IBT BANCORP INC.
Selected Financial Information
IBT Bancorp, Inc. & Subsidiary
At or for the Years Ended
--------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
Selected Balance Sheet Data:
Assets $584,035 $524,044 $496,379 $445,721 $412,366
Cash and cash equivalents 15,066 25,219 21,746 19,264 43,396
Securities available for sale 186,718 162,968 167,874 151,063 118,778
Securities held to maturity -- -- -- -- 2,569
Loans receivable (net) 359,872 315,132 291,914 260,502 238,304
Deposits 468,257 422,462 409,638 368,680 356,383
Repurchase agreements 14,526 11,207 9,022 6,457 --
Federal funds purchased -- -- -- 7,000 --
FHLB advances 40,000 35,000 28,000 22,000 14,000
Shareholders' equity 56,151 49,725 44,615 37,905 38,201
Selected Results of Operations
Interest income $ 33,560 $ 35,185 $ 33,787 $ 29,731 $ 27,768
Net interest income 20,732 18,226 17,200 16,087 15,182
Provision for loan losses 1,100 500 300 300 300
Net interest income after provision
for loan losses 19,632 17,726 16,900 15,787 14,882
Other income 5,317 4,009 2,946 2,764 2,093
Other expense 12,831 11,284 10,181 9,233 8,438
Net income 8,937 7,465 6,705 6,336 5,801
Per Share Data:
Net Income
Basic $ 3.00 $ 2.49 $ 2.23 $ 2.10 $ 1.92
Diluted 2.99 2.49 2.23 2.10 1.92
Cash dividends declared 1.20 1.04 0.92 0.80 0.64
Selected Ratios:
Return on average assets 1.61% 1.45% 1.44% 1.49% 1.54%
Return on average equity 16.95% 15.57% 16.87% 16.54% 15.97%
Ratio of avg. equity to avg. assets 9.47% 9.31% 8.52% 8.99% 9.63%
Dividend payout 40.00% 41.77% 41.26% 38.10% 33.33%
2 0 0 2 A N N U A L R E P O R T
A Message To Our Shareholders
Our financial performance.
2002 was truly a year of record-breaking financial performance for IBT Bancorp,
Inc. Through its Irwin Bank and Trust Company subsidiary, IBT Bancorp achieved
significant growth in assets, strong earnings and an outstanding efficiency
ratio. As a result, the value of our shareholders' investment in IBT Bancorp
stock improved significantly. The stock ended the year at $37.95 per share, an
increase of $9.45 per share or 33%. If dividends are included, the return on one
share of stock was 37%. We are pleased to provide our shareholders with a
superior return on their investment. Earnings for 2002 increased by an
impressive 19.72%, to $2.99 per diluted share. Dividends increased to $1.20 per
share, up 15% from 2001.
Interest rates, non-interest income and operating expenses.
The dominant story for 2002 was the reduction in interest rates. From January
31, 2001 to November 6, 2002 the Federal Reserve cut the federal funds rate
eleven times, from 6% to 1.25%. Banks responded by cutting the rates paid on
deposits and the rates charged for loans. By year-end, deposit rates on
checking, savings and money market accounts were at historic lows. This left
little room for further adjustment against declining lending rates, causing what
is known as margin compression. Banks nationwide will be wrestling with this
condition in 2003 as will this Company. Margin compression strains the net
interest margin, a major component of net income.
In order to maintain or improve our results it is necessary to manage margin
compression, increase non-interest income, and continue to control operating
expenses. These objectives were a major influence on our decision-making in 2002
and will surely drive our thinking in 2003. The Company continues to emphasize
the addition of fee-based services. Debit cards and electronic banking are two
such products showing steady increases in customer popularity while generating
growth in non-interest income. T/A of Irwin, our title insurance company formed
in 2000, also posted strong revenue, due in part to the record number of
mortgages closed in 2002. We will also continue to expand our Trust Division and
UVest Investment Services, providing our customers with alternative investments,
trusts, and pension plan administration.
Cost controls offer another positive impact on earnings, and the Company excels
in this area. The Bank's overhead expense, as a percentage of assets, was 2.25%
at September 30, 2002, the most recent measure. According to data released by
the FDIC we ranked in the 18th percentile of banks in our peer group,
out-performing 82% of our peers. For banks of our size the nationwide average
for overhead expense is 3.02%.
Building on our success.
Although we are proud of our accomplishments in 2002, it is of strategic
importance to analyze why we were successful and develop a strategy to build on
that success. As Irwin Bank continues to grow, challenges emerge in how to
manage the growing enterprise. We need to remain focused on the needs of our
customers while maintaining the effectiveness of our leadership, technology and
staffing. In 2002, we took steps to address these challenges. First, the senior
management organization was re-structured to better focus on our three key
objectives of
I B T B A N C O R P I N C
lending, operations and finance. Second, we continued to recruit, train and
promote where needed to effectively fill and improve these and other staff
positions. Third, we improved our level of service to our customers with new
technology and training. Fourth, we addressed the needs of the community by
providing both outstanding product value and significant financial and volunteer
contributions to many organizations.
Adapting to change in the marketplace.
2002 brought about major changes in our marketplace defined by several mergers
and acquisitions among our competitors. In order to better understand the
impact of these events, we conducted surveys of customers and non-customers for
their opinions. Their overwhelming response was that the Company's role as a
local banking institution is significant. They also validated the fact that the
Irwin Bank and Trust Company brand is built on our commitment to the community
and on the personal service provided by our employees. As the cornerstone of our
marketing strategy we remain committed to providing our current and future
customers with the local banking relationship that is important to them.
We look forward to 2003 with much excitement and confidence. We will be offering
new products, improved technologies and an expanded presence in the marketplace.
In spite of pressure on the national economy, Irwin Bank is uniquely positioned
for continued success and growth.
/s/Charles G. Urtin
Charles G. Urtin
President & Chief Executive Officer
IBT Bancorp, Inc.
/s/J. Curt Gardner
J. Curt Gardner
Chairman of the Board
IBT Bancorp, Inc.
2 0 0 2 A N N U A L R E P O R T
For our customers - improving skills, technology, and service.
Rather than rest on our laurels, we are taking steps to build on success. In
2002, Branch Managers participated in the Stickler Training Program for customer
service and sales performance development. Also in 2002, on-line teller
technology was implemented to give our tellers access to a wealth of real-time
account information to better serve the customer. Among the benefits for the
customer is the immediate verification of funds availability. We also improved
our internet web site by launching a unique information "portal" on our home
page and by adding on-line loan application capability. The result is more
convenience for our customers.
For our communities - broad support both financially and professionally.
Irwin Bank continues to help weave the fiber of the community. Last year we
provided financial support through grants, donations and sponsorships to over
200 public safety, school, sporting, social, service and special events
organizations. Irwin Bank employees contributed hundreds of hours of volunteer
time to these groups as well. We also feel an obligation to provide outstanding
product value and exceptional service as part of our community banking
philosophy. After all, we are responsible for helping our customers achieve
their piece of the American dream including home ownership, prosperity and
financial security.
[PICTURE OMITTED]
Keeping abreast of technology is an ongoing management priority. In 2002,
"on-line" teller capability provided a good example of how the company is adding
new technology to improve customer service, productivity and efficiency.
[PICTURE OMITTED]
When asked if it is important that Irwin Bank is a local, community bank,
customers surveyed in 2002 responded with a resounding "YES"! Supporting other
community institutions and organizations is one way the Bank fulfills this
responsibility in the communities it serves.
In 2002, the Irwin Bank and Trust Company home page became a portal offering
quick access to banking services and a new list of local information. The page
offers direct links to IBT e-link, UVest investments, trust accounts and product
information. Dozens of local information resources are now available including
local news, weather, stocks, and school information. The addition of on-line
loan application has extended our marketing reach with the internet customer.
Monthly visits to www.myIrwinBank.com increased 62% in 2002 as a result.
I B T B A N C O R P I N C
Adapting to growth: a new senior management structure.
As Irwin Bank continues to grow, its management environment becomes more
complex. To keep pace with this challenge, three new senior management
positions were established in 2002. Management objectives were focused on the
three key areas of lending, operations and finance. Robert Bowell assumed the
position of Chief Lending Officer, responsible for Irwin Bank's consumer and
commercial lending. David Finui was named Chief Operations Officer with
responsibility for retail, branch and data processing operations including the
Trust and Uvest investment divisions. Raymond Suchta, was hired to fill the
position of Chief Financial Officer, responsible for shareholder relations,
Securities and Exchange Commission compliance, asset and liability management
and bank accounting.
Irwin Bank and Trust Company Officers
J.Curt Gardner, Chairman of the Board
Charles G. Urtin, President / Chief Executive Officer
Robert A. Bowell, Executive Vice President /
Secretary-Treasurer / Chief Lending Officer
David A. Finui, Senior Vice President /
Chief Operations Officer
Raymond G. Suchta, CPA, Vice President /
Chief Financial Officer
Leslie F. Petras, Senior Vice President / Commercial Lending
Wayne J. Brentzel, Vice President / Branch Administration /
Business Development
Scott J. Fisher, Vice President / Trust
Jay Gordon, Vice President / Commercial Lending
Alan Lazar, Vice President / Commercial Lending
Joseph A. Mignogna, Vice President / Compliance Officer
John J. Minkel, Vice President / Consumer Lending
Scott D. Porterfield, Vice President / Commercial Lending
Stacey G. Winfield, Vice President / Commercial Lending
Barbara A. Burzio, Assistant Vice President /
Commercial Lending
Lisa A. Dawson, Assistant Vice President / Collections
Barbara DelBene, Assistant Vice President /
Branch Manager - White Oak
Keith Frid, Assistant Vice-President / Auditor
Beverly A. Hahn, Assistant Vice President /
Branch Manager - Penn Township
Donald D. Henderson III, Assistant Vice President /
Operations
Debra S. Hopper, Assistant Vice-President /
Human Resources
Nancy J. McCullough, Assistant Vice President /
Branch Manager - Route 30
Robert G. Michaud, Assistant Vice President / Marketing
Darwin H. Poole, Assistant Vice President / Data Processing
Kristin S. Robertucci, Assistant Vice President /Accounting
Nancy A. Smith, Assistant Vice President / Mortgage Lending
Linda D. Shaner, Assistant Vice President /
Branch Manager - Haymaker Village
Georganne L. Shuster, Assistant Vice President /
Commercial Lending
Thomas R. Stephenson, Assistant Vice-President /
Loan Review
Gene Bender, Assistant Trust Officer
Carolyn Sue Bozzick, Consumer Loan Officer
Sheli L. Fyock, Assistant Secretary / Marketing Officer
Maurine J. Peer, Retail Banking Officer / Main Office
Denise Y. Poole, Operations Officer
Sandra L. Schwaderer, Retail Banking Officer, Pitcairn
[PICTURE OMITTED]
Raymond G. Suchta Robert A. Bowell David A. Finui
Charles G. Urtin
2 0 0 2 A N N U A L R E P O R T
Success is driven by our people.
Irwin Bank and Trust Company's performance could not be achieved without an
exceptional effort from each and every employee. The Company's success reflects
the spirit of dedication our employees bring to work each day and the hard work
that results from it. In recently conducted surveys, our customers told us how
much they like this Bank and the people who work here.
In addition, the Pennsylvania Bankers Association recently inducted six of our
employees into the 40 Year Club. These employees were recognized for serving 40
or more years in the Pennsylvania banking industry and maintaining a regular
membership in the PBA. The inductees are: Wayne J. Brentzel 42 years in banking,
William C. Davies (since retired) 45 years in banking, J. Curt Gardner (current
Chairman of the Board) 40 years in banking, Beverly A. Hahn 41 years in banking,
Nancy J. McCullough 42 years in banking, Joseph A. Mignogna 40 years in banking.
We are proud to honor these employees for their many years of distinguished
service to Pennsylvania banking.
We are also pleased to recognize our officers who achieved higher rank and those
who joined Irwin Bank and Trust Company last year.
[PICTURES OMITTED]
Promotions & New Hires
Robert A. Bowell (opposite page)
Executive Vice President/CLO
Promoted January, 2002
David A. Finui (opposite page)
Senior Vice President/COO
Promoted January, 2002
Raymond G. Suchta (opposite page)
Vice President/CFO
Hired January, 2002
1) Carolyn Sue Bozzick
Consumer Loan Officer
Promoted April, 2002
2) Barbara A. Burzio
Assistant Vice President/
Commercial Lending
Hired February, 2002
3) Barbara J. DelBene
Assistant Vice President/
Branch Manager -White Oak Office
Promoted April, 2002
4) Mary Ann Ernette
Investment Consultant/
UVEST Investment Services
Hired June, 2002
5) Scott D. Porterfield
Vice President/Commercial Lending
Hired November, 2002
6) Scott J. Fisher
Vice President/Trust Officer
Hired February, 2002
7) Robert G. Michaud
Assistant Vice President/Marketing
Promoted April, 2002
8) Sandra L. Schwaderer
Retail Banking Officer/
Branch Manager-Pitcairn Office
Promoted April, 2002
9) Linda D. Shaner
Assistant Vice President/
Branch Manager - Haymaker Office
Hired April, 2002
10) Georganne L. Shuster
Assistant Vice President/
Commercial Lending
Hired July, 2002
I B T B A N C O R P I N C
[PICTURE OMITTED]
Serving as the financial institution for several government and organizational
entities is an important responsibility in which we take great pride. These
relationships offer testimony to the capabilities of our systems and our staff.
[PICTURE OMITTED]
The deposit processing and cash management needs of merchants can be fast-paced,
diverse and aggressive. We continue to seek out and add new capabilities to
provide the highest level of service to our commercial clients.
Commercial banking services
Several Western Pennsylvania community banks have recently changed hands through
mergers and acquisitions. This has resulted in Irwin Bank and Trust Company
gaining attention as a leader in providing the local banking relationship so
many businesses desire. The Company is highly respected as a regional financial
institution that is small enough to still connect with its customers. Two
examples bear this out: First, a growing list of municipalities and school
districts have been attracted to Irwin Bank and Trust Company for banking and
financial services. These large institutions recognize the Bank as skilled in
providing the value and service they expect and deserve. Second, the Bank's
Trust Division continues to grow on its reputation for competence and its high
level of service and commitment to smaller trust relationships.
Irwin Bank and Trust Company continues to expand its capabilities in commercial
banking and lending while expanding its market reach throughout Western
Pennsylvania. In addition to satisfying the traditional lending and deposit
needs of its customers, several other commercial banking solutions are offered.
For higher volume deposit customers, the Bank's operations staff can review the
specific transaction patterns for each client and custom-tailor a banking
solution to best fit those needs. This service is called Account Analysis and it
includes a variety of diverse capabilities including ACH, cash and receivables
deposit options, and internet banking solutions. Cash Management is another way
that the Bank services its larger depositors through the convenience and
interest-bearing benefits of sweep accounts which automatically move funds from
multiple accounts into and out of overnight investment instruments.
To improve customer cash flow, Irwin Bank
2 0 0 2 A N N U A L R E P O R T
and Trust Company offers Business Manager, a service that turns receivables into
cash. As an alternative to traditional lending, the Company also offers
equipment leasing. These capabilities are overviewed in a new Commercial
Services Guide created by the Company in 2002.
A strong performance in real estate financing and installment lending
The low interest rate environment in 2002 provided a big opportunity for Irwin
Bank and Trust Company to service the lending needs of its customers. Real
estate loans led the way, with a record number of mortgages and refinances
continuing throughout the year. Consumer installment loan volume was also high,
although somewhat offset by the payoff of existing, higher rate loans. A strong
increase in lines of credit, both in number and in utilization, helped make up
the difference. Consumer response to the aggressive promotion of lines of credit
in the fourth quarter was noteworthy, highlighted by a steady and increasing
number of applications being received on-line from the Irwin Bank internet
website. The Bank's lending department put forth an exceptional effort in the
origination, processing and closing of 2002's record volume of activity,
providing another example of how dedicated the Bank's employees are to its
customers.
At a glance, all of these financial services represent the essence of modern
banking. As a Community Bank, however, we like to think of it as servicing the
progress and growth of Western Pennsylvania and the financial needs of its
citizens.
[PICTURE OMITTED]
Commercial lending fuels the engine of economic progress. When the job calls for
capital expansion of facilities or equipment, our Business Relationship Managers
find a way and have the tools to "make it happen".
[PICTURE OMITTED]
The region is currently enjoying growth in new residential construction, and the
Bank is providing financing for developers and home-builders. Low interest rates
in 2002 brought many buyers to these new homes, and a record number of new and
refinanced mortgages to the Bank.
I B T B A N C O R P I N C
[PICTURE OMITTED]
IBT Bancorp, Inc. Board of Directors
(Back row:) Charles G. Urtin, President / CEO, Edwin A. Paulone, Director, Dr.
Grant J. Shevchik, Director, Robert Rebich, Director, Robert C. Whisner,
Director, Richard J. Hoffman, Director, (Front row:) Richard L. Ryan, Director,
Thomas Beter, Director, J. Curt Gardner, Chairman
IBT Bancorp Management
J. Curt Gardner, Chairman, Charles G. Urtin, President / CEO, Robert A. Bowell,
Executive Vice President / Secretary-Treasurer, Raymond G. Suchta, CPA, Vice
President / Chief Financial Officer
[PICTURE OMITTED]
William D. Fawcett, Director Emeritus
In 2002, Mr. Fawcett was named Director Emeritus in recognition for his
outstanding contribution to the Company during his 19 year tenure on the Board
of Directors. Mr. Fawcett is President of the Lee-Thompson-Fawcett Company,
which sells over 700 food products in 14 states under the "Bell View" brand.
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, 2002, total assets increased $60.0 million, or 11.5%, to
$584.0 million from $524.0 million at December 31, 2001. The increase in total
assets was primarily the result of a $45.1 million increase in net loans
receivable and a net increase of $23.8 million in securities available for sale.
Such increases were partially offset by a $10.1 million decrease in cash and
cash equivalents. The growth in total deposits of $45.8 million and additional
FHLB advances of $5.0 million were used primarily to fund the growth in the loan
portfolio and for the purchase of available for sale securities.
The increase in available for sale securities was the result of investments
in obligations of U.S. government agencies and mortgage related securities. Such
investments were short-term fixed rate and amortizing securities, positioning
the portfolio should interest rates increase while maintaining ample liquidity.
The increase in the loan portfolio was primarily the result of the growth
of fixed rate one-to four-family mortgage loans, multi-family properties,
commercial mortgages, and loans made to municipalities of $5.4 million, $11.1
million, $17.3 million, and $5.8 million, respectively. The loan portfolio
continues to grow due to the Company's offering of competitive market interest
rates.
At December 31, 2002, total liabilities increased $53.6 million, or 11.3%,
to $527.9 million from $474.3 million at December 31, 2001. The increase was
primarily related to the increase in total deposits of $45.8 million. Of this
increase, non-interest bearing and interest-bearing deposits increased $4.2
million and $41.6 million, respectively. The increase in interest-bearing
deposits resulted mainly from increases in certificates of deposit and savings
accounts of $27.4 million and $8.1 million, respectively. Such increases were
the result of a growing deposit base and competitive pricing.
Non-interest bearing deposits increased $4.2 million to $74.3 million at
December 31, 2002 from $70.1 million at December 31, 2001. Such increases
reflect additions to non-interest bearing deposits of $7.5 million offset by
$3.3 million in investments in repurchase agreements at December 31, 2002. Under
the terms of the agreements, deposits in designated demand accounts of the
customer are put into an investment vehicle which is used daily to purchase an
interest in designated U.S. Government or Agencies' securities. The Company in
turn agrees to repurchase these investments on a daily basis and pay the
customers the daily interest earned based on the current market rate. See Note 8
to the consolidated financial statements.
At December 31, 2002, total stockholders' equity increased $6.5 million to
$56.2 million from $49.7 million at December 31, 2001. The increase was
primarily due to net income of $8.9 million for the period and a $1.4 million
increase in accumulated other comprehensive income (net of income taxes), offset
by the purchase of $258,000 of Company stock, and dividends paid of $3.6
million. 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. Because of interest rate volatility, the
Company's accumulated other comprehensive income could materially fluctuate for
each interim period and year-end. See Note 2 to the consolidated financial
statements.
1
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.
RESULTS OF OPERATIONS
Net Income: Net income increased approximately $1.4 million, or 19.7%, to
$8.9 million for the year ended December 31, 2002 from $7.5 million for the year
ended December 31, 2001. The increase in net income for fiscal 2002 compared to
fiscal 2001 was primarily due to a $1.9 million increase in net interest income
after provision for loan losses. The increase in net income was primarily
attributable to a $31.0 million increase in the average balances of
interest-earning assets offset by a 73-basis point decline in the yield on
average interest earning assets.
At December 31, 2001, net income increased approximately $760,000, or
11.3%, to $7.5 million from $6.7 million for the year ended December 31, 2000.
The increase in net income for fiscal 2001 compared to fiscal 2000 was primarily
due to an $800,000 increase in net interest income after provision for loan
losses. Such increase was primarily attributable to a $49.9 million increase in
the average balances of interest earning assets offset by a 16-basis point
decline in the yield on average interest earning assets.
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 $2.5 million, or 13.7% to $20.7 million for
2002 compared to $18.2 million for 2001. The increase was primarily due to the
increase in average loans of $33.5 million and average other interest-earning
assets (primarily federal funds sold) of $1.2 million offset by a decrease in
average investment securities available for sale of $3.8 million and a 73- basis
point decrease in the yield on average interest earning assets to 6.38% for 2002
from 7.11% for 2001. The decrease in the yield on average interest earning
assets was primarily the result of yield decreases in average loans and average
investment securities of 69-basis points and 86-basis points, respectively. The
decrease in the average yields reflects the changes in the interest rate
environment including the Federal Reserve easing of interest rates during fiscal
2002. Average interest-bearing liabilities increased $29.4 million in fiscal
2002 offset by a 126-basis point decrease in the average cost of funds. As a
result, the interest rate spread for fiscal 2002 increased 53-basis points to
3.38% from 2.85% in fiscal 2001.
Net interest income increased $1.0 million, or 5.8%, to $18.2 million for
2001 compared to $17.2 million for 2000. The increase was primarily due to the
increase in average loans of $24.6 million and average investment securities
available for sale of $17.9 million offset by a 48-basis point decrease in the
yield on average interest earning assets to 7.11% for 2001 from 7.59% for 2000.
The decrease in the yield on average interest earning assets was primarily the
result of yield decreases in average loan and average investment securities of
16-basis points and 81-basis points, respectively. Such decreases reflect the
effects of the interest rate environment. Though average interest-bearing
liabilities increased $35.3 million in fiscal 2001, interest expense remained
relatively unchanged from fiscal 2000 due to a 32-basis point decline in average
cost of funds in fiscal 2001.
The following table sets forth certain information relating to the
Company's average balance sheet and, reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from daily balances.
2
Year Ended December 31,
-------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------- ------------------------------- -------------------------------
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) $337,600 $24,687 7.31% $304,080 $24,320 8.00% $279,400 $22,808 8.16%
Investment securities
available for sale (2) 173,472 8,615 4.97% 177,263 10,337 5.83% 159,394 10,578 6.64%
Investment securities
held to maturity - - - - - - - -
Other interest-earning
assets (5) 15,086 258 1.71% 13,850 527 3.81% 6,464 401 6.20%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest
earning assets $526,158 $33,560 6.38% $495,193 $35,184 7.11% $445,258 $33,787 7.59%
Non-interest earning
assets (7) 30,550 20,404 21,558
-------- -------- --------
Total assets $556,708 $515,597 $466,816
======== ======== ========
Interest-bearing
liabilities:
Money market accounts 60,735 1,234 2.03% 55,020 1,751 3.18% 56,079 2,275 4.06%
Certificates of Deposit 208,789 7,935 3.80% 205,242 11,286 5.50% 182,465 10,364 5.68%
Other liabilities 157,629 3,660 2.32% 137,481 3,921 2.85% 123,928 3,949 3.19%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
bearing liabilities $427,153 $12,829 3.00% $397,743 $16,958 4.26% $362,472 $16,588 4.58%
Non-interest-bearing
liabilities (7) 76,818 69,904 64,591
-------- -------- --------
Total liabilities $503,971 $467,647 $427,063
Retained Earnings (6) 52,737 47,950 39,753
-------- -------- --------
Total liabilities and
stockholders' equity $556,708 $515,597 $466,816
======== ======== ========
Net interest income $20,731 $18,226 $17,199
======= ======= =======
Interest rate spread (3) 3.38% 2.85% 3.01%
==== ==== ====
Net yield on interest-
earning assets (4) 3.94% 3.68% 3.86%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 123.18% 124.50% 122.84%
====== ====== ======
(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 accumulated other comprehensive income,
less treasury stock.
(7) For 2001, deferred taxes on increases in market value of available-for-sale
securities have been reclassified to conform to the current year's
classifications. This reclassification increased non-interest earning
assets and non-interest bearing liabilities, stockholders' equity and net
income were not effected.
3
The following table shows the effect of changes in volumes and rates on
interest income and interest expense. The changes in interest income and
interest expense attributable to changes in both volume and rate have been
allocated to the changes due to rate. Tax exempt income was not recalculated on
a tax equivalent basis due to the immateriality of the change to the table
resulting from a recalculation.
Year Ended December 31, Year Ended December 31,
----------------------------- -----------------------------
2002 vs. 2001 2001 vs. 2000
----------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
Interest income:
Loans receivable $ 2,681 $(2,314) $ 367 $ 2,014 $ (502) $ 1,512
Investment securities available
for sale (221) (1,501) (1,722) 1,186 (1,427) (241)
Investment securities held to
maturity -- -- -- -- -- --
Other interest earning assets 47 (316) (269) 458 (332) 126
------- ------- ------- ------- ------- -------
Total interest-earning assets 2,507 (4,131) (1,624) 3,658 (2,261) 1,397
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts 182 (699) (517) (43) (481) (524)
Certificates of deposit 195 (3,546) (3,351) 1,294 (372) 922
Other liabilities 574 (836) (262) 432 (460) (28)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 951 (5,081) (4,130) 1,683 (1,313) 370
------- ------- ------- ------- ------- -------
Net change in interest income $ 1,556 $ 950 $ 2,506 $ 1,975 $ (948) $ 1,027
======= ======= ======= ======= ======= =======
Provision for Loan Losses: The Company recorded a provision for loan losses
of $1.1 million, $500,000 and $300,000 for 2002, 2001, and 2000, respectively.
The $600,000 increase in the provision for loan losses for the year ended
December 31, 2002 was precipitated by net charge offs of $341,000 and the
increase in the loan portfolio.
It is the policy of management to maintain an allowance for loan losses,
which is adequate to absorb potential losses inherent in the loan portfolio for
unidentified loans as well as classified loans. 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. Large groups of
smaller balance homogeneous loans are valued collectively for impairment. The
amount of the loss reserve is calculated using historical loss rates, net of
recoveries, adjusted for environmental, and other qualitative factors such as
industry, geographical, economic and political factors that can affect loss
rates or loss measurements. Allowances for losses on specifically identified
loans that are determined to be impaired are calculated based upon collateral
value, market value, if determinable, or the present value of estimated future
cash flows. The allowance is increased by a charge to operations, and reduced by
charge-offs, net of recoveries.
4
The allowance for loan losses is maintained at a level that represents
management's best estimates of losses in the portfolio at the balance sheet
date. However, there can be no assurance that the allowance for loan losses will
be adequate to cover losses, which may be realized in the future, and that
additional provisions for losses on loans will not be required.
Other Income: Total other income increased approximately $1.3 million, or
32.5% to $5.3 million for the year ended December 31, 2002 from $4.0 million for
the year ended December 31, 2001. Such increase was the result of $516,000 in
additional service fees primarily generated from overdraft fees, $499,000 in
increased cash surrender value from bank owned life insurance and other life
insurance policies, and $456,000 in other income. The increase in other income
resulted primarily from an additional $142,000 in gains generated from loan
sales, net gains from the sale of real estate of $104,000 and $186,000 from TA
of Irwin, L.P., a partnership formed by the Company in October 2000 to provide
title insurance to the general public. Such increases in fiscal 2002 were offset
by a decrease of $258,000 in net investment security gains compared to fiscal
2001.
Total other income increased approximately $1.1 million, or 37.9%, to $4.0
million for the year ended December 31, 2001 from $2.9 million for the year
ended December 31, 2000. The increase was primarily the result of gains from
available for sale securities, originally purchased at a discount, of $453,000,
where the issuing agencies exercised their option to call the securities prior
to their maturity. Also, service fees increased $300,000 due primarily to a
$122,000 increase in miscellaneous loan fee income generated through rate
modification fees on existing loans, $78,000 in additional overdraft fees due to
the increased deposit base, and $43,000 in service fees from the "extra"
checking product. Debit card fees increased $119,000 a result of increased
usage. Other income increased $200,000 primarily due to income of $102,000 from
T.A. of Irwin, L.P., $43,000 in additional income generated through the
Company's Trust Department, and $49,000 in commissions received from the sale of
investment products through UVest Financial Services, a company which provides
alternative investment products.
Other Expenses: Total other expense increased $1.5 million, or 13.3%, to
$12.8 million for 2002 from $11.3 million for 2001. Of this increase,
approximately $939,000 was the result of increased salaries, which reached $5.3
million at December 31, 2002 from $4.4 million at December 31, 2001. The
increase in salaries was a combination of additional staff and annual merit
increases. Pension and other employee benefits increased $238,000 to $1.3
million at December 31, 2002 primarily due to a $117,000 increase in health
insurance premiums. Occupancy expense increased $119,000 to $1.3 million, for
2002 from $1.2 million at December 31, 2001 predominately due to increased
depreciation and real estate tax expense of $77,000 and $17,000, respectively.
Other expenses increased $206,000 to $3.0 million for 2002 from $2.8 million for
2001. This increase was mainly due to increased postage, check collection costs,
and losses as a result of bad checks and ATM fraud of $29,000, $45,000, and
$64,000, respectively. All of these increases were non-material in nature and
are due to the normal cost of doing business.
Total other expenses increased approximately $1.1 million, or 10.8%, to
$11.3 million for 2001 from $10.2 million for 2000. This increase was primarily
the result of an increase in salaries of approximately $300,000 to $4.4 million
for 2001 from $4.1 million for 2000. Such increase was mainly due to annual
merit increases and net staff increases of 5 full-time employees. Occupancy
expense increased $200,000 to $1.2 million in 2001 from $1.0 million in 2000
primarily due to increased depreciation, rental, real estate tax expense, and
building maintenance expense of $80,000, $27,000, $24,000, and $28,000,
respectively. Data processing and ATM expenses increased $178,000 to $1.2
million in 2001 from $972,000 in 2000. Such increases were a result of increased
fees from the Company's processors. Other expenses increased $500,000 to $3.5
million for 2001 from $3.0 million for 2000. Such increase was primarily due to
increased legal fees of $76,000, increased losses from bad checks of $59,000,
increased costs related to debit card usage of $53,000, and increased postage
expense of $41,000. All of these increases were non-material in nature and are
due to the normal cost of doing business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include savings, deposits, loan
repayments and prepayments, cash from operations and borrowings from the Federal
Home Loan Bank. The Company uses its capital resources principally to fund loan
originations and purchases, to repay maturing borrowings, to 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, 2002, the Company had commitments to extend
credit of $75.5 million.
5
The Company's liquid assets consist of cash and cash equivalents, which
include 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, 2002, cash and cash equivalents totaled $15.1 million.
Net cash from operating activities for 2002 totaled $8.7 million, as
compared to net cash used by operating activities of $377,000 for 2001. The
decrease in cash due to changes in other assets in 2001 was primarily the result
of a $10.0 million purchase of bank owned life insurance. See Note 6 to the
consolidated financial statements. Net cash from operating activities totaled
$7.3 million for 2000.
Net cash used by investing activities for 2002 totaled $69.1 million, as
compared to cash used of $14.7 million for 2001 and $44.0 million for 2000. The
increase of $54.4 million for 2002 was primarily due to an increase in purchases
of securities available for sale of $26.4 million, an increase in net loans made
to customers of $22.5 million, and a decrease in the proceeds from maturities of
securities available for sale of $26.2 million, offset by proceeds from sales of
securities available for sale of $23.6 million. The decrease of $29.3 million
for 2001 was mainly attributed to an increase of $86.6 million in proceeds from
maturities of securities held to maturity and a decrease of $8.0 million in net
loans made to customers, offset by $69.8 million in purchases of securities
available for sale.
Net cash from financing activities for the year ended December 31, 2002
totaled $50.3 million, as compared to net cash from financing activities of
$18.5 million for 2001 and $39.2 million for 2000. The $31.8 million increase in
cash from financing activities for 2002 was primarily the result of a $33.0
million increase in deposits. The $20.7 million decrease in cash from financing
activities for 2001 was due to a $28.2 million decrease in deposits offset by an
increase of $7.0 million in federal funds purchased.
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.
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 appropriate level of risk given the Company's business strategy,
operating environment, capital and liquidity requirements, performance
objectives, and manage 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.
6
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.
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, 2002.
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 assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principle. For interest earning
assets, no prepayments are assumed. Interest bearing liabilities, such as
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.
7
TABLE
Expected Maturity/Principal Repayment at December 31,
Total Book Fair
2003 2004 2005 2006 2007 Thereafter Value Value
---- ---- ---- ---- ---- ---------- ----- -----
(Dollars in thousands)
Interest-earning assets
- -----------------------
Mortgage loans 8,326 9,055 9,759 12,160 15,114 155,830 210,244 224,153
Home equity loans,
second mortgage
loans, student loans,
other loans 26,410 10,109 8,959 7,548 6,522 17,852 83,233 83,273
Commercial loans,
municipal loans 29,708 4,875 3,897 3,218 2,058 26,068 69,824 71,943
Investment securities
available for sale 5,374 12,099 3,496 -- 4,760 154,185 179,523 183,565
Interest-bearing
liabilities
- -----------------------
NOW and other
transaction accounts 13,542 -- -- -- -- -- 13,542 13,542
Money market and
other savings
accounts 153,046 -- -- -- -- -- 153,046 153,046
Certificates of
deposits 120,389 34,279 43,876 6,587 13,301 8,899 227,330 232,917
Federal home loan
bank of Pittsburgh
advances -- 10,000 -- -- 2,000 28,000 40,000 50,395
8
EDWARDS
SAUER &
OWENS
- ------------------------------
Certified Public Accountants &
Business Advisors
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, 2002 and 2001, 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, 2002.
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 consolidated
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, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.
/s/Edwards Sauer & Owens
Pittsburgh, Pennsylvania
January 29, 2003
CONSOLIDATED BALANCE SHEET
IBT BANCORP, INC. AND SUBSIDIARY
December 31,
------------------------------
2002 2001
------------- -------------
ASSETS
Cash and due from banks $ 12,677,160 $ 16,751,407
Interest-bearing deposits in banks 760,118 7,373,528
Federal funds sold 1,629,000 1,094,000
Certificate of deposit 100,000 100,000
Securities available for sale 183,564,960 160,866,698
Federal Home Loan Bank stock, at cost 3,152,600 2,101,800
Loans, net of allowance for loan losses of
$2,873,067 in 2002 and $2,113,806 in 2001 359,871,514 315,131,774
Premises and equipment, net 4,759,015 4,655,510
Other assets 17,520,354 15,969,430
------------- -------------
Total Assets $ 584,034,721 $ 524,044,147
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 74,339,035 $ 70,121,716
Interest-bearing 393,918,292 352,340,377
------------- -------------
Total deposits 468,257,327 422,462,093
Repurchase agreements 14,525,836 11,207,072
Accrued interest and other liabilities 5,100,380 5,650,276
FHLB advances 40,000,000 35,000,000
------------- -------------
Total liabilities 527,883,543 474,319,441
Stockholders' Equity
Capital stock, par value $1.25, 50,000,000 shares
authorized, 3,023,799 shares issued, 2,977,655
and 2,985,695 shares outstanding at December
31, 2002 and December 31, 2001, respectively 3,779,749 3,779,749
Surplus 2,073,102 2,073,102
Retained earnings 48,974,137 43,613,936
Accumulated other comprehensive income 2,667,456 1,342,672
------------- -------------
57,494,444 50,809,459
Less: Treasury stock, at cost (1,343,266) (1,084,753)
------------- -------------
Total stockholders' equity 56,151,178 49,724,706
------------- -------------
Total Liabilities and Stockholders' Equity $ 584,034,721 $ 524,044,147
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
9
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
2002 2001 2000
------------ ------------ ------------
Interest Income
Loans, including fees $ 24,687,048 $ 24,320,407 $ 22,807,718
Investment securities 8,614,876 10,337,309 10,578,510
Federal funds sold 258,302 527,021 400,886
------------ ------------ ------------
Total interest income 33,560,226 35,184,737 33,787,114
Interest Expense
Deposits 10,537,451 14,773,560 14,603,671
FHLB advances 2,113,678 1,833,212 1,586,859
Repurchase agreements 177,464 351,473 362,684
Federal funds purchased -- -- 34,354
------------ ------------ ------------
Total interest expense 12,828,593 16,958,245 16,587,568
------------ ------------ ------------
Net Interest Income 20,731,633 18,226,492 17,199,546
Provision for Loan Losses 1,100,000 500,000 300,000
------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 19,631,633 17,726,492 16,899,546
Other Income (Losses)
Service fees 2,370,568 1,854,595 1,645,913
Investment security gains 158,670 452,890 --
Investment security losses (24,925) (60,792) (106,974)
Cash surrender value increases 584,847 85,914 49,707
Debit card fees 615,517 520,393 401,080
Other income 1,612,378 1,155,822 956,715
------------ ------------ ------------
Total other income 5,317,055 4,008,822 2,946,441
Other Expenses
Salaries 5,297,750 4,359,468 4,084,817
Pension and other employee benefits 1,318,944 1,081,027 1,056,116
Occupancy expense 1,329,170 1,209,779 1,020,734
Data processing expense 729,548 750,896 588,193
Advertising expense 406,898 340,513 301,686
Pennsylvania shares tax 391,557 341,823 307,337
ATM expense 349,311 398,986 383,935
Other expenses 3,007,900 2,801,664 2,438,469
------------ ------------ ------------
Total other expenses 12,831,078 11,284,156 10,181,287
------------ ------------ ------------
Income Before Income Taxes 12,117,610 10,451,158 9,664,700
Provision for Income Taxes 3,180,311 2,985,824 2,959,439
------------ ------------ ------------
Net income $ 8,937,299 $ 7,465,334 $ 6,705,261
============ ============ ============
Basic Earnings per Share $ 3.00 $ 2.49 $ 2.23
============ ============ ============
Diluted Earnings per Share $ 2.99 $ 2.49 $ 2.23
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
10
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
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
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.
11
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----------- ----------- ------------ ------------ --------- ------------
Balance at
December 31, 2000 $ 3,779,749 $ 2,073,102 $ 39,261,880 $ 189,326 $ (689,476) $ 44,614,581
Comprehensive Income
Net income 7,465,334 7,465,334
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax
of $747,292 1,450,626 1,450,626
Reclassification
adjustment, net of
deferred income
tax of $153,144 (297,280) (297,280)
------------
1,153,346
------------
Total Comprehensive
Income 8,618,680
Cash dividends ($1.04) (3,113,278) (3,113,278)
Purchase of Treasury Stock (395,277) (395,277)
----------- ----------- ------------ ------------ ----------- ------------
Balance at
December 31, 2001 $ 3,779,749 $ 2,073,102 $ 43,613,936 $ 1,342,672 $(1,084,753) $ 49,724,706
The accompanying notes are an integral part of these consolidated financial statements.
12
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----------- ----------- ------------ ------------ --------- ------------
Balance at
December 31, 2001 $ 3,779,749 $ 2,073,102 $ 43,613,936 $ 1,342,672 $(1,084,753) $ 49,724,706
Comprehensive Income
Net income 8,937,299 8,937,299
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax
of $718,036 1,393,742 1,393,742
Reclassification
adjustment, net of
deferred income
tax of $35,524 (68,958) (68,958)
------------
1,324,784
------------
Total Comprehensive
Income 10,262,083
Cash dividends ($1.20) (3,577,098) (3,577,098)
Purchase of Treasury Stock (258,513) (258,513)
----------- ----------- ------------ ------------ ----------- ------------
Balance at
December 31, 2002 $ 3,779,749 $ 2,073,102 $ 48,974,137 $ 2,667,456 $(1,343,266) $ 56,151,178
=========== =========== ============ ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements.
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
-----------------------------------------------
2002 2001 2000
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,937,299 $ 7,465,334 $ 6,705,261
Adjustments to reconcile net cash
from operating activities:
Depreciation 684,731 607,993 528,335
Increase in cash surrender value of insurance (584,847) (85,914) (49,707)
Net amortization/accretion of
premiums and discounts 429,379 102,482 (9,800)
Net investment security (gains) losses (133,745) (392,098) 106,974
Provision for loan losses 1,100,000 500,000 300,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets (540,772) (8,527,117) (1,560,516)
Accrued interest and other liabilities (1,232,409) (48,024) 1,327,616
------------- ------------- -------------
Net Cash From (Used By) Operating Activities 8,659,636 (377,344) 7,348,163
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit -- (2,606,400) (2,700,000)
Proceeds from maturity of certificates of deposit -- 5,206,400 3,000,000
Proceeds from sales of securities available for sale 31,725,398 8,128,240 6,153,348
Proceeds from maturities of securities available for sale 72,493,575 98,681,479 12,000,998
Purchase of securities available for sale (125,205,572) (99,729,469) (29,959,587)
Net loans made to customers (46,265,045) (23,829,098) (31,821,372)
Purchases of premises and equipment (788,236) (363,726) (699,410)
Purchase of Federal Home Loan Bank stock (1,050,800) (137,500) --
------------- ------------- -------------
Net Cash Used By Investing Activities (69,090,680) (14,650,074) (44,026,023)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 45,795,234 12,823,631 40,957,977
Net increase in securities sold
under agreements to repurchase 3,318,764 2,184,882 2,565,593
Net decrease in federal funds purchased -- -- (7,000,000)
Dividends (3,577,098) (3,113,278) (2,762,018)
Proceeds from FHLB advances 7,000,000 9,000,000 7,000,000
Repayment of FHLB advances (2,000,000) (2,000,000) (1,000,000)
Purchase of treasury stock (258,513) (395,277) (601,864)
------------- ------------- -------------
Net Cash From Financing Activities 50,278,387 18,499,958 39,159,688
------------- ------------- -------------
Net Change in Cash and Cash Equivalents (10,152,657) 3,472,540 2,481,828
Cash and Cash Equivalents at Beginning of Year 25,218,935 21,746,395 19,264,567
------------- ------------- -------------
Cash and Cash Equivalents at End of Year $ 15,066,278 $ 25,218,935 $ 21,746,395
============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
14
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $13,225,782 $18,089,680 $15,052,496
Income taxes $ 3,543,379 $ 3,003,600 $ 2,904,000
NON CASH TRANSACTIONS
Recorded unrealized gains on
securities available for sale
at December 31 $ 4,041,600 $ 2,034,303 $ 286,857
Deferred income taxes on recorded
unrealized gains on securities
available for sale at December 31 $ 1,374,144 $ 691,631 $ 97,531
Loans transferred to foreclosed real
estate during the year $ 857,681 $ 432,376 $ 320,992
Recorded nonmonetary gain on
securities available for sale
at December 31 $ 1,986 $ 81,092 $ --
The accompanying notes are an integral part of these consolidated financial statements.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
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, a trust division, 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.
Advertising Costs: Advertising costs are expensed as incurred. Advertising
expense totaled $406,898 for 2002, $340,513 for 2001 and $301,686 for 2000.
Loans and Allowance for Loan Losses: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. Large groups of smaller balance homogeneous
loans are valued collectively for impairment. The amount of loss reserve is
calculated using historical loss rates, net of recoveries, adjusted for
environmental, and other qualitative factors such as industry, geographical,
economic and politcal factors that can affect loss rates or loss measurements.
Allowances for losses on specifically identified loans that are determined to be
impaired are calculated based upon collateral value, market value, if
determinable, or the present value of the estimated future 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. Costs 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 was 2,980,282, 2,993,693 and 3,003,334 for the years ended December
31, 2002, 2001 and 2000, respectively.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, 2002
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 78,956,706 $ 1,547,905 $ (1,852) $ 80,502,759
Obligations of State and
political sub-divisions 37,252,772 1,668,700 (31,994) 38,889,478
Mortgage-backed securities 52,300,534 1,803,446 -- 54,103,980
Other securities 706,015 44,506 -- 750,521
Equity securities 10,307,333 102,647 (1,091,758) 9,318,222
------------- ------------- ------------- -------------
$ 179,523,360 $ 5,167,204 $ (1,125,604) $ 183,564,960
============= ============= ============= =============
December 31, 2001
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 61,214,870 $ 1,380,083 $ (50,859) $ 62,544,094
Obligations of State and
political sub-divisions 31,530,177 510,233 (196,927) 31,843,483
Mortgage-backed securities 55,151,710 502,991 (128,591) 55,526,110
Other securities 700,745 38,458 -- 739,203
Equity securities 10,234,892 69,873 (90,957) 10,213,808
------------- ------------- ------------- -------------
$ 158,832,394 $ 2,501,638 $ (467,334) $ 160,866,698
============= ============= ============= =============
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
Years Ended December 31,
------------------------------
2002 2001 2000
-------- -------- --------
Gross realized gains:
Obligations of U.S. Government Agencies $ 42,922 $358,639 $ --
Obligations of state and political sub-divisions 760 5,348 --
Mortgage-backed securities 113,002 606 --
Equity securities 1,986 88,297 --
-------- -------- --------
$158,670 $452,890 $ --
======== ======== ========
Gross realized losses:
Obligations of U.S. Government Agencies $ -- $ 2,616 $106,974
Mortgage-backed securities 24,925 58,176 --
-------- -------- --------
$ 24,925 $ 60,792 $106,974
======== ======== ========
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 2002, 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.
Amortized Market
Cost Value
------------ ------------
Due in one year or less $ 5,374,461 $ 5,421,136
Due after one year through five years 20,355,099 21,048,263
Due after five years through ten years 67,267,268 68,845,796
Due after ten years, includes equity securities 86,526,532 88,249,765
------------ ------------
$179,523,360 $183,564,960
============ ============
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 $3,152,600 and $2,101,800 of FHLB stock
at December 31, 2002 and 2001.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
---------------------------
2002 2001
------------ ------------
Mortgage $210,244,046 $173,213,532
Home equity credit 15,832,462 11,001,475
Installment 59,321,023 64,053,168
Commercial 58,633,722 55,185,161
PHEAA 6,899,585 6,949,783
Municipal 11,190,265 5,368,664
Credit cards 32,445 31,940
Other 1,147,661 1,715,479
------------ ------------
363,301,209 317,519,202
Less:
Allowance for loan losses 2,873,067 2,113,806
Deferred loan fees 556,628 273,622
------------ ------------
$359,871,514 $315,131,774
============ ============
The aggregate amount of demand deposits reclassified as loan balances at
December 31, 2002 and 2001 amounted to $490,961 and $643,226, respectively and
are included in other loans.
The total recorded investment in impaired loans amounted to $619,326 at December
31, 2002 and $1,026,975 at December 31, 2001. The allowance for loan losses
related to impaired loans amounted to $309,663 and $154,069 at December 31, 2002
and 2001, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Balance, beginning of year $ 2,113,806 $ 1,919,327 $ 2,365,874
Provision charged to operations 1,100,000 500,000 300,000
Loans charged off (440,728) (344,909) (767,486)
Recoveries 99,989 39,388 20,939
----------- ----------- -----------
Balance, end of year $ 2,873,067 $ 2,113,806 $ 1,919,327
=========== =========== ===========
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
-------------------------
2002 2001
----------- -----------
Land $ 450,466 $ 450,466
Buildings and improvements 5,053,222 5,053,222
Furniture and equipment 5,932,750 5,144,515
----------- -----------
11,436,438 10,648,203
Less: Accumulated depreciation 6,677,424 5,992,693
----------- -----------
$ 4,759,014 $ 4,655,510
=========== ===========
Depreciation expense was $684,731 in 2002, $607,993 in 2001 and $528,335 in
2000.
Eight of the Bank's commercial branch office buildings and/or land and the
Bank's trust division office 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,
2003 $ 212,072
2004 211,722
2005 165,387
2006 85,922
2007 59,116
2008 and thereafter 337,700
-----------
$ 1,071,919
===========
Rental expense under these operating leases was $183,005, $178,437 and $149,043
for the years ended December 31, 2002, 2001 and 2000, respectively.
In November 2002, the Board approved a commercial lease agreement between the
Bank and Banco Business Park. The lease is for a term of three years commencing
on March 1, 2003 and contains renewal options for additional two-year terms. The
three year lease has a base rental rate of $2,921 per month. The first month's
rent and security deposit of the same amount or a total of $5,842 is due at the
signing of the lease. The Bank signed the agreement and paid the $5,842 in
January 2003. Lease payments for this agreement are included in the future
minimum lease payment scheduled above.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 5 -- JOINT VENTURES
The Bancorp has an 85% limited partnership interest in T.A. of Irwin, L.P. This
partnership commenced operations in October 2000 and provides title insurance to
the general public. The Bancorp uses the equity method to account for its
investment in the partnership. As of December 31, 2002 and 2001, the partnership
is reflected in the other assets section of the balance sheet at $82,140 and
$53,704, respectively.
NOTE 6 -- BANK OWNED LIFE INSURANCE
In 2001, the Bank purchased single premium life insurance policies on officers
of the Bank at a cost of $10,000,000. At December 31, 2002 and 2001, the cash
surrender value of these policies was $10,584,859 and $10,031,160, respectively
and is included in the other assets section of the balance sheet. The increase
in cash surrender value of these policies is recorded as other non-interest
income.
NOTE 7 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 2002 are
summarized as follows:
2003 $ 120,389,212
2004 34,278,474
2005 43,875,582
2006 6,587,107
2007 13,300,645
2008 and thereafter 8,899,032
-------------
$ 227,330,052
=============
The Bank held related party deposits of approximately $3,600,000 and $3,166,000
at December 31, 2002 and 2001, respectively.
The Bank held time deposits that exceeded $100,000 of $47,748,416 and
$35,499,455 at December 31, 2002 and 2001, respectively.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 8 -- REPURCHASE AGREEMENTS
The Bank offers 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 $14,525,836 and
$11,207,072 at December 31, 2002 and 2001, respectively.
NOTE 9 -- PLEDGED ASSETS
At December 31, 2002 and 2001, U.S. Government Agency obligations carried at
approximately $42,800,000 and $35,700,000 respectively, were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted by law. At December 31, 2002 and 2001, the carrying amount of
securities pledged to secure repurchase agreements was approximately $27,900,000
and $17,600,000 respectively.
NOTE 10 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Currently payable $ 3,527,269 $ 3,072,885 $ 2,815,429
Deferred tax (benefit) (346,958) (87,061) 144,010
----------- ----------- -----------
Total $ 3,180,311 $ 2,985,824 $ 2,959,439
=========== =========== ===========
The significant components of temporary differences for 2002, 2001 and 2000 are
as follows:
Years Ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Provision for loan losses $(299,256) $ (86,543) $ 151,347
Depreciation 32,400 (30,397) (12,665)
Valuation allowance -- -- 550
Pension 28,461 37,532 20,168
Deferred loan fees (96,222) (32,695) (10,689)
Other (12,341) 25,042 (4,701)
--------- --------- ---------
Total $(346,958) $ (87,061) $ 144,010
========= ========= =========
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 10 -- INCOME TAXES (CONTINUED)
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
-------------------------
2002 2001 2000
---- ---- ----
Provision at statutory rate 34.0 % 34.0 % 34.0 %
Effect of tax free income (5.4) (4.3) (3.1)
Other (2.4) (1.2) (0.3)
---- ---- ----
Effective tax rate 26.2 % 28.5 % 30.6 %
==== ==== ====
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 2002 and 2001 are as follows:
2002 2001
----------------------- -----------------------
Deferred Tax Deferred Tax
----------------------- -----------------------
Assets Liabilities Assets Liabilities
---------- ---------- ---------- ----------
Provision for loan losses $ 833,868 $ -- $ 534,922 $ --
Depreciation -- 165,059 -- 126,131
Pension expense -- 122,499 -- 94,039
Other 301,741 -- 190,709 --
SFAS 115 -- 1,374,144 -- 691,631
---------- ---------- ---------- ----------
$1,135,609 $1,661,702 $ 725,631 $ 911,801
========== ========== ========== ==========
NOTE 11 -- FHLB ADVANCES
At December 31, 2002 and 2001, the Bank had the following advances from the
Federal Home Loan Bank (FHLB).
2002 2001 Interest Rate Maturity Date
---- ---- ------------- -------------
$ - $ 2,000,000 7.01% Fixed August 8, 2002
10,000,000 10,000,000 5.86% Fixed w/Strike Rate July 22, 2004
2,000,000 - 3.67% Fixed September 5, 2007
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
4,000,000 4,000,000 5.18% Fixed w/Strike Rate February 23, 2011
4,000,000 4,000,000 4.98% Fixed to Float March 23, 2011
5,000,000 5,000,000 4.947% Fixed w/Strike Rate August 29, 2011
5,000,000 - 4.607% Fixed w/Strike Rate January 30, 2012
- ------------ ------------
$ 40,000,000 $ 35,000,000
============ ============
Interest only is payable until maturity on all FHLB advances. Collateral for all
advances includes all qualifying mortgages.
The Bank had maximum borrowing capacity with FHLB of approximately $261,519,000
and $245,229,000 at December 31, 2002 and 2001, respectively.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 12 -- 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.
The actuarial measurement period of October 15, through October 14, was used to
determine the components of the net periodic pension cost and the financial
disclosures for both plans. The actuarial measurement date of October 15 was
used in determining the plans' liabilities and asset information. The following
is a combined summary of the plans' components as of December 31, 2002, 2001 and
2000, even though the information has been compiled on the basis of the
actuarial measurement period.
2002 2001 2000
----------- ----------- -----------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 2,253,576 $ 1,840,408 $ 1,765,691
Service cost 179,307 151,433 150,403
Interest cost 162,431 141,430 122,204
Actuarial loss due to settlement -- -- --
Benefits paid (161,570) (68,612) (75,139)
Plan settlement -- -- --
Other - net 305,372 188,917 (122,751)
----------- ----------- -----------
Benefit obligation at end of year $ 2,739,116 $ 2,253,576 $ 1,840,408
=========== =========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 2,350,244 $ 2,215,142 $ 2,016,241
Actual return on plan assets, net of expenses (207,196) 4,280 105,065
Plan settlement -- -- --
Benefits paid (161,570) (68,612) (75,139)
Employer contributions 219,868 199,434 168,975
----------- ----------- -----------
Fair value of plan assets at end of year $ 2,201,346 $ 2,350,244 $ 2,215,142
=========== =========== ===========
Funded status $ (537,770) $ 96,668 $ 374,734
Unrecognized net loss from actuarial experience 1,057,676 377,432 27,502
Unrecognized prior service cost (201,962) (220,224) (238,486)
Unamortized net asset existing at date
of adoption of SFAS No. 87 (31,173) (35,271) (39,369)
Settlement -- -- --
----------- ----------- -----------
Prepaid pension cost $ 286,771 $ 218,605 $ 124,381
=========== =========== ===========
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 12 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Net pension expense included the following components:
Years Ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Service cost - benefits earned during the period $ 179,307 $ 151,433 $ 150,403
Interest cost on projected benefit obligation 162,431 141,430 122,204
Actual return on plan assets, net of expenses 207,196 (4,280) (105,065)
Recognized net actual loss 8,199 -- --
Net amortization and deferral (405,431) (183,373) (70,789)
--------- --------- ---------
Net periodic pension cost $ 151,702 $ 105,210 $ 96,753
========= ========= =========
The projected benefit obligation for Plan #1 was determined using an assumed
discount rate of 6.75% for 2002, 7.25% for 2001 and 7.75% for 2000 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 3.50% for 2002, 2001 and 2000. For both plans, the assumed rate of return on
the plans' investment earnings was 7% for 2002, 2001 and 2000.
In the months of December 2002, 2001 and 2000, the Bank contributed $264,969,
$219,868 and $199,434, respectively, to the plans subsequent to the actuarial
measurement dates of October 15, 2002, 2001 and 2000. Because these employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2002, 2001 and 2000 is $500,022, $406,868,
and $301,896, respectively.
The Bank also maintains non-qualified deferred compensation plans for certain
directors, which are generally funded by life insurance. Prior to 2002, premiums
on those policies were paid for by the Bank. In 2002, the Bank elected to pay
those premiums with dividends accruing on the insurance policies. 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 $477,164 and $461,618 at December 31, 2002 and 2001,
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 2002, 2001 and
2000 amounted to $57,304, $53,404 and $49,526, respectively.
NOTE 13 -- 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 $75,521,000 and $73,406,000, as of December 31, 2002 and 2001,
respectively, and approximate fair value.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 13 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. 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.
NOTE 14 -- RELATED-PARTY TRANSACTIONS
At December 31, 2002 and 2001, 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 $12,630,000 and $5,010,000,
respectively. During 2002, new loans to such related parties were approximately
$8,720,000 and repayments approximated $1,100,000.
NOTE 15 -- 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, 2002 and 2001, 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 $2,656,000 and $8,993,000 at December
31, 2002 and 2001, respectively.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 16 -- 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.
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 borrowings under repurchase
agreements are short-term borrowings and approximate their fair values.
FHLB advances: The fair value of 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, 2002 are as follows:
Carrying Fair
Amount Value
------------ ------------
Financial Assets:
Cash and cash equivalents $ 15,066,278 $ 15,066,278
Certificate of deposit $ 100,000 $ 100,000
Investment securities $183,564,960 $183,564,960
Federal Home Loan Bank stock $ 3,152,600 $ 3,152,600
Loans receivable $359,871,514 $375,939,514
Financial liabilities:
Deposits $468,257,327 $473,756,000
Short-term borrowings $ 14,525,836 $ 14,525,836
FHLB advances $ 40,000,000 $ 50,395,000
The market values of investments, which are based upon quoted market prices, are
contained in Note 2.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 17 -- 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.
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, 2002 and 2001, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 2002 and 2001, 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
2002 2001 Requirements Requirements
---- ---- ------------ ------------
Risk-based capital ratio 15.2% 15.8% 8.0% 10.0% or higher
Leverage capital ratio 8.9% 9.0% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 14.4% 15.1% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $4,358,000
and $3,886,000 at December 31, 2002 and 2001, 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 18 -- STOCK OPTION PLAN
The Bank's Stock Option Plan authorizes the granting of stock options to Bank
directors and employees for up to 300,000 shares of common stock. The stock
option plan provides for a term of ten years, after which no awards may be made.
Under the plan, the exercise price of each option equals the market price of the
Bank's stock on the grant date, and an option's maximum term is ten years.
Options constitute both incentive and non-incentive stock options and are
generally granted annually in the month of May. Options granted to directors are
immediately vested and are exercisable six months from the grant date and
options granted to employees generally vest over three years.
As of December 31, 2002, a total of 129,500 stock options have been granted, of
which, 66,513 are vested and exercisable, 53,196 have not vested, 6,625 have
been exercised and 3,166 have been forfeited.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 18 -- STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Bank's stock option plan is presented below:
December 31,
--------------------------------------------------------------------
2002 2001 2000
------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 94,000 $ 23.97 61,000 $ 24.50 - -
Granted 35,500 $ 32.88 33,000 $ 23.00 61,000 $ 24.50
Forfeitures (3,166) $ 23.79 - - - -
Exercised (6,625) $ 25.58 - - - -
------- ------ ------
Outstanding at December 31, 119,709 $ 26.53 94,000 $ 23.97 61,000 $ 24.50
======= ====== ======
Exercisable at December 31, 66,513 $ 25.70 41,333 $ 24.17 18,000 $ 24.50
======= ====== ======
The options outstanding at December 31, 2002, 2001 and 2000 had a
weighted-average contractual maturity of 9.375 years, 8.375 years, and 7.375
years, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
December 31,
---------------------------------------
2002 2001 2000
---- ---- ----
Dividend yield 3.79% 3.59% 4.57%
Expected life 7 years 7 years 7 years
Expected volatility 19% 18% 27%
Risk-free interest rate 3.75% 4.95% 5.10%
Weighted-average fair value $7.46 $7.69 $3.21
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 and earnings per share would have been adjusted to the pro
forma amounts indicated below:
Years Ended December 31,
---------------------------------------
2002 2001 2000
---- ---- ----
Net income:
As reported $8,937,299 $7,465,334 $6,705,261
Pro Forma $8,609,816 $7,351,115 $6,667,126
Net income per share:
Basic and Diluted as reported $3.00 and $2.99 $2.49 $2.23
Basic and Diluted Pro Forma $2.84 $2.45 $2.20
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 18 -- STOCK OPTION PLAN (CONTINUED)
Weighted-average number of shares outstanding assuming dilution of exercisable
stock options using the treasury stock method was 2,991,043, 2,994,088 and
3,003,334 for the years ended December 31, 2002, 2001 and 2000, respectively.
NOTE 19 -- TREASURY STOCK
In 2002 and 2001, the Bancorp repurchased 8,040 and 16,228 shares of its stock
for $258,513 and $395,277, respectively, and is being held as treasury stock.
NOTE 20 -- RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation". This statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. It also requires prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
provisions of this statement are effective for fiscal years beginning after
December 15, 2003. Management has not yet determined the impact of SFAS No. 148,
however, it does not believe the statement will have a material impact on the
Bank or its operations.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 is as
follows:
BALANCE SHEETS
December 31
-------------------------
2002 2001
----------- -----------
ASSETS
Cash in bank $ 401,584 $ 245,690
Investment in subsidiary 54,926,513 48,787,607
Securities available for sale 554,207 436,935
Other assets 303,774 275,338
----------- -----------
Total Assets $56,186,078 $49,745,570
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 34,900 $ 20,864
Stockholders' Equity 56,151,178 49,724,706
----------- -----------
Total Liabilities and Stockholders' Equity $56,186,078 $49,745,570
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2002 2001 2000
---------- ---------- ----------
Income
Dividends from subsidiary $4,000,000 $3,650,000 $3,325,000
Other dividends 14,069 16,978 14,141
Investment security gains 1,986 88,297 --
Income from joint ventures 185,541 102,124 --
Expenses
Professional fees 72,371 87,923 76,676
Loss on joint ventures -- 27,471 80,085
Miscellaneous 33,203 16,880 18,271
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed
Earnings of Subsidiary 4,096,022 3,725,125 3,164,109
Equity in Undistributed
Earnings of Subsidiary 4,841,277 3,740,209 3,541,152
---------- ---------- ----------
Net Income $8,937,299 $7,465,334 $6,705,261
========== ========== ==========
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,937,299 $ 7,465,334 $ 6,705,261
Adjustments to reconcile net income to
net cash provided by operating activities:
Net undistributed earnings of joint ventures (185,541) (74,652) --
Investment security gains (1,986) (88,297) --
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary (4,841,277) (3,740,209) (3,541,152)
Other assets -- -- (58,146)
----------- ----------- -----------
Net Cash From Operating Activities 3,908,495 3,562,176 3,105,963
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from joint ventures 157,105 79,095 --
Proceeds from sale of securities
available for sale -- 478,554 260,631
Purchase of securities available for sale (74,095) (369,062) --
----------- ----------- -----------
Net Cash From Investing Activities 83,010 188,587 260,631
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,577,098) (3,113,278) (2,762,018)
Purchase of Treasury Stock (258,513) (395,277) (601,864)
----------- ----------- -----------
Net Cash Used by Financing Activities (3,835,611) (3,508,555) (3,363,882)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents 155,894 242,208 2,712
Cash and Cash Equivalents at Beginning
of Year 245,690 3,482 770
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 401,584 $ 245,690 $ 3,482
=========== =========== ===========
33
NEEDS TO BE WORKED ON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2002, 2001 and 2000
NOTE 22 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarters Ended 2002
-------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ---------- ----------
Interest income $8,207,972 $8,343,506 $8,523,469 $8,485,279
Interest expense 3,207,376 3,161,028 3,234,016 3,226,173
---------- ---------- ---------- ----------
Net interest income 5,000,596 5,182,478 5,289,453 5,259,106
Provision for loan losses 250,000 250,000 300,000 300,000
Non-interset income 1,335,340 1,253,906 1,307,726 1,420,083
Non-interest expense 2,849,710 3,264,057 3,171,255 3,546,056
---------- ---------- ---------- ----------
Income before income taxes 3,236,226 2,922,327 3,125,924 2,833,133
Income tax expense 805,240 779,597 834,259 761,215
---------- ---------- ---------- ----------
Net income $2,430,986 $2,142,730 $2,291,665 $2,071,918
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.81 $ 0.72 $ 0.77 $ 0.70
========== ========== ========== ==========
Quarters Ended 2001
-------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ---------- ----------
Interest income $8,871,456 $8,885,862 $8,864,164 $8,563,255
Interest expense 4,470,686 4,426,058 4,237,634 3,823,867
---------- ---------- ---------- ----------
Net interest income 4,400,770 4,459,804 4,626,530 4,739,388
Provision for loan losses 75,000 100,000 90,000 235,000
Non-interest income 799,414 1,026,347 1,041,765 1,141,282
Non-interest expense 2,600,794 2,776,724 2,785,829 3,120,808
---------- ---------- ---------- ----------
Income before income taxes 2,524,390 2,609,427 2,792,466 2,524,862
Income tax expense 759,238 726,053 808,084 692,449
---------- ---------- ---------- ----------
Net income $1,765,152 $1,883,374 $1,984,382 $1,832,413
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.59 $ 0.63 $ 0.66 $ 0.61
========== ========== ========== ==========
34
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 03, 2003, IBT Bancorp, Inc. had approximately 657
shareholders of record and 2,977,655 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-down or commissions and may not necessarily
represent actual transactions.
Price Range Cash Dividends
High ($) Low ($) Declared Per Share ($)
-------- ------- ----------------------
2001
First Quarter 22.25 20.13 .26
Second Quarter 25.00 21.37 .26
Third Quarter 26.50 24.35 .26
Fourth Quarter 29.00 25.10 .26
Price Range Cash Dividends
High ($) Low ($) Declared Per Share ($)
-------- ------- ----------------------
2002
First Quarter 33.00 27.30 .30
Second Quarter 33.00 30.50 .30
Third Quarter 35.00 31.90 .30
Fourth Quarter 39.95 34.15 .30
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.
35
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
circumstances where it might not do so absent such a policy. This policy could
have the effect of reducing the amount of dividends declarable by the Company.
Annual Shareholders Meeting
The Annual Meeting of shareholders of IBT Bancorp, Inc. will be held on
Tuesday, April 15, 2003 at 2:00 p.m. at the Irwin Masonic Hall, located at 417
Main Street, Irwin, Pennsylvania.
Form 10-K
The Annual Report for the year ended December 31, 2002 filed with the
Securities & Exchange Commission on Form 10-K, is available without charge upon
written request. For a copy of the Form 10-K, please contact: Charles G. Urtin,
President and Chief Executive Officer, IBT Bancorp, Inc., 309 Main Street,
Irwin, Pa 15642
Transfer Agent Independent Auditors
Registrar and Transfer Company Edwards Sauer & Owens
Investor Relations 500 Warner Centre
10 Commerce Drive Pittsburgh, Pa 15222
Cranford, New Jersey 07016-3572
1-800-368-5948
Market Makers
E. E. Powell & Company Ryan Beck & Co.
Mark Ingold Brian Jacobelli
1100 Gulf Tower Liberty Center
Pittsburgh, Pa 15219 Suite 900
1-800-282-1940 1001 Liberty Avenue
Pittsburgh, Pa 15222
1-800-223-8162
Special Counsel Stock Listing
Malizia Spidi & Fisch, PC OTC Bulletin Board
1100 New York Avenue, NW Under the Symbol "IBTB"
Suite 340 West
Washington, D.C. 20005
36
Irwin Bank & Trust Company Locations
Main Office
309 Main Street
Irwin, PA 15642
724-863-3100
Loan Center
319 Main Street
Irwin, PA 15642
724-863-3100
Trust Division
Suite 204
20 N. Pennsylvania Avenue
Greensburg, PA 15601
724-836-2010
UVest Investments
319 Main Street
Irwin, PA 15642
724-978-2751
Branch Offices
Route 30
9570 Route 30
Irwin, PA 15642
724-863-2510
Monroeville
Haymaker Village
4580 Broadway Blvd.
Monroeville, PA 15146
412-858-4450
Pitcairn
512 Broadway Blvd.
Pitcairn, PA 15140
412-372-3838
Irwin-North Huntingdon
Irwin Bank Extra - Scozio's Shop N' Save
Norwin Hills Shopping Center
8775 Norwin Avenue
North Huntingdon, PA 15642
724-861-8701
White Oak
Irwin Bank Extra - Scozio's Shop N' Save
Oak Park Mall
2001 Lincoln Way
White Oak, PA 15131
412-664-0984
Penn Township
4021 Route 130
Irwin, PA 15642
724-744-2176
White Oak
Oak Park Mall
2003 Lincoln Way
White Oak, PA 15131
412-678-3000
Ft. Allen
Irwin Bank Extra - Hempfield Shop N' Save
Route 136 & Janyce Drive
Greensburg, PA 15601
724-853-8540
Monroeville
Haymaker Village
Irwin Bank Extra - Giant Eagle
4548 Broadway Blvd.
Monroeville, PA 15146
412-856-5330
Penn Crossing
Irwin Bank Extra - Scozio's Festival Foods
2000 Penny Lane
Jeannette, PA 15644
724-744-6111