MFB Corp. Announces Fourth Quarter Earnings

Business Wire, Nov 21, 2005

MISHAWAKA, Ind. -- MFB Corp. (NASDAQ:MFBC), parent company of MFB Financial (the "Bank"), reported today consolidated net income on an unaudited basis of $1.2 million, or $0.87 diluted earnings per share for the three months ended September 30, 2005, compared to net income of $211,000, or $0.15 diluted earnings per share for the three months ended September 30, 2004. MFB Corp's consolidated net income for the year ended September 30, 2005 was $2.5 million, or $1.81 diluted earnings per share, compared to $1.8 million, or $1.30 diluted earnings per share, for the same period last year.

Charles Viater, President and CEO, stated that "We are encouraged with net income growth of nearly 40% over last year despite a sluggish start to the fiscal year and we are pleased with the continued improvement of our net interest margin."

MFB Corp.'s net interest income before provision for loan losses for the three month period ended September 30, 2005 totaled $3.9 million compared to $3.3 million for the same period last year. For the year ended September 30, 2005 and 2004 net interest income was $14.7 million and $11.7 million, respectively. The increase in net interest income was predominantly due to an increase in loan and investment interest income, offset by an increase in deposit interest expense.

The provision for loan losses was $723,000 for the year ended September 30, 2005 compared to $800,000 for the same period last year. For the three months ended September 30, 2005 the provision for loan loss was $91,000 compared to $150,000 for the three months ended September 30, 2004. The provision is based on and reflects several factors including the current economic environment, current and past delinquency trends, change in the character and mix of the loan portfolio, adequacy of collateral on loans, and historical and estimated loan charge offs. During the quarter ended September 30, 2005 management noted several commercial loans with improved credit performance which was offset by two commercial loans with a deterioration of credit quality. The percentage of non-performing assets to loans was 0.80% at September 30, 2005 and 1.07% at September 30, 2004.

Year to date noninterest income decreased from $5.7 million for the year ended September 30, 2004 to $5.0 million for the year ended September 30, 2005. The significant decrease was primarily the result of the first quarter non-cash impairment charge through earnings of $948,000 ($626,000 net of tax) for the decline in the value of $2.0 million of Fannie Mae ("FNMA") and $2.0 million of Freddie Mac ("FHLMC") floating rate preferred stock securities MFB holds. Total noninterest income totaled $1.3 million for the fourth quarter last year compared to $1.9 million for the fourth quarter this year. This increase was due to the quarterly valuation of the Mortgage Servicing rights resulting in an impairment of $182,000 for the fourth quarter last year compared to a recovery of $266,000 during the same period this year.

Noninterest expense increased from $14.6 million for the year ended September 30, 2004 to $15.8 million for the same period in 2005. Areas of increase for the twelve month periods included salaries and employee benefits, occupancy and equipment, and data processing. Noninterest expense decreased from $4.3 million for the fourth quarter last year to $4.0 million for the fourth quarter this year due to decreased acquisition expenses, consulting fees, and occupancy and equipment expenses offset by an increase in legal fees. Income tax expense increased from last year for both the three month period and year ended September 30 due to increased income before income taxes.

MFB Corp.'s total assets increased to $554.9 million at September 30, 2005 from $541.2 million at September 30, 2004. Total cash and cash equivalents increased from $28.6 million at September 30, 2004 to $54.2 million at September 30, 2005 due in part to anticipated cash repayments for a fixed rate borrowing that matures in mid-November 2005. Total loans at September 30, 2005 of $390.7 million decreased from the $399.9 million at September 30, 2004. Commercial loans decreased from $160.2 million at September 30, 2004 to $157.8 million at September 30, 2005; mortgage loans decreased from $200.7 million at September 30, 2004 to $192.0 million at September 30, 2005 and were offset by consumer loans, including home equity loans, increasing slightly from $39.0 million at September 30, 2004 to $40.9 million at September 30, 2005. Investment securities available for sale decreased from $66.0 million at September 30, 2004 to $63.6 million at September 30, 2005.

MFB Corp.'s allowance for loan losses at September 30, 2005 was 1.63% of loans compared to 1.52% at September 30, 2004. For the fourth quarter ended September 30, 2005, net charge offs were $146,000 compared to $51,000 net charge offs for the quarter ended September 30, 2004. In management's opinion, the allowance for loan losses is adequate to cover probable incurred losses at September 30, 2005.