UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
March 31,
2008
OR
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from __________ to __________.
Commission File No.
1-31655
IBT Bancorp, Inc.
|
(Exact name of Registrant as specified in its
charter)
|
Pennsylvania
|
|
25-1532164
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
309 Main Street, Irwin, Pennsylvania
|
|
15642
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
|
(724) 863-3100
|
(Registrant’s telephone number, including area
code)
|
NA
|
(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
o
No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
o
|
Accelerated filer
x
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
Number of shares of Common Stock outstanding as of May 7,
2008:
5,852,924
IBT BANCORP, INC.
Quarterly Report on Form 10-Q
For Quarter Ended March 31, 2008
Contents
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|
Pages
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PART I - FINANCIAL INFORMATION
|
|
|
|
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Item
1. Financial
Statements
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|
2
|
|
|
|
Consolidated balance sheets (unaudited) at March 31,
2008 and December 31, 2007
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2
|
|
|
|
Consolidated statements of income (unaudited) for the
three months ended March 31, 2008 and 2007
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3
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|
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Consolidated statements of cash flows (unaudited) for
the three months ended March 31, 2008 and 2007
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4
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Notes to consolidated financial statements
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5
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Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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9
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|
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Item
3. Quantitative
and Qualitative Disclosures About Market Risk
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15
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Item
4. Controls and
Procedures
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15
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PART II - OTHER INFORMATION
|
|
|
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Item
1. Legal
Proceedings
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15
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Item 1A. Risk
Factors
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15
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Item
2. Unregistered Sales of
Equity Securities and Use of Proceeds
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15
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Item
3. Defaults upon Senior
Securities
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16
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Item
4. Submission of Matters
to a Vote of Security-Holders
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16
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Item
5. Other
Information
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16
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|
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Item
6. Exhibits
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16
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Signatures
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18
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CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC.
AND SUBSIDIARY
|
|
March 31, 2008
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December 31, 2007
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(unaudited)
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(unaudited)
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|
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|
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|
ASSETS
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|
|
|
|
|
|
|
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Cash and due from banks
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$
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22,312,725
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$
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24,853,987
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Interest-bearing deposits in banks
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1,385,102
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355,991
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Federal funds sold
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30,000,000
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|
|
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|
-
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Certificates of deposit
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100,000
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|
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100,000
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Securities available for sale
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264,041,193
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|
|
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251,538,866
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|
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Federal Home Loan Bank stock, at cost
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4,208,200
|
|
|
|
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4,422,600
|
|
|
Loans, net of allowance for loan losses of $5,097,094
at
March 31, 2008 and $5,382,402 at December 31,
2007
|
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|
476,848,030
|
|
|
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477,319,342
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Premises and equipment, net
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5,118,436
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|
|
|
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5,238,912
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Other assets
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23,177,455
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|
|
|
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23,357,716
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
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|
$
|
827,191,141
|
|
|
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$
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787,187,414
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|
|
|
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LIABILITIES AND STOCKHOLDERS’
EQUITY
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|
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|
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Liabilities
|
|
|
|
|
|
|
|
|
|
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Deposits
|
|
|
|
|
|
|
|
|
|
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Non-interest bearing
|
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$
|
99,000,180
|
|
|
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$
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84,107,536
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Interest-bearing
|
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545,269,745
|
|
|
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526,649,399
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|
|
|
|
|
|
|
|
|
|
|
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Total deposits
|
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644,269,925
|
|
|
|
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610,756,935
|
|
|
|
|
|
|
|
|
|
|
|
|
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Repurchase agreements
|
|
|
48,150,875
|
|
|
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44,944,240
|
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Accrued interest and other liabilities
|
|
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9,110,831
|
|
|
|
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7,840,434
|
|
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FHLB advances
|
|
|
56,000,000
|
|
|
|
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57,631,336
|
|
|
|
|
|
|
|
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|
|
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Total liabilities
|
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757,531,631
|
|
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721,172,945
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|
|
|
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|
|
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Stockholders’ Equity
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|
|
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Capital stock, par value $1.25 per share, 50,000,000
shares authorized, 5,965,119 shares issued, 5,852,924 shares
outstanding at March 31, 2008 and December 31, 2007
|
|
|
7,456,399
|
|
|
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7,456,399
|
|
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Retained earnings
|
|
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61,696,657
|
|
|
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61,112,554
|
|
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Accumulated other comprehensive income
|
|
|
4,013,834
|
|
|
|
|
952,896
|
|
|
Less: Treasury stock, at cost
|
|
|
(3,507,380
|
)
|
|
|
|
(3,507,380
|
)
|
|
|
|
|
|
|
|
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Total stockholders’ equity
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|
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69,659,510
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|
|
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66,014,469
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Liabilities and Stockholders’
Equity
|
|
$
|
827,191,141
|
|
|
|
$
|
787,187,414
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
2
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC.
AND SUBSIDIARY
|
Three Months Ended March 31,
|
|
|
2008
|
|
2007
|
|
|
(unaudited)
|
|
Interest Income
|
|
|
|
|
|
|
Loans, including fees
|
$
|
7,979,235
|
|
$
|
7,886,596
|
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Securities:
|
|
|
|
|
|
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Taxable
|
|
2,585,801
|
|
|
2,014,846
|
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Tax-exempt
|
|
719,826
|
|
|
709,311
|
|
Federal funds sold
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|
86,575
|
|
|
5,037
|
|
|
|
|
|
|
|
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Total interest income
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|
11,371,437
|
|
|
10,615,790
|
|
|
|
|
|
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Interest Expense
|
|
|
|
|
|
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Deposits
|
|
4,477,353
|
|
|
4,114,125
|
|
FHLB advances
|
|
608,277
|
|
|
788,930
|
|
Repurchase agreements
|
|
390,307
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|
330,556
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|
|
|
|
|
|
|
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Total interest expense
|
|
5,475,937
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|
5,233,179
|
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Net Interest Income
|
|
5,895,500
|
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|
5,382,611
|
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Provision for Loan Losses
|
|
150,000
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|
|
250,000
|
|
Net Interest Income after Provision for Loan
Losses
|
|
5,745,500
|
|
|
5,132,179
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|
|
|
|
|
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Other Income (losses)
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|
|
|
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Service fees
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|
911,267
|
|
|
886,851
|
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Investment security gains(losses)
|
|
21,779
|
|
|
(1,265
|
)
|
Increase in cash surrender value of life
insurance
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|
126,993
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|
120,696
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Debit card fees
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|
234,762
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210,633
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|
Trust fees
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|
134,443
|
|
|
115,137
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Other income
|
|
324,010
|
|
|
295,000
|
|
Total other income
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|
1,753,254
|
|
|
1,627,052
|
|
|
|
|
|
|
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Other Expenses
|
|
|
|
|
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Salaries
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1,586,293
|
|
|
1,541,519
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Pension and other employee benefits
|
|
550,357
|
|
|
647,399
|
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Occupancy expense
|
|
403,375
|
|
|
403,939
|
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Data processing expense
|
|
250,159
|
|
|
273,756
|
|
Pennsylvania shares tax
|
|
161,357
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|
|
163,071
|
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Advertising expense
|
|
80,476
|
|
|
145,633
|
|
Debit card expense
|
|
152,834
|
|
|
146,250
|
|
Other expenses
|
|
1,369,498
|
|
|
1,048,694
|
|
|
|
|
|
|
|
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Total other expenses
|
|
4,554,349
|
|
|
4,370,261
|
|
Income Before Income Taxes
|
|
2,944,405
|
|
|
2,388,970
|
|
Provision for Income Taxes
|
|
897,071
|
|
|
521,365
|
|
Net Income
|
$
|
2,047,334
|
|
$
|
1,867,605
|
|
Basic Earnings per Share
|
$
|
0.35
|
|
$
|
0.32
|
|
Diluted Earnings per Share
|
$
|
0.34
|
|
$
|
0.32
|
|
Dividends per Share
|
$
|
0.25
|
|
$
|
0.25
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC.
AND SUBSIDIARY
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,047,334
|
|
|
|
$
|
1,867,605
|
|
Adjustments to reconcile net income to net cash from
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
162,000
|
|
|
|
|
180,000
|
|
Increase in cash surrender value of insurance
|
|
|
(126,993
|
)
|
|
|
|
(120,696
|
)
|
Net accretion/amortization of premiums and
discounts
|
|
|
(106,156
|
)
|
|
|
|
(15,453
|
)
|
Investment security (gains) losses
|
|
|
(21,779
|
)
|
|
|
|
1,265
|
|
Provision for loan losses
|
|
|
150,000
|
|
|
|
|
250,000
|
|
Increase (decrease) in cash due to changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(245,549
|
)
|
|
|
|
(22,590
|
)
|
Accrued interest and other liabilities
|
|
|
(312,628
|
)
|
|
|
|
140,070
|
|
Net Cash From Operating Activities
|
|
|
1,546,229
|
|
|
|
|
2,280,201
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for
sale
|
|
|
-
|
|
|
|
|
3,998,750
|
|
Proceeds from maturities and calls of securities
available for sale
|
|
|
38,246,575
|
|
|
|
|
5,018,318
|
|
Purchase of securities available for sale
|
|
|
(
45,977,004
|
)
|
|
|
|
(12,472,968
|
)
|
Net decrease in loans
|
|
|
874,115
|
|
|
|
|
1,436,506
|
|
Purchases of premises and equipment
|
|
|
(
41,524
|
)
|
|
|
|
(280,777
|
)
|
Proceeds from sales of Federal Home Loan Bank
stock
|
|
|
435,300
|
|
|
|
|
852,800
|
|
Purchase of Federal Home Loan Bank stock
|
|
|
(220,900
|
)
|
|
|
|
(637,300
|
)
|
Net Cash Used By Investing Activities
|
|
|
(6,683,438
|
)
|
|
|
|
(2,084,671
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
33,512,990
|
|
|
|
|
(358,558
|
)
|
Net increase in securities sold under repurchase
agreements
|
|
|
3,206,635
|
|
|
|
|
2,655,825
|
|
Dividends paid
|
|
|
(1,463,231
|
)
|
|
|
|
(1,470,660
|
)
|
Proceeds from FHLB advances
|
|
|
8,955,000
|
|
|
|
|
81,615,000
|
|
Repayment of FHLB advances
|
|
|
(10,586,336
|
)
|
|
|
|
(84,077,922
|
)
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
|
(13,034
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash From (Used By) Financing
Activities
|
|
|
33,625,058
|
|
|
|
|
(1,649,349
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash
Equivalents
|
|
|
28,487,849
|
|
|
|
|
(1,453,819
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of
Period
|
|
|
25,209,978
|
|
|
|
|
19,954,648
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of
Period
|
|
$
|
53,697,827
|
|
|
|
$
|
18,500,829
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC.
AND SUBSIDIARY
Three Months Ended March 31, 2008
NOTE A – BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management,
all adjustments consisting of normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three months ended March 31,
2008 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008 or any future interim period. The interim financial statements
should be read in conjunction with the financial statements and footnotes thereto
included in the IBT Bancorp, Inc. and subsidiary Annual Report on Form 10-K for the
year ended December 31, 2007.
NOTE B – EARNINGS PER SHARE
Basic earnings per share are calculated on the basis of the weighted
average number of shares outstanding. The weighted average shares outstanding was
5,852,924 for the three months ended March 31, 2008 and 5,882,183 for the three months
ended March 31, 2007.
Diluted earnings per share are calculated on the basis of the weighted
average number of shares outstanding. Weighted-average number of shares outstanding
assuming dilution of exercisable stock options using the treasury stock method was
5,949,852 for the three months ended March 31, 2008 and 5,927,763 for the three
months ended March 31, 2007.
NOTE C – COMPREHENSIVE INCOME
Total comprehensive income includes net income and unrealized holding
gains and losses from available for sale securities and the pension obligation change
for the defined benefit plan. The changes in other comprehensive income are reported
net of income taxes, as follows:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross change in unrealized holding gains
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities during the
period
|
|
|
|
|
|
$
|
4,659,564
|
|
|
|
$
|
194,540
|
|
Less: reclassification adjustment for gains
(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
realized in income
|
|
|
|
|
|
|
(21,779
|
)
|
|
|
|
1,265
|
|
Net unrealized gains
|
|
|
|
|
|
|
4,637,785
|
|
|
|
|
195,805
|
|
Income tax effect
|
|
|
|
|
|
|
(1,576,847
|
)
|
|
|
|
(66,574
|
)
|
Net of tax amount
|
|
|
|
|
|
$
|
3,060,938
|
|
|
|
$
|
129,231
|
|
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC.
AND SUBSIDIARY
Three Months Ended March 31, 2008
NOTE D – INVESTMENT SECURITIES
Investment securities available for sale consist of the
following:
|
March 31, 2008
|
|
|
Amortized
Cost
|
|
|
|
Gross
Unrealized
Gains
|
|
|
|
Gross
Unrealized
Losses
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government Agencies
|
$
|
93,018,147
|
|
|
|
$
|
3,546,666
|
|
|
|
$
|
-
|
|
|
|
$
|
96,564,813
|
|
Obligations of State and political
sub-divisions
|
|
65,739,197
|
|
|
|
|
1,885,259
|
|
|
|
|
(80,935
|
)
|
|
|
|
67,543,521
|
|
Mortgage-backed securities
|
|
97,680,909
|
|
|
|
|
2,032,525
|
|
|
|
|
-
|
|
|
|
|
99,713,434
|
|
Other securities
|
|
47,401
|
|
|
|
|
-
|
|
|
|
|
(2
|
)
|
|
|
|
47,399
|
|
Equity securities
|
|
250,220
|
|
|
|
|
-
|
|
|
|
|
(78,194
|
)
|
|
|
|
172,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
256,735,874
|
|
|
|
$
|
7,464,450
|
|
|
|
$
|
(159,131
|
)
|
|
|
$
|
264,041,193
|
|
NOTE
E – RECENT ACCOUNTING PRONOUNCEMENTS
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an amendment of FASB Statement No.
115.” SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected will be recognized in earnings at each
subsequent reporting date. SFAS No. 159 is effective on January 1, 2008. The Company
elected to not expand the use of fair value under SFAS No. 159.
In
November 2007, the SEC issued Staff Accounting Bulletin No. 109 (SAB 109),
“Written Loan Commitments Recorded at Fair Value Through Earnings” which
expresses the views of the staff regarding written loan commitments that are accounted
for at fair value through earnings under generally accepted accounting principles. To
make the staff’s views consistent with current authoritative accounting guidance,
the SAB revises and rescinds portions of SAB No. 105, “Application of Accounting
Principles to Loan Commitments.” Specifically, the SAB revises the SEC
staff’s views on incorporating expected net future cash flows related to loan
servicing activities in the fair value measurement of a written loan commitment. The
SAB retains the staff’s view on incorporating expected net future cash flows
related to internally-developed intangible assets in the fair value measurement of a
written loan commitment. The staff expects registrants to apply views in Question 1 of
SAB 109 on a prospective basis to derivative loan commitments issued or modified in
fiscal quarters beginning after December 15, 2007. The Company does not expect SAB 109
to have a material impact on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, and
SFAS No. 160, “Noncontrolling Interest in Consolidated Financial
Statements”. SFAS No. 141R and SFAS No. 160 require most identifiable assets,
liabilities, noncontrolling interest, and goodwill acquired in a business combination
to be recorded at “full fair value” and require noncontrolling interests
(previously referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest holders.
Statements, SFAS No. 141R and SFAS No. 160 are effective for periods beginning on or
after December 15, 2008 and earlier adoption is prohibited. SFAS No. 141R will be
applied to all business entities and SFAS No. 160 will be applied prospectively
to
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC.
AND SUBSIDIARY
Three Months Ended March 31, 2008
all
noncontrolling interests, including any that arose before the December 15, 2008
effective date. The Company does not expect SFAS No. 141R or SFAS No. 160 to have a
material impact on its consolidated financial statements.
NOTE
F – FAIR VALUE
In
September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS
157”), which defines fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value measurements. The new guidance is
effective for financial years beginning after November 15, 2007, and for interim
periods within those fiscal years.
SFAS
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under SFAS 157 are as follows:
Level 1 – Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or
liabilities
Level 2 – Quoted prices in markets that are not active, or inputs
that are observable either directly or indirectly, for substantially the full term of
the asset or liability.
Level 3 – Prices or valuation techniques that require inputs that
are both significant to the fair value measurement and unobservable (i.e., supported
with little or no market activity).
The
Company’s available for sale securities are reported at fair value utilizing
Level 2 inputs. Fair value measurements are obtained from FTN Financial’s
Portfolio Accounting System.
U.S.
Government agencies and mortgage backed securities are valued by FTN using Interactive
Data Corporation (IDC) as the primary source for security valuation. IDC is recognized
industry-wide as one of the most reliable valuations services. IDC’s methodology
includes broker quotes, proprietary models, vast descriptive terms and conditions
databases, as well as extensive quality control programs.
The
obligations of state and political subdivisions portfolio is valued using FTN’s
proprietary valuation matrices. FTN has recently enhanced their market evaluation model
to include a separate curve structure for the bank-qualified versus general market
municipals. They further break down the grouping of securities according to insurer,
credit support, state of issuance, and rating to incorporate additional spreads and
municipal curves.
Equity
securities that have an active, quotable market are classified in Level 1, equity
securities that are quotable, but thinly traded are classified in Level 2, and
securities that are not readily traded and do not have a quotable market are classified
as Level 3.
Assets
measured at fair value on a recurring basis are summarized below:
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC.
AND SUBSIDIARY
Three Months Ended March 31, 2008
|
|
|
|
Fair Value Measurements at March 31,
2008
|
|
|
|
|
Quoted Prices in Active Markets for Identical
Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
$122,025
|
|
$263,846,767
|
|
$72,401
|
NOTE
G – GUARANTEES
In
the normal course of business, there are various outstanding commitments and certain
contingent liabilities which are not reflected in the accompanying financial
statements. These commitments and contingent liabilities represent financial
instruments with off-balance-sheet risk. The contract or notional amounts of those
instruments were comprised of commitments to extend credit approximating
$121,270,000.
8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this discussion,
the words “believes”, “anticipates”,
“contemplates”, “expects”, and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain risks
and uncertainties which include changes in interest rates, risks associated with the
effect of opening new branches, the ability to control costs and expenses, and general
economic conditions. IBT Bancorp, Inc. undertakes no obligation to update those
forward-looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking services
through its wholly owned banking subsidiary, Irwin Bank (collectively, the
“Company”). The Company’s stock is traded on the American Stock
Exchange under the symbol IRW.
PROPOSED MERGER
On December 16, 2007, S&T Bancorp, Inc. (“S&T”) and
IBT Bancorp, Inc. (“the Registrant”) entered into an Agreement and Plan of
Merger (“Merger Agreement”) under which the Registrant will be merged with
and into S&T. Under the terms of the Merger Agreement, each share of the
Registrant’s common stock will be converted into the right to receive, at the
election of the holder: (i) $31.00 in cash; (ii) between 0.93 and 0.97 shares of
S&T common stock with the precise exchange ratio to be determined based upon the
average of the high and low sale prices for S&T common stock for a 20 trading day
period prior to the date of the registrant shareholder meeting at which the Merger
Agreement will be considered; or (iii) a combination of cash and shares of S&T
common stock. Elections will be subject to limitations set forth in the Merger
Agreement that require that 45% of the outstanding shares of the registrant common
stock will be exchanged for cash with the remaining 55% of the outstanding shares to be
exchanged for shares of S&T common stock. The Registrant has the right to terminate
the Merger Agreement if (1) the average closing price of S&T’s common stock
for the 20 consecutive trading days ending the day before the date on which the last
regulatory approval is received is less than 85% of the closing price of S&T common
stock on December 14, 2007, the last trading day preceding announcement of the Merger
Agreement and (2) from December 16, 2007 through such date, S&T’s common
stock has underperformed the Nasdaq Bank Index by more than 15%, unless S&T elects
to increase the merger consideration per share pursuant to a formula specified in the
Merger Agreement. The transaction is subject to customary closing conditions, including
the receipt of regulatory approvals and approval by the stockholders of the Registrant
at a special meeting to be held on May 13, 2008. The Merger is currently expected to be
completed in the second quarter of 2008.
FINANCIAL CONDITION
At March 31, 2008 total assets increased $40.0 million to $827.2 million
from $787.2 million at December 31, 2007. The asset growth was primarily due to
increases in federal funds sold and securities available for sale of $30.0 million and
$12.5 million, respectively. Asset growth was funded by an increase of $33.5 million in
total deposits.
Cash and cash equivalents increased $28.5 million to $53.7 million at
March 31, 2008 from $25.2 million at December 31, 2007, primarily as a result of the
Company’s investment of $30.0 million in federal funds. The Company determined to
direct funds into the federal funds market in view of reduced loan demand.
9
At March 31, 2008, securities available for sale increased $12.5 million
to $264.0 million from $251.5 million at December 31, 2007. This change was primarily
due to increases in mortgage-backed securities of $19.5 million offset by a net
decrease of $7.6 million in U.S. Government Agencies. The Company evaluates the
available-for-sale investment portfolio on an on-going basis to maximize yield, within
board-approved risk thresholds, making purchasing and selling decisions
accordingly.
Investments are reviewed for declines in value on a quarterly basis. At
March 31, 2008 and 2007, no investments were recognized as having an
other-than-temporary impairment.
Net loans at March 31, 2008 were $476.8 million, a $500,000 decrease
from the reported total of $477.3 million at December 31, 2007. Loan growth was
primarily stagnated by large borrower payoffs of approximately $8.0 million in
commercial mortgage loans. The payoffs were mostly offset by commercial mortgage
originations.
At March 31, 2008, total liabilities increased $36.3 million to $757.5
million from $721.2 million at December 31, 2007. The changes in total liabilities were
primarily due to increases in total deposits and repurchase agreements of $33.5 million
and $3.2 million, respectively.
Non-interest bearing deposit accounts increased $14.9 million to $99.0
million at March 31, 2008, from $84.1 million at December 31, 2007. This change is
attributed to new and existing depositors maintaining higher balances.
Interest-bearing deposits increased $18.6 million to $545.3 million at
March 31, 2008, from $526.6 million at December 31, 2007. The change was primarily due
to increases in certificates of deposits, savings, interest bearing checking, and money
market accounts of $11.6 million, $4.4 million, $1.8 million, and $900,000,
respectively. The competitive market rates paid on these accounts have contributed to
higher balances being maintained.
Repurchase agreements increased $3.2 million to $48.1 million at March
31, 2008, from $44.9 million at December 31, 2007 as a result of existing customers
maintaining higher balances. The Company offers its corporate customers sweep accounts
where unused deposit balances are swept into an overnight repurchase agreement yielding
market rates.
At March 31, 2008, total stockholders’ equity increased $3.7
million to $69.7 million from $66.0 million at December 31, 2007. The change was
primarily due to net income of $2.0 million and an increase in accumulated other
comprehensive income (net of deferred income taxes) of $3.1 million offset by dividends
paid of $1.5 million. Accumulated other comprehensive income increased as a result of
changes in the net unrealized gains/losses on securities available for sale. Because of
the effect of interest rate volatility on unrealized gains/losses on securities
available for sale, the Company’s accumulated other comprehensive income could
materially fluctuate for each interim period and year-end. See Note D to the
consolidated financial statements.
RESULTS OF OPERATIONS
Net income.
Net income for the three months
ended March 31, 2008 increased $179,000 to $2,047,000, or $.34 diluted earnings per
share from $1,868,000, or $.32 diluted earnings per share, for the comparable
three-month period in 2007. The increase for the three months ended March 31, 2008 was
primarily the result of an increase in net interest income and other income and a
decrease in the provision for loan losses, which was partially offset by an increase in
other expenses and the provision for income taxes.
Net interest income
. Net interest income
increased $513,000 to $5,896,000 for the three months ended March 31, 2008 compared to
$5,383,000 for the three months ended March 31, 2007. Interest income increased 7.1%
over the comparable 2007 quarter but was partially offset by an increase in interest
expense of 4.6%. This was due to rates paid for deposits decreasing at a faster rate
than rates charged for loans. As a result, the Company’s net interest
10
spread increased slightly to 2.58% from 2.52% in the prior year period
and its net interest margin widened to 3.11% from 3.08%.
Interest income.
Interest income for the
three months ended March 31, 2008 increased $755,000 to $11,371,000 from $10,616,000
for the comparable three-month period in 2007. The increase in interest income is
primarily attributable to an increase in volume, which offset a decline in average
yield. The average balance of interest earning assets increased $60.5 million for the
three months ended March 31, 2008, to $759.4 million from $698.9 million for the
comparable period in 2007. The annualized yield on interest-earning assets decreased 9
basis points to 5.99%, for the three months ended March 31, 2008 from 6.08% for the
comparable period in 2007. See “Average Balance Sheet and Rate/Volume
Analysis”.
Interest expense.
Interest expense for the
three months ended March 31, 2008 increased $242,000 to $5,476,000 from $5,233,000 for
the comparable period in 2007. The change in interest expense was primarily attributed
to the average balance of interest-bearing liabilities increasing $54.4 million to
$642.2 million for the three months ended March 31, 2008 from $587.8 million for the
comparable period in 2007. Partially offsetting this increase was a decrease of 15
basis points in the annualized average cost of funds to 3.41% for the three months
ended March 31, 2008 from 3.56% for the comparable period in 2007.
See “Average Balance Sheet and Rate/Volume
Analysis
”.
11
Average Balance Sheet.
The following table sets forth certain information relating to the
Company for the periods indicated. The average yields and costs are derived by dividing
income or expense on an annualized basis by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are derived from
average daily balances.
|
Three Months Ended March 31,
|
|
|
|
Three Months Ended March 31,
|
|
|
2008
|
|
|
|
2007
|
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Cost
|
|
|
(Dollars In Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1)
|
$
|
480,572
|
|
$
|
7,979
|
|
6.64
|
%
|
|
|
$
|
469,997
|
|
$
|
7,887
|
|
6.71
|
%
|
Investment securities available for sale (2)
|
|
266,412
|
|
|
3,306
|
|
4.96
|
%
|
|
|
|
228,519
|
|
|
2,724
|
|
4.77
|
%
|
Federal funds sold
|
|
12,373
|
|
|
87
|
|
2.82
|
%
|
|
|
|
387
|
|
|
5
|
|
5.20
|
%
|
Total interest-earning assets
|
|
759,357
|
|
|
11,372
|
|
5.99
|
%
|
|
|
|
698,903
|
|
|
10,616
|
|
6.08
|
%
|
Non-interest-earning assets (3)
|
|
38,198
|
|
|
|
|
|
|
|
|
|
38,075
|
|
|
|
|
|
|
Total assets
|
$
|
797,555
|
|
|
|
|
|
|
|
|
$
|
736,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
$
|
61,588
|
|
$
|
356
|
|
2.31
|
%
|
|
|
$
|
57,142
|
|
$
|
426
|
|
2.98
|
%
|
Certificates of Deposit
|
|
346,758
|
|
|
3,934
|
|
4.54
|
%
|
|
|
|
306,151
|
|
|
3,507
|
|
4.58
|
%
|
Other liabilities (4)
|
|
233,883
|
|
|
1,186
|
|
2.03
|
%
|
|
|
|
224,502
|
|
|
1,300
|
|
2.32
|
%
|
Total interest-bearing liabilities
|
|
642,229
|
|
|
5,476
|
|
3.41
|
%
|
|
|
|
587,795
|
|
|
5,233
|
|
3.56
|
%
|
Non-interest-bearing liabilities (3)
|
|
89,287
|
|
|
|
|
|
|
|
|
|
87,409
|
|
|
|
|
|
|
Total liabilities
|
|
731,516
|
|
|
|
|
|
|
|
|
|
675,204
|
|
|
|
|
|
|
Stockholders’ equity (5)
|
|
66,039
|
|
|
|
|
|
|
|
|
|
61,774
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity
|
$
|
797,555
|
|
|
|
|
|
|
|
|
$
|
736,978
|
|
|
|
|
|
|
Net interest income
|
|
|
|
$
|
5,896
|
|
|
|
|
|
|
|
|
$
|
5,383
|
|
|
|
Interest rate spread (6)
|
|
|
|
|
|
|
2.58
|
%
|
|
|
|
|
|
|
|
|
2.52
|
%
|
Net interest margin (7)
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
3.08
|
%
|
Ratio of average interest-earning assets to average
interest-bearing liabilities
|
|
|
|
|
|
|
118.24
|
%
|
|
|
|
|
|
|
|
|
118.90
|
%
|
(1)
|
Average balances include non-accrual loans, and are net
of deferred loan fees.
|
(2)
|
Includes investment securities, interest-bearing
deposits in other financial institutions and FHLB stock.
|
(3)
|
Includes net deferred income taxes in excess of deferred
tax benefits on AFS securities (SFAS 115), stock options (SFAS 123/148)
and deferred fees (SFAS 109).
|
(4)
|
Includes other interest bearing checking accounts, FHLB
advances, and repurchase agreements.
|
(5)
|
Includes capital stock, surplus and unrealized holding
gains on SFAS 115 AFS securities.
|
(6)
|
Interest-rate spread represents the difference between
the average yield on interest-earning assets and the average cost of
interest-bearing liabilities.
|
(7)
|
Net interest margin represents net interest income as a
percentage of average interest earning assets.
|
12
Rate / Volume Analysis
The
following table shows the effect of changes in volumes and rates on interest income and
interest expense. The changes in interest income and interest expense attributable to
changes in both volume and rate have been allocated to the changes due to rate. Tax
exempt income was not recalculated on a tax equivalent basis due to the immateriality
of the change to the table resulting from a recalculation.
|
Three Month Period Ended March 31,
|
|
|
2008 vs. 2007
|
|
|
Increase (Decrease)
|
|
|
Due to
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
(Dollars in thousands)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Loans receivable
|
$
|
177
|
|
$
|
(85
|
)
|
$
|
92
|
|
Investment securities available for sale
|
|
452
|
|
|
130
|
|
|
582
|
|
Other interest earning assets
|
|
155
|
|
|
(73
|
)
|
|
82
|
|
Total interest-earning assets
|
|
784
|
|
|
(28
|
)
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
33
|
|
|
(103
|
)
|
|
(70
|
)
|
Certificates of deposit
|
|
465
|
|
|
(38
|
)
|
|
427
|
|
Other liabilities
|
|
54
|
|
|
(168
|
)
|
|
(114
|
)
|
Total interest-bearing liabilities
|
|
552
|
|
|
(309
|
)
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
$
|
232
|
|
$
|
281
|
|
$
|
513
|
|
Provision for loan losses.
For the three
months ended March 31, 2008, $150,000 was taken as a provision for loan losses compared
to $250,000 for the comparable period in 2007. At March 31, 2008 and for the comparable
period in 2007 the allowance for loan losses equaled 1.06% of gross loans outstanding.
Net charge-offs as a percentage of average loans for the respective periods were .087%
and .005%.
The non accrual loans at March 31, 2008 were $6.6 million or 1.36% of
total loans outstanding compared to non accrual loans at December 31, 2007 which were
$5.3 million or 1.09% of total loans outstanding. The increase is primarily due
to a large commercial loan becoming more than 90 days past due. The loan is
adequately collateralized and the Company does not anticipate any loss associated with
this loan.
13
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level that represents management’s best
estimate of the losses inherent in the portfolio, based on a monthly review by
management of the following factors:
|
•
|
Type of lending conducted by the Bank
|
|
•
|
The level and status of past due and non-performing
loans
|
|
•
|
The general economic conditions in the Bank’s
lending area; and
|
|
•
|
Other factors affecting the collectability of the loans
in the portfolio
|
Large groups of homogeneous loans, such as residential real estate,
small commercial real estate loans and home equity and consumer loans are evaluated in
the aggregate using historical loss factors and other data. The amount of loss reserve
is calculated using historical loss rates, net of recoveries on a five year rolling
weighted average, adjusted for environmental, and other qualitative factors such as
industry, geographical, economic and political factors that can effect loss rates or
loss measurements. Watch and classified loans are allocated additional
reserves.
Large balance and/or more complex loans such as multi-family and
commercial real estate loans may be evaluated on an individual basis and are also
evaluated in the aggregate to determine adequate reserves. As specific loans are
determined to be impaired, specific reserves are assigned based upon collateral value,
market value, if determinable, or the present value of the estimated future cash flows
of the loan.
The allowance is increased by a provision for loan losses which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are placed on
non-accrual status when they are 90 days past due.
The allowance for loan losses is maintained at a level that represents
management’s best estimate of losses in the portfolio at the balance sheet date.
However, there can be no assurance that the allowance for losses will be adequate to
cover losses which may be realized in the future and that additional provisions for
losses will not be required.
Other income.
Total other income for the
three months ended March 31, 2008 increased $126,000 to $1,753,000 from $1,627,000 for
the comparable three-month period in 2007. The increase in other income for the quarter
ended March 31, 2008 was primarily due to increases in trust, debit card, and account
service fees of $19,000, $24,000, and $24,000, respectively. Growth in the Trust
Department’s assets under management contributed to the increase in fees
collected from the comparable period in 2007. Income from debit card and account
service fees rose due to a larger deposit base and increased transactions from the
comparable period in 2007.
Other expenses.
Total other expenses for
the three-month period ended March 31, 2008 increased $184,000 to $4,554,000 from
$4,370,000 for the comparable three-month period in 2007. An increase in other expenses
of $321,000 was partially offset by decreases in pension and other employee benefits
and advertising expenses of $97,000 and $65,000, respectively. The increase in other
expenses is primarily due to merger related costs which totaled approximately $380,000
while a decrease in pension and employee benefit costs is primarily due to lower health
care costs.
14
Provision for income taxes.
Income taxes,
for the three months ended March 31, 2008, increased $376,000 to $897,000 from $521,000
for the comparable period in 2007. The effective tax rate increased to 30.5% for the
three month period ended March 31, 2008, compared to 21.8% for the comparable period in
2007. The increase in the effective tax rate is due to non-deductible fees related to
the Company’s proposed merger with S&T Bancorp.
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
There were no significant changes for the three months ended March 31,
2008 from the information presented in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk of the Annual Report on Form 10-K for the year ended
December 31, 2007.
Item 4.
|
CONTROLS AND PROCEDURES
|
The Company’s management evaluated, with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company’s disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures
are effective to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms.
There were no changes in the Company’s internal control over
financial reporting that occurred during the Company’s last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
The Registrant is not a party to any material legal proceedings at the
present time. From time to time, the Bank is a party to routine legal proceedings
within the normal course of business wherein it enforces its security interest in loans
made by it, and other matters of a like kind.
There have been no material changes from the risk factors as previously
disclosed in the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2007.
Item 2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
(a)
|
Unregistered Sales of Equity Securities.
Not Applicable
|
|
(b)
|
Use of Proceeds.
Not
Applicable
|
|
(c)
|
Issuer Purchases of Equity Securities.
Not Applicable
|
15
Item 3.
|
Defaults Upon Senior Securities
|
Not applicable.
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
Not applicable.
Item 5.
|
Other Information
|
Not applicable
The following exhibits are either filed with or incorporated by
reference in this Quarterly Report on Form 10-Q:
|
2.1
|
Agreement and Plan of Merger, dated December 16, 2007,
by and between S&T Bancorp, Inc. and IBT Bancorp, Inc.*
|
|
3(i)
|
Articles of Incorporation of IBT Bancorp,
Inc.**
|
|
3(ii)
|
Amended Bylaws of IBT Bancorp, Inc.***
|
|
4.1
|
Rights Agreement, dated as of November 18, 2003, by and
between IBT Bancorp, Inc. and Registrar and Transfer Company, as Rights
Agent.****
|
|
4.2
|
Amendment, dated December 16, 2007, to Rights Agreement,
dated as of November 18, 2003, by and between IBT Bancorp, Inc. and
Registrar and Transfer Company, as Right Agent*****
|
|
10
|
Change In Control Severance Agreement with Charles G.
Urtin ******
|
|
10.1
|
Deferred Compensation Plan For Bank
Directors******
|
10.2
|
Death Benefit Only Deferred Compensation Plan For Bank
Directors effective as of January 1, 1990******
|
10.3
|
Retirement and Death Benefit Deferred Compensation Plan
For Bank Directors effective as of January 1, 1990******
|
10.4
|
2000 Stock Option Plan*******
|
10.5
|
Irwin Bank & Trust Company Supplemental Pension Plan
********
|
10.6
|
Medical Insurance Continuation Agreement with Charles G.
Urtin *********
|
10.7
|
Directors Change in Control Severance Plan
**********
|
10.8
|
Change in Control Severance Agreement with Raymond G.
Suchta, as amended and restated***
|
10.9
|
Change in Control Severance Agreement with Robert A.
Bowell, as amended and restated***
|
10.10
|
Change in Control Severance Agreement with David A.
Finui, as amended and restated***
|
10.11
|
Addendum to Change in Control Severance Agreement with
Charles G. Urtin***
|
10.12
|
Addendum to Change in Control Severance Agreement with
Raymond G. Suchta***
|
10.13
|
Addendum to Change in Control Severance Agreement with
David A. Finui***
|
31.1
|
Rule 13a-14(a) Certification of Chief Executive
Officer
|
31.2
|
Rule 13a-14(a) Certification of Chief Financial
Officer
|
|
|
|
|
16
32
|
Section 1350 Certification
|
|
|
|
*
|
Incorporated by reference from Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K filed December 17,
2007.
|
**
|
Incorporated by reference to the identically numbered
exhibits of the Registrant’s Form 10 (File No. 0-25903) filed
April 29, 1999.
|
***
|
Incorporated by reference to identically numbered
exhibit in Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2007.
|
****
|
Incorporated by reference to Exhibit 4 to Amendment No.
1 to Form 8-A (File No. 1-31655) filed November 20, 2003.
|
*****
|
Incorporated by reference to Amendment No. 2 to Form 8-A
Registration Statement (File No. 001-31655) filed December 31,
2007.
|
******
|
Incorporated by reference to the identically numbered
exhibits of the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
|
*******
|
Incorporated by reference to Exhibit 4.1 the
Registrant’s Registration Statement on Form S-8 (File No.
333-40398) filed September 29, 2000.
|
********
|
Incorporated by reference to identically numbered
exhibit to Registrant’s Annual Report on Form 10-K for fiscal
year ended December 31, 2004.
|
*********
|
Incorporated by reference to Exhibit 10.1 to the
Registrant’s current report on Form 8-K filed March 6,
2006.
|
**********
|
Incorporated by reference to the identically numbered
exhibit to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007.
|
17
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: May 12, 2008
|
|
By:
|
/s/ Charles G. Urtin
|
|
|
|
Charles G. Urtin
President, Chief Executive Officer
(Duly authorized officer)
|
Date: May 12, 2008
|
|
By:
|
/s/Raymond G. Suchta
|
|
|
|
Raymond G. Suchta
Chief Financial Officer
(Principal Financial Officer)
|
18