IBT BANCORP, INC. 2004 ANNUAL REPORT
The Spirit of
Community
Banking.....
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From Our
Home In Irwin
To the Heart of
Westmoreland
County
[LOGO]
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IBT BANCORP, INC.
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TOTAL ASSETS AS OF 12/31 (IN MILLIONS)
[Bar graph with following data points:
2000 $496.4
2001 $524.0
2002 $584.0
2003 $629.5
2004 $675.9]
TOTAL EQUITY (IN THOUSANDS)
[Bar graph with following data points:
2000 $44,615
2001 $49,725
2002 $56,151
2003 $59,606
2004 $59,843]
NET INCOME (IN THOUSANDS)
[Bar graph with following data points:
2000 $6,705
2001 $7,465
2002 $8,937
2003 $9,646
2004 $6,085]
DILUTED EARNINGS PER SHARE
[Bar graph with following data points:
2000 $2.23
2001 $2.49
2002 $2.99
2003 $3.19
2004 $2.02]
DIVIDEND PER SHARE
[Bar graph with following data points:
2000 $.92
2001 $1.04
2002 $1.20
2003 $1.40
2004 $1.60]
SELECTED FINANCIAL INFORMATION
IBT BANCORP, INC & SUBSIDIARY
AT OR FOR THE YEARS ENDED
2004 2003 2002 2001 2000
(Dollars in thousands, except per share amounts)
SELECTED BALANCE SHEET DATA:
Assets $ 675,857 $ 629,530 $ 584,035 $ 524,044 $ 496,379
Cash and cash equivalents 16,187 15,829 15,066 25,218 21,746
Securities available for sale 196,891 172,448 186,718 162,968 167,874
Loans receivable (net) 436,548 416,286 359,872 315,132 291,914
Deposits 526,217 492,158 468,257 422,462 409,638
Repurchase agreements 15,157 12,611 14,526 11,207 9,022
Federal funds purchased - 7,900 - - -
FHLB advances 70,265 53,308 40,000 35,000 28,000
Shareholders' equity 59,843 59,606 56,151 49,725 44,615
SELECTED RESULTS OF OPERATIONS
Interest income $ 33,726 $ 33,398 $ 33,560 $ 35,185 $ 33,787
Net interest income 21,918 22,083 20,732 18,226 17,200
Provision for loan losses 600 600 1,100 500 300
Net interest income after provision
for loan losses 21,318 21,483 19,632 17,726 16,900
Other income 2,690 5,891 5,317 4,009 2,946
Other expense 15,095 14,300 12,831 11,284 10,181
Net income 6,085 9,646 8,937 7,465 6,705
PER SHARE DATA:
Net Income
Basic $ 2.05 $ 3.24 $ 3.00 $ 2.49 $ 2.23
Diluted 2.02 3.19 2.99 2.49 2.23
Cash dividends declared 1.60 1.40 1.20 1.04 0.92
SELECTED RATIOS:
Return on average assets 0.92% 1.59% 1.61% 1.45% 1.44%
Return on average equity 10.25% 16.54% 16.95% 15.57% 16.87%
Ratio of avg. equity to avg. assets 9.02% 9.59% 9.47% 9.31% 8.52%
Dividend payout 78.01% 43.21% 40.00% 41.77% 41.26%
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2004 ANNUAL REPORT
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A Message To Our Stockholders
As the landscape of community banking changes, our commitment to our
shareholders and customers remains constant. Eighty-three years ago, with
$200,000 in capital, our Company entered the banking business serving the needs
of the small community of Irwin, Pennsylvania. Today, with $676,000,000 in
assets, we have grown to be the largest financial institution headquartered in
Westmoreland County. We are today considered "local" far beyond our original
location, yet we remain driven by the traditional values that have defined
community banking for nearly a century.
2004 presented some unique challenges for IBT Bancorp, Inc. and its subsidiary,
Irwin Bank & Trust Company. Net income declined, brought on by several factors.
Regulatory guidelines adversely affected the investment portfolio. In addition,
pressure on the net interest margin, caused by the interest rate environment,
continue to impact Company earnings and the banking industry as a whole.
Despite these challenges, the Company is pleased to report growth in assets,
deposits and loans while maintaining control of expenses.
Performance Summary.
Earnings for 2004 were $6.1 million. Assets increased by 7.4%, deposits
increased by 6.9% and net loan growth was $20 million. Shareholder benefit
improved with a dividend increase of 14.28% to $1.60 per share.
Certain investment securities in the Company's investment portfolio were deemed
to be other than temporarily impaired, resulting in a $2.4 million after tax
charge to earnings. United States Securities and Exchange Commission rules and
generally accepted accounting procedures require that all Company investment
securities be assessed on a quarterly basis, for other than temporary
impairment. When the market value of a security is less than its cost over a
period of time, it can be considered other than temporarily impaired. If
management believes that the investment will not regain its original cost in a
reasonable amount of time then the amount of the decrease in value must be
recognized through earnings. In 2004, widely reported accounting problems at
both Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National
Mortgage Corporation (Fannie Mae) had a negative impact on the value of those
investments. Consequently certain IBT Bancorp, Inc. perpetual preferred stock
investments in Freddie Mac and Fannie Mae have been categorized as other than
temporarily impaired due to the decline in their market value.
In addition, pressure on the net interest margin continued to adversely affect
earnings results for 2004. The interest rate environment was unlike that seen
for the past 50 years. The resulting downward trend in loan pricing continued to
assert pressure on the net interest margin. Deposit rates rose throughout the
year while mortgage rates remained relatively flat. Refinancing appears to have
peaked after two years of record numbers of originations, causing a decrease in
loan volume.
Other factors had a favorable impact on performance. Maximum Checking, a new
account launched in late 2003, proved to be popular in the marketplace having
gathered $19 million in deposits. Debit card income and income from the new
Overdraft Advantage program contributed to a 12.5% gain over 2003 levels.
Irwin Bank & Trust Company continues to aggressively control costs. Three of our
offices will be consolidated in 2005. The three locations, within a 1-1/2 mile
corridor, provided an overlap of services in a common market area. The
consolidation into one location will present a significant cost savings with
little customer impact.
2004 Initiatives
Our commitment to community banking values defines our core banking philosophy.
However, the definition of community banking is changing every day, influenced
by rapid changes in technology, regulation and customer expectations. In this
challenging arena lies our commitment to provide our customers with products,
services and overall banking value that is second to none. We are pleased with
the progress made over recent years that has given Irwin Bank & Trust Company
state-of-the-art capability in check imaging, customer electronic transaction
and account information delivery, customer
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IBT BANCORP, INC.
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relationship management (CRM), and product offerings. That effort continued in
2004 with several major marketing and operational initiatives.
For business banking, a new account structure was developed and bundled with the
Company's advanced electronic and debit card capabilities. Personal Banking
received a new student account and a new direct deposit account that comes with
free electronic banking. Both personal and business accounts are clearly
presented in colorful new brochures that provide easy comparison for the
customer.
Last September, a second banking location was opened in Greensburg.
The new office, located in the downtown business district near the Westmoreland
County Courthouse, provides convenience to the professional community.
In late September, Overdraft Advantage was introduced, providing customers with
the assurance that overdrafts would be paid within structured guidelines. In
addition to providing the customer with a service enhancement, service charge
income from the product is showing great potential.
Throughout the year, sales development continued within our branch network. This
initiative has brought us closer to our customers, helping us to better
understand and meet their changing needs. The Company will continue to be
proactive and prudent in its approach toward product development, operational
enhancements and market expansion.
Changes on the Board of Directors J. Curt Gardner resigned from the Board of
Directors in November of 2004. Mr. Gardner's wisdom and leadership as past
President and Chairman of the Board are greatly appreciated. Mr. Robert Rebich,
Jr., who has been a Director for over 13 years replaced him as Chairman. Two
other Directors also retired in 2004. Mr. Edwin A. Paulone's 40-year tenure as a
Company Director deserves special recognition. We also thank Mr. Thomas Beter
for his 8 years of service to the Board. We extend our very best wishes to all
of our departing Directors.
We are pleased to welcome new Directors Mr. John N. Brenzia, Mr. Thomas E.
Deger, and Mr. Charles W. Hergenroeder to the Board. Their fresh point of view
and years of professional experience will add strength to the leadership
process.
Moving Ahead
Irwin Bank is well positioned to meet the challenges of the future. Loan and
deposit growth will continue to be spurred by our good mix of competitive
product offerings. The new Greensburg market area is showing steady growth and
offers great potential. We continue to consider prudent opportunities to expand
our franchise. And, the training and technology are in place for our employees
to maximize customer banking relationships.
We sincerely appreciate having you as an investor in IBT Bancorp, Inc.
/s/Charles G. Urtin /s/Robert Rebich, Jr.
Charles G. Urtin Robert Rebich, Jr.
President & Chief Executive Officer Chairman of the Board
IBT Bancorp, Inc. IBT Bancorp, Inc.
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2004 ANNUAL REPORT
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Board of Directors / Management
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Irwin Bank & Trust Company Management
(Back row:) David A. Finui, Senior Vice President/COO
Raymond G. Suchta, Senior Vice President/CFO
(Front row:) Charles G. Urtin, President/CEO
Robert A. Bowell, Executive Vice President/Secretary-Treasurer/CLO
IBT Bancorp, Inc. / Irwin Bank & Trust Company Board of Directors
(Back row:) Charles W. Hergenroeder, Director; Thomas E. Deger, Director;
Charles G. Urtin, President/CEO; Richard J. Hoffman, Director; John N. Brenzia,
Director; Dr. Grant J. Shevchik, Director; (Seated front row) Richard L. Ryan,
Director; Robert Rebich, Jr., Chairman; Robert C. Whisner, Director.
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(Not pictured, Directors Emeritus) Thomas Beter, William D. Fawcett, Sr., J.
Curt Gardner, Edwin A. Paulone, Vincent V. Rodgers.
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IBT BANCORP, INC.
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A Fresh Look at Our Product Offerings
An important part of community banking is a commitment to deliver the highest
level of value in products and services. Building on the outstanding success of
Maximum Checking, launched late in 2003, Irwin Bank & Trust Company's entire
product line-up was repositioned in 2004. Free Checking, a company signature
product, remains in place with one change, applicable to new accounts only.
Check Safekeeping is now a default feature, with a $2.00 monthly service charge
required for check images. Following implementation of this change, new accounts
choosing Check Safekeeping have increased to 90%, an increase of over 30%. This
will provide the Company with noteworthy savings in the printing and postage of
monthly statements.
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Also new in 2004 was the introduction of Overdraft Advantage, a program that
provides eligible customers with assurance that qualifying overdrafts would be
paid, avoiding embarrassment and additional fees charged by the check recipient.
Next, two new personal accounts were created. Free Checking Plus is for
customers utilizing direct deposit. The "Plus" feature is free internet banking
with a discounted service charge for bill payment. The other new account is Free
Student Checking. This account is essentially the same as Free Checking Plus,
but it waives the direct deposit requirement for students. Both accounts come
with all of the basic features of standard Free Checking. Free internet banking
was also added to Extra Checking in 2004. Irwin Bank & Trust Company now offers
a variety of incentives for customers to utilize the convenience of electronic
banking.
Business banking also enjoyed a major makeover. In addition to a new free small
business checking account, a new and unique "relationship" account was created
that bundles a larger quantity of items processed with our advanced electronic
banking solution for business. The monthly service charge is waived if a higher
monthly balance is maintained. Next, our Business Analysis Account was made part
of the line up, in order to inform business customers of Irwin Bank & Trust
Company's capabilities for higher volume businesses. As part of our overall
capabilities presentation, the Company's sophisticated debit card and electronic
banking service options were added to the mix, providing the customer with a
full range of banking and financial management solutions.
As a community bank, Irwin Bank & Trust Company is sometimes challenged by the
false perception in the market place of "not being as capable as the big banks."
Our new business banking strategy effectively addresses this misconception.
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New account guides clearly present account features and comparisons for both
personal and business accounts. Additional services, such as debit card and
electronic banking are positioned as a part of the complete deposit banking
experience.
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2004 ANNUAL REPORT
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Robert A. Bowell, Executive Vice President and Chief Lending Officer, and
Barbara A. Burzio, Vice President/Commercial Loans, take a tour of the home of
Ms. Lois Runzo, constructed with the help of Irwin Bank financing. Mortgage and
construction loans continue to be an important part of the Company's loan
business.
Lending
With interest rates remaining at record low levels throughout the year,
borrowers continued to take advantage of opportunities to refinance. A decline
in the number of originations indicates that the refinancing boom appears to
have peaked in 2004. For the year, Irwin Bank & Trust Company loan portfolios
grew $20 million or nearly 5%. All three lending categories, installment,
commercial and mortgages reached record highs. Our market area continues to be
one of the fastest growing residential markets in Western Pennsylvania, and we
see continuing potential for new construction and mortgage financing for the
upcoming year. However, with the decrease in refinancing activity, the
competitive environment has become more challenging. By continuing to offer the
market the best overall lending value, we will maintain a favorable market
share.
Although pricing and fees play a major role when it comes to loans, service
plays an ever-important role. We especially see this in Commercial Lending,
where borrowers tell us they do not appreciate lending decisions made across the
state and in some cases even out-of-state. Because our loan decisions are made
locally and quickly, Irwin Bank & Trust Company enjoys a distinct competitive
advantage. With the entire loan process being local, borrowers appreciate the
personal relationship they have with us as their local bank and our ability to
respond to their specific needs.
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Mr. David Rosenblatt, President of Green Valley Dry Cleaners, Inc., explains the
operation of a new Water Economizer System to Stacey G. Winfield, Vice President
/Commercial Lending. The equipment, which saves energy and reduces water and
sewage costs, was financed by Irwin Bank & Trust Company, participating with the
Pennsylvania Department of Community and Economic Development (Pollution
Prevention Assistance) and the Southwestern Pennsylvania Corporation (Small
Business First Program).
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IBT BANCORP, INC.
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Wealth Management Gains
Wealth management is becoming an increasingly important part of the Bank's
business portfolio due to growing demand from our customers.
The Trust Division and UVest Investment Division work together to provide
customers with comprehensive investment, estate and employee benefits planning
and implementation.
2004 saw impressive gains in non-interest income generated from both areas.
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Mr. James Wolff, President of General Press, shows the capabilities of a new
printing press to Scott Fisher, Vice President/Trust Division. The Company's
Trust Division manages the employee benefits plan for General Press.
Developing a Relationship Culture
Unlocking the potential of our employees was an important initiative for 2004.
Our strategy was simple: by learning to better understand the banking
relationships of our customers, we would improve our retention and cross-selling
ratios. The implementation of this sales-oriented program included training,
monthly "sales" meetings and deployment of customer marketing information (MCIF)
to the customer service staff. As a result, thousands of customer contact calls
have been made for a variety of reasons such as maturing loans and CDs, as well
as good will calls to high value customers. Customers have expressed
appreciation for the program. To their credit, our platform staff has also
embraced the program and as a result, the "relationship culture" initiative has
enjoyed a successful introduction.
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The Irwin Bank & Trust Company training facility provides a productive learning
environment for a variety of operational functions. Teller and sales platform
training is now a hands-on experience for trainees. The multiple workstations
are also an ideal way to train users of the Marketing Customer Information File
and other administrative software programs.
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2004 ANNUAL REPORT
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Community Leadership
Community banking requires community involvement and leadership, and Irwin Bank
& Trust Company's employees are quick to serve. Company employees serve as
members and directors of several organizations, ranging from hospitals,
universities and major charities and foundations to local service clubs, youth
organizations, school and church groups, and other institutions. Financial
support is also provided through contributions made to a variety of fund raising
efforts.
Some of the year's highlight activities best tell the story.
- - Throughout the year employees made a substantial contribution to the United
Way of Westmoreland County through payroll deductions.
- - In the fall of 2004, Irwin Bank's Employee Club raised funds for victims of
the Hurricane Ivan floods. During the holiday season, the group was also
active in several charitable causes including the Salvation Army, Toys for
Tots and the Make-A-Wish Foundation.
- - Irwin Bank & Trust Company financially supports a very long list of local
causes through sponsorship, donation or participation in fundraising
events.
In 2004, the Company played a pivotal role in a major revitalization initiative
in its hometown of Irwin, PA, called the "Irwin Project." Building on the
inspiration provided by a study of Irwin conducted by Penn State University and
the Lincoln Highway Heritage Corridor, Irwin Bank & Trust Company was
instrumental in stimulating the start of the effort known as the Irwin Project.
The Irwin Project operating committee is a citizen's advisory board in support
of Irwin Borough Council and has produced some early results. As a result of the
committee's effort, the Westmoreland Cultural Trust has designated Main Street's
Thompson Building for major historical renovation. The committee is working to
update Irwin's Comprehensive Plan and finance the study through grants and
private fund raising. Company support and leadership has helped the Irwin
Project get off to a robust start.
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Irwin Bank & Trust Company is a major supporter of the Norwin Public Library, a
new, state-of-the-art community institution.
[GRAPHIC OMITTED]
With financial and leadership stimulus from Irwin Bank & Trust Company, a
community revitalization initiative known as the "Irwin Project" began in 2004.
As part of the program, the Westmoreland Trust has designated Main Street's
Thompson Building for historical renovation.
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IBT BANCORP, INC.
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Changes in Our Branch Office Network
In order to continue establishing our commitment to the Greensburg market, Irwin
Bank & Trust Company opened a second banking facility in the downtown business
district. The new Pennsylvania Commons office, located next to the Westmoreland
County Courthouse, is conveniently located in the heart of the city's
professional community. The location is adjacent to our Trust Division office
and is designed for the walk-to convenience of local attorneys and other
professionals. Pennsylvania Commons operates as a satellite of the primary
Greensburg office, opened last year at Triangle Drive.
In 2004, we recognized an opportunity to further improve efficiency by
consolidating three branch locations. Pitcairn, Haymaker Village and the
Haymaker Village Irwin Bank Extra offices are located in very close proximity
and provided redundant services to a common market area. The three offices will
be consolidated into our Haymaker Village office. Hours of operation at Haymaker
Village will be expanded. As a courtesy to the patrons of the Pitcairn office,
we will provide a shuttle bus service from Pitcairn to the Haymaker Village
office. Pitcairn residents will also benefit from the additional services
available at Haymaker Village, including drive-up, automated teller machine,
safe deposit boxes and evening and Saturday hours. The consolidation will be
completed on April 15, 2005.
Employee Milestones, Promotions &
New Hires
Irwin Bank & Trust Company's success would not be possible without the hard
work and dedication of its employees. In 2004, Beverly A. Hahn was recognized
for her 40 years of service. Edwin A. Paulone and Robert C. Whisner, both
Directors of the Board, were recognized for their 35 years of service. M. Diane
Jones and Maurine J. Peer were recognized for their 30 years of service and Lori
B. Gumbert was recognized for her 25 years of service. We are proud to honor
these employees for their many years of dedicated service to Irwin Bank & Trust
Company. We are also pleased to recognize our officers who achieved higher rank
and those who joined Irwin Bank & Trust Company last year.
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Douglas L. Appel
Assistant Vice President /
Network Administration
Promoted April, 2004
[GRAPHIC OMITTED]
Barbara A. Burzio
Vice President /
Commercial Lending
Promoted April, 2004
[GRAPHIC OMITTED]
William E. Killian
Vice President /
Business Development
Hired January, 2004
[GRAPHIC OMITTED]
Alan Lazar
Senior Vice President /
Commercial Lending
Promoted April, 2004
[GRAPHIC OMITTED]
Anna Mauro
Manager /
TA of Irwin Title Insurance
Hired June, 2004
[GRAPHIC OMITTED]
Robert G. Michaud
Vice President /
Marketing
Promoted April, 2004
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John A. Pauls, Jr.
Assistant Vice President /
Auditor
Hired May, 2004
[GRAPHIC OMITTED]
Barbara A. Ruffner
Assistant Vice President /
Consumer Lending
Promoted June, 2004
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "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 new branches, the ability to control costs and expenses, and
general economic conditions. IBT Bancorp, Inc. undertakes no obligation to
update those forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking
services through its wholly owned banking subsidiary, Irwin Bank & Trust Co.
(collectively, the "Company"). The Company's stock is traded on the American
Stock Exchange under the symbol IRW.
CRITICAL ACCOUNTING POLICIES
The most significant accounting policies followed by the Company are
presented in Note 1 to the consolidated financial statements. The Company's
accounting and reporting policies conform with the accounting principles
generally accepted in the United States of America and general practices within
the financial services industry. The preparation of the financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. Actual results
could differ from those estimates.
Allowance for loan losses: The Company considers that the determination
of the allowance for loan losses involves a higher degree of judgment and
complexity than its other significant accounting policies. The balance in the
allowance for loan losses is determined based on management's review and
evaluation of the loan portfolio in relation to past loss experience, the size
and composition of the portfolio, current economic events and conditions, and
other pertinent factors. All of these factors may be susceptible to significant
change to the extent actual outcomes differ from management's estimates.
Additional provisions for loan losses may be required that would adversely
impact earnings in future periods.
Accounting for stock options: As of January 1, 2003, the Company
adopted SFAS 123 as amended by SFAS 148 in regards to the accounting for stock
options. As required by this statement, the Company recognized compensation
expense in the income statement based on the estimated fair value of the options
on the date of the grant. Prior to this date the Company accounted for
stock-based compensation in accordance with Accounting Principles Board Opinion
(APB) No. 25. Under APB No. 25, no compensation expense is recognized in the
income statement related to any options granted under the Company's stock option
plans. The pro forma impact to net income and earnings per share that would
occur if compensation expense was recognized, based on the estimated fair value
of the options on the date of the grant, is disclosed in the notes to the
consolidated financial statements.
Other-than-temporary impairment: Generally accepted accounting
principles require management to examine the investment portfolio for losses on
investments, which may be determined to be other than temporary. The Company
currently owns certain preferred stocks issued by the Federal National Mortgage
Corporation (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac). These preferred stocks contain attributes of both debt and equity. The
dividend paid is tied to an index plus or minus a margin, and the payment rate
adjusts bi-annually. Recent, ongoing, negative publicity concerning accounting
practices at both agencies have negatively impacted the value of these
investments. Management determined that the losses were other than temporary and
the Company recorded a non-cash write-down of $2.4 million on these investments.
1
FINANCIAL CONDITION
At December 31, 2004, total assets increased $46.4 million, or 7.4%, to
$675.9 million from $629.5 million at December 31, 2003. The increase in total
assets was primarily the result of an increase of $23.3 million in securities
available for sale and $20.2 million net loans. Growth in securities available
for sale and the loan portfolio was primarily funded by a net increase of $34.0
million in total deposits and $17.0 million in FHLB advances.
The increase in available for sale securities was mainly the result of
purchases of $111.6 million offset by net proceeds from maturities and the sales
of securities of $85.1 million. This resulted in net increases of
mortgage-backed securities and obligations of state and political sub-divisions
of $27.3 million and $8.5 million, respectively, offset by net decreases in
obligations of U.S. government agencies of $11.9 million.
The increase in the loan portfolio was primarily due to increases of $7.2
million in real estate secured mortgage loans, $6.4 million in consumer
installment loans, and $3.8 million in loans made to municipalities. The
increase in real estate secured mortgage loans was mainly due to increases in
multi-family properties and commercial mortgages, which rose $2.7 million and
$3.8 million, respectively. Such increases were offset by a decrease of $1.4
million in 1-4 family residential mortgages. This decrease is attributed to
customer refinancings, principal repayments, and sales into the secondary
mortgage market. The 1-4 family residential mortgage loans originated by the
Company are periodically sold to the Pennsylvania Housing Finance Agency
("PHFA") or PHH Mortgage Services to mitigate the interest-rate risk associated
with holding long-term, low rate loans in the portfolio. In 2004, loans sold to
PHFA and PHH were $1.5 million and $6.1 million, respectively.
Consumer installment and municipal loans reached $84.7 million and $10.1
million, respectively, at December 31, 2004 compared to $78.3 million and $6.3
million, respectively at December 31, 2003. The Company's competitive offering
rates supported this growth.
At December 31, 2004, total liabilities increased $46.1 million, or 8.1%,
to $616.0 million from $569.9 million at December 31, 2003. The increase was
primarily related to the increase in total deposits and additional FHLB advances
of $34.0 million and $17.0 million, respectively offset by a $7.9 million
decrease in overnight borrowings. The change in total deposits was a result of
non-interest bearing and interest-bearing deposit increases of $6.1 million and
$27.9 million, respectively. The interest-bearing deposit increases were
primarily in certificates of deposit and interest bearing checking accounts,
which rose $15.1 million and $11.7 million, respectively. Such increases were
attributed to a growing deposit base and competitive pricing.
Non-interest bearing deposits increased $6.1 million to $87.2 million at
December 31, 2004 from $81.1 million at December 31, 2003. Such increases
reflect additions to non-interest bearing deposits of $8.7 million offset by a
$2.6 million increase in investments in repurchase agreements at December 31,
2004. 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, 2004, total stockholders' equity increased $237,000 to
$59.8 million from $59.6 million at December 31, 2003. The increase was
primarily due to net income of $6.1 million for the period and an increase of
$171,000 in accumulated other comprehensive income (net of income taxes) offset
by dividends paid of $4.7 million and an increase in treasury stock purchased of
$1.0 million. In addition, surplus (additional paid-in capital) decreased
$326,000 due to stock options exercised and increased $59,000 due to stock
options granted in accordance with the adoption of FASB 123, as amended by FASB
148. See Note 19 to the consolidated financial statements. 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.
2
RESULTS OF OPERATIONS
Net Income: Net income decreased approximately $3.5 million, or 36.5%,
to $6.1 million ($2.02 per diluted share) for the year ended December 31, 2004
from $9.6 million ($3.19 per diluted share) for the year ended December 31,
2003. The decrease in net income for fiscal 2004 compared to fiscal 2003 was
primarily due to a $2.4 million non-cash charge resulting from a decrease in
value of certain agency preferred stocks, which was determined by management, to
be other than temporary as well as decreases in net interest income and total
other income of $165,000 and $775,000, respectively and an increase of $795,000
in total other expenses. Net interest income decreased primarily because
interest expense rose $493,000, or 4.4%, offset by an increase of $328,000, or
1.0% in interest income. Increases in interest expense were attributed to an
increase of $39.5 million in interest-bearing liabilities offset by a 12-basis
point decline in average yield. Other income declined due to lower investment
securities gains and lower gains on sales of foreclosed real estate.
For the year ended December 31, 2003, net income increased
approximately $709,000, or 7.9%, to $9.6 million ($3.19 per diluted share) from
$8.9 million ($2.99 per diluted share) for the year ended December 31, 2002. The
increase in net income for fiscal 2003 compared to fiscal 2002 was primarily due
to a $1.9 million increase in net interest income, a $574,000 increase in other
income and a $500,000 decrease in the provision for loan losses. Net interest
income increased primarily because interest expense declined $1.5 million, or
11.8%, while interest income remained relatively stable, declining only
$162,000, or 0.5%. The Company was able to maintain its levels of interest
income due to a $50.0 million increase in the average volume of interest-earning
assets, which more than offset a 58-basis point decline in average yield.
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 decreased $165,000, or 0.7% to $21.9 million for
2004 compared to $22.1 million for 2003. The decrease was primarily due to an
increase in average interest-bearing liabilities of $46.6 million offset by a
12-basis point decrease in the average cost of funds. Such increases were mainly
in certificates of deposit, which rose an average of $24.7 million offset by a
21-basis point decline in average cost. Average interest earning assets
increased $47.8 million in fiscal 2004 offset by a 40-basis point decrease in
the average yield of interest earning assets. This increase was primarily in
average loans and investment securities available for sale, which grew $36.8
million and $15.4 million, respectively offset by decreases in the average
yields of 52-basis points and 24-basis points, respectively.
Net interest income increased $1.4 million, or 6.76% to $22.1 million
for 2003 compared to $20.7 million for 2002. The increase was primarily due to
the increase in average loans of $56.1 million and average investment securities
available for sale of $4.1 million offset by a decrease in average other
interest-earning assets (primarily federal funds sold) of $10.2 million and a
58-basis point decrease in the yield on average interest earning assets to 5.80%
for 2003 from 6.38% for 2002. 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 68-basis points and 89-basis point,
respectively. Average interest-bearing liabilities increased $40.2 million in
fiscal 2003 offset by a 58-basis point decrease in the average cost of funds.
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.
3
Year Ended December 31,
---------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ----------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $430,543 $26,313 6.11% $393,743 $26,097 6.63% $337,600 $24,687 7.31%
Investment securities (2) 192,934 7,403 3.84% 177,557 7,244 4.08% 173,472 8,615 4.97%
Other interest-earning
assets (3) 540 10 1.82% 4,926 57 1.16% 15,086 258 1.71%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest
earning assets $624,017 $33,726 5.40% $576,226 $33,398 5.80% $526,158 $33,560 6.38%
Non-interest earning
assets (4) 34,156 31,441 30,550
-------- -------- --------
Total assets $658,173 $607,667 $556,708
======== ======== ========
Interest-bearing liabilities:
Money market accounts 58,103 516 0.89% 61,138 645 1.05% 60,735 1,234 2.03%
Certificates of deposit 245,881 7,595 3.09% 221,186 7,303 3.30% 208,789 7,935 3.80%
Other liabilities (5) 210,096 3,697 1.76% 185,117 3,367 1.82% 157,629 3,660 2.32%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities $514,080 $11,808 2.30% $467,441 $11,315 2.42% $427,153 $12,829 3.00%
------- ------ ------- ------ ------- ------
Non-interest-bearing
liabilities (4) 84,704 81,918 76,818
-------- -------- --------
Total liabilities $598,784 $549,359 $503,971
Stockholders' Equity (6) 59,389 58,308 52,737
-------- -------- --------
Total liabilities and
stockholders' equity $658,173 $607,667 $556,708
======== ======== ========
Net interest income $21,918 $22,083 $20,731
======= ======= =======
Interest rate spread (7) 3.10% 3.38% 3.38%
====== ====== ======
Net interest margin(8) 3.51% 3.83% 3.94%
====== ====== ======
Ratio of average
interest-earning
assets to average
interest-bearing liabilities 121.38% 123.27% 123.18%
====== ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan
fees. [must note if material amount of loans fees included in interest
(2) Includes investment securities, interest-bearing deposits in other
financial institutions and FHLB stock.
(3) Includes Federal funds sold.
(4) Includes net deferred income taxes in excess of deferred tax benefits on
AFS securities (SFAS 115), stock options (SFAS 123/148) and deferred fees
(SFAS 109).
(5) Includes FHLB advances and Federal funds purchased, and repurchase
agreements.
(6) Includes capital stock, surplus and unrealized holding gains on SFAS 115
AFS securities.
(7) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(8) Net interest margin represents net interest income as a percentage of
average interest earning assets.
4
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,
------------------------------- -------------------------------
2004 vs. 2003 2003 vs. 2002
------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
----------------------------------------------------------------
(In Thousands)
Interest income:
Loans receivable $ 2,439 $(2,223) $ 216 $ 4,105 $(2,696) $ 1,409
Investment securities 627 (468) 159 203 (1,574) (1,371)
Other interest-earning assets (51) 4 (47) (174) (27) (201)
------- ------- ------- ------- ------- -------
Total interest-earning assets 3,015 (2,687) 328 4,134 (4,297) (163)
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts (32) (97) (129) 9 (597) (588)
Certificates of deposit 816 (524) 292 471 (1,103) (632)
Other liabilities 454 (124) 330 642 (936) (294)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,238 (745) 493 1,122 (2,636) (1,514)
------- ------- ------- ------- ------- -------
Net change in net interest income $ 1,777 $(1,942) $ (165) $ 3,012 $(1,661) $ 1,351
======= ======= ======= ======= ======= =======
Provision for Loan Losses: The Company recorded a provision for loan
losses of $600,000, $600,000 and $1.1 million for 2004, 2003, and 2002,
respectively. The table below sets forth information with respect to activity in
the Company's allowance for loan losses for the years indicated:
At December 31,
---------------------------------------
2004 2003 2002
--------- --------- ---------
(Dollars in Thousands)
Total loans outstanding $ 439,142 $ 419,571 $ 362,744
========= ========= =========
Average loans outstanding $ 430,543 $ 393,743 $ 337,600
========= ========= =========
Allowance balances (at beginning of period) $ 3,285 $ 2,873 $ 2,114
Provision (credit):
Mortgage 430 430 930
Installment 38 38 25
Commercial 132 132 145
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards - - -
Other - - -
5
Net (Charge-offs) recoveries: - - -
Mortgage (1,204) (11) (219)
Installment (125) (64) (59)
Commercial 38 (113) (63)
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards - - -
Other - - -
--------- --------- ---------
Allowance balance (at end of period) $ 2,594 $ 3,285 $ 2,873
========= ========= =========
Allowance for loan losses as a percent of
Total loans outstanding 0.59% 0.78% 0.79%
Net loans charged off as a percentage of
Average loans outstanding 0.30% 0.05% 0.10%
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level that represents management's best
estimate of the losses inherent in the portfolio, based on a monthly review by
management of the following factors:
o Historical experience
o Volume
o Type of lending conducted by the Bank
o Industry standards
o The level and status of past due and non-performing loans
o The general economic conditions in the Bank's lending area; and
o Other factors affecting the collectability of the loans in the portfolio
Large groups of homogeneous loans, such as residential real estate,
small commercial real estate loans and home equity and consumer loans are
evaluated in the aggregate using historical loss factors and other data. The
amount of loss reserve is calculated using historical loss rates, net of
recoveries on a five year rolling weighted average, adjusted for environmental,
and other qualitative factors such as industry, geographical, economic and
political factors that can effect loss rates or loss measurements.
Large balance and/or more complex loans such as multi-family and
commercial real estate loans may be evaluated on an individual basis and are
also evaluated in the aggregate to determine adequate reserves. As specific
loans are determined to be impaired, specific reserves are assigned based upon
collateral value, market value, if determinable, or the present value of the
estimated future cash flows of the loan.
The allowance is increased by a provision for loan loss which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on non-accrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
The allowance for loan losses is maintained at a level that represents
management's best estimate of losses in the portfolio at the balance sheet date.
However, there can be no assurance that the allowance for losses will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.
6
Other Income: Total other income decreased approximately $3.2 million,
or 54.3% to $2.7 million for the year ended December 31, 2004 from $5.9 million
for the year ended December 31, 2003. The decrease in other income was primarily
attributable to investment securities losses. Management evaluates its available
for sale securities portfolio on a quarterly basis for other than temporary
impairment in fair value. Based on this analysis, at December 31, 2004,
adjustable rate preferred stocks were written down to fair market value, which
resulted in a $2.4 million after tax charge to earnings. Other income decreased
$548,000 primarily due to a gain from the sale of other real estate of $351,000
recorded in fiscal 2003.
Total other income increased approximately $574,000, or 10.8% to $5.9
million for the year ended December 31, 2003 from $5.3 million for the year
ended December 31, 2002. Such increase was mainly the result of net security
gains of $466,000. Other income increased $316,000 primarily due to a gain from
the sale of other real estate of $351,000.
Other Expenses: Total other expense increased $795,000, or 5.6%, to
$15.1 million for 2004 from $14.3 million for 2003. Of this increase,
approximately $222,000 is attributed to increased salaries, which reached $5.9
million for 2004 from $5.7 million for 2003. Such increases in salaries were
mainly the result of staff additions and annual merit increases. Pension and
other employee benefits increased $177,000 to $1.8 million for 2004 primarily
due to increases in pension costs and health insurance premiums. Occupancy
expense increased $218,000 to $1.8 million, for 2004 from $1.5 million for 2003
primarily due to increases in depreciation expenses of $261,000 related to
building construction and equipment purchases for technological improvements.
Other expenses increased $155,000 to $3.9 million for 2004 from $3.8 million for
2003.
Total other expense increased $1.5 million, or 11.7%, to $14.3 million
for 2003 from $12.8 million for 2002. Of this increase, approximately $355,000
is attributed to increased salaries, which reached $5.7 million for 2003 from
$5.3 million for 2002. Salary increases were due to additions to staff, annual
merit increases, and commissions paid to commission based lenders. Pension and
other employee benefits increased $324,000 to $1.6 million for 2003 primarily
due to increases in pension costs and health insurance premiums of $96,000 and
$129,000, respectively. Occupancy expense increased $221,000 to $1.5 million,
for 2003 from $1.3 million for 2002 primarily due to an increase of $153,000 in
depreciation expense related to the construction of a new branch and equipment
purchases for technological improvements. Rental expense increased $42,000
mainly due to the relocation of the Company's item processing department. Other
expenses increased $396,000 to $3.8 million for 2003 from $3.4 million for 2002.
This increase was comprised of numerous items related to the normal cost of
doing business, non-material in nature.
Income Taxes: Income tax expense for 2004 was $2.8 million compared to
$3.4 million in 2003 and $3.2 million in 2002. The change in income tax expense
was principally attributable to the change in earnings in each period. The
Company's effective tax rates were 31.7%, 26.2%, and 26.2% for 2004, 2003 and
2002, respectively. The Company's effective tax rate has been below the
statutory rate of 34% primarily due to interest earned on obligations of states
and political subdivisions, which is exempt from federal taxation. The Company's
effective tax rate increased to 31.7% in 2004 from 26.2% in 2003. The rate
increased because of the insignificant tax effect concerning the $2.4 million
write down of certain preferred stocks that was determined to be other than
temporary. The loss on these investments is a capital loss, which can only be
used to offset capital gains. The Company had very little in capital gains to
offset and the tax benefit related to the $2.4 million write down was $45,000, a
tax effect of 1.875%.
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, 2004, the Company had commitments to extend
credit of $22.9 million.
7
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, 2004, cash and cash equivalents totaled $16.2 million.
Net cash from operating activities for 2004 totaled $11.3 million, as
compared to net cash from operating activities of $10.1 million for 2003. The
increase in 2004 was primarily the result of $2.4 million in write-down of
equity securities. Net cash from operating activities for 2003 totaled $10.1
million, as compared to net cash from operating activities of $8.7 million for
2002. The increase in 2003 was primarily the result of a $709,000 increase in
net income offset by a decrease of $921,000 in other assets and $500,000 in
provision for loan losses.
Net cash used by investing activities for 2004 totaled $50.5 million,
as compared to cash used of $47.9 million for 2003 and $69.1 million for 2002.
The change for 2004 was due to an increase in purchases of securities available
for sale and Federal Home Loan Bank stock of $34.8 million and $1.7 million,
respectively offset by decreases in the proceeds from the sale and maturities of
securities available for sale of $4.2 million, net loans made to customers of
$34.4 million and purchases of premises and equipment of $1.7 million. Net cash
used by investing activities for 2003 totaled $47.9 million, as compared to cash
used of $69.1 million for 2002. The decrease of $21.2 million for 2003 was
primarily due to a decrease of $48.4 million in securities purchased.
Net cash from financing activities for the year ended December 31, 2004
totaled $39.6 million, as compared to net cash from financing activities of
$38.5 million for 2003 and $50.3 million for 2002. The change in 2004 was the
result of increased proceeds from FHLB advances of $12.0 million offset by
increased repayments of $8.3 million and increases in net deposits of $10.2
million. Such increases were offset by the repayment of $7.9 million in federal
funds purchased. Net cash from financing activities for the year ended December
31, 2003 totaled $38.5 million, as compared to net cash from financing
activities of $50.3 million for 2002. The $11.8 million decrease in cash from
financing activities in 2003 was primarily due to a decrease in the net increase
in deposits of $21.9 million.
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.
The table below sets forth certain information regarding the Company's
contractual obligations. See Note 4, Note 7 and Note 10 to the consolidated
financial statements
Payments Due By Period
-------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Contractual Obligations Total 1 year years years 5 years
- -----------------------------------------------------------------------------------
(In Thousands)
- -----------------------------------------------------------------------------------
Long-Term Debt Obligations $ 70,265 $ 1,615 $ 7,579 $ 28,071 $ 33,000
Operating Lease Obligations 718 191 162 120 245
Certificates of Deposit 253,298 150,260 57,834 31,597 13,607
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Company engages in a variety of
financial transactions that, in accordance with generally accepted accounting
principles, are not recorded in its consolidated financial statements. These
transactions involve, to varying degrees, elements of credit, interest rate and
liquidity risk. Such transactions are used primarily to manage
8
customers' requests for funding and take the form of loan commitments and lines
of credit. At December 31, 2004 and 2003, the Company had commitments to extend
credit in the amount of $22.9 million and $77.0 million, respectively. During
the year ended December 31, 2004, the Company did not engage in any off-balance
sheet transactions reasonably likely to have a material effect on its
consolidated financial condition, results of operations or cash flows.
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.
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, 2004.
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.
9
Expected Maturity/Principal Repayment at December 31,
Total Book Fair
2005 2006 2007 2008 2009 Thereafter Value Value
------ ------ ------ ------ ------ ------- ------- -------
(Dollars in thousands)
Interest-earning assets
- -----------------------
Mortgage loans 11,734 14,588 16,156 13,239 14,569 181,828 252,114 250,648
Home equity loans,
second mortgage
loans, student loans,
other loans 15,545 15,022 14,386 13,064 9,805 48,307 116,129 116,586
Commercial loans,
municipal loans 14,098 7,667 4,313 3,661 2,203 39,248 71,190 69,338
Investment securities 1,500 - 1,748 364 1,032 184,738 189,383 191,208
Interest-bearing
- -----------------------
liabilities
- -----------------------
NOW and other
transaction accounts 32,343 - - - - - 32,343 32,343
Money market and
other savings
accounts 153,327 - - - - - 153,327 153,327
Certificates of deposit 150,260 37,382 20,452 20,103 11,495 13,607 253,298 252,915
Federal Home Loan
Bank of Pittsburgh
advance 1,614 4,162 3,418 10,071 18,000 33,000 70,265 75,046
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented in this Annual Report have been prepared in accordance with generally
accepted accounting principles in the United States, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the Company's
operations is reflected in increased operating costs. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In 2004, the Financial Accounting Standards Board issued SFAS No. 153,
Exchange of Nonmonetary Assets - an amendment of APB Opinion No. 29. The Company
does not believe the statement will have a material impact on the Bank or its
operations.
10
MANAGEMENT'S REPORT TO SHAREHOLDERS
The consolidated financial statements presented are the responsibility of
management and are prepared in accordance with generally accepted accounting
principles. The financial information contained elsewhere in the annual report
is consistent with that in the consolidated financial statements. The financial
statements necessarily include amounts that are based on management's best
judgments and estimates. In the opinion of management the accounting practices
utilized are appropriate in the circumstances and the financial statements
fairly reflect the financial position and results of operation of the Company.
IBT Bancorp, Inc. maintains a system of internal controls over financial
reporting, which is designed to provide reasonable assurance to the Company's
management and board of directors regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company assessed
its internal control over financial reporting as of December 31, 2004, based on
the criteria for effective internal control over financial reporting as
described in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon that assessment,
the Company believes that, as of December 31, 2004, its system of internal
controls over financial reporting met those criteria.
The Company's independent auditors, Edwards Sauer and Owens, P.C. have issued an
attestation report on management's assessment of the Company's internal controls
over financial reporting. Their attestation is included elsewhere in this
report.
/s/Charles G. Urtin /s/Raymond G. Suchta
Charles G. Urtin Raymond G. Suchta
President & Senior Vice President &
Chief Executive Officer Chief Financial Officer
11
EDWARDS Certified Public Accountants & Business Advisors
SAUER & ------------------------------------------------
OWENS, P.C. 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
Phone: 412-281-9211 Fax: 412-281-2407 A Professional Corporation
www.esocpa.com Direct Dial:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2004. opinlso have audited management's assessment, included in the accompanying
Management's Report to Shareholders, that IBT Bancorp, Inc. and subsidiary
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Bancorp's management is responsible for these financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these financial
statements, an opinion on management's assessment, and an opinion on the
effectivesss of the Bancorp's internal control over financial reporting based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internmstaontrol over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
EDWARDS
SAUER &
OWENS, P.C.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
ovsrasinancial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Bancorp are
being made only in accordance with authorizations of management and directors of
the Bancorp; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Bancorp's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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, 2004 and 2003, and the results of its
operations and its cash flows for each of the years in the three-year period
ended Derol--er 31, 2004 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, management's
assessment that IBT Bancorp, Inc. and subsidiary maintained effective internal
control over financial reporting as of December 31, 2004 is fairly stated, in
all material respects, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Furthermore, in our opinion,
IBT Bancorp, Inc. and subsidiary maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/Edwards Sauer & Owens, P.C.
Pittsburgh, Pennsylvania
February 8, 2005
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
December 31,
------------------------------
2004 2003
------------- -------------
ASSETS
Cash and due from banks $ 14,641,942 $ 15,391,714
Interest-bearing deposits in banks 515,229 436,981
Federal funds sold 1,030,000 -
Certificate of deposit 100,000 100,000
Securities available for sale 191,208,214 167,907,113
Federal Home Loan Bank stock, at cost 5,682,700 4,540,500
Loans, net of allowance for loan losses of
$2,593,642 in 2004 and $3,284,830 in 2003 436,548,276 416,286,455
Premises and equipment, net 6,232,280 6,468,749
Other assets 19,898,464 18,398,092
------------- -------------
Total Assets $ 675,857,105 $ 629,529,604
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 87,248,485 $ 81,053,392
Interest-bearing 438,968,463 411,104,137
------------- -------------
Total deposits 526,216,948 492,157,529
Federal funds purchased - 7,900,000
Repurchase agreements 15,157,257 12,610,877
Accrued interest and other liabilities 4,374,824 3,947,390
FHLB advances 70,265,314 53,307,767
------------- -------------
Total liabilities 616,014,343 569,923,563
Stockholders' Equity
Capital stock, par value $1.25,
50,000,000 shares authorized,
3,023,799 shares issued, 2,955,455
and 2,977,655 shares outstanding
at December 31, 2004 and 2003 respectively 3,779,749 3,779,749
Surplus 1,417,755 1,684,258
Retained earnings 55,789,915 54,451,662
Accumulated other comprehensive income 1,204,744 1,033,638
------------- -------------
62,192,163 60,949,307
Less: Treasury stock, at cost (2004 - 68,344 shares;
2003 - 46,144 shares) (2,349,401) (1,343,266)
------------- -------------
Total stockholders' equity 59,842,762 59,606,041
------------- -------------
Total Liabilities and Stockholders' Equity $ 675,857,105 $ 629,529,604
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
--------------------------------------------
2004 2003 2002
------------ ------------ ------------
Interest Income
Loans, including fees $ 26,312,685 $ 26,096,559 $ 24,687,048
Investment securities 7,403,199 7,244,174 8,614,876
Federal funds sold 9,835 57,110 258,302
------------ ------------ ------------
Total interest income 33,725,719 33,397,843 33,560,226
Interest Expense
Deposits 8,703,234 8,666,938 10,537,258
Federal funds purchased 92,982 25,933 193
FHLB advances 2,858,623 2,487,363 2,113,678
Repurchase agreements 152,970 134,546 177,464
------------ ------------ ------------
Total interest expense 11,807,809 11,314,780 12,828,593
------------ ------------ ------------
Net Interest Income 21,917,910 22,083,063 20,731,633
Provision for Loan Losses 600,000 600,000 1,100,000
------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 21,317,910 21,483,063 19,631,633
Other Income (Losses)
Service fees 2,595,941 2,370,065 2,370,568
Investment security gains 383,290 533,155 158,670
Investment security losses (2,789,571) (67,636) (24,925)
Increase in cash surrender value
of life insurance 466,923 513,066 584,847
Debit card fees 680,600 614,475 615,517
Other income 1,352,459 1,927,933 1,612,378
------------ ------------ ------------
Total other income 2,689,642 5,891,058 5,317,055
Other Expenses
Salaries 5,875,511 5,653,310 5,297,750
Pension and other employee benefits 1,820,031 1,642,651 1,318,944
Occupancy expense 1,767,950 1,549,532 1,329,170
Data processing expense 916,939 843,074 729,548
Advertising expense 309,032 412,702 406,898
Pennsylvania shares tax 496,802 446,041 391,557
Other expenses 3,908,424 3,752,672 3,357,211
------------ ------------ ------------
Total other expenses 15,094,689 14,299,982 12,831,078
------------ ------------ ------------
Income Before Income Taxes 8,912,863 13,074,139 12,117,610
Provision for Income Taxes 2,828,125 3,427,893 3,180,311
------------ ------------ ------------
Net income $ 6,084,738 $ 9,646,246 $ 8,937,299
============ ============ ============
Basic Earnings per Share $ 2.05 $ 3.24 $ 3.00
============ ============ ============
Diluted Earnings per Share $ 2.02 $ 3.19 $ 2.99
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
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 benefit 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.
5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
------------ ------------ ------------- ------------ ------------ -------------
Balance at
December 31, 2002 $ 3,779,749 $ 2,073,102 $ 48,974,137 $ 2,667,456 $ (1,343,266) $ 56,151,178
Comprehensive Income
Net income 9,646,246 9,646,246
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax benefit
of ($739,040) (1,434,608) (1,434,608)
Reclassification
adjustment, net of
deferred income tax
benefit of ($102,624) (199,210) (199,210)
-------------
(1,633,818)
-------------
Total Comprehensive
Income 8,012,428
Cash dividends ($1.40) (4,168,721) (4,168,721)
Stock options granted / vested 102,154 102,154
Exercise of stock options (490,998) (490,998)
Purchase of
Treasury Stock - -
------------ ------------ ------------- -------------- ------------- --------------
Balance at
December 31, 2003 $ 3,779,749 $ 1,684,258 $ 54,451,662 $ 1,033,638 $ (1,343,266) $ 59,606,041
The accompanying notes are an integral part of these
consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
------------ ------------ ------------- ------------ ------------ ------------
Balance at
December 31, 2003 $ 3,779,749 $ 1,684,258 $ 54,451,662 $ 1,033,638 $ (1,343,266) $ 59,606,041
Comprehensive Income
Net income 6,084,738 6,084,738
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax benefit
of ($688,712) (1,336,912) (1,336,912)
Reclassification
adjustment, net of
deferred income tax
of $776,858 1,508,018 1,508,018
-------------
171,106
-------------
Total Comprehensive
Income 6,255,844
Cash dividends ($1.60) (4,746,485) (4,746,485)
Stock options granted / vested 59,141 59,141
Exercise of stock options (325,644) (325,644)
Purchase of
Treasury Stock (1,006,135) (1,006,135)
------------ ------------ ------------- ------------- ------------- -------------
Balance at
December 31, 2004 $ 3,779,749 $ 1,417,755 $ 55,789,915 $ 1,204,744 $ (2,349,401) $ 59,842,762
============ ============ ============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
-----------------------------------------------
2004 2003 2002
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,084,738 $ 9,646,246 $ 8,937,299
Adjustments to reconcile net cash
from operating activities:
Depreciation 1,009,989 832,770 684,731
Increase in cash surrender value of insurance (466,923) (513,066) (584,847)
Net amortization/accretion of
premiums and discounts 1,046,467 1,129,046 429,379
Net investment security gains (19,896) (465,519) (133,745)
Loss on write-down of equity securities 2,426,177 - -
Provision for loan losses 600,000 600,000 1,100,000
Stock options granted / vested 59,141 102,154 -
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets 223,003 (921,069) (540,772)
Accrued interest and other liabilities 339,288 (311,325) (1,232,409)
------------- ------------- -------------
Net Cash From Operating Activities 11,301,984 10,099,237 8,659,636
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit (100,000) (100,000) -
Proceeds from maturity of certificate of deposit 100,000 100,000 -
Proceeds from sales of securities available for sale 61,556,451 34,800,655 31,725,398
Proceeds from maturities of securities available for sale 23,575,354 54,553,305 72,493,575
Purchase of securities available for sale (111,626,403) (76,835,123) (125,205,572)
Net loans made to customers (22,118,272) (56,458,544) (46,265,045)
Purchases of premises and equipment (773,520) (2,542,504) (788,236)
Proceeds from Federal Home Loan Bank stock 3,763,900 1,772,400 -
Purchase of Federal Home Loan Bank stock (4,906,100) (3,160,300) (1,050,800)
------------- ------------- -------------
Net Cash Used By Investing Activities (50,528,590) (47,870,111) (69,090,680)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 34,059,419 23,900,202 45,795,234
Net increase(decrease) in securities sold
under agreements to repurchase 2,546,380 (1,914,959) 3,318,764
Net (decrease) increase in federal funds purchased (7,900,000) 7,900,000 -
Dividends (4,746,485) (4,168,721) (3,577,098)
Proceeds from FHLB advances 28,000,000 16,000,000 7,000,000
Repayment of FHLB advances (11,042,453) (2,692,233) (2,000,000)
Purchase of treasury stock (1,006,135) - (258,513)
Exercised stock options (325,644) (490,998) -
------------- ------------- -------------
Net Cash From Financing Activities 39,585,082 38,533,291 50,278,387
------------- ------------- -------------
Net Change in Cash and Cash Equivalents 358,476 762,417 (10,152,657)
Cash and Cash Equivalents at Beginning of Year 15,828,695 15,066,278 25,218,935
------------- ------------- -------------
Cash and Cash Equivalents at End of Year $ 16,187,171 $ 15,828,695 $ 15,066,278
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31,
-------------------------------------------
2004 2003 2002
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 11,446,837 $ 11,446,828 $ 13,225,782
Income taxes $ 2,634,965 $ 3,671,847 $ 3,543,379
NON CASH TRANSACTIONS
Recorded unrealized gains on
securities available for sale $ 1,825,368 $ 1,566,116 $ 4,041,600
at December 31
Deferred income taxes on recorded
unrealized gains on securities
available for sale at December 31 $ 620,625 $ 532,479 $ 1,374,144
Loans transferred to foreclosed real
estate during the year $ 1,557,735 $ 301,284 $ 857,681
Recorded nonmonetary (loss) gain on
securities available for sale
at December 31 $ (2,426,177) $ 11,960 $ 1,986
The accompanying notes are an integral part of these
consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
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 seven
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 $309,032 for 2004, $412,702 for 2003 and $406,898 for 2002.
Loans and Allowance for Loan Losses: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
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 2,966,409, 2,977,655 and 2,980,282 for the years ended December
31, 2004, 2003 and 2002, respectively.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
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, 2004
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 70,946,760 $ 212,077 $ (56,170) $ 71,102,667
Obligations of State and
political sub-divisions 44,986,435 1,697,812 (238,524) 46,445,723
Mortgage-backed securities 64,928,907 422,687 (347,944) 65,003,650
Other securities ......... 713,965 2,023 - 715,988
Equity securities ........ 7,806,779 133,407 - 7,940,186
------------- ------------- ------------- -------------
$ 189,382,846 $ 2,468,006 $ (642,638) $ 191,208,214
============= ============= ============= =============
December 31, 2003
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
Obligations of
U.S. Government Agencies $ 82,462,153 $ 824,768 $ (318,174) $ 82,968,747
Obligations of State and
political sub-divisions 35,863,808 2,057,452 - 37,921,260
Mortgage-backed securities 37,012,318 735,791 (91,604) 37,656,505
Other securities ......... 710,005 29,553 - 739,558
Equity securities ........ 10,292,713 140,507 (1,812,177) 8,621,043
------------- ------------- ------------- -------------
$ 166,340,997 $ 3,788,071 $ (2,221,955) $ 167,907,113
============= ============= ============= =============
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
Years Ended December 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
Gross realized gains:
Obligations of U.S. Government Agencies $ 204,102 $ 75,646 $ 42,922
Obligations of state and political sub-divisions 91,855 26,250 760
Mortgage-backed securities - 279,457 113,002
Equity securities 87,333 151,802 1,986
---------- ---------- ----------
$ 383,290 $ 533,155 $ 158,670
========== ========== ==========
Gross realized losses:
Obligations of U.S. Government Agencies $ 363,394 $ - $ -
Mortgage-backed securities - 67,636 24,925
Equity securities 2,426,177 - -
---------- ---------- ----------
$2,789,571 $ 67,636 $ 24,925
========== ========== ==========
In 2004, the Company recorded a $2,426,177 non-cash write-down of certain agency
preferred stocks due to an impairment in value that was determined to be other
than temporary.
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 2004, 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 $ 1,499,784 $ 1,508,367
Due after one year through five years 3,144,351 3,377,645
Due after five years through ten years 95,774,287 96,071,854
Due after ten years, includes equity securities 88,964,424 90,250,348
------------ ------------
$189,382,846 $191,208,214
============ ============
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 $5,682,700 and $4,540,500 of FHLB stock
at December 31, 2004 and 2003, respectively.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Temporarily impaired investments consist of the following:
December 31, 2004
-----------------------------------------------------------------------------------
Less Than 12 Months 12 Months or Longer Total
------------------------- ------------------------- -------------------------
Market Unrealized Market Unrealized Market Unrealized
Value Losses Value Losses Value Losses
----------- ----------- ----------- ----------- ----------- -----------
Obligations of U.S.
Government Agencies $11,969,450 $ (30,550) $ 1,974,380 $ (25,620) $13,943,830 $ (56,170)
Mortgage-backed securities 44,556,122 (309,683) 1,524,343 (38,261) 46,080,465 (347,944)
Obligations of state and
political sub-divisions 9,700,008 (238,524) - - 9,700,008 (238,524)
----------- ----------- ----------- ----------- ----------- -----------
Total temporarily
impaired securities $66,225,580 $ (578,757) $ 3,498,723 $ (63,881) $69,724,303 $ (642,638)
=========== =========== =========== =========== =========== ===========
Investments are reviewed for declines in value on a quarterly basis. Common
stocks currently have market values that are in excess of carrying values. All
other investments are interest rate sensitive. These investments earn interest
at fixed or adjustable rates. The adjustable rate instruments are generally
linked to an index, such as the 3 month libor rate, plus or minus a variable.
The value of these instruments fluctuates with interest rates, therefore the
changes in value are deemed to be temporary.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
---------------------------
2004 2003
------------ ------------
Mortgage $252,114,219 $244,923,121
Home equity credit 23,201,124 21,963,205
Installment 84,673,524 78,326,060
Commercial 61,139,895 59,591,433
PHEAA 7,354,534 7,833,861
Municipal 10,050,265 6,267,974
Credit cards 44,882 37,890
Other 854,685 965,493
------------ ------------
439,433,128 419,909,037
Less:
Allowance for loan losses 2,593,642 3,284,830
Deferred loan fees 291,210 337,752
------------ ------------
$436,548,276 $416,286,455
============ ============
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 3 -- LOANS (CONTINUED)
The aggregate amount of demand deposit accounts with overdrawn balances that
were reclassified as loan balances at December 31, 2004 and 2003 amounted to
$715,870 and $407,581, respectively and are included in other loans.
The total recorded investment in impaired loans amounted to $1,535,834 at
December 31, 2004 and $567,564 at December 31, 2003. The allowance for loan
losses related to impaired loans amounted to $412,470 and $283,781 at December
31, 2004 and 2003, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Balance, beginning of year $ 3,284,830 $ 2,873,067 $ 2,113,806
Provision charged to operations 600,000 600,000 1,100,000
Loans charged off (1,338,749) (242,711) (440,728)
Recoveries 47,561 54,474 99,989
----------- ----------- -----------
Balance, end of year $ 2,593,642 $ 3,284,830 $ 2,873,067
=========== =========== ===========
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
-------------------------
2004 2003
----------- -----------
Land $ 921,559 $ 791,559
Buildings and improvements 5,955,107 5,889,215
Furniture and equipment 7,413,916 7,298,169
----------- -----------
14,290,582 13,978,943
Less: Accumulated depreciation 8,058,302 7,510,194
----------- -----------
$ 6,232,280 $ 6,468,749
=========== ===========
Depreciation expense was $1,009,989 in 2004, $832,770 in 2003 and $684,731 in
2002.
Nine of the Bank's commercial branch office buildings and/or land, the Bank's
trust division office and an operations facility are leased by the Bank. These
leases have initial terms of 1 to 20 years, and all contain renewal options for
additional years.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)
The following is a summary of the future minimum lease payments under these
operating leases:
For the year ended December 31,
2005 $ 191,186
2006 99,737
2007 62,265
2008 59,116
2009 61,099
2010 and thereafter 244,861
---------
$ 718,264
=========
Rental expense under these operating leases was $250,464, $220,981 and $183,005
for the years ended December 31, 2004, 2003 and 2002, respectively.
NOTE 5 -- JOINT VENTURE
The Bancorp has an 85% limited partnership interest in T.A. of Irwin, L.P. This
partnership 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, 2004 and 2003, the partnership is reflected in the other assets section of
the balance sheet at $20,083 and $21,309, 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, 2004 and 2003, the cash
surrender value of these policies was $11,509,239 and $11,068,593, 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 income.
NOTE 7 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 2004 are
summarized as follows:
2005 $ 150,259,826
2006 37,381,552
2007 20,452,448
2008 20,102,546
2009 11,494,868
2010 and thereafter 13,607,045
--------------
$ 253,298,285
==============
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 7 -- DEPOSITS (CONTINUED)
The Bank held related party deposits of approximately $2,571,000 and $2,750,000
at December 31, 2004 and 2003, respectively.
The Bank held time deposits that exceeded $100,000 of $52,560,047 and
$42,550,077 at December 31, 2004 and 2003, respectively.
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 $15,157,257 and
$12,610,877 at December 31, 2004 and 2003, respectively.
NOTE 9 -- PLEDGED ASSETS
At December 31, 2004 and 2003, U.S. Government Agency obligations carried at
approximately $48,257,000 and $25,500,000 respectively, were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted by law. At December 31, 2004 and 2003, the carrying amount of
securities pledged to secure repurchase agreements was approximately $23,525,000
and $9,300,000 respectively.
NOTE 10 -- FHLB ADVANCES
At December 31, 2004 and 2003, the Bank had the following advances from the
Federal Home Loan Bank (FHLB).
2004 2003 Interest Rate Maturity Date
- -------------- ---------------- ---------------------------- -------------------------
$ - $ 10,000,000 5.86% Fixed w/Strike Rate July 22, 2004
1,250,000 - 2.54% Fixed February 21, 2006
1,250,000 - 2.83% Fixed August 21, 2006
2,233,153 - 2.99% Amortizing-Fixed August 20, 2007
2,000,000 2,000,000 3.67% Fixed September 5, 2007
2,532,161 3,307,767 2.79% Amortizing-Fixed January 28, 2008
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
8,000,000 - 3.48% Fixed w/Strike rate January 20, 2009
10,000,000 - 4.06% Fixed w/Strike rate July 22, 2009
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 5,000,000 4.6% Fixed w/Strike Rate January 30, 2012
5,000,000 5,000,000 3.51% Fixed w/Strike Rate January 28, 2013
5,000,000 5,000,000 3.47% Fixed w/Strike Rate March 18, 2013
5,000,000 - 4.05% Fixed to Float August 20, 2014
- ------------- ------------
$ 70,265,314 $ 53,307,767
============= ============
Interest only is payable until maturity on all FHLB advances except for the FHLB
advances with maturity dates of August 20, 2007 and January 28, 2008. Collateral
for all advances includes all qualifying mortgages.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 10 -- FHLB ADVANCES (CONTINUED)
The following is a summary of the principal payments due on FHLB amortizing
advances at December 31, 2004.
Original loan amount $ 4,000,000 $ 2,500,000
Interest rate 2.79% 2.99%
Monthly payment (includes interest) $ 71,502 $ 72,692
Number of payments 60 36
Maturity date January 28, 2008 August 20, 2007
Principal payments due December 31: 2005 $ 797,525 $ 816,664
2006 820,063 841,420
2007 843,237 575,069
2008 71,336 -
--------------------- ----------------
Balance of loan at December 31, 2004 $ 2,532,161 $ 2,233,153
===================== ==================
In 2004, the Bank renewed its line of credit with the Federal Home Loan Bank in
the amount of $20,000,000. The interest rate is variable and was 2.24% at
December 31, 2004. The line of credit has an expiration date of May 11, 2005.
There was no balance outstanding on the line of credit as of December 31, 2004.
The Bank had maximum borrowing capacity with FHLB, including the line of credit,
of approximately $308,386,000 and $282,428,000 at December 31, 2004 and 2003,
respectively.
NOTE 11 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Currently payable $ 2,643,614 $ 3,424,374 $ 3,527,269
Deferred tax (benefit) 184,511 3,519 (346,958)
----------- ----------- -----------
Total $ 2,828,125 $ 3,427,893 $ 3,180,311
=========== =========== ===========
The significant components of temporary differences for 2004, 2003 and 2002 are
as follows:
Years Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Provision for loan losses $ 153,231 $ (201,201) $ (299,256)
Depreciation (14,169) 143,959 32,400
Pension 85,095 28,457 28,461
Deferred loan fees 15,825 74,418 (96,222)
Other (55,471) (42,114) (12,341)
----------- ----------- -----------
Total $ 184,511 $ 3,519 $ (346,958)
=========== =========== ===========
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 11 -- 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
-----------------------------
2004 2003 2002
------ ------ ------
Provision at statutory rate 34.0 % 34.0 % 34.0 %
Effect of tax free income (6.3) (5.2) (5.4)
Other 4.0 (2.6) (2.4)
---- ---- ----
Effective tax rate 31.7 % 26.2 % 26.2 %
==== ==== ====
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 2004 and 2003 are as follows:
2004 2003
----------------------- -----------------------
Deferred Tax Deferred Tax
----------------------- -----------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Provision for loan losses $ 881,838 $ - $1,035,069 $ -
Depreciation - 294,849 - 309,018
Pension expense - 236,052 - 150,957
Other 337,330 28,247 269,437 -
SFAS 115 - 620,625 - 532,479
---------- ---------- ---------- ----------
$1,219,168 $1,179,773 $1,304,506 $ 992,454
========== ========== ========== ==========
NOTE 12 -- SHAREHOLDER RIGHTS PLAN
On November 18, 2003, the Board of Directors of the Bancorp adopted a
Shareholder Rights Plan. The Board declared a dividend distribution of one Right
for each outstanding share of common stock to stockholders of record at the
close of business on December 1, 2003. Each Right initially entitled the
registered holder to purchase from the Bancorp common stock worth $410 on the
date of exercise, for a purchase price of $205, subject to adjustment.
Initially, the Rights will be attached to all common stock certificates
representing shares then outstanding, and no separate Rights certificate will be
distributed. The Rights will separate from the common stock and a distribution
date will occur upon the earlier of (i) 10 business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), has acquired, or obtained the Right to acquire, beneficial
ownership of 10% or more of the outstanding shares of common stock ("stock
acquisition date") or (ii) 10 business days following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 10% or more of such outstanding shares of common stock.
The Rights are not exercisable until the distribution date and will expire at
the close of business on December 1, 2013, unless earlier redeemed or exchanged
by the Bancorp.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 12 -- SHAREHOLDER RIGHTS PLAN (CONTINUED)
In the event that at any time following the Rights dividend declaration date, a
person becomes the beneficial owner of 10% or more of the then-outstanding
shares of common stock, each holder of a Right (other than Rights held by the
party triggering the Rights and certain transferees which are voided) will
thereafter have the right to receive, upon exercise, common stock (or, in
certain circumstances, cash, property, or other securities of the Bancorp
subject to certain limitations) having a value equal to two times the exercise
price of the Right. However, Rights are not exercisable following the occurrence
of the event set forth above until such time as the Rights are no longer
redeemable by the Bancorp.
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 $22,872,000 and $76,971,000 as of December 31, 2004 and 2003,
respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance-sheet instruments. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. The terms are typically for a one year period, with an
annual renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. 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 -- 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 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, 2004
and 2003, 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 $3,552,000 and $1,201,000 at December 31, 2004 and 2003,
respectively.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 15 -- EMPLOYEE BENEFIT PLANS
Defined 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, equity securities, and mutual
funds 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, 2004, 2003 and
2002, even though the information has been compiled on the basis of the
actuarial measurement period.
2004 2003 2002
----------- ----------- -----------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 3,331,356 $ 2,739,116 $ 2,253,576
Service cost 256,712 210,043 179,307
Interest cost 216,129 184,275 162,431
Actuarial loss due to settlements 8,099 - -
Benefits paid (350,346) (35,897) (161,570)
Other - net 193,061 233,819 305,372
----------- ----------- -----------
Benefit obligation at end of year $ 3,655,011 $ 3,331,356 $ 2,739,116
=========== =========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 2,736,071 $ 2,201,346 $ 2,350,244
Actual return on plan assets, net of expenses 146,318 305,653 (207,196)
Plan settlements (42,197) - -
Benefits paid (350,346) (35,897) (161,570)
Employer contributions 293,275 264,969 219,868
----------- ----------- -----------
Fair value of plan assets at end of year $ 2,783,121 $ 2,736,071 $ 2,201,346
=========== =========== ===========
Funded status $ (871,890) $ (595,285) $ (537,770)
Unrecognized net loss from actuarial experience 1,352,122 1,115,107 1,057,676
Unrecognized prior service cost (165,438) (183,700) (201,962)
Unamortized net asset existing at date
of adoption of SFAS No. 87 (21,774) (27,075) (31,173)
Effect of settlements (5,989) - -
----------- ----------- -----------
Prepaid pension cost $ 287,031 $ 309,047 $ 286,771
=========== =========== ===========
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Net periodic pension cost included the following
components:
Years Ended December 31,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Service cost $ 256,712 $ 210,043 $ 179,307
Interest cost 216,129 184,275 162,431
Expected return on plan assets (206,976) (167,906) (175,875)
Amortization of prior service cost (18,262) (18,262) (18,262)
Amortization of transition asset (4,098) (4,098) (4,098)
Recognized net actuarial loss 45,043 44,196 8,199
--------- --------- ---------
Net periodic pension cost $ 288,548 $ 248,248 $ 151,702
========= ========= =========
Amounts recognized in the consolidated
balance sheets consist of:
December 31,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Prepaid benefit cost $ 713,304 $ 536,653 $ 500,022
========= ========= =========
In the months of December 2004, 2003 and 2002, the Bank contributed $480,360,
$293,275 and $264,969 respectively, to the plans subsequent to the actuarial
measurement dates of October 15, 2004, 2003 and 2002. Because these employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2004, 2003 and 2002 was $713,304, $536,653
and $500,002, respectively.
The combined accumulated benefit obligation for both plans was $2,675,106 and
$2,417,536 at December 31, 2004, and 2003, respectively.
Weighted-average assumptions used to determine
both the benefit obligations and net periodic pension
costs were as follows:
Years Ended December 31,
---------------------------------------------------------
2004 2003 2002
----------------- ------------------ ------------------
Plan #1
Discount rate 6.25% 6.50% 6.75%
Expected long-term return on plan assets 7.00% 7.00% 7.00%
Rate of compensation increase 3.50% - 5.50% 3.50% - 5.50% 3.50% - 5.50%
Plan #2
Discount rate 7.00% 7.00% 7.00%
Expected long-term return on plan assets 6.00% 7.00% 7.00%
Rate of compensation increase 3.50% 3.50% 3.50%
The interest rate assumption utilized for the plan valuation methods is 7%. The
interest rate assumption is reasonable considering historical rates of return
and the asset allocation mix of the plan.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Pension plan weighted-average asset allocations
by investment category are as follows:
December 31,
-------------------------------
2004 2003 2002
---- ---- ----
Cash and cash equivalents 9% 17% 9%
Stocks 22% 24% 32%
Bonds 12% 16% 13%
Mutual funds 33% 30% 29%
Government securities 24% 13% 17%
--- --- ---
Total 100% 100% 100%
=== === ===
The Bank's pension plan funds are managed and held in trust by the Bank's Trust
Division. The investment objective and strategy for investing plan assets calls
for a "Moderate Growth Income Objective". This objective provides for a
preservation of the principal's purchasing power and moderate growth and income.
The range of equity exposure is from 40 to 80 percent and fixed income
maturities to 30 years. The targeted asset allocation percentages for each
category of plan assets would reveal a strategy to acquire a higher position in
equities to a level of between 50 to 55 percent over the course of the next one
to two year period. The investment policies of the plan trustees prohibit the
use of derivatives. In addition, the plan assets are diversified appropriately
across different business sections for individual securities and the plan
trustees have further diversified plan assets by maintaining an investment in
mutual funds.
Other Employee Benefit Plans
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 $588,611 and $473,567 at December 31, 2004 and 2003,
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 2004, 2003 and
2002 amounted to $77,362, $68,479 and $57,304, respectively.
NOTE 16 -- RELATED-PARTY TRANSACTIONS
At December 31, 2004 and 2003, 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 $11,565,000 and $10,810,000
respectively. During 2004, new loans to such related parties were approximately
$2,352,000 and repayments approximated $1,597,000.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 17 -- 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 federal funds purchased and
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, 2004 are as follows:
Carrying Fair
Amount Value
------------ ------------
Financial Assets:
Cash and cash equivalents $ 16,187,171 $ 16,187,171
Certificate of deposit $ 100,000 $ 100,000
Investment securities $191,208,214 $191,208,214
Federal Home Loan Bank stock $ 5,682,700 $ 5,682,700
Loans receivable $436,548,276 $436,572,276
Financial liabilities:
Deposits $526,216,948 $525,831,948
Short-term borrowings $ 19,532,081 $ 19,532,081
FHLB advances $ 70,265,314 $ 75,046,314
The market values of investments, which are based upon quoted market prices, are
contained in Note 2.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 18 -- 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, 2004 and 2003, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 2004 and 2003, 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
2004 2003 Requirements Requirements
------------- ------------- -------------------- ----------------
Risk-based capital ratio 14.5% 15.1% 8.0% 10.0% or higher
Leverage capital ratio 8.5% 9.1% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 13.9% 14.3% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $7,032,000
and $4,740,000 at December 31, 2004 and 2003, 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 19 -- 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 can be made.
Under the plan, the exercise price of each option equals the closing 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
vested immediately and are exercisable six months from the grant date and
options granted to employees generally vest over three years.
As of December 31, 2004, a total of 150,000 stock options have been granted, of
which, 85,223 are vested and exercisable, 16,866 have not vested, 38,710 have
been exercised and 9,201 have been forfeited.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 19 -- STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Bank's stock option plan is presented below:
December 31,
--------------------------------------------------------------------------------------
2004 2003 2002
-------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 118,054 $ 30.94 119,709 $ 26.53 94,000 $ 23.97
Granted - $ - 20,500 $ 51.40 35,500 $ 32.88
Forfeitures (5,034) $ 39.34 (1,001) $ 29.58 (3,166) $ 23.79
Exercised (10,931) $ 25.35 (21,154) $ 25.85 (6,625) $ 25.58
-------- -------- --------
Outstanding at December 31, 102,089 $ 31.13 118,054 $ 30.94 119,709 $ 26.53
======== ======== ========
Exercisable at December 31, 85,223 $ 28.71 73,887 $ 25.54 66,513 $ 25.70
======== ======== ========
The options outstanding at December 31, 2004, 2003 and 2002 had a
weighted-average contractual maturity of 6.68 years, 7.66 years, and 8.2 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,
-------------------------------------------
2004 2003 2002
-------------- ------------ -----------
Dividend yield None granted 2.72% 3.79%
Expected life 7 years 7 years
Expected volatility 20% 19%
Risk-free interest rate 4.00% 3.75%
Weighted-average fair value $10.75 $7.46
Prior to 2003, the Bank accounted for stock-based compensation under the
recognition and measurement provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in 2002 net income, as all options granted during
2002 had an exercise price equal to the market value of the underlying common
stock on the date of grant. Effective January 1, 2003, the Bank adopted the fair
value recognition provisions of Statement of Financial Accounting Standards
(SFAS) 123, Accounting for Stock-Based Compensation, prospectively to all
employee awards granted in 2003. Awards under the plan vest over periods ranging
from six months to three years. Therefore, the cost related to stock-based
compensation included in the determination of net income for 2003 is less than
that which would have been recognized if the fair value based method had been
applied to all awards since the original effective date of Statement 123.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 19 -- STOCK OPTION PLAN (CONTINUED)
The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding and unvested
awards in each year.
Years Ended December 31,
-------------------------------------
2004 2003 2002
----------- ----------- -----------
Net income, as reported $ 6,084,738 $ 9,646,246 $ 8,937,299
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects 39,034 67,422 -
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tx effects 85,525 151,518 327,483
----------- ----------- -----------
Pro-forma net income $ 6,038,247 $ 9,562,150$ 8,609,816
=========== =========== ===========
Earnings per share:
Basic-as reported $ 2.05 $ 3.24 $ 3.00
=========== =========== ===========
Basic-pro forma $ 2.04 $ 3.21 $ 2.84
=========== =========== ===========
Diluted-as reported $ 2.02 $ 3.19 $ 2.99
=========== =========== ===========
Diluted-pro forma $ 2.01 $ 3.17 $ 2.84
=========== =========== ===========
Weighted-average number of shares outstanding assuming dilution of exercisable
stock options using the treasury stock method was 3,005,367, 3,020,075 and
2,991,043 for the years ended December 31, 2004, 2003 and 2002, respectively.
NOTE 20 -- TREASURY STOCK
In 2004 and 2002, the Bancorp repurchased 22,200 and 8,040 shares of its stock
for $1,006,135 and $258,513, respectively, and is being held as treasury stock.
The Bancorp did not repurchase any shares of its own stock during 2003.
NOTE 21 -- RECENT ACCOUNTING PRONOUNCEMENTS
In 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-an
amendment of APB Opinion No. 29. Management does not believe the statement will
have a material impact on the Bank or its operations.
In December 2004 the FASB revised SFAS no. 123 Share Based Payments-Supercedes
APB Opinion No. 25. The statement eliminates the alternative to use Opinion 25's
intrinsic value method of accounting that was provided in Staement 123 as
originally issued. This statement requires entities to recognize the cost of
employee services received in exchage for awards of equity instruments based on
the grant-date fair value of those awards (with limited exceptions). The Company
adopted the provisions of Statement 123 in 2003 and is curently in compliance
with this statement. See Note 19-Stock Option Plans.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 is as
follows:
BALANCE SHEETS
December 31
-------------------------
2004 2003
----------- -----------
ASSETS
Cash in bank $ 264,390 $ 60,813
Investment in subsidiary 58,868,856 58,771,455
Securities available for sale 513,157 578,603
Other assets 241,717 242,943
----------- -----------
Total Assets $59,888,120 $59,653,814
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 45,358 $ 47,773
Stockholders' Equity 59,842,762 59,606,041
----------- -----------
Total Liabilities and Stockholders' Equity $59,888,120 $59,653,814
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
Income
Dividends from subsidiary $5,900,000 $3,600,000 $4,000,000
Other dividends 11,916 14,156 14,069
Investment security gains 87,333 151,802 1,986
Income from joint ventures 55,139 218,307 185,541
Expenses
Professional fees 97,126 167,658 72,371
Loss on joint venture - - -
Miscellaneous 60,636 62,954 33,203
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed Earnings of Subsidiary 5,896,626 3,753,653 4,096,022
Equity in Undistributed
Earnings of Subsidiary 188,112 5,892,593 4,841,277
---------- ---------- ----------
Net Income $6,084,738 $9,646,246 $8,937,299
========== ========== ==========
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,084,738 $ 9,646,246 $ 8,937,299
Adjustments to reconcile net income to
net cash provided by operating activities:
Net undistributed earnings of joint ventures (55,139) (218,307) (185,541)
Investment security gains (87,333) (151,802) (1,986)
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary (188,112) (5,892,593) (4,841,277)
----------- ----------- -----------
Net Cash From Operating Activities 5,754,154 3,383,544 3,908,495
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from joint ventures 56,365 279,137 157,105
Proceeds from sale of securities
available for sale 168,033 166,846 -
Purchase of securities available for sale (22,355) (1,577) (74,095)
----------- ----------- -----------
Net Cash From Investing Activities 202,043 444,406 83,010
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (4,746,485) (4,168,721) (3,577,098)
Purchase of Treasury Stock (1,006,135) - (258,513)
----------- ----------- -----------
Net Cash Used by Financing Activities (5,752,620) (4,168,721) (3,835,611)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents 203,577 (340,771) 155,894
Cash and Cash Equivalents at Beginning
of Year 60,813 401,584 245,690
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 264,390 $ 60,813 $ 401,584
=========== =========== ===========
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 2004, 2003 and 2002
NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarters Ended 2004
-----------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Interest income $ 8,310,564 $ 8,372,018 $ 8,401,372 $ 8,641,765
Interest expense 2,852,344 2,877,888 2,969,697 3,107,880
----------- ----------- ----------- -----------
Net interest income 5,458,220 5,494,130 5,431,675 5,533,885
Provision for loan
losses 125,000 125,000 40,000 310,000
Non-interest income 1,348,055 1,336,940 1,269,911 1,160,913
Non-interest expense 3,649,837 3,867,618 3,714,607 6,288,804
----------- ----------- ----------- -----------
Income before income
taxes 3,031,438 2,838,452 2,946,979 95,994
Income tax expense 678,843 750,216 785,605 613,461
----------- ----------- ----------- -----------
Net income $ 2,352,595 $ 2,088,236 $ 2,161,374 $ (517,467)
=========== =========== =========== ===========
Net income per Share of
Capital Stock $ 0.79 $ 0.70 $ 0.73 $ (0.17)
=========== =========== =========== ===========
Quarters Ended 2003
-----------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Interest income $ 8,493,556 $ 8,338,858 $ 8,381,878 $ 8,183,551
Interest expense 2,973,791 2,826,082 2,736,619 2,778,289
----------- ----------- ----------- -----------
Net interest income 5,519,765 5,512,776 5,645,259 5,405,262
Provision for loan
losses 150,000 150,000 150,000 150,000
Non-interest income 1,440,540 1,686,128 1,581,936 1,182,452
Non-interest expense 3,246,494 3,744,055 3,581,862 3,727,570
----------- ----------- ----------- -----------
Income before income
taxes 3,563,811 3,304,849 3,495,333 2,710,144
Income tax expense 934,406 849,268 933,405 710,813
----------- ----------- ----------- -----------
Net income $ 2,629,405 $ 2,455,581 $ 2,561,928 $ 1,999,331
=========== =========== =========== ===========
Net income per Share of
Capital Stock $ 0.88 $ 0.82 $ 0.86 $ 0.67
=========== =========== =========== ===========
30
IBT BANCORP, INC.
CORPORATE PROFILE
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 8 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 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 ("FDIC") to
applicable limits.
Stock Market Information
The Company's common stock is listed on the American Stock Exchange ("AMEX")
under the symbol "IRW". As of March 1, 2005, IBT Bancorp, Inc. had approximately
1,250 shareholders of record and 2,955,455 shares of common stock outstanding.
The number of stockholders does not reflect persons or entities who hold their
stock in nominee or "street" name through various brokerage firms
Price Range Cash Dividends
High ($) Low ($) Declared Per Share ($)
2004
First Quarter 62.60 47.85 .40
Second Quarter 48.09 44.87 .40
Third Quarter 51.00 45.50 .40
Fourth Quarter 50.25 45.20 .40
2003
First Quarter 41.41 37.25 .35
Second Quarter 50.05 41.00 .35
Third Quarter 52.25 44.09 .35
Fourth Quarter 62.48 49.65 .35
31
IBT BANCORP, INC.
CORPORATE PROFILE
The ability of the Company to pay dividends is dependent upon the ability of
Irwin bank to pay dividends to the Company. Because Irwin Bank is a depository
institution insured by the FDIC it may not pay dividends or distribute capital
assets if it is in default on any assessment due the FDIC.
Additionally, Irwin Bank is also subject to certain state banking regulations.
Under Federal Reserve Policy, the Company is required to maintain adequate
regulatory capital and is expected to act as a source of financial strength to
Irwin Bank and to commit resources to support Irwin Bank in circumstances where
it might not do so absent such a policy. The 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 19, 2005 at 2:00 PM local time, at the Irwin Masonic Hall, located at 417
Main Street, Irwin Pennsylvania 15642.
Form 10-K
The Annual Report for the year ended December 31, 2004 filed with the Securities
and Exchange Commission on Form 10-K, is available without charge upon written
request. For a copy of the Form 10-K please contact: Raymond G. Suchta, Senior
Vice President and Chief Financial Officer, IBT Bancorp, Inc., 309 Main Street,
Irwin, PA 15642.
Transfer Agent Independent Auditors
Registrar and Transfer Company Edwards Sauer & Owens, P.C.
Investor Relations 500 Warner Centre
10 Commerce Drive Pittsburgh, PA 15222
Cranford, New Jersey 07016-3572
1-800-368-5948
Special Counsel
Malizia, Spidi & Fisch, PC
1100 New York Avenue, NW
Suite 340 West
Washington, D.C. 20005
32
2004 ANNUAL REPORT
IRWIN BANK & TRUST COMPANY OFFICERS
Robert Rebich, Jr., Chairman of the Board IRWIN BANK & TRUST COMPANY LOCATIONS
Charles G. Urtin, President/CEO
Robert A. Bowell, Executive Vice President/ Main Office Monroeville
Secretary-Treasurer/CLO 309 Main Street Haymaker Village
David A. Finui, Senior Vice President/COO Irwin, PA 15642 4580 Broadway Blvd.
Raymond G. Suchta, Senior Vice President/CFO 724-863-3100 Monroeville, PA 15146
Alan Lazar, Senior Vice President/Commercial Loans 412-858-4450
Louis C. Bouchat, Vice President/Commercial Loans Loan Center
Barbara A. Burzio, Vice President/Commercial Loans 319 Main Street Penn Township
Lisa A. Dawson, Vice President/Loan Administration Irwin, PA 15642 4021 Route 130
Scott J. Fisher, Vice President/Trust 724-863-3100 Irwin, PA 15642
Jay Gordon, Vice President/Commercial Loans 724-744-2176
Donald D. Henderson III, Vice President/Operations Trust Division
Debra S. Hopper, Vice President/Human Resources Suite 204 Pitcairn
William E. Killian, Vice President/Business Development 20 N. Pennsylvania Avenue 512 Broadway Blvd.
Robert G. Michaud, Vice President-Marketing Greensburg, PA 15601 Pitcairn, PA 15140
Scott D. Porterfield, Vice President/Branch Administration/ 724-836-2010 412-372-3838
Business Development
Kristin S. Robertucci, Vice President/Accounting Branch Offices Route 30
James W. Thompson, Vice President/Commercial Loans Greensburg 9570 Route 30
Stacey G. Winfield, Vice President/Commercial Loans 4 Triangle Drive Irwin, PA 15642
John R. Winter, Vice President/Commercial Loans Greensburg, PA 15601 724-863-2510
Douglas L. Appel, Vice President/Network Administration 724-837-5000
Jeffrey Branthoover, Assistant Vice President/ White Oak
Trust Division Greensburg (PA Commons) Oak Park Mall
Barbara J. DelBene, Assistant Vice President/ 20 N. Pennsylvania Avenue 2003 Lincoln Way
Branch Manager - White Oak Greensburg, PA 15601 White Oak, PA 15131
Mary Ann Ernette, Assistant Vice President-UVEST Financial Services 724-837-5000 412-678-3000
Keith M. Frid, Assistant Vice President/Auditor
Sheli L. Fyock, Assistant Vice President/
Marketing/Assistant Secretary Irwin Bank Extra Locations
Beverly A. Hahn, Assistant Vice President/ Ft. Allen
Branch Manager - Penn Township Inside Hempfield Shop N' Save
Nancy J. McCullough, Assistant Vice President/ Greensburg, PA 15601
Branch Manager - Route 30 724-853-8540
John A. Pauls, Jr., Assistant Vice President/Auditor
Maurine J. Peer, Assistant Vice President/ Irwin-North Huntingdon
Branch Manager - Main Office Inside Scozio's Shop N' Save
Darwin H. Poole, Assistant Vice President/ Norwin Hills Shopping Center
Data Processing 8775 Norwin Avenue
Barbara A. Ruffner, Assistant Vice President/Consumer Loans North Huntingdon, PA 15642
Linda D. Shaner, Assistant Vice President/ 724-861-8701
Commercial Loans
Nancy A. Smith, Assistant Vice President/ Monroeville
Mortgage Lending Inside Haymaker Village Giant Eagle
Thomas R. Stephenson, Assistant Vice President/ 4548 Broadway Blvd.
Loan Review Monroeville, PA 15146
Kathleen T. Jaquette-Tosh, Assistant Vice President/ 412-856-5330
Branch Manager - Greensburg
Eugene S. Bender, Assistant Trust Officer Penn Crossing
Carolyn Sue Bozzick, Retail Banking Officer/Manager - Inside Scozio's Festival Foods
Haymaker Village 2000 Penny Lane
Deborah L. Kukic, Training Officer Jeannette, PA 15644
Denise Y. Poole, Operations Officer 724-744-6111
Sandra L. Schwaderer, Retail Banking Officer/
Manager - Pitcairn White Oak
Richard Zelazny, Assistant Vice President/UVEST Financial Services Inside Scozio's Shop N' Save
Oak Park Mall
2001 Lincoln Way
White Oak, PA 15131
412-664-0984
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& TRUST COMPANY
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