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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 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 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)
(989) 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock no par value, 4,860,462 as of July 22, 2004
IBT BANCORP, INC.
Index to Form 10-Q
Page Numbers
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements 3-8
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-21
Item 3 Quantitative and Qualitative
Disclosures About Market Risk 22-23
Item 4 Controls and Procedures 24
PART II OTHER INFORMATION
Item 2 Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 24
Item 4 Submission of Matters to a Vote of
Securities Holders 25
Item 6 Exhibits and Reports on Form 8-K 25-26
Signatures 27
Exhibit Index 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30 December 31
2004 2003
--------- ---------
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 28,882 $ 25,918
Federal funds sold 26 5,300
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 28,908 31,218
Investment securities
Securities available for sale (Amortized cost of
$167,286 in 2004 and $166,730 in 2003) 166,655 169,832
Securities held to maturity (Fair value -
$986 in 2004 and $1,349 in 2003) 971 1,312
--------- ---------
TOTAL INVESTMENT SECURITIES 167,626 171,144
Mortgage loans available for sale 1,348 4,315
Loans (Note 3)
Agricultural 50,233 50,548
Commercial 149,981 141,312
Real estate mortgage 185,714 176,828
Installment 52,591 53,171
--------- ---------
TOTAL LOANS 438,519 421,859
Less allowance for loan losses 6,573 6,204
--------- ---------
NET LOANS 431,946 415,655
Other assets 44,179 41,747
--------- ---------
TOTAL ASSETS $ 674,007 $ 664,079
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 65,780 $ 67,760
NOW accounts 99,382 117,560
Certificates of deposit and other savings 318,954 312,914
Certificates of deposit over $100 75,271 69,473
--------- ---------
TOTAL DEPOSITS 559,387 567,707
Other borrowed funds 33,732 18,053
Accrued interest and other liabilities 11,716 9,383
--------- ---------
TOTAL LIABILITIES 604,835 595,143
Shareholders' Equity
Common stock -- no par value,
10,000,000 shares authorized; outstanding--
4,860,462 in 2004 (4,403,404 in 2003) 65,641 47,491
Retained earnings 5,173 20,623
Accumulated other comprehensive (loss) income (1,642) 822
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 69,172 68,936
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 674,007 $ 664,079
========= =========
See notes to consolidated financial statements.
3
IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
Six Months Ended
June 30
--------------------------
2004 2003
----------- -----------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of period 4,403,404 4,336,283
Stock dividend 440,191 --
Issuance of common stock 21,438 19,151
Common stock repurchased (4,571) (2,136)
----------- -----------
BALANCE END OF PERIOD 4,860,462 4,353,298
=========== ===========
COMMON STOCK
Balance at beginning of period $ 47,491 $ 45,610
Stock dividend 17,608 --
Issuance of common stock 734 613
Stock repurchased (192) (77)
----------- -----------
BALANCE END OF PERIOD 65,641 46,146
RETAINED EARNINGS
Balance at beginning of period 20,623 16,299
Net income 3,232 3,898
Stock dividend (17,608) --
Cash dividends ($0.22 per share in 2004 and $0.20 in 2003) (1,074) (956)
----------- -----------
BALANCE END OF PERIOD 5,173 19,241
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of period 822 1,548
Unrealized (losses) gains on securities available for sale, net
of income taxes and reclassification adjustment (2,464) 817
----------- -----------
BALANCE END OF PERIOD (1,642) 2,365
----------- -----------
TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 69,172 $ 67,752
=========== ===========
See notes to consolidated financial statements.
4
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands)
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
2004 2003 2004 2003
------- ------- ------- -------
INTEREST INCOME
Loans $ 6,801 $ 7,360 $13,662 $14,877
Investment securities
Taxable 1,048 1,191 2,095 2,348
Nontaxable 538 495 1,049 989
Federal funds sold and other 6 73 42 169
------- ------- ------- -------
TOTAL INTEREST INCOME 8,393 9,119 16,848 18,383
INTEREST EXPENSE
Deposits 2,291 3,034 4,721 6,170
Federal funds purchased 275 204 515 391
------- ------- ------- -------
TOTAL INTEREST EXPENSE 2,566 3,238 5,236 6,561
------- ------- ------- -------
NET INTEREST INCOME 5,827 5,881 11,612 11,822
Provision for loan losses 225 333 465 545
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,602 5,548 11,147 11,277
NONINTEREST INCOME
Trust fees 155 155 309 314
Service charges on deposit accounts 66 63 133 127
Other service charges and fees 872 864 1,729 2,034
Gain on sale of mortgage loans 155 819 281 1,483
Title insurance revenue 600 756 1,011 1,369
Other 351 316 672 600
------- ------- ------- -------
TOTAL NONINTEREST INCOME 2,199 2,973 4,135 5,927
NONINTEREST EXPENSES
Compensation expense 3,240 3,366 6,534 6,635
Occupancy 342 363 734 734
Furniture and equipment 573 574 1,205 1,114
Other 1,322 1,576 2,572 3,467
------- ------- ------- -------
TOTAL NONINTEREST EXPENSES 5,477 5,879 11,045 11,950
INCOME BEFORE FEDERAL INCOME TAXES 2,324 2,642 4,237 5,254
Federal income taxes 568 686 1,005 1,356
------- ------- ------- -------
NET INCOME $ 1,756 $ 1,956 $ 3,232 $ 3,898
======= ======= ======= =======
Basic net income per share $ 0.36 $ 0.41 $ 0.67 $ 0.82
======= ======= ======= =======
Cash dividends per share $ 0.11 $ 0.10 $ 0.22 $ 0.20
======= ======= ======= =======
See notes to consolidated financial statements.
5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
NET INCOME $ 1,756 $ 1,956 $ 3,232 $ 3,898
Other comprehensive (loss) income before income taxes:
Unrealized (losses) gains on available-for-sale securities:
Unrealized holding (losses) gains arising during period (4,577) 824 (3,659) 1,238
Reclassification adjustment for realized gains
Included in net income (61) -- (74) --
------- ------- ------- -------
Other comprehensive (loss) income before
Income taxes (4,638) 824 (3,733) 1,238
Income tax benefit (expense) related to other
comprehensive income 1,577 (280) 1,269 (421)
------- ------- ------- -------
OTHER COMPREHENSIVE (LOSS) INCOME (3,061) 544 (2,464) 817
------- ------- ------- -------
COMPREHENSIVE (LOSS) INCOME $(1,305) $ 2,500 $ 768 $ 4,715
======= ======= ======= =======
See notes to consolidated financial statements.
6
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
June 30
---------------------
2004 2003
-------- --------
OPERATING ACTIVITIES
Net income $ 3,232 $ 3,898
Adjustments to reconcile net income to cash provided by
operations:
Provision for loan losses 465 545
Depreciation 730 772
Net amortization of securities 886 734
Realized gain on sales of investment securities (74) --
Amortization and impairment of mortgage servicing rights 232 706
Increase in cash value of life insurance (212) (235)
Amortization of intangibles 47 47
Gain on sales of mortgage loans (281) (1,483)
Net change in loans held for sale 3,248 1,614
Decrease in interest receivable 598 237
Increase in other assets (462) (1,670)
Increase in accrued interest and other expenses 2,333 2,324
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,742 7,489
INVESTING ACTIVITIES
Activity in available-for-sale securities
Maturities, calls, and sales 44,852 13,975
Purchases (45,879) (46,428)
Activity in held to maturity securities
Maturities, calls, and sales -- 570
Net (increase) decrease in loans (16,756) 4,827
Purchases of equipment and premises (2,096) (1,173)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (19,879) (28,229)
FINANCING ACTIVITIES
Net (decrease) increase in noninterest bearing deposits (1,980) 7,125
Net decrease in interest bearing deposits (6,340) (1,270)
Net increase (decrease) in other borrowed funds 15,679 (502)
Cash dividends (1,074) (956)
Proceeds from the issuance of common stock 734 613
Common stock repurchased (192) (77)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,827 4,933
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (2,310) (15,807)
Cash and cash equivalents at beginning of period 31,218 54,437
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,908 $ 38,630
======== ========
See notes to consolidated financial statements
7
IBT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with 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 six month period ended June 30,
2004 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2004. 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, 2003.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding as adjusted for the 10% stock dividend paid February 19, 2004, were
4,852,017 and 4,784,661 for the six month periods ending June 30, 2004 and 2003,
respectively. The Corporation has no common stock equivalents and, accordingly,
presents only basic earnings per share.
NOTE 3 RECLASSIFICATION OF LOANS
During June 2004, management of the Corporation became aware of the fact that
various loan category amounts as of December 31, 2003 should be reclassified for
consistency with the June 30, 2004 consolidated balance sheet presentation as
follows:
December 31, 2003
as as
Loan Category Reclassified Originally Reported
------------- ------------ -------------------
Agricultural $ 50,548 $ 50,548
Commercial 141,312 149,931
Real estate mortgage 176,828 157,598
Installment 53,171 63,782
---------- ---------
$ 421,859 $ 421,859
========== =========
The reclassifications have no effect on total loans or any other financial
statement measure as of December 31, 2003 or for the year then ended.
8
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 2003 annual report and with the unaudited
financial statements and notes, as set forth on pages 3 through 8 of this
report.
CRITICAL ACCOUNTING POLICIES: The Corporation's significant accounting policies
are set forth in Note 1 of the Consolidated Financial Statements included in the
Corporation's Annual Report for the year ended December 31, 2003. Of these
significant accounting policies, the Corporation considers its policies
regarding the allowance for loan losses and carrying value of servicing assets
to be its most critical accounting policies.
The allowance for loan losses requires management's most subjective and complex
judgment. Changes in economic conditions can have a significant impact on the
allowance for loan losses and therefore the provision for loan losses and
results of operations. The Corporation has developed appropriate policies and
procedures for assessing the adequacy of the allowance for loan losses,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Corporation's assessments may be
impacted in future periods by changes in economic conditions, the impact of
regulatory examinations, and the discovery of information with respect to
borrowers which is not known to management at the time of the issuance of the
consolidated financial statements. For additional discussion concerning the
Corporation's allowance for loan losses and related matters, see Provision for
Loan Losses and Allowance for Loan Losses in the Corporation's 2003 Annual
Report and herein.
Servicing assets are recognized when loans are sold with servicing retained.
Mortgage servicing rights (MSR's) are assets which are amortized in proportion
to and over the period of estimated future net servicing income. Servicing
assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by
predominate characteristics, such as interest rates and terms. Fair value is
determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions.
Impairment is recognized through a valuation allowance for an individual
stratum, to the extent that fair value is less than the capitalized amount for
the stratum.
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
RESULTS OF OPERATIONS
Net income equaled $3.23 million for the six month period ended June 30, 2004
versus $3.90 million in 2003. Return on average assets, which measures the
ability of the Corporation to profitably and efficiently employ its resources,
was .95% for the first six months of 2004 and 1.19% in 2003. Return on average
equity, which indicates how effectively the Corporation is able to generate
earnings on shareholder invested capital, equaled 9.29% through June 30, 2004
versus 12.19% for the same period in 2003.
9
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Six Months Ended
June 30
------------------------
2004 2003
---------- ----------
INCOME STATEMENT DATA
Net interest income $ 11,612 $ 11,822
Provision for loan losses 465 545
Net income 3,232 3,898
PER SHARE DATA
Net income per common share 0.67 0.82
Cash dividends per common share 0.22 0.20
RATIOS
Average primary capital to average assets 11.11% 10.56%
Net income to average assets .95 1.19
Net income to average equity 9.29 12.19
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
$610,000 in 2004 versus $ 897,000 in 2003. For analytical purposes, net interest
income is adjusted to a "taxable equivalent" basis by adding the income tax
savings from interest on tax-exempt loans and securities, thus making
year-to-year comparisons more meaningful.
(Continued on page 13)
10
TABLE 1
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(Dollars in Thousands)
The following schedules present the daily average amount outstanding for
each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding. Federal
Reserve and Federal Home Loan Bank restricted equity holdings are included in
Other Investments.
Six Months Ended
June 30, 2004 June 30, 2003
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- ---------- ------- --------- ---------- -------
INTEREST EARNING ASSETS
Loans $ 426,782 $ 13,662 6.40% $ 392,870 $ 14,879 7.57%
Taxable investment securities 125,027 2,016 3.22 121,825 2,296 3.77
Nontaxable investment securities 53,928 1,683 6.24 48,161 1,590 6.60
Federal funds sold + int. bearing deposits 7,041 42 1.19 28,515 169 1.19
Other investments 2,845 78 5.48 2,817 52 3.69
--------- --------- ---- --------- --------- ----
Total Earning Assets 615,623 17,481 5.68 594,188 18,986 6.39
NONEARNING ASSETS
Allowance for loan losses (6,465) (5,855)
Cash and due from banks 26,938 26,399
Premises and equipment 16,447 15,444
Accrued income and other assets 25,372 24,740
--------- ---------
TOTAL ASSETS $ 677,915 $ 654,916
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 113,446 273 0.48 $ 113,568 590 1.04
Savings deposits 155,900 436 0.56 140,082 752 1.07
Time deposits 240,640 4,012 3.33 251,508 4,827 3.84
Borrowed funds 27,093 515 3.80 16,029 391 4.88
--------- --------- ---- --------- --------- ----
Total Interest Bearing Liabilities 537,079 5,236 1.95 521,187 6,560 2.52
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 60,957 59,226
Other 10,321 10,573
Shareholders' equity 69,558 63,930
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 677,915 $ 654,916
========= =========
--------- ---------
NET INTEREST INCOME (FTE) $ 12,245 $ 12,426
========= =========
---- ----
NET YIELD ON INTEREST EARNING ASSETS (FTE) 3.98% 4.18%
==== ====
11
TABLE 2
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For the purpose of this
table, changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Six Month Period Ended June 30, 2004
Compared to
Six Month Period Ended June 30, 2003
Increase (Decrease) Due to
-------------------------------------
Volume Rate Net
------- ------- -------
CHANGES IN INTEREST INCOME
Loans $ 1,213 $(2,430) $(1,217)
Taxable investment securities 59 (339) (280)
Nontaxable investment securities 183 (90) 93
Federal funds sold + int. bearing deposits (128) 1 (127)
Other investments 1 25 26
------- ------- -------
Total changes in interest income 1,328 (2,833) (1,505)
Total changes in interest expense 99 (1,423) (1,324)
------- ------- -------
NET CHANGE IN INTEREST MARGINS (FTE) $ 1,229 $(1,410) $ (181)
======= ======= =======
12
NET INTEREST INCOME, CONTINUED
As shown in Tables number 1 and 2, when comparing the six month period ending
June 30, 2004 to the same period in 2003, fully taxable equivalent (FTE) net
interest income decreased $181,000 or 1.46%. An increase of 3.6% in average
interest earning assets provided $1.3 million of FTE interest income. The
majority of this growth was funded by a 3% increase in interest bearing
liabilities, resulting in $99,000 of additional interest expense. Overall,
changes in volume resulted in $1.2 million of additional FTE interest income.
The average FTE interest rate earned on assets decreased by 0.71%, while the
amount of interest earned as a result of changes in rate decreased $2.8 million.
The average rate paid on deposits decreased by 0.57%, decreasing interest
expense by $1.4 million. The net change related to interest rates earned and
paid was a $1.4 million decrease in FTE net interest income.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 3.98 % during the first six months of 2004 versus 4.18% for the
same period in 2003. The 0.20% decrease in the FTE interest margin was primarily
a result of the average rate earned on earning assets declining faster than the
average rate paid on interest bearing liabilities.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Net loans outstanding represent 64% of the
Corporation's total assets and is the Corporation's single largest concentration
of risk. The allowance for loan losses is management's estimation of potential
future losses inherent in the existing loan portfolio. Factors used to evaluate
the loan portfolio, and thus to determine the current charge to expense, include
recent loan loss history, financial condition of borrowers, amount of
nonperforming and impaired loans, overall economic conditions, and other
factors.
Comparing the year to date period of June 30, 2004 to June 30, 2003, the
provision for loan losses was decreased $80,000 to $465,000. Year to date 2004,
the Corporation had net charge-offs of $96,000 in 2004 versus $94,000 in 2003.
Loans classified as nonperforming were 0.62% of loans as of June 30, 2004 versus
1.27% for June 30, 2003. The Corporation's peer group, which includes 255
holding companies with assets between $500 million and $1.0 billion, had a
nonperforming loans to total loans ratio of 0.68% as of March 31, 2004. As of
June 30, 2004, the allowance for loan losses as a percentage of loans equaled
1.50%. In management's opinion, the allowance for loan losses is adequate as of
June 30, 2004.
13
TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Six Months Ended
June 30
-----------------------
2004 2003
--------- ---------
Summary of changes in allowance
Allowance for loan losses - January 1 $ 6,204 $ 5,593
Loans charged off (374) (296)
Recoveries of charged off loans 278 202
--------- ---------
Net loans charged off (96) (94)
Provision charged to operations 465 545
--------- ---------
ALLOWANCE FOR LOAN LOSSES - JUNE 30 $ 6,573 $ 6,044
========= =========
ALLOWANCE FOR LOAN LOSSES AS A % OF LOANS 1.50% 1.57%
========= =========
NONPERFORMING LOANS
(Dollars in thousands)
June 30
-----------------------
2004 2003
--------- ---------
Total amount of loans outstanding for
the period $ 438,519 $ 386,167
========= =========
Nonaccrual loans $ 1,756 $ 1,724
Accruing loans past due 90 days or more 968 3,181
--------- ---------
Total $ 2,724 $ 4,905
========= =========
Loans classified as nonperforming as a
% of outstanding loans 0.62% 1.27%
========= =========
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.
14
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, gains on the sale of mortgage loans, title insurance
revenue, and other. Income earned from these sources decreased $1.8 million
during the first six months of 2004 when compared to the same period in 2003.
The majority of the decrease in noninterest income is related to a significant
decrease in mortgage activity which slowed substantially during 2004 when
compared to the first six months of 2003 causing a decrease in mortgage related
fee income. Significant individual account changes during this period include a
$358,000 decrease from the sale of title insurance and related services, a $1.2
million decrease in gains on the sale of mortgage loans, a $533,000 decrease in
residential mortgage servicing income offset by a $260,000 increase in overdraft
charges. Activity is projected to pick up throughout the remainder of 2004;
however, it is not anticipated to reach the level of 2003.
Included in other assets is $10.2 million in cash value of corporate owned life
insurance policies. The increase in cash value of these policies of $212,000 and
$235,000 during the six month periods ended June 30, 2004 and 2003,
respectively, is recorded as other income. These policies earned an average rate
of 4.22% and, due to their preferential tax treatment, have a taxable equivalent
rate of 6.40%. These policies are placed with four different insurance companies
with an S & P rating of AA+ or better.
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
excludes at least 25 basis points allocated to the value of servicing rights on
these loans. Included in other noninterest income is a $281,000 gain from the
sale of $22.9 million in mortgages during the first six months of 2004 versus a
$1.5 million gain on the sale of $140.1 million in mortgages for the same period
in 2003.
NONINTEREST EXPENSES
Noninterest expenses decreased $905,000 or 7.6% during the first six months of
2004 when compared to 2003. The largest component of noninterest expense is
compensation expense, which decreased $101,000 or 1.5%. While there were normal
merit and promotional salary increases, the net decrease is related to the
reduction in compensation related to the decline in mortgage loan activity.
Occupancy and furniture and equipment expenses increased $91,000 or 4.9% in
2004. The majority of this increase is related to equipment depreciation,
service contracts, and property tax expense. Other expenses decreased by
$895,000 or 25.8%. The decrease is primarily related to a $1.3 million decrease
in charitable donations to IBT Foundation (see "Financial Instruments with Off
Balance Sheet Arrangements"). Due to the overall decline in income, the
Corporation did not make contributions to the IBT Foundation in the first six
months of 2004.
15
QUARTER ENDED JUNE 30, 2004 AND 2003
RESULTS OF OPERATIONS
Net income equaled $1.76 million for the second quarter in 2004 versus $1.96
million in 2003. Return on average assets equaled 1.03% for the second quarter
of 2004 versus 1.19% for the same period in 2003. Return on average equity
equaled 10.04% for the second quarter in 2004, versus 11.98% for the second
quarter in 2003.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Three Months Ended
June 30
----------------------
2004 2003
--------- ---------
INCOME STATEMENT DATA
Net interest income $ 5,827 $ 5,881
Provision for loan losses 225 333
Net income 1,756 1,956
PER SHARE DATA
Net income per common share $ 0.36 $ 0.41
Cash dividend per common share 0.11 0.10
RATIOS
Average primary capital to average assets 11.11% 10.75%
Net income to average assets 1.03 1.19
Net income to average equity 10.04 11.98
NET INTEREST INCOME
When comparing the second quarter of 2004 to 2003, net FTE interest income
increased $67,000. An increase of 3.9% in interest earning assets provided
$723,000 of FTE interest income. The asset growth was funded primarily by a 2.7%
increase in interest bearing liabilities, resulting in $75,000 of increased
interest expense. Overall, increased volume resulted in $648,000 of additional
FTE interest income. During the second quarter of 2004, the average FTE interest
rate earned on assets decreased by 0.62% and the average rate paid on deposits
and borrowed funds decreased by 0.57%. The changes in interest rates earned and
paid resulted in a $581,000 decrease in FTE interest income. The Corporation's
FTE net interest yield as a percentage of average earning assets decreased 0.11%
to 4.01% when comparing the second quarter of 2004 to the same period in 2003.
The primary factor for the decrease was the average rate earned on earning
assets declining faster than the average rate paid on interest bearing
liabilities.
16
TABLE 4
IBT BANCORP, INC.
AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME
(Dollars in Thousands)
The following schedules present the daily average amount outstanding for
each major category of interest earning assets, nonearning assets, interest
bearing liabilities, and noninterest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding. Federal
Reserve and Federal Home Loan Bank restricted stock is included in other
investments.
Quarter Ended
June 30, 2004 June 30, 2003
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- ---------- ------- --------- ---------- -------
INTEREST EARNING ASSETS
Loans $ 430,171 $ 6,800 6.32% $ 391,112 $ 7,361 7.53%
Taxable investment securities 128,872 1,014 3.15 128,505 1,139 3.55
Nontaxable investment securities 55,607 911 6.55 48,360 792 6.55
Federal funds sold + Int. bearing deposits 1,497 6 1.60 25,087 77 1.23
Other 2,757 43 6.24 2,852 9 1.26
--------- ---------- ---- --------- ---------- ----
Total Earning Assets 618,904 8,774 5.67 595,916 9,378 6.29
NONEARNING ASSETS
Allowance for loan losses (6,590) (5,976)
Cash and due from banks 25,273 27,009
Premises and equipment 17,590 15,422
Accrued income and other assets 23,949 24,951
--------- ---------
TOTAL ASSETS $ 679,126 $ 657,322
========= =========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 105,111 110 0.42 $ 110,300 283 1.03
Savings deposits 156,105 197 0.50 141,983 369 1.04
Time deposits 241,320 1,984 3.29 252,295 2,381 3.77
Borrowed funds 32,487 275 3.39 16,257 204 5.02
--------- ---------- ---- --------- ---------- ----
Total Interest Bearing Liabilities 535,023 2,566 1.92 520,835 3,237 2.49
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY
Demand deposits 62,724 60,023
Other 11,407 11,158
Shareholders' equity 69,972 65,306
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 679,126 $ 657,322
========= =========
---------- ----------
NET INTEREST INCOME (FTE) $ 6,208 $ 6,141
========== ==========
---- ----
NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.01% 4.12%
==== ====
17
TABLE 5
IBT BANCORP, INC.
VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in Thousands)
The following table sets forth the effect of volume and rate changes on interest
income and expense for the periods indicated. For the purpose of this table,
changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Quarter Ended June 30, 2004
Compared to
June 30, 2003
Increase (Decrease) Due to
-----------------------------
Volume Rate Net
-------- ------- -------
CHANGES IN INTEREST INCOME
Loans $ 690 $(1,251) $ (561)
Taxable investment securities 3 (128) (125)
Nontaxable investment securities 119 0 119
Federal funds sold + int. bearing deposits (89) 18 (71)
Other 0 34 34
------- ------- -------
Total changes in interest income 723 (1,327) (604)
Total changes in interest expense 75 (746) (671)
------- ------- -------
Net Change in Interest Margin (FTE) $ 648 $ (581) $ 67
======= ======= =======
PROVISION FOR LOAN LOSSES
The amount provided for loan losses in the second quarter of 2004 was $225,000
versus $333,000 in 2003. During the second quarter of 2004 the Corporation had
net charge-offs of $149,000 versus $158,000 during the same period of 2003. The
allowance for loan losses as a percent of loans was 1.50% as of June 30, 2004, a
0.07% decrease since June 30, 2003.
NONINTEREST INCOME
Noninterest income earned in the second quarter of 2004, when compared to the
same period in 2003, decreased $774,000 or 26.0%. The most significant changes
were a $156,000 decrease from the sale of title insurance and related services,
and a $664,000 decrease in gains on the sale of mortgage loans.
18
NONINTEREST EXPENSES
Noninterest expenses decreased $402,000 or 6.8% during the second quarter of
2004 when compared to 2003. Noninterest expense includes compensation expense,
occupancy, and other operating expenses. The largest component of noninterest
expense is compensation expense, which decreased $126,000 or 3.7%. While there
were normal merit and promotional salary increases, the net decrease is related
to the reduction in compensation related to the decline in mortgage loan
activity.
Occupancy and furniture and equipment expenses decreased $22,000 or 2.4%. Other
operating expenses decreased $254,000 or 16.1%. The most significant change
includes a $596,000 decrease in charitable donation expense (through the IBT
Foundation) offset by minor increases in numerous other expense items. For
additional information regarding the donation expense, please see page 15 under
the caption Noninterest Expense.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 2003, total assets increased $9.9 million to $674 million. As
of June 30, 2004, total loans increased $16.7 million, cash and demand deposits
due from banks increased $3.0 million, federal funds sold decreased $5.3
million, and investment securities decreased $3.5 million when compared to
December 31, 2003. Deposits during this period decreased $8.3 million, borrowed
funds increased $15.7 million and shareholders' equity increased $236,000.
LIQUIDITY
Liquidity management is designed to have adequate resources available to meet
depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and payment of
cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and available-for-sale investment securities.
As of June 30, 2004, cash and cash equivalents as a percentage of total assets
equaled 4.3%, versus 4.7% as of December 31, 2003. During the first six months
of 2004, $10.7 million in net cash was provided from operations and $6.8 million
was provided from financing activities. Investing activities used $19.9 million.
The accumulated effect of the Corporation's operating, investing and financing
activities was a $2.3 million decrease in cash and cash equivalents during the
first six months of 2004.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale were $166.7
million as of June 30, 2004 and $169.8 million as of December 31, 2003. In
addition to these primary sources of liquidity, the Corporation has the ability
to borrow in the federal funds market and at both the Federal Reserve Bank and
the Federal Home Loan Bank. The Corporation's liquidity is considered adequate
by management.
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and accumulated other comprehensive loss; and increased
approximately $236,000 since December 31, 2003. Accumulated other comprehensive
loss increased $2.5 million due to unrealized depreciation in available-for-sale
securities during 2004.
19
CAPITAL, CONTINUED
There are no significant regulatory constraints placed on the Corporation's
capital. The Federal Reserve Board's current recommended minimum tier 1 and tier
2 average assets requirement is 6.0%. The Corporation's tier 1 and tier 2
capital to assets, which consists of shareholder's equity plus the allowance for
loan losses less unamortized acquisition intangibles, was 10.57% as of June 30,
2004.
The Federal Reserve Board has established a minimum risk based capital standard.
Under this standard, a framework has been established that assigns risk weights
to each category of on- and off-balance sheet items to arrive at risk adjusted
total assets. Regulatory capital is divided by the risk adjusted assets with the
resulting ratio compared to the minimum standard to determine whether a bank has
adequate capital. The minimum standard is 8%, of which at least 4% must consist
of equity capital net of goodwill. The following table sets forth the
percentages required under the Risk Based Capital guidelines and the
Corporation's ratios as of June 30, 2004:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
June 30, 2004
Required Actual
-------- ------
Equity Capital 4.00% 15.14%
Secondary Capital* 4.00 1.25
----- -----
Total Capital 8.00% 16.39%
===== =====
- - 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.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET ARRANGEMENTS
The Corporation is party to financial instruments with off-balance-sheet risk.
These instruments are entered into in the normal course of business to meet the
financing needs of its customers. These financial instruments, which include
commitments to extend credit and standby letters of credit, involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets. The contract or notional amounts
of these instruments reflect the extent of involvement the Corporation has in a
particular class of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Corporation uses the same credit policies in deciding to
make these commitments as it does for extending loans to customers.
Commitments to extend credit, which totaled $63 million at June 30, 2004, are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have variable
interest rates, fixed expiration dates, or other termination clauses and may
require the payment
20
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. At June 30, 2004,
the Corporation had a total of $911,000 in outstanding standby letters of
credit.
Generally, these commitments to extend credit and letters of credit mature
within one year. The credit risk involved in these transactions is essentially
the same as that involved in extending loans to customers. The Corporation
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Corporation upon the
extension of credit, is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, and other income producing commercial properties.
The Corporation sponsors the IBT Foundation (the "Foundation"), which is a
nonprofit entity formed for the purpose of distributing charitable donations to
recipient organizations generally located in the communities serviced by
Isabella Bank and Trust. The Corporation periodically makes charitable
contributions in the form of cash transfers to the Foundation. The Foundation is
administered by members of the Corporation's Board of Directors. The assets and
transactions of the Foundation are not included in the consolidated financial
statements of IBT Bancorp, Inc. The assets of the Foundation as of June 30, 2004
approximated $1.9 million.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Corporation intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Corporation, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Corporation's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Corporation and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Corporation's market area, and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Corporation and its business,
including additional factors that could materially affect the Corporation's
financial results, is included in the Corporation's filings with the Securities
and Exchange Commission.
21
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risks are interest rate risk and, to a lesser
extent, liquidity risk. The Corporation has no foreign exchange risk, holds
limited loans outstanding to oil and gas concerns, and holds no trading account
assets, nor does it utilize interest rate swaps or derivatives in the management
of its interest rate risk. The Corporation does have a significant amount of
loans extended to borrowers in agricultural production. Their cash flow and
their ability to service their debt is largely dependent on the commodity prices
for corn, soybeans, sugar beets, milk, beef and a variety of dry beans. The
Corporation mitigates these risks by using conservative price and production
yields when calculating a borrower's available cash flow to service their debt.
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.
22
The following table provides information about the Corporation's assets and
liabilities that are sensitive to changes in interest rates as of June 30, 2004.
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.
Quantitative Disclosures of Market Risk
June 30, 2004 Fair Value
------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 Thereafter Total 06/30/04
-------- ------- ------- ------- ------- ---------- -------- ----------
Rate sensitive assets
Other interest bearing assets --- $ 199 --- --- --- --- $ 199 $ 199
Average interest rates 0.90% 2.67% --- --- --- --- 3.57%
Fixed interest rate securities $ 20,552 $31,031 $27,191 $25,750 $12,747 $50,355 $167,626 $ 167,641
Average interest rates 2.84% 2.32% 2.62% 2.74% 3.16% 3.91% 3.19%
Fixed interest rate loans $ 93,654 $62,346 $79,002 $39,638 $52,075 $23,720 $350,435 $ 347,973
Average interest rates 6.67% 7.05% 5.98% 6.45% 5.79% 5.02% 6.31%
Variable interest rate loans $ 43,552 $ 9,121 $13,325 $ 8,747 $11,359 $ 3,328 $ 89,432 $ 89,432
Average interest rates 5.61% 4.39% 4.28% 5.13% 4.98% 5.59% 5.16%
Rate sensitive liabilities
Borrowed funds $ 17,464 $ 87 $ 9,589 $ 92 $ 34 $ 6,466 $ 33,732 $ 31,621
Average interest rates 1.48% 4.88% 3.99% 4.88% 4.88% 9.43% 3.74%
Savings and NOW accounts $150,453 $22,626 $18,408 $13,395 $10,003 $30,365 $245,250 $ 245,250
Average interest rates 0.51% 0.32% 0.63% 0.55% 0.56% 0.32% 0.48%
Fixed interest rate time deposits $121,003 $35,205 $40,115 $30,761 $17,009 $ 874 $244,967 $ 237,575
Average interest rates 2.38% 4.27% 4.20% 3.93% 3.14% 6.19% 3.21%
Variable interest rate time deposits $ 949 $ 2,030 $ 0 $ 305 $ 106 $ 0 $ 3,390 $ 3,390
Average interest rates 1.28% 2.05% --- 4.21% 8.00% --- 2.21%
Quantitative Disclosures of Market Risk
June 30, 2003 Fair Value
------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter Total 06/30/03
-------- ------- ------- ------- ------- ---------- -------- ----------
Rate sensitive assets
Other interest bearing assets $ 4,650 --- --- --- --- --- $ 4,650 $ 4,650
Average interest rates 1.25% --- --- --- --- --- 1.25%
Fixed interest rate securities $ 25,647 $54,645 $35,438 $16,389 $10,718 $49,194 $192,031 $ 192,088
Average interest rates 3.75% 3.61% 2.95% 3.13% 3.52% 3.81% 3.51%
Fixed interest rate loans $ 90,415 $85,887 $62,757 $25,205 $30,166 $23,317 $317,747 $ 319,610
Average interest rates 6.99% 7.20% 6.77% 6.32% 6.50% 7.95% 6.97%
Variable interest rate loans $ 58,906 $ 7,077 $ 5,739 $ 3,363 $ 5,772 $ 824 $ 81,681 $ 81,681
Average interest rates 5.66% 5.62% 5.91% 5.67% 5.33% 12.08% 5.72%
Rate sensitive liabilities
Borrowed funds $ 733 $ 1,077 $ 5,081 $ 85 $ 89 $10,226 $ 17,291 $ 18,194
Average interest rates 1.13% 5.01% 5.07% 4.62% 4.65% 5.05% 4.88%
Savings and NOW accounts $151,634 $20,007 $16,276 $13,439 $12,461 $33,681 $247,498 $ 247,498
Average interest rates 1.07% 0.98% 1.36% 1.24% 0.81% 0.72% 1.03%
Fixed interest rate time deposits $126,141 $34,786 $39,339 $29,141 $18,021 $ 122 $247,550 $ 253,784
Average interest rates 2.61% 4.80% 5.11% 4.53% 4.32% 7.98% 3.67%
Variable interest rate time deposits $ 938 $ 527 --- $ 23 $544 --- $ 2,032 $ 2,032
Average interest rates 1.34% 1.34% --- 2.27% 2.27% --- 1.89%
23
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures - The term "disclosure
controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"). This term refers to the
controls and procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the Securities and Exchange Commission. An
evaluation was performed under the supervision and with the participation of the
Corporation's management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the Corporation's disclosure
controls and procedures as of June 30, 2004. Based on that evaluation, the
Corporation's management, including the CEO and CFO, concluded that the
Corporation's disclosure controls and procedures were effective as of June 30,
2004.
(b) Changes in Internal Controls - The Corporation also conducted an evaluation
of internal control over financial reporting to determine whether any changes
occurred during the period ended June 30, 2004, that have materially affected,
or are reasonably likely to materially affect, the Corporation's internal
control over financial reporting. Based on this evaluation, there has been no
such change during the period that ended June 30, 2004.
PART II - OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The following table shows information relating to the repurchase of
shares of IBT Bancorp, Inc. Common Stock during the three months ended
June 30, 2004:
Total Number Maximum
of Shares Number
Purchased as of Shares
Part of Publicly that May Yet be
Total Number Average Announced Purchased Under
of Shares Price Paid Plans or The Plans or
Purchased (1) Per Share Programs Programs
April 1 - 30 4,571 42.00 - 0 - - 0 -
May 1 - 31 - 0 - - 0 - - 0 - - 0 -
June 1 - 30 - 0 - - 0 - - 0 - - 0 -
----- ----- ----- -----
Total 4,571 42.00 - 0 - - 0 -
===== =====
(1) All shares re-purchased in the second quarter of 2004, were re-purchased
pursuant to the right of first refusal on shares issued in conjunction with the
IBT Bancorp Deferred Director Fee program.
24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The registrant's annual meeting of shareholders was held on April 27,
2004. At the meeting the shareholders voted upon the following
matters:
Election of Directors to terms ending 2007:
For Withheld
--------- --------
James C. Fabiano 3,456,577 64,450
David W. Hole 3,489,441 31,586
Dale D. Weburg 3,459,453 61,574
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
3(a) Amended Articles of Incorporation (1)
3(b) Amendment to the Articles of Incorporation (2)
3(c) Amendment to the Articles of Incorporation (3)
3(d) Amendment to the Articles of Incorporation (3)
3(e) Amended and Restated Bylaws
31(a) Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive
Officer
31(b) Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial
Officer
32 Section 1350 Certification of Chief Executive
Officer and Chief Financial Officer
1) Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-K, dated
March 12, 1991, and incorporated herein by reference.
2) Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-K, dated
March 26, 1994, and incorporated herein by reference.
3) Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-K, dated
March 22, 2000, and incorporated herein by reference.
(b) Reports on Form 8-K
The following Forms 8-K were filed during the three month period
ended June 30, 2004:
On May 13, 2004, the Corporation filed a Form 8-K to disclose
that the Corporation had issued a press release to announce the
Corporation's first quarter earnings.
25
On May 17, 2004, the Corporation filed a Form 8-K to disclose
that the Corporation had issued a press release to announce the
holding of the annual shareholders meeting for the Corporation.
On June 2, 2004, the Corporation filed a Form 8-K to disclose
that the Corporation had issued a press release to announce the
appointment of a new director for the Board of Directors of
Isabella Bank and Trust a wholly-owned subsidiary of the
Corporation.
On June 14, 2004, the Corporation filed a Form 8-K to disclose
that the Corporation had issued a press release to announce the
retirement of a director and the appointment of a new director
for the Board of Directors of the Corporation.
On June 20, 2004, the Corporation filed a Form 8-K to disclose
that the Corporation had issued a press release to announce that
a new Chairman had been appointed for the Board of Directors of
the Corporation.
26
SIGNATURE
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 4, 2004 /s/ Dennis P. Angner
--------------------
Dennis P. Angner
President and CEO
/s/ Peggy L. Wheeler
---------------------
Peggy L. Wheeler
Principal Financial Officer
27
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3(e) Amended and Restated Bylaws
31(a) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 by the Chief Executive Officer
31(b) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 by the Chief Financial Officer
32 Section 1350 Certification of Chief Executive Officer and Chief
Financial Officer
28