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 September 30, 2000
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
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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 Mt. Pleasant, MI 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
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, 3,868,272 as of October 19, 2000
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IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Numbers
Item 1 Financial Statements and Notes 3-8
Item 2 Management's Discussion and 9-20
Analysis of Financial Condition
and Results of Operations
Item 3 Quantitative and Qualitative 20-21
Disclosures About Market Risk
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 22
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) September 30 December 31
2000 1999
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 18,759 $ 22,159
Federal funds sold -- 4,550
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 18,759 26,709
Investment securities
Securities available for sale (amortized cost of
$75,293 in 2000 and $87,919 in 1999) 74,376 86,356
Securities held to maturity (fair value --
$15,511 in 2000 and $14,704 in 1999) 15,525 14,766
--------- ---------
TOTAL INVESTMENT SECURITIES 89,901 101,122
Loans
Commercial and agricultural 109,471 87,629
Real estate mortgage 235,069 217,994
Installment 53,353 50,223
--------- ---------
TOTAL LOANS 397,893 355,846
Less allowance for loan losses 5,136 4,622
--------- ---------
NET LOANS 392,757 351,224
Other assets 25,282 24,542
--------- ---------
TOTAL ASSETS $ 526,699 $ 503,597
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 58,630 $ 59,885
NOW accounts 69,846 62,902
Certificates of deposit and other savings 292,091 294,714
Certificates of deposit over $100,000 41,383 27,575
--------- ---------
TOTAL DEPOSITS 461,950 445,076
Other borrowings 9,006 6,110
Accrued interest and other liabilities 4,755 5,304
--------- ---------
TOTAL LIABILITIES 475,711 456,490
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding--
3,868,272 in 2000 (3,798,782 in 1999) 30,745 30,322
Retained earnings 20,666 17,816
Accumulated other comprehensive loss (423) (1,031)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 50,988 47,107
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 526,699 $ 503,597
========= =========
See notes to consolidated financial statements.
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IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars in thousands) Nine Months Ended
September 30
------------
2000 1999
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 3,848,249 3,734,975
Issuance of common stock 20,023 63,807
----------- -----------
BALANCE END OF PERIOD 3,868,272 3,798,782
=========== ===========
COMMON STOCK
Balance at beginning of period $ 30,322 $ 27,833
Issuance of common stock 423 1,467
----------- -----------
BALANCE END OF PERIOD 30,745 29,300
RETAINED EARNINGS
Balance at beginning of period 17,816 15,342
Net income 4,004 3,909
Cash dividends ($0.27 per share
in 2000 and $0.24 in 1999) (1,154) (913)
----------- -----------
BALANCE END OF PERIOD 20,666 18,338
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period (1,031) 998
Unrealized gains (losses) on securities available for sale,
net of income taxes and reclassification adjustment 608 (1,423)
----------- -----------
BALANCE END OF PERIOD (423) (425)
----------- -----------
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 50,988 $ 47,213
=========== ===========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
----------------------- --------------------------
INTEREST INCOME
Loans $8,633 $ 7,198 $ 24,383 $20,986
Investment securities
Taxable 908 1,269 2,970 3,910
Nontaxable 352 292 1,073 837
Federal funds sold and other 38 261 116 716
------ ------- -------- -------
TOTAL INTEREST INCOME 9,931 9,020 28,542 26,449
INTEREST EXPENSE
Deposits 4,701 4,120 13,040 12,180
Federal funds purchased 133 19 339 20
------ ------- -------- -------
TOTAL INTEREST EXPENSE 4,834 4,139 13,379 12,200
NET INTEREST INCOME 5,097 4,881 15,163 14,249
Provision for loan losses 186 162 490 414
------ ------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,911 4,719 14,673 13,835
NONINTEREST INCOME
Trust fees 117 108 348 336
Service charges on deposit accounts 91 86 252 265
Other service charges and fees 439 409 1,378 1,250
Gain on sale of mortgage loans 22 66 63 263
Title insurance revenue 323 350 830 708
Net realized (loss) gain on securities available
for sale -- (4) (4) 7
Other 136 185 454 471
------ ------- -------- -------
TOTAL NONINTEREST INCOME 1,128 1,200 3,321 3,300
NONINTEREST EXPENSE
Salaries, wages and employee benefits 2,144 2,105 6,471 6,087
Occupancy 251 249 752 719
Furniture and equipment 476 483 1,427 1,408
Other 1,368 1,215 3,813 3,496
------ ------- -------- -------
TOTAL NONINTEREST EXPENSE 4,239 4,052 12,463 11,710
INCOME BEFORE FEDERAL INCOME TAXES 1,800 1,867 5,531 5,425
Federal income taxes 498 519 1,527 1,516
------ ------- -------- -------
NET INCOME $1,302 $ 1,348 $ 4,004 $ 3,909
====== ======= ======== =======
Basic net income per share $ 0.34 $ 0.36 $ 1.04 $ 1.04
====== ======= ======== =======
Cash dividends per share $ 0.09 $ 0.06 $ 0.27 $ 0.24
====== ======= ======== =======
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 Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
----------------------- -----------------------
NET INCOME $1,302 $ 1,348 $4,004 $ 3,909
Other comprehensive income (loss) before income taxes
Unrealized gains (losses) on securities
available for sale:
Unrealized holding gains (losses) arising
during period 540 (613) 917 (2,149)
Reclassification adjustment for realized
losses (gains) included in net income -- 4 4 (7)
------ ------- ------ -------
Comprehensive income (loss) before income
taxes 540 (609) 921 (2,156)
Income tax expense (benefit) related to
comprehensive income 183 (340) 313 (733)
------ ------- ------ -------
OTHER COMPREHENSIVE INCOME (LOSS) NET OF
INCOME TAXES 357 (269) 608 (1,423)
------ ------- ------ -------
COMPREHENSIVE INCOME $1,659 $ 1,079 $4,612 $ 1,941
====== ======= ====== =======
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands) Nine Months Ended
September 30
2000 1999
---- ----
OPERATING ACTIVITIES
Net income 4,004 3,909
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 490 414
Provision for depreciation 848 880
Net amortization of securities 83 345
Amortization of intangibles 429 460
Gain on sale of mortgage loans (63) (263)
Proceeds from sales of mortgage loans 7,162 34,256
Mortgage loans originated for sale (7,406) (31,216)
Increase in interest receivable (751) (441)
Increase in other assets (433) (400)
Decrease in accrued interest and other expenses (549) (361)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,814 7,583
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities calls, and sales 15,196 24,798
Purchases (5,788) (25,433)
Activity in held to maturity securities
Maturities calls, and sales 4,957 2,794
Purchases (2,305) (1,394)
Net increase in loans (41,716) (27,325)
Purchases of equipment and premises (1,147) (711)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (30,803) (27,271)
FINANCING ACTIVITIES
Net (decrease) increase in noninterest bearing deposits (1,255) 1,416
Net increase (decrease) in interest bearing deposits 18,129 (3,059)
Net increase in other borrowings 2,896 3,649
Cash dividends (1,154) (913)
Common stock issued 423 366
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,039 1,459
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (7,950) (18,229)
Cash and cash equivalents at beginning of period 26,709 37,119
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,759 $ 18,890
======== ========
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 and nine month periods ended
September 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 MERGER
On August 13, 2000, IBT Bancorp ("IBT") and FSB Bancorp ("FSB") completed a
merger which was accounted for as a "pooling of interests." Accordingly, results
of operations, changes in financial position and other financial data for IBT
and FSB have been combined on an historical basis.
NOTE 3 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 shares for 1 stock split declared on December 14, 1999 and paid
February 18, 2000. The weighted average number of common shares outstanding were
3,858,302 and 3,758,498 for the nine month periods ending September 30, 2000
and 1999, respectively.
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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
consolidated financial statements and notes thereto, as set forth on pages 3
through 8 of this report.
NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $4.00 million for the nine month period ended
September 30, 2000, compared to $3.91 million for the same period in 1999, a
2.4% increase. Return on average assets, which measures the ability of the
Corporation to profitably and efficiently employ its resources, equaled 1.05%
for the first nine months of 2000 and 1.06% in 1999. Return on average equity,
which indicates how effectively the Corporation is able to generate earnings on
shareholder invested capital, equaled 10.90% through September 30, 2000 versus
11.67% through September 30, 1999.
REVISED SUMMARY OF SELECTED FINANCIAL DATA
- -------------------------------------------
(Dollars in thousands except per share data) Year to Date
September 30
----------------------------------
2000 1999
----------------------------------
INCOME STATEMENT DATA
Net interest income $ 15,163 $ 14,249
Provision for loan losses 490 414
Net income 4,004 3,909
PER SHARE DATA
Net income per common share $ 1.04 $ 1.04
Cash dividends per common share 0.27 0.24
RATIOS
Average primary capital to average assets 10.47% 9.90%
Net income to average assets 1.05 1.06
Net income to average equity 10.90 11.67
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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.
Nine Months Ending
September 30, 2000 September 30, 1999
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- ------- -------- -------- -------
INTEREST EARNING ASSETS
Loans $373,638 $ 24,412 8.71% $326,059 $ 21,063 8.61%
Taxable investment securities 64,728 2,839 5.85 86,701 3,816 5.87
Nontaxable investment securities 29,450 1,626 7.36 23,918 1,268 7.07
Federal funds sold 2,528 116 6.12 19,257 696 4.82
Other 2,323 131 7.52 2,194 114 6.93
-------- -------- ------- -------- -------- -------
Total Earning Assets 472,667 29,124 8.22 458,129 26,957 7.85
NONEARNING ASSETS
Allowance for loan losses (4,868) (4,567)
Cash and due from banks 17,648 16,549
Premises and equipment 9,491 9,480
Accrued income and other assets 14,156 13,226
-------- --------
Total Assets $509,094 $492,817
======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 65,240 1,364 2.79 $ 63,289 1,130 2.38
Savings deposits 124,688 2,973 3.18 127,698 2,895 3.02
Time deposits 203,810 8,703 5.69 200,383 8,155 5.43
Borrowed funds 6,843 339 6.61 545 20 4.89
-------- -------- ------- -------- -------- -------
Total Interest Bearing Liabilities 400,581 13,379 4.45 391,915 12,200 4.15
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 54,190 51,024
Other 5,366 5,222
Shareholders' equity 48,957 44,656
-------- --------
Total Liabilities and Equity $509,094 $492,817
======== ========
Net interest income (FTE) $15,745 $ 14,757
======= ========
Net yield on interest earning assets (FTE) 4.44% 4.29%
===== =====
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IBT BANCORP, INC.
TABLE 2
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.
Nine Month Period Ended September 30, 2000
Compared to
September 30, 1999
Increase (Decrease) Due to
------------------------------------------
Volume Rate Net
------ ------ ------
Changes in Interest Income
Loans $ 3,106 $ 243 $ 3,349
Taxable investment securities (964) (13) (977)
Nontaxable investment securities 304 54 358
Federal funds sold (729) 149 (580)
Other investments 7 10 17
------- ------- -------
Total changes in interest income 1,724 443 2,167
Total changes in interest expense 418 761 1,179
------- ------- -------
Net Change in Interest Margin (FTE) $ 1,306 $ (318) $ 988
======= ======= =======
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IBT BANCORP, INC.
TABLE 3
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
September 30
-------------------
2000 1999
-------- --------
Summary of changes in allowance:
Allowance for loan losses - January 1 $ 4,622 $ 4,413
Loans charged off (292) (421)
Recoveries of charged off loans 316 276
-------- -------
Net loans recovered (charged off) 24 (145)
Provision charged to operations 490 414
-------- -------
Allowance for loan losses - September 30 $ 5,136 $ 4,682
======== =======
Allowance for loan losses as a % of loans 1.29% 1.36%
==== ====
NONPERFORMING LOANS
(Dollars in thousands)
September 30
2000 1999
----- -----
Total amount of loans outstanding at the
end of period $397,893 $343,288
======== ========
Nonaccrual loans $ 343 $ 1,078
Accruing loans past due 90 days or more 2,181 854
Restructured loans 182 --
-------- --------
Total $ 2,706 $ 1,932
======== ========
Loans classified as nonperforming as
a % of outstanding loans 0.68% 0.56%
==== ====
Loans classified as substandard to
Allowance for loan losses - September 30 52.7% 41.3%
==== ====
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
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
$719,000 in the first nine months of 2000 versus $768,000 for the same period 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.
As shown in Tables number 1 and 2, when comparing the nine month period ending
September 30, 2000 to the same period in 1999, fully taxable equivalent (FTE)
net interest income increased $988,000 or 6.7%. An increase of 3.2% in average
interest earning assets provided $1.72 million of FTE interest income. The
majority of this increase was funded by a 2.2% increase in interest bearing
deposits and borrowed funds, resulting in $418,000 of additional interest
expense. Overall, changes in volume resulted in $1.31 million of additional FTE
interest income. The average FTE interest rate earned on assets increased by
0.37%, increasing FTE interest income by $443,000 and the average rate paid on
deposits and other borrowings increased by 0.30%, increasing interest expense by
$761,000. The increased interest rates earned and paid reduced FTE net interest
income by $318,000.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.44% during 2000 versus 4.29% in 1999. The 0.15% increase in the
FTE net interest yield was primarily a result of the Corporation's increased
average loan to average earning asset ratio. The 2000 year to date ratio is
79.0% versus 71.2% in 1999. The increase in this ratio represents a shift of
$36.7 million from lower yielding investments to loans and resulted in
approximately $700,000 of additional interest income and added 0.20% to the FTE
net interest yield. Other factors affecting the Corporation's FTE net interest
yield include the increasing reliance on high cost funding sources such as
certificates of deposit and borrowed funds, and interest rate competition for
all types of loans and deposits. 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 75% 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 loans, overall economic conditions, and other factors.
Comparing the year to date period of September 30, 2000 to September 30, 1999,
the provision for loan losses was increased by $76,000 to $490,000. The
provision was increased due to a slight increase in loans classified as
substandard. As a percentage of loans, substandard loans to outstanding loans
was 0.68% in 2000 versus 0.56% in 1999. During 2000 the Corporation had net
recoveries of loans previously charged off of $24,000. As of September 30, 2000
the allowance for loan losses was $5.1 million or 1.29% of total loans. Based on
management's internal analysis, the allowance for loan losses is believed to be
adequate as of September 30, 2000.
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NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, gains on sale of mortgage loans sold, and gains and
losses on investment securities available for sale. There was a $21,000 increase
in fees earned from these sources during the nine months of 2000 when compared
to the same period in 1999. Significant individual account changes during this
period include a $122,000 increase in title insurance revenue, $106,000 in
mortgage servicing fee income, and a $200,000 decrease in gains on the sale of
mortgage loans originated for sale. The Corporation has established a policy
that all 30 year amortized fixed rate mortgage loans will be sold. These loans
are sold without recourse. The Corporation retains the servicing of these loans.
The calculation of gains on the sale of mortgages exclude at least 25 basis
points for the servicing of these loans. Included in other noninterest income is
a $63,000 gain from the sale of $7.2 million in mortgages through the third
quarter of 2000 versus a $263,000 gain on the sale of $34.3 million for the same
period in 1999.
NONINTEREST EXPENSE
Noninterest expense increased $753,000 or 6.4% during the first nine months of
2000 when compared to 1999. The largest component of noninterest expense is
salaries and employee benefits, which increased $384,000 or 6.3%. Salary
expenses related to the acquisition of Mecosta County Abstract and Title in July
1999 account for $64,000; the remaining increase is related to normal merit and
promotional salary increases and to increased staffing.
Occupancy and Furniture and equipment expenses increased $52,000 or 2.4% in
2000. Approximately $30,000 of the increase is related to the aforementioned
acquisition. Other significant changes include computer expenses and service
contract and equipment repairs. Other operating expenses increased $317,000 or
9.1%. The majority of this increase is related to the $243,000 costs incurred in
the merger of IBT and FSB Bancorp and an additional $35,000 for the cost of
title insurance sold. Printing and office supplies, postage and marketing
accounted for the majority of the remaining increase.
QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $1.30 million for the third quarter in 2000 compared to $1.35
million for the same period in 1999, a 3.4% decrease. The decrease was a direct
result of $160,000 after tax merger related expenses incurred during the third
quarter of 2000. Return on average assets equaled 1.00% for the third quarter in
2000 compared to 1.07% for the same period in 1999. Return on average equity
equaled 10.81% for the third quarter in 2000, versus 11.71% for the third
quarter in 1999.
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REVISED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Quarter Ended
September 30
----------------------
2000 1999
----------------------
INCOME STATEMENT DATA
Net interest income $ 5,097 $ 4,881
Provision for loan losses 186 162
Net income 1,302 1,348
PER SHARE DATA
Net income per common share $ 0.34 $ 0.36
Cash dividends per common share 0.09 0.06
RATIOS
Net income to average assets 1.00% 1.07%
Net income to average equity 10.81 11.71
NET INTEREST INCOME
When comparing net interest income for the third quarter of 2000 to the same
period in 1999, a 3.6% increase in average interest-earning assets provided
$640,000 of additional FTE interest income. The average rate of interest-earning
assets increased 0.52%, resulting in a $307,000 increase in FTE interest income.
The changes in average balances and the rates earned provided an additional
$947,000 of FTE interest income. The growth of earning assets was funded
primarily by growth in interest bearing liabilities, which increased by 2.8% in
2000. The average cost of these funds increased by 0.56%. The changes in the
average balances and rate paid on interest- bearing deposits resulted in
$693,000 of additional interest expense. Overall, the changes in interest rate
earned and paid and average balances resulted in additional net interest income
of $254,000 in the third quarter of 2000 when compared to the same period in
1999. The Corporation's FTE net interest yield increased by 0.06% to 4.34% in
the third quarter of 2000. The primary reason for the increase was a change in
asset mix.
PROVISION FOR LOAN LOSSES
Comparing the quarter ended September 30, 2000 and 1999, average total loans
outstanding increased 16.7%. The allowance for loan losses as a percentage of
total outstanding loans was 1.29% as of September 30, 2000 and 1.36% in 1999.
During the third quarter of 2000, the Corporation had net recoveries of $10,000.
The amount provided for loan losses was $186,000 in 2000 versus $162,000 in
1999. The increase in the provision was due to an increase in loans classified
as substandard to 0.68% as of September 30, 2000 compared to 0.56% in 1999.
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NONINTEREST INCOME
Noninterest income earned in the third quarter of 2000 compared to the same
period in 1999, decreased $72,000. The most significant changes were decreases
in revenue generated for the sale of title insurance and related services, gain
on sale of mortgage loans, and ATM access fees offset by increases in revenue
from mortgage loan servicing and trust fees.
IBT BANCORP, INC.
TABLE 4
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
September 30, 2000 September 30, 1999
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
-------- ---------- --------- -------- ---------- -------
INTEREST EARNING ASSETS
Loans $ 391,582 $ 8,613 8.80% $335,533 $ 7,173 8.55%
Taxable investment securities 58,326 855 5.86 84,978 1,236 5.82
Nontaxable investment securities 29,624 535 7.22 24,811 443 7.14
Federal funds sold 2,154 39 7.24 20,144 255 5.06
Other 2,599 51 7.85 2,105 39 7.41
--------- -------- -------- -------- -------- --------
Total Earning Assets 484,285 10,093 8.34 467,571 9,146 7.82
NONEARNING ASSETS
Allowance for loan losses (5,028) (4,664)
Cash and due from banks 18,182 17,168
Premises and equipment 7,965 10,169
Accrued income and other assets 14,248 13,654
--------- --------
Total Assets $ 519,652 $503,898
========= ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 71,214 577 3.24 $ 65,272 400 2.45
Savings deposits 119,876 966 3.22 128,810 991 3.08
Time deposits 210,994 3,158 5.99 203,166 2,733 5.38
Borrowed funds 7,763 133 6.85 1,365 17 4.98
--------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities 409,847 4,834 4.72 398,613 4,141 4.16
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 57,292 53,232
Other 4,350 6,011
Shareholders' equity 48,163 46,042
--------- --------
Total Liabilities and Equity $ 519,652 $503,898
========= ========
Net interest income (FTE) $ 5,259 $ 5,005
======== ========
Net yield on interest earning assets (FTE) 4.34% 4.28%
===== =====
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IBT BANCORP, INC.
TABLE 5
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 September 30, 2000
Compared to
September 30, 1999
Increase (Decrease) Due to
--------------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME
Loans $ 1,228 $ 212 $ 1,440
Taxable investment securities (391) 10 (381)
Nontaxable investment securities 87 5 92
Federal funds sold (294) 78 (216)
Other Investments 10 2 12
------- ------- -------
Total changes in interest income 640 307 947
Total changes in interest expense 184 509 693
------- ------- -------
Net Change in Interest Margin (FTE) $ 456 $ (202) $ 254
======= ======= =======
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NONINTEREST EXPENSE
Noninterest expense increased $187,000 during the third quarter of 2000 when
compared to 1999. Noninterest expense includes salary and benefits, occupancy,
and other operating expenses. Comparing 2000 to 1999, salaries and employee
benefits increased $39,000, occupancy expense and furniture and equipment
expense decreased $5,000, and other operating expenses increased $153,000. The
increase in other operating expenses was primarily due to $243,000 of merger
related expense incurred in the third quarter of 2000.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1999, total assets increased $23.1 million to $526.7 million.
During this period the loan portfolio increased $42.0 million, fed funds sold
decreased $4.6 million, and investment securities decreased $11.2 million.
Changes in funding sources include a $1.3 million decrease in noninterest
bearing deposits, an increase in interest bearing deposits of $18.1 million, an
increase in borrowings of $2.9 million, and a $3.9 million increase in
shareholders' equity.
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 September 30, 2000, cash and cash equivalents as a percentage of total
assets equaled 3.6%, versus 5.3% as of December 31, 1999. During the first nine
months of 2000, $3.8 million in net cash was provided from operations, and $19.0
million was provided by financing activities. Investing activities used $30.8
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $8.0 million decrease in cash and cash equivalents
during the first nine 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
$74.4 million as of September 30, 2000 and $86.4 million as of December 31,
1999. The Corporation's liquidity is considered adequate by the management of
the Corporation.
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CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and reduced by accumulated other comprehensive income; and
increased approximately $3.9 million 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 shareholders' equity plus
the allowance for loan losses, less unamortized acquisition intangible, was
10.0% at September 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 September 30, 2000:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 09/30/00
------------ ------------
Equity Capital 4.00% 13.02%
Secondary Capital* 4.00 1.25
Total Capital 8.00% 14.27%
* 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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FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Corporation intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Corporation, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Corporation's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Corporation and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Corporation's market area, and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Corporation and its business,
including additional factors that could materially affect the Corporation's
financial results, is included in the Corporation's filings with the
Securities and Exchange Commission.
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 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
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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 September 30,
1999. 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
September 30 Fair Value
---------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total 09/30/00
---------------------------------------------------------------------------------------------
Rate sensitive assets
Fixed interest rate securities $ 13,680 $20,770 $21,768 $12,522 $ 5,144 $16,017 $ 89,901 $ 89,887
Average interest rates 5.87% 5.82% 5.55% 5.71% 5.42% 5.37% 5.64%
Fixed interest rate loans $105,638 $68,688 $78,588 $59,373 $30,259 $ 9,009 $351,555 $352,936
Average interest rates 8.39% 8.20% 8.41% 8.03% 8.30% 8.28% 8.29%
Variable interest rate loans $ 44,342 $ 1,800 $ 177 $ 19 -- -- $ 46,338 $ 46,338
Average interest rates 10.79% 10.91% 9.60% 10.49% -- -- 10.79%
Rate sensitive liabilities
Borrowed funds $ 9,006 -- -- -- -- -- $ 9,006 $ 9,006
Average interest rates 6.65% -- -- -- -- -- 6.65%
Savings and NOW accounts $110,737 $16,662 $13,089 $11,778 $10,240 $26,341 $188,847 $188,847
Average interest rates 3.94% 2.13% 2.13% 2.13% 2.13% 2.15% 3.19%
Fixed interest rate time
deposits $115,634 $40,128 $23,320 $16,835 $17,363 -- $213,280 $212,905
Average interest rates 5.71% 6.21% 6.04% 5.76% 6.61% --% 5.92%
Variable interest rate time
deposits $ 911 $ 282 -- -- -- -- $ 1,193 $ 1,193
Average interest rates 6.01% 6.01% -- -- -- -- 6.01%
Quantitative Disclosures of Market Risk
September 30 Fair Value
---------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 09/30/99
---------------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 500 -- -- -- -- -- $ 500 $ 500
Average interest rates 5.20% -- -- -- -- 5.20%
Fixed interest rate securities $ 31,641 $22,791 $19,599 $ 15,075 $ 8,776 $ 10,913 $108,795 $108,686
Average interest rates 5.65% 5.82% 5.58% 5.65% 5.77% 6.40% 5.76%
Fixed interest rate loans $ 88,964 $64,833 $62,231 $ 41,678 $36,914 $ 10,070 $304,690 $305,328
Average interest rates 8.10% 8.13% 7.99% 8.11% 7.68% 7.66% 8.02%
Variable interest rate loans $ 36,471 $ 1,768 $ 306 $ 53 -- -- $ 38,598 $ 38,598
Average interest rates 10.00% 10.37% 8.69% 8.52% -- -- 10.00%
Rate sensitive liabilities
Borrowed funds $ 3,686 -- -- -- -- -- $ 3,686 $ 3,686
Average interest rates 5.50% -- -- -- -- -- 5.50%
Savings and NOW accounts $ 98,091 $16,150 $12,821 $ 9,816 $ 9,566 $ 35,228 $181,672 $181,672
Average interest rates 3.44% 2.13% 2.13% 2.13% 2.13% 2.14% 2.84%
Fixed interest rate time
deposits $108,845 $28,905 $27,235 $ 17,323 $13,613 $ 5 $195,926 $195,981
Average interest rates 5.11% 5.68% 6.15% 5.85% 5.52% 5.34% 5.43%
Variable interest rate time
deposits $ 670 $ 449 $ 9 -- -- -- $ 1,128 $ 1,128
Average interest rates 4.96% 4.96% 4.96% -- -- -- 4.96%
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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 September 30, 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: November 9, 2000 /s/David W. Hole
-------------------------- --------------------------------------------
David W. Hole, President/CEO
/s/Dennis P. Angner
--------------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial and Accounting Officer)
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Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule