UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
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 No. 0-25903
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1532164
----------------------------------- ------------------------------------
(State of incorporation or organization) (I.R.S. employer identification no.)
309 Main Street, Irwin, Pennsylvania 15642
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (zip code)
(724) 863-3100
- --------------------------------------------------------------------------------
Issuer's telephone number, including area code
Check 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.
YES X NO
--------- ---------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
--------- ---------
Number of shares of Common Stock outstanding as of August 10, 2003: 2,977,655
IBT BANCORP, INC.
Contents
--------
Pages
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................
Consolidated balance sheets at June 30, 2003
(unaudited) and December 31, 2002................................................ 1
Consolidated statements of income (unaudited) for the three and six months
ended June 30, 2003 and 2002 .................................................... 2
Consolidated statements of cash flows (unaudited) for the six months
ended June 30, 2003 and 2002..................................................... 3
Notes to consolidated financial statements....................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................... 12
Item 4. Controls and Procedures.......................................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 13
Item 2. Changes in Securities and Use of Proceeds........................................ 13
Item 3. Defaults upon Senior Securities.................................................. 13
Item 4. Submission of Matters to a Vote of Security-Holders.............................. 13
Item 5. Other Information................................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................................. 13
Signatures....................................................................................... 14
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
June 30, 2003 December 31, 2002
------------- -----------------
(unaudited) (unaudited)
------------- -----------------
ASSETS
Cash and due from banks $ 18,443,912 $ 12,677,160
Interest-bearing deposits in banks 1,312,823 760,118
Federal funds sold 11,986,000 1,629,000
Certificate of deposit 100,000 100,000
Securities available for sale 165,029,874 183,564,960
Federal Home Loan Bank stock, at cost 4,599,700 3,152,600
Loans, net 384,534,327 359,871,514
Premises and equipment, net 4,989,949 4,759,015
Other assets 17,458,158 17,520,354
------------- -------------
Total Assets $ 608,454,743 $ 584,034,721
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 81,010,939 $ 74,339,035
Interest-bearing 396,711,293 393,918,292
------------- -------------
Total deposits 477,722,232 468,257,327
Repurchase agreements 13,835,757 14,525,836
Accrued interest and other liabilities 4,206,339 5,100,380
FHLB advances 53,687,540 40,000,000
------------- -------------
Total liabilities 549,451,868 527,883,543
Stockholders' Equity
Capital stock, par value $1.25 per share,
50,000,000 shares authorized, 3,023,799
shares issued, 2,977,655 shares
outstanding at June 30, 2003 and
December 31, 2002, respectively 3,779,749 3,779,749
Surplus 1,795,638 2,073,102
Retained earnings 51,974,765 48,974,137
Accumulated other comprehensive income 2,795,989 2,667,456
------------- -------------
60,346,141 57,494,444
Less: Treasury stock, at cost (1,343,266) (1,343,266)
------------- -------------
Total stockholders' equity 59,002,875 56,151,178
------------- -------------
Total Liabilities and Stockholders' Equity $ 608,454,743 $ 584,034,721
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
Interest Income
Loans, including fees $ 6,463,026 $ 6,079,964 $ 12,900,471 $ 11,970,508
Investment securities 1,865,533 2,177,716 3,911,652 4,452,745
Federal funds sold 10,299 85,826 20,291 128,225
------------ ------------ ------------ ------------
Total interest income 8,338,858 8,343,506 16,832,414 16,551,478
Interest Expense
Deposits 2,153,295 2,576,140 4,516,729 5,225,013
FHLB advances 636,817 538,948 1,210,786 1,055,351
Repurchase agreements 35,970 45,940 72,358 88,041
------------ ------------ ------------ ------------
Total interest expense 2,826,082 3,161,028 5,799,873 6,368,405
------------ ------------ ------------ ------------
Net Interest Income 5,512,776 5,182,478 11,032,541 10,183,073
Provision for Loan Losses 150,000 250,000 300,000 500,000
------------ ------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 5,362,776 4,932,478 10,732,541 9,683,073
Other Income (Losses)
Service fees 646,818 575,131 1,217,054 1,167,734
Investment security gains 11,883 84,602 236,681 131,525
Investment security losses - (24,925) - (24,925)
Other income 1,027,427 619,098 1,672,933 1,314,911
------------ ------------ ------------ ------------
Total other income 1,686,128 1,253,906 3,126,668 2,589,245
Other Expenses
Salaries 1,633,284 1,422,855 2,848,714 2,538,177
Pension and other employee benefits 396,042 321,169 785,563 624,964
Occupancy expense 385,990 318,943 763,134 635,044
Data processing expense 212,495 176,682 406,905 343,565
ATM expense 80,899 94,805 155,816 178,912
Other expenses 1,035,345 929,603 2,030,417 1,793,103
------------ ------------ ------------ ------------
Total other expenses 3,744,055 3,264,057 6,990,549 6,113,765
------------ ------------ ------------ ------------
Income Before Income Taxes 3,304,849 2,922,327 6,868,660 6,158,553
Provision for Income Taxes 849,268 779,597 1,783,675 1,584,837
------------ ------------ ------------ ------------
Net Income $ 2,455,581 $ 2,142,730 $ 5,084,985 $ 4,573,716
============ ============ ============ ============
Basic Earnings per Share $ .82 $ 0.72 $ 1.71 $ 1.53
============ ============ ============ ============
Diluted Earnings per Share $ .82 $ 0.72 $ 1.69 $ 1.53
============ ============ ============ ============
Dividends per Share $ .35 $ 0.30 $ .70 $ 0.60
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
-----------------------------
2003 2002
------------ ------------
(unaudited) (unaudited)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,084,985 $ 4,573,716
Adjustments to reconcile net cash
from operating activities:
Depreciation 397,925 337,710
Net amortization/accretion of
premiums and discounts 555,506 128,264
Net investment security gains (236,681) (106,600)
Provision for loan losses 300,000 500,000
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets (897,166) (1,011,375)
Accrued interest and other liabilities (960,254) (1,896,312)
------------ ------------
Net Cash From Operating Activities 4,244,315 2,525,403
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit 100,000 -
Proceeds from maturity of certificates
of deposit (100,000) -
Proceeds from sales of securities
available for sale 14,480,708 25,712,380
Proceeds from maturities of securities
available for sale 31,736,099 30,819,565
Purchase of securities available for sale (27,805,800) (59,499,776)
Net loans made to customers (24,003,451) (18,052,537)
Purchases of premises and equipment (628,859) (339,758)
Purchase of Federal Home Loan Bank stock (1,447,100) (260,600)
------------ ------------
Net Cash Used By Investing Activities (7,668,403) (21,620,726)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 9,464,905 27,756,656
Net increase in securities sold
under repurchase agreement (690,079) 1,577,796
Dividends paid (2,084,357) (1,790,505)
Proceeds from FHLB advances 14,000,000 5,000,000
Payments on FHLB advances (312,460) -
Exercise of stock options (277,464) -
Purchase of treasury stock - (258,513)
------------ ------------
Net Cash From Financing Activities 20,100,545 32,285,434
------------ ------------
Net Change in Cash and Cash Equivalents 16,676,457 13,190,111
Cash and Cash Equivalents at Beginning of Period 15,066,278 25,218,935
------------ ------------
Cash and Cash Equivalents at End of Period $ 31,742,735 $ 38,409,046
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended June 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 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 three months and six months ended June 30, 2003 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2003 or any future interim period. The interim financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in IBT Bancorp, Inc. and subsidiary Annual Report on
Form 10-K for the year ended December 31, 2002.
NOTE B - ADOPTION OF NEW ACCOUNTING STANDARD
During the second quarter of 2003, the Bancorp adopted the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation (as permitted by FASB Statement No. 148), prospectively to all
employee awards granted, modified or settled after January 1, 2003. Awards under
the plan vest over periods ranging from six months to three years. Therefore,
the cost related to stock-based employee compensation included in the
determination of net income for 2003 is less then that which would have been
recognized if the fair value based method had been applied to all awards since
the original effective date of Statement 123. The following table illustrates
the effect on net income and earnings per share as if the fair value based
method had been applied to all outstanding and unvested awards in each period.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ -------------------------------
2003 2002 2003 2002
---------------- ----------------- --------------- --------------
Net income, as reported $ 2,455,581 $ 2,142,730 $ 5,084,985 $ 4,573,716
Add: Stock-based employee
compensation expense
included in reported net
income, net of related
tax effects - - - -
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related tax
effects - (93,486) - (93,486)
---------------- ----------------- --------------- -------------
Pro forma net income $ 2,455,581 $ 2,049,244 $ 5,084,985 $ 4,480,230
================ ================= =============== =============
Earnings per share:
Basic-as reported $ .82 $ .72 $ 1.71 $ 1.53
================ ================= =============== =============
Basic-pro forma $ .82 $ .69 $ 1.71 $ 1.50
================ ================= =============== =============
Diluted-as reported $ .82 $ .72 $ 1.69 $ 1.53
================ ================= =============== =============
Diluted-pro forma $ .82 $ .69 $ 1.69 $ 1.50
================ ================= =============== =============
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended June 30, 2003
NOTE C- EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. The weighted average shares outstanding were 2,977,655 for
both the three and six months ended June 30, 2003 and 2,980,842 and 2,982,953
for the three and six months ended June 30, 2002, respectively.
NOTE D - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 30, 2003 and 2002
were $2,934,874 and $4,110,928, respectively and for the six months ended June
30, 2003 and 2002 were $6,538,302 and $5,407,171 respectively.
NOTE E - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
June 30, 2003
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 62,223,641 $ 1,801,814 $ - $ 64,025,455
Obligations of State and
political sub-divisions 36,896,053 2,877,498 (1,305) 39,772,246
Mortgage-backed securities 50,645,988 1,355,541 - 52,001,529
Other securities 708,262 43,283 - 751,545
Equity securities 10,319,583 211,563 (2,052,047) 8,479,099
------------- ------------- ------------- -------------
$ 160,793,527 $ 6,289,699 $ (2,053,352) $ 165,029,874
============= ============= ============= =============
NOTE F - STOCK OPTION PLAN
As of June 30, 2003, 129,500 stock options have been granted, of which 75,449
are vested and are exercisable as follows: 44,500 are exercisable at $24.50 per
share, 18,463 are exercisable at $23.00 per share, and 12,486 are exercisable at
$32.88; 23,706 are not yet vested, 26,179 shares have been exercised and 4,166
have been forfeited. No stock options were granted during the six months ended
June 30, 2003.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipate", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking
services through its wholly owned banking subsidiary, Irwin Bank & Trust Co.
(collectively, the "Company"). The Company's stock is traded on the American
Stock Exchange under the symbol IRW.
On June 10, 2003, the Company broke ground at the site of its next full
service branch located in the central Greensburg area in Westmoreland county.
The Company currently has five branch offices, a loan center, a trust office,
and five supermarket branches located in the Pennsylvania counties of
Westmoreland and Allegheny.
FINANCIAL CONDITION
At June 30, 2003, total assets increased $24.5 million, or 4.2%, to
$608.5 million from $584.0 million at December 31, 2002. Asset growth was
primarily due to an increase of $24.6 million in net loans and $16.7 million in
cash and cash equivalents, primarily federal funds sold. Such increases were
offset by an $18.5 million decrease in securities available for sale.
At June 30, 2003, net loans reached $384.5 million from $359.9 million
at December 31, 2002. The change in net loans was primarily attributable to the
increase of $23.1 million in the real estate secured loan portfolio, including a
$20.5 million increase in commercial real estate loans and an $8.1 million
increase in multi-family real estate loans, offset, in part, by a $5.3 million
decrease in one-to-four family residential mortgages. The increase in net loans
is attributable to increased borrowings in the current historically low interest
rate environment.
At June 30, 2003, total liabilities increased $21.6 million, or 4.1%,
to $549.5 million from $527.9 million at December 31, 2002. This increase was
primarily the result of fixed-rate long-term and amortizing borrowings from the
Federal Home Loan Bank, which had a net increase of $13.7 million reaching $53.7
million at June 30, 2003 from $40.0 million at December 31, 2002. These low-rate
advances were used to fund the growth in the loan portfolio. Non-interest
bearing deposits reached $81.0 million at June 30, 2003, from $74.3 million at
December 31, 2002. Higher balances in deposit accounts and an increase in the
number of demand deposit accounts attributed to this increase. Interest-bearing
deposits reached $396.7 million, at June 30, 2003 a $2.8 million increase from
$393.9 million at December 31, 2002. This change was primarily attributable to
an increase of $6.0 million, $5.0 million, and $3.0 million in savings accounts,
interest bearing checking accounts, and money market accounts, respectively.
Such increases were offset by a $12.3 million decrease in certificate of deposit
accounts resulting primarily from expected deposit reductions of local
municipalities.
6
At June 30, 2003, total stockholders' equity increased $2.8 million to
$59.0 million from $56.2 million at December 31, 2002. The increase was due to
net income of $5.1 million and an increase of $128,000 in accumulated other
comprehensive income (net of income taxes), offset by dividends paid of $2.1
million and a $277,000 reduction in surplus (additional paid in capital) due to
stock options exercised in the second quarter and the adoption of FASB 123, as
amended by FASB 148. Accumulated other comprehensive income increased as a
result of changes in the net unrealized gain on securities available for sale.
Because of interest rate volatility, the Company's accumulated other
comprehensive income could materially fluctuate for each interim period and
year-end. See Note E to the consolidated financial statements.
RESULTS OF OPERATIONS
Net income. Net income for the three months ended June 30, 2003
increased $313,000, to $2.5 million from $2.1 million for the comparable three
month period in 2002. Net income for the six months ended June 30, 2003
increased $511,000 to $5.1 million from $4.6 million for the comparable six
month period in 2002. The increase for the three and six months ended June 30,
2003 was the result of higher net interest income and other income partially
offset by increases in other expenses.
Interest income. Interest income for the three months ended June 30,
2003 remained unchanged at $8.3 million compared to the three month period in
2002. While the average balances of interest earning assets increased $59.2
million for the three months ended June 30, 2003, to $573.0 million from $513.8
million for the comparable period in 2002, the yield on these assets decreased
55 basis points to 5.95%, for the three months ended June 30, 2003 from 6.50%
for the comparable period in 2002. Interest income for the six months ended June
30, 2003 increased $281,000 to $16.8 million from $16.6 million for the
comparable period in 2002. The average balance of interest earning assets
increased $59.8 million to $568.3 million for the six months ended June 30, 2003
from $508.5 million for the comparable 2002 period. This increase was offset by
a decrease in the yield on these assets of 59 basis points to 5.92% for the six
months ended June 30, 2003 from 6.51% for the comparable period in 2002. The
reduction of interest rates in the market contributed to the decline in average
yields in both the three and six month periods ended in June 2003. See "Average
Balance Sheet and Rate/Volume Analysis"
Interest expense. Interest expense for the three months ended June 30,
2003 decreased $335,000 to $2.8 million from $3.2 million for the comparable
period in 2002. The decrease in interest expense was primarily attributed to a
24 basis point decrease in the average cost of funds to 2.79% for the three
months ended June 30, 2003 from 3.03% for the comparable period in 2002, offset
by a $46.1 million increase in the average balance of interest bearing
liabilities. Interest expense for the six months ended June 30, 2003 decreased
$568,000 to $5.8 million from $6.4 million for the comparable 2002 period. This
decrease was primarily the result of a 58 basis point reduction in the average
cost of funds to 2.51% for the six months ended June 30, 2003 from 3.09% for the
comparable six month period in 2002, offset by a $49.4 million increase in the
average balance of interest bearing liabilities. The reduction of average cost
of funds for the three and six month periods ended June 30, 2003 is reflective
of the continued historically low interest rates paid on deposits and borrowings
over the past year. See "Average Balance Sheet and Rate/Volume Analysis"
7
Average Balance Sheet
The following table sets forth certain information relating to the company for
the periods indicated. The average yields and costs are derived by dividing
income or expense on an annualized basis by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances.
Three Months Ended June 30, Three Months Ended June 30,
------------------------------- ----------------------------------
2003 2002
------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(In Thousands) (In Thousands)
Interest-earning assets:
Loans receivable (1) $387,790 $ 6,463 6.67% $327,080 $ 6,080 7.44%
Investment securities available
for sale (2) 181,937 1,866 4.10% 167,417 2,178 5.20%
Other interest-earning assets (3) 3,276 10 1.26% 19,299 86 1.76%
-------- -------- ------- --------
Total interest earning assets $573,003 $ 8,339 5.82% $513,796 $ 8,344 6.50%
======== ===== ======== =====
Non-interest earning assets 30,972 30,504
-------- --------
Total assets $603,975 $544,300
======== ========
Interest-bearing liabilities:
Money market accounts $ 62,578 $ 168 1.07% $ 61,025 $ 314 2.06%
Certificates of Deposit 212,461 1,776 3.34% 196,367 1,910 3.89%
Other liabilities 188,485 882 1.87% 160,011 937 2.34%
-------- -------- -------- --------
Total interest-bearing liabilities $463,524 $ 2,826 2.44% $417,403 $ 3,161 3.03%
======== ===== ======== =====
Non-interest-bearing liabilities 82,509 76,353
-------- --------
Total liabilities $546,033 $493,756
Retained Earnings (4) 57,942 50,544
-------- -------
Total liabilities and
stockholders' equity $603,975 $544,300
======== ========
Net interest income $ 5,513 $ 5,183
======== ========
Interest rate spread (5) 3.38% 3.47%
====== ======
Net yield on interest-earning assets (6) 3.85% 4.03%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 123.62% 123.09%
====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Consists of federal funds sold.
(4) Includes capital stock, surplus and accumulated other comprehensive income,
less treasury stock.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents annualized net interest
income as a percentage of average interest earning assets.
8
Average Balance Sheet
The following table sets forth certain information relating to the company for
the periods indicated. The average yields and costs are derived by dividing
income or expense on an annualized basis by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances.
Six Months Ended June 30, Six Months Ended June 30,
------------------------------- ----------------------------------
2003 2002
------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(In Thousands) (In Thousands)
Interest-earning assets:
Loans receivable (1) $378,947 $ 12,900 6.81% $322,097 $ 11,970 7.43%
Investment securities available
for sale (2) 185,928 3,912 4.21% 171,819 4,453 5.18%
Other interest-earning assets (3) 3,396 20 1.20% 14,621 128 1.75%
-------- -------- -------- --------
Total interest earning assets $568,271 $ 16,832 5.92% $508,537 $ 16,551 6.51%
======== ====== ======== =====
Non-interest earning assets 30,428 28,725
-------- --------
Total assets $598,699 $537,262
======== ========
Interest-bearing liabilities:
Money market accounts $ 61,534 $ 383 1.25% $ 59,471 $ 612 2.06%
Certificates of Deposit 218,219 3,669 3.36% 197,296 3,928 3.98%
Other liabilities 181,674 1,747 1.92% 155,269 1,828 2.36%
-------- -------- -------- --------
Total interest-bearing liabilities $461,427 $ 5,799 2.51% $412,036 $ 6,368 3.09%
======== ====== ======== =====
Non-interest-bearing liabilities 80,076 74,945
-------- --------
Total liabilities $541,503 $486,981
Retained Earnings (4) 57,196 50,281
-------- -------
Total liabilities and
stockholders' equity $598,699 $537,262
======== ========
Net interest income $ 11,033 $ 10,183
======== ========
Interest rate spread (5) 3.41% 3.42%
====== ======
Net yield on interest-earning assets (6) 3.88% 4.00%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 123.15% 123.42%
====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Consists of federal funds sold.
(4) Includes capital stock, surplus and accumulated other comprehensive income,
less treasury stock.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents annualized net interest
income as a percentage of average interest earning assets.
9
Rate / Volume Analysis
The following table shows the effect of changes in volumes and rates on
interest income and interest expense. The changes in interest income and
interest expense attributable to changes in both volume and rate have been
allocated to the changes due to rate. Tax exempt income was not recalculated on
a tax equivalent basis due to the immateriality of the change to the table
resulting from a recalculation.
Three Month Period ended June 30, 2003 Six Month Period ended June 30, 2003
-------------------------------------- ------------------------------------
2003 vs. 2002 2003 vs. 2002
------------- -------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------ ------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands) (In Thousands)
Interest income:
Loans receivable $ 1,129 $ (746) $ 383 $ 2,113 (1,184) $ 929
Investment securities available
for sale 189 (501) (312) 366 (907) (541)
Other interest earning assets (72) (4) (76) (98) (9) (107)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 1,246 $(1,251) $ (5) $ 2,381 (2,100) $ 281
======= ======= ======= ======= ====== =======
Interest expense:
Money market accounts $ 8 $ (154) $ (146) $ 21 $ (250) $ (229)
Certificates of deposit 156 (290) (133) 417 (676) (259)
Other liabilities 167 (222) (55) 311 (392) (81)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 313 $ (666) $ (335) $ 749 $(1,318) $ (569)
======= ======= ======= ======= ======= =======
Net change in net interest income $ 915 $ (585) $ 330 $ 1,632 $ (782) $ 850
======= ======= ======= ======= ======= =======
10
Provision for loan losses. For the three and six month periods ended
June 30, 2003, the provision for loan losses was $150,000 and $300,000,
respectively, compared to $250,000 and $500,000, respectively, for the
comparable 2002 periods. The provision for loan losses for the six months ended
June 30, 2003 was attributable to net losses of $100,000 in the period and the
$24.6 million increase in the loan portfolio.
The evaluation for determining the provision includes evaluations of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other information available at such time. The
Company continues to monitor its allowance for loan losses as economic
conditions dictate. Management continues to offer a wider variety of loan
products coupled with the continued success of changing the mix of the products
offered in the loan portfolio from lower yielding loans (i.e., one-to-four
family loans) to higher yielding loans (i.e., equity loans, multi-family (five
or more units) buildings, and commercial (nonresidential mortgages).
Management periodically estimates the likely level of losses on loans
to determine whether the allowance for loan losses is adequate to absorb losses
in the existing portfolio for unidentified loans as well as classified loans.
Based on these estimates, a provision for loan losses is charged to operations
in order to adjust the allowance to a level determined to be adequate to absorb
anticipated future losses. The allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Large groups of smaller balance homogenous loans
are valued collectively for impairment. The amount of loss reserve is calculated
using historical loss rates, net of recoveries, adjusted for environmental, and
other qualitative factors such as industry, geographical, economic and political
factors that can affect loss rates or loss measurements. Allowances for losses
on specifically identified loans that are determined to be impaired are
calculated based upon collateral value, market value, if determinable, or the
present value of estimated future cash flows. The allowance is increased by a
charge to operations, and reduced by charge-offs, net of recoveries.
The allowance for loan losses is maintained at a level that represents
management's best estimate of losses in the portfolio at the balance sheet date.
However, there can be no assurance that the allowance for loan losses will be
adequate to cover losses, which may be realized in the future, and that
additional provisions for losses on loans will not be required.
Other income. Total other income for the three months ended June 30,
2003 increased $432,000 to $1.7 million from $1.3 million for the comparable
three month period in 2002. Total other income for the six months ended June 30,
2003 increased $538,000 to $3.1 million from $2.6 million for the comparable
period in 2002. The increase in other income for the three and six months ended
June 30, 2003 are primarily due to a $351,000 gain from the sale of other real
estate property and net security gains of $12,000 and $237,000 for the three and
six month periods ended June 30, 2003, respectively.
Other expense. Total other expense for the three and six month periods
ended June 30, 2003 increased $480,000 and $877,000, respectively, to $3.7
million and $7.0 million from $3.3 million and $6.1 million, respectively, for
the comparable three and six month period in 2002. Salaries and benefits
increased $285,000 and $472,000, respectively, from the comparable periods in
2002 due to merit salary increases, increased pension and health insurance
costs, and additional staffing. Occupancy expense for the three and six months
ended June 30, 2003 increased $67,000 and $128,000, respectively, to $386,000
and $763,000 from $319,000 and $635,000, respectively, for the comparable three
and six month periods in 2002. Such increases at June 30, 2003 were primarily
due to depreciation expense related to equipment purchases for technological
improvements and increased rental expense due to the relocation of the Company's
item processing department. Other expense for the three and six month periods
ended June 30, 2003 increased $105,000 and $237,000, respectively, to $1.0
million and $2.0 million from $930,000 and $1.8 million, respectively, for the
comparable three and six month periods in 2002. Included in this increase is
$46,000 in costs associated with the Company's listing on the American Stock
Exchange and other expenses associated with the normal cost of doing business.
11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three months ended June 30,
2003 from the information presented in the 10K statement, under the caption
Market Risk, for the year ended December 31, 2002.
CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal
proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a like kind.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation of IBT Bancorp, Inc.*
3(ii) Amended Bylaws of IBT Bancorp, Inc.**
10 Change In Control Severance Agreement with Charles G. Urtin ***
10.1 Deferred Compensation Plan For Bank Directors***
10.2 Retirement Agreement Between Irwin Bank & Trust Co. And J. Curt Gardner***
10.3 Death Benefit Only Deferred Compensation Plan For Bank Directors effective as
of January 1, 1990***
10.4 Retirement and Death Benefit Deferred Compensation Plan For Bank Directors
effective as of January 1, 1990***
10.5 2000 Stock Option Plan****
31 Section 302 Certifications
32 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
-------------------------
* Incorporated by reference to the identically
numbered exhibits of the Registrant's Form
10 (file no. 0-25903)
** Incorporated by reference to the identically
numbered exhibit of the Registrants Form
10-K for December 31, 2002.
*** Incorporated by reference to the identically
numbered exhibits of the Registrant's Form
10K for December 31, 1999.
**** Incorporated by reference to the definitive
proxy statement of the registrant filed on
March 17, 2000.
(b) Reports on Form 8-K
None.
13
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: August 11, 2003 By:/s/Charles G. Urtin
-----------------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: August 11, 2003 By:/s/Raymond G. Suchta
-----------------------------------------
Raymond G. Suchta
Vice President, Chief Financial Officer
(Duly authorized officer)
14