<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996
------------------
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 Mt. Pleasant, MI 48858
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(517) 772-9471
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(Registrant's telephone number, including area code)
N/A
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(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
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 $6 par value, 781,182 as of October 31, 1996
<PAGE> 2
IBT BANCORP, INC.
Index to Form 10-Q
Part I Financial Information Page Number
Item 1 Financial Statements 3
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 18
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(dollars in thousands) September 30 December 31
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and demand deposits due from banks . . . . . . . . . . . . . . . . . . . . $ 13,928 $ 15,299
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,500 6,400
------------- -----------
TOTAL CASH AND CASH EQUIVALENTS 23,428 21,699
Investment securities:
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . 49,828 56,621
Securities held to maturity (Market value --
$8,729 in 1996 and $9,059 in 1995) . . . . . . . . . . . . . . . . . . . . . 8,796 8,985
------------- -----------
TOTAL INVESTMENT SECURITIES 58,624 65,606
Loans:
Commercial and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . 38,185 33,585
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,676 115,718
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,311 36,693
------------- -----------
TOTAL LOANS 207,172 185,996
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 2,634 2,248
------------- -----------
NET LOANS 204,538 183,748
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,136 10,452
------------- -----------
TOTAL ASSETS $ 297,726 $ 281,505
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,689 $ 39,620
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,653 39,883
Certificates of deposit and other savings . . . . . . . . . . . . . . . . . . 172,728 163,642
Certificates of deposit over $100,000 . . . . . . . . . . . . . . . . . . . . 14,999 9,860
------------- -----------
TOTAL DEPOSITS 267,069 253,005
Accrued interest and other liabilities . . . . . . . . . . . . . . . . . . . . . 3,115 2,695
------------- -----------
TOTAL LIABILITIES 270,184 255,700
Shareholders' Equity:
Common stock -- $6 par value . . . . . . . . . . . . . . . . . . . . . . . . . 4,686 4,220
4,000,000 authorized; outstanding--
781,073 in 1996 (703,248 in 1995)
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,168 10,220
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,713 10,856
Unrealized (loss) gain on securities available for
sale - net of tax credit of $12 in 1996 and taxes
of $236 in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) 509
------------- -----------
TOTAL SHAREHOLDERS' EQUITY 27,542 25,805
------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 297,726 $ 281,505
============= ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . . . . $ 4,522 $ 4,098 $ 13,001 $11,752
Interest on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683 678 2,203 1,951
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . . 176 200 608 656
-------- ------- -------- -------
TOTAL INTEREST ON INVESTMENT SECURITIES 859 878 2,811 2,607
Interest on fed funds sold . . . . . . . . . . . . . . . . . . . 117 117 292 318
-------- ------- -------- -------
TOTAL INTEREST INCOME 5,498 5,093 16,104 14,677
INTEREST ON DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . 2,506 2,305 7,388 6,595
-------- ------- -------- -------
NET INTEREST INCOME 2,992 2,788 8,716 8,082
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 128 121 368 351
-------- ------- -------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,864 2,667 8,348 7,731
OTHER INCOME
Trust Department income . . . . . . . . . . . . . . . . . . . . . 78 92 231 260
Service charges on deposit accounts . . . . . . . . . . . . . . . 70 75 215 224
Other service charges and fees . . . . . . . . . . . . . . . . . 282 265 817 756
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 82 344 208
Gain (loss) on the sale of securities
available for sale . . . . . . . . . . . . . . . . . . . . . . 0 (5) 4 (16)
-------- ------- -------- -------
TOTAL OTHER INCOME 556 509 1,611 1,432
OPERATING EXPENSES
Salaries, wages and employee benefits . . . . . . . . . . . . . . 1,147 1,068 3,437 3,191
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . 185 145 509 442
Furniture and equipment expense . . . . . . . . . . . . . . . . . 288 272 819 695
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 563 1,729 1,939
-------- ------- -------- -------
TOTAL OPERATING EXPENSES 2,232 2,048 6,494 6,267
INCOME BEFORE FEDERAL INCOME TAX 1,188 1,128 3,465 2,896
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . 335 307 953 749
-------- ------- -------- -------
NET INCOME $ 853 $ 821 $ 2,512 $ 2,147
======== ======= ======== =======
Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ 1.10 $ 1.07 $ 3.24 $ 2.80
======== ======= ======== =======
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.22 $ 0.72 $ 0.66
======== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(dollars in thousands) Nine Months Ended
September 30
1996 1995
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Interest and fees collected on loans
and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,134 $ 14,331
Other fees and income received . . . . . . . . . . . . . . . . . . . . . . . . . 1,613 1,457
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,291) (6,427)
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . (5,259) (5,579)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,141) (726)
------------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,056 3,056
INVESTING ACTIVITIES
Proceeds from maturities and sale of investment
securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . 20,563 22,399
Proceeds from maturities of investment
securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . 2,866 3,154
Purchase of investment securities
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,314) (14,981)
Purchase of investment securities
held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,136) (5,829)
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,158) (8,806)
Purchases of equipment and premises . . . . . . . . . . . . . . . . . . . . . . (971) (599)
------------- -----------
NET CASH USED BY INVESTING ACTIVITIES (16,150) (4,662)
FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits . . . . . . . . . . . . . . . . . 1,069 (4,196)
Net increase (decrease) in interest bearing deposits . . . . . . . . . . . . . . 12,995 5,415
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (564) (502)
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 273
------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,823 990
------------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,729 (616)
Cash and cash equivalents at beginning of period $ 21,699 $ 18,010
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,428 $ 17,394
============= ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
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, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996. 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, 1995.
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 in March 1996, were
776,390 and 766,456 for the nine month periods ending September 30, 1996 and
1995, respectively.
NOTE 3 ADOPTION OF SFAS NO. 122
The Corporation adopted Statement of Financial Accounting Standard ("SFAS") No.
122, "Accounting for Mortgage Servicing Rights," an amendment of SFAS Statement
No. 65, on January 1, 1996. This statement changed the accounting for mortgage
servicing rights retained by the loan originator. Under this standard, if the
originator sells mortgage loans and retains the related servicing rights, the
total cost of the mortgage loan is allocated between the loan (without
servicing rights) and the servicing rights, based on their relative fair
values. The cost allocated to mortgage servicing rights must be evaluated
periodically for impairment. The adoption of SFAS No. 122 did not have a
material impact on the Corporation's consolidated financial statements.
Effective January 1, 1997, the Corporation expects to adopt SFAS No. 125, and
although this statement supercedes SFAS No. 122, it retains the accounting for
mortgage servicing rights.
6
<PAGE> 7
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 1995 annual report and
with the unaudited financial statements and notes thereto, as set forth on
pages 3 through 6 of this report.
NINE MONTHS ENDING SEPTEMBER 30, 1996 AND 1995
RESULTS OF OPERATIONS
Net income equaled $2.51 million for the nine month period ended
September 30, 1996, compared to $2.15 million for the same period in 1995, a
17.0% increase. The increase in net income was due primarily to higher net
interest income. Return on average assets, which measures the ability of the
Corporation to profitably and efficiently employ its resources, equaled 1.17%
for the first nine months of 1996 and 1.09% in 1995. Return on average equity,
which indicates how effectively the Corporation is able to generate earnings on
shareholder invested capital, equaled 12.61% through September 30, 1996 versus
11.95% through September 30, 1995.
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) Year to Date
September 30
-----------------
1996 1995
-----------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income $8,716 $8,082
Provision for loan losses 368 351
Net income 2,512 2,147
PER SHARE DATA:
Net income per common share $ 3.24 $ 2.80
Cash dividend per common share 0.72 0.66
RATIOS:
Average primary capital to average assets 10.07% 9.87%
Net income to average assets 1.17 1.09
Net income to average equity 12.61 11.95
</TABLE>
NET INTEREST INCOME
Net interest income equals interest income less interest expense and is the
primary source of income for IBT Bancorp. In accordance with SFAS No. 91,
"Accounting for Loan Fees," interest income includes amortization of net
deferred loan fees of $472,000 and $430,000 for 1996 and 1995 respectively.
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.
7
<PAGE> 8
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.
<TABLE>
<CAPTION>
Nine Months Ending
September 30, 1996 September 30, 1995
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- --------- ------ --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans . . . . . . . . . . . . . . . . . . . . . . $ 195,410 $ 13,076 8.92% $ 177,464 $ 11,831 8.89%
Taxable investment securities . . . . . . . . . . 47,310 2,188 6.17 42,670 1,951 6.10
Nontaxable investment securities . . . . . . . . 15,798 921 7.77 16,321 994 8.12
Federal funds sold . . . . . . . . . . . . . . . 7,438 293 5.25 7,197 303 5.61
Other . . . . . . . . . . . . . . . . . . . . . . 344 15 5.81 336 15 5.95
--------- -------- ----- --------- -------- ------
Total Earning Assets 266,300 16,493 8.26% 243,988 15,094 8.25%
NONEARNING ASSETS:
Allowance for loan losses . . . . . . . . . . . . (2,444) (2,223)
Cash and due from banks . . . . . . . . . . . . . 10,876 10,971
Premises and equipment . . . . . . . . . . . . . 5,433 5,223
Accrued income and other assets . . . . . . . . . 5,504 5,079
--------- ---------
Total Assets $ 285,669 $ 263,038
========= =========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits . . . . . . . . $ 39,711 813 2.73% 42,399 973 3.06%
Savings deposits . . . . . . . . . . . . . . . . 68,363 1,610 3.14 63,361 1,385 2.91
Time deposits . . . . . . . . . . . . . . . . . . 113,027 4,965 5.86 98,329 4,250 5.76
--------- -------- ----- --------- -------- ------
Total Interest Bearing Liabilities 221,101 7,388 4.46% 204,089 6,608 4.32%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY:
Demand deposits . . . . . . . . . . . . . . . . . 34,888 32,256
Other . . . . . . . . . . . . . . . . . . . . . . 3,121 2,732
Shareholders' equity . . . . . . . . . . . . . . 26,559 23,961
--------- ---------
Total Liabilities and Equity $ 285,669 $ 263,038
========= =========
Net interest income (FTE) . . . . . . . . . . . . . $ 9,105 $ 8,486
======== ========
Net yield on interest earning assets (FTE) . . . . 4.56% 4.64%
==== =======
</TABLE>
8
<PAGE> 9
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.
<TABLE>
<CAPTION>
Nine Month Period Ended September 30, 1996
Compared to
September 30, 1995
Increase (Decrease) Due to
---------------------------------
Volume Rate Net
--------- -------- -------
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 1,201 $ 44 $ 1,245
Taxable investment securities 215 22 237
Nontaxable investment securities (31) (42) (73)
Federal funds sold 10 (20) (10)
Total changes in interest income 1,395 4 1,399
Total changes in interest expense 699 81 780
-------- -------- -------
Net Change in Interest Margin (FTE) $ 696 $ (77) $ 619
======== ======== =======
</TABLE>
9
<PAGE> 10
TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year to Date
September 30
----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Summary of changes in allowance for loan losses:
Allowance for loan losses - January 1 $ 2,248 $ 2,083
Loans charged off (208) (280)
Recoveries of charged off loans 226 157
---------- ----------
Net loans recovered (charged off) 18 (123)
Provision charged to operations 368 351
---------- ----------
Allowance for loan losses - Sepember 30 $ 2,634 $ 2,311
========== ==========
Allowance to loan losses as a % of loans 1.27% 1.27%
========== ==========
</TABLE>
NONPERFORMING LOANS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
1996 1995
---------- ----------
<S> <C> <C>
Total amount of loans outstanding for
the period (net of unearned interest) $ 207,172 $ 182,622
========== ==========
Nonaccrual loans $ 35 $ 861
Accruing loans past due 90 days or more 532 1,011
Restructured loans 0 0
---------- ----------
Total $ 567 $ 1,872
========== ==========
Loans classified as nonperforming to
outstanding loans 0.27% 1.03%
========== ==========
Loans classified as substandard to
Allowance for loan losses - September 30 21.53% 81.00%
========== ==========
</TABLE>
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.
10
<PAGE> 11
NET INTEREST INCOME (CONTINUED)
As shown in Tables number 1 and 2, when comparing the nine month period ending
September 30, 1996 to the same period in 1995, fully taxable equivalent (FTE)
net interest income increased $619,000 or 7.3%. An increase of 9.1% in average
interest earning assets provided $1,395,000 of FTE interest income. The
majority of this increase was funded by an 8.3% increase in interest bearing
deposits, resulting in $699,000 of additional interest expense. Overall,
changes in volume resulted in $696,000 of additional FTE interest income. The
average FTE interest rate earned on assets increased by 0.01%, increasing FTE
interest income by $4,000 and the average rate paid on deposits increased by
0.14%, increasing interest expense by $81,000. The increased interest rates
earned and paid reduced FTE net interest income by $77,000.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.56% during the first nine months of 1996 versus 4.64% in 1995.
The 0.08% decrease in the net interest yield was primarily a result of the
Corporation's increasing reliance on higher cost deposits such as certificates
of deposit and money market accounts to fund asset growth. The percentage of
assets funded with these deposits increased from 42.1% in 1995 to 46.7%.
Management expects the Corporation's reliance on higher cost deposits to fund
asset growth to continue.
In addition to changes in asset and liability mix, changes in rates have an
impact on the Corporation's interest income. Management expects short term
interest rates to remain steady during the remainder of 1996. Based on this
expectation, the Corporation's assets and liability repricing characteristics
and its increased use of higher cost deposits to fund asset growth, management
calculates that the Corporation's FTE net interest margin as a percentage of
average assets will decrease slightly through the remainder of 1996. Due to
the many factors that can affect net interest income, interest income earned
cannot be predicted with any certainty.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Loans outstanding represent 70% 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 loans, overall economic conditions, and
other factors.
Comparing the year to date period of September 30, 1996 to the same period in
1995, average loans outstanding increased 10.1%. The provision for loan losses
was increased 4.8% to $368,000. The increase in the provision was due to the
increase in net outstanding loans. During the first nine months of 1996, the
Corporation had a net recovery of loans previously charged-off of $18,000
compared to net loans charged off in 1995 of $123,000. Loans classified as
nonperforming were 0.27% of loans as of September 30, 1996 versus 1.03% for
1995. As of September 30, 1996, the allowance for loan losses as a percentage
of loans equaled 1.27%. In management's opinion, the allowance for loan losses
is adequate as of September 30, 1996.
11
<PAGE> 12
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, and gains and losses from the sale of securities
available for sale. The income earned from these sources increased $179,000
for the nine month period ending September 30, 1996, compared to the same
period in 1995. Significant changes were a $55,000 increase in ATM fees, a
$29,000 increase in brokerage commissions, a $29,000 decrease in trust fees, a
$20,000 increase from income earned on bank owned life insurance, a $38,000
increase from the sale of student loans, net gain on sale of investment
securities of $20,000, and a $22,000 increase in gains on the sale of
residential real estate mortgages.
The Corporation has established a policy that all 15 and 30 year amortized
fixed rate mortgage loans will be sold. These loans are accounted for
according to SFAS 122, (see Note 3 on page 6 for further information) and are
sold without recourse. The Corporation retains the servicing of these loans.
The calculation of gains on the sale of mortgages exclude at least 25 basis
points for the servicing of these loans. Included in 1996 other operating
income is a $70,000 gain from the sale of $9.7 million in mortgages during the
first nine months of 1996 versus a $48,000 gain from the sale of $4.5 million
in 1995.
NONINTEREST EXPENSE
Noninterest expense increased $227,000 or 3.6% for the first nine months of
1996 when compared to 1995. The largest component of noninterest expense is
salaries and employee benefits, which increased $246,000 or 7.7%. The majority
of this increase is related to an increase in staff, normal merit and
promotional salary increases, and accruals for early retirement incentives.
Occupancy and furniture and equipment expenses increased $191,000. The
increase in these expenses is associated with automatic teller machine
operating costs, computer operations, and building and equipment depreciation.
Other non-operating expenses decreased $210,000, the most significant change
was a $248,000 decrease in FDIC insurance premiums.
Congress recently passed legislation requiring commercial banks to pay an
assessment for the retirement of debt incurred as part of the FDIC insurance
payments for insolvent and troubled savings and loans. The assessment is
effective for periods beginning after January 1, 1997. Management calculates
that the 1997 cost to the Corporation's subsidiary bank will be immaterial.
The legislation also required the payment of a one-time assessment for banks
with SAIF insured deposits. The Corporation's subsidiary bank has no liability
under this provision.
QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
RESULTS OF OPERATIONS
Net income equaled $853,000 for the third quarter in 1996 compared to $821,000
for the same period in 1995, a 3.9% increase. The increase in net income was
due primarily to higher net interest income. Return on average assets equaled
1.17% for the third quarter in 1996 compared to 1.23% in 1995. Return on
average equity equaled 12.48% for the third quarter in 1996, versus 13.34% for
the third quarter in 1995.
12
<PAGE> 13
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended
September 30
----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income $ 2,992 $ 2,788
Provision for loan losses 128 121
Net income 853 821
PER SHARE DATA:
Net income per common share $ 1.10 $ 1.07
Cash dividend per common share 0.24 0.22
RATIOS:
Net income to average assets 1.17% 1.23%
Net income to average equity 12.48 13.34
</TABLE>
NET INTEREST INCOME
When comparing net interest income for the third quarter of 1996 to the same
period in 1995, a 9.5% increase in average interest-earning assets provided
$514,000 of additional FTE interest income. The average rate of
interest-earning assets decreased 0.15%, resulting in a $117,000 decrease in
FTE interest income. The changes in average balances and rates of earning
assets provided an additional $397,000 of FTE interest income. The growth of
earning assets was funded primarily by growth in interest-bearing deposits,
which increased by 8.4% in 1996. The average cost of these deposits decreased
by 0.01%. The changes in the average balances and rate paid on
interest-bearing deposits resulted in $188,000 of additional interest expense.
Overall, the changes in interest rate earned and paid and average balances
resulted in additional net interest income of $209,000 in the third quarter of
1996 when compared to the same period in 1995.
PROVISION FOR LOAN LOSSES
Comparing the quarter ended September 30, 1996 and 1995, average total loans
outstanding increased 12.3%. The allowance for loan losses as a percentage of
total outstanding loans was 1.27% as of September 30, 1996 and 1995. During
the third quarter of 1996, the Corporation had net $23,000 recovery of loans
previously charged off compared to net charge-offs of $30,000 in 1995. The
amount provided for loan losses in the third quarter of 1996 was $128,000
versus $121,000 in 1995. The increase in the provision was due to the increase
in net outstanding loans.
13
<PAGE> 14
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.
<TABLE>
<CAPTION>
Quarter Ending
September 30, 1996 September 30, 1995
Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
--------- --------- ------ --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans . . . . . . . . . . . . . . . . . . . . . . $ 203,887 $ 4,547 8.92% $ 181,581 $ 4,128 9.09%
Taxable investment securities . . . . . . . . . . 43,786 678 6.19 42,726 678 6.35
Nontaxable investment securities . . . . . . . . 14,085 266 7.55 14,759 303 8.21
Federal funds sold . . . . . . . . . . . . . . . 8,911 117 5.25 8,039 102 5.08
Other . . . . . . . . . . . . . . . . . . . . . . 361 5 5.54 336 5 5.95
--------- -------- ----- --------- -------- ------
Total Earning Assets 271,030 5,613 8.28% 247,441 5,216 8.43%
NONEARNING ASSETS:
Allowance for loan losses . . . . . . . . . . . . (2,552) (2,275)
Cash and due from banks . . . . . . . . . . . . . 11,785 10,442
Premises and equipment . . . . . . . . . . . . . 5,578 5,279
Accrued income and other assets . . . . . . . . . 5,207 5,228
--------- ---------
Total Assets $ 291,048 $ 266,115
========= =========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits . . . . . . . . $ 38,310 258 2.69% $ 40,434 309 3.06%
Savings deposits . . . . . . . . . . . . . . . . 68,641 545 3.18 63,941 499 3.12
Time deposits . . . . . . . . . . . . . . . . . . 116,479 1,703 5.85 101,790 1,510 5.93
--------- -------- ----- --------- -------- ------
Total Interest Bearing Liabilities 223,430 2,506 4.49% 206,165 2,318 4.50%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY:
Demand deposits . . . . . . . . . . . . . . . . . 37,114 32,452
Other . . . . . . . . . . . . . . . . . . . . . . 3,173 2,882
Shareholders' equity . . . . . . . . . . . . . . 27,331 24,616
--------- ---------
Total Liabilities and Equity $ 291,048 $ 266,115
========= =========
Net interest income (FTE) . . . . . . . . . . . . . $ 3,107 $ 2,898
======== ========
Net yield on interest earning assets (FTE) . . . . 4.59% 4.68%
====== =======
</TABLE>
14
<PAGE> 15
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.
<TABLE>
<CAPTION>
Quarter Ended September 30, 1996
Compared to
September 30, 1995
Increase (Decrease) Due to
---------------------------------
Volume Rate Net
--------- -------- -------
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 499 (80) 419
Taxable investment securities 17 (17) 0
Nontaxable investment securities (13) (24) (37)
Federal funds sold 11 4 15
Total changes in interest income 514 (117) 397
Total changes in interest expense 237 (49) 188
-------- -------- -------
Net Change in Interest Margin (FTE) $ 277 (68) $ 209
======== ======== =======
</TABLE>
15
<PAGE> 16
NONINTEREST INCOME
Noninterest income earned in the third quarter of 1996, compared to the same
period in 1995, increased $47,000. The most significant changes were a $16,000
increase in ATM fees, a $17,000 increase in gains on the sale of student loans,
a $15,000 increase in brokerage commissions, a $ 9,000 increase from income
earned on bank owned life insurance, and a $14,000 decrease in trust fees.
NONINTEREST EXPENSE
Noninterest expense increased $184,000 for the third quarter of 1996 when
compared to the same period in 1995. Salaries and employee benefits increased
$79,000 due to normal merit and promotional salary increases and accruals for
early retirement incentives. Occupancy and furniture and equipment expense
increased $56,000. The majority of this increase is related to increases in
computer operating expenses, building depreciation, building repairs, and ATM
operating expenses. Other operating expenses increased $49,000 due to
increases in FDIC deposit insurance expense of $14,000 (a partial refund of
1995's second quarter premium was received in September 1995), printing and
office supplies, and donations.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1995, total assets increased $16.2 million to $297.7
million. As of September 30, 1996, the loan portfolio increased $21.2 million,
fed funds sold increased $3.1million, and investment securities decreased $7.0
million when compared to December 31, 1995. Asset growth was funded primarily
by a $14.1 million increase in deposits and a $1.7 million increase in
shareholders' equity. Interest bearing deposits increased $13.0 million and
non-interest bearing deposits increased $1.1 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 investment securities available for sale.
As of September 30, 1996, cash and cash equivalents as a percentage of total
assets equaled 7.9%, versus 7.7% as of December 31, 1995. During the first
nine months of 1996, $4.1 million in net cash was provided from operations,
and $13.8 million was provided by financing activities. Investing activities
used $16.2 million. The accumulated effect of the Corporation's operating,
investing, and financing activities was a $1.7 million increase in cash and
cash equivalents during the first nine months of 1996.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale equaled
$49.8 million as of September 30, 1996 and $56.6 million as of December 31,
1995. The Corporation's liquidity is considered adequate by the management of
the Corporation.
16
<PAGE> 17
CAPITAL
The capital of the Corporation consists solely of common stock, surplus,
retained earnings, and unrealized gains or (losses) on securities available for
sale; and increased approximately $1.7 million since December 31, 1995. As of
September 30, 1996, the Corporation's capital included $25,000 of unrealized
losses on securities available for sale.
There are no commitments for significant capital expenditures; however, there
are regulatory constraints placed on the Corporation's capital. The Federal
Reserve Board's current recommended minimum tier 1 and tier 2 capital to
average assets requirement is 6.0%. The Corporation's tier 1 and tier 2
capital to average assets, which consists of shareholder's equity plus the
allowance for loan losses, was 10.0% at September 30, 1996.
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, 1996:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS:
<TABLE>
<CAPTION>
IBT Bancorp
Actual
Required 09/30/96
----------- -----------
<S> <C> <C>
Equity Capital 4.00 15.60
Secondary Capital* 4.00 1.25
Total Capital 8.00 16.85
</TABLE>
* 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.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed or required to be filed
during the quarter ended September 30, 1996.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IBT Bancorp, Inc.
Date: November 5, 1996 /s/ David W. Hole
----------------------- -------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
-------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial and Accounting
Officer)
19
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,928
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,828
<INVESTMENTS-CARRYING> 8,796
<INVESTMENTS-MARKET> 8,729
<LOANS> 207,172
<ALLOWANCE> 2,634
<TOTAL-ASSETS> 297,726
<DEPOSITS> 267,069
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,115
<LONG-TERM> 0
0
0
<COMMON> 4,686
<OTHER-SE> 22,856
<TOTAL-LIABILITIES-AND-EQUITY> 297,726
<INTEREST-LOAN> 13,001
<INTEREST-INVEST> 2,811
<INTEREST-OTHER> 292
<INTEREST-TOTAL> 16,104
<INTEREST-DEPOSIT> 7,388
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 8,716
<LOAN-LOSSES> 368
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 6,494
<INCOME-PRETAX> 3,465
<INCOME-PRE-EXTRAORDINARY> 3,465
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,512
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.24
<YIELD-ACTUAL> 4.56
<LOANS-NON> 35
<LOANS-PAST> 532
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,634
<CHARGE-OFFS> 208
<RECOVERIES> 226
<ALLOWANCE-CLOSE> 2,634
<ALLOWANCE-DOMESTIC> 2,634
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,634
</TABLE>
