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, 2001
-------------
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)
(989) 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, 3,884,650 as of July 27, 2001
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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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) June 30 December 31
2001 2000
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 24,093 $ 27,525
Federal funds sold 30,250 900
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 54,343 28,425
Investment securities
Securities available for sale (Amortized cost of
$78,824 in 2001 and $77,412 in 2000) 80,110 77,514
Securities held to maturity (Fair value --
$6,408 in 2001 and $10,687 in 2000) 6,359 8,299
--------- ---------
TOTAL INVESTMENT SECURITIES 86,469 85,813
Loans
Agricultural 49,717 47,298
Commercial 121,987 129,302
Real estate mortgage 176,816 173,041
Installment 57,148 54,038
--------- ---------
TOTAL LOANS 405,668 403,679
Less allowance for loan losses 5,399 5,162
--------- ---------
NET LOANS 400,269 398,517
Other assets 29,351 28,142
--------- ---------
TOTAL ASSETS $ 570,432 $ 540,897
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 57,967 $ 60,798
NOW accounts 79,517 83,779
Certificates of deposit and other savings 303,582 293,727
Certificates of deposit over $100 55,739 38,512
--------- ---------
TOTAL DEPOSITS 496,805 476,816
Other borrowed funds 11,587 6,444
Accrued interest and other liabilities 6,837 5,707
--------- ---------
TOTAL LIABILITIES 515,229 488,967
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding--
3,884,436 in 2001 (3,871,552 in 2000) 31,070 30,814
Retained earnings 23,284 21,049
Accumulated other comprehensive income 849 67
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 55,203 51,930
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 570,432 $ 540,897
========= =========
See notes to consolidated financial statements.
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IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars in thousands)
<Table>
<Caption>
Six Months Ended
June 30
-------
2001 2000
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 3,871,552 3,848,383
Issuance of common stock 20,594 14,223
Stock repurchased (7,710) ---
----------- -----------
BALANCE END OF PERIOD 3,884,436 3,862,606
=========== ===========
COMMON STOCK
Balance at beginning of period $ 30,814 $ 30,322
Issuance of common stock 494 318
Stock repurchased (238) ---
----------- -----------
BALANCE END OF PERIOD 31,070 30,640
RETAINED EARNINGS
Balance at beginning of period 21,049 17,815
Net income 3,010 2,702
Cash dividends ($0.10 per share in 2001 and $0.09 in 2000) (775) (806)
----------- -----------
BALANCE END OF PERIOD 23,284 19,711
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 67 (1,031)
Unrealized gains on securities available for sale, net
of income taxes and reclassification adjustment 782 251
----------- -----------
BALANCE END OF PERIOD 849 (780)
----------- -----------
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 55,203 $ 49,571
=========== ===========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands) Three Months Ended Six Months Ended
June 30 June 30
------- -------
2001 2000 2001 2000
-------------------- ------------------
INTEREST INCOME
Loans $ 8,811 $ 8,057 $ 17,745 $15,750
Investment securities
Taxable 707 990 1,450 2,062
Nontaxable 497 394 829 721
Federal funds sold 323 7 522 78
------- ------- -------- -------
TOTAL INTEREST INCOME 10,338 9,448 20,546 18,611
INTEREST EXPENSE
Deposits 4,839 4,230 9,760 8,339
Federal funds purchased 146 187 266 206
------- ------- -------- -------
TOTAL INTEREST EXPENSE 4,985 4,417 10,026 8,545
------- ------- -------- -------
NET INTEREST INCOME 5,353 5,031 10,520 10,066
Provision for loan losses 166 179 328 304
------- ------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,187 4,852 10,192 9,762
NONINTEREST INCOME
Trust fees 139 117 279 231
Service charges on deposit accounts 73 85 147 161
Other service charges and fees 501 477 942 939
Gain on sale of mortgage loans 170 20 265 41
Title insurance revenue 401 296 695 507
Net realized gain (loss) on securities available for sale 4 (4) 4 (4)
Other 176 174 318 318
------- ------- -------- -------
TOTAL NONINTEREST INCOME 1,464 1,165 2,650 2,193
NONINTEREST EXPENSES
Salaries, wages and employee benefits 2,332 2,173 4,647 4,327
Occupancy 279 230 577 501
Furniture and equipment 521 485 1,006 951
Other 1,263 1,239 2,445 2,445
------- ------- -------- -------
TOTAL NONINTEREST EXPENSES 4,395 4,127 8,675 8,224
INCOME BEFORE FEDERAL INCOME TAXES 2,256 1,890 4,167 3,731
Federal income taxes 634 527 1,157 1,029
------- ------- -------- -------
NET INCOME $ 1,622 $ 1,363 $ 3,010 $ 2,702
======= ======= ======== =======
Net income per share $ 0.41 $ 0.35 $ 0.78 $ 0.70
======= ======= ======== =======
Cash dividends per share $ 0.10 $ 0.09 $ 0.20 $ 0.18
======= ======= ======== =======
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 Six Months Ended
June 30 June 30
------- -------
2001 2000 2001 2000
--------------------- ------------------
NET INCOME $ 1,622 $ 1,363 $ 3,010 $ 2,702
Other comprehensive income before income taxes:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during
period 256 306 1,189 377
Reclassification adjustment for realized
(gains) losses included in net income (4) 4 (4) 4
-------- -------- -------- --------
Other comprehensive income before income taxes 252 310 1,185 381
Income tax expense related to other
comprehensive income 86 106 403 130
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME 166 204 782 251
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 1,788 $ 1,567 $ 3,792 $ 2,953
======== ======== ======== ========
See notes to consolidated financial statements.
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IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Six Months Ended
June 30
2001 2000
---- ----
OPERATING ACTIVITIES
Net income $ 3,010 $ 2,702
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 328 304
Provision for depreciation 575 566
Net amortization of securities 92 117
Amortization of intangibles 274 289
Gain on sale of mortgage loans (265) (40)
Proceeds from sales of mortgage loans 35,283 3,940
Mortgage loans originated for sale (37,554) (3,821)
Deferred income tax benefit --- ---
Decrease (increase) in interest receivable 354 (61)
Increase in other assets (937) (426)
Increase (decrease) in accrued interest and other liabilities 1,130 (506)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,290 3,064
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities, calls, and sales 14,839 13,639
Purchases (17,323) (4,521)
Activity in held to maturity securities
Maturities, calls, and sales 2,921 2,051
Purchases --- (105)
Net decrease (increase) in loans 456 (26,897)
Purchases of equipment and premises (1,878) (719)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (985) (16,552)
FINANCING ACTIVITIES
Net decrease in noninterest bearing deposits (2,831) (5,198)
Net increase in interest bearing deposits 22,820 10,335
Net increase (decrease) in other borrowed funds 5,143 (716)
Cash dividends (775) (806)
Proceeds from the issuance of common stock 494 318
Stock repurchased (238) 0
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,613 3,933
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,918 (9,555)
Cash and cash equivalents at beginning of period 28,425 26,709
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54,343 $ 17,154
======== ========
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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 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 average number of common shares
outstanding was 3,875,282 and 3,856,530 for the six month period ending June 30,
2001 and 2000, respectively. 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 Banks.
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. SFAS No. 140 was adopted by the Banks on April 1, 2001 and did
not have a material impact on the Bank's results of operations, financial
position, or cash flows.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Banks maintain their
books and records and perform their financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
NOTE 4
Restricted investments of $2,361,000 as of December 31, 2000 were reclassified
from held to maturity investments to other assets for the period ending December
31, 2000 to conform with the 2001 presentation.
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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 2000 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, 2001 AND 2000
RESULTS OF OPERATIONS
Net income equaled $3.01 million for the six month period ended June 30, 2001
versus $2.7 million in 2000. Return on average assets, which measures the
ability of the Corporation to profitably and efficiently employ its resources,
was 1.09% for the first six months of 2001 and 1.07% in 2000. Return on average
equity, which indicates how effectively the Corporation is able to generate
earnings on shareholder invested capital, equaled 11.26% through June 30, 2001
versus 10.95% for the same period in 2000.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data Six Months Ended
June 30
----------------------
2001 2000
---------------------
INCOME STATEMENT DATA
Net interest income $10,520 $10,066
Provision for loan losses 328 304
Net income 3,010 2,702
PER SHARE DATA
Net income per common share $ 0.78 $ 0.70
Cash dividends per common share 0.20 0.18
RATIOS
Average primary capital to average assets 10.55 10.65%
Net income to average assets 1.09 1.07
Net income to average equity 11.26 10.95
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
$709,000 in 2001 versus $453,000 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.
(Continued on page 12)
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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. Federal
Reserve and Federal Home Loan Bank restricted equity holdings are included in
other investments.
Six Months Ending
June 30, 2001 June 30, 2000
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- ---------- ----
INTEREST EARNING ASSETS
Loans $ 403,566 $ 17,759 8.80% $ 364,666 $ 15,799 8.66%
Taxable investment securities 46,830 1,358 5.80 67,929 1,984 5.84
Nontaxable investment securities 34,023 1,256 7.38 29,363 1,091 7.43
Federal funds sold 22,333 522 4.67 2,715 77 5.67
Other investments 2,469 92 7.45 2,185 80 7.32
--------- --------- -------- ---------- --------- ------
Total Earning Assets 509,221 20,987 8.24 466,858 19,031 8.15
NONEARNING ASSETS
Allowance for loan losses (5,270) (4,788)
Cash and due from banks 20,514 17,381
Premises and equipment 11,841 10,254
Accrued income and other assets 15,374 14,110
--------- ----------
Total Assets $ 551,680 $ 503,815
========= ==========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 80,079 $ 1,121 2.80 $ 62,253 787 2.53
Savings deposits 118,949 1,776 2.99 127,094 2,007 3.16
Time deposits 229,555 6,863 5.98 200,218 5,545 5.54
Borrowed funds 9,776 266 5.44 6,383 206 6.45
--------- --------- -------- ---------- --------- -------
Total Interest Bearing Liabilities 438,359 10,026 4.57 395,948 8,545 4.32
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 53,848 52,639
Other 5,986 5,874
Shareholders' equity 53,487 49,354
--------- ----------
Total Liabilities and Equity $ 551,680 $ 503,815
========= ==========
Net interest income (FTE) $ 10,961 $ 10,486
========= ==========
Net yield on interest earning assets (FTE) 4.31% 4.49%
==== ====
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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, 2001
Compared to
June 30, 2000
Increase (Decrease) Due to
-------------------------------------
Volume Rate Net
------ ---- -----
CHANGES IN INTEREST INCOME
Loans $ 1,708 $ 252 $1,960
Taxable investment securities (612) (14) (626)
Nontaxable investment securities 172 (7) 165
Federal funds sold 461 (16) 445
Other 11 1 12
------- ----- ------
Total changes in interest income 1,740 216 1,956
Total changes in interest expense 1,069 412 1,481
------- ----- ------
Net Change in Interest Margin (FTE) $ 671 $(196) $ 475
======= ===== ======
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NET INTEREST INCOME, CONTINUED
As shown in Tables number 1 and 2, when comparing the six month period ending
June 30, 2001 to the same period in 2000, fully taxable equivalent (FTE) net
interest income increased $475,000 or 4.5%. An increase of 9.1% in average
interest earning assets provided $1.74 million of FTE interest income. The
majority of this growth was funded by a 10.7% increase in interest bearing
liabilities, resulting in $1.07 million of additional interest expense. Overall,
changes in volume resulted in $671,000 of additional FTE interest income. The
average FTE interest rate earned on assets increased by 0.09%, while the amount
of interest earned as a result of changes in rate increased $216,000. The
average rate paid on deposits increased by 0.25%, increasing interest expense by
$412,000. The net change related to interest rates earned and paid was a
$196,000 decrease in FTE net interest income.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.31% during the first six months of 2001 versus 4.49% for the
same period in 2000. The 0.18% decrease in the FTE interest margin was primarily
a result of increasing reliance on high cost funding sources such as
certificates of deposit, money market accounts, and borrowed federal funds to
finance asset growth, and interest rate competition for new commercial, mortgage
and personal 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 70% 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, 2001 to June 30, 2000, the
provision for loan losses was increased $24,000 to $328,000. Year to date 2001,
the Corporation had net charge-offs of $91,000 versus recoveries of $14,000 in
2000. Loans classified as nonperforming were 0.57% of loans as of June 30, 2001
versus 0.48% for June 30, 2000. The Corporation's peer group, which includes 255
holding companies with assets between $500 million and $1.0 billion,
nonperforming loans to total loans ratio was 0.62% as of June 30, 2001. As of
June 30, 2001, the allowance for loan losses as a percentage of loans equaled
1.33%. In management's opinion, the allowance for loan losses is adequate as of
June 30, 2001.
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TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
June 30
--------------------------
2001 2000
------- -------
Summary of changes in allowance
Allowance for loan losses - January 1 $ 5,162 $ 4,622
Loans charged off (198) (199)
Recoveries of charged off loans 107 213
------- -------
Net loans (charged off) recovered (91) 14
Provision charged to operations 328 304
------- -------
Allowance for loan losses - June 30 $ 5,399 $ 4,940
======= =======
Allowance for loan losses as a % of loans 1.33% 1.29%
======= =======
NONPERFORMING LOANS
(Dollars in thousands)
June 30
2001 2000
------ -------
Total amount of loans outstanding for
the period (net of unearned interest) $405,668 $382,678
======== ========
Nonaccrual loans $ 770 $ 302
Accruing loans past due 90 days or more 1,525 1,519
Restructured loans --- ---
-------- --------
Total $ 2,295 $ 1,821
======== ========
Loans classified as nonperforming as a
% of outstanding loans 0.57% 0.48%
===== =====
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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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, gains and losses on investment securities available for sale, and
other. There was a $457,000 increase in fees earned from these sources during
the first six months of 2001 when compared to the same period in 2000.
Significant individual account changes during this period include a $188,000
increase from the sale of title insurance and related services, a $48,000
increase in trust fees, a $43,000 decrease in brokerage commissions, a $224,000
increase in gains on the sale of mortgage loans, a $97,000 increase in NSF and
overdraft fees, and a $14,000 decrease in service charges on deposit accounts.
The increase in NSF and overdraft 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 3,000 of these accounts. Many 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 $265,000 gain from the sale
of $35.3 million in mortgages during the first six months of 2001 versus a
$41,000 gain on the sale of $3.9 million in mortgages for the same period in
2000.
NONINTEREST EXPENSES
Noninterest expenses increased $451,000 or 5.5% during the first six months of
2001 when compared to 2000. The largest component of noninterest expense is
salaries and employee benefits, which increased $320,000 or 7.4%. In addition to
increases resulting from additional staffing and normal merit and promotional
salary adjustments, the Corporation incurred additional expenses related to
benefit improvements for the employees of Farmers State Bank as a result of the
merger in August 2000, and a 20% increase in medical expenses.
Occupancy and furniture and equipment expenses increased $131,000 or 9.0% in
2001. The majority of the increase is a result of the construction and occupancy
of a 15,000 square foot operations center in Mt. Pleasant, Michigan. There were
no significant changes in other operating expenses.
QUARTER ENDED JUNE 30, 2001 AND 2000
RESULTS OF OPERATIONS
Net income equaled $1.62 million for the second quarter in 2001 versus $1.36
million in 2000. Return on average assets equaled 1.16% for the second quarter
of 2001 versus 1.07% for the same period in 2000. Return on average equity
equaled 11.99% for the second quarter in 2001, versus 10.91% for the second
quarter in 2000.
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SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Three Months Ended
June 30
----------------------------
2001 2000
----------------------------
INCOME STATEMENT DATA
Net interest income $5,353 $5,031
Provision for loan losses 166 179
Net income 1,622 1,363
PER SHARE DATA
Net income per common share $ 0.41 $ 0.35
Cash dividend per common share 0.10 0.09
RATIOS
Average primary capital to average assets 10.53% 10.70%
Net income to average assets 1.16 1.07
Net income to average equity 11.99 10.91
NET INTEREST INCOME
When comparing the second quarter of 2001 to 2000, net FTE interest income
increased $312,000. An increase of 9.9% in interest earning assets provided
$821,000 of FTE interest income. The asset growth was funded primarily by an
11.7% increase in interest bearing liabilities, resulting in $547,000 of
increased interest expense. Overall, increased volume resulted in $274,000 of
additional FTE interest income. During the second quarter of 2001, the average
FTE interest rate earned on assets decreased by 0.06% and the average rate paid
on deposits increased by 0.05%. The changes in interest rates earned and paid
resulted in a $38,000 increase in FTE interest income. The Corporation's FTE net
interest yield as a percentage of average earning assets decreased 0.16% to
4.31% in the second quarter of 2001. The primary factor for the decrease was the
Corporation's increasing reliance on interest bearing liabilities to fund assets
and a substantial increase in fed funds sold, the lowest rate asset, to total
earning assets.
PROVISION FOR LOAN LOSSES
The amount provided for loan losses in the second quarter of 2001 was $166,000
versus $179,000 in 2000. During the second quarter of 2001 the Corporation had
net charge-offs of $32,000 versus $46,000 during the same period of 2000. The
allowance for loan losses as a percent of loans was 1.33% as of June 30, 2001, a
0.03% increase since March 31, 2001.
NONINTEREST INCOME
Noninterest income earned in the second quarter of 2001, when compared to the
same period in 2000, increased $299,000 or 25.7%. The most significant changes
were a $105,000 increase from the sale of title insurance and related services,
a $150,000 increase in gains on the sale of mortgage loans, and a $22,000
increase in trust fees
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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. Federal
Reserve and Federal Home Loan Bank restricted stock is included in other
investments.
Quarter Ending
June 30, 2001 June 30, 2000
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rata Balance Interest Rate
------- -------- ------- ------- ---------- ----
INTEREST EARNING ASSETS
Loans $ 403,927 $ 8,897 8.81% $ 372,146 $ 8,086 8.69%
Taxable investment securities 45,838 659 5.75 65,212 952 5.84
Nontaxable investment securities 34,395 632 7.35 30,371 595 7.84
Federal funds sold 29,977 323 4.31 402 6 5.97
Other 2,577 48 7.45 2,250 40 7.11
--------- -------- ------ --------- -------- ----
Total Earning Assets 516,714 10,559 8.17 470,381 9,679 8.23
NONEARNING ASSETS
Allowance for loan losses (5,334) (4,861)
Cash and due from banks 20,411 17,523
Premises and equipment 12,163 10,307
Accrued income and other assets 15,280 14,239
--------- ---------
Total Assets $ 559,234 $ 507,589
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 80,410 518 2.58 $ 60,751 391 2.57
Savings deposits 118,238 846 2.86 122,135 969 3.17
Time deposits 235,159 3,475 5.91 203,874 2,876 5.64
Borrowed funds 10,703 146 5.46 11,163 181 6.49
--------- ------- ----- --------- -------- ----
Total Interest Bearing Liabilities 444,510 4,985 4.49 397,923 4,417 4.44%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY
Demand deposits 54,587 53,937
Other 6,035 5,749
Shareholders' equity 54,102 49,980
--------- ---------
Total Liabilities and Equity $ 559,234 $ 507,589
========= =========
Net interest income (FTE) $5,574 $5,262
====== ======
Net yield on interest earning assets (FTE) 4.31% 4.47%
====== =====
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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, 2001
Compared to
June 30, 2000
Increase (Decrease) Due to
--------------------------------
Volume Rate Net
--------- -------- ---------
CHANGES IN INTEREST INCOME
Loans $699 $112 $ 811
Taxable investment securities (279) (14) (293)
Nontaxable investment securities 76 (39) 37
Federal funds sold 319 (2) 317
Other 6 2 8
------ ------ ------
Total changes in interest income 821 59 880
Total changes in interest expense 547 21 568
------ ------ ------
Net Change in Interest Margin (FTE) $ 274 $ 38 $ 312
====== ====== ======
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NONINTEREST EXPENSES
Noninterest expenses increased $268,000 or 6.5% during the second quarter of
2001 when compared to 2000. Noninterest expense includes salary and benefits,
occupancy, and other operating expenses. The largest component of noninterest
expense is salaries and employee benefits, which increased $159,000 or 7.3%. The
increase is related to normal merit and promotional salary increases, increased
benefit costs at Farmers State Bank as a result of the August 2000 merger, and
increases in medical expenses.
Occupancy and furniture and equipment expenses increased $85,000 or 11.9%. The
majority of this increase is associated with the occupancy of the operations
center. Other operating expenses increased $24,000 or 1.9%. The most significant
changes include increases in title insurance costs and postage and printing
expenses associated with the mailing of privacy notices to customers of the
Corporation.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 2000, total assets increased $29.5 million to $570.4 million.
As of June 30, 2001, the loan portfolio increased $2.0 million, cash and demand
deposits due from bank decreased $3.4 million, federal funds sold increased
$29.4 million, and investment securities increased $656,000 when compared to
December 31, 2000. Deposits during this period increased $20.0 million, borrowed
funds increased $5.1 million, and shareholders' equity increased $3.3 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, 2001, cash and cash equivalents as a percentage of total assets
equaled 9.5%, versus 5.3% as of December 31, 2000. During the first six months
of 2001, $2.3 million in net cash was provided from operations and $24.6 million
was provided from financing activities. Investing activities used $985,000. The
accumulated effect of the Corporation's operating, investing and financing
activities was a $25.9 million increase in cash and cash equivalents during the
first six 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
$80.1 million as of June 30, 2001 and $77.5 million as of December 31, 2000. The
Corporation's liquidity is considered adequate by management.
CAPITAL
The capital of the Corporation consists solely of common stock and retained
earnings, increased by accumulated other comprehensive income; and increased
approximately $3.3 million since December 31, 2000.
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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 9.2% as
of June 30, 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 June 30, 2001:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 06/30/01
-------- -----------
Equity Capital 4.00 13.72%
Secondary Capital* 4.00 1.25%
---- -------
Total Capital 8.00 14.97%
==== =======
* 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 June 30, 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
June 30, 2001 Fair Value
--------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total 06/30/01
--------------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 30,25 --- --- --- --- --- $ 30,250 $ 30,250
Average interest rates 3.75% --- --- --- --- --- 5.00%
Fixed interest rate securities $ 14,062 $23,775 $14,645 $10,261 $ 3,609 $20,117 $ 86,469 $ 86,518
Average interest rates 5.41% 5.02% 5.28% 4.87% 4.94% 4.86% 5.07%
Fixed interest rate loans $ 111,737 $77,055 $85,227 $49,071 $22,635 $10,992 $356,717 $359,801
Average interest rates 9.48% 8.42% 8.22% 8.23% 8.27% 7.78% 8.65%
Variable interest rate loans $ 46,910 $ 1,948 $ 89 $ 4 --- --- $ 48,951 $ 48,951
Average interest rates 8.50% 10.09% 7.75% --- 8.75% --- 8.56%
Rate sensitive liabilities
Borrowed funds $ 3,187 --- $ 5,000 $ 1,000 --- $ 2,400 $ 11,587 $ 11,587
Average interest rates 4.94% --- 5.08% 5.06% --- 6.65% 5.37%
Savings and NOW accounts $ 119,825 $16,670 $13,549 $11,161 $10,325 $27,395 $198,925 $198,925
Average interest rates 3.26% 2.61% 2.47% 2.47% 2.01% 1.60% 2.81%
Fixed interest rate time deposits $ 142,268 $38,897 $23,927 $17,886 $15,627 --- $238,605 $241,746
Average interest rates 5.57% 6.03% 5.95% 6.41% 6.64% --- 5.82%
Variable interest rate time deposits $ 724 $ 584 --- --- --- --- $ 1,308 $ 1,308
Average interest rates 4.09% 4.09% --- --- --- --- 4.09%
Quantitative Disclosures of Market Risk
June 30, 2000 Fair Value
--------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 06/30/00
--------------------------------------------------------------------------------------------
Rate sensitive assets
Fixed interest rate securities $ 16,944 $18,511 $20,267 $12,361 $ 6,597 $15,656 $ 90,336 $ 90,314
Average interest rates 5.52% 5.74% 5.47% 5.71% 5.32% 5.05% 5.48%
Fixed interest rate loans $ 89,281 $70,752 $69,966 $49,184 $ 45,172 $10,025 $334,380 $334,355
Average interest rates 8.27% 8.06% 8.15% 7.92% 7.93% 7.66% 8.08%
Variable interest rate loans $ 46,160 $ 1,881 $ 214 $ 43 --- --- $ 48,298 $ 48,298
Average interest rates 9.69% 10.78% 9.58% 10.95% --- --- 9.73%
Rate sensitive liabilities
Federal funds purchased $ 5,394 --- --- --- --- --- $ 5,394 $ 5,394
Average interest rates 6.25% --- --- --- --- --- 6.25%
Savings and NOW accounts $ 105,175 $18,201 $14,249 $12,790 $ 11,054 $27,562 $189,032 $189,032
Average interest rates 3.73% 2.12% 2.13% 2.13% 2.14% 2.14% 3.02%
Fixed interest rate time deposits $ 113,464 $33,678 $26,683 $16,915 $ 14,472 --- $205,212 $205,559
Average interest rates 5.61% 6.22% 6.04% 5.76% 6.58% 6.58% 5.84%
Variable interest rate time deposits $ 912 $ 370 --- --- --- --- $ 1,282 $ 1,282
Average interest rates 6.01% 6.01% --- --- --- --- 6.01%
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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 May 8,
2001. At the meeting the shareholders voted upon the following matters:
Proposal 1 - Election of Directors to terms ending 2004:
For Withheld
--- --------
James C. Fabiano 2,798,997 49,838
David W. Hole 2,798,997 49,838
L.A. Johns 2,798,997 49,838
Dale Weburg 2,791,492 57,343
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(ii) Amendments to the Bylaws of IBT Bancorp, Inc.
(b) No Reports on Form 8-K were filed or required to be filed for
the quarter ended June 30, 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: 8/2/01 /s/ David W. Hole
----------- -----------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
-----------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
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IBT BANCORP
EXHIBIT INDEX
Exhibit
No. Description Page Number
- ------- ----------- -----------
3(ii) Amendment to IBT Bancorp, Inc. Bylaws
25