UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
------------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 0-25903
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1532164
----------------------------------- ------------------------------
(State of incorporation or organization) (I.R.S. employer
identification no.)
309 Main Street, Irwin, Pennsylvania 15642
- -------------------------------------------- ------------------------------
(Address of principal executive offices) (zip code)
(724) 863-3100
- --------------------------------------------------------------------------------
Issuer's telephone number, including area code
Check 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 X NO
------------ ------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
------------ ------------
Number of shares of Common Stock outstanding as of November 10, 2003: 2,977,655
---------
IBT BANCORP, INC.
Contents
--------
Pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements..............................................................................
Consolidated balance sheets at September 30, 2003
(unaudited) and December 31, 2002.............................................................. 1
Consolidated statements of income (unaudited) for the three and nine months
ended September 30, 2003 and 2002 .............................................................. 2
Consolidated statements of cash flows (unaudited) for the nine months
ended September 30, 2003 and 2002............................................................... 3
Notes to consolidated financial statements...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 12
Item 4. Controls and Procedures........................................................................ 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 13
Item 2. Changes in Securities and Use of Proceeds...................................................... 13
Item 3. Defaults upon Senior Securities................................................................ 13
Item 4. Submission of Matters to a Vote of Security-Holders............................................ 13
Item 5. Other Information.............................................................................. 13
Item 6. Exhibits and Reports on Form 8-K............................................................... 13
Signatures..................................................................................................... 14
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
September 30, 2003 December 31, 2002
------------------ -----------------
(unaudited) (unaudited)
ASSETS
Cash and due from banks $ 18,788,662 $ 12,677,160
Interest-bearing deposits in banks 1,253,319 760,118
Federal funds sold - 1,629,000
Certificate of deposit 100,000 100,000
Securities available for sale 158,605,739 183,564,960
Federal Home Loan Bank stock, at cost 4,599,700 3,152,600
Loans, net 410,335,176 359,871,514
Premises and equipment, net 5,390,433 4,759,015
Other assets 17,607,582 17,520,354
------------- -------------
Total Assets $ 616,680,611 $ 584,034,721
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 84,171,601 $ 74,339,035
Interest-bearing 392,087,729 393,918,292
------------- -------------
Total deposits 476,259,330 468,257,327
Repurchase agreements 22,211,794 14,525,836
Accrued interest and other liabilities 3,660,769 5,100,380
FHLB advances 55,498,316 40,000,000
------------- -------------
Total liabilities 557,630,209 527,883,543
Stockholders' Equity
Capital stock, par value $1.25 per share, 50,000,000 shares authorized,
3,023,799 shares issued, 2,977,655 shares outstanding at September 30,
2003 and December 31, 2002 3,779,749 3,779,749
Surplus 1,897,792 2,073,102
Retained earnings 53,494,513 48,974,137
Accumulated other comprehensive income 1,221,614 2,667,456
------------- -------------
60,393,668 57,494,444
Less: Treasury stock, at cost (1,343,266) (1,343,266)
------------- -------------
Total stockholders' equity 59,050,402 56,151,178
------------- -------------
Total Liabilities and Stockholders' Equity $ 616,680,611 $ 584,034,721
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Interest Income
Loans, including fees $ 6,654,228 $ 6,340,002 $ 19,554,699 $ 18,310,509
Investment securities 1,712,744 2,114,968 5,624,396 6,567,712
Federal funds sold 14,906 68,499 35,196 196,724
------------ ------------ ------------ ------------
Total interest income 8,381,878 8,523,469 25,214,291 25,074,945
Interest Expense
Deposits 2,061,967 2,655,506 6,578,696 7,880,519
FHLB advances 642,870 530,947 1,853,655 1,586,297
Repurchase agreements 31,782 47,563 104,140 135,604
------------ ------------ ------------ ------------
Total interest expense 2,736,619 3,234,016 8,536,491 9,602,420
------------ ------------ ------------ ------------
Net Interest Income 5,645,259 5,289,453 16,677,800 15,472,525
Provision for Loan Losses 150,000 300,000 450,000 800,000
------------ ------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 5,495,259 4,989,453 16,227,800 14,672,525
Other Income (Losses)
Service fee 541,862 590,644 1,758,916 1,758,378
Investment security gains 243,938 64,315 480,620 195,840
Investment security losses (37,449) (37,169) (37,449) (62,094)
Other income 833,585 689,936 2,506,518 2,004,848
------------ ------------ ------------ ------------
Total other income 1,581,936 1,307,726 4,708,605 3,896,972
Other Expenses
Salaries 1,421,999 1,280,647 4,270,713 3,818,825
Pension and other employee benefits 404,736 326,248 1,190,299 951,212
Occupancy expense 365,300 349,741 1,128,434 984,785
Data processing expense 207,232 191,354 614,137 534,919
ATM expense 85,892 88,266 241,708 267,179
Other expenses 1,096,703 934,999 3,127,121 2,728,101
------------ ------------ ------------ ------------
Total other expenses 3,581,862 3,171,255 10,572,412 9,285,021
------------ ------------ ------------ ------------
Income Before Income Taxes 3,495,333 3,125,924 10,363,993 9,284,476
Provision for Income Taxes 933,405 834,259 2,717,080 2,419,096
------------ ------------ ------------ ------------
Net Income $ 2,561,928 $ 2,291,665 $ 7,646,913 $ 6,865,380
============ ============ ============ ============
Basic Earnings per Share $ 0.86 $ 0.77 $ 2.57 $ 2.30
============ ============ ============ ============
Diluted Earnings per Share $ 0.85 $ 0.77 $ 2.57 $ 2.29
============ ============ ============ ============
Dividends per Share $ 0.35 $ 0.30 $ 1.05 $ 0.90
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
-------------------------------
2003 2002
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,646,913 $ 6,865,380
Adjustments to reconcile net cash
from operating activities:
Depreciation 595,880 506,565
Increase in cash surrender value of insurance (396,727) (413,119)
Net amortization/accretion of
premiums and discounts 832,367 233,950
Net investment security gains (443,171) (133,746)
Provision for loan losses 450,000 800,000
Stock options granted 102,154 -
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets (653,625) (599,702)
Accrued interest and other liabilities (298,057) (749,164)
------------ ------------
Net Cash From Operating Activities 7,835,734 6,510,164
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit (100,000) -
Proceeds from maturity of certificates
of deposit 100,000 -
Proceeds from sales of securities
available for sale 29,937,923 31,728,943
Proceeds from maturities of securities
available for sale 42,594,796 60,940,626
Purchase of securities available for sale (50,153,363) (95,376,460)
Net loans made to customers (50,347,265) (40,831,869)
Purchases of premises and equipment (1,227,298) (584,765)
Purchase of Federal Home Loan Bank stock (1,447,100) (260,600)
------------ ------------
Net Cash Used By Investing Activities (30,642,307) (44,384,125)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,002,003 30,840,264
Net increase in securities sold
under repurchase agreement 7,685,958 9,432,073
Dividends paid (3,126,537) (2,683,801)
Proceeds from FHLB advances 16,000,000 5,000,000
Payments on FHLB advances (501,684) -
Exercise of stock options (277,464) -
Purchase of treasury stock - (258,513)
------------ ------------
Net Cash From Financing Activities 27,782,276 42,330,023
------------ ------------
Net Change in Cash and Cash Equivalents 4,975,703 4,456,062
Cash and Cash Equivalents at Beginning of Period 15,066,278 25,218,935
------------ ------------
Cash and Cash Equivalents at End of Period $ 20,041,981 $ 29,674,997
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended September 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring
accruals considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003 or any future interim period. The interim financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in IBT Bancorp, Inc. and subsidiary Annual Report on
Form 10-K for the year ended December 31, 2002.
NOTE B - ADOPTION OF NEW ACCOUNTING STANDARD
During the second quarter of 2003, the Bancorp adopted the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation (as permitted by FASB Statement No. 148), prospectively to all
employee awards granted, modified or settled after January 1, 2003. Awards under
the plan vest over periods ranging from six months to three years. Therefore,
the cost related to stock-based employee compensation included in the
determination of net income for 2003 is less then that which would have been
recognized if the fair value based method had been applied to all awards since
the original effective date of Statement 123. The following table illustrates
the effect on net income and earnings per share as if the fair value based
method had been applied to all outstanding and unvested awards in each period.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ------------------------------
2003 2002 2003 2002
--------------- ---------------- ------------- -------------
Net income, as reported $ 2,561,928 $ 2,291,665 $ 7,646,913 $ 6,865,380
Add: Stock-based employee
compensation expense
included in reported net
income, net of related
tax effects 67,422 - 67,422 -
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related tax
effects (67,422) - (151,518) (147,629)
--------------- ---------------- ------------- -------------
Pro forma net income $ 2,561,928 $ 2,291,665 $ 7,562,817 $ 6,717,751
=============== ================ ============ ================
Earnings per share:
Basic-as reported $ 0.86 $ 0.77 $ 2.57 $ 2.30
=============== ================ ============ ================
Basic-pro forma $ 0.86 $ 0.77 $ 2.54 $ 2.25
=============== ================ ============ ================
Diluted-as reported $ 0.85 $ 0.76 $ 2.53 $ 2.28
=============== ================ ============ ================
Diluted-pro forma $ 0.85 $ 0.76 $ 2.50 $ 2.24
=============== ================ ============ ================
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended September 30, 2003
NOTE C- EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. The weighted average shares outstanding were 2,977,655 for
both the three and nine months ended September 30, 2003 and 2,981,167 and
2,977,655 for the three and nine months ended September 30, 2002, respectively.
NOTE D - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 30, 2003 and
2002 were $987,553 and $3,366,157 respectively and for the nine months ended
September 30, 2003 and 2002 were $6,201,071 and $8,773,327 respectively.
NOTE E - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
September 30, 2003
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 68,259,241 $ 958,104 $ (406,105) $ 68,811,240
Obligations of State and
political sub-divisions 36,142,734 1,864,945 - 38,007,679
Mortgage-backed securities 41,350,902 755,413 (143,064) 41,963,251
Other securities 709,283 36,049 -- 745,332
Equity securities 10,292,648 137,701 (1,352,112) 9,078,237
------------- ------------- ------------- -------------
$ 156,754,808 $ 3,752,212 $ (1,901,281) $ 158,605,739
============= ============= ============= =============
NOTE F - STOCK OPTION PLAN
In September 2003, an additional 20,500 stock options were granted to employees
and directors under the 2000 Stock Option Plan at an exercise price of $51.40
per share. As of September 30, 2003, 150,000 stock options have been granted, of
which 75,449 are vested and are exercisable as follows: 44,500 are exercisable
at $24.50 per share, 18,463 are exercisable at $23.00 per share, and 12,486 are
exercisable at $32.88; 44,206 have not vested, 26,179 shares have been exercised
and 4,166 have been forfeited.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipate", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking
services through its wholly owned banking subsidiary, Irwin Bank & Trust Co.
(collectively, the "Company"). The Company's stock is traded on the American
Stock Exchange under the symbol IRW.
The grand opening of the Company's next full service branch office,
located in the central Greensburg area of Westmoreland county, is scheduled for
the fourth quarter of this year. The Company currently has a main office, five
branch offices, a loan center, a trust office, and five supermarket branches
located in the Pennsylvania counties of Westmoreland and Allegheny.
FINANCIAL CONDITION
At September 30, 2003, total assets increased $32.7 million, or 5.6%,
to $616.7 million from $584.0 million at December 31, 2002. Asset growth was
primarily due to an increase of $50.4 million in net loans and $5.0 million in
cash and cash equivalents. Such increases were offset by a $25.0 million
decrease in securities available for sale.
At September 30, 2003, net loans reached $410.3 million from $359.9
million at December 31, 2002. The change in net loans was primarily attributable
to the increase of $33.3 million in the real estate secured loan portfolio,
including a $28.9 million increase in commercial real estate loans and an $13.3
million increase in multi-family real estate loans, offset, in part, by a $8.3
million decrease in one-to-four family residential mortgages. Given the
historically low interest rate environment the Company has chosen to sell many
of the one-to-four family residential mortgages made through out the year. The
Company does not feel that it is prudent to maintain a large portfolio of
thirty-year loans at the current low interest rates preferring to invest in
shorter term higher yielding commercial based real estate loans.
At September 30, 2003, total liabilities increased $29.7 million, or
5.6%, to $557.6 million from $527.9 million at December 31, 2002. This increase
was primarily the result of borrowings from the Federal Home Loan Bank, which
had a net increase of $15.5 million reaching $55.5 million at September 30, 2003
from $40.0 million at December 31, 2002. The advances are
6
primarily a combination of fixed and variable rate long-term loans with interest
rates that compare favorably to rates currently being paid by the Company for
certificates of deposits with similar terms. These advances were used to fund
the growth in the loan portfolio. Non-interest bearing deposits reached $84.2
million at September 30, 2003, from $74.3 million at December 31, 2002. The
increase of $9.9 million is attributed to higher balances in deposit accounts
and an increase in the number of demand deposit accounts. Interest-bearing
deposits decreased $1.8 million to $392.1 million at September 30,2003 from
$393.9 million at December 31,2002. This change was primarily attributable to
increases in savings accounts and interest bearing checking accounts of $3.4
million and $4.1 million, respectively. These increases were offset by a $9.8
million decrease in certificate of deposit accounts resulting primarily from
expected deposit reductions of local public entities.
At September 30, 2003, total stockholders' equity increased $2.9
million to $59.1 million from $56.2 million at December 31, 2002. The increase
was due to net income of $7.6 million offset by a decrease of $1.4 million in
accumulated other comprehensive income (net of income taxes), and by dividends
paid of $3.1 million. In addition, surplus (additional paid in capital) was
decreased $277,000 due to stock options exercised and increased $102,000 due to
stock options granted in accordance with the adoption of FASB 123, as amended by
FASB 148. See Note F to the consolidated financial statements. Accumulated other
comprehensive income decreased as a result of changes in the net unrealized gain
on securities available for sale. Because of interest rate volatility, the
Company's accumulated other comprehensive income could materially fluctuate for
each interim period and year-end. See Note E to the consolidated financial
statements.
RESULTS OF OPERATIONS
Net income. Net income for the three months ended September 30, 2003
increased $270,000, or 11.8%, to $2.6 million, or $.85 per diluted earnings per
share, from $2.3 million, or $.77 per diluted earnings per share, for the
comparable three month period in 2002. Net income for the nine months ended
September 30, 2003 increased $782,000 to $7.6 million, or $2.57 per diluted
earnings per share from $6.9 million, or $2.29 per diluted earnings per share
for the comparable nine month period in 2002. The increase for the three and
nine months ended September 30, 2003 was the result of higher net interest
income and other income partially offset by increases in other expenses.
Interest income. Interest income for the three months ended September
30, 2003 decreased $142,000 to $8.4 million from $8.5 million compared to the
three month period in 2002. The average balances of interest-earning assets
increased $43.6 million for the three months ended September 30, 2003, to $580.4
million from $536.8 million for the comparable period in 2002. This increase was
offset by a decrease in the yield on these assets of 57 basis points to 5.78%,
for the three months ended September 30, 2003 from 6.35% for the comparable
period in 2002. Interest income for the nine months ended September 30, 2003
increased $139,000 to $25.2 million from $25.1 million for the comparable period
in 2002. The average balance of interest-earning assets increased $54.3 million
to $572.6 million for the nine months ended September 30, 2003 from $518.3
million for the comparable 2002 period. This increase was offset by a decrease
in the yield on these assets of 58 basis points to 5.87% for the nine months
ended September 30, 2003 from 6.45% for the comparable period in 2002. The
increases in the average balances of interest-earning assets for the three and
nine month periods were driven by the growth in the loan portfolio as discussed
under Financial Condition. The reduction of interest rates in the market
contributed to the decline in average yields in both the three and nine month
periods ended in September 2003. See "Average Balance Sheet and Rate/Volume
Analysis"
7
Interest expense. Interest expense for the three months ended September
30, 2003 decreased $497,000 to $2.7 million from $3.2 million for the comparable
period in 2002. The decrease in interest expense was primarily attributed to a
63 basis point decrease in the average cost of funds to 2.34% for the three
months ended September 30, 2003 from 2.97% for the comparable period in 2002,
offset by a $32.6 million increase in the average balance of interest-bearing
liabilities. Interest expense for the nine months ended September 30, 2003
decreased $1.1 million to $8.5 million from $9.6 million for the comparable 2002
period. This decrease was primarily the result of a 60 basis point reduction in
the average cost of funds to 2.45% for the nine months ended September 30, 2003
from 3.05% for the comparable nine month period in 2002, offset by a $43.7
million increase in the average balance of interest-bearing liabilities. The
reduction of average cost of funds for the three and nine month periods ended
September 30, 2003 is reflective of the continued historically low interest
rates paid on deposits and borrowings over the past year. See "Average Balance
Sheet and Rate/Volume Analysis."
Average Balance Sheet
The following table sets forth certain information relating to the company for
the periods indicated. The average yields and costs are derived by dividing
income or expense on an annualized basis by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances.
-------------------------------------------------------------------
Three Months Ended September 30, Three Months Ended September 30,
-------------------------------------------------------------------
2003 2002
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $402,611 $ 6,654 6.61% $350,146 $ 6,340 7.24%
Investment securities available for
sale (2) 173,561 1,713 3.95% 171,804 2,115 4.92%
Other interest-earning assets (3) 4,193 15 1.42% 14,811 68 1.85%
Total interest-earning assets $580,365 $ 8,382 5.78% $536,761 $ 8,523 6.35%
======= ====== ======= ======
Non-interest-earning assets 32,135 29,856
-------- --------
Total assets $612,500 $566,617
======== ========
Interest-bearing liabilities:
Money market accounts $ 62,417 $ 135 0.86% $ 62,349 $ 323 2.08%
Certificates of Deposit 216,184 1,786 3.31% 213,186 1,975 3.71%
Other liabilities 189,671 816 1.72% 160,116 936 2.34%
-------- ------- -------- -------
Total interest-bearing liabilities $468,272 2,737 2.34% $435,651 $ 3,234 2.97%
======= ====== ======= ======
Non-interest-bearing liabilities 84,606 77,278
-------- -------
Total liabilities $552,878 $512,929
======== ========
Retained Earnings (4) 59,622 53,688
-------- --------
Total liabilities and stockholders'
equity $612,500 $566,617
======== ========
Net interest income $ 5,645 $ 5,289
======= =======
Interest rate spread (5) 3.44% 3.38%
====== ======
Net yield on interest-earning assets (6) 3.89% 3.94%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 123.94% 123.21%
====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Consists of federal funds sold.
(4) Includes capital stock, surplus and accumulated other comprehensive income,
less treasury stock.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents annualized net interest
income as a percentage of average interest-earning assets.
8
Average Balance Sheet
The following table sets forth certain information relating to the company for
the periods indicated. The average yields and costs are derived by dividing
income or expense on an annualized basis by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances.
-------------------------------------------------------------------
Nine Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------
2003 2002
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $387,055 $19,555 6.74% $332,252 $ 18,310 7.35%
Investment securities available for
sale (2) 181,840 5,624 4.12% 171,328 6,568 5.11%
Other interest-earning assets (3) 3,680 35 1.28% 14,698 197 1.78%
------- ------
Total interest earning assets $572,575 $25,214 5.87% $518,278 $ 25,075 6.45%
======= ==== ======== =======
Non-interest earning assets 30,930 29,611
-------- --------
Total assets $603,505 $547,889
======== ========
Interest-bearing liabilities:
Money market accounts $ 61,835 $ 518 1.12% $ 60,441 $ 935 2.06%
Certificates of Deposit 217,532 5,455 3.34% 202,648 5,902 3.88%
Other liabilities 184,344 2,563 1.85% 156,896 2,765 2.35%
-------- ------- ------ -------- --------
Total interest-bearing liabilities $463,711 $ 8,536 2.45% $419,985 $ 9,602 3.05%
======= ====== ======== =======
Non-interest-bearing liabilities 81,772 76,441
-------- --------
Total liabilities $545,483 $496,426
======== ========
Retained Earnings (4) 58,022 51,463
-------- --------
Total liabilities and stockholders'
equity $603,505 $547,889
======== ========
Net interest income $16,678 $ 15,473
======= ========
Interest rate spread (5) 3.42% 3.40%
====== =======
Net yield on interest-earning assets (6) 3.88% 3.98%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 123.48% 123.40%
====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Consists of federal funds sold.
(4) Includes capital stock, surplus and accumulated other comprehensive income,
less treasury stock.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents annualized net interest
income as a percentage of average interest earning assets.
9
Rate / Volume Analysis
The following table shows the effect of changes in volumes and rates on
interest income and interest expense. The changes in interest income and
interest expense attributable to changes in both volume and rate have been
allocated to the changes due to rate. Tax exempt income was not recalculated on
a tax equivalent basis due to the immateriality of the change to the table
resulting from a recalculation.
Three Month Period ended Nine Month Period ended
September 30, 2003 September 30, 2003
------------------------- -------------------------
2003 vs. 2002 2003 vs. 2002
------------------------- -------------------------
Increase (Decrease) Increase (Decrease)
------------------------- -------------------------
Due to Due to
------------------------- -------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars In Thousands) (Dollars In Thousands)
Interest income:
Loans receivable 950 (636) 314 (3,020) (1,775) 1,245
Investment securities available for sale 22 (424) (402) 403 (1,347) (944)
Other interest earning assets (49) (4) (53) (148) (14) (162)
Total interest-earning assets 923 (1,064) (141) (3,275) (3,136) 139
===== ====== ===== ======= ======= =======
Interest expense:
Money market accounts 0 (188) (188) 22 (439) (417)
Certificates of deposit 28 (217) (189) 433 (880) (447)
Other liabilities 173 (293) (120) 484 (686) (202)
Total interest-bearing liabilities 201 (698) (497) 939 (2,005) (1,066)
===== ====== ===== ======= ======= =======
Net change in net interest income 722 (366) 356 2,336 (1,131) 1,205
===== ====== ===== ======= ======= =======
Provision for loan losses. For the three and nine months ended
September 30, 2003, the provision for loan losses was $150,000 and $450,000,
respectively, compared to $300,000 and $800,000, respectively, for the
comparable 2002 periods. At September 30, 2003, loan loss reserves represent
..76% of the entire loan portfolio compared to .73% for the comparable 2002
period.
The evaluation for determining the provision includes evaluations of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other information available at such time. The
Company continues to monitor its allowance for loan losses as economic
conditions dictate. Management continues to offer a wider variety of loan
products coupled with the continued success of changing the mix of the products
offered in the loan portfolio from lower yielding loans (i.e., one-to-four
family loans) to higher yielding loans (i.e., equity loans, multi-family (five
or more units) buildings, and commercial (nonresidential mortgages).
Management periodically estimates the likely level of losses on loans
to determine whether the allowance for loan losses is adequate to absorb losses
in the existing portfolio for unidentified loans as well as classified loans.
Based on these estimates, a provision for loan losses is charged to operations
in order to adjust the allowance to a level determined to be adequate to absorb
anticipated future losses. The allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Large groups of smaller balance homogenous loans
are valued collectively for impairment. The amount of loss reserve is calculated
using historical loss rates, net of recoveries, adjusted for environmental, and
other qualitative factors such as industry, geographical, economic and political
factors that can affect loss rates or loss measurements. Allowances for losses
on specifically identified loans that are determined to be impaired are
calculated based upon collateral value, market value, if determinable, or the
present value of estimated future cash flows. The allowance is increased by a
charge to operations, and reduced by charge-offs, net of recoveries.
The allowance for loan losses is maintained at a level that represents
management's best estimate of losses in the portfolio at the balance sheet date.
However, there can be no assurance that the allowance for loan losses will be
adequate to cover losses, which may be realized in the future, and that
additional provisions for losses on loans will not be required.
10
Other income. Total other income for the three months ended September
30, 2003 increased $274,000 to $1.6 million from $1.3 million for the comparable
three month period in 2002. Total other income for the nine months ended
September 30, 2003 increased $812,000 to $4.7 million from $3.9 million for the
comparable period in 2002. The increases in other income primarily due to net
security gains of $206,000 and $443,000 for the three and nine month periods
ended September 30, 2003, respectively and a $351,000 gain from the sale of
other real estate property for the nine months ended September 30, 2003
Other expense. Total other expense for the three and nine month periods
ended September 30, 2003 increased $411,000 and $1.3 million, respectively, to
$3.6 million and $10.6 million from $3.2 million and $9.3 million, respectively,
for the comparable three and nine month period in 2002. Salaries and benefits
increased $220,000 and $691,000, respectively, from the comparable periods in
2002 due to merit salary increases, increased pension and health insurance
costs, and additional staffing. Occupancy expense for the three and nine months
ended September 30, 2003 increased $16,000 and $144,000, respectively, to
$365,000 and $1.1 million from $350,000 and $985,000, respectively, for the
comparable three and nine month periods in 2002. Such increases at September 30,
2003 were primarily due to depreciation expense related to equipment purchases
for technological improvements and increased rental expense due to the
relocation of the Company's item processing department. Other expenses for the
three and nine month periods ended September 30, 2003 increased $162,000 and
$399,000, respectively, to $1.1 million and $3.1 million from $935,000 and $2.7
million, respectively, for the comparable three and nine month periods in 2002.
Included in this increase is $46,000 in costs associated with the Company's
listing on the American Stock Exchange and a variety of increases in other
expenses associated with the normal cost of doing business.
Liquidity and capital resources. The Company's primary sources of funds
include savings, deposits, loan repayments and prepayments, cash from operations
and borrowings from the Federal Home Loan Bank. The Company uses its capital
resources principally to fund loan originations and purchases, to repay maturing
borrowings, to purchase investments, and for short-term liquidity needs.
The Company's liquid assets consist of cash and cash equivalents, which
include short-term investments. The levels of these assets are dependent on the
Company's operating, financing, and investment activities during any given
period. At September 30, 2003 cash and cash equivalents totaled $20.0 million.
Net cash from operating activities at September 30, 2003 totaled $7.8
million, as compared to net cash from operating activities of $6.5 million at
September 30, 2002. The increase in cash was primarily due to a $782,000
increase in net income offset by a decrease of $451,000 in accrued interest and
other liabilities.
Net cash used by investing activities at September 30, 2003 totaled
$30.6 million, compared to cash used of $44.4 million for the same period in
2002. The $13.8 million decrease was primarily due to a decrease of $20.1
million in the proceeds from the sales and maturities of securities available
for sale offset by an increase in the net loans made to customers of $9.4
million.
Net cash from financing activities totaled $27.8 million at September
30, 2003, a decrease of $14.5 million from September 30, 2002 reported amount of
$42.3 million. This change was mainly the result of a change in net deposits of
$22.8 million offset by an increase in FHLB advances of $11.0 million.
Liquidity may be adversely affected by unexpected outflows, excessive
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
the Company's commitment to make loans and management's assessment of the
Company's ability to generate funds. The Company is also subject to federal
regulations that impose certain minimum capital requirements. At September 30,
2003, the Company was in compliance with federal regulations.
11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and nine months ended
September 30, 2003 from the information presented in the annual report on form
10K, under the caption Market Risk, for the year ended December 31, 2002.
CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal
proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a like kind.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation of IBT Bancorp, Inc.*
3(ii) Amended Bylaws of IBT Bancorp, Inc.**
10 Change In Control Severance Agreement with Charles G. Urtin ***
10.1 Deferred Compensation Plan For Bank Directors***
10.2 Retirement Agreement Between Irwin Bank & Trust Co. And
J. Curt Gardner***
10.3 Death Benefit Only Deferred Compensation Plan For Bank Directors
effective as of January 1, 1990***
10.4 Retirement and Death Benefit Deferred Compensation Plan For Bank
Directors effective as of January 1, 1990***
10.5 2000 Stock Option Plan****
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32 Section 1350 Certification
-------------------------
* Incorporated by reference to the identically
numbered exhibits of the Registrant's Form
10 (file no. 0-25903)
** Incorporated by reference to the identically
numbered exhibit of the Registrants Form
10-K for December 31, 2002.
*** Incorporated by reference to the identically
numbered exhibits of the Registrant's Form
10K for December 31, 1999.
**** Incorporated by reference to the definitive
proxy statement of the registrant filed on
March 17, 2000.
(b) Reports on Form 8-K
(i) The registrant filed a Form 8-K on July 22, 2003 to report results of
operations for the quarter ended June 30, 2003.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IBT BANCORP, INC.
Date: November 12, 2003 By: /s/Charles G. Urtin
----------------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: November 12, 2003 By: /s/Raymond G. Suchta
----------------------------------------
Raymond G. Suchta
Vice President, Chief Financial Officer
(Duly authorized officer)
14