SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
IBT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1532164
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(State or other jurisdiction of incorporation (IRS employer ID no.)
or organization)
309 Main Street, Irwin, Pennsylvania 15642
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (724) 863-3100
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None N/A
---- ---
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $1.25 par value per share
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(Title of class)
<PAGE>
Item 1. Business.
General
IBT Bancorp, Inc. (the "Company"), headquartered in Irwin,
Pennsylvania, is a Pennsylvania business corporation which is a bank holding
company. The Company was incorporated on August 6, 1986 for the purpose of
acquiring Irwin Bank & Trust Company of Pennsylvania (the "Bank") and thereby
enabling the Bank to operate within a bank holding company structure. The Bank
is a wholly-owned subsidiary of the Company.
The Company's principal activities consist of owning and supervising
the Bank, which engages in a full service mortgage, commercial and consumer
banking business, as well as trust and a variety of deposit services provided to
its customers. The Company, through the Bank, derives substantially all of its
income from the furnishing of banking and banking related services.
The Company directs the policies and coordinates the financial
resources of the Bank. The Company provides and performs various technical and
advisory services for the Bank, coordinates the Bank's general policies and
activities, and participates in the Bank's major decisions.
On January 20, 1998, the Company declared a 5% stock dividend resulting
in the issuing of 47,933 shares of capital stock. In addition, on December 28,
1998, the Company declared a three-for-one split in the form of a 200% stock
dividend payable to all shareholders of record on January 6, 1999. All
references in this registration statement to per share data have been restated
as appropriate to reflect the effect of the split for all periods presented.
Irwin Bank & Trust Company of Pennsylvania
The Bank was incorporated in 1922 under the laws of Pennsylvania as a
commercial bank under the name "Irwin Savings and Trust Company."
The Bank engages in a full service mortgage, commercial and consumer
banking business, as well as trust and a variety of deposit services provided to
its customers. At December 31, 1998 the Bank operated through its main office,
five branch offices and a loan center as well as through three supermarket
branches under the name "Irwin Bank Extra." The Bank's main office, full service
branch offices, loan center, and supermarket branches are located in the
Pennsylvania counties of Westmoreland and Allegheny.
The Bank has instituted "In-Touch Banking" which offers customers
24-hour access to their accounts. In February 1999, the Bank set up a web site
at www.irwinbank.com and opened an additional supermarket branch in Westmoreland
county.
Lending Activities
General. The Bank originates mortgage loans, installment loans, commercial
loans, home equity lines of credit, education loans through the Pennsylvania
Higher Education Assistance Agency ("PHEAA"), municipal loans and credit card
loans. Mortgage loans consist of one- to-four family residential loans,
commercial real estate loans and construction loans. Commercial real estate
loans primarily consist of mortgage loans secured by multi-family dwelling
units. Installment loans primarily consist of home equity
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loans. The following table sets forth information concerning the types of loans
held by the Bank on the dates indicated.
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<TABLE>
<CAPTION>
At December 31,
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1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------
$ % $ % $ % $ % $ %
--------- ------ -------- ------ --------- ----- -------- ----- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans:
Mortgage................... $123,494 51.31% $107,240 48.97% $ 99,118 50.28% $ 87,772 49.00% $ 73,722 48.27%
Installment................ 52,418 21.78 45,321 20.69 38,595 19.58 34,389 19.20 30,249 19.81
Commercial................. 45,232 18.79 42,003 19.18 38,517 19.54 35,399 19.76 29,808 19.52
Home equity credit......... 8,588 3.57 8,860 4.05 8,723 4.42 9,457 5.28 9,757 6.39
PHEAA...................... 5,043 2.10 4,604 2.10 4,632 2.35 4,589 2.56 4,272 2.80
Municipal.................. 3,616 1.50 7,870 3.59 4,733 2.40 4,828 2.70 2,950 1.93
Credit cards............... 1,808 0.75 2,022 0.93 2,228 1.13 2,119 1.18 1,479 0.96
Other...................... 477 0.20 1,081 0.49 585 0.30 584 0.32 490 0.32
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans.................. 240,676 100.00% 219,001 100.00% 197,131 100.00% 179,137 100.00% 152,727 100.00%
====== ====== ====== ====== ======
Less:
Loans in process........... -- -- -- -- --
Unearned discount.......... -- -- 1 10 33
Deferred loan origination
fees and costs........... 144 174 213 160 137
Allowance for loan losses.. 2,228 2,340 2,240 1,969 1,685
------- ------- ------- ------- -------
Total loans, net............. $238,304 $216,487 $194,677 $176,998 $150,872
======= ======= ======= ======= =======
</TABLE>
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<PAGE>
Loan Maturity Table. The following table sets forth maturities and
interest rate sensitivity for all categories of loans as of December 31, 1998.
Scheduled repayments are reported in the maturity category in which payment is
due.
<TABLE>
<CAPTION>
Home
Equity PHEAA Credit
Mortgage Credit(2)Installment Commercial (1) Municipal Cards(2) Other Total
-------- -------- ----------- ---------- --- --------- -------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year or less............$ 14,004 $ 8,588 $ 9,127 $ 3,542 $ -- $ 3,616 $ 1,808 $ 477 $ 41,162
------- ------ ------ ------ ----- ------ ------- ----- -------
After 1 year:
1 to 5 years............ 24,297 -- 26,803 12,792 5,043 -- -- -- 68,935
After 5 years........... 85,193 -- 16,488 28,898 -- -- -- -- 130,579
------- ------ ------ ------ ----- ----- ----- ----- -------
Total due after one year.. 109,490 -- 43,291 41,690 5,043 -- -- -- 199,514
------- ------ ------ ------ ----- ----- ----- ----- -------
Total amount due..........$123,494 $ 8,588 $52,418 $45,232 $5,043 $3,616 $1,808 $ 477 $240,676
======= ====== ====== ====== ===== ===== ===== ===== =======
</TABLE>
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(1) PHEAA loans are sold when repayment begins; assumption is that all PHEAA
loans will mature in 1 to 5 years.
(2) Home equity credit are lines of credit. Home equity credit lines and credit
cards have no stated maturities; therefore, they are classified as due in
one year or less.
The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- ------------
(In Thousands)
Mortgage(1) ....... $100,650 $ 8,840 $109,490
Installment......... 42,407 884 43,291
Commercial.......... 24,937 16,753 41,690
Home equity credit.. -- -- --
PHEAA............... -- 5,043 5,043
Municipal........... -- -- --
Credit Cards........ -- -- --
Other............... -- -- --
------- ------ -------
Total.......... $167,994 $31,520 $199,514
======= ====== =======
- --------------------------
(1) Commercial real estate loans that are fixed rate loans are primarily
callable loans which reprice every three, five or ten years based upon the
interest rate on similar loans at the time of repricing.
Mortgage Loans. At December 31, 1998, the Bank had approximately $61.0
million of one- to- four family residential mortgage loans in its mortgage loan
portfolio. The Bank generally originates one-to-four family residential mortgage
loans in amounts of up to 80% of the appraised value of the mortgaged property
without requiring mortgage insurance. The Bank will originate residential
mortgage loans in an amount up to 95% of the appraised value of a mortgaged
property, however, mortgage insurance for the borrower is required. The Bank
offers residential fixed rate loans and adjustable rate loans with a 30 year
amortization period. Interest rates for adjustable rate loans for residences
adjust every six months based
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upon the current six month U.S. treasury bill rate, plus an upward adjustment of
up to 3%. These adjustable rate loans have an interest rate cap of 2% per year
and 5% over the life of the loan, and are originated for retention in the
portfolio.
Fixed rate loans are underwritten according to Federal National
Mortgage Association ("FNMA") guidelines. The Bank sells fixed rate mortgage
loans in the secondary market. The Bank generally charges a higher interest rate
if such loans originated do not meet the FNMA guidelines. At December 31, 1998,
$73.0 million, or 58.9%, of the Bank's mortgage portfolio consisted of long-term
fixed rate mortgage loans of which $979,000 were classified as held for sale.
Substantially all of the Bank's one- to-four family mortgages include
"due on sale" clauses, which are provisions giving the Bank the right to declare
a loan immediately payable if the borrower sells or otherwise transfers an
interest in the property to a third party.
Property appraisals on real estate securing the Bank's one- to-four
family residential loans are made by appraisers approved by the Board of
Directors. Appraisals are performed in accordance with applicable regulations
and policies. The Bank obtains title insurance policies on all purchase money
first mortgage real estate loans originated.
The Bank's commercial real estate mortgage loans are permanent loans
secured primarily by multi-family dwelling units. Essentially all originated
commercial real estate loans are within the Bank's market area. Commercial real
estate loans are originated at both fixed rate and adjustable rates of interest.
Fixed rate loans are primarily callable loans having terms of up to 15 years,
with principal and interest payments calculated using up to a 20 year
amortization period. Callable loans reprice every three, five or ten years based
upon the interest rate on similar loans at the time of repricing. Adjustable
rate commercial mortgage loans have interest rates set at the six month U.S.
treasury bill rate, plus an upward adjustment of up to 3.75%. Adjustable rate
commercial mortgage loans have terms of up to 20 years and have no maximum
interest rate.
As of December 31, 1998, the Bank's commercial real estate loans
totaled $52.0 million, or 42.0%, of the Bank's mortgage portfolio. The largest
commercial real estate loan had a balance of $2.1 million on December 31, 1998
and was performing in accordance with its contractual terms. Typically,
commercial real estate loans are originated in amounts up to 75% of the
appraised value of the mortgaged property.
The Bank also originates loans to finance the construction of
one-to-four family dwellings. Generally, the Bank only makes interim
construction loans to individuals if it also makes the permanent mortgage loan
on the property. Interim construction loans generally have terms of up to nine
months with fixed rates of interest. At December 31, 1998, such loans totaled
$2.1 million, or 1.7%, of the Bank's total mortgage loan portfolio.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Bank may be
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confronted, at or prior to the maturity of the loan, with a project having a
value which is insufficient to assure full repayment.
Installment. Installment loans primarily consist of home equity term
loans and to a lesser extent automobile loans. Home equity loans are secured
primarily by one- to-four family residences. The Bank originates these loans
with fixed rates with terms of up to 20 years. These loans are subject to 80%
combined loan-to-value limitation, including any outstanding mortgages or liens.
The Bank originates automobile loans with fixed rates of interest and terms of
up to five years. At December 31, 1998, home equity loans totaled $25.3 million.
Commercial Loans. Commercial business loans consist of equipment,
accounts receivables, inventory, and other business purpose loans. Such loans
are secured by either the underlying collateral and/or by the personal
guarantees of the borrower.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself and the general economic environment.
Home Equity Lines of Credit. These revolving home equity lines of
credit are secured primarily by one- to four- family residences. The lines of
credit are subject to an 80% combined loan to value limitation, including all
outstanding mortgages and liens.
Loan Approval Authority and Underwriting. The Bank establishes various
lending limits for its officers and maintains an officer review committee.
Certain officers generally have authority to approve loans up to $100,000. Loans
between $100,000 and $500,000 are approved by an officers review committee
("ORC"). The ORC consists of the President and at least four other officers
appointed by the President. All loans over $500,000 are approved by a majority
of the Board of Directors.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are performed by
independent appraisers.
Title insurance is generally required on all purchase money real estate
mortgage loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property that is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved mortgage loans. Generally, the commitment requires
acceptance within 30 days of the date of issuance. At December 31, 1998,
commitments to cover originations of mortgage loans totaled $1.5 million.
Loans to One Borrower. Federal regulations limit loans to one borrower
in an amount equal to 15% of unimpaired capital and unimpaired surplus. If the
loan is secured by readily marketable collateral, the limit is 25% of unimpaired
capital and unimpaired surplus. At December 31, 1998, the Bank's loan to one
borrower limit was approximately $5.7 million. At December 31, 1998, the Bank's
largest loan to one borrower was $4.8 million and was secured by real estate
properties in Westmoreland County.
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Classified Assets. Federal regulations provide for a classification
system for problem assets of insured institutions, including assets previously
treated as "scheduled items." Under this classification system, problem assets
of insured institutions are classified as "substandard," "doubtful" or "loss."
An asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection of principal in
full," on the basis of currently existing facts, conditions and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
"substandard" or "doubtful," it may establish allowances for loan losses in an
amount deemed prudent by management. When an insured institution classifies
problem assets as "loss," it is required either to establish an allowance for
losses equal to 100% of that portion of the assets so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its allowances is subject to review by the Federal
Deposit Insurance Corporation ("FDIC") which may order the establishment of
additional loss allowances.
At December 31, 1998, the Bank had a total of $5.5 million and $3.1
million, respectively, of the loan portfolio classified as "special mention" and
"substandard". The Bank had no assets classified as "doubtful" or "loss."
Other Real Estate Owned. Real estate acquired by the Bank as a result
of foreclosure or by deed in lieu of foreclosure is classified as other real
estate owned until such time as it is sold. When other real estate owned is
acquired, it is recorded at the lower of the unpaid balance of the related loan
or its fair value less disposal costs. Any write-down of other real estate owned
is charged to operations.
Allowance for Losses on Loans and Other Real Estate Owned. It is the
policy of management to provide for losses on unidentified loans in its
portfolio in addition to classified loans. A provision for loan losses is
charged to operations based on management's evaluation of the potential losses
that may be incurred in the Bank's loan portfolio. Management also periodically
performs valuations of other real estate owned and establishes allowances to
reduce book values of the properties to their net realizable values when
necessary.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loan loss provisions
may be deemed necessary. There can be no assurance that the allowance for loan
losses will be adequate to cover losses which may be realized in the future. In
addition, there can be no assurance that additional provisions for losses on
loans and other real estate owned will not be required.
Nonperforming and Problem Assets
Loan Delinquencies. When a loan becomes 16 days past due, a notice of
nonpayment is sent to the borrower. Telephone collection calls, letters and/or
visits to the borrower are initiated within 16 days of the due date missed in an
effort to resolve the delinquency. Generally, if the loan continues in a
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delinquent status for 90 days past due and no repayment plan has been reached,
foreclosure, liquidation or other legal proceedings may be initiated.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when the loan becomes more than 90 days delinquent and when, in our
opinion, the collection of additional interest is doubtful. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent interest payments, if any, are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. No
loans were categorized as troubled debt restructurings within the meaning of
SFAS 15 and no impaired loans within the meaning of SFAS 114, as amended by SFAS
118.
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<TABLE>
<CAPTION>
At December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage..................................... $ -- $ 29 $ -- $ -- $ -
Installment.................................. -- -- 5 1 --
Commercial................................... 12 205 114 18 22
Home equity credit........................... -- -- -- -- -
PHEAA........................................ -- -- -- -- --
Municipal.................................... -- -- -- -- --
Credit cards................................. -- -- -- -- --
Other........................................ -- -- -- -- --
---- ---- ---- ---- ----
Total.......................................... 12 234 119 19 22
==== ==== ==== ==== ====
Accruing loans which are contractually past
due 90 days or more:
Mortgage..................................... 788 362 493 703 606
Installment.................................. 3 21 7 53 46
Commercial................................... 629 631 250 111 104
Home equity credit........................... -- -- -- -- -
PHEAA........................................ -- -- -- -- --
Municipal.................................... -- -- -- -- --
Credit cards................................. 8 9 11 11 --
Other........................................ -- -- -- -- --
----- ----- ----- ----- -----
Total.......................................... 1,428 1,023 761 878 756
----- ----- ----- ----- -----
Total non-accrual and accrual loans............ 1,440 1,257 880 897 778
----- ----- ----- ----- -----
Other real estate owned........................ 128 37 53 30 178
----- ----- ----- ----- -----
Other non-performing assets.................... -- -- -- -- --
----- ----- ----- ----- -----
Total non-performing assets.................... $1,568 $1,294 $933 $927 $956
===== ===== ===== ===== =====
Total non-accrual and accrual loans
to net loans................................. 0.60% 0.58% 0.45% 0.51% 0.52%
===== ===== ===== ===== =====
Total non-accrual and accrual loans to
total assets................................. 0.35% 0.34% 0.27% 0.30% 0.29%
===== ===== ===== ===== =====
Total non-performing assets to total assets.... 0.38% 0.35% 0.28% 0.31% 0.35%
===== ===== ===== ===== =====
</TABLE>
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<PAGE>
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding.................. $240,532 $218,827 $196,917 $178,967 $152,557
======= ======= ======= ======= =======
Average loans outstanding................ $226,984 $205,399 $186,845 $163,471 $144,280
======= ======= ======= ======= =======
Allowance balances (at beginning of
period)................................$ 2,340 $ 2,240 $ 1,969 $ 1,685 $ 1,528
Provision (credit):
Mortgage.............................. 30 30 41 38 24
Installment........................... 30 30 41 38 24
Commercial............................ 225 225 308 285 192
Home equity credit.................... -- -- -- -- -
PHEAA................................. -- -- -- -- --
Municipal............................. -- -- -- -- --
Credit cards.......................... 15 15 20 19 --
Other................................. -- -- -- -- --
Net (charge-offs) recoveries:............ -- -- -- -- --
Mortgage............................... 19 10 -- -- -
Installment............................ 28 27 56 32 30
Commercial............................. 324 104 59 20 53
Home equity credit..................... -- 11 -- 25 -
PHEAA.................................. -- -- -- -- --
Municipal.............................. -- -- -- -- --
Credit cards........................... 41 48 24 19 --
Other.................................. -- -- -- -- --
-------- ------- -------- -------- --------
Allowance balance (at end of period).....$ 2,228 $ 2,340 $ 2,240 $ 1,969 $ 1,685
======== ======= ======== ======== ========
Allowance for loan losses as a percent
of total loans outstanding............. 0.93% 1.07% 1.14% 1.10% 1.10%
Net loans charged off as a percent of
average loans outstanding.............. 0.18% 0.10% 0.07% 0.06% 0.06%
</TABLE>
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<PAGE>
Allocation of the Allowance For Loan Losses. The following table sets
forth the allocation of the Bank's allowance for loan losses by loan category
and the percent of loans in each category to total loans at the date indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- ---------------- ----------------- ---------------- ----------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------- -------- ------- --------- ------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
Mortgage...................... $ 604 51.31% $ 565 48.97% $ 588 50.28% $ 508 49.00% $ 284 48.27%
Installment................... 380 21.78 324 20.69 294 19.58 270 19.20 273 19.81
Commercial.................... 1,100 18.79 1,301 19.18 1,224 19.54 1,050 19.76 995 19.52
Home equity credit............ 44 3.57 45 4.05 43 4.42 47 5.28 49 6.39
PHEAA......................... 8 2.10 7 2.10 7 2.35 7 2.56 6 2.80
Municipal..................... 5 1.50 12 3.59 6 2.40 7 2.70 4 1.93
Credit cards.................. 80 0.75 71 0.93 74 1.13 74 1.18 62 0.96
Other......................... 7 0.20 15 0.49 4 0.30 6 0.32 12 0.32
----- ------- ----- ------- ----- ------- ----- ------- ----- -------
Total allowance................. $2,228 100.00% $2,340 100.00% $ 2,240 100.00% $1,969 100.00% $1,685 100.00%
===== ======= ===== ======= ===== ======= ===== ======= ===== =======
</TABLE>
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Investment Securities Activities
General. The investment policy of the Bank is established by senior
management and approved by the Board of Directors. It is based on asset and
liability management goals and is designed to provide a portfolio of high
quality investments that optimize interest income and provides acceptable limits
of safety and liquidity.
The Bank's investment goal is to invest available funds in instruments
that meet specific requirements of the Bank's asset and liability management
goals. The investment activities of the Bank consist primarily of investments in
federal funds, securities issued or guaranteed by the United States Government
or its agencies, states and political subdivisions and equity securities.
Investment Portfolio. The following table sets forth the carrying value of the
Bank's investment securities portfolio at the dates indicated:
At December 31
-------------------------------
1998 1997 1996
---------- ---------- ---------
(Dollars in Thousands)
Securities available for sale:
Obligations of U.S. government agencies.........$ 69,540 $ 70,725 $ 54,991
Mortgage-backed securities...................... 33,227 21,611 23,356
Obligations of state and political subdivisions. 8,200 6,929 7,746
U.S. Treasury securities........................ 5,616 6,627 7,672
Equity securities(1)............................ 1,557 1,410 1,215
Other securities................................ 638 499 363
------- -------- -------
Total securities available for sale.......... 118,778 107,801 95,343
------- -------- -------
Securities held to maturity:
U.S. government agencies........................ 2,500 5,500 7,500
Mortgage-backed securities...................... 69 355 455
------- -------- -------
Total securities held to maturity............ 2,569 5,855 7,955
------- -------- -------
Total investment and mortgage-backed
securities.................................$121,347 $113,656 $103,298
======= ======= =======
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(1) Includes Federal Home Loan Bank stock.
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<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding carrying values, weighted average yields, and maturities
of the Bank's investment securities portfolio as of December 31, 1998. Actual
maturities may differ from contractual maturities as certain instruments have
call features which allow prepayment of obligations.
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------------------------------------------------------------------------
After Five More than
One Year or Less One to Five Years to Ten Years Ten Years Total Investment Securities
---------------- ----------------- ----------------- ----------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- -------- ------- -------- -------- -------- ------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of U.S.
government agencies...... $ 4,510 7.13% $25,210 6.19% $32,250 --% $10,070 --% $72,040 6.70% $72,026
Mortgage-backed securities... 733 6.02 421 6.16 1,604 7.00 30,538 7.15 33,296 6.68 33,296
Obligations of state and
political subdivisions... 687 4.71 1,692 5.71 1,378 5.20 4,443 5.11 8,200 5.23 8,200
U.S. Treasury securities..... 3,051 6.51 2,565 6.60 -- 6.25 -- 6.33 5,616 6.43 5,616
Equity securities............ -- 5.50 -- -- -- -- 1,557 5.00 1,557 5.00 1,557
Other securities............. 10 -- -- -- -- -- 628 6.13 638 6.13 638
------ ------ ------ ------ ------- -------
Total................... $ 8,991 6.34% $29,888 6.14% $35,232 6.89% $47,236 6.36% $121,347 6.50% $121,333
====== ====== ====== ====== ======= =======
</TABLE>
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<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from the amortization, prepayment or sale of loans, maturities of investment
securities and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
The Bank can also borrow from the Federal Home Loan Bank ("FHLB") of Pittsburgh.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including checking, regular savings, money
market deposits, term certificate accounts and individual retirement accounts.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Bank regularly evaluates the internal cost of funds, surveys rates
offered by competing institutions, reviews the Bank's cash flow requirements for
lending and liquidity and executes rate changes when deemed appropriate. The
Bank does not obtain funds through brokers, nor does it solicit funds outside
the Commonwealth of Pennsylvania.
The following table indicates the amount of certificates of deposit of
$100,000 or more by time remaining at December 31, 1998 (in thousands).
Three months or less $19,819
Over three through six months 2,392
Over six through twelve months 5,009
Over twelve months 8,366
------
$35,586
======
Borrowings. Deposits are the primary source of funds for the Bank's
lending and investment activities as well as for general business purposes.
Should the need arise, the Bank may access up to $5 million from a line of
credit from the FHLB of Pittsburgh to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. At December 31, 1998, there were no
short-term advances under the FHLB line of credit. At December 31, 1998 and
1997, long term FHLB borrowings were $14.0 million and $4.0 million,
respectively.
Market Area
The Bank's primary market area consists of the southwestern counties of
Westmoreland and Allegheny. The Bank's main office is located in Irwin,
Pennsylvania which is twenty minutes southwest of downtown Pittsburgh.
The Greater Pittsburgh area has been in the process of restructuring
over the past decade. Once centered on heavy manufacturing, primarily steel, its
economic base is now more diverse, including technology, health and business
services. Several "Fortune 500" industrial firms are headquartered in the
Greater Pittsburgh area, including USX Corporation and Westinghouse Electric
Corporation. The largest employers in Pittsburgh, by the number of local
employees, include the United States Government, the Commonwealth of
Pennsylvania, Westinghouse, USAirways, and the University of Pittsburgh. Seven
colleges and universities are located in the general Pittsburgh area.
-14-
<PAGE>
Competition
The Bank encounters strong competition in both the attraction of
deposits and in the origination of loans. Competition for deposits and loans
primarily comes from commercial banks and thrift institutions located in its
market area. The Bank competes with other institutions through its emphasis on
superior customer service, comprehensive product lines, competitive rates and
customer loyalty.
The Bank is smaller in asset size compared to most of the competitors
in its market area. A recent trend has been that some competitors have been
purchased by larger financial institutions not locally headquartered. Management
believes that the Bank can strengthen its position as a community bank with an
emphasis on serving all of the financial needs of the individuals and businesses
located within its primary market area.
Personnel
As of December 31, 1998, the Bank had 134 full-time and 59 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Supervision and Regulation
The Company is regulated by the Pennsylvania Department of Banking and
the Board of Governors of the Federal Reserve System. The deposits of the Bank
are insured by the FDIC and the Bank is a member of the Bank Insurance Fund
which is administered by the FDIC. The Bank is subject to regulation by the
Pennsylvania Department of Banking and the FDIC.
The Company files with the Federal Reserve an annual report and such
additional information as the Federal Reserve may require. The Federal Reserve
may examine the Company. The Company must obtain the approval of the Federal
Reserve before it may acquire substantially all the assets of any bank, or
before it may acquire ownership or control of any voting shares of any bank if,
after such acquisition, it would own or control, directly or indirectly, more
than five percent of the voting shares of such bank.
The Company may only engage in or own companies that engage in
activities deemed to be so closely related to the business of banking or
managing or controlling banks as to be a proper incident thereto, and the
Company must gain permission from the Federal Reserve prior to engaging in most
new business activities.
A bank holding company and its subsidiaries are subject to certain
restrictions on any extensions of credit to the bank or any of its subsidiaries,
investments in the stock or securities thereof, and on the taking of such stock
or securities as collateral for loans to any borrower. A bank holding company
and its subsidiaries are also prevented from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
-15-
<PAGE>
Source of Strength Doctrine
A bank holding company is required to serve as a source of financial
and managerial strength to its subsidiary banks and may not conduct its
operations in an unsafe or unsound manner. In addition, it is the policy of the
Federal Reserve that a bank holding company should stand ready to use available
resources to provide adequate capital to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the Federal Reserve to be an unsafe and unsound banking practice
or a violation of the Federal Reserve regulations or both.
Capital Adequacy
The Federal banking regulators have adopted risk-based capital
guidelines for bank holding companies, such as the Company. The required minimum
ratio of total capital to risk-weighted assets (including off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital is required to be Tier 1 capital, consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less goodwill.
The remainder (Tier 2 capital) may consist of a limited amount of
subordinated debt and intermediate-term preferred stock, certain hybrid capital
instruments and other debt securities, perpetual preferred stock and a limited
amount of the general loan loss allowance.
In addition to the risk-based capital guidelines, the Federal banking
regulators established minimum leverage ratio (Tier 1 capital to total assets)
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of 3% for those bank holding companies which have the highest
regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies are required
to maintain a leverage ratio of at least 1% to 2% above the 3% stated minimum.
The Company and the Bank exceed all applicable capital requirements.
Federal law establishes five categories of capitalization of financial
institutions. Prompt corrective action and significant operational restrictions
are imposed on institutions that are capital deficient under the categories.
These categories are well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
To be considered well capitalized, an institution must have a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, a leverage capital ratio of 5%, and must not be subject to any
order or directive requiring the institution to improve its capital level. An
institution falls within the adequately capitalized category if it has a total
risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at
least 4%, and a leverage capital ratio of at least 4%. Institutions with lower
capital levels are deemed to be undercapitalized, significantly undercapitalized
or critically undercapitalized, depending on their actual capital levels. In
addition, the appropriate federal regulatory agency may downgrade an institution
to the next lower capital category upon a determination that the institution is
in an unsafe or unsound condition, or is engaged in an unsafe or unsound
practice. Institutions are required to closely monitor their capital levels and
to notify their appropriate regulatory agency of any basis for a change in
capital category. On December 31, 1998, the Company and the Bank exceeded the
minimum capital levels of the well capitalized category.
-16-
<PAGE>
Affiliate Transaction Restrictions
Banks are subject to federal laws that limit the transactions by
subsidiary banks to or on behalf of their parent company and to or on behalf of
any nonbank subsidiaries. Such transactions by a subsidiary bank to its parent
company or to any nonbank subsidiary are limited to 10% of a bank subsidiary's
capital and surplus and, with respect to such parent company and all such
nonbank subsidiaries, to an aggregate of 20% of such bank subsidiary's capital
and surplus. Further, loans and extensions of credit generally are required to
be secured by eligible collateral in specified amounts. Federal law also
prohibits banks from purchasing low-quality assets from affiliates.
FDIC Insurance Assessments
The deposits of the Banks are insured by the Bank Insurance Fund
("BIF") which are subject to Federal Deposit Insurance Corporation ("FDIC")
insurance assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based on their relative risk as measured by
regulatory capital ratios and certain other factors.
Item 2. Financial Information.
Selected Financial Data
The following table sets forth certain information concerning the
financial position of the Company at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets.............................$412,366 $366,457 $331,416 $299,435 $272,818
Loans receivable, net.............. 238,304 216,487 194,677 176,998 150,872
Securities available for sale(1)... 118,778 107,801 95,343 86,045 34,209
Securities held to maturity........ 2,569 5,855 7,955 8,075 69,884
Non-interest bearing deposits...... 58,208 48,912 43,709 39,511 33,613
Interest bearing deposits.......... 298,175 275,405 249,990 229,143 204,515
Cash and cash equivalents.......... 43,396 27,700 24,853 20,202 9,179
FHLB advances...................... 14,000 4,000 4,000 -- --
Total stockholders' equity......... 38,201 34,302 30,090 26,827 23,116
Number of:
Real estate loans outstanding...... 4,705 4,509 4,139 3,874 3,469
Deposit accounts................... 70,306 65,872 61,294 57,157 53,515
</TABLE>
- -----------------------
(1) Includes investment securities available for sale of $117,470, $106,630,
$94,321, $85,150 and $33,359 and $1,308, $1,171, $1,022, $895 and $850 of
FHLB stock, respectively.
-17-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Interest income..........................$27,528 $25,290 $22,695 $20,995 $17,376
Interest expense......................... 12,586 11,517 10,190 9,513 7,406
------ ------ ------ ------ ------
Net interest income.................... 14,942 13,773 12,505 11,482 9,970
Provision for loan losses................ 300 300 410 380 240
------ ------ ------ ------ ------
Net interest income after provision
for loan losses...................... 14,642 13,473 12,095 11,102 9,730
Other income............................. 2,333 1,792 1,471 1,276 1,325
Other expense............................ 8,438 7,683 7,076 6,925 6,660
------ ------ ------ ------ ------
Income before income taxes............... 8,537 7,582 6,490 5,453 4,395
Provision for income taxes............... 2,736 2,389 2,032 1,702 1,314
------ ------ ------ ------ ------
Net income............................. $5,801 $5,193 $4,458 $3,751 $3,081
====== ====== ====== ====== ======
</TABLE>
Key Operating Ratios
The table below sets forth certain performance ratios of the Company
for the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets (net income
divided by average total assets).................... 1.47% 1.45% 1.37% 1.27% 1.14%
Return on average equity (net income
divided by average equity).......................... 15.29 15.57 15.47 14.18 13.23
Average equity to average assets (average equity
divided by average total assets).................... 9.60 9.30 8.86 8.92 8.61
Equity to assets at period end........................ 9.26 9.36 9.08 8.96 8.47
Net interest rate spread.............................. 3.26 3.40 3.46 3.51 3.39
Net yield on average interest-earning assets.......... 4.17 4.25 4.26 4.25 4.00
Non-performing loans to total assets.................. .35 .34 .27 .30 .29
Average interest-earning assets to average
interest-bearing liabilities........................ 125.79 123.99 123.20 121.24 120.47
Net interest income after provision for
loan losses, to total other expenses................ 173.52 175.36 170.93 160.32 146.10
Non performing loans to total loans................... .60 .57 .45 .50 .51
Dividend payout (dividends declared
per share divided by net income per share)(1)....... 33.33 29.65 28.57 28.23 28.43
Net income per share:(1)
Basic............................................... $1.92 $1.72 $1.47 $1.24 $1.02
Diluted............................................. 1.92 1.72 1.47 1.24 1.02
Cash dividends declared per share(1).................. .64 .51 .42 .35 .29
</TABLE>
- ----------------------
(1) Calculation based upon the retroactive effect of the stock split and stock
dividend.
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipates", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions. IBT Bancorp, Inc. undertakes no obligation to
publicly release the results of any revisions to those forward looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
GENERAL
IBT Bancorp, Inc. is a bank holding company headquartered in Irwin,
Pennsylvania, which provides a full range of commercial and retail banking
services through its wholly owned banking subsidiary, Irwin Bank & Trust Co.
(collectively, the "Company").
FINANCIAL CONDITION
The Company's total assets increased $45.9 million or 12.5%, to $412.3
million at December 31, 1998 from $366.4 million at December 31, 1997. Loans
receivable, net and deposits grew 10.1% and 9.9% to $238.3 million and $356.3
million at December 31, 1998, respectively from $216.5 million and $324.3
million at December 31, 1997, respectively. Loans receivable primarily increased
due to the growth in the fixed rate mortgage portfolio which rose $19.0 million
to $111.6 million at December 31, 1998 from $92.6 million at December 31, 1997.
Increases in deposits were primarily due to regular demand deposits reaching
$57.8 million at December 31, 1998, an increase of $10.0 million from $47.8
million at December 31, 1997. In addition, IBMA Gold and NOW deposit accounts
also had significant growth reaching $31.7 million and $30.1 million,
respectively at December 31, 1998, an increase of $9.6 million and $6.9 million
from $22.1 million and $23.2 million at December 31, 1997, respectively.
Total assets increased $35.0 million or 10.6% at December 31, 1997 from
$331.4 million at December 31, 1996. Loans receivable, net and deposits grew
11.2% and 10.4% at December 31, 1997 from $194.7 million and $293.7 million,
respectively, at December 31, 1996. The increase in loans receivable was
primarily due to increased fixed rate mortgages and installment loans which
reached $92.6 million and $45.3 million at December 31, 1997, respectively. This
is an increase of $11.4 million and $6.6 million from $81.2 million and $38.7
million at December 31, 1996, respectively. Increases in deposit accounts were
primarily due to increases in IBMA Gold and Certificate of Deposit accounts
which grew $11.7 million and $13.3 million, respectively to reach $22.1 million
and $123.5 million at December 31, 1997 from $10.4 million and $110.2 million at
December 1996, respectively.
The investment securities available for sale portfolio increased $10.9
million, or 10.2%, to $117.5 million at December 31, 1998 from $106.6 million at
December 31, 1997. The portfolio increased $12.3 million or 13.0% at December
31, 1997 from $94.3 million at December 31, 1996. The increases were mainly due
to the purchase of mortgage-backed securities.
Investment securities held to maturity decreased $3.3 million or 56.1%
to $2.6 million at December 31, 1998 from $5.9 million at December 31, 1997. The
decrease was mainly attributable to maturities of $3.0 million and principle
repayments of $.3 million. There was a decrease in this portfolio of $2.1
million, or 26.4%, at December 31, 1997 from $8.0 million at December 31, 1996.
This decrease was mainly attributable to maturities of $2.0 million and
principal repayments of $100,000.
-19-
<PAGE>
Borrowing increased $10.0 million to $14.0 million at December 31, 1998
from $4.0 million at December 31, 1997. At these dates, borrowings consisted
solely of long-term Federal Home Loan Bank ("FHLB") advances. However, borrowed
funds may be short-term or long-term and may consist of lines of credit and FHLB
advances. Borrowings totaled $.4.0 million at December 31, 1996. Borrowings have
been used to purchase investment securities.
On January 20, 1998, the Company declared a 5% stock dividend resulting
in the issuing of 47,933 shares of capital stock. In addition, on December 28,
1998, the Company declared a three-for-one split in the form of a 200% stock
dividend payable to all shareholders of record on January 6, 1999. All
references to per share data have been restated as appropriate to reflect the
effect of the split for all periods presented.
-20-
<PAGE>
Average Balance Sheet
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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------- -------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).............................. $226,984 $19,019 8.38% $205,399 $17,420 8.48% $186,845 $16,091 8.62%
Investment securities available for sale(2)...... 114,078 7,606 6.67 101,301 7,035 6.94 86,576 5,587 6.45
Investment securities held to maturity........... 3,228 143 4.43 7,443 293 3.94 8,015 374 4.67
Other interest-earning assets(3)................. 13,956 760 5.45 10,237 542 5.29 11,933 643 5.39
------- ------ ------- ------ ------- ------
Total interest earning assets.................. 358,246 27,528 7.68 324,380 25,290 7.80 293,369 22,695 7.74
Non-interest earning assets......................... 19,033 18,140 16,515
------- ------- -------
Total assets................................... $377,279 $342,520 $309,884
======= ======= =======
Interest-bearing liabilities:
Money market accounts............................. $ 47,023 1,864 3.96 $ 40,347 1,521 3.77 $ 31,078 973 3.13
Certificates of deposit........................... 149,598 8,322 5.56 140,039 7,851 5.61 128,508 7,165 5.58
Other liabilities................................. 88,180 2,400 2.72 81,233 2,145 2.64 78,526 2,052 2.61
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities............. 284,801 12,586 4.42 261,619 11,517 4.40 238,112 10,190 4.28
------ ------ ------
Non-interest-bearing liabilities.................... 56,150 48,982 43,586
------- ------- -------
Total liabilities.............................. 340,951 310,601 281,698
Retained earnings(4)................................ 36,328 31,919 28,186
------- ------- -------
Total liabilities and stockholders' equity..... $377,279 $342,520 $309,884
======= ======= =======
Net interest income................................. $14,942 $13,773 $12,505
====== ====== ======
Interest rate spread(5)............................. 3.26 3.40 3.46
Net yield on interest-earning assets(6)............. 4.17 4.25 4.26
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 125.79 123.99 123.20
</TABLE>
- -----------------------
(1) Average balances include non-accrual loans, and are net of deferred loans
fees.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Includes federal funds sold.
(4) Includes capital stock, surplus and unrealized holding gains on SFAS 115
AFS securities.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents net interest income as a
percentage of average interest earning assets.
-21-
<PAGE>
Rate/Volume Analysis. The following table shows the effect of changes in volumes
and rates on interest income and interest expense. 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.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
----------------------- -----------------------
1998 vs. 1997 1997 vs. 1996
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------- --------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable..........................1,831 (232) 1,599 1,598 (269) 1,329
Investment securities available for sale.. 887 (316) 571 950 498 1,448
Investment securities held to maturity.... (166) 16 (150) (27) (54) (81)
Other interest earning assets............. 197 21 218 (91) (10) (101)
----- ---- ----- ----- ---- -----
Total interest-earning assets..........2,749 (511) 2,238 2,430 165 2,595
===== ==== ===== ===== ==== =====
Interest expense:
Money market accounts..................... 252 91 343 290 258 548
Certificates of deposit................... 536 (65) 471 643 43 686
Other liabilities......................... 183 72 255 71 22 93
----- ---- ----- ----- ---- -----
Total interest-bearing liabilities..... 971 98 1,069 1,004 323 1,327
===== ==== ===== ===== ==== =====
Net change in interest income...............1,778 (609) 1,169 1,426 (158) 1,268
===== ==== ===== ===== ==== =====
</TABLE>
RESULTS OF OPERATIONS
Net income increased approximately $600,000 or 11.7%, to $5.8 million for
the year ended December 31, 1998 from $5.2 million for the year ended December
31, 1997. The increase in net income was primarily attributable to a $33.9
million increase in the average balance of interest earning assets. Net income
increased approximately $700,000 or 16.5% for 1997 from $4.5 million for 1996.
The increase was primarily attributable to a $31.0 million increase in the
average balance of interest earning assets.
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 loan and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
Net interest income increased $1.1 million or 8.5% to $14.9 million in 1998
compared to $13.8 million in 1997. The increase was primarily due to growth in
average interest earning assets to $358 million in 1998 from $324 million in
1997.
The increase in average interest-earning assets of $33.9 million reflects
an increase in average loans of $21.6 million; average investment securities
available for sale of $12.8 million offset by a decrease in investment
securities held to maturity of $4.2 million. The increase in average
interest-earning assets was partially funded by the increase in average
interest-bearing liabilities of $23.2 million.
-22-
<PAGE>
The interest rate spread declined in 1998 compared to 1997 due to a decline
in the yield on average interest earning assets to 3.26% in 1998 from 3.40 % in
1997. The cost of average interest-bearing liabilities increased to 4.42 % in
1998 from 4.40 % in 1997. The yield on average interest-earning assets declined
in 1998 due to a decrease in yields on securities available for sale to 6.67% in
1998 from 6.94% in 1997. The decline in yield of securities available for sale
was the result of lower rates of interest and dividends. In addition, yields on
loans receivable decreased to 8.38% in 1998 from 8.48% in 1997. The decrease in
yield was affected by loans refinancing at lower rates.
Net interest income increased $1.3 million or 10.1% to $13.8 million in
1997 compared to $12.5 million in 1996. The increase was primarily due to growth
in average interest earning assets to $324.3 million in 1997 from $293.4 million
in 1996, partially offset by a decrease in the interest rate spread in 1997 of
3.40% in 1997 compared to 3.46% in 1996. However, the decline in the interest
rate spread in 1997 had minimal affect on net interest margin. Net interest
margin was 4.25% in 1997 and 4.26% in 1996.
The increase during 1997 in average interest-earning assets of $31.0
million reflects an increase in average loans of $18.6 million and average
securities available for sale of $14.7 million. The increase in average
interest-earning assets was partially funded by the increase in average
interest-bearing liabilities of $23.5 million. This increase in interest-bearing
liabilities reflects the increase in borrowings and deposits in 1997.
The interest rate spread declined in 1997 compared to 1996 due to an
increase in the cost of average interest-bearing liabilities to 4.40% in 1997
from 4.28% in 1996 offset by an increase in the yield on average interest
earning assets to 7.80% in 1997 from 7.74% in 1996. The yield on average
interest-earning assets increased in 1997 due to an increase in yields on
investment securities available for sale to 6.94% in 1997 from 6.45% in 1996.
Provision for Loan Losses: The Company recorded a provision for loan losses
of $300 million in 1998 and in 1997 compared with $410 million in 1996. The
evaluation for determining the provision includes evaluations of concentrations
of credit, past loss experience, current economic conditions, amount and
composition of the loan portfolio (including loans being specifically monitored
by management), estimated fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other information available at such times.
The Company will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. Management continues to offer a wider variety of
loan products coupled with the continued success of changing the mix of the
products offered in the loan portfolio from lower yielding loans (ie., one to
four family loans) to higher yielding loans (ie., equity loans, multifamily
(five or more units) buildings, and commercial (non residential) mortgages).
Although the Company maintains its allowance for loan losses at a level that it
considers to be adequate to provide for the inherent risk of loss in its loan
portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods due to the higher degree of credit risk which might
result from the change in the mix of the loan portfolio.
-23-
<PAGE>
Other Income: Total other income increased approximately $500,000 or 30.2%
to $2.3 million for the year ended December 31, 1998 from $ 1.8 million for the
year ended December 31, 1997. Realized gains on investment securities totaled
approximately $40,000 for the year ended December 31, 1998 an increase of 262.4%
over the realized loss of approximately $25,000 for the year ended December 31,
1997.
Gains on sale of loans originated for sale increased $48,000 to $199,000 in
1998, from $141,000 in 1997. The increase was mainly attributed to loan volume.
Loan fees and service charges increased approximately $200,000 to $1.5 million
at December 31, 1998 from $1.3 million for the year ended December 31, 1997. The
increase was due to increases in overdraft fees generated, in part, by an
increase in the number of deposit accounts.
Total other income increased approximately $500,000 or 27.1% to $2.3
million for the year ended December 31, 1997 from $1.8 million for the year
ended December 31, 1996. Realized losses on investments decreased $63,000 to
$25,000 in 1997 from $88,000 in 1996. Other operating income increased $105,000
to $701,000 in 1997 from $596,000 in 1996.
Other Expenses: Total other expenses increased approximately $700,000 or
9.8%, to $8.4 million in 1998 from $7.7 million in 1997. This change was mainly
due to an increase in compensation and employee benefits of $355,000 or 8.79% to
$4.4 million in 1998 from $4.0 million in 1997. The increase was due to an
increase in the staff of the Company. Compensation and employee benefits
increased $362,000 or 9.84% from $4.0 million in 1997 from $3.7 million in 1996.
This increase was also attributable to increased staffing. Data processing fees
and ATM expenses increased $52,000 and $32,000 to $505,000 and $299,000,
respectively in 1998 from $453,000 and $267,000, respectively in 1997. These
fees increased $71,000 and $33,000 from $382,000 and $234,000, respectively in
1996. The increases in 1998 and 1997 were mainly due to the addition of three
new supermarket branch locations and seven additional automated teller machines.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds includes savings, deposits, loan
repayments and prepayments, cash flow from operations and borrowings from the
FHLB. The Company uses its capital resources principally to fund loan
origination and purchases, repay maturing borrowings, purchase investments, and
for short and long-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, 1998, the Company had commitments to extend credit of $41.4
million.
The Company's liquid assets consist of cash and cash equivalents, which
include investments in highly short-term investments. The level of these assets
are dependent on the Company's operating financing and investment activities
during any given period. At December 31, 1998, cash and cash equivalents total
$43.4 million.
Net cash provided by operating activities for 1998 totaled $5.7 million, as
compared to $6.1 million for 1997 and $5.1 million for 1996.
-24-
<PAGE>
Net cash used by investing activities for 1999 totaled $30.1 million, as
compared to cash used of $32.3 million in 1997 and $28.0 million in 1996. The
decrease of $2.2 million in 1998 was mainly attributed to a net decrease in
purchases of investment securities available for sale. Net cash used to purchase
investment securities totaled $7.4 million in 1998 compared to cash used of $9.4
million in 1997. Net cash used by investing activities increased $4.3 million to
$32.3 million in 1997 compared to $28.0 million in 1996. This was a result of an
increase in net loans made to customers of $4.0 million.
Net cash provided by financing activities for the year ended December 31,
1998 totaled $40.1 million, as compared to cash provided of $29.1 million in
1997 and $27.5 million in 1996. This is a result of net increases in deposits of
$1.5 million and a long term Federal Home Loan Bank ("FHLB") advance of $10.0
million in 1998. The increase of $1.6 million in 1997 was due to an increase in
deposits of $5.6 million, offset by a $4.0 million FHLB advance in 1996.
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.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Bank's market risk arises primarily from interest rate risk inherent
in its lending, investment and deposit taking activities. The Bank's
profitability is affected by fluctuations in interest rates. A sudden and
substantial increase in interest rates may adversely impact the Bank's earnings
to the extent that the interest rates borne by assets and liabilities do not
change at the same speed, to the same extent or on the same basis. To that end,
management actively monitors and manages its interest rate risk exposure.
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Bank seeks to minimize the
vulnerability of its operations to changes in interest rates. The Bank's Board
of Directors reviews the interest rate risk position monthly. The Bank's
Asset/Liability Committee is comprised of the Bank'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 Bank's net interest margin, the market value of the
portfolio and the effect that changes in interest rates will have on the Bank's
portfolio and the Bank's exposure limits.
The Bank utilizes the following strategies to manage interest rate risk:
(1) emphasizing the origination and retention of adjustable-rate loans and
installment loans consisting primarily of home equity loans; (2) selling
substantially all fixed-rate conforming mortgage loans without recourse and on a
servicing-released basis; and (3) investing primarily in adjustable-rate
mortgage-backed securities, which may generally bear lower yields as compared to
longer term investments, but which better position the Bank for increases in
market interest rates, and holding the majority of these securities as available
for sale. The Bank currently
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<PAGE>
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.
The following table shows the Bank'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, 1998.
Market risk sensitive instruments are generally defined as those instruments
that can be adversely impacted by changes in market interest rates.
Expected Maturity/Principal Repayment at December 31,
<TABLE>
<CAPTION>
Total Book Fair
1999 2000 2001 2002 2003 Thereafter Value Value
---- ---- ---- ---- ---- ---------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
- -----------------------
Mortgage loans............ $14,004 $5,656 $6,058 $6,261 $6,322 $85,193 $123,494 $123,974
Home equity loans,
second mortgage
loans, student loans,
credit cards, other
loans................... 21,846 1,803 3,704 4,049 8,329 28,604 68,335 72,136
Commercial loans,
municipal loans......... 25,073 4,711 3,688 2,521 1,872 10,983 48,848 47,972
Investment securities
held to maturity........ 2,569 -- -- -- -- -- 2,569 2,555
Investment securities
available for sale...... 6,336 3,661 10,063 7,486 8,300 80,190 116,036 117,470
Interest-bearing
- ----------------
liabilities
- -----------
NOW and other
transaction accounts.... 34,888 -- -- -- -- -- 34,888 34,953
Money market and
other savings
accounts................ 104,372 -- -- -- -- -- 104,375 104,460
Certificates of
deposits................ 101,983 31,356 4,834 4,839 9,314 6,589 158,915 161,160
FHLB of Pittsburgh
advances................ 2,000 -- 2,000 -- -- 10,000 14,000 14,823
</TABLE>
Expected maturities are contractual matures adjusted for prepayments of
principal. The Bank uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets, no prepayments are assumed. For interest bearing liabilities, negotiable
order of withdrawal ("NOW") accounts, money market accounts, and similar
interest bearing demand accounts are subject to immediate withdrawal or
repricing and are therefore presented in the earliest period in the table.
-26-
<PAGE>
Year 2000 Issues
Senior management views the year 2000 initiative as one of the highest
priorities of the corporation. With oversight from the Board of Directors, Irwin
Bank & Trust Company is aggressively pursuing appropriate solutions and
assurances with regard to compliance of all applications affected by the year
2000.
In 1997, Irwin Bank & Trust Company put together a year 2000 team
consisting of senior management, officers, and members of various departments,
in the bank, to assess the impact year 2000 issues could have on our daily
business operations, A five-phase plan was developed. The five phases include
awareness, assessment, renovation, validation, and implementation.
The awareness phase included gathering information on year 2000 issues and
sharing it with all levels of employees and the Board of Directors. This process
of gathering and sharing information continues and has been expanded to include
our customer base. Workshops have been provided to our commercial customers and
a quarterly newsletter is being developed for our customers, shareholders, and
employees. The Board of Directors is updated an all phases at least quarterly
and will receive monthly updates in 1999.
The assessment phase included the inventorying of all hardware and software
and identification of all systems, which could be affected by the date change.
The hardware, software, and systems were prioritized based upon their importance
in providing uninterrupted services to our customers. Those items determined to
be of the highest priority were ranked, as "mission critical". Included as
"mission critical" is Irwin Bank & Trust Company's outsourcing to a third party
vendor.
During the assessment phase it was determined that the cost associated with
addressing the year 2000 issue should not exceed $500,000, which includes
capital expenditures. At December 31, 1998, $110,000 had been expended. By March
31, 1999, it is estimated that approximately $300,000 will have been expended.
These costs, or any additional costs associated with the year 2000 issue, are
not expected to have a material impact on the Bank's financial position.
Management estimates that approximately 75% of the effort needed to prepare for
the year 2000 will have been expended by March 31, 1999.
The renovation phase included hardware replacement, software upgrades, and
vendor assurance. All third party vendors whose systems were listed as "mission
critical" provided the Bank with assurance that their systems would be compliant
and available for testing prior to the year 2000 date change. This phase is 80%
complete and on target for completion during 1999.
The validation phase includes extensive testing of all hardware, software,
and systems provided by third party vendors. A test plan was developed and
implementation began in 1998. In addition, the Bank is a member of a third party
vendor group proxy testing team. In this capacity, the Bank interprets and
evaluates the proxy tests. "Mission critical" systems are given the highest
scrutiny in this process. As of December 31, 1998, testing of "mission critical"
applications are substantially complete. The anticipated completion for testing
of all remaining products is mid 1999.
A contingency and business resumption plan is in the process of being
developed to include procedures for unforeseen system glitches and increased
demands for cash. The anticipated completion of the
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<PAGE>
Contingency and Business Resumption Plan is mid 1999 with the remainder of the
year being used to further validate the plan.
The Implementation phase includes incorporating all necessary changes and
becoming completely year 2000 compliant. It is expected that this phase will be
completed by September 30, 1999.
In 1999, the Bank will continue to focus on the awareness phase. The Bank
will concentrate its efforts on providing customers, the Company's shareholders
and employees with up-to-date information on the Bank's state of preparedness
for the year 2000. The Bank will also be readily available to answer any of
their questions or concerns.
Item 3. Properties
At December 31, 1998, the Bank operated from its main office, five branch
offices and three supermarket branch offices, all located in southwestern
Pennsylvania. The total net book value of the Bank's investment in premises and
equipment at December 31, 1998, was approximately $4.9 million. The main office
of the Company and of the Bank and two branch offices are owned by the Bank and
the remaining three branch offices and three supermarket branch offices are
leased by the Bank. These leases have initial terms of 3 to 20 years, and all
leases contain renewal options for additional years.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Persons and groups owning in excess of 5% of the Common Stock will be
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The following
table sets forth, as of December 31, 1998, persons or groups who are known by
the Company to own more than 5% of the Common Stock. Other than as noted below,
management knows of no person or group that owns more than 5% of the outstanding
shares of Common Stock at December 31, 1998.
Percent of Shares
Amount and Nature of of Common Stock
Name of Beneficial Owner Beneficial Ownership Outstanding
- ------------------------ -------------------- -----------------
I TRUST & CO. 162,936 (1) 5.4
309 Main Street
Irwin, Pennsylvania
All executive officers and
directors as a group 346,273 (2) 11.5
(includes 10 persons)
- ------------------------
(1) Trustees exercise shared voting and investment power. Individuals serving
as trustees disclaim beneficial ownership with respect to such shares.
(2) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which shares
the individuals effectively exercise sole voting and investment power
unless otherwise indicated.
-28-
<PAGE>
Item 5. Directors and Executive Officers.
The Board of Directors of the Company is currently composed of ten members,
each of whom serves for a term of three years. Executive officers are elected
annually by the Board of Directors and serve at the Board's discretion.
The following table sets forth information with respect to the directors
and executive officers of the Company.
Year First
Elected or Current Term to
Name Age(1) Position Appointed(2) Expire
- ---- ------ -------- ------------ ------
Thomas Beter 70 Director 1996 2000
William F. Caruthers 78 Director 1951 2001
William D. Fawcett 66 Director 1983 2000
J. Curt Gardner 60 President, 1980 1999
Director
Edwin A. Paulone 74 Director 1969 2000
Robert Rebich, Jr. 57 Director 1991 2001
Richard L. Ryan 68 Chairman of the 1968 1999
Board
Grant J. Shevchik 47 Director 1992 2001
Charles G. Urtin 52 Executive Vice President, 1998 2001
Secretary, Treasurer,
Director
Robert C. Whisner 70 Director 1969 1999
- -----------------------------
(1) Age as of December 31, 1998.
(2) Refers to the year the individual first became a director of the Bank or
Company. All directors of the Bank as of August 1986 became directors of
the Company when it was incorporated in August 1986.
Biographical Information
The principal occupation of each director and executive officer of the
Company is set forth below. All directors and executive officers have held their
present positions for five years unless otherwise stated.
Thomas Beter, Sr. Prior to his retirement in 1995, Mr. Beter was the
owner and operator of a Shop'n'Save grocery store.
William F. Caruthers. Prior to his retirement in 1995, Mr. Caruthers,
an attorney, was the president of the law firm of Caruthers and Caruthers. Mr.
Caruthers is also a director of the Westland Leasing Company and Westland
Lincoln, Ltd. As of April 20, 1999, Mr. Caruthers retired from the board and
became a director emeritus of the Company and the Bank.
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<PAGE>
William D. Fawcett. Mr. Fawcett is the president and is a director of
Lee, Thomson, Fawcett, a bottler of pickles and jellies.
J. Curt Gardner. Mr. Gardner is president of the Company. Effective
December 31, 1998, Mr. Gardner retired as the president and chief executive
officer of the Bank.
Edwin A. Paulone. Mr. Paulone is vice president of Irwin Builders
Supply Co.
Robert Rebich, Jr. Prior to his retirement in 1995, Mr. Rebich was a
general manager of Parker Hannifin Corp.
Richard L. Ryan. Mr. Ryan is president and chief executive officer of
Ryan Moving and Storage, Inc. of Pittsburgh.
Grant J. Shevchik. Dr. Shevchik is a physician with Partners for
Health.
Charles G. Urtin. Mr. Urtin is the executive vice president and
secretary and treasurer of the Company. Effective December 31, 1998, Mr. Urtin
became the President and Chief Executive Officer of the Bank. Prior to this
date, Mr. Urtin was the executive vice president, secretary-treasurer and chief
operating officer of the Bank.
Robert C. Whisner. Mr. Whisner is the president, chief executive
officer and a director of Airtek Incorporated, a manufacturer of electric
generators. Mr. Whisner is also a director of Remote Controls, Inc.
Item 6. Executive Compensation.
The Company has no full time employees, relying upon employees of the
Bank for the limited services required by the Company. All compensation paid to
officers and employees is paid by the Bank.
Director Compensation
The directors of the Company are not compensated. However, each member
of the Board of Directors of the Bank, except for the President and Chief
Executive Officer of the Bank, received a fee of $1,000 for each meeting
attended for the year ended December 31, 1998. Board members who are also
committee members received fees, in varying amounts, for each committee meeting
attended. Additionally, directors of the Bank may defer receipt of board fees
until a later date, such as, following retirement. Such deferrals shall be
credited with interest earnings at the rate of 13% per annum. At December 31,
1998, board and committee fees totaled $149,100.
The Bank also maintains non-qualified deferred compensation plans for
certain directors, which are generally funded by life insurance, the premiums of
which have been paid for by the Bank. The present value of these benefits to be
paid under the programs are being accrued over the estimated remaining service
period of the participants. The liability for these future obligations was
$402,945 and $322,305 at December 31, 1998 and 1997, respectively.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Chief Executive Officer and
Executive Vice President of the Company. No other officer had a salary and bonus
during the fiscal year ended December 31, 1998 that exceeded $100,000 for
services rendered in all capacities to the Company and the Bank.
<TABLE>
<CAPTION>
Annual Compensation(1)
-----------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation (2) Compensation
- --------------------------- ---- ------ ----- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Curt Gardner, President and
Chief Executive Officer 1998 $158,416 $ -- -- $102,237(3)(4)
Charles G. Urtin
Executive Vice President 1998 $ 88,913 $ 11,815 -- $1,327(3)
</TABLE>
- ------------------
(1) The Company first registered the Common Stock under Section 12(g) of the
Securities Exchange Act of 1934 with this Form 10; therefore, less than 3
years of compensation data is presented. All compensation set forth above
was paid by the Bank.
(2) For perquisites and other personal benefits, aggregate value does not
exceed the lesser of $50,000 or 10% of the named executive officer's total
salary and bonuses for the year. For the periods presented, there were no:
(a) payments of above-market preferential earnings on deferred
compensation; (b) payments of earnings with respect to long term incentive
plans prior to settlement or maturity; (c) tax payment reimbursements; or
(d) preferential discounts on stock.
(3) Consists of contributions to the 401(k) plan by the Bank on behalf of
Messrs. Gardner and Urtin, respectively, of $2,237 and $1,327.
(4) Upon retirement as of December 31, 1998, the Bank entered into an agreement
with Mr. Gardner to pay $2,000 per month for 50 months, plus continuation
of medical coverage for him and his spouse until they each attain age 65.
At December 31, 1998, the net present value of such payment to Mr. Gardner
was accrued.
Pension Plan. 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 to maximum amount that can be deducted for
federal income 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 were primarily invested in U.S.
Government obligations, corporate obligations and equity securities whose
valuations are subject to fluctuations of the securities' market.
For employees who attained age 50 and completed 10 years of service prior
to December 31, 1994, benefits under plan #1 and #2 will be calculated at normal
retirement at age 65 as a monthly benefit equal to the sum of 1.1% of average
monthly compensation multiplied by years of service (with a maximum of 44
years), plus .65% of average monthly compensation in excess of the social
security taxable wage base for each year multiplied by years of service (not to
exceed 35 years). Effective October 15, 1994, the pension formula was revised to
.8% rather than 1.1% of average monthly compensation as noted above.
For all employees, except as noted above.
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<PAGE>
Benefits are payable in the form of various annuity alternatives, including
a joint and survivor option. For the pension plan year ended December 31, 1998,
the highest permissible annual benefit under the Internal Revenue Code is
$160,000.
Mr. J. Curt Gardner retired on December 31, 1998 and received an aggregate
lump-sum payment of approximately $631,000 in connection with the Bank's pension
plans.
Mr. Charles G. Urtin has 14 years of Service and will have 27.17 years of
service at his normal retirement date of January 1, 2012, at age 65. Based upon
his 1998 compensation level, his projected monthly benefit payable at his normal
retirement date will be approximately $1,600. This benefit will be payable for
his lifetime. Mr. Urtin will also be entitled to a monthly benefit from the
supplemental plan in the amount of $760.
Item 7. Certain Relationships and Related Transactions.
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to executive officers, and directors. The loans
have been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with the Bank's other customers, and do not involve
more than the normal risk of collectibility, or present other unfavorable
features.
Item 8. Legal Proceedings.
The Company 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 Company's
financial statements.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
General
The Company's Common Stock is traded in the over-the-counter market.
Price information concerning the Common Stock is available from the OTC Bulletin
Board under the symbol IBTB. The Common Stock has not been actively traded and
there is no assurance that an active market will develop in the future. The
following broker-dealers currently make a market in the Company's Common Stock:
E. E. Powell & Co., Inc., Ferris, Baker, Watts and Hopper Soliday & Co.
The following table sets forth high and low bid prices per share for
the Company's Common Stock for each quarter of 1997, and each quarter of 1998,
based upon information obtained from the OTC Bulletin Board. All such bid prices
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
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<PAGE>
On February 2, 1998 and January 29, 1999, the Company paid a 5% stock
dividend and a 200% stock dividend, respectively. The 200% stock dividend was in
the form of a three for one stock split. Cash dividend and market prices set
forth in the table below have been adjusted for the stock dividends declared and
paid by IBT Bancorp.
Price Range Cash Dividends
----------------- ---------------------
High($) Low($) Declared Per Share($)
------- ------ ---------------------
Fiscal 1997
First Quarter........ 13.02 12.46 0.127
Second Quarter....... 14.60 13.13 0.127
Third Quarter........ 14.20 14.20 0.127
Fourth Quarter....... 14.92 14.92 0.127
Fiscal 1998
First Quarter........ 18.33 14.92 0.16
Second Quarter....... 21.83 18.33 0.16
Third Quarter........ 24.92 21.00 0.16
Fourth Quarter....... 27.67 23.67 0.16
As of December 31, 1998, 3,023,799 shares of Common Stock were outstanding
held of record by approximately 515 persons (not including the number of persons
or entities holding stock in nominee or street name through various brokerage
houses).
The holders of the Company's Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available. Funds for the payment of dividends of the Company are primarily
obtained from dividends paid by the Bank.
It is the present intention of the Company's Board of Directors to
continue to pay regular quarterly cash dividends; however, the declaration and
payment of future dividends is in the sole discretion of the Board of Directors
and their amount depends upon the earnings, financial condition and capital
needs of the Company and the Bank and certain other factors, including
restrictions arising from federal banking laws and regulations to which the
Company and the Bank are subject.
Item 10. Recent Sales of Unregistered Securities.
None.
Item 11. Description of Registrant's Securities to be Registered.
The Company is authorized under Pennsylvania law to issue up to fifty
million shares of Common Stock, $1.25 par value per share. There were 3,023,799
shares of Common Stock outstanding on December 31, 1998. The capital stock of
the Company represents non-withdrawable capital and is not insured by the FDIC.
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<PAGE>
Each share of Common Stock has the same relative rights and is identical in
all respects with every other share of Common Stock. The holders of Common Stock
possess exclusive voting rights in the Company. Each holder of Common Stock is
entitled to only one vote for each share held of record on all matters submitted
to a vote of holders of Common Stock and is not permitted to cumulate votes in
the election of the Company's directors. Holders of Common Stock do not possess
any dividend or liquidation rights.
Holders of Common Stock do not have preemptive rights with respect to any
additional shares of Common Stock which may be issued. Therefore, the Board of
Directors may sell shares of Common Stock of the Company without first offering
such shares to existing stockholders of the Company. The Common Stock is not
subject to call for redemption, and the outstanding shares of Common Stock are
fully paid and non-assessable.
The terms of office of directors are classified into three classes. One
class stands for election every year and the terms of directors are three years.
As described more fully in the following discussion of anti-takeover
provisions, a holder of 5% or more of the outstanding shares of Common Stock
will not have that holder's Common Stock considered in a vote by the holders of
the Common Stock in connection with a business combination that involves that
holder. Under federal law, the acquisition by any holder of 10% or more of the
outstanding shares of Common Stock generally requires prior regulatory approval
(prior regulatory approval is generally required for any acquisition of more
than 5% by any holder that is a bank holding company).
Anti-Takeover Provisions. The articles of incorporation of the Company
contain provisions that may deter, discourage or make more difficult the
assumption of control of the Company by another corporation or person through a
tender offer, merger, proxy contest or similar transaction or series of
transactions.
One of these provisions concerns the factors which the Board of Directors
may consider in evaluating the offer of another party to make a tender or other
offer for the Company's securities (whether in cash or in securities of the
offeror). Under Pennsylvania law, the Board of Directors stands in a fiduciary
relation to the Company and must discharge its duties in good faith, in a manner
it reasonably believes to be in the best interests of the Company, and with such
care, including reasonable inquiry, skill and diligence, which a person or
ordinary prudence would exercise under similar circumstances. Pennsylvania law
provides that, in discharging its duties, the Board of Directors may consider a
number of other factors, some of which the Company has incorporated into its
articles of incorporation. The articles of incorporation provide that, in
evaluating a takeover offer, the Board of Directors may consider all relevant
factors, including the impact of the acquisition on employees, depositors and
customers of the Company and its subsidiaries and on the communities which the
Company and its subsidiaries serve; the reputation and business practices of the
offeror and its management and affiliates; the value of any securities offered
in exchange for Company's stock; and any anti-trust or other legal and
regulatory issues that are raised by the offer. If the Board of Directors of
Directors determines than an offer should be rejected, the articles of
incorporation provide that the Board of Directors is authorized to take any
lawful action to accomplish its purpose including, but not limited to, any or
all of the following: advising shareholders not to accept the offer; litigation
against the offeror; filing complaints with all governmental and regulatory
authorities; acquiring the Company's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or granting options with
respect thereto; acquiring a company to create an antitrust or other regulatory
problem for the offeror; and obtaining a more favorable offer from another
individual or entity.
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<PAGE>
A second provision of the articles of incorporation provides that no
merger, consolidation, liquidation or dissolution of the Company, or any action
that would result in the sale or other disposition of all or substantially all
of the assets of the Company, will be valid unless first approved by the
affirmative vote of: (1) the holders of at least seventy-five percent (75%) of
the outstanding shares of Common Stock; or (2) the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of Common Stock,
provided that such transaction has received the prior approval of eighty percent
(80%) of the entire Board of Directors. If the transaction involves a
stockholder who owns 5% or more of the outstanding shares of Common Stock, the
shares owned by that stockholder are not considered when calculating the results
of the required stockholder vote concerning the transaction. In addition, if a
stockholder owning 5% or more of the Common Stock is involved, no merger,
consolidation, liquidation or dissolution of the Company, or any action that
would result in the sale or other disposition of all or substantially all of the
assets of the Company is valid unless the cash or fair market value of the
property, securities or other consideration to be received per share by holders
of Common Stock is at least equal to the higher of (1) the highest per share
price (with appropriate adjustments for recapitalization and for stock splits,
stock dividends and like distributions) paid by that stockholder in acquiring
any of its holdings of the Common Stock; and (2) the market value per share of
common stock on the announcement date with respect to the transaction.
Item 12. Indemnification of Directors and Officers.
The Company's bylaws provide that a director is not personally liable
for monetary damages for any action taken, or any failure to take any action,
unless the director breaches or fails to perform the duties of his or her office
under provisions of Pennsylvania law, and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. These provisions
of the bylaws, however, do not apply to the responsibility or liability of a
director pursuant to any criminal statute, or to the liability of a director for
the payment of taxes pursuant to local, Pennsylvania or federal law. These
provisions offer persons who serve on the Board of Directors of the Company
protection against awards of monetary damages for negligence in the performance
of their duties.
The Company's articles of incorporation also provide that every person
who is or was a director, officer, employee or agent of the Company, or of any
company for which that person served as such at the request of the Company, will
be indemnified by the Company to the fullest extent permitted by law against all
expenses and liabilities reasonably incurred by or imposed upon the person, in
connection with any proceeding to which the person may be made, or threatened to
be made, a party, or in which the person may become involved by reason of being
or having been a director or executive officer of the Company or such other
company, whether or not the person is affiliated with the Company or such other
company at the time expenses or liabilities are incurred.
-35-
<PAGE>
Item 13. Financial Statements and Supplementary Data.
-36-
<PAGE>
EDWARDS
LEAP &
SAUER CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION
- --------------------------------------------------------------------------------
500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
Phone: 412-281-9211 Fax: 412-281-2407
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
IBT Bancorp, Inc.
Irwin, Pennsylvania
We have audited the accompanying consolidated balance sheets of IBT Bancorp,
Inc. (the Bancorp), and subsidiary as of December 31, 1998 and 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Bancorp's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IBT Bancorp, Inc.
and subsidiary as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Edwards, Leap & Sauer
- ---------------------------------
Pittsburgh, Pennsylvania
February 2, 1999
-37-
<PAGE>
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997
----------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,767,316 $ 9,917,904
Interest-bearing deposits in banks 7,196,998 64,415
Federal funds sold 25,432,000 17,718,000
Securities available for sale 117,469,947 106,629,873
Securities held to maturity (Market value of
$2,554,545 and $5,815,960 at
December 31, 1998 and 1997, respectively) 2,569,215 5,854,975
Federal Home Loan Bank stock, at cost 1,308,100 1,170,700
Loans, net 238,304,491 216,486,607
Premises and equipment, net 4,879,133 4,927,258
Other assets 4,438,743 3,687,496
------------- -------------
Total Assets $ 412,365,943 $ 366,457,228
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 58,208,466 $ 48,912,365
Interest-bearing 298,174,672 275,405,060
------------- -------------
Total deposits 356,383,672 324,317,425
Accrued interest and other liabilities 3,781,876 3,837,945
Long-term debt 14,000,000 4,000,000
------------- -------------
Total liabilities 374,165,014 332,155,370
Stockholders' Equity
Capital stock, par value $1.25, 5,000,000
shares authorized, 3,023,799 and 960,000
shares issued and outstanding, respectively 3,779,749 3,779,749
Surplus 2,073,102 2,073,102
Retained earnings 31,401,922 27,539,372
Accumulated other comprehensive income 946,156 909,635
------------- -------------
Total stockholders' equity 38,200,929 34,301,858
------------- -------------
Total Liabilities and Stockholders' Equity $ 412,365,943 $ 366,457,228
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-38-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Interest Income
Loans $ 19,019,181 $ 17,419,848 $ 16,090,836
Investment securities 7,748,537 7,328,166 5,960,950
Federal funds sold 760,495 541,950 643,415
------------ ------------ ------------
Total interest income 27,528,213 25,289,964 22,695,201
Interest Expense
Deposits 12,174,469 11,270,826 10,009,702
Long-term debt 411,647 246,440 178,167
Repurchase agreements -- -- 1,961
------------ ------------ ------------
Total interest expense 12,586,116 11,517,266 10,189,830
------------ ------------ ------------
Net Interest Income 14,942,097 13,772,698 12,505,371
Provision for Loan Losses 300,000 300,000 410,000
------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 14,642,097 13,472,698 12,095,371
Other Income (Losses)
Service fees 1,430,426 1,116,493 962,696
Net investment security gains (losses) 40,411 (24,890) (88,120)
Other income 862,674 701,154 596,356
------------ ------------ ------------
Total other income 2,333,511 1,792,757 1,470,932
Other Expenses
Salaries 3,573,257 3,249,465 2,966,656
Pension and other employee benefits 818,669 787,345 708,592
Occupancy expense 903,112 847,073 816,149
Data processing expense 505,484 452,899 382,101
ATM expense 298,843 267,071 234,096
FDIC insurance 38,206 35,988 1,500
Other expenses 2,300,531 2,043,339 1,967,210
------------ ------------ ------------
Total other expenses 8,438,102 7,683,180 7,076,304
------------ ------------ ------------
Income Before Income Taxes 8,537,506 7,582,275 6,489,999
Provision for Income Taxes 2,736,576 2,388,759 2,031,615
------------ ------------ ------------
Net Income $ 5,800,930 $ 5,193,516 $ 4,458,384
============ ============ ============
Net Income per Share of Capital Stock $ 1.92 $ 1.72 $ 1.47
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-39-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
Stock Surplus Earnings Income Total
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $ 1,200,000 $ 2,400,000 $ 22,943,523 $ 283,517 $ 26,827,040
Comprehensive Income
Net income 4,458,384 4,458,384
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$36,872 71,576 71,576
------------
Total Compre-
hensive Income 4,529,960
Cash dividends (1,267,200) (1,267,200)
---------- ---------- ----------- ---------- ------------
Balance at
December 31, 1996 $ 1,200,000 $ 2,400,000 $ 26,134,707 $ 355,093 $ 30,089,800
Comprehensive Income
Net income 5,193,516 5,193,516
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$285,672 554,542 554,542
------------
Total Compre-
hensive Income 5,748,058
Cash dividends (1,536,000) (1,536,000)
Retroactive restatement
of 5% stock dividend 59,916 2,192,935 (2,252,851)
Retroactive restatement
of three-for-one stock split 2,519,833 (2,519,833)
---------- ---------- ----------- ---------- ------------
Balance at
December 31, 1997 $ 3,779,749 $ 2,073,102 $ 27,539,372 $ 909,635 $ 34,301,858
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-40-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
Stock Surplus Earnings Income Total
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 $ 3,779,749 $ 2,073,102 $ 27,539,372 $ 909,635 $ 34,301,858
Comprehensive Income
Net income 5,800,930 5,800,930
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$43,853 85,127 85,127
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$25,039 (48,606) (48,606)
------------
36,521
------------
Total Comprehensive
Income 5,837,451
Cash dividends (1,938,380) (1,938,380)
---------- ---------- ----------- ---------- ------------
Balance at
December 31, 1998 $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ 38,200,929
========== ========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-41-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,800,930 $ 5,193,516 $ 4,458,384
Adjustments to reconcile net cash
from operating activities:
Depreciation 482,000 422,349 401,929
Net amortization/accretion of
premiums and discounts 971 21,528 123,348
Net investment security losses (gains) (40,411) 24,890 88,120
Provision for loan losses 300,000 300,000 410,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets (770,061) (117,583) (311,140)
Accrued interest and other
liabilities (56,069) 227,984 (43,054)
------------- ------------- -------------
Net Cash From Operating Activities 5,717,360 6,072,684 5,127,587
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available
for sale 2,166,459 5,542,274 10,799,561
Proceeds from maturities of securities held
to maturity 3,285,760 2,099,919 120,334
Proceeds from maturities of securities
available for sale 48,173,553 32,334,987 26,875,517
Purchase of securities available for sale (61,085,311) (49,392,205) (46,949,280)
Net loans made to customers (22,117,884) (22,109,893) (18,088,434)
Purchases of premises and equipment (433,875) (633,603) (584,674)
Purchase of Federal Home Loan Bank
stock (137,400) (149,000) (127,100)
------------- ------------- -------------
Net Cash Used By Investing Activities (30,148,698) (32,307,521) (27,954,076)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 32,065,713 30,617,935 25,045,092
Net decrease in securities sold
under agreements to repurchase -- -- (300,489)
Dividends (1,938,380) (1,536,000) (1,267,200)
Proceeds from long-term debt 10,000,000 -- 4,000,000
------------- ------------- -------------
Net Cash From Financing Activities 40,127,333 29,081,935 27,477,403
------------- ------------- -------------
Net Change in Cash and Cash Equivalents 15,695,995 2,847,098 4,650,914
Cash and Cash Equivalents at Beginning
of Year 27,700,319 24,853,221 20,202,307
------------- ------------- -------------
Cash and Cash Equivalents at End of Year $ 43,396,314 $ 27,700,319 $ 24,853,221
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-42-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 12,629,351 $11,145,980 $9,944,666
Income taxes $ 2,716,954 $ 2,281,582 $2,232,214
NON CASH TRANSACTIONS
Recorded unrealized gains
on securities available for sale $ 1,433,568 $ 1,378,233 $ 538,019
Deferred income taxes on recorded
unrealized gains on securities
available for sale $ 487,412 $ 468,598 $ 182,926
Loans transferred to foreclosed real estate
during the year $ 178,548 $ 7,200 $ 33,956
Capital stock distributed as dividend
Capital stock $ -- $ 59,916 $ --
Surplus $ -- $ 2,192,935 $ --
Three-for-one stock split in the form of a
stock dividend
Capital stock $ -- $ 2,519,833 $ --
Surplus $ -- $(2,519,833) $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-43-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
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
commercial banking institution and provides a variety of financial services to
individuals and corporate customers through its eight 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.
Principles of Consolidation: The consolidated financial statements include the
accounts of IBT Bancorp, Inc. and its wholly-owned subsidiary, Irwin Bank and
Trust Company. All significant intercompany accounts have been eliminated in the
consolidation. IBT Bancorp, Inc. transacts no other material business.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Investment Securities: All investments in debt and equity securities are to be
classified into three categories. Securities which management has positive
intent and ability to hold until maturity are classified as held to maturity.
Securities held to maturity are stated at cost, adjusted for amortization of
premium and accretion of discount computed on a level yield basis. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities. All other securities are classified
as available for sale securities. Unrealized holding gains and losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management has no intention of establishing a trading securities
classification.
Interest and dividends on securities are reported as interest income. Gains and
losses realized on sales of securities represent the differences between net
proceeds and carrying values determined by the specific identification method.
Loans and Allowance for Loan Losses: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees and
unearned discounts.
Unearned discounts on certain loans are recognized as income over the term of
the loans using a method that approximates the interest method.
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.
-44-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is maintained at a level which, in management's
judgement, is adequate to absorb potential losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans generally are
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on nonaccrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed currently. Cost of major additions or improvements are
capitalized.
Other Real Estate Owned (OREO): Real estate acquired in satisfaction of a loan
and in-substance foreclosures are reported in other assets. In-substance
foreclosures are properties in which a borrower, with little or no equity in the
collateral, effectively abandons control of the property or has no economic
interest to continue involvement in the property. The borrower's ability to
rebuild equity based on current financial conditions also is considered
doubtful.
Properties acquired by foreclosure or deed in lieu of foreclosure and properties
classified as in-substance foreclosures are transferred to OREO and recorded at
the lower of cost or fair value less estimated costs to sell. Costs to maintain
the assets, subsequent write-downs to reflect declines in the fair value of the
property and subsequent gains and losses attributable to their disposal are
included in other income and expenses.
Income Taxes: The Bancorp uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. The Bancorp files consolidated
Federal income tax returns with its subsidiary.
Earnings per Share: Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. The weighted average shares
outstanding, giving retroactive effect of the stock dividend and stock split,
described in Note 16, was 3,023,799 for the years ended December 31, 1998, 1997,
and 1996.
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, and federal funds sold to be cash equivalents for purposes of the
statements of cash flows.
-45-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification of Prior Year's Statements: - Certain previously reported items
have been reclassified to conform to the current year's classifications.
Specifically, the Bancorp discloses certain non-income statement changes to
equity balances under the classification of "Accumulated Other Comprehensive
Income" in accordance with Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income. 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:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,516,405 $ 99,700 $ -- $ 5,616,105
Obligations of
U.S. Government Agencies 68,446,065 1,130,425 (36,510) 69,539,980
Obligations of State and
political sub-divisions 8,026,140 233,928 (59,756) 8,200,312
Mortgage-backed securities 33,255,689 148,555 (177,050) 33,227,194
Other securities 637,670 7 -- 637,677
Equity securities 154,410 94,269 -- 248,679
---------------- --------------- --------------- --------------
$ 116,036,379 $ 1,706,884 $ (273,316) $ 117,469,947
================ =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,530,091 $ 96,629 $ -- $ 6,626,720
Obligations of
U.S. Government Agencies 69,888,192 845,278 (8,520) 70,724,950
Obligations of State and
political sub-divisions 6,743,715 185,458 -- 6,929,173
Mortgage-backed securities 21,446,423 214,045 (49,077) 21,611,391
Other securities 498,809 -- (98) 498,711
Equity securities 144,410 94,518 -- 238,928
---------------- --------------- ------------- --------------
$ 105,251,640 $ 1,435,928 $ (57,695) $ 106,629,873
================ ============== ============== ==============
</TABLE>
-46-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Investment securities held to maturity consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Obligations of
U.S. Government Agencies $ 2,500,000 $ -- $ (14,375) $ 2,485,625
Mortgage-backed securities 69,215 -- (295) 68,920
-------------- --------------- ------------- --------------
$ 2,569,215 $ -- $ (14,670) $ 2,554,545
============== =============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Obligations of
U.S. Government Agencies $ 5,500,000 $ -- $ (33,985) $ 5,466,015
Mortgage-backed securities 354,975 -- (5,030) 349,945
------------- -------------- ------------- -----------------
$ 5,854,975 $ -- $ (39,015) $ 5,815,960
============= ============== ============= =================
</TABLE>
-47-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on calls and sales of available for sale
securities were:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Gross realized gains:
Obligations of U.S. Government Agencies $ 58,191 $ 8,108 $ 4,175
Obligations of state and political sub-divisions 3,121 -- --
---------- ---------- ---------
$ 61,312 $ 8,108 $ 4,175
========== ========== =========
Gross realized losses:
U.S. Treasury securities $ -- $ -- $ 16,992
Obligations of U.S. Government Agencies -- -- 32,187
Mortgage-backed securities 20,901 32,998 43,116
---------- ---------- ---------
$ 20,901 $ 32,998 $ 92,295
========== ========== =========
</TABLE>
The amortized cost and estimated market value of the investment securities
available for sale and the investment securities held to maturity at December
31, 1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers have the right to call or
prepay obligations with or without call or prepayment penalties.
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 1998 are as follows:
Amortized Market
Cost Value
------------ ------------
Due in one year or less $ 6,365,849 $ 6,421,574
Due after one year through five years 29,510,153 29,888,420
Due after five years through ten years 34,378,337 35,231,929
Due after ten years, includes equity securities 45,782,040 45,928,024
----------- -----------
$116,036,379 $117,469,947
=========== ===========
-48-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of the investment securities held
to maturity at December 31, 1998 are as follows:
Amortized Market
Cost Value
------------ ------------
Due in one year or less $ 2,569,215 $ 2,554,545
Due after one year through five years -- --
Due after five years through ten years -- --
Due after ten years -- --
---------- ----------
$ 2,569,215 $ 2,554,545
========== ==========
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 the level of assets, residential real estate loans and
outstanding FHLB advances. At December 31, 1998 and 1997, the Bank held
$1,308,100 and $1,170,700, respectively, of FHLB stock.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
December 31,
------------------------------------
1998 1997
-------------- --------------
Mortgage $ 123,494,185 $ 107,240,284
Home equity credit 8,588,588 8,859,875
Installment 52,418,443 45,321,407
Commercial 45,232,281 42,003,235
PHEAA 5,043,415 4,604,115
Municipal 3,615,536 7,869,828
Credit cards 1,807,547 2,021,613
Other 476,655 1,080,974
------------- -------------
240,676,650 219,001,331
Less: Unearned discount 46 476
Allowance for loan losses 2,228,214 2,340,283
Deferred loan fees 143,899 173,965
------------- -------------
$ 238,304,491 $ 216,486,607
============= =============
-49-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 3 -- LOANS (CONTINUED)
At December 31, 1998 and 1997, the total recorded investment in impaired loans
amounted to approximately $13,000 and $190,000, respectively. The allowance for
loan losses related to impaired loans amounted to approximately $2,000 and
$28,500 at December 31, 1998 and 1997, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 2,340,283 $ 2,239,598 $ 1,969,406
Provision charged to operations 300,000 300,000 410,000
Loans charged off (526,117) (207,270) (152,481)
Recoveries 114,048 7,955 12,673
----------- ----------- -----------
Balance, end of year $ 2,228,214 $ 2,340,283 $ 2,239,598
=========== =========== ===========
</TABLE>
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
December 31,
-----------------------------
1998 1997
------------- --------------
Land $ 450,466 $ 450,466
Buildings and improvements 4,814,040 4,757,020
Furniture and equipment 3,971,924 3,606,212
----------- -----------
9,236,430 8,813,698
Less: Accumulated depreciation 4,357,297 3,886,440
----------- -----------
$ 4,879,133 $ 4,927,258
=========== ===========
Depreciation expense was $482,000 in 1998, $422,349 in 1997 and $401,929 in
1996.
Six of the Bank's branch office buildings and/or land are leased by the Bank.
These leases have initial terms of 3 to 20 years, and all contain renewal
options for additional years.
-50-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
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,
1999 $ 100,700
2000 95,920
2001 99,520
2002 79,950
2003 and thereafter $ 740,629
---------
$1,116,719
=========
Rental expense under these operating leases was $100,700, $83,650 and $57,750
for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 5 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 1998 are
summarized as follows:
1999 $101,982,991
2000 31,355,809
2001 4,833,820
2002 4,838,965
2003 and thereafter 15,803,348
-----------
$158,814,933
===========
The Bank held related party deposits of approximately $3,134,000 and $3,521,000
at December 31, 1998 and 1997, respectively.
The Bank held time deposits that exceeded $100,000 of $23,584,545 and
$36,139,919 at December 31, 1998 and 1997, respectively.
NOTE 6 -- PLEDGED ASSETS
At December 31, 1998 and 1997, assets carried at $37,500,000 and $33,500,000,
respectively, were pledged to qualify for fiduciary powers, to secure public
monies as required by law, and for other purposes.
-51-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of:
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ------------ ------------
Currently payable $ 2,618,602 $ 2,388,935 $ 2,169,408
Deferred tax (benefit) 117,974 (176) (137,793)
---------- ---------- ----------
Total $ 2,736,576 $ 2,388,759 $ 2,031,615
========== ========== ==========
The significant components of temporary differences for 1998, 1997 and 1996 are
as follows:
Years Ended December 31,
------------------------------------------
1998 1997 1996
---------- ----------- -----------
Provision for loan losses $ 38,201 $ (34,233) $ (94,933)
Depreciation 10,559 20,576 (3,210)
Valuation allowance 550 8,621 8,710
Pension 67,732 (3,461) (21,842)
Deferred loan fees 10,222 13,346 (18,206)
Other (9,290) (5,025) (8,312)
-------- -------- ---------
Total $ 117,974 $ (176) $ (137,793)
======== ======== =========
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
---------------------------------------------
1998 1997 1996
--------- --------- ---------
Provision at statutory rate 34.0% 34.0% 34.0%
Effect of tax free income (2.0) (2.7) (3.1)
Other .1 .2 .1
------ ------ ------
Effective tax rate 32.1% 31.5% 31.0%
====== ====== ======
-52-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 7 -- INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
Deferred Tax Deferred Tax
-------------------------- -------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Provision for loan losses $ 553,299 $ -- $ 591,500 $ --
Depreciation -- 174,579 -- 164,020
Pension expense 1,962 -- 69,694 --
Other 152,231 -- 153,713 --
SFAS 115 -- 487,412 -- 468,598
-------- -------- -------- --------
$ 707,492 $ 661,991 $ 814,907 $ 632,618
======== ======== ======== ========
</TABLE>
NOTE 8 -- LONG-TERM DEBT
At December 31, 1998, the Bank had the following advances from the Federal Home
Loan Bank (FHLB).
Amount Interest Rate Maturity Date
----------- ------------- -------------
$ 2,000,000 6.52% May 13, 1999
2,000,000 5.88% March 13, 2001
5,000,000 5.63% July 21, 2008
5,000,000 4.86% October 23, 2008
----------
$14,000,000
==========
Interest only is payable until maturity on all long-term debt. Collateral for
all debt includes all qualifying mortgages.
In addition, the Bank has a line of credit with FHLB of approximately
$11,671,000 and $10,700,000 at December 31, 1998 and 1997, respectively. There
were no advances on the line of credit during 1998 and 1997.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
The Bank maintained one non-contributory defined benefit pension plan for its
employees prior to 1995 (Plan #1). In 1995, various plan assumptions were
changed which resulted in a reduction in benefits for older and long-standing
employees. To compensate for this, a supplemental non-qualified plan was
installed for those employees so affected (Plan #2). The Bank's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes for Plan #1. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future. Assets for the plans were primarily invested in U.S.
Government obligations, corporate obligations and equity securities whose
valuations are subject to fluctuations of the securities' market.
-53-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 9 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following is a summary of the plans as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year $ 1,986,373 $ 1,664,947
Service cost 160,189 134,087
Interest cost 137,966 115,502
Benefits paid (18,667) (29,959)
Other - net 13,186 101,796
----------- -----------
Benefit obligation at end of year $ 2,279,047 $ 1,986,373
=========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year $ 2,207,486 $ 1,822,591
Actual return on plan assets 177,907 244,191
Benefits paid (18,667) (29,959)
Employer contributions 143,415 170,663
----------- -----------
Fair value of plan assets at end of year $ 2,510,141 $ 2,207,486
=========== ===========
Funded status $ 231,094 $ 221,113
Unrecognized net loss from actuarial experience 134,196 140,263
Unrecognized prior service cost (275,010) (293,272)
Unamortized net asset existing at date of adoption of SFAS No. 87 (80,912) (87,945)
----------- -----------
Prepaid (accrued) pension cost $ 9,368 $ (19,841)
=========== ===========
</TABLE>
Net pension expense included the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 160,189 $ 134,087 $ 128,081
Interest cost on projected benefit obligation 137,966 115,502 100,513
Actual return on plan assets (177,907) (244,191) (114,906)
Net amortization and deferral (6,042) 81,491 (33,598)
---------- --------- ---------
Net periodic pension cost $ 114,206 $ 86,889 $ 80,090
========== ========= =========
</TABLE>
The projected benefit obligation was determined using an assumed discount rate
of 7.0% for 1998 and 1997 and an expected rate of increase in compensation using
a graded scale which ranges from 3.5% to 5.5% for Plan #1, and 3.5% for Plan #2.
The assumed rate of return on the plans' investment earnings was 7.0 % for 1998
and 1997.
-54-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 9 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The Bank also maintains non-qualified deferred compensation plans for certain
directors, which are generally funded by life insurance, the premiums of which
have been paid for by the Bank. The present value of these benefits to be paid
under the programs are being accrued over the estimated remaining service period
of the participants. The liability for these future obligations was $402,945 and
$322,305 at December 31, 1998 and 1997, 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 1998, 1997 and
1996 amounted to $42,753, $37,677 and $32,018, respectively.
NOTE 10 -- 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 $41,445,000 and $44,932,000, as of December 31, 1998 and 1997,
respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on- balance-sheet instruments. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. The terms are typically for a one year period, with an
annual renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements.
The Bancorp and Bank are involved in various legal actions from normal business
activities. Management believes that the liability, if any, arising from such
actions will not have a material adverse effect on the Bancorp and Bank's
financial position.
-55-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 11 -- RELATED-PARTY TRANSACTIONS
At December 31, 1998 and 1997, 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 $6,950,000 and $5,572,000 ,
respectively. During 1998, new loans to such related parties were approximately
$2,804,000 and repayments approximated $1,426,000.
NOTE 12 -- CONCENTRATION OF CREDIT
The Bank primarily grants loans to customers in Western Pennsylvania, and
maintains a diversified loan portfolio and the ability of its debtors to honor
their contracts is not substantially dependent on any particular economic
business sector. A substantial portion of the Bank's investments in municipal
securities are obligations of state or political subdivisions located within
Pennsylvania. As a whole, the Bank's loan and investment portfolios could be
affected by the general economic conditions of Pennsylvania. In addition, at
December 31, 1998 and 1997, 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
institution's records, were approximately $33,077,000 and $18,146,000 at
December 31, 1998 and 1997, respectively.
NOTE 13 -- 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.
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.
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.
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.
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 13 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Long term debt: The fair value of long term debt (FHLB advances) was determined
using a discounted cash flow analysis based on current FHLB advance rates for
advances with similar maturities.
The estimated fair value of the Bancorp's financial instruments as of December
31, 1998 are as follows:
Carrying Fair
Amount Value
------------- -------------
Financial Assets:
Cash and cash equivalents $ 43,396,314 $ 43,396,314
Investment securities $ 120,039,162 $ 120,024,492
Federal Home Loan Bank Stock $ 1,308,100 $ 1,308,100
Loans receivable $ 238,304,491 $ 241,888,112
Financial liabilities:
Deposits $ 356,383,138 $ 358,363,842
Long term debt $ 14,000,000 $ 14,823,323
The market values of investments, which are based upon quoted market prices are
contained in Note 2.
NOTE 14 -- 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.
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 14 -- REGULATORY MATTERS (CONTINUED)
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, 1998 and 1997, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 1998 and 1997, 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:
<TABLE>
<CAPTION>
December 31, Minimum Well
------------------------- Capital Capitalized
1998 1997 Requirements Requirements
---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Risk-based capital ratio 16.4% 16.0% 8% 10.0% or higher
Leverage capital ratio 10.6% 10.8% 3% to 4% 5.0% or higher
Tier 1 risk-based capital ratio 15.4% 14.9% 4% 6.0% or higher
</TABLE>
Included in cash and due from banks are required federal reserves of $4,403,000
and $2,886,000 at December 31, 1998 and 1997, 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 15 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption of this Statement, the transfer of any held to
maturity security into either the available for sale or trading category and the
transfer of any available for sale security into the trading category. Transfers
from the held to maturity portfolio at the date of initial adoption will not
call into question the entity's intent to hold other debt securities to maturity
in the future. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999 and is not expected to have any impact on
the Bank. The Bank does not intend to adopt SFAS No. 133 earlier than required.
-58-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 16 - CAPITAL STOCK
In January 1998, the Bancorp declared a 5% stock dividend to stockholders of
record at January 15, 1998, payable February 2, 1998. Fractional shares were
paid for in cash, totalling $3,149. The Bancorp issued 47,933 shares of capital
stock in conjunction with this dividend. In addition, on December 28, 1998, the
Bancorp declared a three-for- one stock split on the Bancorp's capital stock,
which was effected in the form of a 200 percent stock dividend. Two additional
shares will be issued for each share of capital stock held by shareholders of
record as of the close of business on January 6, 1999. New shares were
distributed on January 29, 1999. Capital stock and surplus as of December 31,
1998 have been restated to reflect this split. Par value will remain unchanged
at $1.25. The number of shares issued at December 31, 1998, after giving effect
to the split, was 3,023,799 (1,007,933 shares issued before the split). The
effect of the stock split has been retroactively reflected as of December 31,
1998 in the consolidated balance sheet and statement of changes in stockholders'
equity, but prior periods were not restated in those statements. All references
to the number of shares and per share amounts elsewhere in the consolidated
financial statements and related footnote have been restated as appropriate to
reflect the effect of the split for all periods presented.
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996 is as
follows:
BALANCE SHEETS
December 31,
--------------------------
1998 1997
----------- -----------
ASSETS
Cash in bank $ 629 $ 1,421
Investment in subsidiary 37,184,369 33,443,202
Securities available for sale 826,348 667,736
Other assets 221,634 221,634
---------- -----------
Total Assets $38,232,980 $34,333,993
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 32,051 $ 32,135
Stockholders' Equity 38,200,929 34,301,858
---------- -----------
Total Liabilities and Stockholders' Equity $38,232,980 $34,333,993
========== ==========
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Income
Dividends from subsidiary $ 2,100,000 $ 1,700,000 $ 1,600,000
Other dividends 32,157 25,062 10,524
Expenses
Professional fees 20,979 13,668 11,827
Miscellaneous 14,729 11,060 5,408
---------- ---------- ----------
Income Before Income Taxes and Equity
in Undistributed Earnings of Subsidiary 2,096,449 1,700,334 1,593,289
Equity in Undistributed Earnings of
Subsidiary 3,704,481 3,493,182 2,865,095
---------- ---------- ----------
Net Income $ 5,800,930 $ 5,193,516 $ 4,458,384
========== ========== ==========
</TABLE>
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,800,930 $ 5,193,516 $ 4,458,384
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary (3,704,481) (3,493,182) (2,865,095)
Other assets -- (28,822) --
----------- ------------ ------------
Net Cash From Operating Activities 2,096,449 1,671,512 1,593,289
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of securities available for sale (158,861) (135,663) (325,885)
Dividends paid (1,938,380) (1,536,000) (1,267,200)
----------- ------------ ------------
Net Cash Used By Financing Activities (2,097,241) (1,671,663) (1,593,085)
----------- ------------ ------------
Net Change in Cash and Cash Equivalents (792) (151) 204
Cash and Cash Equivalents at Beginning
of Year 1,421 1,572 1,368
----------- ------------ ------------
Cash and Cash Equivalents at End of Year $ 629 $ 1,421 $ 1,572
=========== ============ ============
</TABLE>
-61-
<PAGE>
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) 1. The consolidated statements of financial conditions of IBT
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997,
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, 1998, together with
the related notes and the independent auditors' report of
Edwards, Leap, & Sauer, independent accountants.
2. Schedules omitted as they are not applicable.
(b) Exhibits
3(i) Articles of Incorporation of IBT Bancorp, Inc.
3(ii) Bylaws of IBT Bancorp, Inc.
21 Subsidiaries of IBT Bancorp, Inc.
27 Financial Data Schedule (electronic filing only)
-62-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
IBT Bancorp, Inc.
(Registrant)
Date: April 29, 1999 By: /s/J. Curt Gardner
-------------- -------------------------------------
J. Curt Gardner
President
EXHIBIT 3(i)
ARTICLES OF INCORPORATION OF IBT BANCORP, INC.
<PAGE>
IBT BANCORP, INC.
RESTATED ARTICLES OF INCORPORATION
----------------------------------
1. Name. The name of the corporation is IBT Bancorp, Inc. (hereinafter
referred to as the "Corporation").
2. Registered Office. The address of the registered office of the Corporation
in the Commonwealth of Pennsylvania is 309 Main Street, Irwin, County of
Westmoreland, Pennsylvania 15642.
3. Nature of Business. To have unlimited power to engage in and do any lawful
act concerning any or all lawful business for which corporations may be
incorporated under the provisions of the Business Corporation Law of the
Commonwealth of Pennsylvania. The Corporation is incorporated under the
provisions of the Business Corporation Law of 1988, as amended, of the
Commonwealth of Pennsylvania.
4. Duration. The term of the existence of the Corporation shall be perpetual.
5. Capital Stock. The total number of shares of capital stock which the
Corporation has authority to issue is 50,000,000 of which 50,000,000 shall
be common stock, par value $1.25 per share.
6. Cumulative Voting Rights. Cumulative voting rights shall not exist with
respect to the election of directors.
7. Opposition of Tender (or other offer)
A. The Board of Directors may, if it deems it advisable, oppose a tender,
or other offer for the corporation's securities, whether the offer is
in cash or in securities of a corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may,
but it is not legally obligated to, consider any pertinent issues; by
way of illustration, but not of limitation, the Board of Directors
may, but shall not be legally obligated to, consider any and all of
the following:
(1) Whether the offer price is acceptable based on the historical and
present operating results or financial condition of the
corporation.
(2) Whether a more favorable price could be obtained for the
corporation's securities in the future.
(3) The impact which an acquisition of the corporation would have on
its employees, depositors and customers of the corporation and
its subsidiaries in the community which they serve.
<PAGE>
(4) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees,
depositors and customers of the corporation and its subsidiaries
and the future value of the corporation's stock.
(5) The value of the securities, if any, which the offeror is
offering in exchange for the corporation's securities, based on
an analysis of the worth of the corporation as compared to the
corporation or other entity whose securities are being offered.
(6) Any antitrust or other legal and regulatory issues that are
raised by the offer.
B. If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but
not limited to, any and all of the following: advising shareholders
not to accept the offer; litigation against the offeror; filing
complaints with all governmental and regulatory authorities; acquiring
the authorized but unissued securities or treasury stock or granting
options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a
more favorable offer from another individual or entity.
8. Classification of Directors. The Directors shall be divided into three (3)
classes, as nearly equal in number as possible, known as Class 1,
consisting of not more than five (5) Directors; Class 2, consisting of not
more than five (5) Directors; and Class 3, consisting of not more than five
(5) Directors. The initial Directors of Class 1 shall serve until the first
(1st) annual meeting of shareholders. At the first (1st) annual meeting of
the shareholders, the Directors of Class 1 shall be elected for a term of
three (3) years and, after expiration of such term, shall thereafter be
elected every three (3) years and, after the expiration of such term, shall
thereafter be elected every three (3) years for three (3) year terms. The
initial Directors of Class 2 shall serve until the second (2nd) annual
meeting of shareholders. At the second (2nd) annual meeting of the
shareholders, the Directors of Class 2 shall be elected for a term of three
(3) years and, after the expiration of such term, shall thereafter be
elected every three (3) years for three (3) year terms. The initial
Directors of Class 3 shall serve until the third (3rd) annual meeting of
shareholders. At the third (3rd) annual meeting of the shareholders the
Directors of Class 3 shall be elected for a term of three (3) years and,
after the expiration of such term, shall thereafter be elected every three
(3) years for three (3) year terms. Each Director shall serve until his/her
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successor shall have been elected and shall qualify, even though his/her
term of office as herein provided has otherwise expired, except in the
event of his/her earlier resignation, removal or disqualification.
9. Filling of Vacancies in Board of Directors Caused by Increase in Number of
Directors. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the Board of Directors. The Board of
Directors shall specify the class in which a director so elected shall
serve. Any director elected by the Board of Directors shall hold office
only until the next annual meeting of the shareholders and until his
successor shall have been elected and qualified, notwithstanding that the
term of office of the other directors in the class of which he is a member
does not expire at the time of such meeting. His successor shall be elected
by the shareholders to a term of office which shall expire at the same time
as the term of office of the other directors in the class to which he is
elected.
10. Number of Directors. The Board of Directors shall consist of not less than
seven (7) nor more than fifteen (15) shareholders, the exact number to be
stated in the bylaws.
11. Preemptive Rights. No holder of shares of any class or of any series of any
class shall have any preemptive right to subscribe for, purchase or receive
any shares of the corporation, whether now or hereafter authorized, or any
obligations or other securities convertible into or carrying options to
purchase any such shares of the corporation, or any options or rights to
purchase any such shares or securities, issued or sold by the corporation
for cash or any other form of consideration, any such shares, securities or
rights may be issued or disposed of by the Board of Directors to such
persons and on such terms as the Board in its discretion shall deem
advisable.
12. Business Combinations.
A. No merger, consolidation, liquidation or dissolution of the
Corporation, nor any action that would result in the sale or other
disposition of all or substantially all of the assets of the
Corporation shall be valid unless first approved by the affirmative
vote of:
(1) the holders of at least seventy-five percent (75%) of the
outstanding shares of Common Stock of the Corporation; or
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(2) the holders of at least sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of Common Stock of the
Corporation, provided that such transaction has received the
prior approval of eighty percent (80%) of the entire Board of
Directors.
Any business combination involving a 5% Stockholder (as hereinafter
defined) shall require the percentage approval referenced in subparagraphs
A.1. and A.2. in addition to any shares beneficially owned by such 5%
Stockholder (i.e. in computing the aforesaid percentages, the shares owned
by the 5% shareholder shall not be considered).
B. Notwithstanding the percentage approval referenced in subparagraphs
A.1. and A.2., no merger, consolidation, liquidation or dissolution of
the Corporation, nor any action that would result in the sale or other
disposition of all or substantially all of the assets of the
Corporation shall be valid unless the cash or fair market value of the
property, securities or other consideration to be received per share
by holders of Common Stock of the Corporation is at lest equal to the
higher of the following:
(1) the highest per share price (with appropriate adjustments for
recapitalization and for stock splits, stock dividends and like
distributions) paid by the 5% Stockholder in acquiring any of its
holdings of the Corporation's Common Stock; and
(2) the market value per share of common stock on the announcement
date with respect to such Business Combination.
C. For the purpose of this Article:
(1) A "person" shall mean any individual, firm, Corporation or other
entity.
(2) "5% Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which, as of the record date for the
determination of stockholders entitled to notice of and to vote
on such business combination, or immediately prior to the
consummation of any such transaction,
a. is the beneficial owner, directly or indirectly, of not less
than 5% of the Voting Shares, or
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b. is an Affiliate of the Corporation and at any time within
two years prior thereto was the beneficial owner, directly
or indirectly, of not less than 5% of the then outstanding
Voting Shares, or
c. is an assignee of or has otherwise succeeded to any shares
of capital stock of the Corporation which were at any time
within two years prior thereto beneficially owned by any 5%
Stockholder, and such assignment or succession shall have
occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
a. which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially own, directly or indirectly; or
b. which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants, options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding; or
c. which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.
(4). The term "other consideration to be received" shall include, without
limitation, Common Stock of the Corporation retained by its existing
public stockholders in the event of a business combination in which
the Corporation is the surviving corporation.
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(5) "Affiliate" and "Associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations of the
Securities Exchange Act of 1934.
(6) The term "market value" shall mean:
a. in the case of stock, the highest closing sale price during the
thirty-day period immediately preceding the date in question of a
share of such stock on the composite tape for New York
stock-exchange-listed stocks, or, if such stock is not quoted on
such composite tape or if such stock is not listed on such
exchange, on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed,
or if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock
during the thirty-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board of
Directors in good faith; and
b. in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by
the Board of Directors in good faith.
13. Indemnification, etc. of Officers, Directors, Employees and Agents.
A. Persons. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, including actions by or in
the right of the Corporation, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation against
a person named in paragraph A by
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reason of his holding a position named in paragraph A, the Corporation
shall indemnify him if he satisfies the standard in paragraph C, for
expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of the action or
suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation, a
person named in paragraph A shall be indemnified only if:
1. he is successful on the merits or otherwise; or
2. he acted in good faith in the transaction which is the subject of
the suit or action, and in a manner he reasonably believed to be
in, or not opposed to, the best interest of the Corporation,
including, but not limited to, the taking of any and all actions
in connection with the Corporation's response to any tender offer
or any offer or proposal of another party to engage in a business
combination not approved by the board of directors. However, he
shall not be indemnified in respect of any claim, issue or matter
as to which he has been adjudged liable to the Corporation unless
(and only to the extent that) the court of common pleas or the
court in which the suit was brought shall determine, upon
application, that despite the adjudication of liability but in
view of all the circumstances, he is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem
proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
completed suit, action or proceeding (whether civil, criminal,
administrative or investigative), other than a suit by or in the right
of the Corporation, together hereafter referred to as a nonderivative
suit, against a person named in paragraph A by reason of his holding a
position named in paragraph A, the Corporation shall indemnify him if
he satisfies the standard in paragraph E, for amounts actually and
reasonably incurred by him in connection with the defense or
settlement of the nonderivative suit, including, but not limited to
(i) expenses (including attorneys' fees), (ii) amounts paid in
settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
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1. he is successful on the merits or otherwise; or
2. he acted in good faith in the transaction which is the subject of
the nonderivative suit and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions
in connection with the Corporation's response to any tender offer
or any offer or proposal of another party to engage in a business
combination not approved by the board of directors and, with
respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. The
termination of a nonderivative suit by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, in itself, create a presumption that the
person failed to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
standard of paragraph C or E has been satisfied may be made by a
court, or, except as stated in paragraph C.2 (second sentence), the
determination may be made by:
1. the board of directors by a majority vote of a quorum consisting
of directors of the Corporation who were not parties to the
action, suit or proceeding; or
2. independent legal counsel (appointed by a majority vote of a
quorum of the disinterested directors of the Corporation), in a
written opinion; or
3. the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
determine that a person has met the standard as to some matters but
not as to others, and may reasonably prorate amounts to be
indemnified.
H. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, or employee or agent of the Corporation in defending a civil
or criminal action, suit or proceeding described in Article 13.B may
be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be
determined that the
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person is not entitled to be indemnified by the Corporation.
I. Other Rights. The indemnification and advancement of expenses provided
by or pursuant to this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any insurance or other agreement, vote
of stockholders or directors or otherwise, both as to actions in their
official capacity and as to actions in another capacity while holding
an office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
J. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article.
K. Security Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the
Corporation may create and fund a trust fund or fund of any nature,
and may enter into agreements with its officers, directors, employees
and agents for the purpose of securing or insuring in any manner its
obligation to indemnify or advance expenses provided for in this
Article.
L. Modification. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article shall be in
the nature of a contract between the Corporation and each such person,
and no amendment or repeal of any provision of this Article, and no
amendment or termination of any trust or other fund created pursuant
to Article 13.F hereof, shall alter to the detriment of such person
the right of such person to the advancement of expenses or
indemnification related to a claim based on an act or failure to act
which took place prior to such amendment, repeal or termination.
M. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision in this Article, the
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Corporation shall not indemnify a director, officer, employee or agent
for any liability incurred in an action, suit or proceeding initiated
by (which shall not be deemed to include counter-claims or affirmative
defenses) or participated in as an intervenor or amicus curiae by the
person seeking indemnification unless such initiation of or
participation in the action, suit or proceeding is authorized, either
before or after its commencement, by the affirmative vote of a
majority of the directors then in office.
N. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer,
employee, and agent of the Corporation as to costs, charges, and
expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement with respect to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, including
an action by or in the right of the Corporation to the full extent
permitted by any applicable portion of this Article that shall not
have been invalidated and to the full extent permitted by applicable
law.
If Pennsylvania law is amended to permit further indemnification of the
directors, officers, employees and agents of the Corporation, then the
Corporation shall indemnify such persons to the fullest extent permitted by
the Pennsylvania law, as so amended. Any repeal or modification of this
Article by the stockholders of the Corporation shall not adversely affect
any right or protection of a director, officer, employee or agent existing
at the time of such repeal or modification.
14. Amendments to Articles. These Articles of Incorporation may not be amended
unless first approved by the affirmative vote of:
A. the holders of at least seventy-five percent (75%) of the outstanding
shares of Common Stock of the Corporation; or
B. the holders of at least fifty percent (50%) of the outstanding shares
of Common Stock of the Corporation, provided that such amendment has
received the prior approval of eighty percent (80%) of the entire
Board of Directors.
10
EXHIBIT 3(ii)
BYLAWS OF IBT BANCORP, INC.
<PAGE>
BYLAWS
OF
IBT BANCORP, INC.
These Bylaws are supplemental to the Pennsylvania Business Corporation
Law and other applicable provisions of law, as the same shall from time to time
be in effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meeting. All meetings of the shareholders shall
be held at such place or places, within or without the Commonwealth of
Pennsylvania, as shall be determined by the Board of Directors from time to
time.
Section 102. Annual Meetings. The annual meeting of the shareholders
for the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held at such date or hour as may be
fixed by the Board of Directors. Any business which is a proper subject for
shareholder action may be transacted at the annual meeting, irrespective of
whether the notice of said meeting contains any reference thereto, except as
otherwise provided by applicable law.
Section 103. Special Meetings. Special meetings of the shareholders may
be called at any time by the Board of Directors, the President, or by the
shareholders entitled to cast at least one-third of the vote which all
shareholders are entitled to cast at the particular meeting.
Section 104. Conduct of Shareholders' Meetings. The Chairman of the
Board shall preside at all shareholders' meetings. In the absence of the
Chairman of the Board, the President shall preside or, in his/her absence, any
Officer designated by the Board of Directors. The Officer presiding over the
shareholders' meeting may establish such rules and regulations for the conduct
of the meeting as he/she may deem to be reasonably necessary or desirable for
the orderly and expeditious conduct of the meeting. Unless the Officer presiding
over the shareholders' meeting otherwise requires, shareholders need not vote by
ballot on any question. Directors shall be elected by a plurality of votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Unless otherwise provided in the articles
of incorporation, by statute, or by these bylaws, in matters other than the
election of directors, a majority of the shares present in person or represented
by proxy at a lawful meeting and entitled to vote on the subject matter, shall
be sufficient to pass on a transaction or matter.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The business and affairs
of the Corporation shall be managed by its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, regulation, the Articles of Incorporation
or these Bylaws directed or required to be exercised or done by the
shareholders.
Section 202. Nomination for Directors. Nominations for directors to be
elected at an annual meeting of shareholders, except those made by the Board of
Directors of the Corporation, must be submitted to the Secretary of the
Corporation in writing not later than the close of business on the sixtieth
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(60th) day immediately preceding the date of the meeting. Such notification
shall contain the following information to the extent known to the notifying
shareholder: (a) name and address of each proposed nominee; (b) the principal
occupation of each proposed nominee; (c) the total number of shares of capital
stock of the Corporation that will be voted for each proposed nominee; (d) the
name and residence address of the notifying shareholder; and (e) the number of
shares of capital stock of the Corporation owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the Presiding Officer of the meeting, and upon his/her
instruction, the vote tellers may disregard all votes cast for each such
nominee. In the event the same person is nominated by more than one shareholder,
the nomination shall be honored, and all shares of capital stock of the
Corporation shall be counted if at least one nomination for that person complies
herewith.
Section 203. Directors Must be Shareholders. Every Director must be a
shareholder of the Corporation and shall own in his/her own right at least one
hundred (100) shares of capital stock of the Corporation. Any Director shall
forthwith cease to be a Director when he/she no longer holds such shares, which
fact shall be reported to the Board of Directors by the Secretary, whereupon the
Board of Directors shall declare the seat of such Directors vacated.
Section 204. Eligibility and Mandatory Retirement. No person shall be
eligible to be newly elected or appointed as a Director as he/she shall have
attained the age of seventy (70) years on or prior to the date of his/her
election. Notwithstanding the foregoing, the mandatory retirement provisions of
this section shall not apply retroactively to those Directors elected as Interim
Directors at the first meeting of the Board of Directors of the Corporation
(with the exception of William D. Fawcett, Sr. and J. Curt Gardner), nor
thereafter, should they desire to stand for reelection thereafter. Any Director
of this Corporation, with the exception of the Interim Directors as specified
above, who attains the age of seventy (70) years shall cease to be a Director
(without any action on his/her part) at the close of business on the day prior
to the date of the next shareholders' meeting at which directors are to be
elected regardless of whether or not his/her term as a Director would otherwise
expire at such shareholders' meeting. The Board of Directors may designate one
or more persons who have retired from the Board as honorary members of the
Board. Such honorary members may attend meetings of the Board but shall have no
authority to vote or receive compensation.
Section 205. Number of Directors and Vacancies. The Board of Directors
of the Corporation shall consist of nine members. Vacancies in the Board of
Directors, including vacancies resulting from an increase in the number of
Directors, may be filled by the remaining members of the Board even though less
than a quorum. Any Director elected to fill a vacancy in the Board of Directors
shall become a member of the same Class of Directors in which the vacancy
existed; but if the vacancy is due to an increase in the number of Directors a
majority of the members of the Board of Directors shall designate such
directorship as belonging to Class 1, Class 2 or Class 3 so as to maintain the
three (3) classes of Directors as nearly equal in number as possible. Each
Director so elected shall be a Director until his/her successor is elected by
the shareholders, who may make such election at the next annual meeting of the
shareholders or at any special meeting duly called for that purpose and held
prior thereto.
Section 206. Compensation of Directors. No Director shall be entitled
to any salary as such; but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a Director and a reasonable fee to be paid
each Director his/her services in attending meetings of the Board and meetings
of committees appointed by the Board. The Corporation may reimburse Directors
for expenses related to their duties as a member of the Board.
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Section 207. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day, at such hour, and at such place, consistent
with applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting of shareholders at which the Directors are elected. Notice
need not be given of regular meeting is not to be held at the time and place
designated by the Board of Directors, notice of such meeting, which need not
specify the business to be transacted thereat and which may be either verbal or
in writing, shall be given by the Secretary to each member of the Board at least
twenty-four (24) hours before the time of the meeting.
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business. If at the time fixed for the meeting,
including the meeting to organize the new Board following the annual meeting of
shareholders, a quorum is not present, the directors in attendance may adjourn
the meeting from time to time until a quorum is obtained.
Except as otherwise provided herein, a majority of those directors
present and voting at any meeting of the Board of Directors, shall decide each
matter considered. A director cannot vote by proxy, or otherwise act by proxy at
a meeting of the Board of Directors.
Section 208. Special Meetings. Special meetings of the Board of
Directors may be called by the President or at the request of five or more
members of the Board of Directors. A special meeting of the Board of Directors
shall be deemed to be any meeting other than the regular meeting of the Board of
Directors. Notice of the time and place of every special meeting, which need not
specify the business to be transacted thereat and which may be either verbal or
in writing, shall be given by the Secretary to each member of the Board at least
twenty-four (24) hours before the time of such meeting excepting the
Organization Meeting following the election of Directors.
Section 209. Reports and Records. The reports of Officers and
Committees and the records of the proceedings of all Committees shall be filed
with the Secretary of the Corporation and presented to the Board of Directors,
if practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a Director shall request it, the vote of each Director upon a particular
question shall be recorded in the minutes.
ARTICLE III. COMMITTEES.
Section 30l. Committees. The following Committee of the Board of
Directors shall be established by the Board of Directors in addition to any
other Committee the Board of Directors may in its discretion establish.
Section 302. Executive Committee. The Executive Committee shall consist
of the Chairman of the Board, the President and at least four (4) other
Directors. A majority of the members of the Executive Committee shall constitute
a quorum, and actions of a majority of those present at a meeting at which a
quorum is present shall be actions of the Committee. Meetings of the Committee
may be called at any time by the Chairman or Secretary of the Committee, and
shall be called whenever two (2) or more members of the Committee so request in
writing. The Executive Committee shall have and exercise the authority of the
Board of Directors in the management of the business of the Corporation between
the dates of regular meetings of the Board.
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Section 303. Appointment of Committee Members. The Board of Directors
shall elect the members of the Committees and the Chairman and Vice Chairman of
each such Committee to serve until the next annual meeting of shareholders. The
President shall appoint or shall establish a method of appointing, subject to
the approval of the Board of Directors, the members of any other Committees
established by the Board of Directors, and the Chairman and Vice Chairman of
such Committee, to serve until the next annual meeting of shareholders. The
Board of Directors may appoint, from time to time, other committees, for such
purposes and with such powers as the Board may determine.
ARTICLE IV. OFFICERS.
Section 401. Officers. The Officers of the Corporation shall be a
Chairman of the Board, a President, one (1) or more Vice Presidents, a
Secretary, a Treasurer, and such other Officers and Assistant Officers as the
Board of Directors may from time to time deem advisable. Except for the
President, Secretary, and Treasurer, the Board may refrain from filling any of
the said offices at any time and from time to time. The same individual may hold
any two (2) or more offices except both the offices of President and Secretary.
The Officers shall be elected by the Board of Directors at the time, in the
manner and for such terms as the Board of Directors from time to time shall
determine. Any Officer may be removed at any time, with or without cause, and
regardless of the term for which such Officer was elected, but without prejudice
to any contract right of such Officer. Each Officer shall hold his office for
the current year for which he was elected or appointed by the Board unless he
shall resign, becomes disqualified, or be removed at the pleasure of the Board
of Directors.
Section 402. Chairman of the Board. The Board of Directors shall elect
a Chairman of the Board at the first regular meeting of the Board following each
annual meeting of shareholders at which Directors are elected. The Chairman of
the Board shall be a member of the Board of Directors and shall preside at the
meetings of the Board and perform such other duties as may be prescribed by the
Board of Directors.
Section 403. President. The President shall have general supervision of
all of the departments and business of the Corporation and shall prescribe the
duties of the other Officers and Employees and see to the proper performance
thereof. The President shall be responsible for having all orders and
resolutions of the Board of Directors carried into effect. The President shall
execute on behalf of the Corporation and may affix or cause to be affixed a seal
to all authorized documents and instruments requiring such execution, except to
the extent that signing and execution thereof shall have been delegated to some
other Officer or Agent of the Corporation by the Board of Directors or by the
President. The President shall be a member of the Board of Directors. In the
absence or disability of the Chairman of the Board or his/her refusal to act,
the President shall preside at meetings of the Board. In general, the President
shall perform all the duties and exercise all the powers and authorities
incident to such office or as prescribed by the Board of Directors.
Section 404. Vice Presidents. The Vice Presidents shall perform such
duties, do such acts and be subject to such supervision as may be prescribed by
the Board of Directors or the President. In the event of the absence or
disability of the President or his/her refusal to act, the Vice Presidents, in
the order of their rank, and within the same rank in the order of their
authority, shall perform the duties and have the powers and authorities of the
President, except to the extent inconsistent with applicable law.
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Section 405. Secretary. The Secretary shall act under the supervision
of the President or such other Officers as the President may designate. Unless a
designation to the contrary is made at a meeting, the Secretary shall attend all
meetings of the Board of Directors and all meetings of the shareholders and
record all of the proceedings of such meetings in a book to be kept for that
purpose, and shall perform like duties for the standing Committees when required
by these Bylaws or otherwise. The Secretary shall give, or cause to be given,
notice of all meetings of the shareholders and of the Board of Directors. The
Secretary shall keep a seal of the Corporation, and, when authorized by the
Board of Directors or the President, cause it to be affixed to any documents and
instruments requiring it. The Secretary shall perform such other duties as may
be prescribed by the Board of Directors, President, or such other Supervising
Officer as the President may designate.
Section 406. Treasurer. The Treasurer shall act under the supervision
of the President or such other Officer as the President may designate. The
Treasurer shall have custody of the Corporation's funds and such other duties as
may be prescribed by the Board of Directors, President or such other Supervising
Officer as the President may designate.
Section 407. Assistant Officers. Unless otherwise provided by the Board
of Directors, each Assistant Officer shall perform such duties as shall be
prescribed by the Board of Directors, the President or the Officer to whom
he/she is an Assistant. In the event of the absence or disability of an Officer
or his/her refusal to act, his/her Assistant Officer shall, in the order of
their rank, and within the same rank in the order of their seniority, have the
powers and authorities of such Officer.
Section 408. Compensation. Unless otherwise provided by the Board of
Directors, the salaries and compensation of all Officers and Assistant Officers,
except the President shall be fixed by or in the manner designated by the
President.
Section 409. General Powers. The Officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the business
of the Corporation, subject always to the direction of the Board of Directors.
Section 410. Mandatory Retirement. No person shall be eligible to be
appointed as an Officer once he/she has attained the age of seventy (70) years.
All Officers shall be retired automatically at or upon the date of their
seventieth (70th) birthday, at which time their employment shall terminate.
ARTICLE V. INDEMNIFICATION.
Section 501. Mandatory Indemnification. The Corporation shall, to the
full extent permitted by the Pennsylvania Business Corporation Law, as amended
from time to time, indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he/she is or was a Director, Officer or Employee of the
Corporation or of any of its subsidiaries.
Section 502. Optional Indemnification. In all situations in which
indemnification is not mandatory under Section 501 hereof, the Corporation may,
to the full extent permitted by the Pennsylvania Business Corporation Law, as
amended from time to time, indemnify all persons whom it is empowered to
indemnify pursuant thereto.
- 5 -
<PAGE>
Section 503. Personal Liability of Directors. A director of the
Corporation shall not be personally liable, as such, for monetary damages for
any action taken unless: (a) the director has breached or failed to perform the
fiduciary duties of his office under the requirements of Subchapter B of Chapter
17 of the Pennsylvania Business Corporation Law of 1988; and (b) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
However, this Section 503 shall not apply to the responsibility of a director
pursuant to any criminal statute or the liability of a director for the payment
of taxes pursuant to federal, state or local law.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VI. SHARES OF CAPITAL STOCK.
Section 601. Authority to Sign Share Certificates. Every share
certificate of the Corporation shall be signed by the President and by the
Secretary or one of the Assistant Secretaries. Certificates may be signed by a
facsimile signature of the President and the Secretary or one of the Assistant
Secretaries of the Corporation.
Section 602. Lost or Destroyed Certificates. Any person claiming a
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such person shall have: (a) requested such
replacement certificate before the Corporation has notice that the shares have
been acquired by a bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the Board of
Directors, or the President or the Secretary; and (c) satisfied any other
reasonable requirements (including providing an affidavit and a surety bond)
fixed by the Board of Directors, or the President or the Secretary.
ARTICLE VII. GENERAL.
Section 701. Fiscal Year. The fiscal year of the Corporation shall
begin on the first (1st) day of January in each year and end on the thirty-first
(31st) day of December in each year.
Section 702. Record Date. The Board of Directors may fix any time
whatsoever (but not more than fifty (50) days) prior to the date of any meeting
of shareholders, or the date for the payment of any dividend or distribution, or
the date for the allotment of rights, or the date when any change or conversion
or exchange of shares will be made or will go into effect, as a record date for
the determination of the shareholders entitled to notice of, or to vote at, any
such meetings, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of shares.
Section 703. Absentee Participation in Meetings. One (1) or more
Directors may participate in a meeting of the Board of Directors, or of a
Committee of the Board, by means of a conference telephone or similar
communications equipment, by means of which all persons participating in the
meeting can hear each other.
- 6 -
<PAGE>
Section 704. Emergency Bylaws. In the event of any emergency resulting
from a nuclear attack or similar disaster, and during the continuance of such
emergency, the following Bylaw provisions shall be in effect, notwithstanding
any other provisions of the Bylaws:
(a) A meeting of the Board of Directors or of any Committee thereof may
be called by any Officer or Director upon one (1) hour's notice to all persons
entitled to notice whom, in the sole judgment of the notifier, it is feasible to
notify;
(b) The Director or Directors in attendance at the meeting of the Board
of Directors or of any Committee thereof shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole or in part, by a
majority vote of the Directors attending any meeting of the Board of Directors,
provided such amendment or repeal shall only be effective for the duration of
such emergency.
Section 705. Severability. If any provision of these Bylaws is illegal
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of Directors. These
Bylaws may be amended or repealed, in whole or in part, by a majority vote of
members of the Board of Directors at any regular or special meeting of the Board
duly convened. Notice need not be given of the purpose of the meeting of the
Board of Directors at which the amendment or repeal is to be considered.
Section 802. Recording Amendments and Repeals. The text of all
amendments and repeals to these Bylaws shall be attached to the Bylaws with a
notation of the date and vote of such amendment or repeal.
- 7 -
EXHIBIT 21
SUBSIDIARIES OF IBT BANCORP, INC.
<PAGE>
The Company has one subsidiary, Irwin Bank & Trust Company, which conducts
business under that name and under the names Irwin Bank & Trust Co. and Irwin
Bank Extra. The subsidiary is chartered under the laws of the Commonwealth of
Pennsylvania.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRATION STATEMENT ON FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
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<ALLOWANCE> 2,228
<TOTAL-ASSETS> 412,366
<DEPOSITS> 356,383
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<LIABILITIES-OTHER> 3,782
<LONG-TERM> 14,000
0
0
<COMMON> 3,780
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