<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 June 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 48858
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(517) 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
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, 778,704 as of June 30, 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 4 Submission of Matters to a Vote of
Security Holders 18
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>
(in thousands) June 30 December 31
1996 1995
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and demand deposits due from banks . . . . . . . . . . . . . . . . . . . . . $ 14,344 $ 15,299
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,400 6,400
---------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS 18,744 21,699
Investment securities:
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . 51,590 56,621
Securities held to maturity (Market value --
$6,948 in 1996 and $9,059 in 1995) . . . . . . . . . . . . . . . . . . . . . . 7,072 8,985
---------------- ---------------
TOTAL INVESTMENT SECURITIES 58,662 65,606
Loans:
Commercial and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . 37,081 33,585
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,400 115,718
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,364 36,693
---------------- ---------------
TOTAL LOANS 199,845 185,996
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 2,483 2,248
---------------- ---------------
NET LOANS 197,362 183,748
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,708 10,452
---------------- ---------------
TOTAL ASSETS $ 285,476 $ 281,505
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,032 $ 39,620
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,729 39,883
Certificates of deposit and other savings . . . . . . . . . . . . . . . . . . . 169,915 163,642
Certificates of deposit over $100,000 . . . . . . . . . . . . . . . . . . . . . 13,021 9,860
---------------- ---------------
TOTAL DEPOSITS 255,697 253,005
Accrued interest and other liabilities . . . . . . . . . . . . . . . . . . . . . 3,096 2,695
---------------- ---------------
TOTAL LIABILITIES 258,793 255,700
Shareholders' Equity:
Common stock -- $6 par value . . . . . . . . . . . . . . . . . . . . . . . . . 4,672 4,220
4,000,000 authorized; outstanding--
778,704 in 1996 (703,248 in 1995)
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,073 10,220
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,048 10,856
Unrealized (loss) gain on securities available for
sale - net of tax credit of $57,000 in 1996 and
taxes of $236,000 in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . (110) 509
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 26,683 25,805
---------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 285,476 $ 281,505
================ ===============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
1996 1995 1996 1995
---------------------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,319 $ 3,927 $ 8,479 $ 7,654
Interest on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740 648 1,520 1,273
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 226 432 456
---------- ---------- --------- ----------
TOTAL INTEREST ON INVESTMENT SECURITIES 950 874 1,952 1,729
Interest on fed funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 103 176 201
---------- ---------- --------- ----------
TOTAL INTEREST INCOME 5,343 4,904 10,607 9,584
INTEREST ON DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,422 2,208 4,882 4,290
---------- ---------- --------- ----------
NET INTEREST INCOME 2,921 2,696 5,725 5,294
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 117 240 230
---------- ---------- --------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,798 2,579 5,485 5,064
OTHER INCOME
Trust Department income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 81 153 168
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . 73 80 145 149
Other service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . 279 260 535 491
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 65 217 126
Gain (loss) on the sale of securities
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (8) 4 (11)
---------- ---------- --------- ----------
TOTAL OTHER INCOME 550 478 1,054 923
OPERATING EXPENSES
Salaries, wages and employee benefits . . . . . . . . . . . . . . . . . . . . . . 1,158 1,056 2,290 2,123
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 150 324 297
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . 287 216 531 423
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 699 1,117 1,376
---------- ---------- --------- ----------
TOTAL OPERATING EXPENSE 2,179 2,121 4,262 4,219
INCOME BEFORE FEDERAL INCOME TAX 1,169 936 2,277 1,768
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 244 618 442
---------- ---------- --------- ----------
NET INCOME $ 847 $ 692 1,659 1,326
========== ========== ========= ==========
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.09 $ 0.90 $ 2.14 $ 1.73
========== ========== ========= ==========
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.22 $ 0.48 $ 0.44
========== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
IBT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) Six Months Ended
June 30
1996 1995
----------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Interest and fees collected on loans
and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,502 $ 9,268
Other fees and income received . . . . . . . . . . . . . . . . . . . . . . . . . 1,211 953
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,888) (4,231)
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . (2,835) (3,975)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (655) (442)
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,335 1,573
INVESTING ACTIVITIES
Proceeds from maturities and sale of investment
securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . 15,554 17,124
Proceeds from maturities of investment
securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650 3,001
Purchase of investment securities
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,317) (9,039)
Purchase of investment securities
held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,018) (3,268)
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,855) (5,182)
Purchases of equipment and premises . . . . . . . . . . . . . . . . . . . . . . . (834) (513)
---------------- ----------------
NET CASH (USED) PROVIDED INVESTING ACTIVITIES (8,820) 2,123
FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits . . . . . . . . . . . . . . . . . . (4,588) (539)
Net increase (decrease) in interest bearing deposits . . . . . . . . . . . . . . 7,280 1,761
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (377) (334)
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 179
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,530 1,067
---------------- ---------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,955) 4,763
Cash and cash equivalents at beginning of period $ 21,699 $ 18,010
---------------- ---------------
CASH AND CASH EQUIVALENTS AT PERIOD END $ 18,744 $ 22,773
================ ===============
</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 of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six month
period ended June 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 number of common shares outstanding,
as adjusted for the 10% stock dividend paid in March 1996, were 775,104 and
765,221 for the six month period ending June 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.
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, as set forth on pages 3
through 6 of this report.
SIX MONTHS ENDING JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS
Net income equaled $1.66 million for the six month period ended June 30,
1996, compared to $1.33 million for the same period in 1995, a 25.1% increase.
Return on average assets, which measures the ability of the Corporation to
profitably and efficiently employ its resources, was 1.17% for the first six
months of 1996 and 1.01% in 1995. Return on average equity, which indicates
how effectively the Corporation is able to generate earnings on shareholder
invested capital, equaled 12.68% through June 30, 1996 versus 11.25% through
June 30, 1995.
SUMMARY OF SELECTED FINANCIAL DATA
- ----------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) Year to Date
June 30
------------------------------
1996 1995
------------------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income $ 5,725 $ 5,294
Provision for loan losses 240 230
Net income 1,659 1,326
PER SHARE DATA:
Net income per common share $ 2.14 $ 1.73
Cash dividend per common share 0.48 0.44
RATIOS:
Average primary capital to average assets 10.01% 9.77%
Net income to average assets 1.17 1.01
Net income to average equity 12.68 11.25
</TABLE>
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>
Six Months Ending
June 30, 1996 June 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 $ 191,172 $ 8,529 8.92% $ 175,406 $ 7,703 8.78%
Taxable investment securities 49,073 1,510 6.15 42,643 1,273 5.97
Nontaxable investment securities 16,654 655 7.87 17,102 691 8.08
Federal funds sold 6,701 176 5.25 6,776 201 5.93
Other 336 10 5.95 336 10 5.95
----------- -------- -------- ----------- -------- -------
Total Earning Assets 263,936 10,880 8.24% 242,263 9,878 8.15%
NONEARNING ASSETS:
Allowance for loan losses (2,390) (2,197)
Cash and due from banks 10,421 11,236
Premises and equipment 5,361 5,186
Accrued income and other assets 5,653 4,999
----------- -----------
Total Assets $ 282,981 $ 261,487
=========== ===========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits $ 40,411 605 2.99% 43,382 664 3.06%
Savings deposits 68,225 1,015 2.98 63,117 886 2.81
Time deposits 111,300 3,262 5.86 96,599 2,740 5.67
----------- -------- -------- ----------- -------- -------
Total Interest Bearing Liabilities 219,936 4,882 4.44% 203,098 4,290 4.22%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY:
Demand deposits 33,775 32,163
Other 3,096 2,655
Shareholders' equity 26,174 23,571
----------- -----------
Total Liabilities and Equity $ 282,981 $ 261,487
=========== ===========
Net interest income (FTE) $ 5,998 $ 5,588
======== ========
Net yield on interest earning assets (FTE) 4.55% 4.61%
====== =====
</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>
Six Month Period Ended June 30, 1996
Compared to
June 30, 1995
Increase (Decrease) Due to
-------------------------------
Volume Rate Net
------ ---- -----
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 702 $ 124 $ 826
Taxable investment securities 197 40 237
Nontaxable investment securities (18) (18) (36)
Federal funds sold (2) (23) (25)
Other investments 0 0 0
------ ------- -------
Total changes in interest income 879 123 1,002
Total changes in interest expense 458 134 592
------ ------- -------
Net Change in Interest Margin (FTE) $ 421 $ (11) $ 410
====== ======= =======
</TABLE>
9
<PAGE> 10
TABLE 3
IBT BANCORP, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year to Date
June 30
------------------------
1996 1995
---- ----
<S> <C> <C>
Summary of changes in allowance:
Allowance for loan losses - January 1 $ 2,248 $ 2,083
Loans charged off (130) (218)
Recoveries of charged off loans 125 125
--------- ----------
Net loans charged off (5) (93)
Provision charged to operations 240 230
--------- ----------
Allowance for loan losses - June 30 $ 2,483 $ 2,220
========= ==========
Allowance to loan losses as a % of loans 1.24% 1.24%
========= ==========
</TABLE>
NONPERFORMING LOANS
- -------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30
1996 1995
---- ----
<S> <C> <C>
Total amount of loans outstanding for
the period (net of unearned interest) $ 199,845 $ 179,027
========= ==========
Nonaccrual loans $ 143 $ 1,049
Accruing loans past due 90 days or more 660 444
Restructured loans 0 0
--------- ----------
Total $ 803 $ 1,493
========= ==========
Loans classified as nonperforming to
outstanding loans 0.40% 0.83%
========= ==========
</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
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 loan fees of $329,000 in
1996 versus $269,000 in 1995. 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 six month period ending
June 30, 1996 to the same period in 1995, fully taxable equivalent (FTE) net
interest income increased $410,000. Interest income earned increased $879,000
from an 8.9% increase in average interest earning assets. The majority of this
growth was funded by an 8.3% increase in interest bearing deposits, resulting
in $458,000 of additional FTE interest expense. Overall, changes in volume
resulted in $421,000 of additional FTE interest income. The average FTE
interest rate earned on assets increased by 0.09%, increasing FTE interest
income by $123,000 and the average rate paid on deposits increased by 0.22%,
increasing interest expense by $134,000. The increased interest rates earned
and paid reduced FTE net interest income by $11,000.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.55% during the first six months of 1996 versus 4.61% in 1995.
The 0.06% decline in the net interest yield was primarily a result of a shift
in deposits from lower rate interest bearing demand deposits to time deposits.
Management expects short term interest rates to increase moderately during the
remainder of 1996. Based on this expectation and the Corporation's assets and
liability repricing characteristics, management estimates that the
Corporation's FTE net interest margin as a percentage of average assets will
increase slightly through the remainder of 1996. Due to the many factors that
can affect net interest income, the overall effect of changing interest rates
on 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 June 30, 1996 to June 30, 1995, average
loans outstanding increased 9.0%. The provision for loan losses was increased
4.3% to $240,000. The increase in the provision was due to the increase in
net outstanding loans. As shown in Table 3, during the first six months of
1996, net loans charged-off were $5,000, an $88,000 decrease from 1995. Loans
classified as nonperforming were 0.40% of loans as of June 30, 1996 versus
0.83% for June 30, 1995. As of June 30, 1996, the allowance for loan losses
as a percentage of loans equaled 1.24%. In management's opinion, the allowance
for loan losses is adequate as of June 30, 1996.
11
<PAGE> 12
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, and fees
for other financial services. The income earned from these sources increased
$131,000 for the six month period ending June 30, 1996, compared to 1995. The
most significant changes were a $40,000 increase in ATM fees, a $17,000
increase in brokerage commissions, a $15,000 decrease in trust fees, a $13,000
increase from income earned on bank owned life insurance, a $21,000 increase
from the sale of student loans, and a $26,000 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 $48,000 gain (net of a $19,000 impairment allowance) from the sale
of $6.8 million in mortgages versus a $22,000 gain on the sale of $1.7 million
in 1995.
NONINTEREST EXPENSE
Noninterest expense increased $43,000 or 1.0% for the first six months of 1996
when compared to 1995. The largest component of noninterest expense is
salaries and employee benefits, which increased $167,000. The majority of this
increase is related to an increase in staff and normal merit and promotional
salary increases. Occupancy and furniture and equipment expenses increased
$135,000. The increase in these expenses are associated with automatic teller
machine operating costs, computer operations, and building and equipment
depreciation. Other expenses decreased $259,000, the most significant change
attributable to a $262,000 decrease in FDIC premiums.
QUARTER ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS
Net income equaled $847,000 for the second quarter in 1996 compared to $692,000
for the same period in 1995, a 22.4% increase. Return on average assets
equaled 1.19% for the second quarter in 1996 compared to 1.06% in 1995. Return
on average equity equaled 12.74% for the second quarter in 1996, versus 11.64%
for the second quarter in 1995.
12
<PAGE> 13
SUMMARY OF SELECTED FINANCIAL DATA
- ----------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) Quarter Ended
June 30
------------------------
1996 1995
------------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income $ 2,921 $ 2,696
Provision for loan losses 123 117
Net income 847 692
PER SHARE DATA:
Net income per common share $ 1.09 $ 0.90
Cash dividend per common share 0.24 0.22
RATIOS:
Net income to average assets 1.19% 1.06%
Net income to average equity 12.74 11.64
</TABLE>
NET INTEREST INCOME
When comparing the second quarter of 1996 to 1995, net FTE interest income
increased $208,000. An increase of 9.2% in average interest-earning assets
provided $470,000 of FTE interest income. The asset growth was funded
primarily by a 7.9% increase in interest-bearing deposits, resulting in
$219,000 of increased interest expense. Overall, increased volume resulted in
$251,000 of additional FTE interest income. During the second quarter of 1996,
the average FTE interest rate earned on assets decreased by 0.07% and the
average rate paid on deposits increased by 0.07%. The changes in interest
rates earned and paid resulted in a $43,000 decrease in FTE interest income.
PROVISION FOR LOAN LOSSES
Comparing the quarter ended June 30, 1996 and 1995, average total loans
outstanding increased 10.7%. The allowance for loan losses as a percentage of
total outstanding loans was 1.24% as of June 30, 1996 and 1995. The amount
provided for loan losses in the second quarter of 1996 was $123,000 versus
$117,000 in 1995. The increase in the provision is due to the increase in net
outstanding loans.
NONINTEREST INCOME
Noninterest income earned in the second quarter of 1996, compared to the same
period in 1995, increased $72,000. The most significant changes were a $15,000
increase in ATM fees, a $21,000 increase in gains on the sale of student loans,
an $11,000 increase in brokerage commissions, a $12,000 increase in gains and
losses on available for sale securities sold, and a $9,000 increase from income
earned on bank owned life insurance.
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
June 30, 1996 June 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 $ 195,313 $ 4,343 8.89% $ 176,407 $ 3,950 8.96%
Taxable investment securities 47,563 735 6.18 42,083 652 6.20
Nontaxable investment securities 15,911 319 8.02 16,789 343 8.17
Federal funds sold 5,621 74 5.27 6,877 103 5.99
Other 336 5 5.95 336 5 5.95
----------- -------- -------- ----------- -------- -------
Total Earning Assets 264,744 5,476 8.27% 242,492 5,053 8.34%
NONEARNING ASSETS:
Allowance for loan losses (2,460) (2,240)
Cash and due from banks 10,891 11,272
Premises and equipment 5,486 5,246
Accrued income and other assets 5,369 5,245
----------- -----------
Total Assets $ 284,030 $ 262,015
=========== ===========
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits $ 39,434 312 3.16% $ 42,331 327 3.09%
Savings deposits 67,284 469 2.79 62,621 453 2.89
Time deposits 112,828 1,641 5.82 98,457 1,427 5.80
----------- -------- -------- ----------- -------- -------
Total Interest Bearing Liabilities 219,546 2,422 4.41% 203,409 2,207 4.34%
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS EQUITY:
Demand deposits 34,756 32,086
Other 3,130 2,749
Shareholders' equity 26,598 23,771
----------- -----------
Total Liabilities and Equity $ 284,030 $ 262,015
=========== ===========
Net interest income (FTE) $ 3,054 $ 2,846
======== ========
Net yield on interest earning assets (FTE) 4.61% 4.69%
======== =======
</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 June 30, 1996
Compared to
June 30, 1995
Increase (Decrease) Due to
--------------------------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 421 (28) 393
Taxable investment securities 85 (2) 83
Nontaxable investment securities (18) (6) (24)
Federal funds sold (18) (11) (29)
Other investments 0 0 0
-------- --------- ---------
Total changes in interest income 470 (47) 423
Total changes in interest expense 219 (4) 215
-------- --------- ---------
Net Change in Interest Margin (FTE) 251 (43) 208
======== ========= =========
</TABLE>
15
<PAGE> 16
NONINTEREST EXPENSE
Noninterest expense increased $58,000 for the second quarter of 1996 when
compared to 1995. Noninterest expense includes salary and benefits, occupancy,
and other operating expenses. Salaries and employee benefits increased
$102,000 due to an increase in staffing and normal merit and promotional
salary increases. Occupancy expense and furniture and equipment expense
increased $93,000. The majority of this increase is related to increased
building and equipment depreciation, computer expenses, and marketing
expenses. Other operating expenses decreased $137,000, the most significant
change attributable to a decrease in F.D.I.C. insurance premiums of $130,000.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Since December 31, 1995, total assets increased $4.0 million to $285.5 million.
As of June 30, 1996, the loan portfolio increased $13.8 million, fed funds sold
decreased $2.0 million, and investment securities decreased $6.9 million when
compared to December 31, 1995. Asset growth was funded primarily by a $2.7
million increase in deposits, and an $878,000 increase in shareholders' equity.
LIQUIDITY
Liquidity management is designed to have adequate resources available to meet
depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and payment of
cash dividends. The primary sources of the Corporation's liquidity are cash,
cash equivalents, and investment securities available for sale.
As of June 30, 1996, cash and cash equivalents as a percentage of total assets
equaled 6.6%, versus 7.7% as of December 31, 1995. During the first six
months of 1996, $3.3 million in net cash was provided from operations, and $2.5
million was provided by financing activities. Investing activities used $8.8
million. The accumulated effect of the Corporation's operating, investing, and
financing activities was a $3.0 million decrease in cash and cash equivalents
during the first six 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
$51.6 million as of June 30, 1996 and $56.6 million as of December 31, 1995.
The Corporation's liquidity is considered adequate by the management of the
Corporation.
CAPITAL
The capital of the Corporation consists solely of common stock, surplus, and
retained earnings, and increased approximately $878,000 since December 31,
1995. As of June 30, 1996, the Corporation's capital included $110,000 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 10.1% at June 30, 1996.
16
<PAGE> 17
CAPITAL, CONTINUED
The Federal Reserve Board has established a minimum risk based capital
standard. Under this standard, a framework has been established that assigns
risk weights to each category of on- and off-balance sheet items to arrive at
risk adjusted total assets. Regulatory capital is divided by the risk adjusted
assets with the resulting ratio compared to the minimum standard to determine
whether a bank has adequate capital. The minimum standard is 8%, of which at
least 4% must consist of equity capital net of goodwill. The following table
sets forth the percentages required under the Risk Based Capital guidelines and
the Corporation's ratios as of June 30, 1996:
PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS:
<TABLE>
<CAPTION>
IBT Bancorp
Actual
Required 06/30/96
-------- --------
<S> <C> <C>
Equity Capital 4.00 15.67
Secondary Capital* 4.00 1.25
Total Capital 8.00 16.92
</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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant's annual meeting of shareholders was held on April
23, 1996. At that meeting the shareholders voted upon the election
of directors.
<TABLE>
<CAPTION>
VOTES CAST
Election of Directors For Withheld
--------------------- --- --------
<S> <C> <C>
All nominees for director were elected:
Gerald D. Cassel 556,232 1,491
Ronald E. Schumacher 557,723 0
Robert O. Smith 557,723 0
John E. Weisenburger 557,614 109
</TABLE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Not Applicable
(b) Form 8-K Item 4. Changes in Registrant's Certifying
Accountant was filed on May 20, 1996 and an amendment thereto
was filed on May 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: July 24, 1996 /s/ David W. Hole
-------------------- ------------------------------------
David W. Hole, President/CEO
/s/ Dennis P. Angner
------------------------------------
Dennis P. Angner, Treasurer
(Principal Financial Officer)
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,344
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,590
<INVESTMENTS-CARRYING> 7,072
<INVESTMENTS-MARKET> 6,948
<LOANS> 199,845
<ALLOWANCE> 2,483
<TOTAL-ASSETS> 285,476
<DEPOSITS> 255,697
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,096
<LONG-TERM> 0
0
0
<COMMON> 4,672
<OTHER-SE> 22,011
<TOTAL-LIABILITIES-AND-EQUITY> 285,476
<INTEREST-LOAN> 8,479
<INTEREST-INVEST> 1,952
<INTEREST-OTHER> 176
<INTEREST-TOTAL> 10,607
<INTEREST-DEPOSIT> 4,882
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 5,725
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 4,262
<INCOME-PRETAX> 2,277
<INCOME-PRE-EXTRAORDINARY> 1,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,659
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.14
<YIELD-ACTUAL> 4.55
<LOANS-NON> 143
<LOANS-PAST> 660
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,248
<CHARGE-OFFS> 130
<RECOVERIES> 125
<ALLOWANCE-CLOSE> 2,483
<ALLOWANCE-DOMESTIC> 2,483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
