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, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
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 August 03, 2006: 2,941,920
IBT BANCORP, INC.
Contents
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Pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................................. 2
Consolidated balance sheets (unaudited) at June 30, 2006
and December 31, 2005............................................................ 2
Consolidated statements of income (unaudited) for the three and six months
ended June 30, 2006 and 2005 .................................................... 3
Consolidated statements of cash flows (unaudited) for the six months
ended June 30, 2006 and 2005..................................................... 4
Notes to consolidated financial statements....................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................... 14
Item 4. Controls and Procedures.......................................................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 15
Item 1A. Risk Factors..................................................................... 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................... 15
Item 3. Defaults upon Senior Securities.................................................. 16
Item 4. Submission of Matters to a Vote of Security-Holders.............................. 16
Item 5. Other Information................................................................ 16
Item 6. Exhibits......................................................................... 16
Signatures....................................................................................... 18
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
June 30, 2006 December 31, 2005
------------- -----------------
(unaudited) (unaudited)
------------- -------------
ASSETS
Cash and due from banks $ 18,549,291 $ 15,063,970
Interest-bearing deposits in banks 336,448 435,970
Federal funds sold - -
Certificates of deposit 100,000 100,000
Securities available for sale 206,003,575 195,993,449
Federal Home Loan Bank stock, at cost 5,810,400 5,469,600
Loans, net 459,119,172 442,225,344
Premises and equipment, net 5,461,487 5,624,572
Other assets 21,625,794 20,237,792
------------- -------------
Total Assets $ 717,006,167 $ 685,150,697
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 83,599,366 $ 83,846,681
Interest-bearing 451,649,235 436,639,077
------------- -------------
Total deposits 535,248,601 520,485,758
Repurchase agreements 31,384,499 18,442,703
Accrued interest and other liabilities 4,877,102 4,022,118
Federal funds purchased 7,224,000 12,468,000
FHLB advances 78,576,381 68,651,125
------------- -------------
Total liabilities 657,310,583 624,069,704
Stockholders' Equity
Capital stock, par value $1.25 per share,
50,000,000 shares authorized, 3,023,799
shares issued, 2,941,920 and 2,955,455 shares
outstanding at June 30, 2006 and
December 31, 2005, respectively 3,779,749 3,779,749
Surplus 1,267,488 1,231,444
Retained earnings 60,472,321 58,931,230
Accumulated other comprehensive income (2,930,738) (512,029)
------------- -------------
62,588,820 63,430,394
Less: Treasury stock, at cost (2,893,236) (2,349,401)
------------- -------------
Total stockholders' equity 59,695,584 61,080,993
------------- -------------
Total Liabilities and Stockholders' Equity $ 717,006,167 $ 685,150,697
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
(unaudited) (unaudited)
---------------------------- ----------------------------
Interest Income
Loans, including fees $ 7,491,597 $ 6,680,995 $ 14,706,082 $ 13,405,227
Investment securities 2,352,143 2,098,145 4,554,528 4,103,724
Federal funds sold 28,043 35,204 29,515 43,424
------------ ------------ ------------ ------------
Total interest income 9,871,783 8,814,344 19,290,125 17,552,375
Interest Expense
Deposits 3,142,129 2,419,635 6,033,230 4,736,796
FHLB advances 871,972 734,406 1,629,678 1,463,913
Repurchase agreements 345,618 122,339 523,523 187,285
Federal funds purchased 33,242 4,046 217,176 19,056
------------ ------------ ------------ ------------
Total interest expense 4,392,961 3,280,426 8,403,607 6,407,050
------------ ------------ ------------ ------------
Net Interest Income 5,478,822 5,533,918 10,886,518 11,145,325
Provision for Loan Losses 550,000 300,000 850,000 600,000
------------ ------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 4,928,822 5,233,918 10,036,518 10,545,325
Other Income (losses)
Service fees 931,800 902,136 1,803,954 1,750,357
Investment security gains 324,843 39,633 579,843 120,744
Investment security losses (57,100) - (57,100) -
Increase in cash surrender value of
life insurance 103,346 102,199 213,633 209,714
Debit card fees 211,843 200,645 408,356 375,720
Other income 343,819 533,008 754,418 945,756
------------ ------------ ------------ ------------
Total other income 1,858,551 1,777,621 3,703,104 3,402,291
Other Expenses
Salaries 1,589,739 1,661,772 3,133,369 3,068,779
Pension and other employee benefits 525,461 429,653 1,103,072 901,157
Occupancy expense 396,930 436,457 810,396 870,206
Data processing expense 273,470 241,722 540,791 477,729
Pennsylvania shares tax 164,355 142,928 315,140 274,571
Advertising expense 104,466 101,600 167,395 161,175
Other expenses 1,163,113 1,049,879 2,185,034 2,020,555
------------ ------------ ------------ ------------
Total other expenses 4,217,534 4,064,011 8,255,197 7,774,172
------------ ------------ ------------ ------------
Income Before Income Taxes 2,569,839 2,947,528 5,484,425 6,173,444
Provision for Income Taxes 384,418 621,685 988,565 1,523,455
------------ ------------ ------------ ------------
Net Income $ 2,185,421 $ 2,325,843 $ 4,495,860 $ 4,649,989
============ ============ ============ ============
Basic Earnings per Share $ 0.74 $ 0.79 $ 1.52 $ 1.58
============ ============ ============ ============
Diluted Earnings per Share $ 0.73 $ 0.78 $ 1.51 $ 1.56
============ ============ ============ ============
Dividends per Share $ 0.50 $ 0.46 $ 1.00 $ 0.92
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
----------------------------
2006 2005
------------ ------------
(unaudited)
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,495,860 $ 4,649,989
Adjustments to reconcile net cash
from operating activities:
Depreciation 408,000 489,096
Increase in cash surrender value of insurance (213,633) (209,714)
Net amortization/accretion of
premiums and discounts 214,309 441,694
Investment security gains (522,743) (120,744)
Provision for loan losses 850,000 600,000
Stock options granted 39,808 -
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets (68,073) 1,160,272
Accrued interest and other liabilities 854,984 (398,746)
------------ ------------
Net Cash From Operating Activities 6,058,512 6,611,847
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 10,273,866 -
Proceeds from maturities of securities
available for sale 10,694,738 16,156,449
Purchase of securities available for sale (34,267,874) (31,804,190)
Net (increase) decrease in loans (17,671,255) 7,787,133
Purchases of premises and equipment (244,915) (273,095)
Proceeds from sales of Federal Home Loan Bank stock 3,476,500 2,916,500
Purchase of Federal Home Loan Bank stock (3,817,300) (2,327,400)
------------ ------------
Net Cash Used By Investing Activities (31,556,240) (7,544,603)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 14,762,843 (9,028,586)
Net increase in securities sold
under repurchase agreements 12,941,796 9,466,613
Dividends paid (2,954,769) (2,719,017)
Proceeds from FHLB advances 12,000,000 -
Repayment of FHLB advances (2,074,744) (666,919)
Net (decrease) increase in federal funds purchased (5,244,000) 4,612,000
Exercised stock options (3,764) (138,193)
Purchase treasury stock (543,835) -
------------ ------------
Net Cash From Financing Activities 28,883,527 1,525,898
------------ ------------
Net Change in Cash and Cash Equivalents 3,385,799 593,142
Cash and Cash Equivalents at Beginning of Period 15,499,940 16,187,171
------------ ------------
Cash and Cash Equivalents at End of Period $ 18,885,739 $ 16,780,313
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended June 30, 2006
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 and six months ended June 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006 or any future interim period. The interim financial statements
should be read in conjunction with the financial statements and footnotes
thereto included in the IBT Bancorp, Inc. and subsidiary Annual Report on Form
10-K for the year ended December 31, 2005.
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 2,952,649 and
2,953,796 for the three and six months ended June 30, 2006 and 2,955,455 for the
three and six months ended June 30, 2005.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 30, 2006 and 2005 was
$114,638 and $3,269,976, respectively and for the six months ended June 30, 2006
and 2005 was $2,077,151 and $4,349,763, respectively.
NOTE D - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
June 30, 2006
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 83,514,188 $ - $ (2,203,037) $ 81,311,151
Obligations of States and
political sub-divisions 61,151,185 951,564 (858,395) 61,244,354
Mortgage-backed securities 61,884,232 - (2,964,741) 58,919,491
Other securities 95,287 - (3) 95,284
Equity securities 4,014,789 446,400 (27,894) 4,433,295
------------- ------------- ------------- -------------
$ 210,659,681 $ 1,397,964 $ (6,054,070) $ 206,003,575
============= ============= ============= =============
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended June 30, 2006
NOTE E - STOCK OPTION PLAN
In April 2006, an additional 40,250 stock options were granted to employees and
directors under the 2000 Stock Option Plan at an exercise price of $39.97 per
share. Compensation expense of $39,808 was recorded in the second quarter
regarding those options. As of June 30, 2006, 190,250 stock options have been
granted, of which 81,902 are vested and are exercisable as follows: 31,250 are
exercisable at $24.50 per share, 16,678 are exercisable at $23.00 per share,
20,443 are exercisable at $32.88, and 13,531 are exercisable at $52.40 per
share; 8,000 are vested and exercisable at $39.97 in October 2006, 37,019 have
not vested, 54,128 shares have been exercised and 9,201 have been forfeited.
6
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", "anticipates", "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 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 June 30, 2006 total assets increased $31.8 million to $717.0 million
from $685.2 million at December 31, 2005. Asset growth was primarily due to
increases in net loans, securities available for sale, and cash and due from
banks of $16.9 million, $10.0 million, and $3.4 million, respectively.
Net loans increased to $459.1 million at June 30, 2006 from $442.2
million at December 31, 2005. This change was primarily due to an increase in
real estate secured mortgage and commercial loans of $17.4 million and consumer
term loans of $4.7 million. Offsetting these increases was a decrease in
consumer lines of credit of $2.0 million and loans made to municipalities of
$2.5 million.
At June 30, 2006, securities available for sale increased $10.0 million
to $206.0 million from $196.0 million at December 31, 2005. This change was
primarily due to increases in obligations of states and political sub-divisions,
mortgage-backed securities, and obligations of U.S. government agencies, which
posted net increases of $6.4 million, $5.1 million, and $2.4 million,
respectively offset by a net decrease in equity securities of $3.9 million. The
Company evaluates the available-for-sale investment portfolio on an on-going
basis to maximize yield, within established risk thresholds, making purchasing
and selling decisions accordingly.
At June 30, 2006, total liabilities increased $33.2 million to $657.3
million from $624.1 million at December 31, 2005. This increase was primarily
the result of increases in interest-bearing deposits, repurchase agreements, and
FHLB advances of $15.0 million, $13.0 million, and $9.9 million, respectively
offset by a $5.2 million decrease in federal funds purchased.
Interest-bearing deposits increased to $451.6 million at June 30,
2006, from $436.6 million at December 31, 2005. The increase of $15.0 million
was primarily in certificates of
7
deposit and interest-bearing checking accounts, which increased $17.8 million
and $2.8 million, respectively. The increases were offset primarily by a
decrease in money market accounts and savings accounts of $4.3 million and $2.1
million, respectively. The interest rates offered on certificates of deposit and
the services and benefits bundled into the interest-bearing checking products
have been responsible for the overall growth in interest-bearing deposits.
Repurchase agreements increased to $31.4 million at June 30, 2006, from
$18.4 million at December 31, 2005. Growth in this account is attributed to
additional repurchase agreement accounts as well existing customers 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.
FHLB advances reached $78.6 million at June 30, 2006, from $68.7
million at December 31, 2005. The increase is due to $12.0 million in additional
advances with terms ranging from six months to eighteen months and an average
cost of 5.26%. These advances will be used to fund loan demand. Offsetting the
increase were re-payments of $2.1million.
At June 30, 2006 total stockholders' equity decreased $1.4 million to
$59.7 million from $61.1 million at December 31, 2005. The decrease was
primarily due to dividends paid of $3.0 million, a decrease in accumulated other
comprehensive income (net of deferred income taxes) of $2.4 million, and
treasury stock purchased of $600,000 offset by net income of $4.5 million.
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 June 30, 2006
decreased $140,000, or 6.04%, to $2,185,000, or $.73 diluted earnings per share
from $2,326,000, or $.78 diluted earnings per share, for the comparable three
month period in 2005. Net income for the six months ended June 30, 2006
decreased $154,000, or 3.31%, to $4,496,000, or $1.51 diluted earnings per share
from $4,650,000, or $1.56 diluted earnings per share, for the comparable six
month period in 2006. The decrease for the three and six months ended June 30,
2006 was primarily the result of a decrease in net interest income and increases
in other expense and provision for loan losses, offset by an increase in other
income and lower income tax expense.
Net interest income. Net interest income declined to $5,479,000 for the
three months ended June 30, 2006 compared to $5,534,000 for the three months
ended June 30, 2005. The decrease was a result of $1,113,000 in additional
interest expense partially offset by an increase in interest income of
$1,057,000. Rates paid on deposit accounts have increased faster than rates
charged for loans resulting in a tightening of the net interest spread to 2.76%
from 3.05% for the comparable quarter in 2005 and a narrowing of the net
interest margin to 3.26% from 3.47%. Net interest income declined to $10,887,000
for the six months ended June 30, 2006 compared to $11,145,000 for the six
months ended June 30, 2005. Interest expense, for this
8
period, increased $1,997,000 offset by additional interest income of $1,738,000.
The net interest spread narrowed to 2.79% from 3.10% for the comparable period
in 2005 and the net interest margin dropped to 3.29% from 3.50%. The narrowing
of the spread and margin reflect the flattening of the yield curve between
periods, which has seen a steady increase in short-term rates while long-term
rates have remained stable. Because the loan portfolio is primarily fixed rate,
earning asset yields have not adjusted as quickly to the rate environment as
funding costs.
Interest income. Interest income for the three months ended June 30,
2006 increased $1,057,000 to $9,872,000 from $8,814,000 for the comparable three
month period in 2005. The average balance of interest earning assets increased
$33.9 million for the three months ended June 30, 2006, to $672.1 million from
$638.2 million for the comparable period in 2005, the yield on these assets
increased 36 basis points to 5.88%, for the three months ended June 30, 2006
from 5.52% for the comparable period in 2005. Interest income for the six months
ended June 30, 2006 increased $1,738,000 to $19,290,000 from $17,552,000 for the
comparable six month period in 2005. This change was supported by an increase in
the average balance of interest earning assets of $26,420,000 and a 30 basis
point increase in the yield which reached 5.82% from 5.52% for the comparable
period in 2005. The increases in earning asset yields for the three and six
months ended June 30, 2006 reflects increases in higher yielding commercial and
consumer loans as well as improved yields on investment securities. See "Average
Balance Sheet and Rate/Volume Analysis"
Interest expense. Interest expense for the three months ended June 30,
2006 increased $1,113,000 to $4,393,000 from $3,280,000 for the comparable
period in 2005. The change in interest expense was primarily attributed to an
increase of $32.4 million the average balance of interest-bearing liabilities
and a 65 basis point increase in the average cost of funds to 3.12% for the
three months ended June 30, 2006 from 2.47% for the comparable period in 2005.
Interest expense for the six months ended June 30, 2006 increased $1,997,000 to
$8,404,000 and the yield increased 61 basis points to 3.03% from 2.42% for the
comparable period in 2005. The increase in cost of funds reflects year-over-year
increases in short-term rates and increased competition for deposits in the
Company's market area. 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 June 30, Three Months Ended June 30,
--------------------------------------- ------------------------------------------
2006 2005
--------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------- ---------------------------------------------------------------------
(Dollars In Thousands) (Dollars In Thousands)
-------------------------------------------------------------------------------------
9
Interest-earning assets:
Loans receivable (1) $ 460,152 $ 7,492 6.51% $ 433,151 $ 6,681 6.17%
Investment securities
available for sale (2) 209,640 2,352 4.49% 200,313 2,098 4.19%
Federal funds sold 2,290 28 4.89% 4,712 35 2.99%
---------- -------- ------ ---------- -------- ------
Total interest earning assets $ 672,082 $ 9,872 5.88% $ 638,176 $ 8,814 5.52%
Non-interest earning assets (3) 39,597 39,079
---------- ----------
Total assets $ 711,679 $ 677,255
========== ==========
Interest-bearing liabilities:
Money market accounts $ 53,627 $ 331 2.47% $ 63,995 $ 258 1.61%
Certificates of Deposit 262,399 2,591 3.95% 243,864 1,977 3.24%
Other liabilities (4) 246,843 1,471 2.38% 222,631 1,045 1.88%
---------- -------- ------ ---------- --------- ------
Total interest-bearing liabilities $ 562,869 4,393 3.12% $ 530,490 $ 3,280 2.47%
-------- ------ --------- ------
Non-interest-bearing liabilities (3) 87,206 87,194
---------- ----------
Total liabilities $ 650,075 $ 617,684
Stockholders' equity (5) 61,604 59,571
---------- ----------
Total liabilities and stockholders'
equity $ 711,679 $ 677,255
========== ==========
Net interest income $ 5,479 $ 5,534
======== =========
Interest rate spread (6) 2.76% 3.05%
====== ======
Net interest margin (7) 3.26% 3.47%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities
119.40% 120.30%
====== ======
- ----------------
(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.
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.
10
-------------------------------------------------------------------------------------
Six Months Ended June 30, Six Months Ended June 30,
--------------------------------------- ------------------------------------------
2006 2005
--------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------- ---------------------------------------------------------------------
(Dollars In Thousands) (Dollars In Thousands)
-------------------------------------------------------------------------------------
Interest-earning assets:
Loans receivable (1) $ 454,992 $ 14,706 6.46% $ 434,628 $ 13,405 6.17%
Investment securities (2) 206,437 4,555 4.41% 198,489 4,104 4.13%
Federal funds sold 1,235 29 4.78% 3,127 43 2.78%
---------- -------- ------ ---------- -------- ------
Total interest earning assets $ 662,664 $ 19,290 5.82% $ 636,244 $ 17,552 5.52%
Non-interest earning assets (3) 38,843 41,035
---------- ----------
Total assets $ 701,507 $ 677,279
========== ==========
Interest-bearing liabilities:
Money market accounts $ 54,019 609 2.25% $ 63,099 $ 471 1.49%
Certificates of Deposit 259,706 5,017 3.86% 246,528 3,909 3.17%
Other liabilities (4) 241,032 2,778 2.30% 219,559 2,027 1.85%
---------- -------- ------ ---------- -------- ------
Total interest-bearing liabilities $ 554,757 $ 8,404 3.03% $ 529,186 $ 6,407 2.42%
-------- ------ -------- ------
Non-interest-bearing liabilities (3) 85,565 86,759
---------- ----------
Total liabilities $ 640,322 $ 615,945
Stockholders' equity (5) 61,185 61,334
---------- ----------
Total liabilities and stockholders'
equity $ 701,507 $ 677,279
========== ==========
Net interest income $ 10,886 $ 11,145
========= ========
Interest rate spread (6) 2.79% 3.10%
====== ======
Net interest margin (7) 3.29% 3.50%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.45% 120.23%
====== ======
- ----------------------
(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.
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
11
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, 2006 Six Month Period ended June 30, 2006
-------------------------------------- ------------------------------------
2006 vs. 2005 2006 vs. 2005
-------------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------------- ------------------------------------
Volume Rate Net Volume Rate Net
-------------------------------------- ------------------------------------
(Dollars In Thousands) (Dollars In Thousands)
-------------------------------------- ------------------------------------
Interest income:
Loans receivable $ 417 $ 394 $ 811 $ 628 $ 673 $1,301
Investment securities
available for sale 98 156 254 165 286 451
Other interest earning assets (18) 11 (7) (27) 13 (14)
------ ----- ------ ----- ------ ------
Total interest-earning assets 497 561 1,058 766 972 1,738
------ ----- ------ ----- ------ ------
Interest expense:
Money market accounts (41) 114 73 (68) 206 138
Certificates of deposit 151 463 614 209 899 1,108
Other liabilities 113 313 426 199 552 751
------ ----- ------ ----- ------ ------
Total interest-bearing liabilities 223 890 1,113 340 1,657 1,997
------ ----- ------ ----- ------ ------
Net change in net interest income $ 274 $(329) $ (55) $ 426 $ (685) $ (259)
====== ===== ====== ===== ====== ======
Provision for loan losses. For the three and six months ended June 30, 2006, the
provision for loan losses was $550,000 and $850,000, respectively, compared to
$300,000 and $600,000 for the comparable 2005 periods. At June 30, 2006, the
allowance for loan losses equaled .91% of total loans outstanding compared to
..72% at June 30, 2005. Net charge-offs as a percentage of average loans for the
respective periods were .05% and .03%.
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
12
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 composition of the loan portfolio is being restructured in an
effort to increase the yield on the portfolio. However, increases in yields have
been accompanied by increases in classified loans. Commercial loans classified
as watch increased to $47,994,000 at June 30 2006, from $21,093,000 at June 30,
2005. For the same time period commercial loans classified as substandard
reached $10,878,000, up from $5,888,000 a year earlier. These changes in the
classification of the portfolio resulted in increases in the provision for loan
losses.
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,
2006 increased $81,000 to $1,859,000 from $1,778,000 for the comparable three
month period in 2005. The increase in other income for the three months ended
June 30, 2006 was primarily due to a net increase in investment security gains
of $228,000. Account service fees and debit card fees collected also increased
$30,000 and $11,000, respectively, from the comparable period in 2005. Total
other income for the six months ended June 30, 2006 increased $301,000 to
$3,703,000 from $3,402,000 for the comparable period in 2005. This increase is
primarily due to a net increase in investment security gains, account service
fees, and debit card fees of $402,000, $54,000, and $33,000, respectively. The
change in security gains was primarily due
13
to the sale of equity securities, written down for other-than-temporary declines
in December 2004. A growing deposit base and increased transactions supported
the additional fees collected.
Other expense. Total other expense for the three month period ended
June 30, 2006 increased $154,000 to $4,218,000 from $4,064,000 for the
comparable three month period in 2005. Total other expense for the six month
period ended June 30, 2006 increased $481,000 to $8,255,000 from $7,774,000 from
the comparable six month period in 2006. Pension and other employee benefit
costs increased $96,000 and $202,000, respectively for the three and six months
ended June 30, 2006 from the comparable periods in 2005. The change in pension
and other employee benefits and salaries is attributed to increased pension and
employee medical costs and merit increases and additions to staff. The balance
of the increases are due to normal increases in the cost of doing business.
Provision for income taxes. For the three and six month periods ended
June 30, 2006, income taxes decreased $237,000 and $535,000, respectively, from
the comparable periods in 2005. This is a result of non-taxable security gains
recorded from the sale of equity securities and the net increase in tax free
obligations of states and political sub-divisions of $8.8 million. Although the
securities were written down, for financial reporting purposes, in December
2004, their tax basis did not change. Due to these factors, the effective tax
rate decreased to 15.0% and 18.0% for the three and six month periods ended June
30, 2006 from 21.1% and 24.7% for the comparable periods in 2005.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and six months ended
June 30, 2006 from the information presented in the 10K statement, under the
caption Market Risk, for the year ended December 31, 2005.
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.
14
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 1A. Not applicable
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.
- --------------------- ---------------- ---------------- --------------------- -----------------------
(c) Total Number (d) Maximum Number
Of Shares (or Units) (or Approximate Dollar
Purchased as Part Value) of Shares (or
(a) Total Number (b) Average Price Of Publicly Units) that May Yet Be
Of Shares (or Paid per Share Announced Plans Purchased Under the
Period Units) Purchased (or Unit) or Programs* Plans or Programs
- --------------------- ---------------- ---------------- --------------------- -----------------------
April 1 through 30
- --------------------- ---------------- ---------------- --------------------- -----------------------
May 1 through 31 525 $39.95 525 80,856
- --------------------- ---------------- ---------------- --------------------- -----------------------
June 1 through 30 11,635 $40.15 11,635 69,221
- --------------------- ---------------- ---------------- --------------------- -----------------------
Total 12,160 $40.14 12,160 69,221
- --------------------- ---------------- ---------------- --------------------- -----------------------
* On November 18, 1999, the Registrant announced a stock repurchase plan for
up to 151,000 shares.
15
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On April 18, 2006, 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 2,159,175 28,504
Richard J. Hoffman 2,125,070 62,609
John N. Brenzia 2,149,595 38,084
There were no abstentions or broker non-votes in the election of
directors.
(2) Ratification of Auditors
FOR AGAINST ABSTAIN
------- ------- -------
2,151,588 27,758 -
There were no broker non-votes in the ratification of auditors
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****
16
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 ******
10.6 Medical Insurance Continuation Agreement with Charles G. Urtin ******
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.
****** Incorporated by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K filed March 6, 2006.
17
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 7, 2006 By: /s/Charles G. Urtin
----------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: August 7, 2006 By: /s/Raymond G. Suchta
----------------------------------
Raymond G. Suchta
Chief Financial Officer
(Principal Financial Officer)
18