EXHIBIT 13
SELECTED FINANCIAL INFORMATION
IBT BANCORP, INC & SUBSIDIARY
At or for the Years Ended December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Selected Balance Sheet Data:
Assets $ 496,379 $ 445,721 $ 412,366 $ 366,457 $ 331,416
Cash and cash equivalents 21,746 19,264 43,396 27,700 24,853
Securities available for sale 167,874 151,063 118,778 107,801 95,343
Securities held to maturity - - 2,569 5,855 7,955
Loans receivable (net) 291,914 260,502 238,304 216,487 194,677
Deposits 409,638 368,680 356,383 324,317 292,699
Repurchase agreements 9,022 6,457 - - -
Federal funds purchased - 7,000 - - -
FHLB advances 28,000 22,000 14,000 4,000 4,000
Shareholders' equity 44,615 37,905 38,201 34,302 30,090
Selected Results of Operations
Interest income 33,787 29,731 27,768 25,349 22,695
Net interest income 17,200 16,087 15,182 13,832 12,505
Provision for loan losses 300 300 300 300 410
Net interest income after provision
for loan losses 16,900 15,787 14,882 13,532 12,095
Other income 2,946 2,764 2,093 1,733 1,471
Other expense 10,181 9,233 8,438 7,683 7,076
Net income 6,705 6,336 5,801 5,193 4,458
Per Share Data:
Net Income
Basic $ 2.23 $ 2.10 $ 1.92 $ 1.72 $ 1.47
Diluted 2.23 2.10 1.92 1.72 1.47
Cash dividends declared 0.92 0.80 0.64 0.51 0.42
Selected Ratios:
Return on average assets 1.44% 1.49% 1.54% 1.52% 1.44%
Return on average equity 16.87 16.54 15.97 16.27 15.82
Ratio of average equity to average assets 8.52 8.99 9.63 9.84 9.61
Dividend payout 41.26 38.10 33.33 29.65 25.57
-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", "anticipate", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions. 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.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking
services through its wholly owned banking subsidiary, Irwin Bank & Trust Co.
(collectively, the "Company").
FINANCIAL CONDITION
At December 31, 2000, total assets increased $50.7 million, or 11.4%,
to $496.4 million from $445.7 million at December 31, 1999. Of this increase,
securities available for sale increased $16.8 million, net loans receivable
increased $31.4 million, federal funds sold increased $4.1 million, and
interest-bearing deposits in banks increased $4.6 million. Increases in federal
funds sold and interest-bearing deposits in banks will be used to meet
anticipated future loan demand. Such increases in assets were primarily offset
by a decrease of $6.3 million in cash and due from banks. The decrease in cash
and due from banks was used to pay off, in the first quarter of 2000, federal
funds purchased of $7.0 million, that were outstanding at December 31, 1999.
The growth in total deposits of $40.9 million was used primarily to
fund the growth in the loan and securities available for sale portfolio. The
increase in the loan portfolio was primarily due to the growth of the fixed rate
one-to four-family mortgage loan, commercial mortgage, and commercial portfolio
of $8.2 million, $9.4 million, and $5.4 million, respectively. Such increases
were partially offset by the sale of the credit card portfolio of $1.8 million
in the second quarter of fiscal 2000. The Company's loan portfolio continues to
grow due to the Company's offering of competitive market interest rates.
The increase of $16.8 million in investment securities available for
sale was mainly attributable to sales of $6.2 million, proceeds from maturities
of securities of $12.0 million, purchases of $30.0 million, and an increase in
market value (before tax) of $5.0 million.
At December 31, 2000, total liabilities increased $44.0 million, or
10.7%, to $451.8 million from $407.8 million at December 31, 1999. The increase
primarily related to the increase in total deposits of $40.9 million. Of this
increase, Interest-bearing deposits increased $33.7 million to $345.3 million at
December 31, 2000 from $311.6 million at December 31, 1999. The most significant
areas of increase were in the Certificate of Deposit accounts which reached
$205.3 million at December 31, 2000, an increase of $36.4 million from $168.9
million at December 31, 1999. Customers continue to be attracted to this product
due to the competitive interest rates paid for these products.
-2-
Non interest-bearing deposits increased $7.2 million to $64.3 million
at December 31, 2000 from $57.1 million at December 31, 1999. Such increases
reflect additions to non-interest bearing deposits of $16.2 million offset by
$9.0 million in investments in repurchase agreements. Under the terms of the
agreement, deposits in designated demand accounts of the customer are put into a
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 customers the daily
interest earned based on the current market rate. At December 31, 2000, the
amount of repurchase agreements totaled $9.0 million. See Note 6 to the
consolidated financial statements.
At December 31, 2000, total stockholders' equity increased $6.7 million
to $44.6 million from $37.9 million at December 31, 1999. The increase was
primarily due to a $3.3 million increase in accumulated other comprehensive
income and net income of $6.7 million for the period, offset by dividends paid
of $2.8 million. The Company has repurchased 22,000 shares of stock at an
average cost of approximately $31 per share. During fiscal 2001, based on the
availability, the Company plans to repurchase up to 129,000 of its shares.
Accumulated other comprehensive income increased as a result of changes
in the net unrealized gain on the available for sale securities due to
fluctuations in interest rates. 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 increase in accumulated other comprehensive
income resulted from the Company's investment in U.S. Government agencies and
municipals available for sale. See Note 2 to the consolidated financial
statements.
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: Net income increased approximately $369,000, or 5.8%, to
$6.7 million for the year ended December 31, 2000 from $6.3 million for the year
ended December 31, 1999. At December 31, 1999, net income increased
approximately $535,000, or 9.2%, to $6.3 million from $5.8 million for the year
ended December 31, 1998. The increase in net income for 2000 and 1999 was
primarily attributable to the increases in the average balances of interest
earning assets of $37.6 million and $49.4 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 loans
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 $1.1 million, or 6.8%, to $17.2 million
for 2000 compared to $16.1 million for 1999. The increase was primarily due to
the increase in average loans of $27.8 million and average investment securities
available for sale of $14.9 million coupled with a 30 basis point increase in
the yield on average interest earning assets to 7.59% for 2000 from 7.29% for
1999. The increase in the yield on average interest earning assets was primarily
the result of yield increases in average loans and average investment securities
of 21 basis points and 28 basis points, respectively. Such increases were the
result of loans and investments being made at higher interest rates. The
increase in average loans and average investment securities available for sale
were partially funded by the increase in average interest bearing liabilities of
$34.0 million. Offsetting the increase in net interest income was a 43 basis
point increase in average cost of funds to 4.58% for 2000 from 4.15% for 1999.
The yield on average interest bearing liabilities increased mainly due to the
increase in the average balance in certificates of deposit and other liabilities
coupled with higher interest rates being paid on total deposit products and
other liabilities.
Net interest income increased $900,000, or 5.9%, to $16.1 million for
1999 compared to $15.2 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 7.29% for 1999
from 7.75% for 1998. The yield on average interest earning assets declined for
1999 due to a decrease in yields on loans receivable to 7.95% for 1999 from
8.48% for 1998, which was the result of loans refinancing at lower rates.
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 for daily balances.
-4-
Year Ended December 31,
------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-
earning assets:
Loans
receivable (1) (7) $ 279,400 $ 22,808 8.16% $ 251,574 $ 20,000 7.95% $226,984 $ 19,259 8.48%
Investment
securities
available
for sale (2) 159,394 10,578 6.64 144,544 9,195 6.36 114,078 7,606 6.67
Investment
securities
held to
maturity - - - 1,208 36 2.98 3,228 143 4.43
Other interest-
earning
assets (5) 6,464 401 6.20 10,319 500 4.85 13,956 760 5.45
Total
interest
earning
assets $ 445,258 $ 33,787 7.59 $ 407,645 $ 29,731 7.29 $358,246 $ 27,768 7.75
========= ========= ==== ========= ========= ==== ======== ======== ====
Non-interest
earning assets 21,558 18,655 19,033
-------- -------- --------
Total
assets $466,816 $426,300 $377,279
======== ======== ========
Interest-bearing
liabilities:
Money market
accounts 56,079 2,275 4.06% 56,731 2,069 3.65% 47,023 1,864 3.96%
Certificates
of Deposit 182,465 10,364 5.68 162,668 8,418 5.17 149,598 8,322 5.56
Other
liabilities 123,928 3,949 3.19 109,061 3,157 2.89 88,180 2,400 2.72
--------- --------- ---- --------- --------- ---- -------- -------- ----
Total
interest-
bearing
liabilities $ 362,472 $ 16,588 4.58% $ 328,460 $ 13,644 4.15% $284,801 $ 12,586 4.42%
========= ========= ==== ========= ========= ==== ======== ======== ====
Non-interest-
bearing
liabilities 64,591 59,530 56,150
--------- --------- --------
Total
liabilities $ 427,063 $ 387,990 $340,951
========= ========= ========
Retained
Earnings (6) 39,753 38,310 36,328
--------- --------- --------
Total
liabilities
and
stockholders'
equity $ 466,816 $ 426,300 $377,279
========= ========= ========
Net interest
income $ 17,199 $ 16,087 $ 15,182
========= ========= ========
Interest rate
spread (3) 3.01% 3.14% 3.33%
====== ====== ======
Net yield on
interest-
earning
assets (4) 3.86% 3.95% 4.24%
====== ====== ======
Ratio of
average
interest-
earning
assets to
average
interest-
bearing
liabilities 122.84% 124.11% 125.79%
====== ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest earning assets.
(5) Includes federal funds sold.
(6) Includes capital stock, surplus and unrealized holding gains on SFAS 115
AFS securities.
(7) For all years presented, interest income includes business manager income,
which was previously classified as other non-interest income.
-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 December 31, Year Ended December 31,
---------------------------- -----------------------------
2000 vs. 1999 1999 vs. 1998
---------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands) (In Thousands)
Interest income:
Loans receivable $2,212 $ 596 $2,808 $2,086 $(1,345) $ 741
Investment securities available
for sale 945 438 1,383 2,031 (442) 1,589
Investment securities held to maturity (36) - (36) (89) (18) (107)
Other interest earning assets (187) 88 (99) (198) (62) (260)
------ ------ ------ ------ ------- ------
Total interest-earning assets 2,934 1,122 4,056 3,830 (1,867) 1,963
------ ------ ------ ------ ------- ------
Interest expense:
Money market accounts (24) 230 206 385 (180) 205
Certificates of deposit 1,024 922 1,946 727 (631) 96
Other liabilities 430 362 792 568 189 757
------ ------ ------ ------ ------- ------
Total interest-bearing liabilities 1,430 1,514 2,944 1,680 (622) 1,058
------ ------ ------ ------ ------- ------
Net change in interest income $1,504 $ (392) $1,112 $2,150 $(1,245) $ 905
====== ====== ====== ====== ======= ======
Provision for Loan Losses: The Company recorded a provision for loan
losses of $300,000 for 2000, 1999, and 1998. 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. 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 $182,000, or
6.6%, to $2.9 million for the year ended December 31, 2000 from $2.8 million for
the year ended December 31, 1999. The increases were the result of service fees
and debit card fees totaling $282,000, $115,000 gain from the sale of the credit
card portfolio, offset by investment security losses of $107,000. The increase
in service fees resulted from an increase in overdraft fees due to a larger
deposit base from the prior year. The increase in debit card fees resulted from
increased customer usage.
-6-
For the year ended December 31, 1999, total other income increased
approximately $671,000, or 32.0%, to $2.8 million from $2.1 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.
Other Expenses: Total other expenses increased approximately $1.0
million, or 10.9%, to $10.2 million for 2000 from $9.2 million for 1999. This
increase was primarily the result of an increase in salaries of approximately
$500,000 to $4.1 million for 2000 from $3.6 million for 1999. As previously
disclosed, the Company instituted an across the board salary increase to all
non-officer employees and eliminated the bonus reward program for non-officer
employees in January 2000. Pension and other employee benefits increased
approximately $61,000 to $1.1 million for 2000 from $1.0 million for 1999 a
result of increases in health insurance premiums. Data processing and ATM
expenses increased $89,000 to $1.0 million in 2000 from $900,000 in 1999. Such
increases were a result of increased fees from the Company's processors. Other
expenses increased $200,000 to $3.0 million for 2000 from $2.8 million for 1999.
The increase in other expenses includes approximately $76,000 in aggregate net
losses from the Company's investments in IB&T Financial Services, LLC ("IB&T
Financial") and T.A. of Irwin, L.P.. The investment in IB&T Financial will be
dissolved in the second quarter of 2001.
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 to 1998
primarily due to the retirement on January 1, 1999 of two key officers of the
Company.
-7-
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include savings, deposits, loan
repayments and prepayments, cash from operations and borrowing from the Federal
Home Loan Bank. The Company uses its capital resources principally to fund loan
originations 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, 2000, the Company had commitments to extend credit of $58.4
million.
The Company's liquid assets consist of cash and cash equivalents, which
include investments in short-term investments. The levels of these assets are
dependent on the Company's operating, financing, and investment activities
during any given period. At December 31, 2000, cash and cash equivalents totaled
$21.7 million
Net cash from operating activities for 2000 totaled $7.3 million, as
compared to $6.5 million for 1999 and $5.9 million for 1998.
Net cash used by investing activities for 2000 totaled $44.0 million,
as compared to cash used of $61.8 million for 1999 and $30.3 million for 1998.
The decrease of $17.8 million for 2000 was mainly attributed to net decreases in
purchases of available for sale securities. Net cash used to purchase available
for sale securities for 2000 decreased $26.0 million. Net cash used to purchase
available for sale securities for 1999 totaled $27.1 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 from financing activities for the year ended December 31, 2000
totaled $39.2 million, as compared to cash from financing activities of $31.2
million for 1999 and $40.1 million for 1998. The $8.0 million increase in cash
from financing activities for 2000 was a result of a $28.7 million increase in
deposits offset by a decrease of $3.9 million in securities sold under
agreements to repurchase and a $7.0 million decrease in federal funds purchased.
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.
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 Company'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 principle 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 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, 2000.
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 principle. The Company uses certain assumptions
to estimate fair values and expected maturities. For asset, expected
maturities are based upon contractual maturity, call dates and projected
repayments of principle. 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
2001 2002 2003 2004 2005 Thereafter Value Value
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest-earning assets
- -----------------------
Mortgage loans $ 6,732 $10,276 $ 7,191 $ 7,493 $7,966 $113,095 $152,753 $149,406
Home equity loans,
second mortgage
loans, student loans,
other loans 20,147 11,709 10,330 7,888 6,564 25,999 82,637 85,284
Commercial loans,
municipal loans 12,575 4,480 3,477 2,835 1,870 33,384 58,621 58,997
Investment securities
available for sale 7,827 13,996 9,070 13,953 6,237 114,540 165,623 165,910
Interest-bearing liabilities
- ----------------------------
NOW and other
transaction accounts 11,786 - - - - - 11,786 11,786
Money market and other
savings accounts 127,934 - - - - - 127,934 127,934
Certificates of deposit 140,949 39,282 14,815 3,824 3,273 3,193 205,336 207,589
Federal home loan bank
of Pittsburgh advances 6,000 2,000 - 10,000 - 10,000 28,000 28,968
-10-
[LOGO] Certified Public Accountants & Business Advisors
EDWARDS ------------------------------------------------------------
SAUER & 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
OWENS Phone: 412-281-9211 Fax: 412-281-2407 A Professional Corporation
www. esocpa.com
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, 2000 and 1999 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
These consolidated financial statements are the responsibility 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/Edwards Sauer & Owens
Pittsburgh, Pennsylvania
February 1, 2001
-11-
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
December 31,
------------------------------
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 12,877,327 $ 19,171,977
Interest-bearing deposits in banks 4,740,068 92,590
Federal funds sold 4,129,000 -
Certificates of deposit 2,700,000 3,000,000
Securities available for sale 165,909,886 149,098,906
Federal Home Loan Bank stock, at cost 1,964,300 1,964,300
Loans, net of allowance for loan losses of
$1,919,327 in 2000 and $2,365,874 in 1999 291,914,060 260,502,270
Premises and equipment, net 4,899,777 4,728,702
Other assets 7,245,015 7,162,670
------------- -------------
Total Assets $ 496,379,433 $ 445,721,415
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 64,316,265 $ 57,097,999
Interest-bearing 345,322,197 311,582,486
------------- -------------
Total deposits 409,638,462 368,680,485
Repurchase agreements 9,022,190 6,456,597
Federal funds purchased - 7,000,000
Accrued interest and other liabilities 5,104,200 3,679,053
Long-term debt 28,000,000 22,000,000
------------- -------------
Total liabilities 451,764,852 407,816,135
Stockholders' Equity
Capital stock, par value $1.25, 50,000,000
shares authorized, 3,023,799 shares
issued, 3,001,923 and 3,021,174
shares outstanding at December 31, 2000
and December 31, 1999, respectively 3,779,749 3,779,749
Surplus 2,073,102 2,073,102
Retained earnings 39,261,880 35,318,637
Accumulated other comprehensive income 189,326 (3,178,596)
------------- -------------
45,304,057 37,992,892
Less: Treasury stock, at cost (689,476) (87,612)
------------- -------------
Total stockholders' equity 44,614,581 37,905,280
------------- -------------
Total Liabilities and Stockholders' Equity $ 496,379,433 $ 445,721,415
============= =============
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,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Interest Income
Loans, including fees $ 22,807,718 $ 19,999,321 $ 19,259,384
Investment securities 10,578,510 9,231,496 7,748,537
Federal funds sold 400,886 499,811 760,495
------------ ------------ ------------
Total interest income 33,787,114 29,730,628 27,768,416
Interest Expense
Deposits 14,603,671 12,473,855 12,174,469
Long-term debt 1,586,859 974,405 411,647
Repurchase agreements 362,684 191,193 -
Federal funds purchased 34,354 4,135 -
------------ ------------ ------------
Total interest expense 16,587,568 13,643,588 12,586,116
------------ ------------ ------------
Net Interest Income 17,199,546 16,087,040 15,182,300
Provision for Loan Losses 300,000 300,000 300,000
------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 16,899,546 15,787,040 14,882,300
Other Income (Losses)
Service fees 1,645,913 1,497,861 1,190,223
Investment security gains - 53,194 61,312
Investment security losses (106,974) (29,687) (20,901)
Debit card fees 401,080 266,079 162,107
Other income 1,006,422 976,619 700,567
------------ ------------ ------------
Total other income 2,946,441 2,764,066 2,093,308
Other Expenses
Salaries 4,084,817 3,566,947 3,573,257
Pension and other employee benefits 1,056,116 994,960 818,669
Occupancy expense 1,020,734 949,662 903,112
Data processing expense 588,193 535,108 505,484
ATM expense 383,935 348,414 298,843
Other expenses 3,047,492 2,837,870 2,338,737
------------ ------------ ------------
Total other expenses 10,181,287 9,232,961 8,438,102
------------ ------------ ------------
Income Before Income Taxes 9,664,700 9,318,145 8,537,506
Provision for Income Taxes 2,959,439 2,982,391 2,736,576
------------ ------------ ------------
Net income $ 6,705,261 $ 6,335,754 $ 5,800,930
============ ============ ============
Basic Earnings per Share $ 2.23 $ 2.10 $ 1.92
============ ============ ============
Diluted Earnings per Share $ 2.23 $ 2.10 $ 1.92
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-13-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
--------------- ---------------- --------------- ---------------- --------------- -------------
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 ($0.64) (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 STOCKHOLDER'S EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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 tax 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 ($0.80) (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 CHANGES IN STOCKHOLDER'S EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
------------------ ----------------- ---------------- ---------------- ------------- --------------
Balance at
December 31, 1999 $ 3,779,749 $ 2,073,102 $ 35,318,637 $ (3,178,596) $ (87,612) $ 37,905,280
Comprehensive Income
Net income 6,705,261 6,705,261
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$1,722,575 3,343,822 3,343,822
Less: reclassification
adjustment, net of
deferred income
tax of $12,415 24,100 24,100
--------------
3,367,922
--------------
Total Comprehensive
Income 10,073,183
Cash dividends ($0.92) (2,762,018) (2,762,018)
Purchase of Treasury Stock (601,864) (601,864)
------------------ ----------------- ---------------- ---------------- ------------- --------------
Balance at
December 31, 2000 $ 3,779,749 $ 2,073,102 $ 39,261,880 $ 189,326 $ (689,476) $ 44,614,581
================= ================ =============== =============== ============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
-16-
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,705,261 $ 6,335,754 $ 5,800,930
Adjustments to reconcile net cash
from operating activities:
Depreciation 528,335 499,068 482,000
Net amortization/accretion of premiums and discounts (9,800) 20,934 971
Net investment security losses (gains) 106,974 (23,507) (40,411)
Provision for loan losses 300,000 300,000 300,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets (1,610,223) (566,193) (598,713)
Accrued interest and other liabilities 1,327,616 (102,823) (56,069)
------------ ------------ ------------
Net Cash From Operating Activities 7,348,163 6,463,233 5,888,708
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit (2,700,000) (3,000,000) -
Proceeds from maturity of certificates of deposit 3,000,000 - -
Proceeds from sales of securities available for sale 6,153,348 7,579,149 2,166,459
Proceeds from maturities of securities held to maturity - 2,569,215 3,285,760
Proceeds from maturities of securities available for sale 12,000,998 50,293,783 48,173,553
Purchase of securities available for sale (29,959,587) (95,748,942) (61,085,311)
Net loans made to customers (31,821,372) (22,530,641) (22,289,232)
Purchases of premises and equipment (699,410) (348,637) (433,875)
Purchase of Federal Home Loan Bank stock - (656,200) (137,400)
------------ ------------ ------------
Net Cash Used By Investing Activities (44,026,023) (61,842,273) (30,320,046)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 40,957,977 12,297,347 32,065,713
Net increase in securities sold
under agreements to repurchase 2,565,593 6,456,597 -
Net (decrease) increase in federal
funds purchased (7,000,000) 7,000,000 -
Dividends (2,762,018) (2,419,039) (1,938,380)
Proceeds from long-term debt 7,000,000 10,000,000 10,000,000
Repayment of long-term debt (1,000,000) (2,000,000) -
Purchase of treasury stock (601,864) (87,612) -
------------ ------------ ------------
Net Cash From Financing Activities 39,159,688 31,247,293 40,127,333
------------ ------------ ------------
Net Change in Cash and Cash Equivalents 2,481,828 (24,131,747) 15,695,995
Cash and Cash Equivalents at Beginning of Year 19,264,567 43,396,314 27,700,319
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 21,746,395 $ 19,264,567 $ 43,396,314
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-17-
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------
2000 1999 1998
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 15,052,496 $ 13,736,652 $ 12,629,351
Income taxes $ 2,904,000 $ 2,987,643 $ 2,716,954
NON CASH TRANSACTIONS
Recorded unrealized gains (losses)
on securities available for sale
at December 31 $ 286,857 $ (4,816,056) $ 1,433,568
Deferred income taxes (benefit) on recorded
unrealized gains (losses) on securities
available for sale at December 31 $ 97,531 $ (1,637,460) $ 487,412
Loans transferred to foreclosed real estate
during the year $ 320,992 $ 211,410 $ 178,548
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.
-18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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, five 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.
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.
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.
-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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 properties acquired through or in
lieu of loan foreclosure are initially recorded at the lower of the Bank's
carrying amount or fair value less estimated selling cost at the date of
foreclosure. Any write-downs based on the asset's fair value at the date of
acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell. Costs of significant property improvements are capitalized,
whereas costs relating to holding property are expensed. Valuations are
periodically performed by management, and any subsequent write-downs are
recorded as a charge to operations, if necessary, to reduce the carrying value
of a property to the lower of its cost or fair value less cost to sell.
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 3,003,334, 3,023,770 and 3,023,799 for the years ended
December 31, 2000, 1999 and 1998, 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.
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- -------------- -------------
Obligations of
U.S. Government Agencies $ 97,470,750 $ 340,966 $ - $ 97,811,716
Obligations of State and
political sub-divisions 18,505,643 404,526 - 18,910,169
Mortgage-backed securities 44,679,971 - (548,183) 44,131,788
Other securities 817,265 5,562 (2,200) 820,627
Equity securities 4,149,400 86,186 - 4,235,586
------------- ------------- ------------- -------------
$ 165,623,029 $ 837,240 $ (550,383) $ 165,909,886
============= ============= ============= =============
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
============= ============= ============= =============
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
Years Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Gross realized gains:
U.S. Treasury securities $ - $ 21,143 $ -
Obligations of U.S. Government Agencies - 9,790 58,191
Obligations of state and political sub-divisions - - 3,121
Mortgage-backed securities - 22,261 -
-------- -------- --------
$ - $ 53,194 $ 61,312
======== ======== ========
Gross realized losses:
Obligations of U.S. Government Agencies $106,974 $ 29,687 $ -
Mortgage-backed securities - - 20,901
-------- -------- --------
$106,974 $ 29,687 $ 20,901
======== ======== ========
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 2000, 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.
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 2000 are as follows:
Amortized Market
Cost Value
------------ ------------
Due in one year or less $ 7,827,333 $ 7,816,785
Due after one year through five years 43,256,405 43,492,943
Due after five years through ten years 39,670,999 40,015,242
Due after ten years, includes equity securities 74,868,292 74,584,916
------------ ------------
$165,623,029 $165,909,886
============ ============
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. The Bank held $1,964,300 of FHLB stock at December
31, 2000 and 1999.
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
---------------------------
2000 1999
------------ ------------
Mortgage $152,752,889 $130,347,599
Home equity credit 10,067,310 8,885,737
Installment 65,326,867 61,983,558
Commercial 52,675,603 47,293,848
PHEAA 6,631,715 6,166,194
Municipal 5,945,048 6,346,773
Credit cards -- 1,780,360
Other 611,416 210,097
------------ ------------
294,010,848 263,014,166
Less:
Allowance for loan losses 1,919,327 2,365,874
Deferred loan fees 177,461 146,022
------------ ------------
$291,914,060 $260,502,270
============ ============
In 2000, the Bank sold its credit card portfolio for approximately $1,760,000.
The realized gain on the sale was approximately $115,000 which is included in
other income on the statement of income.
The total recorded investment in impaired loans amounted to $0 at December 31,
2000 and approximately $150,000 at December 31, 1999. The allowance for loan
losses related to impaired loans amounted to $0 and approximately $22,500 at
December 31, 2000 and 1999, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Balance, beginning of year $ 2,365,874 $ 2,228,214 $ 2,340,283
Provision charged to operations 300,000 300,000 300,000
Loans charged off (767,486) (175,436) (526,117)
Recoveries 20,939 13,096 114,048
----------- ----------- -----------
Balance, end of year $ 1,919,327 $ 2,365,874 $ 2,228,214
=========== =========== ===========
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
-------------------------
2000 1999
----------- -----------
Land $ 450,466 $ 450,466
Buildings and improvements 5,053,222 4,814,040
Furniture and equipment 4,780,789 4,320,561
----------- -----------
10,284,477 9,585,067
Less: Accumulated depreciation 5,384,700 4,856,365
----------- -----------
$ 4,899,777 $ 4,728,702
=========== ===========
Depreciation expense was $528,335 in 2000, $499,068 in 1999 and $482,000 in
1998.
Eight 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.
The following is a summary of the future minimum lease payments under these
operating leases:
For the year ended December 31,
2001 $ 167,257
2002 145,587
2003 120,625
2004 107,050
2005 and thereafter 621,911
-------------
$ 1,162,430
=============
Rental expense under these operating leases was $149,043, $130,780 and $100,700
for the years ended December 31, 2000, 1999 and 1998, respectively.
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 5 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 2000 are
summarized as follows:
2001 $140,949,056
2002 39,282,196
2003 14,815,296
2004 3,824,302
2005 and thereafter 6,465,505
-------------
$205,336,355
=============
The Bank held related party deposits of approximately $3,272,000 and $4,541,000
at December 31, 2000 and 1999, respectively.
The Bank held time deposits that exceeded $100,000 of $36,942,793 and
$34,132,826 at December 31, 2000 and 1999, respectively.
NOTE 6 -- REPURCHASE AGREEMENT
During 1999, the Bank began offering 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 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. The amount of repurchase agreements was
$9,022,190 and $6,456,597 at December 31, 2000 and 1999, respectively.
NOTE 7 -- PLEDGED ASSETS
At December 31, 2000 and 1999, U.S. Government obligations carried at
approximately $37,000,000 and $32,250,000, respectively, were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted by law. At December 31, 2000 and 1999, the carrying amount of
securities pledged to secure repurchase agreements was approximately $14,000,000
and $11,000,000, respectively.
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 8 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
----------------------------------------
2000 1999 1998
----------- ----------- -----------
Currently payable $ 2,815,429 $ 3,012,368 $ 2,618,602
Deferred tax (benefit) 144,010 (29,977) 117,974
----------- ----------- -----------
Total $ 2,959,439 $ 2,982,391 $ 2,736,576
=========== =========== ===========
The significant components of temporary differences for 2000, 1999 and 1998 are
as follows:
Years Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Provision for loan losses $ 151,347 $ (46,906) $ 38,201
Depreciation (12,665) (5,387) 10,559
Valuation allowance 550 553 550
Pension 20,168 38,301 67,732
Deferred loan fees (10,689) (722) 10,222
Other (4,701) (15,816) (9,290)
--------- --------- ---------
Total $ 144,010 $ (29,977) $ 117,974
========= ========= =========
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
-------------------------------
2000 1999 1998
------ ------ ------
Provision at statutory rate 34.0 % 34.0 % 34.0 %
Effect of tax free income (3.1) (2.0) (2.0)
Other (0.3) - .1
------ ------ ------
Effective tax rate 30.6 % 32.0 % 32.1 %
====== ====== ======
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 8 -- INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 2000 and 1999 are as follows:
2000 1999
------------------------ ------------------------
Deferred Tax Deferred Tax
------------------------ ------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Provision for loan losses $ 448,858 $ - $ 600,205 $ -
Depreciation - 156,528 - 169,192
Pension expense - 56,506 - 36,339
Other 183,056 - 168,216 -
SFAS 115 - 97,531 1,637,460 -
---------- ---------- ---------- ----------
$ 631,914 $ 310,565 $2,405,881 $ 205,531
========== ========== ========== ==========
NOTE 9 -- LONG-TERM DEBT
At December 31, 2000 and 1999, the Bank had the following advances from the
Federal Home Loan Bank (FHLB).
2000 1999 Interest Rate Maturity Date
- ----------------- ------------- ------------------------- -----------------
$ 2,000,000 $ 2,000,000 5.88% Fixed March 13, 2001
10,000,000 10,000,000 5.86% Fixed w/Strike Rate July 22, 2004
5,000,000 5,000,000 5.63% Fixed to Float July 21, 2008
5,000,000 5,000,000 4.86% Fixed to Float October 23, 2008
2,000,000 - 7.09% Fixed August 28, 2001
2,000,000 - 7.01% Fixed August 8, 2002
2,000,000 - 6.83% Fixed March 8, 2001
- ----------------- -------------
$28,000,000 $ 22,000,000
================= =============
Interest only is payable until maturity on all long-term debt. Collateral for
all debt includes all qualifying mortgages.
The Bank had maximum borrowing capacity with FHLB of approximately $216,665,000
and $136,547,000 at December 31, 2000 and 1999, 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 are primarily invested in U.S.
Government obligations, corporate obligations and equity securities whose
valuations are subject to fluctuations of the securities' market.
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following is a summary of the plans as of December 31, 2000 and 1999:
2000 1999 1998
----------- ----------- -----------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 1,765,691 $ 2,279,047 $ 1,986,373
Service cost 150,403 180,192 160,189
Interest cost 122,204 158,453 137,966
Actuarial loss due to settlement - 128,760 -
Benefits paid (75,139) (19,100) (18,667)
Plan settlement - (840,928) -
Other - net (122,751) (120,733) 13,186
----------- ----------- -----------
Benefit obligation at end of year $ 1,840,408 $ 1,765,691 $ 2,279,047
=========== =========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 2,016,241 $ 2,510,141 $ 2,207,486
Actual return on plan assets 105,065 177,449 177,907
Plan settlement - (840,928) -
Benefits paid (75,139) (19,100) (18,667)
Employer contributions 168,975 188,679 143,415
----------- ----------- -----------
Fair value of plan assets at end of year $ 2,215,142 $ 2,016,241 $ 2,510,141
=========== =========== ===========
Funded status $ 374,734 $ 250,550 $ 231,094
Unrecognized net loss from actuarial experience 27,502 149,953 134,196
Unrecognized prior service cost (238,486) (256,748) (275,010)
Unamortized net asset existing at date
of adoption of SFAS No. 87 (39,369) (73,879) (80,912)
Settlement - (17,717) -
----------- ----------- -----------
Prepaid pension cost $ 124,381 $ 52,159 $ 9,368
=========== =========== ===========
Net pension expense included the following components:
Years Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Service cost - benefits earned during the period $ 150,403 $ 180,192 $ 160,189
Interest cost on projected benefit obligation 122,204 158,453 137,966
Actual return on plan assets (105,065) (177,449) (177,907)
Net amortization and deferral (70,789) (33,025) (6,042)
--------- --------- ---------
Net periodic pension cost $ 96,753 $ 128,171 $ 114,206
========= ========= =========
The projected benefit obligation for Plan #1 was determined using an assumed
discount rate of 7.75% for 2000 and 7.0% for 1999 and 1998 and an expected rate
of increase in compensation using a graded scale ranging from 3.5% to 5.5%. The
projected benefit obligation for Plan #2 was determined using an assumed
discount rate of 7.0% and an expected rate of increase in compensation of 3.5%
for 2000, 1999 and 1998. For both plans, the assumed rate of return on the
plans' investment earnings was 7.0 % for 2000, 1999 and 1998.
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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 $453,806 and
$447,836 at December 31, 2000 and 1999, 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 2000, 1999 and
1998 amounted to $49,526, $42,228 and $42,753, 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 $58,436,000 and $51,851,000, as of December 31, 2000 and 1999,
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 financial position of the
Bancorp and Bank.
-29-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 12 -- RELATED-PARTY TRANSACTIONS
At December 31, 2000 and 1999, 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 $5,185,000 and $5,651,000,
respectively. During 2000, new loans to such related parties were approximately
$1,111,000 and repayments approximated $1,577,000.
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, 2000 and 1999, 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
institutions' records, were approximately $12,143,000 and $3,627,000 at December
31, 2000 and 199
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.
-30-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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, 2000 are as follows:
Carrying Fair
Amount Value
------------- -------------
Financial Assets:
Cash and cash equivalents $ 21,746,395 $ 21,746,395
Certificates of deposit $ 2,700,000 $ 2,700,000
Investment securities $ 165,909,886 $ 165,909,886
Federal Home Loan Bank Stock $ 1,964,300 $ 1,964,300
Loans receivable $ 291,914,060 $ 291,244,826
Financial liabilities:
Deposits $ 409,638,462 $ 410,891,763
Short term borrowings $ 9,022,190 $ 9,022,190
Long term debt $ 28,000,000 $ 28,967,532
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.
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
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, 2000 and 1999, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 2000 and 1999, 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
2000 1999 Requirements Requirements
--------- ------- --------------- ---------------
Risk-based capital ratio 16.3% 16.5% 8.0% 10.0% or higher
Leverage capital ratio 9.0% 9.0% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 15.6% 15.6% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $3,126,000
and $5,033,000 at December 31, 2000 and 1999, 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 138, is not
expected to have any impact on the Bank. the Bank does not intend to adopt SFAS
No. 133 earlier than required.
-32-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In November 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statements 125's provisions without reconsideration. The Statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. SFAS No. 140 is not expected to have
any impact on the Bank.
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 share were
distributed on January 29, 1999. Par value will remain unchanged at $1.25. The
effect of the stock split has been retroactively reflected as of December 31,
1998 in the consolidated statement of changes in stockholders' equity. 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 2000 and 1999, the Bancorp repurchased 19,251 and 2,625 shares of its stock
for $601,864 and $87,612, respectively, and is being held as treasury stock.
NOTE 19 -- STOCK OPTION PLAN
In 2000, the stockholders approved the 2000 Stock Option Plan. Under the terms
of the plan, officers, directors, key employees and other persons may be granted
options to purchase the company's common stock at no less than 100% of the fair
market value of the common stock on the date the option is granted. The Option
Plan provides for a term of ten years, after which no awards may be made.
Options constitute both Incentive Stock Options or Non-Incentive Stock Options.
Options granted to non-employee directors are immediately exercisable and
options granted to employees generally vest over three years. Options granted to
both non-employee directors and employees have a maximum term of 10 years. At
December 31, 2000 a total of 300,000 shares were reserved for future issuance
under the plan. In May 2000, 61,000 stock options were granted under this plan
at an exercise price of $24.50 per share.
-33-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
NOTE 19 -- STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Bank's stock option plan as of December 31, 2000,
and changes for the year then ended is presented below:
Weighted
Exercise
Average
Shares Price
---------------- ----------
Outstanding at the beginning of the year - $ -
Granted 61,000 24.50
Expired/forfeited - -
Exercised - -
----------------
Outstanding at December 31, 2000 61,000 $ 24.50
================
Exercisable at December 31, 2000 18,000
================
The options outstanding at December 31, 2000 had a weighted-average contractual
maturity of 9.375 years and an exercise price of $24.50.
The per share weighted-average fair value of stock options granted with an
exercise price equal to market for the year ended December 31, 2000 was $3.21,
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 2000: expected life of 7 years, expected annual dividend rate of
4.57%, risk-free interest rate of 5.095%, and an expected volatility of 27%.
The Bank accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25. Had the Bank determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Bank's net income would have been reduced to the proforma amounts indicated
below:
Year ended
December 31, 2000
-----------------
Net income:
As reported $ 6,705,261
Pro Forma 6,667,136
Net income per share:
Basic and Diluted as reported
2.23
Basic and Diluted Pro Forma
2.20
-34-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 20 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
QUARTERS ENDED 2000
---------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------- -----------
Interest income $7,908,984 $8,265,275 $8,628,150 $8,984,705
Interest expense 3,638,514 3,865,929 4,318,206 4,764,919
---------- ---------- ---------- ----------
Net interest income 4,270,470 4,399,346 4,309,944 4,219,786
Provision for loan losses 75,000 75,000 75,000 75,000
Non-interest income 669,086 742,258 764,567 770,530
Non-interest expense 2,431,387 2,605,445 2,529,051 2,615,404
---------- ---------- ---------- ----------
Income before income taxes 2,433,169 2,461,159 2,470,460 2,299,912
Income tax expense 781,192 804,911 740,248 633,088
---------- ---------- ---------- ----------
Net income $1,651,977 $1,656,248 $1,730,212 $1,666,824
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.55 $ 0.55 $ 0.58 $ 0.55
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic and Diluted 3,007,597 3,001,923 3,001,923 3,001,923
========== ========== ========== ==========
QUARTERS ENDED 1999
--------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
Interest income $7,080,100 $7,150,406 $7,614,167 $7,885,955
Interest expense 3,228,619 3,189,554 3,547,337 3,678,078
---------- ---------- ---------- ----------
Net interest income 3,851,481 3,960,852 4,066,830 4,207,877
Provision for loan losses 45,000 45,000 105,000 105,000
Non-interest income 601,158 680,365 730,928 751,615
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
========== ========== ========== ==========
-35-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
2000 and 1999 and for the years ended December 31, 2000, 1999 and 1998 is as
follows:
BALANCE SHEETS
December 31
-------------------------
2000 1999
----------- -----------
ASSETS
Cash in bank $ 3,482 $ 770
Investment in subsidiary 43,894,268 36,975,372
Securities available for sale 457,851 733,363
Other assets 279,780 221,634
----------- -----------
Total Assets $44,635,381 $37,931,139
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 20,800 $ 25,859
Stockholders' Equity 44,614,581 37,905,280
----------- -----------
Total Liabilities and Stockholders' Equity $44,635,381 $37,931,139
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Income
Dividends from subsidiary $3,325,000 $2,500,000 $2,100,000
Other dividends 14,141 33,586 32,157
Expenses
Professional fees 76,676 84,781 20,979
Miscellaneous 98,356 16,786 14,729
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed Earnings of
Subsidiary 3,164,109 2,432,019 2,096,449
Equity in Undistributed
Earnings of Subsidiary 3,541,152 3,903,735 3,704,481
---------- ---------- ----------
Net Income $6,705,261 $6,335,754 $5,800,930
========== ========== ==========
-36-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,705,261 $ 6,335,754 $ 5,800,930
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 (3,541,152) (3,903,735) (3,704,481)
Other assets (58,146) - -
----------- ----------- -----------
Net Cash From Operating Activities 3,105,963 2,432,019 2,096,449
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities available
for sale 260,631 74,773 -
Purchase of securities available for sale - - (158,861)
----------- ----------- -----------
Net Cash From (Used By) Investing Activities 260,631 74,773 (158,861)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (2,762,018) (2,419,039) (1,938,380)
Purchase of Treasury Stock (601,864) (87,612) -
----------- ----------- -----------
Net Cash Used by Financing Activities (3,363,882) (2,506,651) (1,938,380)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents 2,712 141 (792)
Cash and Cash Equivalents at Beginning
of Year 770 629 1,421
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 3,482 $ 770 $ 629
=========== =========== ===========
-37-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 22 -- JOINT VENTURES
In 2000, the Bancorp formed a new subsidiary, IBT Financial Services, LLC. The
newly formed subsidiary commenced operations in June 2000 and offers a full
range of investment products and insurance services to customers and the general
public. The Bancorp owns fifty percent of the newly formed company and is
accounting for its investment using the equity method. As of December 31, 2000,
the corporate joint venture is reflected in the other assets section of the
balance sheet at $49,270 which represents the Bancorp's cost in the amount of
$125,000 less equity in the undistributed net losses during the year of $75,730.
Also in 2000, the Bancorp formed a new partnership, T.A. of Irwin, L.P. This
newly formed partnership commenced operations in October 2000 and provides title
insurance to the general public. The Bancorp's capital contribution was $13,231
representing an 85% limited partnership interest. The Bancorp is using the
equity method to account for its investment in the partnership. As of December
31, 2000, the partnership is reflected in the other assets section of the
balance sheet at $8,876 which represents the Bancorp's initial cost less equity
in the undistributed net losses during the year of $4,355.
-38-
IBT BANCORP, INC.
Corporate Profile
IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation, is the bank
holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank is the
principal subsidiary of the Company.
Irwin Bank & Trust Company was incorporated in 1922 under the laws of
Pennsylvania as a commercial bank. The Bank is headquartered in Irwin,
Pennsylvania and conducts business through 6 full service branches, 5
supermarket branches, a loan office and a trust office, in the Pennsylvania
counties of Westmoreland and Allegheny. Irwin Bank is a diversified financial
services institution providing a broad range of deposits, commercial and retail
banking services, as well as trust services to consumers and businesses.
Deposits in Irwin Bank are insured by the Federal Deposit Insurance Corporation
to applicable limits.
Stock Market Information
The Company's common stock is listed on the OTC Bulletin Board under the symbol
"IBTB". As of March 02, 2001, IBT Bancorp, Inc. had approximately 648
shareholders of record and 3,001,923 shares of common stock issued and
outstanding. The number of shareholders does not reflect persons or entities who
hold their stock in nominee or "street" name through various brokerage firms.
The following table sets forth high and low bid prices per share for the common
stock for the calendar quarters indicated, based upon information obtained from
the OTC Bulletin Board. All such bid prices reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions. On January 29, 1999, the Company paid a 5% stock dividend
and a 200% stock dividend (in the form of a three for one stock split),
respectively. Cash dividend and market prices set forth in the table below have
also been adjusted for the stock dividends declared and paid by the Company.
Price Range Cash Dividends
High ($) Low ($) Declared Per Share ($)
-------- ------- ----------------------
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
2000
----
First Quarter 33.50 24.00 .23
Second Quarter 27.00 21.50 .23
Third Quarter 22.25 20.00 .23
Fourth Quarter 22.25 20.13 .23
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 also subject to certain state banking regulations. Under Federal Reserve
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 circum-
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stances 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.
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