EX-13 3 ex-13.txt EXHIBIT 13 IBT BANCORP, INC. 2004 ANNUAL REPORT The Spirit of Community Banking..... [GRAPHIC OMITTED] From Our Home In Irwin To the Heart of Westmoreland County [LOGO] -------------------------------------------------------------------------------- IBT BANCORP, INC. -------------------------------------------------------------------------------- TOTAL ASSETS AS OF 12/31 (IN MILLIONS) [Bar graph with following data points: 2000 $496.4 2001 $524.0 2002 $584.0 2003 $629.5 2004 $675.9] TOTAL EQUITY (IN THOUSANDS) [Bar graph with following data points: 2000 $44,615 2001 $49,725 2002 $56,151 2003 $59,606 2004 $59,843] NET INCOME (IN THOUSANDS) [Bar graph with following data points: 2000 $6,705 2001 $7,465 2002 $8,937 2003 $9,646 2004 $6,085] DILUTED EARNINGS PER SHARE [Bar graph with following data points: 2000 $2.23 2001 $2.49 2002 $2.99 2003 $3.19 2004 $2.02] DIVIDEND PER SHARE [Bar graph with following data points: 2000 $.92 2001 $1.04 2002 $1.20 2003 $1.40 2004 $1.60] SELECTED FINANCIAL INFORMATION IBT BANCORP, INC & SUBSIDIARY
AT OR FOR THE YEARS ENDED 2004 2003 2002 2001 2000 (Dollars in thousands, except per share amounts) SELECTED BALANCE SHEET DATA: Assets $ 675,857 $ 629,530 $ 584,035 $ 524,044 $ 496,379 Cash and cash equivalents 16,187 15,829 15,066 25,218 21,746 Securities available for sale 196,891 172,448 186,718 162,968 167,874 Loans receivable (net) 436,548 416,286 359,872 315,132 291,914 Deposits 526,217 492,158 468,257 422,462 409,638 Repurchase agreements 15,157 12,611 14,526 11,207 9,022 Federal funds purchased - 7,900 - - - FHLB advances 70,265 53,308 40,000 35,000 28,000 Shareholders' equity 59,843 59,606 56,151 49,725 44,615 SELECTED RESULTS OF OPERATIONS Interest income $ 33,726 $ 33,398 $ 33,560 $ 35,185 $ 33,787 Net interest income 21,918 22,083 20,732 18,226 17,200 Provision for loan losses 600 600 1,100 500 300 Net interest income after provision for loan losses 21,318 21,483 19,632 17,726 16,900 Other income 2,690 5,891 5,317 4,009 2,946 Other expense 15,095 14,300 12,831 11,284 10,181 Net income 6,085 9,646 8,937 7,465 6,705 PER SHARE DATA: Net Income Basic $ 2.05 $ 3.24 $ 3.00 $ 2.49 $ 2.23 Diluted 2.02 3.19 2.99 2.49 2.23 Cash dividends declared 1.60 1.40 1.20 1.04 0.92 SELECTED RATIOS: Return on average assets 0.92% 1.59% 1.61% 1.45% 1.44% Return on average equity 10.25% 16.54% 16.95% 15.57% 16.87% Ratio of avg. equity to avg. assets 9.02% 9.59% 9.47% 9.31% 8.52% Dividend payout 78.01% 43.21% 40.00% 41.77% 41.26%
-------------------------------------------------------------------------------- 2004 ANNUAL REPORT -------------------------------------------------------------------------------- A Message To Our Stockholders As the landscape of community banking changes, our commitment to our shareholders and customers remains constant. Eighty-three years ago, with $200,000 in capital, our Company entered the banking business serving the needs of the small community of Irwin, Pennsylvania. Today, with $676,000,000 in assets, we have grown to be the largest financial institution headquartered in Westmoreland County. We are today considered "local" far beyond our original location, yet we remain driven by the traditional values that have defined community banking for nearly a century. 2004 presented some unique challenges for IBT Bancorp, Inc. and its subsidiary, Irwin Bank & Trust Company. Net income declined, brought on by several factors. Regulatory guidelines adversely affected the investment portfolio. In addition, pressure on the net interest margin, caused by the interest rate environment, continue to impact Company earnings and the banking industry as a whole. Despite these challenges, the Company is pleased to report growth in assets, deposits and loans while maintaining control of expenses. Performance Summary. Earnings for 2004 were $6.1 million. Assets increased by 7.4%, deposits increased by 6.9% and net loan growth was $20 million. Shareholder benefit improved with a dividend increase of 14.28% to $1.60 per share. Certain investment securities in the Company's investment portfolio were deemed to be other than temporarily impaired, resulting in a $2.4 million after tax charge to earnings. United States Securities and Exchange Commission rules and generally accepted accounting procedures require that all Company investment securities be assessed on a quarterly basis, for other than temporary impairment. When the market value of a security is less than its cost over a period of time, it can be considered other than temporarily impaired. If management believes that the investment will not regain its original cost in a reasonable amount of time then the amount of the decrease in value must be recognized through earnings. In 2004, widely reported accounting problems at both Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Corporation (Fannie Mae) had a negative impact on the value of those investments. Consequently certain IBT Bancorp, Inc. perpetual preferred stock investments in Freddie Mac and Fannie Mae have been categorized as other than temporarily impaired due to the decline in their market value. In addition, pressure on the net interest margin continued to adversely affect earnings results for 2004. The interest rate environment was unlike that seen for the past 50 years. The resulting downward trend in loan pricing continued to assert pressure on the net interest margin. Deposit rates rose throughout the year while mortgage rates remained relatively flat. Refinancing appears to have peaked after two years of record numbers of originations, causing a decrease in loan volume. Other factors had a favorable impact on performance. Maximum Checking, a new account launched in late 2003, proved to be popular in the marketplace having gathered $19 million in deposits. Debit card income and income from the new Overdraft Advantage program contributed to a 12.5% gain over 2003 levels. Irwin Bank & Trust Company continues to aggressively control costs. Three of our offices will be consolidated in 2005. The three locations, within a 1-1/2 mile corridor, provided an overlap of services in a common market area. The consolidation into one location will present a significant cost savings with little customer impact. 2004 Initiatives Our commitment to community banking values defines our core banking philosophy. However, the definition of community banking is changing every day, influenced by rapid changes in technology, regulation and customer expectations. In this challenging arena lies our commitment to provide our customers with products, services and overall banking value that is second to none. We are pleased with the progress made over recent years that has given Irwin Bank & Trust Company state-of-the-art capability in check imaging, customer electronic transaction and account information delivery, customer 1 -------------------------------------------------------------------------------- IBT BANCORP, INC. -------------------------------------------------------------------------------- [GRAPHIC OMITTED] relationship management (CRM), and product offerings. That effort continued in 2004 with several major marketing and operational initiatives. For business banking, a new account structure was developed and bundled with the Company's advanced electronic and debit card capabilities. Personal Banking received a new student account and a new direct deposit account that comes with free electronic banking. Both personal and business accounts are clearly presented in colorful new brochures that provide easy comparison for the customer. Last September, a second banking location was opened in Greensburg. The new office, located in the downtown business district near the Westmoreland County Courthouse, provides convenience to the professional community. In late September, Overdraft Advantage was introduced, providing customers with the assurance that overdrafts would be paid within structured guidelines. In addition to providing the customer with a service enhancement, service charge income from the product is showing great potential. Throughout the year, sales development continued within our branch network. This initiative has brought us closer to our customers, helping us to better understand and meet their changing needs. The Company will continue to be proactive and prudent in its approach toward product development, operational enhancements and market expansion. Changes on the Board of Directors J. Curt Gardner resigned from the Board of Directors in November of 2004. Mr. Gardner's wisdom and leadership as past President and Chairman of the Board are greatly appreciated. Mr. Robert Rebich, Jr., who has been a Director for over 13 years replaced him as Chairman. Two other Directors also retired in 2004. Mr. Edwin A. Paulone's 40-year tenure as a Company Director deserves special recognition. We also thank Mr. Thomas Beter for his 8 years of service to the Board. We extend our very best wishes to all of our departing Directors. We are pleased to welcome new Directors Mr. John N. Brenzia, Mr. Thomas E. Deger, and Mr. Charles W. Hergenroeder to the Board. Their fresh point of view and years of professional experience will add strength to the leadership process. Moving Ahead Irwin Bank is well positioned to meet the challenges of the future. Loan and deposit growth will continue to be spurred by our good mix of competitive product offerings. The new Greensburg market area is showing steady growth and offers great potential. We continue to consider prudent opportunities to expand our franchise. And, the training and technology are in place for our employees to maximize customer banking relationships. We sincerely appreciate having you as an investor in IBT Bancorp, Inc. /s/Charles G. Urtin /s/Robert Rebich, Jr. Charles G. Urtin Robert Rebich, Jr. President & Chief Executive Officer Chairman of the Board IBT Bancorp, Inc. IBT Bancorp, Inc. 2 -------------------------------------------------------------------------------- 2004 ANNUAL REPORT -------------------------------------------------------------------------------- Board of Directors / Management [GRAPHIC OMITTED] Irwin Bank & Trust Company Management (Back row:) David A. Finui, Senior Vice President/COO Raymond G. Suchta, Senior Vice President/CFO (Front row:) Charles G. Urtin, President/CEO Robert A. Bowell, Executive Vice President/Secretary-Treasurer/CLO IBT Bancorp, Inc. / Irwin Bank & Trust Company Board of Directors (Back row:) Charles W. Hergenroeder, Director; Thomas E. Deger, Director; Charles G. Urtin, President/CEO; Richard J. Hoffman, Director; John N. Brenzia, Director; Dr. Grant J. Shevchik, Director; (Seated front row) Richard L. Ryan, Director; Robert Rebich, Jr., Chairman; Robert C. Whisner, Director. [GRAPHIC OMITTED] (Not pictured, Directors Emeritus) Thomas Beter, William D. Fawcett, Sr., J. Curt Gardner, Edwin A. Paulone, Vincent V. Rodgers. 3 -------------------------------------------------------------------------------- IBT BANCORP, INC. -------------------------------------------------------------------------------- A Fresh Look at Our Product Offerings An important part of community banking is a commitment to deliver the highest level of value in products and services. Building on the outstanding success of Maximum Checking, launched late in 2003, Irwin Bank & Trust Company's entire product line-up was repositioned in 2004. Free Checking, a company signature product, remains in place with one change, applicable to new accounts only. Check Safekeeping is now a default feature, with a $2.00 monthly service charge required for check images. Following implementation of this change, new accounts choosing Check Safekeeping have increased to 90%, an increase of over 30%. This will provide the Company with noteworthy savings in the printing and postage of monthly statements. [GRAPHIC OMITTED] Also new in 2004 was the introduction of Overdraft Advantage, a program that provides eligible customers with assurance that qualifying overdrafts would be paid, avoiding embarrassment and additional fees charged by the check recipient. Next, two new personal accounts were created. Free Checking Plus is for customers utilizing direct deposit. The "Plus" feature is free internet banking with a discounted service charge for bill payment. The other new account is Free Student Checking. This account is essentially the same as Free Checking Plus, but it waives the direct deposit requirement for students. Both accounts come with all of the basic features of standard Free Checking. Free internet banking was also added to Extra Checking in 2004. Irwin Bank & Trust Company now offers a variety of incentives for customers to utilize the convenience of electronic banking. Business banking also enjoyed a major makeover. In addition to a new free small business checking account, a new and unique "relationship" account was created that bundles a larger quantity of items processed with our advanced electronic banking solution for business. The monthly service charge is waived if a higher monthly balance is maintained. Next, our Business Analysis Account was made part of the line up, in order to inform business customers of Irwin Bank & Trust Company's capabilities for higher volume businesses. As part of our overall capabilities presentation, the Company's sophisticated debit card and electronic banking service options were added to the mix, providing the customer with a full range of banking and financial management solutions. As a community bank, Irwin Bank & Trust Company is sometimes challenged by the false perception in the market place of "not being as capable as the big banks." Our new business banking strategy effectively addresses this misconception. [GRAPHIC OMITTED] New account guides clearly present account features and comparisons for both personal and business accounts. Additional services, such as debit card and electronic banking are positioned as a part of the complete deposit banking experience. 4 -------------------------------------------------------------------------------- 2004 ANNUAL REPORT -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Robert A. Bowell, Executive Vice President and Chief Lending Officer, and Barbara A. Burzio, Vice President/Commercial Loans, take a tour of the home of Ms. Lois Runzo, constructed with the help of Irwin Bank financing. Mortgage and construction loans continue to be an important part of the Company's loan business. Lending With interest rates remaining at record low levels throughout the year, borrowers continued to take advantage of opportunities to refinance. A decline in the number of originations indicates that the refinancing boom appears to have peaked in 2004. For the year, Irwin Bank & Trust Company loan portfolios grew $20 million or nearly 5%. All three lending categories, installment, commercial and mortgages reached record highs. Our market area continues to be one of the fastest growing residential markets in Western Pennsylvania, and we see continuing potential for new construction and mortgage financing for the upcoming year. However, with the decrease in refinancing activity, the competitive environment has become more challenging. By continuing to offer the market the best overall lending value, we will maintain a favorable market share. Although pricing and fees play a major role when it comes to loans, service plays an ever-important role. We especially see this in Commercial Lending, where borrowers tell us they do not appreciate lending decisions made across the state and in some cases even out-of-state. Because our loan decisions are made locally and quickly, Irwin Bank & Trust Company enjoys a distinct competitive advantage. With the entire loan process being local, borrowers appreciate the personal relationship they have with us as their local bank and our ability to respond to their specific needs. [GRAPHIC OMITTED] Mr. David Rosenblatt, President of Green Valley Dry Cleaners, Inc., explains the operation of a new Water Economizer System to Stacey G. Winfield, Vice President /Commercial Lending. The equipment, which saves energy and reduces water and sewage costs, was financed by Irwin Bank & Trust Company, participating with the Pennsylvania Department of Community and Economic Development (Pollution Prevention Assistance) and the Southwestern Pennsylvania Corporation (Small Business First Program). 5 -------------------------------------------------------------------------------- IBT BANCORP, INC. -------------------------------------------------------------------------------- Wealth Management Gains Wealth management is becoming an increasingly important part of the Bank's business portfolio due to growing demand from our customers. The Trust Division and UVest Investment Division work together to provide customers with comprehensive investment, estate and employee benefits planning and implementation. 2004 saw impressive gains in non-interest income generated from both areas. [GRAPHIC OMITTED] Mr. James Wolff, President of General Press, shows the capabilities of a new printing press to Scott Fisher, Vice President/Trust Division. The Company's Trust Division manages the employee benefits plan for General Press. Developing a Relationship Culture Unlocking the potential of our employees was an important initiative for 2004. Our strategy was simple: by learning to better understand the banking relationships of our customers, we would improve our retention and cross-selling ratios. The implementation of this sales-oriented program included training, monthly "sales" meetings and deployment of customer marketing information (MCIF) to the customer service staff. As a result, thousands of customer contact calls have been made for a variety of reasons such as maturing loans and CDs, as well as good will calls to high value customers. Customers have expressed appreciation for the program. To their credit, our platform staff has also embraced the program and as a result, the "relationship culture" initiative has enjoyed a successful introduction. [GRAPHIC OMITTED] The Irwin Bank & Trust Company training facility provides a productive learning environment for a variety of operational functions. Teller and sales platform training is now a hands-on experience for trainees. The multiple workstations are also an ideal way to train users of the Marketing Customer Information File and other administrative software programs. 6 -------------------------------------------------------------------------------- 2004 ANNUAL REPORT -------------------------------------------------------------------------------- Community Leadership Community banking requires community involvement and leadership, and Irwin Bank & Trust Company's employees are quick to serve. Company employees serve as members and directors of several organizations, ranging from hospitals, universities and major charities and foundations to local service clubs, youth organizations, school and church groups, and other institutions. Financial support is also provided through contributions made to a variety of fund raising efforts. Some of the year's highlight activities best tell the story. - Throughout the year employees made a substantial contribution to the United Way of Westmoreland County through payroll deductions. - In the fall of 2004, Irwin Bank's Employee Club raised funds for victims of the Hurricane Ivan floods. During the holiday season, the group was also active in several charitable causes including the Salvation Army, Toys for Tots and the Make-A-Wish Foundation. - Irwin Bank & Trust Company financially supports a very long list of local causes through sponsorship, donation or participation in fundraising events. In 2004, the Company played a pivotal role in a major revitalization initiative in its hometown of Irwin, PA, called the "Irwin Project." Building on the inspiration provided by a study of Irwin conducted by Penn State University and the Lincoln Highway Heritage Corridor, Irwin Bank & Trust Company was instrumental in stimulating the start of the effort known as the Irwin Project. The Irwin Project operating committee is a citizen's advisory board in support of Irwin Borough Council and has produced some early results. As a result of the committee's effort, the Westmoreland Cultural Trust has designated Main Street's Thompson Building for major historical renovation. The committee is working to update Irwin's Comprehensive Plan and finance the study through grants and private fund raising. Company support and leadership has helped the Irwin Project get off to a robust start. [GRAPHIC OMITTED] Irwin Bank & Trust Company is a major supporter of the Norwin Public Library, a new, state-of-the-art community institution. [GRAPHIC OMITTED] With financial and leadership stimulus from Irwin Bank & Trust Company, a community revitalization initiative known as the "Irwin Project" began in 2004. As part of the program, the Westmoreland Trust has designated Main Street's Thompson Building for historical renovation. 7 -------------------------------------------------------------------------------- IBT BANCORP, INC. -------------------------------------------------------------------------------- Changes in Our Branch Office Network In order to continue establishing our commitment to the Greensburg market, Irwin Bank & Trust Company opened a second banking facility in the downtown business district. The new Pennsylvania Commons office, located next to the Westmoreland County Courthouse, is conveniently located in the heart of the city's professional community. The location is adjacent to our Trust Division office and is designed for the walk-to convenience of local attorneys and other professionals. Pennsylvania Commons operates as a satellite of the primary Greensburg office, opened last year at Triangle Drive. In 2004, we recognized an opportunity to further improve efficiency by consolidating three branch locations. Pitcairn, Haymaker Village and the Haymaker Village Irwin Bank Extra offices are located in very close proximity and provided redundant services to a common market area. The three offices will be consolidated into our Haymaker Village office. Hours of operation at Haymaker Village will be expanded. As a courtesy to the patrons of the Pitcairn office, we will provide a shuttle bus service from Pitcairn to the Haymaker Village office. Pitcairn residents will also benefit from the additional services available at Haymaker Village, including drive-up, automated teller machine, safe deposit boxes and evening and Saturday hours. The consolidation will be completed on April 15, 2005. Employee Milestones, Promotions & New Hires Irwin Bank & Trust Company's success would not be possible without the hard work and dedication of its employees. In 2004, Beverly A. Hahn was recognized for her 40 years of service. Edwin A. Paulone and Robert C. Whisner, both Directors of the Board, were recognized for their 35 years of service. M. Diane Jones and Maurine J. Peer were recognized for their 30 years of service and Lori B. Gumbert was recognized for her 25 years of service. We are proud to honor these employees for their many years of dedicated service to Irwin Bank & Trust Company. We are also pleased to recognize our officers who achieved higher rank and those who joined Irwin Bank & Trust Company last year. [GRAPHIC OMITTED] Douglas L. Appel Assistant Vice President / Network Administration Promoted April, 2004 [GRAPHIC OMITTED] Barbara A. Burzio Vice President / Commercial Lending Promoted April, 2004 [GRAPHIC OMITTED] William E. Killian Vice President / Business Development Hired January, 2004 [GRAPHIC OMITTED] Alan Lazar Senior Vice President / Commercial Lending Promoted April, 2004 [GRAPHIC OMITTED] Anna Mauro Manager / TA of Irwin Title Insurance Hired June, 2004 [GRAPHIC OMITTED] Robert G. Michaud Vice President / Marketing Promoted April, 2004 [GRAPHIC OMITTED] John A. Pauls, Jr. Assistant Vice President / Auditor Hired May, 2004 [GRAPHIC OMITTED] Barbara A. Ruffner Assistant Vice President / Consumer Lending Promoted June, 2004 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes", "anticipate", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of opening new branches, the ability to control costs and expenses, and general economic conditions. IBT Bancorp, Inc. undertakes no obligation to update those forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL IBT Bancorp, Inc. is a bank holding company headquartered in Irwin, Pennsylvania, which provides a full range of commercial and retail banking services through its wholly owned banking subsidiary, Irwin Bank & Trust Co. (collectively, the "Company"). The Company's stock is traded on the American Stock Exchange under the symbol IRW. CRITICAL ACCOUNTING POLICIES The most significant accounting policies followed by the Company are presented in Note 1 to the consolidated financial statements. The Company's accounting and reporting policies conform with the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for loan losses: The Company considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors. All of these factors may be susceptible to significant change to the extent actual outcomes differ from management's estimates. Additional provisions for loan losses may be required that would adversely impact earnings in future periods. Accounting for stock options: As of January 1, 2003, the Company adopted SFAS 123 as amended by SFAS 148 in regards to the accounting for stock options. As required by this statement, the Company recognized compensation expense in the income statement based on the estimated fair value of the options on the date of the grant. Prior to this date the Company accounted for stock-based compensation in accordance with Accounting Principles Board Opinion (APB) No. 25. Under APB No. 25, no compensation expense is recognized in the income statement related to any options granted under the Company's stock option plans. The pro forma impact to net income and earnings per share that would occur if compensation expense was recognized, based on the estimated fair value of the options on the date of the grant, is disclosed in the notes to the consolidated financial statements. Other-than-temporary impairment: Generally accepted accounting principles require management to examine the investment portfolio for losses on investments, which may be determined to be other than temporary. The Company currently owns certain preferred stocks issued by the Federal National Mortgage Corporation (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These preferred stocks contain attributes of both debt and equity. The dividend paid is tied to an index plus or minus a margin, and the payment rate adjusts bi-annually. Recent, ongoing, negative publicity concerning accounting practices at both agencies have negatively impacted the value of these investments. Management determined that the losses were other than temporary and the Company recorded a non-cash write-down of $2.4 million on these investments. 1 FINANCIAL CONDITION At December 31, 2004, total assets increased $46.4 million, or 7.4%, to $675.9 million from $629.5 million at December 31, 2003. The increase in total assets was primarily the result of an increase of $23.3 million in securities available for sale and $20.2 million net loans. Growth in securities available for sale and the loan portfolio was primarily funded by a net increase of $34.0 million in total deposits and $17.0 million in FHLB advances. The increase in available for sale securities was mainly the result of purchases of $111.6 million offset by net proceeds from maturities and the sales of securities of $85.1 million. This resulted in net increases of mortgage-backed securities and obligations of state and political sub-divisions of $27.3 million and $8.5 million, respectively, offset by net decreases in obligations of U.S. government agencies of $11.9 million. The increase in the loan portfolio was primarily due to increases of $7.2 million in real estate secured mortgage loans, $6.4 million in consumer installment loans, and $3.8 million in loans made to municipalities. The increase in real estate secured mortgage loans was mainly due to increases in multi-family properties and commercial mortgages, which rose $2.7 million and $3.8 million, respectively. Such increases were offset by a decrease of $1.4 million in 1-4 family residential mortgages. This decrease is attributed to customer refinancings, principal repayments, and sales into the secondary mortgage market. The 1-4 family residential mortgage loans originated by the Company are periodically sold to the Pennsylvania Housing Finance Agency ("PHFA") or PHH Mortgage Services to mitigate the interest-rate risk associated with holding long-term, low rate loans in the portfolio. In 2004, loans sold to PHFA and PHH were $1.5 million and $6.1 million, respectively. Consumer installment and municipal loans reached $84.7 million and $10.1 million, respectively, at December 31, 2004 compared to $78.3 million and $6.3 million, respectively at December 31, 2003. The Company's competitive offering rates supported this growth. At December 31, 2004, total liabilities increased $46.1 million, or 8.1%, to $616.0 million from $569.9 million at December 31, 2003. The increase was primarily related to the increase in total deposits and additional FHLB advances of $34.0 million and $17.0 million, respectively offset by a $7.9 million decrease in overnight borrowings. The change in total deposits was a result of non-interest bearing and interest-bearing deposit increases of $6.1 million and $27.9 million, respectively. The interest-bearing deposit increases were primarily in certificates of deposit and interest bearing checking accounts, which rose $15.1 million and $11.7 million, respectively. Such increases were attributed to a growing deposit base and competitive pricing. Non-interest bearing deposits increased $6.1 million to $87.2 million at December 31, 2004 from $81.1 million at December 31, 2003. Such increases reflect additions to non-interest bearing deposits of $8.7 million offset by a $2.6 million increase in investments in repurchase agreements at December 31, 2004. Under the terms of the agreements, deposits in designated demand accounts of the customer are put into an investment vehicle which is used daily to purchase an interest in designated U.S. Government or Agencies' securities. The Company in turn agrees to repurchase these investments on a daily basis and pay the customers the daily interest earned based on the current market rate. See Note 8 to the consolidated financial statements. At December 31, 2004, total stockholders' equity increased $237,000 to $59.8 million from $59.6 million at December 31, 2003. The increase was primarily due to net income of $6.1 million for the period and an increase of $171,000 in accumulated other comprehensive income (net of income taxes) offset by dividends paid of $4.7 million and an increase in treasury stock purchased of $1.0 million. In addition, surplus (additional paid-in capital) decreased $326,000 due to stock options exercised and increased $59,000 due to stock options granted in accordance with the adoption of FASB 123, as amended by FASB 148. See Note 19 to the consolidated financial statements. Accumulated other comprehensive income increased as a result of changes in the net unrealized gain on the available for sale securities due to fluctuations in interest rates. Because of interest rate volatility, the Company's accumulated other comprehensive income could materially fluctuate for each interim period and year-end. See Note 2 to the consolidated financial statements. 2 RESULTS OF OPERATIONS Net Income: Net income decreased approximately $3.5 million, or 36.5%, to $6.1 million ($2.02 per diluted share) for the year ended December 31, 2004 from $9.6 million ($3.19 per diluted share) for the year ended December 31, 2003. The decrease in net income for fiscal 2004 compared to fiscal 2003 was primarily due to a $2.4 million non-cash charge resulting from a decrease in value of certain agency preferred stocks, which was determined by management, to be other than temporary as well as decreases in net interest income and total other income of $165,000 and $775,000, respectively and an increase of $795,000 in total other expenses. Net interest income decreased primarily because interest expense rose $493,000, or 4.4%, offset by an increase of $328,000, or 1.0% in interest income. Increases in interest expense were attributed to an increase of $39.5 million in interest-bearing liabilities offset by a 12-basis point decline in average yield. Other income declined due to lower investment securities gains and lower gains on sales of foreclosed real estate. For the year ended December 31, 2003, net income increased approximately $709,000, or 7.9%, to $9.6 million ($3.19 per diluted share) from $8.9 million ($2.99 per diluted share) for the year ended December 31, 2002. The increase in net income for fiscal 2003 compared to fiscal 2002 was primarily due to a $1.9 million increase in net interest income, a $574,000 increase in other income and a $500,000 decrease in the provision for loan losses. Net interest income increased primarily because interest expense declined $1.5 million, or 11.8%, while interest income remained relatively stable, declining only $162,000, or 0.5%. The Company was able to maintain its levels of interest income due to a $50.0 million increase in the average volume of interest-earning assets, which more than offset a 58-basis point decline in average yield. Net Interest Income: Net interest income is the most significant component of the Company's income from operations. Net interest income is the difference between interest received on interest-earning assets (primarily loans and investment securities) and interest paid on interest-bearing liabilities (primarily deposits and borrowed funds). Net interest income depends on the volume and rate earned on interest-earning assets and the volume and interest rate paid on interest-bearing liabilities. Net interest income decreased $165,000, or 0.7% to $21.9 million for 2004 compared to $22.1 million for 2003. The decrease was primarily due to an increase in average interest-bearing liabilities of $46.6 million offset by a 12-basis point decrease in the average cost of funds. Such increases were mainly in certificates of deposit, which rose an average of $24.7 million offset by a 21-basis point decline in average cost. Average interest earning assets increased $47.8 million in fiscal 2004 offset by a 40-basis point decrease in the average yield of interest earning assets. This increase was primarily in average loans and investment securities available for sale, which grew $36.8 million and $15.4 million, respectively offset by decreases in the average yields of 52-basis points and 24-basis points, respectively. Net interest income increased $1.4 million, or 6.76% to $22.1 million for 2003 compared to $20.7 million for 2002. The increase was primarily due to the increase in average loans of $56.1 million and average investment securities available for sale of $4.1 million offset by a decrease in average other interest-earning assets (primarily federal funds sold) of $10.2 million and a 58-basis point decrease in the yield on average interest earning assets to 5.80% for 2003 from 6.38% for 2002. The decrease in the yield on average interest earning assets was primarily the result of yield decreases in average loans and average investment securities of 68-basis points and 89-basis point, respectively. Average interest-bearing liabilities increased $40.2 million in fiscal 2003 offset by a 58-basis point decrease in the average cost of funds. The following table sets forth certain information relating to the Company's average balance sheet and, reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from daily balances. 3
Year Ended December 31, --------------------------------------------------------------------------------------------- 2004 2003 2002 ----------------------------- ----------------------------- ------------------------------- Average Average Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- (Dollars in Thousands) Interest-earning assets: Loans receivable (1) $430,543 $26,313 6.11% $393,743 $26,097 6.63% $337,600 $24,687 7.31% Investment securities (2) 192,934 7,403 3.84% 177,557 7,244 4.08% 173,472 8,615 4.97% Other interest-earning assets (3) 540 10 1.82% 4,926 57 1.16% 15,086 258 1.71% -------- ------- ------ -------- ------- ------ -------- ------- ------ Total interest earning assets $624,017 $33,726 5.40% $576,226 $33,398 5.80% $526,158 $33,560 6.38% Non-interest earning assets (4) 34,156 31,441 30,550 -------- -------- -------- Total assets $658,173 $607,667 $556,708 ======== ======== ======== Interest-bearing liabilities: Money market accounts 58,103 516 0.89% 61,138 645 1.05% 60,735 1,234 2.03% Certificates of deposit 245,881 7,595 3.09% 221,186 7,303 3.30% 208,789 7,935 3.80% Other liabilities (5) 210,096 3,697 1.76% 185,117 3,367 1.82% 157,629 3,660 2.32% -------- ------- ------ -------- ------- ------ -------- ------- ------ Total interest-bearing liabilities $514,080 $11,808 2.30% $467,441 $11,315 2.42% $427,153 $12,829 3.00% ------- ------ ------- ------ ------- ------ Non-interest-bearing liabilities (4) 84,704 81,918 76,818 -------- -------- -------- Total liabilities $598,784 $549,359 $503,971 Stockholders' Equity (6) 59,389 58,308 52,737 -------- -------- -------- Total liabilities and stockholders' equity $658,173 $607,667 $556,708 ======== ======== ======== Net interest income $21,918 $22,083 $20,731 ======= ======= ======= Interest rate spread (7) 3.10% 3.38% 3.38% ====== ====== ====== Net interest margin(8) 3.51% 3.83% 3.94% ====== ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 121.38% 123.27% 123.18% ====== ====== ======
(1) Average balances include non-accrual loans, and are net of deferred loan fees. [must note if material amount of loans fees included in interest (2) Includes investment securities, interest-bearing deposits in other financial institutions and FHLB stock. (3) Includes Federal funds sold. (4) Includes net deferred income taxes in excess of deferred tax benefits on AFS securities (SFAS 115), stock options (SFAS 123/148) and deferred fees (SFAS 109). (5) Includes FHLB advances and Federal funds purchased, and repurchase agreements. (6) Includes capital stock, surplus and unrealized holding gains on SFAS 115 AFS securities. (7) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (8) Net interest margin represents net interest income as a percentage of average interest earning assets. 4 The following table shows the effect of changes in volumes and rates on interest income and interest expense. The changes in interest income and interest expense attributable to changes in both volume and rate have been allocated to the changes due to rate. Tax-exempt income was not recalculated on a tax equivalent basis due to the immateriality of the change to the table resulting from a recalculation.
Year Ended December 31, Year Ended December 31, ------------------------------- ------------------------------- 2004 vs. 2003 2003 vs. 2002 ------------------------------- ------------------------------- Increase (Decrease) Increase (Decrease) Due to Due to ------------------------------- ------------------------------- Volume Rate Net Volume Rate Net ---------------------------------------------------------------- (In Thousands) Interest income: Loans receivable $ 2,439 $(2,223) $ 216 $ 4,105 $(2,696) $ 1,409 Investment securities 627 (468) 159 203 (1,574) (1,371) Other interest-earning assets (51) 4 (47) (174) (27) (201) ------- ------- ------- ------- ------- ------- Total interest-earning assets 3,015 (2,687) 328 4,134 (4,297) (163) ------- ------- ------- ------- ------- ------- Interest expense: Money market accounts (32) (97) (129) 9 (597) (588) Certificates of deposit 816 (524) 292 471 (1,103) (632) Other liabilities 454 (124) 330 642 (936) (294) ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities 1,238 (745) 493 1,122 (2,636) (1,514) ------- ------- ------- ------- ------- ------- Net change in net interest income $ 1,777 $(1,942) $ (165) $ 3,012 $(1,661) $ 1,351 ======= ======= ======= ======= ======= =======
Provision for Loan Losses: The Company recorded a provision for loan losses of $600,000, $600,000 and $1.1 million for 2004, 2003, and 2002, respectively. The table below sets forth information with respect to activity in the Company's allowance for loan losses for the years indicated:
At December 31, --------------------------------------- 2004 2003 2002 --------- --------- --------- (Dollars in Thousands) Total loans outstanding $ 439,142 $ 419,571 $ 362,744 ========= ========= ========= Average loans outstanding $ 430,543 $ 393,743 $ 337,600 ========= ========= ========= Allowance balances (at beginning of period) $ 3,285 $ 2,873 $ 2,114 Provision (credit): Mortgage 430 430 930 Installment 38 38 25 Commercial 132 132 145 Home equity lines of credit - - - PHEAA - - - Municipal - - - Credit cards - - - Other - - - 5 Net (Charge-offs) recoveries: - - - Mortgage (1,204) (11) (219) Installment (125) (64) (59) Commercial 38 (113) (63) Home equity lines of credit - - - PHEAA - - - Municipal - - - Credit cards - - - Other - - - --------- --------- --------- Allowance balance (at end of period) $ 2,594 $ 3,285 $ 2,873 ========= ========= ========= Allowance for loan losses as a percent of Total loans outstanding 0.59% 0.78% 0.79% Net loans charged off as a percentage of Average loans outstanding 0.30% 0.05% 0.10%
The provision for loan losses is charged to operations to bring the total allowance for loan losses to a level that represents management's best estimate of the losses inherent in the portfolio, based on a monthly review by management of the following factors: o Historical experience o Volume o Type of lending conducted by the Bank o Industry standards o The level and status of past due and non-performing loans o The general economic conditions in the Bank's lending area; and o Other factors affecting the collectability of the loans in the portfolio Large groups of homogeneous loans, such as residential real estate, small commercial real estate loans and home equity and consumer loans are evaluated in the aggregate using historical loss factors and other data. The amount of loss reserve is calculated using historical loss rates, net of recoveries on a five year rolling weighted average, adjusted for environmental, and other qualitative factors such as industry, geographical, economic and political factors that can effect loss rates or loss measurements. Large balance and/or more complex loans such as multi-family and commercial real estate loans may be evaluated on an individual basis and are also evaluated in the aggregate to determine adequate reserves. As specific loans are determined to be impaired, specific reserves are assigned based upon collateral value, market value, if determinable, or the present value of the estimated future cash flows of the loan. The allowance is increased by a provision for loan loss which is charged to expense, and reduced by charge-offs, net of recoveries. Loans are placed on non-accrual status when they are 90 days past due, unless they are adequately collateralized and in the process of collection. The allowance for loan losses is maintained at a level that represents management's best estimate of losses in the portfolio at the balance sheet date. However, there can be no assurance that the allowance for losses will be adequate to cover losses which may be realized in the future and that additional provisions for losses will not be required. 6 Other Income: Total other income decreased approximately $3.2 million, or 54.3% to $2.7 million for the year ended December 31, 2004 from $5.9 million for the year ended December 31, 2003. The decrease in other income was primarily attributable to investment securities losses. Management evaluates its available for sale securities portfolio on a quarterly basis for other than temporary impairment in fair value. Based on this analysis, at December 31, 2004, adjustable rate preferred stocks were written down to fair market value, which resulted in a $2.4 million after tax charge to earnings. Other income decreased $548,000 primarily due to a gain from the sale of other real estate of $351,000 recorded in fiscal 2003. Total other income increased approximately $574,000, or 10.8% to $5.9 million for the year ended December 31, 2003 from $5.3 million for the year ended December 31, 2002. Such increase was mainly the result of net security gains of $466,000. Other income increased $316,000 primarily due to a gain from the sale of other real estate of $351,000. Other Expenses: Total other expense increased $795,000, or 5.6%, to $15.1 million for 2004 from $14.3 million for 2003. Of this increase, approximately $222,000 is attributed to increased salaries, which reached $5.9 million for 2004 from $5.7 million for 2003. Such increases in salaries were mainly the result of staff additions and annual merit increases. Pension and other employee benefits increased $177,000 to $1.8 million for 2004 primarily due to increases in pension costs and health insurance premiums. Occupancy expense increased $218,000 to $1.8 million, for 2004 from $1.5 million for 2003 primarily due to increases in depreciation expenses of $261,000 related to building construction and equipment purchases for technological improvements. Other expenses increased $155,000 to $3.9 million for 2004 from $3.8 million for 2003. Total other expense increased $1.5 million, or 11.7%, to $14.3 million for 2003 from $12.8 million for 2002. Of this increase, approximately $355,000 is attributed to increased salaries, which reached $5.7 million for 2003 from $5.3 million for 2002. Salary increases were due to additions to staff, annual merit increases, and commissions paid to commission based lenders. Pension and other employee benefits increased $324,000 to $1.6 million for 2003 primarily due to increases in pension costs and health insurance premiums of $96,000 and $129,000, respectively. Occupancy expense increased $221,000 to $1.5 million, for 2003 from $1.3 million for 2002 primarily due to an increase of $153,000 in depreciation expense related to the construction of a new branch and equipment purchases for technological improvements. Rental expense increased $42,000 mainly due to the relocation of the Company's item processing department. Other expenses increased $396,000 to $3.8 million for 2003 from $3.4 million for 2002. This increase was comprised of numerous items related to the normal cost of doing business, non-material in nature. Income Taxes: Income tax expense for 2004 was $2.8 million compared to $3.4 million in 2003 and $3.2 million in 2002. The change in income tax expense was principally attributable to the change in earnings in each period. The Company's effective tax rates were 31.7%, 26.2%, and 26.2% for 2004, 2003 and 2002, respectively. The Company's effective tax rate has been below the statutory rate of 34% primarily due to interest earned on obligations of states and political subdivisions, which is exempt from federal taxation. The Company's effective tax rate increased to 31.7% in 2004 from 26.2% in 2003. The rate increased because of the insignificant tax effect concerning the $2.4 million write down of certain preferred stocks that was determined to be other than temporary. The loss on these investments is a capital loss, which can only be used to offset capital gains. The Company had very little in capital gains to offset and the tax benefit related to the $2.4 million write down was $45,000, a tax effect of 1.875%. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds include savings, deposits, loan repayments and prepayments, cash from operations and borrowings from the Federal Home Loan Bank. The Company uses its capital resources principally to fund loan originations and purchases, to repay maturing borrowings, to purchase investments, and for short-term liquidity needs. The Company expects to be able to fund or refinance, on a timely basis, its commitments and long-term liabilities. As of December 31, 2004, the Company had commitments to extend credit of $22.9 million. 7 The Company's liquid assets consist of cash and cash equivalents, which include short-term investments. The levels of these assets are dependent on the Company's operating, financing, and investment activities during any given period. At December 31, 2004, cash and cash equivalents totaled $16.2 million. Net cash from operating activities for 2004 totaled $11.3 million, as compared to net cash from operating activities of $10.1 million for 2003. The increase in 2004 was primarily the result of $2.4 million in write-down of equity securities. Net cash from operating activities for 2003 totaled $10.1 million, as compared to net cash from operating activities of $8.7 million for 2002. The increase in 2003 was primarily the result of a $709,000 increase in net income offset by a decrease of $921,000 in other assets and $500,000 in provision for loan losses. Net cash used by investing activities for 2004 totaled $50.5 million, as compared to cash used of $47.9 million for 2003 and $69.1 million for 2002. The change for 2004 was due to an increase in purchases of securities available for sale and Federal Home Loan Bank stock of $34.8 million and $1.7 million, respectively offset by decreases in the proceeds from the sale and maturities of securities available for sale of $4.2 million, net loans made to customers of $34.4 million and purchases of premises and equipment of $1.7 million. Net cash used by investing activities for 2003 totaled $47.9 million, as compared to cash used of $69.1 million for 2002. The decrease of $21.2 million for 2003 was primarily due to a decrease of $48.4 million in securities purchased. Net cash from financing activities for the year ended December 31, 2004 totaled $39.6 million, as compared to net cash from financing activities of $38.5 million for 2003 and $50.3 million for 2002. The change in 2004 was the result of increased proceeds from FHLB advances of $12.0 million offset by increased repayments of $8.3 million and increases in net deposits of $10.2 million. Such increases were offset by the repayment of $7.9 million in federal funds purchased. Net cash from financing activities for the year ended December 31, 2003 totaled $38.5 million, as compared to net cash from financing activities of $50.3 million for 2002. The $11.8 million decrease in cash from financing activities in 2003 was primarily due to a decrease in the net increase in deposits of $21.9 million. Liquidity may be adversely affected by unexpected deposit outflows, excessive interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable, based in part on the Company's commitment to make loans and management's assessment of the Company's ability to generate funds. The Company is also subject to federal regulations that impose certain minimum capital requirements. The table below sets forth certain information regarding the Company's contractual obligations. See Note 4, Note 7 and Note 10 to the consolidated financial statements
Payments Due By Period ------------------------------------------------------- Less than 1 - 3 3 - 5 More than Contractual Obligations Total 1 year years years 5 years ----------------------------------------------------------------------------------- (In Thousands) ----------------------------------------------------------------------------------- Long-Term Debt Obligations $ 70,265 $ 1,615 $ 7,579 $ 28,071 $ 33,000 Operating Lease Obligations 718 191 162 120 245 Certificates of Deposit 253,298 150,260 57,834 31,597 13,607
OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in its consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage 8 customers' requests for funding and take the form of loan commitments and lines of credit. At December 31, 2004 and 2003, the Company had commitments to extend credit in the amount of $22.9 million and $77.0 million, respectively. During the year ended December 31, 2004, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on its consolidated financial condition, results of operations or cash flows. MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Company's profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. To that end, management actively monitors and manages its interest rate risk exposure. The principle objective of the Company's interest rate risk management is to evaluate the interest rate risk inherent in certain balance sheet accounts, determine the appropriate level of risk given the Company's business strategy, operating environment, capital and liquidity requirements, performance objectives, and manage the risk consistent with the Board of Directors' approved guidelines. Through such management, the Company seeks to minimize the vulnerability of its operations to changes in interest rates. The Company's Asset/Liability Committee is comprised of the Company's senior management under the direction of the Board of Directors, with senior management responsible for reviewing with the Board of Directors its activities and strategies, the effect of those strategies on the Company's net interest margin, the market value of the portfolio and the effect that changes in interest rates will have on the Company's portfolio and the Company's exposure limits. The Company utilizes the following strategies to manage interest rate risk: o When market conditions permit, to originate and hold in its portfolio adjustable rate loans; o Sell fixed rate mortgage loans that conform to Federal National Mortgage Association guidelines when sales can be achieved on terms favorable to the Company; o Lengthen the maturities of its liabilities when deemed cost effective through the utilization of Federal Home Loan Bank advances; o Purchase mortgage-backed securities for the available for sale securities portfolio with cash flows that can be reinvested in higher earning instruments when interest rates rise; and o Generally, maintain securities in the available for sale portfolio that are short term to offset the risk of long term fixed rate mortgage loans in a rising rate environment. The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity or repricing maturity, and the instruments' fair values at December 31, 2004. Market risk sensitive instruments are generally defined as those instruments that can be adversely impacted by changes in market interest rates. The Company currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments, but may do so in the future to mitigate interest rate risk. Expected maturities are contractual maturities adjusted for prepayments of principle. The Company uses certain assumptions to estimate fair values and expected maturities. For assets, expected maturities are based upon contractual maturity, call dates and projected repayments of principle. For interest earning assets, no prepayments are assumed. Interest bearing liabilities, such as negotiable order of withdrawal ("NOW") accounts, money market accounts, and similar interest bearing demand accounts are subject to immediate withdrawal or repricing and are therefore presented in the earliest period in the table. 9 Expected Maturity/Principal Repayment at December 31,
Total Book Fair 2005 2006 2007 2008 2009 Thereafter Value Value ------ ------ ------ ------ ------ ------- ------- ------- (Dollars in thousands) Interest-earning assets ----------------------- Mortgage loans 11,734 14,588 16,156 13,239 14,569 181,828 252,114 250,648 Home equity loans, second mortgage loans, student loans, other loans 15,545 15,022 14,386 13,064 9,805 48,307 116,129 116,586 Commercial loans, municipal loans 14,098 7,667 4,313 3,661 2,203 39,248 71,190 69,338 Investment securities 1,500 - 1,748 364 1,032 184,738 189,383 191,208 Interest-bearing ----------------------- liabilities ----------------------- NOW and other transaction accounts 32,343 - - - - - 32,343 32,343 Money market and other savings accounts 153,327 - - - - - 153,327 153,327 Certificates of deposit 150,260 37,382 20,452 20,103 11,495 13,607 253,298 252,915 Federal Home Loan Bank of Pittsburgh advance 1,614 4,162 3,418 10,071 18,000 33,000 70,265 75,046
IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related financial data presented in this Annual Report have been prepared in accordance with generally accepted accounting principles in the United States, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the Company's operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In 2004, the Financial Accounting Standards Board issued SFAS No. 153, Exchange of Nonmonetary Assets - an amendment of APB Opinion No. 29. The Company does not believe the statement will have a material impact on the Bank or its operations. 10 MANAGEMENT'S REPORT TO SHAREHOLDERS The consolidated financial statements presented are the responsibility of management and are prepared in accordance with generally accepted accounting principles. The financial information contained elsewhere in the annual report is consistent with that in the consolidated financial statements. The financial statements necessarily include amounts that are based on management's best judgments and estimates. In the opinion of management the accounting practices utilized are appropriate in the circumstances and the financial statements fairly reflect the financial position and results of operation of the Company. IBT Bancorp, Inc. maintains a system of internal controls over financial reporting, which is designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company assessed its internal control over financial reporting as of December 31, 2004, based on the criteria for effective internal control over financial reporting as described in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that assessment, the Company believes that, as of December 31, 2004, its system of internal controls over financial reporting met those criteria. The Company's independent auditors, Edwards Sauer and Owens, P.C. have issued an attestation report on management's assessment of the Company's internal controls over financial reporting. Their attestation is included elsewhere in this report. /s/Charles G. Urtin /s/Raymond G. Suchta Charles G. Urtin Raymond G. Suchta President & Senior Vice President & Chief Executive Officer Chief Financial Officer 11 EDWARDS Certified Public Accountants & Business Advisors SAUER & ------------------------------------------------ OWENS, P.C. 500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222 Phone: 412-281-9211 Fax: 412-281-2407 A Professional Corporation www.esocpa.com Direct Dial: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors IBT Bancorp, Inc. Irwin, Pennsylvania We have audited the accompanying consolidated balance sheets of IBT Bancorp, Inc. (the Bancorp) and subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2004. opinlso have audited management's assessment, included in the accompanying Management's Report to Shareholders, that IBT Bancorp, Inc. and subsidiary maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bancorp's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements, an opinion on management's assessment, and an opinion on the effectivesss of the Bancorp's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internmstaontrol over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. EDWARDS SAUER & OWENS, P.C. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control ovsrasinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Bancorp are being made only in accordance with authorizations of management and directors of the Bancorp; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bancorp's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IBT Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended Derol--er 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, management's assessment that IBT Bancorp, Inc. and subsidiary maintained effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, IBT Bancorp, Inc. and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). /s/Edwards Sauer & Owens, P.C. Pittsburgh, Pennsylvania February 8, 2005 CONSOLIDATED BALANCE SHEETS IBT BANCORP, INC. AND SUBSIDIARY
December 31, ------------------------------ 2004 2003 ------------- ------------- ASSETS Cash and due from banks $ 14,641,942 $ 15,391,714 Interest-bearing deposits in banks 515,229 436,981 Federal funds sold 1,030,000 - Certificate of deposit 100,000 100,000 Securities available for sale 191,208,214 167,907,113 Federal Home Loan Bank stock, at cost 5,682,700 4,540,500 Loans, net of allowance for loan losses of $2,593,642 in 2004 and $3,284,830 in 2003 436,548,276 416,286,455 Premises and equipment, net 6,232,280 6,468,749 Other assets 19,898,464 18,398,092 ------------- ------------- Total Assets $ 675,857,105 $ 629,529,604 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 87,248,485 $ 81,053,392 Interest-bearing 438,968,463 411,104,137 ------------- ------------- Total deposits 526,216,948 492,157,529 Federal funds purchased - 7,900,000 Repurchase agreements 15,157,257 12,610,877 Accrued interest and other liabilities 4,374,824 3,947,390 FHLB advances 70,265,314 53,307,767 ------------- ------------- Total liabilities 616,014,343 569,923,563 Stockholders' Equity Capital stock, par value $1.25, 50,000,000 shares authorized, 3,023,799 shares issued, 2,955,455 and 2,977,655 shares outstanding at December 31, 2004 and 2003 respectively 3,779,749 3,779,749 Surplus 1,417,755 1,684,258 Retained earnings 55,789,915 54,451,662 Accumulated other comprehensive income 1,204,744 1,033,638 ------------- ------------- 62,192,163 60,949,307 Less: Treasury stock, at cost (2004 - 68,344 shares; 2003 - 46,144 shares) (2,349,401) (1,343,266) ------------- ------------- Total stockholders' equity 59,842,762 59,606,041 ------------- ------------- Total Liabilities and Stockholders' Equity $ 675,857,105 $ 629,529,604 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, -------------------------------------------- 2004 2003 2002 ------------ ------------ ------------ Interest Income Loans, including fees $ 26,312,685 $ 26,096,559 $ 24,687,048 Investment securities 7,403,199 7,244,174 8,614,876 Federal funds sold 9,835 57,110 258,302 ------------ ------------ ------------ Total interest income 33,725,719 33,397,843 33,560,226 Interest Expense Deposits 8,703,234 8,666,938 10,537,258 Federal funds purchased 92,982 25,933 193 FHLB advances 2,858,623 2,487,363 2,113,678 Repurchase agreements 152,970 134,546 177,464 ------------ ------------ ------------ Total interest expense 11,807,809 11,314,780 12,828,593 ------------ ------------ ------------ Net Interest Income 21,917,910 22,083,063 20,731,633 Provision for Loan Losses 600,000 600,000 1,100,000 ------------ ------------ ------------ Net Interest Income after Provision for Loan Losses 21,317,910 21,483,063 19,631,633 Other Income (Losses) Service fees 2,595,941 2,370,065 2,370,568 Investment security gains 383,290 533,155 158,670 Investment security losses (2,789,571) (67,636) (24,925) Increase in cash surrender value of life insurance 466,923 513,066 584,847 Debit card fees 680,600 614,475 615,517 Other income 1,352,459 1,927,933 1,612,378 ------------ ------------ ------------ Total other income 2,689,642 5,891,058 5,317,055 Other Expenses Salaries 5,875,511 5,653,310 5,297,750 Pension and other employee benefits 1,820,031 1,642,651 1,318,944 Occupancy expense 1,767,950 1,549,532 1,329,170 Data processing expense 916,939 843,074 729,548 Advertising expense 309,032 412,702 406,898 Pennsylvania shares tax 496,802 446,041 391,557 Other expenses 3,908,424 3,752,672 3,357,211 ------------ ------------ ------------ Total other expenses 15,094,689 14,299,982 12,831,078 ------------ ------------ ------------ Income Before Income Taxes 8,912,863 13,074,139 12,117,610 Provision for Income Taxes 2,828,125 3,427,893 3,180,311 ------------ ------------ ------------ Net income $ 6,084,738 $ 9,646,246 $ 8,937,299 ============ ============ ============ Basic Earnings per Share $ 2.05 $ 3.24 $ 3.00 ============ ============ ============ Diluted Earnings per Share $ 2.02 $ 3.19 $ 2.99 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------------ ------------ ------------- ------------ ------------ ------------ Balance at December 31, 2001 $ 3,779,749 $ 2,073,102 $ 43,613,936 $ 1,342,672 $ (1,084,753) $ 49,724,706 Comprehensive Income Net income 8,937,299 8,937,299 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax of $718,036 1,393,742 1,393,742 Reclassification adjustment, net of deferred income tax benefit of ($35,524) (68,958) (68,958) ------------ 1,324,784 ------------ Total Comprehensive Income 10,262,083 Cash dividends ($1.20) (3,577,098) (3,577,098) Purchase of Treasury Stock (258,513) (258,513) ------------- ------------- -------------- ------------- ------------- ------------- Balance at December 31, 2002 $ 3,779,749 $ 2,073,102 $ 48,974,137 $ 2,667,456 $ (1,343,266) $ 56,151,178
The accompanying notes are an integral part of these consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------------ ------------ ------------- ------------ ------------ ------------- Balance at December 31, 2002 $ 3,779,749 $ 2,073,102 $ 48,974,137 $ 2,667,456 $ (1,343,266) $ 56,151,178 Comprehensive Income Net income 9,646,246 9,646,246 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax benefit of ($739,040) (1,434,608) (1,434,608) Reclassification adjustment, net of deferred income tax benefit of ($102,624) (199,210) (199,210) ------------- (1,633,818) ------------- Total Comprehensive Income 8,012,428 Cash dividends ($1.40) (4,168,721) (4,168,721) Stock options granted / vested 102,154 102,154 Exercise of stock options (490,998) (490,998) Purchase of Treasury Stock - - ------------ ------------ ------------- -------------- ------------- -------------- Balance at December 31, 2003 $ 3,779,749 $ 1,684,258 $ 54,451,662 $ 1,033,638 $ (1,343,266) $ 59,606,041
The accompanying notes are an integral part of these consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002
Accumulated Other Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------------ ------------ ------------- ------------ ------------ ------------ Balance at December 31, 2003 $ 3,779,749 $ 1,684,258 $ 54,451,662 $ 1,033,638 $ (1,343,266) $ 59,606,041 Comprehensive Income Net income 6,084,738 6,084,738 Other comprehensive income, net of tax: Change in net unrealized holding gains on securities available for sale, net of deferred income tax benefit of ($688,712) (1,336,912) (1,336,912) Reclassification adjustment, net of deferred income tax of $776,858 1,508,018 1,508,018 ------------- 171,106 ------------- Total Comprehensive Income 6,255,844 Cash dividends ($1.60) (4,746,485) (4,746,485) Stock options granted / vested 59,141 59,141 Exercise of stock options (325,644) (325,644) Purchase of Treasury Stock (1,006,135) (1,006,135) ------------ ------------ ------------- ------------- ------------- ------------- Balance at December 31, 2004 $ 3,779,749 $ 1,417,755 $ 55,789,915 $ 1,204,744 $ (2,349,401) $ 59,842,762 ============ ============ ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 7 CONSOLIDATED STATEMENTS OF CASH FLOWS IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, ----------------------------------------------- 2004 2003 2002 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,084,738 $ 9,646,246 $ 8,937,299 Adjustments to reconcile net cash from operating activities: Depreciation 1,009,989 832,770 684,731 Increase in cash surrender value of insurance (466,923) (513,066) (584,847) Net amortization/accretion of premiums and discounts 1,046,467 1,129,046 429,379 Net investment security gains (19,896) (465,519) (133,745) Loss on write-down of equity securities 2,426,177 - - Provision for loan losses 600,000 600,000 1,100,000 Stock options granted / vested 59,141 102,154 - Increase (decrease) in cash due to changes in assets and liabilities: Other assets 223,003 (921,069) (540,772) Accrued interest and other liabilities 339,288 (311,325) (1,232,409) ------------- ------------- ------------- Net Cash From Operating Activities 11,301,984 10,099,237 8,659,636 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificate of deposit (100,000) (100,000) - Proceeds from maturity of certificate of deposit 100,000 100,000 - Proceeds from sales of securities available for sale 61,556,451 34,800,655 31,725,398 Proceeds from maturities of securities available for sale 23,575,354 54,553,305 72,493,575 Purchase of securities available for sale (111,626,403) (76,835,123) (125,205,572) Net loans made to customers (22,118,272) (56,458,544) (46,265,045) Purchases of premises and equipment (773,520) (2,542,504) (788,236) Proceeds from Federal Home Loan Bank stock 3,763,900 1,772,400 - Purchase of Federal Home Loan Bank stock (4,906,100) (3,160,300) (1,050,800) ------------- ------------- ------------- Net Cash Used By Investing Activities (50,528,590) (47,870,111) (69,090,680) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 34,059,419 23,900,202 45,795,234 Net increase(decrease) in securities sold under agreements to repurchase 2,546,380 (1,914,959) 3,318,764 Net (decrease) increase in federal funds purchased (7,900,000) 7,900,000 - Dividends (4,746,485) (4,168,721) (3,577,098) Proceeds from FHLB advances 28,000,000 16,000,000 7,000,000 Repayment of FHLB advances (11,042,453) (2,692,233) (2,000,000) Purchase of treasury stock (1,006,135) - (258,513) Exercised stock options (325,644) (490,998) - ------------- ------------- ------------- Net Cash From Financing Activities 39,585,082 38,533,291 50,278,387 ------------- ------------- ------------- Net Change in Cash and Cash Equivalents 358,476 762,417 (10,152,657) Cash and Cash Equivalents at Beginning of Year 15,828,695 15,066,278 25,218,935 ------------- ------------- ------------- Cash and Cash Equivalents at End of Year $ 16,187,171 $ 15,828,695 $ 15,066,278 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, ------------------------------------------- 2004 2003 2002 ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES Cash payments for: Interest $ 11,446,837 $ 11,446,828 $ 13,225,782 Income taxes $ 2,634,965 $ 3,671,847 $ 3,543,379 NON CASH TRANSACTIONS Recorded unrealized gains on securities available for sale $ 1,825,368 $ 1,566,116 $ 4,041,600 at December 31 Deferred income taxes on recorded unrealized gains on securities available for sale at December 31 $ 620,625 $ 532,479 $ 1,374,144 Loans transferred to foreclosed real estate during the year $ 1,557,735 $ 301,284 $ 857,681 Recorded nonmonetary (loss) gain on securities available for sale at December 31 $ (2,426,177) $ 11,960 $ 1,986
The accompanying notes are an integral part of these consolidated financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Irwin Bank and Trust Company (the Bank). The Bank is a full service state chartered commercial banking institution and provides a variety of financial services to individuals and corporate customers through its seven branch offices, a loan center, a trust division, five supermarket branches and main office located in Southwestern Pennsylvania. The Bank's primary deposit products are non-interest and interest-bearing checking accounts, savings accounts and certificates of deposit. Its primary lending products are single-family and multi-family residential loans, installment loans and commercial loans. Principles of Consolidation: The consolidated financial statements include the accounts of the Bancorp and the Bank. All significant intercompany accounts have been eliminated in the consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties. Investment Securities: All investments in debt and equity securities are to be classified into three categories. Securities which management has positive intent and ability to hold until maturity are classified as held to maturity. Securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount computed on a level yield basis. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. All other securities are classified as available for sale securities. Unrealized holding gains and losses for trading securities are included in earnings. Unrealized holding gains and losses for available for sale securities are excluded from earnings and reported net of income taxes as a separate component of stockholders' equity until realized. At this time, management has no intention of establishing a trading securities classification. Interest and dividends on securities are reported as interest income. Gains and losses realized on sales of securities represent the differences between net proceeds and carrying values determined by the specific identification method. Advertising Costs: Advertising costs are expensed as incurred. Advertising expense totaled $309,032 for 2004, $412,702 for 2003 and $406,898 for 2002. Loans and Allowance for Loan Losses: Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. The allowance for loan losses is maintained at a level which, in management's judgement, is adequate to absorb potential losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Large groups of smaller balance homogeneous loans are valued collectively for impairment. The amount of loss reserve is calculated using historical loss rates, net of recoveries, adjusted for environmental, and other qualitative factors such as industry, geographical, economic and politcal factors that can affect loss rates or loss measurements. Allowances for losses on specifically identified loans that are determined to be impaired are calculated based upon collateral value, market value, if determinable, or the present value of the estimated future cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Loans are placed on nonaccrual status when they are 90 days past due, unless they are adequately collateralized and in the process of collection. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation computed on both the straight-line and accelerated methods over the estimated useful lives of the assets. Costs for maintenance and repairs are expensed currently. Costs of major additions or improvements are capitalized. Other Real Estate Owned (OREO): Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Bank's carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Income Taxes: The Bancorp uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The Bancorp files consolidated Federal income tax returns with its subsidiary. Earnings per Share: Earnings per share are calculated on the basis of the weighted average number of shares outstanding. The weighted average shares outstanding was 2,966,409, 2,977,655 and 2,980,282 for the years ended December 31, 2004, 2003 and 2002, respectively. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents: For purposes of the Statements of Cash Flows, the Bancorp considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Bancorp considers all cash and amounts due from depository institutions, interest-bearing deposits in other banks, except certificates of deposit with maturities of more than three months, and federal funds sold to be cash equivalents for purposes of the statements of cash flows. Reclassification of Prior Year's Statements: Certain previously reported items have been reclassified to conform to the current year's classifications. The reclassifications have no effect on total assets, total liabilities and stockholders' equity, or net income. NOTE 2 -- INVESTMENT SECURITIES Investment securities available for sale consist of the following:
December 31, 2004 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- ------------- ------------- Obligations of U.S. Government Agencies $ 70,946,760 $ 212,077 $ (56,170) $ 71,102,667 Obligations of State and political sub-divisions 44,986,435 1,697,812 (238,524) 46,445,723 Mortgage-backed securities 64,928,907 422,687 (347,944) 65,003,650 Other securities ......... 713,965 2,023 - 715,988 Equity securities ........ 7,806,779 133,407 - 7,940,186 ------------- ------------- ------------- ------------- $ 189,382,846 $ 2,468,006 $ (642,638) $ 191,208,214 ============= ============= ============= =============
December 31, 2003 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- ------------- ------------- Obligations of U.S. Government Agencies $ 82,462,153 $ 824,768 $ (318,174) $ 82,968,747 Obligations of State and political sub-divisions 35,863,808 2,057,452 - 37,921,260 Mortgage-backed securities 37,012,318 735,791 (91,604) 37,656,505 Other securities ......... 710,005 29,553 - 739,558 Equity securities ........ 10,292,713 140,507 (1,812,177) 8,621,043 ------------- ------------- ------------- ------------- $ 166,340,997 $ 3,788,071 $ (2,221,955) $ 167,907,113 ============= ============= ============= =============
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 2 -- INVESTMENT SECURITIES (CONTINUED) Gross realized gains and losses on calls and sales of available-for-sale securities were:
Years Ended December 31, ------------------------------------ 2004 2003 2002 ---------- ---------- ---------- Gross realized gains: Obligations of U.S. Government Agencies $ 204,102 $ 75,646 $ 42,922 Obligations of state and political sub-divisions 91,855 26,250 760 Mortgage-backed securities - 279,457 113,002 Equity securities 87,333 151,802 1,986 ---------- ---------- ---------- $ 383,290 $ 533,155 $ 158,670 ========== ========== ========== Gross realized losses: Obligations of U.S. Government Agencies $ 363,394 $ - $ - Mortgage-backed securities - 67,636 24,925 Equity securities 2,426,177 - - ---------- ---------- ---------- $2,789,571 $ 67,636 $ 24,925 ========== ========== ==========
In 2004, the Company recorded a $2,426,177 non-cash write-down of certain agency preferred stocks due to an impairment in value that was determined to be other than temporary. The amortized cost and estimated market value of the investment securities available for sale at December 31, 2004, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Market Cost Value ------------ ------------ Due in one year or less $ 1,499,784 $ 1,508,367 Due after one year through five years 3,144,351 3,377,645 Due after five years through ten years 95,774,287 96,071,854 Due after ten years, includes equity securities 88,964,424 90,250,348 ------------ ------------ $189,382,846 $191,208,214 ============ ============ As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Bank is required to maintain a minimum amount of FHLB stock. The minimum amount is calculated based on level of assets, residential real estate loans and outstanding FHLB advances. The Bank held $5,682,700 and $4,540,500 of FHLB stock at December 31, 2004 and 2003, respectively. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 2 -- INVESTMENT SECURITIES (CONTINUED) Temporarily impaired investments consist of the following:
December 31, 2004 ----------------------------------------------------------------------------------- Less Than 12 Months 12 Months or Longer Total ------------------------- ------------------------- ------------------------- Market Unrealized Market Unrealized Market Unrealized Value Losses Value Losses Value Losses ----------- ----------- ----------- ----------- ----------- ----------- Obligations of U.S. Government Agencies $11,969,450 $ (30,550) $ 1,974,380 $ (25,620) $13,943,830 $ (56,170) Mortgage-backed securities 44,556,122 (309,683) 1,524,343 (38,261) 46,080,465 (347,944) Obligations of state and political sub-divisions 9,700,008 (238,524) - - 9,700,008 (238,524) ----------- ----------- ----------- ----------- ----------- ----------- Total temporarily impaired securities $66,225,580 $ (578,757) $ 3,498,723 $ (63,881) $69,724,303 $ (642,638) =========== =========== =========== =========== =========== ===========
Investments are reviewed for declines in value on a quarterly basis. Common stocks currently have market values that are in excess of carrying values. All other investments are interest rate sensitive. These investments earn interest at fixed or adjustable rates. The adjustable rate instruments are generally linked to an index, such as the 3 month libor rate, plus or minus a variable. The value of these instruments fluctuates with interest rates, therefore the changes in value are deemed to be temporary. NOTE 3 -- LOANS Major classifications of loans are as follows: December 31, --------------------------- 2004 2003 ------------ ------------ Mortgage $252,114,219 $244,923,121 Home equity credit 23,201,124 21,963,205 Installment 84,673,524 78,326,060 Commercial 61,139,895 59,591,433 PHEAA 7,354,534 7,833,861 Municipal 10,050,265 6,267,974 Credit cards 44,882 37,890 Other 854,685 965,493 ------------ ------------ 439,433,128 419,909,037 Less: Allowance for loan losses 2,593,642 3,284,830 Deferred loan fees 291,210 337,752 ------------ ------------ $436,548,276 $416,286,455 ============ ============ 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 3 -- LOANS (CONTINUED) The aggregate amount of demand deposit accounts with overdrawn balances that were reclassified as loan balances at December 31, 2004 and 2003 amounted to $715,870 and $407,581, respectively and are included in other loans. The total recorded investment in impaired loans amounted to $1,535,834 at December 31, 2004 and $567,564 at December 31, 2003. The allowance for loan losses related to impaired loans amounted to $412,470 and $283,781 at December 31, 2004 and 2003, respectively. Changes in the allowance for loan losses were as follows: Years Ended December 31, ----------------------------------------- 2004 2003 2002 ----------- ----------- ----------- Balance, beginning of year $ 3,284,830 $ 2,873,067 $ 2,113,806 Provision charged to operations 600,000 600,000 1,100,000 Loans charged off (1,338,749) (242,711) (440,728) Recoveries 47,561 54,474 99,989 ----------- ----------- ----------- Balance, end of year $ 2,593,642 $ 3,284,830 $ 2,873,067 =========== =========== =========== NOTE 4 -- PREMISES AND EQUIPMENT Premises and equipment which are stated at cost are as follows: December 31, ------------------------- 2004 2003 ----------- ----------- Land $ 921,559 $ 791,559 Buildings and improvements 5,955,107 5,889,215 Furniture and equipment 7,413,916 7,298,169 ----------- ----------- 14,290,582 13,978,943 Less: Accumulated depreciation 8,058,302 7,510,194 ----------- ----------- $ 6,232,280 $ 6,468,749 =========== =========== Depreciation expense was $1,009,989 in 2004, $832,770 in 2003 and $684,731 in 2002. Nine of the Bank's commercial branch office buildings and/or land, the Bank's trust division office and an operations facility are leased by the Bank. These leases have initial terms of 1 to 20 years, and all contain renewal options for additional years. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED) The following is a summary of the future minimum lease payments under these operating leases: For the year ended December 31, 2005 $ 191,186 2006 99,737 2007 62,265 2008 59,116 2009 61,099 2010 and thereafter 244,861 --------- $ 718,264 ========= Rental expense under these operating leases was $250,464, $220,981 and $183,005 for the years ended December 31, 2004, 2003 and 2002, respectively. NOTE 5 -- JOINT VENTURE The Bancorp has an 85% limited partnership interest in T.A. of Irwin, L.P. This partnership provides title insurance to the general public. The Bancorp uses the equity method to account for its investment in the partnership. As of December 31, 2004 and 2003, the partnership is reflected in the other assets section of the balance sheet at $20,083 and $21,309, respectively. NOTE 6 -- BANK OWNED LIFE INSURANCE In 2001, the Bank purchased single premium life insurance policies on officers of the Bank at a cost of $10,000,000. At December 31, 2004 and 2003, the cash surrender value of these policies was $11,509,239 and $11,068,593, respectively, and is included in the other assets section of the balance sheet. The increase in cash surrender value of these policies is recorded as other income. NOTE 7 -- DEPOSITS Time deposits maturing in years ending December 31, as of December 31, 2004 are summarized as follows: 2005 $ 150,259,826 2006 37,381,552 2007 20,452,448 2008 20,102,546 2009 11,494,868 2010 and thereafter 13,607,045 -------------- $ 253,298,285 ============== 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 7 -- DEPOSITS (CONTINUED) The Bank held related party deposits of approximately $2,571,000 and $2,750,000 at December 31, 2004 and 2003, respectively. The Bank held time deposits that exceeded $100,000 of $52,560,047 and $42,550,077 at December 31, 2004 and 2003, respectively. NOTE 8 -- REPURCHASE AGREEMENTS The Bank offers its corporate customers an investment product fashioned in the form of a repurchase agreement. Under the terms of the agreement, deposits in designated demand accounts of the customer are put into an investment vehicle which is used daily to purchase an interest in designated U.S. Government or Agencies' securities owned by the Bank. The Bank in turn agrees to repurchase these investments on a daily basis and pay the customer the daily interest earned on them. The amount of repurchase agreements was $15,157,257 and $12,610,877 at December 31, 2004 and 2003, respectively. NOTE 9 -- PLEDGED ASSETS At December 31, 2004 and 2003, U.S. Government Agency obligations carried at approximately $48,257,000 and $25,500,000 respectively, were pledged to qualify for fiduciary powers, to secure public monies and for other purposes required or permitted by law. At December 31, 2004 and 2003, the carrying amount of securities pledged to secure repurchase agreements was approximately $23,525,000 and $9,300,000 respectively. NOTE 10 -- FHLB ADVANCES At December 31, 2004 and 2003, the Bank had the following advances from the Federal Home Loan Bank (FHLB).
2004 2003 Interest Rate Maturity Date -------------- ---------------- ---------------------------- ------------------------- $ - $ 10,000,000 5.86% Fixed w/Strike Rate July 22, 2004 1,250,000 - 2.54% Fixed February 21, 2006 1,250,000 - 2.83% Fixed August 21, 2006 2,233,153 - 2.99% Amortizing-Fixed August 20, 2007 2,000,000 2,000,000 3.67% Fixed September 5, 2007 2,532,161 3,307,767 2.79% Amortizing-Fixed January 28, 2008 5,000,000 5,000,000 5.63% Fixed to Float July 21, 2008 5,000,000 5,000,000 4.86% Fixed to Float October 23, 2008 8,000,000 - 3.48% Fixed w/Strike rate January 20, 2009 10,000,000 - 4.06% Fixed w/Strike rate July 22, 2009 4,000,000 4,000,000 5.18% Fixed w/Strike Rate February 23, 2011 4,000,000 4,000,000 4.98% Fixed to Float March 23, 2011 5,000,000 5,000,000 4.947% Fixed w/Strike Rate August 29, 2011 5,000,000 5,000,000 4.6% Fixed w/Strike Rate January 30, 2012 5,000,000 5,000,000 3.51% Fixed w/Strike Rate January 28, 2013 5,000,000 5,000,000 3.47% Fixed w/Strike Rate March 18, 2013 5,000,000 - 4.05% Fixed to Float August 20, 2014 ------------- ------------ $ 70,265,314 $ 53,307,767 ============= ============
Interest only is payable until maturity on all FHLB advances except for the FHLB advances with maturity dates of August 20, 2007 and January 28, 2008. Collateral for all advances includes all qualifying mortgages. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 10 -- FHLB ADVANCES (CONTINUED) The following is a summary of the principal payments due on FHLB amortizing advances at December 31, 2004.
Original loan amount $ 4,000,000 $ 2,500,000 Interest rate 2.79% 2.99% Monthly payment (includes interest) $ 71,502 $ 72,692 Number of payments 60 36 Maturity date January 28, 2008 August 20, 2007 Principal payments due December 31: 2005 $ 797,525 $ 816,664 2006 820,063 841,420 2007 843,237 575,069 2008 71,336 - --------------------- ---------------- Balance of loan at December 31, 2004 $ 2,532,161 $ 2,233,153 ===================== ==================
In 2004, the Bank renewed its line of credit with the Federal Home Loan Bank in the amount of $20,000,000. The interest rate is variable and was 2.24% at December 31, 2004. The line of credit has an expiration date of May 11, 2005. There was no balance outstanding on the line of credit as of December 31, 2004. The Bank had maximum borrowing capacity with FHLB, including the line of credit, of approximately $308,386,000 and $282,428,000 at December 31, 2004 and 2003, respectively. NOTE 11 -- INCOME TAXES The provision for income taxes consists of:
Years Ended December 31, ----------------------------------------- 2004 2003 2002 ----------- ----------- ----------- Currently payable $ 2,643,614 $ 3,424,374 $ 3,527,269 Deferred tax (benefit) 184,511 3,519 (346,958) ----------- ----------- ----------- Total $ 2,828,125 $ 3,427,893 $ 3,180,311 =========== =========== ===========
The significant components of temporary differences for 2004, 2003 and 2002 are as follows:
Years Ended December 31, ----------------------------------------- 2004 2003 2002 ----------- ----------- ----------- Provision for loan losses $ 153,231 $ (201,201) $ (299,256) Depreciation (14,169) 143,959 32,400 Pension 85,095 28,457 28,461 Deferred loan fees 15,825 74,418 (96,222) Other (55,471) (42,114) (12,341) ----------- ----------- ----------- Total $ 184,511 $ 3,519 $ (346,958) =========== =========== ===========
18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 11 -- INCOME TAXES (CONTINUED) A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before income taxes is as follows: Years Ended December 31, ----------------------------- % of Pretax Income ----------------------------- 2004 2003 2002 ------ ------ ------ Provision at statutory rate 34.0 % 34.0 % 34.0 % Effect of tax free income (6.3) (5.2) (5.4) Other 4.0 (2.6) (2.4) ---- ---- ---- Effective tax rate 31.7 % 26.2 % 26.2 % ==== ==== ==== The deferred tax assets and deferred tax liabilities recorded on the balance sheet as of December 31, 2004 and 2003 are as follows: 2004 2003 ----------------------- ----------------------- Deferred Tax Deferred Tax ----------------------- ----------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Provision for loan losses $ 881,838 $ - $1,035,069 $ - Depreciation - 294,849 - 309,018 Pension expense - 236,052 - 150,957 Other 337,330 28,247 269,437 - SFAS 115 - 620,625 - 532,479 ---------- ---------- ---------- ---------- $1,219,168 $1,179,773 $1,304,506 $ 992,454 ========== ========== ========== ========== NOTE 12 -- SHAREHOLDER RIGHTS PLAN On November 18, 2003, the Board of Directors of the Bancorp adopted a Shareholder Rights Plan. The Board declared a dividend distribution of one Right for each outstanding share of common stock to stockholders of record at the close of business on December 1, 2003. Each Right initially entitled the registered holder to purchase from the Bancorp common stock worth $410 on the date of exercise, for a purchase price of $205, subject to adjustment. Initially, the Rights will be attached to all common stock certificates representing shares then outstanding, and no separate Rights certificate will be distributed. The Rights will separate from the common stock and a distribution date will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person"), has acquired, or obtained the Right to acquire, beneficial ownership of 10% or more of the outstanding shares of common stock ("stock acquisition date") or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 10% or more of such outstanding shares of common stock. The Rights are not exercisable until the distribution date and will expire at the close of business on December 1, 2013, unless earlier redeemed or exchanged by the Bancorp. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 12 -- SHAREHOLDER RIGHTS PLAN (CONTINUED) In the event that at any time following the Rights dividend declaration date, a person becomes the beneficial owner of 10% or more of the then-outstanding shares of common stock, each holder of a Right (other than Rights held by the party triggering the Rights and certain transferees which are voided) will thereafter have the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property, or other securities of the Bancorp subject to certain limitations) having a value equal to two times the exercise price of the Right. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the Rights are no longer redeemable by the Bancorp. NOTE 13 -- COMMITMENTS AND CONTINGENCIES In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in the accompanying financial statements. These commitments and contingent liabilities represent financial instruments with off-balance-sheet risk. The contract or notional amounts of those instruments were comprised of commitments to extend credit approximating $22,872,000 and $76,971,000 as of December 31, 2004 and 2003, respectively, and approximate fair value. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance-sheet instruments. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counterparty. The terms are typically for a one year period, with an annual renewal option subject to prior approval by management. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are comprised primarily of available commercial and personal lines of credit. The exposure to loss under these commitments is limited by subjecting them to credit approval and monitoring procedures. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Since many of the commitments are expected to expire without being drawn upon, the total contractual amounts do not necessarily represent future funding requirements. The Bancorp and Bank are involved in various legal actions from normal business activities. Management believes that the liability, if any, arising from such actions will not have a material adverse effect on the financial position of the Bancorp and Bank. NOTE 14 -- CONCENTRATION OF CREDIT The Bank primarily grants loans to customers in Western Pennsylvania, and maintains a diversified loan portfolio and the ability of its debtors to honor their contracts is not substantially dependent on any particular economic business sector. A portion of the Bank's investments in municipal securities are obligations of state or political subdivisions located within Pennsylvania. As a whole, the Bank's loan and investment portfolios could be affected by the general economic conditions of Pennsylvania. In addition, at December 31, 2004 and 2003, a significant portion of the Bank's "due from banks" and "federal funds sold" is maintained with two large financial institutions located in Southwestern Pennsylvania. The Bank maintains a cash balance and federal funds sold at financial institutions that exceed the $100,000 amount that is insured by the FDIC. Amounts in excess of insured limits, per the institutions' records, were approximately $3,552,000 and $1,201,000 at December 31, 2004 and 2003, respectively. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 15 -- EMPLOYEE BENEFIT PLANS Defined Benefit Plans The Bank maintained one non-contributory defined benefit pension plan for its employees prior to 1995 (Plan #1). In 1995, various plan assumptions were changed which resulted in a reduction in benefits for older and long-standing employees. To compensate for this, a supplemental non-qualified plan was installed for those employees so affected (Plan #2). The Bank's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes for Plan #1. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Assets for the plans are primarily invested in U.S. Government obligations, corporate obligations, equity securities, and mutual funds whose valuations are subject to fluctuations of the securities' market. The actuarial measurement period of October 15, through October 14, was used to determine the components of the net periodic pension cost and the financial disclosures for both plans. The actuarial measurement date of October 15 was used in determining the plans' liabilities and asset information. The following is a combined summary of the plans' components as of December 31, 2004, 2003 and 2002, even though the information has been compiled on the basis of the actuarial measurement period.
2004 2003 2002 ----------- ----------- ----------- Change in Projected Benefit Obligation: Benefit obligation at beginning of year $ 3,331,356 $ 2,739,116 $ 2,253,576 Service cost 256,712 210,043 179,307 Interest cost 216,129 184,275 162,431 Actuarial loss due to settlements 8,099 - - Benefits paid (350,346) (35,897) (161,570) Other - net 193,061 233,819 305,372 ----------- ----------- ----------- Benefit obligation at end of year $ 3,655,011 $ 3,331,356 $ 2,739,116 =========== =========== =========== Change in Fair Value of Plan Assets: Plan assets at estimated fair value at beginning of year $ 2,736,071 $ 2,201,346 $ 2,350,244 Actual return on plan assets, net of expenses 146,318 305,653 (207,196) Plan settlements (42,197) - - Benefits paid (350,346) (35,897) (161,570) Employer contributions 293,275 264,969 219,868 ----------- ----------- ----------- Fair value of plan assets at end of year $ 2,783,121 $ 2,736,071 $ 2,201,346 =========== =========== =========== Funded status $ (871,890) $ (595,285) $ (537,770) Unrecognized net loss from actuarial experience 1,352,122 1,115,107 1,057,676 Unrecognized prior service cost (165,438) (183,700) (201,962) Unamortized net asset existing at date of adoption of SFAS No. 87 (21,774) (27,075) (31,173) Effect of settlements (5,989) - - ----------- ----------- ----------- Prepaid pension cost $ 287,031 $ 309,047 $ 286,771 =========== =========== ===========
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED) Defined Benefit Plans (continued) Net periodic pension cost included the following components:
Years Ended December 31, ----------------------------------- 2004 2003 2002 --------- --------- --------- Service cost $ 256,712 $ 210,043 $ 179,307 Interest cost 216,129 184,275 162,431 Expected return on plan assets (206,976) (167,906) (175,875) Amortization of prior service cost (18,262) (18,262) (18,262) Amortization of transition asset (4,098) (4,098) (4,098) Recognized net actuarial loss 45,043 44,196 8,199 --------- --------- --------- Net periodic pension cost $ 288,548 $ 248,248 $ 151,702 ========= ========= =========
Amounts recognized in the consolidated balance sheets consist of: December 31, ----------------------------------- 2004 2003 2002 --------- --------- --------- Prepaid benefit cost $ 713,304 $ 536,653 $ 500,022 ========= ========= =========
In the months of December 2004, 2003 and 2002, the Bank contributed $480,360, $293,275 and $264,969 respectively, to the plans subsequent to the actuarial measurement dates of October 15, 2004, 2003 and 2002. Because these employer contributions were paid after the actuarial measurement period ended, the Bank's prepaid pension cost at December 31, 2004, 2003 and 2002 was $713,304, $536,653 and $500,002, respectively. The combined accumulated benefit obligation for both plans was $2,675,106 and $2,417,536 at December 31, 2004, and 2003, respectively. Weighted-average assumptions used to determine both the benefit obligations and net periodic pension costs were as follows:
Years Ended December 31, --------------------------------------------------------- 2004 2003 2002 ----------------- ------------------ ------------------ Plan #1 Discount rate 6.25% 6.50% 6.75% Expected long-term return on plan assets 7.00% 7.00% 7.00% Rate of compensation increase 3.50% - 5.50% 3.50% - 5.50% 3.50% - 5.50% Plan #2 Discount rate 7.00% 7.00% 7.00% Expected long-term return on plan assets 6.00% 7.00% 7.00% Rate of compensation increase 3.50% 3.50% 3.50%
The interest rate assumption utilized for the plan valuation methods is 7%. The interest rate assumption is reasonable considering historical rates of return and the asset allocation mix of the plan. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED) Defined Benefit Plans (continued) Pension plan weighted-average asset allocations by investment category are as follows: December 31, ------------------------------- 2004 2003 2002 ---- ---- ---- Cash and cash equivalents 9% 17% 9% Stocks 22% 24% 32% Bonds 12% 16% 13% Mutual funds 33% 30% 29% Government securities 24% 13% 17% --- --- --- Total 100% 100% 100% === === === The Bank's pension plan funds are managed and held in trust by the Bank's Trust Division. The investment objective and strategy for investing plan assets calls for a "Moderate Growth Income Objective". This objective provides for a preservation of the principal's purchasing power and moderate growth and income. The range of equity exposure is from 40 to 80 percent and fixed income maturities to 30 years. The targeted asset allocation percentages for each category of plan assets would reveal a strategy to acquire a higher position in equities to a level of between 50 to 55 percent over the course of the next one to two year period. The investment policies of the plan trustees prohibit the use of derivatives. In addition, the plan assets are diversified appropriately across different business sections for individual securities and the plan trustees have further diversified plan assets by maintaining an investment in mutual funds. Other Employee Benefit Plans The Bank also maintains non-qualified deferred compensation plans for certain directors, which are generally funded by life insurance. Prior to 2002, premiums on those policies were paid for by the Bank. In 2002, the Bank elected to pay those premiums with dividends accruing on the insurance policies. The present value of these benefits to be paid under the programs is being accrued over the estimated remaining service period of the participants. The liability for these future obligations was $588,611 and $473,567 at December 31, 2004 and 2003, respectively. In addition, the Bank maintains a qualified 401(k) - deferred compensation plan for eligible employees. The plan is designed to provide a predetermined matching contribution by the Bank based on compensation deferrals by participants in the plan. The Bank contributions, including administrative fees, for 2004, 2003 and 2002 amounted to $77,362, $68,479 and $57,304, respectively. NOTE 16 -- RELATED-PARTY TRANSACTIONS At December 31, 2004 and 2003, certain officers and directors of the Bancorp and the Bank, and companies in which they have beneficial ownership, were indebted to the Bank in the aggregate amount of approximately $11,565,000 and $10,810,000 respectively. During 2004, new loans to such related parties were approximately $2,352,000 and repayments approximated $1,597,000. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 17 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and cash equivalents: The carrying amount is a reasonable estimate of fair value. Certificates of deposit: The carrying amounts of these short term investments approximate their fair value. Investment securities: The fair value of securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Federal Home Loan Bank stock: The carrying value of the FHLB stock is a reasonable estimate of fair value due to restrictions on the securities. Loans receivable: For certain homogeneous categories of loans, fair value is estimated using the quoted market prices for securities backed by similar loans adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities. Deposit liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings: The carrying amounts of federal funds purchased and borrowings under repurchase agreements are short-term borrowings and approximate their fair values. FHLB advances: The fair value of FHLB advances was determined using a discounted cash flow analysis based on current FHLB advance rates for advances with similar maturities. The estimated fair value of the Bancorp's financial instruments as of December 31, 2004 are as follows: Carrying Fair Amount Value ------------ ------------ Financial Assets: Cash and cash equivalents $ 16,187,171 $ 16,187,171 Certificate of deposit $ 100,000 $ 100,000 Investment securities $191,208,214 $191,208,214 Federal Home Loan Bank stock $ 5,682,700 $ 5,682,700 Loans receivable $436,548,276 $436,572,276 Financial liabilities: Deposits $526,216,948 $525,831,948 Short-term borrowings $ 19,532,081 $ 19,532,081 FHLB advances $ 70,265,314 $ 75,046,314 The market values of investments, which are based upon quoted market prices, are contained in Note 2. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 18 -- REGULATORY MATTERS The Bank is subject to legal limitations on the amount of dividends that can be paid to the Bancorp. The Pennsylvania Banking Code restricts the payment of dividends, generally to the extent of its retained earnings. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios, as set forth below, of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2004 and 2003, that the Bank meets all capital adequacy requirements to which it is subjected. The Bank's actual capital ratios as of December 31, 2004 and 2003, the minimum ratios required for capital adequacy purposes, and the ratios required to be considered well capitalized under the Federal Deposit Insurance Corporation Improvement Act of 1991 provisions are as follows:
December 31, Minimum Well ----------------------------- Capital Capitalized 2004 2003 Requirements Requirements ------------- ------------- -------------------- ---------------- Risk-based capital ratio 14.5% 15.1% 8.0% 10.0% or higher Leverage capital ratio 8.5% 9.1% 3.0% to 4.0% 5.0% or higher Tier 1 risk-based capital ratio 13.9% 14.3% 4.0% 6.0% or higher
Included in cash and due from banks are required federal reserves of $7,032,000 and $4,740,000 at December 31, 2004 and 2003, respectively, for facilitating the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These reserves are held in the form of due from banks. NOTE 19 -- STOCK OPTION PLAN The Bank's Stock Option Plan authorizes the granting of stock options to Bank directors and employees for up to 300,000 shares of common stock. The stock option plan provides for a term of ten years, after which no awards can be made. Under the plan, the exercise price of each option equals the closing market price of the Bank's stock on the grant date, and an option's maximum term is ten years. Options constitute both incentive and non-incentive stock options and are generally granted annually in the month of May. Options granted to directors are vested immediately and are exercisable six months from the grant date and options granted to employees generally vest over three years. As of December 31, 2004, a total of 150,000 stock options have been granted, of which, 85,223 are vested and exercisable, 16,866 have not vested, 38,710 have been exercised and 9,201 have been forfeited. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 19 -- STOCK OPTION PLAN (CONTINUED) A summary of the status of the Bank's stock option plan is presented below:
December 31, -------------------------------------------------------------------------------------- 2004 2003 2002 -------------------------- --------------------------- --------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of year 118,054 $ 30.94 119,709 $ 26.53 94,000 $ 23.97 Granted - $ - 20,500 $ 51.40 35,500 $ 32.88 Forfeitures (5,034) $ 39.34 (1,001) $ 29.58 (3,166) $ 23.79 Exercised (10,931) $ 25.35 (21,154) $ 25.85 (6,625) $ 25.58 -------- -------- -------- Outstanding at December 31, 102,089 $ 31.13 118,054 $ 30.94 119,709 $ 26.53 ======== ======== ======== Exercisable at December 31, 85,223 $ 28.71 73,887 $ 25.54 66,513 $ 25.70 ======== ======== ========
The options outstanding at December 31, 2004, 2003 and 2002 had a weighted-average contractual maturity of 6.68 years, 7.66 years, and 8.2 years, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: December 31, ------------------------------------------- 2004 2003 2002 -------------- ------------ ----------- Dividend yield None granted 2.72% 3.79% Expected life 7 years 7 years Expected volatility 20% 19% Risk-free interest rate 4.00% 3.75% Weighted-average fair value $10.75 $7.46 Prior to 2003, the Bank accounted for stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in 2002 net income, as all options granted during 2002 had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the Bank adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation, prospectively to all employee awards granted in 2003. Awards under the plan vest over periods ranging from six months to three years. Therefore, the cost related to stock-based compensation included in the determination of net income for 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement 123. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 19 -- STOCK OPTION PLAN (CONTINUED) The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each year.
Years Ended December 31, ------------------------------------- 2004 2003 2002 ----------- ----------- ----------- Net income, as reported $ 6,084,738 $ 9,646,246 $ 8,937,299 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 39,034 67,422 - Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tx effects 85,525 151,518 327,483 ----------- ----------- ----------- Pro-forma net income $ 6,038,247 $ 9,562,150$ 8,609,816 =========== =========== =========== Earnings per share: Basic-as reported $ 2.05 $ 3.24 $ 3.00 =========== =========== =========== Basic-pro forma $ 2.04 $ 3.21 $ 2.84 =========== =========== =========== Diluted-as reported $ 2.02 $ 3.19 $ 2.99 =========== =========== =========== Diluted-pro forma $ 2.01 $ 3.17 $ 2.84 =========== =========== ===========
Weighted-average number of shares outstanding assuming dilution of exercisable stock options using the treasury stock method was 3,005,367, 3,020,075 and 2,991,043 for the years ended December 31, 2004, 2003 and 2002, respectively. NOTE 20 -- TREASURY STOCK In 2004 and 2002, the Bancorp repurchased 22,200 and 8,040 shares of its stock for $1,006,135 and $258,513, respectively, and is being held as treasury stock. The Bancorp did not repurchase any shares of its own stock during 2003. NOTE 21 -- RECENT ACCOUNTING PRONOUNCEMENTS In 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29. Management does not believe the statement will have a material impact on the Bank or its operations. In December 2004 the FASB revised SFAS no. 123 Share Based Payments-Supercedes APB Opinion No. 25. The statement eliminates the alternative to use Opinion 25's intrinsic value method of accounting that was provided in Staement 123 as originally issued. This statement requires entities to recognize the cost of employee services received in exchage for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The Company adopted the provisions of Statement 123 in 2003 and is curently in compliance with this statement. See Note 19-Stock Option Plans. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION The condensed financial information for IBT Bancorp, Inc. as of December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 is as follows: BALANCE SHEETS December 31 ------------------------- 2004 2003 ----------- ----------- ASSETS Cash in bank $ 264,390 $ 60,813 Investment in subsidiary 58,868,856 58,771,455 Securities available for sale 513,157 578,603 Other assets 241,717 242,943 ----------- ----------- Total Assets $59,888,120 $59,653,814 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities $ 45,358 $ 47,773 Stockholders' Equity 59,842,762 59,606,041 ----------- ----------- Total Liabilities and Stockholders' Equity $59,888,120 $59,653,814 =========== =========== STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------ 2004 2003 2002 ---------- ---------- ---------- Income Dividends from subsidiary $5,900,000 $3,600,000 $4,000,000 Other dividends 11,916 14,156 14,069 Investment security gains 87,333 151,802 1,986 Income from joint ventures 55,139 218,307 185,541 Expenses Professional fees 97,126 167,658 72,371 Loss on joint venture - - - Miscellaneous 60,636 62,954 33,203 ---------- ---------- ---------- Income Before Income Taxes and Equity in Undistributed Earnings of Subsidiary 5,896,626 3,753,653 4,096,022 Equity in Undistributed Earnings of Subsidiary 188,112 5,892,593 4,841,277 ---------- ---------- ---------- Net Income $6,084,738 $9,646,246 $8,937,299 ========== ========== ==========
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------- 2004 2003 2002 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,084,738 $ 9,646,246 $ 8,937,299 Adjustments to reconcile net income to net cash provided by operating activities: Net undistributed earnings of joint ventures (55,139) (218,307) (185,541) Investment security gains (87,333) (151,802) (1,986) Decrease in cash due to changes in assets and liabilities: Equity in undistributed earnings of subsidiary (188,112) (5,892,593) (4,841,277) ----------- ----------- ----------- Net Cash From Operating Activities 5,754,154 3,383,544 3,908,495 CASH FLOWS FROM INVESTING ACTIVITIES Distributions from joint ventures 56,365 279,137 157,105 Proceeds from sale of securities available for sale 168,033 166,846 - Purchase of securities available for sale (22,355) (1,577) (74,095) ----------- ----------- ----------- Net Cash From Investing Activities 202,043 444,406 83,010 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (4,746,485) (4,168,721) (3,577,098) Purchase of Treasury Stock (1,006,135) - (258,513) ----------- ----------- ----------- Net Cash Used by Financing Activities (5,752,620) (4,168,721) (3,835,611) ----------- ----------- ----------- Net Change in Cash and Cash Equivalents 203,577 (340,771) 155,894 Cash and Cash Equivalents at Beginning of Year 60,813 401,584 245,690 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 264,390 $ 60,813 $ 401,584 =========== =========== ===========
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) IBT BANCORP, INC. AND SUBSIDIARY Years Ended December 31, 2004, 2003 and 2002 NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Quarters Ended 2004 ----------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ----------- ------------ ----------- Interest income $ 8,310,564 $ 8,372,018 $ 8,401,372 $ 8,641,765 Interest expense 2,852,344 2,877,888 2,969,697 3,107,880 ----------- ----------- ----------- ----------- Net interest income 5,458,220 5,494,130 5,431,675 5,533,885 Provision for loan losses 125,000 125,000 40,000 310,000 Non-interest income 1,348,055 1,336,940 1,269,911 1,160,913 Non-interest expense 3,649,837 3,867,618 3,714,607 6,288,804 ----------- ----------- ----------- ----------- Income before income taxes 3,031,438 2,838,452 2,946,979 95,994 Income tax expense 678,843 750,216 785,605 613,461 ----------- ----------- ----------- ----------- Net income $ 2,352,595 $ 2,088,236 $ 2,161,374 $ (517,467) =========== =========== =========== =========== Net income per Share of Capital Stock $ 0.79 $ 0.70 $ 0.73 $ (0.17) =========== =========== =========== =========== Quarters Ended 2003 ----------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ----------- ------------ ----------- Interest income $ 8,493,556 $ 8,338,858 $ 8,381,878 $ 8,183,551 Interest expense 2,973,791 2,826,082 2,736,619 2,778,289 ----------- ----------- ----------- ----------- Net interest income 5,519,765 5,512,776 5,645,259 5,405,262 Provision for loan losses 150,000 150,000 150,000 150,000 Non-interest income 1,440,540 1,686,128 1,581,936 1,182,452 Non-interest expense 3,246,494 3,744,055 3,581,862 3,727,570 ----------- ----------- ----------- ----------- Income before income taxes 3,563,811 3,304,849 3,495,333 2,710,144 Income tax expense 934,406 849,268 933,405 710,813 ----------- ----------- ----------- ----------- Net income $ 2,629,405 $ 2,455,581 $ 2,561,928 $ 1,999,331 =========== =========== =========== =========== Net income per Share of Capital Stock $ 0.88 $ 0.82 $ 0.86 $ 0.67 =========== =========== =========== =========== 30 IBT BANCORP, INC. CORPORATE PROFILE IBT BANCORP, INC. CORPORATE PROFILE IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation, is the bank holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank is the principal subsidiary of the Company. Irwin Bank & Trust Company was incorporated in 1922 under the laws of Pennsylvania as a commercial bank. The bank is headquartered in Irwin, Pennsylvania and conducts business through 8 full service branches, 5 supermarket branches, a loan office, and a trust office in the Pennsylvania counties of Westmoreland and Allegheny. Irwin Bank is a diversified financial services institution providing a broad range of commercial and retail banking services, as well as trust services to consumers and businesses. Deposits in Irwin Bank are insured by the Federal deposit Insurance Corporation ("FDIC") to applicable limits. Stock Market Information The Company's common stock is listed on the American Stock Exchange ("AMEX") under the symbol "IRW". As of March 1, 2005, IBT Bancorp, Inc. had approximately 1,250 shareholders of record and 2,955,455 shares of common stock outstanding. The number of stockholders does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms Price Range Cash Dividends High ($) Low ($) Declared Per Share ($) 2004 First Quarter 62.60 47.85 .40 Second Quarter 48.09 44.87 .40 Third Quarter 51.00 45.50 .40 Fourth Quarter 50.25 45.20 .40 2003 First Quarter 41.41 37.25 .35 Second Quarter 50.05 41.00 .35 Third Quarter 52.25 44.09 .35 Fourth Quarter 62.48 49.65 .35 31 IBT BANCORP, INC. CORPORATE PROFILE The ability of the Company to pay dividends is dependent upon the ability of Irwin bank to pay dividends to the Company. Because Irwin Bank is a depository institution insured by the FDIC it may not pay dividends or distribute capital assets if it is in default on any assessment due the FDIC. Additionally, Irwin Bank is also subject to certain state banking regulations. Under Federal Reserve Policy, the Company is required to maintain adequate regulatory capital and is expected to act as a source of financial strength to Irwin Bank and to commit resources to support Irwin Bank in circumstances where it might not do so absent such a policy. The policy could have the effect of reducing the amount of dividends declarable by the Company. Annual Shareholders Meeting The annual meeting of shareholders of IBT Bancorp, Inc., will be held on Tuesday April 19, 2005 at 2:00 PM local time, at the Irwin Masonic Hall, located at 417 Main Street, Irwin Pennsylvania 15642. Form 10-K The Annual Report for the year ended December 31, 2004 filed with the Securities and Exchange Commission on Form 10-K, is available without charge upon written request. For a copy of the Form 10-K please contact: Raymond G. Suchta, Senior Vice President and Chief Financial Officer, IBT Bancorp, Inc., 309 Main Street, Irwin, PA 15642. Transfer Agent Independent Auditors Registrar and Transfer Company Edwards Sauer & Owens, P.C. Investor Relations 500 Warner Centre 10 Commerce Drive Pittsburgh, PA 15222 Cranford, New Jersey 07016-3572 1-800-368-5948 Special Counsel Malizia, Spidi & Fisch, PC 1100 New York Avenue, NW Suite 340 West Washington, D.C. 20005 32
2004 ANNUAL REPORT IRWIN BANK & TRUST COMPANY OFFICERS Robert Rebich, Jr., Chairman of the Board IRWIN BANK & TRUST COMPANY LOCATIONS Charles G. Urtin, President/CEO Robert A. Bowell, Executive Vice President/ Main Office Monroeville Secretary-Treasurer/CLO 309 Main Street Haymaker Village David A. Finui, Senior Vice President/COO Irwin, PA 15642 4580 Broadway Blvd. Raymond G. Suchta, Senior Vice President/CFO 724-863-3100 Monroeville, PA 15146 Alan Lazar, Senior Vice President/Commercial Loans 412-858-4450 Louis C. Bouchat, Vice President/Commercial Loans Loan Center Barbara A. Burzio, Vice President/Commercial Loans 319 Main Street Penn Township Lisa A. Dawson, Vice President/Loan Administration Irwin, PA 15642 4021 Route 130 Scott J. Fisher, Vice President/Trust 724-863-3100 Irwin, PA 15642 Jay Gordon, Vice President/Commercial Loans 724-744-2176 Donald D. Henderson III, Vice President/Operations Trust Division Debra S. Hopper, Vice President/Human Resources Suite 204 Pitcairn William E. Killian, Vice President/Business Development 20 N. Pennsylvania Avenue 512 Broadway Blvd. Robert G. Michaud, Vice President-Marketing Greensburg, PA 15601 Pitcairn, PA 15140 Scott D. Porterfield, Vice President/Branch Administration/ 724-836-2010 412-372-3838 Business Development Kristin S. Robertucci, Vice President/Accounting Branch Offices Route 30 James W. Thompson, Vice President/Commercial Loans Greensburg 9570 Route 30 Stacey G. Winfield, Vice President/Commercial Loans 4 Triangle Drive Irwin, PA 15642 John R. Winter, Vice President/Commercial Loans Greensburg, PA 15601 724-863-2510 Douglas L. Appel, Vice President/Network Administration 724-837-5000 Jeffrey Branthoover, Assistant Vice President/ White Oak Trust Division Greensburg (PA Commons) Oak Park Mall Barbara J. DelBene, Assistant Vice President/ 20 N. Pennsylvania Avenue 2003 Lincoln Way Branch Manager - White Oak Greensburg, PA 15601 White Oak, PA 15131 Mary Ann Ernette, Assistant Vice President-UVEST Financial Services 724-837-5000 412-678-3000 Keith M. Frid, Assistant Vice President/Auditor Sheli L. Fyock, Assistant Vice President/ Marketing/Assistant Secretary Irwin Bank Extra Locations Beverly A. Hahn, Assistant Vice President/ Ft. Allen Branch Manager - Penn Township Inside Hempfield Shop N' Save Nancy J. McCullough, Assistant Vice President/ Greensburg, PA 15601 Branch Manager - Route 30 724-853-8540 John A. Pauls, Jr., Assistant Vice President/Auditor Maurine J. Peer, Assistant Vice President/ Irwin-North Huntingdon Branch Manager - Main Office Inside Scozio's Shop N' Save Darwin H. Poole, Assistant Vice President/ Norwin Hills Shopping Center Data Processing 8775 Norwin Avenue Barbara A. Ruffner, Assistant Vice President/Consumer Loans North Huntingdon, PA 15642 Linda D. Shaner, Assistant Vice President/ 724-861-8701 Commercial Loans Nancy A. Smith, Assistant Vice President/ Monroeville Mortgage Lending Inside Haymaker Village Giant Eagle Thomas R. Stephenson, Assistant Vice President/ 4548 Broadway Blvd. Loan Review Monroeville, PA 15146 Kathleen T. Jaquette-Tosh, Assistant Vice President/ 412-856-5330 Branch Manager - Greensburg Eugene S. Bender, Assistant Trust Officer Penn Crossing Carolyn Sue Bozzick, Retail Banking Officer/Manager - Inside Scozio's Festival Foods Haymaker Village 2000 Penny Lane Deborah L. Kukic, Training Officer Jeannette, PA 15644 Denise Y. Poole, Operations Officer 724-744-6111 Sandra L. Schwaderer, Retail Banking Officer/ Manager - Pitcairn White Oak Richard Zelazny, Assistant Vice President/UVEST Financial Services Inside Scozio's Shop N' Save Oak Park Mall 2001 Lincoln Way White Oak, PA 15131 412-664-0984
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