10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 ------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------- ------- Commission File No. 0-25903 IBT Bancorp, Inc. ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Pennsylvania 25-1532164 ----------------------------------------- ------------------------------------ (State of incorporation or organization) (I.R.S. employer identification no.) 309 Main Street, Irwin, Pennsylvania 15642 ------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) (724) 863-3100 ------------------------------------------------------------------------------- Issuer's telephone number, including area code Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. YES X NO ------------ ------------ Number of shares of Common Stock outstanding as of August 1, 2000: 3,001,923 IBT BANCORP, INC. Contents
-------- Pages PART I - FINANCIAL INFORMATION Item 1. Financial Statements............................................................................... Consolidated statements of financial condition at June 30, 2000 (unaudited) and December 31, 1999.............................................................. 1 Consolidated statements of operations (unaudited) for the three and six months ended June 30, 2000 and 1999 ................................................................... 2 Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2000 and 1999.................................................................... 3 Notes to financial statements................................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings.............................................................................. 10 Item 2. Changes in Securities and Use of Records....................................................... 10 Item 3. Defaults upon Senior Securities................................................................ 10 Item 4. Submission of Matters to a Vote of Security-Holders............................................ 10 Item 5. Other Information.............................................................................. 10 Item 6. Exhibits and Reports on Form 8-K............................................................... 11 Signatures..................................................................................................... 12
CONSOLIDATED BALANCE SHEETS IBT BANCORP, INC. AND SUBSIDIARY
June 30, 2000 December 31, ------------------------- ---------------------- (unaudited) 1999 ------------------------- ---------------------- ASSETS Cash and due from banks $ 11,777,400 $ 19,171,977 Interest-bearing deposits in banks 886,284 92,590 Federal funds sold 500,000 - Certificates of deposit 100,000 3,000,000 Securities available for sale 154,597,652 149,098,906 Federal Home Loan Bank stock, at cost 1,964,300 1,964,300 Loans, net 276,790,132 260,502,270 Premises and equipment, net 4,635,993 4,728,702 Other assets 7,833,140 7,162,670 ------------------------- ---------------------- Total Assets $ 459,084,901 $ 445,721,415 ========================= ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 62,225,434 $ 57,097,999 Interest-bearing 319,831,278 311,582,486 ------------------------- ---------------------- Total deposits 382,056,712 368,680,485 Repurchase agreements 7,381,408 6,456,597 Federal funds purchased - 7,000,000 Accrued interest and other liabilities 3,333,525 3,679,053 Long-term debt 27,000,000 22,000,000 ------------------------- ---------------------- Total liabilities 419,771,645 407,816,135 Stockholders' Equity Capital stock, par value $1.25, 50,000,000 shares authorized, 3,023,799 shares issued, 3,001,923 and 3,021,174 shares outstanding at June 30, 2000 and December 31, 1999, respectively 3,779,749 3,779,749 Surplus 2,073,102 2,073,102 Retained earnings 37,245,730 35,318,637 Accumulated other comprehensive income (3,095,849) (3,178,596) ------------------------- ---------------------- 40,002,732 37,992,892 Less: Treasury stock, at cost (689,476) (87,612) ------------------------- ---------------------- Total stockholders' equity 39,313,256 37,905,280 ------------------------- ---------------------- Total Liabilities and Stockholders' Equity $ 459,084,901 $ 445,721,415 ========================= ======================
1 CONSOLIDATED STATEMENTS OF INCOME IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30, Six Months Ended June 30, ------------------------------------ --------------------------------- 2000 1999 2000 1999 ---------------- ----------------- --------------- ---------------- (unaudited) (unaudited) ------------------------------------ --------------------------------- Interest Income Loans $ 5,450,311 $ 4,851,764 10,694,830 $ 9,625,318 Investment securities 2,590,769 2,118,109 5,131,232 4,233,272 Federal funds sold 124,696 120,303 137,834 251,825 ---------------- ----------------- --------------- ---------------- Total interest income 8,165,776 7,090,176 $15,963,896 14,110,415 Interest Expense Deposits 3,390,258 2,973,836 6,623,740 6,009,989 Long-term debt 390,809 181,391 724,214 364,747 Repurchase agreements 84,862 34,327 156,488 43,437 ---------------- ----------------- --------------- ---------------- Total interest expense 3,865,929 3,189,554 7,504,442 6,418,173 ---------------- ----------------- --------------- ---------------- Net Interest Income 4,299,847 3,900,622 8,459,454 7,692,242 Provision for Loan Losses 75,000 45,000 150,000 90,000 ---------------- ----------------- --------------- ---------------- Net Interest Income after Provision 4,224,847 3,855,622 8,309,454 7,602,242 for Loan Losses Other Income Service fees 521,456 420,977 1,007,361 792,999 Investment security gains - 4,869 - 6,039 Investment security losses (106,974) (1,250) (106,974) (1,250) Other income 427,275 315,999 721,320 603,826 ---------------- ----------------- --------------- ---------------- Total other income 841,757 740,595 1,621,707 1,401,614 Other Expenses Salaries 1,079,215 906,666 1,988,794 1,659,271 Pension and other employee benefits 283,873 259,271 575,490 501,236 Occupancy expense 257,851 246,708 516,538 493,715 Data processing expense 146,852 133,453 290,763 264,804 ATM expense 97,028 77,270 183,767 148,686 FDIC insurance 21,364 10,190 40,734 20,063 Other expenses 719,262 623,975 1,440,746 1,269,513 ---------------- ----------------- --------------- ---------------- Total other expenses 2,605,445 2,257,533 5,036,832 4,357,288 ---------------- ----------------- --------------- ---------------- Income Before Income Taxes 2,461,159 2,338,684 4,894,329 4,646,568 Provision for Income Taxes 804,911 747,492 1,586,103 1,488,606 ---------------- ----------------- --------------- ---------------- Net income $ 1,656,248 $ 1,591,192 $3,308,226 $ 3,157,962 ================ ================= =============== ================ Basic Earnings per Share $ 0.55 $ 0.52 $ 1.10 $ 1.04 ================ ================= =============== ================ Diluted Earnings per Share $ 0.55 $ 0.52 $ 1.10 $ 1.04 ================ ================= =============== ================ Dividends per Share $ 0.23 $ 0.20 $ 0.46 $ 0.40 ================ ================= =============== ================
2 CONSOLIDATED STATEMENTS OF CASH FLOWS IBT BANCORP, INC. AND SUBSIDIARY
Six Months ended June 30, ------------------------------------- 2000 1999 ----------------- ---------------- (unaudited) ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,308,226 $ 3,157,962 Adjustments to reconcile net cash from operating activities: Depreciation 275,543 267,000 Net amortization/accretion of premiums and discounts 4,572 31,275 Net investment security losses/(gains) 106,974 (4,789) Provision for loan losses 150,000 90,000 Increase (decrease) in cash due to changes in assets and liabilities: Other assets (713,098) (139,860) Accrued interest and other liabilities (345,528) (928,386) ----------------- ---------------- Net Cash From Operating Activities 2,786,689 2,473,202 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificate of deposit (100,000) - Proceeds from maturity of certificates of deposit 3,000,000 - Proceeds from sales of securities available for sale 4,912,909 998,750 Proceeds from maturities of securities held to maturity - 1,069,215 Proceeds from maturities of securities available for sale 3,604,117 19,776,987 Purchase of securities available for sale (14,001,943) (38,050,787) Net loans made to customers (16,437,862) (11,115,153) Purchases of premises and equipment (182,834) (199,680) Purchase of Federal Home Loan Bank stock - (236,200) ----------------- ---------------- Net Cash Used By Investing Activities (19,205,613) (27,756,868) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 13,376,227 7,396,182 Net increase in securities sold under repurchase agreements 924,811 6,030,670 Dividends paid (1,381,133) (1,209,520) Federal funds purchased (7,000,000) - Proceeds from long-term debt 5,000,000 - Payments on long-term debt - (2,000,000) Purchase of treasury stock (601,864) - ----------------- ---------------- Net Cash From Financing Activities 10,318,041 10,217,332 ----------------- ---------------- Net Change in Cash and Cash Equivalents (6,100,883) (15,066,334) Cash and Cash Equivalents at Beginning of Period 19,264,567 43,396,314 ----------------- ---------------- Cash and Cash Equivalents at End of Period $ 13,163,684 $ 28,329,980 ================= ================
3 IBT BANCORP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000 or any future interim period. The interim financial statements should be read in conjunction with the financial statements and footnotes thereto included in IBT Bancorp, Inc. and subsidiary Annual Report or Form 10-K for the year ended Decmeber 31, 1999. NOTE B - EARNINGS PER SHARE Earnings per share are calculated on the basis of the weighted average number of shares outstanding. The weighted average shares outstanding was 3,001,923 and 3,004,760 for the three and six months ended June 30, 2000, respectively and 3,023,799 for the three and six months ended June 30, 1999. NOTE C - COMPREHENSIVE INCOME Total comprehensive income for the three months ended June 30, 2000 and 1999 was $1,836,076 and $(129,764) respectively and for the six months ended June 30, 2000 and 1999 was $3,390,973 and $627,724, respectively. NOTE D - INVESTMENT SECURITIES Investment securities available for sale consist of the following:
June 30, 2000 ------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------------------------------------------------------------------------- Obligations of U.S. Government Agencies $ 95,383,007 $ 13,996 $(2,546,899) $ 92,850,104 Obligations of State and political sub-divisions 14,681,859 151,196 (231,525) 14,601,530 Mortgage-backed securities 46,991,483 7,844 (2,146,681) 44,852,646 Other securities 70,574 5,562 - 76,136 Equity securities 2,161,410 57,526 (1,700) 2,217,236 ------------------------------------------------------------------------------- $159,288,333 $ 236,124 $(4,926,805) $ 154,597,652 ===============================================================================
4 IBT BANCORP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE E - REPURCHASE AGREEMENTS During 1999, the Bank began offering its corporate customers an investment product fashioned in the form of a repuchase agreement. Under the terms of the agreement, deposits in designated demand accounts of the customer are put into an investment vehicle which is used daily to purchase an interest in designated U. S. Government or Agencies' securities owned by the Bank. the Bank in turn agrees to repurchase these investments on a daily basis and pay the customer the daily interest earned on them. At June 30, 2000, the amount of repurchase agreements was $7,381,408. NOTE F - STOCK OPTION PLAN At the annual stockholders meeting held April 2000, the stockholders approved the 2000 Stock Option Plan. Pursuant to the Option Plan, 300,000 shares are to be reserved for issuance upon exercise of stock options granted to officers, directors, key employees and other persons from time to time. The Option Plan provides for a term of ten years, after which no awards may be made. Options consitute both Incentive Stock Options or Non-Incentive Stock Options. The exercise price for the purchase of Common Stock subject to an option may not be less than 100 percent of the fair market value of the Common Stock covered by the Option on the date of grant. In May 2000, 61,000 stock options were granted under this plan at an exercise price of $24.50 per share. NOTE G - JOINT VENTURE During the second quarter of 2000, IBT Bancorp, Inc. (the Bancorp) formed a new subsidiary, Irwin Bank Financial Services, LLC. The newly formed subsidiary commenced operations in June 2000 and will offer a full range of investment and insurance services to customers and the general public. The Bancorp owns fifty percent of the newly formed company and is recording their investments using the equity method. At June 30, 2000 the Bancorp's investment was $125,000. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes", "anticipate", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of opening a new branch, the ability to control costs and expenses, year 2000 issues, and general economic conditions. IBT Bancorp, Inc. undertakes no obligation to publicly release the results of any revisions to those forward looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL IBT Bancorp, Inc. is a bank holding company headquartered in Irwin, Pennsylvania, which provides a full range of commercial and retail banking services through its wholly owned banking subsidiary, Irwin Bank & Trust Co. (collectively, the "Company"). Irwin Bank Financial Services, LLC ("Irwin Bank Financial") operations commenced on June 26, 2000. Irwin Bank Financial, a subsidiary of IBT Bancorp, Inc., will offer insurance and investment services to customers and the general public. See Note G to the consolidated financial statements. On June 19, 2000, the Company began the operation of its fifth supermarket branch. This facility is located in Penn Township, Pennsylvania. FINANCIAL CONDITION At June 30, 2000, total assets increased $13.4 million to $459.1 million from $445.7 million at December 31, 1999. Of this increase, net loans receivable increased $16.3 million and securities available for sale increased $5.5 million. Such increases were offset by a $7.4 million decrease in cash & due from banks and a $2.9 million decrease in certificates of deposit. Such funds were primarily used to pay down the outstanding federal funds purchased of $7.0 million in the prior quarter. Additionally, in the current quarter, federal funds sold decreased $6.6 million from the prior period ended March 31, 2000. Such funds were used to fund new loan originations. The growth in total deposits of $13.4 million was used primarily to fund the growth in the loan portfolio. The increase in the loan portfolio was primarily due to the growth of the fixed rate one- to four- family mortgage loans of $5.6 million and growth of the adjustable rate real estate secured commercial loans of $6.3 million. Such increases were 6 offset by the sale of the credit card portfolio of $1.6 million. The Company's loan portfolio continues to grow due to the Company's offering of competitive market interest rates. Non-interest bearing deposits increased $5.1 million to $62.2 million at June 30, 2000 from $57.1 million at December 31, 1999. Interest-bearing deposits increased $8.2 million from $311.6 million at December 31, 1999. The growth is primarily the result of increases in the number of deposit accounts. For the current period, interest-bearing deposits increased $7.4 million and non-interest bearing deposits decreased $1.0 million from the prior period ended March 31, 2000 At June 30, 2000, total stockholders' equity increased $1.4 million to $39.3 million from $37.9 million at December 31, 1999. The increase was due to net income of $3.3 million for the period and an increase of $83,000 in accumulated other comprehensive income, offset by the purchase of $602,000 of Company stock, and dividends paid of $1.4 million. As previously reported, the Company plans to purchase up to 151,100 shares of the Company's common stock. As of June 30, 2000 the Company had repurchased 21,876 shares. Accumulated other comprehensive income increased as a result of changes in the net unrealized loss on the available for sale securities due to fluctuations in interest rates. Pursuant to generally accepted accounting principles, securities available for sale are recorded at current market value and net unrealized gains or losses on such securities are excluded from current earnings and reported net of income taxes, as part of comprehensive income, until realized. Because of interest rate volatility, the Company's accumulated other comprehensive income could materially fluctuate for each interim period and year-end. The majority of the accumulated unrealized loss resulted from the Company's investment in U.S. government agencies and mortgage backed securities. The change in market value of the investment securities available for sale will not affect the Company's net income until the securities are sold. See Note D to the condensed consolidated financial statements. RESULTS OF OPERATIONS Net income. Net income for the three months ended June 30, 2000 increased $65,000 to $1.7 million from $1.6 million for the comparable three month period in 1999. Net income for the six months ended June 30, 2000 increased $150,000 to $3.3 million from $3.2 million for the comparable six months 1999 period. Such increases for the three and six months ended June 30, 2000 were the result of higher net interest income and other income offset by increases to the provision for loan losses and other expenses. Interest income. Interest income for the three months ended June 30, 2000 increased $1.1 million to $8.2 million from $7.1 million for the comparable three month period in 1999. Interest income for the six months ended June 30, 2000 increased $1.9 million to $16.0 million from $14.1 million for the comparable six months 1999 period. The 7 increases in the current three and six month periods were primarily due to the increases in the average loan receivables and the average available for sale securities portfolio. Interest expense. Interest expense for the three months ended June 30, 2000 increased $676,000 to $3.9 million from $3.2 million for the comparable three month period in 1999. Interest expense for the six months ended June 30, 2000 increased $1.1 million to $7.5 million from $6.4 million for the comparable six months 1999 period. Increased interest expense for the current three and six month periods were primarily due to the increase in FHLB advances, corporate repurchase agreement deposits, and interest earning deposits. Provision for loan losses. For the three months ended June 30, 2000, provision for loan losses were $75,000 compared to $45,000 for the three months ended June 30, 1999. The evaluation for determining the provision includes evaluations of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies, and other information available at such times. The Company will continue to monitor its allowance for loan losses and make future adjustments to the allowance through the provision for loan losses as economic conditions dictate. Management continues to offer a wider variety of loan products coupled with the continued success of changing the mix of the products offered in the loan portfolio from lower yielding loans (i.e., one- to four-family loans) to higher yielding loans (i.e., equity loans, multi-family (five or more units) buildings, and commercial (nonresidential) mortgages). Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent risk of loss in its loan portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods due to the higher degree of credit risk which might result from the change in the mix of the loan portfolio. Other income. Total other income for the three months ended June 30, 2000 increased $101,000 to $842,000 from $741,000 for the comparable three month period in 1999. Other income for the six months ended June 30, 2000 increased $220,000 to $1.6 million from $1.4 million for the comparable period in 1999. The total increases for the three and six months ended June 30, 2000 were due to the increase in service fees and a gain of $115,000 resulting from the sale of the credit card portfolio offset by a loss of $106,000 on the sale of available for sale securities. The increase in service fees resulted primarily from the increase in overdraft fees. Other expense. Total other expense for the three months ended June 30, 2000 increased $348,000 to $2.6 million from $2.3 million for the comparable three month period in 1999. Other expense for the six months ended June 30, 2000 increased $680,000 to $5.0 million from $4.4 million for the comparable period in 1999. While virtually all other 8 expenses increased during the current three month and six month periods, salaries, pension and other employee benefits, ATM expenses, and FDIC insurance were the most significant. As previously disclosed, effective January 1, 2000, the Bank Insurance Fund ("BIF") increased its assessments on deposits for all banks insured by the BIF and the Company instituted an across the board salary increase to all non-officer employees and eliminated the bonus reward program in January 2000. Also, health insurance premiums increased causing increases in pension and other employee benefits to increase. ATM expense increased for the current three and six month periods due to increased fees from the Company's processor. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no significant changes for the three and six months ended June 30, 2000 from the information presented in the 10K statement, under the caption Market Risk, for the year ended December 31, 1999. 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings The registrant is not engaged in any legal proceedings at the present time. From time to time, the Bank is a party to legal proceedings within the normal course of business wherein it enforces its security interest in loans made by it, and other matters of a like kind. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Company was held on April 18, 2000 and the following matter was voted upon: Proposal I- Election of directors with terms to expire in 2002. FOR WITHHELD --------- -------- Thomas Beter 2,626,770 40,850 William D. Fawcett 2,566,150 101,470 Edwin A. Paulone 2,626,770 40,850 Proposal II- The approval of the stock option plan of the year 2000. FOR AGAINST ABSTAIN --------- ------- ------- 2,097,812 326,140 82,189 Item 5. Other Information Not applicable. 10 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(i) Articles of Incorporation of IBT Bancorp, Inc.* 3(ii) Bylaws of IBT Bancorp, Inc.* 10 Change In Control Severance Agreement with Charles G. Urtin ** 10.1 Deferred Compensation Plan For Bank Directors** 10.2 Retirement Agreement Between Irwin Bank & Trust Co. And J. Curt Gardner** 10.3 Death Benefit Only Deferred Compensation Plan For Bank Directors effective as of January 1, 1990** 10.4 Retirement and Death Benefit Deferred Compensation Plan For Bank Directors effective as of January 1, 1990** 10.5 2000 Stock Option Plan*** 27 Financial Data Schedule (electronic filing only) --------------------------------- * Incorporated by reference to the identically numbered exhibits of the Registrant's Form 10 (file no. 0-25903) ** Incorporated by reference to the identically numbered exhibits of the Registrant's Form 10Ks for December 31, 1999. *** Incorporated by reference to the definitive proxy statement of the registrant filed on March 17, 2000. (b) None. 11 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: August 10, 2000 By:/s/Charles G. Urtin ------------------------------------ Charles G. Urtin President, Chief Executive Officer And Chief Accounting Officer (Duly authorized officer) 12