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, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
------------ ---------------
Commission File Number: 0-18415
--------------------------------------
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway Mt. Pleasant 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, 4,311,588 as of October 24, 2002
----------------------------------------------------------------------
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 9-21
Analysis of Financial Condition
and Results of Operations
Item 3 Quantitative and Qualitative 21-23
Disclosures About Market Risk
Item 4 Controls and Procedures 24
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 24
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30 December 31
2002 2001
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 35,394 $ 22,562
Federal funds sold 6,700 32,900
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 42,094 55,462
Investment securities
Securities available for sale (amortized cost of
$147,001 in 2002 and $100,969 in 2001) 151,721 102,518
Securities held to maturity (fair value --
$2,079 in 2002 and $3,526 in 2001) 2,003 3,454
-------- --------
TOTAL INVESTMENT SECURITIES 153,724 105,972
Loans
Agricultural 53,249 48,523
Commercial 133,594 128,098
Residential real estate mortgage 164,855 167,976
Installment 55,021 53,267
-------- --------
TOTAL LOANS 406,719 397,864
Less allowance for loan losses 5,717 5,471
-------- --------
NET LOANS 401,002 392,393
Other assets 40,186 38,316
-------- --------
TOTAL ASSETS $637,006 $592,143
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 63,924 $ 62,020
NOW accounts 100,194 86,676
Certificates of deposit and other savings 315,844 308,120
Certificates of deposit over $100 67,571 59,425
-------- --------
TOTAL DEPOSITS 547,533 516,241
Other borrowed funds 16,620 11,632
Accrued interest and other liabilities 8,774 7,442
-------- --------
TOTAL LIABILITIES 572,927 535,315
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding--
4,311,588 in 2002 (3,884,985 in 2001) 44,870 31,017
Retained earnings 16,094 24,788
Accumulated other comprehensive income 3,115 1,023
-------- --------
TOTAL SHAREHOLDERS' EQUITY 64,079 56,828
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $637,006 $592,143
======== ========
See notes to consolidated financial statements.
3
IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(dollars in thousands)
Nine Months Ended
September 30
-------------
2002 2001
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of per 3,884,985 3,871,552
Stock dividend 388,756 --
Issuance of common stock 56,573 28,600
Stock repurchased (18,726) (7,710)
----------- -----------
BALANCE END OF PERIOD 4,311,588 3,892,442
=========== ===========
COMMON STOCK
Balance at beginning of period $ 31,017 $ 30,814
Stock dividend 12,829 --
Issuance of common stock 1,641 716
Stock repurchased (617) (238)
----------- -----------
BALANCE END OF PERIOD 44,870 31,292
RETAINED EARNINGS
Balance at beginning of period 24,788 21,049
Net income 5,426 4,690
Stock dividend (12,829) --
Cash dividends ($0.30 per share
in 2002 and $0.27 in 2001) (1,291) (1,163)
----------- -----------
BALANCE END OF PERIOD 16,094 24,576
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 67 67
Unrealized gains on securities available for sale, net
of income taxes and reclassification adjustment 3,048 1,380
----------- -----------
BALANCE END OF PERIOD 3,115 1,44
----------- -----------
TOTAL SHAREHOLDERS' EQUITY END OF PERIOD $ 64,079 $ 57,315
=========== ===========
See notes to consolidated financial statements.
4
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
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Loans $ 8,020 $ 8,745 $ 23,671 $ 26,490
Investment securities
Taxable 1,136 829 3,248 2,279
Nontaxable 501 401 1,349 1,230
Federal funds sold and other 74 281 363 803
-------- -------- -------- --------
TOTAL INTEREST INCOME 9,731 10,256 28,631 30,802
INTEREST EXPENSES
Deposits 3,626 4,717 11,193 14,477
Short term borrowings 128 159 482 425
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 3,754 4,876 11,675 14,902
-------- -------- -------- --------
NET INTEREST INCOME 5,977 5,380 16,956 15,900
Provision for loan losses 188 167 538 495
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,789 5,213 16,418 15,405
NONINTEREST INCOME
Trust fees 156 149 432 428
Service charges on deposit accounts 70 70 211 217
Other service charges and fees 537 516 1,572 1,458
Gain on sale of mortgage loans 467 205 887 470
Title insurance revenue 734 431 1,489 1,126
Net realized gain (loss) on securities available for sale 1 (6) 1 (2)
Other 248 193 761 511
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 2,213 1,558 5,353 4,208
NONINTEREST EXPENSES
Salaries, wages and employee benefits 2,840 2,424 8,124 7,071
Occupancy 361 289 1,022 866
Furniture and equipment 635 506 1,715 1,512
Amortization of acquisition intangibles and goodwill 23 139 70 413
Other 1,368 1,088 3,562 3,259
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSES 5,227 4,446 14,493 13,121
INCOME BEFORE FEDERAL INCOME TAXES 2,775 2,325 7,278 6,492
Federal income taxes and minority interest 712 645 1,852 1,802
-------- -------- -------- --------
NET INCOME $ 2,063 $ 1,680 $ 5,426 $ 4,690
======== ======== ======== ========
Basic net income per share $ 0.48 $ 0.39 $ 1.27 $ 1.10
======== ======== ======== ========
Cash dividends per share $ 0.10 $ 0.09 $ 0.30 $ 0.27
======== ======== ======== ========
See notes to consolidated financial statements.
5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
NET INCOME $ 2,063 $ 1,680 $ 5,426 $ 4,690
Other comprehensive income before income taxes
Unrealized gains on securities available for sale:
Unrealized holding gains arising during period 2,098 900 3,171 2,090
Reclassification adjustment for realized
losses included in net income (1) 6 (1) 2
------- ------- ------- -------
Other comprehensive income before income taxes 2,097 906 3,170 2,092
Income tax expense related to other
comprehensive income 713 348 1,078 712
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME 1,384 598 2,092 1,380
------- ------- ------- -------
COMPREHENSIVE INCOME $ 3,447 $ 2,278 $ 7,518 $ 6,070
======= ======= ======= =======
See notes to consolidated financial statements.
6
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Nine Months Ended
September 30
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $ 5,426 $ 4,690
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 538 495
Provision for depreciation 1,120 868
Net amortization of securities 722 162
Increase in cash value of life insurance (350) --
Amortization of intangibles and goodwill 70 413
Gain on sale of mortgage loans (887) (470)
Proceeds from sales of mortgage loans 107,710 60,289
Mortgage loans originated for sale (114,334) (64,495)
Increase in interest receivable (293) (218)
Increase in other assets (251) (1,481)
Increase in accrued interest and other expenses 1,332 1,565
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 803 1,818
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities, calls, and sales 30,214 19,742
Purchases (76,904) (42,730)
Activity in held to maturity securities
Maturities, calls, and sales 1,386 5,143
Purchases -- --
Net (increase) decrease in loans (1,636) 4,138
Increase in cash value of life insurance (300) (6,988)
Acquisition of Title Office (25) --
Purchases of equipment and premises (1,855) (2,760)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (49,120) (23,455)
FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing deposits 1,904 (2,072)
Net increase in interest bearing deposits 29,388 23,774
Net increase in other borrowings 4,724 5,186
Cash dividends (1,291) (1,163)
Common stock issued 841 716
Stock repurchased (617) (238)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 34,949 26,203
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,368) 4,566
Cash and cash equivalents at beginning of period 55,462 28,425
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,094 $ 32,991
========= =========
See notes to consolidated financial statements.
7
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 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 accounting principles generally accepted in the United States of
America 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, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002. 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, 2001.
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, as adjusted for the 10% stock dividend paid February 28, 2002, were
4,285,644 and 4,266,490 for the nine month periods ending September 30, 2002 and
2001, respectively.
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Corporation adopted the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard No. 142, "Goodwill and
Other Intangible Assets." Statement No. 142 addresses the reporting and other
intangible assets subsequent to their acquisition. This Statement requires that
goodwill be separately disclosed from other intangible assets on the balance
sheet and that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but, instead, tested for impairment at least annually. The
adoption of Statement No. 142 resulted in the reduction of goodwill amortization
of $0.08 per share and $0.03 per share for the nine month and three month
periods ending September 30, 2002.
As required by the Statement, intangible assets that do not meet the criteria
for recognition apart from goodwill must be reclassified. As a result of the
Corporation's analysis, no reclassifications were required as of September 30,
2002. Included in other assets on the accompanying consolidated balance sheets
are the following amounts:
September 30 December 31
2002 2001
---- ----
Goodwill beginning balance $2,036 $2,036
Core deposit intangibles 422 492
------- -------
$2,458 $2,528
======= =======
In October of 2002, the FASB issued statements of Financial Accounting Standard
No. 147, "Acquisitions of Certain Financial Institutions". Implementation of
SFAS No. 147 is not expected to impact the Corporation.
8
NOTE 4 BUSINESS ACQUISITION.
On July 1, 2002, the Corporation's subsidiary IBT Title completed the purchase
of Benchmark Abstract and Title of Greenville Michigan. The purchase was
accounted for according to the Provision of FASB Statement No. 141. The purchase
price of Benchmark was $1.125 million, which was funded through the issuance of
$800,000 of IBT Bancorp stock, $25,000 cash, and a note payable in the amount of
$300,000. The purchase proforma results of operation have not been disclosed
herein because such results are immaterial.
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 2001 annual report and with the unaudited
consolidated financial statements and notes thereto, as set forth on pages 3
through 8 of this report. On July 1, 2002, the Corporation's subsidiary IBT
Title completed the purchase of Benchmark Abstract and Title of Greenville. The
purchase was accounted for according to the provision of FASB Statement No. 142.
NINE MONTHS ENDING SEPTEMBER 30, 2002 AND 2001
RESULTS OF OPERATIONS
Net income equaled $5.43 million for the nine month period ended
September 30, 2002, compared to $4.69 million for the same period in 2001, a
15.7% increase. Return on average assets, which measures the ability of the
Corporation to profitably and efficiently employ its resources, equaled 1.17%
for the first nine months of 2002 and 1.11% in 2001. Return on average equity,
which indicates how effectively the Corporation is able to generate earnings on
shareholder invested capital, equaled 12.39% through September 30, 2002 versus
11.53% through September 30, 2001.
REVISED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Year to Date
September 30
------------
2002 2001
-------------------
INCOME STATEMENT DATA
Net interest income $16,956 $15,900
Provision for loan losses 538 495
Net income 5,426 4,690
PER SHARE DATA
Net income per common share $ 1.27 $ 1.21
Cash dividends per common share 0.30 0.30
RATIOS
Average primary capital to average assets 10.56% 10.78%
Net income to average assets 1.17 1.11
Net income to average equity 12.39 11.53
9
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. Federal
Reserve and Federal Home Loan Bank equity holdings are included in other
investments.
Nine Months Ending
September 30, 2002 September 30, 2001
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $ 392,606 $ 23,677 8.04% $ 404,179 $ 26,511 8.75%
Taxable investment securities 91,708 3,125 4.54 50,233 2,142 5.69
Nontaxable investment securities 44,487 2,183 6.54 34,049 1,864 7.30
Federal funds sold 29,075 364 1.67 25,384 802 4.21
Other investments 2,731 123 6.01 2,574 138 7.15
------- ------ ---- ------- ------ ----
Total Earning Assets 560,607 29,472 7.01 516,419 31,456 8.12
NONEARNING ASSETS
Allowance for loan losses (5,617) (5,315)
Cash and due from banks 23,210 20,947
Premises and equipment 14,814 12,141
Accrued income and other assets 24,163 16,800
------- -------
Total Assets $ 617,177 $ 560,992
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 97,339 1,091 1.49 $ 81,474 1,605 2.63
Savings deposits 135,652 1,728 1.70 120,123 2,582 2.87
Time deposits 246,736 8,374 4.53 233,453 10,290 5.88
Borrowed funds 24,163 482 5.00 10,419 425 5.44
------- ------ ---- ------- ------ ----
Total Interest Bearing Liabilities 492,570 11,675 3.16 445,469 14,902 4.46
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 57,873 55,389
Other 8,356 5,907
Shareholders' equity 58,378 54,227
------- -------
Total Liabilities and Equity $ 617,177 $ 560,992
========= =========
Net interest income (FTE) $ 17,797 $ 16,555
========= =========
Net yield on interest earning assets (FTE) 4.23% 4.27%
==== ====
10
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, 2002
Compared to
September 30, 2001
Increase (Decrease) Due to
--------------------------------------------
Volume Rate Net
------ ---- ---
Changes in Interest Income
Loans $ (743) $(2,091) $(2,834)
Taxable investment securities 1,483 (500) 983
Nontaxable investment securities 527 (208) 319
Federal funds sold 103 (541) (438)
Other investments 8 (23) (15)
------- ------- -------
Total changes in interest income 1,378 (3,363) (1,985)
Total changes in interest expense 1,223 (4,450) (3,227)
------- ------- -------
Net Change in Interest Margin (FTE) $ 155 $ 1,087 $ 1,242
======= ======= =======
11
IBT BANCORP, INC.
TABLE 3
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
September 30
--------------------------
2002 2001
---- ----
Summary of changes in allowance:
Allowance for loan losses - January 1 $ 5,471 $ 5,162
Loans charged off (522) (461)
Recoveries of charged off loans 230 181
------- -------
Net loans (charged off) recovered (292) (280)
Provision charged to operations 538 495
------- -------
Allowance for loan losses - September 30 $ 5,717 $ 5,377
======= =======
Allowance for loan losses as a % of loans 1.41% 1.33%
==== ====
NONPERFORMING LOANS
(Dollars in thousands)
September 30
2002 2001
---- ----
Total amount of loans outstanding at the
end of period $ 406,719 $ 403,937
========= =========
Nonaccrual loans $ 3,180 $ 795
Accruing loans past due 90 days or more 2,078 3,052
Restructured loans 739 139
--------- ---------
Total $ 5,997 $ 3,986
========= =========
Loans classified as nonperforming as
a % of outstanding loans 1.47% 0.99%
==== ====
Loans classified as substandard to
Allowance for loan losses - September 30 104.9% 74.1%
===== ====
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.
12
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
$1.18 million in the first nine months of 2002 versus $1.04 million for the same
period in 2001. 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, 2002 to the same period in 2001, fully taxable equivalent (FTE)
net interest income increased $1.24 million or 7.5%. An increase of 8.6% in
average interest earning assets provided $1.38 million of FTE interest income.
The majority of this increase was funded by a 10.6% increase in interest bearing
deposits and borrowed funds, resulting in $1.22 million of additional interest
expense. Overall, changes in volume resulted in $155,000 of additional FTE
interest income. The average FTE interest rate earned on assets decreased by
1.11 %, decreasing FTE interest income by $3.36 million and the average rate
paid on deposits and other borrowings decreased by 1.30%, decreasing interest
expense by $4.45 million. The change in interest rates earned and paid increased
FTE net interest income by $1.09 million.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.23% during 2002 versus 4.27% in 2001. The 0.04% decrease in the
FTE net interest yield was primarily a result of a change in asset mix. The
following table shows as a percentage of earning assets the percentage invested
in each earning asset for September 30, 2002 versus the same period in 2001.
September 30 September 30 Average
2002 2001 Change Rate
------------- -------------- ------ ----
Loans 70.0% 78.3% (10.06%) 8.04%
Taxable investment securities 16.4 9.7 69.1 4.54
Non-taxable investment securities 7.9 6.6 20.0 6.54
Federal funds sold 5.2 4.9 6.1 1.67
Other 0.5 0.5 -- 6.01
----- -----
100.0% 100.0%
===== =====
As shown in the above table, there has been a substantial shift of asset
composition from loans to investment securities. This shift accounted for
approximately 0.03% of the decline in the net interest margin.
13
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Net loans outstanding represent 63% 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, 2002 to September 30, 2001,
the provision for loan losses was increased by $43,000 to $538,000. The
provision and allowance for loan losses was increased due to an increase in
loans classified as substandard. As a percentage of loans, substandard loans to
outstanding loans was 1.47% in 2002 versus 0.99% in 2001. During 2002 the
Corporation had net charged off loans of $292,000 compared to $280,000 in 2001.
As of September 30, 2002 the allowance for loan losses was $5.72 million or
1.41% of total loans. Management's internal analysis of the estimated range for
the allowance was $3.0 million to $7.2 million as of September 30, 2002. Based
on this analysis, management believes the allowance for loan loss is adequate.
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, gains on sale of mortgage loans sold, title insurance
revenue, and gains and losses on investment securities available for sale. There
was a $1.15 million increase in fees earned from these sources during the nine
months of 2002 when compared to the same period in 2001. Significant individual
account changes during this period include a $363,000 increase in title
insurance and related revenue, $50,000 in NSF and overdraft fees, and a $417,000
increase in gains on the sale of mortgage loans originated for sale. The
Corporation has established a policy that all 15 and 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 allocated to the value of
the servicing rights of these loans. Included in other noninterest income is a
$887,000 gain from the sale of $107.7 million in mortgages through the third
quarter of 2002 versus a $470,000 gain on the sale of $60.3 million for the same
period in 2001. The Corporation has invested $9.7 million in bank owned life
insurance. The average net rate earned on the investment is approximately 5.0%
and, because of their tax free accumulation of earnings, they have a taxable
equivalent rate of 7.6%. The rates on these contracts are adjustable annually on
their anniversary date. The investments are with five separate insurance
companies with S&P ratings of AA or better. The investment is classified in
other assets on the consolidated balance sheet and income is recorded in
noninterest income. The income earned from this source increased $259,000 for
the nine month period of 2002 when compared to the same period of 2001.
14
NONINTEREST EXPENSE
Noninterest expense increased $1.37 million or 10.5% during the first nine
months of 2002 when compared to the same period in 2001. The largest component
of noninterest expense is salaries and employee benefits, which increased $1.05
million or 14.9%. Normal merit and promotional salary adjustments account for
half of the increase with the remainder of the increase resulting from increased
staffing due to the purchase of Benchmark Abstract and Title in Greenville,
Michigan by IBT Title, an increase in support staff to handle the increase in
mortgage volume, and a 45% increase in medical expenses and pension expenses.
Occupancy and furniture and equipment expenses increased $359,000 or 15.1% in
2002. The majority of this increase is related to a $31,000 increase in property
taxes, $28,000 increase in building repairs, $170,000 increase in service
contracts, and approximately $150,000 increase in depreciation due to the
write-off of disposed and/or obsolete fixed assets.
Amortization of acquisition intangible and goodwill declined $343,000 during the
first 9 months of 2002. The decline is related to the adoption of FASB Statement
No. 142, see footnote 3 on page 8 of this report for further information.
Other operating expenses increased $303,000 or 9.3%. The increase is related to
an $84,000 increase in marketing and advertising, a $108,000 increase in
donations, a $71,000 increase in the cost of title insurance, and a $67,000
increase in auditing fees as a result of out sourcing a portion of the
Corporation's internal audit work.
QUARTER ENDED SEPTEMBER 30, 2002 AND 2001
RESULTS OF OPERATIONS
Net income equaled $2.06 million for the third quarter of 2002 compared to $1.68
million for the same period in 2001, a 22.8% increase. Return on average assets
equaled 1.31% for the third quarter of 2002 compared to 1.16% for the same
period in 2001. Return on average equity equaled 13.73% for the third quarter of
2002 versus 12.06% for the third quarter of 2001.
15
REVISED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Quarter Ended
September 30
------------
2002 2001
-------------------
INCOME STATEMENT DATA
Net interest income $ 5,977 $ 5,380
Provision for loan losses 188 167
Net income 2,063 1,680
PER SHARE DATA
Net income per common share $ 0.48 $ 0.39
Cash dividends per common share 0.10 0.09
RATIOS
Net income to average assets 1.31% 1.16%
Net income to average equity 13.73 12.06
NET INTEREST INCOME
When comparing net interest income for the third quarter of 2002 to the same
period in 2001, a 7.7% increase in average interest-earning assets provided
$592,000 of additional FTE interest income. The average rate of interest-earning
assets decreased 0.87%, resulting in a $1.02 million decrease in FTE interest
income. The changes in average balances and the rates earned resulted in a
decrease of $432,000 of FTE interest income. The growth of earning assets was
funded primarily by growth in interest bearing liabilities, which increased by
8.9% in 2002. The average cost of these funds decreased by 1.24%. The changes in
the average balances and rate paid on interest-bearing deposits resulted in a
decline of $1.12 million of interest expense. Overall, the changes in interest
rate earned and paid and average balances resulted in additional net interest
income of $690,000 in the third quarter of 2002 when compared to the same period
in 2001. The Corporation's FTE net interest yield increased by 0.17% to 4.39% in
the third quarter of 2002. The primary reason for the increase was a larger
decrease in rates paid on deposits than the decline in rates on earning assets.
PROVISION FOR LOAN LOSSES
Since December 31, 2001, total average loans outstanding have increased $8.9
million or 2.2% compared to $1.7 million or 0.4% for the same period in 2001.
The allowance for loan losses as a percentage of total outstanding loans was
1.41% as of September 30, 2002 and 1.33% in 2001. During the third quarter of
2002, the Corporation had net charge-offs of $111,000. The amount provided for
loan losses during the third quarter of 2002 was $188,000 and $167,000 during
the same period of 2001.
16
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. Federal
Reserve and Federal Home Loan Bank restricted equity holdings are included in
other investments.
Quarter Ending
September 30, 2002 September 30, 2001
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
INTEREST EARNING ASSETS
Loans $ 403,258 $ 8,021 7.96% $ 405,405 $ 8,752 8.64%
Taxable investment securities 99,719 1,093 4.38 57,039 784 5.50
Nontaxable investment securities 48,244 806 6.68 34,101 608 7.13
Federal funds sold 17,967 76 1.69 31,486 280 3.56
Other investments 2,748 42 6.11 2,784 46 6.61
--------- --------- ---- --------- ------- ----
Total Earning Assets 571,936 10,038 7.02 530,815 10,470 7.89
NONEARNING ASSETS
Allowance for loan losses (5,676) (5,405)
Cash and due from banks 25,095 21,813
Premises and equipment 14,738 12,741
Accrued income and other assets 25,974 19,652
--------- ---------
Total Assets $ 632,067 $ 579,616
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 105,501 374 1.42 $ 84,264 484 2.30
Savings deposits 133,407 519 1.56 122,471 806 2.63
Time deposits 247,934 2,693 4.34 241,249 3,427 5.68
Borrowed funds 13,789 168 4.87 11,705 159 5.43
--------- --------- ---- --------- ------- ----
Total Interest Bearing Liabilities 500,631 3,754 3.00 459,689 4,876 4.24
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 61,144 58,471
Other 10,169 5,749
Shareholders' equity 60,123 55,707
--------- ---------
Total Liabilities and Equity $ 632,067 $ 579,616
========= =========
Net interest income (FTE) 6,284 $ 5,594
===== =======
Net yield on interest earning assets (FTE) 4.39% 4.22%
==== ====
17
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, 2002
Compared to
September 30, 2001
Increase (Decrease) Due to
-----------------------------------
Volume Rate Net
------ ---- ---
CHANGES IN INTEREST INCOME
Loans $ (46) $ (685) $ (731)
Taxable investment securities 493 (184) 309
Nontaxable investment securities 238 (40) 198
Federal funds sold (92) (112) (204)
Other Investments (1) (3) (4)
------ ------- -------
Total changes in interest income 592 (1,024) (432)
Total changes in interest expense 289 (1,411) (1,122)
------ ------- -------
Net Change in Interest Margin (FTE) $ 303 $ 387 $ 690
====== ======= =======
NONINTEREST INCOME
Noninterest income earned in the third quarter of 2002 compared to the same
period in 2001, increased $655,000 or 420%. The most significant changes were a
$262,000 increase from the gain on sale of mortgages, an increase of $303,000 in
title and abstract revenue, an increase of $50,000 in income earned on the cash
value of life insurance, and an increase of $42,000 in NSF and overdraft fees.
18
NONINTEREST EXPENSE
Noninterest expense increased $781,000 or 17.6% during the third quarter of 2002
when compared to 2001. Noninterest expense includes salary and benefits,
occupancy, and other operating expenses. Comparing 2002 to 2001, salaries and
employee benefits increased $416,000, occupancy expense and furniture and
equipment expense increased $201,000, amortization and acquisition intangible
and good will expenses declined $116,000, and other operating expenses increased
$280,000.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 2001, total assets increased $44.9 million to $637.0 million.
During this period the net loan portfolio increased $8.6 million, fed funds sold
decreased $26.2 million, investment securities increased $47.8 million, and
other assets increased $1.9 million. Changes in funding sources include a $1.9
million increase in noninterest bearing deposits, an increase in interest
bearing deposits of $29.4 million, an increase in borrowings of $5.0 million,
and a $7.3 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, 2002, cash and cash equivalents as a percentage of total
assets equaled 6.6%, versus 9.4% as of December 31, 2001. During the first nine
months of 2002, $803,000 in net cash was provided from operations, and $36.0
million was provided by financing activities. Investing activities used $50.2
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $13.4 million decrease in cash and cash equivalents
during the first nine months of 2002.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale equaled
$151.7 million as of September 30, 2002 and $102.5 million as of December 31,
2002. The Corporation's liquidity is considered adequate by the management of
the Corporation.
19
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and accumulated other comprehensive income; and increased
approximately $7.3 million since December 31, 2001.
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
10.4% at September 30, 2002.
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, 2002:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 09/30/02
-------- --------
Equity Capital 4.00% 14.48%
Secondary Capital* 4.00 1.25
Total Capital 8.00% 15.73%
* IBT Bancorp's secondary capital consists solely of the
allowance for loan losses. The percentage for the secondary
capital under the required column is the maximum allowed from
all sources.
20
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.
21
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 September 30,
2002. 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.
22
Quantitative Disclosures of Market Risk
September 30
-----------------------------------------------------------------------
2003 2004 2005 2006 2007
-----------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 6,700 -- -- -- --
Average interest rates 1.75% -- -- -- --
Fixed interest rate securities $ 11,287 $ 28,695 $ 45,407 $ 18,383 $ 7,615
Average interest rates 4.15% 4.33% 3.97% 4.05% 4.40%
Fixed interest rate loans $ 95,992 $ 77,595 $ 92,605 $ 26,674 $ 25,277
Average interest rates 8.19% 8.24% 8.01% 8.03% 7.94%
Variable interest rate loans $ 43,277 $ 12,836 $ 4,472 $ 3,032 $ 2,022
Average interest rates 7.24% 3.36% 6.25% 6.21% 4.85%
Rate sensitive liabilities
Borrowed funds $ 3,027 $ 1,053 $ 53 $ 53 $ 5,053
Average interest rates 1.11% 5.01% 4.16% 4.16% 5.08%
Savings and NOW accounts $143,310 $ 19,340 $ 15,733 $ 12,937 $ 11,987
Average interest rates 1.71% 1.69% 1.79% 2.32% 1.46%
Fixed interest rate time deposits $133,797 $ 35,054 $ 31,766 $ 23,365 $ 22,632
Average interest rates 5.03% 5.82% 5.74% 5.61% 6.25%
Variable interest rate time deposits $ 902 $ 484 $ 9 $ 0 $ 248
Average interest rates 3.38% 4.09% -- -- --
Fair Value
----------------------------------------
Thereafter Total 09/30/02
----------------------------------------
Rate sensitive assets
Other interest bearing assets -- $ 6,700 $ 6,700
Average interest rates -- 1.75%
Fixed interest rate securities $ 42,337 $ 153,724 $153,800
Average interest rates 4.69% 4.28%
Fixed interest rate loans $ 22,030 $ 340,173 $345,915
Average interest rates 7.55% 8.08%
Variable interest rate loans $ 907 $ 66,546 $ 66,546
Average interest rates 4.07% 6.26%
Rate sensitive liabilities
Borrowed funds $ 7,381 $ 16,620 $ 17,381
Average interest rates 5.50% 4.53%
Savings and NOW accounts $ 31,816 $ 235,123 $235,123
Average interest rates 1.12% 1.65%
Fixed interest rate time deposits $ 228 $ 246,843 $253,631
Average interest rates 3.77% 5.40%
Variable interest rate time deposits $ 0 $ 1,643 $ 1,643
Average interest rates -- 3.06%
Quantitative Disclosures of Market Risk
September 30
------------------------------------------------------------------
2002 2003 2004 2005 2006
------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 6,650 -- -- -- --
Average interest rates 3.00% -- -- -- --
Fixed interest rate securities $ 6,090 $ 29,135 $ 17,574 $ 15,374 4,484
Average interest rates 5.73% 4.55% 5.12% 4.68% 4.60%
Fixed interest rate loans $ 105,133 $ 78,711 $ 92,646 $ 40,006 $ 23,459
Average interest rates 9.32% 8.42% 8.18% 8.30% 8.26%
Variable interest rate loans $ 47,506 $ 1,923 $ 68 $ 1 --
Average interest rates 8.02% 10.06% 7.75% 8.75% --
Rate sensitive liabilities
Borrowed funds $ 3,230 -- $ 5,000 $ 1,000 --
Average interest rates 4.94% -- 5.08% 5.06% --
Savings and NOW accounts $ 115,215 $ 17,249 $ 14,018 $ 11,528 $ 10,661
Average interest rates 2.70% 2.27% 2.18% 2.54% 1.84%
Fixed interest rate time deposits $ 146,620 $ 35,644 $ 22,555 $ 24,522 $ 12,496
Average interest rates 5.47% 6.04% 5.95% 6.40% 6.63%
Variable interest rate time deposits $ 778 $ 426 -- -- --
Average interest rates 4.09% 4.09% -- -- --
Fair Value
-----------------------------------------------
Thereafter Total 09/30/01
-----------------------------------------------
Rate sensitive assets
Other interest bearing assets -- $ 6,650 $ 6,650
Average interest rates -- 3.00%
Fixed interest rate securities $ 32,929 $ 105,586 $105,890
Average interest rates 4.91% 4.85%
Fixed interest rate loans $ 14,484 $ 354,439 $363,569
Average interest rates 7.58% 8.56%
Variable interest rate loans -- $ 49,498 $49,498
Average interest rates -- 8.10%
Rate sensitive liabilities
Borrowed funds $ 2,400 $ 11,630 $ 12,107
Average interest rates 6.65% 5.36%
Savings and NOW accounts $ 28,080 $ 196,751 $196,751
Average interest rates 1.46% 2.39%
Fixed interest rate time deposits -- $ 241,837 $247,908
Average interest rates -- 5.75%
Variable interest rate time deposits -- $ 1,204 $ 1,204
Average interest rates -- 4.09%
23
ITEM 4 -- CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures -- Dennis P. Angner, the
Corporate Principal Executive Officer and Principal Financial Officer, has
reviewed and evaluated the effectiveness of the Corporation's disclosure
controls and procedures [as defined in Rules 240.13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934 (the "Exchange Act)] as of a date within
ninety days before the filing date of this quarterly report. Based on that
evaluation, providing him with material information relating to the Corporation
as required to be disclosed in the reports the Corporation files or submits
under the Exchange Act on a timely basis.
(b) Changes in Internal Controls -- There were no significant changes in the
Corporation's internal controls or in other factors that could significantly
affect the Corporation's disclosure controls and procedures subsequent to the
date of the evaluation, nor were there any significant deficiencies or material
weaknesses in the Corporation's internal controls.
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 99.01 Certification of Chief Executive Officer and Chief
Financial Officer.
(b) No reports on Form 8-K were filed or required to be filed during
the quarter ended September 30, 2002.
24
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: October 31, 2002 /s/ Dennis P. Angner
--------------------- -------------------------------
President and CEO and Principal
Financial Officer
CERTIFICATIONS
I, Dennis P. Angner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IBT Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
25
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 31, 2002 /s/Dennis P. Angner
----------------------- ----------------------------
President and CEO, Principal
Executive Officer and
Principal Financial Officer
26
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Sequentially
Number Description Numbered Page
99.01 Statement Pursuant to
Title 18 -- USC Section 1350 28
27