Company Quick10K Filing
Monroe Bank and Trust
Price10.02 EPS0
Shares23 P/E23
MCap232 P/FCF17
Net Debt-339 EBIT16
TEV-107 TEV/EBIT-7
TTM 2019-06-30, in MM, except price, ratios
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-11
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-13
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-14
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-18
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-05
10-Q 2010-03-31 Filed 2010-05-13
10-K 2009-12-31 Filed 2010-03-15
8-K 2019-09-01
8-K 2019-07-25
8-K 2019-06-17
8-K 2019-04-25
8-K 2019-02-14
8-K 2019-01-28
8-K 2019-01-18
8-K 2019-01-15
8-K 2019-01-09
8-K 2019-01-04
8-K 2018-12-20
8-K 2018-10-26
8-K 2018-10-25
8-K 2018-10-09
8-K 2018-08-07
8-K 2018-07-30
8-K 2018-07-27
8-K 2018-07-26
8-K 2018-05-03
8-K 2018-04-27
8-K 2018-04-26
8-K 2018-01-26
8-K 2018-01-25
8-K 2018-01-19

MBTF 10Q Quarterly Report

Part I Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_152856.htm
EX-31.2 ex_152857.htm
EX-32.1 ex_152858.htm
EX-32.2 ex_152859.htm

Monroe Bank and Trust Earnings 2019-06-30

Balance SheetIncome StatementCash Flow

10-Q 1 mbtf20190630_10q.htm FORM 10-Q mbtf20190630_10q.htm
 

 

 



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2019

 

Or

 

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-30973

 

MBT FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

Michigan

 

38-3516922

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

102 E. Front Street

Monroe, Michigan 48161

(Address of principal executive offices)

(Zip Code)

 

(734) 241-3431

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

MBTF

NASDAQ-Global Select

 

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 ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐      Accelerated Filer ☑      Non-accelerated filer ☐          Smaller reporting company ☑     Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

 

 

 

 

 

 

 

 

As of August 9, 2019, there were 23,037,773 shares of the Company’s Common Stock outstanding.

 



 

 

 

 

Part I Financial Information

Item 1. Financial Statements

 

 

MBT FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

 

   

June 30, 2019

         

Dollars in thousands

 

(Unaudited)

   

December 31, 2018

 
                 

ASSETS

               

Cash and Cash Equivalents

               

Cash and due from banks

               

Non-interest bearing

  $ 16,934     $ 17,058  

Interest bearing

    321,684       34,784  

Total cash and cash equivalents

    338,618       51,842  
                 

Interest Bearing Time Deposits in Other Banks

    100       10,796  

Securities - Available for Sale

    116,440       401,613  

Equity Securities

    7,478       7,415  
                 

Loans held for sale

    -       488  
                 

Loans

    769,413       768,660  

Allowance for Loan Losses

    (7,623 )     (7,771 )

Loans - Net

    761,790       760,889  
                 

Accrued interest receivable and other assets

    15,445       16,743  

Other Real Estate Owned

    27       692  

Bank Owned Life Insurance

    59,313       59,563  

Premises and Equipment - Net

    27,336       26,850  

Total assets

  $ 1,326,547     $ 1,336,891  
                 

LIABILITIES

               

Deposits

               

Non-interest bearing

  $ 309,309     $ 297,704  

Interest-bearing

    861,691       885,206  

Total deposits

    1,171,000       1,182,910  
                 

Federal Home Loan Bank advances

    10,000       10,000  

Interest payable and other liabilities

    10,110       16,314  

Total liabilities

    1,191,110       1,209,224  
                 

STOCKHOLDERS' EQUITY

               

Common stock (no par value; 50,000,000 shares authorized, 23,037,773 and 23,033,715 shares issued and outstanding)

    23,658       23,453  

Retained earnings

    110,510       113,921  

Accumulated other comprehensive income (loss)

    1,269       (9,707 )

Total stockholders' equity

    135,437       127,667  

Total liabilities and stockholders' equity

  $ 1,326,547     $ 1,336,891  

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

-2-

 

 

 

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - UNAUDITED

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

Dollars in thousands, except per share data

 

2019

   

2018

   

2019

   

2018

 
                                 

Interest Income

                               

Interest and fees on loans

  $ 9,714     $ 8,736     $ 19,285     $ 16,953  

Interest on investment securities-

                               

Tax-exempt

    171       443       467       847  

Taxable

    380       2,087       1,554       4,297  

Interest on balances due from banks

    2,213       58       3,422       183  

Total interest income

    12,478       11,324       24,728       22,280  
                                 

Interest Expense

                               

Interest on deposits

    557       400       1,125       814  

Interest on borrowed funds

    64       91       128       97  

Total interest expense

    621       491       1,253       911  
                                 

Net Interest Income

    11,857       10,833       23,475       21,369  

Recovery Of Loan Losses

    -       -       -       (100 )
                                 

Net Interest Income After

                               

Recovery Of Loan Losses

    11,857       10,833       23,475       21,469  
                                 

Other Income

                               

Income from wealth management services

    1,197       1,178       2,358       2,363  

Service charges and other fees

    855       955       1,677       1,901  

Debit card income

    799       786       1,500       1,506  
Net loss on sales and redemptions of securities available for sale     -       (1 )     (11,646 )     (102 )

Net gain on sales of Other Real Estate Owned

    4       517       13       536  

Origination fees on mortgage loans sold

    119       92       188       154  

Bank owned life insurance income

    851       349       1,189       702  

Other

    634       527       1,293       1,127  

Total other income (loss)

    4,459       4,403       (3,428 )     8,187  
                                 

Other Expenses

                               

Salaries and employee benefits

    5,305       5,371       11,369       11,333  

Occupancy expense

    654       620       1,383       1,341  

Equipment expense

    896       874       1,809       1,667  

Marketing expense

    189       467       481       844  

Professional fees

    459       592       1,302       1,186  

EFT/ATM expense

    297       288       588       547  

Other Real Estate Owned expenses

    4       21       26       36  

FDIC Deposit Insurance Assessment

    91       92       180       199  

Bonding and other insurance expense

    73       137       502       269  

Telephone expense

    78       74       158       149  

Other

    495       650       1,053       1,407  

Total other expenses

    8,541       9,186       18,851       18,978  
                                 

Income Before Income Taxes

    7,775       6,050       1,196       10,678  

Income Tax Expense

    1,438       1,105       -       1,831  

Net Income

  $ 6,337     $ 4,945     $ 1,196     $ 8,847  
                                 

Other Comprehensive Income - Net of Tax

                               

Unrealized gains (losses) on securities

    1,012       (643 )     1,399       (4,896 )

Reclassification adjustment for losses included in net income

    -       1       9,200       81  

Postretirement benefit liability

    11       32       377       64  

Total Other Comprehensive Income (Loss) - Net of Tax

    1,023       (610 )     10,976       (4,751 )
                                 

Comprehensive Income

  $ 7,360     $ 4,335     $ 12,172     $ 4,096  
                                 

Basic Earnings Per Common Share

  $ 0.27     $ 0.22     $ 0.05     $ 0.39  
                                 

Diluted Earnings Per Common Share

  $ 0.27     $ 0.21     $ 0.05     $ 0.38  
                                 

Dividends Declared Per Share of Common Stock

  $ 0.10     $ 0.07     $ 0.20     $ 0.73  

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

-3-

 

 

 

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

 

                                   

Accumulated

         
                                   

Other

         
   

Common Stock

   

Retained

   

Unearned

   

Comprehensive

         

Dollars in thousands

 

Shares

   

Amount

   

Earnings

   

Compensation

   

Income (Loss)

   

Total

 

Balances - January 1, 2019

    23,033,715     $ 23,453     $ 113,921     $ -     $ (9,707 )   $ 127,667  
                                                 

Issuance of Common Stock

                                               

SOSARs exercised, net of shares redeemed for taxes

    186       (1 )     -       -       -       (1 )

Employee Stock Purchase Plan and other stock issued

    2,857       30       -       -       -       30  
                                                 

Equity Compensation

    -       93       -       -       -       93  
                                                 

Deferred Directors' Compensation

    -       (10 )     -       -       -       (10 )
                                                 

Dividends declared ($0.10 per share)

    -       -       (2,303 )     -       -       (2,303 )
                                                 

Net Loss

    -       -       (5,141 )     -       -       (5,141 )

Other comprehensive income - net of tax

    -       -       -       -       9,953       9,953  
                                                 

Balances - March 31, 2019

    23,036,758     $ 23,565     $ 106,477     $ -     $ 246     $ 130,288  
                                                 

Issuance of Common Stock

                                               

Employee Stock Purchase Plan and other stock issued

    1,015       10       -       -       -       10  
                                                 

Equity Compensation

    -       93       -       -       -       93  
                                                 

Deferred Directors' Compensation

    -       (10 )     -       -       -       (10 )
                                                 

Dividends declared ($0.10 per share)

    -       -       (2,304 )     -       -       (2,304 )
                                                 

Net Income

    -       -       6,337       -       -       6,337  

Other comprehensive income - net of tax

    -       -       -       -       1,023       1,023  
                                                 

Balances - June 30, 2019

    23,037,773     $ 23,658     $ 110,510     $ -     $ 1,269     $ 135,437  

 

-4-

 

 

                                   

Accumulated

         
                                   

Other

         
   

Common Stock

   

Retained

   

Unearned

   

Comprehensive

         

Dollars in thousands

 

Shares

   

Amount

   

Earnings

   

Compensation

   

Income (Loss)

   

Total

 

Balances - January 1, 2018

    22,907,844     $ 22,840     $ 117,524     $ -     $ (7,706 )   $ 132,658  
                                                 

Issuance of Common Stock

                                               

SOSARs exercised, net of shares redeemed for taxes

    39,825       (178 )     -       -       -       (178 )

Restricted stock awards, net of shares redeemed for taxes

    7,500       78       -       (78 )     -       -  

Employee Stock Purchase Plan and other stock issued

    18,092       189       -       -       -       189  
                                                 

Equity Compensation

    -       216       -       19       -       235  
                                                 

Deferred Directors' Compensation

    -       (67 )     -       -       -       (67 )
                                                 

Cumulative Effect Adjustment (ASU 2016-01)

    -       -       49       -       (49 )     -  
                                                 

Dividends declared ($0.66 per share)

    -       -       (15,145 )     -       -       (15,145 )
                                                 

Net income

    -       -       3,902       -       -       3,902  

Other comprehensive income - net of tax

    -       -       -       -       (4,092 )     (4,092 )
                                                 

Balances - March 31, 2018

    22,973,261     $ 23,078     $ 106,330     $ (59 )   $ (11,847 )   $ 117,502  
                                                 

Issuance of Common Stock

                                               

SOSARs exercised, net of shares redeemed for taxes

    4,572       (24 )     -       -       -       (24 )

Employee Stock Purchase Plan and other stock issued

    5,422       57       -       -       -       57  
                                                 

Equity Compensation

    -       137       -       20       -       157  
                                                 

Deferred Directors' Compensation

    -       (17 )     -       -       -       (17 )
                                                 

Dividends declared ($0.07 per share)

    -       -       (1,607 )     -       -       (1,607 )
                                                 

Net income

    -       -       4,945       -       -       4,945  

Other comprehensive income - net of tax

    -       -       -       -       (659 )     (659 )
                                                 

Balances - June 30, 2018

    22,983,255     $ 23,231     $ 109,668     $ (39 )   $ (12,506 )   $ 120,354  

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

-5-

 

 

 

MBT FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

   

Six Months Ended June 30,

 

Dollars in thousands

 

2019

   

2018

 
                 

Cash Flows from Operating Activities

               

Net Income

  $ 1,196     $ 8,847  

Adjustments to reconcile net income to net cash from operating activities

               

Recovery of loan losses

    -       (100 )

Depreciation

    684       737  

Net amortization of investment premium and discount

    268       1,166  

Adjustment for assets carried at fair market value

    (63 )     47  

Writedowns of Other Real Estate Owned

    -       42  

Net decrease in interest payable and other liabilities

    (5,749 )     (364 )

Net increase in interest receivable and other assets

    (1,796 )     (652 )

Equity based compensation expense

    186       392  

Net loss on sale/settlement of securities

    11,646       102  

Net gain on life insurance claim

    (523 )     -  

Increase in cash surrender value of life insurance

    (672 )     (702 )

Net cash provided by operating activities

  $ 5,177     $ 9,515  
                 

Cash Flows from Investing Activities

               

Proceeds from maturities of interest bearing time deposits in other banks

  $ 1,250     $ 3,000  

Proceeds from maturities and redemptions of investment securities held to maturity

    -       3,987  

Proceeds from maturities and redemptions of investment securities available for sale

    9,305       31,904  

Proceeds from sales of investment securities available for sale

    367,161       19,393  

Proceeds from sales of interest bearing time deposits in other banks

    9,446       -  

Net increase in loans

    (441 )     (45,547 )

Proceeds from sales of other real estate owned

    704       1,698  

Proceeds from sales of other assets

    172       40  

Proceeds from Bank Owned Life Insurance claims

    1,445       -  

Purchase of investment securities available for sale

    (89,795 )     (32,187 )

Purchase of bank premises and equipment

    (1,172 )     (248 )

Net cash used for (provided by) investing activities

  $ 298,075     $ (17,960 )
                 

Cash Flows from Financing Activities

               

Net decrease in deposits

  $ (11,910 )   $ (50,670 )

Net increase in short term borrowings

    -       7,800  

Proceeds from Federal Home Loan Bank borrowings

    -       30,000  

Issuance of common stock

    40       246  

Stock redeemed for tax withholding - stock based compensation

    1       (203 )

Dividends paid

    (4,607 )     (16,752 )

Net cash used for financing activities

  $ (16,476 )   $ (29,579 )
                 

Net Increase (Decrease) in Cash and Cash Equivalents

  $ 286,776     $ (38,024 )
                 

Cash and Cash Equivalents at Beginning of Period

    51,842       53,010  

Cash and Cash Equivalents at End of Period

  $ 338,618     $ 14,986  
                 

Supplemental Cash Flow Information

               

Cash paid for interest

  $ 1,241     $ 892  

Cash paid for federal income taxes

  $ -     $ 1,419  
                 

Supplemental Schedule of Non Cash Investing Activities

               

Transfer of loans to other real estate owned

  $ 27     $ 144  

Transfer of loans to other assets

  $ 1     $ -  

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

-6-

 

 

MBT FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

The unaudited consolidated financial statements include the accounts of MBT Financial Corp. (the “Company”) and its subsidiary, Monroe Bank & Trust (the “Bank”). The Bank includes the accounts of its wholly owned subsidiary, MB&T Financial Services, Inc. The Bank operates fourteen branches in Monroe County, Michigan, six branches in Wayne County, Michigan, and one loan and wealth management office in Wayne County. The Bank’s primary source of revenue is from providing loans to customers, who are predominantly small and middle-market businesses and middle-income individuals. The Company’s sole business segment is community banking.

 

On October 9, 2018, the Company and First Merchants Corporation (“First Merchants”) signed an Agreement and Plan of Reorganization and Merger (the “Merger Agreement”), pursuant to which the Company will merge with and into First Merchants. Subject to the terms and conditions of the Merger Agreement, each share of the Company will be converted into 0.275 shares of First Merchants common stock. The merger was approved at a special meeting of the Company’s shareholders on February 14, 2019 and the transaction is expected to be completed in the third quarter of 2019.

 

The accounting and reporting policies of the Bank conform to practice within the banking industry and are in accordance with accounting principles generally accepted in the United States. Preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term are the determination of the allowance for loan losses and the fair value of investment securities.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of Management, necessary for fair statement of results for the interim periods.

 

The significant accounting policies are as follows:

 

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its subsidiary. All material intercompany transactions and balances have been eliminated.

 

COMPREHENSIVE INCOME

Accounting principles generally require that revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on securities available for sale and amounts recognized related to postretirement benefit plans (gains and losses, prior service costs, and transition assets or obligations), are reported as a direct adjustment to the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

 

BUSINESS SEGMENTS

While the Company's chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a company wide basis. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable segment.

 

-7-

 

 

FAIR VALUE

The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under The Fair Value Option as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments and available for sale securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value.

 

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets or liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and the Company must use alternative valuation techniques to derive a fair value measurement.

 

ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes increased disclosures and various changes to the accounting and measurement of financial assets including the Company’s loans and available-for-sale and held-to-maturity debt securities. Each financial asset presented on the balance sheet would have a unique allowance for credit losses valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in this ASU also eliminate the probable initial recognition threshold in current GAAP and instead, reflect an entity’s current estimate of all expected credit losses using reasonable and supportable forecasts. The new credit loss guidance will be effective for the Company's year ending December 31, 2020. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption for all institutions is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard will likely have an effect on the Company's consolidated financial statements from a onetime adjustment to increase the ALLL upon adoption of the standard and due to increased provision expense at the time loans are originated. Management has developed an implementation timeline and begun the process of segmenting the portfolio.

 

In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs – Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20).  This ASU was issued to shorten the amortization period for the premium to the earliest call date on debt securities.  This premium will now be recorded as a reduction to net interest margin during the shorter yield to call period, as compared to prior practice of amortizing the premium as a reduction to net interest margin over the contractual life of the instrument.  This ASU does not change the current method of amortizing any discount over the contractual life of the debt security, and this pronouncement is effective for fiscal years beginning after December 15, 2018, and must be adopted on a modified retrospective basis.  Adoption of the standard did not have a material effect on the Company’s financial statements.

 

-8-

 

 

 

2. EARNINGS PER SHARE

 

The calculations of earnings per common share are as follows:

 

   

For the three months ended June 30,

   

For the six months ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Basic

                               

Net income (loss)

  $ 6,337,000     $ 4,945,000     $ 1,196,000     $ 8,847,000  

Average common shares outstanding

    23,037,215       22,978,225       23,036,297       22,961,076  

Earnings (Loss) per common share - basic

  $ 0.27     $ 0.22     $ 0.05     $ 0.39  
                                 

Diluted

                               

Net income (loss)

  $ 6,337,000     $ 4,945,000     $ 1,196,000     $ 8,847,000  

Average common shares outstanding

    23,037,215       22,978,225       23,036,297       22,961,076  

Equity compensation

    92,725       122,810       95,188       122,077  

Average common shares outstanding - diluted

    23,129,940       23,101,035       23,131,485       23,083,153  

Earnings per common share - diluted

  $ 0.27     $ 0.21     $ 0.05     $ 0.38  

 

 

 

3. STOCK BASED COMPENSATION

 

Stock Only Stock Appreciation Rights (SOSARs) – SOSARs granted under the plan are structured as fixed grants with the base price equal to the market value of the underlying stock on the date of the grant.

 

The following table summarizes the SOSARs that have been granted:

 

           

Weighted Average

 
   

SOSARs

   

Base Price

 

SOSARs Outstanding, January 1, 2019

    347,379     $ 8.78  

Granted

    -       -  

Exercised

    (2,166 )     9.44  

Forfeited

    (4,167 )     10.26  

SOSARs Outstanding, June 30, 2019

    341,046     $ 8.76  

SOSARs Exercisable, June 30, 2019

    152,212     $ 6.40  

 

The exercise of a SOSAR results in the issuance of a number of shares of common stock of the Company based on the appreciation of the market price of the stock over the base price of the SOSAR. The market value of the Company’s common stock on June 30, 2019 was $10.02. The value of the exercisable SOSARs that are in-the-money as of June 30, 2019 was $551,000, and exercise of those SOSARs on that date would have resulted in the issuance of 54,962 shares of common stock. The plan allows participants to elect to withhold shares from the exercise of SOSARs to cover their tax liability. This may affect the number of shares issued and the value of the common stock account on the balance sheet and the statement of changes in equity.

 

The total expense for equity based compensation was $93,000 in the second quarter of 2019 and $156,000 in the second quarter of 2018. The total expense for equity based compensation was $186,000 in the first six months of 2019 and $392,000 in the first six months of 2018. The unrecognized compensation expense for all equity based compensation plans is $320,000 as of June 30, 2019. The expense is expected to be recognized over a weighted average period of 1.17 years.

 

 

 

4. LOANS

 

The Bank makes commercial, consumer, and mortgage loans primarily to customers in Monroe County, Michigan, southern and western Wayne County, Michigan, and surrounding areas. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the automotive, manufacturing, and real estate development economic sectors.

 

-9-

 

 

Loans consist of the following (000s omitted):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Residential real estate loans

  $ 229,755     $ 230,008  

Commercial and Construction real estate loans

    311,028       306,694  

Agriculture and agricultural real estate loans

    24,679       22,486  

Commercial and industrial loans

    162,627       162,026  

Loans to individuals for household, family, and other personal expenditures

    41,324       47,446  

Total loans, gross

  $ 769,413     $ 768,660  

Less: Allowance for loan losses

    7,623       7,771  

Net Loans

  $ 761,790     $ 760,889  

 

Loans are placed in a nonaccrual status when, in the opinion of Management, the collection of additional interest is doubtful. All loan relationships over $250,000 that are classified by Management as nonperforming as well as selected performing accounts and all renegotiated loans are reviewed for impairment each quarter. Allowances for loans determined to be impaired are included in the allowance for loan losses. All cash received on nonaccrual loans is applied to the principal balance. Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due, restructured loans, nonaccrual investment securities, other real estate owned, and other repossessed assets. Other real estate owned includes real estate that has been acquired in full or partial satisfaction of loan obligations or upon foreclosure.

 

The following table summarizes nonperforming assets (000s omitted):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Nonaccrual loans

  $ 7,723     $ 5,566  

Loans 90 days past due and accruing

    32       -  

Restructured loans

    3,556       4,495  

Total nonperforming loans

  $ 11,311     $ 10,061  
                 

Other real estate owned

    27       692  

Other assets

    -       -  

Total nonperforming assets

  $ 11,338     $ 10,753  
                 

Nonperforming assets to total assets

    0.85 %     0.80 %

Allowance for loan losses to nonperforming loans

    67.39 %     77.24 %

 

-10-

 

 

 

5. ALLOWANCE FOR LOAN LOSSES

 

The Company separates its loan portfolio into segments to perform the calculation and analysis of the allowance for loan losses. The six segments analyzed are Agriculture and Agricultural Real Estate, Commercial, Commercial Real Estate, Construction Real Estate, Residential Real Estate, and Consumer and Other. The Agriculture and Agricultural Real Estate segment includes all loans to finance agricultural production and all loans secured by agricultural real estate. This segment does not include loans to finance agriculture that are secured by residential real estate, which are included in the Residential Real Estate segment. The Commercial segment includes loans to finance commercial and industrial businesses that are not secured by real estate. The Commercial Real Estate segment includes loans secured by non-farm, non-residential real estate. The Construction Real Estate segment includes loans to finance construction and land development. This includes residential and commercial construction and land development. The Residential Real Estate segment includes all loans, other than construction loans, that are secured by single family and multi-family residential real estate properties. The Consumer and Other segment includes all loans not included in any other segment. These are primarily loans to consumers for household, family, and other personal expenditures. The majority of this segment is student loans, and it also includes loans for autos, boats, and recreational vehicles.

 

Activity in the allowance for loan losses during the three and six months ended June 30, 2019 was as follows (000s omitted):

 

   

Agriculture

and

Agricultural

Real Estate

   

Commercial

   

Commercial

Real Estate

   

Construction

Real Estate

   

Residential

Real Estate

   

Consumer

and Other

   

Total

 
                                                         

Allowance for loan losses: For the three months ended June 30, 2019

                                         

Beginning Balance

  $ 240     $ 1,761     $ 3,038     $ 38     $ 1,211     $ 1,215     $ 7,503  

Charge-offs

    -       (5 )     -       -       (17 )     (46 )     (68 )

Recoveries

    4       20       24       26       41       73       188  

Provision

    35       (545 )     (57 )     (37 )     (49 )     653       -  

Ending balance

  $ 279     $ 1,231     $ 3,005     $ 27     $ 1,186     $ 1,895     $ 7,623  
                                                         

Allowance for loan losses: For the six months ended June 30, 2019

                                         

Beginning Balance

  $ 205     $ 1,266     $ 3,012     $ 184     $ 1,218     $ 1,886     $ 7,771  

Charge-offs

    -       (257 )     (151 )     -       (17 )     (54 )     (479 )

Recoveries

    4       47       48       38       116       78       331  

Provision

    70       175       96       (195 )     (131 )     (15 )     -  

Ending balance

  $ 279     $ 1,231     $ 3,005     $ 27     $ 1,186     $ 1,895     $ 7,623  
                                                         

Allowance for loan losses as of June 30, 2019

                                                 

Ending balance individually evaluated for impairment

  $ -     $ 13     $ 275     $ -     $ 67     $ 124     $ 479  

Ending balance collectively evaluated for impairment

    279       1,218       2,730       27       1,119       1,771       7,144  

Ending balance

  $ 279     $ 1,231     $ 3,005     $ 27     $ 1,186     $ 1,895     $ 7,623  
                                                         
                                                         

Loans as of June 30, 2019

                                                       

Ending balance individually evaluated for impairment

  $ 2,213     $ 307     $ 3,451     $ 1,289     $ 3,144     $ 390     $ 10,794  

Ending balance collectively evaluated for impairment

    22,466       162,320       278,888       27,400       226,611       40,934       758,619  

Ending balance

  $ 24,679     $ 162,627     $ 282,339     $ 28,689     $ 229,755     $ 41,324     $ 769,413  

 

-11-

 

 

Activity in the allowance for loan losses during the three and six months ended June 30, 2018 was as follows (000s omitted):

 

   

Agriculture

and

Agricultural

Real Estate

   

Commercial

   

Commercial

Real Estate

   

Construction

Real Estate

   

Residential

Real Estate

   

Consumer

and Other

   

Total

 
                                                         

Allowance for loan losses: For the three months ended June 30, 2018

                                         

Beginning Balance

  $ 210     $ 1,397     $ 3,088     $ 461     $ 1,089     $ 1,640     $ 7,885  

Charge-offs

    -       -       -       -       (51 )     -       (51 )

Recoveries

    -       16       49       14       31       14       124  

Provision

    52       36       (188 )     (1 )     73       28       -  

Ending balance

  $ 262     $ 1,449     $ 2,949     $ 474     $ 1,142     $ 1,682     $ 7,958  
                                                         

Allowance for loan losses: For the six months ended June 30, 2018

                                         

Beginning Balance

  $ 195     $ 1,443     $ 3,297     $ 491     $ 1,279     $ 961     $ 7,666  

Charge-offs

    -       -       (3 )     -       (58 )     (2 )     (63 )

Recoveries

    2       31       289       34       73       26       455  

Provision

    65       (25 )     (634 )     (51 )     (152 )     697       (100 )

Ending balance

  $ 262     $ 1,449     $ 2,949     $ 474     $ 1,142     $ 1,682     $ 7,958  
                                                         

Allowance for loan losses as of June 30, 2018

                                                 

Ending balance individually evaluated for impairment

  $ -