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, 2001
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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 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, 3,875,613 as of April 24, 2001
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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
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ITEM I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) March 31 December 31
2001 2000
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 20,279 $ 27,525
Federal funds sold 22,600 900
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 42,879 28,425
Investment securities
Securities available for sale (Amortized cost of
$68,930 in 2001 and $77,412 in 2000) 69,966 77,514
Securities held to maturity (Fair value --
$10,000 in 2001 and $10,687 in 2000) 9,978 10,660
--------- ---------
TOTAL INVESTMENT SECURITIES 79,944 88,174
Loans
Agricultural 45,898 47,298
Commercial 131,440 129,302
Real estate mortgage 169,532 173,041
Installment 56,706 54,038
--------- ---------
TOTAL LOANS 403,576 403,679
Less allowance for loan losses 5,266 5,162
--------- ---------
NET LOANS 398,310 398,517
Other assets 26,264 25,781
--------- ---------
TOTAL ASSETS $ 547,397 $ 540,897
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 52,927 $ 60,798
NOW accounts 76,223 83,779
Certificates of deposit and other savings 300,842 293,727
Certificates of deposit over $100,000 47,454 38,512
--------- ---------
TOTAL DEPOSITS 477,446 476,816
Other borrowed funds 10,439 6,444
Accrued interest and other liabilities 5,881 5,707
--------- ---------
TOTAL LIABILITIES 493,766 488,967
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding--
3,878,090 in 2001 (3,871,552 in 2000) 30,898 30,814
Retained earnings 22,050 21,049
Accumulated other comprehensive income 683 67
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 53,631 51,930
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 547,397 $ 540,897
========= =========
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
--------
2001 2000
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 3,871,552 3,848,383
Issuance of common stock 6,538 8,776
----------- -----------
BALANCE END OF PERIOD 3,878,090 3,857,159
=========== ===========
COMMON STOCK
Balance at beginning of period $ 30,814 $ 30,322
Issuance of common stock 84 155
----------- -----------
BALANCE END OF PERIOD 30,898 30,477
RETAINED EARNINGS
Balance at beginning of period 21,049 17,816
Net income 1,388 1,339
Cash dividends ($0.10 per share in 2001 and $0.08 in 2000) (387) (273)
----------- -----------
BALANCE END OF PERIOD 22,050 18,882
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period 67 (1,031)
Unrealized gains on securities available for sale, net of
income taxes and reclassification adjustment 616 47
----------- -----------
BALANCE END OF PERIOD 683 (984)
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 53,631 $ 48,375
=========== ===========
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
--------
2001 2000
---- ----
INTEREST INCOME
Loans $ 8,854 $ 7,693
Investment securities
Taxable 743 1,072
Nontaxable 412 327
Federal funds sold 199 71
------- -------
TOTAL INTEREST INCOME 10,208 9,163
INTEREST EXPENSE
Deposits 4,921 4,109
Borrowed funds and other 120 19
------- -------
TOTAL INTEREST EXPENSE 5,041 4,128
NET INTEREST INCOME 5,167 5,035
Provision for loan losses 162 125
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,005 4,910
NONINTEREST INCOME
Trust fees 140 114
Service charges on deposit accounts 74 76
Other service charges and fees 441 462
Gain on sale of mortgage loans 95 21
Title insurance revenue 294 211
Other 142 144
------- -------
TOTAL NONINTEREST INCOME 1,186 1,028
NONINTEREST EXPENSES
Salaries, wages and employee benefits 2,315 2,154
Occupancy 298 271
Furniture and equipment 485 466
Other 1,182 1,206
------- -------
TOTAL NONINTEREST EXPENSES 4,280 4,097
INCOME BEFORE FEDERAL INCOME TAXES 1,911 1,841
Federal income taxes 523 502
------- -------
NET INCOME $ 1,388 $ 1,339
======= =======
Basic net income per share $ 0.37 $ 0.35
======= =======
Cash dividends per share $ 0.10 $ 0.09
======= =======
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
--------
2001 2000
---- ----
NET INCOME $1,388 $1,339
Other comprehensive income before income taxes
Unrealized holding gains arising during period 933 71
Income tax expense related to comprehensive income 317 24
------ ------
OTHER COMPREHENSIVE INCOME 616 47
------ ------
COMPREHENSIVE INCOME $2,004 $1,386
====== ======
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
2001 2000
---- ----
OPERATING ACTIVITIES
Net income $ 1,388 $ 1,339
Adjustments to reconcile net income to cash (used in)
provided by operations:
Provision for loan losses 162 125
Provision for depreciation 288 284
Net amortization of securities 44 65
Amortization of intangibles 137 152
Gain on sale of mortgage loans (95) (18)
Proceeds from sales of mortgage loans 13,775 2,597
Mortgage loans originated for sale (15,958) (2,404)
Decrease in interest receivable 147 83
Increase in other assets (191) (441)
Increase (decrease) in accrued interest and
other expenses 174 (61)
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (129) 1,721
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities, calls, and sales 11,052 3,239
Purchases (2,488) (1,623)
Activity in held to maturity securities
Maturities, calls, and sales 555 54
Net decrease (increase) in loans 2,323 (7,015)
Purchases of equipment and premises (1,181) (251)
-------- --------
NET CASH PROVIDED BY (USED IN) IN INVESTING ACTIVITIES 10,261 (5,596)
FINANCING ACTIVITIES
Net decrease in noninterest bearing deposits (7,871) (8,716)
Net increase in interest bearing deposits 8,501 8,736
Net increase (decrease) in federal funds borrowed 3,995 (4,000)
Cash dividends (387) (273)
Proceeds from issuance of common stock 84 155
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,322 (4,098)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,454 (7,973)
Cash and cash equivalents at beginning of period 28,425 26,709
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,879 $ 18,736
======== ========
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, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. 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, 2000.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average
number of common shares outstanding. The weighted number of common shares
outstanding were 3,871,557 as of March 31, 2001, and 3,779,543 as of March 31,
2000. The Corporation has no common stock equivalents and, accordingly, presents
only basic earnings per share.
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
The Bank adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS Nos. 137 and 138, as of January 1, 2001. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
The adoption of the provisions of SFAS No. 133, as amended, did not have an
impact on the results of operations or the financial position of the Bank.
In September 2000, SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement No. 125, was issued. It revised the standards for accounting for
securitizations in 2000 and other transfers and servicing of financial assets
(occurring after March 31, 2001) and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions without
reconsideration. It is not expected that the adoption of SFAS No. 140 will have
a material impact on the Bank's results of operations, financial position, or
cash flows.
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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 2000 annual report and with
the unaudited consolidated financial statements and notes, as set forth on pages
3 through 8 of this report.
THREE MONTHS ENDING MARCH 31, 2001 AND 2000
RESULTS OF OPERATIONS
Net income equaled $1.39 million for the three month period ended March
31, 2001, compared to $1.34 million for the same period in 2000. Return on
average assets, which measures the ability of the Corporation to profitably and
efficiently employ its resources, equaled 1.02% for the first three months of
2001 and 1.07% for 2000. Return on average equity, which indicates how
effectively the Corporation is able to generate earnings on shareholder invested
capital, equaled 10.50% through March 31, 2001 versus 10.99% for the same period
in 2000.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
March 31
-------------------------
2001 2000
---- ----
INCOME STATEMENT DATA
Net interest income $5,167 $5,035
Provision for loan losses 162 125
Net income 1,388 1,339
PER SHARE DATA
Net income $ 0.37 $ 0.35
Cash dividends 0.10 0.09
RATIOS
Average primary capital to average assets 10.57% 10.59%
Net income to average assets 1.02 1.07
Net income to average equity 10.50 10.99
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 $299,000 in 2001 versus $213,000 in 2000. 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
(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, 2001 March 31, 2000
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $ 403,204 $ 8,862 8.79% $ 357,186 $ 7,713 8.64%
Taxable investment securities 47,821 699 5.85 70,646 1,032 5.84
Nontaxable investment securities 33,651 624 7.42 28,355 496 7.00
Federal funds sold 14,689 199 5.42 5,028 71 5.65
Other investments 2,361 44 7.45 2,120 40 7.55
--------- --------- ---- --------- --------- ----
Total Earning Assets 501,726 10,428 8.31 463,335 9,352 8.07
NONEARNING ASSETS
Allowance for loan losses (5,205) (4,715)
Cash and due from banks 20,616 17,239
Premises and equipment 11,519 10,201
Accrued income and other assets 15,467 13,981
--------- ---------
TOTAL ASSETS $ 544,123 $ 500,041
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 79,747 603 3.02 $ 63,755 396 2.48
Savings deposits 119,660 930 3.11 132,053 1,038 3.14
Time deposits 223,950 3,388 6.05 196,562 2,669 5.43
Borrowed funds 8,848 120 5.43 1,603 25 6.24
--------- --------- ---- --------- --------- ----
Total Interest Bearing Liabilities 432,205 5,041 4.67 393,973 4,128 4.19
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 53,109 51,341
Other 5,937 5,999
Shareholders' equity 52,872 48,728
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 544,123 $ 500,041
========= =========
NET INTEREST INCOME (FTE) $ 5,387 $ 5,224
========= =========
NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.29% 4.51%
===== =====
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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.
Quarter Ended March 31, 2001
Compared to
March 31, 2000
Increase (Decrease) Due to
-------------------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME
Loans $ 1,009 $ 140 $1,149
Taxable investment securities (334) 1 (333)
Nontaxable investment securities 97 31 128
Federal funds sold 131 (3) 128
Other investments 5 (1) 4
------- ------- ------
Total changes in interest income 908 168 1,076
Total changes in interest expense 519 394 913
------- ------- ------
Net Change in Interest Margin (FTE) $ 389 $ (226) $ 163
======= ======= ======
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IBT BANCORP, INC.
TABLE 3: SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
March 31
--------------------------
2001 2000
---- ----
Summary of changes in allowance
Allowance for loan losses - January 1 $5,162 $4,622
Loans charged off (121) (87)
Recoveries of charged off loans 63 147
------- ------
Net loans (charged off) recovered (58) 60
Provision charged to operations 162 125
------- ------
Allowance for loan losses - March 31 $5,266 $4,807
====== ======
Allowance for loan losses as a % of loans 1.30% 1.33%
======= ======
NONPERFORMING LOANS
(Dollars in thousands)
March 31
------------------------------
2001 2000
---- ----
Total amount of loans outstanding for
the period $403,576 $362,746
======== ========
Nonaccrual loans $ 1,153 $ 319
Accruing loans past due 90 days or more 1,129 1,496
Restructured loans --- ---
-------- --------
Total $ 2,282 $ 1,815
======== ========
Loans classified as nonperforming as a
% of outstanding loans 0.57% 0.50%
===== =====
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, 2001 to the same period in 2000, fully taxable equivalent (FTE)
net interest income increased $163,000 or 3.1%. An increase of 8.3% in average
interest earning assets provided $908,000 of FTE interest income. The majority
of this growth was funded by a 9.7% increase in interest bearing liabilities
resulting in $519,000 of additional interest expense. Overall, changes in volume
resulted in $389,000 of additional FTE interest income. The average FTE interest
rate earned on assets increased by 0.24%, while the amount of interest earned as
a result of changes in rate increased $168,000. The average rate paid on
deposits increased 0.48%, increasing interest expense by $394,000. The net
change related to interest rate earned and paid was a $226,000 decrease in FTE
net interest income.
The Corporation's FTE net interest yield as a percentage of average
earning assets equaled 4.29% during 2001 versus 4.51% in 2000. The 0.22%
decrease in the FTE interest margin was primarily a result of the Corporation's
increasing reliance on higher cost deposits such as Certificates of Deposit,
Money Market accounts and borrowings 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. Net loans outstanding represent 72.8% 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, 2001 to March 31, 2000,
loans outstanding increased 11.3%. The provision for loan losses increased
$37,000 to $162,000 in the first quarter of 2001 when compared to 2000. The
increase in the provision of loan losses resulted from an increase in
nonperforming loans of 25.7% and increased uncertainty about economic
performance over the coming months. As set forth in Table 3, loans classified as
nonperforming were $2.28 million as of March 31, 2001, a $467,000 increase over
the prior year. The allowance for loan losses as a percentage of loans equaled
1.30% compared to 1.33% in 2000. In management's opinion, the allowance for loan
losses is adequate as of March 31, 2001.
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 increased $158,000 during the three month
period ending March 31, 2001, compared to the same period in 2000. Significant
individual account changes during this period include $83,000 increase in income
from the sale of title insurance and related services, a $74,000 increase in
gains on the sale of residential real estate mortgage loans, a $26,000 increase
in trust fees, a $42,000 increase in NSF and overdraft fees, and a $19,000
decrease in service charges on deposit accounts. The increase in NSF and
overdrafts fees and the decline in service charges are principally due to the
introduction of free checking by Isabella Bank and Trust in 2000. The Bank
currently has over 8000 checking accounts, many of
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which were transferred from other accounts with service charges. The income
derived from these accounts results primarily from an increase in the frequency
of overdraft activity.
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 allocated to the value of servicing
rights on these loans. Included in other operating income is a $95,000 gain from
the sale of $13.8 million in mortgages during the first quarter of 2001 versus
an $18,000 gain on the sale of $2.6 million in the same period in 2000.
NONINTEREST EXPENSE
Noninterest expense increased $183,000 for the first three months of 2001
when compared to the same period in 2000. The largest component of noninterest
expense is salaries and employee benefits, which increased $161,000 or 7.5%. The
increase is due to additional staffing and normal merit and promotional salary
increases, and approximately a 20% increase in medical expenses.
Occupancy and furniture and equipment expenses increased $46,000 or 6.2% in
2001. The majority of this increase is a result of Isabella Bank and Trust
building a 15,000 square foot Operations Center in Mt. Pleasant, Michigan. All
other operating expenses declined $24,000, principally due to a reduction in
State of Michigan taxes.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 2000, total assets increased $6.5 million to $547.4
million. During the first quarter of 2001, major changes in asset mix included a
$7.3 million decrease in cash, $21.7 million increase in fed funds sold, an $8.2
million decrease in investment securities, and a $207,000 decrease in net loans.
Deposits during this period increased $630,000. Interest bearing deposits
increased $8.5 million and noninterest bearing deposits decreased $7.9 million,
borrowed funds increased $4.0 million and shareholders' equity increased $1.7
million.
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LIQUIDITY
Liquidity management is designed to ensure 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, 2001, cash and cash equivalents as a percentage of total
assets equaled 7.8%, versus 5.3% as of December 31, 2000. During the first three
months of 2001, cash used by operating activities was $129,000, investing
activities provided $10.3 million, and financing activity provided $4.3 million.
The accumulated effect of the Corporation's operating, investing, and financing
activities was a $14.5 million increase in cash and cash equivalents during the
first three months of 2001.
In addition to cash and cash equivalents, investment securities available
for sale are another source of liquidity. Securities available for sale equaled
$70.0 million as of March 31, 2001 and $77.5 million as of December 31, 2000.
The Corporation's liquidity is considered adequate by management of the
Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and accumulated other comprehensive income, and increased
approximately $1.7 million since December 31, 2000.
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 10.2% at March 31, 2001.
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, 2001:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 03/31/01
-------- --------
Equity Capital 4.00% 13.61%
Secondary Capital* 4.00 1.25
---- -----
Total Capital 8.00% 14.86%
==== =====
* 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 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,
2001. 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, 2001 Fair Value
----------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total 03/31/01
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 22,600 --- --- --- --- --- $ 22,600 $ 22,600
Average interest rates 4.50% --- --- --- --- --- 5.00%
Fixed interest rate securities $ 18,437 $ 21,570 $ 12,900 $ 5,604 $ 1,743 $ 19,690 $ 79,944 $ 79,966
Average interest rates 5.43% 5.14% 5.41% 4.94% 4.84% 5.20% 5.24%
Fixed interest rate loans $112,636 $ 73,497 $ 86,009 $ 52,105 $ 25,607 $ 11,932 $361,786 $362,314
Average interest rates 9.05% 6.44% 6.58% 5.75% 7.36% 8.04% 7.31%
Variable interest rate loans $ 39,812 $ 1,828 $ 143 $ 7 --- --- $ 41,790 $ 41,790
Average interest rates 4.59% 10.47% 9.74% 10.49% --- --- 4.87%
Rate sensitive liabilities
Borrowed funds $ 3,039 --- $ 5,000 --- --- $ 2,400 $ 10,439 $ 10,439
Average interest rates 4.98% --- 5.08% --- --- 6.65% 5.41%
Savings and NOW accounts $116,875 $ 16,562 $ 13,462 $ 11,085 $ 10,256 $ 27,201 $195,441 $195,441
Average interest rates 3.78% 1.96% 1.95% 1.96% 1.96% 1.98% 3.05%
Fixed interest rate time deposits $133,506 $ 38,496 $ 22,625 $ 14,274 $ 19,025 --- $227,926 $230,037
Average interest rates 5.71% 6.21% 6.04% 5.76% 6.60% --- 5.90%
Variable interest rate time deposits $ 690 $ 462 --- --- --- --- $ 1,152 $ 1,152
Average interest rates 6.01% 6.01% --- --- --- --- 6.01%
Quantitative Disclosures of Market Risk
(dollars in thousands)
March 31, 2000 Fair Value
----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 03/31/01
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 1,300 --- --- --- --- --- $ 1,300 $ 1,300
Average interest rates 5.75% --- --- --- --- --- 5.75%
Fixed interest rate securities $ 27,088 $ 19,180 $ 19,979 $ 11,748 $ 6,138 $ 15,326 $ 99,459 $ 99,365
Average interest rates 5.54% 5.74% 5.48% 5.76% 5.40% 4.11% 5.36%
Fixed interest rate loans $ 86,226 $ 68,628 $ 63,380 $ 47,843 $ 46,362 $ 10,268 $322,707 $322,117
Average interest rates 8.22% 8.02% 8.08% 7.94% 8.06% 7.71% 8.07%
Variable interest rate loans $ 38,030 $ 1,732 $ 226 $ 51 --- --- $ 40,039 $ 40,039
Average interest rates 9.54% 11.63% 9.00% 10.04% --- --- 9.62%
Rate sensitive liabilities
Federal funds purchased $ 2,000 --- --- --- --- --- $ 2,000 $ 2,000
Average interest rates 6.25% --- --- --- --- --- ---
Savings and NOW accounts $112,944 $ 16,778 $ 13,181 $ 11,862 $ 10,317 $ 26,571 $191,652 $191,652
Average interest rates 3.55% 2.14% 2.14% 2.14% 2.13% 2.13% 2.97%
Fixed interest rate time deposits $114,706 $ 31,949 $ 26,263 $ 16,150 $ 11,948 --- $201,017 $201,218
Average interest rates 5.40% 6.01% 5.98% 5.65% 5.93% 5.93% 5.63%
Variable interest rate time deposits $ 842 $ 412 $ 4 --- --- --- $ 1,258 $ 1,258
Average interest rates 6.01% 6.01% 6.01% --- --- --- 6.01%
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PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed or required to be filed
during the quarter ended March 31, 2001.
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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, 2001 /s/ David W. Hole
------------------------ --------------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
--------------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
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