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, 2003 ------------- 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) (989) 772-9471 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock no par value, 4,370,267 as of July 24, 2003 --------------------------------------------------------
IBT BANCORP, INC. Index to Form 10-Q Part I Financial Information PAGE NUMBERS Item 1 Consolidated Financial Statements 3-8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-21 Item 3 Quantitative and Qualitative Disclosures About Market Risk 21-23 Item 4 Controls and Procedures 24 Part II Other Information Item 4 Submission of Matters to a Vote of Securities Holders 24 Item 6 Exhibits and Reports on Form 8-K 27 Signature 25 Exhibit 31, Section 302 25 Certification of CEO and CFO Exhibit 32, Section 906 28 Certification 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IBT BANCORP, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) <TABLE> <CAPTION> June 30 December 31 2003 2002 ---- ---- (Unaudited) <S> <C> <C> ASSETS Cash and demand deposits due from banks $ 33,980 $ 28,587 Federal funds sold 4,650 25,850 -------- -------- TOTAL CASH AND CASH EQUIVALENTS 38,630 54,437 Investment securities Securities available for sale (Amortized cost of $185,105 in 2003 and $153,499 in 2002) 190,752 157,909 Securities held to maturity (Fair value -- $1,336 in 2003 and $1,803 in 2002) 1,279 1,736 -------- -------- TOTAL INVESTMENT SECURITIES 192,031 159,645 Mortgage loans available for sale 13,261 13,392 Loans Agricultural 54,535 53,223 Commercial 130,359 143,957 Real estate mortgage 143,409 139,386 Installment 57,864 54,522 -------- -------- TOTAL LOANS 386,167 391,088 Less allowance for loan losses 6,044 5,593 -------- -------- NET LOANS 380,123 385,495 Other assets 40,644 39,748 -------- -------- TOTAL ASSETS $664,689 $652,717 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 70,231 $ 63,106 NOW accounts 107,448 111,195 Certificates of deposit and other savings 306,509 316,845 Certificates of deposit over $100 83,123 70,310 -------- -------- TOTAL DEPOSITS 567,311 561,456 Other borrowed funds 17,291 17,793 Accrued interest and other liabilities 12,335 10,011 -------- -------- TOTAL LIABILITIES 596,937 589,260 Shareholders' Equity Common stock -- no par value, 10,000,000 shares authorized; outstanding-- 4,353,298 in 2003 (4,336,283 in 2002) 46,146 45,610 Retained earnings 19,241 16,299 Accumulated other comprehensive income 2,365 1,548 -------- -------- TOTAL SHAREHOLDERS' EQUITY 67,752 63,457 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $664,689 $652,717 ======== ======== </TABLE> See notes to consolidated financial statements. 3
IBT BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (dollars in thousands) <Table> <Caption> Six Months Ended June 30 ----------------- 2003 2002 ---- ---- <S> <C> <C> NUMBER OF SHARES OF COMMON STOCK OUTSTANDING Balance at beginning of period 4,336,283 3,884,985 Stock dividend --- 388,757 Issuance of common stock 19,151 22,762 Common stock repurchased (2,136) (18,706) ----------- ----------- BALANCE END OF PERIOD 4,353,298 4,277,798 =========== =========== COMMON STOCK Balance at beginning of period $ 45,610 $ 31,017 Stock dividend --- 12,829 Issuance of common stock 613 569 Stock repurchased (77) (617) ----------- ----------- BALANCE END OF PERIOD 46,146 43,798 RETAINED EARNINGS Balance at beginning of period 16,299 24,788 Net income 3,898 3,363 Stock dividend --- (12,829) Cash dividends ($0.11 per share in 2003 and $0.10 in 2002) (956) (861) ----------- ----------- BALANCE END OF PERIOD 19,241 14,461 ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period 1,548 1,023 Unrealized gains on securities available for sale, net of income taxes and reclassification adjustment 817 708 ----------- ----------- BALANCE END OF PERIOD 2,365 1,731 ----------- ----------- TOTAL SHAREHOLDERS EQUITY END OF PERIOD $ 67,752 $ 59,990 =========== =========== </TABLE> See notes to consolidated financial statements. 4
IBT BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Six Months Ended (in thousands) June 30 June 30 --------- -------- 2003 2002 2003 2002 -------------------- ------------------ <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 7,360 $ 7,708 $14,877 $15,651 Investment securities Taxable 1,191 1,167 2,348 2,112 Nontaxable 495 441 989 848 Federal funds sold 73 117 169 289 ------- ------- ------- ------- TOTAL INTEREST INCOME 9,119 9,433 18,383 18,900 INTEREST EXPENSE Deposits 3,034 3,671 6,170 7,567 Federal funds purchased 204 179 391 354 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 3,238 3,850 6,561 7,921 ------- ------- ------- ------- NET INTEREST INCOME 5,881 5,583 11,822 10,979 Provision for loan losses 333 162 545 350 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,548 5,421 11,277 10,629 Noninterest income Trust fees 155 147 314 276 Service charges on deposit accounts 63 72 127 141 Other service charges and fees 864 526 2,034 1,035 Gain on sale of mortgage loans 819 162 1,483 420 Title insurance revenue 756 409 1,369 755 Other 316 256 600 513 ------- ------- ------- ------- TOTAL NONINTEREST INCOME 2,973 1,572 5,927 3,140 Noninterest expenses Salaries, wages and employee benefits 3,366 2,617 6,635 5,284 Occupancy 363 333 734 661 Furniture and equipment 574 556 1,114 1,080 Other 1,576 1,142 3,467 2,241 ------- ------- ------- ------- TOTAL NONINTEREST EXPENSES 5,879 4,648 11,950 9,266 INCOME BEFORE FEDERAL INCOME TAXES 2,642 2,345 5,254 4,503 Federal income taxes 686 596 1,356 1,140 ------- ------- ------- ------- NET INCOME $ 1,956 $ 1,749 $ 3,898 $ 3,363 ======= ======= ======= ======= Basic net income per share 0.45 $ 0.41 $ 0.90 $ 0.79 ======= ======= ======= ======= Cash dividends per share $ 0.11 $ 0.10 $ 0.22 $ 0.20 ======= ======= ======= ======= </TABLE> See notes to consolidated financial statements. 5
IBT BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 -------- -------- 2003 2002 2003 2002 --------------- --------------- <S> <C> <C> <C> <C> NET INCOME $1,956 $1,749 $3,898 $3,363 Other comprehensive income before income taxes: Unrealized gains on securities available for sale: Unrealized holding gains arising during period 824 1,691 1,238 1,073 Income taxes related to other comprehensive income 280 575 421 365 ------ ------ ------ ------ OTHER COMPREHENSIVE INCOME 544 1,116 817 708 ------ ------ ------ ------ COMPREHENSIVE INCOME $2,500 $2,865 $4,715 $4,071 ====== ====== ====== ====== </TABLE> See notes to consolidated financial statements. 6
IBT BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> (in thousands) Six Months Ended June 30 2003 2002 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 3,898 $ 3,363 Adjustments to reconcile net income to cash provided by operations: Provision for loan losses 545 350 Provision for depreciation 772 672 Net amortization of securities 734 470 Increase in cash value of life insurance (235) (233) Amortization of intangibles 47 47 Gain on sales of mortgage loans (1,483) (420) Proceeds from sales of mortgage loans 140,107 55,403 Mortgage loans originated for sale (138,493) (49,354) Decrease in interest receivable 237 304 Increase in other assets (964) (782) Increase in accrued interest and other expenses 2,324 904 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,489 10,724 INVESTING ACTIVITIES Activity in available for sale securities Maturities, calls, and sales 13,975 19,123 Purchases (46,428) (65,365) Activity in held to maturity securities Maturities, calls, and sales 570 754 Net decrease (increase) in loans 4,827 (3,541) Purchase of cash value life insurance --- (414) Purchases of equipment and premises (1,173) (1,435) --------- --------- NET CASH USED BY INVESTING ACTIVITIES (28,229) (50,878) FINANCING ACTIVITIES Net increase (decrease) in noninterest bearing deposits 7,125 (4,327) Net (decrease) increase in interest bearing deposits (1,270) 28,449 Net (decrease) increase in other borrowed funds (502) 1,251 Cash dividends (956) (861) Proceeds from the issuance of common stock 613 569 Common stock repurchased (77) (617) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,933 24,464 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (15,807) (15,690) Cash and cash equivalents at beginning of period 54,437 55,462 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,630 $ 39,772 ========= ========= </TABLE> See notes to consolidated financial statements. 7
IBT BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. 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, 2002. NOTE 2 COMPUTATION OF EARNINGS PER SHARE The net income per share amounts are based on the weighted average number of common shares outstanding. The weighted average number of common shares outstanding were 4,349,692 and 4,276,788 for the six month periods ending June 30, 2003 and 2002, respectively. The Corporation has no common stock equivalents and, accordingly, presents only basic earnings per share. NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued Financial Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities." This standard clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," and addresses consolidation by business enterprises of variable interest entities (more commonly known as Special Purpose Entities or SPE's). FIN No. 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN No. 46 also enhances the disclosure requirements related to variable interest entities. The Interpretation is effective for interests in variable interest entities created after January 31, 2003. For interests in variable interest entities created before February 1, 2003, the Interpretation shall apply to the first interim or annual reporting period beginning after June 15, 2003. While the precise impact of adoption of FIN No. 46 on consolidated results of operations, financial position and cash flows has not been determined, its effect is not expected to be material. In April 2003 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149 which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, clarifies when a derivative contains a 8
financing component, amends the definition of an underlying to conform to language used in FASB Interpretation No. 45, and amends certain other existing pronouncements. This statement is effective for contracts entered into or modified after June 30, 2003. It is not expected that the provisions of Statement No. 149 will have a material impact on the financial position or results of operations of the Corporation. In May 2003 the FASB issued SFAS No. 150, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. It is not expected that provisions of Statement No. 150 will have a material impact on the financial position or results of operations of the Corporation. 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 2002 annual report and with the unaudited financial statements and notes, as set forth on pages 3 through 8 of this report. CRITICAL ACCOUNTING POLICIES: The Corporation's significant accounting policies are set forth in Note 1 of the Consolidated Financial Statements included in the Corporation's Annual Report for the year ended December 31, 2002. Of these significant accounting policies, the Corporation considers its policies regarding the allowance for loan losses and servicing assets to be its most critical accounting policies. The allowance for loan losses requires management's most subjective and complex judgment. Changes in economic conditions can have a significant impact on the allowance for loan losses and therefore the provision for loan losses and results of operations. The Corporation has developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio. The Corporation's assessments may be impacted in future grace periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers which is not known to management at the time of the issuance of the consolidated financial statements. For additional discussion concerning the Corporation's allowance for loan losses and related matters, see Provision for Loan Losses and Allowance for Loan Losses in the Corporation's Annual Report and herein. Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are amortized in proportion to and over the period of estimated future net servicing income. The fair value of servicing assets is estimated by discounting the future cash flows at estimated future current market rates for the expected life of the loans. The Corporation uses industry prepayment statistics in estimating the expected life of the loan. Management periodically 9
evaluates servicing assets for impairment. For purposes of measuring impairment, the rights are stratified based on original term to maturity. The amount of impairment recognized is the amount by which the servicing asset for a stratum exceeds its fair value. SIX MONTHS ENDED JUNE 30, 2003 AND 2002 RESULTS OF OPERATIONS Net income equaled $3.90 million for the six month period ended June 30, 2003 versus $3.36 million in 2002. Return on average assets, which measures the ability of the Corporation to profitably and efficiently employ its resources, was 1.19% for the first six months of 2003 and 1.10% in 2002. Return on average equity, which indicates how effectively the Corporation is able to generate earnings on shareholder invested capital, equaled 12.19% through June 30, 2003 versus 11.70% for the same period in 2002. SUMMARY OF SELECTED FINANCIAL DATA - ---------------------------------- (Dollars in thousands except per share data) <TABLE> <CAPTION> Six Months Ended June 30 2003 2002 ---------------- INCOME STATEMENT DATA <S> <C> <C> Net interest income $11,822 $10,979 Provision for loan losses 545 350 Net income 3,898 3,363 PER SHARE DATA Net income per common share 0.90 0.79 Cash dividends per common share 0.22 0.20 RATIOS Average primary capital to average assets 10.56% 10.25% Net income to average assets 1.19 1.10 Net income to average equity 12.19 11.70 </TABLE> NET INTEREST INCOME Net interest income equals interest income less interest expense and is the primary source of income for IBT Bancorp. Interest income includes loan fees of $897,000 in 2003 versus $747,000 in 2002. 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. (Continued on page 13) 10
TABLE 1 IBT BANCORP, INC. AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME - ------------------------------------------------------- (Dollars in Thousands) The following schedules present the daily average amount outstanding for each major category of interest earning assets, nonearning assets, interest bearing liabilities, and noninterest bearing liabilities. This schedule also presents an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a fully taxable equivalent (FTE) basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following computations, are included in the average loan amounts outstanding. Federal Reserve and Federal Home Loan Bank restricted equity holdings are included in Other Investments. <TABLE> <CAPTION> Six Months Ended June 30, 2003 June 30, 2002 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 $ 392,870 $14,879 7.57% $ 387,281 $15,656 8.09% Taxable investment securities 121,825 2,296 3.77 87,703 2,032 4.63 Nontaxable investment securities 48,161 1,590 6.60 42,608 1,285 6.03 Federal funds sold 28,515 169 1.19 34,629 288 1.66 Other investments 2,817 52 3.69 2,722 81 5.95 --------- ------- ----- --------- ------- ------ Total Earning Assets 594,188 18,986 6.39 554,943 19,342 6.97 NONEARNING ASSETS Allowance for loan losses (5,855) (5,587) Cash and due from banks 26,399 22,267 Premises and equipment 15,444 14,852 Accrued income and other assets 24,740 23,260 --------- --------- TOTAL ASSETS $ 654,916 $ 609,735 ========= ========= INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 113,568 590 1.04 $ 93,259 717 1.54 Savings deposits 140,082 752 1.07 136,775 1,209 1.77 Time deposits 251,508 4,827 3.84 246,138 5,681 4.62 Borrowed funds 16,029 391 4.88 12,370 314 5.08 --------- ------- ----- --------- ------- ------ Total Interest Bearing Liabilities 521,187 6,560 2.52 488,542 7,921 3.24 NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 59,226 56,238 Other 10,573 7,450 Shareholders' equity 63,930 57,505 --------- --------- TOTAL LIABILITIES AND EQUITY $ 654,916 $ 609,735 ========= ========= ------- ------- Net interest income (FTE) $12,426 $11,421 ======= ======= ----- ------ Net yield on interest earning assets (FTE) 4.18% 4.12% ===== ====== </TABLE> 11
TABLE 2 IBT BANCORP, INC. VOLUME AND RATE VARIANCE ANALYSIS - --------------------------------- (Dollars in Thousands) The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows: Volume Variance - change in volume multiplied by the previous year's rate. Rate Variance - change in the fully taxable equivalent (FTE) rate multiplied by the prior year's volume. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. <TABLE> <CAPTION> Six Month Period Ended June 30, 2003 Compared to June 30, 2002 Increase (Decrease) Due to ------------------------------------------- Volume Rate Net ------ ---- ---- <S> <C> <C> <C> CHANGES IN INTEREST INCOME Loans $ 224 $ (1001) $ (777) Taxable investment securities 691 (427) 264 Nontaxable investment securities 177 128 305 Federal funds sold (46) (73) (119) Other investments 2 (31) (29) ------- ------- ------- Total changes in interest income 1,048 (1,404) (356) Total changes in interest expense 374 (1,735) (1,361) ------- ------- ------- NET CHANGE IN INTEREST MARGINS (FTE) $ 674 $ 331 $ 1,005 ======= ======= ======= </TABLE> 12
NET INTEREST INCOME, CONTINUED As shown in Tables number 1 and 2, when comparing the six month period ending June 30, 2003 to the same period in 2002, fully taxable equivalent (FTE) net interest income increased $1.01 million or 8.8%. An increase of 7.1% in average interest earning assets provided $1.05 million of FTE interest income. The majority of this growth was funded by a 6.7% increase in interest bearing liabilities, resulting in $374,000 of additional interest expense. Overall, changes in volume resulted in $674,000 of additional FTE interest income. The average FTE interest rate earned on assets decreased by 0.58%, while the amount of interest earned as a result of changes in rate decreased $1.40 million. The average rate paid on deposits decreased by 0.72%, decreasing interest expense by $1.74 million. The net change related to interest rates earned and paid was a $331,000 increase in FTE net interest income. The Corporation's FTE net interest yield as a percentage of average earning assets equaled 4.18% during the first six months of 2003 versus 4.12% for the same period in 2002. The 0.06% increase in the FTE interest margin was primarily a result of a shift in the funding of earning assets from higher cost time deposits and borrowing to lower cost saving and demand deposits. Time deposits and borrowing as a percentage of average earning assets for the six month periods ending June 30, 2003 and 2002 were 45.0% and 46.6%, or a 1.6% decline. Another factor in the increase in the Corporation's net interest margin was aggressively repricing deposits as interest rates continued their decline. PROVISION FOR LOAN LOSSES The viability of any financial institution is ultimately determined by its management of credit risk. Net loans outstanding represent 59% of the Corporation's total assets and is the Corporation's single largest concentration of risk. The allowance for loan losses is management's estimation of potential future losses inherent in the existing loan portfolio. Factors used to evaluate the loan portfolio, and thus to determine the current charge to expense, include recent loan loss history, financial condition of borrowers, amount of nonperforming and impaired loans, overall economic conditions, and other factors. Comparing the year to date period of June 30, 2003 to June 30, 2002, the provision for loan losses was increased $195,000 to $545,000. Year to date 2003, the Corporation had net charge-offs of $94,000 in 2003 versus $181,000 in 2002. Loans classified as nonperforming were 1.23% of loans as of June 30, 2003 versus 1.21% for June 30, 2002. The Corporation's peer group, which includes 255 holding companies with assets between $500 million and $1.0 billion, nonperforming loans to total loans ratio was 0.84% as of March 31, 2003. As of June 30, 2003, the allowance for loan losses as a percentage of loans equaled 1.51%. In management's opinion, the allowance for loan losses is adequate as of June 30, 2003. 13
TABLE 3 IBT BANCORP, INC. SUMMARY OF LOAN LOSS EXPERIENCE - ------------------------------- (Dollars in Thousands) <TABLE> <CAPTION> Six Months Ended June 30 ------------------------------ 2003 2002 ------- ------- <S> <C> <C> Summary of changes in allowance Allowance for loan losses - January 1 $ 5,593 $ 5,471 Loans charged off (296) (354) Recoveries of charged off loans 202 173 ------- ------- Net loans charged off (94) (181) Provision charged to operations 545 350 ------- ------- ALLOWANCE FOR LOAN LOSSES - JUNE 30 $ 6,044 $ 5,640 ======= ======= ALLOWANCE FOR LOAN LOSSES AS A % OF LOANS 1.51% 1.43% ======= ======= </Table> NONPERFORMING LOANS ---------------------- (Dollars in thousands) <Table> <Caption> June 30 ----------------------------- 2003 2002 ------- ------- <S> <C> <C> Total amount of loans outstanding for the period $399,428 $395,595 ======== ======== Nonaccrual loans $ 1,724 $ 2,848 Accruing loans past due 90 days or more 3,181 1,939 -------- -------- Total $ 4,905 $ 4,787 ======== ======== Loans classified as nonperforming as a % of outstanding loans 1.23% 1.21% ======== ======== </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. 14
NONINTEREST INCOME Noninterest income consists of trust fees, deposit service charges, fees for other financial services, gains on the sale of mortgage loans, title insurance revenue, and other. There was a $2.8 million increase in fees earned from these sources during the first six months of 2003 when compared to the same period in 2002. Significant individual account changes during this period include a $614,000 increase from the sale of title insurance and related services, a $1.1 million increase in gains on the sale of mortgage loans, a $385,000 increase in NSF and overdraft fees, and a $513,000 increase in sold mortgage servicing income. Of the $614,000 in title insurance revenue, $497,000 is a result of IBT Title and Insurance purchase of Benchmark Title of Greenville on July 1, 2002. The Corporation has established a policy that all 15 and 30 year amortized fixed rate mortgage loans will be sold. The calculation of gains on the sale of mortgages exclude at least 25 basis points allocated to the value of servicing rights on these loans. Included in other operating income is a $1.5 million gain from the sale of $140.1 million in mortgages during the first six months of 2003 versus a $420,000 gain on the sale of $55.4 million in mortgages for the same period in 2002. NONINTEREST EXPENSES Noninterest expenses increased $2.7 million or 29.0% during the first six months of 2003 when compared to 2002. The largest component of noninterest expense is salaries and employee benefits, which increased $1.35 million or 25.6%. In addition to increases resulting from additional staffing and normal merit and promotional salary adjustments, the Corporation incurred $208,000 of salary and benefit expense as a result of its acquisition of Benchmark Title and a 30% increase in medical and pension expense costs. Occupancy and furniture and equipment expenses increased $107,000 or 6.1% in 2003. The majority of this increase is related to equipment and building depreciation, service contracts, and property tax expense. Other expenses increased by $1.2 million or 54.7%. Of this amount, $1.0 million is related to an accrual for a charitable donation to Isabella Bank and Trust's Community Foundation. QUARTER ENDED JUNE 30, 2003 AND 2002 RESULTS OF OPERATIONS Net income equaled $1.96 million for the second quarter in 2003 versus $1.75 million in 2002. Return on average assets equaled 1.19% for the second quarter of 2003 versus 1.13% for the same period in 2002. Return on average equity equaled 11.98% for the second quarter in 2003, versus 12.08% for the second quarter in 2002. 15
SUMMARY OF SELECTED FINANCIAL DATA - ---------------------------------- (Dollars in thousands except per share data) <TABLE> <CAPTION> Three Months Ended June 30 ------------------------------ 2003 2002 ------------------------------ INCOME STATEMENT DATA <S> <C> <C> Net interest income $5,881 $5,583 Provision for loan losses 333 162 Net income 1,956 1,749 PER SHARE DATA Net income per common share $ 0.45 $ 0.41 Cash dividend per common share 0.11 .10 RATIOS Average primary capital to average assets 10.75% 10.20% Net income to average assets 1.19 1.13 Net income to average equity 11.98 12.08 </TABLE> NET INTEREST INCOME When comparing the second quarter of 2003 to 2002, net FTE interest income increased $331,000. An increase of 6.0% in interest earning assets provided $404,000 of FTE interest income. The asset growth was funded primarily by a 5.2% increase in interest bearing liabilities, resulting in $145,000 of increased interest expense. Overall, increased volume resulted in $259,000 of additional FTE interest income. During the second quarter of 2003, the average FTE interest rate earned on assets decreased by 0.58% and the average rate paid on deposits decreased by 0.62%. The changes in interest rates earned and paid resulted in a $72,000 increase in FTE interest income. The Corporation's FTE net interest yield as a percentage of average earning assets decreased 0.01% to 4.12% in the second quarter of 2003. The primary factor for the decrease was a substantial shift of earning assets from loans to taxable investment securities. As a percentage of average assets, loans to total earning assets declined from 68.8% in the second quarter of 2002 to 65.6% in 2003 with approximately a similar increase in lower yielding taxable investments. PROVISION FOR LOAN LOSSES The amount provided for loan losses in the second quarter of 2003 was $333,000 versus $162,000 in 2002. During the second quarter of 2003 the Corporation had net charge-offs of $158,000 versus $117,000 during the same period of 2002. The allowance for loan losses as a percent of loans was 1.51% as of June 30, 2003, a 0.08% increase since June 30, 2002. NONINTEREST INCOME Noninterest income earned in the second quarter of 2003, when compared to the same period in 2002, increased $1.40 million or 89.1%. The most significant changes were a $347,000 increase from the sale of title insurance and related services, a $657,000 increase in gains on the sale of mortgage loans, an $85,000 increase in mortgage servicing income, and a $196,000 increase in overdraft fees. 16
TABLE 4 IBT BANCORP, INC. AVERAGE BALANCES; INTEREST RATE AND NET INTEREST INCOME - ------------------------------------------------------- (Dollars in Thousands) The following schedules present the daily average amount outstanding for each major category of interest earning assets, nonearning assets, interest bearing liabilities, and noninterest bearing liabilities. This schedule also presents an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a fully taxable equivalent (FTE) basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following computations, are included in the average loan amounts outstanding. Federal Reserve and Federal Home Loan Bank restricted stock is included in other investments. <TABLE> <CAPTION> Quarter Ended June 30, 2003 June 30, 2002 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 $ 391,112 $ 7,361 7.53% $ 386,763 $ 7,708 7.97% Taxable investment securities 128,505 1,139 3.55 100,127 1,125 4.49 Nontaxable investment securities 48,360 792 6.55 45,373 668 5.89 Federal funds sold 25,087 77 1.23 27,370 116 1.70 Other 2,852 9 1.26 2,748 43 6.26 --------- ------- ----- --------- --------- ---- TOTAL EARNING ASSETS 595,916 9,378 6.29 562,381 9,660 6.87 NONEARNING ASSETS Allowance for loan losses (5,976) (5,647) Cash and due from banks 27,009 22,326 Premises and equipment 15,422 14,716 Accrued income and other assets 24,951 23,976 --------- --------- TOTAL ASSETS $ 657,322 $ 617,752 ========= ========= INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 110,300 283 1.03 $ 95,029 338 1.42 Savings deposits 141,983 369 1.04 138,447 587 1.70 Time deposits 252,295 2,381 3.77 249,050 2,786 4.47 Borrowed funds 16,257 204 5.02 12,494 139 4.45 --------- ------- ----- --------- --------- ---- TOTAL INTEREST BEARING LIABILITIES 520,835 3,237 2.49 $ 495,020 3,850 3.11 NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS EQUITY Demand deposits 60,023 56,915 Other 11,158 7,897 Shareholders' equity 65,306 57,920 --------- --------- TOTAL LIABILITIES AND EQUITY $ 657,322 $ 617,752 ========= ========= ------- --------- NET INTEREST INCOME (FTE) $ 6,141 $ 5,810 ======= ========= ----- ---- NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.12% 4.13% ===== ==== </TABLE> 17
TABLE 5 IBT BANCORP, INC. VOLUME AND RATE VARIANCE ANALYSIS - --------------------------------- (Dollars in Thousands) The following table sets forth the effect of volume and rate changes on interest income and 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, 2003 Compared to June 30, 2002 Increase (Decrease) Due to --------------------------- Volume Rate Net ------ ---- --- CHANGES IN INTEREST INCOME <S> <C> <C> <C> Loans $ 86 $(433) $(347) Taxable investment securities 280 (266) 14 Nontaxable investment securities 46 78 124 Federal funds sold (9) (30) (39) Other 1 (35) (34) ----- ----- ----- Total changes in interest income 404 (686) (282) Total changes in interest expense 145 (758) (613) ----- ----- ----- Net Change in Interest Margin (FTE) $ 259 $ 72 $ 331 ===== ===== ===== </TABLE> 18
NONINTEREST EXPENSES Noninterest expenses increased $1.23 million or 26.5% during the second quarter of 2003 when compared to 2002. Noninterest expense includes salary and benefits, occupancy, and other operating expenses. The largest component of noninterest expense is salaries and employee benefits, which increased $749,000 or 28.6%. The increase is related to normal merit and promotional salary increases, increases in medical and pension expenses, and the addition of Benchmark Title in the third quarter of 2002. Occupancy and furniture and equipment expenses increased $48,000 or 5.4%. The majority of this increase is associated with increased building and equipment depreciation. Other operating expenses increased $434,000 or 62.1%. The most significant changes include a $55,000 increase in title insurance expense and a $340,000 increase in donation expense. For additional information regarding the increased donation expense, please see page 15 under the caption Noninterest Expense. ANALYSIS OF CHANGES IN FINANCIAL CONDITION Since December 31, 2002, total assets increased $12.0 million to $664.7 million. As of June 30, 2003, total loans decreased $5.1 million, cash and demand deposits due from bank increased $5.4 million, federal funds sold decreased $21.2 million, and investment securities increased $32.4 million when compared to December 31, 2002. Deposits during this period increased $5.9 million, and shareholders' equity increased $4.3 million. LIQUIDITY Liquidity management is designed to have adequate resources available to meet depositor and borrower discretionary demands for funds. Liquidity is also required to fund expanding operations, investment opportunities, and 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, 2003, cash and cash equivalents as a percentage of total assets equaled 5.8%, versus 8.3% as of December 31, 2002. During the first six months of 2003, $7.5 million in net cash was provided from operations and $4.9 million was provided from financing activities. Investing activities used $28.2 million. The accumulated effect of the Corporation's operating, investing and financing activities was a $15.8 million decrease in cash and cash equivalents during the first six months of 2003. In addition to cash and cash equivalents, investment securities available for sale are another source of liquidity. Securities available for sale were $190.8 million as of June 30, 2003 and $157.9 million as of December 31, 2002. The Corporation's liquidity is considered adequate by management. CAPITAL The capital of the Corporation consists solely of common stock and retained earnings, increased by accumulated other comprehensive income; and increased approximately $4.3 million since December 31, 2002. 19
CAPITAL, CONTINUED There are no significant capital regulatory constraints placed on the Corporation's capital. The Federal Reserve Board's current recommended minimum tier 1 and tier 2 average assets requirement is 6.0%. The Corporation's tier 1 and tier 2 capital to assets, which consists of shareholder's equity plus the allowance for loan losses less unamortized acquisition intangibles, was 10.5% as of June 30, 2003. 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, 2003: PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS <Table> <Caption> IBT Bancorp Actual Required 06/30/03 -------- -------- <S> <C> <C> Equity Capital 4.00% 14.70% Secondary Capital* 4.00 1.25 ----- ------ Total Capital 8.00% 15.95% ===== ====== </Table> o IBT Bancorp's secondary capital consists solely of the allowance for loan losses. The percentage for the secondary capital under the required column is the maximum allowed from all sources. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET ARRANGEMENTS The Corporation is party to financial instruments with off-balance-sheet risk. These instruments are entered into in the normal course of business to meet the financing needs of its customers. These financial instruments, which include commitments to extend credit and standby letters of credit, involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in a particular class of financial instruments. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in deciding to make these commitments as it does for extending loans to customers. Commitments to extend credit, which totaled $55.0 million at June 30, 2003, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have variable interest rates, fixed expiration dates, or other termination clauses and may require the payment 20
of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions. At June 30, 2003, the Corporation had a total of $613,000 in outstanding standby letters of credit. Generally, these commitments to extend credit and letters of credit mature within one year. The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon the extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and other income producing commercial properties. The Corporation sponsors the IBT Foundation (the "Foundation"), which is a nonprofit entity formed for the purpose of distributing charitable donations to recipient organizations generally located in the communities serviced by Isabella Bank and Trust. The Corporation periodically makes charitable contributions in the form of cash transfers to the Foundation. The Foundation is administered by members of the Corporation's Board of Directors. The assets and transactions of the Foundation are not included in the consolidated financial statements of IBT Bancorp, Inc. The assets of the Foundation as of June 30, 2003 approximated $1.0 million. FORWARD LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Corporation, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Corporation's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Corporation and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Corporation's market area, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Corporation and its business, including additional factors that could materially affect the Corporation's financial results, is included in the Corporation's filings with the Securities and Exchange Commission. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation's primary market risks are interest rate risk and, to a lesser extent, liquidity risk. The Corporation has no foreign exchange risk, holds limited loans outstanding to oil and gas concerns, and holds no 21
trading account assets. Any changes in foreign exchange rates or commodity prices would have an insignificant impact, if any, on the Corporation's interest income and cash flows. Interest rate risk ("IRR") is the exposure to the Corporation's net interest income, its primary source of income, to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution's interest earning assets and its interest bearing liabilities. Interest rate risk is the fundamental method in which financial institutions earn income and create shareholder value. Excessive exposure to interest rate risk could pose a significant risk to the Corporation's earnings and capital. The Federal Reserve, the Corporation's primary Federal regulator, has adopted a policy requiring the Board of Directors and senior management to effectively manage the various risks that can have a material impact on the safety and soundness of the Corporation. The risks include credit, interest rate, liquidity, operational, and reputational. The Corporation has policies, procedures and internal controls for measuring and managing these risks. Specifically, the IRR policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long term assets, limiting the mismatch in repricing opportunity of assets and liabilities, and the frequency of measuring and reporting to the Board of Directors. The Corporation uses several techniques to manage interest rate risk. The first method is gap analysis. Gap analysis measures the cash flows and/or the earliest repricing of the Corporation's interest bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the imbedded repricing options contained in assets and liabilities. A substantial portion of the Corporation's assets are invested in loans and mortgage backed securities. These assets have imbedded options that allow the borrower to repay the balance prior to maturity without penalty. The amount of prepayments is dependent upon many factors, including the interest rate of a given loan in comparison to the current interest rates, for residential mortgages the level of sales of used homes, and the overall availability of credit in the market place. Generally, a decrease in interest rates will result in an increase in the Corporation's cash flows from these assets. Investment securities, other than those that are callable, do not have any significant imbedded options. Saving and checking deposits may generally be withdrawn on request without prior notice. The timing of cash flow from these deposits are estimated based on historical experience. Time deposits have penalties which discourage early withdrawals. The second technique used in the management of interest rate risk is to combine the projected cash flows and repricing characteristics generated by the gap analysis and the interest rates associated with those cash flows and projected future interest income. By changing the amount and timing of the cash flows and the repricing interest rates of those cash flows, the Corporation can project the effect of changing interest rates on its interest income. The following table provides information about the Corporation's assets and liabilities that are sensitive to changes in interest rates as of June 30, 2003. The Corporation has no interest rate swaps, futures contracts, or other derivative financial options. The principal amounts of assets and time deposits maturing were calculated based on the contractual maturity dates. Savings and NOW accounts are based on management's estimate of their future cash flows. 22
Quantitative Disclosures of Market Risk <TABLE> <CAPTION> June 30, 2003 Fair Value ----------------------------------------------------------------------------------------------- 2004 2005 2006 2007 2008 Thereafter Total 06/30/03 ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate sensitive assets Other interest bearing assets --- --- --- --- --- --- $ 4,650 $ 4,650 Average interest rates 1.25% --- --- --- --- --- 1.25% Fixed interest rate securities $ 25,647 $ 54,645 $ 35,438 $ 16,389 $ 10,718 $ 49,194 $ 192,031 $192,088 Average interest rates 3.75% 3.61% 2.95% 3.13% 3.52% 3.81% 3.51% Fixed interest rate loans $ 90,415 $ 85,887 $ 62,757 $ 25,205 $ 30,166 $ 23,317 $ 317,747 $319,610 Average interest rates 6.99% 7.20% 6.77% 6.32% 6.50% 7.95% 6.97% Variable interest rate loans $ 58,906 $ 7,077 $ 5,739 $ 3,363 $ 5,772 $ 824 $ 81,681 $ 81,681 Average interest rates 5.66% 5.62% 5.91% 5.67% 5.33% 12.08% 5.72% Rate sensitive liabilities Borrowed funds $ 733 $ 1,077 $ 5,081 $ 85 $ 89 $ 10,226 $ 17,291 $ 18,194 Average interest rates 1.13% 5.01% 5.07% 4.62% 4.65% 5.05% 4.88% Savings and NOW accounts $ 151,634 $ 20,007 $ 16,276 $ 13,439 $ 12,461 $ 33,681 $ 247,498 $247,498 Average interest rates 1.07% 0.98% 1.36% 1.24% 0.81% 0.72% 1.03% Fixed interest rate time deposits $ 126,141 $ 34,786 $ 39,339 $ 29,141 $ 18,021 $ 122 $ 247,550 $253,784 Average interest rates 2.61% 4.80% 5.11% 4.53% 4.32% 7.98% 3.67% Variable interest rate time deposits $ 938 $ 527 --- $ 23 $ 544 --- $ 2,032 $ 2,032 Average interest rates 1.34% 1.34% --- 2.27% 2.27% --- 1.89% </Table> Quantitative Disclosures of Market Risk <Table> <Caption> June 30, 2003 Fair Value ----------------------------------------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter Total 06/30/03 ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate sensitive assets Other interest bearing assets $ 13,900 --- --- --- --- --- $ 13,900 $ 13,900 Average interest rates 1.75% --- --- --- --- --- 1.75% Fixed interest rate securities $ 19,188 $ 27,738 $ 41,582 $14,937 $ 6,961 $ 41,656 $ 152,062 $152,130 Average interest rates 4.40% 4.43% 4.07% 4.42% 4.52% 4.81% 4.32% Fixed interest rate loans $ 100,614 $ 76,577 $ 97,687 $24,884 $ 26,798 $ 12,738 $ 339,298 $341,228 Average interest rates 8.08% 8.28% 8.02% 8.11% 8.01% 10.34% 8.19% Variable interest rate loans $ 40,629 $ 6,412 $ 4,428 $ 2,462 $ 1,787 $ 579 $ 56,297 $ 56,297 Average interest rates 7.20% 7.22% 6.34% 6.17% 6.05% 6.65% 7.05% Rate sensitive liabilities Other borrowed funds $ 1,502 $ 1,000 --- --- $ 5,000 $ 5,381 $ 12,883 $ 13,082 Average interest rates 0.94% 5.05% --- --- 5.08% 5.72% 4.86% Savings and NOW accounts $ 145,128 $ 18,820 $ 15,309 $12,590 $ 11,663 $ 30,939 $ 234,449 $234,449 Average interest rates 1.25% 1.81% 1.64% 2.53% 1.52% 1.19% 1.40% Fixed interest rate time deposits $ 143,009 $ 34,755 $ 21,775 27,615 $ 19,398 $ 21 246,573 $248,858 Average interest rates 5.22% 5.81% 5.88% 5.78% 6.20% 5.83% 5.50% Variable interest rate time deposits $ 1,044 $ 401 $ 9 --- $ 195 --- $ 1,649 $ 1,649 Average interest rates 3.52% 3.52% 3.52% --- 3.52% --- 3.52% </TABLE> 23
Item 4 -- Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures -- Dennis P. Angner, the Corporate Principal Executive and Principal Financial Officer, has reviewed and evaluated the effectiveness of the Corporation's disclosure controls and procedures [as defined in Rules 240.13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")] as of a date within ninety days before the filing date of this quarterly report. Based on that evaluation he has concluded that the Corporation's disclosure controls and procedures are effective, providing him with material information relating to the Corporation as required to be disclosed in the reports the Corporation files or submits under the Exchange Act on a timely basis. (b) Changes in Internal Controls -- There were no significant changes in the Corporation's internal controls or in other factors that could significantly affect the Corporation's disclosure controls and procedures subsequent to the date of the evaluation, nor were there any significant deficiencies or material weaknesses in the Corporation's internal controls. PART II - OTHER INFORMATION Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS The registrant's annual meeting of shareholders was held on April 29, 2003. At the meeting the shareholders voted upon the following matters: Election of Directors to terms ending 2006: For Withheld --- -------- Dennis Angner 3,050,323 1,927 Frederick Bradford 3,022,712 29,539 William Strickler 3,050,591 1,659 Dean Walldorff 3,049,983 2,268 Item 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index to Exhibits (b) Reports on Form 8-K Current report on Form 8-K dated May 4, 2003, filed with the SEC on May 6, 2003 24
SIGNATURE 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 8, 2003 /s/ Dennis P. Angner ------------------- -------------------------------------- Dennis P. Angner President and CEO (Principal Executive Financial Officer) 25
INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION 3.1 Amended Articles of Incorporation incorporated by reference to Form 10-K, dated March 12, 1991. 3.2 Amendment to the Articles of Incorporation incorporated by reference to Form 10-K, dated March 27, 1995. 3.3 Amendment to the Articles of Incorporation incorporated by reference to Form 10-K, dated March 22, 2000. 3.4 Amendment to the Articles of Incorporation incorporated by reference to Form 10-K, dated March 27, 2001. 3.5 Amended Bylaws incorporated by reference to Form 10-K, dated March 13, 1990. 3.6 Amendment to the Bylaws incorporated by reference to Form 10-K, dated March 26, 1994. 3.7 Amendment to the Bylaws incorporated by reference to Form 10-K, dated March 27, 1995. 3.8 Amendment to the Bylaws incorporated by reference to Form 10-K, dated March 27, 2001. 3.9 Amendment to the Bylaws incorporated by reference to Form 10-K, dated March 25, 2002. 3.10 Amendment to the Bylaws incorporated by reference to Form 10-K, dated March 24, 2003. 31* Section 302 -- Certification of CEO and CFO 32* Section 906 -- Certification *Filed herein