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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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 Number: 0-18415
IBT Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway Mt. Pleasant, MI 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, 4,870,684 as of October 22, 2004
IBT BANCORP, INC.
Index to Form 10-Q
Page Numbers
Part I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements and Notes 3-9
Item 2 Management's Discussion and 9-22
Analysis of Financial Condition
and Results of Operations
Item 3 Quantitative and Qualitative 22-24
Disclosures About Market Risk
Item 4 Controls and Procedures 25
Part II OTHER INFORMATION
Item 6 Exhibits 25
Signatures 26
Exhibit Index 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30 December 31
(dollars in thousands) 2004 2003
------------ -----------
(Unaudited)
ASSETS
Cash and demand deposits due from banks $ 18,019 $ 25,918
Federal funds sold 26 5,300
--------- ---------
CASH AND CASH EQUIVALENTS 18,045 31,218
Investment securities
Securities available for sale (amortized cost of
$157,144 in 2004 and $166,730 in 2003) 158,593 169,832
Securities held to maturity (fair value --
$575 in 2004 and $1,349 in 2003) 570 1,312
--------- ---------
TOTAL INVESTMENT SECURITIES 159,163 171,144
Mortgage loans available for sale 1,083 4,315
Loans (Note 3)
Agricultural 49,860 50,548
Commercial 154,683 141,312
Residential real estate mortgage 187,984 176,828
Installment 52,902 53,171
--------- ---------
TOTAL LOANS 445,429 421,859
Less allowance for loan losses 6,674 6,204
--------- ---------
NET LOANS 438,755 415,655
Other assets 45,225 41,747
--------- ---------
TOTAL ASSETS $ 662,271 $ 664,079
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 69,406 $ 67,760
NOW accounts 95,726 117,560
Certificates of deposit and other savings 321,924 312,914
Certificates of deposit over $100 69,963 69,473
--------- ---------
TOTAL DEPOSITS 557,019 567,707
Other borrowed funds 22,986 18,053
Accrued interest and other liabilities 10,147 9,383
--------- ---------
TOTAL LIABILITIES 590,152 595,143
Shareholders' Equity
Common stock -- no par value
10,000,000 shares authorized; outstanding --
4,870,684 in 2004 (4,403,404 in 2003) 66,001 47,491
Retained earnings 6,387 20,623
Accumulated other comprehensive (loss) income (269) 822
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 72,119 68,936
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 662,271 $ 664,079
========= =========
See notes to consolidated financial statements.
3
IBT BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Nine Months Ended
September 30
-----------------------------
(dollars in thousands) 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 31,660 45,158
Common stock repurchased (4,571) (3,386)
----------- -----------
BALANCE END OF PERIOD 4,870,684 4,378,055
=========== ===========
COMMON STOCK
Balance at beginning of period $ 47,491 $ 45,610
Stock dividend 17,608 ---
Issuance of common stock 1,094 1,146
Stock repurchased (192) (127)
----------- -----------
BALANCE END OF PERIOD 66,001 46,629
RETAINED EARNINGS
Balance at beginning of period 20,623 16,299
Net income 4,981 5,983
Stock dividend (17,608) ---
Cash dividends ($0.33 per share
in 2004 and $0.30 in 2003) (1,609) (1,436)
----------- -----------
BALANCE END OF PERIOD 6,387 20,846
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of period 822 1,548
Unrealized losses on securities available for sale,
net of income taxes and reclassification adjustment (1,091) (607)
----------- -----------
BALANCE END OF PERIOD (269) 941
----------- -----------
TOTAL SHAREHOLDERS' EQUITY END OF PERIOD $ 72,119 $ 68,416
=========== ===========
See notes to consolidated financial statements.
4
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
2004 2003 2004 2003
-------------------- --------------------
INTEREST INCOME
Loans $ 7,002 $ 7,321 $20,664 $22,198
Investment securities
Taxable 847 1,194 2,870 3,542
Nontaxable 523 509 1,572 1,498
Federal funds sold and other 43 11 157 180
------- ------- ------- -------
TOTAL INTEREST INCOME 8,415 9,035 25,263 27,418
INTEREST EXPENSES
Deposits 2,301 2,846 7,022 9,016
Federal funds purchased and other borrowing 261 224 776 615
------- ------- ------- -------
TOTAL INTEREST EXPENSE 2,562 3,070 7,798 9,631
------- ------- ------- -------
NET INTEREST INCOME 5,853 5,965 17,465 17,787
Provision for loan losses 120 222 585 767
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,733 5,743 16,880 17,020
NONINTEREST INCOME
Trust fees 189 146 499 460
Service charges on deposit accounts 61 62 194 189
Other service charges and fees 950 1,113 2,679 3,147
Gain on sale of mortgage loans 111 481 391 1,964
Title insurance revenue 511 758 1,522 2,127
Net realized gain on securities available for sale 15 15 90 15
Other 226 316 823 916
------- ------- ------- -------
TOTAL NONINTEREST INCOME 2,063 2,891 6,198 8,818
NONINTEREST EXPENSES
Compensation 3,289 3,528 9,823 9,888
Occupancy 375 398 1,109 1,132
Furniture and equipment 607 855 1,812 1,969
Amortization of acquisition intangibles 23 23 70 70
Other 1,208 1,005 3,733 4,700
------- ------- ------- -------
TOTAL NONINTEREST EXPENSES 5,502 5,809 16,547 17,759
INCOME BEFORE FEDERAL INCOME TAXES 2,294 2,825 6,531 8,079
Federal income taxes 545 740 1,550 2,096
------- ------- ------- -------
NET INCOME $ 1,749 $ 2,085 $ 4,981 $ 5,983
======= ======= ======= =======
Basic net income per share $ 0.36 $ 0.43 $ 1.03 $ 1.25
======= ======= ======= =======
Cash dividends per share $ 0.11 $ 0.10 $ 0.33 $ 0.30
======= ======= ======= =======
See notes to consolidated financial statements.
5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2004 2003 2004 2003
--------------------- ---------------------
NET INCOME $ 1,749 $ 2,085 $ 4,981 $ 5,983
Other comprehensive income (loss) before income taxes
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during period 2,095 (2,143) (1,563) (906)
Reclassification adjustment for realized
gains included in net income (15) (15) (90) (15)
------- ------- ------- -------
Other comprehensive income (loss) before income taxes 2,080 (2,158) (1,653) (921)
Income tax benefit (expense) related to other
comprehensive income (707) 734 562 314
------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS) 1,373 (1,424) (1,091) (607)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 3,122 $ 661 $ 3,890 $ 5,376
======= ======= ======= =======
See notes to consolidated financial statements.
6
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30
(dollars in thousands) 2004 2003
-------- --------
OPERATING ACTIVITIES
Net income $ 4,981 $ 5,983
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 585 767
Depreciation 1,137 1,441
Net amortization of securities 1,227 1,172
Realized gain on sales of investment securities (90) -
Amortization and impairment of mortgage servicing rights 244 462
Increase in cash value of life insurance (317) (350)
Amortization of intangibles 70 70
Gain on sale of mortgage loans (391) (1,964)
Net change in loans held for sale 3,623 11,649
Decrease (increase) in interest receivable 277 (61)
Increase in other assets (948) (2,097)
Increase (decrease) in accrued interest and other expenses 764 (466)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,162 16,606
INVESTING ACTIVITIES
Activity in available-for-sale securities
Maturities, calls, and sales 58,042 31,242
Purchases (49,586) (58,699)
Activity in held to maturity securities
Maturities, calls, and sales 735 620
Net increase in loans (23,685) (23,605)
Increase in cash value of life insurance - 25
Purchases of equipment and premises (3,379) (1,813)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (17,873) (52,230)
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits 1,646 2,859
Net decrease in interest bearing deposits (12,334) (9,782)
Net increase in other borrowed funds 4,933 17,998
Cash dividends (1,609) (1,436)
Proceeds from issuance of common stock 1,094 1,146
Common stock repurchased (192) (127)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,462) 10,658
DECREASE IN CASH AND CASH EQUIVALENTS (13,173) (24,966)
Cash and cash equivalents at beginning of period 31,218 54,437
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,045 $ 29,471
======== ========
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 three and nine month periods ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the year ending 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
4,856,051 and 4,796,990 for the nine month periods ending September 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
Various loan category amounts as of December 31, 2003 have been reclassified for
consistency with the September 30, 2004 consolidated balance sheet presentation
as follows (Dollars in Thousands):
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.
NOTE 4 NEW ACCOUNTING PRONOUNCEMENTS
In 2003, the Emerging Issues Task force (EITF) released Issue No. 03-1, The
Meaning of Other - Than-Temporary Impairment and It's Applications to Certain
Investments, which provides guidance for reporting equity securities whose fair
value is not readily determinable (that is,
8
equity securities that are outside the scope of FASB Statement No. 115) if those
securities are reported at cost. Issue No. 03-1 refers to those equity
securities as cost method investments. Issue No. 03-1 describes the three steps
a financial institution should take to assess whether a cost method investment
is impaired and, if it is, whether a loss should be recognized. The recognition
and measurement requirements of Issue No. 03-1 are effective for the third
quarter ended September 30, 2004. The Corporation believes the impact on the
carrying value of its investments in implementing Issue No. 03-1 was not
significant.
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
consolidated financial statements and notes thereto, 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 values 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.
9
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
RESULTS OF OPERATIONS
Net income equaled $4.98 million for the nine month period ended September
30, 2004, verses $5.98 million in 2003. Return on average assets, which measures
the ability of the Corporation to profitably and efficiently employ its
resources, was 0.98% for the first nine months of 2004 and 1.21% in 2003. Return
on average equity, which indicates how effectively the Corporation is able to
generate earnings on shareholder invested capital, equaled 9.48% through
September 30, 2004 versus 12.56% for the same period in 2003.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Nine Months Ended
September 30
---------------------------
2004 2003
---------------------------
INCOME STATEMENT DATA
Net interest income $ 17,465 $ 17,787
Provision for loan losses 585 767
Net income 4,981 5,983
PER SHARE DATA
Net income per common share $ 1.03 $ 1.25
Cash dividends per common share 0.33 0.30
RATIOS
Average primary capital to average assets 11.24% 10.47%
Net income to average assets 0.98 1.21
Net income to average equity 9.48 12.56
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 equity holdings are included in other
investments.
Nine Months Ending
September 30, 2004 September 30, 2003
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
-------- ---------- ------- -------- ---------- -------
INTEREST EARNING ASSETS
Loans $432,995 $ 20,664 6.36% $398,641 $ 22,198 7.42%
Taxable investment securities 118,325 2,870 3.23 125,428 3,436 3.65
Nontaxable investment securities 54,801 2,382 5.80 48,965 2,270 6.18
Federal funds sold & interest bearing deposits 6,051 51 1.12 20,243 180 1.19
Other investments 2,949 106 4.79 2,839 106 4.98
-------- -------- ------ -------- -------- ------
TOTAL EARNING ASSETS 615,121 26,073 5.65 596,116 28,190 6.31
NONEARNING ASSETS
Allowance for loan losses (6,575) (5,931)
Cash and due from banks 24,601 27,039
Premises and equipment 17,209 15,511
Accrued income and other assets 24,773 24,918
-------- --------
TOTAL ASSETS $675,129 $657,653
======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $109,699 393 0.48 $113,455 835 0.98
Savings deposits 155,342 656 0.56 140,569 1,085 1.03
Time deposits 239,518 5,976 3.33 249,518 7,096 3.79
Borrowed funds 27,159 773 3.79 17,621 615 4.65
-------- -------- ------ -------- -------- ------
TOTAL INTEREST BEARING LIABILITIES 531,718 7,798 1.96 521,163 9,631 2.46
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 63,323 60,318
Other 10,033 12,652
Shareholders' equity 70,055 63,520
-------- --------
TOTAL LIABILITIES AND EQUITY $675,129 $657,653
======== ========
NET INTEREST INCOME (FTE) $ 18,275 $ 18,559
======== ========
NET YIELD ON INTEREST EARNING ASSETS (FTE) 3.96% 4.15%
====== ======
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.
Nine Month Period Ended September 30, 2004
Compared to
September 30, 2003
Increase (Decrease) Due to
------------------------------------------
Volume Rate Net
------- ------- -------
Changes in Interest Income
Loans $ 1,811 $(3,345) $(1,534)
Taxable investment securities (188) (378) (566)
Nontaxable investment securities 259 (147) 112
Federal funds sold & interest bearing deposits (120) (9) (129)
Other investments 4 (4) 0
------- ------- -------
Total changes in interest income 1,766 (3,883) (2,117)
Total changes in interest expense 88 (1,921) (1,833)
------- ------- -------
NET CHANGE IN INTEREST MARGIN (FTE) $ 1,678 $(1,962) $ (284)
======= ======= =======
12
IBT BANCORP, INC.
TABLE 3
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Year to Date
September 30
----------------------
2004 2003
------- -------
Summary of changes in allowance:
Allowance for loan losses - January 1 $ 6,204 $ 5,593
Loans charged off (504) (571)
Recoveries of charged off loans 389 244
------- -------
Net loans charged off (115) (327)
Provision charged to operations 585 767
------- -------
Allowance for loan losses - September 30 $ 6,674 $ 6,033
======= =======
Allowance for loan losses as a % of loans 1.50% 1.44%
======= =======
NONPERFORMING LOANS
(Dollars in thousands)
September 30
2004 2003
-------- --------
Total amount of loans outstanding at the
end of period $445,429 $418,073
======== ========
Nonaccrual loans $ 1,151 $ 1,260
Accruing loans past due 90 days or more 1,708 2,163
Restructured loans 692 135
-------- --------
Total $ 3,551 $ 3,558
======== ========
Loans classified as nonperforming as
a % of outstanding loans 0.80% 0.85%
======== ========
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.
13
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
$854 million in the first nine months of 2004 versus $1.65 million for the same
period 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.
As shown in Tables number 1 and 2, when comparing the nine month period ending
September 30, 2004 to the same period in 2003, fully taxable equivalent (FTE)
net interest income decreased $284,000 or 1.5%. An increase of 3.2% in average
interest earning assets provided $1.8 million of FTE interest income. The
majority of this increase was funded by a 2.0% increase in interest bearing
deposits and borrowed funds, resulting in an increase in interest expense of
$88,000. Overall, changes in volume resulted in $1.7 million of additional FTE
interest income. The average FTE interest rate earned on assets decreased by
0.66%, decreasing FTE interest income by $3.9 million and the average rate paid
on deposits and other borrowings decreased by 0.50%, decreasing interest expense
by $1.9 million. The change in interest rates earned and paid decreased FTE net
interest income by $2.0 million.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 3.96% during the first nine months of 2004 versus 4.15% in 2003.
Average loans outstanding increased from 66.9% of average earning assets in the
first nine months of 2003 to 70.4% in 2004. The 0.19% decrease in the FTE
interest margin was primarily a result of the average rate earned on earning
assets rising slower 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 66.25% 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 September 30, 2004 to September 30, 2003,
the provision for loan losses was decreased by $182,000 to $585,000, due to
declines in net charge offs and nonperforming loans. Year to date, the
Corporation had net charge-offs of $115,000 verses to $327,000 in 2003. Loans
classified as nonperforming were 0.80% of loans as of September 30, 2004 versus
0.85% for September 30, 2003. The Corporation's peer group, which includes 255
holding companies with assets between $500 million and $1.0 billion, had
nonperforming loans to total loans ratio of 0.63% as of June 30, 2004. As of
September 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 September 30, 2004.
14
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, gains on the sale of mortgage loans sold, title
insurance revenue, and gains and losses on investment securities available for
sale. There was a $2.6 million decrease in fees earned from these sources during
the nine 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 nine months of 2003 causing a decrease in mortgage related fee income.
Significant individual account changes during this period include a $605,000
decrease in title insurance revenue and related services, a $1.6 million
decrease in gains on the sale of mortgage loans, and a $750,000 decrease in
residential mortgage servicing income offset by a $284,000 increase in overdraft
charges.
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 operating income is a $391,000 gain from the sale
of $48 million in mortgages during the first nine months of 2004 versus a $2.0
million gain on the sale of $192 million in mortgages for the same period in
2003.
Included in other assets is $10.3 million in cash value of corporate owned life
insurance policies. The increase in cash value of these policies of $317,000 and
$350,000 during the nine month periods ended September 30, 2004 and 2003
respectively is recorded as other income. These policies earned an average rate
of 4.13% and, due to their preferential tax treatment, have a taxable equivalent
rate of 6.26%. These policies are placed with four different insurance companies
with an S & P rating of AA+ or better.
NONINTEREST EXPENSE
Noninterest expense decreased $1.2 million or 6.8% during the first nine months
of 2004 when compared to 2003. The largest component of noninterest expense is
compensation expense, which decreased $65,000. 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 $180,000 or 5.8% in
2004. The majority of this decrease is related to depreciation due to the
write-off of disposed and/or obsolete assets in 2003. Other expenses decreased
by $967,000 or 20.6%. The decrease is primarily related to a $1 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 nine
months of 2004.
15
QUARTERS ENDED SEPTEMBER 30, 2004 AND 2003
RESULTS OF OPERATIONS
Net income equaled $1.75 million for the third quarter in 2004 compared to $2.09
million in 2003. Return on average assets equaled 1.04% for the third quarter in
2004 verses 1.26% in 2003. Return on average equity equaled 9.85% for the third
quarter in 2004 versus 13.30% for the third quarter in 2003.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Quarter Ended
September 30
-------------------------
2004 2003
-------------------------
INCOME STATEMENT DATA
Net interest income $ 5,853 $ 5,965
Provision for loan losses 120 222
Net income 1,749 2,085
PER SHARE DATA
Net income per common share $ 0.36 $ 0.43
Cash dividends per common share 0.11 0.10
RATIOS
Average primary capital to average assets 11.51% 10.28%
Net income to average assets 1.04 1.26
Net income to average equity 9.85 13.30
NET INTEREST INCOME
When comparing the third quarter of 2004 to 2003, net FTE interest income
decreased $105,000. An increase of 2.1% in average interest earning assets
provided $457,000 of FTE interest income. During the third quarter of 2004, the
average FTE interest rate earned on assets decreased by 0.53% and the average
rate paid on deposits and borrowed funds decreased by 0.39%. The changes in
interest rates earned and paid resulted in a $567,000 decrease in net FTE
interest income. The Corporation's FTE net interest yield as a percentage of
average earning assets decreased 0.15% to 4% when comparing the third quarter of
2004 to the same period in 2003. The primary factor for the decrease was the
average rate earned on earning assets rising slower 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 equity holdings are included in
other investments.
Quarter Ended
September 30, 2004 September 30, 2003
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
-------- ---------- ------- -------- ---------- -------
INTEREST EARNING ASSETS
Loans $445,421 $ 7,002 6.29% $410,183 $7,321 7.14%
Taxable investment securities 105,119 847 3.22 132,634 1,140 3.44
Nontaxable investment securities 56,549 792 5.60 50,573 771 6.10
Federal funds sold & int. bearing deposits 2,667 9 1.35 3,699 11 1.19
Other 2,960 34 4.59 2,883 54 7.49
-------- -------- ------ -------- ------ ------
TOTAL EARNING ASSETS 612,716 8,684 5.67 599,972 9,372 6.20
NONEARNING ASSETS
Allowance for loan losses (6,796) (6,083)
Cash and due from banks 21,328 28,319
Premises and equipment 18,734 15,645
Accrued income and other assets 23,575 25,274
-------- --------
TOTAL ASSETS $669,557 $663,127
======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $102,205 120 0.47 $113,229 244 0.86
Savings deposits 154,226 216 0.56 141,543 333 0.94
Time deposits 237,273 1,965 3.31 245,538 2,269 3.70
Borrowed funds 27,291 261 3.83 20,805 224 4.31
------ ------ ------ ------ ------ ------
TOTAL INTEREST BEARING LIABILITIES 520,995 2,562 1.97 521,115 3,070 2.36
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 68,055 62,502
Other 9,457 16,810
Shareholders' equity 71,050 62,700
-------- --------
TOTAL LIABILITIES AND EQUITY $669,557 $663,127
======== ========
NET INTEREST INCOME (FTE) $ 6,122 $6,227
======== ======
NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.00% 4.15%
====== ======
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 expenses for the periods indicated. For the purpose of this table,
changes in interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in the fully taxable equivalent (FTE) rate
multiplied by the prior year's volume.
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Quarter Ended September 30, 2004
Compared to
September 30, 2003
Increase (Decrease) Due to
-----------------------------------
Volume Rate Net
CHANGES IN INTEREST INCOME
Loans $ 598 $ (917) $ (319)
Taxable investment securities (225) (68) (293)
Nontaxable investment securities 87 (66) 21
Federal funds sold (4) 3 (1)
Other Investments 1 (22) (21)
------- ------- -------
Total changes in interest income 457 (1,070) (613)
Total changes in interest expense (5) (503) (508)
------- ------- -------
Net Change in Interest Margin (FTE) $ 462 $ (567) $ (105)
======= ======= =======
PROVISION FOR LOAN LOSSES
The amount provided for loan losses in the third quarter of 2004 was $120,000
versus $222,000 in 2003. During the third quarter of 2004, the Corporation had
net charge-offs of $19,000 versus $233,000 during the same period of 2003. The
allowance for loan losses as a percent of loans was 1.50% as of September 30,
2004 a 0.06% increase since September 30, 2003.
18
NONINTEREST INCOME
Noninterest income earned in the third quarter of 2004, when compared to the
same period in 2003, decreased $828,000 or 28.6%. The most significant changes
consisted of a $370,000 decrease in the gain on sale of mortgage loans, a
decrease of $247,000 in title and abstract revenue, and a $217,000 decrease in
residential mortgage servicing income, all due to a significant decline in
residential mortgage loan activity in 2004.
NONINTEREST EXPENSE
Noninterest expense decreased $307,000 or 5.3% during the third 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, which decreased $239,000 or 6.8%. 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.
Furniture and equipment expenses decreased $248,000 or 29.0% in the third
quarter of 2004 as compared to the same period in 2003. The decrease is related
to depreciation due to the write-off of disposed and/or obsolete assets in the
third quarter of 2003.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 2003, total assets decreased $1.8 million to $662 million. As
of September 30, 2004, total loans increased $23.6 million, cash and demand
deposits due from banks decreased $7.9 million, federal funds sold decreased
$5.3 million, investment securities decreased $12.0 million, and other assets
increased $3.5 million. Deposits during this period decreased $10.7 million,
borrowed funds increased $4.9 million and shareholders' equity increased $3.2
million.
LIQUIDITY
Liquidity management is designed to have adequate resources available to meet
depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and the payment
of cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and available-for-sale investment securities.
As of September 30, 2004, cash and cash equivalents as a percentage of total
assets equaled 2.7%, versus 4.7% as of December 31, 2003. During the first nine
months of 2004, $11.1 million in net cash was provided from operations, while
$6.5 million was used in financing activities and investing activities used
$17.9 million. The accumulated effect of the Corporation's operating, investing,
and financing activities was a $13.2 million decrease in cash and cash
equivalents during the first nine months of 2004.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale equaled $159
million as of September 30, 2004 and $170 million as of December 31, 2003. In
addition to these primary sources of liquidity, the
19
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 the management of the Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, retained
earnings, and accumulated other comprehensive (loss) income; and increased
approximately $3.2 million since December 31, 2003. Accumulated other
comprehensive loss increased $1.1 million due to an increase in unrealized
depreciation on available-for-sale securities during 2004.
There are no significant capital 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 shareholders' equity plus the
allowance for loan losses, less unamortized acquisition intangible, was 11.18%
at September 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 September 30, 2004:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS
IBT Bancorp
September 30, 2004
Required Actual
-------- ------
Equity Capital 4.00% 15.71%
Secondary Capital* 4.00 1.25
---- ------
Total Capital 8.00% 16.96%
* 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.
20
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 $63.8 million at September 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 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 September 30,
2004, the Corporation had a total of $928,000 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 September 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
21
Corporation and the subsidiaries include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Corporation's market area, and
accounting principles, policies and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Further information concerning the
Corporation and its business, including additional factors that could materially
affect the Corporation's financial results, is included in the Corporation's
filings with the Securities and Exchange Commission.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risks are interest rate risk and, to a lesser
extent, liquidity risk. The Corporation has no foreign exchange risk, holds
limited loans outstanding to oil and gas concerns, and holds no trading account
assets, 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.
22
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 is estimated based on historical experience. Time deposits have
penalties which discourage early withdrawals.
The second technique used in the management of interest rate risk is to combine
the projected cash flows and repricing characteristics generated by the gap
analysis and the interest rates associated with those cash flows and projected
future interest income. By changing the amount and timing of the cash flows and
the repricing interest rates of those cash flows, the Corporation can project
the effect of changing interest rates on its interest income.
The following table provides information about the Corporation's assets and
liabilities that are sensitive to changes in interest rates as of September 30,
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.
23
Quantitative Disclosures of Market Risk
(Dollars in Thousands)
September 30 Fair Value
----------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 Thereafter Total 09/30/04
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 199 $ 199 $ 199
Average interest rates 3.79% 3.79%
Fixed interest rate securities $ 53,945 $20,565 $30,732 $16,794 $ 7,623 $29,504 $159,163 $159,168
Average interest rates 3.59% 3.49% 2.93% 3.29% 3.55% 3.46% 3.39%
Fixed interest rate loans $ 70,017 $50,600 $69,429 $56,102 $65,646 $43,284 $355,078 $355,757
Average interest rates 6.54% 6.58% 5.97% 6.25% 5.72% 4.88% 6.03%
Variable interest rate loans $ 43,260 $10,475 $15,323 $10,868 $ 8,427 $ 3,081 $ 91,434 $ 91,434
Average interest rates 6.30% 4.78% 5.02% 5.52% 5.64% 6.31% 5.76%
Rate sensitive liabilities
Borrowed funds $ 673 $ 8,527 $ 1,029 $ 32 $ 3,534 $ 9,191 $ 22,986 $ 23,105
Average interest rates 6.62% 3.97% 3.54% 6.22% 3.69% 5.13% 4.45%
Savings and NOW accounts $158,951 $23,175 $18,893 $13,351 $ 9,824 $27,709 $251,903 $251,903
Average interest rates 0.58% 0.56% 0.54% 0.57% 0.54% 0.43% 0.56%
Fixed interest rate time deposits $116,850 $43,323 $37,085 $20,613 $10,729 $ 3,221 $231,821 $232,542
Average interest rates 2.78% 4.00% 4.20% 3.62% 3.18% 4.40% 3.35%
Variable interest rate time deposits $ 1,316 $ 2,033 $ 6 $ 408 $ 126 $ 3,889 $ 3,889
Average interest rates 2.70% 5.45% 1.44% 5.22% 3.70% 4.43%
Quantitative Disclosures of Market Risk
September 30 Fair Value
----------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter Total 09/30/03
----------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $ 1,350 $ 199 --- --- --- --- $ 1,549 $ 1,549
Average interest rates 1.26% 2.67% --- --- --- --- 1.26%
Fixed interest rate securities $ 65,459 $34,077 $21,948 $13,648 $ 6,017 $43,241 $184,390 $184,432
Average interest rates 4.00% 3.77% 3.32% 4.06% 4.17% 4.76% 4.01%
Fixed interest rate loans $ 97,017 $76,034 $66,618 $24,177 $38,806 $27,972 $330,624 $329,445
Average interest rates 6.83% 7.06% 6.47% 6.77% 6.27% 5.11% 6.60%
Variable interest rate loans $ 60,061 $ 7,481 $ 6,388 $4,052 $ 7,548 $ 1,919 $ 87,449 $ 87,449
Average interest rates 5.60% 5.57% 5.50% 5.58% 5.23% 4.85% 5.54%
Rate sensitive liabilities
Borrowed funds $ 19,313 $ 1,080 $ 5,084 $ 90 $ 33 $10,191 $ 35,791 $ 35,445
Average interest rates 1.24% 5.05% 5.08% 5.08% 6.62% 5.02% 2.99%
Savings and NOW accounts $148,441 $21,010 $17,090 $14,052 $13,018 $34,562 $248,173 $248,173
Average interest rates 0.90% 1.10% 1.25% 1.13% 0.82% 0.72% 0.92%
Fixed interest rate time deposits $116,200 $46,090 $30,672 $30,656 $14,498 $ 129 $238,245 $236,861
Average interest rates 2.66% 4.86% 4.77% 4.53% 4.02% 7.90% 3.68%
Variable interest rate time deposits $ 958 $ 545 --- $ 128 $ 519 --- $ 2,150 $ 2,150
Average interest rates 1.24% 1.24% --- --- 3.57% --- 1.73%
24
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 September 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 September
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 September 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 September 30, 2004.
PART II - OTHER INFORMATION
ITEM 6 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 (4)
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.
4) Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-Q,
dated August 6, 2004, and incorporated herein by reference.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBT Bancorp, Inc.
Date: October 29, 2004 /s/ Dennis P. Angner
-----------------------------------
Dennis P. Angner
President and CEO
/s/Peggy L. Wheeler
-----------------------------------
Peggy L. Wheeler
Principal Financial Officer
26
INDEX TO EXHIBITS
FOR FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION
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
27