to $2.60 per share.
At December 31, 2000 our surplus account stood at $62,500,000 and our undivided
profits account stood at $92,084,279. Total stockholders' equity was reduced by
the amount of net unrealized losses on securities available for sale of
$3,629,316.
As of December 31, 2000, the number of common stockholders was 1,233.
Management's present expectation is that dividends will continue to be paid in
the future.
Item 6. Selected Financial Data
The selected financial data for the five years ended December 31, 2000 are
derived from the audited Consolidated Financial Statements of the Corporation.
The financial data set forth below contains only a portion of our financial
statements and should be read in conjunction with the Consolidated Financial
Statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this Form 10-K.
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SELECTED CONSOLIDATED FINANCIAL DATA
2000 1999 1998 1997 1996
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Interest Income $ 99,569,664 $ 83,178,881 $ 77,766,275 $ 71,952,004 $ 66,097,205
Interest Expense 49,680,992 38,290,421 34,203,473 31,455,077 28,960,155
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 49,888,672 $ 44,888,460 $ 43,562,802 $ 40,496,927 $ 37,137,050
Provision for Loan Losses 6,298,461 9,388,041 3,217,544 2,165,926 2,314,657
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses $ 43,590,211 $ 35,500,419 $ 40,345,258 $ 38,331,001 $ 34,822,393
Other Income 8,708,702 6,920,016 6,964,982 4,296,142 4,222,256
Other Expenses 23,094,206 20,143,741 25,447,771 18,706,896 16,777,260
- --------------------------------------------------------------------------------------------------------------------------------
Income before Provision
for Income Taxes $ 29,204,707 $ 22,276,694 $ 21,862,469 $ 23,920,247 $ 22,267,389
Provision for
Income Taxes 8,031,184 5,207,362 5,301,810 6,067,965 5,765,645
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 21,173,523 $ 17,069,332 $ 16,560,659 $ 17,852,282 $ 16,501,744
- --------------------------------------------------------------------------------------------------------------------------------
Dividends Declared per Share-
Preferred Stock $ 2.60 $ 4.50 $ 4.50 $ 4.50 $ 4.50
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock(*) $ .37 $ .36 $ .29 $ .245 $ .22
================================================================================================================================
Basic Earnings per Share,
after Deducting Preferred
Stock Dividends(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82
- --------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share(*) $ 1.06 $ 0.85 $ 0.83 $ 0.89 $ 0.82
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets at Years
Ended December 31 $1,379,386,178 $1,216,476,583 $1,075,268,496 $941,017,915 $898,300,160
- --------------------------------------------------------------------------------------------------------------------------------
*Per-share amounts are based upon 20,000,000 common shares outstanding for each
of the five years presented. The reorganization into a one-bank holding company
in 2000 resulted in an exchange of Monroe Bank & Trust stock for MBT Financial
Corp. stock. The exchange rate was two shares of MBT Financial Corp. stock for
each share of Monroe Bank & Trust, causing an increase of 10,000,000 shares
outstanding. All per-share amounts have been restated to reflect this
transaction.
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
With the exception of historical information, the matters discussed or
incorporated by reference in this Form 10-K may contain certain forward-looking
statements that involve risk and uncertainties including, but not limited to,
economic conditions, product demand and industry capability, competitive
products and pricing, new product development, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
We experienced a small decrease in earnings in 1998, as Net Income decreased
$1,291,623, or 7%. Net Interest Income had a small increase of $3,065,875, or
8%, as interest rates showed a small decrease in the fourth quarter. The
$58,526,540 increase in Net Loans, the $41,409,726 increase in Held to Maturity
Obligations of U.S. Government Agencies, and the $34,140,651 increase in Other
Securities were primarily funded by the 14% increase in deposits of
$114,979,861. The local economy remained healthy and we had a small increase in
real estate loans, a significant increase in commercial and industrial loans,
and a modest increase in loans to individuals for household, family, and other
personal expenditures. We increased our Allowance for Loan Losses $900,000, as a
result of the growth in loans. Salaries and Employee Benefits increased 51% over
last year, primarily as a result of charges related to the deferred compensation
plan, as discussed in Note 9 to the consolidated financial statements. Income
Before Provision for Income Taxes decreased $2,057,778, or 9%, compared to 1997,
and with the increase in investment in Obligations of States and Political
Subdivisions, our Provision for Income Taxes decreased $766,155, or 13%. Our
effective tax rate was 24.2% in 1998.
Earnings increased slightly in 1999, as Net Income increased $508,673, or 3%.
Net Interest Income increased $1,325,658, or 3% as the Federal Reserve increased
managed interest rates three times, by a total of 0.75% in the second half of
the year. Two significant investment strategies that were developed to increase
Net Interest Income were deployed by the Bank in the second half of 1999. The
first involved reinvesting the maturities of our short term Held to Maturity
Other Securities into Held to Maturity Obligations of U.S. Government Agencies.
As a result, Held to Maturity Other Securities decreased $53,577,661, or 86% and
Held to Maturity Obligations of U.S. Government Agencies increased $74,513,446,
or 98%. The second strategy deployed involved the use of Federal Home Loan Bank
advances to fund a portfolio of three to ten year, non-callable corporate bonds.
This resulted in the creation of the $96,794,073 Available for Sale Other
Securities portfolio. Net Loans showed a slight increase of $13,576,076, or 2%,
as rising interest rates and increased competition affected our loan volume. We
experienced a small increase in real estate loans, a small decrease in
commercial and industrial loans, and a significant increase in loans to
individuals for household, family, and other personal expenditures. The loan
growth was funded primarily by a 3% increase in deposits. We increased our
Provision for Loan Losses $6,170,497, or 192%, and loans charged off, net of
recoveries, increased $8,270,497, or 357% as we recognized losses on several
large non-performing commercial and industrial loans. This resulted in a
decrease of $1,200,000, or 11%, in the Allowance for Loan Losses. Salaries and
Employee Benefits decreased 37% due to the charges related to the deferred
compensation plan in 1998, as mentioned above and discussed in Note 9 to the
consolidated financial statements. Income Before Provision for Income Taxes
increased $414,225, or 2%, compared to 1998, and with the slight increase in
investment in Obligation of States and Political Subdivisions, our Provision for
Income Taxes decreased $94,448, or 2%. Our effective tax rate was 23.4% in 1999.
In 2000, Net Income increased significantly as the Corporation produced record
earnings. Net Income increased $4,104,236, or 24%, compared to 1999, as interest
rates continued to rise. Deposits showed a small increase of 5%, as most of the
asset growth was funded by an increase of $100,000,000, or 80%, in advances from
the Federal Home Loan Bank. We experienced a significant increase of 16% in Net
Loans as the local economy continued its expansion. Most of the loan growth was
in loans secured by real estate, which increased 25%. Loans to individuals for
household, family and other personal expenditures increased 4%, and commercial
and industrial loans decreased 4%. We increased our Allowance for Loan
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Losses $700,000 over the prior year-end, as necessitated by the increase in Net
Loans. Income Before Provision for Income Taxes increased $6,928,013, or 31%,
compared to 1999, but with our smaller average percentage investment in
Obligations of States and Political Subdivisions in 2000, our Provision for
Income Taxes showed a large increase of $2,823,822, or 54%. Our effective tax
rate increased from 23.4% to 27.5%.
Earnings for the Bank are usually highly reflective of the Net Interest Income.
In 1998, interest rates showed no movement until a small decrease in the fourth
quarter, but with the increase in Provision for Loan Losses, as well as the
large increase in expense associated with the deferred compensation plan
termination, Net Income decreased 7%. In 1999, interest rates increased in the
third and fourth quarters, but with the large decrease in Salaries and Employee
Benefits, and the increase in Provision for Loan Losses, Net Income increased
3%. In 2000, interest rates continued to climb, with the prime rate increasing
100 basis points in the first half of the year. Interest income increased $16.4
million, or 20% compared to 1999. Approximately $10.8 million of that increase
was due to the increase in interest earning assets and $5.6 million was due to
the increase in yields on the assets. Interest expense increased $11.4 million,
or 30%. Approximately $8.0 million of that increase was due to the increase in
interest bearing liabilities and $3.4 million was due to the increase in
interest rates. As a result, Net Interest Income increased $5.0 million, or 11%
over 1999. Growth in the balance sheet accounted for $2.7 million of the
increase while the higher interest rates accounted for $2.3 million of the
increase. Along with a moderating Provision for Loan Losses, non-interest income
increasing significantly and non-interest expense increasing only modestly, the
result was a significant increase in Net Income. The significant increase in
non-interest income was the result of estate settlement fees collected by the
Trust department and an increase in service charges that was implemented late in
the third quarter of 1999. The modest increase in non-interest expense was the
result of an increase in salaries expense. Staffing was increased in several
areas, including branch operations, as the Bank continued to grow. Average cost
of interest bearing deposits was 4.5%, 4.4%, and 4.8% for 1998, 1999, and 2000,
respectively. The table below shows selected financial ratios for the same three
years.
2000 1999 1998
---- ---- ----
Return on Average Assets 1.7% 1.5% 1.6%
Return on Average Equity 14.4% 12.0% 12.9%
Dividend Payout Ratio 34.9% 42.4% 34.9%
Average Equity to Average Assets 11.5% 12.6% 12.6%
The following table shows average daily balances, interest income or expense
amounts, and the resulting average rates for interest earning assets and
interest bearing liabilities for the last three years. Also shown are the net
interest income, total interest rates spread, and the net interest margin for
the same periods.
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Year Ended December 31,
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2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Average Interest Average Interest Average Interest
Daily Earned Average Daily Earned Average Daily Earned Average
(Dollars in Thousands) Balance or Paid Yield Balance or Paid Yield Balance or Paid Yield
----------------------------- ----------------------------- -----------------------------
Investments
US Treas Secs & Obligations
of US Gov't Agencies 174,266 12,169 6.98% 143,515 9,419 6.56% 84,141 5,239 6.23%
Obligations of States &
Political Subdivisions 137,200 7,302 5.32% 158,195 8,258 5.22% 141,963 7,675 5.41%
Other Securities 123,032 9,145 7.43% 67,203 4,054 6.03% 65,072 3,990 6.13%
----------------------------- ----------------------------- -----------------------------
Total Investments 434,498 28,616 6.59% 368,913 21,731 5.89% 291,176 16,904 5.81%
----------------------------- ----------------------------- -----------------------------
Loans
Commercial 468,417 43,860 9.36% 435,067 37,863 8.70% 404,594 37,060 9.16%
Mortgage 179,427 14,867 8.29% 161,183 13,422 8.33% 167,954 14,269 8.50%
Consumer 120,853 11,917 9.86% 100,406 9,954 9.91% 89,329 9,076 10.16%
----------------------------- ----------------------------- -----------------------------
Total Loans(1) 768,697 70,644 9.19% 696,656 61,239 8.79% 661,877 60,405 9.13%
Federal Funds Sold 4,861 310 6.38% 4,276 209 4.89% 8,537 457 5.35%
----------------------------- ----------------------------- -----------------------------
Total Interest Earning Assets 1,208,056 99,570 8.24% 1,069,845 83,179 7.77% 961,590 77,766 8.09%
Cash & Due From Banks 34,215 0 n/a 34,169 0 n/a 32,292 0 n/a
Interest Receivable and Other
Assets 30,737 0 n/a 21,645 0 n/a 18,973 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Assets 1,273,008 99,570 7.82% 1,125,659 83,179 7.39% 1,012,855 77,766 7.68%
============================= ============================= =============================
Savings Accounts 120,494 2,955 2.45% 118,229 3,496 2.96% 106,679 3,207 3.01%
NOW Accounts 61,901 1,476 2.38% 60,829 1,471 2.42% 54,385 1,313 2.41%
Money Market Deposits 189,655 7,714 4.07% 211,139 7,836 3.71% 197,699 7,363 3.72%
Certificates of Deposit 461,654 27,506 5.96% 456,303 24,140 5.29% 399,239 22,320 5.59%
Federal Funds Purchased 5,051 326 6.45% 5,483 303 5.53% 661 36 5.45%
FHLB Advances 161,038 9,704 6.03% 17,658 1,044 5.91% 0 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Interest Bearing
Liabilities 999,793 49,681 4.97% 869,641 38,290 4.40% 758,663 34,239 4.51%
Non-interest Bearing Deposits 120,906 0 n/a 112,965 0 n/a 108,822 0 n/a
Other Liabilities 5,437 0 n/a 680 0 n/a 17,284 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Liabilities 1,126,136 49,681 4.41% 983,286 38,290 3.89% 884,769 34,239 3.87%
Stockholders' Equity 146,872 0 n/a 142,373 0 n/a 128,086 0 n/a
----------------------------- ----------------------------- -----------------------------
Total Liabilities &
Stockholders' Equity 1,273,008 49,681 3.90% 1,125,659 38,290 3.40% 1,012,855 34,239 3.38%
============================= ============================= =============================
Net Interest Income 49,889 44,889 43,527
Interest Rate Spread 3.27% 3.37% 3.58%
Net Interest Margin 4.13% 4.20% 4.53%
(1) Total Loans excludes Overdraft Loans, which are non-interest earning. These
loans are included in Other Assets. Total Loans includes nonaccrual loans. When
a loan is placed in nonaccrual status, all accrued and unpaid interest is
charged against interest income. Loans on nonaccrual status do not earn any
interest.
The following table summarizes the changes in interest income and interest
expense attributable to changes in interest rates and changes in the volume of
interest earning assets and interest bearing liabilities for the period
indicated:
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Year Ended December 31,
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2000 versus 1999 1999 versus 1998 1998 versus 1997
--------------------------- --------------------------- -----------------------------
Changes due to Changes due to Changes due to
increased (decreased) increased (decreased) increased (decreased)
--------------------------- --------------------------- -----------------------------
(Dollars in Thousands) Rate Volume Total Rate Volume Total Rate Volume Total
--------------------------- --------------------------- -----------------------------
Interest Income
- ------------------------------
Investments
US Treas Secs & Obligations
of US Gov't Agencies 732 2,018 2,750 483 3,697 4,180 (228) (2,717) (2,945)
Obligations of States &
Political Subdivisions 140 (1,096) (956) (294) 877 583 (293) 551 258
Other Securities 1,723 3,368 5,091 (67) 131 64 (556) 2,607 2,051
--------------------------- --------------------------- -----------------------------
Total Investments 2,595 4,290 6,885 122 4,705 4,827 (1,077) 441 (636)
--------------------------- --------------------------- -----------------------------
Loans
Commercial 3,095 2,902 5,997 (1,989) 2,791 802 (1,107) 6,486 5,379
Mortgage (74) 1,519 1,445 (272) (575) (847) (6) 330 324
Consumer (64) 2,027 1,963 (247) 1,125 878 (16) 509 493
--------------------------- --------------------------- -----------------------------
Total Loans 2,957 6,448 9,405 (2,508) 3,341 833 (1,129) 7,325 6,196
Federal Funds Sold 72 29 101 (19) (228) (247) (8) 262 254
--------------------------- --------------------------- -----------------------------
Total Interest Income 5,624 10,767 16,391 (2,405) 7,818 5,413 (2,214) 8,028 5,814
Interest Expense
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Savings Accounts (608) 67 (541) (58) 347 289 (8) 125 117
NOW Accounts (21) 26 5 3 155 158 1 30 31
Money Market Deposits 675 (797) (122) (27) 500 473 263 1,273 1,536
Certificates of Deposit 3,083 283 3,366 (1,370) 3,190 1,820 (149) 1,213 1,064
Federal Funds Purchased 47 (24) 23 7 260 267 (2) (93) (95)
FHLB Advances 182 8,478 8,660 1,044 0 1,044 0 0 0
--------------------------- --------------------------- -----------------------------
Total Interest Expense 3,358 8,033 11,391 (401) 4,452 4,051 105 2,548 2,653
--------------------------- --------------------------- -----------------------------
Net Interest Income 2,266 2,734 5,000 (2,004) 3,366 1,362 (2,319) 5,480 3,161
=========================== =========================== =============================
Due to a variety of reasons, including volatile interest rates in the past and
successful bidding in securing local municipal deposits, we have attempted, for
the last several years, to maintain a liquid investment position. Although the
percentage of securities held as Available for Sale decreased from 31% as of
December 31, 1999 to 26% as of December 31, 2000, we were able to maintain
liquidity by investing in shorter-term securities. As reflected in Note 4 to the
consolidated financial statements, the percentage of securities that mature
within five years increased from 31% as of December 31, 1999 to 37% as of
December 31, 2000. The table below presents the scheduled maturities for each of
the investment categories, and the average yield on the amounts maturing. The
yields presented for the Obligations of States and Political Subdivisions are
not tax equivalent yields. The interest income on these securities is
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exempt from federal income tax. The Corporation's marginal federal income tax
rate is thirty-five percent.
Maturing
- ---------------------------------------------------------------------------------------------------------------------------------
Within 1 year 1 - 5 years 5 - 10 Years Over 10 Years
----------------- ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
----------------- ------------------ ------------------ ------------------
(Dollars in Thousands)
----------------------
US Treas Secs & Obligations of
US Gov't Agencies $ - 0.00% $ 11,978 6.30% $ 50,619 7.52% $ 96,383 6.77%
Obligations of States & Political
Subdivisions 15,454 5.06% 36,114 5.47% 56,279 5.46% 24,159 5.28%
Other Securities 51,225 7.82% 54,560 6.92% 43,357 7.58% - 0.00%
----------------- ------------------ ------------------ ------------------
Total $66,679 7.18% $102,652 6.34% $150,255 6.77% $120,542 6.47%
================= ================== ================== ==================
Maturing
- -------------------------------------------------------------------------------
Non-Maturing Total
----------------- ------------------
Amount Yield Amount Yield
----------------- ------------------
(Dollars in Thousands)
----------------------
US Treas Secs & Obligations of
US Gov't Agencies $ - 0.00% $158,980 6.97%
Obligations of States & Political
Subdivisions - 0.00% 132,006 4.42%
Other Securities 12,277 8.03% 161,419 7.47%
----------------- ------------------
Total $12,277 8.03% $452,405 6.40%
================= ==================
Our loan policies also reflect our awareness for liquidity. We have shortened
the average terms for most of our loan portfolios, in particular real estate
mortgages, the majority of which are normally written for five years or less.
Additionally, we increased our capacity to borrow Federal funds from our
correspondent banks in 1999 and we increased our borrowing capacity with the
Federal Home Loan Bank of Indianapolis. This provides additional liquidity
without incurring the opportunity cost associated with holding short maturity
investments. The following table shows the maturities or repricing opportunities
(whichever is earlier) for the Bank's interest earning assets and interest
bearing liabilities at December 31, 2000. The repricing assumptions shown are
consistent with those established by the Bank's Asset/Liability Management
Committee (ALCO). Savings accounts and regular NOW accounts are non-maturing,
variable rate deposits, which may reprice as often as weekly, but are not
included in the zero to six month category because in actual practice, these
deposits are only repriced if there is a large change in market interest rates.
Super NOW accounts and Money Market deposits are also non-maturing, variable
rate deposits, however, these accounts are included in the zero to six month
category because they may get repriced following smaller changes in market
rates.
11
12
Assets/Liabilities at December 31, 2000, Maturing or Repricing in:
-----------------------------------------------------------------------------
0 - 6 6 - 12 1 - 2 2 - 5 Over 5 Total
(Dollars in Thousands) Months Months Years Years Years Amount
--------------------- -------- -------- ------- ------- ------- ---------
Interest Earning Assets
- ------------------------------------
US Treas Secs & Obligations of
US Gov't Agencies 35,536 13,696 4,417 9,050 96,281 158,980
Obligations of States & Political
Subdivisions 17,708 5,576 14,506 51,034 43,182 132,006
Other Securities 63,502 - 5,000 52,933 39,984 161,419
Commercial Loans 192,417 43,014 61,753 168,165 19,762 485,111
Mortgage Loans 15,467 16,265 36,347 104,594 22,411 195,084
Consumer Loans 31,271 14,765 26,918 49,967 8,398 131,319
Federal Funds Sold 30,000 - - - - 30,000
-------- -------- ------- ------- ------- ---------
Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919
-------- -------- ------- ------- ------- ---------
Interest Bearing Liabilities
- ------------------------------------
Interest Bearing Demand Deposits 47,589 - - - - 47,589
Savings Deposits 213,995 - - - - 213,995
Other Time Deposits 259,857 122,779 61,225 24,267 - 468,128
FHLB Advances - - - - 225,000 225,000
-------- -------- ------- ------- ------- ---------
Total Interest Bearing Liabilities 521,441 122,779 61,225 24,267 225,000 954,712
-------- -------- ------- ------- ------- ---------
Gap (135,540) (29,463) 87,716 411,476 5,018 339,207
Cumulative Gap (135,540) (165,003) (77,287) 334,189 339,207 339,207
Sensitivity Ratio 0.74 0.76 2.43 17.96 1.02 1.36
Cumulative Sensitivity Ratio 0.74 0.74 0.89 1.46 1.36 1.36
If savings and regular NOW accounts were included in the zero to six months
category, the Bank's gap would be as shown in the following table:
Assets/Liabilities at December 31, 2000, Maturing or Repricing in:
---------------------------------------------------------------------------------
0-6 6-12 1-2 2-5 Over 5
Months Months Years Years Years Total
-------- -------- -------- ------- ------- ---------
Total Interest Earning Assets 385,901 93,316 148,941 435,743 230,018 1,293,919
Total Interest Bearing Liabilities 653,937 122,779 61,225 24,267 225,000 1,087,208
-------- -------- -------- ------- ------- ---------
Gap (268,036) (29,463) 87,716 411,476 5,018 206,711
Cumulative Gap (268,036) (297,499) (209,783) 201,693 206,711 206,711
Sensitivity Ratio 0.59 0.76 2.43 17.96 1.02 1.19
Cumulative Sensitivity Ratio 0.59 0.62 0.75 1.23 1.19 1.19
The amount of loans due after one year with floating interest rates is
$222,709,000.
12
13
The following table shows the remaining maturity for Certificates of Deposit
with balances of $100,000 or more:
Year Ended December 31,
----------------------------------------------
(Dollars in Thousands) 2000 1999 1998
--------------------- ------- ------- -------
Maturing Within
3 Months 135,807 150,870 130,279
3 - 6 Months 41,163 28,285 25,385
6 - 12 Months 29,970 13,721 20,600
Over 12 Months 14,481 14,015 15,992
------- ------- -------
Total 221,421 206,891 192,256
======= ======= =======
For 2001, we expect interest rates to decrease through the first half of the
year. We anticipate that the falling rates will have the desired effect of
preventing a recession in the national economy. However, we expect our region to
experience lower growth than the national economy as the manufacturing sector,
particularly automotive related, may be weaker than other sectors. This may
translate into slower local loan demand and lower deposit growth. As a result of
the decreasing interest rates and the slower loan growth mentioned above, we
expect a small increase in Net Interest Income. Due to the weakening in the
economy, we expect to incur an increase in the Provision for Loan Losses in
order to maintain an adequate Allowance for Loan Losses. Anticipating no
significant changes in non-interest income and non-interest expenses, we expect
very little change in Net Income.
The following is an analysis of the transactions in the allowance for loan
losses:
Year Ended December 31,
(Dollars in Thousands) 2000 1999 1998 1997 1996
--------------------- ------ ------ ------ ------ ------
Balance Beginning of Period 9,900 11,100 10,200 9,400 8,500
Loans Charged Off
Domestic
Commercial, Financial, and Agricultural 7,035 10,599 3,213 1,101 1,977
Real Estate - Construction - - - - -
Real Estate - Mortgage - 174 - 222 -
Installment Loans to Individuals 1,091 783 665 432 539
Lease Financing - - - - -
Recoveries
Domestic
Commercial, Financial, and Agricultural 2,138 802 1,372 281 781
Real Estate - Construction - - - - -
Real Estate - Mortgage - - - - 201
Installment Loans to Individuals 390 166 188 108 119
Lease Financing - - - - -
------ ------ ------ ------ -----
Net Loans Charged Off 5,598 10,588 2,318 1,366 1,415
Additions Charged to Operations 6,298 9,388 3,218 2,166 2,315
------ ------ ------ ------ -----
Balance End of Period 10,600 9,900 11,100 10,200 9,400
====== ====== ====== ====== =====
Ratio of Net Loans Charged Off to
Average Total Loans Outstanding 0.73% 1.52% 0.35% 0.23% 0.28%
====== ====== ====== ====== =====
13
14
The following is an analysis of the balances in the allowance for loan losses:
Year Ended December 31,
-------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ -------------------------
$ % of loans $ % of loans $ % of loans
(Dollars in Thousands) Amount to total loans Amount to total loans Amount to total loans
---------------------- ------------------------ ------------------------ -------------------------
Balance at end of period applicable to:
Domestic
Commercial, Financial, and Agricultural 4,426 19.0% 6,059 22.6% 5,731 25.6%
Real Estate - Construction 185 4.5% 57 3.5% 96 3.9%
Real Estate - Mortgage 5,172 62.8% 3,429 58.6% 4,433 56.7%
Installment Loans to Individuals 817 13.7% 355 15.3% 840 13.8%
Lease Financing - 0.0% - 0.0% - 0.0%
Foreign - 0.0% - 0.0% - 0.0%
------------------ ------------------ ------------------
Total 10,600 100.0% 9,900 100.0% 11,100 100.0%
=================== ================== ==================
Year Ended December 31,
------------------------------------------------------
1997 1996
------------------------ ------------------------
$ % of loans $ % of loans
(Dollars in Thousands) Amount to total loans Amount to total loans
---------------------- ------------------------ ------------------------
Balance at end of period applicable to:
Domestic
Commercial, Financial, and Agricultural 2,662 23.3% 3,322 25.7%
Real Estate - Construction 90 3.4% 79 2.3%
Real Estate - Mortgage 6,866 59.6% 4,942 59.0%
Installment Loans to Individuals 582 13.7% 1,057 13.0%
Lease Financing - 0.0% - 0.0%
Foreign - 0.0% - 0.0%
------------------- -----------------
Total 10,200 100.0% 9,400 100.0%
==================== =================
Each period the provision for loan losses in the income statement results from
the combination of an estimate by Management of loan losses that occurred during
the current period and the ongoing adjustment of prior estimates of losses
occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an extensive
credit risk monitoring process that considers several factors including: current
economic conditions affecting the Bank's customers, the payment performance of
individual large loans and pools of homogeneous small loans, portfolio
seasoning, changes in collateral values, and detailed reviews of specific large
loan relationships. For large loans deemed to be impaired due to an expectation
that all contractual payments will probably not be received, impairment is
measured by comparing the Bank's recorded investment in the loan to the present
value of expected cash flows discounted at the loan's effective interest rate,
the fair value of the collateral, or the loan's observable market price.
Year-end nonperforming assets, which include nonaccrual loans and securities,
and other real estate owned, increased $1,070,562, or 5.5% from 1999 to 2000.
Nonperforming assets as a percent of total loans at year-end decreased from 2.7%
in 1999 to 2.5% in 2000. The Allowance for Loan Losses as a percent of
nonperforming assets at year-end increased from 51.3% in 1999 to 52.0% in 2000.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated statements
of condition. As the specific customer and amount of a loan loss is confirmed by
gathering additional information, taking collateral in full or partial
settlement of the loan, bankruptcy of the borrower, etc., the loan is charged
off, reducing the allowance for loan losses. If, subsequent to a charge off, the
Bank is able to collect additional amounts from the customer or obtain control
of collateral worth more than earlier estimated, a recovery is recorded.
Prior to January 1, 2000, the Bank assessed its Information Technology (IT)
systems, including hardware and software, to ensure that the century date change
would not lead to problems such as system failures or erroneous results in
calculations involving dates. Management also conferred with its third party
vendors and customers to assess their Y2K readiness and tested non-IT systems.
To date, there have not been any significant problems affecting the Bank or any
of its customers or vendors.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Bank faces market risk to the extent that the fair values of its financial
instruments are affected by changes in interest rates. The Bank does not face
market risk due to changes in foreign currency exchange rates, commodity prices,
or equity prices. The asset/liability management process of the Bank seeks to
monitor and manage the amount of interest rate risk. This is accomplished by
analyzing the differences in repricing opportunities for assets and liabilities
(gap analysis, as shown in Item 7), by simulating operating results under
varying interest rate scenarios, and by estimating the change in the net present
value of the Bank's assets and liabilities due to interest rate changes.
14
15
Each month, the Asset/Liability Committee (ALCO), which includes the senior
management of the Bank, estimates the effect of interest rate changes on the
projected net interest income of the Bank. The sensitivity of the Bank's net
interest income to changes in interest rates is measured by using a computer
based simulation model to estimate the impact on earnings of a gradual increase
or decrease of 100 basis points in the prime rate. The net interest income
projections are compared to a base case projection, which assumes no changes in
interest rates. The table below summarizes the net interest income sensitivity
as of December 31, 2000.
Base Rising Falling
(Dollars in Thousands) Projection Rates Rates
---------------------- ---------- ------- -------
Year-End 2000 12 Month Projection
- ---------------------------------
Interest Income 104,635 106,667 102,471
Interest Expense 53,190 54,952 50,620
-------- ------- -------
Net Interest Income 51,445 51,715 51,851
Percent Change From Base Projection 0.5% 0.8%
ALCO Policy Limit (+/-) 5.0% 5.0%
Base Rising Falling
(Dollars in Thousands) Projection Rates Rates
---------------------- ---------- ------- -------
Year-End 1999 12 Month Projection
- ---------------------------------
Interest Income 93,254 95,629 91,630
Interest Expense 43,367 44,346 42,757
-------- ------- -------
Net Interest Income 49,887 51,283 48,873
Percent Change From Base Projection 2.8% -2.0%
ALCO Policy Limit (+/-) 5.0% 5.0%
The Bank's Asset/Liability Committee has established limits in the acceptable
amount of interest rate risk, as measured by the change in the Bank's projected
net interest income, in its policy. Throughout 2000, the estimated variability
of the net interest income was within the Bank's established policy limits.
The ALCO also monitors interest rate risk by estimating the effect of changes in
interest rates on the economic value of the Bank's equity each month. The actual
economic value of the Bank's equity is first determined by subtracting the fair
value of the Bank's liabilities from the fair value of the Bank's assets. The
fair values are determined in accordance with Statement of Financial Accounting
Standards Number 107, Disclosures about Fair Value of Financial Instruments. The
Bank estimates the interest rate risk by calculating the effect of market
interest rate shocks on the economic value of its equity. For this analysis, the
Bank assumes immediate increases or decreases of 100 and 200 basis points in the
prime lending rate. The discount rates used to determine the present values of
the loans and deposits, as well as the prepayment rates for the loans, are based
on Management's expectations of the effect of the
15
16
rate shock on the market for loans and deposits. The table below summarizes the
amount of interest rate risk to the fair value of the Bank's assets and
liabilities and to the economic value of the Bank's equity.
Fair Value at December 31, 2000
------------------------------------------------------------------------------------
Rates
------------------------------------------------------------------------------------
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
---------------------- ------------------------------------------------------------------------------------
Assets 1,383,278 1,350,927 1,320,574 1,415,890 1,447,662
Liabilities 1,178,879 1,164,603 1,150,647 1,193,475 1,208,405
------------------------------------------------------------------------------------
Stockholders' Equity 204,399 186,324 169,927 222,415 239,257
Change in Equity -8.8% -16.9% 8.8% 17.1%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
Fair Value at December 31, 1999
------------------------------------------------------------------------------------
Rates
------------------------------------------------------------------------------------
(Dollars in Thousands) Base Up 1% Up 2% Down 1% Down 2%
---------------------- ------------------------------------------------------------------------------------
Assets 1,204,367 1,178,232 1,153,282 1,231,029 1,256,946
Liabilities 1,069,491 1,057,902 1,046,579 1,081,352 1,093,486
------------------------------------------------------------------------------------
Stockholders' Equity 134,876 120,330 106,703 149,677 163,460
Change in Equity -10.8% -20.9% 11.0% 21.2%
ALCO Policy Limit (+/-) 15.0% 25.0% 15.0% 25.0%
The Bank's Asset/Liability Committee has established limits in the acceptable
amount of interest rate risk, as measured by the change in economic value of the
Bank's equity, in its policy. Throughout 2000, the estimated variability of the
economic value of equity was within the Bank's established policy limits.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
See Pages 17 - 36
16
17
Report of Independent Public Accountants
To the Stockholders and Board of Directors,
MBT FINANCIAL CORP.:
We have audited the accompanying consolidated statements of condition of MBT
FINANCIAL CORP. (a Michigan corporation) as of December 31, 2000 and 1999, and
the related consolidated statements of income, cash flows, and changes in
stockholders' equity for each of the three years in the period ended December
31, 2000. These consolidated financial statements and the schedules referred to
below are the responsibility of the Bank's Management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MBT FINANCIAL CORP. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules on pages 53 through 55 are presented
for purposes of complying with the rules and regulations of the Securities and
Exchange Commission and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Detroit, Michigan,
January 16, 2001.
CONSOLIDATED STATEMENTS OF CONDITION
17
18
DECEMBER 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 7) $ 39,540,039 $ 27,129,665
Federal funds sold 30,000,000 10,700,000
Investment securities (Notes 1, 4, and 5)-
Held to maturity-
Obligations of U.S. Government agencies (Market value
of $143,619,761 and $141,169,675) 145,789,314 150,399,055
Obligations of states and political subdivisions (Market
value of $134,663,547 and $152,505,653) 132,006,403 152,790,883
Other securities (Market value of $56,164,298
and $8,845,103) 56,188,317 8,955,703
Available for sale-
Obligations of U.S. Government agencies 13,190,799 33,482,440
Obligations of states and political subdivisions - 7,156,929
Other securities 105,230,516 96,794,073
Loans (Notes 2 and 5) 812,122,817 703,381,905
Allowance for loan losses (Note 3) (10,600,000) (9,900,000)
Bank premises and equipment (Note 1) 13,689,558 11,761,277
Other real estate owned (Note 1) 2,672,624 2,513,491
Interest receivable and other assets (Notes 6 and 15) 39,555,791 21,311,162
- ------------------------------------------------------------------------------------------------------------
Total assets $1,379,386,178 $1,216,476,583
============================================================================================================
LIABILITIES
Non-interest bearing demand deposits $ 132,388,525 $ 128,816,650
Interest bearing demand deposits 64,747,991 65,226,636
Savings deposits 329,331,534 319,966,245
Other time deposits (Notes 5 and 10) 468,128,395 430,066,684
- ------------------------------------------------------------------------------------------------------------
Total deposits (Note 10) $ 994,596,445 $ 944,076,215
Federal Home Loan Bank advances (Note 5) 225,000,000 125,000,000
Interest payable and other liabilities (Note 9) 8,834,770 7,752,876
- ------------------------------------------------------------------------------------------------------------
Total liabilities $1,228,431,215 $1,076,829,091
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Cumulative preferred stock ($100 par value; 4 1/2% non-voting;
authorized and outstanding - 2,000 shares as of
December 31, 1999) (Note 8) $ - $ 200,000
Common stock (no par value; 30,000,000 shares authorized,
20,000,000 shares outstanding) (Note 8) - -
Surplus (Note 8) 62,500,000 62,500,000
Undivided profits (Note 8) 92,084,279 78,315,956
Net unrealized losses on securities
available for sale (Note 4) (3,629,316) (1,368,464)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity (Note 11) $ 150,954,963 $ 139,647,492
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,379,386,178 $1,216,476,583
============================================================================================================
The accompanying notes are an integral part of these statements.
18
19
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $70,643,404 $61,238,028 $60,405,254
Interest on investment securities-
U.S. Treasury securities - - 279,051
Obligations of U.S. Government agencies 12,169,347 9,419,491 4,960,159
Obligations of states and
political subdivisions 7,301,903 8,258,158 7,675,082
Other securities 9,144,849 4,053,742 3,989,862
Interest on Federal funds sold 310,161 209,462 456,867
- -------------------------------------------------------------------------------------------------------
Total interest income $99,569,664 $83,178,881 $77,766,275
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits (Note 10) $39,651,368 $36,943,501 $34,203,473
Interest on borrowed funds 10,029,624 1,346,920 -
- -------------------------------------------------------------------------------------------------------
Total interest expense $49,680,992 $38,290,421 $34,203,473
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $49,888,672 $44,888,460 $43,562,802
PROVISION FOR LOAN LOSSES (Note 3) 6,298,461 9,388,041 3,217,544
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $43,590,211 $35,500,419 $40,345,258
- -------------------------------------------------------------------------------------------------------
OTHER INCOME
Income from trust services $ 3,908,510 $ 3,252,875 $ 3,740,267
Service charges on deposit accounts 2,142,901 1,849,863 1,788,860
Security gains 18,237 17,670 181,007
Other (Note 15) 2,639,054 1,799,608 1,254,848
- -------------------------------------------------------------------------------------------------------
Total other income $ 8,708,702 $ 6,920,016 $ 6,964,982
- -------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits (Note 9) $12,155,915 $10,719,634 $17,047,731
Occupancy expense 2,176,110 1,929,017 1,773,623
Other 8,762,181 7,495,090 6,626,417
- -------------------------------------------------------------------------------------------------------
Total other expenses $23,094,206 $20,143,741 $25,447,771
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES $29,204,707 $22,276,694 $21,862,469
PROVISION FOR INCOME TAXES (NOTE 6) 8,031,184 5,207,362 5,301,810
- -------------------------------------------------------------------------------------------------------
Net Income $21,173,523 $17,069,332 $16,560,659
- -------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (Note 1) $18,912,671 $15,639,241 $16,790,186
- -------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (after deducting
preferred stock dividends) (Notes 8 and 12) $ 1.06 $ 0.85 $ 0.83
- -------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE (Note 12) $ 1.06 $ 0.85 $ 0.83
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
19
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Interest and fees received $ 99,953,089 $ 80,142,949 $ 76,992,619
Other income received 8,690,464 6,902,346 6,783,974
Miscellaneous payments (3,696,094) (55,985) (156,748)
Interest paid (49,222,123) (37,828,114) (34,073,156)
Cash paid to employees and others (34,184,043) (36,945,784) (16,335,612)
Income taxes paid (6,738,000) (1,138,785) (8,267,617)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities held to maturity $ 113,817,025 $ 473,624,059 $ 557,617,089
Proceeds from maturities of investment
securities available for sale 15,498,313 5,112,100 26,054,609
Proceeds from sales of investment
securities available for sale 22,698,308 - -
Net increase in loans (116,259,518) (25,106,838) (64,817,273)
Proceeds from sales of other real estate owned 1,341,237 2,550,915 910,891
Proceeds from sales of other assets 11,000 - 7,500
Purchase of investment securities held to maturity (135,994,735) (501,530,247) (644,603,616)
Purchase of investment securities available for sale (22,586,160) (98,582,395) (9,000,000)
Purchase of bank premises and equipment (3,733,419) (3,832,992) (1,617,231)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities $(125,207,949) $(147,765,398) $(135,448,031)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Net increase in demand, interest bearing
demand, and savings deposits $ 12,458,519 $ 2,783,201 $ 86,389,043
Net increase in other time deposits 38,061,711 24,248,138 28,590,818
Net decrease in Federal funds purchased - (2,000,000) -
Net increase in Federal Home Loan Bank advances 100,000,000 125,000,000 -
Redemption of preferred stock (200,000) - -
Dividends paid (8,205,200) (6,609,000) (5,409,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 142,115,030 $ 143,422,339 $ 109,570,861
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 31,710,374 $ 6,733,568 $ (933,710)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR (Note 1) 37,829,665 31,096,097 32,029,807
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 1) $ 69,540,039 $ 37,829,665 $ 31,096,097
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
20
21
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 21,173,523 $ 17,069,332 $ 16,560,659
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,805,138 1,422,238 1,197,618
Provision for loan losses 6,298,461 9,388,041 3,217,544
(Increase) decrease in net deferred Federal income tax asset (1,519,014) 4,778,545 (2,742,344)
Amortization of investment premium and discount 280,986 435,995 (148,808)
Net increase (decrease) in interest payable and other liabilities 1,081,894 (17,253,493) 8,289,534
Net increase in interest receivable and other assets (16,725,615) (4,965,123) (846,135)
Net increase in deferred loan fees 358,300 46,714 3,899
Other 2,049,620 154,378 (588,507)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 14,803,293 $ 11,076,627 $ 24,943,460
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Transfer of loans to other real estate owned $ 1,500,370 $ 2,094,007 $ 3,069,290
- --------------------------------------------------------------------------------------------------------------------------------
Transfer of loans to other assets $ 61,475 $ 2,000 $ -
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
21
22
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Other Total
Preferred Common Undivided Comprehensive Stockholders'
Stock Stock Surplus Profits Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
January 1, 1998 $ 200,000 $ - $ 31,250,000 $ 88,953,965 $ (167,900) $ 120,236,065
Add (Deduct)
Net income for the year 16,560,659 16,560,659
Transfer of undivided
profits to surplus (Note 8) 31,250,000 (31,250,000) -
Net unrealized gains on securities
available for sale, net of tax (Note 4) 229,527 229,527
Dividends declared-
Preferred ($4.50 per share) (9,000) (9,000)
Common ($.29 per share*) (5,800,000) (5,800,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1998 $ 200,000 $ - $ 62,500,000 $ 68,455,624 $ 61,627 $ 131,217,251
Add (Deduct)
Net income for the year 17,069,332 17,069,332
Net unrealized losses on securities
available for sale, net of tax (Note 4) (1,430,091) (1,430,091)
Dividends declared-
Preferred ($4.50 per share) (9,000) (9,000)
Common ($.36 per share*) (7,200,000) (7,200,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1999 $ 200,000 $ - $ 62,500,000 $ 78,315,956 $ (1,368,464) $ 139,647,492
Add (Deduct)
Net income for the year 21,173,523 21,173,523
Net unrealized losses on securities
available for sale, net of tax (Note 4) (2,260,852) (2,260,852)
Redemption of preferred stock (Note 8) (200,000) (200,000)
Dividends declared-
Preferred ($2.60 per share) (5,200) (5,200)
Common ($.37 per share*) (7,400,000) (7,400,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 2000 $ - $ - $ 62,500,000 $ 92,084,279 $ (3,629,316) $ 150,954,963
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of MBT Financial
Corp. (the "Corporation") and its subsidiary, Monroe Bank & Trust (the
"Bank"). The Bank operates twenty-one offices in Monroe County, Michigan
and one office in Wayne County, Michigan. The Bank's primary source of
revenue is from providing loans to customers, who are predominantly small
and middle-market businesses and middle-income individuals.
At the April 6, 2000 Annual Meeting of Shareholders of Monroe Bank & Trust,
shareholders approved a proposal that resulted in the Bank reorganizing
into a one-bank holding company. The holding company formation involved
merging Monroe Bank & Trust with Monroe Interim Bank, a state chartered
bank organized solely for the purpose of this transaction. The merger of
Monroe Bank & Trust and Monroe Interim Bank, a combination of entities
under common control, was treated in a manner similar to a pooling of
interests. The financial information for all prior periods was restated in
the consolidated financial statements for MBT Financial Corp. to present
the statements as if the merger had been in effect for all periods
presented.
The reorganization resulted in an exchange of the Monroe Bank & Trust
common stock for MBT Financial Corp. common stock. The exchange rate was
two shares of MBT Financial Corp. for each share of Monroe Bank & Trust.
Monroe Bank & Trust previously had 10,000,000 common shares authorized and
outstanding, with a par value of $3.125 per share. MBT Financial Corp. has
30,000,000 shares authorized, of which 20,000,000 are outstanding. The MBT
Financial Corp. common stock has no par value. Monroe Bank & Trust is now a
wholly owned subsidiary of MBT Financial Corp., a registered bank holding
company.
The accounting and reporting policies of the Bank conform to practice
within the banking industry and are in accordance with accounting
principles generally accepted in the United States. Preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiary. All material intercompany transactions and
balances have been eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
INVESTMENT SECURITIES
Investment securities that are "held to maturity" are stated at cost,
adjusted for accumulated amortization of premium and accretion of discount.
The Bank has the intention and, in Management's opinion, the ability to
hold these investment securities until maturity. Investment securities that
are "available for sale" are stated at estimated market value, with the
related unrealized gains and losses reported as an amount, net of taxes, as
a separate component of stockholders' equity.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation of $16,510,468 in 2000 and $14,705,330 in 1999. The Bank uses
both straight-line and declining-balance methods to provide for
depreciation, which is charged to operations over the estimated useful
lives of the assets. Depreciation expense amounted to $1,805,138 in 2000,
$1,422,238 in 1999, and $1,197,618 in 1998.
Expenditures for maintenance and repairs are charged to operations as
incurred. The cost of assets retired and the related accumulated
depreciation are eliminated from the accounts and the resulting gains or
losses are reflected in operations in the year the assets are retired.
OTHER REAL ESTATE OWNED
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24
Other real estate owned is carried at the lesser of 80% of the appraised
value of the property or the principal balance of the loan at the time of
foreclosure.
COMPREHENSIVE INCOME
Comprehensive Income is comprised of Net Income and Other Comprehensive
Income, which consists of the change in net unrealized gains (losses) on
securities available for sale, net of tax.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, time deposits with other banks with maturities of
less than three months, and Federal funds sold.
(2) LOANS
The Bank grants commercial, consumer, and mortgage loans primarily to
customers in Monroe County, Michigan and surrounding areas. Although the
Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on the automotive,
manufacturing, and real estate development economic sectors.
Loans at December 31 consist of the following:
2000 1999
- -------------------------------------------------------------------------------------------------
Real estate loans $ 547,285,414 $ 437,867,480
Loans to finance agricultural production and
other loans to farmers 2,831,759 2,086,851
Commercial and industrial loans 151,734,230 157,381,730
Loans to individuals for household, family,
and other personal expenditures 111,504,134 107,411,553
All other loans (including overdrafts) 609,274 117,985
- -------------------------------------------------------------------------------------------------
Total loans, gross $ 813,964,811 $ 704,865,599
Less: Deferred loan fees 1,841,994 1,483,694
- -------------------------------------------------------------------------------------------------
Total loans, net of deferred loan fees $ 812,122,817 $ 703,381,905
Less: Allowance for loan losses 10,600,000 9,900,000
- -------------------------------------------------------------------------------------------------
$ 801,522,817 $ 693,481,905
- -------------------------------------------------------------------------------------------------
Loans are placed in a nonaccrual status when, in the opinion of Management,
the collection of additional interest is doubtful. Loans in a nonaccrual
status amounted to $17,161,449 and $16,791,776 at December 31, 2000 and
1999, respectively. In the opinion of Management, all impaired loans are in
nonaccrual status. Allowances for these loans are included in the allowance
for loan losses. All cash received on nonaccrual loans is applied to the
principal balance.
Included in loans are loans to certain officers, directors, and companies
in which such officers and directors have 10 percent or more beneficial
ownership in the aggregate amount of $24,448,451 and $17,112,941 at
December 31, 2000 and 1999, respectively. In 2000, new loans and other
additions amounted to $14,234,463, and repayments and other reductions
amounted to $6,898,953. In Management's judgment, these loans were made on
substantially the same terms and conditions as those made to other
borrowers, and do not represent more than the normal risk of collectibility
or present other unfavorable features.
24
25
(3) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
2000 1999 1998
- -----------------------------------------------------------------------------------------
Balance beginning of year $ 9,900,000 $ 11,100,000 $ 10,200,000
Provision for loan losses 6,298,461 9,388,041 3,217,544
Loans charged off (8,126,386) (11,556,352) (3,877,526)
Recoveries 2,527,925 968,311 1,559,982
- -----------------------------------------------------------------------------------------
Balance end of year $ 10,600,000 $ 9,900,000 $ 11,100,000
- -----------------------------------------------------------------------------------------
Each period the provision for loan losses in the income statement results
from the combination of an estimate by Management of loan losses that
occurred during the current period and the ongoing adjustment of prior
estimates of losses occurring in prior periods.
To serve as a basis for making this provision, the Bank maintains an
extensive credit risk monitoring process that considers several factors
including: current economic conditions affecting the Bank's customers, the
payment performance of individual large loans and pools of homogeneous
small loans, portfolio seasoning, changes in collateral values, and
detailed reviews of specific large loan relationships. For large loans
deemed to be impaired due to an expectation that all contractual payments
will probably not be received, impairment is measured by comparing the
Bank's recorded investment in the loan to the present value of expected
cash flows discounted at the loan's effective interest rate, the fair value
of the collateral, or the loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated
statements of condition. As the specific customer and amount of a loan loss
is confirmed by gathering additional information, taking collateral in full
or partial settlement of the loan, bankruptcy of the borrower, etc., the
loan is charged off, reducing the allowance for loan losses. If, subsequent
to a charge off, the Bank is able to collect additional amounts from the
customer or obtain control of collateral worth more than earlier estimated,
a recovery is recorded.
(4) INVESTMENT SECURITIES
The following is a summary of the Bank's investment securities portfolio as
of December 31, 2000 and 1999 (000's omitted):
HELD TO MATURITY
DECEMBER 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 145,789 $ 295 $ (2,465) $ 143,619
Obligations of States and Political
Subdivisions 132,007 3,265 (608) 134,664
Other Securities 56,188 - (24) 56,164
- -------------------------------------------------------------------------------------------------------
$ 333,984 $ 3,560 $ (3,097) $ 334,447
- -------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 13,126 $ 102 $ (37) $ 13,191
Other Securities 110,879 1,192 (6,841) 105,230
- -------------------------------------------------------------------------------------------------------
$ 124,005 $ 1,294 $ (6,878) $ 118,421
- -------------------------------------------------------------------------------------------------------
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26
HELD TO MATURITY
DECEMBER 31, 1999
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 150,399 $ - $ (9,229) $ 141,170
Obligations of States and Political
Subdivisions 152,791 1,231 (1,517) 152,505
Other Securities 8,956 7 (118) 8,845
- -----------------------------------------------------------------------------------------------------------
$ 312,146 $ 1,238 $ (10,864) $ 302,520
- -----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 1999
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------
Obligations of U.S. Government
Agencies $ 34,088 $ - $ (606) $ 33,482
Obligations of States and Political
Subdivisions 6,984 173 - 7,157
Other Securities 98,467 - (1,673) 96,794
- -----------------------------------------------------------------------------------------------------------
$ 139,539 $ 173 $ (2,279) $ 137,433
- -----------------------------------------------------------------------------------------------------------
HELD TO MATURITY
DECEMBER 31, 2000 DECEMBER 31, 1999
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 66,688 $ 66,657 $ 34,096 $ 34,101
1 to 5 years 39,108 39,886 32,604 33,015
5 to 10 years 108,940 110,905 110,326 109,618
Over 10 years 119,248 116,999 135,120 125,786
$ 333,984 $ 334,447 $ 312,146 $ 302,520
- -----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
DECEMBER 31, 2000 DECEMBER 31, 1999
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------
Maturing within
1 year $ 9 $ 9 $ 14,508 $ 14,452
1 to 5 years 66,943 63,615 59,220 58,674
5 to 10 years 43,761 41,400 53,674 52,174
Over 10 years 1,042 1,120 1,058 1,061
Securities with no stated maturity 12,250 12,277 11,079 11,072
- -----------------------------------------------------------------------------------------------------------
$ 124,005 $ 118,421 $ 139,539 $ 137,433
- -----------------------------------------------------------------------------------------------------------
At December 31, 2000, investment securities carried at $66,007,275 were
pledged or set aside to secure public deposits and for other purposes as
required by law.
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27
At December 31, 2000, Obligations of States and Political Subdivisions
included securities carried at $541,589 that were more than ninety days
past due on their interest payments. These securities are in nonaccrual
status.
The Bank elected early adoption of SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", effective April 1, 1999. The
provisions of SFAS 133 required the Bank to recognize all derivative
instruments as assets or liabilities in its statement of condition and to
report them at their fair value. The provisions of SFAS 133 also allowed
the Bank to reclassify securities that were classified as Held to Maturity
to Available for Sale or Trading. Upon adoption of SFAS 133, the Bank
reclassified certain Held to Maturity Obligations of States and Political
Subdivisions as Available for Sale Obligations of States and Political
Subdivisions. The value of the securities reclassified on April 1, 1999 was
$7,990,185.
(5) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain of the Bank's assets and liabilities which are financial
instruments have fair values which differ from their carrying values in the
accompanying consolidated statements of condition. These fair values, along
with the methods and assumptions used to estimate such fair values, are
discussed below. The fair values of all financial instruments not discussed
below are estimated to be equal to their carrying values as of December 31,
2000 and 1999.
INVESTMENT SECURITIES
Fair value for the Bank's investment securities was determined using the
market value at December 31, 2000 and 1999. These Estimated Market Values
are disclosed in Note 4.
LOANS, NET
The fair value of all loans is estimated by discounting the future cash
flows associated with the loans, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. The estimated fair value of loans at December
31, 2000, net of the allowance for loan losses, is $796,811,809, compared
to the carrying value of $801,522,817. The estimated fair value of loans at
December 31, 1999, net of the allowance for loan losses, was $686,716,607,
compared to the carrying value of $693,481,905.
OTHER TIME DEPOSITS
The fair value of other time deposits, consisting of fixed maturity
certificates of deposit, is estimated by discounting the related cash flows
using the rates currently offered for deposits of similar remaining
maturities. The estimated fair value of other time deposits at December 31,
2000 is $466,499,557, compared to the carrying value of $468,128,395. The
estimated fair value of other time deposits at December 31, 1999 was
$428,520,407, compared to the carrying value of $430,066,684.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of Federal Home Loan Bank advances is estimated by
discounting the related cash flows using the rates at which the Bank would
be able to obtain replacement advances for the remaining maturities. The
estimated fair value of Federal Home Loan Bank advances at December 31,
2000 is $224,268,617, compared to the carrying value of $225,000,000. The
estimated fair value of Federal Home Loan Bank advances at December 31,
1999 was $123,587,003, compared to the carrying value of $125,000,000.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair values of commitments to extend credit and standby letters of
credit and financial guarantees written are estimated using the fees
currently charged to engage into similar agreements. The fair values of
these instruments are not significant.
27
28
(6) FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed. The Corporation
and the Bank file a consolidated Federal income tax return.
The provision for Federal income taxes consists of the following:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Federal income taxes currently payable (refundable) $ 8,332,184 $ (340,438) $ 8,167,610
Provision (credit) for deferred taxes on:
Book (over) under tax loan loss provision (245,000) 420,000 (315,000)
Accretion of bond discount 164,000 65,000 (27,000)
Net deferred loan origination fees (125,000) (16,000) (1,000)
Write down of other real estate - - 105,000
Nonaccrual loan interest income (387,000) (196,000) -
Accrued postretirement benefits (42,000) (44,000) (42,000)
Tax under book depreciation (305,000) (93,000) (54,000)
Alternative minimum tax 665,000 (665,000) -
Deferred compensation - 6,074,000 (2,526,000)
Other