SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/A
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 (IRS employer ID no.)
incorporation 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
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None N/A
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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 March 31, 1999 the Bank operated through its main office, five
branch offices and a loan center as well as through four 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 and has also set up a web site at
www.irwinbank.com.
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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<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------
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, as of December 31, 1998, the dollar
amount of all loans due after December 31, 1999, based upon fixed rates of
interest or 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) Included in the mortgage loans portfolio are commercial real estate loans.
Commercial real estate loans are fixed rate loans that 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. See "Mortgage
Loans."
Mortgage Loans. The Bank had approximately $61.0 million of one- to
four-family residential mortgage loans in its mortgage loan portfolio at March
31, 1999 and at December 31, 1998. 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 upon the
current six month U.S. treasury bill rate, plus an upward
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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 in accordance with Federal National
Mortgage Association ("FNMA") guidelines. Currently, loans underwritten in
accordance with FNMA guidelines are generally sold in the secondary market.
However, the number of saleable loans could vary materially as a result of
market conditions. The Bank generally charges a higher interest rate if loans
are not saleable under FNMA guidelines. At March 31, 1999 and December 31, 1998,
$72.0 million and $73.0 million, respectively, of the Bank's mortgage portfolio
consisted of long-term fixed rate mortgage loans of which $416,000 and $979,000
were classified as held for sale. The Bank does not service any loans that are
sold and the Bank is generally not liable for these loans (i.e., "nonrecourse
loans").
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 long-term 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. At these
specific time periods, the Bank has the right but not the obligation to either
accelerate the loan balance or adjust the interest rate of these loans.
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 March 31, 1999 and December 31, 1998, the Bank's commercial real
estate loans totaled $52.2 million and $52.0 million, respectively, of the
Bank's mortgage portfolio. The largest commercial real estate loan had a balance
of $2.0 million on March 31, 1999 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 long-term one- to four-family residential
mortgage loan on the property. Interim construction loans generally have terms
of up to nine months with fixed rates of interest. At March 31, 1999 and
December 31, 1998, respectively, such loans totaled $2.9 million and $2.1
million, respectively, 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
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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 confronted, at or prior to the maturity of the loan,
with a project having a value which is insufficient to assure full repayment.
Installment Loans. 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 March 31, 1999 and December 31, 1998, home equity
loans totaled $26.7 million and $25.3 million, respectively.
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 March 31, 1999,
commitments to cover originations of mortgage loans totaled $4.7 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,
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the limit is 25% of unimpaired capital and unimpaired surplus. At March 31,
1999, the Bank's loan to one borrower limit was approximately $5.7 million. At
March 31, 1999, the Bank's largest loan to one borrower was $4.1 million and was
secured primarily by apartment buildings in Allegheny and Westmoreland Counties.
The borrower is the owner of apartment buildings.
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. Assets
that do not expose the Bank to risk sufficient to warrant classification in one
of the above categories, but which possess some weakness, are required to be
designated "special mention" by management.
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 March 31, 1999, the Bank had a total of $6.2 million and $3.0
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.
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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
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 March 31, At December 31,
-------------------- ---------------------------------------
1999 1998 1997 1996 1995 1994
-------- ---------- -------- --------- -------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage................................. $^ -- $ -- $ 29 $ -- $ -- $ -
Installment.............................. ^ -- -- -- 5 1 --
Commercial............................... ^ 12 12 205 114 18 22
Home equity credit....................... ^ -- -- -- -- -- -
PHEAA.................................... ^ -- -- -- -- -- --
Municipal................................ ^ -- -- -- -- -- --
Credit cards............................. ^ -- -- -- -- -- --
Other.................................... ^ -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total...................................... ^ 12 12 234 119 19 22
----- ----- ----- ----- ---- ----
Accruing loans which are contractually
past due 90 days or more:
Mortgage................................. ^ 949 788 362 493 703 606
Installment.............................. ^ 5 3 21 7 53 46
Commercial............................... ^ 418 629 631 250 111 104
Home equity credit....................... ^ -- -- -- -- -- -
PHEAA.................................... ^ -- -- -- -- -- --
Municipal................................ ^ -- -- -- -- -- --
Credit cards............................. ^ 10 8 9 11 11 --
Other.................................... ^ -- -- -- -- -- --
------- ----- ----- ----- ----- -----
Total...................................... ^ 1,382 1,428 1,023 761 878 756
----- ----- ----- ------ ----- -----
Total non-accrual and accrual loans........ ^ 1,394 1,440 1,257 880 897 778
----- ----- ----- ----- ----- -----
Other real estate owned.................... ^ 191 128 37 53 30 178
------ ----- ----- ----- ----- -----
Other non-performing assets................ ^ -- -- -- -- -- --
------- ------ ------ ------ ----- -----
Total non-performing assets................ $^ 1,585 $1,568 $1,294 $933 $927 $956
===== ====== ====== === === ===
Total non-accrual and accrual loans
to net loans............................. ^ 0.57% 0.60% 0.58% 0.45% 0.51% 0.52%
==== ==== ==== ==== ==== ====
Total non-accrual and accrual loans to
total assets............................. ^ 0.34% 0.35% 0.34% 0.27% 0.30% 0.29%
==== ==== ==== ==== ==== ====
Total non-performing assets to total assets ^ 0.39% 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 March 31, At December 31,
------------- -------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- --------- -------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding.................. $^244,727 $240,532 $218,827 $196,917 $178,967 $152,557
======== ======= ======= ======= ======= =======
Average loans outstanding................ $^242,074 $226,984 $205,399 $186,845 $163,471 $144,280
======== ======= ======= ======= ======= =======
Allowance balances (at beginning of
period)................................ $^ 2,228 $ 2,340 $ 2,240 $ 1,969 $ 1,685 $ 1,528
Provision (credit):
Mortgage.............................. ^ 4 30 30 41 38 24
Installment........................... ^ 5 30 30 41 38 24
Commercial............................ ^ 34 225 225 308 285 192
Home equity credit.................... ^ -- -- -- -- -- -
PHEAA................................. ^ -- -- -- -- -- --
Municipal............................. ^ -- -- -- -- -- --
Credit cards.......................... ^ 2 15 15 20 19 --
Other................................. ^ -- -- -- -- -- --
Net (charge-offs) recoveries:............ ^ -- -- -- -- -- --
Mortgage............................... ^ -- 19 10 -- -- -
Installment............................ ^ 2 28 27 56 32 30
Commercial............................. ^ 33 324 104 59 20 53
Home equity credit..................... ^ -- -- 11 -- 25 -
PHEAA.................................. ^ -- -- -- -- -- --
Municipal.............................. ^ -- -- -- -- -- --
Credit cards........................... ^ 10 41 48 24 19 --
Other.................................. ^ -- -- -- -- -- --
----- -------- ------- -------- -------- --------
Allowance balance (at end of period)..... $^ 2,228 $ 2,228 $ 2,340 $ 2,240 $ 1,969 $ 1,685
===== ======== ======= ======== ======== ========
Allowance for loan losses as a percent
of total loans outstanding............. ^ 0.91% 0.93% 1.07% 1.14% 1.10% 1.10%
Net loans charged off as a percent of
average loans outstanding.............. ^ 0.02% 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 March 31, At December 31,
---------------- -----------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- --------------- --------------- -------------- --------------- ---------------
% of % of % of % of % of % of
Loans Loans Loans Loans Loans Loans
to Total to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
Mortgage.....................$^ 625^ 50.16% $ 604 51.31% $ 565 48.97% $ 588 50.28% $ 508 49.00% $ 284 48.27%
Installment.................. ^ 375^ 22.81 380 21.78 324 20.69 294 19.58 270 19.20 273 19.81
Commercial................... ^ 1,089^ 18.51 1,100 18.79 1,301 19.18 1,224 19.54 1,050 19.76 995 19.52
Home equity credit........... ^ 42^ 3.37 44 3.57 45 4.05 43 4.42 47 5.28 49 6.39
PHEAA........................ ^ 8^ 2.27 8 2.10 7 2.10 7 2.35 7 2.56 6 2.80
Municipal.................... ^ 7^ 1.90 5 1.50 12 3.59 6 2.40 7 2.70 4 1.93
Credit cards................. ^ 75^ .67 80 .75 71 .93 74 1.13 74 1.18 62 .96
Other........................ ^ 7^ .31 7 .20 15 .49 4 .30 6 .32 12 .32
------ ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
Total allowance................$^ 2,228^100.00% $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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<PAGE>
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:
<TABLE>
<CAPTION>
At March 31, At December 31
------------ -------------------------------
1999 1998 1997 1996
------------ --------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
Obligations of U.S. government agencies................. $ 74,735 $ 69,540 $ 70,725 $ 54,991
Mortgage-backed securities.............................. 43,581 33,227 21,611 23,356
Obligations of state and political subdivisions......... 7,713 8,200 6,929 7,746
U.S. treasury securities................................ 5,572 5,616 6,627 7,672
^ Federal home loan bank stock............................ ^ 1,313 ^ 1,308 ^ 1,171 ^ 1,022
^ Equity securities....................................... ^ 237 ^ 249 ^ 239 ^ 193
Other securities........................................ 633 638 499 363
--------- ------- ------- ------
Total securities available for sale.................. 133,784 118,778 107,801 95,343
------- ------- ------- ------
Securities held to maturity:
U.S. government agencies................................ 2,500 2,500 5,500 7,500
Mortgage-backed securities.............................. -- 69 355 455
---------- ------- ------- -------
Total securities held to maturity.................... 2,500 2,569 5,855 7,955
-------- -------- -------- --------
Total investment and mortgage-backed
securities......................................... $136,284 $121,347 $113,656 $103,298
======= ======= ======= =======
</TABLE>
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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 March 31, 1999. Actual
maturities may differ from contractual maturities as certain instruments have
call features which allow prepayment of obligations.
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------------------------------------------------------------------------------
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> <C> <C>
U.S. treasury securities...... $ 4,049 3.94% $ 1,523 6.21% $ -- --% $ -- --% $ 5,572 6.73% $ 5,572
Obligations of U.S.
government agencies....... 4,559 7.04 35,045 5.87 28,883 6.95 8,778 6.75 77,265 6.44 77,260
Obligations of state and
political subdivisions.... 398 5.21 1,530 5.69 1,360 5.92 4,425 4.81 7,713 5.20 7,713
Mortgage-backed securities.... 340 6.55 45 9.09 1,990 6.11 41,176 7.55 43,551 7.48 43,551
Other securities.............. 633 4.56 -- -- -- -- -- -- 633 4.56 633
Federal home loan bank stock.. -- -- -- -- -- -- 1,313 6.55 1,313 6.55 1,313
Equity securities............. -- -- -- -- -- -- 237 4.37 237 4.37 237
------ ------ ------ ----- ------- -------
Total.................... $ 9,979 6.75% $38,143 5.88% $32,233 6.85% $55,929 7.00% $136,284 6.63% $136,279
====== ====== ====== ====== ======= =======
</TABLE>
-13-
<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 March 31, 1999 (in thousands).
Three months or less $ 7,545
Over three through six months 2,485
Over six through twelve months 6,876
Over twelve months 6,895
------
$23,801
=======
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 March 31, 1999 there were no
short-term advances under the FHLB line of credit and there were outstanding
$14.0 million of long term FHLB borrowings.
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
-14-
<PAGE>
Commonwealth of Pennsylvania, Westinghouse, USAirways, and the University of
Pittsburgh. Seven colleges and universities are located in the general
Pittsburgh area.
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 March 31, 1999, the Bank had 140 full-time and 50 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
-15-
<PAGE>
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.
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
-16-
<PAGE>
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 March 31, 1999, the Company
and the Bank exceeded the minimum capital levels of the well capitalized
category.
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.
Restrictions on Dividends
The Pennsylvania Banking Code states, in part, that dividends may be
declared and paid only out of accumulated net earnings and may not be declared
or paid unless surplus (retained earnings) is at least equal to contributed
capital. The Bank has not declared or paid any dividends which cause the Bank's
retained earnings to be reduced below the amount required. Finally, dividends
may not be declared or paid if the Bank is in default in payment of any
assessment due the FDIC. At March 31, 1999, the Bank could pay up to $33.7
million in dividends to the Company.
The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the Federal Reserve's
view that a bank holding company should pay cash dividends only to the extent
that the holding company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earnings retention that is consistent with
the holding company's capital needs, asset quality and overall financial
condition. The Federal Reserve also indicated that it would be inappropriate for
a company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the prompt corrective action regulations adopted
by the Federal Reserve, the Federal Reserve may prohibit a bank holding company
from paying any dividends if the holding company's bank subsidiary is classified
as "undercapitalized."
-17-
<PAGE>
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 March 31, At December 31,
------------ ---------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ ---------- ---------- ---------- --------- ----------
(Dollars in Thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Assets............................ $^ 406,670 $412,366 $366,457 $331,416 $299,435 $272,818
Loans receivable, net............. ^ 242,499 238,304 216,487 194,677 176,998 150,872
Securities available for sale(1).. ^ 133,784 118,778 107,801 95,343 86,045 34,209
Securities held to maturity....... ^ 2,500 2,569 5,855 7,955 8,075 69,884
Non-interest bearing deposits..... ^ 54,725 58,208 48,912 43,709 39,511 33,613
Interest bearing deposits......... ^ 295,623 298,175 275,405 249,990 229,143 204,515
Cash and cash equivalents......... ^ 17,662 43,396 27,700 24,853 20,202 9,179
FHLB advances..................... ^ 14,000 14,000 4,000 4,000 -- --
Total stockholders' equity........ ^ 38,354 38,201 34,302 30,090 26,827 23,116
Number of:
Real estate loans outstanding..... ^ 4,716 4,705 4,509 4,139 3,874 3,469
Deposit accounts.................. ^ 72,214 70,306 65,872 61,294 57,157 53,515
</TABLE>
- -----------------------
(1) Includes FHLB stock in the amount of $1,313, $1,308, $1,171, $1,022, $895
and $850, respectively.
-18-
<PAGE>
<TABLE>
<CAPTION>
For the three Months ended
March 31, Year Ended December 31,
-------------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- --------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Interest income........................... $^7,020 $6,692 $27,528 $25,290 $22,695 $20,995 $17,376
Interest expense.......................... ^3,228 3,049 12,586 11,517 10,190 9,513 7,406
------ ----- ------ ------ ------ ------ ------
Net interest income..................... ^3,792 3,643 14,942 13,773 12,505 11,482 9,970
Provision for loan loss................... ^ 45 105 300 300 410 380 240
------- ------- ----- ----- ----- ----- -----
Net interest income after provision
for loan losses....................... ^3,747 3,538 14,642 13,473 12,095 11,102 9,730
Other income.............................. ^ 661 503 2,333 1,792 1,471 1,276 1,325
Other expense............................. ^2,100 2,048 8,438 7,683 7,076 6,925 6,660
----- ----- ------ ------ ------ ------ ------
Income before income taxes................ ^2,308 1,993 8,537 7,582 6,490 5,453 4,395
Provision for income taxes................ ^ 741 618 2,736 2,389 2,032 1,702 1,314
------ ------ ------ ------ ------ ------ ------
Net income.............................. $^1,567 $ 1,375 $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 three months
ended March 31, At or For the Year Ended December 31,
---------------- ---------------------------------------------
1999 1998 1997 1996 1995 1994
------------- ----- ----- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Return on average assets (net income divided by
average total assets)......................................... ^ 1.55%(2) 1.47% 1.45% 1.37% 1.27% 1.14%
Return on average equity (net income divided by
average equity)............................................... ^ 16.37 (2) 15.29 15.57 15.47 14.18 13.23
Average equity to average assets (average equity
divided by average total assets).............................. ^ 9.44 9.60 9.30 8.86 8.92 8.61
Equity to assets at period end.................................. ^ 9.43 9.26 9.36 9.08 8.96 8.47
Net interest rate spread........................................ ^ 3.08 3.26 3.40 3.46 3.51 3.39
Net yield on average interest-earning assets.................... ^ 3.91 4.17 4.25 4.26 4.25 4.00
Non-performing loans to total assets............................ ^ .34 .35 .34 .27 .30 .29
Average interest-earning assets to average
interest-bearing liabilities.................................. ^125.24 125.79 123.99 123.20 121.24 120.47
Net interest income after provision for loan
losses, to total other e xpenses.............................. ^178.43 173.52 175.36 170.93 160.32 146.10
Non performing loans to total loans............................. ^ .57 .60 .57 .45 .50 .51
Dividend payout (dividends declared per share
divided by net income per share)(1)........................... ^ 38.46 33.33 29.65 28.57 28.23 28.43
Net income per share:(1)
Basic......................................................... $^ .52 $1.92 $1.72 $1.47 $1.24 $1.02
Diluted....................................................... ^ .52 1.92 1.72 1.47 1.24 1.02
Cash dividends declared per share(1)............................ ^ .20 .64 .51 .42 .35 .29
</TABLE>
- -----------------------
(1) Calculation based upon the retroactive effect of the stock split and stock
dividend.
(2) Annualized.
-19-
<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 decreased $5.7 million, or 1.4%, to $406.7
million at March 31, 1999 from $412.4 million at December 31, 1998. The total
balance in federal funds sold decreased $18.8 million to $6.6 million at March
31, 1999 from $25.4 million at December 31, 1998. This decrease was used to take
advantage of market opportunities by funding investment securities classified as
available for sale which reached $132.5 million at March 31, 1999 an increase of
$15.0 million from December 31, 1998 of $117.5 million. Net loans increased $4.2
million to $242.5 million at March 31, 1999 from $238.3 million at December 31,
1998. The increase in loans was primarily in the consumer loan portfolio, which
rose $3.4 million or 6.49% to $55.8 million at March 31, 1999, from $52.4
million at December 31, 1998. This portfolio's increase was due to our
competitive market rates.
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. The
IBMA Gold account is a money market account which requires a minimum balance of
$15,000 to participate and pays a variable interest rate which is based upon
competition in the local market area. This interest rate is generally higher
than the Bank's other interest rate deposit accounts.
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 increase in investment
securities available for sale was primarily due to management's strategy to
leverage purchases with Federal Home Loan Bank ("FHLB") advances in the
generally lower interest rate environment. Funds were used primarily to purchase
mortgage-backed securities.
-20-
<PAGE>
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.
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. Borrowings have
been used to fund securities available for sale.
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.
-21-
<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,
^ For the Three Months --------------------------------------------------------------------------
^ ended March 31, 1999 1998 1997 1996
-------------------------- ------------------------ ------------------------- -----------------------
^ ^ ^Average Average Average Average
Average Annualized Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- ------- ------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) ^$242,074^$19,096 ^ 7.89% $226,984 $19,019 8.38% $205,399 17,420 8.48% $186,845 $16,091 8.62%
Investment securities ^
available for sale(2) ^ 131,212^ 8,399 ^ 6.40 114,078 7,606 6.67 101,301 7,035 6.94 86,576 5,587 6.45
Investment securities
held to maturity ^ 2,523^ 61 ^ 2.42 3,228 143 4.43 7,443 293 3.94 8,015 374 4.67
Other interest-earning
assets(3) ^ 11,820^ 528 ^ 4.47 13,956 760 5.45 10,237 542 5.29 11,933 643 5.39
------- ------ ------- ------ ------- ------ ------- ------
Total interest earning
assets ^ 387,629^ 28,084 ^ 7.25 358,246 27,528 7.68 324,380 25,290 7.80 293,369 22,695 7.74
Non-interest earning assets ^ 18,424 19,033 18,140 16,515
------- ------- ------- -------
Total assets ^$406,053 $377,279 $342,520 $309,884
======= ======= ======= =======
Interest-bearing liabilities:
Money market accounts ^ 53,229^ 1,952 ^ 3.67 $ 47,023 1,864 3.96 $ 40,347 1,521 3.77 $ 31,078 973 3.13
Certificates of deposit ^ 156,363^ 8,192 ^ 5.24 149,598 8,322 5.56 140,039 7,851 5.61 128,508 7,165 5.58
Other liabilities ^ 99,912^ 2,772 ^ 2.77 88,180 2,400 2.72 81,233 2,145 2.64 78,526 2,052 2.61
------- ------ ------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities ^$309,504^ 12,916 ^ 4.17 284,801 12,586 4.42 261,619 11,517 4.40 238,112 10,190 4.28
------ ------ ------ ------
Non-interest-bearing
liabilities ^ 57,878 56,150 48,982 43,586
------- ------- ------- -------
Total liabilities ^$367,382 340,951 310,601 281,698
Retained earnings(4) ^ 38,671 36,328 31,919 28,186
------- ------- ------- -------
Total liabilities and
stockholders' equity ^$406,053 $377,279 $342,520 $309,884
======= ======= ======= =======
Net interest income ^$15,168 $14,942 $13,773 $12,505
====== ====== ====== ======
Interest rate spread(5) ^ 3.08 3.26 3.40 3.46
Net yield on interest-earning
assets(6) ^ 3.91 4.17 4.25 4.26
Ratio of average interest-
earning assets to average
interest-bearing liabilities ^125.24 125.79 123.99 123.20
</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.
-22-
<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>
Three Months ended March 31, Year Ended December 31, Year Ended December 31,
-------------------------- --------------------------- ----------------------------
1999 vs. 1998 1998 vs. 1997 1997 vs. 1996
-------------------------- --------------------------- ----------------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
-------------------------- --------------------------- ----------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
------ ------ ------- ------- ------- ------- -------- -------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ^429 ^(314) ^115 1,831 (232) 1,599 1,598 (269) 1,329
Investment securities available for
sale ^425 ^(127) ^298 887 (316) 571 950 498 1,448
Investment securities held to
maturity ^(26) ^ (13) ^(39) (166) 16 (150) (27) (54) (81)
Other interest earning assets ^(13) ^ (33) ^(46) 197 21 218 (91) (10) (101)
--- ---- --- ----- --- ----- ----- --- -----
Total interest-earning assets ^815 ^(487) ^328 2,749 (511) 2,238 2,430 165 2,595
--- ---- --- ----- --- ----- ----- --- -----
Interest expense:
Money market accounts ^ 99 ^ (28) ^ 71 252 91 343 290 258 548
Certificates of deposit ^ 64 ^ 347 ^ 411 536 (65) 471 643 43 686
Other liabilities ^220 ^(522) ^(302) 183 72 255 71 22 93
--- ---- --- ----- --- ----- ----- --- -----
Total interest-bearing liabilities ^383 ^(203) ^ 180 971 98 1,069 1,004 323 1,327
--- ---- --- ----- --- ----- ----- --- -----
Net change in interest income ^432 ^(284) ^ 148 1,778 (609) 1,169 1,426 (158) 1,268
=== ==== === ===== ==== ===== ===== ==== =====
</TABLE>
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 increased
$192,000, or 13.96%, from $1,375,000 for the quarter ended March 31, 1999 to
$1,567,000 during the same period in 1999. This is primarily a result of loan
growth and the purchase of investment securities.
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 for the three months ended March 31, 1999 increased
$149,000, or 4.09%, from the same period in 1998. Interest income on investment
securities increased $259,000 due to increased volume in the portfolio.
-23-
<PAGE>
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.
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 $45,000 for the three months ended March 31, 1999, $300,000 for the
years ended December 31, 1998 and 1997, respectively, and $410,000 for the year
ended December 31,1996. 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 (i.e., one- to
four-family loans) to
-24-
<PAGE>
higher yielding loans (ie., equity loans, multi-family (five or more units)
buildings, and commercial (nonresidential) 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.
Other Income: Total other income increased $158,000, or 31.4%, to
$661,000 for the three months ended March 31, 1999 from $503,000 for the
comparable 1998 period. Increases in overdraft fees, a result of an increase in
the number of deposit accounts, and ATM surcharges were primarily responsible
for this total increase.
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: For the three months ended March 31, 1999 other
expenses increased $51,000, or 2.50%, to $2.1 million from $2.0 million for the
comparable 1998 period. The increases were primarily a result of increased
pension costs. Occupancy expenses increased as a result of the opening of two
additional supermarket branches. These expenses were offset by a decrease in
salary expense of $151,000 to $753,000 for the first three months of 1999 from
$904,000 for the same period in 1998. The first three months of 1999 reflects
six pay periods, while the same time period in 1998 reflects seven pay periods.
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.
-25-
<PAGE>
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 (i.e., federal funds sold
and certificates of deposits with terms of less than 60 days). 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.
Net cash used by investing activities for 1998 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
The majority of the Bank's assets and liabilities are sensitive to
changes in interest rates, therefore, the Bank's most significant form of market
risk is interest rate risk, or changes in interest rates. The lending activities
of the Bank have historically emphasized the origination of long-term, fixed
rate loans secured by single-family residences with the primary source of funds
being deposits with substantially shorter maturities. With the interest-bearing
liabilities of the Bank maturing or repricing more rapidly than the
interest-bearing assets, the Bank's net interest income can be negatively
impacted during a period of rising interest rates. During periods of decreasing
interest rates the net interest income of the Bank should be positively
impacted. The behavior of depositors during periods of changing interest rates
significantly impacts the actual effect of interest rate changes on the Bank's
net interest income. For example, in an
-26-
<PAGE>
environment where interest rates are increasing loan refinancing and prepayments
generally decrease, while depositors reposition their funds to earn higher
yields. Conversely, when interest rates are decreasing borrowers tend to
accelerate their loan payments and refinances while depositors hold on to the
higher yielding term deposits.
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:
* when market conditions permit, to originate and hold in its
portfolio adjustable rate loans which have interest rate
adjustments every six months;
* sell fixed rate mortgage loans that conform to FNMA guidelines
when sales can be achieved on terms favorable to the Bank;
* lengthen the maturities of its liabilities when deemed cost
effective through the utilization of FHLB advances;
* purchase mortgage-backed securities for the available for sale
securities portfolio with cash flows that can be reinvested in
higher earning instruments when interest rates rise;
* generally, maintain securities in the available for sale
portfolio that are short term to offset the risk of long term
fixed rate mortgage loans in a rising rate environment; and
* investments in the held to maturity portfolio will not be
replaced once such investments mature; proceeds from the
maturities will be reinvested in the available for sale
portfolio.
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. The Bank
currently does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments, but may do so in the future to mitigate interest rate risk. There
were no significant changes for the three months ended March 31, 1999 from the
information presented below regarding market risk sensitive assets.
-27-
<PAGE>
Expected Maturity/Principal Repayment at December 31,
<TABLE>
<CAPTION>
Total Book
1999 2000 2001 2002 2003 Thereafter Value Fair Value
---- ---- ---- ---- ---- ---------- ------- ----------
(Dollars in thousands)
Interest-earning assets
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 21,846 1,803 3,704 4,049 8,329 28,604 68,335 72,136
loans.................
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.
-28-
<PAGE>
Year 2000 Issues
Senior management views the year 2000 initiative as one of the highest
priorities of the Company. With oversight from the Board of Directors, the
Company is aggressively pursuing appropriate solutions and assurances with
regard to compliance of all applications affected by the year 2000.
In 1997, the Bank 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 the Bank's 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 the Bank's customer base. Workshops have been provided for commercial
customers. Newsletters, local newspaper announcements and brochures are
available at each branch location to keep customers, shareholders and employees
abreast of the year 2000 issue. The Board of Directors is updated on a monthly
basis.
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 customers. Those items
determined to be of the highest priority were ranked "mission critical." The
Bank's core processing system was determined to be "mission critical." The core
processing system is outsourced to two outside vendors. The first vendor
provides the software for in-house processing of all documents including checks,
deposit tickets, loan payments, and miscellaneous items from the Federal
Reserve, correspondent banks, and over the counter transactions. The second
vendor, at an off-site location, performs the process of editing, posting, and
report generation of all activity on customer accounts.
All non-information technology systems were also identified during the
assessment phase and testing was performed. This included testing of loan
calculators, fax machines, VCR's, surveillance cameras, etc. Vendors were
contacted and provided with makes, models, and serial numbers on systems that
could not be tested in-house, such as, elevators, vault security systems, phone
systems, and heat/air conditioning systems. The vendors provided written
assurance that their systems are year 2000 compliant.
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 March 31, 1999, approximately $130,000 had been
expended. These costs or any additional costs associated with the year 2000
issue are not expected to have a major impact on the Company's financial
statements.
The renovation phase included hardware replacement, software upgrades
and vendor assurance. At March 31, 1999, the renovation phase for all "mission
critical" systems are complete and other systems are in their final stages.
The validation phase includes extensive testing of all hardware,
software and systems provided by third party vendors. As of March 31, 1999, the
final stages of testing of our "mission critical" core applications are under
way with an anticipated completion of June 30, 1999. The testing process is
-29-
<PAGE>
monitored by an independent consulting group. The anticipated completion for
testing of all remaining products is September 30, 1999.
The risks exist that some of the Bank's commercial borrowers may not be
prepared for year 2000 issues and may suffer financial harm as a result. This,
in turn, represents risk to the Bank regarding the repayment of loans from those
commercial customers. Because of this, year 2000 compliance is considered part
of our loan underwriting procedures. A risk analysis was performed in September
of 1998 on all existing commercial loans with an aggregate balance exceeding
$100,000 and commercial mortgage loans with an aggregate balance exceeding
$250,000. The risk analysis was performed using FDIC guidelines. Commercial loan
customers were evaluated based upon their year 2000 vulnerability, their ability
to obtain the resources to identify and correct any deficiencies, and their year
2000 plan. Their overall year 2000 credit risk was then classified as low,
medium or high. Those classified as high risk are re-evaluated on a quarterly
basis. However, repayment sources for the majority of loans in the Bank's
commercial loan portfolio are in multi-family real estate projects that tend to
be less computer-dependent than, for example, a manufacturing business.
Nevertheless, a year 2000 disclosure is included in new commercial and
commercial mortgage loans requiring the borrower to maintain year 2000 compliant
systems.
A Contingency and Business Resumption Plan was approved by the Board in
May 1999. This plan addresses perceived risks associated with the year 2000
problem. These activities include remediation contingency planning intended to
mitigate any risks associated with unforeseen system glitches, system failure,
increased demands for cash, or processes outside the Bank's control.
The remainder of 1999 will be used to further validate the plan.
While this plan was designed to significantly address the Year 2000
problems of the Bank, the occurrence of the following could negatively impact
the Bank:
(a) utility service companies may be unable to provide the
necessary service to drive the Bank's data systems or provide
sufficient sanitary conditions for the Bank's offices;
(b) the Bank's primary software provider could have a major
malfunction in its system or their service could be disrupted
due to its utility providers, or some combination of the two;
or
(c) the Bank may have to transact its business manually.
The Bank will attempt to monitor these uncertainties by continuing to
request an update on all critical and important vendors throughout the remainder
of 1999. If the Bank identifies any concern related to any critical or important
vendor, the contingency plan will be implemented immediately to assure continued
service to the Bank's customers.
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.
The Bank continues to focus on the awareness phase with 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. This will
include employee awareness at monthly manager and operation meetings and
informational seminars at various local civic groups. The Bank will also be
readily available to answer any questions.
-30-
<PAGE>
Successful and timely completion of the year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the Bank's
testing plans, and all vendors, suppliers and customer readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Bank, such as customers, vendors, payment system providers and other
financial institutions, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have a material impact on
the financial statements of the Company.
Item 3. Properties
At March 31, 1999, the Bank operated from its main office, five branch
offices and four supermarket branch offices, all located in southwestern
Pennsylvania. The total net book value of the Bank's investment in premises and
equipment at March 31, 1999, 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 four 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 March 31, 1999, persons or groups who are known by the
Company to own more than 5% of the Common Stock and also sets forth, as of March
31, 1999 Common Stock ownership by directors and executive officers of the
Company. Other than as noted below, management knows of no person or group that
owns more than 5% of the outstanding shares of Common Stock.
Percent of Shares
Amount and Nature of of Common Stock
Name of Beneficial Owner Beneficial Ownership(2) Outstanding
- ------------------------ ----------------------- -----------------
ITRUST & CO. ^ 162,941(1) 5.4
309 Main Street
Irwin, Pennsylvania
Directors and Executive Officers
Thomas Beter ^ 80,654 ^ 2.7
William D. Fawcett ^ 34,950 ^ 1.2
J. Curt Gardner ^ 19,800 ^ --(3)
Edwin A. Paulone ^ 8,820 ^ --(3)
Robert Rebich, Jr. ^ 104,811 ^ 3.5
Richard L. Ryan ^ 5,607 ^ --(3)
Grant J. Shevchik ^ 6,596 ^ --(3)
Charles G. Urtin ^ 14,181 ^ --(3)
Robert C. Whisner ^ 70,473 ^ 2.3
All executive officers and
directors as a group
(includes 9 persons) ^ 345,892(1) ^ 11.4
- ------------------------
(footnotes on next page.)
-31-
<PAGE>
(1) ITrust & Co. is a partnership of individuals who are employees of the
Bank. ITrust & Co. acts as a record holder for securities held by the
Bank's trust department on behalf of the trust department's clients.
Directors Gardner, Rebich and Whisner serve as trust officers of the
Bank (the "trust officers"). In the administration of the estates, the
trust officers have the ability to direct the voting and disposition of
securities held in the accounts of the estates in a fiduciary capacity.
The trust officers exercised shared voting and dispositive power with
respect to 58,571 shares and no shared voting and dispositive power
with respect to 104,365 shares. Such 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. For each of directors Gardner, Rebich and Whisner, and for all
executive officers and directors as a group, excludes all shares of
Common Stock held by ITrust & Co.
(3) Less than 1% of the Common Stock outstanding.
Item 5. Directors and Executive Officers.
The Board of Directors of the Company is currently composed of nine
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.
<TABLE>
<CAPTION>
Year First
Elected or Current Term to
Name Age(1) Position Appointed(2) Expire
---- ------ --------- ------------ ------
<S> <C> <C> <C> <C>
^ Thomas Beter 70 Director 1996 2000
William D. Fawcett 66 Director 1983 2000
J. Curt Gardner 60 President, Director 1980 ^ 2002
Edwin A. Paulone 74 Director 1969 2000
Robert Rebich, Jr. 57 Director 1991 2001
Richard L. Ryan 68 Chairman of the 1968 ^ 2002
Board
Grant J. Shevchik 47 Director 1992 2001
Charles G. Urtin 52 Executive Vice 1998 2001
President, Secretary,
Treasurer, Director
Robert C. Whisner 70 Director 1969 ^ 2002
</TABLE>
- ------------------------
(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.
-32-
<PAGE>
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 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
non-employee director of the Bank, received a fee of $1,000 for each meeting
attended for the year ended December 31, 1998. Each member of a board committee
(other than employees who are also directors), receive a fee of $250 per
committee meeting attended, except members of the executive committee are paid a
fee of $500 per meeting attended. At December 31, 1998, board and committee fees
totaled $149,100. Directors of the Bank were eligible to defer receipt of board
fees until a later date, such as following retirement. Such deferrals are
credited with interest earnings based on a guaranteed net rate of return
determined as of the dates of the various deferral agreements. Such interest
rates are above the current market rate. During the 1998 fiscal year, interest
income accrued to directors in the aggregate was approximately $76,000. This
interest income resulted primarily from board fees deferred in years prior to
1998.
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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>
J. Curt Gardner, President and
Chief Executive Officer 1998 $ 158,416 $ -- ^$ 9,150 ^$ 2,237(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 earnings with respect to long term incentive
plans prior to settlement or maturity; (b) tax payment reimbursements;
or (c) preferential discounts on stock. Mr. Gardner earned $9,150 in
accrued interest from his deferred board fees agreement with the Bank
above the current market interest rate. See "Director Compensation."
(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.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee consisted of Directors Rebich, Fawcett, Gardner and Ryan
at December 31, 1998. No member of the Committee is, or was during 1998, an
executive officer of another company whose board of directors has a comparable
committee on which one of the Company's executive officers serves. None of the
executive officers of the Company is, or was during 1998, a member of a
comparable compensation committee of a company of which any of the directors of
the Company is an executive officer. At December 31, 1998 Mr. Gardner was an
officer of the Company and the Bank and did not participate in matters involving
his compensation.
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
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<PAGE>
pension formula was revised to .8% rather than 1.1% of average monthly
compensation, as noted above, for all employees, except those who attained age
50 and completed 10 years of service prior to December 31, 1994.
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 expected 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.
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.
-35-
<PAGE>
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
Fiscal 1999
First Quarter........... 40.00 28.33 0.20
Second Quarter..........
(until June 15, 1999)... 34.75 32.00 --
As of March 31, 1999, 3,023,799 shares of Common Stock were outstanding
held of record by approximately 544 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. See "Item 1 - Restrictions on Dividends."
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 March 31, 1999. The capital stock of the
Company represents non-withdrawable capital and is not insured by the FDIC.
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
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<PAGE>
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.
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
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<PAGE>
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.
-38-
<PAGE>
Item 13. Financial Statements and Supplementary Data.
-39-
<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
-40-
<PAGE>
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
^March 31, 1999 December 31,
-------------- ---------------------------
^ (unaudited) 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ^$ 9,840,793 $ 10,767,316 $ 9,917,904
Interest-bearing deposits in banks ^ 1,229,894 7,196,998 64,415
Federal funds sold ^ 6,591,000 25,432,000 17,718,000
Securities available for sale ^ 132,471,458 117,469,947 106,629,873
Securities held to maturity (Market value of
$2,495,235 at March 31, 1999 (unaudited) and
$2,554,545 and $5,815,960
at December 31, 1998 and 1997,
respectively) ^ 2,500,000 2,569,215 5,854,975
Federal Home Loan Bank stock, at cost ^ 1,312,500 1,308,100 1,170,700
Loans, net ^ 242,498,963 238,304,491 216,486,607
Premises and equipment, net ^ 4,897,981 4,879,133 4,927,258
Other assets ^ 5,326,943 4,438,743 3,687,496
------------ ------------ ------------
Total Assets ^$406,669,532 $412,365,943 $366,457,228
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing ^$ 54,725,350 $ 58,208,466 $ 48,912,365
Interest-bearing ^ 295,622,571 298,174,672 275,405,060
------------ ------------ ------------
Total deposits ^ 350,347,921 356,383,138 324,317,425
Accrued interest and other liabilities ^ 3,967,954 3,781,876 3,837,945
Long-term debt ^ 14,000,000 14,000,000 4,000,000
------------ ------------ ------------
Total liabilities ^ 368,315,875 374,165,014 332,155,370
Stockholders' Equity
Capital stock, par value $1.25, 5,000,000
shares authorized, 3,023,799 shares
issued and outstanding ^ 3,779,749 3,779,749 3,779,749
Surplus ^ 2,073,102 2,073,102 2,073,102
Retained earnings ^ 32,363,932 31,401,922 27,539,372
Accumulated other comprehensive income ^ 136,874 946,156 909,635
------------- ------------- -------------
Total stockholders' equity ^ 38,353,657 38,200,929 34,301,858
------------ ------------ ------------
Total Liabilities and Stockholders' Equity ^$406,669,532 $412,365,943 $366,457,228
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-41-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
^Three Months Ended March 31, Years ended December 31,
--------------------------- -------------------------------------------
^ 1999 ^ 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
^ (unaudited)
---------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Loans ^$ 4,773,554 ^$ 4,658,509 $ 19,019,181 $ 17,419,848 $ 16,090,836
Investment securities ^ 2,115,162 ^ 1,856,417 7,748,537 7,328,166 5,960,950
Federal funds sold ^ 131,523 ^ 177,263 760,495 541,950 643,415
------------ ------------ ------------ ------------ ------------
Total interest income ^ 7,020,239 ^ 6,692,189 27,528,213 25,289,964 22,695,201
Interest Expense
Deposits ^ 3,045,263 ^ 2,986,949 12,174,469 11,270,826 10,009,702
Long-term debt ^ 183,356 ^ 62,000 411,647 246,440 178,167
Repurchase agreements ^ -- ^ -- -- -- 1,961
------------ ------------ ------------ ------------ ------------
Total interest expense ^ 3,228,619 ^ 3,048,949 12,586,116 11,517,266 10,189,830
------------ ------------ ------------ ------------ ------------
Net Interest Income ^ 3,791,620 ^ 3,643,240 14,942,097 13,772,698 12,505,371
Provision for Loan Losses ^ 45,000 ^ 105,000 300,000 300,000 410,000
------------ ------------ ------------ ------------ ------------
Net Interest Income after Provision ^ 3,746,620 ^ 3,538,240 14,642,097 13,472,698 12,095,371
for Loan Losses
Other Income (Losses)
Service fees ^ 372,022 ^ 297,898 1,430,426 1,116,493 962,696
Net investment security gains (losses) ^ 1,170 ^ 28,519 40,411 (24,890) (88,120)
Other income ^ 287,827 ^ 176,883 862,674 701,154 596,356
------------ ------------ ------------ ------------ ------------
Total other income (losses) ^ 661,019 ^ 503,300 2,333,511 1,792,757 1,470,932
Other Expenses
Salaries ^ 752,605 ^ 904,477 3,573,257 3,249,465 2,966,656
Pension and other employee benefits ^ 241,965 ^ 190,121 818,669 787,345 708,592
Occupancy expense ^ 247,007 ^ 225,937 903,112 847,073 816,149
Data processing expense ^ 131,351 ^ 124,394 505,484 452,899 382,101
ATM expense ^ 71,416 ^ 66,925 298,843 267,071 234,096
FDIC insurance ^ 9,873 ^ 9,440 38,206 35,988 1,500
Other expenses ^ 645,538 ^ 527,289 2,300,531 2,043,339 1,967,210
------------ ------------ ------------ ------------ ------------
Total other expenses ^ 2,099,755 ^ 2,048,583 8,438,102 7,683,180 7,076,304
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes ^ 2,307,884 ^ 1,992,957 8,537,506 7,582,275 6,489,999
Provision for Income Taxes ^ 741,114 ^ 617,516 2,736,576 2,388,759 2,031,615
------------ ------------ ------------ ------------ ------------
Net income ^$ 1,566,770 ^$ 1,375,441 $ 5,800,930 $ 5,193,516 $ 4,458,384
============ ============ ============ ============ ============
Net Income per Share of Capital Stock ^$ 0.52 ^$ 0.45 $ 1.92 $ 1.72 $ 1.47
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
<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.
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<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
<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.
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<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
Stock Surplus Earnings Income Total
---------------- ------------------ ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ 38,200,929
(unaudited)
Comprehensive Income
Net income 1,566,770 1,566,770
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$416,505 (808,510) (808,510)
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$398 (772) (772)
--------------
(809,282)
--------------
Total Comprehensive
Income 757,488
Cash dividends (604,760) (604,760)
---------------- ------------------ ------------------ ------------- --------------
Balance at
March 31, 1999 $ 3,779,749 $ 2,073,102 $ 32,363,932 $ 136,874 $ 38,353,657
================ ================== ================== =============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-45-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
^Three Months Ended March 31, Years ended December 31,
---------------------------- --------------------------------------------
^ 1999 ^ 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
^ (unaudited)
----------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ^$ 1,566,770 ^$ 1,375,441 $ 5,800,930 5,193,516 $ 4,458,384
Adjustments to reconcile net cash
from operating activities:
Depreciation ^ 133,500 ^ 116,000 482,000 422,349 401,929
Net amortization/accretion of
premiums and discounts ^ 16,072 ^ 3,773 971 21,528 123,348
Net investment security losses (gains) ^ (1,170) ^ (28,519) (40,411) 24,890 88,120
Provision for loan losses ^ 45,000 ^ 105,000 300,000 300,000 410,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets ^ (471,297) ^ (854,247) (770,061) (117,583) (311,140)
Accrued interest and other
liabilities ^ 194,259 ^ 248,062 (56,069) 227,984 (43,054)
------------ ------------ ------------ ------------ ------------
Net Cash From Operating Activities ^ 1,483,134 ^ 965,510 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 ^ 69,215 ^ 2,816,299 3,285,760 2,099,919 120,334
Proceeds from maturities of securities
available for sale ^ 10,830,075 ^ 9,563,139 48,173,553 32,334,987 26,875,517
Purchase of securities available for sale ^ (27,072,672) ^ (12,041,099) (61,085,311) (49,392,205) (46,949,280)
Net loans made to customers ^ (4,239,472) ^ (6,144,536) (22,117,884) (22,109,893) (18,088,434)
Purchases of premises and equipment ^ (152,348) ^ (53,930) (433,875) (633,603) (584,674)
Purchase of Federal Home Loan Bank stock ^ (4,400) ^ -- (137,400) (149,000) (127,100)
------------ ------------ ------------ ------------ ------------
Net Cash Used By Investing
Activities ^ (20,569,602) ^ (5,860,127) (30,148,698) (32,307,521) (27,954,076)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ^ (6,043,399) ^ 109,445 32,065,713 30,617,935 25,045,092
Net decrease in securities sold
under agreements to repurchase ^ -- ^ -- -- -- (300,489)
Dividends ^ (604,760) ^ (486,957) (1,938,380) (1,536,000) (1,267,200)
Proceeds from long-term debt ^ -- ^ -- 10,000,000 -- 4,000,000
------------ ------------ ------------ ------------ ------------
Net Cash (Used By) From
Financing Activities ^ (6,648,159) ^ (377,512) 40,127,333 29,081,935 27,477,403
------------ ------------ ------------ ------------ ------------
Net Change in Cash and Cash
Equivalents ^ (25,734,627) ^ (5,272,129) 15,695,995 2,847,098 4,650,914
Cash and Cash Equivalents at
Beginning of Period or Year ^ 43,396,314 ^ 27,700,319 27,700,319 24,853,221 20,202,307
------------ ------------ ------------ ------------ ------------
Cash and Cash Equivalents at
End of Period or Year ^$ 17,661,687 ^$ 22,428,190 $ 43,396,314 $ 27,700,319 $ 24,853,221
============ ============ ============ ============ ============
</TABLE>
-46-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
^Three Months Ended March 31, Years Ended December 31,
---------------------------- --------------------------------------------
^ 1999 ^ 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(unaudited)
---------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest ^$ 3,308,499 ^$ 3,104,512 $ 12,629,351 $ 11,145,980 $ 9,944,666
Income taxes ^$ 3,103 ^$ 3,374 $ 2,716,954 $ 2,281,582 $ 2,232,214
NON CASH TRANSACTIONS
Recorded unrealized gains
on securities available for sale ^$ 207,384 ^$ 1,445,991 $ 1,433,568 $ 1,378,233 $ 538,019
Deferred income taxes on recorded
unrealized gains on securities
available for sale ^$ 70,510 ^$ 491,636 $ 487,412 $ 468,598 $ 182,926
Loans transferred to foreclosed
real estate during the year ^$ 132,084 ^$ 47,022 $ 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.
-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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.
Interim Financial Statements - In the opinion of management, the financial
information, which is unaudited, reflects all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the financial
information as of and for the three months ended March 31, 1999 and 1998. The
unaudited financial information is not indicative of the results from operations
for the full year.
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.
-48-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, economic conditions
and evaluation of impaired loans under SFAS Nos. 114 and 118. 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. A loan is considered to be impaired when, based upon
current information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan.
An insignificant delay or insignificant shortfall in amount of payments does not
necessarily result in the loan being identified as impaired. For this purpose,
delays less than 90 days are considered to be insignificant. The Bank tests
loans for impairment if they are on nonaccrual status or have been restructured.
Consumer credit nonaccrual loans are not tested for impairment because they are
included in larger groups of smaller-balance homogeneous loans that by
definition are excluded from the scope of SFAS No. 114. Impaired loans are
required to be measured based upon the present value of expected future cash
flows, discounted at the loan's initial effective interest rate, or at the
loan's market price or fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the recorded valued of the loan, a
reserve must be established for the difference.
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.
-49-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 three months ended March 31, 1999
(unaudited) and 1998 (unaudited) and 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.
Reclassification of Prior Year's Statements: - Certain previously reported items
have been reclassified to conform to the current year's classifications.
Specifically, theolancorp 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>
March 31, 1999 - (unaudited)
-----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,512,428 $ 59,597 $ -- $ 5,572,025
Obligations of
U.S. Government Agencies 74,441,351 497,122 (203,266) 74,735,207
Obligations of State and
political sub-divisions 7,576,870 198,829 (62,410) 7,713,289
Mortgage-backed securities 43,946,216 127,498 (492,867) 43,580,847
Other securities 632,799 -- -- 632,799
Equity securities 154,410 82,881 -- 237,291
------------------- ------------------ ------------------ ----------------------
$ 132,264,074 $ 965,927 $ (758,543) $ 132,471,458
=================== ================== ================== ======================
</TABLE>
-50-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
<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>
-51-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Investment securities held to maturity consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 - (unaudited)
---------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------- ------------------- ------------------ ------------------
Obligations of
<S> <C> <C> <C> <C>
U.S. Government Agencies $ 2,500,000 $ -- $ (4,765) $ 2,495,235
================== ================ ================= ==================
</TABLE>
<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>
-52-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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>
^ Three Months
^ Ended
^March 31, 1999 Years Ended December 31,
^ (unaudited) 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross realized gains:
Obligations of U.S. Government Agencies ^$ 1,170 $58,191 $ 8,108 $ 4,175
Obligations of state and political sub-divisions ^ -- 3,121 -- --
------- ------- ------- -------
^$ 1,170 $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 $92,295
======= ======= ======= =======
</TABLE>
The amortized cost and estimated market value of the investment securities
available for sale and the investment securities held to maturity at March 31,
1999 and December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers have the
right to call or prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated market value of the investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
^ March 31, 1999
------------------------------
^ (unaudited) December 31, 1998
--------------------------- ---------------------------
^Amortized Market Amortized Market
^ Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less ^$ 7,433,658 $ 7,479,550 $ 6,365,849 $ 6,421,574
Due after one year through five years ^ 38,000,678 38,142,641 29,510,153 29,888,420
Due after five years through ten years ^ 31,891,193 32,233,390 34,378,337 35,231,929
Due after ten years, includes equity securities ^ 54,938,545 54,615,877 45,782,040 45,928,024
------------ ------------ ------------ ------------
^$132,264,074 $132,471,458 $116,036,379 $117,469,947
============ ============ ============ ============
</TABLE>
-53-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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 are as follows:
<TABLE>
<CAPTION>
^ March 31, 1999
-----------------------
^ (unaudited) December 31, 1998
----------------------- -----------------------
^Amortized ^ Market Amortized Market
^ Cost ^ Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less ^$2,500,000 ^$2,495,235 $2,569,215 $2,554,545
Due after one year through five years ^ -- ^ -- -- --
Due after five years through ten years ^ -- ^ -- -- --
Due after ten years ^ -- ^ -- -- --
---------- ---------- ---------- ----------
^$2,500,000 ^$2,495,235 $2,569,215 $2,554,545
========== ========== ========== ==========
</TABLE>
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 March 31, 1999 (unaudited) and December 31, 1998
and 1997, the Bank held ^$1,312,500, $1,308,100 and $1,170,700, respectively, of
FHLB stock.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
^ March 31,
^ 1999 December 31,
------------ ---------------------------
^ (unaudited) 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Mortgage ^$122,817,276 $123,494,185 $107,240,284
Home equity credit ^ 8,240,530 8,588,588 8,859,875
Installment ^ 55,845,467 52,418,443 45,321,407
Commercial ^ 45,332,363 45,232,281 42,003,235
PHEAA ^ 5,546,581 5,043,415 4,604,115
Municipal ^ 4,658,999 3,615,536 7,869,828
Credit cards ^ 1,641,480 1,807,547 2,021,613
Other ^ 769,530 476,655 1,080,974
------------ ------------ ------------
^ 244,852,226 240,676,650 219,001,331
Less: Unearned discount ^ -- 46 476
Allowance for loan losses ^ 2,227,855 2,228,214 2,340,283
Deferred loan fees ^ 125,408 143,899 173,965
------------ ------------ ------------
^$242,498,963 $238,304,491 $216,486,607
============ ============ ============
</TABLE>
-54-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 3 -- LOANS (CONTINUED)
^At March 31, 1999 (unaudited), December 31, 1998 and 1997, the total recorded
investment in impaired loans amounted to approximately ^$13,000, $13,000 and
$190,000, respectively. The allowance for loan losses related to impaired loans
amounted to approximately ^$2,000 (unaudited), $2,000 and $28,500 at ^March 31,
1999, December 31, 1998 and 1997, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
^ Three Months
^Ended March 31, Years Ended December 31,
----------- ------------------------------------------
^ 1999 1998 1997 1996
----------- ----------- ----------- -----------
^ (unaudited)
-----------
<S> <C> <C> <C> <C>
Balance, beginning of year ^$ 2,228,214 $ 2,340,283 $ 2,239,598 $ 1,969,406
Provision charged to operations ^ 45,000 300,000 300,000 410,000
Loans charged off ^ (45,359) (526,117) (207,270) (152,481)
Recoveries ^ -- 114,048 7,955 12,673
----------- ----------- ----------- -----------
Balance, end of period or year ^$ 2,227,855 $ 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:
^ March 31, December 31,
---------- -----------------------
^ 1999 1998 1997
---------- ---------- ----------
^(unaudited)
----------
Land ^$ 450,466 $ 450,466 $ 450,466
Buildings and improvements ^ 4,814,040 4,814,040 4,757,020
Furniture and equipment ^ 4,124,272 3,971,924 3,606,212
---------- ---------- ----------
^ 9,388,778 9,236,430 8,813,698
Less: Accumulated depreciation ^ 4,490,797 4,357,297 3,886,440
---------- ---------- ----------
^$4,897,981 $4,879,133 $4,927,258
========== ========== ==========
Depreciation expense ^ was $ 133,500 and $116,000 for the three months ended
March 31, 1999 (unaudited) and 1998 (unaudited), respectively, and $482,000 in
1998, $422,349 in 1997 and $401,929 in 1996.
Seven of the Bank's branch office buildings and/or land are leased by the Bank.
These leases have initial terms of 14 months to 20 years, and all contain
renewal options for additional years.
-55-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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 at March 31, 1999 (unaudited):
2000 $ 127,090
2001 99,520
2002 98,439
2003 72,645
2004 and thereafter 707,518
----------------
$ 1,105,212
================
Rental expense under these operating ^leases was $33,410 (unaudited) and $25,960
(unaudited) for the three months ended March 31, 1999 and 1998, respectively and
$100,700, $83,650 and $57,750 for the years ended December 31, 1998 , 1997, and
1996, respectively.
NOTE 5 -- DEPOSITS
Time deposits maturing by year are summarized as follows:
^ March 31, 1999 December 31, 1998
------------------- -----------------
^ (unaudited)
-------------------
1999 ^$ N/A $ 101,982,991
2000 ^ 96,669,393 31,355,809
2001 ^ 25,803,358 4,833,820
2002 ^ 4,912,890 4,838,965
2003 and thereafter ^ 21,525,450 15,803,348
------------------- -----------------
^$ 148,911,091 $ 158,814,933
=================== =================
The Bank held related party ^deposits of approximately $3,759,000 (unaudited) at
March 31, 1999 and $3,134,000 and $3,521,000 at December 31, 1998 and 1997,
respectively.
The Bank held time deposits that exceeded ^$100,000 of $23,800,801 (unaudited)
at March 31, 1999 and $23,584,545 and $36,139,919 at December 31, 1998 and 1997,
respectively.
NOTE 6 -- PLEDGED ASSETS
^At March 31, 1999 and December 31, 1998 and 1997, assets carried at
^$42,000,000 (unaudited), $37,500,000 and $33,500,000, respectively, were
pledged to qualify for fiduciary powers, to secure public monies as required by
law, and for other purposes.
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
^ Three Months Ended
^ March 31, Years Ended December 31,
-------------------------- ----------------------------------------
^ 1999 ^ 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
^ (unaudited)
--------------------------
<S> <C> <C> <C> <C> <C>
Currently payable ^$ 757,464 ^$ 631,863 $ 2,618,602 $ 2,388,935 $ 2,169,408
Deferred tax (benefit) ^ (16,350) ^ (14,347) 117,974 (176) (137,793)
----------- ----------- ----------- ----------- -----------
Total ^$ 741,114 ^$ 617,516 $ 2,736,576 $ 2,388,759 $ 2,031,615
=========== =========== =========== =========== ===========
</TABLE>
The significant components of temporary differences are as follows:
<TABLE>
<CAPTION>
^ Three Months Ended
^ March 31, Years Ended December 31,
---------------------- -----------------------------------
^ 1999 ^ 1998 1998 1997 1996
--------- --------- --------- --------- ---------
^ (unaudited)
----------------------
<S> <C> <C> <C> <C> <C>
Provision for loan losses ^$ 20 ^$ (13,591) $ 38,201 $ (34,233) $ (94,933)
Depreciation ^ (4,519) ^ (1,182) 10,559 20,576 (3,210)
Valuation allowance ^ 171 ^ 133 550 8,621 8,710
Pension ^ (16,021) ^ 770 67,732 (3,461) (21,842)
Deferred loan fees ^ 6,287 ^ 2,469 10,222 13,346 (18,206)
Other ^ (2,288) ^ (2,946) (9,290) (5,025) (8,312)
--------- --------- --------- --------- ---------
Total ^$ (16,350) ^$ (14,347) $ 117,974 $ (176) $(137,793)
========= ========= ========= ========= =========
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before income taxes is as follows:
<TABLE>
<CAPTION>
^ Three Months Ended
^ March 31, Years Ended December 31,
^% of Pretax Income % of Pretax Income
-------------------- ----------------------------------
^1999 ^ 1998 1998 1997 1996
---- ---- ---- ---- ----
(anaudited)
<S> <C> <C> <C> <C> <C>
Provision at statutory rate ^34.0 % ^34.0 % 34.0 % 34.0 % 34.0 %
Effect of tax free income ^(2.0) ^(2.6) (2.0) (2.7) (3.1)
Other ^ .1 ^(0.4) .1 .2 .1
---- ---- ---- ---- ----
Effective tax rate ^32.1 % ^31.0 % 32.1 % 31.5 % 31.0 %
==== ==== ==== ==== ====
</TABLE>
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 7 -- INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet are as follows:
<TABLE>
<CAPTION>
^ March 31, 1999 December 31, 1998 December 31, 1997
--------------------------------------- ------------------------------ ---------------------------
^ Deferred Tax Deferred Tax Deferred Tax
--------------------------------------- ------------------------------ ---------------------------
^ Assets ^ Liabilities Assets Liabilities Assets Liabilities
-------------------- ---------------- ------------- ------------ ------------- -------------
^ (unaudited)
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for loan losses ^$ 553,279 ^$ -- $ 553,299 $ -- $591,500 $ --
Depreciation ^ -- ^ 170,060 -- 174,579 -- 164,020
Pension expense ^ 17,983 ^ -- 1,962 -- 69,694 --
Other ^ 148,061 ^ -- 152,231 -- 153,713 --
SFAS 115 ^ -- ^ 70,510 -- 487,412 -- 468,598
-------------------- ---------------- ------------- ------------ ------------- -------------
^$ 719,323 ^$ 240,570 $ 707,492 $ 661,991 $814,907 $ 632,618
==================== ================ ============= ============ ============= =============
</TABLE>
NOTE 8 -- LONG-TERM DEBT
^At March 31, 1999 (unaudited) and 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. The
FHLB discontinued the line of credit at January 1, 1999. There were no advances
on the line of credit during 1998 and 1997.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
he 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.
-58-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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.
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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 ^$44,166,000 (unaudited) at March 31, 1999 and $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
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.
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 11 -- RELATED-PARTY TRANSACTIONS
^At March 31, 1999 and 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 ^$7,911,000 (unaudited), $6,950,000 and $5,572,000 , respectively.
During the three months ^ended March 31, 1999, and the year ended December
31,1998, new loans to such related parties were approximately ^$1,091,000
(unaudited) and ^$2,804,000 and repayments approximated $130,000
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
^March 31, 1999 (unaudited), 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 ^$7,330,000
(unaudited) at March 31, 1999 and $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.
-61-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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 are as follows:
<TABLE>
<CAPTION>
^ March 31, 1999 December 31, 1998
------------------------------------- --------------------------------------
^ unaudited)
-------------------------------------
^ Carrying ^ Fair Carrying Fair
^ Amount ^ Value Amount Value
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ^$ 17,661,687 ^$ 17,661,687 $ 43,396,314 $ 43,396,314
Investment securities ^$ 134,971,458 ^$ 134,966,693 $ 120,039,162 $ 120,024,492
Federal Home Loan Bank Stock ^$ 1,312,500 ^$ 1,312,500 $ 1,308,100 $ 1,308,100
Loans receivable ^$ 242,498,963 ^$ 253,333,089 $ 238,304,491 $ 241,888,112
Financial liabilities:
Deposits ^$ 350,347,921 ^$ 352,050,612 $ 356,383,138 $ 358,363,842
Long term debt ^$ 14,000,000 ^$ 13,892,859 $ 14,000,000 $ 14,823,323
</TABLE>
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.
-62-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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
^March 31, 1999 (unaudited), 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 March 31, 1999 (unaudited), 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>
Minimum Well
^ March 31, ^ December 31, Capital Capitalized
----------------- -------------------------
^ 1999 ^ 1998 1997 Requirements Requirements
----------------- ----------- ------------ ----------------- -----------------------
^ (unaudited)
-----------------
<S> ^ <C> <C> <C> <C> <C>
Risk-based capital ratio ^ 16.60% ^ 16.40% 16.00% 8% 10.0% or higher
Leverage capital ratio ^ 11.00% ^ 10.60% 10.80% 3% to 4% 5.0% or higher
Tier 1 risk-based capital ratio ^ 15.70% ^ 15.40% 14.90% 4% 6.0% or higher
</TABLE>
Included in cash and due from banks are required federal reserves of ^$3,646,000
(unaudited) at March 31, 1999 and $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 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which changes the way public companies
report information about segments of their business and requires them to report
selected segment information in their reports issued to stockholders. Among
other things, SFAS No. 131 requires public companies to report (a) certain
financial and descriptive information about its reportable operating segments
(as defined); and (b) certain enterprise-wide financial information about
products and services, geographical areas, and major customers. The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets. SFAAS No. 131 is effective
for reporting by public companies in fiscal years beginning after December 15,
1997. SFAS No. 131 is not expected to have a significant impact on the Bancorp's
financial reporting.
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.
-63-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
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. Par value will remain unchanged at $1.25. The
number of shares issued, after giving effect to the stock split, was 3,023,799.
The effect of the stock dividend and stock split has been retroactively
reflected in the consolidated balance sheets and statements of changes in
stockholders' equity.
All references to the number of shares and per share amounts elsewhere in the
consolidated financial statements and related footnote have been restated as
appropriate to reflect the effect of the stock dividend and stock split for all
periods presented.
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc.^as of March 31, 1999
(unaudited), December 31, 1998 and 1997 and three months ^ended March 31, 1999
(unaudited) and 1998 (unaudited) and for the years ended December 31, 1998, 1997
and 1996 is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
^ March 31, December 31,
----------------- ----------------------------------------
^ 1999 1998 1997
----------------- ----------------- --------------------
^ (unaudited)
-----------------
<S> <C> <C> <C>
ASSETS
Cash in bank ^$ 1,675 $ 629 $ 1,421
Investment in subsidiary ^ 37,348,437 37,184,369 33,443,202
Securities available for sale ^ 810,090 826,348 667,736
Other assets ^ 221,634 221,634 221,634
--------------- ----------------- --------------------
Total Assets ^$ 38,381,836 $ 38,232,980 $ 34,333,993
=============== ================= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities ^$ 28,179 $ 32,051 $ 32,135
Stockholders' Equity ^ 38,353,657 38,200,929 34,301,858
----------------- ----------------- --------------------
Total Liabilities and Stockholders' Equity ^$ 38,381,836 $ 38,232,980 $ 34,333,993
================= ================= ====================
</TABLE>
-64-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
^ Three Months Ended March 31, Years Ended December 31,
------------------------------------ ----------------------------------------------
^ 1999 ^ 1998 1998 1997 1996
---------------- --------------- --------------- -------------- --------------
^ (unaudited)
---------------------------------
<S> <C> <C> <C> <C> <C>
Income
Dividends from subsidiary ^$ 625,000 ^$ 525,000 $ 2,100,000 $ 1,700,000 $ 1,600,000
Other dividends ^ 9,076 ^ 8,239 32,157 25,062 10,524
Expenses
Professional fees ^ 29,531 ^ 2,926 20,979 13,668 11,827
Miscellaneous ^ 3,609 ^ 4,487 14,729 11,060 5,408
---------------- --------------- --------------- -------------- --------------
Income Before Income Taxes
and Equity in Undistributed
Earnings of Subsidiary ^ 600,936 ^ 525,826 2,096,449 1,700,334 1,593,289
Equity in Undistributed
Earnings of Subsidiary ^ 965,834 ^ 849,615 3,704,481 3,493,182 2,865,095
---------------- --------------- --------------- -------------- --------------
Net Income ^$ 1,566,770 ^$ 1,375,441 $ 5,800,930 $ 5,193,516 $ 4,458,384
================ =============== =============== ============== ==============
</TABLE>
-65-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)
Years Ended December 31, 1998, 1997 and 1996
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
^ Three Months ended
----------------------------
^ March 31, Years Ended December 31,
---------------------------- -----------------------------------------
^ 1999 ^ 1998 1998 1997 1996
------------- --------- ----------- ---------- -----------
^ (unaudited)
----------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ^$ 1,566,770 ^$1,375,441 $ 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 ^ (965,834) ^ (849,615) (3,704,481) (3,493,182) (2,865,095)
Other assets - ^ - - (28,822) -
------------- --------- ----------- ---------- -----------
Net Cash From Operating Activities ^ 600,936 ^ 525,826 2,096,449 1,671,512 1,593,289
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of securities
available for sale ^ 4,870
Purchase of securities available for sale ^ - ^ (39,998) (158,861) (135,663) (325,885)
Dividends paid ^ (604,760) ^ (486,957) (1,938,380) (1,536,000) (1,267,200)
------------- --------- ----------- ---------- -----------
Net Cash Used By Financing Activities ^ (599,890) ^ (526,955) (2,097,241) (1,671,663) (1,593,085)
------------- --------- ----------- ---------- -----------
Net Change in Cash and Cash Equivalents ^ 1,046 ^ (1,129) (792) (151) 204
Cash and Cash Equivalents at Beginning of Year ^ 629 ^ 1,421 1,421 1,572 1,368
------------- --------- ----------- ---------- -----------
Cash and Cash Equivalents at End of Year ^$ 1,675 ^$ 292 $ 629 $ 1,421 $ 1,572
============= ========= =========== ========== ===========
</TABLE>
-66-
<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)
----------------
* Previously filed
<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: June 28, 1999 By:/s/J. Curt Gardner
-------------------------------------
J. Curt Gardner
President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRATION STATEMENT ON FORM 10/A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> Dec-31-1998 DEC-31-1999
<PERIOD-END> Dec-31-1998 MAR-31-1999
<CASH> 10,767 9,841
<INT-BEARING-DEPOSITS> 7,197 1,230
<FED-FUNDS-SOLD> 25,432 6,591
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 117,470 132,471
<INVESTMENTS-CARRYING> 2,569 2,500
<INVESTMENTS-MARKET> 2,555 2,495
<LOANS> 236,076 244,726
<ALLOWANCE> 2,228 2,228
<TOTAL-ASSETS> 412,366 406,669
<DEPOSITS> 356,383 350,348
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 3,782 3,968
<LONG-TERM> 14,000 14,000
0 0
0 0
<COMMON> 3,780 3,780
<OTHER-SE> 34,421 34,573
<TOTAL-LIABILITIES-AND-EQUITY> 412,366 406,669
<INTEREST-LOAN> 19,019 4,774
<INTEREST-INVEST> 7,749 2,115
<INTEREST-OTHER> 760 132
<INTEREST-TOTAL> 27,528 7,020
<INTEREST-DEPOSIT> 12,174 3,045
<INTEREST-EXPENSE> 412 183
<INTEREST-INCOME-NET> 14,942 3,792
<LOAN-LOSSES> 300 45
<SECURITIES-GAINS> 40 1
<EXPENSE-OTHER> 8,438 3,000
<INCOME-PRETAX> 8,538 2,308
<INCOME-PRE-EXTRAORDINARY> 8,538 2,308
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,801 1,567
<EPS-BASIC> 1.92 .52
<EPS-DILUTED> 1.92 .52
<YIELD-ACTUAL> 3.26 3.08
<LOANS-NON> 12 12
<LOANS-PAST> 1,428 1,382
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,340 2,228
<CHARGE-OFFS> 526 45
<RECOVERIES> 114 45
<ALLOWANCE-CLOSE> 2,228 2,228
<ALLOWANCE-DOMESTIC> 2,228 2,228
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
