1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 2000
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 Number: 0-18415
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IBT Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Michigan 38-2830092
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway 48858
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(Address of principal executive offices) (Zip code)
(517) 772-9471
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(Registrant's telephone number, including area code)
N/A
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(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock No par value, 2,985,084 as of April 30, 2000
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IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Numbers
Item 1 Consolidated Financial Statements 3-8
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-15
Item 3 Quantitative and Qualitative 16-17
Disclosures About Market Risk
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
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ITEM I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) March 31 December 31
2000 1999
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 15,519 $ 17,610
Federal funds sold --- ---
--------- ----------
TOTAL CASH AND CASH EQUIVALENTS 15,519 17,610
Investment securities
Securities available for sale (Amortized cost of
$82,199 in 2000 and $84,363 in 1999) 80,737 82,828
Securities held to maturity (Fair value --
$6,737 in 2000 and $6,813 in 1999) 6,772 6,822
--------- ----------
TOTAL INVESTMENT SECURITIES 87,509 89,650
Loans
Commercial and agricultural 48,111 48,156
Real estate mortgage 190,560 188,016
Installment 41,389 40,550
--------- ----------
TOTAL LOANS 280,060 276,722
Less allowance for loan losses 3,336 3,210
--------- ----------
NET LOANS 276,724 273,512
Other assets 21,358 21,246
--------- ----------
TOTAL ASSETS $ 401,110 $ 402,018
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 43,289 $ 49,203
NOW accounts 56,368 54,628
Certificates of deposit and other savings 229,703 226,794
Certificates of deposit over $100,000 27,667 25,010
--------- ----------
TOTAL DEPOSITS 357,027 355,635
Federal funds purchased 2,000 5,000
Accrued interest and other liabilities 4,479 4,705
--------- ----------
TOTAL LIABILITIES 363,506 365,340
Shareholders' Equity
Common stock -- No par value
4,000,000 shares authorized; outstanding--
2,985,083 in 2000 (2,976,436 in 1999) 25,894 25,739
Retained earnings 12,675 11,952
Accumulated other comprehensive loss (965) (1,013)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 37,604 36,678
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 401,110 $ 402,108
========= ==========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31
-------------------
2000 1999
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 2,976,307 2,909,191
Issuance of common stock 8,776 7,164
--------- ---------
BALANCE END OF PERIOD 2,985,083 2,916,355
========= =========
COMMON STOCK
Balance at beginning of period $ 25,739 $ 24,184
Issuance of common stock 155 146
--------- ---------
BALANCE END OF PERIOD 25,894 24,330
RETAINED EARNINGS
Balance at beginning of period 11,952 9,369
Net income 996 993
Cash dividends ($0.09 per share in 2000 and $0.08 in 1999) (273) (229)
--------- ---------
BALANCE END OF PERIOD 12,675 10,133
ACCUMULATED OTHER COMPREHENSIVE (LOSS)INCOME
Balance at beginning of period (1,013) 970
Other comprehensive income(loss) 48 (419)
--------- ---------
BALANCE END OF PERIOD (965) 551
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 37,604 $ 35,014
========= =========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands) Three Months Ended
March 31
--------
2000 1999
---- ----
INTEREST INCOME
Loans, including fees $5,740 $5,212
Investment securities
Taxable 952 1,141
Nontaxable 289 229
Federal funds sold 40 148
------ ------
TOTAL INTEREST INCOME 7,021 6,730
INTEREST EXPENSE
Deposits 3,275 3,182
Federal funds purchased 19 --
------ ------
TOTAL INTEREST EXPENSE 3,294 3,182
------ ------
NET INTEREST INCOME 3,727 3,548
Provision for loan losses 50 94
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,677 3,454
NONINTEREST INCOME
Trust fees 114 113
Service charges on deposit accounts 69 85
Other service charges and fees 357 289
Title insurance revenue 211 186
Other 143 130
Gain on sale of mortgage loans 16 108
Net realized gain on securities available for sale --- 1
------ ------
TOTAL NONINTEREST INCOME 910 912
NONINTEREST EXPENSES
Salaries, wages and employee benefits 1,749 1,613
Occupancy 218 205
Furniture and equipment 342 301
Other 938 888
------ ------
TOTAL NONINTEREST EXPENSES 3,247 3,007
INCOME BEFORE FEDERAL INCOME TAXES 1,340 1,359
Federal income taxes 344 366
------ ------
NET INCOME $ 996 $ 993
====== ======
Net income per share on common stock $ 0.33 $ 0.34
====== ======
Cash dividends per share $ 0.09 $ 0.08
====== ======
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands) Three Months Ended
March 31
--------
2000 1999
---- ----
NET INCOME $ 996 $ 993
Other comprehensive income (loss) before income taxes
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during period 72 (634)
Reclassification adjustment for realized gains
included in net income -- (1)
------ ------
Total comprehensive income (loss) before income taxes 72 (635)
Income tax expense (benefit) related to comprehensive
income (loss) 24 (216)
------ ------
OTHER COMPREHENSIVE INCOME (LOSS) NET OF INCOME TAXES 48 (419)
------ ------
TOTAL COMPREHENSIVE INCOME $1,044 $ 574
====== ======
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Three Months Ended
March 31
2000 1999
---- ----
OPERATING ACTIVITIES
Interest and fees collected on loans and investments $ 7,108 $ 6,512
Other fees received 929 833
Interest paid (3,251) (3,183)
Cash paid to suppliers and employees (3,874) (2,914)
Decrease in loans originated for sale 175 1,385
Federal income taxes paid -- (220)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,087 2,413
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities, calls, and sales 3,239 7,005
Purchases (1,080) (11,888)
Activity in held to maturity securities
Maturities, calls, and sales -- 192
Purchases -- --
Net increase in loans (3,437) (2,031)
Purchases of equipment and premises (174) (211)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,452) (6,933)
FINANCING ACTIVITIES
Net decrease in noninterest bearing deposits (5,914) (5,528)
Net increase (decrease) in interest bearing deposits 7,306 (577)
Net decrease in federal funds borrowed (3,000) --
Cash dividends paid (273) (229)
Proceeds from issuance of common stock 155 146
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,726) (6,188)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (2,091) (10,708)
Cash and cash equivalents at beginning of period 17,610 30,497
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,519 $ 19,789
======== ========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed 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
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Corporation's annual report for the year ended December 31, 1999.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average
number of common shares outstanding. All share and per share amounts have been
adjusted for the 3.3 for 1 stock split declared on December 14, 1999 and paid
February 18, 2000. The weighted number of common shares outstanding were
2,980,169 as of March 31, 2000, and 2,909,933 as of March 31, 1999. The
Corporation has no common stock equivalents and, accordingly, presents only
basic earnings per share.
NOTE 3 ACQUISITION
On April 7, 2000 IBT Bancorp ("IBT")and FSB Bancorp ("FSB") signed a
Definitive Agreement to combine companies. IBT is the holding company for
Isabella Bank and Trust and FSB is the holding company for Farmers State Bank.
The transaction will involve FSB merging with and into IBT and Farmers State
Bank becoming a wholly owned subsidiary of IBT. The merger will be accounted for
a "pooling of interest", and is subject to regulatory and FSB Shareholder
approval.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following is management's discussion and analysis of the major
factors that influenced IBT Bancorp's financial performance. This analysis
should be read in conjunction with the Corporation's 1999 annual report and with
the unaudited financial statements and notes, as set forth on pages 3 through 8
of this report.
THREE MONTHS ENDING MARCH 31, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $996,000 for the three month period ended March 31,
2000, compared to $993,000 for the same period in 1999. Return on average
assets, which measures the ability of the Corporation to profitably and
efficiently employ its resources, equaled 0.99% for the first three months of
2000 and 1.02% for 1999. Return on average equity, which indicates how
effectively the Corporation is able to generate earnings on shareholder invested
capital, equaled 10.46% through March 31, 2000 versus 11.81% for the same period
in 1999.
SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------
(Dollars in thousands except per share data)
March 31
-----------------
2000 1999
---- ----
INCOME STATEMENT DATA
Net interest income $ 3,727 $ 3,548
Provision for loan losses 50 94
Net income 996 993
PER SHARE DATA
Net income $ 0.33 $ 0.34
Cash dividend 0.09 0.08
RATIOS
Average primary capital to average assets 10.22% 9.38%
Net income to average assets 0.99 1.02
Net income to average equity 10.46 11.81
NET INTEREST INCOME
Net interest income equals interest income less interest expense and is
the primary source of income for IBT Bancorp. Interest income includes loan fees
of $132,000 in 2000 versus $203,000 in 1999. For analytical purposes, net
interest income is adjusted to a "taxable equivalent" basis by adding the income
tax savings from interest on tax-exempt loans and securities, thus making
year-to-year comparisons more meaningful.
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IBT BANCORP, INC.
TABLE 1: AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
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(Dollars in Thousands)
The following schedules present the daily average amount outstanding
for each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding.
Three Months Ending
March 31, 2000 March 31, 1999
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $ 277,105 $ 5,768 8.33% $246,959 $ 5,203 8.43%
Taxable investment securities 62,675 919 5.87 75,297 1,113 5.91
Nontaxable investment securities 24,858 438 7.05 19,439 347 7.14
Federal funds sold 2,822 40 5.67 16,298 190 4.66
Other investments 1,736 33 7.60 1,613 28 6.94
--------- --------- ---- -------- ------- ----
Total Earning Assets 369,196 7,198 7.80 359,606 6,881 7.65
NONEARNING ASSETS
Allowance for loan losses (3,281) (3,051)
Cash and due from banks 14,610 13,219
Premises and equipment 8,967 7,854
Accrued income and other assets 12,004 9,811
--------- --------
Total Assets $ 401,496 $387,439
========= ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 56,334 358 2.54 $ 55,714 337 2.42
Savings deposits 105,051 845 3.22 101,010 764 3.03
Time deposits 152,140 2,072 5.45 151,690 2,081 5.49
Federal funds purchased 1,274 19 5.97 -- -- --
--------- ----- ---- -------- ----- ----
Total Interest Bearing Liabilities 314,799 3,294 4.19 308,414 3,182 4.13
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 43,246 41,215
Other 5,353 4,195
Shareholders' equity 38,098 33,615
--------- --------
Total Liabilities and Equity $ 401,496 $387,439
========= ========
Net interest income (FTE) $ 3,904 $ 3,699
========= =======
Net yield on interest earning assets (FTE) 4.23% 4.11%
===== =====
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IBT BANCORP, INC.
TABLE 2: VOLUME AND RATE VARIANCE ANALYSIS
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(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For the purpose of this
table, changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Quarter Ended March 31, 2000
Compared to
March 31, 1999
Increase (Decrease) Due to
--------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME
Loans $628 $(63) $565
Taxable investment securities (185) (9) (194)
Nontaxable investment securities 96 (5) 91
Federal funds sold (184) 34 (150)
Other investments 2 3 5
----- ----- -----
Total changes in interest income 357 (40) 317
Total changes in interest expense 61 51 112
----- ----- -----
Net Change in Interest Margin (FTE) $296 $(91) $ 205
===== ===== =====
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IBT BANCORP, INC.
TABLE 3: SUMMARY OF LOAN LOSS EXPERIENCE
- -----------------------------------------
(Dollars in Thousands)
Year to Date
March 31
--------------------------
2000 1999
---- ----
Summary of changes in allowance
Allowance for loan losses - January 1 $3,210 $2,977
Loans charged off (36) (100)
Recoveries of charged off loans 112 90
--------- ---------
Net loans recovered (charged off) 76 (10)
Provision charged to operations 50 94
--------- ---------
Allowance for loan losses - March 31 $3,336 $3,061
========= =========
Allowance for loan losses as a % of loans 1.19% 1.24%
========= =========
NONPERFORMING LOANS
- -------------------
(Dollars in thousands)
March 31
--------------------------
2000 1999
---- ----
Total amount of loans outstanding for
the period $280,060 $247,344
========= =========
Nonaccrual loans $ 282 $ 366
Accruing loans past due 90 days or more 782 739
Restructured loans -- --
--------- ---------
Total $1,064 $1,105
========= =========
Loans classified as nonperforming as a
% of outstanding loans 0.38% 0.45%
========= =========
To management's knowledge, there are no other loans which cause management
to have serious doubts as to the ability of a borrower to comply with their loan
repayment terms.
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NET INTEREST INCOME (CONTINUED)
As shown in Tables number 1 and 2, when comparing the three month period
ending March 31, 2000 to the same period in 1999, fully taxable equivalent (FTE)
net interest income increased $205,000 or 5.5%. An increase of 2.7% in average
interest earning assets provided $357,000 of FTE interest income. The majority
of this growth was funded by a 2.1% increase in interest bearing liabilities
resulting in $61,000 of additional interest expense. Overall, changes in volume
resulted in $296,000 of additional FTE interest income. The average FTE interest
rate earned on assets increased by 0.15%, while the amount of interest earned as
a result of changes in rate decreased $40,000. The paradox of an increase in the
total average rate earned while the total dollar amount earned declined was
created from a substantial change in earning asset mix. Loans, which have the
highest average rate of all earning assets, increased as a percent of total
earning assets from 68.7% in 1999 to 75.1% in 2000. The change in mix resulted
in the average rate of all earning assets increasing while the average rates of
loans, investment securities, and nontaxable investment securities declined. The
average rate paid on deposits increased 0.06%, increasing interest expense by
$51,000. The net change related to interest rate earned and paid was a $91,000
decrease in FTE net interest income.
The Corporation's FTE net interest yield as a percentage of average
earning assets equaled 4.23% during 2000 versus 4.11% in 1999. The 0.12%
increase in the FTE interest margin was primarily a result of changes in the
Corporation's earning asset mix as previously discussed. Other factors affecting
the Corporation's net interest margin are the increasing reliance on higher cost
deposits such as Certificates of Deposit and Money Market accounts to fund asset
growth, and intense rate competition for new commercial and installment loans.
Management expects the Corporation's reliance on higher cost deposits to fund
asset growth to continue and for rates charged for loans in relation to deposit
costs to continue declining.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Loans outstanding represent 69.8% of the
Corporation's total assets and is the Corporation's single largest concentration
of risk. The allowance for loan losses is management's estimation of potential
future losses inherent in the existing loan portfolio. Factors used to evaluate
the loan portfolio, and thus to determine the current charge to expense, include
recent loan loss history, financial condition of borrowers, amount of
nonperforming and impaired loans, overall economic conditions, and other
factors.
Comparing the year to date period of March 31, 2000 to March 31, 1999,
average loans outstanding increased 12.2%. The provision for loan losses was
decreased $44,000 to $50,000 in the first quarter of 2000 when compared to 1999.
The decrease in the provision of loan losses resulted from a net recovery of
loans charged off in prior periods of $76,000 in 2000 versus net charge offs of
$10,000 in 1999. As set forth in Table 3, loans classified as nonperforming were
$1,064,000 as of March 31, 2000, a $41,000 decrease over the prior year. The
allowance for loan losses as a percentage of loans equaled 1.19% compared to
1.24% in 1999. In management's opinion, the allowance for loan losses is
adequate as of March 31, 2000.
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NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees
for other financial services, gains on the sale of mortgage loans, title
insurance revenue, and gains and losses on investment securities available for
sale. Income earned from these sources decreased $2,000 during the three month
period ending March 31, 2000, compared to the same period in 1999. Significant
individual account changes during this period include $25,000 increase in income
from the sale of title insurance and related services, a $92,000 decrease in
gains on the sale of residential real estate mortgage loans, a $53,000 increase
in mortgage servicing fees, an $11,000 decrease in ATM fees, and a $20,000
increase in net brokerage commissions.
The Corporation has established a policy that all 30 year amortized fixed
rate mortgage loans will be sold. The calculation of gains on the sale of
mortgages exclude at least 25 basis points for the servicing of these loans.
Included in other operating income is a $16,000 gain from the sale of $2.3
million in mortgages during the first quarter of 2000 versus a $108,000 gain on
the sale of $16.1 million in the same period in 1999.
NONINTEREST EXPENSE
Noninterest expense increased $240,000 for the first three months of 2000
when compared to the same period in 1999. The largest component of noninterest
expense is salaries and employee benefits, which increased $136,000 or 8.4%.
Approximately one-half of the increase is due to additional staffing and normal
merit and promotional salary increases, and the remainder is related to the
acquisition of Mecosta County Abstract and Title in July 1999.
Occupancy and furniture and equipment expenses increased $54,000 or 10.7%
in 2000. Approximately $14,000 is related to the Corporation's acquisition
during the past year. The remainder of the increase is related to telephone
expense, service contracts, and computer operator expense. All other operating
expenses increased $50,000, a 5.6% increase. Of the increase, $35,000 was
related to the cost of title insurance and the aforementioned acquisition. There
were no other significant changes in the operating expenses.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1999, total assets decreased $908,000 to $401.1
million. During the first quarter of 2000, major changes in asset mix included a
$2.1 million decrease in cash and cash equivalents, a $2.1 million decrease in
investment securities, and a $3.3 million increase in gross loans. Deposits
during this period increased $1.4 million. Interest bearing deposits increased
$7.3 million and noninterest bearing deposits decreased $5.9 million. Federal
funds purchased declined $3.0 million.
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LIQUIDITY
Liquidity management is designed to have adequate resources available to
meet depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and the payment
of cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and investment securities available for sale.
As of March 31, 2000, cash and cash equivalents as a percentage of total
assets equaled 3.9%, versus 4.4% as of December 31, 1999. During the first three
months of 2000, cash provided by operating activities was $1.1 million,
investing activities used $1.5 million, and financing activity used $1.7
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $2.1 million decrease in cash and cash equivalents
during the first three months of 2000.
In addition to cash and cash equivalents, investment securities available
for sale are another source of liquidity. Securities available for sale equaled
$80.7 million as of March 31, 2000 and $82.8 million as of December 31, 1999.
The Corporation's liquidity is considered adequate by management of the
Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, retained
earnings, and accumulated other comprehensive income (loss), and increased
approximately $926,000 since December 31, 1999.
There are significant capital regulatory constraints placed on the
Corporation's capital. The Federal Reserve Board's current recommended minimum
tier 1 and tier 2 capital to average assets requirement is 6.0%. The
Corporation's tier 1 and tier 2 capital to average assets, which consists of
shareholder's equity plus the allowance for loan losses less unamortized
acquisition intangibles, was 9.3% at March 31, 2000.
The Federal Reserve Board has established a minimum risk based capital
standard. Under this standard, a framework has been established that assigns
risk weights to each category of on- and off-balance sheet items to arrive at
risk adjusted total assets. Regulatory capital is divided by the risk adjusted
assets with the resulting ratio compared to the minimum standard to determine
whether a bank has adequate capital. The minimum standard is 8%, of which at
least 4% must consist of equity capital net of goodwill. The following table
sets forth the percentages required under the Risk Based Capital guidelines and
the Corporation's ratios as of March 31, 2000:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 03/31/00
-------- --------
Equity Capital 4.00% 13.60%
Secondary Capital* 4.00 1.25
---- -----
Total Capital 8.00% 14.85%
==== =====
* IBT Bancorp's secondary capital consists solely of the allowance for
loan losses. The percentage for the secondary capital under the
required column is the maximum allowed from all sources.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risks are interest rate risk and, to a lesser
extent, liquidity risk. The Corporation has no foreign exchange risk, holds
limited loans outstanding to agricultural and oil and gas concerns, and holds no
trading account assets. Any changes in foreign exchange rates or commodity
prices would have an insignificant impact, if any, on the Corporation's interest
income and cash flows.
Interest rate risk ("IRR") is the exposure to the Corporation's net interest
income, its primary source of income, to changes in interest rates. IRR results
from the difference in the maturity or repricing frequency of a financial
institution's interest earning assets and its interest bearing liabilities.
Interest rate risk is the fundamental method in which financial institutions
earn income and create shareholder value. Excessive exposure to interest rate
risk could pose a significant risk to the Corporation's earnings and capital.
The Federal Reserve, the Corporation's primary Federal regulator, has adopted a
policy requiring the Board of Directors and senior management to effectively
manage the various risks that can have a material impact on the safety and
soundness of the Corporation. The risks include credit, interest rate,
liquidity, operational, and reputational. The Corporation has policies,
procedures and internal controls for measuring and managing these risks.
Specifically, the IRR policy and procedures include defining acceptable types
and terms of investments and funding sources, liquidity requirements, limits on
investments in long term assets, limiting the mismatch in repricing opportunity
of assets and liabilities, and the frequency of measuring and reporting to the
Board of Directors.
The Corporation uses several techniques to manage interest rate risk. The first
method is gap analysis. Gap analysis measures the cash flows and/or the earliest
repricing of the Corporation's interest bearing assets and liabilities. This
analysis is useful for measuring trends in the repricing characteristics of the
balance sheet. Significant assumptions are required in this process because of
the imbedded repricing options contained in assets and liabilities. A
substantial portion of the Corporation's assets are invested in loans and
mortgage backed securities. These assets have imbedded options that allow the
borrower to repay the balance prior to maturity without penalty. The amount of
prepayments is dependent upon many factors, including the interest rate of a
given loan in comparison to the current interest rates, for residential
mortgages the level of sales of used homes, and the overall availability of
credit in the market place. Generally, a decrease in interest rates will result
in an increase in the Corporation's cash flows from these assets. Investment
securities, other than those that are callable, do not have any significant
imbedded options. Saving and checking deposits may generally be withdrawn on
request without prior notice. The timing of cash flow from these deposits are
estimated based on historical experience. Time deposits have penalties which
discourage early withdrawals.
The second technique used in the management of interest rate risk is to combine
the projected cash flows and repricing characteristics generated by the gap
analysis and the interest rates associated with those cash flows and projected
future interest income. By changing the amount and timing of the cash flows and
the repricing interest rates of those cash flows, the Corporation can project
the effect of changing interest rates on its interest income.
The following table provides information about the Corporation's assets and
liabilities that are sensitive to changes in interest rates as of March 31,
2000. The Corporation has no interest rate swaps, futures contracts, or other
derivative financial options. The principal amounts of assets and time deposits
maturing were calculated based on the contractual maturity dates. Savings and
NOW accounts are based on management's estimate of their future cash flows.
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Quantitative Disclosures of Market Risk
(dollars in thousands)
March 31 Fair Value
2001 2002 2003 2004 2005 Thereafter Total 3/31/00
Rate sensitive assets
Other interest bearing assets -- -- -- -- -- -- -- --
Average interest rates -- -- -- -- -- -- -- --
Fixed interest rate securities $20,356 $17,809 $19,425 $11,721 $6,111 $12,087 $87,509 $87,474
Average interest rates 5.57% 5.79% 5.48% 5.76% 5.40% 5.21% 5.56%
Fixed interest rate loans $73,863 $57,380 $51,800 $36,237 $34,259 $10,268 $263,807 $263,047
Average interest rates 8.17% 7.97% 7.98% 7.75% 7.76% 7.71% 7.96%
Variable interest rate loans $14,244 $1,732 $226 $51 -- -- $16,253 $16,253
Average interest rates 10.43% 10.20% 8.89% 10.04% -- -- 10.39%
Rate sensitive liabilities
Federal funds purchased $2,000 -- -- -- -- -- $2,000 $2,000
Average interest rates 6.25% -- -- -- -- -- 6.25%
Savings and NOW accounts $93,073 $14,007 $10,982 $9,869 $8,554 $21,643 $158,128 $158,128
Average interest rates 3.68% 2.15% 2.15% 2.15% 2.15% 2.15% 3.05%
Fixed interest rate time deposits $85,292 $24,152 $22,241 $12,274 $10,393 -- $154,352 $154,352
Average interest rates 5.31% 6.04% 6.02% 5.71% 5.88% -- 5.59%
Variable interest rate time deposits $842 $412 $4 -- -- -- $1,258 $1,258
Average interest rates 6.01% 6.01% 6.01% -- -- -- 6.01%
Quantitative Disclosures of Market Risk
(dollars in thousands) March 31 Fair Value
2000 2001 2002 2003 2004 Thereafter Total 03/31/99
Rate sensitive assets
Other interest bearing assets $10,000 -- -- -- -- -- $10,000 $10,000
Average interest rates 5.45% -- -- -- -- -- 5.45%
Fixed interest rate securities $17,894 $18,928 $25,419 $11,572 $14,186 $18,434 $106,443 $106,508
Average interest rates 5.59% 6.11% 5.87% 5.86% 5.89% 6.57% 5.84%
Fixed interest rate loans $64,156 $47,050 $43,016 $25,268 $15,427 $6,415 $201,332 $203,014
Average interest rates 8.25% 8.31% 8.35% 8.13% 8.35% 7.84% 8.27%
Variable interest rate loans 12,166 $1,858 $851 $89 $14 $131 $15,109 $15,109
Average interest rates 10.24% 10.21% 9.38% 9.88% 11.00% 10.16% 10.27%
Rate sensitive liabilities
Savings and NOW accounts $55,710 $16,254 $13,085 $11,115 $10,273 $27,405 $133,842 $133,842
Average interest rates 3.66% 2.62% 2.62% 2.61% 2.60% 2.52% 3.03%
Fixed interest rate time deposits $87,877 $24,385 $12,851 $13,838 $11,186 $125 $150,262 $149,750
Average interest rates 5.56% 6.05% 6.25% 6.61% 6.48% 6.70% 5.87%
Variable interest rate time deposits $640 $394 -- -- -- -- $1,034 $1,034
Average interest rates 5.29% 5.29% -- -- -- -- 5.29%
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PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed or required to be filed during
the quarter ended March 31, 2000.
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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: April 30, 2000 /s/ David W. Hole
------------------------ ---------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
----------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
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IBT BANCORP, INC.
EXHIBIT INDEX
Exhibit
No. Description Page Number
- ------- ----------------- -----------
27 Financial Data Schedule 18
20