UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 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 Mt. Pleasant, MI 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, 4,378,052 as of October 22, 2003 -----------------------------------------------------------
IBT BANCORP, INC. Index to Form 10-Q Part I Financial Information Page Numbers Item 1 Financial Statements and Notes 3-9 Item 2 Management's Discussion and 9-21 Analysis of Financial Condition and Results of Operations Item 3 Quantitative and Qualitative 22-24 Disclosures About Market Risk Item 4 Controls and Procedures 25 Signatures 25 Part II Other Information Item 6 Exhibits and Reports on Form 8-K 26-31 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IBT BANCORP, INC. CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (dollars in thousands) September 30 December 31 2003 2002 ---- ---- <S> <C> <C> (Unaudited) ASSETS Cash and demand deposits due from banks $ 28,121 $ 28,587 Federal funds sold 1,350 25,850 -------- -------- CASH AND CASH EQUIVALENTS 29,471 54,437 Investment securities Securities available for sale (amortized cost of $179,551 in 2003 and $153,499 in 2002) 183,040 157,909 Securities held to maturity (fair value -- $1,392 in 2003 and $1,803 in 2002) 1,350 1,736 -------- -------- TOTAL INVESTMENT SECURITIES 184,390 159,645 Mortgage loans available for sale 3,707 13,392 Loans Agricultural 55,234 53,223 Commercial 141,475 143,957 Residential real estate mortgage 165,225 139,386 Installment 52,432 54,522 -------- -------- TOTAL LOANS 414,366 391,088 Less allowance for loan losses 6,033 5,593 -------- -------- NET LOANS 408,333 385,495 Other assets 42,384 39,748 -------- -------- TOTAL ASSETS $668,285 $652,717 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 65,965 $ 63,106 NOW accounts 105,632 111,195 Certificates of deposit and other savings 316,162 316,845 Certificates of deposit over $100 66,774 70,310 -------- -------- TOTAL DEPOSITS 554,533 561,456 Other borrowed funds 35,791 17,793 Accrued interest and other liabilities 9,545 10,011 -------- -------- TOTAL LIABILITIES 599,869 589,260 Shareholders' Equity Common stock -- no par value 10,000,000 shares authorized, issued, and outstanding-- 4,378,055 in 2003 (4,336,283 in 2002) 46,629 45,610 Retained earnings 20,846 16,299 Accumulated other comprehensive income 941 1,548 -------- -------- TOTAL SHAREHOLDERS' EQUITY 68,416 63,457 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $668,285 $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> Nine Months Ended September 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 --- 388,756 Issuance of common stock 45,158 56,573 Stock repurchased (3,386) (18,726) ----------- ----------- BALANCE END OF PERIOD 4,378,055 4,311,588 =========== =========== COMMON STOCK Balance at beginning of period $ 45,610 $ 31,017 Stock dividend --- 12,829 Issuance of common stock 1,146 1,641 Stock repurchased (127) (617) ----------- ----------- BALANCE END OF PERIOD 46,629 44,870 RETAINED EARNINGS Balance at beginning of period 16,299 24,788 Net income 5,983 5,426 Stock dividend --- (12,829) Cash dividends ($0.30 per share in 2003 and $0.30 in 2002) (1,436) (1,291) ----------- ----------- BALANCE END OF PERIOD 20,846 16,094 ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period 1,548 1,023 Unrealized gains (LOSSES) on securities available for sale, net of income taxes and reclassification adjustment (607) 2,092 ----------- ----------- BALANCE END OF PERIOD 941 3,115 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY END OF PERIOD $ 68,416 $ 64,079 =========== =========== </TABLE> See notes to consolidated financial statements. 4
IBT BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2003 2002 2003 2002 ---------------- --------------- <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 7,321 $ 8,020 $22,198 $23,671 Investment securities Taxable 1,194 1,136 3,542 3,248 Nontaxable 509 501 1,498 1,349 Federal funds sold and other 11 74 180 363 ------- ------- ------- ------- TOTAL INTEREST INCOME 9,035 9,731 27,418 28,631 INTEREST EXPENSES Deposits 2,846 3,626 9,016 11,193 Short term borrowings 224 128 615 482 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 3,070 3,754 9,631 11,675 ------- ------- ------- ------- NET INTEREST INCOME 5,965 5,977 17,787 16,956 Provision for loan losses 222 188 767 538 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,743 5,789 17,020 16,418 NONINTEREST INCOME Trust fees 146 156 460 432 Service charges on deposit accounts 62 70 189 211 Other service charges and fees 1,113 537 3,147 1,572 Gain on sale of mortgage loans 481 467 1,964 887 Title insurance revenue 758 734 2,127 1,489 Net realized gain on securities available for sale 15 1 15 1 Other 316 248 916 761 ------- ------- ------- ------- TOTAL NONINTEREST INCOME 2,891 2,213 8,818 5,353 NONINTEREST EXPENSES Salaries, wages and employee benefits 3,528 2,840 9,888 8,124 Occupancy 398 361 1,132 1,022 Furniture and equipment 855 635 1,969 1,715 Amortization of acquisition intangibles and goodwill 23 23 70 70 Other 1,005 1,368 4,700 3,562 ------- ------- ------- ------- TOTAL NONINTEREST EXPENSES 5,809 5,227 17,759 14,493 INCOME BEFORE FEDERAL INCOME TAXES 2,825 2,775 8,079 7,278 Federal income taxes and minority interest 740 712 2,096 1,852 ------- ------- ------- ------- NET INCOME $ 2,085 $ 2,063 $ 5,983 $ 5,426 ======= ======= ======= ======= Basic net income per share $ 0.47 $ 0.48 $ 1.37 $ 1.27 ======= ======= ======= ======= Cash dividends per share $ 0.11 $ 0.10 $ 0.33 $ 0.30 ======= ======= ======= ======= </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 Nine Months Ended September 30 September 30 ------------ ------------ 2003 2002 2003 2002 -------------------- -------------------- <S> <C> <C> <C> <C> NET INCOME $ 2,085 $ 2,063 $ 5,983 $ 5,426 Other comprehensive income before income taxes Unrealized (losses) gains on securities available for sale: Unrealized holding (losses) gains arising during period (2,143) 2,098 (906) 3,171 Reclassification adjustment for realized gains included in net income (15) (1) (15) (1) ------- ------- ------- ------- Other comprehensive (loss) gain before income taxes (2,158) 2,097 (921) 3,170 Income tax benefit (expense) related to other comprehensive income 734 (713) 314 (1,078) ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME (1,424) 1,384 (607) 2,092 ------- ------- ------- ------- COMPREHENSIVE INCOME $ 661 $ 3,447 $ 5,376 $ 7,518 ======= ======= ======= ======= </TABLE> See notes to consolidated financial statements. 6
IBT BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> (dollars in thousands) Nine Months Ended September 30 2003 2002 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 5,983 $ 5,426 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 767 538 Provision for depreciation 1,441 1,120 Net amortization of securities 1,172 722 Increase in cash value of life insurance (350) (350) Amortization of intangibles and goodwill 70 70 Amortization of mortgage servicing rights 462 185 Gain on sale of mortgage loans (1,964) (887) Proceeds from sales of mortgage loans 191,999 107,710 Mortgage loans originated for sale (180,350) (114,334) Increase in interest receivable (61) (293) Increase in other assets (2,097) (436) (Decrease) increase in accrued interest and other expenses (466) 1,332 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,606 803 INVESTING ACTIVITIES Activity in available for sale securities Maturities calls, and sales 31,242 30,214 Purchases (58,699) (76,904) Activity in held to maturity securities Maturities calls, and sales 620 1,386 Net increase in loans (23,605) (1,636) Increase in cash value of life insurance 25 (300) Acquisition of Title Office --- (25) Purchases of equipment and premises (1,813) (1,855) --------- --------- NET CASH USED BY INVESTING ACTIVITIES (52,230) (49,120) FINANCING ACTIVITIES Net increase in noninterest bearing deposits 2,859 1,904 Net (decrease) increase in interest bearing deposits (9,782) 29,388 Net increase in borrowings 17,998 4,724 Cash dividends (1,436) (1,291) Proceeds from issuance of common stock 1,146 841 Common stock repurchased (127) (617) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 10,658 34,949 DECREASE IN CASH AND CASH EQUIVALENTS (24,966) (13,368) Cash and cash equivalents at beginning of period 54,437 55,462 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,471 $ 42,094 ========= ========= </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 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending 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 4,360,900 and 4,285,644 for the nine month periods ending September 30, 2003 and 2002, respectively. 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 applies to the first interim or annual reporting period beginning after December 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 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 8
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, results of operations or cash flows 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, results of operations or cash flows 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 consolidated financial statements and notes thereto, as set forth on pages 3 through 9 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 determination of the allowance for loan losses and carrying values of 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. Mortgage servicing rights (MSR's) are assets which 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 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 evaluates servicing assets for impairment. For purposes of measuring 9
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. NINE MONTHS ENDING SEPTEMBER 30, 2003 AND 2002 RESULTS OF OPERATIONS Net income equaled $5.98 million for the nine month period ended September 30, 2003, compared to $5.43 million for the same period in 2002, a 10.3% increase. Return on average assets, which measures the ability of the Corporation to profitably and efficiently employ its resources, equaled 1.21% for the first nine months of 2003 and 1.17% in 2002. Return on average equity, which indicates how effectively the Corporation is able to generate earnings on shareholder invested capital, equaled 12.56% through September 30, 2003 versus 12.39% through September 30, 2002. REVISED SUMMARY OF SELECTED FINANCIAL DATA <TABLE> <CAPTION> (Dollars in thousands except per share data) Year to Date September 30 ------------ 2003 2002 --------------------------------- <S> <C> <C> INCOME STATEMENT DATA Net interest income $ 17,787 $ 16,956 Provision for loan losses 767 538 Net income 5,983 5,426 PER SHARE DATA Net income per common share $ 1.37 $ 1.27 Cash dividends per common share 0.33 0.30 RATIOS Average primary capital to average assets 10.47% 10.28% Net income to average assets 1.21 1.17 Net income to average equity 12.56 12.39 </TABLE> 10
IBT BANCORP, INC. TABLE 1 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 equity holdings are included in other investments. <TABLE> <CAPTION> Nine Months Ending September 30, 2003 September 30, 2002 Tax Average Tax Average Average Equivalent Yield/ Average Equivalent Yield/ Balance Interest Rate Balance Interest Rate -------- ---------- ------- -------- ---------- ------- INTEREST EARNING ASSETS <S> <C> <C> <C> <C> <C> <C> Loans $398,641 $ 22,199 7.42% $392,606 $ 23,677 8.04% Taxable investment securities 125,428 3,466 3.68 91,708 3,125 4.54 Nontaxable investment securities 48,965 2,407 6.55 44,487 2,183 6.54 Federal funds sold 20,243 180 1.19 29,075 364 1.67 Other investments 2,839 106 4.98 2,731 123 6.01 -------- -------- ---- -------- -------- ---- TOTAL EARNING ASSETS 596,116 28,358 6.34 560,607 29,472 7.01 NONEARNING ASSETS Allowance for loan losses (5,931) (5,617) Cash and due from banks 27,039 23,210 Premises and equipment 15,511 14,814 Accrued income and other assets 24,918 24,163 -------- -------- TOTAL ASSETS $657,653 $617,177 INTEREST BEARING LIABILITIES Interest bearing demand deposits $113,455 834 0.98 $ 97,339 1,091 1.49 Savings deposits 140,569 1,085 1.03 135,652 1,728 1.70 Time deposits 249,518 7,096 3.79 246,736 8,374 4.53 Borrowed funds 17,621 615 4.65 12,843 482 5.00 -------- -------- ---- -------- -------- ---- TOTAL INTEREST BEARING LIABILITIES 521,163 9,630 2.46 492,570 11,675 3.16 NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 60,318 57,873 Other 12,652 8,356 Shareholders' equity 63,520 58,378 -------- -------- TOTAL LIABILITIES AND EQUITY $657,653 $617,177 ======== ======== NET INTEREST INCOME (FTE) $ 18,728 $ 17,797 ======== ======== NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.19% 4.23% ==== ==== </TABLE> 11
IBT BANCORP, INC. TABLE 2 VOLUME AND RATE VARIANCE ANALYSIS - -------------------------------------------------------------- (Dollars in Thousands) The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows: Volume Variance - change in volume multiplied by the previous year's rate. Rate Variance - change in the fully taxable equivalent (FTE) rate multiplied by the prior year's volume. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. <TABLE> <CAPTION> Nine Month Period Ended September 30, 2003 Compared to September 30, 2002 Increase (Decrease) Due to ------------------------------------------ Volume Rate Net ------ ------- ------- Changes in Interest Income <S> <C> <C> <C> Loans $ 359 $(1,837) $(1,478) Taxable investment securities 1,006 (665) 341 Nontaxable investment securities 220 4 224 Federal funds sold (94) (90) (184) Other investments 5 (22) (17) ------ ------- ------- Total changes in interest income 1,496 (2,610) (1,114) Total changes in interest expense 484 (2,529) (2,045) ------ ------- ------- NET CHANGE IN INTEREST MARGIN (FTE) $1,012 $ (81) $ 931 ====== ======= ======= </TABLE> 12
IBT BANCORP, INC. TABLE 3 SUMMARY OF LOAN LOSS EXPERIENCE - ----------------------------------------------------------- (Dollars in Thousands) <TABLE> <CAPTION> Year to Date September 30 ------------------------------ 2003 2002 --------- --------- <S> <C> <C> Summary of changes in allowance: Allowance for loan losses - January 1 $ 5,593 $ 5,471 Loans charged off (571) (522) Recoveries of charged off loans 244 230 --------- --------- Net loans charged off (327) (292) Provision charged to operations 767 538 --------- --------- Allowance for loan losses - September 30 $ 6,033 $ 5,717 ========= ========= Allowance for loan losses as a % of loans 1.44% 1.41% ========= ========= NONPERFORMING LOANS - ------------------------------- (Dollars in thousands) September 30 2003 2002 --------- --------- Total amount of loans outstanding at the end of period $ 418,073 $ 406,719 ========= ========= Nonaccrual loans $ 1,260 $ 3,180 Accruing loans past due 90 days or more 2,163 2,078 Restructured loans 135 739 --------- --------- Total $ 3,558 $ 5,997 ========= ========= Loans classified as nonperforming as a % of outstanding loans 0.85% 1.47% ========= ========= </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. 13
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 $1.65 million in the first nine months of 2003 versus $1.18 million for the same period 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. As shown in Tables number 1 and 2, when comparing the nine month period ending September 30, 2003 to the same period in 2002, fully taxable equivalent (FTE) net interest income increased $931,000 or 5.2%. An increase of 6.3% in average interest earning assets provided $1.5 million of FTE interest income. The majority of this increase was funded by a 5.8% increase in interest bearing deposits and borrowed funds, resulting in $484,000 of additional interest expense. Overall, changes in volume resulted in $1.0 million of additional FTE interest income. The average FTE interest rate earned on assets decreased by 0.67%, decreasing FTE interest income by $2.6 million and the average rate paid on deposits and other borrowings decreased by .70%, decreasing interest expense by $2.5 million. The change in interest rates earned and paid decreased FTE net interest income by $81,000. The Corporation's FTE net interest yield as a percentage of average earning assets equaled 4.19% during 2003 versus 4.23% in 2002. The .04% decrease in the FTE net interest margin was primarily a result of a change in the mix of assets and funding sources. Average loans outstanding declined from 70% of average earning assets in the first nine months of 2002 to 66.9% in 2003. The change in asset mix from higher yielding loans to other investments resulted in the loss of approximately $450,000 in FTE interest income. PROVISION FOR LOAN LOSSES The viability of any financial institution is ultimately determined by its management of credit risk. Net loans outstanding represent 62% of the Corporation's total assets and is the Corporation's single largest concentration of risk. The allowance for loan losses is management's estimation of potential future losses inherent in the existing loan portfolio. Factors used to evaluate the loan portfolio, and thus to determine the current charge to expense, include recent loan loss history, financial condition of borrowers, amount of nonperforming loans, overall economic conditions, and other factors. Comparing the year to date period of September 30, 2003 to September 30, 2002, the provision for loan losses was increased by $229,000 to $767,000. Year to date, the Corporation had net charge-offs of loans of $327,000 compared to $292,000 in 2002. Loans classified as nonperforming were 0.85% of loans as of September 30, 2003 versus 1.47% for September 30, 2002. The Corporation's peer group, which includes 255 holding companies with assets between $500 million and $1.0 billion, had on average a nonperforming loans to total loans ratio of 1.23% as of June 30, 2003. As of September 30, 2003 the allowance for loan losses was $6.0 million or 1.44% of total loans. Based on management's internal analysis, the allowance for loan losses is believed to be adequate as of September 30, 2003. 14
NONINTEREST INCOME Noninterest income consists of trust fees, deposit service charges, fees for other financial services, gains on sale of mortgage loans sold, title insurance revenue, and gains and losses on investment securities available for sale. There was a $3.5 million increase in fees earned from these sources during the nine months of 2003 when compared to the same period in 2002. Significant individual account changes during this period include a $1.1 million increase in title insurance revenue and related services, $615,000 in NSF and overdraft fees, a $1.1 million increase in gains on the sale of mortgage loans, and a $996,000 increase in mortgage servicing income. Of the $1.1 million in title insurance revenue, $443,000 is a result of the IBT Title and Insurance, Inc. purchase of Benchmark Title of Greenville on July 1, 2002. The Corporation has established a policy that all 30 year amortized fixed rate mortgage loans will be sold. The calculation of gains on the sale of mortgages excludes at least 25 basis points allocated to the value of servicing rights on these loans. Included in other operating income is a $2.0 million gain from the sale of $192 million in mortgages during the first nine months of 2003 versus a $887,000 gain on the sale of $107.7 million in mortgages for the same period in 2002. NONINTEREST EXPENSE Noninterest expense increased $3.3 million or 23% during the first nine months of 2003 when compared to 2002. The largest component of noninterest expense is salaries and employee benefits, which increased $1.8 million or 22%. Normal merit and promotional salary adjustments account for half of the increase with the remainder of the increase resulting from increased staffing due to the purchase of Benchmark Title in Greenville, Michigan by IBT Title, an increase in support staff to handle the increase in mortgage volume, and a 30% increase in healthcare benefits and pension expenses. Occupancy and furniture and equipment expenses increased $364,000 or 13% in 2003. The majority of this increase is related to depreciation due to the write-off of disposed and/or obsolete assets. Other expenses increased by $1.1 million or 32%. Of this amount, $1.0 million is related to a charitable donation to Isabella Bank and Trust's Community Foundation. 15
QUARTER ENDED SEPTEMBER 30, 2003 AND 2002 RESULTS OF OPERATIONS Net income equaled $2.09 million for the third quarter in 2003 compared to $2.06 million for the same period in 2002, a 1.10% increase. Return on average assets equaled 1.26% for the third quarter in 2003 compared to 1.31% for the same period in 2002. Return on average equity equaled 13.30% for the third quarter in 2003 versus 13.73% for the third quarter in 2002. REVISED SUMMARY OF SELECTED FINANCIAL DATA - -------------------------------------------- (Dollars in thousands except per share data) <TABLE> <CAPTION> Quarter Ended September 30 -------------- 2003 2002 --------- --------- INCOME STATEMENT DATA <S> <C> <C> Net interest income $ 5,965 $ 5,977 Provision for loan losses 222 188 Net income 2,085 2,063 PER SHARE DATA Net income per common share $ 0.47 $ 0.48 Cash dividends per common share 0.11 0.10 RATIOS Average primary capital to average assets 10.28% 10.32% Net income to average assets 1.26 1.31 Net income to average equity 13.30 13.73 Net Interest Income </TABLE> NET INTEREST INCOME When comparing net interest income for the third quarter of 2003 to the same period in 2002, a 4.9% increase in average interest-earning assets provided $446,000 of additional FTE interest income. The average rate of interest-earning assets decreased 0.77%, resulting in a $1.1 million decrease in FTE interest income. The changes in average balances and the rates earned resulted in a decrease of $666,000 of FTE interest income. The growth of earning assets was funded primarily by growth in interest bearing liabilities, which increased by 4.1% in 2003. The average cost of these funds decreased by 0.64%. The changes in the average balances and rate paid on interest-bearing deposits resulted in a decline of $684,000 of interest expense. Overall, the changes in interest rates earned and paid and the change in average balances resulted in additional net interest income of $18,000 in the third quarter of 2003 when compared to the same period in 2002. The Corporation's FTE net interest yield decreased by 0.19% to 4.2% in the third quarter of 2003. The decrease was a result of a larger decrease in rates earned on earning assets than the decline in rates paid on deposits, and also from the change in asset mix from higher yielding loans to other investments. 16
PROVISION FOR LOAN LOSSES The amount provided for loan losses in the third quarter of 2003 was $222,000 versus $188,000 in 2002. During the third quarter of 2003, the Corporation had net charge-offs of $233,000 versus $111,000 during the same period of 2002. The allowance for loan losses as a percentage of total outstanding loans was 1.44% as of September 30, 2003 and 1.41% in 2002. IBT BANCORP, INC. TABLE 4 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> Quarter Ended September 30, 2003 September 30, 2002 Tax Average Tax Average Average Equivalent Yield/ Average Equivalent Yield/ Balance Interest Rate Balance Interest Rate -------- ---------- ------- -------- ---------- ------- INTEREST EARNING ASSETS <S> <C> <C> <C> <C> <C> <C> Loans $ 410,183 $ 7,320 7.14% $ 403,258 $ 8,021 7.96% Taxable investment securities 132,634 1,170 3.53 99,719 1,093 4.38 Nontaxable investment securities 50,573 817 6.46 48,244 806 6.68 Federal funds sold 3,699 11 1.19 17,967 76 1.69 Other investments 2,883 54 7.49 2,748 42 6.11 -------- --------- ------ --------- --------- ------- TOTAL EARNING ASSETS 599,972 9,372 6.25 571,936 10,038 7.02 NONEARNING ASSETS Allowance for loan losses (6,083) (5,676) Cash and due from banks 28,319 25,095 Premises and equipment 15,645 14,738 Accrued income and other assets 25,274 25,974 --------- --------- TOTAL ASSETS $ 663,127 $ 632,067 ========= ========= INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 113,229 244 0.86 $ 105,501 374 1.42 Savings deposits 141,543 333 0.94 133,407 519 1.56 Time deposits 245,538 2,269 3.70 247,934 2,693 4.34 Borrowed funds 20,805 224 4.31 13,789 168 4.87 -------- --------- ------ --------- --------- ------- TOTAL INTEREST BEARING LIABILITIES 521,115 3,070 2.36 500,631 3,754 3.00 NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 62,502 61,144 Other 16,810 10,169 Shareholders' equity 62,700 60,123 --------- --------- TOTAL LIABILITIES AND EQUITY $ 663,127 $ 632,067 ========= ========= NET INTEREST INCOME (FTE) $ 6,302 $ 6,284 ========= ========= NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.20% 4.39% ==== ==== </TABLE> 17
IBT BANCORP, INC. TABLE 5 VOLUME AND RATE VARIANCE ANALYSIS - -------------------------------------------------------------- (Dollars in Thousands) The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows: Volume Variance - change in volume multiplied by the previous year's rate. Rate Variance - change in the fully taxable equivalent (FTE) rate multiplied by the prior year's volume. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. <TABLE> <CAPTION> Quarter Ended September 30, 2003 Compared to September 30, 2002 Increase (Decrease) Due to --------------------------------- Volume Rate Net ------ ------- ------- <S> <C> <C> <C> CHANGES IN INTEREST INCOME Loans $ 136 $(837) $(701) Taxable investment securities 317 (240) 77 Nontaxable investment securities 38 (27) 11 Federal funds sold (47) (18) (65) Other Investments 2 10 12 ----- ----- ----- Total changes in interest income 446 (1112) (666) Total changes in interest expense (108) (792) (684) ----- ----- ----- Net Change in Interest Margin (FTE) $ 338 $(320) $ 18 ===== ===== ===== </TABLE> NONINTEREST INCOME Noninterest income earned in the third quarter of 2003 compared to the same period in 2002, increased $678,000 or 30.6%. The most significant changes were a $383,000 increase in mortgage servicing income, an increase of $24,000 in title and abstract revenue, and an increase of $211,000 in NSF and overdraft fees. 18
NONINTEREST EXPENSE Noninterest expense increased $582,000 or 11.1% during the third quarter of 2003 when compared to 2002. Noninterest expense includes salary and benefits, occupancy, and other operating expenses. Comparing 2003 to 2002, salaries and employee benefits increased $688,000, occupancy expense and furniture and equipment expense increased $257,000, and other operating expenses decreased $363,000. The primary reason for the decrease in other operating expenses is the change in accrual to Isabella Bank & Trust's Community Foundation. ANALYSIS OF CHANGES IN FINANCIAL CONDITION Since December 31, 2002, total assets increased $15.6 million to $668 million. During this period the loan portfolio increased $13.6 million, fed funds sold decreased $24.5 million, investment securities increased $24.7 million, and other assets increased $2.6 million. Changes in funding sources include a $2.9 million increase in noninterest bearing deposits, a decrease in interest bearing deposits of $9.8 million, an increase in borrowings of $18 million, and a $5.0 million increase in shareholders' equity. LIQUIDITY Liquidity management is designed to have adequate resources available to meet depositor and borrower discretionary demands for funds. Liquidity is also required to fund expanding operations, investment opportunities, and the payment of cash dividends. The primary sources of the Corporation's liquidity are cash, cash equivalents, and investment securities available for sale. As of September 30, 2003, cash and cash equivalents as a percentage of total assets equaled 4.4%, versus 8.3% as of December 31, 2002. During the first nine months of 2003, $16.6 million in net cash was provided from operations, and $10.7 million was provided by financing activities. Investing activities used $52.2 million. The accumulated effect of the Corporation's operating, investing, and financing activities was a $25.0 million decrease in cash and cash equivalents during the first nine months of 2003. In addition to cash and cash equivalents, investment securities available for sale are another source of liquidity. Securities available for sale equaled $183 million as of September 30, 2003 and $157.9 million as of December 31, 2002. The Corporation's liquidity is considered adequate by the management of the Corporation. CAPITAL The capital of the Corporation consists solely of common stock, surplus, retained earnings, and accumulated other comprehensive income; and increased approximately $5.0 million since December 31, 2002. There are significant capital regulatory constraints placed on the Corporation's capital. The Federal Reserve Board's current recommended minimum tier 1 and tier 2 capital to average assets requirement is 6.0%. The Corporation's tier 1 and tier 2 capital to average assets, which consists 19
of shareholders' equity plus the allowance for loan losses, less unamortized acquisition intangible, was 10.2% at September 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 September 30, 2003: PERCENTAGE OF CAPITAL TO RISK ADJUSTED ASSETS <TABLE> <CAPTION> IBT Bancorp Actual Required 09/30/03 -------- ---------- <S> <C> <C> Equity Capital 4.00% 14.69% Secondary Capital* 4.00 1.25 ------ -------- Total Capital 8.00% 15.94% </TABLE> * IBT Bancorp's secondary capital consists solely of the allowance for loan losses. The percentage for the secondary capital under the required column is the maximum allowed from all sources. 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 $56.0 million at September 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 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. 20
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 September 30, 2003, the Corporation had a total of $580,000 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 September 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. 21
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 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 is 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. 22
The following table provides information about the Corporation's assets and liabilities that are sensitive to changes in interest rates as of September 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. 23
Quantitative Disclosures of Market Risk <TABLE> <CAPTION> September 30 Fair Value --------------------------------------------------------------------------------------------- 2004 2005 2006 2007 2008 Thereafter Total 09/30/03 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate sensitive assets Other interest bearing assets $ 1,450 $ 99 -- -- -- -- $ 1,549 $ 1,549 Average interest rates 1.26% 2.67% -- -- -- -- 1.26% Fixed interest rate securities $ 65,459 $ 34,077 $ 21,948 $ 13,648 $ 6,017 $ 43,241 $ 184,390 $184,432 Average interest rates 4.00% 3.77% 3.32% 4.06% 4.17% 4.76% 4.01% Fixed interest rate loans $ 97,017 $ 76,034 $ 66,618 $ 24,177 $ 38,806 $ 27,972 $ 330,624 $329,445 Average interest rates 6.83% 7.06% 6.47% 6.77% 6.27% 5.11% 6.60% Variable interest rate loans $ 60,061 $ 7,481 $ 6,388 $ 4,052 $ 7,548 $ 1,919 $ 87,449 $ 87,449 Average interest rates 5.60% 5.57% 5.50% 5.58% 5.23% 4.85% 5.54% Rate sensitive liabilities Borrowed funds $ 19,313 $ 1,080 $ 5,084 $ 90 $ 33 $ 10,191 $ 35,791 $ 35,445 Average interest rates 1.24% 5.05% 5.08% 5.08% 6.62% 5.02% 2.99% Savings and NOW accounts $148,441 $ 21,010 $ 17,090 $ 14,052 $ 13,018 $ 34,563 $ 248,173 $248,173 Average interest rates 0.90% 1.10% 1.25% 1.13% 0.82% 0.72% 0.92% Fixed interest rate time deposits $116,200 $ 46,090 $ 30,672 $ 30,656 $ 14,498 $ 129 $ 238,245 $236,861 Average interest rates 2.66% 4.86% 4.77% 4.53% 4.02% 7.90% 3.68% Variable interest rate time deposits $ 958 $ 545 -- $ 128 $ 519 -- $ 2,150 $ 2,150 Average interest rates 1.24% 1.24% -- -- 3.57% -- 1.73% Quantitative Disclosures of Market Risk <CAPTION> September 30 Fair Value --------------------------------------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter Total 09/30/02 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate sensitive assets Other interest bearing assets $ 6,700 -- -- -- -- -- $ 6,700 $ 6,700 Average interest rates 1.75% -- -- -- -- -- 1.75% Fixed interest rate securities $ 11,287 $ 28,695 $ 45,407 $ 18,383 $ 7,615 $ 42,337 $153,724 $153,800 Average interest rates 4.15% 4.33% 3.97% 4.05% 4.40% 4.69% 4.28% Fixed interest rate loans $ 95,992 $ 77,595 $ 92,605 $ 26,674 $ 25,277 $ 22,030 $340,173 $345,915 Average interest rates 8.19% 8.24% 8.01% 8.03% 7.94% 7.55% 8.08% Variable interest rate loans $ 43,277 $ 12,836 $ 4,472 $ 3,032 $ 2,022 $ 907 $ 66,546 $ 66,546 Average interest rates 7.24% 3.36% 6.25% 6.21% 4.85% 4.07% 6.26% Rate sensitive liabilities Borrowed funds $ 3,027 $1,053 $ 53 $ 53 $ 5,053 $ 7,381 $ 16,620 $17,381 Average interest rates 1.11% 5.01% 4.16% 4.16% 5.08% 5.50% 4.53% Savings and NOW accounts $143,310 $ 19,340 $ 15,733 $ 12,937 $ 11,987 $ 31,816 $235,123 $235,123 Average interest rates 1.71% 1.69% 1.79% 2.32% 1.46% 1.12% 1.65% Fixed interest rate time deposits $133,797 $ 35,054 $ 31,766 $ 23,365 $226,632 $ 228 $246,843 $253,631 Average interest rates 5.03% 5.82% 5.74% 5.61% 6.25% 3.77% 5.40% Variable interest rate time deposits $ 902 $484 $ 9 -- $ 248 -- $ 1,643 $ 1,643 Average interest rates 3.38% 4.09% -- -- -- -- 3.06% </TABLE> 24
ITEM 4 -- CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures -- Dennis P. Angner, the Corporation's Principal Executive Officer and Peggy L. Wheeler, the Corporation's Principal Financial Officer, have 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 their evaluation they have concluded that the Corporation's disclosure controls and procedures are effective, providing them 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 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index to Exhibits (b) Current Report on Form 8-K dated July 24, 2003, filed with the SEC on July 25, 2003 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IBT Bancorp, Inc. Date: November 7, 2003 /s/ Dennis P. Angner ---------------------- ------------------------------------- Dennis P. Angner President and CEO /s/ Peggy L. Wheeler ------------------------------------- Peggy L. Wheeler Principal Financial Officer 25
INDEX TO EXHIBITS FOR FORM 10-Q 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. 31.1* Section 302 -- Certification of CEO 31.2* Section 302 -- Certification of CFO 32* Section 906 -- Certification Pursuant to 18 U.S.C. Section 1350 *Filed herein 26