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, 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
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Number of shares of Common Stock outstanding as of November 2, 2005: 2,955,455
IBT BANCORP, INC.
CONTENTS
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Pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................................................... 1
Consolidated balance sheets at September 30, 2005
(unaudited) and December 31, 2004.............................................................. 1
Consolidated statements of income (unaudited) for the three and nine months
ended September 30, 2005 and 2004 ............................................................. 2
Consolidated statements of cash flows (unaudited) for the nine months
ended September 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
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
Cash and due from banks $ 20,899,656 $ 14,641,942
Interest-bearing deposits in banks 362,672 515,229
Federal funds sold 7,850,000 1,030,000
Certificates of deposit 100,000 100,000
Securities available for sale 200,284,720 191,208,214
Federal Home Loan Bank stock, at cost 4,913,600 5,682,700
Loans, net 435,889,699 436,548,276
Premises and equipment, net 5,792,600 6,232,280
Other assets 18,549,698 19,898,464
------------- -------------
TOTAL ASSETS $ 694,642,645 $ 675,857,105
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 83,712,640 $ 87,248,485
Interest-bearing 436,706,117 438,968,463
------------- -------------
Total deposits 520,418,757 526,216,948
Repurchase agreements 38,686,130 15,157,257
Accrued interest and other liabilities 4,551,600 4,374,824
FHLB advances 69,059,053 70,265,314
------------- -------------
Total liabilities 632,715,540 616,014,343
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 September 30, 2005
and December 31, 2004 3,779,749 3,779,749
Surplus 1,292,109 1,417,755
Retained earnings 58,399,616 55,789,915
Accumulated other comprehensive income 805,032 1,204,744
------------- -------------
64,276,506 62,192,163
Less: Treasury stock, at cost (2,349,401) (2,349,401)
------------- -------------
Total stockholders' equity 61,927,105 59,842,762
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 694,642,645 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
INTEREST INCOME
Loans, including fees $ 6,861,046 $ 6,530,267 $ 20,266,273 $ 19,665,680
Investment securities 2,151,776 1,867,440 6,255,500 5,414,001
Federal funds sold 3,623 3,665 47,047 4,275
------------ ------------ ------------ ------------
Total interest income 9,016,445 8,401,372 26,568,820 25,083,956
INTEREST EXPENSE
Deposits 2,557,335 2,195,734 7,294,130 6,430,078
FHLB advances 739,228 712,164 2,203,141 2,110,718
Repurchase agreements 185,381 46,915 372,667 92,955
Federal funds purchased 34,230 14,884 53,286 66,178
------------ ------------ ------------ ------------
Total interest expense 3,516,174 2,969,697 9,923,224 8,699,929
------------ ------------ ------------ ------------
NET INTEREST INCOME 5,500,271 5,431,675 16,645,596 16,384,027
PROVISION FOR LOAN LOSSES 300,000 40,000 900,000 290,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,200,271 5,391,675 15,745,596 16,094,027
OTHER INCOME (LOSSES)
Service fees 928,807 646,690 2,679,164 1,806,403
Investment security gains 153,523 19,870 274,267 269,710
Investment security losses (138,078) (19,287) (138,078) (19,287)
Debit card fees 197,593 178,638 573,314 488,239
Other income 496,626 444,000 1,652,095 1,409,840
------------ ------------ ------------ ------------
Total other income 1,638,471 1,269,911 5,040,762 3,954,905
OTHER EXPENSES
Salaries 1,678,864 1,407,306 4,747,643 4,287,579
Pension and other employee benefits 451,584 426,753 1,352,741 1,363,631
Occupancy expense 442,386 441,356 1,312,592 1,310,691
Data processing expense 256,274 230,167 734,002 673,200
Pennsylvania shares tax 142,928 123,791 417,499 373,011
Advertising expense 100,487 73,977 261,662 224,110
Other expenses 1,062,052 1,011,257 3,082,607 2,999,842
------------ ------------ ------------ ------------
Total other expenses 4,134,575 3,714,607 11,908,746 11,232,064
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,704,167 2,946,979 8,877,612 8,816,868
PROVISION FOR INCOME TAXES 665,927 785,605 2,189,382 2,214,665
------------ ------------ ------------ ------------
NET INCOME $ 2,038,240 $ 2,161,374 $ 6,688,230 $ 6,602,203
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.69 $ 0.73 $ 2.26 $ 2.23
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.68 $ 0.72 $ 2.24 $ 2.20
============ ============ ============ ============
DIVIDENDS PER SHARE $ 0.46 $ 0.40 $ 1.38 $ 1.20
============ ============ ============ ============
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,
-------------------------------
2005 2004
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,688,230 $ 6,602,203
Adjustments to reconcile net cash
from operating activities:
Depreciation 733,644 757,287
Increase in cash surrender value of insurance (318,708) (330,879)
Net amortization/accretion of
premiums and discounts 660,446 808,761
Investment security gains (136,190) (250,423)
Provision for loan losses 900,000 290,000
Stock options granted 59,142 59,142
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets 1,761,854 1,065,180
Accrued interest and other liabilities 382,687 (208,202)
------------ ------------
NET CASH FROM OPERATING ACTIVITIES 10,731,105 8,793,069
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 9,728,425 34,485,026
Proceeds from maturities of securities
available for sale 23,121,520 19,762,750
Purchase of securities available for sale (43,056,330) (87,136,043)
Net loans made to customers (335,803) (17,645,010)
Purchases of premises and equipment (293,964) (443,540)
Proceeds from sales of Federal Home Loan Bank stock 4,250,100 2,407,400
Purchase of Federal Home Loan Bank stock (3,481,000) (3,551,100)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (10,067,052) (52,120,517)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (5,798,191) 20,532,042
Net increase in securities sold
under repurchase agreements 23,528,873 12,071,465
Dividends paid (4,078,529) (3,564,306)
Proceeds from FHLB advances -- 28,000,000
Repayment of FHLB advances (1,206,261) (10,646,137)
Federal funds purchased -- (2,988,000)
Exercised stock options (184,788) (315,136)
Purchase of treasury stock -- (1,006,135)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES 12,261,104 42,083,793
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 12,925,157 (1,243,655)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,187,171 15,828,695
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,112,328 $ 14,585,040
============ ============
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, 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 and 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, 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 consolidated 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 nine months ended September 30, 2005 and 2,977,115 and 2,977,385
for the three and nine months ended September 30, 2004.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 30, 2005 and
2004 were $1,938,754 and $4,256,054, respectively and for the nine months ended
September 30, 2005 and 2004 were $6,288,518 and $5,849,377, respectively.
NOTE D - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
SEPTEMBER 30, 2005
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 80,738,938 $ 49,690 $ (486,039) $ 80,302,589
Obligations of State and
political sub-divisions 52,110,335 1,864,872 (72,383) 53,902,824
Mortgage-backed securities 58,256,442 195,514 (772,321) 57,679,635
Other securities 194,471 -- (1) 194,470
Equity securities 7,764,789 500,000 (59,587) 8,205,202
------------- ------------- ------------- -------------
$ 199,064,975 $ 2,610,076 $ (1,390,331) $ 200,284,720
============= ============= ============= =============
4
ITEM 2. 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", "intends" 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 and
trust 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 September 30, 2005 total assets increased $18.7 million to $694.6
million from $675.9 million at December 31, 2004. Asset growth was primarily due
to net increases of $13.0 million in cash and cash equivalents and $9.1 million
in securities available for sale offset by net decreases of $1.4 million in
other assets, $769,000 in Federal Home Loan Bank stock, and net loans of
$658,000.
Securities available for sale reached $200.3 million, at September 30,
2005, from $191.2 million at December 31, 2004. This change is primarily
attributed to net increases in U.S. Government agencies and obligations of state
and political sub-divisions of $9.2 million and $7.5 million, respectively,
offset by a net decrease in mortgage-backed securities of $7.3 million. During
the quarter, the Company sold low yielding U.S. Government agencies and
mortgage-backed security pools, owned at a premium, of $4.0 million and $3.3
million, respectively, for a before tax loss of $138,000. The loss was offset by
the sale of obligations of state and political sub-divisions of $2.4 million for
a before tax gain of $154,000. The net yield the Company was earning on the
investments sold was 4.41%. The Company reinvested in a combination of
mortgage-backed securities, purchased at a discount, and obligations of state
and political sub-divisions with an average combined yield of 5.30%. The
improvement in the yield combined with the call protection of the discounted
mortgage-backed securities is intended to improve the structure and overall
balance of the investment portfolio.
Net loans decreased $658,000 to $435.9 million at September 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 declined
$2.3 million, $2.5 million, and $4.2 million, respectively, offset by increases
in consumer installment loans and municipal loans of $7.3 million and $2.7
million, respectively. The decrease in real estate secured loans and commercial
loans is attributed to loan pay-
5
offs from two large commercial borrowers in the first quarter.
At September 30, 2005, total liabilities increased $16.7 million to $632.7
million from $616.0 million at December 31, 2004. This increase was primarily
due to an increase in repurchase agreements of $23.5 million. Offsetting this
increase were decreases in total deposits and FHLB advances of $5.8 million and
$1.2 million, respectively.
Repurchase agreements increased to $38.7 million at September 30, 2005,
from $15.2 million at December 31, 2004. This increase is attributed to new
agreements with current deposit customers and customers with existing repurchase
agreements temporarily maintaining higher balances. The higher balances were a
result, in part, to tax collections during the period, which were subsequently
transferred out of the Company. 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 $436.7 million at September 30,
2005, from $439.0 million at December 31, 2004. The decrease of $2.3 million was
primarily due to decreases in certificate of deposit and savings accounts of
$7.0 million and $3.2 million, respectively. The change in time deposits 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 $5.8 million and $2.0 million,
respectively. The growth in these accounts is attributed to new product
offerings.
Non-interest bearing deposit accounts decreased to $83.7 million at
September 30, 2005, from $87.2 million at December 31, 2004. The decrease of
$3.5 million is attributed to deposits being swept into repurchase agreements.
At September 30, 2005 total stockholders' equity increased $2.1 million to
$61.9 million from $59.8 million at December 31, 2004. The increase was
primarily due to net income of $6.7 million offset by dividends paid of $4.1
million and a decrease in accumulated other comprehensive income (net of
deferred income taxes) of $400,000. 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 D to the consolidated financial
statements.
RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended September 30, 2005
decreased $123,000, or 5.7%, to $2,038,000, or $.68 diluted earnings per share,
from $2,161,000, or $.72 diluted earnings per share, for the comparable three
month period in 2004. Net income for the nine months ended September 30, 2005
increased $86,000, or 1.3%, to $6,688,000, or $2.24 diluted earnings per share
from $6,602,000, or $2.20 diluted earnings per share, for the comparable nine
month period in 2004. The decrease for the three months ended September 30, 2005
was due to increases in other expenses and the provision for loan losses, which
offset improvements in net interest income and other income. The increase for
the nine months ended September 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.
6
INTEREST INCOME. Interest income for the three months ended September 30,
2005 increased $615,000 to $9,016,000 from $8,401,000 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 $16.8 million for
the three months ended September 30, 2005, to $645.2 million from $628.4 million
for the comparable period in 2004 coupled with the yield on these assets
increasing 24 basis points for the three months ended September 30, 2005, to
5.59% from 5.35% for the comparable period in 2004. Interest income for the nine
months ended September 30, 2005 increased $1,485,000 to $26,569,000 from
$25,084,000 for the comparable nine month period in 2004. This change was
supported by an increase in the average balance of interest earning assets,
which rose $24.6 million to $640.2 million for the nine months ended September
30, 2005, from $615.6 million for the comparable period in 2004. The yield on
the interest earning assets increased 10 basis points to 5.53% for the nine
months ended September 30, 2005, from 5.43% 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 benefited
from increases in the prime rate. See "Average Balance Sheet and Rate/Volume
Analysis"
INTEREST EXPENSE. Interest expense for the three months ended September 30,
2005 increased $546,000 to $3,516,000 from $2,970,000 for the comparable period
in 2004. The change in interest expense was primarily attributed to an increase
of $11.3 million in the average balance of interest-bearing liabilities to
$534.6 million from $523.3 million and a 36 basis point increase in the average
cost of funds to 2.63% for the three months ended September 30, 2005 from 2.27%
for the comparable period in 2004. Interest expense for the nine months ended
September 30, 2005 increased $1,223,000 to $9,923,000 from $8,700,000 for the
comparable period in 2004. The change in interest expense was primarily
attributed to an increase of $22.7 million in the average balance of
interest-bearing liabilities to $531.0 million from $508.3 million and a 21
basis point increase in the average cost of funds to 2.49% for the nine months
ended September 30, 2005 from 2.28% 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 September 30, Three Months Ended September 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) $ 435,943 $ 6,861 6.30% $ 433,240 $ 6,530 6.03%
Investment securities
available for sale (2) 208,708 2,152 4.12% 194,088 1,868 3.85%
Federal funds sold 499 3 2.75% 1,054 4 1.39%
--------- -------- ------ --------- -------- ------
Total interest earning assets $ 645,150 $ 9,016 5.59% $ 628,382 $ 8,402 5.35%
Non-interest earning assets (3) 36,452 37,532
--------- ---------
Total assets $ 681,602 $ 665,914
========= =========
Interest-bearing liabilities:
Money market accounts $ 64,047 $ 296 1.85% $ 60,118 $ 129 0.86%
Certificates of Deposit 241,633 2,071 3.43% 247,358 1,915 3.10%
Other liabilities (4) 228,885 1,149 2.01% 215,831 926 1.72%
--------- -------- ------ --------- -------- ------
Total interest-bearing
liabilities $ 534,565 $ 3,516 2.63% $ 523,307 $ 2,970 2.27%
-------- ------ -------- ------
Non-interest-bearing liabilities(3) 85,590 85,738
--------- ---------
Total liabilities $ 620,155 $ 609,045
Stockholders' equity (5) 61,447 56,869
--------- ---------
Total liabilities and
stockholders' equity $ 681,602 $ 665,914
========= =========
Net interest income $ 5,500 $ 5,432
======== ========
Interest rate spread (6) 2.96% 3.08%
====== ======
Net interest margin (7) 3.41% 3.46%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 120.69% 120.08%
====== ======
- ---------------------------------------
(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.
Nine Months Ended September 30, Nine Months Ended September 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) $ 434,976 $ 20,266 6.21% $ 428,195 $ 19,666 6.12%
Investment securities
available for sale (2) 203,036 6,256 4.11% 187,008 5,414 3.86%
Federal funds sold 2,239 47 2.80% 387 4 1.347
--------- -------- ------ --------- -------- ------
Total interest earning assets $ 640,242 $ 26,569 5.53% $ 615,590 $ 25,084 5.43%
Non-interest earning assets (3) 37,938 36,149
--------- ---------
Total assets $ 678,180 $ 651,739
========= =========
Interest-bearing liabilities:
Money market accounts $ 63,421 $ 767 1.61% $ 58,213 $ 368 0.84%
Certificates of Deposit 244,862 5,980 3.26% 243,057 5,627 3.09%
Other liabilities (4) 222,713 3,176 1.90% 207,001 2,705 1.74%
--------- -------- ------ --------- -------- ------
Total interest-bearing
liabilities $ 530,996 $ 9,923 2.49% $ 508,271 $ 8,700 2.28%
-------- ------ -------- ------
Non-interest-bearing liabilities(3) 86,030 83,673
--------- ---------
Total liabilities $ 617,026 $ 591,944
Stockholders' equity (5) 61,154 59,795
--------- ---------
Total liabilities and
stockholders' equity $ 678,180 $ 651,739
========= =========
Net interest income $ 16,646 $ 16,384
======== ========
Interest rate spread (6) 3.04% 3.15%
====== ======
Net interest margin (7) 3.47% 3.55%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 120.57% 121.11%
====== ======
(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 Sept 30, 2005 Nine Month Period ended Sept 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 $ 41 $ 290 $331 $ 311 $ 289 $ 600
Investment securities available
for sale 141 143 284 464 378 842
Other interest-earning assets (3) 2 (1) 19 24 43
---- ----- --- ------ ------- ------
Total interest-earning assets $179 $ 435 $614 $ 794 $ 691 $1,485
==== ===== ==== ====== ======= ======
Interest expense:
Money market accounts $ 9 $ 158 $167 $ 34 $ 365 $ 399
Certificates of deposit (44) 200 156 41 312 353
Other liabilities 56 167 223 205 266 471
---- ----- ---- ------ ------- ------
Total interest-bearing liabilities $ 21 $ 525 $546 $ 280 $ 943 $1,223
==== ===== ==== ====== ======= ======
Net change in net interest income $158 $ (90) $ 68 $ 514 $ (252) $ 262
==== ===== ==== ====== ======= ======
PROVISION FOR LOAN LOSSES. For the three and nine months ended
September 30, 2005 the provision for loan losses was $300,000 and $900,000,
respectively, compared to $40,000 and $290,000 for the comparable 2004 periods.
The increase in the loan loss provision reflects the historical loss experience
and recognition of the risk elements within the loan portfolio.
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:
o Historical experience
o Volume
o Type of lending conducted by the Bank
10
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 September 30,
2005 increased $368,000 to $1,638,000 from $1,270,000 for the comparable three
month period in 2004. Total other income for the nine months ended September 30,
2005 increased $1,086,000 to $5,041,000 from $3,955,000 for the comparable nine
month period in 2004. The increase in other income for the three and nine months
ended September 30, 2005 was primarily due to increases in service fees of
$282,000 and $873,000, respectively, from the comparable period in 2004. This
change was primarily due to increased fees collected on deposit accounts.
Investment security gains increased $134,000 for the three months ended
September 30, 2005 from the comparable period in 2004, offset by an increase in
investment security losses of $119,000. 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 nine months ended September 30, 2005.
OTHER EXPENSES. Total other expense for the three month period ended
September 30, 2005 increased $420,000 to $4,135,000 from $3,715,000 for the
comparable three month period in 2004. Total other expenses for the nine month
period ended September 30, 2005 increased $677,000 to $11,909,000 from
$11,232,000. Salaries costs increased $272,000 and $460,000 for the three and
nine month periods ended September 30, 2005, respectively, from the comparable
period in 2004 due to
11
increased staffing costs. Increases in other expenses for the three and nine
months ended September 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 September 30, 2005 was $666,000, a $120,000 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
September 30, 2005 and 2004 were 24.6% and 26.7%, respectively. For the nine
months ended September 30, 2005, the Company's provision for income taxes was
$2,189,000 compared to $2,215,000 for the 2004 period. The Company's effective
tax rates for the nine months ended September 30, 2005 and 2004 were 24.7% and
25.1%, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and nine months ended
September 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
Not applicable
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****
13
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: November 7, 2005 By: /s/ Charles G. Urtin
----------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: November 7, 2005 By: /s/ Raymond G. Suchta
----------------------------------
Raymond G. Suchta
Chief Financial Officer
(Principal Financial Officer)
15