IBT BANCORP, INC. 2005 ANNUAL REPORT
WHERE DO YOU WANT TO BE TODAY?
[GRAPHIC OMITTED]
BE MORE TOMORROW.
TO OUR STOCKHOLDERS
WHERE DO YOU WANT TO BE TODAY? That's the question we ask everyday at Irwin Bank
& Trust Company. We ask our customers, providing them with the best financial
advice, products, and services to help them raise their families, buy homes,
start and expand businesses, save for higher education, and plan for retirement.
We ask our local community, using our expertise and resources to encourage
community development and revitalization initiatives that will help ensure a
prosperous future for our area.
Perhaps most importantly, we ask ourselves how we can be ever more efficient and
responsive to the changing financial needs of our customers and our community,
incorporating traditional values, world-class technology, and innovative,
proactive thinking into our day-to-day operations and long-term strategies. We
do this to reinforce the strong, personal relationships we build with our
customers and our community - and help them reach their goals in life.
A Banking Transformation.
Today's market demands more from a bank, so IBT Bancorp, Inc., and its
subsidiary, Irwin Bank & Trust Company, work hard to stay in the forefront of
community banking, matching our unique mixture of products and services to the
changing financial environment. Our continuing commitment to traditional banking
values means that we have been able to extend the benefits of being a "local"
bank far beyond the borders of our community, serving customers in new areas.
And we must be doing something right. Today, with more than $685.2 million in
assets, we are the largest financial institution headquartered in Westmoreland
County.
A Financial Snapshot.
While the Company faced some challenges in 2005 due to a flat yield curve, a
"buyer's market" in lending, and dropping bank margins, net income rose to $8.6
million, a significant improvement over last year. Despite the challenging
market conditions, our earnings per share have consistently increased, and we
are pleased to report growth in assets, and loans while keeping expenses under
control. Assets increased by $9.3 million and net loan growth was $5.7 million.
Shareholder benefit improved with a dividend increase of 15% to $1.84 per
share.
While the downward trend in loan pricing has eased, pressure on net interest
margins remains a factor affecting our profitability. Also, mortgage rates
remained relatively flat and refinancing has slowed significantly.
A few other factors are noteworthy as well. Increases in service fee income
resulted in a net gain of 38.8% over last year's already excellent performance.
In fact, industry statistics show that we consistently outperform 75% of banks
nationwide, and more than 90% of Pennsylvania banks. So despite the continuing
economic challenges in today's banking marketplace, Irwin Bank & Trust Company
is in a very positive position as we start 2006.
Irwin Bank & Trust Company is also continuing our proactive and aggressive
program of cost controls, aimed at keeping us on the cutting edge of banking
product offerings while making us more efficient in our day-to-day operations.
In 2005, we upgraded computer systems, while continued office consolidations
have made us more efficient. And during this past year, we became a self-insured
medical benefits provider - a move that will control the cost of benefits
without sacrificing the quality of healthcare coverage we provide to our
employees.
IBT Bancorp, Inc. 2005 Annual Report/ 1
TO OUR STOCKHOLDERS
2005 Initiatives.
Irwin Bank & Trust Company's total commitment to community banking values
continues to define our core banking philosophy. However, influenced by the
constant changes in banking technology, regulation, and customer expectations,
the way we serve the needs of our customers is also constantly changing in
response to market conditions. This allows us to accurately anticipate change
and reposition ourselves to match the market, offering the right mix of banking
products and services to help our customers run their businesses and lives more
easily - and profitably.
In 2005, Irwin Bank & Trust Company continued to move ahead in implementing
world-class capabilities in check imaging, customer electronic transaction and
account information delivery, customer relationship management, and expanded
product offerings. Our Overdraft Advantage program also continued to grow,
pleasing customers with its convenience - and providing us with growing service
charge revenues.
The account structure for Business Banking we introduced in 2004 continued to be
increasingly successful. Bundled with advanced electronic and debit card
capabilities, it helps customers manage their cash flow and financial assets
more efficiently, opening new financial opportunities. We also created the new,
full-time position of Business Banking Advisor.
Our Business Banking Advisor acts like a "financial sales engineer," matching
our capabilities to specific customer needs and then directing and coordinating
our team of financial experts to create a Total Business Relationship with each
customer. This enhances our ability to build long-term relationships while
increasing opportunities to generate new and exciting revenue streams.
Irwin Bank & Trust Company continued our expansion into the Greensburg market in
2005, opening the Mt. Pleasant Loan Center, highlighting our commitment to
growing deposit and loan business outside of our traditional service areas. And
our continued involvement in The Irwin Project, coupled with our employees'
contributions of their time and money, keeps us closely tied to our community.
Exceeding Expectations.
How successful have we been in meeting or exceeding customer expectations? A
recent survey showed that 98% of our customers would recommend us to a friend or
business associate. Just as telling, more than 55% of customers who received the
survey answered it - compared to the 5-10% average response rate. It seems that
our customers not only like us, they're happy to tell others about us, too. We
think that's a very good sign for the future.
So, let's take a look at just where we are today.
/s/ Charles G. Urtin
Charles G. Urtin
President & Chief Executive Officer
IBT Bancorp, Inc.
2/ IBT Bancorp, Inc. 2005 Annual Report
FINANCIAL HIGHLIGHTS IBT Bancorp, Inc. & Subsidiary
(Dollars in thousands, except per share data)
YEARS ENDED 2005 2004 2003 2002 2001
SELECTED BALANCE SHEET DATA:
Total assets $ 685,151 $ 675,857 $ 629,530 $ 584,035 $ 524,044
Cash and cash equivalents 15,500 16,187 15,829 15,066 25,218
Securities available for sale 201,463 196,891 172,448 186,718 162,968
Loans receivable (net) 442,265 436,548 416,286 359,872 315,132
Deposits 520,486 526,217 492,158 468,257 422,462
Repurchase agreements 18,443 15,157 12,611 14,526 11,207
Federal funds purchased 12,468 - 7,900 - -
FHLB advances 68,651 70,265 53,308 40,000 35,000
Shareholders' equity 61,081 59,843 59,606 56,151 49,725
SELECTED RESULTS OF OPERATIONS
Interest income $ 35,771 $ 33,726 $ 33,398 $ 33,560 $ 35,185
Net interest income 22,090 21,918 22,083 20,732 18,226
Provision for loan losses 1,200 600 600 1,100 500
Net interest income after provision
for loan losses 20,890 21,318 21,483 19,632 17,726
Other income 6,635 5,116 5,891 5,317 4,009
Loss on write-down of equity securities - 2,426 - - -
Other expense 16,187 15,095 14,300 12,831 11,284
Net income 8,579 6,085 9,646 8,937 7,465
PER SHARE DATA:
Net Income
Basic $ 2.90 $ 2.05 $ 3.24 $ 3.00 $ 2.49
Diluted 2.88 2.02 3.19 2.99 2.49
Cash dividends declared 1.84 1.60 1.40 1.20 1.04
SELECTED RATIOS:
Return on average assets 1.26% 0.92% 1.59% 1.61% 1.45%
Return on average equity 14.08% 10.25% 16.54% 16.95% 15.57%
Ratio of average equity to average assets 8.97% 9.02% 9.59% 9.47% 9.31%
Dividend payout 63.39% 78.01% 43.21% 40.00% 41.77%
TOTAL ASSETS
AS OF 12/31 (IN MILLIONS)
[Bar graph with following data points:
2001 $524.0
2002 $584.0
2003 $629.5
2004 $675.9
2005 $685.0]
TOTAL EQUITY
(IN THOUSANDS)
[Bar graph with following data points:
2001 $49,725
2002 $56,151
2003 $59,606
2004 $59,843
2005 $61,081]
NET INCOME
(IN THOUSANDS)
[Bar graph with following data points:
2001 $7,465
2002 $8,937
2003 $9,646
2004 $6,085
2005 $8,579]
DILUTED EARNINGS PER SHARE
[Bar graph with following data points:
2001 $2.49
2002 $2.99
2003 $3.19
2004 $2.02
2005 $2.88]
DIVIDENDS PER SHARE
[Bar graph with following data points:
2001 $1.04
2002 $1.20
2003 $1.40
2004 $1.60
2005 $1.84]
IBT Bancorp, Inc. 2005 Annual Report/ 3
[GRAPHIC OMITTED]
"IRWIN BANK LISTENED TO ME, LOOKED CLOSELY AT MY PROJECT, AND DEVELOPED A
FINANCING STRATEGY THAT THE OTHER BANKS HADN'T EVEN CONSIDERED. THEIR EXTRA
EFFORT IS WHAT SETS THEM APART."
4/ IBT Bancorp, Inc. 2005 Annual Report
BOWLING A PERFECT GAME.
Brian Saunier had a problem. How could he get the financial backing and
services he needed to build the Paradise Island bowling facility he
envisioned when the big, "local" banks just weren't interested? Luckily, a
friend referred him to Irwin Bank -- and he found out how a "community
bank" could help him in ways that the big guys wouldn't.
To better serve a growing local population, Brian wanted to renovate and
expand the old Corpen Lanes on Neville Island, adding 16 new lanes and
putting in a new kitchen and bar, calling his new enterprise "Paradise
Island." At least one other financial institution had looked at his project
and turned him down, but Irwin Bank saw things differently. The project
presented some financial challenges, so Irwin Bank did its homework and
partnered with the SBA to help Brian get the loan he needed to improve his
business.
Irwin Bank is helping Brian Saunier to run his day-to-day business more
efficiently, too. The Bank's world-class service capabilities allow
customers like Brian to have a deposit relationship with us, even though
they don't have a nearby branch office. Brian Saunier also uses Irwin
Bank's lock box service for his subsidiary company, All American Bowling
Co., Inc., an equipment supplier and installer. And he employs our internet
banking capabilities to manage account information and other banking
services. It's simple and convenient. And it's one more way that Irwin
Bank's unique mix of world-class services and community values prove our
ability to serve customers outside our traditional market area.
[GRAPHIC OMITTED]
(CAPTION:)
CUSTOMERS: PARADISE ISLAND BOWLING,
ALL AMERICAN BOWLING CO., INC.
LOCATION: NEVILLE ISLAND, PA
OWNER: BRIAN SAUNIER
RELATIONSHIP MANAGER: JIM THOMPSON
SERVICES: COMMERCIAL LOAN (SBA), DEPOSITS,
LOCK BOX SERVICES, INTERNET BANKING
IBT Bancorp, Inc. 2005 Annual Report/ 5
[GRAPHIC OMITTED]
"THE BEST PART ABOUT MY RELATIONSHIP WITH IRWIN BANK IS KNOWING ALL THE PEOPLE
I'M DEALING WITH. IF FOR SOME REASON I CAN'T REACH AL LAZAR, MY RELATIONSHIP
MANAGER, I CAN CALL BOB BOWELL OR CHUCK URTIN, AND THEY'LL TAKE CARE OF ME."
6/ IBT Bancorp, Inc. 2005 Annual Report
A RELATIONSHIP CAST IN... CONCRETE.
Pete Cooper tells it this way. "10 years ago, I started Cooper Trading,
Inc., in a 16' x 16' office with a phone and a fax machine. Today, we've
grown to become a $12 million-a-year business. And as my business grew,
Irwin Bank was right there to help me at every step along the way."
Pete owns and runs CTI, a commercial building materials supplier of
concrete and concrete accessories, below-grade waterproofing, piping
systems, windows, siding, doors, and other materials. CTI has also been
involved in some high-visibility projects around the Pittsburgh area. These
include supplying exterior aluminum panels for the scoreboard and canopy
materials above the seats at Heinz Field, concrete accessories at PNC Park
and the new North Side parking garage, and patching on the Fort Duquesne
Bridge.
Irwin Bank has been a valuable partner and financial resource for CTI as
the company has grown. The Bank financed the construction of CTI's concrete
plant, an office/showroom, and provided a line of credit for working
capital. Pete Cooper adds, "I recently went to Irwin Bank to discuss
financing for a new warehouse and infrastructure improvements on our
property. They came back with a recommendation to use a Small Business
Administration (SBA) program that would make more financing available and
allow us to make even more improvements. And that's exactly the kind of
service I've come to expect from them."
[GRAPHIC OMITTED]
(CAPTION:)
CUSTOMER: CTI (COOPER TRADING, INC).
LOCATION: IRWIN, PA
OWNER: PETE COOPER
RELATIONSHIP MANAGER: AL LAZAR
SERVICES: COMMERCIAL LOAN (SBA), DEPOSITS,
BUSINESS CHECKING, INTERNET BANKING
IBT Bancorp, Inc. 2005 Annual Report/ 7
MAKING THE COMMUNITY A BETTER PLACE.
[Graphic omitted]
IRWIN BANK EMPLOYEES AND FAMILIES HELPED MAKE THE NORWIN RELAY FOR
LIFE A SUCCESS IN ITS FIRST YEAR.
[Graphic omitted]
THE LAMP THEATER WILL BE RECONSTRUCTED AS PART OF THE IRWIN PROJECT.
THIS PHOTO WAS TAKEN OPENING NIGHT, 1938.
As a vital part of the local community, Irwin Bank & Trust Company and our
employees participate in a number of initiatives, such as The Irwin Project,
that highlight our personal involvement and interest in strengthening our
region's economy.
Irwin Bank continued its commitment to our hometown through our support of the
Irwin Project's "revitalization initiative" that is helping breathe new life
into our region's economy and infrastructure.
In 2005, The Irwin Project made significant progress on several fronts. The
Project received $95,000 in grant funding, plus another $100,000 in private
pledges. The Irwin Project has also been designated a Pennsylvania Blueprint
Community and a project community of the Governor's Community Action Team (CAT),
helping to facilitate project funding and implementation. The organization has
built excellent working relationships with county and state agencies and, using
the funding they have obtained, are helping create a new comprehensive municipal
plan for Irwin Borough. An application for the PA Main Street Program is nearly
complete, and additional grants in excess of $1 million have been submitted and
are pending approval. And through the Blueprint Communities program this past
year, local leaders attended a 5-day leadership and revitalization training
course to help them meet the challenges of keeping our community vigorous and
financially healthy.
Company employees also serve as members and directors of several local
organizations, and many more donate their time to these worthy causes. A variety
of fundraising efforts in which we participate also help provide financial
support for local initiatives. For instance, Irwin Bank was a sponsor of the 1st
Annual Norwin Relay for Life, to raise money and awareness for the American
Cancer Society. For the past three years, we have been a proud sponsor of the
"Light Up a Child's Life" holiday campaign which benefits the Make-A-Wish
Foundation of Western Pennsylvania. The holiday campaign has become the region's
largest fundraiser to benefit children. The Irwin Bank Employee Club also played
a significant roll in fundraising for non-profit organizations, including Toys
for Tots, Salvation Army, American Red Cross and the Make-A-Wish Foundation of
Westmoreland County.
8/ IBT Bancorp, Inc. 2005 Annual Report
FINANCIAL REVIEW
IBT Bancorp, Inc. 2005 Annual Report/ 9
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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", "intends" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which include changes
in interest rates, risks associated with the effect of opening new branches, the
ability to control costs and expenses, and general economic conditions. IBT
Bancorp, Inc. undertakes no obligation to update those forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking and
trust 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). Ongoing negative publicity concerning accounting practices at both
agencies negatively impacts the value of these investments. 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.
IBT Bancorp, Inc./1
Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION
At December 31, 2005, total assets increased $9.3 million, or 1.4%, to
$685.2 million from $675.9 million at December 31, 2004. The increase in total
assets was primarily the result of an increase of $5.7 million in net loans and
$4.8 million in securities available for sale. Growth in the loan portfolio and
securities available for sale was primarily funded by a net increase of $12.5
million in Federal funds purchased and $3.2 million in repurchase agreements.
The increase in available for sale securities was mainly the result of
purchases of $53.2 million offset by net proceeds from maturities and the sales
of securities of $44.8 million. This resulted in net increases of U.S.
Government agencies and obligations of state and political sub-divisions of $7.8
million and $8.4 million, respectively, offset by net decreases in
mortgage-backed securities of $11.2 million. The Company periodically sells and
purchases securities to maximize the return of the portfolio within the set
policy limits established by the board of directors.
The increase in net loans is primarily due to increases in installment term
loans and commercial loans of $8.7 million and $2.4 million, respectively.
Installment loan growth was offset by a decrease of $3.5 million in home equity
adjustable rate lines of credit. Rising market rates precipitated the migration
of customers to the fixed rate installment loans, from the adjustable rate lines
of credit. The minimal growth in commercial loans and real estate secured
mortgage loans was attributed to large payoffs experienced in 2005, principal
repayments, and sales into the secondary mortgage market. The 1-4 family
residential mortgage loans originated by the Company are periodically sold in
the secondary market to mitigate the interest-rate risk associated with holding
long-term, low rate loans in the portfolio. In 2005, the Company sold $7.5
million in loans.
At December 31, 2005, total liabilities increased $8.1 million, or 1.3%, to
$624.1 million from $616.0 million at December 31, 2004. The increase was
primarily related to the increases in Federal funds purchased of $12.5 million
and repurchase agreements of $3.2 million. The increases were offset by
decreases in total deposits and FHLB advances of $5.7 million and $1.6 million,
respectively.
Non-interest bearing deposits decreased $3.4 million to $83.8 million at
December 31, 2005 from $87.2 million at December 31, 2004. The decrease was
substantially offset by a related increase of $3.2 million in repurchase
agreements. 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.
Interest-bearing deposits totaled $436.6 million at December 31, 2005, a
decrease of $2.4 million from December 31, 2004. Included in this change was a
decrease in interest-bearing checking accounts of $3.7 million, money market
accounts of $1.0 million, and savings accounts of $3.0 million. The decreases
were primarily due to the timing of month-end direct deposits, balance transfers
to certificates of deposit, and increased competition from investment
alternatives. Certificates of deposit had a net decrease of $2.2 million;
however, included in this decrease were maturities of public funds from
municipalities of $4.2 million. The proceeds of the maturities of the public
funds were primarily used by the municipalities to meet expenses.
At December 31, 2005, total stockholders' equity increased $1.3 million to
$61.1 million from $59.8 million at December 31, 2004. The increase was
primarily due to net income of $8.6 million for the period offset by a decrease
of $1.7 million in accumulated other comprehensive income (net of income taxes),
and dividends paid of $5.4 million. In addition, surplus (additional paid-in
capital) decreased $245,000 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 decreased 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/IBT Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net Income: Net income increased approximately $2.5 million, or 41.0%, to
$8.6 million, or $2.88 per diluted share for the year ended December 31, 2005
from $6.1 million, or $2.02 per diluted share for the year ended December 31,
2004. The increase in net income for fiscal 2005 compared to fiscal 2004 was
primarily due to a $3.9 million increase in other income and $2.1 million
increase in interest income offset by an increase in interest expense of $1.9
million and increases in the provision for loan losses and other expenses of
$600,000 and $1.1 million, respectively. A $15.5 million increase in average
interest earning assets and a 19 basis point increase in the average yield
supported the increase in interest income. The Company did not record any
non-cash charges for investments whose value declines were determined to be
other than temporarily impaired, as a result, other income for fiscal 2005
exceeded other income reported for 2004.
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 $46.6 million in average 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.
Net Interest Income: Net interest income is the most significant component
of the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loans and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
Net interest income increased $172,000, or 0.8% to $22.1 million for 2005
compared to $21.9 million for 2004. The increase was primarily due to increases
in average interest earning assets of $15.5 million and average yield of 19
basis points. Included in this increase was a rise of $6.4 million in average
loans receivable and $7.6 million in average investment securities coupled with
increases in the average yields of 13 basis points and 37 basis points,
respectively. Offsetting these changes was an increase in average interest
bearing liabilities of $18.3 million and a 27 basis point increase in the
average cost of funds.
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.
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. 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.
IBT Bancorp, Inc./3
Year Ended December 31,
--------------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- --------- -------- ---------- --------- ---------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $ 436,906 $ 27,273 6.24% $ 430,543 $ 26,313 6.11%
Investment securities (2) 200,528 8,437 4.21% 192,934 7,403 3.84%
Federal funds sold 2,029 61 3.01% 540 10 1.82%
---------- --------- ------ ---------- --------- ------
Total interest-earning assets 639,463 35,771 5.59% 624,017 33,726 5.40%
Non-interest earning assets (3) 40,138 34,156
---------- ----------
Total assets $ 679,601 $ 658,173
========== ==========
Interest-bearing liabilities:
Money market accounts $ 62,225 1,042 1.67% $ 58,103 516 0.89%
Certificates of deposit 245,654 8,126 3.31% 245,881 7,595 3.09%
Other liabilities (4) 224,533 4,514 2.01% 210,096 3,697 1.76%
---------- --------- ------ ---------- --------- ------
Total interest-bearing
liabilities 532,412 13,682 2.57% 514,080 11,808 2.30%
--------- ------ --------- ------
Non-interest-bearing liabilities (3) 86,244 84,704
---------- ----------
Total liabilities 618,656 598,784
Stockholders' Equity (5) 60,945 59,389
---------- ----------
Total liabilities and
stockholders' equity $ 679,601 $ 658,173
========== ==========
Net interest income $ 22,089 $ 21,918
========= ============
Interest rate spread (6) 3.02% 3.10%
====== ======
Net interest margin (7) 3.45% 3.51%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 120.11% 121.38%
====== ======
Year Ended December 31,
--------------------------------------------
2003
--------------------------------------------
Average Average
Balance Interest Yield/Cost
---------- --------- ------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $ 393,743 $ 26,097 6.63%
Investment securities (2) 177,557 7,244 4.08%
Federal funds sold 4,926 57 1.16%
---------- --------- ------
Total interest-earning assets 576,226 33,398 5.80%
Non-interest earning assets (3) 31,441
----------
Total assets $ 607,667
==========
Interest-bearing liabilities:
Money market accounts $ 61,138 645 1.05%
Certificates of deposit 221,186 7,303 3.30%
Other liabilities (4) 185,117 3,367 1.82%
---------- --------- ------
Total interest-bearing
liabilities 467,441 11,315 2.42%
--------- ------
Non-interest-bearing liabilities (3) 81,918
----------
Total liabilities 549,359
Stockholders' Equity (5) 58,308
----------
Total liabilities and
stockholders' equity $ 607,667
==========
Net interest income $ 22,083
=========
Interest rate spread (6) 3.38%
======
Net interest margin (7) 3.83%
======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 123.27%
======
(1) Average balances include non-accrual loans, and are net of deferred
loan fees.
(2) Includes investment securities, interest-bearing deposits in other
financial institutions and FHLB stock.
(3) Includes net deferred income taxes in excess of deferred tax benefits
on AFS securities (SFAS 115), stock options (SFAS 123/148) and deferred
fees (SFAS 109) (4) Includes FHLB advances, Federal funds purchased,
and repurchase agreements.
(5) Includes capital stock, surplus and unrealized holding gains on SFAS
115 AFS securities.
(6) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(7) Net interest margin represents net interest income as a percentage of
average interest earning assets.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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,
----------------------------- -----------------------------
2005 vs. 2004 2004 vs. 2003
----------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- -------- ------- ------- -------
(In Thousands)
Interest income:
Loans receivable $ 389 $ 571 $ 960 $ 2,439 $(2,223) $ 216
Investment securities 291 743 1,034 627 (468) 159
Other interest-earning assets 27 24 51 (51) 4 (47)
------- ------- -------- ------- ------- -------
Total interest-earning assets 707 1,338 2,045 3,015 (2,687) 328
------- ------- -------- ------- ------- -------
Interest expense:
Money market accounts 36 489 525 (32) (97) (129)
Certificates of deposit (7) 538 531 816 (524) 292
Other liabilities 254 563 817 454 (124) 330
------- ------- -------- ------- ------- -------
Total interest-bearing liabilities 283 1,590 1,873 1,238 (745) 493
------- ------- -------- ------- ------- -------
Net change in net interest income $ 424 $ (252) $ 172 $ 1,777 $(1,942) $ (165)
======= ======= ======== ======= ======= =======
PROVISION FOR LOAN LOSSES: The Company recorded a provision for loan losses
of $1.2 million, $600,000, and $600,000 for 2005, 2004, and 2003, 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,
---------------------------------------
2005 2004 2003
---------------------------------------
(DOLLARS IN THOUSANDS)
Total loans outstanding $ 445,789 $ 439,142 $ 419,571
=======================================
Average loans outstanding $ 436,906 $ 430,543 $ 393,743
=======================================
Allowance balances (at
beginning of period) $ 2,594 $ 3,285 $ 2,873
Provision: 1,200 600 600
IBT Bancorp, Inc./5
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Charge-Offs:
Mortgage (64) (1,204) (11)
Installment (188) (127) (84)
Commercial (19) (8) (148)
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards - - -
Other - -
---------------------------------------
Total charge-offs (271) (1,339) (243)
Recoveries:
Mortgage 7 - -
Installment 21 3 19
Commercial 13 45 36
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards - - -
Other - - -
---------------------------------------
Total recoveries 41 48 55
---------------------------------------
Net charge-offs (230) (1,291) (188)
---------------------------------------
Allowance balance (at end of period) $ 3,564 $ 2,594 $ 3,285
=======================================
Allowance for loan losses as a percent of total
loans outstanding 0.80% 0.59% 0.78%
Net loans charged off as a percent of average
loans outstanding 0.05% 0.30% 0.05%
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
6/IBT Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
OTHER INCOME: Total other income increased $3.9 million, or 144.4% to $6.6
million for the year ended December 31, 2005 from $2.7 million for the year
ended December 31, 2004. The most significant change in other income is the
decrease in investment security losses of $2.7 million for the year ended
December 31, 2005. Security losses in 2004 were primarily related to a write
down of preferred stocks due to an other than temporary impairment of fair
value. Service fees increased $1.0 million to $3.6 million for the year ended
December 31, 2005 from $2.6 million for 2004. This increase was primarily due to
an additional $929,000 in fees collected on deposit accounts. Other income
increased $197,000 to $1.2 million for December 31, 2005 from $1.0 million for
2004 due to a one-time gain recorded from the sale of property classified as
other real estate.
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. Due to an other than temporary impairment in
fair value, 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 $641,000 primarily due to a gain from the sale of other real
estate of $351,000 recorded in fiscal 2003.
OTHER EXPENSES: Total other expenses increased $1.1 million, or 7.3% to
$16.2 million for the year ended December 31, 2005 from $15.1 million for the
year ended December 31, 2004. This is primarily due to increases in salary and
other expenses. Salary expense was $6.3 million for the year ended December 31,
2005 an increase of $400,000 over 2004. This increase is primarily due to
additions to staff and annual merit increases. Other expenses increased $400,000
to $4.3 million for the year ended December 31, 2005 from $3.9 million at
December 31, 2004. Such increases to expense were attributed to increases in
other real estate, customer debit cards, and consulting fees paid by the Company
of $172,000, $96,000, and $52,000, respectively.
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.
IBT Bancorp, Inc./7
Management's Discussion and Analysis of Financial Condition and Results
of Operations
INCOME TAXES: Income tax expense of $2.8 million for the year ended
December 31, 2005 remained relatively unchanged from 2004, however the effective
tax rate for 2005 dropped to 24.3% from 31.7% reported for 2004.
Income tax expense for 2004 was $2.8 million compared to $3.4 million in
2003. 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%,
and 26.2% for 2004 and 2003, 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. 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, 2005, the Company had commitments to extend
credit of $104.3 million.
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, 2005, cash and cash equivalents totaled $15.5 million.
Net cash from operating activities for 2005 totaled $12.1 million, as
compared to net cash from operating activities of $11.3 million for 2004. The
increase in 2005 was primarily the result of a $2.5 million increase in net
income, a $600,000 increase in the provision for loan losses, and a $600,000
increase in other assets offset by a $2.4 million change in the write-down of
equity securities. 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 used by investing activities for 2005 totaled $15.5 million, as
compared to cash used of $50.5 million for 2004 and $47.9 million for 2003. The
decrease of $35.0 million for 2005 is primarily due to decreases in securities
purchased and loans made to customers of $58.4 million and $15.1 million,
respectively. These changes were offset by a decrease of $40.4 million in
proceeds from the sales and maturities of securities. 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 from financing activities for the year ended December 31, 2005
totaled $2.7 million, as compared to net cash from financing activities of $39.6
million for 2004. The change in 2005 was primarily due to decreases in net
deposits and proceeds from FHLB advances of $39.8 million and $28.0 million,
respectively, offset by an increase in Federal funds purchased of $20.4 million
and a decrease of $9.4 million in repayments of FHLB advances. 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. 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.
8/IBT Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 $ 68,651 $ 4,161 $13,490 $18,000 $33,000
Operating Lease Obligations 947 204 317 245 181
Certificates of Deposit 251,067 145,791 71,460 15,291 18,525
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 customers'
requests for funding and take the form of loan commitments and lines of credit.
At December 31, 2005 and 2004, the Company had commitments to extend credit in
the amount of $104.3 million and $96.1 million, respectively. During the year
ended December 31, 2005, 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 or decrease 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:
IBT Bancorp, Inc./9
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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, 2005.
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.
10/IBT Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Expected Maturity/Principal Repayment at December 31,
Total Carrying Fair
2006 2007 2008 2009 2010 Thereafter Value Value
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
Interest-earning assets
- -----------------------
Mortgage loans $ 12,382 $ 16,542 $ 13,661 $ 15,079 $ 14,712 $180,323 $252,699 $258,038
Home equity loans,
second mortgage
loans, student loans,
other loans 18,207 17,353 16,205 14,722 13,574 40,638 120,699 123,975
Commercial loans,
municipal loans 15,853 8,071 5,888 3,304 2,268 37,273 72,657 73,883
Investment securities - 1,795 361 2,526 3,967 187,344 195,993 195,993
Interest-bearing
- -----------------------
liabilities
- -----------------------
NOW and other
transaction accounts $ 41,186 $ - $ - $ - $ - $ - $ 41,186 $ 41,186
Money market and
other savings
accounts 144,386 - - - - - 144,386 144,386
Certificates of deposit 145,791 50,017 21,443 13,088 2,203 18,525 251,067 251,145
Federal Home Loan
Bank of Pittsburgh
advance 4,161 3,418 10,072 18,000 - 33,000 68,651 69,968
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 2005, the Financial Accounting Standards Board issued FASB
interpretation ("FIN") 47, Accounting for Asset Retirement Obligations and SFAS
No. 154, Accounting Changes and Errors Corrections - a replacement of APB
Opinion No. 20 and FASB Statement No. 3. The Company does not believe these
statements will have a material impact on the Bank or its operations.
IBT Bancorp, Inc./11
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, 2005, 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, 2005, 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 & Chief Financial Officer
Chief Executive Officer
12/IBT Bancorp, Inc.
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, 2005 and 2004, 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,
2005. We also 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, 2005, 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
We conducted our audits in accordance with the standards of 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
internal control 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 over
financial 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, 2005 and 2004, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2005 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, 2005 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, 2005 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 3, 2006
Consolidated Balance Sheets/IBT Bancorp, Inc., and Subsidiary
DECEMBER 31,
------------------------------
2005 2004
------------- -------------
ASSETS
Cash and due from banks $ 15,063,970 $ 14,641,942
Interest-bearing deposits in banks 435,970 515,229
Federal funds sold -- 1,030,000
Certificate of deposit 100,000 100,000
Securities available for sale 195,993,449 191,208,214
Federal Home Loan Bank stock, at cost 5,469,600 5,682,700
Loans, net of allowance for loan losses of
$3,563,501 in 2005 and $2,593,642 in 2004 442,225,344 436,548,276
Premises and equipment, net 5,624,572 6,232,280
Other assets 20,237,792 19,898,464
------------- -------------
TOTAL ASSETS $ 685,150,697 $ 675,857,105
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 83,846,681 $ 87,248,485
Interest-bearing 436,639,077 438,968,463
------------- -------------
Total deposits 520,485,758 526,216,948
Federal funds purchased 12,468,000 --
Repurchase agreements 18,442,703 15,157,257
Accrued interest and other liabilities 4,022,118 4,374,824
FHLB advances 68,651,125 70,265,314
------------- -------------
Total liabilities 624,069,704 616,014,343
STOCKHOLDERS' EQUITY
Capital stock, par value $1.25,
50,000,000 shares authorized,
3,023,799 shares issued, 2,955,455
shares outstanding
at December 31, 2005 and 2004 3,779,749 3,779,749
Surplus 1,231,444 1,417,755
Retained earnings 58,931,230 55,789,915
Accumulated other comprehensive income (512,029) 1,204,744
------------- -------------
63,430,394 62,192,163
Less: Treasury stock, at cost (68,344 shares) (2,349,401) (2,349,401)
------------- -------------
Total stockholders' equity 61,080,993 59,842,762
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 685,150,697 $ 675,857,105
============= =============
IBT Bancorp, Inc./13
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Income/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31,
--------------------------------------------
2005 2004 2003
------------ ------------ ------------
INTEREST INCOME
Loans, including fees $ 27,272,969 $ 26,312,685 $ 26,096,559
Investment securities 8,437,156 7,403,199 7,244,174
Federal funds sold 61,177 9,835 57,110
------------ ------------ ------------
Total interest income 35,771,302 33,725,719 33,397,843
INTEREST EXPENSE
Deposits 9,996,792 8,703,234 8,666,938
Federal funds purchased 180,901 92,982 25,933
FHLB advances 2,939,435 2,858,623 2,487,363
Repurchase agreements 564,658 152,970 134,546
------------ ------------ ------------
Total interest expense 13,681,786 11,807,809 11,314,780
------------ ------------ ------------
NET INTEREST INCOME 22,089,516 21,917,910 22,083,063
PROVISION FOR LOAN LOSSES 1,200,000 600,000 600,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,889,516 21,317,910 21,483,063
OTHER INCOME (LOSSES)
Service fees 3,602,991 2,595,941 2,370,065
Investment security gains 274,267 383,290 533,155
Investment security losses (138,078) (2,789,571) (67,636)
Increase in cash surrender value
of life insurance 456,042 466,923 513,066
Debit card fees 775,715 680,600 614,475
Trust fees 455,051 340,492 275,378
Other income 1,209,163 1,011,967 1,652,555
------------ ------------ ------------
Total other income 6,635,151 2,689,642 5,891,058
OTHER EXPENSES
Salaries 6,332,915 5,875,511 5,653,310
Pension and other employee benefits 1,831,784 1,820,031 1,642,651
Occupancy expense 1,795,473 1,767,950 1,549,532
Data processing expense 992,005 916,939 843,074
Advertising expense 387,344 309,032 412,702
Pennsylvania shares tax 560,428 496,802 446,041
Other expenses 4,287,034 3,908,424 3,752,672
------------ ------------ ------------
Total other expenses 16,186,983 15,094,689 14,299,982
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 11,337,684 8,912,863 13,074,139
PROVISION FOR INCOME TAXES 2,758,333 2,828,125 3,427,893
------------ ------------ ------------
NET INCOME $ 8,579,351 $ 6,084,738 $ 9,646,246
============ ============ ============
BASIC EARNINGS PER SHARE $ 2.90 $ 2.05 $ 3.24
============ ============ ============
DILUTED EARNINGS PER SHARE $ 2.88 $ 2.02 $ 3.19
============ ============ ============
14/IBT Bancorp, Inc.
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Changes in Stockholders' Equity/IBT Bancorp, Inc.,
and Subsidiary
Years Ended December 31, 2005, 2004 and 2003
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
IBT Bancorp, Inc./15
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Changes in Stockholders' Equity (Cont.)/IBT Bancorp,
Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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
16/IBT Bancorp, Inc.
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Changes in Stockholders' Equity (Cont.)/IBT Bancorp,
Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
ACCUMULATED
OTHER
CAPITAL RETAINED COMPREHENSIVE TREASURY
STOCK SURPLUS EARNINGS INCOME STOCK TOTAL
------------ ------------ ------------- ------------ ------------ ------------
BALANCE AT
DECEMBER 31, 2004 $ 3,779,749 $ 1,417,755 $ 55,789,915 $ 1,204,744 $ (2,349,401) $ 59,842,762
Comprehensive Income
Net income 8,579,351 8,579,351
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax benefit
of ($831,292) (1,613,684) (1,613,684)
Reclassification
adjustment, net of
deferred income tax
of ($53,107) (103,089) (103,089)
-------------
(1,716,773)
-------------
Total Comprehensive
Income 6,862,578
Cash dividends ($1.84) (5,438,036) (5,438,036)
Stock options granted / vested 59,141 59,141
Exercise of stock options (245,452) (245,452)
Purchase of
Treasury Stock -
------------ ------------ ------------- ------------- ------------- -------------
BALANCE AT
DECEMBER 31, 2005 $ 3,779,749 $ 1,231,444 $ 58,931,230 $ (512,029) $ (2,349,401) $ 61,080,993
============ ============ ============= ============= ============= =============
IBT Bancorp, Inc./17
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2005 2004 2003
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,579,351 $ 6,084,738 $ 9,646,246
Adjustments to reconcile net cash
from operating activities:
Depreciation 994,839 1,009,989 832,770
Increase in cash surrender value of insurance (456,042) (466,923) (513,066)
Net amortization/accretion of
premiums and discounts 810,975 1,046,467 1,129,046
Net investment security gains (136,189) (19,896) (465,519)
Loss on write-down of equity securities -- 2,426,177 --
Provision for loan losses 1,200,000 600,000 600,000
Stock options granted/vested 59,141 59,141 102,154
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets 775,593 223,003 (921,069)
Accrued interest and other liabilities 267,918 339,288 (311,325)
------------- ------------- -------------
NET CASH FROM OPERATING ACTIVITIES 12,095,586 11,301,984 10,099,237
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit (100,000) (100,000) (100,000)
Proceeds from maturity of certificate of deposit 100,000 100,000 100,000
Proceeds from sales of securities available for sale 9,728,425 61,556,451 34,800,655
Proceeds from maturities of securities available for sale 35,093,279 23,575,354 54,553,305
Purchase of securities available for sale (53,165,621) (111,626,403) (76,835,123)
Net loans made to customers (6,989,448) (22,118,272) (56,458,544)
Purchases of premises and equipment (387,131) (773,520) (2,542,504)
Proceeds from the sale Federal Home Loan Bank stock 6,183,500 3,763,900 1,772,400
Purchase of Federal Home Loan Bank stock (5,970,400) (4,906,100) (3,160,300)
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES (15,507,396) (50,528,590) (47,870,111)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (5,731,190) 34,059,419 23,900,202
Net increase(decrease) in securities sold
under agreements to repurchase 3,285,446 2,546,380 (1,914,959)
Net increase (decrease) in federal funds purchased 12,468,000 (7,900,000) 7,900,000
Dividends (5,438,036) (4,746,485) (4,168,721)
Proceeds from FHLB advances -- 28,000,000 16,000,000
Repayment of FHLB advances (1,614,189) (11,042,453) (2,692,233)
Purchase of treasury stock -- (1,006,135) --
Exercised stock options (245,452) (325,644) (490,998)
------------- ------------- -------------
NET CASH FROM FINANCING ACTIVITIES 2,724,579 39,585,082 38,533,291
------------- ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (687,231) 358,476 762,417
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,187,171 15,828,695 15,066,278
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,499,940 $ 16,187,171 $ 15,828,695
============= ============= =============
18/IBT Bancorp, Inc.
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows (Cont.)/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31,
---------------------------------------------
2005 2004 2003
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 13,625,849 $ 11,446,837 $ 11,446,828
Income taxes $ 3,182,617 $ 2,634,965 $ 3,671,847
NON CASH TRANSACTIONS
Recorded unrealized (losses) gains on
securities available for sale $ (1,058,528) $ 1,825,368 $ 1,566,116
at December 31
Deferred (benefit) income taxes on recorded
unrealized (losses) gains on securities
available for sale at December 31 $ (546,500) $ 620,625 $ 532,479
Loans transferred to foreclosed real
estate during the year $ 112,380 $ 1,557,735 $ 301,284
Recorded nonmonetary gain (loss) on
securities available for sale
at December 31 $ 81,111 $ (2,426,177) $ 11,960
The accompanying notes are an integral part of these consolidated financial
statements.
IBT Bancorp, Inc./19
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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 & 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 six branch
offices, two loan centers, a trust division, four supermarket branches and main
office located in Southwestern Pennsylvania. The Bank's primary deposit products
are non-interest and interest-bearing checking accounts, savings accounts and
certificates of deposit. Its primary lending products are single-family and
multi-family residential loans, installment loans and commercial loans.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation.
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 $387,344 for 2005, $309,032 for 2004 and $412,702 for 2003.
LOANS AND ALLOWANCE FOR LOAN LOSSES: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees.
20/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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 political factors that can affect loss rates or loss measurements.
Allowances for losses on specifically identified loans that are determined to be
impaired are calculated based upon collateral value, market value, if
determinable, or the present value of 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 2,955,455, 2,966,409 and 2,977,655 for the years ended December
31, 2005, 2004 and 2003, respectively.
IBT Bancorp, Inc./21
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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, 2005
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
Obligations of
U.S. Government Agencies $ 80,139,533 $ 35,630 $(1,301,245) $ 78,873,918
Obligations of State and
political sub-divisions 53,723,194 1,356,363 (271,660) 54,807,897
Mortgage-backed securities 55,228,872 114,890 (1,516,289) 53,827,473
Other securities 195,589 - (2) 195,587
Equity securities 7,764,789 557,507 (33,722) 8,288,574
------------ ----------- ----------- ------------
$197,051,977 $ 2,064,390 $(3,122,918) $195,993,449
============ =========== =========== ============
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
============ =========== ========= ============
22/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
YEARS ENDED DECEMBER 31,
------------------------------------
2005 2004 2003
---------- ---------- ----------
Gross realized gains:
Obligations of U.S. Government Agencies $ -- $ 204,102 $ 75,646
Obligations of state and political sub-divisions 153,523 91,855 26,250
Mortgage-backed securities -- -- 279,457
Equity securities 120,744 87,333 151,802
---------- ---------- ----------
$ 274,267 $ 383,290 $ 533,155
========== ========== ==========
Gross realized losses:
Obligations of U.S. Government Agencies $ 45,679 $ 363,394 $ --
Mortgage-backed securities 92,399 -- 67,636
Equity securities -- 2,426,177 --
---------- ---------- ----------
$ 138,078 $2,789,571 $ 67,636
========== ========== ==========
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, 2005, 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 $ -- $ --
Due after one year through five years 8,747,091 8,649,040
Due after five years through ten years 96,109,200 94,810,139
Due after ten years, includes equity securities 92,195,686 92,534,270
------------ ------------
$197,051,977 $195,993,449
============ ============
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 $5,469,600 and $5,682,700 of FHLB stock
at December 31, 2005 and 2004, respectively.
IBT Bancorp, Inc./23
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Temporarily impaired investments consist of the following:
DECEMBER 31, 2005
----------------------------------------------------------------------------------------
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 $ 64,155,138 $ (984,395) $13,683,150 $ (316,850) $ 77,838,288 $(1,301,245)
Mortgage-backed securities 22,243,112 (621,158) 24,593,146 (895,131) 46,836,258 (1,516,289)
Obligations of state and
political sub-divisions 14,909,740 (225,501) 2,100,444 (46,159) 17,010,184 (271,660)
Other investments 979,056 (33,724) -- -- 979,056 (33,724)
------------ ----------- ----------- ----------- ------------ -----------
Total temporarily
impaired securities $102,287,046 $(1,864,778) $40,376,740 $(1,258,140) $142,663,786 $(3,122,918)
============ =========== =========== =========== ============ ===========
Investments are reviewed for declines in value on a quarterly basis. Equity
securities 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,
--------------------------------
2005 2004
------------ ------------
Mortgage $252,699,327 $252,114,219
Home equity credit 19,684,198 23,201,124
Installment 93,428,367 84,673,524
Commercial 63,508,313 61,139,895
PHEAA 6,780,415 7,354,534
Municipal 9,148,382 10,050,265
Credit cards 61,868 44,882
Other 744,087 854,685
------------ ------------
446,054,957 439,433,128
Less:
Allowance for loan losses 3,563,501 2,593,642
Deferred loan fees 266,112 291,210
------------ ------------
$442,225,344 $436,548,276
============ ============
24/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 3 -- LOANS (CONTINUED)
The aggregate amount of demand deposit accounts with overdrawn balances that
were reclassified as loan balances at December 31, 2005 and 2004 amounted to
$607,114 and $715,870, respectively and are included in other loans.
The total recorded investment in impaired loans amounted to $1,484,017 at
December 31, 2005 and $1,535,834 at December 31, 2004. The allowance for loan
losses related to impaired loans amounted to $522,857 and $412,470 at December
31, 2005 and 2004, respectively.
Changes in the allowance for loan losses were as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
2005 2004 2003
----------- ----------- -----------
Balance, beginning of year $ 2,593,642 $ 3,284,830 $ 2,873,067
Provision charged to operations 1,200,000 600,000 600,000
Loans charged off (269,310) (1,338,749) (242,711)
Recoveries 39,169 47,561 54,474
----------- ----------- -----------
Balance, end of year $ 3,563,501 $ 2,593,642 $ 3,284,830
=========== =========== ===========
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
DECEMBER 31,
-----------------------------
2005 2004
----------- -----------
Land $ 921,559 $ 921,559
Buildings and improvements 5,950,036 5,955,107
Furniture and equipment 7,744,717 7,413,916
----------- -----------
14,616,312 14,290,582
Less: Accumulated depreciation 8,991,740 8,058,302
----------- -----------
$ 5,624,572 $ 6,232,280
=========== ===========
Depreciation expense was $994,839 in 2005, $1,009,989 in 2004 and $832,770 in
2003.
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.
In 2005, fully depreciated assets and the remaining depreciation on assets no
longer in use, as a result of the closure of two branch offices, were written
off.
IBT Bancorp, Inc./25
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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,
2006 $204,104
2007 167,428
2008 148,951
2009 148,894
2010 96,300
2011 and thereafter 180,984
--------
$946,661
========
Rental expense under these operating leases was $247,327, $250,464 and $220,981
for the years ended December 31, 2005, 2004 and 2003, 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, 2005 and 2004, the partnership is reflected in the other assets section of
the balance sheet at $31,772 and $20,083, 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, 2005 and 2004, the cash
surrender value of these policies was $11,930,700 and $11,509,239, 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, 2005 are
summarized as follows:
2006 $145,790,925
2007 50,017,326
2008 21,442,535
2009 13,087,855
2010 2,203,285
2011 and thereafter 18,525,116
------------
$251,067,042
============
26/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 7 -- DEPOSITS (CONTINUED)
The Bank held related party deposits of approximately $3,976,000 and $2,571,000
at December 31, 2005 and 2004, respectively.
The Bank held time deposits of $100,000 or more of $64,684,980 and $63,260,047
at December 31, 2005 and 2004, 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 $18,442,703 and
$15,157,257 at December 31, 2005 and 2004, respectively.
NOTE 9 -- PLEDGED ASSETS
At December 31, 2005 and 2004, U.S. Government Agency obligations carried at
approximately $40,865,000 and $48,257,000 respectively, were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted by law. At December 31, 2005 and 2004, the carrying amount of
securities pledged to secure repurchase agreements was approximately $30,917,000
and $23,525,000 respectively.
NOTE 10 -- FHLB ADVANCES
At December 31, 2005 and 2004, the Bank had the following advances from the
Federal Home Loan Bank (FHLB).
2005 2004 INTEREST RATE MATURITY DATE
--------------------- --------------------- ----------------------------- ------------------
$ 1,250,000 $ 1,250,000 2.54% Fixed February 21, 2006
1,250,000 1,250,000 2.83% Fixed August 21, 2006
1,416,489 2,233,153 2.99% Amortizing-Fixed August 20, 2007
2,000,000 2,000,000 3.67% Fixed September 5, 2007
1,734,636 2,532,161 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 8,000,000 3.48% Fixed w/Strike rate January 20, 2009
10,000,000 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 5,000,000 4.05% Fixed to Float August 20, 2014
--------------------- ---------------------
$ 68,651,125 $70,265,314
===================== =====================
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.
IBT Bancorp, Inc./27
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 10 -- FHLB ADVANCES (CONTINUED)
The following is a summary of the principal payments due on FHLB amortizing
advances at December 31, 2005.
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: 2006 $ 820,063 $ 841,420
2007 843,237 575,069
2008 71,336 --
--------------------- -----------------
Balance of loan at December 31, 2005 $ 1,734,636 $ 1,416,489
===================== ===================
In 2005, the Bank renewed its line of credit with the FHLB in the amount of
$20,000,000. The interest rate is variable and was 4.23% at December 31, 2005.
The line of credit has an expiration date of May 11, 2006. There was no balance
outstanding on the line of credit as of December 31, 2005.
The Bank had maximum borrowing capacity with FHLB, including the line of credit,
of approximately $301,914,000 and $308,386,000 at December 31, 2005 and 2004,
respectively.
NOTE 11 -- INCOME TAXES
The provision for income taxes consists of:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2005 2004 2003
----------- ----------- -----------
Currently payable $ 3,086,159 $ 2,643,614 $ 3,424,374
Deferred (benefit) tax (327,826) 184,511 3,519
----------- ----------- -----------
Total $ 2,758,333 $ 2,828,125 $ 3,427,893
=========== =========== ===========
The significant components of temporary differences for 2005, 2004 and 2003 are
as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
2005 2004 2003
--------- --------- ---------
Provision for loan losses $(329,752) $ 153,231 $(201,201)
Depreciation (137,670) (14,169) 143,959
Pension 106,946 85,095 28,457
Deferred loan fees 8,533 15,825 74,418
Other 24,117 (55,471) (42,114)
--------- --------- ---------
Total $(327,826) $ 184,511 $ 3,519
========= ========= =========
28/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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
---------------------------
2005 2004 2003
---- ---- ----
Provision at statutory rate 34.0% 34.0% 34.0%
Effect of tax free income (7.7) (6.3) (5.2)
Other (2.0) 4.0 (2.6)
---- ---- ----
Effective tax rate 24.3% 31.7% 26.2%
==== ==== ====
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 2005 and 2004 are as follows:
2005 2004
------------------------ ------------------------
DEFERRED TAX DEFERRED TAX
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ----------- ---------- -----------
Provision for loan losses $1,211,590 $ -- $ 881,838 $ --
Depreciation -- 166,238 -- 294,849
Pension expense -- 342,998 -- 236,052
Other 279,959 -- 337,330 28,247
SFAS 115 529,353 -- -- 620,625
---------- ---------- ---------- ----------
$2,020,902 $ 509,236 $1,219,168 $1,179,773
========== ========== ========== ==========
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 certificates 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.
IBT Bancorp, Inc./29
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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 $104,269,000 and $96,130,000 as of December 31, 2005 and 2004,
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 substantial portion of the Bank's investments in municipal
securities are obligations of state or political subdivisions located within
Pennsylvania. As a whole, the Bank's loan and investment portfolios could be
affected by the general economic conditions of Pennsylvania. In addition, at
December 31, 2005 and 2004, a significant portion of the Bank's "due from banks"
and "federal funds sold" is maintained with two large financial institutions
located in Southwestern Pennsylvania. The Bank maintains a cash balance and
federal funds sold at financial institutions that exceed the $100,000 amount
that is insured by the FDIC. Amounts in excess of insured limits, per the
institutions' records, were approximately $2,200,000 and $3,552,000 at December
31, 2005 and 2004, respectively.
30/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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, 2005, 2004 and
2003, even though the information has been compiled on the basis of the
actuarial measurement period.
2005 2004 2003
----------- ----------- -----------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 3,655,011 $ 3,331,356 $ 2,739,116
Service cost 289,282 256,712 210,043
Interest cost 227,751 216,129 184,275
Actuarial loss due to settlements -- 8,099 --
Benefits paid (73,069) (350,346) (35,897)
Other - net 357,012 193,061 233,819
----------- ----------- -----------
Benefit obligation at end of year $ 4,455,987 $ 3,655,011 $ 3,331,356
=========== =========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 2,783,121 $ 2,736,071 $ 2,201,346
Actual return on plan assets, net of expenses 157,829 146,318 305,653
Plan settlements -- (42,197) --
Benefits paid (73,069) (350,346) (35,897)
Employer contributions 480,360 293,275 264,969
----------- ----------- -----------
Fair value of plan assets at end of year $ 3,348,241 $ 2,783,121 $ 2,736,071
=========== =========== ===========
Funded status $(1,107,746) $ (871,890) $ (595,285)
Unrecognized net loss from actuarial experience 1,706,791 1,352,122 1,115,107
Unrecognized prior service cost (147,176) (165,438) (183,700)
Unamortized net asset existing at date
of adoption of SFAS No. 87 (17,917) (21,774) (27,075)
Effect of settlements -- (5,989) --
----------- ----------- -----------
Prepaid pension cost $ 433,952 $ 287,031 $ 309,047
=========== =========== ===========
IBT Bancorp, Inc./31
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Net periodic pension cost included the following
components:
YEARS ENDED DECEMBER 31,
-----------------------------------
2005 2004 2003
--------- --------- ---------
Service cost $ 289,282 $ 256,712 $ 210,043
Interest cost 227,751 216,129 184,275
Expected return on plan assets (219,638) (206,976) (167,906)
Amortization of prior service cost (18,262) (18,262) (18,262)
Amortization of transition asset (3,857) (4,098) (4,098)
Recognized net actuarial loss 57,296 45,043 44,196
--------- --------- ---------
Net periodic pension cost $ 332,572 $ 288,548 $ 248,248
========= ========= =========
Amounts recognized in the consolidated
balance sheets consist of:
Years Ended December 31,
-----------------------------------
2005 2004 2003
--------- --------- ---------
Prepaid benefit cost $1,043,094 $ 713,304 $ 536,653
========== ========= =========
In the months of December 2005, 2004 and 2003, the Bank contributed $678,298,
$480,360 and $293,275 respectively, to the plans subsequent to the actuarial
measurement dates of October 15, 2005, 2004 and 2003. Because these employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2005, 2004 and 2003 was $1,043,094,
$713,304 and $536,653, respectively.
The combined accumulated benefit obligation for both plans was $3,237,383 and
$2,675,106 at December 31, 2005, and 2004, respectively.
Weighted-average assumptions used to determine
both the benefit obligations and net periodic pension Years Ended December 31,
costs were as follows: --------------------------------------------
2005 2004 2003
------------ ------------- ------------
PLAN #1
Discount rate 6.00% 6.25% 6.50%
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% 6.00% 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.
32/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFINED BENEFIT PLANS (CONTINUED)
Pension plan weighted-average asset allocations
by investment category are as follows:
DECEMBER 31,
------------------------------
2005 2004 2003
---- ---- -----
Cash and cash equivalents 6% 9% 17%
Stocks 18% 22% 24%
Bonds 9% 12% 16%
Mutual funds 36% 33% 30%
Government securities 31% 24% 13%
--- --- ---
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 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 $602,118 and $588,611 at December 31, 2005 and 2004,
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 2005, 2004 and
2003 amounted to $80,561, $77,362 and $68,479, respectively.
NOTE 16 -- RELATED-PARTY TRANSACTIONS
At December 31, 2005 and 2004, 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 $8,257,000 and $11,565,000
respectively. During 2005, new loans to such related parties were approximately
$1,749,000 and repayments approximated $5,057,000.
IB T Bancorp, Inc./33
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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, 2005 are as follows:
CARRYING FAIR
AMOUNT VALUE
------------ ------------
Financial Assets:
Cash and cash equivalents $ 15,499,940 $ 15,499,940
Certificate of deposit $ 100,000 $ 100,000
Investment securities $195,993,449 $195,993,449
Federal Home Loan Bank stock $ 5,469,600 $ 5,469,600
Loans receivable $442,225,344 $452,066,869
Financial liabilities:
Deposits $520,485,758 $520,564,662
Short-term borrowings $ 30,910,703 $ 30,910,703
FHLB advances $ 68,651,125 $ 69,968,141
The market values of investments, which are based upon quoted market prices, are
contained in Note 2.
34/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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, 2005 and 2004, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 2005 and 2004, 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
2005 2004 REQUIREMENTS REQUIREMENTS
---- ----- ------------ --------------
Risk-based capital ratio 14.2% 14.5% 8.0% 10.0% or higher
Leverage capital ratio 8.9% 8.5% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 15.1% 13.9% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $7,450,000
and $7,032,000 at December 31, 2005 and 2004, 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 Bancorp's Stock Option Plan authorizes the granting of stock options to
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 Bancorp'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, 2005, a total of 150,000 stock options have been granted, of
which, 82,502 are vested and exercisable, 4,769 have not vested, 53,528 have
been exercised and 9,201 have been forfeited.
IBT Bancorp, Inc./25
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 19 -- STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Bank's stock option plan is presented below:
DECEMBER 31,
--------------------------------------------------------------------------------
2005 2004 2003
------------------------ ------------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 102,089 $31.13 118,054 $ 30.94 119,709 $26.53
Granted -- -- -- $ -- 20,500 $51.40
Forfeitures -- -- (5,034) $ 39.34 (1,001) $29.58
Exercised (14,818) $26.75 (10,931) $ 25.35 (21,154) $25.85
---------- -------- --------
Outstanding at December 31, 87,271 $30.86 102,089 $ 31.13 118,054 $30.94
========== ======== ========
Exercisable at December 31, 82,502 $30.75 85,223 $ 28.71 73,887 $25.54
========== ======= ========
The options outstanding at December 31, 2005, 2004 and 2003 had a
weighted-average contractual maturity of 5.74 years, 6.68 years, and 7.66 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,
--------------------------------------
2005 2004 2003
------------ ------------ --------
Dividend yield None granted None granted 2.72%
Expected life 7 years
Expected volatility 20%
Risk-free interest rate 4.00%
Weighted-average fair value $10.75
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.
36/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
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,
--------------------------------------------
2005 2004 2003
------------ -------------- -------------
Net income, as reported $ 8,579,351 $ 6,084,738 $ 9,646,246
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects 39,034 39,034 67,422
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects -- 85,525 151,518
------------ -------------- -------------
Pro-forma net income $ 8,618,385 $ 6,038,247 $ 9,562,150
============ ============== =============
Earnings per share:
Basic-as reported $ 2.90 $ 2.05 $ 3.24
============ ============== =============
Basic-pro forma $ 2.92 $ 2.04 $ 3.21
============ ============== =============
Diluted-as reported $ 2.88 $ 2.02 $ 3.19
============ ============== =============
Diluted-pro forma $ 2.89 $ 2.01 $ 3.17
============ ============== =============
Weighted-average number of shares outstanding assuming dilution of exercisable
stock options using the treasury stock method was 2,982,450, 3,005,367, and
3,020,075 for the years ended December 31, 2005, 2004 and 2003, respectively.
NOTE 20 -- TREASURY STOCK
In 2004 the Bancorp repurchased 22,200 shares of its stock for $1,006,135 and is
being held as treasury stock. The Bancorp did not repurchase any shares of its
own stock during 2005.
NOTE 21 -- RECENT ACCOUNTING PRONOUNCEMENTS
In 2005, the FASB issued FASB interpretation ("FIN") No. 47, Accounting for
Asset Retirement Obligations. FIN 47 clarifies that the term conditional asset
retirement obligations, refers to a legal obligation to perform asset retirement
activity in which the timing and/or the method of settlement are conditional on
a future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement obligation is unconditional even
though uncertainty exists about the timing and/or method of settlement.
Uncertainty about the timing and/or method of settlement of a conditional asset
retirement obligation should be factored into the measurement of the liability
when sufficient information exists. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. Also in 2005, the Financial Accounting Standards Board
issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20 and FASB Statement No. 3. Management does not believe either
statement will have an impact on the Bank or its operations.
IBT Bancorp, Inc./37
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 is as
follows:
BALANCE SHEETS
DECEMBER 31
-------------------------
2005 2004
----------- -----------
ASSETS
Cash in bank $ 522,780 $ 264,390
Investment in subsidiary 60,002,071 58,868,856
Securities available for sale 294,163 513,157
Other assets 261,979 241,717
----------- -----------
TOTAL ASSETS $61,080,993 $59,888,120
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES $ -- $ 45,358
STOCKHOLDERS' EQUITY 61,080,993 59,842,762
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,080,993 $59,888,120
=========== ===========
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
------------------------------------
2005 2004 2003
---------- ---------- ----------
INCOME
Dividends from subsidiary $5,650,000 $5,900,000 $3,600,000
Other dividends 11,280 11,916 14,156
Investment security gains 120,744 87,333 151,802
Income from joint ventures 34,804 55,139 218,307
EXPENSES
Professional fees 105,943 97,126 167,658
Miscellaneous 63,142 60,636 62,954
---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY 5,647,743 5,896,626 3,753,653
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY 2,931,608 188,112 5,892,593
---------- ---------- ----------
NET INCOME $8,579,351 $6,084,738 $9,646,246
========== ========== ==========
38/IBT Bancorp, Inc.
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
Years Ended December 31, 2005, 2004 and 2003
NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
2005 2004 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,579,351 $ 6,084,738 $ 9,646,246
Adjustments to reconcile net income to
net cash provided by operating activities:
Net undistributed earnings of joint ventures (34,805) (55,139) (218,307)
Investment security gains (120,744) (87,333) (151,802)
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary (2,931,608) (188,112) (5,892,593)
----------- ----------- -----------
NET CASH FROM OPERATING ACTIVITIES 5,492,194 5,754,154 3,383,544
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from joint ventures 23,116 56,365 279,137
Proceeds from sale of securities
available for sale 185,899 168,033 166,846
Purchase of securities available for sale (4,783) (22,355) (1,577)
----------- ----------- -----------
NET CASH FROM INVESTING ACTIVITIES 204,232 202,043 444,406
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (5,438,036) (4,746,485) (4,168,721)
Purchase of Treasury Stock -- (1,006,135) --
----------- ----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (5,438,036) (5,752,620) (4,168,721)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 258,390 203,577 (340,771)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 264,390 60,813 401,584
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 522,780 $ 264,390 $ 60,813
=========== =========== ===========
IBT Bancorp, Inc./39
Notes to Consolidated Financial Statements/IBT Bancorp, Inc., and Subsidiary
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
QUARTERS ENDED 2005
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ ------------
Interest income $8,738,031 $8,814,344 $9,016,445 9,202,482
Interest expense 3,126,624 3,280,426 3,516,174 3,758,562
---------- ---------- ---------- ----------
Net interest income 5,611,407 5,533,918 5,500,271 5,443,920
Provision for loan
losses 300,000 300,000 300,000 300,000
Non-interest income 1,624,670 1,777,621 1,638,471 1,594,390
Non-interest expense 3,710,161 4,064,011 4,134,575 4,278,237
---------- ---------- ---------- ----------
Income before income
taxes 3,225,916 2,947,528 2,704,167 2,460,073
Income tax expense 901,770 621,685 665,927 568,951
---------- ---------- ---------- ----------
Net income $2,324,146 $2,325,843 $2,038,240 $1,891,122
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.79 $ 0.79 $ 0.69 $ 0.63
========== ========== ========== ==========
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)
========== ========== ========== ==========
40/IBT Bancorp, Inc.
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 7 full service branches, 4
supermarket branches, 2 loan offices, 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
1,306 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 ($)
2005
First Quarter 48.30 43.75 .46
Second Quarter 45.50 37.00 .46
Third Quarter 44.60 40.50 .46
Fourth Quarter 46.30 40.50 .46
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
IBT Bancorp, Inc./41
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 18, 2006 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, 2005 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
901 New York Avenue, NW
Suite 210 East
Washington, D.C. 20001
42/IBT Bancorp, Inc.
Back row:
BOARD OF DIRECTORS DR. GRANT J. SHEVCHIK
Director
RICHARD J. HOFFMAN
Director
SECOND ROW:
ROBERT C. WHISNER
Director
[GRAPHIC OMITTED] CHARLES W. HERGENROEDER
Director
THOMAS E. DEGER
Director
FRONT ROW:
JOHN N. BRENZIA
Director
RICHARD L. RYAN
Director
ROBERT REBICH, JR.
Chairman
CHARLES G. URTIN
President/CEO
EMPLOYEE MILESTONES, PROMOTIONS, AND NEW HIRES.
TOP ROW:
DEBRAH J. BACHY
Loan Center Manager
Promoted: June, 2005
CAROLYN SUE BOZZICK
Assistant Vice President/Branch
Manager-Haymaker Office
Promoted: April, 2005
[GRAPHIC OMITTED] JUDI L. HEBRANK
Operations Officer/Data Processing
Promoted: December, 2005
DEBORAH L. KUKIC
Assistant Vice President/
Training Officer
Promoted: April, 2005
BOTTOM ROW:
DAWN M. SIMPSON
Deposit Operations Officer
Promoted: April, 2005
NANCY A. SMITH
Vice President/Mortgage Lending
Promoted: April, 2005
DAVID J. WHEATON
Vice President/Commercial Lending
Hired: May, 2005
RICHARD P. ZELAZNY
Assistant Vice President
UVEST Investment Consultant
Hired: January, 2005.
The hard work and dedication of our employees make the continuing success of
Irwin Bank & Trust Company possible. Their commitment and community- oriented
spirit are a major part of what makes us unique as a community bank offering
"big city" capabilities.
In 2005, Nancy J. McCullough was recognized for her forty-five years of service,
Sharon A. Jaffre was recognized for her thirty-five years of service, and
Sara L. Benson and Patricia A. Debold were each recognized for their twenty-five
years of service. We are proud to honor these employees for their many years of
dedication and hard work for 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.
IRWIN BANK & TRUST COMPANY LOCATIONS
MAIN OFFICE | TRUST DIVISION
309 MAIN STREET | SUITE 204
IRWIN, PA 15642 | 20 N. PENNSYLVANIA AVENUE
724-863-3100 | GREENSBURG, PA 15601
724-836-2010
BRANCH OFFICES IN STORE LOCATIONS LOAN CENTER LOCATIONS
GREENSBURG (TRIANGLE DR.) FT. ALLEN MAIN OFFICE LOAN CENTER
4 TRIANGLE DRIVE INSIDE HEMPFIELD SHOP N' SAVE 319 MAIN STREET
GREENSBURG, PA 15601 ROUTE 136 & JANYCE DRIVE IRWIN, PA 15642
724-837-5000 GREENSBURG, PA 15601 724-863-3100
724-853-8540
GREENSBURG (PA COMMONS) IRWIN-NORTH HUNTINGDON MT. PLEASANT LOAN CENTER
20 N. PENNSYLVANIA AVENUE INSIDE SCOZIO`S SHOP N' SAVE 445 WEST MAIN STREET
GREENSBURG, PA 15601 NORWIN HILLS SHOPPING CENTER MT. PLEASANT, PA 15666
724-837-5000 8775 NORWIN AVENUE 724-547-2255
NORTH HUNTINGDON, PA 15642
724-861-8701
MONROEVILLE PENN CROSSING
HAYMAKER VILLAGE INSIDE SCOZIO'S FESTIVAL FOODS
4580 BROADWAY BLVD. 2000 PENNY LANE
MONROEVILLE, PA 15146 JEANNETTE, PA 15644
412-858-4450 724-744-6111
PENN TOWNSHIP WHITE OAK
4021 ROUTE 130 INSIDE SCOZIO'S SHOP N' SAVE
IRWIN, PA 15642 OAK PARK MALL
724-744-2176 2001 LINCOLN WAY
WHITE OAK, PA 15131
412-664-0984
ROUTE 30
9350 ROUTE 30
IRWIN, PA 15642
724-863-2510
WHITE OAK
OAK PARK MALL
2003 LINCOLN WAY
WHITE OAK, PA 15131
412-678-3000
(LOGO:)
IRWIN BANK
& TRUST COMPANY
www.myirwinbank.com