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 June 30, 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
-------
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway 48858
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(517) 772-9471
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
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, 2,989,323 as of July 21, 2000
--------------------------------------------------------
2
IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Numbers
Item 1 Financial Statements 3-8
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-19
Item 3 Quantitative and Qualitative
Disclosures About Market Risk 20-21
Part II Other Information
Item 4 Submission of Matters to a Vote of
Security Holders 22
Item 6 Exhibits and Reports on Form 8-K 22
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) June 30 December 31
2000 1999
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 13,920 $ 17,610
Federal funds sold -- --
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 13,920 17,610
Investment securities
Securities available for sale (Amortized cost of
$75,797 in 2000 and $84,363 in 1999) 74,651 82,828
Securities held to maturity (Fair value --
$6,710 in 2000 and $6,813 in 1999) 6,732 6,822
--------- ---------
TOTAL INVESTMENT SECURITIES 81,383 89,650
Loans
Commercial and agricultural 53,081 48,156
Real estate mortgage 196,384 188,016
Installment 44,127 40,550
--------- ---------
TOTAL LOANS 293,592 276,722
Less allowance for loan losses 3,450 3,210
--------- ---------
NET LOANS 290,142 273,512
Other assets 21,264 21,246
--------- ---------
TOTAL ASSETS $ 406,709 $ 402,018
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 45,815 $ 49,203
NOW accounts 60,286 54,628
Certificates of deposit and other savings 227,596 226,794
Certificates of deposit over $100 30,087 25,010
--------- ---------
TOTAL DEPOSITS 363,784 355,635
Federal funds purchased -- 5,000
Accrued interest and other liabilities 4,257 4,705
--------- ---------
TOTAL LIABILITIES 368,041 365,340
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding--
2,989,109 in 2000 (2,976,436 in 1999) 25,997 25,739
Retained earnings 13,427 11,952
Accumulated other comprehensive loss (756) (1,013)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 38,668 36,678
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 406,709 $ 402,018
========= =========
See notes to consolidated financial statements.
3
4
IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars in thousands) Six Months Ended
June 30
-------
2000 1999
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 2,976,307 2,909,191
Issuance of common stock 12,802 57,783
----------- -----------
BALANCE END OF PERIOD 2,989,109 2,966,974
=========== ===========
COMMON STOCK
Balance at beginning of period $ 25,739 $ 24,184
Issuance of common stock 258 1,339
----------- -----------
BALANCE END OF PERIOD 25,997 25,523
RETAINED EARNINGS
Balance at beginning of period 11,952 9,369
Net income 2,016 2,016
Cash dividends ($0.18 per share in 2000 and $0.16 in 1999) (541) (459)
----------- -----------
BALANCE END OF PERIOD 13,427 10,926
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period (1,013) 970
Unrealized gains (losses) on securities available for sale,
net of income taxes and reclassification adjustment 257 (1,148)
----------- -----------
BALANCE END OF PERIOD (756) (178)
----------- -----------
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 38,668 $ 36,271
=========== ===========
See notes to consolidated financial statements.
4
5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands) Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
-------------------- -------------------
INTEREST INCOME
Loans $ 5,959 $ 5,197 $ 11,699 $ 10,409
Investment securities
Taxable 886 1,161 1,838 2,302
Nontaxable 359 232 648 461
Federal funds sold 1 241 41 389
-------- -------- -------- --------
TOTAL INTEREST INCOME 7,205 6,831 14,226 13,561
INTEREST EXPENSE
Deposits 3,353 3,216 6,628 6,398
Federal funds purchased 126 -- 145 --
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 3,479 3,216 6,773 6,398
-------- -------- -------- --------
NET INTEREST INCOME 3,726 3,615 7,453 7,163
Provision for loan losses 104 98 154 192
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,622 3,517 7,299 6,971
NONINTEREST INCOME
Trust fees 117 115 231 228
Service charges on deposit accounts 73 80 142 165
Other service charges and fees 368 314 725 603
Other 155 108 298 265
Gain on sale of mortgage loans 19 86 35 194
Title insurance revenue 296 199 507 358
Net realized (loss) gain on securities available for sale (4) 10 (4) 11
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 1,024 912 1,934 1,824
NONINTEREST EXPENSES
Salaries, wages and employee benefits 1,763 1,586 3,512 3,199
Occupancy 210 193 428 398
Furniture and equipment 358 329 700 630
Other 927 911 1,865 1,799
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSES 3,258 3,019 6,505 6,026
INCOME BEFORE FEDERAL INCOME TAXES 1,388 1,410 2,728 2,769
Federal income taxes 368 387 712 753
-------- -------- -------- --------
NET INCOME $ 1,020 $ 1,023 $ 2,016 $ 2,016
======== ======== ======== ========
Net income per share $ 0.35 $ 0.35 $ 0.68 $ 0.69
======== ======== ======== ========
Cash dividends per share $ 0.09 $ 0.08 $ 0.18 $ 0.16
======== ======== ======== ========
See notes to consolidated financial statements.
5
6
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
------------------- -------------------
NET INCOME $ 1,020 $ 1,023 $ 2,016 $ 2,016
Other comprehensive income (loss) before income taxes:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising
during period 314 (893) 386 (1,527)
Reclassification adjustment for realized
loss (gains) included in net income 4 (10) 4 (11)
------- ------- ------- -------
Other comprehensive gain income (loss) before income
taxes 318 (903) 390 (1,538)
Income tax (benefit) expense related to other
comprehensive income 109 (174) 133 (390)
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME 209 (729) 257 (1,148)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 1,299 $ 294 $ 2,273 $ 868
======= ======= ======= =======
See notes to consolidated financial statements.
6
7
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Six Months Ended
June 30
2000 1999
---- ----
OPERATING ACTIVITIES
Interest and fees collected on loans
and investments $ 14,279 $ 13,611
Other fees and income received 1,926 1,819
Interest paid (6,750) (6,445)
Cash paid to suppliers and employees (6,623) (5,359)
Decrease in loans originated for sale 78 1,541
Federal income taxes paid (700) (1,059)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,210 4,108
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities Calls, and sales 12,639 12,055
Purchases (3,978) (16,081)
Activity in held to maturity securities
Maturities Calls, and sales -- 722
Purchases (105) (122)
Net increase in loans (16,862) (7,122)
Purchases of equipment and premises (460) (427)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (8,766) (10,975)
FINANCING ACTIVITIES
Net decrease in noninterest bearing deposits (3,388) (226)
Net increase in interest bearing deposits 11,537 10,928
Net decrease in federal funds borrowed (5,000) --
Cash dividends paid (541) (459)
Proceeds from issuance of common stock 258 239
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,866 10,482
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,690) 3,615
Cash and cash equivalents at beginning of period 17,610 30,497
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,920 $ 34,112
======== ========
See notes to consolidated financial statements.
7
8
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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 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 shares 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 average number of common shares outstanding was 2,983,033
and 2,913,884 for the six month period ending June 30, 2000 and 1999,
respectively.
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
as a "pooling of interest." All regulatory approvals have been received. On
August 2, 2000, the shareholders of FSB approved the transaction.
8
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
SIX MONTHS ENDING JUNE 30, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $2.02 million for the six month period ended June 30, 2000,
and 1999. Return on average assets, which measures the ability of the
Corporation to profitably and efficiently employ its resources, was 1.00% for
the first six months of 2000 and 1.02% in 1999. Return on average equity, which
indicates how effectively the Corporation is able to generate earnings on
shareholder invested capital, equaled 10.46% through June 30, 2000 versus 11.83%
for the same period in 1999.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data) Year to Date
June 30
--------------------
2000 1999
--------------------
INCOME STATEMENT DATA
Net interest income $7,453 $7,163
Provision for loan losses 154 192
Net income 2,016 2,016
PER SHARE DATA
Net income per common share $ 0.68 $ 0.69
Cash dividends per common share 0.18 0.16
RATIOS
Average primary capital to average assets 10.28% 9.41%
Net income to average assets 1.00 1.02
Net income to average equity 10.46 11.83
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
$298,000 in 2000 versus $417,000 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.
(Continued on page 12)
9
10
TABLE 1
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(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.
Six Months Ending
June 30, 2000 June 30, 1999
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $281,574 $ 11,754 8.35% $ 248,759 $ 10,472 8.42%
Taxable investment securities 60,469 1,772 5.86 76,021 2,241 5.90
Nontaxable investment securities 26,000 980 7.54 19,608 698 7.12
Federal funds sold 1,440 41 5.69 16,632 389 4.68
Other 1,787 67 7.50 1,675 61 7.28
-------- -------- ---- --------- -------- ----
Total Earning Assets 371,270 14,614 7.87 362,695 13,861 7.64
NONEARNING ASSETS
Allowance for loan losses (3,336) (3,086)
Cash and due from banks 14,901 13,717
Premises and equipment 8,965 7,869
Accrued income and other assets 12,109 10,620
-------- ---------
Total Assets $403,909 $ 391,815
======== =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 55,154 714 2.59 $ 55,652 663 2.38
Savings deposits 100,759 1,609 3.19 100,843 1,518 3.01
Time deposits 155,135 4,305 5.55 154,208 4,215 5.47
Federal funds purchased 4,500 145 6.44 -- -- --
-------- -------- ---- --------- -------- ----
Total Interest Bearing Liabilities 315,548 6,773 4.29 310,703 6,396 4.12
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 44,601 42,836
Other 5,224 4,198
Shareholders' equity 38,536 34,078
-------- ---------
Total Liabilities and Equity $403,909 $ 391,815
======== =========
Net interest income (FTE) $ 7,841 $ 7,465
======== ========
Net yield on interest earning assets (FTE) 4.22% 4.12%
==== ====
10
11
TABLE 2
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(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.
Six Month Period Ended June 30, 2000
Compared to
June 30, 1999
Increase (Decrease) Due to
------------------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME
Loans $1,371 $ (89) $1,282
Taxable investment securities (456) (13) (469)
Nontaxable investment securities 239 43 282
Federal funds sold (418) 70 (348)
Other 4 2 6
------ ----- ------
Total changes in interest income 740 13 753
Total changes in interest expense 164 213 377
------ ----- ------
Net Change in Interest Margin (FTE) $ 576 $(200) $ 376
====== ===== ======
11
12
NET INTEREST INCOME, CONTINUED
As shown in Tables number 1 and 2, when comparing the six month period ending
June 30, 2000 to the same period in 1999, fully taxable equivalent (FTE) net
interest income increased $376,000 or 5.0%. An increase of 2.4% in average
interest earning assets provided $740,000 of FTE interest income. The majority
of this growth was funded by a 1.6% increase in interest bearing liabilities,
resulting in $164,000 of additional interest expense. Overall, changes in volume
resulted in $576,000 of additional FTE interest income. The average FTE interest
rate earned on assets increased by 0.23%, but resulted in only a $13,000
increase in FTE interest income. The FTE interest income earned from the
increase in the average rate was reduced by a decrease in the average rate
earned on loans. Loans which bear the highest overall average yield of any asset
increased from 68.6% of average earning assets to 75.8% in 2000. The change in
mix resulted in the average rate of all earning assets to increase despite the
decline in the average rate of loans and taxable investment securities. The
average rate paid on deposits increased by 0.17%, increasing interest expense by
$213,000. The net change related to interest rates earned and paid was a
$200,000 decrease in FTE net interest income.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.22% during the first six months of 2000 versus 4.12% for the
same period in 1999. The 0.10% 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 high cost funding sources such as certificates of deposit
and borrowed federal funds, and interest rate competition for all types of
loans. Management expects both trends to continue into the foreseeable future.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Net loans outstanding represent 71% 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 June 30, 2000 to June 30, 1999, the
provision for loan losses was decreased $38,000 to $154,000. Year to date 2000,
the Corporation had net recoveries of $86,000 versus net charge-offs of $34,000
in 1999. Loans classified as nonperforming were 0.43% of loans as of June 30,
2000 versus 0.65% for June 30, 1999. As of June 30, 2000, the allowance for loan
losses as a percentage of loans equaled 1.18%. In management's opinion, the
allowance for loan losses is adequate as of June 30, 2000.
12
13
TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
June 30
-----------------------
2000 1999
------- -------
Summary of changes in allowance
Allowance for loan losses - January 1 $ 3,210 $ 2,977
Loans charged off (74) (176)
Recoveries of charged off loans 160 142
-------- --------
Net loans recovered (charged off) 86 (34)
Provision charged to operations 154 192
-------- --------
Allowance for loan losses - June 30 $ 3,450 $ 3,135
======== ========
Allowance for loan losses as a % of loans 1.18% 1.24%
======== ========
NONPERFORMING LOANS
(Dollars in thousands)
June 30
2000 1999
------ ------
Total amount of loans outstanding for
the period (net of unearned interest) $293,592 $252,255
======== ========
Nonaccrual loans $ 302 $ 793
Accruing loans past due 90 days or more 970 836
Restructured loans -- --
-------- --------
Total $ 1,272 $ 1,629
======== ========
Loans classified as nonperforming as a
% of outstanding loans 0.43% 0.65%
======== ========
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.
13
14
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. There
was a $110,000 increase in fees earned from these sources during the first six
months of 2000 when compared to the same period in 1999. Significant individual
account changes during this period include a $149,000 increase from the sale of
title insurance and related services, a $35,000 increase in brokerage
commissions, a $159,000 decrease in gains on the sale of mortgage loans, a
$97,000 increase in mortgage servicing fees, and a $21,000 decrease in ATM fees.
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 $35,000 gain from the sale of $3.9 million in
mortgages during the second quarter of 2000 versus a $194,000 gain on the sale
of $28.9 million in mortgages for the same period in 1999.
NONINTEREST EXPENSES
Noninterest expenses increased $479,000 or 7.9% during the first six months of
2000 when compared to 1999. The largest component of noninterest expense is
salaries and employee benefits, which increased $313,000 or 9.8%. In addition to
increases resulting from additional staffing and normal merit and promotional
salary adjustments, the Corporation incurred additional expenses related to its
acquisition of Mecosta County Abstract and Title.
Occupancy and furniture and equipment expenses increased $99,000 or 12.9% in
2000. Approximately $30,000 of the increase is related to the acquisition. Other
significant changes include computer expenses, service contracts, and automatic
teller machine operating expenses. Other operating expenses increased $66,000, a
3.7% increase. The majority of this increase is related to the cost of title
insurance. There were no other significant changes in other operating expenses.
QUARTER ENDED JUNE 30, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $1.02 million for the second quarter in 2000 and 1999. Return
on average assets equaled 1.00% for the second quarter of 2000 versus 1.03% for
the same period in 1999. Return on average equity equaled 10.47% for the second
quarter in 2000, versus 11.84% for the second quarter in 1999.
14
15
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Quarter Ended
June 30
-------------------------
2000 1999
-------------------------
INCOME STATEMENT DATA
Net interest income $3,726 $3,615
Provision for loan losses 104 98
Net income 1,020 1,023
PER SHARE DATA
Net income per common share $ 0.35 $ 0.35
Cash dividend per common share 0.09 0.08
RATIOS
Net income to average assets 1.00% 1.03%
Net income to average equity 10.47 11.84
NET INTEREST INCOME
When comparing the second quarter of 2000 to 1999, net FTE interest income
increase $171,000. An increase of 2.1% in interest earning assets provided
$355,000 of FTE interest income. The asset growth was funded primarily by a 1.1%
increase in interest bearing liabilities, resulting in $105,000 of increased
interest expense. Overall, increased volume resulted in $250,000 of additional
FTE interest income. During the second quarter of 2000, the average FTE interest
rate earned on assets increased by 0.32% and the average rate paid on deposits
increased by 0.29%. The changes in interest rates earned and paid resulted in a
$79,000 decrease in FTE interest income. The Corporation's FTE net interest
yield as a percentage of average earning assets increased 0.10% to 4.22% in the
second quarter of 2000. The primary factor for the increase was a change in
asset mix.
PROVISION FOR LOAN LOSSES
The amount provided for loan losses in the second quarter of 2000 was $104,000
versus $98,000 in 1999. During the second quarter of 2000 the Corporation had
net recoveries of $10,000 versus $24,000 net charge-offs during the same period
of 1999.
NONINTEREST INCOME
Noninterest income earned in the second quarter of 2000, when compared to the
same period in 1999, increased $112,000 or 12.3%. The most significant changes
were a $97,000 increase from the sale of title insurance and related services, a
$14,000 decrease in gains/losses on the sale of investment securities available
for sale, a $67,000 decrease in gains on the sale of mortgage loans, and a
$43,000 increase in income from servicing sold mortgage loans.
15
16
TABLE 4
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(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.
Quarter Ending
June 30, 2000 June 30, 1999
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $286,043 $5,986 8.37% $250,559 $5,269 8.41%
Taxable investment securities 58,263 853 5.86 76,745 1,128 5.88
Nontaxable investment securities 27,142 542 7.99 19,777 351 7.10
Federal funds sold 58 1 6.90 16,965 199 4.69
Other 1,838 34 7.40 1,735 33 7.61
-------- ------ ---- -------- ------ ----
Total Earning Assets 373,344 7,416 7.95 365,781 6,980 7.63
NONEARNING ASSETS
Allowance for loan losses (3,391) (3,120)
Cash and due from banks 15,192 14,215
Premises and equipment 8,963 7,883
Accrued income and other assets 12,214 11,430
-------- --------
Total Assets $406,322 $396,189
======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 53,974 356 2.64 $ 55,590 326 2.35
Savings deposits 96,467 764 3.17 100,676 754 3.00
Time deposits 158,130 2,233 5.65 156,725 2,134 5.45
Federal funds purchased 7,726 126 6.52 -- -- --
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities 316,297 3,479 4.40% 312,991 3,214 4.11%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY
Demand deposits 45,956 44,457
Other 5,095 4,201
Shareholders' equity 38,974 34,540
-------- --------
Total Liabilities and Equity $406,322 $396,189
======== ========
Net interest income (FTE) $3,937 $3,766
====== ======
Net yield on interest earning assets (FTE) 4.22% 4.12%
==== ====
16
17
TABLE 5
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(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 June 30, 2000
Compared to
June 30, 1999
Increase (Decrease) Due to
---------------------------------
Volume Rate Net
-------- -------- --------
CHANGES IN INTEREST INCOME
Loans $ 742 $(25) $ 717
Taxable investment securities (270) (5) (275)
Nontaxable investment securities 143 48 191
Federal funds sold (262) 64 (198)
Other 2 (1) 1
----- ---- -----
Total changes in interest income 355 81 436
Total changes in interest expense 105 160 265
----- ---- -----
Net Change in Interest Margin (FTE) $ 250 $(79) $ 171
===== ==== =====
17
18
NONINTEREST EXPENSES
Noninterest expenses increased $239,000 or 7.9% during the second quarter of
2000 when compared to 1999. Noninterest expense includes salary and benefits,
occupancy, and other operating expenses. The largest component of noninterest
expense is salaries and employee benefits, which increased $177,000 or 11.2%.
Approximately $56,000 was related to the acquisition of Mecosta County Abstract
and Title; the remainder of the increase is related to normal merit and
promotional salary increases.
Occupancy and furniture and equipment expenses increased $56,000 or 10.7%.
Approximately $16,000 of the increase is related to the aforementioned
acquisition with the remainder related to service contracts, ATM operating
expenses, and computer operating expenses. Other operating expenses increased
$16,000 or 1.8%. The most significant changes include increases in title
insurance costs and loan related expenses and decreases in the amortization of
intangibles and printing and office supplies.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1999, total assets increased $4.7 million to $406.7 million.
As of June 30, 2000, the loan portfolio increased $16.8 million, cash and demand
deposits due from bank decreased $3.7 million and investment securities
decreased $8.3 million when compared to December 31, 1999. Deposits during this
period increased $8.1 million, federal funds purchased decreased $5.0 million,
and shareholders' equity increased $2.0 million.
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 payment
of cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and investment securities available for sale.
As of June 30, 2000, cash and cash equivalents as a percentage of total assets
equaled 3.4%, versus 4.4% as of December 31, 1999. During the first six months
of 2000, $2.2 million in net cash was provided from operations and $2.9 million
was provided from financing activities. Investing activities used $8.8 million.
The accumulated effect of the Corporation's operating, investing and financing
activities was a $3.7 million decrease in cash and cash equivalents during the
first six 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
$74.7 million as of June 30, 2000 and $82.8 million as of December 31, 1999. The
Corporation's liquidity is considered adequate by management.
CAPITAL
The capital of the Corporation consists solely of common stock and retained
earnings, reduced by accumulated other comprehensive loss; and increased
approximately $2.0 million since December 31, 1999.
18
19
CAPITAL, CONTINUED
There are no significant capital regulatory constraints placed on the
Corporation's capital. The Federal Reserve Board's current recommended minimum
tier 1 and tier 2 average assets requirement is 6.0%. The Corporation's tier 1
and tier 2 capital to assets, which consists of shareholder's equity plus the
allowance for loan losses less unamortized acquisition intangibles, was 9.5% as
of June 30, 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 June 30, 2000:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 06/30/00
-------- --------
Equity Capital 4.00 13.48%
Secondary Capital* 4.00 1.25%
---- -----
Total Capital 8.00 14.73%
==== =====
* 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.
19
20
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 June 30, 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.
20
21
Quantitative Disclosures of Market Risk
June 30 Fair Value
-----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 06/30/00
-----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets -- -- -- -- -- -- -- --
Average interest rates -- -- -- -- -- -- --
Fixed interest rate securities $12,150 $17,247 $19,789 $11,856 $ 5,952 $14,389 $ 81,383 $ 81,361
Average interest rates 5.56% 5.80% 5.47% 5.75% 5.38% 5.50% 5.59%
Fixed interest rate loans $75,918 $58,936 $58,309 $37,302 $33,991 $10,024 $274,480 $274,282
Average interest rates 8.24% 7.99% 8.12% 7.76% 7.92% 7.66% 8.03%
Variable interest rate loans $16,974 $ 1,881 $ 214 $ 43 -- -- $ 19,112 $ 19,112
Average interest rates 10.87% 10.78% 9.58% 10.95% -- -- 10.85%
Rate sensitive liabilities
Savings and NOW accounts $87,020 $15,473 $12,083 $10,827 $ 9,317 $22,697 $157,417 $157,417
Average interest rates 3.74% 2.13% 2.14% 2.14% 2.14% 2.16% 3.02%
Fixed interest rate time deposits $85,267 $26,669 $21,831 $12,777 $12,726 -- $159,270 $159,571
Average interest rates 5.61% 6.22% 6.04% 5.76% 6.58% -- 5.86%
Variable interest rate time deposits $ 912 $ 370 -- -- -- -- $ 1,282 $ 1,282
Average interest rates 6.01% 6.01% -- -- -- -- 6.01%
Quantitative Disclosures of Market Risk
June 30 Fair Value
-----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 06/30/00
-----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $18,200 -- -- -- -- -- $ 18,200 $ 18,200
Average interest rates 4.95% -- -- -- -- -- 4.95%
Fixed interest rate securities $21,458 $20,442 $20,522 $15,315 $ 9,377 $10,413 $ 97,527 $ 97,562
Average interest rates 5.78% 5.84% 5.58% 5.74% 5.62% 6.57% 5.81%
Fixed interest rate loans $72,357 $50,359 $50,196 $22,658 $30,776 $10,751 $237,097 $239,671
Average interest rates 7.97% 8.15% 7.92% 8.06% 7.64% 7.62% 7.95%
Variable interest rate loans $13,094 $ 1,638 $ 344 $ 80 $ 2 $ 0 $ 15,158 $ 15,158
Average interest rates 9.65% 10.48% 8.31% 8.32% 7.75% 0.00% 9.70%
Rate sensitive liabilities
Savings and NOW accounts $88,294 $13,534 $10,715 $ 7,876 $ 7,810 $30,712 $158,941 $158,941
Average interest rates 3.40% 2.15% 2.15% 2.15% 2.15% 2.15% 2.84%
Fixed interest rate time deposits $88,819 $20,381 $18,773 $13,777 $12,746 $ 83 $154,579 $155,016
Average interest rates 5.10% 5.59% 5.59% 6.15% 5.46% 6.72% 5.44%
Variable interest rate time deposits $ 695 $ 395 $ 9 -- -- -- $ 1,099 $ 1,099
Average interest rates 4.67% 4.67% 4.67% -- -- -- 4.67%
21
22
PART II - OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The registrant's annual meeting of shareholders was held on April 18,
2000. At the meeting the shareholders voted upon the following matters:
Proposal 1 - Election of Directors to terms ending 2003:
For Withheld
--- --------
Frederick L. Bradford 2,271,144 62,146
Dean E. Walldorff 2,269,893 63,397
Proposal 2 - Approval of an amendment to the Articles of Incorporation
to increase the number of authorized shares of common stock from
4,000,000 to 10,000,000 shares.
For: 2,211,117
Against: 80,974
Abstain: 41,199
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Amendment of the Articles of Incorporation of IBT
Bancorp, Inc.*
3(ii) Bylaws of IBT Bancorp, Inc.*
27 Financial Data Schedule
-------------
* Incorporated by reference to the registration statement on
Form S-4, filed on June 20, 2000 and subsequently amended
on July 12, 2000.
(b) Reports on Form 8-K
(1) Form 8-K, Item 2, filed April 20, 2000
(2) Form 8-K/A Amendment Number 1, Item 2, filed
June 20, 2000
(3) Form 8-K/A Amendment Number 1, Item 7, FSB Bancorp, Inc.
Unaudited Pro Forma Condensed Combined filed June 20,
2000:
Balance Sheet, March 31, 2000
Statement of Income, March 31, 2000
Statement of Income, December 31, 1999
Statement of Income, December 31, 1998
Statement of Income, December 31, 1997
22
23
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, 2000 /s/ David W. Hole
------------------ ------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
23
24
IBT BANCORP
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------------------------
27 Financial Data Schedule
24