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 June 30, 2005
-------------
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. 1-31655
IBT BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 25-1532164
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
309 MAIN STREET, IRWIN, PENNSYLVANIA 15642
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(724) 863-3100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NA
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
Number of shares of Common Stock outstanding as of July 28, 2005: 2,955,455
IBT BANCORP, INC.
CONTENTS
Pages
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Consolidated balance sheets at June 30, 2005
(unaudited) and December 31, 2004............................ 1
Consolidated statements of income (unaudited) for the
three and six months ended June 30, 2005 and 2004 ........... 2
Consolidated statements of cash flows (unaudited)
for the six months ended June 30, 2005 and 2004.............. 3
Notes to consolidated financial statements................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 5
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. Unregistered Sales of Equity 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............................................ 14
Item 6. Exhibits..................................................... 14
Signatures................................................................... 15
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
JUNE 30, 2005 DECEMBER 31, 2004
(UNAUDITED) (UNAUDITED)
------------- -------------
ASSETS
Cash and due from banks $ 16,629,105 $ 14,641,942
Interest-bearing deposits in banks 151,208 515,229
Federal funds sold -- 1,030,000
Certificates of deposit 100,000 100,000
Securities available for sale 206,080,120 191,208,214
Federal Home Loan Bank stock, at cost 5,093,600 5,682,700
Loans, net 428,134,513 436,548,276
Premises and equipment, net 6,016,279 6,232,280
Other assets 18,974,536 19,898,464
------------- -------------
TOTAL ASSETS $ 681,179,361 $ 675,857,105
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 80,167,267 $ 87,248,485
Interest-bearing 437,021,095 438,968,463
------------- -------------
Total deposits 517,188,362 526,216,948
Repurchase agreements 24,623,870 15,157,257
Accrued interest and other liabilities 3,821,419 4,374,824
Federal funds purchased 4,612,000 --
FHLB advances 69,598,395 70,265,314
------------- -------------
Total liabilities 619,844,046 616,014,343
STOCKHOLDERS' EQUITY
Capital stock, par value $1.25 per share,
50,000,000 shares authorized, 3,023,799
shares issued, 2,955,455 shares
outstanding at June 30, 2005 and
December 31, 2004 3,779,749 3,779,749
Surplus 1,279,562 1,417,755
Retained earnings 57,720,887 55,789,915
Accumulated other comprehensive income 904,518 1,204,744
------------- -------------
63,684,716 62,192,163
Less: Treasury stock, at cost (2,349,401) (2,349,401)
------------- -------------
Total stockholders' equity 61,335,315 59,842,762
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 681,179,361 $ 675,857,105
============= =============
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
INTEREST INCOME
Loans, including fees $ 6,680,995 $ 6,544,889 $13,405,227 $13,135,413
Investment securities 2,098,145 1,826,977 4,103,724 3,546,561
Federal funds sold 35,204 152 43,424 609
----------- ----------- ----------- -----------
Total interest income 8,814,344 8,372,018 17,552,375 16,682,583
INTEREST EXPENSE
Deposits 2,419,635 2,123,261 4,736,796 4,234,344
FHLB advances 734,406 705,534 1,463,913 1,398,554
Repurchase agreements 122,339 25,489 187,285 46,040
Federal funds purchased 4,046 23,604 19,056 51,294
----------- ----------- ----------- -----------
Total interest expense 3,280,426 2,877,888 6,407,050 5,730,232
----------- ----------- ----------- -----------
NET INTEREST INCOME 5,533,918 5,494,130 11,145,325 10,952,351
PROVISION FOR LOAN LOSSES 300,000 125,000 600,000 250,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,233,918 5,369,130 10,545,325 10,702,351
OTHER INCOME
Service fees 902,136 608,912 1,750,357 1,159,714
Investment security gains 39,633 65,607 120,744 249,840
Debit card fees 200,645 180,798 375,720 309,601
Other income 635,207 481,623 1,155,470 965,841
----------- ----------- ----------- -----------
Total other income 1,777,621 1,336,940 3,402,291 2,684,996
OTHER EXPENSES
Salaries 1,661,772 1,550,648 3,068,779 2,880,273
Pension and other employee benefits 429,653 468,027 901,157 936,878
Occupancy expense 436,457 426,896 870,206 869,335
Data processing expense 241,722 222,845 477,729 443,033
Pennsylvania shares tax 142,928 123,791 274,571 249,220
Advertising expense 101,600 71,567 161,175 145,957
Other expenses 1,049,879 1,003,844 2,020,555 1,992,761
----------- ----------- ----------- -----------
Total other expenses 4,064,011 3,867,618 7,774,172 7,517,457
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,947,528 2,838,452 6,173,444 5,869,890
PROVISION FOR INCOME TAXES 621,685 750,216 1,523,455 1,429,059
----------- ----------- ----------- -----------
NET INCOME $ 2,325,843 $ 2,088,236 $ 4,649,989 $ 4,440,831
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.79 $ 0.70 $ 1.58 $ 1.49
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.78 $ 0.69 $ 1.56 $ 1.47
=========== =========== =========== ===========
DIVIDENDS PER SHARE $ 0.46 $ 0.40 $ 0.92 $ 0.80
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
SIX MONTHS ENDED JUNE 30,
----------------------------
2005 2004
------------ ------------
(UNAUDITED) (UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,649,989 $ 4,440,831
Adjustments to reconcile net cash
from operating activities:
Depreciation 489,096 504,858
Increase in cash surrender value of insurance (209,714) (221,142)
Net amortization/accretion of
premiums and discounts 441,694 519,229
Investment security gains (120,744) (249,840)
Provision for loan losses 600,000 250,000
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets 1,160,272 304,602
Accrued interest and other liabilities (398,746) 418,145
------------ ------------
NET CASH FROM OPERATING ACTIVITIES 6,611,847 5,966,683
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit (100,000) (100,000)
Proceeds from maturity of certificates
of deposit 100,000 100,000
Proceeds from sales of securities
available for sale -- 23,266,581
Proceeds from maturities of securities
available for sale 16,156,449 14,818,358
Purchase of securities available for sale (31,804,190) (55,448,853)
Net repayments from (loans to) customers 7,787,133 (13,590,945)
Purchases of premises and equipment (273,095) (184,456)
Proceeds from sales of Federal Home Loan Bank stock 2,916,500 2,407,400
Purchase of Federal Home Loan Bank stock (2,327,400) (3,120,900)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (7,544,603) (31,852,815)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (9,028,586) 20,237,971
Net increase in securities sold
under repurchase agreements 9,466,613 3,634,689
Dividends paid (2,719,017) (2,382,124)
Proceeds from FHLB advances -- 8,000,000
Repayment of FHLB advances (666,919) (385,101)
Federal funds purchased 4,612,000 7,000
Exercised stock options (138,193) (302,128)
Purchase of treasury stock -- (772,917)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES 1,525,898 28,037,390
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 593,142 2,151,258
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,187,171 15,828,695
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,780,313 $ 17,979,953
============ ============
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 JUNE 30, 2005
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 six months ended June 30, 2005 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2005 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, 2004.
NOTE B - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. The weighted average shares outstanding was 2,955,455 for
the three and six months ended June 30, 2005 and 2,977,115 and 2,977,385 for the
three and six months ended June 30, 2004.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 30, 2005 and 2004
were $3,269,977 and ($1,585,523), respectively and for the six months ended June
30, 2005 and 2004 were $4,349,763 and $1,593,324, respectively.
NOTE D - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
JUNE 30, 2005
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 84,870,344 $ 92,407 $ (225,258) $ 84,737,493
Obligations of State and
political sub-divisions 51,037,366 1,659,740 (258,289) 52,438,817
Mortgage-backed securities 60,843,937 266,842 (545,493) 60,565,286
Other securities 193,201 -- (1) 193,200
Equity securities 7,764,789 397,600 (17,065) 8,145,324
------------- ------------- ------------- -------------
$ 204,709,637 $ 2,416,589 $ (1,046,106) $ 206,080,120
============= ============= ============= =============
4
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 include changes
in interest rates, risks associated with the effect of opening new branches, the
ability to control costs and expenses, and general economic conditions. IBT
Bancorp, Inc. undertakes no obligation to update those forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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.
FINANCIAL CONDITION
At June 30, 2005 total assets increased $5.3 million to $681.2 million
from $675.9 million at December 31, 2004. Asset growth was primarily due to
increases of $14.9 million in securities available for sale and a net increase
of $600,000 in cash and cash equivalents offset by decreases in net loans of
$8.4 million, other assets of $900,000, and Federal Home Loan Bank stock of
$600,000.
Securities available for sale reached $206.1 million, at June 30, 2005,
from $191.2 million at December 31, 2004. This change is primarily attributed to
a net increase is U.S. Government agencies and obligations of state and
political sub-divisions of $13.6 million and $6.0 million, respectively, offset
by a net decrease in mortgage-backed securities of $4.4 million.
Net loans decreased $8.4 million to $428.1 million at June 30, 2005
from $436.5 million at December 31, 2004. The net decreases were primarily in
real estate secured mortgage, lines of credit, and commercial loans, which
dropped $6.1 million, $1.3 million, and $2.5 million, respectively, offset by an
increase in consumer installment loans of $2.6 million. The decrease in real
estate secured loans is attributed to loan pay-offs from two large commercial
borrowers in the first quarter.
At June 30, 2005, total liabilities increased $3.8 million to $619.8
million from $616.0 million at December 31, 2004. This increase was primarily
due to an increase in repurchase agreements and federal funds purchased of $9.5
million and $4.6 million, respectively. Offsetting this increase was a decrease
in total deposits and FHLB advances of $9.0 million and $700,000, respectively.
Repurchase agreements increased to $24.6 million at June 30, 2005,
from $15.2 million at December 31, 2004. This increase is attributed to new
agreements with current deposit customers and
5
customers with existing repurchase agreements maintaining higher balances. The
Company offers its corporate customers sweep accounts where unused deposit
balances are swept into an overnight repurchase agreement yielding market rates.
Interest-bearing deposits decreased to $437.0 million at June 30, 2005,
from $439.0 million at December 31, 2004. The decrease of $2.0 million was
primarily due to a $11.2 million decrease in certificate of deposit accounts,
which was attributed to expected deposit reductions of local municipalities and
school districts. This decrease was partially offset by increases in money
market and interest-bearing checking accounts of $3.7 million and $3.2 million,
respectively. The growth in these accounts is attributed to new product
offerings.
Non-interest bearing deposit accounts decreased to $80.2 million at
June 30, 2005, from $87.2 million at December 31, 2004. The decrease of $7.0
million is attributed to deposits being put into repurchase agreements and
normal fluctuations, which arise due to the timing of month-end pension and
social security deposits.
At June 30, 2005 total stockholders' equity increased $1.5 million to
$61.3 million from $59.8 million at December 31, 2004. The increase was
primarily due to net income of $4.6 million offset by dividends paid of $2.8
million and a decrease in accumulated other comprehensive income (net of
deferred income taxes) of $300,000. Accumulated other comprehensive income
decreased as a result of changes in the net unrealized gains/losses 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 C to the consolidated financial
statements.
RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended June 30, 2005
increased $238,000, or 11.4%, to $2,326,000, or $.78 diluted earnings per share
from $2,088,000, or $.69 diluted earnings per share, for the comparable three
month period in 2004. Net income for the six months ended June 30, 2005
increased $209,000, or 4.7%, to $4,650,000, or $1.56 diluted earnings per share
from $4,441,000, or $1.47 diluted earnings per share, for the comparable six
month period in 2004. The increase for the three and six months ended June 30,
2005 was primarily the result of increases in net interest income and other
income offset by an increase in the provision for loan loss and other expenses.
INTEREST INCOME. Interest income for the three months ended June 30,
2005 increased $442,000 to $8,814,000 from $8,372,000 for the comparable three
month period in 2004. The change in interest income was attributed to the
increase in the average balance of interest earning assets of $17.8 million for
the three months ended June 30, 2005, to $638.2 million from $620.4 million for
the comparable period in 2004 coupled with the yield on these assets increasing
13 basis points for the three months ended June 30, 2005, to 5.52% from 5.39%
for the comparable period in 2004. Interest income for the six months ended June
30, 2005 increased $869,000 to $17,552,000 from $16,683,000 for the comparable
six month period in 2004. This change was supported by an increase in the
average balance of interest earning assets which rose $25.8 million to $636.2
million for the six months ended June 30, 2005, from $610.4 for the comparable
period in 2004. The yield on the interest earning assets increased
6
5 basis points to 5.52% for the six months ended June 30, 2005, from 5.47% for
the comparable period in 2004. Although a flattening yield curve and rising
short-term rates have continued to put pressure on net interest margins, the
Company's asset yields have recently benefited from increases in the prime rate.
See "Average Balance Sheet and Rate/Volume Analysis"
INTEREST EXPENSE. Interest expense for the three months ended June 30, 2005
increased $402,000 to $3,280,000 from $2,878,000 for the comparable period in
2004. The change in interest expense was primarily attributed to an increase of
$22.0 million in the average balance of interest-bearing liabilities to $530.4
million from $508.4 million and a 21 basis point increase in the average cost of
funds to 2.47% for the three months ended June 30, 2005 from 2.26% for the
comparable period in 2004. Interest expense for the six months ended June 30,
2005 increased $677,000 to $6,407,000 and the yield increased 13 basis points to
2.42% from 2.29% for the comparable period in 2004. See "Average Balance Sheet
and Rate/Volume Analysis"
7
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 June 30, Three Months Ended June 30,
--------------------------- ---------------------------
2005 2004
--------------------------- ---------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $ 433,151 $ 6,681 6.17% $ 429,003 $ 6,545 6.10%
Investment securities
available for sale (2) 200,313 2,098 4.19% 191,366 1,827 3.82%
Federal funds sold 4,712 35 2.99% 63 -- 0.96%
--------- -------- ------ --------- -------- ------
Total interest earning assets $ 638,176 $ 8,814 5.52% $ 620,432 $ 8,372 5.39%
Non-interest earning assets (3) 39,079 34,207
--------- ---------
Total assets $ 677,255 $ 654,639
========= =========
Interest-bearing liabilities:
Money market accounts $ 63,995 $ 258 1.61% $ 58,003 $ 121 0.83%
Certificates of Deposit 243,864 1,977 3.24% 242,657 1,855 3.06%
Other liabilities (4) 222,631 1,045 1.88% 207,697 902 1.74%
--------- -------- ------ --------- -------- ------
Total interest-bearing
liabilities $ 530,490 $ 3,280 2.47% $ 508,357 $ 2,878 2.26%
-------- ------ -------- ------
Non-interest-bearing liabilities(3) 87,194 84,628
--------- ---------
Total liabilities $ 617,684 $ 592,985
Stockholders' equity (5) 59,571 61,654
--------- ---------
Total liabilities and
stockholders' equity $ 677,255 $ 654,639
========= =========
Net interest income $ 5,534 $ 5,494
======== ========
Interest rate spread (6) 3.05% 3.13%
====== ======
Net interest margin (7) 3.47% 3.54%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 120.30% 122.05%
====== ======
- ---------------------------------------
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes investment securities, interest-bearing deposits in other
financial institutions and FHLB stock.
(3) Includes net deferred income taxes in excess of deferred tax benefits on
AFS securities (SFAS 115), stock options (SFAS 123/148) and deferred fees
(SFAS 109).
(4) Includes FHLB advances and Federal funds purchased, and repurchase
agreements.
(5) Includes capital stock, surplus and unrealized holding gains on SFAS 115
AFS securities.
(6) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(7) Net interest margin represents 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.
Six Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2005 2004
--------------------------- ---------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $ 434,628 $ 13,405 6.17% $ 425,543 $ 13,135 6.17%
Investment securities
available for sale (2) 198,489 4,104 4.13% 184,794 3,546 3.84%
Federal funds sold 3,127 43 2.78% 47 1 2.58%
--------- -------- ------ --------- -------- ------
Total interest earning assets $ 636,244 $ 17,552 5.52% $ 610,384 $ 16,682 5.47%
Non-interest earning assets (3) 41,035 35,124
--------- ---------
Total assets $ 677,279 $ 645,508
========= =========
Interest-bearing liabilities:
Money market accounts $ 63,099 $ 471 1.49% $ 57,250 $ 239 0.83%
Certificates of Deposit 246,528 3,909 3.17% 240,896 3,712 3.08%
Other liabilities (4) 219,559 2,027 1.85% 202,558 1,779 1.76%
--------- -------- ------ --------- -------- ------
Total interest-bearing
liabilities $ 529,186 $ 6,407 2.42% $ 500,704 $ 5,730 2.29%
-------- ------ -------- ------
Non-interest-bearing liabilities(3) 86,759 82,913
--------- ---------
Total liabilities $ 615,945 $ 583,617
Stockholders' equity (5) 61,334 61,891
--------- ---------
Total liabilities and
stockholders' equity $ 677,279 $ 645,508
========= =========
Net interest income $ 11,145 $ 10,952
======== ========
Interest rate spread (6) 3.10% 3.18%
====== ======
Net interest margin (7) 3.50% 3.59%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 120.23% 121.91%
====== ======
_________________
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes investment securities, interest-bearing deposits in other
financial institutions and FHLB stock.
(3) Includes net deferred income taxes in excess of deferred tax benefits on
AFS securities (SFAS 115), stock options (SFAS 123/148) and deferred fees
(SFAS 109).
(4) Includes FHLB advances and Federal funds purchased, and repurchase
agreements.
(5) Includes capital stock, surplus and unrealized holding gains on SFAS 115
AFS securities.
(6) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(7) Net interest margin represents 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 June 30, 2005 Six Month Period ended June 30, 2005
-------------------------------------- ------------------------------------
2005 vs. 2004 2005 vs. 2004
------------- -------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------ ------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars In Thousands) (Dollars In Thousands)
Interest income:
Loans receivable $ 63 $ 73 $136 $ 280 $ (10) $ 27
Investment securities available
for sale 85 186 271 263 295 55
Other interest-earning assets -- 35 35 65 (23) 4
---- ----- --- ------ ------- -----
Total interest-earning assets $148 $ 294 $442 $ 608 $ 262 $ 87
==== ===== ==== ====== ======= =====
Interest expense:
Money market accounts $ 13 $ 124 $137 $ 25 $ 207 $ 23
Certificates of deposit 9 113 122 87 110 19
Other liabilities 64 79 143 149 99 24
---- ----- ---- ------ ------- -----
Total interest-bearing liabilities $ 86 $ 316 $402 $ 261 $ 416 $ (69)
==== ===== ==== ====== ======= =====
Net change in net interest income $ 62 $ (22) $ 40 $ 347 $ (154) $ 19
==== ===== ==== ====== ======= =====
PROVISION FOR LOAN LOSSES. For the three and six months ended June 30,
2005 the provision for loan losses was $300,000 and $600,000, respectively,
compared to $125,000 and $250,000 for the comparable 2004 periods. The
methodology used to calculate the adequacy of the loan loss reserve indicated
that an increase in the provision for loan losses would be prudent.
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level that represents management's best
estimate of the losses inherent in the portfolio, based on a monthly review by
management of the following factors:
10
o Historical experience
o Volume
o Type of lending conducted by the Bank
o Industry standards
o The level and status of past due and non-performing loans
o The general economic conditions in the Bank's lending area; and
o Other factors affecting the collectability of the loans in the
portfolio
Large groups of homogeneous loans, such as residential real estate,
small commercial real estate loans and home equity and consumer loans are
evaluated in the aggregate using historical loss factors and other data. The
amount of loss reserve is calculated using historical loss rates, net of
recoveries on a five year rolling weighted average, adjusted for environmental,
and other qualitative factors such as industry, geographical, economic and
political factors that can effect loss rates or loss measurements. Watch and
classified loans are allocated additional reserves.
Large balance and/or more complex loans such as multi-family and
commercial real estate loans may be evaluated on an individual basis and are
also evaluated in the aggregate to determine adequate reserves. As specific
loans are determined to be impaired, specific reserves are assigned based upon
collateral value, market value, if determinable, or the present value of the
estimated future cash flows of the loan.
The allowance is increased by a provision for loan loss which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on non-accrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
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 losses will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.
OTHER INCOME. Total other income for the three months ended June 30,
2005 increased $441,000 to $1,778,000 from $1,337,000 for the comparable three
month period in 2004. Total other income for the six months ended June 30, 2005
increased $717,000 to $3,402,000 from $2,685,000 for the comparable six month
period in 2004. The increase in other income for the three and six months ended
June 30, 2005 was primarily due to increases in service fees of $293,000 and
$590,000, respectively, from the comparable period in 2004. This change was
primarily due to increased fees collected on deposit accounts. A one-time gain
recorded from the sale of property classified as other real estate, included in
other income, of $231,000 was also recorded in the three months ended June 30,
2005. The increases for the three and six months ended June 30, 2005 were offset
by decreases in security gains of $26,000 and $129,000, respectively, from the
comparable period in 2004. The change in security gains was due to the sale of
select securities in 2004, that were expected to be called, taking advantage of
the steep yield curve and reducing maturity concentrations.
11
OTHER EXPENSES. Total other expense for the three month period ended
June 30, 2005 increased $196,000 to $4,064,000 from $3,868,000 for the
comparable three month period in 2004. Total other expenses for the six month
period ended June 30, 2005 increased $257,000 to $7,774,000 from $7,517,000.
Salaries costs increased $111,000 and $189,000 for the three and six month
periods ended June 30, 2005, respectively, from the comparable period in 2004
due to merit increases and additions to staff. Pensions and other employee
benefits expense decreased $38,000 and $36,000 for the three and six months
ended June 30, 2005, respectively, due to one-time cost savings resulting from
the transition to a new health insurance program. Increases in other expenses
for the three and six months ended June 30, 2005 were due to bank growth and
normal increases in the cost of doing business.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
for the quarter ended June 30, 2005 was $622,000, a $128,000 decline from the
prior year. The decrease in tax expense was due to a lower effective tax rate
during the 2005 period, which is primarily attributed to an increase in
tax-exempt interest income. The effective tax rates for the quarters ended June
30, 2005 and 2004 were 21.1% and 26.4%, respectively. For the six months ended
June 30, 2005, the Company's provision for income taxes was $1.5 million
compared to $1.4 million in the first half of 2004. The Company's effective tax
rates for the six months ended June 30, 2005 and 2004 were 24.7% and 24.4%,
respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and six months ended
June 30, 2005 from the information presented in the 10K statement, under the
caption Market Risk, for the year ended December 31, 2004.
ITEM 4. 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 party to any material legal proceedings at the
present time. From time to time, the Bank is a party to routine 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) UNREGISTERED SALES OF EQUITY SECURITIES. Not Applicable
(b) USE OF PROCEEDS. Not Applicable
(c) ISSUER PURCHASES OF EQUITY SECURITIES. Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 19, 2005, the Company held its annual meeting of shareholders
at which the following matters were voted on.
(1) Election of Directors
NOMINEE FOR WITHHELD
------- --- --------
Thomas E. Deger 2,364,549 26,551
Charles W. Hergenroeder 2,329,064 62,036
Richard L. Ryan 2,365,013 26,087
Robert C. Whisner 2,342,982 48,118
There were no abstentions or broker non-votes in the election of
directors.
(2) Ratification of Auditors
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
2,323,649 57,124 - -
13
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
The following exhibits are either filed with or incorporated by
reference in this Quarterly Report on Form 10-Q:
3(i) Articles of Incorporation of IBT Bancorp, Inc.*
3(ii) Amended Bylaws of IBT Bancorp, Inc.**
4 Rights Agreement, dated as of November 18, 2003, by and
between IBT Bancorp, Inc. and Registrar and Transfer
Company, as Rights Agent.***
10 Change In Control Severance Agreement with Charles G.
Urtin ****
10.1 Deferred Compensation Plan For Bank Directors****
10.2 Death Benefit Only Deferred Compensation Plan For Bank
Directors effective as of January 1, 1990****
10.3 Retirement and Death Benefit Deferred Compensation Plan For
Bank Directors effective as of January 1, 1990****
10.4 2000 Stock Option Plan*****
10.5 Irwin Bank & Trust Company Supplemental Pension 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)
filed April 29, 1999.
** Incorporated by reference to the identically numbered
exhibit of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002.
*** Incorporated by reference to Exhibit 4 to Amendment No. 1
to Form 8-A (File No. 1-31655) filed November 20, 2003.
**** Incorporated by reference to the identically numbered
exhibits of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.
***** Incorporated by reference to Exhibit 4.1 the Registrant's
Registration Statement on Form S-8 (File No. 333-40398)
filed June 29, 2000.
****** Incorporated by reference to identically numbered exhibit
to Registrant's Annual Report on Form 10-K for fiscal year
ended December 31, 2004.
14
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: August 8, 2005 By: /s/ Charles G. Urtin
---------------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: August 8, 2005 By: /s/ Raymond G. Suchta
---------------------------------------
Raymond G. Suchta
Chief Financial Officer
(Principal Financial Officer)
15