10-Q 1 f10q_063002-0262.txt 10Q 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, 2002 ------------- 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 01, 2002: 2,977,655 ---------
IBT BANCORP, INC. Contents -------- Pages ----- PART I - FINANCIAL INFORMATION Item 1. Financial Statements........................................................... Consolidated statements of financial condition at June 30, 2002 (unaudited) and December 31, 2001........................................... 1 Consolidated statements of operations (unaudited) for the three months ended June 30, 2002 and 2001 ................................................ 2 Consolidated statements of cash flows (unaudited) for the three months ended June 30, 2002 and 2001................................................. 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................... 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................................ 13 Item 2. Changes in Securities and Use of Records..................................... 13 Item 3. Defaults upon Senior Securities.............................................. 13 Item 4. Submission of Matters to a Vote of Security-Holders.......................... 13 Item 5. Other Information............................................................ 13 Item 6. Exhibits and Reports on Form 8-K............................................. 14 Signatures................................................................................... 15
CONSOLIDATED BALANCE SHEETS IBT BANCORP, INC. AND SUBSIDIARY
June 30, 2002 December 31, 2001 ----------------- ------------------ (unaudited) (unaudited) ---------------- ------------------ ASSETS Cash and due from banks $ 13,954,139 $ 16,751,407 Interest-bearing deposits in banks 1,576,907 7,373,528 Federal funds sold 22,878,000 1,094,000 Certificates of deposit 100,000 100,000 Securities available for sale 165,075,724 160,866,698 Federal Home Loan Bank stock, at cost 2,362,400 2,101,800 Loans, net 332,486,687 315,131,774 Premises and equipment, net 4,657,558 4,655,510 Other assets 17,178,429 15,969,430 ---------------- ------------------ Total Assets $ 560,269,844 $ 524,044,147 ================ ================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 75,516,356 $ 70,121,716 Interest-bearing 374,702,393 352,340,377 ---------------- ------------------ Total deposits 450,218,749 422,462,093 Repurchase agreements 12,784,868 11,207,072 Accrued interest and other liabilities 4,183,368 5,650,276 FHLB advances 40,000,000 35,000,000 ---------------- ------------------ Total liabilities 507,186,985 474,319,441 Stockholders' Equity Capital stock, par value $1.25 per share, 50,000,000 shares authorized, 3,023,799 shares issued, 2,977,655 and 2,985,695 shares outstanding at June 30, 2002 and December 31, 2001, respectively 3,779,749 3,779,749 Surplus 2,073,102 2,073,102 Retained earnings 46,397,147 43,613,936 Accumulated other comprehensive income 2,176,127 1,342,672 ---------------- ------------------ 54,426,125 50,809,459 Less: Treasury stock, at cost (1,343,266) (1,084,753) ---------------- ------------------ Total stockholders' equity 53,082,859 49,724,706 ---------------- ------------------ Total Liabilities and Stockholders' Equity $ 560,269,844 $ 524,044,147 ================ ==================
The accompanying notes are an integral part of these consolidated financial statements. -1- CONSOLIDATED STATEMENTS OF INCOME IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30, Six Months Ended June 30, --------------------------------------- ----------------------------------- 2002 2001 2002 2001 ------------------ -------------- ----------------------------------- (unaudited) (unaudited --------------------------------------- ----------------------------------- Interest Income Loans, including fees $ 6,079,964 $ 6,098,737 $ 11,970,508 $ 12,151,299 Investment securities 2,177,716 2,547,678 4,452,745 5,289,235 Federal funds sold 85,826 239,447 128,225 316,784 ----------------- ---------------- --------------- --------------- Total interest income 8,343,506 8,885,862 16,551,478 17,757,318 Interest Expense Deposits 2,576,140 3,864,434 5,225,013 7,814,642 FHLB advances 538,948 454,656 1,055,351 878,884 Repurchase agreements 45,940 106,968 88,041 203,217 ----------------- ---------------- --------------- --------------- Total interest expense 3,161,028 4,426,058 6,368,405 8,896,743 ----------------- ---------------- --------------- --------------- Net Interest Income 5,182,478 4,459,804 10,183,073 8,860,575 Provision for Loan Losses 250,000 100,000 500,000 175,000 ----------------- ---------------- --------------- --------------- Net Interest Income after Provision for Loan Losses 4,932,478 4,359,804 9,683,073 8,685,575 Other Income (Losses) Service fees 575,131 456,510 1,167,734 838,846 Investment security gains 84,602 160,486 131,525 236,132 Investment security losses (24,925) -- (24,925) (2,188) Other income 619,098 409,351 1,314,911 752,986 ----------------- ---------------- --------------- --------------- Total other income 1,253,906 1,026,347 2,589,245 1,825,776 Other Expenses Salaries 1,422,855 1,134,140 2,538,177 2,101,394 Pension and other employee benefits 321,169 291,302 624,964 583,814 Occupancy expense 318,943 283,922 635,044 563,019 Data processing expense 176,682 192,041 343,565 355,866 ATM expense 94,805 102,766 178,912 198,909 Other expenses 929,603 772,553 1,793,103 1,574,518 ----------------- ---------------- --------------- --------------- Total other expenses 3,264,057 2,776,724 6,113,765 5,377,520 ----------------- ---------------- --------------- --------------- Income Before Income Taxes 2,922,327 2,609,427 6,158,553 5,133,831 Provision for Income Taxes 779,597 726,053 1,584,837 1,485,292 ----------------- ---------------- --------------- --------------- Net Income $ 2,142,730 $ 1,883,374 $ 4,573,716 $ 3,648,539 ================= ================ =============== =============== Basic Earnings per Share $ 0.72 $ 0.63 $ 1.53 $ 1.22 ================= ================ =============== =============== Diluted Earnings per Share $ 0.72 $ 0.63 $ 1.53 $ 1.22 ================= ================ =============== =============== Dividends per Share $ 0.30 $ 0.26 $ 0.60 $ 0.52 ================= ================ =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. -2- CONSOLIDATED STATEMENTS OF CASH FLOWS IBT BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30, --------------------------------------- 2002 2001 --------------- ---------------- (unaudited) --------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,573,716 $ 3,648,539 Adjustments to reconcile net cash from operating activities: Depreciation 337,710 296,910 Net amortization/accretion of premiums and discounts 128,264 18,283 Net investment security gains (106,600) (233,943) Provision for loan losses 500,000 175,000 Increase (decrease) in cash due to changes in assets and liabilities: Other assets (1,011,375) 1,389,665 Accrued interest and other liabilities (1,896,312) (674,924) --------------- ---------------- Net Cash From Operating Activities 2,525,403 4,619,530 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificates of deposit - (1,500,000) Proceeds from maturity of certificates of deposit - 4,100,000 Proceeds from sales of securities available for sale 25,712,380 6,322,942 Proceeds from maturities of securities available for sale 30,819,565 50,946,736 Purchase of securities available for sale (59,499,776) (50,292,040) Net loans made to customers (18,052,537) (5,086,058) Purchases of premises and equipment (339,758) (157,420) Purchase of Federal Home Loan Bank stock (260,600) (137,500) --------------- ---------------- Net Cash (Used By) From Investing Activities (21,620,726) 4,196,660 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 27,756,656 12,969,704 Net increase in securities sold under repurchase agreement 1,577,796 2,208,640 Dividends paid (1,790,505) (1,559,824) Proceeds from FHLB advances 5,000,000 4,000,000 Purchase of treasury stock (258,513) (231,839) --------------- ---------------- Net Cash From Financing Activities 32,285,434 17,386,681 --------------- ---------------- Net Change in Cash and Cash Equivalents 13,190,111 26,202,871 Cash and Cash Equivalents at Beginning of Period 25,218,935 21,746,395 --------------- ---------------- Cash and Cash Equivalents at End of Period $ 38,409,046 $ 47,949,266 =============== ================
The accompanying notes are an integral part of these consolidated financial statements. -3- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IBT BANCORP, INC. AND SUBSIDIARY Period Ended June 30, 2002 NOTE A - BASIS OF PRESENTATION The accompanying unaudited 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, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002 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 on Form 10-K for the year ended December 31, 2001. 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 2,980,842 and 2,982,953 for the three and six months ended June 30, 2002, respectively and 2,996,943 and 2,999,397 for the three and six months ended June 30, 2001, respectively. NOTE C - COMPREHENSIVE INCOME Total comprehensive income for the three months ended June 30, 2002 and 2001 was $4,110,928 and $1,516,357, respectively and for the six months ended June 30, 2002 and 2001 was $5,407,171 and $4,808,002, respectively. NOTE D - INVESTMENT SECURITIES Investment securities available for sale consist of the following:
June 30, 2002 ------------------------------------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------------ ----------------- ----------------- ------------------ Obligations of U.S. Government Agencies $ 78,916,280 $ 1,417,757 $ (571,670) $ 79,762,367 Obligations of State and political sub-divisions 37,408,710 1,267,114 (13,273) 38,662,551 Mortgage-backed securities 44,491,395 1,071,483 - 45,562,878 Other securities 518,824 37,069 - 555,893 Equity securities 443,353 88,682 - 532,035 ----------------- ---------------- ---------------- ------------------ $ 161,778,562 $ 3,882,105 $ (584,943) $ 165,075,724 ================= ================ ================ ==================
-4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Period Ended June 30, 2002 NOTE E - STOCK OPTION PLAN In May 2002, 35,500 additional stock options were granted to employees and directors under the 2000 Stock Option Plan at an exercise price of $32.88 per share. Stock options granted to directors become exercisable six months after the grant date and employee stock options become exercisable as vested over a three-year period. As of June 30, 2002, 129,500 stock options have been granted, of which 63,666 are exercisable as follows: 46,666 are exercisable at $24.50 per share and 17,000 are exercisable at $23.00 per share. -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, and general economic conditions. OVERVIEW On July 30, 2002 the President signed into law the Sarbanes-Oxley Act of 2002 (the "Act"), following an investigative order proposed by the SEC on chief financial officers and chief executive officers of 947 large public companies on June 27, 2002. Additional regulations are expected to be promulgated by the SEC. As a result of the accounting restatements by large public companies, the passage of the Act and regulations expected to be implemented by the SEC, publicly-registered companies, such as the Company, will be subject to additional reporting regulations and disclosure. These new regulations, which are intended to curtail corporate fraud, will require certain officers to personally certify certain SEC filings and financial statements and may require additional measures to be taken by our outside auditors, officers and directors. The loss of investor confidence in the stock market and the new laws and regulations will increase non-interest expenses of the Company and could adversely affect the prices of publicly-traded stocks, such as the Company. 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"). FINANCIAL CONDITION On June 30, 2002, total assets increased $36.3 million, or 6.9%, to $560.3 million from $524.0 million at December 31, 2001. The growth in assets resulted primarily from the net increase of $13.2 million in cash and cash equivalents (primarily federal funds sold) and $17.4 million in net loans. The increase in federal funds sold at June 30, 2002 was mainly the result of increases in deposit accounts, loan repayments, and proceeds from sales and maturities of securities available for sale. The Company expects to use these funds to meet anticipated future loan demand. At June 30, 2002, increases in the loan portfolio were mainly attributed to growth in real estate secured mortgage loans of $24.0 million, which consisted primarily of $15.2 million in commercial real estate loans and $6.5 million in one to four family real estate loans. Such increases in loans were primarily offset by decreases of $2.7 million in commercial loans and $2.6 million in installment loans. At June 30, 2002, total liabilities increased $32.9 million, or 6.9%, to $507.2 million from $474.3 million at December 31, 2001. This increase was primarily the result of interest-bearing deposits, which rose $22.4 million to $374.7 million from $352.3 million at December 31, 2001. The growth was mainly the result of increases in savings accounts (including money market accounts) of $13.4 million, certificate of deposit accounts of $4.6 million, and interest bearing checking accounts of $4.4 million. Total interest bearing deposit growth was attributed to depositors maintaining higher balances and an increase in the number of deposit accounts. -6- Non-interest bearing deposits (including repurchase agreements) increased $7.0 million to $88.3 million at June 30, 2002 from $81.3 million at December 31, 2001. At June 30, 2002, total stockholders' equity increased $3.4 million to $53.1 million from $49.7 million at December 31, 2001. The increase was due to net income of $4.5 million for the period and an increase of $900,000 in accumulated other comprehensive income (net of income taxes), offset by the purchase of $200,000 of Company stock, and dividends paid of $1.8 million. Accumulated other comprehensive income increased as a result of changes in the net unrealized gain on the available for sale securities due to fluctuations in interest rates. Because of interest rate volatility, the Company's accumulated other comprehensive income could materially fluctuate for each interim period and year-end. See Note D to the consolidated financial statements. RESULTS OF OPERATIONS Net income. Net income for the three months ended June 30, 2002 increased $200,000, or 13.8%, to $2.1 million from $1.9 million for the comparable three month period in 2001. Net income for the six months ended June 30, 2002 increased $1.0 million to $4.6 million from $3.6 million for the comparable six month period in 2001. The increases for the three and six months ended June 30, 2002 was the result of higher net interest income and other income offset by increases in other expenses. Interest income. Interest income for the three months ended June 30, 2002 decreased $600,000 to $8.3 million from $8.9 million for the comparable three month period in 2001. While the average balances of interest earning assets increased $20.6 million for the three months ended June 30, 2002, to $513.8 million from $493.2 million for the comparable period in 2001, the yield on these assets decreased 71 basis points to 6.50%, for the three months ended June 30, 2002 from 7.21% for the comparable period in 2001. Interest income for the six months ended June 30, 2002 decreased $1.2 million to $16.6 million from $17.8 million for the comparable period in 2001. The average balance of interest earning assets increased $24.1 million to $508.5 million, for the six months ended June 30, 2002 from $484.4 million for the comparable 2001 period. However, the average yield on these assets decreased 82 basis points to 6.51% for the six months ended June 30, 2002, from 7.33% for the comparable 2001 period. The reduction in short term interest rates by the Federal Reserve contributed to the decline in average yields in both the three and six month periods in 2002. See "Average Balance Sheet and Rate/Volume Analysis" Interest expense. Interest expense for the three months ended June 30, 2002 decreased $1.2 million to $3.2 million from $4.4 million for the comparable period in 2001. The change was primarily attributed to a 144 basis point decrease in the average cost of -7- funds to 3.03% for the three months ended June 30, 2002 from 4.47% for the comparable period in 2001 offset by a $21.4 million increase in the average balance of interest bearing liabilities. Interest expense for the six months ended June 30, 2002 decreased $2.5 million to $6.4 million from $8.9 million for the comparable 2001 period. Such change was primarily the result of a 147 basis point decrease in the average cost of funds to 3.09% for the six months ended June 30, 2002 from 4.56% for the comparable six month period in 2001 offset by a $21.9 million increase in the average balance of interest bearing liabilities. The reduction of average cost of funds for the three and six month periods ended June 30, 2002 is reflective of the significant decrease in interest rates over the past year by the Federal Reserve. See "Average Balance Sheet and Rate/Volume Analysis" Average Balance Sheet The following table sets forth certain information relating to the company for the periods indicated. The average yields and costs are derived by dividing income or expense on an annualized basis by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from average daily balances.
----------------------------------------------------------------------- Three Months Ended June 30, Three Months Ended June 30, ----------------------------------------------------------------------- 2002 2001 ---- ---- ----------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ----------------------------------------------------------------------- (In Thousands) (In Thousands) ----------------------------------------------------------------------- Interest-earning assets: Loans receivable (1) $327,080 $6,080 7.44% $301,070 6,099 8.10% Investment securities available for sale (2) 167,417 2,178 5.20% 169,792 2,548 6.00% Other interest-earning assets (5) 19,299 86 1.78% 22,346 239 4.29% -------- ------ -------- ------ Total interest earning assets $513,796 $8,344 6.50% $493,208 $8,886 7.21% ======== ====== ==== ======== ====== ==== Non-interest earning assets 30,504 19,096 -------- -------- Total assets $544,300 $512,304 ======== ======== Interest-bearing liabilities: Money market accounts 61,025 314 2.06% 56,039 464 3.31% Certificates of Deposit 196,367 1,910 3.89% 202,563 2,936 5.80% Other liabilities 160,011 937 2.34% 137,396 1,026 2.99% -------- ------ -------- ------ Total interest-bearing liabilities $417,403 $3,161 3.03% $395,998 $4,426 4.47% ======== ====== ==== ======== ====== ==== Non-interest-bearing liabilities 76,353 68,844 -------- -------- Total liabilities $493,756 $464,842 ======== ======== Retained Earnings (6) 50,544 47,462 -------- -------- Total liabilities and stockholders' equity $544,300 $512,304 ======== ======== Net interest income $5,183 $4,460 ====== ====== Interest rate spread (3) 3.47% 2.74% ==== ==== Net yield on interest-earning assets (4) 4.03% 3.62% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 123.09% 124.55% ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan fees. (2) Includes interest-bearing deposits in other financial institutions. (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents annualized net interest income as a percentage of average interest earning assets. (5) Consists of federal funds sold. (6) Includes capital stock, surplus and accumulated other comprehensive income, less treasury stock -8- Average Balance Sheet The following table sets forth certain information relating to the company for the periods indicated. The average yields and costs are derived by dividing income or expense on an annualized basis by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from average daily balances.
Six Months Ended June 30, Six Months Ended June 30, 2002 2001 ------------------------------------ ---------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost -------- -------- ---------- --------- -------- ---------- (In Thousands) (In Thousands) Interest-earning assets: Loans receivable(1) $322,097 $ 11,970 7.43% $ 299,518 $ 12,151 8.11% Investment securities available for sale (2) 171,819 4,453 5.18 170,778 5,289 6.19 Other interest-earning assets(5) 14,621 128 1.75 14,148 317 4.48 --------- -------- --------- -------- Total interest earning assets $ 508,537 $ 16,551 6.51% $ 484,444 $ 17,757 7.33% ========= ======== ====== ========= ======== ====== Non-interest earning assets 28,725 18,928 --------- --------- Total assets $ 537,262 $ 503,372 ========= ========= Interest-bearing liabilities: Money market accounts 59,471 612 2.06% 55,168 967 3.50% Certificates of Deposit 197,296 3,928 3.98% 202,607 5,951 5.87% Other liabilities 155,269 1,828 2.36% 132,320 1,979 2.99% --------- -------- --------- -------- Total interest-bearing liabilities $ 412,036 $ 6,368 3.09% $ 390,095 $ 8,897 4.56% ========= ======== ====== ========= ======== ====== Non-interest-bearing liabilities 74,945 67,182 --------- --------- Total liabilities $ 486,981 $ 457,277 ========= ========= Retained Earnings (6) $ 50,281 $ 46,095 ========= ========= Total liabilities and stockholder's equity $ 537,262 $ 503,372 ========= ========= Net interest income $ 10,183 $ 8,860 ========= ======== Interest rate spread (3) 3.42% 2.77% ====== ====== Net yield on interest-earning assets (4) 4.00% 3.66% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 123.42% 124.19% ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan fees. (2) Includes interest-bearing deposits in other financial institutions. (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents annualized net interest income as a percentage of average interest earning assets. (5) Consists of federal funds sold. (6) Includes capital stock, surplus and accumulated other comprehensive income, less treasury stock. -9- Rate / Volume Analysis The following table shows the effect of changes in volumes and rates on interest income and interest expense. The changes in interest income and interest expense attributable to changes in both volume and rate have been allocated to the changes due to rate. Tax exempt income was not recalculated on a tax equivalent basis due to the immateriality of the change to the table resulting from a recalculation.
Three Month Period ended June 30, 2002 Six Month Period ended June 30, 2002 ----------------------------------------------------------------------------------- 2002 vs. 2001 2002 vs. 2001 ------------- ------------- Increase (Decrease) Increase (Decrease) Due to Due to ------ ------ Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- (In Thousands) (In Thousands) Interest income: Loans receivable 527 (546) (19) 916 (1,097) (181) Investment securities available for sale (35) (335) (370) 32 (868) (836) Other interest earning assets (32) (121) (153) 11 (200) (189) Total interest-earning assets 460 (1,002) (542) 959 (2,165) (1,206) === ====== ==== === ====== ====== Interest expense: Money market accounts 42 (193) (151) 75 (430) (355) Certificates of deposit (90) (936) (1,026) (156) (1,867) (2,023) Other liabilities 168 (256) (88) 343 (494) (151) Total interest-bearing liabilities 120 (1,385) (1,265) 262 (2,791) (2,529) === ====== ====== === ====== ====== Net change in interest income 340 383 723 697 626 1,323 === === === === === =====
-10- Provision for loan losses. For the three and six months ended June 30, 2002 the provision for loan losses was $250,000 and $500,000, respectively, compared to $100,000 and $175,000, respectively, for the comparable 2001 periods. The $150,000 increase for the three months ended June 30, 2002 was precipitated by net charge offs to the allowance for loan losses of $341,000. Such charge-offs relate primarily to two commercial loans of which one was charged down to 90% of its appraised value prior to being taken into the Company's other real estate and the other charged-off in its entirety based on the Company's evaluation. The $325,000 increase for the six months ended June 30, 2002 was also the result of increases to the commercial real estate portfolio. 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 time. The Company continues 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 at the balance sheet date to provide for the inherent risk of loss in its loan portfolio, there can be no assurance that 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, 2002 increased $300,000 to $1.3 million from $1.0 million for the comparable three month period in 2001. Total other income for the six months ended June 30, 2002 increased $800,000 -11- to $2.6 million from $1.8 million for the comparable period in 2001. The increase in other income for the three and six months ended June 30, 2002 is mostly due to an increase in service fees and other income offset by a decrease in gains on securities available for sale. Service fees for the three and six months ended June 30, 2002 increased $118,000 and $400,000, respectively as a result of fees collected for rate modifications on existing loans and an increase in the charge and volume of returned checks. Other income for the three months ended June 30, 2002 increased $210,000 from the comparable 2001 period as a result of increased income recorded on bank owned life insurance, originally purchased by the Bank in December 2001, of $138,000, income generated from the use of the Bank's debit card and ATM usage which increased $42,000, and insurance revenues from the Company's title insurance company which increased $13,000, respectively. Other income for the six months ended June 30, 2002 increased $500,000 from the comparable 2001 period as a result of increased income recorded on bank owned life insurance of $272,000, income generated from the use of the Bank's debit card and ATM usage which increased $72,000, and insurance revenues from the Company's title insurance company which increased $26,000, respectively. Additionally, for the six months ended June 30, 2002 other income increased $102,000, from the comparable period in 2001, due to a gain on the sale of foreclosed property. Net Investment security gains for the three and six months ended June 30, 2002 fell $100,000 and $127,000, respectively, from the comparable period in 2001. Other expense. Total other expense for the three and six month period ended June 30, 2002 increased $500,000 and $700,000, respectively to $3.3 million and $6.1 million from $2.8 million and $5.4 million, respectively for the comparable three and six month period in 2001. Salaries and benefits increased $300,000 and $400,000, respectively from the comparable periods in 2001 due to increases in salaries and benefits and additional staffing. Occupancy expense for the three and six months ended June 30, 2002 increased $35,000 and $72,000, respectively, to $319,000 and $635,000 from $284,000 and $563,000, respectively, for the comparable three and six month periods in 2001. Such an increase for the three and six month period was mostly due to depreciation expense related to equipment purchases for technological improvements. Other expenses for the three and six month periods ended June 30, 2002 increased $157,000 and $200,000, respectively, to $930,000 and $1.8 million from $773,000 and $1.6 million for the comparable periods in 2001. Such increases were related to the normal cost of doing business. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no significant changes for the six months ended June 30, 2002 from the information presented in the 10K statement, under the caption Market Risk, for the year ended December 31, 2001. -12- 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 Disclosed in March 31, 2002 Form 10-Q. Item 5. Other Information Not applicable. -13-
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*** 99.0 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ------------------------- * 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 10K for December 31, 1999. *** Incorporated by reference to the definitive proxy statement of the registrant filed on March 17, 2000. (b) None.
-14- 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 12, 2002 By: /s/Charles G. Urtin ---------------------------------- Charles G. Urtin President, Chief Executive Officer And Chief Accounting Officer (Duly authorized officer) -15-