EX-13 2 0002.txt EXHIBIT 13 EXHIBIT 13 SELECTED FINANCIAL INFORMATION IBT BANCORP, INC & SUBSIDIARY
At or for the Years Ended December 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Selected Balance Sheet Data: Assets $ 496,379 $ 445,721 $ 412,366 $ 366,457 $ 331,416 Cash and cash equivalents 21,746 19,264 43,396 27,700 24,853 Securities available for sale 167,874 151,063 118,778 107,801 95,343 Securities held to maturity - - 2,569 5,855 7,955 Loans receivable (net) 291,914 260,502 238,304 216,487 194,677 Deposits 409,638 368,680 356,383 324,317 292,699 Repurchase agreements 9,022 6,457 - - - Federal funds purchased - 7,000 - - - FHLB advances 28,000 22,000 14,000 4,000 4,000 Shareholders' equity 44,615 37,905 38,201 34,302 30,090 Selected Results of Operations Interest income 33,787 29,731 27,768 25,349 22,695 Net interest income 17,200 16,087 15,182 13,832 12,505 Provision for loan losses 300 300 300 300 410 Net interest income after provision for loan losses 16,900 15,787 14,882 13,532 12,095 Other income 2,946 2,764 2,093 1,733 1,471 Other expense 10,181 9,233 8,438 7,683 7,076 Net income 6,705 6,336 5,801 5,193 4,458 Per Share Data: Net Income Basic $ 2.23 $ 2.10 $ 1.92 $ 1.72 $ 1.47 Diluted 2.23 2.10 1.92 1.72 1.47 Cash dividends declared 0.92 0.80 0.64 0.51 0.42 Selected Ratios: Return on average assets 1.44% 1.49% 1.54% 1.52% 1.44% Return on average equity 16.87 16.54 15.97 16.27 15.82 Ratio of average equity to average assets 8.52 8.99 9.63 9.84 9.61 Dividend payout 41.26 38.10 33.33 29.65 25.57
-1- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes", "anticipate", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of opening a new branch, the ability to control costs and expenses, and general economic conditions. IBT Bancorp, Inc. undertakes no obligation to publicly release the results of any revisions to those forward looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL IBT Bancorp, Inc. is a bank holding company headquartered in Irwin, Pennsylvania, which provides a full range of commercial and retail banking services through its wholly owned banking subsidiary, Irwin Bank & Trust Co. (collectively, the "Company"). FINANCIAL CONDITION At December 31, 2000, total assets increased $50.7 million, or 11.4%, to $496.4 million from $445.7 million at December 31, 1999. Of this increase, securities available for sale increased $16.8 million, net loans receivable increased $31.4 million, federal funds sold increased $4.1 million, and interest-bearing deposits in banks increased $4.6 million. Increases in federal funds sold and interest-bearing deposits in banks will be used to meet anticipated future loan demand. Such increases in assets were primarily offset by a decrease of $6.3 million in cash and due from banks. The decrease in cash and due from banks was used to pay off, in the first quarter of 2000, federal funds purchased of $7.0 million, that were outstanding at December 31, 1999. The growth in total deposits of $40.9 million was used primarily to fund the growth in the loan and securities available for sale portfolio. The increase in the loan portfolio was primarily due to the growth of the fixed rate one-to four-family mortgage loan, commercial mortgage, and commercial portfolio of $8.2 million, $9.4 million, and $5.4 million, respectively. Such increases were partially offset by the sale of the credit card portfolio of $1.8 million in the second quarter of fiscal 2000. The Company's loan portfolio continues to grow due to the Company's offering of competitive market interest rates. The increase of $16.8 million in investment securities available for sale was mainly attributable to sales of $6.2 million, proceeds from maturities of securities of $12.0 million, purchases of $30.0 million, and an increase in market value (before tax) of $5.0 million. At December 31, 2000, total liabilities increased $44.0 million, or 10.7%, to $451.8 million from $407.8 million at December 31, 1999. The increase primarily related to the increase in total deposits of $40.9 million. Of this increase, Interest-bearing deposits increased $33.7 million to $345.3 million at December 31, 2000 from $311.6 million at December 31, 1999. The most significant areas of increase were in the Certificate of Deposit accounts which reached $205.3 million at December 31, 2000, an increase of $36.4 million from $168.9 million at December 31, 1999. Customers continue to be attracted to this product due to the competitive interest rates paid for these products. -2- Non interest-bearing deposits increased $7.2 million to $64.3 million at December 31, 2000 from $57.1 million at December 31, 1999. Such increases reflect additions to non-interest bearing deposits of $16.2 million offset by $9.0 million in investments in repurchase agreements. Under the terms of the agreement, deposits in designated demand accounts of the customer are put into a investment vehicle which is used daily to purchase an interest in designated U.S. Government or Agencies' securities. The Company in turn agrees to repurchase these investments on a daily basis and pay the customers the daily interest earned based on the current market rate. At December 31, 2000, the amount of repurchase agreements totaled $9.0 million. See Note 6 to the consolidated financial statements. At December 31, 2000, total stockholders' equity increased $6.7 million to $44.6 million from $37.9 million at December 31, 1999. The increase was primarily due to a $3.3 million increase in accumulated other comprehensive income and net income of $6.7 million for the period, offset by dividends paid of $2.8 million. The Company has repurchased 22,000 shares of stock at an average cost of approximately $31 per share. During fiscal 2001, based on the availability, the Company plans to repurchase up to 129,000 of its shares. Accumulated other comprehensive income increased as a result of changes in the net unrealized gain on the available for sale securities due to fluctuations in interest rates. Pursuant to generally accepted accounting principles, securities available for sale are recorded at current market value and net unrealized gains or losses on such securities are excluded from current earnings and reported net of income taxes, as part of comprehensive income, until realized. Because of interest rate volatility, the Company's accumulated other comprehensive income could materially fluctuate for each interim period and year-end. The majority of the increase in accumulated other comprehensive income resulted from the Company's investment in U.S. Government agencies and municipals available for sale. See Note 2 to the consolidated financial statements. ANALYSIS OF NET INTEREST INCOME The Company's results of operations are primarily dependent on its net interest income, which is the difference between the interest income earned on assets, primarily loans and investments, and the interest expense on liabilities, primarily deposits and borrowings. Net interest income may be affected significantly by general economic and competitive conditions and policies of regulatory agencies, particularly those with respect to market interest rates. The results of operations are also influenced by the level of non-interest expenses, such as employee salaries and benefits and other income, such as loan-related fees and fees on deposit-related services. -3- RESULTS OF OPERATIONS Net Income: Net income increased approximately $369,000, or 5.8%, to $6.7 million for the year ended December 31, 2000 from $6.3 million for the year ended December 31, 1999. At December 31, 1999, net income increased approximately $535,000, or 9.2%, to $6.3 million from $5.8 million for the year ended December 31, 1998. The increase in net income for 2000 and 1999 was primarily attributable to the increases in the average balances of interest earning assets of $37.6 million and $49.4 million, respectively. Net Interest Income: Net interest income is the most significant component of the Company's income from operations. Net interest income is the difference between interest received on interest-earning assets (primarily loans and investment securities) and interest paid on interest-bearing liabilities (primarily deposits and borrowed funds). Net interest income depends on the volume and rate earned on interest-earning assets and the volume and interest rate paid on interest-bearing liabilities. Net interest income increased $1.1 million, or 6.8%, to $17.2 million for 2000 compared to $16.1 million for 1999. The increase was primarily due to the increase in average loans of $27.8 million and average investment securities available for sale of $14.9 million coupled with a 30 basis point increase in the yield on average interest earning assets to 7.59% for 2000 from 7.29% for 1999. The increase in the yield on average interest earning assets was primarily the result of yield increases in average loans and average investment securities of 21 basis points and 28 basis points, respectively. Such increases were the result of loans and investments being made at higher interest rates. The increase in average loans and average investment securities available for sale were partially funded by the increase in average interest bearing liabilities of $34.0 million. Offsetting the increase in net interest income was a 43 basis point increase in average cost of funds to 4.58% for 2000 from 4.15% for 1999. The yield on average interest bearing liabilities increased mainly due to the increase in the average balance in certificates of deposit and other liabilities coupled with higher interest rates being paid on total deposit products and other liabilities. Net interest income increased $900,000, or 5.9%, to $16.1 million for 1999 compared to $15.2 million for 1998. The increase was primarily due to the increase in average loans of $24.6 million and average investment securities available for sale of $30.4 million coupled with a 27 basis point decrease in average cost of funds to 4.15% for 1999 from 4.42% for 1998. The increase in average loans and average investment securities available for sale were partially funded by the increase in average interest bearing liabilities of $43.7 million. Offsetting the increase in net interest income was a 46 basis point decline in the yield on average interest earning assets to 7.29% for 1999 from 7.75% for 1998. The yield on average interest earning assets declined for 1999 due to a decrease in yields on loans receivable to 7.95% for 1999 from 8.48% for 1998, which was the result of loans refinancing at lower rates. The following table sets forth certain information relating to the Company's average balance sheet and, reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived for daily balances. -4-
Year Ended December 31, ------------------------------------------------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------------------------------------------------ Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost Balance Interest Cost ------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Interest- earning assets: Loans receivable (1) (7) $ 279,400 $ 22,808 8.16% $ 251,574 $ 20,000 7.95% $226,984 $ 19,259 8.48% Investment securities available for sale (2) 159,394 10,578 6.64 144,544 9,195 6.36 114,078 7,606 6.67 Investment securities held to maturity - - - 1,208 36 2.98 3,228 143 4.43 Other interest- earning assets (5) 6,464 401 6.20 10,319 500 4.85 13,956 760 5.45 Total interest earning assets $ 445,258 $ 33,787 7.59 $ 407,645 $ 29,731 7.29 $358,246 $ 27,768 7.75 ========= ========= ==== ========= ========= ==== ======== ======== ==== Non-interest earning assets 21,558 18,655 19,033 -------- -------- -------- Total assets $466,816 $426,300 $377,279 ======== ======== ======== Interest-bearing liabilities: Money market accounts 56,079 2,275 4.06% 56,731 2,069 3.65% 47,023 1,864 3.96% Certificates of Deposit 182,465 10,364 5.68 162,668 8,418 5.17 149,598 8,322 5.56 Other liabilities 123,928 3,949 3.19 109,061 3,157 2.89 88,180 2,400 2.72 --------- --------- ---- --------- --------- ---- -------- -------- ---- Total interest- bearing liabilities $ 362,472 $ 16,588 4.58% $ 328,460 $ 13,644 4.15% $284,801 $ 12,586 4.42% ========= ========= ==== ========= ========= ==== ======== ======== ==== Non-interest- bearing liabilities 64,591 59,530 56,150 --------- --------- -------- Total liabilities $ 427,063 $ 387,990 $340,951 ========= ========= ======== Retained Earnings (6) 39,753 38,310 36,328 --------- --------- -------- Total liabilities and stockholders' equity $ 466,816 $ 426,300 $377,279 ========= ========= ======== Net interest income $ 17,199 $ 16,087 $ 15,182 ========= ========= ======== Interest rate spread (3) 3.01% 3.14% 3.33% ====== ====== ====== Net yield on interest- earning assets (4) 3.86% 3.95% 4.24% ====== ====== ====== Ratio of average interest- earning assets to average interest- bearing liabilities 122.84% 124.11% 125.79% ====== ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan fees. (2) Includes interest-bearing deposits in other financial institutions. (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents net interest income as a percentage of average interest earning assets. (5) Includes federal funds sold. (6) Includes capital stock, surplus and unrealized holding gains on SFAS 115 AFS securities. (7) For all years presented, interest income includes business manager income, which was previously classified as other non-interest income. -5- The following table shows the effect of changes in volumes and rates on interest income and interest expense. The changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate. Tax exempt income was not recalculated on a tax equivalent basis due to the immateriality of the change to the table resulting from a recalculation.
Year Ended December 31, Year Ended December 31, ---------------------------- ----------------------------- 2000 vs. 1999 1999 vs. 1998 ---------------------------- ----------------------------- Increase (Decrease) Increase (Decrease) Due to Due to ---------------------------- ----------------------------- Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- (In Thousands) (In Thousands) Interest income: Loans receivable $2,212 $ 596 $2,808 $2,086 $(1,345) $ 741 Investment securities available for sale 945 438 1,383 2,031 (442) 1,589 Investment securities held to maturity (36) - (36) (89) (18) (107) Other interest earning assets (187) 88 (99) (198) (62) (260) ------ ------ ------ ------ ------- ------ Total interest-earning assets 2,934 1,122 4,056 3,830 (1,867) 1,963 ------ ------ ------ ------ ------- ------ Interest expense: Money market accounts (24) 230 206 385 (180) 205 Certificates of deposit 1,024 922 1,946 727 (631) 96 Other liabilities 430 362 792 568 189 757 ------ ------ ------ ------ ------- ------ Total interest-bearing liabilities 1,430 1,514 2,944 1,680 (622) 1,058 ------ ------ ------ ------ ------- ------ Net change in interest income $1,504 $ (392) $1,112 $2,150 $(1,245) $ 905 ====== ====== ====== ====== ======= ======
Provision for Loan Losses: The Company recorded a provision for loan losses of $300,000 for 2000, 1999, and 1998. The evaluation for determining the provision includes evaluations of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies, and other information available at such times. The Company will continue to monitor its allowance for loan losses and make future adjustments to the allowance through the provision for loan losses as economic conditions dictate. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent risk of loss in its loan portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods due to the higher degree of credit risk which might result from the change in the mix of the loan portfolio. Other Income: Total other income increased approximately $182,000, or 6.6%, to $2.9 million for the year ended December 31, 2000 from $2.8 million for the year ended December 31, 1999. The increases were the result of service fees and debit card fees totaling $282,000, $115,000 gain from the sale of the credit card portfolio, offset by investment security losses of $107,000. The increase in service fees resulted from an increase in overdraft fees due to a larger deposit base from the prior year. The increase in debit card fees resulted from increased customer usage. -6- For the year ended December 31, 1999, total other income increased approximately $671,000, or 32.0%, to $2.8 million from $2.1 million for the year ended December 31, 1998. This increase was primarily the result of overdraft service charges on deposit accounts, a larger deposit base, and ATM surcharges assessed on non-customers of Irwin Bank. The Company began to assess ATM surcharges in January 1999. Other Expenses: Total other expenses increased approximately $1.0 million, or 10.9%, to $10.2 million for 2000 from $9.2 million for 1999. This increase was primarily the result of an increase in salaries of approximately $500,000 to $4.1 million for 2000 from $3.6 million for 1999. As previously disclosed, the Company instituted an across the board salary increase to all non-officer employees and eliminated the bonus reward program for non-officer employees in January 2000. Pension and other employee benefits increased approximately $61,000 to $1.1 million for 2000 from $1.0 million for 1999 a result of increases in health insurance premiums. Data processing and ATM expenses increased $89,000 to $1.0 million in 2000 from $900,000 in 1999. Such increases were a result of increased fees from the Company's processors. Other expenses increased $200,000 to $3.0 million for 2000 from $2.8 million for 1999. The increase in other expenses includes approximately $76,000 in aggregate net losses from the Company's investments in IB&T Financial Services, LLC ("IB&T Financial") and T.A. of Irwin, L.P.. The investment in IB&T Financial will be dissolved in the second quarter of 2001. Total other expenses increased approximately $800,000, or 9.5%, to $9.2 million for 1999 from $8.4 million for 1998. This increase was the result of pension and other employee benefits increasing $176,000 to $995,000 for 1999 from $819,000 for 1998. During 1999, pension expense increased due to the Company's change in accrual assumptions regarding the funding of the plan. ATM expense increased $49,000 to $348,000 for 1999 from $299,000 for 1998 due to the increase of seven additional automated teller machines during fiscal 1998. Other expenses increased $500,000 to $2.8 million for 1999 from $2.3 million for 1998, primarily as a result of normal costs in running a public company. It should be noted that salaries remained relatively unchanged in 1999 as compared to 1998 primarily due to the retirement on January 1, 1999 of two key officers of the Company. -7- LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds include savings, deposits, loan repayments and prepayments, cash from operations and borrowing from the Federal Home Loan Bank. The Company uses its capital resources principally to fund loan originations and purchases, repay maturing borrowings, purchase investments, and for short-term liquidity needs. The Company expects to be able to fund or refinance, on a timely basis, its commitments and long-term liabilities. As of December 31, 2000, the Company had commitments to extend credit of $58.4 million. The Company's liquid assets consist of cash and cash equivalents, which include investments in short-term investments. The levels of these assets are dependent on the Company's operating, financing, and investment activities during any given period. At December 31, 2000, cash and cash equivalents totaled $21.7 million Net cash from operating activities for 2000 totaled $7.3 million, as compared to $6.5 million for 1999 and $5.9 million for 1998. Net cash used by investing activities for 2000 totaled $44.0 million, as compared to cash used of $61.8 million for 1999 and $30.3 million for 1998. The decrease of $17.8 million for 2000 was mainly attributed to net decreases in purchases of available for sale securities. Net cash used to purchase available for sale securities for 2000 decreased $26.0 million. Net cash used to purchase available for sale securities for 1999 totaled $27.1 million. The decrease of $2.2 million for 1998 was mainly attributed to a net decrease in purchases of investment securities available for sale. Net cash from financing activities for the year ended December 31, 2000 totaled $39.2 million, as compared to cash from financing activities of $31.2 million for 1999 and $40.1 million for 1998. The $8.0 million increase in cash from financing activities for 2000 was a result of a $28.7 million increase in deposits offset by a decrease of $3.9 million in securities sold under agreements to repurchase and a $7.0 million decrease in federal funds purchased. The $8.8 million decrease in cash from financing activities for 1999 was a result of a $19.8 million decrease in deposits and repayment of $2.0 million in long-term debt. Offsetting such decrease was the introduction of securities sold under agreements to repurchase totaling $6.5 million and federal funds purchased which totaled $7.0 million for the year ended December 31, 1999. Liquidity may be adversely affected by unexpected deposit outflows, excessive interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable, based in part on the Company's commitment to make loans and management's assessment of the Company's ability to generate funds. The Company is also subject to federal regulations that impose certain minimum capital requirements. -8- MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Company's profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. To that end, management actively monitors and manages its interest rate risk exposure. The principle objective of the Company's interest rate risk management is to evaluate the interest rate risk inherent in certain balance sheet accounts, determine the level of risk appropriate given the Company's business strategy, operating environment, capital and liquidity requirements, and performance objectives, and mange the risk consistent with the Board of Directors' approved guidelines. Through such management, the Company seeks to minimize the vulnerability of its operations to changes in interest rates. The Company's Asset/Liability Committee is comprised of the Company's senior management under the direction of the Board of Directors, with senior management responsible for reviewing with the Board of Directors its activities and strategies, the effect of those strategies on the company's net interest margin, the market value of the portfolio and the effect that changes in interest rates will have on the Company's portfolio and the Company's exposure limits. The Company utilizes the following strategies to manage interest rate risk: o When market conditions permit, to originate and hold in its portfolio adjustable rate loans; o Sell fixed rate mortgage loans that conform to Federal National Mortgage Association guidelines when sales can be achieved on terms favorable to the Company; o Lengthen the maturities of its liabilities when deemed cost effective through the utilization of Federal Home Loan Bank advances; o Purchase mortgage-backed securities for the available for sale securities portfolio with cash flows that can be reinvested in higher earning instruments when interest rates rise; and o Generally, maintain securities in the available for sale portfolio that are short term to offset the risk of long term fixed rate mortgage loans in a rising rate environment. -9- The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity or repricing maturity, and the instruments' fair values at December 31, 2000. Market risk sensitive instruments are generally defined as those instruments that can be adversely impacted by changes in market interest rates. The Company currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments, but may do so in the future to mitigate interest rate risk. Expected maturities are contractual maturities adjusted for prepayments of principle. The Company uses certain assumptions to estimate fair values and expected maturities. For asset, expected maturities are based upon contractual maturity, call dates and projected repayments of principle. For interest earning assets, no prepayments are assumed. For interest bearing liabilities, negotiable order of withdrawal ("NOW") accounts, money market accounts, and similar interest bearing demand accounts are subject to immediate withdrawal or repricing and are therefore presented in the earliest period in the table. Expected Maturity/Principal Repayment at December 31,
Total Book Fair 2001 2002 2003 2004 2005 Thereafter Value Value ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in thousands) Interest-earning assets ----------------------- Mortgage loans $ 6,732 $10,276 $ 7,191 $ 7,493 $7,966 $113,095 $152,753 $149,406 Home equity loans, second mortgage loans, student loans, other loans 20,147 11,709 10,330 7,888 6,564 25,999 82,637 85,284 Commercial loans, municipal loans 12,575 4,480 3,477 2,835 1,870 33,384 58,621 58,997 Investment securities available for sale 7,827 13,996 9,070 13,953 6,237 114,540 165,623 165,910 Interest-bearing liabilities ---------------------------- NOW and other transaction accounts 11,786 - - - - - 11,786 11,786 Money market and other savings accounts 127,934 - - - - - 127,934 127,934 Certificates of deposit 140,949 39,282 14,815 3,824 3,273 3,193 205,336 207,589 Federal home loan bank of Pittsburgh advances 6,000 2,000 - 10,000 - 10,000 28,000 28,968
-10- [LOGO] Certified Public Accountants & Business Advisors EDWARDS ------------------------------------------------------------ SAUER & 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222 OWENS Phone: 412-281-9211 Fax: 412-281-2407 A Professional Corporation www. esocpa.com INDEPENDENT AUDITORS' REPORT To the Board of Directors IBT Bancorp, Inc. Irwin, Pennsylvania We have audited the accompanying consolidated balance sheets of IBT Bancorp, Inc. (the Bancorp), and subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Bancorp's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IBT Bancorp, Inc. and subsidiary as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/Edwards Sauer & Owens Pittsburgh, Pennsylvania February 1, 2001 -11- CONSOLIDATED BALANCE SHEETS IBT BANCORP, INC. AND SUBSIDIARY --------------------------------------------------------------------------------
December 31, ------------------------------ 2000 1999 ------------- ------------- ASSETS Cash and due from banks $ 12,877,327 $ 19,171,977 Interest-bearing deposits in banks 4,740,068 92,590 Federal funds sold 4,129,000 - Certificates of deposit 2,700,000 3,000,000 Securities available for sale 165,909,886 149,098,906 Federal Home Loan Bank stock, at cost 1,964,300 1,964,300 Loans, net of allowance for loan losses of $1,919,327 in 2000 and $2,365,874 in 1999 291,914,060 260,502,270 Premises and equipment, net 4,899,777 4,728,702 Other assets 7,245,015 7,162,670 ------------- ------------- Total Assets $ 496,379,433 $ 445,721,415 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 64,316,265 $ 57,097,999 Interest-bearing 345,322,197 311,582,486 ------------- ------------- Total deposits 409,638,462 368,680,485 Repurchase agreements 9,022,190 6,456,597 Federal funds purchased - 7,000,000 Accrued interest and other liabilities 5,104,200 3,679,053 Long-term debt 28,000,000 22,000,000 ------------- ------------- Total liabilities 451,764,852 407,816,135 Stockholders' Equity Capital stock, par value $1.25, 50,000,000 shares authorized, 3,023,799 shares issued, 3,001,923 and 3,021,174 shares outstanding at December 31, 2000 and December 31, 1999, respectively 3,779,749 3,779,749 Surplus 2,073,102 2,073,102 Retained earnings 39,261,880 35,318,637 Accumulated other comprehensive income 189,326 (3,178,596) ------------- ------------- 45,304,057 37,992,892 Less: Treasury stock, at cost (689,476) (87,612) ------------- ------------- Total stockholders' equity 44,614,581 37,905,280 ------------- ------------- Total Liabilities and Stockholders' Equity $ 496,379,433 $ 445,721,415 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. -12- CONSOLIDATED STATEMENTS OF INCOME IBT BANCORP, INC. AND SUBSIDIARY --------------------------------------------------------------------------------
Years ended December 31, -------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Interest Income Loans, including fees $ 22,807,718 $ 19,999,321 $ 19,259,384 Investment securities 10,578,510 9,231,496 7,748,537 Federal funds sold 400,886 499,811 760,495 ------------ ------------ ------------ Total interest income 33,787,114 29,730,628 27,768,416 Interest Expense Deposits 14,603,671 12,473,855 12,174,469 Long-term debt 1,586,859 974,405 411,647 Repurchase agreements 362,684 191,193 - Federal funds purchased 34,354 4,135 - ------------ ------------ ------------ Total interest expense 16,587,568 13,643,588 12,586,116 ------------ ------------ ------------ Net Interest Income 17,199,546 16,087,040 15,182,300 Provision for Loan Losses 300,000 300,000 300,000 ------------ ------------ ------------ Net Interest Income after Provision for Loan Losses 16,899,546 15,787,040 14,882,300 Other Income (Losses) Service fees 1,645,913 1,497,861 1,190,223 Investment security gains - 53,194 61,312 Investment security losses (106,974) (29,687) (20,901) Debit card fees 401,080 266,079 162,107 Other income 1,006,422 976,619 700,567 ------------ ------------ ------------ Total other income 2,946,441 2,764,066 2,093,308 Other Expenses Salaries 4,084,817 3,566,947 3,573,257 Pension and other employee benefits 1,056,116 994,960 818,669 Occupancy expense 1,020,734 949,662 903,112 Data processing expense 588,193 535,108 505,484 ATM expense 383,935 348,414 298,843 Other expenses 3,047,492 2,837,870 2,338,737 ------------ ------------ ------------ Total other expenses 10,181,287 9,232,961 8,438,102 ------------ ------------ ------------ Income Before Income Taxes 9,664,700 9,318,145 8,537,506 Provision for Income Taxes 2,959,439 2,982,391 2,736,576 ------------ ------------ ------------ Net income $ 6,705,261 $ 6,335,754 $ 5,800,930 ============ ============ ============ Basic Earnings per Share $ 2.23 $ 2.10 $ 1.92 ============ ============ ============ Diluted Earnings per Share $ 2.23 $ 2.10 $ 1.92 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -13- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 --------------------------------------------------------------------------------
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total --------------- ---------------- --------------- ---------------- --------------- ------------- Balance at December 31, 1997 $ 1,200,000 $ 2,400,000 $ 29,792,223 $ 909,635 $ - $ 34,301,858 Comprehensive Income Net income 5,800,930 5,800,930 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax of $43,853 85,127 85,127 Less: reclassification adjustment, net of deferred income tax benefit of $25,039 (48,606) (48,606) ------------- 36,521 ------------- Total Comprehensive Income 5,837,451 Cash dividends ($0.64) (1,938,380) (1,938,380) 5% stock dividend 59,916 2,192,935 (2,252,851) Three-for-one stock split 2,519,833 (2,519,833) --------------- ---------------- --------------- ---------------- --------------- ------------- Balance at December 31, 1998 $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929
The accompanying notes are an integral part of these consolidated financial statements. -14- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 --------------------------------------------------------------------------------
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ---------------- ---------------- ----------------- --------------- -------------- --------------- Balance at December 31, 1998 $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929 Comprehensive Income Net income 6,335,754 6,335,754 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax benefit of $2,034,128 (3,948,601) (3,948,601) Less: reclassification adjustment, net of deferred income tax benefit of $90,744 (176,151) (176,151) ------------- (4,124,752) ------------- Total Comprehensive Income 2,211,002 Cash dividends ($0.80) (2,419,039) (2,419,039) Purchase of Treasury Stock (87,612) (87,612) ---------------- ---------------- ----------------- --------------- -------------- -------------- Balance at December 31, 1999 $ 3,779,749 $ 2,073,102 $ 35,318,637 $ (3,178,596) $ (87,612) $ 37,905,280
The accompanying notes are an integral part of these consolidated financial statements. -15- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 --------------------------------------------------------------------------------
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------------------ ----------------- ---------------- ---------------- ------------- -------------- Balance at December 31, 1999 $ 3,779,749 $ 2,073,102 $ 35,318,637 $ (3,178,596) $ (87,612) $ 37,905,280 Comprehensive Income Net income 6,705,261 6,705,261 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax of $1,722,575 3,343,822 3,343,822 Less: reclassification adjustment, net of deferred income tax of $12,415 24,100 24,100 -------------- 3,367,922 -------------- Total Comprehensive Income 10,073,183 Cash dividends ($0.92) (2,762,018) (2,762,018) Purchase of Treasury Stock (601,864) (601,864) ------------------ ----------------- ---------------- ---------------- ------------- -------------- Balance at December 31, 2000 $ 3,779,749 $ 2,073,102 $ 39,261,880 $ 189,326 $ (689,476) $ 44,614,581 ================= ================ =============== =============== ============ =============
The accompanying notes are an integral part of these consolidated financial statements. -16- CONSOLIDATED STATEMENTS OF CASH FLOWS IBT BANCORP, INC. AND SUBSIDIARY --------------------------------------------------------------------------------
Years ended December 31, -------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,705,261 $ 6,335,754 $ 5,800,930 Adjustments to reconcile net cash from operating activities: Depreciation 528,335 499,068 482,000 Net amortization/accretion of premiums and discounts (9,800) 20,934 971 Net investment security losses (gains) 106,974 (23,507) (40,411) Provision for loan losses 300,000 300,000 300,000 Increase (decrease) in cash due to changes in assets and liabilities: Other assets (1,610,223) (566,193) (598,713) Accrued interest and other liabilities 1,327,616 (102,823) (56,069) ------------ ------------ ------------ Net Cash From Operating Activities 7,348,163 6,463,233 5,888,708 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificates of deposit (2,700,000) (3,000,000) - Proceeds from maturity of certificates of deposit 3,000,000 - - Proceeds from sales of securities available for sale 6,153,348 7,579,149 2,166,459 Proceeds from maturities of securities held to maturity - 2,569,215 3,285,760 Proceeds from maturities of securities available for sale 12,000,998 50,293,783 48,173,553 Purchase of securities available for sale (29,959,587) (95,748,942) (61,085,311) Net loans made to customers (31,821,372) (22,530,641) (22,289,232) Purchases of premises and equipment (699,410) (348,637) (433,875) Purchase of Federal Home Loan Bank stock - (656,200) (137,400) ------------ ------------ ------------ Net Cash Used By Investing Activities (44,026,023) (61,842,273) (30,320,046) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 40,957,977 12,297,347 32,065,713 Net increase in securities sold under agreements to repurchase 2,565,593 6,456,597 - Net (decrease) increase in federal funds purchased (7,000,000) 7,000,000 - Dividends (2,762,018) (2,419,039) (1,938,380) Proceeds from long-term debt 7,000,000 10,000,000 10,000,000 Repayment of long-term debt (1,000,000) (2,000,000) - Purchase of treasury stock (601,864) (87,612) - ------------ ------------ ------------ Net Cash From Financing Activities 39,159,688 31,247,293 40,127,333 ------------ ------------ ------------ Net Change in Cash and Cash Equivalents 2,481,828 (24,131,747) 15,695,995 Cash and Cash Equivalents at Beginning of Year 19,264,567 43,396,314 27,700,319 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 21,746,395 $ 19,264,567 $ 43,396,314 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -17- CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY --------------------------------------------------------------------------------
Years Ended December 31, -------------------------------------------- 2000 1999 1998 ------------- ------------ ------------ SUPPLEMENTAL DISCLOSURES Cash payments for: Interest $ 15,052,496 $ 13,736,652 $ 12,629,351 Income taxes $ 2,904,000 $ 2,987,643 $ 2,716,954 NON CASH TRANSACTIONS Recorded unrealized gains (losses) on securities available for sale at December 31 $ 286,857 $ (4,816,056) $ 1,433,568 Deferred income taxes (benefit) on recorded unrealized gains (losses) on securities available for sale at December 31 $ 97,531 $ (1,637,460) $ 487,412 Loans transferred to foreclosed real estate during the year $ 320,992 $ 211,410 $ 178,548 Capital stock distributed as dividend Capital stock $ - $ - $ 59,916 Surplus $ - $ - $ 2,192,935 Three-for-one stock split in the form of a stock dividend Capital stock $ - $ - $ 2,519,833 Surplus $ - $ - $(2,519,833)
The accompanying notes are an integral part of these consolidated financial statements. -18- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Irwin Bank and Trust Company (the Bank). The Bank is a full service state chartered commercial banking institution and provides a variety of financial services to individuals and corporate customers through its five branch offices, a loan center, five supermarket branches and main office located in Southwestern Pennsylvania. The Bank's primary deposit products are non-interest and interest-bearing checking accounts, savings accounts and certificates of deposit. Its primary lending products are single-family and multi-family residential loans, installment loans and commercial loans. Principles of Consolidation: The consolidated financial statements include the accounts of the Bancorp and the Bank. All significant intercompany accounts have been eliminated in the consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties. Investment Securities: All investments in debt and equity securities are to be classified into three categories. Securities which management has positive intent and ability to hold until maturity are classified as held to maturity. Securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount computed on a level yield basis. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. All other securities are classified as available for sale securities. Unrealized holding gains and losses for trading securities are included in earnings. Unrealized holding gains and losses for available for sale securities are excluded from earnings and reported net of income taxes as a separate component of stockholders' equity until realized. At this time, management has no intention of establishing a trading securities classification. Interest and dividends on securities are reported as interest income. Gains and losses realized on sales of securities represent the differences between net proceeds and carrying values determined by the specific identification method. Loans and Allowance for Loan Losses: Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. -19- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The allowance for loan losses is maintained at a level which, in management's judgement, is adequate to absorb potential losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans generally are determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Loans are placed on nonaccrual status when they are 90 days past due, unless they are adequately collateralized and in the process of collection. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation computed on both the straight-line and accelerated methods over the estimated useful lives of the assets. Costs for maintenance and repairs are expensed currently. Cost of major additions or improvements are capitalized. Other Real Estate Owned (OREO): Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Bank's carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Income Taxes: The Bancorp uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The Bancorp files consolidated Federal income tax returns with its subsidiary. Earnings per Share: Earnings per share are calculated on the basis of the weighted average number of shares outstanding. The weighted average shares outstanding, giving retroactive effect of the stock dividend and stock split, described in Note 17, was 3,003,334, 3,023,770 and 3,023,799 for the years ended December 31, 2000, 1999 and 1998, respectively. Cash Equivalents: For purposes of the Statements of Cash Flows, the Bancorp considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Bancorp considers all cash and amounts due from depository institutions, interest-bearing deposits in other banks, except certificates of deposit with maturities of more than three months, and federal funds sold to be cash equivalents for purposes of the statements of cash flows. -20- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reclassification of Prior Year's Statements: Certain previously reported items have been reclassified to conform to the current year's classifications. The reclassifications have no effect on total assets, total liabilities and stockholders' equity, or net income. NOTE 2 -- INVESTMENT SECURITIES Investment securities available for sale consist of the following:
December 31, 2000 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- -------------- ------------- Obligations of U.S. Government Agencies $ 97,470,750 $ 340,966 $ - $ 97,811,716 Obligations of State and political sub-divisions 18,505,643 404,526 - 18,910,169 Mortgage-backed securities 44,679,971 - (548,183) 44,131,788 Other securities 817,265 5,562 (2,200) 820,627 Equity securities 4,149,400 86,186 - 4,235,586 ------------- ------------- ------------- ------------- $ 165,623,029 $ 837,240 $ (550,383) $ 165,909,886 ============= ============= ============= =============
December 31, 1999 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- -------------- ------------- Obligations of U.S. Government Agencies $ 93,081,432 $ - $ (2,337,153) $ 90,744,279 Obligations of State and political sub-divisions 10,855,620 3,791 (323,614) 10,535,797 Mortgage-backed securities 49,245,605 - (2,240,851) 47,004,754 Other securities 577,895 5,713 - 583,608 Equity securities 154,410 76,058 - 230,468 ------------- ------------- ------------- ------------- $ 153,914,962 $ 85,562 $ (4,901,618) $ 149,098,906 ============= ============= ============= =============
-21- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 2 -- INVESTMENT SECURITIES (CONTINUED) Gross realized gains and losses on calls and sales of available-for-sale securities were:
Years Ended December 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Gross realized gains: U.S. Treasury securities $ - $ 21,143 $ - Obligations of U.S. Government Agencies - 9,790 58,191 Obligations of state and political sub-divisions - - 3,121 Mortgage-backed securities - 22,261 - -------- -------- -------- $ - $ 53,194 $ 61,312 ======== ======== ======== Gross realized losses: Obligations of U.S. Government Agencies $106,974 $ 29,687 $ - Mortgage-backed securities - - 20,901 -------- -------- -------- $106,974 $ 29,687 $ 20,901 ======== ======== ========
The amortized cost and estimated market value of the investment securities available for sale at December 31, 2000, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and estimated market value of the investment securities available for sale at December 31, 2000 are as follows: Amortized Market Cost Value ------------ ------------ Due in one year or less $ 7,827,333 $ 7,816,785 Due after one year through five years 43,256,405 43,492,943 Due after five years through ten years 39,670,999 40,015,242 Due after ten years, includes equity securities 74,868,292 74,584,916 ------------ ------------ $165,623,029 $165,909,886 ============ ============ As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Bank is required to maintain a minimum amount of FHLB stock. The minimum amount is calculated based on level of assets, residential real estate loans and outstanding FHLB advances. The Bank held $1,964,300 of FHLB stock at December 31, 2000 and 1999. -22- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 3 -- LOANS Major classifications of loans are as follows: December 31, --------------------------- 2000 1999 ------------ ------------ Mortgage $152,752,889 $130,347,599 Home equity credit 10,067,310 8,885,737 Installment 65,326,867 61,983,558 Commercial 52,675,603 47,293,848 PHEAA 6,631,715 6,166,194 Municipal 5,945,048 6,346,773 Credit cards -- 1,780,360 Other 611,416 210,097 ------------ ------------ 294,010,848 263,014,166 Less: Allowance for loan losses 1,919,327 2,365,874 Deferred loan fees 177,461 146,022 ------------ ------------ $291,914,060 $260,502,270 ============ ============ In 2000, the Bank sold its credit card portfolio for approximately $1,760,000. The realized gain on the sale was approximately $115,000 which is included in other income on the statement of income. The total recorded investment in impaired loans amounted to $0 at December 31, 2000 and approximately $150,000 at December 31, 1999. The allowance for loan losses related to impaired loans amounted to $0 and approximately $22,500 at December 31, 2000 and 1999, respectively. Changes in the allowance for loan losses were as follows: Years Ended December 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Balance, beginning of year $ 2,365,874 $ 2,228,214 $ 2,340,283 Provision charged to operations 300,000 300,000 300,000 Loans charged off (767,486) (175,436) (526,117) Recoveries 20,939 13,096 114,048 ----------- ----------- ----------- Balance, end of year $ 1,919,327 $ 2,365,874 $ 2,228,214 =========== =========== =========== -23- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 NOTE 4 -- PREMISES AND EQUIPMENT Premises and equipment which are stated at cost are as follows: December 31, ------------------------- 2000 1999 ----------- ----------- Land $ 450,466 $ 450,466 Buildings and improvements 5,053,222 4,814,040 Furniture and equipment 4,780,789 4,320,561 ----------- ----------- 10,284,477 9,585,067 Less: Accumulated depreciation 5,384,700 4,856,365 ----------- ----------- $ 4,899,777 $ 4,728,702 =========== =========== Depreciation expense was $528,335 in 2000, $499,068 in 1999 and $482,000 in 1998. Eight of the Bank's branch office buildings and/or land are leased by the Bank. These leases have initial terms of 1 to 20 years, and all contain renewal options for additional years. The following is a summary of the future minimum lease payments under these operating leases: For the year ended December 31, 2001 $ 167,257 2002 145,587 2003 120,625 2004 107,050 2005 and thereafter 621,911 ------------- $ 1,162,430 ============= Rental expense under these operating leases was $149,043, $130,780 and $100,700 for the years ended December 31, 2000, 1999 and 1998, respectively. -24- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 5 -- DEPOSITS Time deposits maturing in years ending December 31, as of December 31, 2000 are summarized as follows: 2001 $140,949,056 2002 39,282,196 2003 14,815,296 2004 3,824,302 2005 and thereafter 6,465,505 ------------- $205,336,355 ============= The Bank held related party deposits of approximately $3,272,000 and $4,541,000 at December 31, 2000 and 1999, respectively. The Bank held time deposits that exceeded $100,000 of $36,942,793 and $34,132,826 at December 31, 2000 and 1999, respectively. NOTE 6 -- REPURCHASE AGREEMENT During 1999, the Bank began offering its corporate customers an investment product fashioned in the form of a repurchase agreement. Under the terms of the agreement, deposits in designated demand accounts of the customer are put into an investment vehicle which is used daily to purchase an interest in designated U.S. Government or Agencies' securities owned by the Bank. The Bank in turn agrees to repurchase these investments on a daily basis and pay the customer the daily interest earned on them. The amount of repurchase agreements was $9,022,190 and $6,456,597 at December 31, 2000 and 1999, respectively. NOTE 7 -- PLEDGED ASSETS At December 31, 2000 and 1999, U.S. Government obligations carried at approximately $37,000,000 and $32,250,000, respectively, were pledged to qualify for fiduciary powers, to secure public monies and for other purposes required or permitted by law. At December 31, 2000 and 1999, the carrying amount of securities pledged to secure repurchase agreements was approximately $14,000,000 and $11,000,000, respectively. -25- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 8 -- INCOME TAXES The provision for income taxes consists of: Years Ended December 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Currently payable $ 2,815,429 $ 3,012,368 $ 2,618,602 Deferred tax (benefit) 144,010 (29,977) 117,974 ----------- ----------- ----------- Total $ 2,959,439 $ 2,982,391 $ 2,736,576 =========== =========== =========== The significant components of temporary differences for 2000, 1999 and 1998 are as follows: Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- Provision for loan losses $ 151,347 $ (46,906) $ 38,201 Depreciation (12,665) (5,387) 10,559 Valuation allowance 550 553 550 Pension 20,168 38,301 67,732 Deferred loan fees (10,689) (722) 10,222 Other (4,701) (15,816) (9,290) --------- --------- --------- Total $ 144,010 $ (29,977) $ 117,974 ========= ========= ========= A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before income taxes is as follows: Years Ended December 31, ------------------------------- % of Pretax Income ------------------------------- 2000 1999 1998 ------ ------ ------ Provision at statutory rate 34.0 % 34.0 % 34.0 % Effect of tax free income (3.1) (2.0) (2.0) Other (0.3) - .1 ------ ------ ------ Effective tax rate 30.6 % 32.0 % 32.1 % ====== ====== ====== -26- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 8 -- INCOME TAXES (CONTINUED) The deferred tax assets and deferred tax liabilities recorded on the balance sheet as of December 31, 2000 and 1999 are as follows: 2000 1999 ------------------------ ------------------------ Deferred Tax Deferred Tax ------------------------ ------------------------ Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Provision for loan losses $ 448,858 $ - $ 600,205 $ - Depreciation - 156,528 - 169,192 Pension expense - 56,506 - 36,339 Other 183,056 - 168,216 - SFAS 115 - 97,531 1,637,460 - ---------- ---------- ---------- ---------- $ 631,914 $ 310,565 $2,405,881 $ 205,531 ========== ========== ========== ========== NOTE 9 -- LONG-TERM DEBT At December 31, 2000 and 1999, the Bank had the following advances from the Federal Home Loan Bank (FHLB). 2000 1999 Interest Rate Maturity Date ----------------- ------------- ------------------------- ----------------- $ 2,000,000 $ 2,000,000 5.88% Fixed March 13, 2001 10,000,000 10,000,000 5.86% Fixed w/Strike Rate July 22, 2004 5,000,000 5,000,000 5.63% Fixed to Float July 21, 2008 5,000,000 5,000,000 4.86% Fixed to Float October 23, 2008 2,000,000 - 7.09% Fixed August 28, 2001 2,000,000 - 7.01% Fixed August 8, 2002 2,000,000 - 6.83% Fixed March 8, 2001 ----------------- ------------- $28,000,000 $ 22,000,000 ================= ============= Interest only is payable until maturity on all long-term debt. Collateral for all debt includes all qualifying mortgages. The Bank had maximum borrowing capacity with FHLB of approximately $216,665,000 and $136,547,000 at December 31, 2000 and 1999, respectively. NOTE 10 -- EMPLOYEE BENEFIT PLANS The Bank maintained one non-contributory defined benefit pension plan for its employees prior to 1995 (Plan #1). In 1995, various plan assumptions were changed which resulted in a reduction in benefits for older and long-standing employees. To compensate for this, a supplemental non-qualified plan was installed for those employees so affected (Plan #2). The Bank's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes for Plan #1. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Assets for the plans are primarily invested in U.S. Government obligations, corporate obligations and equity securities whose valuations are subject to fluctuations of the securities' market. -27- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED) The following is a summary of the plans as of December 31, 2000 and 1999:
2000 1999 1998 ----------- ----------- ----------- Change in Projected Benefit Obligation: Benefit obligation at beginning of year $ 1,765,691 $ 2,279,047 $ 1,986,373 Service cost 150,403 180,192 160,189 Interest cost 122,204 158,453 137,966 Actuarial loss due to settlement - 128,760 - Benefits paid (75,139) (19,100) (18,667) Plan settlement - (840,928) - Other - net (122,751) (120,733) 13,186 ----------- ----------- ----------- Benefit obligation at end of year $ 1,840,408 $ 1,765,691 $ 2,279,047 =========== =========== =========== Change in Fair Value of Plan Assets: Plan assets at estimated fair value at beginning of year $ 2,016,241 $ 2,510,141 $ 2,207,486 Actual return on plan assets 105,065 177,449 177,907 Plan settlement - (840,928) - Benefits paid (75,139) (19,100) (18,667) Employer contributions 168,975 188,679 143,415 ----------- ----------- ----------- Fair value of plan assets at end of year $ 2,215,142 $ 2,016,241 $ 2,510,141 =========== =========== =========== Funded status $ 374,734 $ 250,550 $ 231,094 Unrecognized net loss from actuarial experience 27,502 149,953 134,196 Unrecognized prior service cost (238,486) (256,748) (275,010) Unamortized net asset existing at date of adoption of SFAS No. 87 (39,369) (73,879) (80,912) Settlement - (17,717) - ----------- ----------- ----------- Prepaid pension cost $ 124,381 $ 52,159 $ 9,368 =========== =========== ===========
Net pension expense included the following components:
Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- Service cost - benefits earned during the period $ 150,403 $ 180,192 $ 160,189 Interest cost on projected benefit obligation 122,204 158,453 137,966 Actual return on plan assets (105,065) (177,449) (177,907) Net amortization and deferral (70,789) (33,025) (6,042) --------- --------- --------- Net periodic pension cost $ 96,753 $ 128,171 $ 114,206 ========= ========= =========
The projected benefit obligation for Plan #1 was determined using an assumed discount rate of 7.75% for 2000 and 7.0% for 1999 and 1998 and an expected rate of increase in compensation using a graded scale ranging from 3.5% to 5.5%. The projected benefit obligation for Plan #2 was determined using an assumed discount rate of 7.0% and an expected rate of increase in compensation of 3.5% for 2000, 1999 and 1998. For both plans, the assumed rate of return on the plans' investment earnings was 7.0 % for 2000, 1999 and 1998. -28- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED) The Bank also maintains non-qualified deferred compensation plans for certain directors, which are generally funded by life insurance, the premiums of which have been paid for by the Bank. The present value of these benefits to be paid under the programs is being accrued over the estimated remaining service period of the participants. The liability for these future obligations was $453,806 and $447,836 at December 31, 2000 and 1999, respectively. In addition, the Bank maintains a qualified 401(k) - deferred compensation plan for eligible employees. The plan is designed to provide a predetermined matching contribution by the Bank based on compensation deferrals by participants in the plan. The Bank contributions, including administrative fees, for 2000, 1999 and 1998 amounted to $49,526, $42,228 and $42,753, respectively. NOTE 11 -- COMMITMENTS AND CONTINGENCIES In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in the accompanying financial statements. These commitments and contingent liabilities represent financial instruments with off-balance-sheet risk. The contract or notional amounts of those instruments were comprised of commitments to extend credit approximating $58,436,000 and $51,851,000, as of December 31, 2000 and 1999, respectively, and approximate fair value. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance-sheet instruments. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counterparty. The terms are typically for a one year period, with an annual renewal option subject to prior approval by management. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are comprised primarily of available commercial and personal lines of credit. The exposure to loss under these commitments is limited by subjecting them to credit approval and monitoring procedures. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses. Since many of the commitments are expected to expire without being drawn upon, the total contractual amounts do not necessarily represent future funding requirements. The Bancorp and Bank are involved in various legal actions from normal business activities. Management believes that the liability, if any, arising from such actions will not have a material adverse effect on the financial position of the Bancorp and Bank. -29- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 12 -- RELATED-PARTY TRANSACTIONS At December 31, 2000 and 1999, certain officers and directors of the Bancorp and the Bank, and companies in which they have beneficial ownership, were indebted to the Bank in the aggregate amount of approximately $5,185,000 and $5,651,000, respectively. During 2000, new loans to such related parties were approximately $1,111,000 and repayments approximated $1,577,000. NOTE 13 -- CONCENTRATION OF CREDIT The Bank primarily grants loans to customers in Western Pennsylvania, and maintains a diversified loan portfolio and the ability of its debtors to honor their contracts is not substantially dependent on any particular economic business sector. A substantial portion of the Bank's investments in municipal securities are obligations of state or political subdivisions located within Pennsylvania. As a whole, the Bank's loan and investment portfolios could be affected by the general economic conditions of Pennsylvania. In addition, at December 31, 2000 and 1999, a significant portion of the Bank's "due from banks" and "federal funds sold" is maintained with two large financial institutions located in Southwestern Pennsylvania. The Bank maintains a cash balance and federal funds sold at financial institutions that exceed the $100,000 amount that is insured by the FDIC. Amounts in excess of insured limits, per the institutions' records, were approximately $12,143,000 and $3,627,000 at December 31, 2000 and 199 NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and cash equivalents: The carrying amount is a reasonable estimate of fair value. Certificates of deposit: The carrying amounts of these short term investments approximate their fair value. Investment securities: The fair value of securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Federal Home Loan Bank stock: The carrying value of the FHLB stock is a reasonable estimate of fair value due to restrictions on the securities. Loans receivable: For certain homogeneous categories of loans, fair value is estimated using the quoted market prices for securities backed by similar loans adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities. -30- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Deposit liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Short term borrowings: The carrying amounts of federal funds purchased and borrowings under repurchase agreements are short term borrowings and approximate their fair values. Long term debt: The fair value of long term debt (FHLB advances) was determined using a discounted cash flow analysis based on current FHLB advance rates for advances with similar maturities. The estimated fair value of the Bancorp's financial instruments as of December 31, 2000 are as follows: Carrying Fair Amount Value ------------- ------------- Financial Assets: Cash and cash equivalents $ 21,746,395 $ 21,746,395 Certificates of deposit $ 2,700,000 $ 2,700,000 Investment securities $ 165,909,886 $ 165,909,886 Federal Home Loan Bank Stock $ 1,964,300 $ 1,964,300 Loans receivable $ 291,914,060 $ 291,244,826 Financial liabilities: Deposits $ 409,638,462 $ 410,891,763 Short term borrowings $ 9,022,190 $ 9,022,190 Long term debt $ 28,000,000 $ 28,967,532 The market values of investments, which are based upon quoted market prices, are contained in Note 2. NOTE 15 -- REGULATORY MATTERS The Bank is subject to legal limitations on the amount of dividends that can be paid to the Bancorp. The Pennsylvania Banking Code restricts the payment of dividends, generally to the extent of its retained earnings. -31- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 15 -- REGULATORY MATTERS (CONTINUED) The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios, as set forth below, of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2000 and 1999, that the Bank meets all capital adequacy requirements to which it is subjected. The Bank's actual capital ratios as of December 31, 2000 and 1999, the minimum ratios required for capital adequacy purposes, and the ratios required to be considered well capitalized under the Federal Deposit Insurance Corporation Improvement Act of 1991 provisions are as follows:
December 31, Minimum Well ------------------- Capital Capitalized 2000 1999 Requirements Requirements --------- ------- --------------- --------------- Risk-based capital ratio 16.3% 16.5% 8.0% 10.0% or higher Leverage capital ratio 9.0% 9.0% 3.0% to 4.0% 5.0% or higher Tier 1 risk-based capital ratio 15.6% 15.6% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $3,126,000 and $5,033,000 at December 31, 2000 and 1999, respectively, for facilitating the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These reserves are held in the form of due from banks. NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In addition, certain provisions of this statement will permit, at the date of initial adoption of this Statement, the transfer of any held to maturity security into either the available for sale or trading category and the transfer of any available for sale security into the trading category. Transfers from the held to maturity portfolio at the date of initial adoption will not call into question the entity's intent to hold other debt securities to maturity in the future. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, as amended by FASB No. 137 and 138, is not expected to have any impact on the Bank. the Bank does not intend to adopt SFAS No. 133 earlier than required. -32- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) In November 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement replaces SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of Statements 125's provisions without reconsideration. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is not expected to have any impact on the Bank. NOTE 17 -- CAPITAL STOCK In January 1998, the Bancorp declared a 5% stock dividend to stockholders of record at January 15, 1998, payable February 2, 1998. Fractional shares were paid for in cash, totaling $3,149. The Bancorp issued 47,933 shares of capital stock in conjunction with this dividend. In addition, on December 28, 1998, the Bancorp declared a three-for-one stock split on the Bancorp's capital stock, which was effected in the form of a 200 percent stock dividend. Two additional shares were issued for each share of capital stock held by shareholders of record as of the close of business on January 6, 1999. New share were distributed on January 29, 1999. Par value will remain unchanged at $1.25. The effect of the stock split has been retroactively reflected as of December 31, 1998 in the consolidated statement of changes in stockholders' equity. All references to the number of shares and per share amounts elsewhere in the consolidated financial statements and related footnotes have been restated as appropriate to reflect the effect of the split for all periods presented. NOTE 18 -- TREASURY STOCK In 2000 and 1999, the Bancorp repurchased 19,251 and 2,625 shares of its stock for $601,864 and $87,612, respectively, and is being held as treasury stock. NOTE 19 -- STOCK OPTION PLAN In 2000, the stockholders approved the 2000 Stock Option Plan. Under the terms of the plan, officers, directors, key employees and other persons may be granted options to purchase the company's common stock at no less than 100% of the fair market value of the common stock on the date the option is granted. The Option Plan provides for a term of ten years, after which no awards may be made. Options constitute both Incentive Stock Options or Non-Incentive Stock Options. Options granted to non-employee directors are immediately exercisable and options granted to employees generally vest over three years. Options granted to both non-employee directors and employees have a maximum term of 10 years. At December 31, 2000 a total of 300,000 shares were reserved for future issuance under the plan. In May 2000, 61,000 stock options were granted under this plan at an exercise price of $24.50 per share. -33- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 NOTE 19 -- STOCK OPTION PLAN (CONTINUED) A summary of the status of the Bank's stock option plan as of December 31, 2000, and changes for the year then ended is presented below: Weighted Exercise Average Shares Price ---------------- ---------- Outstanding at the beginning of the year - $ - Granted 61,000 24.50 Expired/forfeited - - Exercised - - ---------------- Outstanding at December 31, 2000 61,000 $ 24.50 ================ Exercisable at December 31, 2000 18,000 ================ The options outstanding at December 31, 2000 had a weighted-average contractual maturity of 9.375 years and an exercise price of $24.50. The per share weighted-average fair value of stock options granted with an exercise price equal to market for the year ended December 31, 2000 was $3.21, using the Black-Scholes option pricing model with the following weighted-average assumptions for 2000: expected life of 7 years, expected annual dividend rate of 4.57%, risk-free interest rate of 5.095%, and an expected volatility of 27%. The Bank accounts for stock options in accordance with Accounting Principles Board Opinion No. 25. Had the Bank determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Bank's net income would have been reduced to the proforma amounts indicated below: Year ended December 31, 2000 ----------------- Net income: As reported $ 6,705,261 Pro Forma 6,667,136 Net income per share: Basic and Diluted as reported 2.23 Basic and Diluted Pro Forma 2.20 -34- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 20 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited) QUARTERS ENDED 2000 --------------------------------------------------- March 31 June 30 September 30 December 31 ---------- ---------- ------------- ----------- Interest income $7,908,984 $8,265,275 $8,628,150 $8,984,705 Interest expense 3,638,514 3,865,929 4,318,206 4,764,919 ---------- ---------- ---------- ---------- Net interest income 4,270,470 4,399,346 4,309,944 4,219,786 Provision for loan losses 75,000 75,000 75,000 75,000 Non-interest income 669,086 742,258 764,567 770,530 Non-interest expense 2,431,387 2,605,445 2,529,051 2,615,404 ---------- ---------- ---------- ---------- Income before income taxes 2,433,169 2,461,159 2,470,460 2,299,912 Income tax expense 781,192 804,911 740,248 633,088 ---------- ---------- ---------- ---------- Net income $1,651,977 $1,656,248 $1,730,212 $1,666,824 ========== ========== ========== ========== Net income per Share of Capital Stock $ 0.55 $ 0.55 $ 0.58 $ 0.55 ========== ========== ========== ========== Weighted average shares outstanding: Basic and Diluted 3,007,597 3,001,923 3,001,923 3,001,923 ========== ========== ========== ========== QUARTERS ENDED 1999 -------------------------------------------------- March 31 June 30 September 30 December 31 ---------- ---------- ------------ ----------- Interest income $7,080,100 $7,150,406 $7,614,167 $7,885,955 Interest expense 3,228,619 3,189,554 3,547,337 3,678,078 ---------- ---------- ---------- ---------- Net interest income 3,851,481 3,960,852 4,066,830 4,207,877 Provision for loan losses 45,000 45,000 105,000 105,000 Non-interest income 601,158 680,365 730,928 751,615 Non-interest expense 2,099,755 2,257,533 2,329,841 2,545,832 ---------- ---------- ---------- ---------- Income before income taxes 2,307,884 2,338,684 2,362,917 2,308,660 Income tax expense 741,114 747,492 760,121 733,664 ---------- ---------- ---------- ---------- Net income $1,566,770 $1,591,192 $1,602,796 $1,574,996 ========== ========== ========== ========== Net income per Share of Capital Stock $ 0.52 $ 0.52 $ 0.53 $ 0.53 ========== ========== ========== ========== Weighted average shares outstanding: Basic 3,023,799 3,023,799 3,023,799 3,023,684 ========== ========== ========== ========== -35- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION The condensed financial information for IBT Bancorp, Inc. as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999 and 1998 is as follows: BALANCE SHEETS December 31 ------------------------- 2000 1999 ----------- ----------- ASSETS Cash in bank $ 3,482 $ 770 Investment in subsidiary 43,894,268 36,975,372 Securities available for sale 457,851 733,363 Other assets 279,780 221,634 ----------- ----------- Total Assets $44,635,381 $37,931,139 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities $ 20,800 $ 25,859 Stockholders' Equity 44,614,581 37,905,280 ----------- ----------- Total Liabilities and Stockholders' Equity $44,635,381 $37,931,139 =========== =========== STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Income Dividends from subsidiary $3,325,000 $2,500,000 $2,100,000 Other dividends 14,141 33,586 32,157 Expenses Professional fees 76,676 84,781 20,979 Miscellaneous 98,356 16,786 14,729 ---------- ---------- ---------- Income Before Income Taxes and Equity in Undistributed Earnings of Subsidiary 3,164,109 2,432,019 2,096,449 Equity in Undistributed Earnings of Subsidiary 3,541,152 3,903,735 3,704,481 ---------- ---------- ---------- Net Income $6,705,261 $6,335,754 $5,800,930 ========== ========== ==========
-36- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,705,261 $ 6,335,754 $ 5,800,930 Adjustments to reconcile net income to net cash provided by operating activities: Decrease in cash due to changes in assets and liabilities: Equity in undistributed earnings of subsidiary (3,541,152) (3,903,735) (3,704,481) Other assets (58,146) - - ----------- ----------- ----------- Net Cash From Operating Activities 3,105,963 2,432,019 2,096,449 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of securities available for sale 260,631 74,773 - Purchase of securities available for sale - - (158,861) ----------- ----------- ----------- Net Cash From (Used By) Investing Activities 260,631 74,773 (158,861) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (2,762,018) (2,419,039) (1,938,380) Purchase of Treasury Stock (601,864) (87,612) - ----------- ----------- ----------- Net Cash Used by Financing Activities (3,363,882) (2,506,651) (1,938,380) ----------- ----------- ----------- Net Change in Cash and Cash Equivalents 2,712 141 (792) Cash and Cash Equivalents at Beginning of Year 770 629 1,421 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 3,482 $ 770 $ 629 =========== =========== ===========
-37- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2000, 1999 and 1998 -------------------------------------------------------------------------------- NOTE 22 -- JOINT VENTURES In 2000, the Bancorp formed a new subsidiary, IBT Financial Services, LLC. The newly formed subsidiary commenced operations in June 2000 and offers a full range of investment products and insurance services to customers and the general public. The Bancorp owns fifty percent of the newly formed company and is accounting for its investment using the equity method. As of December 31, 2000, the corporate joint venture is reflected in the other assets section of the balance sheet at $49,270 which represents the Bancorp's cost in the amount of $125,000 less equity in the undistributed net losses during the year of $75,730. Also in 2000, the Bancorp formed a new partnership, T.A. of Irwin, L.P. This newly formed partnership commenced operations in October 2000 and provides title insurance to the general public. The Bancorp's capital contribution was $13,231 representing an 85% limited partnership interest. The Bancorp is using the equity method to account for its investment in the partnership. As of December 31, 2000, the partnership is reflected in the other assets section of the balance sheet at $8,876 which represents the Bancorp's initial cost less equity in the undistributed net losses during the year of $4,355. -38- IBT BANCORP, INC. Corporate Profile IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation, is the bank holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank is the principal subsidiary of the Company. Irwin Bank & Trust Company was incorporated in 1922 under the laws of Pennsylvania as a commercial bank. The Bank is headquartered in Irwin, Pennsylvania and conducts business through 6 full service branches, 5 supermarket branches, a loan office and a trust office, in the Pennsylvania counties of Westmoreland and Allegheny. Irwin Bank is a diversified financial services institution providing a broad range of deposits, commercial and retail banking services, as well as trust services to consumers and businesses. Deposits in Irwin Bank are insured by the Federal Deposit Insurance Corporation to applicable limits. Stock Market Information The Company's common stock is listed on the OTC Bulletin Board under the symbol "IBTB". As of March 02, 2001, IBT Bancorp, Inc. had approximately 648 shareholders of record and 3,001,923 shares of common stock issued and outstanding. The number of shareholders does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms. The following table sets forth high and low bid prices per share for the common stock for the calendar quarters indicated, based upon information obtained from the OTC Bulletin Board. All such bid prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. On January 29, 1999, the Company paid a 5% stock dividend and a 200% stock dividend (in the form of a three for one stock split), respectively. Cash dividend and market prices set forth in the table below have also been adjusted for the stock dividends declared and paid by the Company. Price Range Cash Dividends High ($) Low ($) Declared Per Share ($) -------- ------- ---------------------- 1999 ---- First Quarter 40.00 28.33 .20 Second Quarter 34.75 32.00 .20 Third Quarter 34.00 31.75 .20 Fourth Quarter 33.38 29.00 .20 2000 ---- First Quarter 33.50 24.00 .23 Second Quarter 27.00 21.50 .23 Third Quarter 22.25 20.00 .23 Fourth Quarter 22.25 20.13 .23 The ability of the Company to pay dividends is dependent upon the ability of Irwin Bank to pay dividends to the Company. Because Irwin Bank is a depository institution insured by the FDIC it may not pay dividends or distribute capital assets if it is in default on any assessment due the FDIC. Additionally, Irwin Bank is also subject to certain state banking regulations. Under Federal Reserve policy, the Company is required to maintain adequate regulatory capital and is expected to act as a source of financial strength to Irwin Bank and to commit resources to support Irwin Bank in circum- -39- stances where it might not do so absent such a policy. This policy could have the effect of reducing the amount of dividends declarable by the Company. 40