MFBC Mfb Corp (MM)

MFB Corp. (NASDAQ:MFBC), parent company of MFB Financial (the "Bank"), reported today its consolidated financial results on an unaudited basis of 794,000, or $0.57 diluted earnings per share for the three months ended June 30, 2006 an increase from net income of $614,000, or $0.44 diluted earnings per share, for the three months ended June 30, 2005. MFB Corp's consolidated net income for the nine months ended June 30, 2006 was $1,212,000, or $0.87 diluted earnings per share, compared to $1,300,000, or $0.94 diluted earnings per share, for the same period last year. Charles J. Viater, President and CEO, stated that "We are pleased with another steady quarter of earnings as the interest rate environment continues to pressure our net interest margin." MFB Corp's net interest income before provision for loan losses for the three month period ended June 30, 2006 was $3.4 million compared to $3.8 million for the same period last year. For the nine-month periods ended June 30, 2006 and 2005, net interest income was $10.3 million and $10.8 million, respectively. The decrease in net interest income was predominantly due to an increase in deposit interest expense, offset in part by an increase in interest income. Interest expense on deposits increased to $2.3 million for the June 2006 quarter compared to $1.7 million for the June 2005 quarter, and increased to $6.6 million from $4.9 million for the comparable nine month periods. Interest income was $7.2 million for the three months ended June 30, 2006 compared to $7.0 million for the three months ended June 30, 2005, and for the nine months ended June 30, 2006 and June 30, 2005 was $21.5 million and $20.5 million respectively. The provision for (recovery of) loan losses was ($35,000) for the quarter ended June 30, 2006 compared to $361,000 for the same period last year. The recovery during the quarter ended June 30, 2006 was predominantly related to a reduction of commercial watch list loans. The provision for loan losses was $1,867,000 for the nine months ended June 30, 2006 compared to $632,000 for the same period last year. The increase during the nine months ended June 30, 2006 was primarily related to management's first quarter assessment of a commercial loan to a business experiencing difficulties with inventory management, trade accounts receivable collections, financial reporting, and operating cash flow. This loan is primarily secured by inventory and accounts receivable. After updating our analysis of the value of this collateral, completing an assessment of the reliability and adequacy of accounting systems and evaluating the recent financial performance of the business, the Bank determined that an additional charge to earnings in the amount of $2,324,000 ($1,411,000 net of tax) for this loan was necessary during the first quarter ended December 31, 2005. The loan has been placed on non-accrual status and is now fully reserved. No charge-off has been recorded on this commercial loan because the Bank cannot reasonably estimate at this time how much of the loan it will ultimately collect. The percentage of non-performing assets to total loans increased from 1.38% at June 30, 2005 to 2.40% at June 30, 2006. Noninterest income increased to $1.8 million for the quarter ending June 30, 2006 from $1.3 million for the comparable period in 2005 and increased to $4.9 million from $3.1 million for the same nine-month periods. The increase for the quarter ended June 30, 2006 compared to June 30, 2005 was the result of a gain of $238,000 on the call of an FHLB advance, a gain of $200,000 on the sale of the insurance property and casualty business, and was offset by a $180,000 reduction in net realized gains from sales of loans. The year to date increase was primarily the result of the first quarter non-cash impairment charge to earnings in December 2004 of $948,000 ($626,000 net of tax) resulting from a decline in value of $2.0 million of Fannie Mae ("FNMA") and $2.0 million of Freddie Mac ("FHLMC") floating rate preferred stock securities MFB holds. Other increases over the prior nine-month period came from office space rental income, which was up $362,000, a $249,000 positive adjustment from a mortgage servicing asset recovery versus impairment charge, and the aforementioned gain on the call of the FHLB advance and gain on the sale of the insurance book of business; net gains on the sales of loans decreased by $410,000. The Bank's wholly-owned subsidiary, Mishawaka Financial Services, Inc., continues to offer a variety of life and health insurance products to customers in the Bank's market area. Noninterest expense increased slightly to $4.3 million for the quarter ended June 30, 2006 from $3.9 million for the quarter ended June 30, 2005. For the nine months ended June 30, noninterest expense increased from $11.8 million last year to $12.2 million for the same period this year. The increase for the quarter and the nine months ended 2006 compared to 2005 was primarily related to a loss on the sale of a branch building, an increase in occupancy and equipment expenses related to successful leasing of the majority of the main office building by four major tenants, and an increase in salaries and employee benefits. MFB Corp.'s total assets were $506.3 million at June 30, 2006 compared to $554.9 million at September 30, 2005. A decrease in cash and cash equivalents from $54.2 million at September 30, 2005 to $24.4 million at June 30, 2006 was predominantly due to the repayment of FHLB advances totaling $23.6 million during the nine months ended June 30, 2006. Total loans at June 30, 2006 of $379.1 million decreased from the $390.7 million at September 30, 2005. Commercial loans decreased from $157.8 million at September 30, 2005 to $139.6 million at June 30, 2006, offset by mortgage loans increasing from $192.0 million at September 30, 2005 to $195.4 million at June 30, 2006 and consumer loans, including home equity loans, increasing from $40.9 million at September 30, 2005 to $44.1 million at June 30, 2006. Investment securities available for sale decreased from $63.6 million at September 30, 2005 to $60.4 million at June 30, 2006. MFB Corp.'s allowance for loan losses at June 30, 2006 was $8.1 million or 2.14% of loans compared to $6.4 million or 1.63% of loans at September 30, 2005. For the third quarter ended June 30, 2006, net charge-offs were $51,000 compared to $119,000 net charge-offs for the quarter ended June 30, 2005. Year to date net charge-offs were $153,000 for the nine months ended June 30, 2006 and $263,000 for the nine months ended June 30, 2005. In management's opinion, the allowance for loan losses is adequate to cover probable incurred losses at June 30, 2006. Total liabilities decreased $48.5 million during the nine-month period, from $516.2 million at September 30, 2005 to $467.7 million at June 30, 2006. The decrease was predominantly due to a measured reduction in above-average cost deposit products and the repayment of Federal Home Loan Bank (FHLB) Advances. Total deposits declined by $23.8 million since September 30, 2005, from $374.4 million to $350.6 million; savings, NOW and MMDA deposits decreased $25.2 million, while certificates increased by $3.0 million. Advances from the FHLB decreased $23.8 million, from $125.9 million at September to $102.1 million at June 30. As of June 30, 2006, the advances had a weighted average interest rate of 5.47% and mature over the next six years. A total of $9 million of the advances with a weighted average interest rate of 6.37% mature over the next twelve months. Total shareholders' equity declined by $92,000 to $38.6 million from September 30, 2005 to June 30, 2006 due to dividend payouts of $534,000, purchases of treasury stock of $491,000 and net unrealized losses on investments of $323,000; these were offset in part by net earnings of $1.2 million. MFB Corp's equity to assets ratio was 7.62% at June 30, compared to 6.97% at September 30. The book value of MFB Corp. stock also increased, from $28.52 at prior year end to $28.79 at June 30, 2006. MFB Corp.'s wholly-owned bank subsidiary, MFB Financial, provides retail and business financial services to the Michiana area through its eleven banking centers in St. Joseph and Elkhart counties and private client services to the Indianapolis market through its office in Hamilton County. For more information, go to www.mfbbank.com. -0- *T MFB CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2006 and September 30, 2005 (in thousands except share information) June 30, September 30, 2006 2005 --------- ------------- Assets Cash and due from financial institutions $7,875 $7,613 Interest-bearing deposits in other financial institutions - short term 16,477 46,596 --------- ------------- Total cash and cash equivalents 24,352 54,209 Securities available for sale 60,431 63,575 Other investments 11,858 12,514 Loans held for sale 0 407 Mortgage loans 195,411 191,970 Commercial loans 139,646 157,804 Consumer loans 44,054 40,921 --------- ------------- Loans receivable 379,111 390,695 Less: allowance for loan losses (8,102) (6,388) --------- ------------- Loans receivable, net 371,009 384,307 Premises and equipment, net 18,902 20,336 Mortgage servicing rights 2,404 2,341 Cash surrender value of life insurance 6,165 5,964 Goodwill 1,970 2,423 Other intangible assets 1,808 2,134 Other assets 7,399 6,667 --------- ------------- Total Assets $506,298 $554,877 ========= ============= Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing demand deposits $35,264 $36,876 Savings, NOW and MMDA deposits 128,664 153,864 Time deposits 186,636 183,624 --------- ------------- Total deposits 350,564 374,364 FHLB advances 102,111 125,854 Loans from correspondent banks 6,500 6,500 Subordinated debentures 5,000 5,000 Accrued expenses and other liabilities 3,542 4,486 --------- ------------- Total liabilities 467,717 516,204 Shareholders' equity Common stock, no par value: 5,000,000 shares authorized; shares issued: 1,689,417 - 06/30/06 and 09/30/05; shares outstanding: 1,339,781 - 06/30/06 and 1,355,860 - 09/30/05 12,376 12,376 Additional paid-in capital 44 - Retained earnings - substantially restricted 34,705 34,027 Accumulated other comprehensive income (loss), net of tax of ($500) - 06/30/06 and ($175) - 09/30/05 (633) (310) Treasury stock: 349,636 common shares - 06/30/06 and 333,557 common shares - 09/30/05, at cost (7,911) (7,420) --------- ------------- Total shareholders' equity 38,581 38,673 --------- ------------- Total Liabilities and Shareholders' equity $506,298 $554,877 ========= ============= MFB CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three and Nine Months Ended June 30, 2006 and 2005 (in thousands except per share information) Three Months Ended Nine Months Ended June 30, June 30, 2006 2005 2006 2005 --------- -------- -------- -------- Interest income Loans receivable, including fees 6,143 $6,314 18,212 $18,426 Securities - taxable 840 610 2,418 1,937 Other interest-bearing assets 201 53 833 145 --------- -------- -------- -------- Total interest income 7,184 6,977 21,463 20,508 Interest expense Deposits 2,283 1,693 6,567 4,900 FHLB advances and other borrowings 1,509 1,532 4,633 4,806 --------- -------- -------- -------- Total interest expense 3,792 3,225 11,200 9,706 --------- -------- -------- -------- Net interest income 3,392 3,752 10,263 10,802 Provision for (recovery of) loan losses (35) 361 1,867 632 --------- -------- -------- -------- Net interest income after provision for (recovery of) loan losses 3,427 3,391 8,396 10,170 Noninterest income Service charges on deposit accounts 814 831 2,442 2,417 Trust fee income 94 100 321 300 Insurance commissions 38 53 129 153 Net realized gains from sales of loans 41 221 212 622 Mortgage servicing asset recovery (impairment) (1) (107) 163 (86) Net gain (loss) on securities available for sale - - - (948) Gain on call of FHLB advance 238 - 238 - Gain on sale of property and casualty insurance business 200 - 200 - Other income 422 178 1,219 644 --------- -------- -------- -------- Total noninterest income 1,846 1,276 4,924 3,102 Noninterest expense Salaries and employee benefits 2,003 1,953 5,875 5,617 Occupancy and equipment 826 645 2,551 2,298 Professional and consulting fees 106 153 307 524 Data processing expense 201 164 626 559 Loss on sale of fixed assets 216 - 216 - Other expense 934 970 2,639 2,811 --------- -------- -------- -------- Total noninterest expense 4,286 3,885 12,214 11,809 Income before income taxes 987 782 1,106 1,463 Income tax expense (benefit) 193 168 (106) 163 --------- -------- -------- -------- Net income $794 $614 $1,212 $1,300 ========= ======== ======== ======== Basic earnings per common share $0.59 $0.45 $0.90 $0.97 Diluted earnings per common share $0.57 $0.44 $0.87 $0.94 Cash dividends declared $0.135 $0.125 $0.395 $0.370 *T