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, 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 November 01, 2006: 2,942,020
IBT BANCORP, INC.
Contents
--------
Pages
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................................. 2
Consolidated balance sheets (unaudited) at September 30, 2006
and December 31, 2005............................................................ 2
Consolidated statements of income (unaudited) for the three and nine months
ended September 30, 2006 and 2005 .............................................. 3
Consolidated statements of cash flows (unaudited) for the nine months
ended September 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......................................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 16
Item 1A. Risk Factors.................................................................... 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................... 16
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........................................................................ 17
Signatures...................................................................................... 18
1
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
September 30, 2006 December 31, 2005
------------------ ------------------
(unaudited) (unaudited)
------------------ ------------------
ASSETS
Cash and due from banks $ 18,976,087 $ 15,063,970
Interest-bearing deposits in banks 943,415 435,970
Federal funds sold 2,800,000 -
Certificates of deposit 100,000 100,000
Securities available for sale 206,478,842 195,993,449
Federal Home Loan Bank stock, at cost 5,231,400 5,469,600
Loans, net 464,399,901 442,225,344
Premises and equipment, net 5,381,708 5,624,572
Other assets 20,699,833 20,237,792
------------- -------------
Total Assets $ 725,011,186 $ 685,150,697
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 87,125,586 $ 83,846,681
Interest-bearing 461,593,751 436,639,077
------------- -------------
Total deposits 548,719,337 520,485,758
Repurchase agreements 38,928,712 18,442,703
Accrued interest and other liabilities 4,935,080 4,022,118
Federal funds purchased - 12,468,000
FHLB advances 69,909,522 68,651,125
------------- -------------
Total liabilities 662,492,651 624,069,704
Stockholders' Equity
Capital stock, par value $1.25 per share,
50,000,000 shares authorized, 3,023,799
shares issued, 2,942,420 and 2,955,455 shares
outstanding at September 30, 2006 and
December 31, 2005, respectively 3,779,749 3,779,749
Surplus 1,173,818 1,231,444
Retained earnings 61,152,546 58,931,230
Accumulated other comprehensive income (693,651) (512,029)
------------- -------------
65,412,462 63,430,394
Less: Treasury stock, at cost (2,893,927) (2,349,401)
------------- -------------
Total stockholders' equity 62,518,535 61,080,993
------------- -------------
Total Liabilities and Stockholders' Equity $ 725,011,186 $ 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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2006 2005 2006 2005
---------------- -------------- ------------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Interest Income
Loans, including fees $ 7,889,433 $ 6,861,046 $ 22,595,515 $ 20,266,273
Investment securities 2,466,830 2,151,776 7,021,358 6,255,500
Federal funds sold 2,341 3,623 31,856 47,047
------------ ------------ ------------ ------------
Total interest income 10,358,604 9,016,445 29,648,729 26,568,820
Interest Expense
Deposits 3,502,774 2,557,335 9,536,002 7,294,130
FHLB advances 840,009 739,228 2,469,687 2,203,141
Repurchase agreements 404,585 185,381 928,108 372,667
Federal funds purchased 105,795 34,230 322,972 53,286
------------ ------------ ------------ ------------
Total interest expense 4,853,163 3,516,174 13,256,769 9,923,224
------------ ------------ ------------ ------------
Net Interest Income 5,505,441 5,500,271 16,391,960 16,645,596
Provision for Loan Losses 350,000 300,000 1,200,000 900,000
------------ ------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 5,155,441 5,200,271 15,191,960 15,745,596
Other Income (losses)
Service fees 983,985 928,807 2,787,939 2,679,164
Investment security gains 316,949 153,523 896,791 274,267
Investment security losses (62,898) (138,078) (119,998) (138,078)
Increase in cash surrender value of life insurance 119,572 108,994 333,205 318,708
Debit card fees 204,242 197,593 612,598 573,314
Other income 377,818 387,632 1,132,235 1,333,387
------------ ------------ ------------ ------------
Total other income 1,939,668 1,638,471 5,642,770 5,040,762
Other Expenses
Salaries 1,578,087 1,678,864 4,711,455 4,747,643
Pension and other employee benefits 640,470 451,584 1,743,542 1,352,741
Occupancy expense 428,976 442,386 1,239,372 1,312,592
Data processing expense 277,117 256,274 817,909 734,002
Pennsylvania shares tax 164,355 142,928 479,494 417,499
Advertising expense 117,915 100,487 285,311 261,662
Other expenses 1,068,538 1,062,052 3,253,570 3,082,607
------------ ------------ ------------ ------------
Total other expenses 4,275,458 4,134,575 12,530,653 11,908,746
------------ ------------ ------------ ------------
Income Before Income Taxes 2,819,651 2,704,167 8,304,077 8,877,612
Provision for Income Taxes 668,466 665,927 1,657,031 2,189,382
------------ ------------ ------------ ------------
Net Income $ 2,151,185 $ 2,038,240 $ 6,647,046 $ 6,688,230
============ ============ ============ ============
Basic Earnings per Share $ 0.73 $ 0.69 $ 2.25 $ 2.26
============ ============ ============ ============
Diluted Earnings per Share $ 0.72 $ 0.68 $ 2.24 $ 2.24
============ ============ ============ ============
Dividends per Share $ 0.50 $ 0.46 $ 1.50 $ 1.38
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
-------------------------------
2006 2005
--------------- --------------
(unaudited)
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,647,046 $ 6,688,230
Adjustments to reconcile net cash
from operating activities:
Depreciation 612,000 733,644
Increase in cash surrender value of insurance (333,205) (318,708)
Net amortization/accretion of
premiums and discounts 313,781 660,446
Investment security gains (776,793) (136,190)
Provision for loan losses 1,200,000 900,000
Stock options granted 39,808 59,142
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets (368,636) 1,761,854
Accrued interest and other liabilities 912,962 382,687
------------ ------------
Net Cash From Operating Activities 8,246,963 10,731,105
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 22,714,264 9,728,425
Proceeds from maturities of securities
available for sale 14,999,214 23,121,520
Purchase of securities available for sale (47,715,554) (43,056,330)
Net increase in loans (23,336,684) (335,803)
Purchases of premises and equipment (369,136) (293,964)
Proceeds from sales of Federal Home Loan Bank stock 4,755,300 4,250,100
Purchase of Federal Home Loan Bank stock (4,517,100) (3,481,000)
------------ ------------
Net Cash Used By Investing Activities (33,469,696) (10,067,052)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 28,233,579 (5,798,191)
Net increase in securities sold
under repurchase agreements 20,486,009 23,528,873
Dividends paid (4,425,730) (4,078,529)
Proceeds from FHLB advances 12,000,000 -
Repayment of FHLB advances (10,741,603) (1,206,261)
Net decrease in federal funds purchased (12,468,000) -
Exercised stock options (97,434) (184,788)
Purchase of treasury stock (640,150) -
Sale of treasury stock 95,624 -
------------ ------------
Net Cash From Financing Activities 32,442,295 12,261,104
------------ ------------
Net Change in Cash and Cash Equivalents 7,219,562 12,925,157
Cash and Cash Equivalents at Beginning of Period 15,499,940 16,187,171
------------ ------------
Cash and Cash Equivalents at End of Period $ 22,719,502 $ 29,112,328
============ ============
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 September 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 nine months ended September 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 2,942,566 and
2,950,066 for the three and nine months ended September 30, 2006 and 2,955,455
for the three and nine months ended September 30, 2005.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 30, 2006 and
2005 was $4,388,272 and $1,938,754, respectively and for the nine months ended
September 30, 2006 and 2005 was $6,465,424 and $6,288,518, respectively.
NOTE D - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
September 30, 2006
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 82,484,821 $ 329,363 $ (940,543) $ 81,873,641
Obligations of States and
political sub-divisions 60,305,673 1,217,353 (100,709) 61,422,317
Mortgage-backed securities 64,396,438 43,271 (1,562,181) 62,877,528
Other securities 96,291 - (2) 96,289
Equity securities 233,843 589 (25,365) 209,067
------------- ------------- ------------- -------------
$ 207,517,066 $ 1,590,576 $ (2,628,800) $ 206,478,842
============= ============= ============= =============
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended September 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 September 30, 2006, 190,250 stock options have
been granted, of which 85,498 are vested and are exercisable as follows: 26,750
are exercisable at $24.50 per share, 15,556 are exercisable at $23.00 per share,
19,223 are exercisable at $32.88, and 15,969 are exercisable at $51.40 per
share; 8,000 are vested and exercisable at $39.97 in October 2006, 32,250 have
not vested, 61,311 shares have been exercised and 11,191 have been forfeited.
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
On September 29, 2006, the FASB issued Statement No. 158 Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106, and 132(R). FASB No. 158 requires employers to
fully recognize the obligations associated with single-employer defined benefit
pension, retiree healthcare and other postretirement plans in their financial
statements. The Company is currently evaluating the impact of adopting FASB No.
158.
NOTE G - SUBSEQUENT EVENTS
The Company declared a special 100% stock dividend on October 17, 2006, whereby
stockholders will receive one share of stock for each share held as of the
record date. Cash will be paid in lieu of fractional shares. The dividend will
be paid on November 16, 2006 to stockholders of record on October 27, 2006.
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 September 30, 2006 total assets increased $39.8 million to $725.0
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 $22.2 million, $10.5 million, and $3.9 million, respectively.
Net loans increased to $464.4 million at September 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 $21.2 million and consumer
term loans of $5.2 million. Offsetting these increases was a decrease in
consumer lines of credit of $2.8 million.
At September 30, 2006, securities available for sale increased $10.5
million to $206.5 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 $6.6 million, $9.1 million, and $3.0
million, respectively, offset by the sale of preferred stocks, classified as
equity securities, of $8.1 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.
7
At September 30, 2006, total liabilities increased $38.4 million to
$662.5 million from $624.1 million at December 31, 2005. This increase was
primarily the result of increases in interest-bearing deposits and repurchase
agreements of $25.0 million and $20.5 million, respectively, offset by a $12.5
million decrease in federal funds purchased. The influx of deposits enabled the
Company to repay the overnight federal funds purchased.
Interest-bearing deposits increased to $461.6 million at September 30,
2006, from $436.6 million at December 31, 2005. The increase of $25.0 million
was primarily in certificates of deposit, which increased $39.6 million. The
increase was offset by decreases in savings, money market, interest bearing
checking, and mortgage related escrow accounts of $6.7 million, $5.5 million,
$1.3 million, and $1.1 million, respectively. The interest rates offered on
certificates of deposit have been responsible for the growth in this product.
Repurchase agreements increased to $38.9 million at September 30, 2006,
from $18.4 million at December 31, 2005. Growth in this account is attributed to
additional repurchase agreement accounts as well as 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, on a daily basis.
At September 30, 2006 total stockholders' equity increased $1.4 million
to $62.5 million from $61.1 million at December 31, 2005. The increase was
primarily due to net income of $6.6 million offset by dividends paid of $4.4
million, a decrease in accumulated other comprehensive income (net of deferred
income taxes) of $182,000, and a net change in treasury stock of $545,000.
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, 2006
increased $113,000, or 5.54%, to $2,151,000, or $.72 diluted earnings per share
from $2,038,000, or $.68 diluted earnings per share, for the comparable three
month period in 2005. Net income for the nine months ended September 30, 2006
decreased $41,000, or .62%, to $6,647,000, or $2.24 diluted earnings per share
from $6,688,000, or $2.24 diluted earnings per share, for the comparable nine
month period in 2005. The increase in net income for the three months ended
September 30, 2006 reflects higher other income, which offset increases in other
expense and provision for loan losses. The decrease for the nine months ended
September 30, 2006 was primarily the result of 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 increased to $5,505,000 for
the three months ended September 30, 2006 compared to $5,500,000 for the three
months ended September 30, 2005. The minor increase was a result of $1,342,000
in additional interest income offset by an increase in interest expense of
$1,337,000. The net interest spread tightened to 2.71% from 2.96% for the
comparable quarter in 2005 and the net interest margin narrowed to 3.24% from
3.41%. Net interest income declined to $16,392,000 for the nine months ended
September 30,
8
2006 compared to $16,646,000 for the nine months ended September 30, 2005.
Interest expense, for this period, increased $3,334,000 more than offsetting
additional interest income of $3,080,000. The net interest spread narrowed to
2.76% from 3.04% for the comparable period in 2005 and the net interest margin
dropped to 3.27% from 3.47%. 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 September
30, 2006 increased $1,343,000 to $10,359,000 from $9,016,000 for the comparable
three month period in 2005. The average balance of interest earning assets
increased $33.7 million for the three months ended September 30, 2006, to $678.9
million from $645.2 million for the comparable period in 2005, the yield on
these assets increased 51 basis points to 6.10%, for the three months ended
September 30, 2006 from 5.59% for the comparable period in 2005. Interest income
for the nine months ended September 30, 2006 increased $3,080,000 to $29,649,000
from $26,569,000 for the comparable nine month period in 2005. This change was
supported by an increase in the average balance of interest earning assets of
$27,641,000 and a 39 basis point increase in the yield which reached 5.92% from
5.53% for the comparable period in 2005. The increases in earning asset yields
for the three and nine months ended September 30, 2006 reflect 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 September
30, 2006 increased $1,337,000 to $4,853,000 from $3,516,000 for the comparable
period in 2005. The change in interest expense was primarily attributed to an
increase of $37.3 million in the average balance of interest-bearing liabilities
and a 76 basis point increase in the average cost of funds to 3.39% for the
three months ended September 30, 2006 from 2.63% for the comparable period in
2005. Interest expense for the nine months ended September 30, 2006 increased
$3,334,000 to $13,257,000 and the cost of funds increased 67 basis points to
3.16% from 2.49% 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"
9
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,
------------------------------------ ------------------------------------
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) $ 466,203 $ 7,889 6.77% $ 435,943 $ 6,861 6.30%
Investment securities available for sale (2) 212,563 2,467 4.64% 208,708 2,152 4.12%
Federal funds sold 100 2 8.57% 499 3 2.75%
--------- -------- ------ --------- ------- ------
Total interest earning assets $ 678,866 $ 10,358 6.10% $ 645,150 $ 9,016 5.59%
Non-interest earning assets (3) 40,373 36,452
--------- ---------
Total assets $ 719,239 $ 681,602
========= =========
Interest-bearing liabilities:
Money market accounts $ 50,183 $ 342 2.73% $ 64,047 $ 296 1.85%
Certificates of Deposit 277,488 2,998 4.32% 241,633 2,071 3.43%
Other liabilities (4) 244,230 1,513 2.48% 228,885 1,149 2.01%
--------- -------- ------ --------- ------- ------
Total interest-bearing liabilities $ 571,901 $ 4,853 3.39% $ 534,565 $ 3,516 2.63%
-------- ------ ------- ------
Non-interest-bearing liabilities (3) 87,760 85,590
--------- ---------
Total liabilities $ 659,661 $ 620,155
Stockholders' equity (5) 59,578 61,447
--------- ---------
Total liabilities and
stockholders' equity $ 719,239 $ 681,602
========= =========
Net interest income $ 5,505 $ 5,500
======== =======
Interest rate spread (6) 2.71% 2.96%
====== ======
Net interest margin (7) 3.24% 3.41%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 118.70% 120.69%
====== ======
(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.
10
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,
------------------------------------ ------------------------------------
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) $ 458,683 $ 22,596 6.57% $ 434,976 $ 20,266 6.21%
Investment securities (2) 208,348 7,021 4.49% 203,036 6,256 4.11%
Federal funds sold 852 32 4.97% 2,230 47 2.80%
--------- -------- ------ --------- -------- ------
Total interest earning assets $ 667,883 $ 29,649 5.92% $ 640,242 $ 26,569 5.53%
Non-interest earning assets (3) 39,445 37,938
--------- ---------
Total assets $ 707,328 $ 698,180
========= =========
Interest-bearing liabilities:
Money market accounts $ 52,730 $ 951 2.40% $ 63,421 $ 767 1.61%
Certificates of Deposit 265,666 8,015 4.02% 244,862 5,980 3.26%
Other liabilities (4) 242,153 4,291 2.36% 222,713 3,176 1.90%
--------- -------- ------ --------- -------- ------
Total interest-bearing liabilities $ 560,549 $ 13,257 3.16% $ 530,996 $ 9,923 2.49%
-------- ------ -------- ------
Non-interest-bearing liabilities (3) 86,206 86,030
--------- ---------
Total liabilities $ 646,755 $ 617,026
Stockholders' equity (5) 60,573 61,154
--------- ---------
Total liabilities and
stockholders' equity $ 707,328 $ 678,180
========= =========
Net interest income $ 16,392 $ 16,646
======== ========
Interest rate spread (6) 2.76% 3.04%
====== ======
Net interest margin (7) 3.27% 3.47%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 119.15% 120.57%
====== ======
(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.
11
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, 2006 Nine Month Period ended Sept. 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 $ 476 $ 552 $ 1,028 $ 1,105 $ 1,225 $ 2,330
Investment securities
available for sale 40 275 315 164 601 765
Other interest earning assets (2) 1 (1) (29) 14 (15)
------- ------- ------- ------- ------- -------
Total interest-earning assets 514 828 1,342 1,240 1,840 3,080
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts (64) 110 46 (129) 313 184
Certificates of deposit 308 619 927 508 1,527 2,035
Other liabilities 77 287 364 278 837 1,115
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 321 1,016 1,337 657 2,677 3,334
------- ------- ------- ------- ------- -------
Net change in net interest income $ 193 $ (188) $ 5 $ 583 $ (837) $ (254)
======= ======= ======= ======= ======= =======
12
Provision for loan losses. For the three and nine months ended September 30,
2006, the provision for loan losses was $350,000 and $1,200,000, respectively,
compared to $300,000 and $900,000 for the comparable 2005 periods. At September
30, 2006, the allowance for loan losses equaled .97% of gross loans outstanding
compared to .75% at September 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
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 $35,493,000 at September 30, 2006, from $33,295,000 at
September 30, 2005. For the same time period commercial loans classified as
substandard reached $12,663,000, up from $5,689,000 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.
13
Other income. Total other income for the three months ended September
30, 2006 increased $302,000 to $1,940,000 from $1,638,000 for the comparable
three month period in 2005. The increase in other income for the three months
ended September 30, 2006 was primarily due to a net increase in investment
security gains of $239,000. Account service fees, the cash surrender value of
life insurance, and debit card fees collected also increased $55,000, $11,000,
and $7,000, respectively, from the comparable period in 2005, offset by a
decrease of $10,000 in other income. Total other income for the nine months
ended September 30, 2006 increased $602,000 to $5,643,000 from $5,041,000 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
$641,000, $109,000, and $39,000, respectively, offset by a decrease in other
income of $201,000. The change in security gains was primarily due to the sale
of approximately $8.1 million in equity securities, written down for
other-than-temporary declines in December 2004. Fee income growth was attributed
to growth in the deposit base, management of fee collections, and increased
transactions. The decline in other income is largely the result of a gain on the
sale of other real estate property in 2005.
Other expense. Total other expense for the three month period ended
September 30, 2006 increased $141,000 to $4,276,000 from $4,135,000 for the
comparable three month period in 2005. Total other expense for the nine month
period ended September 30, 2006 increased $622,000 to $12,531,000 from
$11,909,000 from the comparable nine month period in 2005. Pension and other
employee benefit costs increased $189,000 and $391,000, respectively for the
three and nine months ended September 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, merit increases, and
additions to staff. Other expenses increased $6,000 and $171,000, respectively
for the three and nine months ended September 30, 2006, from the comparable
periods in 2005. This increase is mainly due to consulting fees. The Company
utilizes various external organizations, on an on going basis, to assist in the
continual improvement of its operations and efficiency as well as to help
maintain its competitive edge. The balance of the increases are due to normal
increases associated with the cost of doing business.
Provision for income taxes. For the three month period ended September
30, 2006 income taxes increased slightly to $668,000 from $666,000 for the
comparable period in 2005. For the nine month period ended September 30, 2006,
income taxes decreased $532,000 from the comparable period 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. Although the securities were written down for financial reporting
purposes, in December 2004, their tax basis did not change. As a result, the
effective tax rate decreased to 20.0% for the nine month period ended September
30, 2006 from 24.7% for the comparable period in 2005. The effective tax rate
for the comparable three month periods remained relatively unchanged at 23.7%
and 24.6%, respectively.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and nine months ended
September 30, 2006 from the information presented in the 10K statement, under
the caption Market Risk, for the year ended December 31, 2005.
14
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.
15
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. Risk Factors
There were no material changes from the risk factors previously
disclosed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2005.
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
(b) Purchased as Part Value) of Shares (or
(a) Total Number 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
- ------------------------------------------------------------------------------------------------------------------------
July 1 through 31 - - - -
August 1 through 31 1,250 $43.61 1,250 67,971
September 1 through 30 500 $42.55 500 67,471
----- ------ ----- ------
Total 1,750 $43.31 1,750 67,471
===== ====== ===== ======
- ------------------------------------------------------------------------------------------------------------------------
* On November 18, 1999, the Registrant announced a stock repurchase plan for
up to 151,000 shares.
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
16
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 ******
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 umbered 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 September 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: November 6, 2006 By: /s/Charles G. Urtin
----------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: November 6, 2006 By: /s/Raymond G. Suchta
----------------------------------
Raymond G. Suchta
Chief Financial Officer
(Principal Financial Officer)
18