MBT Financial Corp. Announces Sale of Non Performing Loans

MBT Financial Corp., (Nasdaq: MBTF), the parent company of Monroe Bank & Trust, reported that the bank has agreed to sell $25 million of problem credit assets for approximately $14 million. These assets include non performing loans, performing loans, and Other Real Estate Owned (OREO). The pre tax impact to third quarter earnings is anticipated to be approximately $8 million. As a result, the company expects that it will report a net loss in the range of $1.0 million to $1.5 million, or 6 to 9 cents per share, for the third quarter.

H. Douglas Chaffin, President and CEO, commented, “During the two years ended December 31, 2005, we reduced our non performing assets by nearly 44% to $26.5 million. We also significantly improved our credit policies and processes, which resulted in an improvement in the quality of new loan assets originated. However, the persistent weakness in the southeast Michigan economy and other conditions caused some previously upgraded assets to return to non accrual status. As a result, the progress previously experienced in reducing our NPAs has leveled off during 2006, and we have seen an increase in non- performing loans in recent months. As of August 31, 2006 NPAs represented 2.36% of assets, which is well above industry standards. We have therefore changed our philosophy regarding these particular credits from a more orderly workout approach, to aggressively pursuing their resolution; including a selective sale of some of these assets to third parties. Recent announcements regarding auto industry employment and the southeast Michigan housing market have validated our premise that the timing for this transaction is appropriate. While this sale will create a net loss for the third quarter as mentioned above, it will result in lowering our costs of carrying these credits through a lengthy workout process, and allow us to begin to redirect resources toward more positive, income-producing functions.”

The sale will reduce non performing loans by $18 million. In addition, other transactions that are expected to occur in October will further reduce the NPA total to approximately $19 million, or about 1.2 percent of assets. Mr. Chaffin further stated, “While this level of non performing assets continues to be higher than industry standards, the sale has been appropriately focused on assets that carry the majority of downside risk. We expect to address the remaining non performing and problem credits through more traditional methods of resolution, and this sale paves the way for a stronger focus in this area.” The sale also includes $7 million of performing assets, which will improve the bank’s overall asset quality. Problem assets, which include NPAs and identified problem performing loans, are projected to decrease from $88 million as of June 30, 2006 to approximately $58 million following these transactions as well as other reductions. These watch credits peaked at 10.6% of total loans in the third quarter of 2004 and are expected to decrease to about 5.7% of total loans by the end of the third quarter 2006.

Pending the completion of the sale, the loans covered by the proposed sale have been classified as loans held for sale and marked to market through a charge to the Bank’s Allowance for Loan Losses account (the “Allowance Account”). The charge associated with this classification was $11 million. In order to replenish the Bank’s Allowance Account the provision for loan losses for the third quarter is expected to be $8 million. This will bring the Allowance Account to approximately $14 million, which will equal approximately 75% of NPAs, or about 1.35% of total loans.