IBT Bancorp, Inc. 2006 Annual Report
[GRAPHIC OMITTED]
time to live better
Irwin Bank.
Everyone has a different idea of what it means to "live better."
To some, it's having the chance to share some special times with their
families. To others, it's taking a few extra moments to connect with
friends and the local community at a corner coffee shop. But whatever
it means to you, the time to live better isn't just some future goal -
it's right now!
FINANCIAL HIGHLIGHTS IBT Bancorp, Inc. & Subsidiary
- --------------------------------------------------------------------------------
(Dollars in Thousands, except per share data)
YEARS ENDED DECEMBER 31 2006 2005 2004 2003 2002
SELECTED BALANCE SHEET DATA:
Total assets $ 740,962 $ 685,151 $ 675,857 $ 629,530 $ 584,035
Cash and cash equivalents 19,955 15,500 16,187 15,829 15,066
Securities available for sale 226,446 201,463 196,891 172,448 186,718
Loans receivable (net) 467,721 442,225 436,548 416,286 359,872
Deposits 572,472 520,486 526,217 492,158 468,257
Repurchase agreements 27,417 18,443 15,157 12,611 14,526
Federal funds purchased - 12,468 - 7,900 -
FHLB advances 72,410 68,651 70,265 53,308 40,000
Shareholders' equity 62,581 61,081 59,843 59,606 56,151
SELECTED RESULTS OF OPERATIONS
Interest income $ 40,393 $ 35,771 $ 33,726 $ 33,398 $ 33,560
Net interest income 21,879 22,090 21,918 22,083 20,732
Provision for loan losses 1,500 1,200 600 600 1,100
Net interest income after provision
for loan losses 20,379 20,890 21,318 21,483 19,632
Other income 7,349 6,635 5,116 5,891 5,317
Loss on write-down of equity securities - - 2,426 - -
Other expense 17,237 16,187 15,095 14,300 12,831
Net income 8,456 8,579 6,085 9,646 8,937
PER SHARE DATA:
Net Income
Basic $ 1.43 $ 1.45 $ 1.02 $ 1.62 $ 1.50
Diluted 1.42 1.44 1.01 1.60 1.50
Cash dividends declared 2.00 1.84 1.60 1.40 1.20
SELECTED RATIOS:
Return on average assets 1.18% 1.26% 0.92% 1.59% 1.61%
Return on average equity 13.74% 14.08% 10.25% 16.54% 16.95%
Ratio of average equity to average assets 8.61% 8.97% 9.02% 9.59% 9.47%
Dividend payout 69.74% 63.39% 78.01% 43.21% 40.00%
$740,962,000
TOTAL ASSETS
As of 12/31 (in millions)
[Bar graph with following data points:
2002 $584.0
2003 $629.5
2004 $675.9
2005 $685.0
2006 $741.0]
TOTAL EQUITY
(in thousands)
[Bar graph with following data points:
2002 $56,151
2003 $59,606
2004 $59,843
2005 $61,081
2006 $62,581]
NET INCOME
(in thousands)
[Bar graph with following data points:
2002 $8,937
2003 $9,646
2004 $6,085
2005 $8,579
2006 $8,456]
DILUTED EARNINGS PER SHARE
[Bar graph with following data points:
2002 $1.50
2003 $1.60
2004 $1.01
2005 $1.44
2006 $1.42]
DIVIDENDS PER SHARE
[Bar graph with following data points:
2002 $1.20
2003 $1.40
2004 $1.60
2005 $1.84
2001 $2.00]
Pursuing excellence in all that we do.
Last year, Irwin Bank asked, "Where do you want to be today?" In support of that
question, in 2006 we put our commitment to serving the community's banking needs
into high gear, adding products, services, and personnel to help keep pace with
- - and even anticipate - today's rapidly-changing financial environment. But our
efforts towards better serving our customers showed us that Irwin Bank needed to
do even more if we intended to continue the Bank's growth and success. We needed
to do even more if we intended to continue the Bank's growth and success. We
needed to evolve, just as the banking industry was evolving - to find new ways
to deliver the best possible products and services to our customers. Our
solution? To create a strong positioning, backed by a culture of excellence
within the bank, which extends into everything we do, day in and day out. This
combination of factors would enable us to look inward as well as outward,
keeping a finger on the pulse of our business and our community, and allowing us
to continuously improve every aspect of our banking for our customers. So we
turned to the experts for help.
CREATING A CULTURE OF CONTINUOUS IMPROVEMENT
Recognizing that we needed expert advice and counsel to set the benchmark for
this "new" position and culture, Irwin Bank engaged a team of "branding"
specialists to research our market, customer base, banking operations, and our
needs for the future. After long and hard work, they provided a number of
recommendations, including a new tagline for the bank ("Time to Live Better")
that definitively "brands" or portrays Irwin Bank as a service-oriented
community bank with our customers' best financial interests and service
convenience foremost in mind. This new tagline will be featured prominently in
our new advertising and other communications efforts in 2007, and we believe it
will help us to more effectively communicate our strengths to customers and
potential customers, enhancing our business today and in the future. We also
intend to take this new positioning line to heart, using it as a basis for
continuously improving our banking operations and our
service to customers in every way possible, and leveraging it to create an
ongoing system for continuous change and improvement.
To accomplish the creation of this plan and to oversee its implementation, Irwin
Bank worked closely with the world-renowned Disney Institute in Orlando,
Florida, customer service experts without peer. The Disney Institute conducted
intensive training seminars with a number of key Irwin Bank personnel, helping
us to recognize exactly what customers look for and to set new standards for
developing leadership, providing consistent quality in products and services,
building customer loyalty, enhancing organizational creativity, and internal
teambuilding. These new initiatives are helping us to create a culture within
the Bank's organization that will reward the pursuit of excellence, ultimately
benefiting our customers through best-of kind service delivery at every Irwin
Bank branch office. Since we have always been totally committed to community
banking values, the Disney Institute also helped us find new ways to communicate
and reinforce these basic values to our customers. Our people have been
empowered with a "make it happen" attitude and we are working towards creating
an ever more positive banking experience for all of our customers.
TIME TO LIVE BETTER...WITH WORLD-CLASS COMMUNITY BANKING
Irwin Bank's goal in 2007 is to change our customers' banking experiences from a
chore that must be done into a satisfying, rewarding interchange of ideas and
information in which customers engage eagerly. We want to be seen as THE local
bank with the strongest sense of community; the bank that's small enough to know
you personally -- while still offering products and services that are the equal
of anything offered by the "big" banks. We want our customers to see us doing
exceptional things every day, whether it's taking the time to call you by your
first name when you come to one of our offices, or supporting community
initiatives like The Irwin Project in developing and improving our local
community.
In essence, Irwin Bank wants to help you make the most of your time. It's "Time
to Live Better." And in 2007, that's why it's time for Irwin Bank.
Making a difference
in people's lives every day.
To Our Stockholders:
This past year has certainly been a busy and interesting one for IBT Bancorp,
Inc., and our subsidiary, Irwin Bank - and I mean that in a very positive way.
Of course, our commitment to community banking values is unchanged and remains
the core of our banking philosophy. Throughout the year, we continued to keep a
close watch on changes in banking technology, regulations, and customer
expectations, adapting our mix of products and services to stay one step ahead
of the market and serve our customers as efficiently and effectively as
possible. This has allowed us to maintain the level of service that our
customers have come to expect.
2006 INITIATIVES
In 2006, we continued efforts to expand our offerings to match the community's
changing needs, providing "big bank" products and services with a "community
bank" attention to detail. Many of our employees generously contributed their
time and money to assist local organizations such as the American Cancer
Society, the Make-A-Wish Foundation of Western PA, Salvation Army, American Red
Cross, Toys for Tots, and the local food banks to raise funds for their various
causes. We also stayed closely connected with The Irwin Project, helping to lead
the way in the development and improvement of our local community.
However, during 2006 Irwin Bank also took a long, hard look at ourselves to
determine if the way we see the Bank - and more importantly, the way customers
see us - accurately portrays who we are, what we offer, and what makes us unique
and a better choice for banking in our community. Additionally, we wanted to
ensure that we are providing the same banking opportunities at all of our
branches, offering our customers a consistently excellent level of products and
personalized services regardless of which office they visit. We believe this
will result in the enhancement of our ability to build long-term relationships
- -- and increase our opportunities to add new revenue.
In carrying out these initiatives, Irwin Bank turned to some expert sources to
help provide us with "outside-the-box" solutions. We worked closely with a
company that specializes in branding to research our market, customer base,
banking opeations, perceptions and needs, and communications. They provided
recommendations for changes, both internally and for our customers, designed to
better portray Irwin Bank's market position. Plus, they assisted us in
developing a new tagline ("Time To Live Better"), an image that will communicate
our strengths and help to enhance our business today and in the future.
We also enlisted the assistance of the pretigious and world-famous Disney
Institute to help us find new and more exciting ways to deliver our products,
services, positioning, and image to customers. The Disney Institute conducted
intensive training sessions with a number of key Irwin Bank personel to help us
institute new benchmarks for Leadership Development, Quality Service Standards,
Customer Loyalty, Organizational Creativity, and Teambuilding within the Bank's
internal framework that will ultimately benefit our customers and set us apart
from our competition. Using the Disney Institute's advice and counsel, Irwin
Bank is creating a "make it happen" culture within the Bank while sharing our
enhanced focus with customers, helping to make banking with us more pleasant and
convenient in every way we can. Our goal for 2007 is to turn banking at Irwin
Bank from an "I have to" chore into an "I want to" experience that is satisfying
and rewading for everyone.
NOW IS THE TIME
We believe our new focus and initiatives will help our customers gain the
financial opportunities to do more in their lives, giving them a better banking
experience - and more reasons to choose Irwin Bank as the place to go for all
their banking needs, whether it's for business, education, retirement, or any
other financial requirement. As our new tagline says, it's "Time to Live
Better."
/s/Charles G. Urtin
Charles G. Urtin
President & Chief Executive Officer
IBT Bancorp, Inc.
FINANCIAL Information
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", "anticipates", "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
(collectively, the "Company"). The Company's stock is traded on the American
Stock Exchange under the symbol IRW. All per share amounts have been restated
for the 100% stock dividend paid on November 16, 2006.
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.
Employer benefit plans: In September 2006, the FASB issued SFAS No.
158, "Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158). The Company adopted SFAS 158 prospectively on December 31,
2006. SFAS 158 requires that the Company recognize all obligations related to
defined benefit pensions. This statement requires that the Company quantify the
plans' funding status as an asset or liability on its consolidated balance
sheets.
SFAS 158 requires that the Company measure the plans' assets and
obligations that determine its funded status as
IBT Bancorp, Inc., 2006 Annual Report / 1
Management's Discussion and Analysis of Financial Condition and
Results of Operations
of the end of the fiscal year. The Company is also required to recognize as a
component of other comprehensive income (OCI) the changes in funded status that
occurred during the year that are not recognized as part of net periodic benefit
cost as explained in SFAS No. 87, "Employers' Accounting for Pensions."
FINANCIAL CONDITION
At December 31, 2006, total assets increased $55.8 million, or 8.1%, to
$741.0 million from $685.2 million at December 31, 2005. The increase in total
assets was primarily the result of an increase of $25.5 million in net loans and
$25.2 million in securities available for sale. Growth in the loan portfolio and
securities available for sale was primarily funded by net increases of $52.0
million in deposit accounts, $9.0 million in repurchase agreements, and $3.8
million in FHLB advances, offset by a $12.5 million decrease in Federal funds
purchased.
The increase in available for sale securities was mainly the result of
purchases of $66.4 million offset by net proceeds from maturities and the sales
of securities of $42.4 million. This resulted in net increases of U.S.
Government agencies, obligations of state and political sub-divisions, and
mortgage-backed securities of $16.4 million, $9.8 million, and $7.2 million,
respectively, offset by net decreases in equity securities of $8.1 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 mortgage,
commercial, and installment loans of $14.8 million, $10.7 million, and $5.6
million, respectively. Offsetting these increases was a decrease of $3.1 million
in home equity lines of credit. Customers continue to favor the fixed rate
mortgage and installment loans over adjustable rate lines of credit.
At December 31, 2006, total liabilities increased $54.3 million, or
8.7%, to $678.4 million from $624.1 million at December 31, 2005. The increase
was primarily related to the increases in interest-bearing deposits of $50.3
million, repurchase agreements of $9.0 million, and FHLB advances of $3.8
million, offset by a $12.5 million decrease in Federal funds purchased.
Non-interest bearing deposits increased $1.8 million to $85.6 million
at December 31, 2006 from $83.8 million at December 31, 2005. This increase is
exclusive of the net increase of $9.0 million in repurchase agreements.. Under
the terms of the repurchase 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 $486.9 million at December 31, 2006,
an increase of $50.3 million from December 31, 2005. The change was the result
of a $57.8 million increase in time deposits offset by decreases in savings and
money market accounts of $5.6 million and $2.4 million, respectively. Time
deposits have become more attractive due to the rise in market rates.
At December 31, 2006, total stockholders' equity increased $1.5 million
to $62.6 million from $61.1 million at December 31, 2005. The increase was
primarily due to net income of $8.5 million for the period offset by a decrease
of $393,000 in accumulated other comprehensive income (net of income taxes), an
increase in treasury stock purchased of $600,000, and dividends paid of $5.9
million. Surplus (additional paid-in capital) decreased to zero due to a
two-for-one stock split effected in the form of a 100 percent stock dividend.
See Note 21 to the consolidated financial statements. Accumulated other
comprehensive income increased as a result of changes in the net unrealized gain
on the available for sale securities and a decrease for the initial application
of SFAS 158. The change in the net unrealized gain on the available for sale
securities was 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 Notes 2 and 15 to
the consolidated financial statements.
2 / IBT Bancorp, Inc., 2006 Annual Report
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net Income: Net income decreased $124,000, or 1.4%, to $8.5 million, or
$1.42 per diluted share for the year ended December 31, 2006 from $8.6 million,
or $1.44 per diluted share for the year ended December 31, 2005. The decrease in
net income for fiscal 2006 compared to fiscal 2005 was primarily due to a
$211,000 decrease in net interest income and increases in the provision for loan
losses and other expenses of $300,000 and $1.1 million, respectively. A $34.1
million increase in average interest-bearing liabilities coupled with a 70 basis
point increase in the cost of funds contributed to the decrease in net interest
income. Offsetting these decreases was a $714,000 increase in other income
attributable primarily to gains on sales of investment securities.
Net income increased approximately $2.5 million, or 41.0%, to $8.6
million, or $1.44 per diluted share for the year ended December 31, 2005 from
$6.1 million, or $1.01 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.
Net Interest Income: Net interest income is the most significant
component of the Company's income from operations. Net interest income is the
difference between interest received on interest-earning assets (primarily loans
and investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
Net interest income decreased $211,000 to $21.9 million for 2006
compared to $22.1 million for 2005. The decrease was primarily due to increases
in average interest bearing liabilities of $34.1 million and a 70 basis point
increase in the cost of funds. Partially offsetting the resulting increase in
interest expense were a $35.3 million increase in the average interest earning
assets and a 40 basis point yield increase. As a result of these changes, the
net interest margin narrowed to 3.24% for the 2006 fiscal year from 3.45% in the
2005 fiscal year.
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.
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., 2006 Annual Report / 3
Year Ended December 31,
-------------------------------------------------------------------------------------------------
2006 2005 2004
------------------------------- ------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $ 462,036 $30,616 6.63% $ 436,906 $ 27,273 6.24% $430,543 $ 26,313 6.11%
Investment securities (2) 210,761 9,671 4.59% 200,528 8,437 4.21% 192,934 7,403 3.84%
Federal funds sold 2,010 106 5.27% 2,029 61 3.01% 540 10 1.82%
---------- ------- ---- ---------- --------- ---- -------- --------- ----
Total interest-
earning assets 674,807 40,393 5.99% 639,463 35,771 5.59% 624,017 33,726 5.40%
Non-interest earning assets (3) 40,150 40,138 34,156
---------- ---------- --------
Total assets $ 714,957 $ 679,601 $658,173
========== ========== ========
Interest-bearing liabilities:
Money market accounts $ 52,671 1,338 2.54% $ 62,225 1,042 1.67% $ 58,103 516 0.89%
Certificates of deposit 274,047 11,430 4.17% 245,654 8,126 3.31% 245,881 7,595 3.09%
Other liabilities (4) 239,749 5,746 2.40% 224,533 4,514 2.01% 210,096 3,697 1.76%
---------- ------- ---- ---------- --------- ---- -------- --------- ----
Total interest-
bearing liabilities 566,467 18,514 3.27% 532,412 13,682 2.57% 514,080 11,808 2.30%
------- ---- --------- ---- --------- ----
Non-interest-bearing
liabilities (3) 86,944 86,244 84,704
---------- ---------- --------
Total liabilities 653,411 618,656 598,784
Stockholders' Equity (5) 61,546 60,945 59,389
---------- ---------- --------
Total liabilities and
stockholders' equity $ 714,957 $ 679,601 $658,173
========== ========== ========
Net interest income $21,879 $ 22,089 $ 21,918
======= ========= =========
Interest rate spread (6) 2.72% 3.02% 3.10%
==== ==== ====
Net interest margin (7) 3.24% 3.45% 3.51%
==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 119.13% 120.11% 121.38%
====== ====== ======
(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). Non-interest bearing liabilities include demand deposit
accounts.
(4) Includes FHLB advances, Federal funds purchased, and repurchase agreements.
(5) Includes capital stock, surplus and accumulated other comprehensive income.
(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,
----------------------------- -----------------------------
2006 vs. 2005 2005 vs. 2004
----------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
Interest income:
Loans receivable $ 1,569 $ 1,774 $ 3,343 $ 389 $ 571 $ 960
Investment securities 431 803 1,234 291 743 1,034
Other interest-earning assets (1) 46 45 27 24 51
------- ------- ------- ------- ------- -------
Total interest-earning assets 1,999 2,623 4,622 707 1,338 2,045
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts (160) 456 296 36 489 525
Certificates of deposit 939 2,365 3,304 (7) 538 531
Other liabilities 306 926 1,232 254 563 817
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,085 3,747 4,832 283 1,590 1,873
------- ------- ------- ------- ------- -------
Net change in net interest income $ 914 $(1,124) $ (210) $ 424 $ (252) $ 172
======= ======= ======= ======= ======= =======
IBT Bancorp, Inc., 2006 Annual Report / 5
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Provision for Loan Losses: The Company recorded a provision for loan
losses of $1.5 million, $1.2 million, and $600,000 for 2006, 2005, and 2004,
respectively. Increased provisions reflect the Company's loan growth and change
in portfolio composition. 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,
-------------------------------------
2006 2005 2004
-------------------------------------
(Dollars in Thousands)
Total loans outstanding $ 472,490 $ 445,789 $ 439,142
=====================================
Average loans outstanding $ 462,036 $ 436,906 $ 430,543
=====================================
Allowance balances (at beginning of period) $ 3,564 $ 2,594 $ 3,285
Provision: 1,500 1,200 600
Charge-Offs:
Mortgage - (64) (1,204)
Installment (63) (100) (127)
Commercial (192) (19) (8)
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards (2) - -
Other (91) (88) -
-------------------------------------
Total charge-offs (348) (271) (1,339)
Recoveries:
Mortgage - 7 -
Installment 5 10 3
Commercial 30 13 45
Home equity lines of credit - - -
PHEAA - - -
Municipal - - -
Credit cards - - -
Other 18 11 -
-------------------------------------
Total recoveries 53 41 48
-------------------------------------
Net charge-offs (295) (230) (1,291)
-------------------------------------
Allowance balance (at end of period) $ 4,769 $ 3,564 $ 2,594
=====================================
Allowance for loan losses as a percent of total
loans outstanding 1.01% 0.80% 0.59%
Net loans charged off as a percent of average
loans outstanding 0.06% 0.05% 0.30%
6 / IBT Bancorp, Inc., 2006 Annual Report
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level that represents management's best
estimate of the losses inherent in the portfolio, based on a monthly review by
management of the following factors:
o Historical experience
o Volume
o Type of lending conducted by the Bank
o Industry standards
o The level and status of past due and non-performing loans
o The general economic conditions in the Bank's lending area; and
o Other factors affecting the collectability of the loans in the
portfolio
Large groups of homogeneous loans, such as residential real estate,
small commercial real estate loans and home equity and consumer loans are
evaluated in the aggregate using historical loss factors and other data. The
amount of loss reserve is calculated using historical loss rates, net of
recoveries on a five year rolling weighted average, adjusted for environmental,
and other qualitative factors such as industry, geographical, economic and
political factors that can affect loss rates or loss measurements. Watch and
classified loans are allocated additional reserves.
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 $714,000, or 10.8% to $7.3
million for the year ended December 31, 2006 from $6.6 million for the year
ended December 31, 2005. Included in this change was an increase of $644,000 in
investment security gains in fiscal 2006 over fiscal 2005, primarily resulting
from the sale of adjustable rate preferred stocks, which had been written down
to fair market value in 2004 due to an other-than-temporary decline in value.
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.
Other Expenses: Total other expenses increased $1.0 million, or 6.5% to
$17.2 million for the year ended December 31, 2006 from $16.2 million for the
year ended December 31, 2005. This increase was primarily due to pension and
other employee benefit costs of $628,000 arising from increases in the costs of
providing health and retirement benefits. Other expenses increased $208,000
primarily due to consulting fees paid by the Company of $91,000.
Total other expenses increased $1.1 million, or 7.3% to $16.2 million
for the year ended December 31, 2005 from
IBT Bancorp, Inc., 2006 Annual Report / 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations
$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.
Income Taxes: Income tax expense decreased $723,000 to $2.0 million for
the year ended December 31, 2006 compared to $2.8 million in 2005. This decrease
was primarily due to the sale of preferred stocks which were written down, for
financial reporting purposes, in 2004. The realized gain from the sale was not
taxable which reduced the Company's effective tax rate for 2006 to 19.4% from
24.3% in 2005.
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.
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, 2006, the Company had commitments to extend
credit of $85.4 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, 2006, cash and cash equivalents totaled $20.0 million.
Net cash from operating activities for 2006 totaled $9.9 million, as
compared to net cash from operating activities of $12.1 million for 2005. The
decrease in 2006 was primarily the result of a $124,000 decrease in net income,
and a $807,000 decrease in other assets offset by a $300,000 increase in the
provision for loan losses. 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 used by investing activities for 2006 totaled $51.0 million,
as compared to cash used of $15.5 million for 2005 and $50.5 million for 2004.
The increase of $35.5 million for 2006 is primarily due to increases in security
purchases and loans made to customers of $13.2 million and $20.0 million,
respectively. Net cash used by investing activities for 2005 totaled $15.5
million, as compared to cash used of $50.5 million for 2004. 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.
Net cash from financing activities for the year ended December 31, 2006
totaled $45.6 million, as compared to net cash from financing activities of $2.7
million for 2005. The change in 2006 was primarily due to an increase of net
deposits of $57.7 million and repurchase agreements of $5.7 million offset by a
decrease in federal funds purchased of $12.5 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.
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
8 / IBT Bancorp, Inc., 2006 Annual Report
Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 $ 72,410 $ 16,338 $ 23,072 $ 13,000 $ 20,000
Operating Lease Obligations 988 221 389 229 149
Certificates of Deposit 308,887 251,326 40,082 4,336 13,143
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, 2006 and 2005, the Company had commitments to extend credit in
the amount of $85.4 million and $104.3 million, respectively. During the year
ended December 31, 2006, 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 principal objective of the Company's interest rate risk management
is to evaluate the interest rate risk inherent in certain balance sheet
accounts, determine the 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.
IBT Bancorp, Inc., 2006 Annual Report / 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company utilizes the following strategies to manage interest rate risk:
o When market conditions permit, to originate and hold in its
portfolio adjustable rate loans;
o Sell fixed rate mortgage loans that conform to Federal National
Mortgage Association guidelines when sales can be achieved on
terms favorable to the Company;
o Lengthen the maturities of its liabilities when deemed cost
effective through the utilization of Federal Home Loan Bank
advances;
o Purchase mortgage-backed securities for the available for sale
securities portfolio with cash flows that can be reinvested in
higher earning instruments when interest rates rise; and
o Generally, maintain securities in the available for sale
portfolio that are short term to offset the risk of long term
fixed rate mortgage loans in a rising rate environment.
The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity or
repricing maturity, and the instruments' fair values at December 31, 2006.
Market risk sensitive instruments are generally defined as those instruments
that can be adversely impacted by changes in market interest rates. The Company
currently does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments, but may do so in the future to mitigate interest rate risk.
Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets, no prepayments are assumed. 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., 2006 Annual Report
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Expected Maturity/Principal Repayment at December 31,
Total Carrying Fair
2007 2008 2009 2010 2011 Thereafter Value Value
-------- -------- -------- -------- -------- ---------- -------- --------
(in thousands)
Interest-earning assets
- -----------------------
Mortgage loans $ 16,957 $ 14,182 $ 15,742 $ 15,437 $ 15,011 $190,201 $267,530 $270,433
Home equity loans,
second mortgage
loans, student loans,
other loans 17,637 16,743 15,456 14,314 13,270 45,249 122,669 122,310
Commercial loans,
municipal loans 14,482 8,967 4,858 2,639 2,793 48,804 82,543 83,914
Investment securities 740 361 545 3,356 14,074 202,173 221,249 221,249
Interest-bearing liabilities
- ----------------------------
NOW and other
transaction accounts $ 58,133 $ - $ - $ - $ - $ - $ 58,133 $ 58,133
Money market and
other savings
accounts 119,898 - - - - - 119,898 119,898
Certificates of deposit 251,327 27,128 12,954 2,561 1,775 13,142 308,887 317,666
Federal Home Loan
Bank of Pittsburgh
advance 16,338 5,072 18,000 -- 13,000 20,000 72,410 74,028
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 2006, the Financial Accounting Standards Board issued FASB No. 155,
Accounting for Certain Hybrid Financial Instruments - an amendment of FASB No.
133 and 140, FASB No. 156, Accounting for Servicing of Financial Assets - an
amendment of FASB No. 140, FASB No. 157 Fair Value Measurements, and FASB
interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes. The
Company does not believe these statements will have a material impact on the
Bank or its operations.
IBT Bancorp, Inc., 2006 Annual Report / 11
MANAGEMENT REPORT TO SHAREHOLDERS
The consolidated financial statements presented are the responsibility
of management and are prepared in accordance with generally accepted accounting
principles (United States). 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 (United
States). The Company assessed its internal control over financial reporting as
of December 31, 2006, 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, 2006, 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., 2006 Annual Report
Certified Public Accountants & Business Advisors
-------------------------------------------------------------------
EDWARDS 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
SAUER & Phone: 412-281-9211 Fax: 412-281-2407 A Professional Corporation
OWENS, P.C. www.esocpa.com
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, 2006 and 2005, 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,
2006. Weoalso 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, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Bancorp's management is responsible for these financial statements,
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an
opinion on management's assessment, and an opinion on the effectiveness of the
Bancorp's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internaumcontrol 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, 2006 and 2005, and the results of its
operations and its cash flows for each of the years in the three-year period
ended Deceoler 31, 2006 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, 2006 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, 2006 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 21, 2007
Consolidated Balance Sheets / IBT Bancorp, Inc. and Subsidiary
December 31,
------------------------------
2006 2005
------------- -------------
ASSETS
Cash and due from banks $ 19,317,614 $ 15,063,970
Interest-bearing deposits in banks 637,034 435,970
Certificate of deposit 100,000 100,000
Securities available for sale 221,249,369 195,993,449
Federal Home Loan Bank stock, at cost 5,196,800 5,469,600
Loans, net of allowance for loan losses of
$4,769,260 in 2006 and $3,563,501 in 2005 467,720,508 442,225,344
Premises and equipment, net 5,281,385 5,624,572
Other assets 21,459,045 20,237,792
------------- -------------
Total Assets $ 740,961,755 $ 685,150,697
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 85,553,753 $ 83,846,681
Interest-bearing 486,918,461 436,639,077
------------- -------------
Total deposits 572,472,214 520,485,758
Federal funds purchased - 12,468,000
Repurchase agreements 27,416,559 18,442,703
Accrued interest and other liabilities 6,082,279 4,022,118
FHLB advances 72,409,643 68,651,125
------------- -------------
Total liabilities 678,380,695 624,069,704
Stockholders' Equity
Capital stock, par value $1.25,
50,000,000 shares authorized,
5,965,119 shares issued, 5,882,640 and
5,910,910 shares outstanding
at December 31, 2006 and 2005, respectively 7,456,399 3,779,749
Surplus - 1,231,444
Retained earnings 58,970,791 58,931,230
Accumulated other comprehensive income (904,723) (512,029)
------------- -------------
65,522,467 63,430,394
Less: Treasury stock, at cost (82,479 shares in
2006 and 68,344 in 2005) (2,941,407) (2,349,401)
------------- -------------
Total stockholders' equity 62,581,060 61,080,993
------------- -------------
Total Liabilities and Stockholders' Equity $ 740,961,755 $ 685,150,697
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
IBT Bancorp, Inc., 2006 Annual Report / 13
Consolidated Statements of Income / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31,
--------------------------------------------
2006 2005 2004
------------ ------------ ------------
Interest Income
Loans, including fees $ 30,615,567 $ 27,272,969 $ 26,312,685
Investment securities 9,671,261 8,437,156 7,403,199
Federal funds sold 105,903 61,177 9,835
------------ ------------ ------------
Total interest income 40,392,731 35,771,302 33,725,719
Interest Expense
Deposits 13,520,225 9,996,792 8,703,234
Federal funds purchased 239,267 180,901 92,982
FHLB advances 3,332,565 2,939,435 2,858,623
Repurchase agreements 1,421,881 564,658 152,970
------------ ------------ ------------
Total interest expense 18,513,938 13,681,786 11,807,809
------------ ------------ ------------
Net Interest Income 21,878,793 22,089,516 21,917,910
Provision for Loan Losses 1,500,000 1,200,000 600,000
------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 20,378,793 20,889,516 21,317,910
Other Income (Losses)
Service fees 3,793,266 3,602,991 2,595,941
Investment security gains 900,922 274,267 383,290
Investment security losses (120,301) (138,078) (2,789,571)
Increase in cash surrender value
of life insurance 473,201 456,042 466,923
Debit card fees 836,932 775,715 680,600
Trust fees 465,608 455,051 340,492
Other income 999,734 1,209,163 1,011,967
------------ ------------ ------------
Total other income 7,349,362 6,635,151 2,689,642
Other Expenses
Salaries 6,438,599 6,332,915 5,875,511
Pension and other employee benefits 2,460,131 1,831,784 1,820,031
Occupancy expense 1,624,313 1,795,473 1,767,950
Data processing expense 1,113,992 992,005 916,939
Advertising expense 431,995 387,344 309,032
Pennsylvania shares tax 589,064 560,428 496,802
Debit card expense 562,721 479,346 383,023
Other expenses 4,016,211 3,807,688 3,525,401
------------ ------------ ------------
Total other expenses 17,237,026 16,186,983 15,094,689
------------ ------------ ------------
Income Before Income Taxes 10,491,129 11,337,684 8,912,863
Provision for Income Taxes 2,035,437 2,758,333 2,828,125
------------ ------------ ------------
Net income $ 8,455,692 $ 8,579,351 $ 6,084,738
============ ============ ============
Basic Earnings per Share $ 1.43 $ 1.45 $ 1.02
============ ============ ============
Diluted Earnings per Share $ 1.42 $ 1.44 $ 1.01
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
14 / IBT Bancorp, Inc., 2006 Annual Report
Consolidated Statements of Changes in Stockholders' Equity / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
------------ ------------ ------------- ------------- ------------- --------------
Balance at
December 31, 2003 $ 3,779,749 $ 1,684,258 $ 54,451,662 $ 1,033,638 $ (1,343,266) $ 59,606,041
Comprehensive Income
Net income 6,084,738 6,084,738
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax benefit
of ($688,712) (1,336,912) (1,336,912)
Reclassification
adjustment, net of
deferred income tax
of $776,858 1,508,018 1,508,018
-----------
171,106
-----------
Total Comprehensive
Income 6,255,844
Cash dividends ($1.60) (4,746,485) (4,746,485)
Stock options granted/vested 59,141 59,141
Exercise of stock options (325,644) (325,644)
Purchase of
Treasury Stock (1,006,135) (1,006,135)
----------- ----------- ------------ ------------ ------------ ------------
Balance at
December 31, 2004 $ 3,779,749 $ 1,417,755 $ 55,789,915 $ 1,204,744 $ (2,349,401) $ 59,842,762
The accompanying notes are an integral part of these
consolidated financial statements.
IBT Bancorp, Inc., 2006 Annual Report / 15
Consolidated Statements of Changes in Stockholders' Equity (Cont.) / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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
benefit 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
The accompanying notes are an integral part of these
consolidated financial statements.
16 / IBT Bancorp, Inc., 2006 Annual Report
Consolidated Statements of Changes in Stockholders' Equity (Cont.) / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----------- ----------- ------------ -------------- ----------- ------------
Balance at
December 31, 2005 $ 3,779,749 $ 1,231,444 $ 58,931,230 $ (512,029) $ (2,349,401) $ 61,080,993
Comprehensive Income
Net income 8,455,692 8,455,692
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax benefit
of ($191,598) (371,925) (371,925)
Reclassification
adjustment, net of
deferred income tax
benefit of ($20,518) (39,828) (39,828)
Reclassification
adjustment, gain on
sale of preferred
stocks, no deferred
income tax effect 840,967 840,967
-------------
429,214
-------------
Total Comprehensive
Income 8,884,906
Cash dividends ($2.00) (5,896,738) (5,896,738)
Stock options granted/
vested 39,808 39,808
Exercise of stock options (134,525) (134,525)
Purchase of Treasury Stock (667,100) (667,100)
Sale of Treasury Stock 20,530 75,094 95,624
Two-for-one stock split
effective in the form
of a 100% stock
dividend 3,676,650 (1,157,257) (2,519,393) -
Adjustment to initially apply
FASB Statement
No. 158, net of
deferred income tax
benefit of ($423,407) (821,908) (821,908)
----------- ---------- ------------ ----------- ------------ ------------
Balance at
December 31, 2006 $ 7,456,399 $ - $ 58,970,791 $ (904,723) $ (2,941,407) $ 62,581,060
=========== ========== ============ =========== ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
IBT Bancorp, Inc., 2006 Annual Report / 17
Consolidated Statements of Cash Flows / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31,
-----------------------------------------------
2006 2005 2004
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,455,692 $ 8,579,351 $ 6,084,738
Adjustments to reconcile net cash
from operating activities:
Depreciation 768,651 994,839 1,009,989
Increase in cash surrender value of insurance (473,201) (456,042) (466,923)
Net amortization/accretion of
premiums and discounts 390,380 810,975 1,046,467
Net investment security gains (780,621) (136,189) (19,896)
Loss on write-down of equity securities - - 2,426,177
Provision for loan losses 1,500,000 1,200,000 600,000
Stock options granted/vested 39,808 59,141 59,141
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets (1,582,595) 775,593 223,003
Accrued interest and other liabilities 1,536,916 267,918 339,288
------------- ------------- -------------
Net Cash From Operating Activities 9,855,030 12,095,586 11,301,984
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 24,614,156 9,728,425 61,556,451
Proceeds from maturities of securities available for sale 17,820,881 35,093,279 23,575,354
Purchase of securities available for sale (66,359,153) (53,165,621) (111,626,403)
Net loans made to customers (26,971,633) (6,989,448) (22,118,272)
Purchases of premises and equipment (425,464) (387,131) (773,520)
Proceeds from the sale Federal Home Loan Bank stock 5,283,500 6,183,500 3,763,900
Purchase of Federal Home Loan Bank stock (5,010,700) (5,970,400) (4,906,100)
------------- ------------- -------------
Net Cash Used By Investing Activities (51,048,413) (15,507,396) (50,528,590)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 51,986,456 (5,731,190) 34,059,419
Net increase in securities sold under
agreements to repurchase 8,973,856 3,285,446 2,546,380
Net (decrease) increase in federal funds purchased (12,468,000) 12,468,000 (7,900,000)
Dividends (5,896,738) (5,438,036) (4,746,485)
Proceeds from FHLB advances 80,039,000 - 28,000,000
Repayment of FHLB advances (76,280,482) (1,614,189) (11,042,453)
Exercised stock options (134,525) (245,452) (325,644)
Purchase of treasury stock (667,100) - (1,006,135)
Sale of treasury stock 95,624 - -
------------- ------------- -------------
Net Cash From Financing Activities 45,648,091 2,724,579 39,585,082
------------- ------------- -------------
Net Change in Cash and Cash Equivalents 4,454,708 (687,231) 358,476
Cash and Cash Equivalents at Beginning of Year 15,499,940 16,187,171 15,828,695
------------- ------------- -------------
Cash and Cash Equivalents at End of Year $ 19,954,648 $ 15,499,940 $ 16,187,171
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
18 / IBT Bancorp, Inc., 2006 Annual Report
Consolidated Statements of Cash Flows (Cont.) / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31,
--------------------------------------------
2006 2005 2004
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 17,236,256 $ 13,625,849 $ 11,446,837
Income taxes $ 2,466,000 $ 3,182,617 $ 2,634,965
NON CASH TRANSACTIONS
Net recorded unrealized (losses) gains on
securities available for sale $ (116,965) $ (1,058,528) $ 1,825,368
at December 31
Deferred (benefit) income taxes on recorded
unrealized (losses) gains on securities
available for sale at December 31 $ (34,151) $ (546,500) $ 620,625
Loans transferred to foreclosed real
estate during the year $ 88,849 $ 112,380 $ 1,557,735
Recorded nonmonetary gain (loss) on
securities available for sale
at December 31 $ - $ 81,111 $ (2,426,177)
Recorded liability for accrued pension cost $ 1,245,315 $ - $ -
and reduction of prepaid pension
Deferred income tax benefit on accrued
pension liability $ 423,407 $ - $ -
Two-for-one stock split in the form of a stock dividend
Capital stock $ 3,676,650 $ - $ -
Surplus $ (1,157,257) $ - $ -
Retained earnings $ (2,519,393) $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
IBT Bancorp, Inc., 2006 Annual Report / 19
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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, three supermarket branches and main
office located in Southwestern Pennsylvania. The Bank's primary deposit products
are non-interest and interest-bearing checking accounts, savings accounts and
certificates of deposit. Its primary lending products are single-family and
multi-family residential loans, installment loans and commercial loans.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Investment Securities: All investments in debt and equity securities are to be
classified into three categories. Securities which management has positive
intent and ability to hold until maturity are classified as held to maturity.
Securities held to maturity are stated at cost, adjusted for amortization of
premium and accretion of discount computed on a level yield basis. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities. All other securities are classified
as available for sale securities. Unrealized holding gains and losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management has no intention of establishing a trading securities
classification.
Interest and dividends on securities are reported as interest income. Gains and
losses realized on sales of securities represent the differences between net
proceeds and carrying values determined by the specific identification method.
Advertising Costs: Advertising costs are expensed as incurred. Advertising
expense totaled $431,995 for 2006, $387,344 for 2005 and $309,032 for 2004.
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., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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, given retroactive effect of the stock dividend described in Note
21, was 5,895,919, 5,910,910 and 5,932,818 for the years ended December 31,
2006, 2005 and 2004, respectively.
IBT Bancorp, Inc., 2006 Annual Report / 21
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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, 2006
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------ ------------- --------------
Obligations of
U.S. Government Agencies $ 95,578,239 $ 426,951 $ (680,000) $ 95,325,190
Obligations of State and
political sub-divisions 63,316,546 1,348,184 (67,095) 64,597,635
Mortgage-backed securities 62,174,784 70,967 (1,199,447) 61,046,304
Other securities 46,545 - (3) 46,542
Equity securities 250,220 1,167 (17,689) 233,698
-------------- ------------ ------------- --------------
$ 221,366,334 $ 1,847,269 $ (1,964,234) $ 221,249,369
============== ============ ============= ==============
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
============== ============ ============= ==============
22 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
Years Ended December 31,
------------------------------------
2006 2005 2004
---------- ---------- ----------
Gross realized gains:
Obligations of U.S. Government Agencies $ 18,400 $ - $ 204,102
Obligations of state and political sub-divisions 9,478 153,523 91,855
Mortgage-backed securities 32,077 - -
Equity securities 840,967 120,744 87,333
---------- ---------- ----------
$ 900,922 $ 274,267 $ 383,290
========== ========== ==========
Gross realized losses:
Obligations of U.S. Government Agencies $ 107,100 $ 45,679 $ 363,394
Obligations of state and political sub-divisions 302 - -
Mortgage-backed securities 12,899 92,399 -
Equity securities - - 2,426,177
---------- ---------- ----------
$ 120,301 $ 138,078 $2,789,571
========== ========== ==========
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, 2006, 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 $ 736,402 $ 740,261
Due after one year through five years 18,615,189 18,336,200
Due after five years through ten years 94,963,322 95,075,215
Due after ten years, includes equity securities 107,051,421 107,097,693
------------- -------------
$ 221,366,334 $ 221,249,369
============= =============
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 $5,196,800 and $5,469,600 of FHLB stock
at December 31, 2006 and 2005, respectively.
IBT Bancorp, Inc., 2006 Annual Report / 23
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Temporarily impaired investments consist of the following:
December 31, 2006
-----------------------------------------------------------------------------------------
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 $ 10,578,040 $ (23,375) $ 60,393,240 $ (656,625) $ 70,971,280 $ (680,000)
Mortgage-backed securities 11,864,259 (63,493) 40,001,238 (1,135,954) 51,865,497 (1,199,447)
Obligations of state and
political sub-divisions 3,568,589 (35,791) 4,253,633 (31,304) 7,822,222 (67,095)
Other investments 41,130 (676) 136,040 (17,016) 177,170 (17,692)
------------ ---------- -------------- ------------ ------------- ------------
Total temporarily
impaired securities $ 26,052,018 $ (123,335) $ 104,784,151 $ (1,840,899) $ 130,836,169 $ (1,964,234)
============ ========== ============== ============ ============= ============
Investments are reviewed for declines in value on a quarterly basis. At December
31, 2006, no investment was recognized as having an other-than-temporary
impairment. The unrealized loss on debt securities is attributable to changes in
interest rates. The unrealized loss on the equity securities are attributed to
temporary declines in market value.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
---------------------------
2006 2005
------------ ------------
Mortgage $267,530,358 $252,699,327
Home equity credit 16,597,644 19,684,198
Installment 99,044,497 93,428,367
Commercial 74,167,612 63,508,313
PHEAA 6,471,077 6,780,415
Municipal 8,374,801 9,148,382
Credit cards 99,789 61,868
Other 456,127 744,087
------------ ------------
472,741,905 446,054,957
Less:
Allowance for loan losses 4,769,260 3,563,501
Deferred loan fees 252,137 266,112
------------ ------------
$467,720,508 $442,225,344
============ ============
24 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 3 -- LOANS (CONTINUED)
The aggregate amount of demand deposit accounts with overdrawn balances that
were reclassified as loan balances at December 31, 2006 and 2005 amounted to
$406,672 and $607,114, respectively and are included in other loans.
The total recorded investment in impaired loans amounted to $1,058,657 at
December 31, 2006 and $1,484,017 at December 31, 2005. The allowance for loan
losses related to impaired loans amounted to $367,294 and $522,857 at December
31, 2006 and 2005, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-----------------------------------------
2006 2005 2004
----------- ----------- -----------
Balance, beginning of year $ 3,563,501 $ 2,593,642 $ 3,284,830
Provision charged to operations 1,500,000 1,200,000 600,000
Loans charged off (347,467) (271,238) (1,338,749)
Recoveries 53,226 41,097 47,561
----------- ----------- -----------
Balance, end of year $ 4,769,260 $ 3,563,501 $ 2,593,642
=========== =========== ===========
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
-------------------------
2006 2005
----------- -----------
Land $ 921,559 $ 921,559
Buildings and improvements 5,992,449 5,950,036
Furniture and equipment 8,088,429 7,744,717
----------- -----------
15,002,437 14,616,312
Less: Accumulated depreciation 9,721,052 8,991,740
----------- -----------
$ 5,281,385 $ 5,624,572
=========== ===========
Depreciation expense was $768,651 in 2006, $994,839 in 2005 and $1,009,989 in
2004.
Eight 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., 2006 Annual Report / 25
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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,
2007 $ 220,594
2008 201,971
2009 186,719
2010 131,100
2011 98,677
2012 and thereafter 149,007
---------
$ 988,068
=========
Rental expense under these operating leases was $238,915, $247,327 and $250,464
for the years ended December 31, 2006, 2005 and 2004, 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, 2006 and 2005, the partnership is reflected in the other assets section of
the balance sheet at $26,713 and $31,772, 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, 2006 and 2005, the cash
surrender value of these policies was $12,381,754 and $11,930,700, 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, 2006 are
summarized as follows:
2007 $ 251,326,533
2008 27,128,089
2009 12,954,307
2010 2,560,875
2011 1,774,540
2012 and thereafter 13,142,665
-------------
$ 308,887,009
=============
The Bank held related party deposits of approximately $3,817,000 and $3,976,000
at December 31, 2006 and 2005, respectively.
The Bank held time deposits of $100,000 or more of $93,876,778 and $64,684,980
at December 31, 2006 and 2005, respectively.
26 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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 $27,416,559 and
$18,442,703 at December 31, 2006 and 2005, respectively.
NOTE 9 -- PLEDGED ASSETS
At December 31, 2006 and 2005, U.S. Government Agency obligations and
obligations of state and politcal sub-divisions carried at approximately
$62,695,000 and $40,865,000 respectively, were pledged to qualify for fiduciary
powers, to secure public monies and for other purposes required or permitted by
law. At December 31, 2006 and 2005, the carrying amount of securities pledged to
secure repurchase agreements was approximately $52,920,000 and $30,917,000
respectively.
NOTE 10 -- FHLB ADVANCES
At December 31, 2006 and 2005, the Bank had the following advances from the
Federal Home Loan Bank (FHLB).
2006 2005 Interest Rate Maturity Date
------------- -------------- --------------------------- ----------------------
$ - $ 1,250,000 2.54% Fixed February 21, 2006
- 1,250,000 2.83% Fixed August 21, 2006
2,000,000 - 5.20% Fixed March 7, 2007
2,000,000 - 5.20% Fixed June 7, 2007
4,920,000 - 5.43% Variable LOC July 27, 2007
575,070 1,416,489 2.99% Amortizing-Fixed August 20, 2007
2,000,000 2,000,000 3.67% Fixed September 5, 2007
4,000,000 - 5.215% Fixed September 7, 2007
914,573 1,734,636 2.79% Amortizing-Fixed January 28, 2008
5,000,000 5,000,000 5.63% Fixed to Float July 21, 2008
- 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
------------- -------------
$ 72,409,643 $ 68,651,125
============= =============
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, which
require monthly payments of interest and principal. Collateral for all advances
includes all qualifying mortgages.
IBT Bancorp, Inc., 2006 Annual Report / 27
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 10 -- FHLB ADVANCES (CONTINUED)
The following is a summary of the principal payments due on FHLB amortizing
advances at December 31, 2006.
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: 2007 $ 843,237 $ 575,070
2008 71,336 -
--------------------- --------------------
Balance of loan at December 31, 2006 $ 914,573 $ 575,070
===================== ====================
In 2006, the Bank renewed its line of credit with the FHLB in the amount of
$30,000,000. The interest rate is variable and was 5.44% at December 31, 2006.
The line of credit has an expiration date of May 11, 2007. There was no balance
outstanding on the line of credit as of December 31, 2005. Also in 2006, the
Bank secured an additional line of credit with the FHLB in the amount of
$30,000,000. The interest rate is variable and was 5.43% at December 31, 2006.
The line of credit has an expiration date of July 27, 2007. The outstanding
balance on the line of credit as of December 31, 2006 is $4,920,000 and is
included in FHLB advances on the consolidated balance sheet.
The Bank had maximum borrowing capacity with FHLB, including the line of credit,
of approximately $313,018,000 and $301,914,000 at December 31, 2006 and 2005,
respectively.
NOTE 11 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
-----------------------------------------
2006 2005 2004
----------- ----------- -----------
Currently payable $ 2,397,251 $ 3,086,159 $ 2,643,614
Deferred (benefit) tax (361,814) (327,826) 184,511
----------- ----------- -----------
Total $ 2,035,437 $ 2,758,333 $ 2,828,125
=========== =========== ===========
The significant components of temporary differences for 2006, 2005 and 2004 are
as follows:
Years Ended December 31,
-------------------------------------
2006 2005 2004
---------- ---------- ---------
Provision for loan losses $ (409,958) $ (329,752) $ 153,231
Depreciation (42,236) (137,670) (14,169)
Pension 51,311 106,946 85,095
Deferred loan fees 4,752 8,533 15,825
Other 34,317 24,117 (55,471)
---------- ---------- ---------
Total $ (361,814) $ (327,826) $ 184,511
========== ========== =========
28 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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
--------------------------------
2006 2005 2004
---- ---- ----
Provision at statutory rate 34.0% 34.0% 34.0 %
Effect of tax free income (8.9) (7.7) (6.3)
Other (5.7) (2.0) 4.0
---- ---- ----
Effective tax rate 19.4% 24.3% 31.7 %
==== ==== ====
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 2005 and 2004 are as follows:
2006 2005
------------------------- ------------------------
Deferred Tax Deferred Tax
------------------------- ------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Provision for loan losses $ 1,621,548 $ - $ 1,211,590 $ -
Depreciation - 124,000 - 166,238
Pension expense - 374,624 - 342,998
Other 371,405 61,359 334,799 -
SFAS 115 34,151 - 546,500 -
Unfunded pension cost 423,407 - - -
----------- --------- ----------- ---------
$ 2,450,511 $ 559,983 $ 2,092,889 $ 509,236
=========== ========= =========== =========
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., 2006 Annual Report / 29
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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 $85,356,000 and $104,269,000 as of December 31, 2006 and 2005,
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, 2006 and 2005, 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 $4,680,000 and $2,200,000 at December
31, 2006 and 20, respectively.
30 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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, an amount not to exceed that which 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.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" (SFAS 158). The Bank
adopted SFAS 158 prospectively on December 31, 2006. SFAS 158 requires that we
recognize all obligations related to defined benefit pensions. This statement
requires that the Bank quantify the plans' funding status as an asset or a
liability on our consoldiated balance sheets.
SFAS 158 requires that the Bank measure the plans' assets and obligations that
determine its funded status as of the end of the fiscal year. The Bank is also
required to recognize as a component of other comprehensive income (OCI) the
changes in funded status that occurred during the year that are not recognized
as part of net periodic benefit cost as explained in SFAS No. 87, "Employers'
Accounting for Pensions."
Based on the funded status of its defined benefit pension plans as of December
31, 2006, the Bank reported a reduction to our OCI of $821,908, an increase of
$523,245 to accrued pension obligations, a decrease of $722,070 to its prepaid
pension account and an increase of $423,407 to the deferred tax asset account.
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, 2006, 2005 and
2004, even though the information has been compiled on the basis of the
actuarial measurement period.
2006 2005 2004
----------- ----------- -----------
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 4,455,987 $ 3,655,011 $ 3,331,356
Service cost 356,068 289,282 256,712
Interest cost 266,965 227,751 216,129
Actuarial loss due to settlements - - 8,099
Benefits paid (123,622) (73,069) (350,346)
Other - net (186,687) 357,012 193,061
----------- ----------- -----------
Benefit obligation at end of year $ 4,768,711 $ 4,455,987 $ 3,655,011
=========== =========== ===========
IBT Bancorp, Inc., 2006 Annual Report / 31
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
2006 2005 2004
----------- ----------- -----------
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 3,348,241 $ 2,783,121 $ 2,736,071
Actual return on plan assets, net of expenses 342,549 157,829 146,318
Plan settlements - - (42,197)
Benefits paid (123,622) (73,069) (350,346)
Employer contributions 678,298 480,360 293,275
----------- ----------- -----------
Fair value of plan assets at end of year $ 4,245,466 $ 3,348,241 $ 2,783,121
=========== =========== ===========
Funded status at end of year (1) $ (523,245) $(1,107,746) $ (871,890)
Unrecognized net loss from actuarial experience 1,388,289 1,706,791 1,352,122
Unrecognized prior service cost (128,914) (147,176) (165,438)
Unrecognized transition asset (14,060) (17,917) (21,774)
Effect of settlements - - (5,989)
----------- ----------- -----------
Prepaid pension cost $ 722,070 $ 433,952 $ 287,031
=========== =========== ===========
(1) After adoption of SFAS 158 on December 31, 2006, these amounts are recorded
and this reconciliation is no longer required.
December 31,
----------------------------------------
Amounts recognized in the consolidated 2006 2005 2004
balance sheets consist of: ----------- ----------- -----------
Prepaid benefit cost $ 485,057 $ 1,043,094 $ 713,304
Accrued benefit liability (523,245) - -
Accumulated OCI (821,908) - -
----------- ----------- -----------
$ (860,096) $ 1,043,094 $ 713,304
=========== =========== ===========
In the months of December 2006, 2005 an 2004, the Bank contributed $612,708,
$678,298 and $480,360 respectively, to the plans subsequent to the actuarial
measurement dates of October 15, 2006, 2005 and 2004. Because these employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2006, 2005 and 2004 was $485,057,
$1,043,094 and $713,304, respectively.
32 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Amounts recognized in accumulated other comprehensive income consist of:
December 31,
-------------------------------------------
2006 2005 2004
----------- ------------ ------------
Transition asset $ (14,060) $ - $ -
Prior service cost (128,914) - -
Net loss 1,388,219 - -
----------- ------------ ------------
$ 1,245,245 $ - $ -
=========== ============ ============
The accumulated benefit obligation and information for the pension plans consist
of;
December 31,
------------------------------------
2006 2005 2004
---------- ---------- ----------
Projected benefit obligation $4,768,711 $4,455,823 $3,655,011
Accumulated benefit obligation $3,622,820 $3,237,383 $2,675,106
Fair value of plan assets $4,245,466 $3,348,241 $2,783,121
The incremental effect of applying FASB statement No. 158 on individual line
items in the consolidated balance sheet as of December 31, 2006, is as follows:
Before After
Application of Application of
FASB No. 158 Adjustment FASB No. 158
---------- ---------- -------------
Prepaid pension cost $1,207,127 $ (722,070) $ 485,057
Deferred tax asset $ - $ 423,407 $ 423,407
Accrued benefit liability $ - $ (523,245) $ (523,245)
Accumulated OCI $ - $ 821,908 $ 821,908
The prepaid pension cost and deferred tax asset are included in other assets on
the consolidated balance sheets. The accrued benefit liability is included in
accrued interest and other liabilities on the consolidated balance sheets.
IBT Bancorp, Inc., 2006 Annual Report / 33
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Net periodic pension cost included the following
components:
Years Ended December 31,
-----------------------------------
Net Periodic Pension Cost 2006 2005 2004
--------- --------- ---------
Service cost $ 356,068 $ 289,282 $ 256,712
Interest cost 266,965 227,751 216,129
Expected return on plan assets (270,003) (219,638) (206,976)
Amortization of prior service cost (18,262) (18,262) (18,262)
Amortization of transition asset (3,857) (3,857) (4,098)
Recognized net actuarial loss 75,335 57,296 45,043
--------- --------- ---------
Net periodic pension cost $ 406,246 $ 332,572 $ 288,548
========= ========= =========
The following is a summary of the estimated portion of the net periodic pension
cost included in accumulated other comprehensive income that is expected to be
recognized during the year ended December 31, 2007:
Service cost $ 356,489
Interest cost 285,737
Expected return on plan assets (313,604)
Amortization of prior service cost (18,262)
Amortization of transition asset (3,857)
Recognized net actuarial loss 50,617
-----------
Net periodic pension cost to be recognized $ 357,120
===========
Weighted-average assumptions used to determine
both the benefit obligations and net periodic pension Years Ended December 31,
costs were as follows: ------------------------------------------------
2006 2005 2004
------------ ------------ ------------
Plan #1
Discount rate 6.00% 6.00% 6.25%
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% 6.00%
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 plans.
34 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Plans (continued)
Pension plan weighted-average asset allocations December 31,
by investment category are as follows: ------------------------
2006 2005 2004
---- ---- ----
Cash and cash equivalents 16% 6% 9%
Stocks 15% 18% 22%
Bonds 5% 9% 12%
Mutual funds 33% 36% 33%
Government securities 31% 31% 24%
--- --- ---
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 $616,930 and $602,118 at December 31, 2006 and 2005,
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 2006, 2005 and
2004 amounted to $88,196, $80,561 and $77,362, respectively.
NOTE 16 -- RELATED-PARTY TRANSACTIONS
At December 31, 2006 and 2005, 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 $9,063,000 and $8,257,000,
respectively. During 2006, new loans to such related parties were approximately
$1,901,000 and repayments approximated $1,095,000.
IBT Bancorp, Inc., 2006 Annual Report / 35
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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 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, 2006 are as follows:
Carrying Fair
Amount Value
------------- -------------
Financial Assets:
Cash and cash equivalents $ 19,954,648 $ 19,954,648
Certificate of deposit $ 100,000 $ 100,000
Investment securities $ 221,249,369 $ 221,249,369
Federal Home Loan Bank stock $ 5,196,800 $ 5,196,800
Loans receivable $ 467,720,508 $ 471,887,819
Financial liabilities:
Deposits $ 572,472,214 $ 581,250,829
Short-term borrowings $ 27,416,559 $ 27,416,559
FHLB advances $ 72,409,643 $ 74,028,364
The market values of investments, which are based upon quoted market prices, are
contained in Note 2.
36 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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, 2006 and 2005, that the Bank meets all capital
adequacy requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 2006 and 2005, 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
2006 2005 Requirements Requirements
-------- -------- ---------------- ------------------
Risk-based capital ratio 14.6% 15.1% 8.0% 10.0% or higher
Leverage capital ratio 8.5% 8.9% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 13.8% 14.2% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $7,945,000
and $7,450,000 at December 31, 2006 and 2005, 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 600,000 shares of common stock, given
retroactive effect of the stock dividend described in Note 21. 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.
IBT Bancorp, Inc., 2006 Annual Report / 37
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 19 -- STOCK OPTION PLAN (CONTINUED)
As of December 31, 2006, a total of 380,500 stock options have been granted, of
which, 169,873 are vested and exercisable, 61,000 have not vested, 124,556 have
been exercised and 25,071 have been forfeited.
A summary of the status of the Bank's stock option plan is presented below:
December 31,
----------------------------------------------------------------------------------
2006 2005 2004
-------------------------- --------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of year 174,542 $ 15.43 204,178 $ 15.57 236,108 $ 15.47
Granted 80,500 $ 19.99 - - - -
Forfeitures (6,668) $ 24.41 - - (10,068) $ 19.67
Exercised (17,500) $ 13.37 (29,636) $ 13.38 (21,862) $ 12.68
-------- -------- --------
Outstanding at December 31, 230,874 $ 17.30 174,542 $ 15.43 204,178 $ 15.57
======== ======== ========
Exercisable at December 31, 169,873 $ 16.33 165,004 $ 15.38 170,446 $ 14.36
======== ======== ========
The options outstanding at December 31, 2006, 2005 and 2004 had a
weighted-average contractual maturity of 5.68 years, 5.74 years, and 6.68 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,
---------------------------------------
2006 2005 2004
---- ---- ----
Dividend yield 5.50% None granted None granted
Expected life 7 years
Expected volatility 19.24%
Risk-free interest rate 4.90%
Weighted-average fair value $2.45
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.
38 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
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,
----------------------------------------
2006 2005 2004
----------- ----------- -----------
Net income, as reported $ 8,455,692 $ 8,579,351 $ 6,084,738
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects 26,273 39,034 39,034
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects - - 85,525
----------- ----------- -----------
Pro-forma net income $ 8,481,965 $ 8,618,385 $ 6,038,247
=========== =========== ===========
Earnings per share:
Basic-as reported $ 1.43 $ 1.45 $ 1.03
=========== =========== ===========
Basic-pro forma $ 1.44 $ 1.46 $ 1.02
=========== =========== ===========
Diluted-as reported $ 1.42 $ 1.44 $ 1.01
=========== =========== ===========
Diluted-pro forma $ 1.43 $ 1.45 $ 1.01
=========== =========== ===========
Weighted-average number of shares outstanding, given retroactive effect of the
stock dividend described in Note 21, assuming dilution of exercisable stock
options using the treasury stock method was 5,937,894, 5,964,900, and 6,010,734
for the years ended December 31, 2006, 2005, and 2004, respectively.
NOTE 20 -- TREASURY STOCK
In 2006 the Bancorp repurchased 16,385 shares of its stock for $667,100 and is
being held as treasury stock. The Bancorp did not repurchase any shares of its
own stock during 2005.
IBT Bancorp, Inc., 2006 Annual Report / 39
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 21 -- CAPITAL STOCK
On October 17, 2006, the Bancorp declared a two-for-one stock split on the
Bancorp's capital stock, which was effected in the form of a 100 percent stock
dividend. One additional share will be issued for each share of capital stock
held by shareholders of record as of the close of business on October 27, 2006.
New shares were distributed on November 16, 2006. Par value will remain
unchanged as $1.25. The number of shares issued on November 16, 2006, after
giving effect to the split, was 5,965,119 (3,023,799 shares issued before the
split).
NOTE 22 -- RECENT ACCOUNTING PRONOUNCEMENTS
In 2006, the FASB issued FASB No. 155, Accounting for Certain Hybrid Financial
Instruments - an amendment of FASB No. 133 and 140, FASB No. 156, Accounting for
Servicing of Financial Assets - an amendment of FASB No. 140, FASB No. 157, Fair
Value Measurements, FASB No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans - an amendment of FASB No. 87, 88, 106,
and 132(R), and FASB interpretation ("FIN") No. 48, Accounting for Uncertainty
in Income Taxes. The Bank was most impacted by FASB No. 158 which requires an
employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income. See Note 15 for impact of FASB 158
on Bancorp's consolidated balance sheets. Management does not believe that the
other pronouncements will have a material impact on the Bancorp's operations.
40 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 23 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004 is as
follows:
BALANCE SHEETS
December 31
-------------------------
2006 2005
----------- -----------
ASSETS
Cash in bank $ 1,016,721 $ 522,780
Investment in subsidiary 61,110,750 60,002,071
Securities available for sale 205,243 294,163
Other assets 248,346 261,979
----------- -----------
Total Assets $62,581,060 $61,080,993
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ -
Stockholders' Equity 62,581,060 61,080,993
----------- -----------
Total Liabilities and Stockholders' Equity $62,581,060 $61,080,993
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2006 2005 2004
---------- ---------- ----------
Income
Dividends from subsidiary $7,100,000 $5,650,000 $5,900,000
Other dividends 10,882 11,280 11,916
Investment security gains - 120,744 87,333
Income from joint ventures 19,026 34,804 55,139
Expenses
Professional fees 118,074 105,943 97,126
Miscellaneous 111,857 63,142 60,636
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed Earnings of Subsidiary 6,899,977 5,647,743 5,896,626
Equity in Undistributed
Earnings of Subsidiary 1,555,715 2,931,608 188,112
---------- ---------- ----------
Net Income $8,455,692 $8,579,351 $6,084,738
========== ========== ==========
IBT Bancorp, Inc., 2006 Annual Report / 41
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 23 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2006 2005 2004
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,455,692 $ 8,579,351 $ 6,084,738
Adjustments to reconcile net income to
net cash provided by operating activities:
Net undistributed earnings of joint ventures (19,026) (34,805) (55,139)
Investment security gains - (120,744) (87,333)
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary (1,555,715) (2,931,608) (188,112)
----------- ----------- -----------
Net Cash From Operating Activities 6,880,951 5,492,194 5,754,154
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from joint ventures 24,085 23,116 56,365
Proceeds from sale of securities
available for sale 154,311 185,899 168,033
Purchase of securities available for sale (56,697) (4,783) (22,355)
----------- ----------- -----------
Net Cash From Investing Activities 121,699 204,232 202,043
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (5,896,738) (5,438,036) (4,746,485)
Exercised stock options (40,495) - -
Purchase of Treasury Stock (667,100) - (1,006,135)
Sale of Treasury Stock 95,624 - -
----------- ----------- -----------
Net Cash Used by Financing Activities (6,508,709) (5,438,036) (5,752,620)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents 493,941 258,390 203,577
Cash and Cash Equivalents at Beginning
of Year 522,780 264,390 60,813
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 1,016,721 $ 522,780 $ 264,390
=========== =========== ===========
42 / IBT Bancorp, Inc., 2006 Annual Report
Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary
Years Ended December 31, 2006, 2005 and 2004
NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Quarters Ended 2006
-----------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Interest income $ 9,418,342 $ 9,871,783 $10,358,604 $10,744,002
Interest expense 4,010,646 4,392,961 4,853,163 5,257,168
----------- ----------- ----------- -----------
Net interest income 5,407,696 5,478,822 5,505,441 5,486,834
Provision for loan
losses 300,000 550,000 350,000 300,000
Non-interest income 1,844,553 1,858,549 1,939,668 1,706,592
Non-interest expense 4,037,663 4,217,532 4,275,458 4,706,373
----------- ----------- ----------- -----------
Income before income
taxes 2,914,586 2,569,839 2,819,651 2,187,053
Income tax expense 604,147 384,418 668,466 378,406
----------- ----------- ----------- -----------
Net income $ 2,310,439 $ 2,185,421 $ 2,151,185 $ 1,808,647
=========== =========== =========== ===========
Net income per Share of
Capital Stock $ 0.39 $ 0.37 $ 0.37 $ 0.30
=========== =========== =========== ===========
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 $ 0.39 $ 0.39 $ 0.35 $ 0.32
=========== =========== =========== ===========
IBT Bancorp, Inc., 2006 Annual Report / 43
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. Irwin Bank is the principal subsidiary of the
Company.
Irwin Bank was incorporated in 1922 under the laws of Pennsylvania as a
commercial bank. The Bank is headquartered in Irwin, Pennsylvania and conducts
business through 6 full service branches, 3 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, 2007, IBT Bancorp, Inc. had approximately
1,428 shareholders of record and 5,965,119 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 ($)
2006
First Quarter 20.62 18.62 0.25
Second Quarter 20.35 18.92 0.25
Third Quarter 22.12 20.05 0.25
Fourth Quarter 21.82 20.31 0.25
2005
First Quarter 24.15 21.88 0.23
Second Quarter 22.75 18.50 0.23
Third Quarter 22.30 20.25 0.23
Fourth Quarter 23.15 20.25 0.23
44 / IBT Bancorp, Inc., 2006 Annual Report
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 federal and 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.
Stock Performance Graph
The following graph compares the cumulative total shareholder return on the
Common Stock with (a) the cumulative total shareholder return on stocks included
in the Nasdaq Stock Market composit index and (b) the cumulative total
shareholder return on stocks included in the Nasdaq Bank index, as prepared by
SNL Financial LC. All three investment comparisons assume the investment of $100
as of December 31, 2001 and the reinvestment of dividends. The graph provides
comparisons at December 31, 2001 and each fiscal year through December 31, 2006.
[Line graph appears here showing 5-year cumulative total return on $100 invested
in the Common Stock compared to cumulative total returns on $100 invested in the
Nasdaq Bank Index and Nasdaq Index, respectively. Line graph starts at December
31, 2001 and shows the cumulative total returns at December 31, 2002, 2003,
2004, 2005 and 2006. Plot points are shown below]
- ------------------------------------------------------------------------------------------------------
Period Ending
-----------------------------------------------------------------------------------
Index 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
- ------------------------------------------------------------------------------------------------------
IBT Bancorp, Inc. 100.00 135.91 218.73 182.99 161.08 175.16
NASDAQ Composite 100.00 68.76 103.67 113.16 115.57 127.58
NASDAQ Bank 100.00 106.95 142.29 161.73 158.61 180.53
- ------------------------------------------------------------------------------------------------------
There can be no assurance that the Company's future stock performance will be
the same or similar to the historical performance shown in the above graph. The
Company neither makes nor endorses any predictions as to stock performance.
IBT Bancorp, Inc., 2006 Annual Report / 45
IBT Bancorp, Inc., Corporate Profile
Annual Shareholders Meeting
The annual meeting of shareholders of IBT Bancorp, Inc., will be held on Tuesday
April 17, 2007 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, 2006 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
46 / IBT Bancorp, Inc., 2006 Annual Report
[THE FOLLOWING DIRECTORS' PICTURES WERE OMITTED]
BOARD OF DIRECTORS
Left to right:
John N. Brenzia
Director
Thomas E. Deger
Director
Charles G. Hergenroeder
Director
Left to right:
Richard J. Hoffman
Director
Robert Rebich, Jr.
Chairman
Richard L. Ryan
Director
Left to right:
Dr. Grant J. Shevchik
Director
Charles G. Urtin
President/CEO
Robert C. Whisner
Director
(Not pictured, Directors Emeritus)
Thomas Beter, William D. Fawcett, Sr., J. Curt Gardner, Edwin A. Paulone,
Vincent V. Rodger
[PICTURES OF THE FOLLOWING PERSONS OMITTED]
EMPLOYEE MILESTONES, PROMOTIONS & NEW HIRES
Left to right:
Steven D. Landis
Assistant Vice President
Special Assets
Promoted: April 2006
Linda D. Shaner
Vice President/Commercial Lending
Promoted: April, 2006
Alan V. DeMarchi
Vice President
Loan Administration Manager
Hired: March 6, 2006
Without the hard work and dedication of its employees, Irwin Bank's success
would not be possible. Irwin Bank holds an Employee Service Award Dinner
annually to award and recognize the many years of service of its Directors,
Officers and Employees. In 2006 Sandra L. Hayden was recognized for her 25 years
of service and Elizabeth A. Caruthers and Sheli L. Fyock were recognized for
their 20 years of service. Nancy J. McCullough and Beverly A. Hahn both
announced their retirements at this year's Awards Dinner after serving 46 years
and 42 years respectively. We are proud to honor these employees for their many
years of dedicated service to Irwin Bank. We are also pleased to recognize our
officers who achieved higher rank and those who joined Irwin Bank during the
year 2006.
Irwin Bank Locations
BRANCH OFFICERS IN STORE LOCATIONS LOAN CENTER LOCATIONS
GREENSBURG (Triangle Dr.) FORT ALLEN MAIN OFFICE LOAN CENTER
4 Triangle Drive Inside Hempfield Shop N'Save 319 Main Street
Greensburg, PA 15601 4589 Route 136 Irwin, PA 15642
724-837-5000 Greensburg, PA 15601 224-863-3100
724-853-8540
GREENSBURG (PA Commons) MT. PLEASANT LOAN CENTER
20 N. Pennsylvania Avenue PENN CROSSING 445 West Main Street
Greensburg, PA 15601venue Inside Giant Eagle Mt. Pleasant, PA 15666
724-837-5000 2000 Penny Lane 724-547-2255
Jeannette, PA 15644
MONROEVILLE 724-744-6111
Haymaker Village
4580 Broadway Blvd. OAK PARK MALL
Monroeville, PA 15146 Inside Giant Eagle
412-858-4450 2001 Lincoln Way
White Oak, PA 15131
PENN TOWNSHIP 412-664-0984
4021 Route 130
Irwin, PA 15642
724-744-2176
IRWIN 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
MAIN OFFICE
309 Main Street
[LOGO] Irwin, PA 15642
IB 724-863-3100
Irwin
Bank TRUST DIVISION
Suite 204
20 N. Pennsylavnia Avenue
Greensburg, PA 15601
724-836-2010 www.myirwinbank.com