1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to
---------------------- ------------------------
Commission File Number: 0-18415
---------------------------------------------------------
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway 48858
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(517) 772-9471
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $6 par value, 884,017 as of April 30, 1999
--------------------------------------------------------
2
IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Numbers
Item 1 Consolidated Financial Statements 3-8
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-15
Item 3 Quantitative and Qualitative 16-17
Disclosures About Market Risk
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
2
3
ITEM I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) March 31 December 31
1999 1998
---- ----
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 13,789 $ 15,497
Federal funds sold 6,000 15,000
---------- ---------
TOTAL CASH AND CASH EQUIVALENTS 19,789 30,497
Investment securities
Securities available for sale (Amortized cost of
$93,809 in 1999 and $88,015 in 1998) 94,643 89,486
Securities held to maturity (Fair value --
$5,448 in 1999 and $6,665 in 1998) 5,352 6,548
--------- ---------
TOTAL INVESTMENT SECURITIES 99,995 96,034
Loans:
Commercial and agricultural 44,943 44,917
Real estate mortgage 166,326 165,553
Installment 36,075 36,238
--------- ---------
TOTAL LOANS 247,344 246,708
Less allowance for loan losses 3,061 2,977
--------- ---------
NET LOANS 244,283 243,731
Other assets 19,256 18,521
--------- ---------
TOTAL ASSETS $ 383,323 $ 388,783
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 40,820 $ 46,348
NOW accounts 49,728 57,990
Certificates of deposit and other savings 228,276 226,930
Certificates of deposit over $100,000 25,110 18,771
--------- ---------
TOTAL DEPOSITS 343,934 350,039
Accrued interest and other liabilities 4,375 4,221
--------- ---------
TOTAL LIABILITIES 348,309 354,260
Shareholders' Equity
Common stock -- $6 par value
4,000,000 shares authorized; outstanding--
883,744 in 1999 (881,573 in 1998) 5,302 5,290
Capital surplus 19,028 18,894
Retained earnings 10,133 9,369
Accumulated other comprehensive income 551 970
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 35,014 34,523
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 383,323 $ 388,783
========= =========
See notes to consolidated financial statements.
3
4
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31
-----------------------
1999 1998
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 881,573 792,455
10% stock dividend 0 79,155
Issuance of common stock 2,171 2,350
--------- ---------
BALANCE END OF PERIOD 883,744 873,960
========= =========
COMMON STOCK
Balance at beginning of period $ 5,290 $ 4,755
10% stock dividend 0 475
Issuance of common stock 12 14
--------- ---------
BALANCE END OF PERIOD 5,302 5,244
CAPITAL SURPLUS
Balance at beginning of period 18,894 13,687
10% stock dividend 0 4,670
Issuance of common stock 134 124
--------- ---------
BALANCE END OF PERIOD 19,028 18,481
RETAINED EARNINGS
Balance at beginning of period 9,369 12,248
Net income 993 862
10% stock dividend 0 (5,145)
Cash dividends
($0.26 per share in 1999 and $0.25 in 1998) (229) (225)
--------- ---------
BALANCE END OF PERIOD 10,133 7,740
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period 970 268
Other comprehensive (loss) income (419) 79
--------- ---------
BALANCE END OF PERIOD 551 347
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 35,014 $ 31,812
========= =========
See notes to consolidated financial statements.
4
5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands) Three Months Ended
March 31
--------
1999 1998
--------------------
INTEREST INCOME
Loans $5,212 $4,676
Investment securities
Taxable 1,141 908
Nontaxable 229 203
------ ------
TOTAL INTEREST ON INVESTMENT SECURITIES 1,370 1,111
Federal funds sold 148 110
------ ------
TOTAL INTEREST INCOME 6,730 5,897
INTEREST EXPENSE ON DEPOSITS 3,182 2,859
------ ------
NET INTEREST INCOME 3,548 3,038
Provision for loan losses 94 98
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,454 2,940
NONINTEREST INCOME
Trust fees 113 103
Service charges on deposit accounts 85 74
Other service charges and fees 289 232
Other 316 106
Gain on sale of mortgage loans 108 61
Net realized gain on securities available for sale 1 0
------ ------
TOTAL NONINTEREST INCOME 912 576
NONINTEREST EXPENSES
Salaries, wages and employee benefits 1,613 1,285
Occupancy 205 163
Furniture and equipment 301 258
Other 888 625
------ ------
TOTAL NONINTEREST EXPENSES 3,007 2,331
INCOME BEFORE FEDERAL INCOME TAXES 1,359 1,185
Federal income taxes 366 323
------ ------
NET INCOME $ 993 $ 862
====== ======
Net income per share on common stock $ 1.13 $ 0.99
====== ======
Cash dividends per share $ 0.26 $ 0.25
====== ======
See notes to consolidated financial statements.
5
6
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands) Three Months Ended
March 31
-------------------
1999 1998
---- ----
NET INCOME $ 993 $ 862
Other comprehensive income before income taxes:
Unrealized (losses) gains on securities available for sale:
Unrealized holding (losses) gains arising during period (634) 120
Reclassification adjustment for realized gains
included in net income (1)
Total comprehensive (loss) income before income taxes (635) 120
Income tax (benefit) expense related to comprehensive
(loss) income (216) 41
----- -----
OTHER COMPREHENSIVE (LOSS) INCOME NET OF INCOME TAXES (419) 79
----- -----
COMPREHENSIVE INCOME $ 574 $ 941
===== =====
See notes to consolidated financial statements.
6
7
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Three Months Ended
March 31
1999 1998
---- ----
OPERATING ACTIVITIES
Interest and fees collected on loans and investments $ 6,512 $ 5,811
Other fees received 833 563
Interest paid (3,183) (2,849)
Cash paid to suppliers and employees (2,914) (3,221)
Decrease (increase) in loans originated for sale 1,385 (156)
Federal income taxes paid (220) 0
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,413 148
INVESTING ACTIVITIES
Proceeds from maturities and sales of
securities available for sale 7,005 2,953
Proceeds from maturities of securities held to maturity 192 3,036
Purchase of securities available for sale (11,888) (47,093)
Purchase of securities held to maturity 0 (702)
Net (increase) decrease in loans (2,031) 1,292
Purchases of equipment and premises (211) (356)
Acquisition of branch offices, less cash received 0 37,874
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,933) (2,996)
FINANCING ACTIVITIES
Net decrease in noninterest bearing deposits (5,528) (6,644)
Net (decrease) increase in interest bearing deposits (577) 3,908
Cash dividends (229) (225)
Proceeds from issuance of common stock 146 138
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (6,188) (2,823)
-------- --------
(DECREASE) IN CASH AND CASH EQUIVALENTS (10,708) (5,671)
Cash and cash equivalents at beginning of period 30,497 28,505
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,789 $ 22,834
======== ========
See notes to consolidated financial statements.
7
8
IBT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. 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, 1998.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average
number of common shares outstanding. The weighted number of common shares
outstanding were 881,798 as of March 31, 1999, and 871,814 as of March 31, 1998.
The Corporation has no common stock equivalents and, accordingly, presents only
basic earnings per share.
8
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
The following is management's discussion and analysis of the major
factors that influenced IBT Bancorp's financial performance. This analysis
should be read in conjunction with the Corporation's 1998 annual report and with
the unaudited financial statements and notes, as set forth on pages 3 through 8
of this report.
THREE MONTHS ENDING MARCH 31, 1999 AND 1998
RESULTS OF OPERATIONS
Net income equaled $993,000 for the three month period ended March 31,
1999, compared to $862,000 for the same period in 1998, a 15.2% increase. Return
on average assets, which measures the ability of the Corporation to profitably
and efficiently employ its resources, equaled 1.02% for the first three months
of 1999 and 1.07% for 1998. Return on average equity, which indicates how
effectively the Corporation is able to generate earnings on shareholder invested
capital, equaled 11.81% through March 31, 1999 versus 11.09% for the same period
in 1998.
SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------
(Dollars in thousands except per share data)
March 31
1999 1998
-----------------------
INCOME STATEMENT DATA
Net interest income $ 3,548 $ 3,038
Provision for loan losses 94 98
Net income 993 862
PER SHARE DATA
Net income $ 1.13 $ 0.99
Cash dividend 0.26 0.25
RATIOS
Average primary capital to average assets 9.38 10.46%
Net income to average assets 1.02 1.07
Net income to average equity 11.81 11.09
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 $203,000 in 1999 versus $168,000 in 1998. 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.
9
10
IBT BANCORP, INC.
TABLE 1: AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
=================================================================
(Dollars in Thousands)
The following schedules present the daily average amount outstanding
for each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding.
Three Months Ending
March 31, 1999 March 31, 1998
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- ----------- ------- --------- ---------- -------
INTEREST EARNING ASSETS
Loans $246,959 $5,203 8.43% $216,284 $4,704 8.70%
Taxable investment securities 75,297 1,113 5.91 57,554 880 6.12
Nontaxable investment securities 19,439 347 7.14 17,465 308 7.05
Federal funds sold 16,298 190 4.66 8,103 110 5.43
Other investments 1,613 28 6.94 1,466 27 7.37
-------- ------ ---- -------- ------ ----
Total Earning Assets 359,606 6,881 7.65 300,872 6,029 8.02
NONEARNING ASSETS
Allowance for loan losses (3,051) (2,794)
Cash and due from banks 13,219 10,907
Premises and equipment 7,854 5,804
Accrued income and other assets 9,811 6,271
-------- --------
Total Assets $387,439 $321,060
======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 55,714 337 2.42 $ 39,400 276 2.80
Savings deposits 101,010 764 3.03 75,210 621 3.30
Time deposits 151,690 2,081 5.49 133,211 1,947 5.85
Fed funds purchased 0 0 0.00 1,031 15 5.82
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities 308,414 3,182 4.13 248,852 2,859 4.60
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 41,215 37,749
Other 4,195 3,380
Shareholders' equity 33,615 31,079
-------- --------
Total Liabilities and Equity $387,429 $321,060
======== ========
Net interest income (FTE) $3,699 $3,170
====== ======
Net yield on interest earning assets (FTE) 4.11% 4.21%
===== ====
10
11
IBT BANCORP, INC.
TABLE 2: VOLUME AND RATE VARIANCE ANALYSIS
=============================================================================
(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For the purpose of this
table, changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Quarter Ended March 31, 1999
Compared to
March 31, 1998
Increase (Decrease) Due to
-----------------------------
Volume Rate Net
CHANGES IN INTEREST INCOME
Loans $ 650 $ (151) $ 499
Taxable investment securities 263 (30) 233
Nontaxable investment securities 35 4 39
Federal funds sold 97 (17) 80
Other investments 3 (2) 1
------ ------ ------
Total changes in interest income 1,048 (196) 852
Total changes in interest expense 553 (230) 323
------ ------ ------
Net Change in Interest Margin (FTE) $ 495 $ 34 $ 529
====== ====== ======
11
12
IBT BANCORP, INC.
TABLE 3: SUMMARY OF LOAN LOSS EXPERIENCE
=========================================
(Dollars in Thousands)
Year to Date
March 31
-----------------------
1999 1998
---- ----
Summary of changes in allowance
Allowance for loan losses - January 1 $ 2,977 $ 2,677
Loans charged off (100) (36)
Recoveries of charged off loans 90 132
------- -------
Net loans (charged off) recovered (10) 96
Provision charged to operations 94 98
------- -------
Allowance for loan losses - March 31 $ 3,061 $ 2,871
======= =======
Allowance for loan losses as a % of loans 1.24% 1.33%
======= =======
NONPERFORMING LOANS
===================
(Dollars in thousands)
March 31
1999 1998
---- ----
Total amount of loans outstanding for
the period $247,344 $216,441
======== ========
Nonaccrual loans $ 366 $ 205
Accruing loans past due 90 days or more 739 569
Restructured loans 0 0
-------- --------
Total $ 1,105 $ 774
======== ========
Loans classified as nonperforming as a
% of outstanding loans 0.45% 0.36%
======== ========
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
13
NET INTEREST INCOME (CONTINUED)
As shown in Tables number 1 and 2, when comparing the three month period
ending March 31, 1999 to the same period in 1998, fully taxable equivalent (FTE)
net interest income increased $529,000 or 16.7%. An increase of 19.5% in average
interest earning assets provided $1.05 million of FTE interest income. The
majority of this growth was funded by a 23.9% increase in interest bearing
liabilities resulting in $553,000 of additional interest expense. Overall,
changes in volume resulted in $495,000 of additional FTE interest income. The
average FTE interest rate earned on assets decreased by 0.37%, decreasing FTE
interest income by $196,000 and the average rate paid on deposits decreased by
0.47%, decreasing interest expense by $230,000. The net change related to
interest rates earned and paid was a $34,000 increase in FTE net interest
income.
The Corporation's FTE net interest yield as a percentage of average
earning assets equaled 4.11% during 1999 versus 4.21% in 1998. The 0.10%
decrease in the FTE interest margin was primarily a result of changes in the
Corporation's earning asset mix. During the first quarter of 1999, the loan to
earning asset ratio decreased by 3.2% with a corresponding increase in the lower
yielding investment categories. Other factors affecting the Corporation's net
interest margin are the increasing reliance on higher cost deposits such as
Certificates of Deposit and Money Market accounts to fund asset growth, and
intense rate competition for new commercial and installment loans. Management
expects the Corporation's reliance on higher cost deposits to fund asset growth
to continue and for rates charged for loans in relation to deposit costs to
continue declining.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Loans outstanding represent 64.5% of the
Corporation's total assets and is the Corporation's single largest concentration
of risk. The allowance for loan losses is management's estimation of potential
future losses inherent in the existing loan portfolio. Factors used to evaluate
the loan portfolio, and thus to determine the current charge to expense, include
recent loan loss history, financial condition of borrowers, amount of
nonperforming and impaired loans, overall economic conditions, and other
factors.
Comparing the year to date period of March 31, 1999 to March 31, 1998,
average loans outstanding increased 14.3%. The provision for loan losses was
decreased 4.1% to $94,000 in the first quarter of 1999 when compared to the same
quarter of 1998. As set forth in Table 3, loans classified as nonperforming were
$1,105,000 as of March 31, 1999, a $331,000 increase over the prior year. The
allowance for loan losses as a percentage of loans equaled 1.24% compared to
1.33% in 1998. In management's opinion, the allowance for loan losses is
adequate as of March 31, 1999.
13
14
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees
for other financial services, gains on the sale of mortgage loans, and gains and
losses on investment securities available for sale. Income earned from these
sources increased $336,000 during the three month period ending March 31, 1999,
compared to the same period in 1998. Significant individual account changes
during this period include $188,000 income from the sale of title insurance and
related services, a $47,000 increase in gains on the sale of residential real
estate mortgage loans, a $10,000 increase in trust income, a $15,000 increase in
mortgage servicing fees, a $35,000 increase in ATM fees, and a $17,000 increase
in NSF and overdraft fees.
The Corporation has established a policy that all 30 year amortized fixed
rate mortgage loans will be sold. The calculation of gains on the sale of
mortgages exclude at least 25 basis points for the servicing of these loans.
Included in other operating income is a $108,000 gain from the sale of $16.1
million in mortgages during the first quarter of 1999 versus a $61,000 gain on
the sale of $11.8 million in the same period in 1998.
NONINTEREST EXPENSE
Noninterest expense increased $676,000 for the first three months of 1999
when compared to the same period in 1998. The largest component of noninterest
expense is salaries and employee benefits, which increased $328,000 or 25.5%. In
addition to increases due to additional staffing and normal merit and
promotional salary increases, the Corporation incurred additional salary and
benefit expenses due to the acquisition of three branches on March 31, 1998, the
acquisition of IBT Title on July 31, 1998, and the startup of a loan production
company (IBT Loan) in the first quarter of 1999.
Occupancy and furniture and equipment expenses increased $85,000 or 20.2% in
1999. Approximately two-thirds of this is related to the Corporation's
acquisitions during the past year. All other operating expenses increased
$263,000, a 42.1% increase. The amortization of acquisition intangibles and
expenses related to covenants not to compete accounted for $157,000 of the
increase. Telephone, printing and office supplies, postage, State of Michigan
taxes, and the cost of title insurance accounted for the majority of the
remaining increase.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1998, total assets decreased $5.5 million to $383.3
million. During the first quarter of 1999, major changes in asset mix included a
$10.7 million decrease in cash and cash equivalents, a $4.0 million increase in
investment securities, and a $636,000 increase in net loans. Deposits during
this period decreased $6.1 million. Interest bearing deposits decreased $577,000
and noninterest bearing deposits decreased $5.5 million.
14
15
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 March 31, 1999, cash and cash equivalents as a percentage of total
assets equaled 5.2%, versus 7.8% as of December 31, 1998. During the first three
months of 1999, cash provided by operating activities was $2.4 million,
investing activities used $6.9 million, and financing activity used $6.2
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $10.7 million decrease in cash and cash equivalents
during the first three months of 1999.
In addition to cash and cash equivalents, investment securities available
for sale are another source of liquidity. Securities available for sale equaled
$94.6 million as of March 31, 1999 and $89.5 million as of December 31, 1998.
The Corporation's liquidity is considered adequate by management of the
Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and accumulated other comprehensive income, and increased
approximately $491,000 since December 31, 1998.
There are significant capital regulatory constraints placed on the
Corporation's capital. The Federal Reserve Board's current recommended minimum
tier 1 and tier 2 capital to average assets requirement is 6.0%. The
Corporation's tier 1 and tier 2 capital to average assets, which consists of
shareholder's equity plus the allowance for loan losses less unamortized
acquisition intangibles, was 8.9% at March 31, 1999.
The Federal Reserve Board has established a minimum risk based capital
standard. Under this standard, a framework has been established that assigns
risk weights to each category of on- and off-balance sheet items to arrive at
risk adjusted total assets. Regulatory capital is divided by the risk adjusted
assets with the resulting ratio compared to the minimum standard to determine
whether a bank has adequate capital. The minimum standard is 8%, of which at
least 4% must consist of equity capital net of goodwill. The following table
sets forth the percentages required under the Risk Based Capital guidelines and
the Corporation's ratios as of March 31, 1999:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
Actual
Required 03/31/99
-------- --------
Equity Capital 4.00% 13.38%
Secondary Capital* 4.00 1.25
---- -----
Total Capital 8.00% 14.63%
==== =====
* 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.
15
16
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risks are interest rate risk and, to a lesser
extent, liquidity risk. The Corporation has no foreign exchange risk, holds
limited loans outstanding to agricultural and oil and gas concerns, and holds no
trading account assets. Any changes in foreign exchange rates or commodity
prices would have an insignificant impact, if any, on the Corporation's interest
income and cash flows.
Interest rate risk ("IRR") is the exposure to the Corporation's net interest
income, its primary source of income, to changes in interest rates. IRR results
from the difference in the maturity or repricing frequency of a financial
institution's interest earning assets and its interest bearing liabilities.
Interest rate risk is the fundamental method in which financial institutions
earn income and create shareholder value. Excessive exposure to interest rate
risk could pose a significant risk to the Corporation's earnings and capital.
The Federal Reserve, the Corporation's primary Federal regulator, has adopted a
policy requiring the Board of Directors and senior management to effectively
manage the various risks that can have a material impact on the safety and
soundness of the Corporation. The risks include credit, interest rate,
liquidity, operational, and reputational. The Corporation has policies,
procedures and internal controls for measuring and managing these risks.
Specifically, the IRR policy and procedures include defining acceptable types
and terms of investments and funding sources, liquidity requirements, limits on
investments in long term assets, limiting the mismatch in repricing opportunity
of assets and liabilities, and the frequency of measuring and reporting to the
Board of Directors.
The Corporation uses several techniques to manage interest rate risk. The first
method is gap analysis. Gap analysis measures the cash flows and/or the earliest
repricing of the Corporation's interest bearing assets and liabilities. This
analysis is useful for measuring trends in the repricing characteristics of the
balance sheet. Significant assumptions are required in this process because of
the imbedded repricing options contained in assets and liabilities. A
substantial portion of the Corporation's assets are invested in loans and
mortgage backed securities. These assets have imbedded options that allow the
borrower to repay the balance prior to maturity without penalty. The amount of
prepayments is dependent upon many factors, including the interest rate of a
given loan in comparison to the current interest rates, for residential
mortgages the level of sales of used homes, and the overall availability of
credit in the market place. Generally, a decrease in interest rates will result
in an increase in the Corporation's cash flows from these assets. Investment
securities, other than those that are callable, do not have any significant
imbedded options. Saving and checking deposits may generally be withdrawn on
request without prior notice. The timing of cash flow from these deposits are
estimated based on historical experience. Time deposits have penalties which
discourage early withdrawals.
The second technique used in the management of interest rate risk is to combine
the projected cash flows and repricing characteristics generated by the gap
analysis and the interest rates associated with those cash flows and projected
future interest income. By changing the amount and timing of the cash flows and
the repricing interest rates of those cash flows, the Corporation can project
the effect of changing interest rates on its interest income.
The following table provides information about the Corporation's assets and
liabilities that are sensitive to changes in interest rates as of March 31,
1999. The Corporation has no interest rate swaps, futures contracts, or other
derivative financial options. The principal amounts of assets and time deposits
maturing were calculated based on the contractual maturity dates. Savings and
NOW accounts are based on management's estimate of their future cash flows.
16
17
Quantitative Disclosures of Market Risk
(dollars in thousands) March 31 Fair Value
----------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total 03/31/98
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $10,000 --- --- --- --- --- $ 10,000 $ 10,000
Average interest rates 5.45% --- --- --- --- --- 5.45%
Fixed interest rate securities $17,894 $18,928 $25,419 $11,572 $14,186 $18,434 $106,443 $106,508
Average interest rates 5.59% 6.11% 5.87% 5.86% 5.89% 6.57% 5.84%
Fixed interest rate loans $64,156 $47,050 $43,016 $25,268 $15,427 $ 6,415 $201,332 $203,014
Average interest rates 8.25% 8.31% 8.35% 8.13% 8.35% 7.84% 8.27%
Variable interest rate loans $12,166 $ 1,858 $851 $89 $14 $131 $ 15,109 $ 15,109
Average interest rates 10.24% 10.21% 9.38% 9.88% 11.00% 10.16% 10.27%
Rate sensitive liabilities
Savings and NOW accounts $55,710 $16,254 $13,085 $11,115 $10,273 $27,405 $133,842 $133,842
Average interest rates 3.66% 2.62% 2.62% 2.61% 2.60% 2.52% 3.03%
Fixed interest rate time deposits $87,877 $24,385 $12,851 $13,838 $11,186 $125 $150,262 $149,750
Average interest rates 5.56% 6.05% 6.25% 6.61% 6.48% 6.70% 5.87%
Variable interest rate time deposits $ 640 $394 --- --- --- --- $ 1,034 $ 1,034
Average interest rates 5.29% 5.29% --- --- --- --- 5.29%
Quantitative Disclosures of Market Risk
(dollars in thousands)
March 31 Fair Value
----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 03/31/99
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 6,000 --- --- --- --- --- $ 6,000 $ 6,000
Average interest rates 4.70% --- --- --- --- --- 5.45%
Fixed interest rate securities $18,860 $24,270 $14,808 $19,257 $ 8,980 $13,820 $ 99,995 $100,091
Average interest rates 5.72% 5.84% 5.71% 5.59% 5.73% 6.61% 5.85%
Fixed interest rate loans $72,279 $45,050 $52,866 $19,583 $31,542 $11,447 $232,767 $235,818
Average interest rates 8.00% 8.32% 7.87% 8.51% 7.68% 7.61% 8.01%
Variable interest rate loans $12,253 $ 2,002 $277 $45 $0 $0 $ 14,577 $ 14,577
Average interest rates 9.71% 10.57% 8.15% 8.54% 0.00% 0.00% 9.79%
Rate sensitive liabilities
Savings and NOW accounts $81,982 $12,342 $ 9,845 $ 7,271 $ 7,672 $28,614 $147,726 $147,726
Average interest rates 3.40% 2.15% 2.15% 2.15% 2.15% 2.15% 2.84%
Fixed interest rate time deposits $90,224 $20,523 $17,228 $14,044 $12,151 $129 $154,299 $151,046
Average interest rates 5.17% 5.84% 6.36% 6.27% 5.58% 6.34% 5.53%
Variable interest rate time deposits $799 $279 $11 --- --- --- --- $ 1,089
Average interest rates 4.67% 4.67% 4.67% --- --- --- 4.67%
17
18
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed or required to be filed
during the quarter ended March 31, 1999.
18
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBT Bancorp, Inc.
-----------------
Date: April 30, 1999 /s/ David W. Hole
------------------------ --------------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
--------------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
19
20
IBT BANCORP, INC.
EXHIBIT INDEX
Exhibit
No. Description Page Number
- ------ ------------------------------ -----------
27 Financial Data Schedule 18
20