MBT FINANCIAL CORP

The net profit of $6,337,000 for the second quarter of 2019 was an increase of 28.1% compared to the second quarter of 2018. The increase was the result of improvements in net interest income, non-interest income, and non-interest expenses. The Net Interest Income increased $1,024,000, or 9.5% due to an improvement in the Net Interest Margin from 3.60% in the second quarter of 2018 to 3.84% in the second quarter of 2019. Net Income for the first half of 2019 was $1,196,000, a decrease of $7,651,000 compared to the first half of 2018. The decrease was caused by losses totaling $11,646,000 in 2019 on the sale of investment securities as the Company liquidated a substantial portion of its investment securities in a portfolio restructuring. Excluding securities losses, net profit would have been $10.4 million, an increase of $1.5 million, or 16.9% compared to the first half of 2018.

Other Expenses – Total non-interest expenses decreased $645,000, or 7.0% compared to the second quarter of 2018. Salaries and Employee Benefits decreased $66,000, or 1.2% mainly due to lower medical insurance and other employee benefits costs. Marketing expense decreased $278,000, or 59.5% due to decreased advertising activity. Professional fees decreased $133,000, or 22.5% due to decreased use of consulting services, partially offset by higher legal fees. Other insurance decreased $64,000, or 46.7% because life insurance costs associated with post retirement death benefits for former directors decreased after most of those plans were settled in the first quarter of 2019.

Cash flows provided by operating activities decreased $4,338,000 compared to the first six months of 2018 mainly due to the larger decrease in other liabilities and the larger increase in other assets. Other liabilities decreased primarily due to payments totaling $4.2 million to settle post retirement death benefits with retired directors and officers in 2019 and other assets increased mainly due to the payment of $3.8 million of merger related charges in 2019 that are receivable from First Merchants. The cash flow from investing activities increased $316.0 million compared to 2018 due to the sale of a substantial portion of the investment portfolio in the in the first six months of 2019. The securities were sold as the first part of a portfolio restructuring that is being completed in conjunction with our merger with First Merchants Bank, and the proceeds were still in the process of being reinvested as of the end of the second quarter of 2019. The amount of cash used for financing activities was $13.1 million lower in the first six months of 2019 than it was in the first six months of 2018 due to the $37.8 million decrease in borrowed funds repayments, partially offset by a smaller decrease in deposits and a decrease in dividends paid. In the first six months of 2019, the cash provided by operating and investing activities greatly exceeded the cash used for financing activities, and the amount of cash and cash equivalents increased by $286.8 million during the period. In the first six months of 2018, the cash used for investing and financing activities exceeded the cash provided by operating activities, resulting in a decrease of $38.0 million in cash and cash equivalents during the first six months of 2018. As we continue to redeploy the proceeds from the investment securities sales in 2019 we expect cash flows from investing activities to exceed the cash provided by operating activities, resulting in a decrease from our current level of cash and cash equivalents.

On June 24, 2019, the Plaintiffs in the consolidated Viky action filed a Consolidated Amended Complaint alleging class action and derivative claims for breach of fiduciary duty, as well as a derivative claim for unjust enrichment (Plaintiffs have since agreed to dismiss the unjust enrichment claim).  The complaint alleges that the Company’s directors have breached their fiduciary duties by omitting certain material information from First Merchants’ Registration Statement on Form S-4 filed with the SEC, which includes First Merchants’ prospectus with respect to the shares of First Merchants’ common stock to be issued in the Merger and the Company’s proxy statement for its special stockholders’ meeting that was held on February 14, 2019; by agreeing to unreasonable deal terms with respect to the First Merchants merger; and by ignoring conflicts of interest and engaging in self-dealing with respect to the First Merchants merger.    The complaint seeks preliminary and permanent injunction from proceeding with, consummating, or closing the proposed merger, rescission and rescissory damages if the proposed merger is completed, and damages, including attorneys’ and experts’ fees.

On February 4, 2019, in the United States District Court for the Eastern District of Michigan Southern Division captioned: Lesly Pompy, M.D. and Interventional Pain Management Associates, P.C. v MBT Financial Corp., et al.  The complaint, filed pro se by the plaintiff in the case, names the Company and two of its officers, as defendants. At the core of the claims are allegations that when the Company complied with search warrants and seizure orders procured and served by law enforcement, it resulted in certain of Pompy’s bank accounts being frozen.  The Complaint alleges that the Company violated Michigan’s “Adverse Claim to Bank Deposit” statute, MCL § 487.691, by failing to give Pompy notice of the search warrants and seizure orders. On March 5, 2019, a motion to dismiss the case was filed on behalf of the Company and its officers. The Company intends to vigorously defend the case.  The Company and its officers have also been sued by three former pain management patients of Dr. Pompy, alleging similar facts as Dr. Pompy.  In July 2019 those claims were all consolidated in one case before the United States District Court, Eastern District of Michigan.  The Company either has filed or will file motions to dismiss all of the claims.