M B T Financial Corp Reports Operating Results (10-Q)

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Nov 09, 2009
M B T Financial Corp (MBTF, Financial) filed Quarterly Report for the period ended 2009-09-30.

MBT Financial Corporation operates as the bank holding company of Monroe Bank & Trust. M B T Financial Corp has a market cap of $30.76 million; its shares were traded at around $1.9 with and P/S ratio of 0.3.

Highlight of Business Operations:

The ongoing challenges in the national economy generally and in the southeast Michigan economy in particular, with increasing unemployment and decreasing real estate values, continue to have a negative impact on our performance. We monitor the quality of our loan portfolios closely, and we decided that the decrease in value of real estate collateral associated with such economic challenges necessitated write downs of some of our loans this quarter. Our Provision for Loan Losses in the third quarter of 2009 was $6.8 million. We charged off $12.1 million of loans during the quarter, so our Allowance for Loan and Lease Losses decreased $5.3 million to $18.6 million, which is 2.11% of loans. Although the charge offs exceeded the provision in the quarter, we believe that the Allowance remains adequate because most of the loans charged off in the third quarter were provided for in earlier quarters. We also conducted an auction of OREO properties on October 8, which required us to write down the values of the properties that sold to their sales prices effective September 30. At the auction we sold properties carried at $1.9 million for $1.4 million. The third quarter loss on OREO sales of $1.9 million includes $0.5 million to write down the value of the properties sold in October. The auction sales are expected to close in the fourth quarter. Non performing assets (NPAs) increased from $89.0 million to $97.3 million during the quarter, as non performing loans increased $6.8 million and OREO increased $1.5 million. However, Total Problem Assets, which includes non performing assets and problem loans that are still performing, decreased $2.4 million, or 1.6% during the quarter. This was the second consecutive quarterly decrease in total problem assets.

The amount of nonperforming assets (“NPAs”) increased $24.3 million or 33.3% since year end. NPAs include non performing loans, which increased 42.4% from $53.8 million to $76.6 million, and Other Real Estate Owned and Other Assets (“OREO”), which increased 7.9% from $19.2 million to $20.7 million. Total problem assets, which includes all NPAs and performing loans that are internally classified as substandard, increased $8.8 million, or 6.4%. The Company s Allowance for Loan and Lease Losses (“ALLL”) increased $45,000 since December 31, 2008, as the amount of specific allocations decreased from $5.2 million to $5.1 million, mainly due to charge offs. The general allocation portion of the allowance increased slightly from $13.2 million to $13.5 million because the impact of the decrease in the size of the loan portfolio was less than the impact of the increase in the loss factors. The loss factors, which include five year loss averages (weighted more heavily for recent losses), and adjustments for various current factors, such as recent delinquency trends and national and local economic conditions, were increased due to the weak economic conditions and declining real estate values. The ALLL is now 2.11% of loans, compared to 1.97% at year end. The ALLL is 24.3% of NPLs, compared to 34.4% at year end. In light of current economic conditions, we believe that at this level the ALLL adequately estimates the potential losses in the loan portfolio.

Net Interest Income - A comparison of the income statements for the three months ended September 30, 2008 and 2009 shows a decrease of $570,000, or 5.1%, in Net Interest Income. Interest income on loans decreased $2.5 million or 15.7% as the average loans outstanding decreased $80.7 million and the average yield on loans decreased from 6.37% to 5.83%. The interest income on investments, fed funds sold, and interest bearing balances due from banks decreased $1.0 million even though the average amount of investments, fed funds sold, and interest bearing balances due from banks increased $13.2 million as the yield decreased from 5.16% to 4.05%. An improvement in the term structure of interest rates, a decrease in the overall level of interest rates, and the maturity of some high cost borrowings and brokered certificates of deposit allowed funding costs to decrease faster than asset yields. The interest expense on deposits decreased $2.1 million or 33.4% as the average deposits decreased $24.8 million and the average cost of those deposits decreased from 2.31% to 1.57%. The cost of borrowed funds decreased $0.8 million as the average amount of borrowed funds decreased $29.9 million and the average cost of the borrowings decreased from 4.88% to 4.23%.

Other Expenses – Total non interest expenses increased $25,000 or 0.2% compared to the third quarter of 2008. Most expense categories were flat or decreased due to cost containment initiatives implemented throughout the last year. Salaries and Employee Benefits increased $32,000, or 0.6%, as the increase in health insurance expense was nearly offset by a decreases in the 401(k) matching contribution and the incentive pay accrual. Equipment expenses decreased $75,000, or 9.3% as computer expense decreased $38,000 and machine maintenance decreased $37,000. The advertising program was reduced in 2009, resulting in a decrease of $20,000, or 6.7% in marketing expense. Collection expenses increased $34,000 or 39.1% due to the growth in non performing assets. Losses on OREO transactions decreased $288,000 compared to the third quarter last year due to a large amount of write downs in the third quarter of 2008. FDIC insurance premium expense increased $402,000, or 177.9% primarily due to an increase in our regular assessment rate from 7 basis points to nearly 22 basis points.

Net Interest Income - A comparison of the income statements for the nine months ended September 30, 2008 and 2009 shows a decrease of $1.8 million, or 5.4% in Net Interest Income. Interest income on loans decreased $7.9 million or 16.5% as the average loans outstanding decreased $72.8 million and the average yield on loans decreased from 6.46% to 5.83%. The interest income on investments, fed funds sold, and interest bearing balances due from banks decreased $2.3 million even though the average amount of investments, fed funds sold, and interest bearing balances due from banks increased $8.5 million as the yield decreased from 5.16% to 4.38%. An improvement in the term structure of interest rates, a decrease in higher cost borrowed funds and brokered certificates of deposit, and a decrease in the overall level of interest rates allowed funding costs to decrease faster than asset yields. The interest expense on deposits decreased $5.8 million or 29.0% as the average deposits decreased $18.5 million and the average cost of those deposits decreased from 2.47% to 1.79%. The cost of borrowed funds decreased $2.6 million as the average amount of borrowed funds decreased $29.7 million and the average cost of the borrowings decreased from 5.06% to 4.37%.

Cash flows from operating activities decreased from $9.0 million in the first nine months of 2008 to $0.7 million in the first nine months of 2009 due to the decrease in net income and the increase in the net deferred federal income tax asset. Cash flows provided by investing activities increased from $45.4 million in the first nine months of 2008 to $127.8 million in the first nine months of 2009 primarily due to a restructuring of a portion of the investment portfolio in the third quarter of 2009. A portion of the investment activity proceeds and the reduction in loans were used to fund the reduction in deposits and borrowed funds. The amount of cash used for financing activities increased from $51.7 million in the first nine months of 2008 to $108.1 million in the first nine months of 2009 as the decrease in deposits increased from $29.8 million in 2008 to $88.4 million in 2009. Also, the decrease in short term borrowing was $13.3 million in 2008, compared to zero in 2009, and Federal Home Loan Bank advances decreased $18.0 million in 2009 compared to an increase of $5.0 million in the first nine months of 2008. This is a result of the Bank s efforts to improve its capital position by decreasing total assets and improve its net interest margin by reducing higher cost funding and lower yield assets.

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