EXHIBIT 13
Selected Financial Information
IBT Bancorp, Inc. & Subsidiary
At or for the Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Selected Balance Sheet Data:
Assets ......................................... $445,721 $412,366 $366,457 $331,416 $299,435
Cash and cash equivalents ...................... 19,264 43,396 27,700 24,853 20,202
Securities available for sale .................. 149,099 118,778 107,801 95,343 86,045
Securities held to maturity .................... -- 2,569 5,855 7,955 8,075
Loans receivable (net) ......................... 260,502 238,304 216,487 194,677 176,998
Deposits ....................................... 368,680 356,383 324,317 292,699 268,654
Repurchase agreements .......................... 6,457 -- -- -- --
Federal funds purchased ........................ 7,000 -- -- -- --
FHLB advances .................................. 22,000 14,000 4,000 4,000 --
Shareholders' equity ........................... 37,905 38,201 34,302 30,090 26,827
Selected Results of Operations:
Interest income .............................. $29,442 $27,528 $25,290 $22,695 $20,995
Net interest income .......................... 15,799 14,942 13,773 12,505 11,482
Provision for loans losses ................... 300 300 300 410 380
Net interest income after provision for loan
losses ................................... 15,499 14,642 13,473 12,095 11,102
Other income ................................. 3,052 2,333 1,792 1,471 1,276
Other expense ................................ 9,233 8,438 7,683 7,076 6,925
Net income ................................... 6,336 5,801 5,193 4,458 3,751
Per Share Data:
Net income
Basic .................................... $ 2.10 $ 1.92 $ 1.72 $ 1.47 $ 1.24
Diluted .................................. 2.10 1.92 1.72 1.47 1.24
Cash dividends declared ...................... .80 .64 .51 .42 .35
Selected Ratios:
Return on average assets ..................... 1.42% 1.47% 1.45% 1.37% 1.27%
Return on average equity ..................... 16.69 15.29 15.57 15.47 14.18
Ratio of average equity to average assets .... 8.53 9.60 9.30 8.86 8.92
Dividend payout .............................. 38.10 33.33 29.65 28.57 28.23
-1-
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 could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, year 2000 issues and general
economic conditions. IBT Bancorp, Inc. undertakes no obligation to publicly
release the results of any revisions to those forward looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Overview
IBT Bancorp, Inc. ("IBT Bancorp") is a bank holding company headquartered in
Irwin, Pennsylvania, which provides a full range of deposits, commercial and
retail banking services, and trust services through its wholly owned banking
subsidiary, Irwin Bank & Trust Co. (collectively, the "Company").
During the second quarter of 2000, IBT Bancorp and a third party plan to form
Irwin Bank Financial Services, LLC , which will offer insurance and investment
services to customers and the general public.
Financial Condition
At December 31, 1999, total assets increased $33.3 million, or 8.1%, to $445.7
million from $412.4 million at December 31, 1998. Of this increase, securities
available for sale increased $31.6 million, net loans receivable increased $22.2
million and cash and due from banks increased $8.4 million. Such increases were
primarily offset by a $25.4 million decrease in federal funds sold and a $7.1
million decrease in interest bearing deposits in banks.
In connection with a reassessment of the Company's asset/liability management
strategy, the Company did not maintain a portfolio of securities held to
maturity at December 31, 1999. Federal funds sold of $25.4 million and $10.0
million of long term debt (which consisted of Federal Home Loan Bank advances)
were used to take advantage of the lower interest rate environment by funding
purchases of securities available for sale. At December 31, 1999, securities
available for sale totaled $149.1 million as compared to $117.5 million at
December 31, 1998.
The growth in interest bearing deposits of $13.4 million and the decrease of
$7.1 million of interest -bearing deposits in banks were used primarily to fund
the growth in the loan portfolio. The increase in the loan portfolio was
primarily due to the growth of the fixed rate one- to four- family mortgage loan
and installment loan portfolios of $6.8 million and $9.6 million, respectively.
The Company's loan portfolio continues to grow due to the Company's offering of
competitive market interest rates.
Interest-bearing deposits increased $13.4 million to $311.6 at December 31, 1999
from $298.2 million at December 31, 1998. The most significant areas of increase
were in the Certificate of Deposit and IBMA Gold accounts which reached $168.9
million and $38.3 million at December 31, 1999, respectively, an increase of
$10.3 million and $6.6 million from $158.6 million and $31.7million at December
31, 1998, respectively. Customers continue to be attracted to these products due
to the competitive rates being offered.
-2-
At December 31, 1999, federal funds purchased totaled $7.0 million. Such
advances were borrowed on an over-night basis and deposited into cash and cash
due from banks to meet potential year 2000 liquidity requirements.
Non-interest bearing deposits decreased $1.1 million to $57.1 million at
December 31, 1999 from $58.2 million at December 31, 1998. Such decreases
reflect additions to non-interest bearing deposits of $5.4 million offset by
$6.5 million in investments in repurchase products. During 1999, the Company
began to offer its corporate customers an investment product fashioned in the
form of a repurchase agreement. Under the terms of the agreement, deposits in
designated demand accounts of the customer are put into an investment vehicle
which is used daily to purchase an interest in designated U.S. Government or
Agencies' securities. The Company in turn agrees to repurchase these investments
on a daily basis and pay the customer the daily interest earned based on the
current market rate. At December 31, 1999, the amount of repurchase agreements
was $6.5 million. See Note 6 to the consolidated financial statements.
At December 31, 1999, total stockholders' equity decreased $300,000 to $37.9
million from $38.2 million at December 31, 1998. The decrease was primarily due
to a $4.1 million loss in accumulated other comprehensive income and dividends
paid of $2.4 million, offset by net income of $6.3 million for the period.
Additionally, on November 18, 1999, the Board of Directors approved a stock
repurchase plan. The Company repurchased approximately 2,600 shares of stock at
an average cost of approximately $33 a share. During fiscal 2000, based on the
availability, the Company plans to repurchase up to 148,000 of its shares.
Accumulated other comprehensive income decreased as a result of changes in the
net unrealized (loss) on the available for sale securities due to fluctuations
in interest rates. Pursuant to generally accepted accounting principles,
securities available for sale are recorded at current market value and net
unrealized gains or losses on such securities are excluded from current earnings
and reported net of income taxes, as part of comprehensive income, until
realized. Because of interest rate volatility, the Company's accumulated other
comprehensive income could materially fluctuate for each interim period and
year-end. The majority of the accumulated unrealized loss resulted from the
Company's investment in U.S. government agencies and mortgage backed securities.
The decrease in market value of the investment securities available for sale is
considered temporary in nature and will not affect the Company's net income
until the securities are sold. The Company plans to hold these securities until
maturity or until the market values of these securities increase.
Analysis of Net Interest Income
The Company's results of operations are primarily dependent on its net interest
income, which is the difference between the interest income earned on assets,
primarily loans and investments, and the interest expense on liabilities,
primarily deposits and borrowings. Net interest income may be affected
significantly by general economic and competitive conditions and policies of
regulatory agencies, particularly those with respect to market interest rates.
The results of operations are also influenced by the level of non-interest
expenses, such as employee salaries and benefits and other income, such as
loan-related fees and fees on deposit-related services.
-3-
Results of Operations
Net income increased approximately $535,000, or 9.2%, to $6.3 million for the
year ended December 31, 1999 from $5.8 million for the year ended December 31,
1998. At December 31, 1998, net income increased approximately $600,000 or
11.5%, to $5.8 million from $5.2 million for the year ended December 31, 1997.
The increase in net income for 1999 and 1998 was primarily attributable to the
increases in the average balances of interest earning assets of $49.4 million
and $33.9 million, respectively.
Net Interest Income: Net interest income is the most significant component of
the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loan and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
Net interest income increased $900,000, or 6.0%,to $15.8 million for1999
compared to $14.9 million for 1998. The increase was primarily due to the
increase in average loans of $24.6 million and average investment securities
available for sale of $30.4 million coupled with a 27 basis point decrease in
average cost of funds to 4.15% for 1999 from 4.42% for 1998. The increase in
average loans and average investment securities available for sale were
partially funded by the increase in average interest bearing liabilities of
$43.7 million. Offsetting the increase in net interest income was a 46 basis
point decline in the yield on average interest earning assets to 7.22% for 1999
from 7.68% for 1998. The yield on average interest-earning assets declined for
1999 due to a decrease in yields on loans receivable to 7.84% for 1999 from
8.38% for 1998, which was the result of loans refinancing at lower rates.
Net interest income increased $1.1 million, or 8.0%, to $14.9 million for 1998
compared to $13.8 million for 1997. The increase was primarily due to the
increase for average loans of $21.6 million and the increase in average
investment securities available for sale of $12.8 million. Partially offsetting
the increase in net interest income was a 12 basis point decline in the yield on
average interest earning assets to 7.68% for 1998 from 7.80% for 1997. The yield
on average interest-earning assets declined for 1998 primarily due to a 27 basis
point decrease in yields on average investment securities available for sale to
6.67% for 1998 from 6.94% for 1997, which was the result of lower rates of
interest and dividends.
The following table sets forth certain information relating to the Company's
average balance sheet and, reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from daily balances.
-4-
Year Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- --------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1)...................... $251,574 $19,711 7.84% $226,984 $19,019 8.38% $205,399 $17,420 8.48%
Investment securities available for
sale(2)................................ 144,544 9,195 6.36 114,078 7,606 6.67 101,301 7,035 6.94
Investment securities held to maturity... 1,208 36 2.98 3,228 143 4.43 7,443 293 3.94
Other interest-earning assets(3)......... 10,319 500 4.85 13,956 760 5.45 10,237 542 5.29
------- ------ ------ ------ ------- ------
Total interest earning assets.......... 407,645 29,442 7.22 358,246 27,528 7.68 324,380 25,290 7.80
Non-interest earning assets................. 18,655 19,033 18,140
------- ------- -------
Total assets........................... $426,300 $377,279 $342,520
======== ======= =======
Interest-bearing liabilities:
Money market accounts..................... $56,731 2,069 3.65 $ 47,023 1,864 3.96 $ 40,347 1,521 3.77
Certificates of deposit................... 162,668 8,418 5.17 149,598 8,322 5.56 140,039 7,851 5.61
Other liabilities......................... 109,061 3,157 2.89 88,180 2,400 2.72 81,233 2,145 2.64
------- ------ ------- ------ ------- -- -----
Total interest-bearing liabilities..... 328,460 13,644 4.15% 284,801 12,586 4.42% 261,619 11,517 4.40%
------ ------ ------
Non-interest-bearing liabilities............ 59,530 56,150 48,982
------ ------- -------
Total liabilities...................... 387,990 340,951 310,601
Retained earnings(4)........................ 38,310 36,328 31,919
------ ------- -------
Total liabilities and stockholders'
equity............................... $426,300 $377,279 $342,520
======== ======= =======
Net interest income......................... $15,798 $14,942 $13,773
====== ====== ======
Interest rate spread(5)..................... 3.07% 3.26% 3.40%
Net yield on interest-earning assets(6)..... 3.88% 4.17% 4.25%
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 124.11% 125.79% 123.99%
- --------------
(1) Average balances include non-accrual loans, and are net of deferred loans
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Includes federal funds sold.
(4) Includes capital stock, surplus and unrealized holding (losses) gains on
available for sale securities.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents net interest income as a
percentage of average interest earning assets.
-5-
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
proportionately to the changes due to volume and 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.
Year Ended Year Ended
December 31, December 31,
------------------------------- -------------------------------
199 vs. 1998 1998 vs. 1997
------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------ ------
Volume Rate Net Volume Rate Net
--------- --------- ------- ------- -------- --------
(In Thousands)
Interest income:
Loans receivable ..................... $ 2,060 $(1,368) $ 692 $ 1,831 $ (232) $ 1,599
Investment securities available for
sale .............................. 2,031 (442) 1,589 887 (316) 571
Investment securities held to maturity (89) (18) (107) (166) 16 (150)
Other interest earning assets ........ (198) (62) (260) 197 21 218
------- ------- ------- ------- ------- -------
Total interest-earning assets ..... 3,804 (1,890) 1,914 2,749 (511) 2,238
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts ................ 385 (180) 205 252 91 343
Certificates of deposit .............. 727 (631) 96 536 (65) 471
Other liabilities .................... 568 189 757 183 72 255
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,680 (622) 1,058 971 98 1,069
------- ------- ------- ------- ------- -------
Net change in interest income .......... $ 2,124 $(1,268) $ 856 $ 1,778 $ (609) $ 1,169
======= ======= ======= ======= ======= =======
Provision for Loan Losses: The Company recorded a provision for loan losses of
$300,000 for 1999, 1998, and 1997. The evaluation for determining the provision
includes evaluations of concentrations of credit, past loss experience, current
economic conditions, amount and composition of the loan portfolio (including
loans being specifically monitored by management), estimated fair value of
underlying collateral, loan commitments outstanding, delinquencies, and other
information available at such times.
The Company will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. Management continues to offer a wider variety of
loan products coupled with the continued success of changing the mix of the
products offered in the loan portfolio from lower yielding loans (i.e., one- to-
four family loans) to higher yielding loans (i.e., equity loans, multifamily
(five or more units) buildings, and commercial (non-residential mortgages).
Although the Company maintains its allowance for loan losses at a level that it
considers to be adequate to provide for the inherent risk of loss in its loan
portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods due to the higher degree of credit risk which might
result from the change in the mix of the loan portfolio.
Other Income: Total other income increased approximately $800,000, or 34.8%, to
$3.1 million for the year ended December 31, 1999 from $2.3 million for the year
ended December 31, 1998. This increase was primarily the result of overdraft
service charges on deposit accounts, a larger deposit base, and ATM surcharges
assessed on non-customers of Irwin Bank. The Company began to assess ATM
surcharges in January 1999. Service fees and loan fees increased $400,000 to
$1.8 million for 1999 from $1.4 million for 1998. Other income increased
$300,000 to $1.2 million for 1999 from $900,000 for 1998.
-6-
For the year ended December 31, 1998, total other income increased approximately
$500,000, or 27.8%, to $2.3 million from $1.8 million for the year ended
December 31, 1997. This increase was primarily the result of overdraft service
charges on deposit accounts, a larger deposit base, gains on sales of loans, and
net investment security gains. Loan fees and service charges increased
approximately $300,000 to $1.4 million for 1998 from $1.1 million for 1997. Net
security gains (losses) increased $65,000 to $40,000 for 1998 from ($25,000) for
1997. Other income increased $162,000 to $863,000 for 1998 from $701,000 for
1997, primarily due to the recognition of $48,000 in gains on sale of loans
originated for sale.
Other Expenses: Total other expenses increased approximately $800,000, or 9.5%,
to $9.2 million for 1999 from $8.4 million for 1998. This increase was the
result of pension and other employee benefits increasing $176,000 to $995,000
for 1999 from $819,000 for 1998. During 1999, pension expense increased due to
the Company's change in accrual assumptions regarding the funding of the plan.
ATM expense increased $49,000 to $348,000 for 1999 from $299,000 for 1998 due to
the increase of seven additional automated teller machines during fiscal 1998.
Other expenses increased $500,000 to $2.8 million for 1999 from $2.3 million for
1998, primarily as a result of normal costs in running a public company. It
should be noted that salaries remained relatively unchanged in 1999 as compared
to1998, primarily due to the retirement on January 1, 1999 of two key officers
of the Company.
Total other expenses increased approximately $700,000, or 9.1%, to $8.4 million
for 1998 from $7.7 million for 1997. This increase was mainly due to an increase
in compensation and employee benefits of $355,000 to $4.4 million for 1998 from
$4.0 million for 1997, as a result of an increase in the staff of the Company.
Data processing fees and ATM expenses increased $52,000 and $32,000 to $505,000
and $299,000, respectively for 1998 from $453,000 and $267,000, respectively for
1997. These increases for 1998 were mainly due to the addition of three new
supermarket branch locations and seven additional automated teller machines.
Year 2000
The Company relies on computers to conduct its business and information systems
processing. Industry experts were concerned that on January 1, 2000, some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking industry experts remain concerned that some computers
may not be able to interpret additional dates in the year 2000 properly. The
Company has operated and evaluated its computer operating systems following
January 1, 2000 and has not identified any errors or experienced any computer
system malfunctions. The Company will continue to monitor its information
systems to assess whether its systems are at risk of misinterpreting any future
dates and will develop, if needed, appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers.
However, it is too soon to conclude that there will not be any problems arising
from the Year 2000 problem. The Company will continue to monitor its significant
vendors of goods and services and customers with respect to any Year 2000
problems they may encounter, as those issues may effect the Company's ability to
continue operations, or might adversely affect its financial position, results
of operations and cash flows. At this time, the Company does not believe that
these potential problems will materially impact the ability to continue its
operations or effect its financial statements. Any delays, mistakes, or failures
could have a significant impact on the Company's financial condition and
profitability.
-7-
Liquidity And Capital Resources
The Company's primary sources of funds includes savings, deposits, loan
repayments and prepayments, cash flow from operations and borrowing from the
Federal Home Loan Bank. The Company uses its capital resources principally to
fund loan origination and purchases, repay maturing borrowings, purchase
investments, and for short-term liquidity needs. The Company expects to be able
to fund or refinance, on a timely basis, its commitments and long-term
liabilities. As of December 31, 1999, the Company had commitments to extend
credit of $51.9 million.
The Company's liquid assets consist of cash and cash equivalents, which include
investments in short-term investments. The level of these assets are dependent
on the Company's operating financing and investment activities during any given
period. At December 31, 1999, cash and cash equivalents total $19.2 million.
Net cash from operating activities for 1999 totaled $6.4 million, as compared to
$5.7 million for 1998 and $6.1 million for 1997.
Net cash used by investing activities for 1999 totaled $61.8 million, as
compared to cash used of $30.1 million for 1998 and $32.3 million for 1997. The
increase of $31.7 million for 1999 was mainly attributed to net increases in
purchases of available for sale securities. Net cash used to purchase available
for sale securities for 1999 totaled $32.5 million. The decrease of $2.2 million
for 1998 was mainly attributed to a net decrease in purchases of investment
securities available for sale. Net cash used to purchase investment securities
totaled $7.4 million for 1998 compared to cash used of $9.4 million for 1997.
Net cash from financing activities for the year ended December 31, 1999 totaled
$31.2 million, as compared to cash from financing activities of $40.1 million
for 1998 and $29.1 million for 1997. The $8.8 million decrease in cash from
financing activities for 1999 was a result of a $19.8 million decrease in
deposits and repayment of $2.0 million in long term debt. Offsetting such
decrease was the introduction of securities sold under agreements to repurchase
totaling $6.5 million and federal funds purchased which totaled $7.0 million for
the year ended December 31, 1999. The $11.0 million increase in cash from
financing activities for 1998 was a result of net increases in deposits of $1.5
million and long term Federal Home Loan Bank advances of $10.0 million for 1998.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
the Company's commitment to make loans and management's assessment of the
Company's ability to generate funds. The Company is also subject to federal
regulations that impose certain minimum capital requirements.
-8-
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending, investment and deposit taking activities. The Company's
profitability is affected by fluctuations in interest rates. A sudden and
substantial increase in interest rates may adversely impact the Bank's earnings
to the extent that the interest rates borne by assets and liabilities do not
change at the same speed, to the same extent or on the same basis. To that end,
management actively monitors and manages its interest rate risk exposure.
The principal objective of the Company's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements, and performance
objectives, and mange the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Company seeks to minimize the
vulnerability of its operations to changes in interest rates. The Company's
Board of Directors reviews the interest rate risk position monthly. The
Company's Asset/Liability Committee is comprised of the Company's senior
management under the direction of the Board of Directors, with senior management
responsible for reviewing with the Board of Directors its activities and
strategies, the effect of those strategies on the Company's net interest margin,
the market value of the portfolio and the effect that changes in interest rates
will have on the Company's portfolio and the Company's exposure limits.
The Company utilizes the following strategies to manage interest rate risk:
o when market conditions permit, to originate and hold in its portfolio
adjustable rate loans;
o sell fixed rate mortgage loans that conform to Federal National
Mortgage Association guidelines when sales can be achieved on terms
favorable to the Company;
o lengthen the maturities of its liabilities when deemed cost effective
through the utilization of Federal Home Loan Bank advances;
o purchase mortgage-backed securities for the available for sale
securities portfolio with cash flows that can be reinvested in higher
earning instruments when interest rates rise; and
o generally, maintain securities in the available for sale portfolio that
are short term to offset the risk of long term fixed rate mortgage
loans in a rising rate environment.
-9-
The following table shows the Company's financial instruments that are sensitive
to changes in interest rates, categorized by expected maturity or repricing
maturity, and the instruments' fair values at December 31, 1999. Market risk
sensitive instruments are generally defined as those instruments that can be
adversely impacted by changes in market interest rates. The Company currently
does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments, but may do so in the future to mitigate interest rate risk.
.Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets, no prepayments are assumed. For interest bearing liabilities, negotiable
order of withdrawal ("NOW") accounts, money market accounts, and similar
interest bearing demand accounts are subject to immediate withdrawal or
repricing and are therefore presented in the earliest period in the table.
Expected Maturity/Principal Repayment at December 31,
Total Book Fair
2000 2001 2002 2003 2004 Thereafter Fair Value
-------- -------- -------- -------- -------- ---------- -------- --------
(Dollars in thousands)
Interest-earning assets
Mortgage loans ............. $ 12,121 $ 6,479 $ 6,505 $ 6,339 $ 6,624 $ 92,280 $130,348 $129,163
Home equity loans,
second mortgage
loans, student loans,
credit cards, other
loans .................... 21,246 11,689 10,427 8,941 6,557 20,166 79,026 80,225
Commercial loans,
municipal loans .......... 22,607 3,963 3,346 2,530 1,953 19,242 53,641 51,011
Investment securities
available for sale ....... 1,398 12,044 14,143 8,098 10,111 108,121 153,915 149,099
Interest-bearing liabilities
NOW and other
transaction accounts ..... 30,963 -- -- -- -- -- 30,963 30,974
Money market and
other savings
accounts ................. 111,688 -- -- -- -- -- 111,688 111,860
Certificates of
deposits ................. 114,991 20,001 11,114 13,475 4,305 5,045 168,931 169,312
Federal home loan
bank of Pittsburgh
advances ................. -- 2,000 -- -- 10,000 10,000 22,000 20,186
-10-
EDWARDS Certified Public Accountants A Professional Corporation
LEAP & ----------------------------------------------------------------------
SAUER 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
Phone: 412-281-9211 Fax: 412-281-2407
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
IBT Bancorp, Inc.
Irwin, Pennsylvania
We have audited the accompanying consolidated balance sheets of IBT
Bancorp, Inc. (the Bancorp), and subsidiary as of December 31, 1999 and 1998 and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended Decmeber 31,
1999. These consolidated financial statements are the responsibliity of the
Bancorp's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IBT Bancorp,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/Edwards, Leap & Sauer
Pittsburgh, Pennsylvania
February 1, 2000
-11-
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
December 31,
------------------------------
1999 1998
------------- -------------
ASSETS
Cash and due from banks .................................................. $ 19,171,977 $ 10,767,316
Interest-bearing deposits in banks ....................................... 92,590 7,196,998
Federal funds sold ....................................................... -- 25,432,000
Certificates of deposit .................................................. 3,000,000 --
Securities available for sale ............................................ 149,098,906 117,469,947
Securities held to maturity (Market value of
$2,554,545 at December 31, 1998) .................................... -- 2,569,215
Federal Home Loan Bank stock, at cost .................................... 1,964,300 1,308,100
Loans, net ............................................................... 260,502,270 238,304,491
Premises and equipment, net .............................................. 4,728,702 4,879,133
Other assets ............................................................. 7,162,670 4,438,743
------------- -------------
Total Assets ................................................................... $ 445,721,415 $ 412,365,943
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing ................................................ $ 57,097,999 $ 58,208,466
Interest-bearing .................................................... 311,582,486 298,174,672
------------- -------------
Total deposits ...................................................... 368,680,485 356,383,138
Repurchase agreements .................................................... 6,456,597 --
Federal funds purchased .................................................. 7,000,000 --
Accrued interest and other liabilities ................................... 3,679,053 3,781,876
Long-term debt ........................................................... 22,000,000 14,000,000
------------- -------------
Total liabilities ........................................................ 407,816,135 374,165,014
Stockholders' Equity
Capital stock, par value $1.25, 50,000,000 shares authorized,
shares issued, 3,021,174 and 3,023,799 shares outstanding at December
31, 1999 and December 31, 1998, respectively ........................ 3,779,749 3,779,749
Surplus .................................................................. 2,073,102 2,073,102
Retained earnings ........................................................ 35,318,637 31,401,922
Accumulated other comprehensive income ................................... (3,178,596) 946,156
------------- -------------
37,992,892 38,200,929
Less: Treasury stock, at cost ........................................... (87,612) --
------------- -------------
Total stockholders' equity ............................................... 37,905,280 38,200,929
------------- -------------
Total Liabilities and Stockholders' Equity ..................................... $ 445,721,415 $ 412,365,943
============= =============
The accompanying notes are an integral part of these
consolidated financial statements
-12-
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Interest Income
Loans ................................ $ 19,711,127 $ 19,019,181 $ 17,419,848
Investment securities ................ 9,231,496 7,748,537 7,328,166
Federal funds sold ................... 499,811 760,495 541,950
------------ ------------ ------------
Total interest income ................ 29,442,434 27,528,213 25,289,964
Interest Expense
Deposits ............................. 12,473,855 12,174,469 11,270,826
Long-term debt ....................... 974,405 411,647 246,440
Repurchase agreements ................ 195,328 -- --
------------ ------------ ------------
Total interest expense ............... 13,643,588 12,586,116 11,517,266
------------ ------------ ------------
Net Interest Income .......................... 15,798,846 14,942,097 13,772,698
Provision for Loan Losses .................... 300,000 300,000 300,000
------------ ------------ ------------
Net Interest Income after Provision .......... 15,498,846 14,642,097 13,472,698
for Loan Losses
Other Income (Losses)
Service fees ......................... 1,786,055 1,430,426 1,116,493
Net investment security gains (losses) 23,507 40,411 (24,890)
Other income ......................... 1,242,698 862,674 701,154
------------ ------------ ------------
Total other income ................... 3,052,260 2,333,511 1,792,757
Other Expenses
Salaries ............................. 3,566,947 3,573,257 3,249,465
Pension and other employee benefits .. 994,960 818,669 787,345
Occupancy expense .................... 949,662 903,112 847,073
Data processing expense .............. 535,108 505,484 452,899
ATM expense .......................... 348,414 298,843 267,071
FDIC insurance ....................... 40,332 38,206 35,988
Other expenses ....................... 2,797,538 2,300,531 2,043,339
------------ ------------ ------------
Total other expenses ................. 9,232,961 8,438,102 7,683,180
------------ ------------ ------------
Income Before Income Taxes ................... 9,318,145 8,537,506 7,582,275
Provision for Income Taxes ................... 2,982,391 2,736,576 2,388,759
------------ ------------ ------------
Net income ................................... $ 6,335,754 $ 5,800,930 $ 5,193,516
============ ============ ============
Net Income per Share of Capital Stock ........ $ 2.10 $ 1.92 $ 1.72
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements
-13-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years Ended December 31, 1999, 1998 and 1997
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
--------------- ---------------- ---------------- ---------------- --------- ----------------
Balance at
December 31, 1996............ $ 1,200,000 $ 2,400,000 $ 26,134,707 $ 355,093 $ - $ 30,089,800
Comprehensive Income
Net income............... 5,193,516 5,193,516
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$285,672............. 554,542 554,542
----------------
Total Comprehensive
Income............. 5,748,058
Cash dividends............... (1,536,000) (1,536,000)
--------------- ---------------- ---------------- ---------------- -------- ----------------
Balance at
December 31, 1997............ $ 1,200,000 $ 2,400,000 $ 29,792,223 $ 909,635 - $ 34,301,858
Comprehensive Income
Net income............... 5,800,930 5,800,930
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$43,853.............. 85,127 85,127
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$25,039.............. (48,606) (48,606)
--------------
36,521
--------------
Total Comprehensive
Income............. 5,837,451
Cash dividends............... (1,938,380) (1,938,380)
5% stock dividend............ 59,916 2,192,935 (2,252,851)
Three-for-one stock split.... 2,519,833 (2,519,833)
------------- ---------------- ---------------- ---------------- -------- ----------------
Balance at
December 31, 1998............ $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929
The accompanying notes are an integral part of these
consolidated financial statements
-14-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years Ended December 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------------------------
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----------------- ----------------- ------------------ ----------------- ------------ ---------------
Balance at
December 31, 1998..........$ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929
Comprehensive Income
Net income............. 6,335,754 6,335,754
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income benefit of
$2,034,128......... (3,948,601) (3,948,601)
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$90,744............ (176,151) (176,151)
-------------
(4,124,752)
-------------
Total Comprehensive
Income........... 2,211,002
Cash dividends............. (2,419,039) (2,419,039)
Purchase of Treasury Stock. (87,612) (87,612)
----------------- ----------------- ------------------ ----------------- ------------ ---------------
Balance at
December 31, 1999..........$ 3,779,749 $ 2,073,102 $ 35,318,637 $ (3,178,596) $ (87,612) $ 37,905,280
================= ================= ================== ================= ============ ===============
The accompanying notes are an integral part of these
consolidated financial statements
-15-
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 6,335,754 $ 5,800,930 $ 5,193,516
Adjustments to reconcile net cash
from operating activities:
Depreciation ............................................ 499,068 482,000 422,349
Net amortization/accretion of
premiums and discounts .................................. 20,934 971 21,528
Net investment security (gains) losses .................. (23,507) (40,411) 24,890
Provision for loan losses ............................... 300,000 300,000 300,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets ............................................ (599,055) (770,061) (117,583)
Accrued interest and other liabilities .................. (102,823) (56,069) 227,984
------------ ------------ ------------
Net Cash From Operating Activities ............................ 6,430,371 5,717,360 6,072,684
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in certificate of deposit .................... (3,000,000) -- --
Proceeds from sales of securities available for sale .... 7,579,149 2,166,459 5,542,274
Proceeds from maturities of securities held to maturity . 2,569,215 3,285,760 2,099,919
Proceeds from maturities of securities available for sale 50,293,783 48,173,553 32,334,987
Purchase of securities available for sale ............... (95,748,942) (61,085,311) (49,392,205)
Net loans made to customers ............................. (22,497,779) (22,117,884) (22,109,893)
Purchases of premises and equipment ..................... (348,637) (433,875) (633,603)
Purchase of Federal Home Loan Bank stock ................ (656,200) (137,400) (149,000)
------------ ------------ ------------
Net Cash Used By Investing Activities ......................... (61,809,411) (30,148,698) (32,307,521)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ................................ 12,297,347 32,065,713 30,617,935
Net increase in securities sold
under agreements to repurchase .......................... 6,456,597 -- --
Federal funds purchased ................................. 7,000,000 -- --
Dividends ............................................... (2,419,039) (1,938,380) (1,536,000)
Proceeds from long-term debt ............................ 10,000,000 10,000,000 --
Repayment of long-term debt ............................. (2,000,000) -- --
Purchase of treasury stock .............................. (87,612) -- --
------------ ------------ ------------
Net Cash From Financing Activities ............................ 31,247,293 40,127,333 29,081,935
------------ ------------ ------------
Net Change in Cash and Cash Equivalents ....................... (24,131,747) 15,695,995 2,847,098
Cash and Cash Equivalents at Beginning
of Year ....................................................... 43,396,314 27,700,319 24,853,221
------------ ------------ ------------
Cash and Cash Equivalents at End of Year ...................... $ 19,264,567 $ 43,396,314 $ 27,700,319
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements
-16-
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------------
1999 1998 1997
------------ ------------ -------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest .............................. $ 13,736,652 $ 12,629,351 $ 11,145,980
Income taxes .......................... $ 2,987,643 $ 2,716,954 $ 2,281,582
NON CASH TRANSACTIONS
Recorded unrealized (losses) gains
on securities available for sale
at December 31......................... $ (4,816,056) $ 1,433,568 $ 1,378,233
Deferred income (benefit) taxes on recorded
unrealized (losses) gains on securities
available for sale at December 31 ..... $ (1,637,460) $ 487,412 $ 468,598
Loans transferred to foreclosed real estate
during the year ....................... $ 211,410 $ 178,548 $ 7,200
Capital stock distributed as dividend
Capital stock ......................... $ -- $ 59,916 $ --
Surplus ............................... $ -- $ 2,192,935 $ --
Three-for-one stock split in the form of a
stock dividend
Capital stock ......................... $ -- $ 2,519,833 $ --
Surplus ............................... $ -- $ (2,519,833) $ --
The accompanying notes are an integral part of these
consolidated financial statements
-17-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company
whose principal activity is the ownership and management of its wholly owned
subsidiary, Irwin Bank and Trust Company (the Bank). The Bank is a full service
state chartered commercial banking institution and provides a variety of
financial services to individuals and corporate customers through its five
branch offices, a loan center, four supermarket branches and main office located
in Southwestern Pennsylvania. The Bank's primary deposit products are
non-interest and interest-bearing checking accounts, savings accounts and
certificates of deposit. Its primary lending products are single-family and
multi-family residential loans, installment loans and commercial loans.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation. IBT Bancorp, Inc. transacts no other
material business.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Investment Securities: All investments in debt and equity securities are to be
classified into three categories. Securities which management has positive
intent and ability to hold until maturity are classified as held to maturity.
Securities held to maturity are stated at cost, adjusted for amortization of
premium and accretion of discount computed on a level yield basis. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities. All other securities are classified
as available for sale securities. Unrealized holding gains and losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management has no intention of establishing a trading securities
classification.
Interest and dividends on securities are reported as interest income. Gains and
losses realized on sales of securities represent the differences between net
proceeds and carrying values determined by the specific identification method.
Loans and Allowance for Loan Losses: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees and
unearned discounts.
Unearned discounts on certain loans are recognized as income over the term of
the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
-18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is maintained at a level which, in management's
judgement, is adequate to absorb potential losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans generally are
determined based on collateral values or the present value of estimated cash
flows. 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 nonaccrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed currently. Cost of major additions or improvements are
capitalized.
Other Real Estate Owned (OREO): Real estate acquired in satisfaction of a loan
and in-substance foreclosures are reported in other assets. In-substance
foreclosures are properties in which a borrower, with little or no equity in the
collateral, effectively abandons control of the property or has no economic
interest to continue involvement in the property. The borrower's ability to
rebuild equity based on current financial conditions also is considered
doubtful. Properties acquired by foreclosure or deed in lieu of foreclosure and
properties classified as in-substance foreclosures are transferred to OREO and
recorded at the lower of cost or fair value less estimated costs to sell. Costs
to maintain the assets, subsequent write-downs to reflect declines in the fair
value of the property and subsequent gains and losses attributable to their
disposal are included in other income and expenses.
Income Taxes: The Bancorp uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established, when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities. The Bancorp files consolidated Federal
income tax returns with its subsidiary.
Earnings per Share: Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. The weighted average shares
outstanding, giving retroactive effect of the stock dividend and stock split,
described in Note 17, was $3,023,770, $3,023,799 and $3,023,799 for the years
ended December 31, 1999, 1998, and 1997, respectively.
Cash Equivalents: For purposes of the Statements of Cash Flows, the Bancorp
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. The Bancorp considers all cash and
amounts due from depository institutions, interest-bearing deposits in other
banks, except certificates of deposit with maturities of more than three months,
and federal funds sold to be cash equivalents for purposes of the statements of
cash flows.
-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification of Prior Year's Statements: - Certain previously reported items
have been reclassified to conform to the current year's classifications. The
reclassifications have no effect on total assets, total liabilities and
stockholders' equity, or net income.
NOTE 2 -- INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
December 31, 1999
-----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------- -------------------- ------------------- --------------------
Obligations of
U.S. Government Agencies $ 93,081,432 $ - $ (2,337,153) $ 90,744,279
Obligations of State and
political sub-divisions 10,855,620 3,791 (323,614) 10,535,797
Mortgage-backed securities 49,245,605 - (2,240,851) 47,004,754
Other securities 577,895 5,713 - 583,608
Equity securities 154,410 76,058 - 230,468
--------------------- -------------------- ------------------- --------------------
$ 153,914,962 $ 85,562 $ (4,901,618) $ 149,098,906
===================== ==================== =================== ====================
December 31, 1998
-----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------- -------------------- ------------------- --------------------
U.S. Treasury securities $ 5,516,405 $ 99,700 $ - $ 5,616,105
Obligations of
U.S. Government Agencies 68,446,065 1,130,425 (36,510) 69,539,980
Obligations of State and
political sub-divisions 8,026,140 233,928 (59,756) 8,200,312
Mortgage-backed securities 33,255,689 148,555 (177,050) 33,227,194
Other securities 637,670 7 - 637,677
Equity securities 154,410 94,269 - 248,679
--------------------- -------------------- ------------------- --------------------
$ 116,036,379 $ 1,706,884 $ (273,316) $ 117,469,947
===================== ==================== =================== ====================
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Investment securities held to maturity consist of the following at December 31,
1998. All of these securities matured during 1999.
December 31, 1998
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------- ------------------- ------------------ --------------------
Obligations of
U.S. Government Agencies $ 2,500,000 $ - $ (14,375) $ 2,485,625
Mortgage-backed securities 69,215 - (295) 68,920
------------------- ------------------- ------------------ --------------------
$ 2,569,215 $ - $ (14,670) $ 2,554,545
=================== =================== ================== ====================
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
Years Ended December 31,
------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
Gross realized gains:
U.S. Treasury securities.................................. $ 21,143 $ - $ -
Obligations of U.S. Government Agencies................... 9,790 58,191 8,108
Obligations of state and political sub-divisions.......... - 3,121 -
Mortgage-backed securities................................ 22,261 - -
------------------- ------------------ --------------------
$ 53,194 $ 61,312 $ 8,108
=================== ================== ====================
Gross realized losses:
Obligations of U.S. Government Agencies................... $ 29,687 $ - $ -
Mortgage-backed securities................................ - 20,901 32,998
------------------- ------------------ --------------------
$ 29,687 $ 20,901 $ 32,998
=================== ================== ====================
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 1999 are as follows:
Amortized Market
Cost Value
---------------------- ------------------------
Due in one year or less.............................................. $ 1,398,360 $ 1,393,322
Due after one year through five years................................ 44,396,393 43,639,538
Due after five years through ten years............................... 39,721,291 38,791,345
Due after ten years, includes equity securities...................... 68,398,918 65,274,701
---------------------- ------------------------
$ 153,914,962 $ 149,098,906
====================== ========================
As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Bank is
required to maintain a minimum amount of FHLB stock. The minimum amount is
calculated based on level of assets, residential real estate loans and
outstanding FHLB advances. At December 31, 1999 and 1998, the Bank held
$1,964,300 and $1,308,100, respectively, of FHLB stock.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
-----------------------------------------------
1999 1998
-------------------- ----------------------
Mortgage............................................................. $ 130,347,599 $ 123,494,185
Home equity credit................................................... 8,885,737 8,588,588
Installment.......................................................... 61,983,558 52,418,443
Commercial........................................................... 47,293,848 45,232,281
PHEAA................................................................ 6,166,194 5,043,415
Municipal............................................................ 6,346,773 3,615,536
Credit cards......................................................... 1,780,360 1,807,547
Other................................................................ 210,097 476,655
---------------------- ------------------------
263,014,166 240,676,650
Less:
Unearned discount - 46
Allowance for loan losses...................................... 2,365,874 2,228,214
Deferred loan fees............................................. 146,022 143,899
---------------------- ------------------------
$ 260,502,270 $ 238,304,491
====================== ========================
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 3 -- LOANS (CONTINUED)
At December 31, 1999 and 1998, the total recorded investment in impaired loans
amounted to approximately $150,000 and $13,000, respectively. The allowance for
loan losses related to impaired loans amounted to approximately $22,500 and
$2,000 at December 31, 1999 and 1998, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997
------------------- ----------------- ----------------
Balance, beginning of year................................ $ 2,228,214 $ 2,340,283 $ 2,239,598
Provision charged to operations........................... 300,000 300,000 300,000
Loans charged off......................................... (175,436) (526,117) (207,270)
Recoveries................................................ 13,096 114,048 7,955
------------------- ----------------- ----------------
Balance, end of year...................................... $ 2,365,874 $ 2,228,214 $ 2,340,283
=================== ================= ================
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
---------------------------------------
1999 1998
------------------- -----------------
Land............................................. $ 450,466 $ 450,466
Buildings and improvements....................... 4,814,040 4,814,040
Furniture and equipment.......................... 4,320,561 3,971,924
------------------- -----------------
9,585,067 9,236,430
Less: Accumulated depreciation 4,856,365 4,357,297
------------------- -----------------
$ 4,728,702 $ 4,879,133
=================== =================
Depreciation expense was $ 499,068 in 1999, $482,000 in 1998 and $422,349
in 1997.
Seven of the Bank's branch office buildings and/or land are leased by the
Bank. These leases have initial terms of 1 to 20 years, and all contain
renewal options for additional years.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)
The following is a summary of the future minimum lease payments under these
operating leases:
For the year ended December 31,
2000 $ 138,700
2001 140,238
2002 120,150
2003 103,105
2004 and thereafter 723,081
-------------
$ 1,225,274
=============
Rental expense under these operating leases was $130,780, $100,700 and $83,650
for the years ended December 31, 1999 , 1998, and 1997, respectively.
NOTE 5 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 1999 are
summarized as follows:
2000 $ 114,990,595
2001 20,334,043
2002 11,113,817
2003 13,475,158
2004 and thereafter 9,042,123
---------------
$ 168,955,736
===============
The Bank held related party deposits of approximately $4,541,000 and $3,134,000
at December 31, 1999 and 1998, respectively.
The Bank held time deposits that exceeded $100,000 of $34,132,826 and
$23,584,545 at December 31, 1999 and 1998, respectively.
NOTE 6 -- REPURCHASE AGREEMENT
During 1999, the Bank began offering its corporate customers an investments
product fashioned in the form of a repurchase agreement. Under the terms of the
agreement, deposits in designated demand accounts of the customer are put into
an investment vehicle which is used daily to purchase an interest in designated
U.S. Government or Agencies' securities owned by the Bank. The Bank in turn
agrees to repurchase these investments on a daily basis and pay the customer the
daily interest earned on them. At December 31, 1999, the amount of repurchase
agreements was $6,456,597.
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 7 -- PLEDGED ASSETS
At December 31, 1999 and 1998, assets carried at $43,250,000 and $42,000,000,
respectively, were pledged to qualify for fiduciary powers, to secure public
monies as required by law, for repurchase agreements, and for other purposes.
NOTE 8 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
Currently payable............................... $ 3,012,368 $ 2,618,602 $ 2,388,935
Deferred tax (benefit).......................... (29,977) 117,974 (176)
------------------- ----------------- ------------------
Total........................................... $ 2,982,391 $ 2,736,576 $ 2,388,759
=================== =================== ==================
The significant components of temporary differences for 1999, 1998 and 1997 are
as follows:
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
Provision for loan losses....................... $ (46,906) $ 38,201 $ (34,233)
Depreciation.................................... (5,387) 10,559 20,576
Valuation allowance............................. 553 550 8,621
Pension......................................... 38,301 67,732 (3,461)
Deferred loan fees.............................. (722) 10,222 13,346
Other........................................... (15,816) (9,290) (5,025)
------------------- ------------------- ------------------
Total........................................... $ (29,977) $ 117,974 $ (176)
=================== =================== ==================
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before income taxes is as follows:
Years Ended December 31,
--------------------------------------------------------------
% of Pretax Income
--------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- ----------------
Provision at statutory rate...................... 34.0 % 34.0 % 34.0 %
Effect of tax free income........................ (2.0) (2.0) (2.7)
Other............................................ - .1 .2
---------------------- -------------------- ----------------
Effective tax rate............................... 32.0 % 32.1 % 31.5 %
====================== ==================== ================
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 8 -- INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31,1999 and 1998 are as follows:
1999 1998
------------------------------------------- --------------------------------------
Deferred Tax Deferred Tax
------------------------------------------- --------------------------------------
Assets Liabilities Assets Liabilities
------------------- --------------------- ------------------ -----------------
Provision for loan losses.............. $ 600,205 $ - $ 553,299 $ -
Depreciation........................... - 169,192 - 174,579
Pension expense........................ - 36,339 1,962 -
Other.................................. 168,216 - 152,231 -
SFAS 115............................... 1,637,460 - - 487,412
------------------- --------------------- ------------------ -----------------
$ 2,405,881 $ 205,531 $ 707,492 $ 661,991
=================== ===================== ================== =================
NOTE 9 -- LONG-TERM DEBT
At December 31, 1999, the Bank had the following advances from the Federal Home
Loan Bank (FHLB).
Amount Interest Rate Maturity Date
------------------- ---------------------------------- ----------------
$ 2,000,000 5.88% Fixed March 13, 2001
10,000,000 5.86% Fixed w/Strike Rate July 22, 2004
5,000,000 5.63% Fixed to Float July 21, 2008
5,000,000 4.86% Fixed to Float October 23, 2008
-------------------
$ 22,000,000
===================
Interest only is payable until maturity on all long-term debt. Collateral for
all debt includes all qualifying mortgages.
As of December 31, 1998, the Bank has a line of credit with FHLB of
approximately $11,671,000. During 1999 the FHLB discontinued offering lines of
credit. In addition, the Bank has maximum borrowing capacity with FHLB of
approximately $136,547,000 and $131,856,000 at December 31, 1999 and 1998,
respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Bank maintained one non-contributory defined benefit pension plan for its
employees prior to 1995 (Plan #1). In 1995, various plan assumptions were
changed which resulted in a reduction in benefits for older and long-standing
employees. To compensate for this, a supplemental non-qualified plan was
installed for those employees so affected (Plan #2). The Bank's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes for Plan #1. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future. Assets for the plans were primarily invested in U.S.
Government obligations, corporate obligations and equity securities whose
valuations are subject to fluctuations of the securities' market.
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following is a summary of the plans as of December 31, 1999 and 1998:
1999 1998
------------ ------------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year ......................... $ 2,279,047 $ 1,986,373
Service cost .................................................... 180,192 160,189
Interest cost ................................................... 158,453 137,966
Actuarial loss due to settlement ................................ 128,760 --
Benefits paid ................................................... (19,100) (18,667)
Plan settlement ................................................. (840,928) --
Other - net ..................................................... (120,733) 13,186
----------- -----------
Benefit obligation at end of year ......................... $ 1,765,691 $ 2,279,047
=========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year ........................... $ 2,510,141 $ 2,207,486
Actual return on plan assets .................................... 177,449 177,907
Plan settlement ................................................. (840,928) --
Benefits paid ................................................... (19,100) (18,667)
Employer contributions .......................................... 188,679 143,415
----------- -----------
Fair value of plan assets at end of year .................. $ 2,016,241 $ 2,510,141
=========== ===========
Funded status ................................................... $ 250,550 $ 231,094
Unrecognized net loss from actuarial experience ................. 149,953 134,196
Unrecognized prior service cost ................................. (256,748) (275,010)
Unamortized net asset existing at date of adoption of SFAS No. 87 (73,879) (80,912)
Settlement ...................................................... (17,717) --
----------- -----------
Prepaid (accrued) pension cost ............................ $ 52,159 $ 9,368
=========== ===========
Net pension expense included the following components:
Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
Service cost - benefits earned during the period.......... $ 180,192 $ 160,189 $ 134,087
Interest cost on projected benefit obligation............. 158,453 137,966 115,502
Actual return on plan assets.............................. (177,449) (177,907) (244,191)
Net amortization and deferral............................. (33,025) (6,042) 81,491
------------------ ------------------ -------------------
Net periodic pension cost................................. $ 128,171 $ 114,206 $ 86,889
================== ================== ===================
The projected benefit obligation was determined using an assumed discount rate
of 7.0% for 1999 and 1998 and an expected rate of increase in compensation using
a graded scale which ranges from 3.5% to 5.5% for Plan #1, and 3.5% for Plan #2.
The assumed rate of return on the plans' investment earnings was 7.0 % for 1999
and 1998.
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The Bank also maintains non-qualified deferred compensation plans for certain
directors, which are generally funded by life insurance, the premiums of which
have been paid for by the Bank. The present value of these benefits to be paid
under the programs is being accrued over the estimated remaining service period
of the participants. The liability for these future obligations was $447,836 and
$402,945 at December 31, 1999 and 1998, respectively.
In addition, the Bank maintains a qualified 401(k) - deferred compensation plan
for eligible employees. The plan is designed to provide a predetermined matching
contribution by the Bank based on compensation deferrals by participants in the
plan. The Bank contributions, including administrative fees, for 1999, 1998 and
1997 amounted to $42,228, $42,753 and $37,677, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
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 $51,851,000 and $41,445,000, as of December 31, 1999 and 1998,
respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance-sheet instruments. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. The terms are typically for a one year period, with an
annual renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements.
The Bancorp and Bank are involved in various legal actions from normal business
activities. Management believes that the liability, if any, arising from such
actions will not have a material adverse effect on the Bancorp and Bank's
financial position.
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 12 -- RELATED-PARTY TRANSACTIONS
At December 31, 1999 and 1998, certain officers and directors of the Bancorp and
the Bank, and companies in which they have beneficial ownership, were indebted
to the Bank in the aggregate amount of approximately $5,651,000 and $6,950,000,
respectively. During 1999, new loans to such related parties were approximately
$1,986,000 and repayments approximated $3,285,000.
NOTE 13 -- CONCENTRATION OF CREDIT
The Bank primarily grants loans to customers in Western Pennsylvania, and
maintains a diversified loan portfolio and the ability of its debtors to honor
their contracts is not substantially dependent on any particular economic
business sector. A substantial portion of the Bank's investments in municipal
securities are obligations of state or political subdivisions located within
Pennsylvania. As a whole, the Bank's loan and investment portfolios could be
affected by the general economic conditions of Pennsylvania. In addition, at
December 31, 1999 and 1998, a significant portion of the Bank's "due from banks"
and "federal funds sold" is maintained with two large financial institutions
located in Southwestern Pennsylvania. The Bank maintains a cash balance and
federal funds sold at financial institutions that exceed the $100,000 amount
that is insured by the FDIC. Amounts in excess of insured limits, per the
institution's records, were approximately $3,627,000 and $33,077,000 at December
31, 1999 and 1998, respectively.
NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and cash equivalents: The carrying amount is a reasonable estimate of fair
value.
Certificates of deposit: The carrying amounts of these short term investments
approximate their fair value.
Investment securities: The fair value of securities is equal to the available
quoted market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
Federal Home Loan Bank stock: The carrying value of the FHLB stock is a
reasonable estimate of fair value due to restrictions on the securities.
Loans receivable: For certain homogeneous categories of loans, fair value is
estimated using the quoted market prices for securities backed by similar loans
adjusted for differences in loan characteristics. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers for the same remaining
maturities.
-29-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Short term borrowings: The carrying amounts of federal funds purchased and
borrowings under repurchase agreements are short term borrowings and approximate
their fair values.
Long term debt: The fair value of long term debt (FHLB advances) was determined
using a discounted cash flow analysis based on current FHLB advance rates for
advances with similar maturities.
The estimated fair value of the Bancorp's financial instruments as of December
31, 1999 are as follows:
Carrying Fair
Amount Value
--------------------- ---------------------
Financial Assets:
Cash and cash equivalents............ $ 19,264,567 $ 19,264,567
Certificates of deposit.............. $ 3,000,000 $ 3,000,000
Investment securities................ $ 149,098,906 $ 149,098,906
Federal Home Loan Bank Stock......... $ 1,964,300 $ 1,964,300
Loans receivable..................... $ 260,502,270 $ 260,399,319
Financial liabilities:
Deposits............................. $ 368,680,485 $ 369,243,833
Short term borrowings................ $ 13,456,597 $ 13,456,597
Long term debt....................... $ 22,000,000 $ 20,186,433
The market values of investments, which are based upon quoted market prices are
contained in Note 2.
NOTE 15 -- REGULATORY MATTERS
The Bank is subject to legal limitations on the amount of dividends that can be
paid to the Bancorp. The Pennsylvania Banking Code restricts the payment of
dividends, generally to the extent of its retained earnings.
-30-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 15 -- REGULATORY MATTERS (CONTINUED)
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below, of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1999 and 1998, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 1999 and 1998, the minimum
ratios required for capital adequacy purposes, and the ratios required to be
considered well capitalized under the Federal Deposit Insurance Corporation
Improvement Act of 1991 provisions are as follows:
December 31, Minimum Well
----------------------------- Capital Capitalized
1999 1998 Requirements Requirements
------------- ------------- ----------------- -------------------
Risk-based capital ratio 16.5% 16.4% 8.0% 10.0% or higher
Leverage capital ratio 9.0% 9.2% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 15.6% 15.4% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $5,033,000
and $4,403,000 at December 31, 1999 and 1998, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances. These reserves are held in the form of due from banks.
NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption of this Statement, the transfer of any held to
maturity security into either the available for sale or trading category and the
transfer of any available for sale security into the trading category. Transfers
from the held to maturity portfolio at the date of initial adoption will not
call into question the entity's intent to hold other debt securities to maturity
in the future. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, as amended by FASB No. 137, and is not
expected to have any impact on the Bank. The Bank does not intend to adopt SFAS
No. 133 earlier than required.
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 17 -- CAPITAL STOCK
In January 1998, the Bancorp declared a 5% stock dividend to stockholders of
record at January 15, 1998, payable February 2, 1998. Fractional shares were
paid for in cash, totaling $3,149. The Bancorp issued 47,933 shares of capital
stock in conjunction with this dividend. In addition, on December 28, 1998, the
Bancorp declared a three-for-one stock split on the Bancorp's capital stock,
which was effected in the form of a 200 percent stock dividend.
Two additional shares were issued for each share of capital stock held by
shareholders of record as of the close of business on January 6, 1999. New
shares were distributed on January 29, 1999. Capital stock and surplus as of
December 31, 1998 have been restated to reflect this split. Par value will
remain unchanged at $1.25. The number of shares issued at December 31, 1998,
after giving effect to the split was 3,023,799 (1,007,933 shares issued before
the split). The effect of the stock split has been retroactively reflected as of
December 31, 1998 in the consolidated balance sheet and statement of changes in
stockholders' equity, but prior periods were not restated in those statements.
All references to the number of shares and per share amounts elsewhere in the
consolidated financial statements and related footnotes have been restated as
appropriate to reflect the effect of the split for all periods presented.
NOTE 18 -- TREASURY STOCK
In December 1999, the Bancorp repurchased 2,625 shares of its stock for $87,612
and is being held as treasury stock at December 31, 1999.
-32-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarters ended 1999
--------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- -------------- ------------
Interest income $7,020,239 $7,090,176 $7,538,273 $7,793,746
Interest expense 3,228,619 3,189,554 3,547,337 3,678,078
---------- ---------- ---------- ----------
Net interest income 3,791,620 3,900,622 3,990,936 4,115,668
Provision for loan
losses 45,000 45,000 105,000 105,000
Non-interest income 661,019 740,595 806,822 843,824
Non-interest expense 2,099,755 2,257,533 2,329,841 2,545,832
---------- ---------- ---------- ----------
Income before income
taxes 2,307,884 2,338,684 2,362,917 2,308,660
Income tax expense 741,114 747,492 760,121 733,664
---------- ---------- ---------- ----------
Net income $1,566,770 $1,591,192 $1,602,796 $1,574,996
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.52 $ 0.52 $ 0.53 $ 0.53
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 3,023,799 3,023,799 3,023,799 3,023,684
========== ========== ========== ==========
Quarters ended 1998
-----------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------- ------------
Interest income $6,692,189 $6,837,205 $6,905,949 $7,092,870
Interest expense 3,048,949 3,089,614 3,149,389 3,298,164
---------- ---------- ---------- ----------
Net interest income 3,643,240 3,747,591 3,756,560 3,794,706
Provision for loan losses 105,000 105,000 75,000 15,000
Non-interest income 503,300 567,213 609,828 653,170
Non-interest expense 2,048,583 1,989,057 2,149,467 2,250,995
---------- ---------- ---------- ----------
Income before income
taxes 1,992,957 2,220,748 2,141,921 2,181,881
Income tax expense 617,516 718,261 694,622 706,177
---------- ---------- ---------- ----------
Net income $1,375,441 $1,502,487 $1,447,299 $1,475,704
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.45 $ 0.50 $ 0.48 $ 0.49
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 3,023,799 3,023,799 3,023,799 3,023,799
========== ========== ========== ==========
-33-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 20 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997 is as
follows:
BALANCE SHEETS
December 31,
-------------------------
1999 1998
----------- -----------
ASSETS
Cash in bank................................ $ 770 $ 629
Investment in subsidiary.................... 36,975,372 37,184,369
Securities available for sale............... 733,363 826,348
Other assets................................ 221,634 221,634
----------- -----------
Total Assets................................ $37,931,139 $38,232,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................. $ 25,859 $ 32,051
Stockholders' Equity........................ 37,905,280 38,200,929
----------- -----------
Total Liabilities and Stockholders' Equity.. $37,931,139 $38,232,980
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Income
Dividends from subsidiary................... $2,500,000 $2,100,000 $1,700,000
Other dividends............................. 33,586 32,157 25,062
Expenses
Professional fees........................... 84,781 20,979 13,668
Miscellaneous............................... 16,786 14,729 11,060
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed.................
Earnings of Subsidiary...................... 2,432,019 2,096,449 1,700,334
Equity in Undistributed
Earnings of Subsidiary...................... 3,903,735 3,704,481 3,493,182
---------- ---------- ----------
Net Income........................................ $6,335,754 $5,800,930 $5,193,516
========== ========== ==========
-34-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 6,335,754 $ 5,800,930 $ 5,193,516
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary................... (3,903,735) (3,704,481) (3,493,182)
Other assets...................... -- -- (28,822)
----------- ----------- -----------
Net Cash From Operating Activities.................. 2,432,019 2,096,449 1,671,512
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of securities available
for sale................................... 74,773 -- --
Purchase of securities available for sale..... -- (158,861) (135,663)
Dividends paid................................ (2,419,039) (1,938,380) (1,536,000)
Purchase of Treasury Stock.................... (87,612) -- --
----------- ----------- -----------
Net Cash Used by Financing Activities............... (2,431,878) (2,097,241) (1,671,663)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents............. 141 (792) (151)
Cash and Cash Equivalents at Beginning
of Year....................................... 629 1,421 1,572
----------- ----------- -----------
Cash and Cash Equivalents at End of Year............ $ 770 $ 629 $ 1,421
=========== =========== ===========
-35-
IBT Bancorp, Inc.
Corporate Profile
IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation, is the
bank holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank
is the principal subsidiary of the Company. During the second quarter of 2000,
the Company and a third party plan to form Irwin Bank Financial Services, LLC ,
which will offer insurance and investment services to customers and the general
public.
Irwin Bank & Trust Company was incorporated in 1922 under the laws of
Pennsylvania as a commercial bank. The Bank is headquartered in Irwin,
Pennsylvania and conducts business through 8 full service branches, 4
supermarket branches, and a loan office, in the Pennsylvania counties of
Westmoreland and Allegheny. Irwin Bank is a diversified financial services
institution providing a broad range of deposits, commercial and retail banking
services, as well as trust services to consumers and businesses. Deposits in
Irwin Bank are insured by the Federal Deposit Insurance Corporation to
applicable limits.
Stock Market Information
The Company's common stock is listed on the OTC Bulletin Board under
the symbol "IBTB". As of February 25, 2000, IBT Bancorp had 650 shareholders of
record and 3,003,003 shares of common stock issued and outstanding. The number
of shareholders does not reflect persons or entities who hold their stock in
nominee or "street" name through various brokerage firms.
The following table sets forth high and low bid prices per share for
the common stock for the calendar quarters indicated, based upon information
obtained from the OTC Bulletin Board. All such bid prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. On February 2, 1998 and January 29, 1999, the
Company paid a 5% stock dividend and a 200% stock dividend (in the form of a
three for one stock split)., respectively. Cash dividend and market prices set
forth in the table below have also been adjusted for the stock dividends
declared and paid by the Company.
Price Range
----------- Cash Dividends
High($) Low ($) Declared Per Share($)
------- ------- ---------------------
1998
- ----
First Quarter 18.33 14.92 .16
Second Quarter 21.83 18.33 .16
Third Quarter 24.92 21.00 .16
Fourth Quarter 27.67 23.67 .16
1999
- ----
First Quarter 40.00 28.33 .20
Second Quarter 34.75 32.00 .20
Third Quarter 34.00 31.75 .20
Fourth Quarter 33.38 29.00 .20
The ability of the Company to pay dividends is dependent upon the
ability of Irwin Bank to pay dividends to the Company. Because Irwin Bank is a
depository institution insured by the FDIC it may not pay dividends or
distribute capital assets if it is in default on any assessment due the FDIC.
Additionally, Irwin Bank is subject to certain state banking regulations that
limit the ability of the Bank to pay dividends to the Company. Under Federal
Reserve
-36-
policy, the Company is required to maintain adequate regulatory capital and is
expected to act as a source of financial strength to Irwin Bank and to commit
resources to support Irwin Bank in circumstances where it might not do so absent
such a policy. This policy could have the effect of reducing the amount of
dividends declarable by the Company.
-37-