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 September 30, 2004
------------------
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. 1-31655
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1532164
- --------------------------------- -----------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
309 Main Street, Irwin, Pennsylvania 15642
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(724) 863-3100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NA
- --------------------------------------------------------------------------------
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
Number of shares of Common Stock outstanding as of November 05, 2004: 2,955,455
IBT BANCORP, INC.
Contents
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Pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................................1
Consolidated balance sheets at September 30, 2004
(unaudited) and December 31, 2003.............................................................. 1
Consolidated statements of income (unaudited) for the three and nine months
ended September 30, 2004 and 2003 .............................................................. 2
Consolidated statements of cash flows (unaudited) for the nine months
ended September 30, 2004 and 2003............................................................... 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.............................................................................. 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.................................... 14
Item 3. Defaults upon Senior Securities................................................................ 14
Item 4. Submission of Matters to a Vote of Security-Holders............................................ 14
Item 5. Other Information.............................................................................. 14
Item 6. Exhibits....................................................................................... 14
Signatures..................................................................................................... 15
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
September 30, 2004 December 31, 2003
------------------ -----------------
(unaudited) (unaudited)
ASSETS
Cash and due from banks $ 14,307,522 $ 15,391,714
Interest-bearing deposits in banks 277,518 436,981
Certificate of deposit 100,000 100,000
Securities available for sale 199,096,399 167,907,113
Federal Home Loan Bank stock, at cost 5,684,200 4,540,500
Loans, net 432,475,014 416,286,455
Premises and equipment, net 6,155,002 6,468,749
Other assets 18,830,245 18,398,092
------------- -------------
Total Assets $ 676,925,900 $ 629,529,604
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 80,686,396 $ 81,053,392
Interest-bearing 432,003,175 411,104,137
------------- -------------
Total deposits 512,689,571 492,157,529
Federal funds purchased 4,912,000 7,900,000
Repurchase agreements 24,682,342 12,610,877
Accrued interest and other liabilities 3,351,370 3,947,390
FHLB advances 70,661,630 53,307,767
------------- -------------
Total liabilities 616,296,913 569,923,563
Stockholders' Equity
Capital stock, par value $1.25 per share, 50,000,000 shares authorized,
3,023,799 shares issued, 2,955,455 and 2,977,655 shares outstanding at
September 30, 2004 and December 31, 2003, respectively 3,779,749 3,779,749
Surplus 1,428,264 1,684,258
Retained earnings 57,489,563 54,451,662
Accumulated other comprehensive income 280,812 1,033,638
------------- -------------
62,978,388 60,949,307
Less: Treasury stock, at cost (2,349,401) (1,343,266)
------------- -------------
Total stockholders' equity 60,628,987 59,606,041
------------- -------------
Total Liabilities and Stockholders' Equity $ 676,925,900 $ 629,529,604
============= =============
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 Nine Months Ended
September 30, September 30,
--------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- --------------- --------------- ------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Interest Income
Loans, including fees $ 6,530,267 $ 6,654,228 $ 19,665,680 $ 19,554,699
Investment securities 1,867,440 1,712,744 5,414,001 5,624,396
Federal funds sold 3,665 14,906 4,275 35,196
---------------- --------------- --------------- ------------------
Total interest income 8,401,372 8,381,878 25,083,956 25,214,291
Interest Expense
Deposits 2,195,734 2,054,194 6,430,078 6,555,209
FHLB advances 712,164 642,870 2,110,718 1,853,655
Repurchase agreements 46,915 31,782 92,955 104,140
Federal funds purchased 14,884 7,773 66,178 23,487
---------------- --------------- --------------- ------------------
Total interest expense 2,969,697 2,736,619 8,699,929 8,536,491
---------------- --------------- --------------- ------------------
Net Interest Income 5,431,675 5,645,259 16,384,027 16,677,800
Provision for Loan Losses 40,000 150,000 290,000 450,000
---------------- --------------- --------------- ------------------
Net Interest Income after Provision
for Loan Losses 5,391,675 5,495,259 16,094,027 16,227,800
Other Income (Losses)
Service fees 646,690 541,862 1,806,403 1,758,916
Investment security gains 19,870 243,938 269,710 480,620
Investment security losses (19,287) (37,449) (19,287) (37,449)
Debit card fees 178,638 146,653 488,239 475,835
Other income 444,000 686,932 1,409,840 2,030,683
---------------- --------------- ------------------ ----------------
Total other income 1,269,911 1,581,936 3,954,905 4,708,605
Other Expenses
Salaries 1,407,306 1,421,999 4,287,579 4,270,713
Pension and other employee benefits 426,753 404,736 1,363,631 1,190,299
Occupancy expense 441,356 365,300 1,310,691 1,128,434
Data processing expense 230,167 207,232 673,200 614,137
Pennsylvania shares tax 123,791 113,412 373,011 332,629
Advertising expense 73,977 89,919 224,110 291,954
Other expenses 1,011,257 979,264 2,999,842 2,744,246
---------------- --------------- --------------- ----------------
Total other expenses 3,714,607 3,581,862 11,232,064 10,572,412
---------------- --------------- --------------- ----------------
Income Before Income Taxes 2,946,978 3,495,333 8,816,868 10,363,993
Provision for Income Taxes 785,605 933,405 2,214,665 2,717,080
---------------- --------------- --------------- ----------------
Net Income $ 2,161,373 $ 2,561,928 $ 6,602,203 $ 7,646,913
================ =============== =============== ================
Basic Earnings per Share $ 0.73 $ 0.86 $ 2.23 $ 2.57
================ =============== =============== ================
Diluted Earnings per Share $ 0.72 $ 0.85 $ 2.20 $ 2.57
================ =============== =============== ================
Dividends per Share $ 0.40 $ 0.35 $ 1.20 $ 1.05
================ =============== =============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
2004 2003
----------------- -----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,602,203 $ 7,646,913
Adjustments to reconcile net cash
from operating activities:
Depreciation 757,287 595,880
Increase in cash surrender value of insurance (330,879) (396,727)
Net amortization/accretion
premiums and discounts 808,761 832,367
Net investment security gains (250,423) (443,171)
Provision for loan losses 290,000 450,000
Stock options granted 59,142 102,154
Increase (decrease) in cash due
to changes in assets and liabilities:
Other assets 1,065,180 (653,625)
Accrued interest and other liabilities (208,202) (298,057)
----------------- -----------------
Net Cash From Operating Activities 8,793,069 7,835,734
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit (100,000) (100,000)
Proceeds from maturity of certificates
of deposit 100,000 100,000
Proceeds from sales of securities
available for sale 34,485,026 29,937,923
Proceeds from maturities of securities
available for sale 19,762,750 42,594,796
Purchase of securities available for sale (87,136,043) (50,153,363)
Net loans made to customers (17,645,010) (50,347,265)
Purchases of premises and equipment (443,540) (1,227,298)
Proceeds from sales of Federal Home Loan Bank stock 2,407,400 -
Purchase of Federal Home Loan Bank stock (3,551,100) (1,447,100)
----------------- -----------------
Net Cash Used By Investing Activities (52,120,517) (30,642,307)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 20,532,042 8,002,003
Net increase in securities sold
under repurchase agreements 12,071,465 7,685,958
Dividends paid (3,564,306) (3,126,537)
Proceeds from FHLB advances 28,000,000 16,000,000
Repayment of FHLB advances (10,646,137) (501,684)
Federal funds purchased (2,988,000) -
Exercised stock options (315,136) (277,464)
Purchase of treasury stock (1,006,135) -
----------------- -----------------
Net Cash From Financing Activities 42,083,793 27,782,276
----------------- -----------------
Net Change in Cash and Cash Equivalents (1,243,655) 4,975,703
Cash and Cash Equivalents at Beginning of Period 15,828,695 15,066,278
----------------- -----------------
Cash and Cash Equivalents at End of Period $ 14,585,040 $ 20,041,981
================= =================
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 September 30, 2004
NOTE A - 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 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 nine months ended September 30, 2004
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2004 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, 2003.
NOTE B - 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 2,977,115 and
2,977,385 for the three and nine months ended September 30, 2004, respectively
and 2,977,655 for both the three and nine months ended September 30, 2003.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended September 30, 2004 and
2003 were $4,256,054 and $987,553 respectively and for the nine months ended
September 30, 2004 and 2003 were $5,849,377 and $6,201,071 respectively.
NOTE D - INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
September 30, 2004
----------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
Obligations of
U.S. Government Agencies $ 85,513,151 $ 502,801 $ (158,008) $ 85,857,944
Obligations of State and
political sub-divisions 42,607,170 1,995,167 (160,506) 44,441,831
Mortgage-backed securities 59,574,730 558,778 (230,017) 59,903,491
Other securities 712,904 8,460 - 721,364
Equity securities 10,262,970 156,151 (2,247,352) 8,171,769
----------------- ---------------- ----------------- ----------------
$ 198,670,925 $ 3,221,357 $ (2,795,883) $ 199,096,399
================= ================ ================= ================
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Period Ended September 30, 2004
NOTE E - STOCK OPTION PLAN
As of September 30, 2004, 150,000 stock options have been granted, of which
84,721 are vested and are exercisable as follows: 36,750 are exercisable at
$24.50 per share, 20,701 at $23.00 per share, 18,503 at $32.88 per share, and
8,767 at $52.40 per share. 17,035 shares are not yet vested, 38,710 shares have
been exercised and 9,534 shares have been forfeited. No stock options were
granted during the nine months ended September 30, 2004.
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 new branches, 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 newest branch location opened on September 15, 2004, in
downtown Greensburg. This full service branch is located in the Pennsylvania
Commons building at 20 North Pennsylvania Avenue.
FINANCIAL CONDITION
At September 30, 2004, total assets had increased $47.4 million, or
7.5%, to $676.9 million from $629.5 million at December 31, 2003. Asset growth
was primarily due to increases of $31.2 million in securities available for sale
and $16.2 million in net loans.
At September 30, 2004, securities available for sale reached $199.1
million from $167.9 million at December 31, 2003. The increase in available for
sale securities was primarily attributable to increases of $22.2 million in
mortgage-backed securities, $6.5 million in obligations of state and political
sub-divisions, and $2.9 million in obligations of U.S. Government agencies. The
Company invests in mortgage-backed securities which provide a constant source of
cash flow, in the form of monthly principle reductions, which can be reinvested
in instruments yielding current interest rates or to meet future loan demand.
Net loans reached $432.5 million at September 30, 2004 from $416.3
million at December 31, 2003. The increase in net loans is primarily attributed
to a net increase of $7.4 million in consumer term loans, a $5.3 million
increase in commercial loans, and a $4.2 million increase in loans made to
municipalities. The Company attributes its loan growth to its competitive loan
rates.
At September 30, 2004, total liabilities increased $46.4 million, or
8.1%, to $616.3 million from $569.9 million at December 31, 2003. The increase
was primarily the result of a net increase in interest-bearing deposits of $20.9
million. Supporting this change was a net increase of $6.4 million in interest
bearing checking accounts and $11.8 million in certificates of deposit. The
Company attributes the balance increases to new product promotions and
attractive interest rates offered to deposit customers.
The net increase of Federal Home Loan Bank advances was $17.4 million,
which consisted of fixed-rate and amortizing advances with maturities ranging
between two and ten years at an average cost of 3.8%. These advances were used
to fund the growth in and the loan portfolio.
Repurchase agreements increased to $24.7 million at September 30,
2004, an increase of $12.1 million from December 31, 2003. The Company offers
its corporate customers sweep accounts where unused deposit balances are swept
into an overnight repurchase agreement yielding market rates.
At September 30, 2004, total stockholders' equity increased $1.0
million to $60.6 million from $59.6 million at December 31, 2003. The change was
primarily due to net income of $6.6 million offset by a decrease in accumulated
6
other comprehensive income of $750,000, dividends paid of $3.6 million, and an
increase in treasury stock purchased of $1.0 million. Accumulated other
comprehensive income decreased as a result of changes in the net unrealized gain
on securities available for sale which have been affected by increases in
short-term interest rates. Since June 30, 2003, the Federal Open Market
Committee has raised its target Federal Funds rate three times to 1.75% from
1.00%. Because of interest rate volatility, the Company's accumulated other
comprehensive income could materially fluctuate for each interim period and
year-end. See Note D to the consolidated financial statements.
RESULTS OF OPERATIONS
Net income. Net income for the three months ended September 30, 2004
decreased $400,000, or 15.6%, to $2.2 million, or $.72 per diluted earnings per
share from $2.6 million, or $.85 per diluted earnings per share, for the
comparable three month period in 2003. Net income for the nine months ended
September 30, 2004 decreased $1.0 million to $6.6 million or $2.20 diluted
earnings per share from $7.6 million or $2.57 diluted earnings per share for the
comparable nine month period in 2003. The decrease for the three and nine months
ended September 30, 2004 was the result of increases in other expenses and a
decrease in net interest income and other income.
Net interest income. Net interest income declined $214,000, or 3.78%,
for the quarter and declined $298,000, or 1.76%, for the nine-month period. The
declines in net interest income reflect a narrowing of the Company's interest
rate spread to 3.08% and 3.15%, respectively, for the three and nine months
ended September 30, 2004 compared to 3.44% and 3.42%, respectively, for the
comparable prior year periods. Net interest margin narrowed to 3.46% and 3.55%,
respectively, for the three and nine months ended September 30, 2004 compared to
3.89% and 3.88%, respectively, in the prior year periods. The historically low
interest rate environment continues to put pressure on the Company's margin as
rates on interest-earning assets have fallen faster than the average cost of the
Company's interest-bearing liabilities. The Company has been able to offset the
narrowing of its margin to some extent through balance sheet growth. Net
interest income, however, has been negatively affected by an increase in the
relative proportion of interest-bearing liabilities. The average ratio of
interest-bearing assets to average interest-bearing liabilities declined to
120.08% and 121.11%, respectively, for the three and nine months ended September
30, 2004 compared to 123.94% and 123.48%, respectively, for the prior year
periods due to faster growth in liabilities.
Interest income. Interest income for the three months ended September
30, 2004 and 2003 remained relatively flat at $8.4 million. The average balances
of interest earning assets increased $48.0 million for the three months ended
September 30, 2004, to $628.4 million from $580.4 million for the comparable
period in 2003. This increase was offset by a decrease in the yield of 43 basis
points to 5.35%, for the three months ended September 30, 2004 from 5.78% for
the comparable period in 2003. Interest income for the nine months ended
September 30, 2004 decreased $130,000 to $25.1 million from $25.2 million for
the comparable nine month period in 2003. The average balance of interest
earning assets increased $43.0 million to $615.6 million from $572.6 million for
the comparable period in 2003, but was offset by a 44 basis point decrease in
the yield to 5.43% from 5.87% for the comparable period in 2003. The on-going
historically low interest rate environment continued to put negative pressure on
the interest earning assets in both the three and nine month periods ended
September 30, 2004. See "Average Balance Sheet and Rate/Volume Analysis"
Interest expense. Interest expense for the three months ended September
30, 2004 increased $233,000 to $3.0 million from $2.7 million for the comparable
period in 2003. The increase in interest expense was primarily attributed to a
$55.0 million increase in the average balance of interest bearing liabilities
offset by a 7 basis point decrease in the average cost of funds to 2.27% for the
three months ended September 30, 2004 from 2.34% for the comparable period in
2003. Interest expense for the nine months ended September 30, 2004 increased
$163,000 to $8.7 million from $8.5 million for the comparable period in 2003.
The increase in interest expense was primarily attributed to a $44.6 million
increase in the average balance of interest bearing liabilities offset by a 17
basis point decrease in the average cost of funds to 2.28% for the nine months
ended September 30, 2004 from 2.45% for the comparable period in 2003. The
reduction of average cost of funds for the three and nine month periods ended
September 30, 2004 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 September 30, Three Months Ended September 30,
2004 2003
-------------------------------------------- ---------------------------------------------
Average Average
Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost
-------------------------------------------- ---------------------------------------------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $ 433,240 $ 6,530 6.03% $ 402,611 $ 6,654 6.61%
Investment securities available for
sale (2) 194,088 1,868 3.85% 173,561 1,713 3.95%
Other interest-earning assets (3) 1,054 4 1.39% 4,193 15 1.42%
------------- ------------ ------------- ------------
Total interest earning assets $ 628,382 $ 8,402 5.35% $ 580,365 $ 8,382 5.78%
=========================== ===========================
Non-interest earning assets 37,532 32,135
------------- -------------
Total assets $ 665,914 $ 612,500
============= =============
Interest-bearing liabilities:
Money market accounts $ 60,118 $ 129 0.86% $ 62,417 $ 135 0.86%
Certificates of Deposit 247,358 1,915 3.10% 216,184 1,786 3.31%
Other liabilities 215,831 926 1.72% 189,671 816 1.72%
------------- ------------ ------------- ------------
Total interest-bearing liabilities $ 523,307 $ 2,970 2.27% $ 468,272 $ 2,737 2.34%
=========================== ===========================
Non-interest-bearing liabilities 85,738 84,606
------------- -------------
Total liabilities $ 609,045 $ 552,878
============= =============
Stockholders' equity (4) 56,869 59,622
------------- -------------
Total liabilities and stockholders'
equity $ 665,914 $ 612,500
============= =============
Net interest income $ 5,432 $ 5,645
============ ============
Interest rate spread (5) 3.08% 3.44%
============== ===============
Net interest margin (6) 3.46% 3.89%
============== ===============
Ratio of average interest-earning
assets to average interest-bearning
liabilities 120.08% 123.94%
============== ===============
(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 interest margin 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.
Nine Months Ended September 30, Nine Months Ended September 30,
2004 2003
-------------------------------------------- --------------------------------------------
Average Average
Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost
-------------------------------------------- --------------------------------------------
(Dollars In Thousands) (Dollars In Thousands)
Interest-earning assets:
Loans receivable (1) $ 428,195 $ 19,666 6.12% $ 387,055 $ 19,555 6.74%
Investment securities available for
sale (2) 187,008 5,414 3.86% 181,840 5,624 4.12%
Other interest-earning assets (3) 387 4 1.47% 3,680 35 1.28%
------------- ------------ ------------- ------------
Total interest earning assets $ 615,590 $ 25,084 5.43% $ 572,575 $ 25,214 5.87%
========================== ===========================
Non-interest earning assets 36,149 30,930
------------- -------------
Total assets $ 651,739 $ 603,505
============= =============
Interest-bearing liabilities:
Money market accounts $ 58,213 $ 368 0.84% $ 61,835 $ 518 1.12%
Certificates of Deposit 243,057 5,627 3.09% 217,532 5,455 3.34%
Other liabilities 207,001 2,705 1.74% 184,344 2,563 1.85%
------------- ------------ ------------- ------------
Total interest-bearing liabilities $ 508,271 $ 8,700 2.28% $ 463,711 $ 8,536 2.45%
========================== ===========================
Non-interest-bearing liabilities 83,673 81,772
------------- -------------
Total liabilities $ 591,944 $ 545,483
============= =============
Stockholders' equity (4) 59,795 58,022
------------- -------------
Total liabilities and stockholders'
equity $ 651,739 $ 603,505
============= =============
Net interest income $ 16,384 $ 16,678
============ ============
Interest rate spread (5) 3.15% 3.42%
============= =============
Net interest margin (6) 3.55% 3.88%
============= =============
Ratio of average interest-earning
assets to average interest-bearning
liabilities 121.11% 123.48%
============= =============
(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 interest margin 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 September 30, Nine Month Period ended September 30,
2004 vs. 2003 2004 vs. 2003
------------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------------- -----------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars In Thousands) (Dollars In Thousands)
Interest income:
Loans receivable $506 $(630) $(124) $2,078 $(1,967) $ 111
Investment securities available
for sale 203 (48) 155 160 (370) (210)
Other interest earning assets
(11) 0 (11) (31) 0 (31)
------------------------------------------ ------------------------------------------
Total interest-earning assets $698 $(678) $ 20 $2,207 $(2,337) $(130)
========================================== ==========================================
Interest expense:
Money market accounts
$ (5) $ (1) $ (6) $ (30) $ (120) $(150)
Certificates of deposit
258 (129) 129 640 (468) 172
Other liabilities
113 (3) 110 315 (173) 142
------------------------------------------ ------------------------------------------
Total interest-bearing liabilities $366 $(133) $ 233 $ 925 $ (761) $ 164
========================================== ==========================================
Net change in net interest income $332 $(545) $(213) $1,282 $(1,576) $(294)
=========================================== ===========================================
10
Provision for loan losses. For the three months ended September 30,
2004 the provision for loan losses was $40,000 compared to $150,000 for the
comparable 2003 period. For the nine months ended September 30, 2004 the
provision for loan losses was $290,000 compared to $450,000 for the comparable
2003 period. The lower provision for the three and nine months ended September
30, 2004 as compared to the prior year periods is due to the Company's internal
loan loss assessment which is explained below.
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level that represents management's best
estimate of the losses inherent in the portfolio, based on a monthly review by
management of the following factors:
o Historical experience
o Volume
o Type of lending conducted by the Bank
o Industry standards
o The level and status of past due and non-performing loans
o The general economic conditions in the Bank's lending area; and
o Other factors affecting the collectability of the loans in the portfolio
Large groups of homogeneous loans, such as residential real estate,
small commercial real estate loans and home equity and consumer loans are
evaluated in the aggregate using historical loss factors and other data. The
amount of loss reserve is calculated using historical loss rates, net of
recoveries on a five year rolling weighted average, adjusted for environmental,
and other qualitative factors such as industry, geographical, economic and
political factors that can effect loss rates or loss measurements.
Large balance and/or more complex loans such as multi-family and
commercial real estate loans may be evaluated on an individual basis and are
also evaluated in the aggregate to determine adequate reserves. As specific
loans are determined to be impaired, specific reserves are assigned based upon
collateral value, market value, if determinable, or the present value of the
estimated future cash flows of the loan.
The allowance is increased by a provision for loan loss which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on non-accrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
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 losses will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.
Other income. Total other income for the three months ended September
30, 2004 decreased $312,000 to $1.3 million from $1.6 million for the comparable
three month period in 2003. This change was primarily due to a net decrease of
$206,000 in investment security gains and $133,000 on gains recorded from the
sales of mortgage loans. Total other income for the nine months ended September
30, 2004 decreased $754,000 to $4.0 million from $4.7 million for the comparable
period in 2003. The decrease in other income for the nine months ended September
30, 2004 was primarily due to a net decrease of $193,000 in investment security
gains, $221,000 on gains recorded from the sales of mortgage loans, and a
$346,000 gain recognized in 2003 from the sale of property held in other real
estate.
Other expense. Total other expenses for the three month period ended
September 30, 2004 increased $133,000 to $3.7 million from $3.6 million for the
comparable three month period in 2003. For the nine months ended September 30,
2004, total other expenses increased $660,000 to $11.2 million from $10.6
million for the comparable 2003 period. For the three and nine month periods
ended September 30, 2004 pension and employee benefit costs increased $22,000
and $173,000, respectively compared to the same periods in 2003. This increase
was primarily due to an increase in health care insurance costs and increased
pension costs. Occupancy expense increased $76,000 and $182,000 for the
11
three and nine months ended September 30, 2004, respectively, compared to the
same periods in 2003. These increases were due to increased depreciation costs
related to the Company's investments in new branches and technology. The
increases in other expenses of $32,000 and $256,000 for the three and nine month
periods in 2004, respectively is primarily contributed to increased computer
hardware maintenance costs, which rose $30,000 and $89,000, respectively from
the comparable periods in 2003.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes for the three and nine months ended
September 30, 2004 from the information presented in the 10K statement, under
the caption Market Risk, for the year ended December 31, 2003.
Item 4. 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 party to any material legal proceedings at the
present time. From time to time, the Bank is a party to routine 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. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities. Not Applicable
(b) Use of Proceeds. Not Applicable
(c) Issuer Purchases of Equity Securities.
- ------------------------ -------------------- ------------------- ------------------------- --------------------------
(c) Total Number (d) Maximum Number
Of Shares (or Units) (or Approximate Dollar
(b) Purchased as Part Value) of Shares (or
(a) Total Number Average Price Of Publicly Units) that May Yet Be
Of Shares (or Paid per Share Announced Plans Purchased Under the
Period Units) Purchased (or Unit) or Programs* Plans or Programs
- ------------------------ ------------------------ ------------------- ------------------------- --------------------------
July 1 through 31 5,100 $45.68 92,956 58,144
- ------------------------ ------------------------ ------------------- ------------------------- --------------------------
August 1 through 31 0 $0 92,956 58,144
- ------------------------ ------------------------ ------------------- ------------------------- --------------------------
September 1 through 30 0 $0 92,956 58,144
- ------------------------ ------------------------ ------------------- ------------------------- --------------------------
Total 5,100 $45.68 92,956 58,144
- ------------------------ ------------------------ ------------------- ------------------------- --------------------------
* On November 18, 1999, the Registrant announced a stock repurchase plan for
up to 151,100 shares.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are either filed with or incorporated by
reference in this Quarterly Report on Form 10-Q:
3(i) Articles of Incorporation of IBT Bancorp, Inc.*
3(ii) Amended Bylaws of IBT Bancorp, Inc.**
4 Rights Agreement, dated as of November 18, 2003, by and
between IBT Bancorp, Inc. and Registrar and Transfer Company,
as Rights Agent.***
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*****
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32 Section 1350 Certification
-------------------------
* Incorporated by reference to the identically numbered exhibits of
the Registrant's Form 10 (File No. 0-25903) filed April 29, 1999.
** Incorporated by reference to the identically numbered exhibit of
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
*** Incorporated by reference to Exhibit 4 to Amendment No. 1 to Form
8-A (File No. 1-31655) filed November 20, 2003.
**** Incorporated by reference to the identically numbered exhibits of
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
***** Incorporated by reference to Exhibit 4.1 the Registrant's
Registration Statement on Form S-8 (File No. 333-40398) filed
June 29, 2000.
14
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: November 5, 2004 By: /s/Charles G. Urtin
---------------------------------------
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
Date: November 5, 2004 By: /s/Raymond G. Suchta
---------------------------------------
Raymond G. Suchta
Vice President, Chief Financial Officer
(Principal Financial Officer)
15