SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number: 0-25903
IBT BANCORP, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1532164
- ----------------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.
309 Main Street, Irwin, Pennsylvania 15642
- ----------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (724) 863-3100
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
--------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.25 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of $27 per share of the registrant's
common stock on February 25, 2000, as reported on the OTC Bulletin Board, the
aggregate market value of voting and non-voting stock held by non-affiliates of
the registrant was approximately $71.7 million.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 1999 Annual Report to Stockholders (Parts II and IV)
2. Portions of Proxy Statement for the 2000 Annual Meeting of
Stockholders. (Part III)
<PAGE>
PART I
Forward-Looking Statements
IBT Bancorp, Inc. (the "Company" or "Registrant") may from time to time
make written or oral "forward-looking statements," including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-K and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the private securities litigation reform act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 1. Business
- -----------------
General
IBT Bancorp, Inc., a Pennsylvania Corporation, headquartered in Irwin,
Pennsylvania, is the bank holding company for Irwin Bank & Trust Company of
Pennsylvania (the "Bank"). The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank. References to the Company or Registrant used throughout this document
generally refers to the consolidated entity which includes the main operating
company, the Bank, unless the context indicates otherwise.
The Bank was incorporated in 1922 under the laws of Pennsylvania as a
commercial bank under the name "Irwin Savings and Trust Company." The Bank
engages in a full service mortgage, commercial and consumer banking business, as
well as trust and a variety of deposit services provided to its customers. At
December 31, 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's web site is "www.irwinbank.com."
<PAGE>
Competition
The Registrant's primary market area consists of Westmoreland and
Allegheny counties, Pennsylvania, and is one of many financial institutions
serving this market area. The competition for deposit products comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions in the Registrant's market area. Deposit competition also includes
a number of insurance products sold by local agents and investment products such
as mutual funds and other securities sold by local and regional brokers. Loan
competition comes from other insured financial institutions such as commercial
banks, thrift institutions and credit unions.
2
<PAGE>
Lending Activities
Analysis of Loan Portfolio
The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and in percentages of the respective portfolios at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------- -------------------- -------------------- ------------------- -----------------
$ % $ % $ % $ % $ %
----------- ------- ---------- -------- ---------- ------ --------- -------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans:
- -------------
Mortgage.................. $130,348 49.56 $123,494 51.31 $107,240 48.97 $ 99,118 50.28 $ 87,772 49.00
Installment............... 61,983 23.57 52,418 21.78 45,321 20.69 38,595 19.58 34,389 19.20
Commercial................ 47,294 17.98 45,232 18.79 42,003 19.18 38,517 19.54 35,399 19.76
Home equity credit........ 8,886 3.38 8,588 3.57 8,860 4.05 8,723 4.42 9,457 5.28
PHEAA (1)................. 6,166 2.34 5,043 2.10 4,604 2.10 4,632 2.35 4,589 2.56
Municipal................. 6,347 2.41 3,616 1.50 7,870 3.59 4,733 2.40 4,828 2.70
Credit cards.............. 1,780 .68 1,808 .75 2,022 .93 2,228 1.13 2,119 1.18
Other..................... 210 .08 477 .20 1,081 .49 585 .30 584 .32
-------- ------- -------- ------ ------- ------ ------- ------ -------- ------
Total loans................. 263,014 100.00% 240,676 100.00% 219,001 100.00% 197,131 100.00% 179,137 100.00%
====== ====== ====== ====== ======
Less:
Loans in process.......... -- -- -- -- --
Unearned discount......... -- -- -- 1 10
Deferred loan origination.
fees and costs.......... 146 144 174 213 160
Allowance for loan losses. 2,366 2,228 2,340 2,240 1,969
-------- -------- -------- -------- --------
Total loans, net............ $260,502 $238,304 $216,487 $194,677 $176,998
======== ======== ======== ======== ========
</TABLE>
- --------------------
(1) Pennsylvania Higher Education Assistance Authority.
3
<PAGE>
Loan Maturity Table. The following table sets forth maturities and
interest rate sensitivity for all categories of loans as of December 31, 1999.
Scheduled repayments are reported in the maturity category in which payment is
due.
<TABLE>
<CAPTION>
Home
Equity PHEAA
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............. $ 12,121 $ 8,886 $ 11,312 $ 3,298 $ -- $ 6,347 $ 1,780 $ 210 $ 43,954
-------- ------ ------- ------- -------- ------ ------ ---- --------
After 1 year:
1 to 5 years............. 25,947 -- 30,507 11,752 6,166 -- -- -- 74,372
After 5 years............ 92,280 -- 20,164 32,244 -- -- -- -- 144,688
------- ------ ------ ------ ----- ------ ------ ---- -------
Total due after one year... 118,227 -- 50,671 43,996 6,166 -- -- -- 219,060
------- ------ ------- ------ ----- ------ ------ ---- -------
Total amount due........... $130,348 $ 8,886 $ 61,983 $ 47,294 $ 6,166 $ 6,347 $ 1,780 $ 210 $ 263,014
======= ====== ======= ======= ====== ====== ====== ==== ========
</TABLE>
- ----------------------
(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; therefor they are classified as due in one
year or less.
The following table sets forth, as of December 31, 1999, the dollar
amount of all loans due after December 31, 2000, based upon fixed rates of
interest or floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In Thousands)
Mortgage(1) $ 110,844 $ 7,383 $ 118,227
Installment 49,573 1,098 50,671
Commercial 31,828 12,168 43,996
Home equity credit -- -- --
PHEAA -- 6,166 6,166
Municipal -- -- --
Credit Cards -- -- --
Other -- -- --
-------- ------- --------
Total $ 192,245 $ 26,815 $ 219,060
======== ======= ========
- --------------------------
(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 Registrant's primary lending activity consists of
the origination of residential and commercial mortgage loans secured by property
in its primary market area. The mortgage loan portfolio consists of one-to-four
family residential mortgage loans, commercial real estate loans, and
construction loans.
4
<PAGE>
The Registrant had approximately $67.9 million of one- to four-family
residential mortgage loans in its mortgage loan portfolio at December 31, 1999.
The Registrant 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 Registrant 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
Registrant 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 12 months based upon the weekly average yield on the one
year U.S. Treasury securities, plus a margin of 2.75 percentage points. These
adjustable rate loans have an interest rate cap of 2% per year and 6% 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 Registrant generally charges a higher interest rate if
loans are not saleable under FNMA guidelines. At December 31, 1999, $79.4
million of the Registrant's mortgage portfolio consisted of long-term fixed rate
mortgage loans of which $114,000 were classified as held for sale. The
Registrant does not service any loans that are sold and the Registrant is
generally not liable for these loans (i.e., "nonrecourse loans").
Substantially all of the Registrant's one- to four-family mortgages
include "due on sale" clauses, which are provisions giving the Registrant 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 Registrant'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 Registrant obtains title insurance policies on all purchase
money first mortgage real estate loans originated.
The Registrant'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 its 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 Registrant 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 December 31, 1999, the Registrant's commercial real estate loans
totaled $51.6 million of the mortgage portfolio. Typically, commercial real
estate loans are originated in amounts up to 75% of the appraised value of the
mortgaged property.
5
<PAGE>
The Registrant also originates loans to finance the construction of
one-to four-family dwellings. Generally, the Registrant 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
December 31, 1999, such loans totaled $8.8 million of the Registrant's total
mortgage loan portfolio.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Registrant 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 Registrant 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 Registrant 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 Registrant originates automobile loans with fixed rates
of interest and terms of up to five years. At December 31, 1999, home equity
loans totaled $62.4 million.
Commercial Loans. Commercial business loans consist of equipment,
accounts receivables, inventory, and other business purpose loans. Such loans
are secured by either the underlying collateral and/or by the personal
guarantees of the borrower.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself and the general economic environment.
Home Equity Lines of Credit. These revolving home equity lines of
credit are secured primarily by one- to four-family residences. The lines of
credit are subject to an 80% combined loan to value limitation, including all
outstanding mortgages and liens.
Loan Approval Authority and Underwriting. The Registrant 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.
6
<PAGE>
Title insurance is generally required on all purchase money real estate
mortgage loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property that is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved mortgage loans. Generally, the commitment requires
acceptance within 30 days of the date of issuance. At December 31, 1999,
commitments to cover originations of mortgage loans totaled $14.1 million.
Loans to One Borrower. Federal regulations limit loans to one borrower
in an amount equal to 15% of unimpaired capital and unimpaired surplus. If the
loan is secured by readily marketable collateral, the limit is 25% of unimpaired
capital and unimpaired surplus. At December 31, 1999, the Registrant's loan to
one borrower limit was approximately $6.4 million. At December 31, 1999, the
Registrant's largest loan to one borrower was $5.6 million and was secured
primarily by real estate in Westmoreland county. The borrower is a commercial
and residential developer.
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 Registrant 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 December 31, 1999, the Registrant had a total of $6.8 million and,
$3.0 million, respectively, of the loan portfolio classified as "special
mention" and "substandard". There were no loans classified as "doubtful" or
"loss".
Other Real Estate Owned. Real estate acquired by the Registrant 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.
7
<PAGE>
Allowance for Losses on Loans. 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
Registrant'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.
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Registrant's allowance for loan losses at
the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding .................... $ 262,868 $ 240,532 $ 218,827 $ 196,917 $ 178,967
========= ========= ========= ========= =========
Average loans outstanding .................. $ 251,574 $ 226,984 $ 205,399 $ 186,845 $ 163,471
========= ========= ========= ========= =========
Allowance balances (at beginning of period) $ 2,228 $ 2,340 $ 2,240 $ 1,969 $ 1,685
Provision (credit):
Mortgage ................................ 30 30 30 41 38
Installment ............................. 30 30 30 41 38
Commercial .............................. 225 225 225 308 285
Home equity credit ...................... -- -- -- -- --
PHEAA ................................... -- -- -- -- --
Municipal ............................... -- -- -- -- --
Credit cards ............................ 15 15 15 20 19
Other ................................... -- -- -- -- --
Net (charge-offs) recoveries: .............. -- -- -- --
Mortgage ................................. (21) (19) (10) -- --
Installment .............................. (24) (28) (27) (56) (32)
Commercial ............................... (102) (324) (104) (59) (20)
Home equity credit ....................... -- -- (11) -- (25)
PHEAA .................................... -- -- -- -- --
Municipal ................................ -- -- -- -- --
Credit cards ............................. (15) (41) (48) (24) (19)
Other .................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Allowance balance (at end of period) ....... $ 2,366 $ 2,228 $ 2,340 $ 2,240 $ 1,969
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding ............... .90% 0.93% 1.07% 1.14% 1.10%
========= ========= ========= ========= =========
Net loans charged off as a percent of
average loans outstanding ................ .06% 0.18% 0.10% 0.07% 0.06%
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
Allocation of the Allowance For Loan Losses. The following table sets
forth the allocation of the Registrant's allowance for loan losses by loan
category and the percent of loans in each category to total loans at the date
indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ----------------- ----------------- ----------------- ------------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
Mortgage $ 603 49.56% $ 604 51.31% $ 565 48.97% $ 588 50.28% $ 508 49.00%
Installment 345 23.57 380 21.78 324 20.69 294 19.58 270 19.20
Commercial 1,293 17.98 1,100 18.79 1,301 19.18 1,224 19.54 1,050 19.76
Home equity credit 54 3.38 44 3.57 45 4.05 43 4.42 47 5.28
PHEAA 9 2.34 8 2.10 7 2.10 7 2.35 7 2.56
Municipal 10 2.41 5 1.50 12 3.59 6 2.40 7 2.70
Credit cards 45 .68 80 .75 71 .93 74 1.13 74 1.18
Other 7 .08 7 .20 15 .49 4 .30 6 .32
------- ------ ----- ------- ----- ------ ----- ------ ----- ------
Total allowance $ 2,366 100.00% $ 2,228 100.00% $ 2,340 100.00% $ 2,240 100.00% $1,969 100.00%
====== ====== ====== ====== ====== ======= ====== ====== ===== ======
</TABLE>
9
<PAGE>
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 there were no impaired loans within the meaning of SFAS 114, as
amended by SFAS 118.
10
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage ................................ $ -- $ -- $ 29 $ -- $ --
Installment ............................. -- -- -- 5 1
Commercial .............................. 91 12 205 114 18
Home equity credit ...................... 60 -- -- -- --
PHEAA ................................... -- -- -- -- --
Municipal ............................... -- -- -- -- --
Credit cards ............................ -- -- -- -- --
Other ................................... -- -- -- -- --
------ ------ ------ ------ ------
Total ..................................... 151 12 234 119 19
------ ------ ------ ------ ------
Accruing loans which are contractually past
due 90 days or more:
Mortgage ................................ 998 788 362 493 703
Installment ............................. 21 3 21 7 53
Commercial .............................. 568 629 631 250 111
Home equity credit ...................... -- -- -- -- --
PHEAA ................................... -- -- -- -- --
Municipal ............................... -- -- -- -- --
Credit cards ............................ 3 8 9 11 11
Other ................................... -- -- -- -- --
------ ------ ------ ------ ------
Total ..................................... 1,590 1,428 1,023 761 878
------ ------ ------ ------ ------
Total non-accrual and accrual loans ....... 1,741 1,440 1,257 880 897
------ ------ ------ ------ ------
Other real estate owned ................... 141 128 37 53 30
------ ------ ------ ------ ------
Other non-performing assets ............... -- -- -- -- --
------ ------ ------ ------ ------
Total non-performing assets ............... $1,882 $1,568 $1,294 $ 933 $ 927
====== ====== ====== ====== ======
Total non-accrual and accrual loans
to net loans ............................ .67% .60% .58% .45% .51%
====== ====== ====== ====== ======
Total non-accrual and accrual loans to
total assets ............................ .39% .35% .34% .27% .30%
====== ====== ====== ====== ======
Total non-performing assets to total assets .42% .38% .35% .28% .31%
====== ====== ====== ====== ======
</TABLE>
11
<PAGE>
Investment Activities
The Registrant maintains a level of liquid assets, including short-term
securities and certain other investments, which varies depending upon several
factors, including: (i) the yields on investment alternatives, (ii) management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities, (iii) expectation of future yield levels, and (iv)
management's projections as to the short-term demand for funds to be used in
loan origination and other activities. Investment securities, including
mortgage-backed securities, are classified at the time of purchase, based upon
management's intentions and abilities, as securities held to maturity or
securities available for sale. Debt securities acquired with the intent and
ability to hold to maturity are classified as held to maturity and are stated at
cost and adjusted for amortization of premium and accretion of discount, which
are computed using the level yield method and recognized as adjustments of
interest income. All other debt securities are classified as available for sale
to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment
securities (including mortgage backed securities) require the Registrant to
categorize securities as "held to maturity," "available for sale" or "trading."
As of December 31, 1999, the Registrant had securities classified as "available
for sale" in the amount of $149.1 million and had no securities classified as
"held to maturity" or "trading." Securities classified as "available for sale"
are reported for financial reporting purposes at the fair market value with net
changes in the market value from period to period included as a separate
component of stockholders' equity, net of income taxes. At December 31, 1999,
the Registrant's securities available for sale had an amortized cost of $153.9
million and market value of $149.1 million (unrealized loss of $4.8 million).
Changes in the market value of securities available for sale do not affect the
Company's income. In addition, changes in the market value of securities
available for sale do not affect the Bank's regulatory capital requirements or
its loan-to-one borrower limit.
At December 31, 1999, the Registrant's investment portfolio policy
allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii)
U.S. federal agency or federally sponsored agency obligations, (iii)
mortgage-backed securities, (iv) banker's acceptances, (v) certificates of
deposit, and (vi) investment grade corporate bonds, and commercial paper. The
board of directors may authorize additional investments.
As a source of liquidity and to supplement the Registrant's lending
activities, the Registrant has invested in residential mortgage-backed
securities. Mortgage-backed securities can serve as collateral for borrowings
and, through repayments, as a source of liquidity. Mortgage-backed securities
represent a participation interest in a pool of single-family or other type of
mortgages. Principal and interest payments are passed from the mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the participation interests in the form of securities, to
investors, like us. The quasi-governmental agencies guarantee the payment of
principal and interest to investors and include the Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA"), and
Federal National Mortgage Association ("FNMA").
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of
12
<PAGE>
mortgages (i.e., fixed rate or adjustable rate) and the prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Expected maturities
will differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. Mortgage-backed securities issued by FHLMC, GNMA, and FNMA
make up a majority of the pass-through certificates market.
Investment Portfolio. The following table sets forth the carrying value of the
Registrant's investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At December 31
-------------------------------
1999 1998 1997
--------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Securities available for sale:
Obligations of U.S. government agencies ....... $ 90,744 $ 69,540 $ 70,725
Mortgage-backed securities .................... 47,005 33,227 21,611
Obligations of state and political subdivisions 10,536 8,200 6,929
U.S. treasury securities ...................... -- 5,616 6,627
Federal home loan bank stock .................. 1,964 1,308 1,171
Equity securities ............................. 230 249 239
Other securities .............................. 584 638 499
-------- -------- --------
Total securities available for sale ........ 151,063 118,778 107,801
-------- -------- --------
Securities held to maturity:
U.S. government agencies ...................... -- 2,500 5,500
Mortgage-backed securities .................... -- 69 355
-------- -------- --------
Total securities held to maturity .......... -- 2,569 5,855
-------- -------- --------
Total investment and mortgage-backed
securities ............................... $151,063 $121,347 $113,656
======== ======== ========
</TABLE>
13
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding carrying values, weighted average yields, and maturities
of the Registrant's investment securities portfolio as of December 31, 1999.
Actual maturities may differ from contractual maturities as certain instruments
have call features which allow prepayment of obligations.
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------------------------------------------------------------------------------
After Five More than Total
One Year or Less One to Five Years to Ten Years Ten Years 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>
Obligations of U.S.
government agencies.......... $1,238 5.84% $42,212 6.08% $35,896 6.87% $11,398 7.20% $ 90,744 6.53% $ 90,744
Mortgage-backed securities....... -- -- 23 9.03 1,367 6.72 45,615 6.63 47,005 6.64 47,005
Obligations of state and
political subdivisions (1)... 155 6.10 1,405 5.62 1,497 5.82 7,479 5.08 10,536 5.15 10,536
Federal home loan bank stock..... -- -- -- -- -- -- 1,964 6.00 1,964 6.00 1,964
Equity securities................ -- -- -- -- -- -- 230 6.00 230 6.00 230
Other securities................. -- -- -- -- 31 9.00 553 5.71 584 5.88 584
------ ------- ------- ------- -------- --------
Total....................... $1,393 5.87% $43,640 6.07% $38,791 6.83% $67,239 6.53% $151,063 6.46% $151,063
====== ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
</TABLE>
- --------------------
(1) Average yields have not been computed on a tax-equivalent basis.
14
<PAGE>
Sources of Funds
General. Deposits are the major source of the Registrant's funds for
lending and other investment purposes. In addition to deposits, the Registrant
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 Registrant can also borrow from the Federal Home Loan Bank
("FHLB") of Pittsburgh.
Deposits. Consumer and commercial deposits are attracted principally
from within the Registrant'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 Registrant regularly evaluates the internal cost of funds, surveys
rates offered by competing institutions, reviews the Registrant's cash flow
requirements for lending and liquidity and executes rate changes when deemed
appropriate. The Registrant does not obtain funds through brokers, nor does it
solicit funds outside the Commonwealth of Pennsylvania.
The following table indicates the amount of certificates of deposit of
$100,000 or more by time remaining at December 31, 1999 (in thousands).
Three months or less.............................. $ 427
Over three through six months..................... 915
Over six through twelve months.................... 711
Over twelve months................................ 38,780
------
$40,833
=======
Borrowings. Deposits are the primary source of funds for the
Registrant's lending and investment activities as well as for general business
purposes. Should the need arise, the Registrant has a maximum borrowing capacity
with the FHLB of $136.5 million. At December 31, 1999 there were outstanding $22
million of long term FHLB borrowings.
Personnel
As of December 31, 1999, the Registrant had 140 full-time and 52
part-time employees. None of the Registrant'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 Registrant and the Bank. The description does not purport
to be complete and is qualified in its entirety by reference to applicable laws
and regulations.
Financial Modernization Legislation. On November 12, 1999, President
Clinton signed into law the Gramm-Leach-Bliley Act (the "GLB Act") which,
effective March 11, 2000, permits qualifying bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature
or incidental to a financial activity. The GLB Act and the implementing
regulation of the Board of Governors of the Federal Reserve
15
<PAGE>
System (the "Federal Reserve") define "financial in nature" to include
securities underwriting, dealing and market making; sponsoring and managing
mutual funds and investment companies; insurance underwriting and agency;
merchant banking activities; management consulting services; operation of a
travel agency; and activities that the Federal Reserve has determined to be
closely related to banking. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
The GLB Act also authorizes national banks to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company and any activity that is determined to be financial in nature or
incidental to a financial activity, except insurance underwriting, real estate
development, real estate investment (except as otherwise permitted by law),
insurance company portfolio investments and merchant banking activities. The
authority of a national bank to invest in a financial subsidiary is subject to a
number of conditions, including, among other things, requirements that the bank
must be well-managed and well-capitalized (after deducting from capital the
bank's outstanding investments in financial subsidiaries). The GLB Act further
provides that a state bank may invest in financial subsidiaries, assuming the
requisite investment authority under state law, subject to the same conditions
that apply to national bank investments in financial subsidiaries.
In addition, the GLB Act enacts a number of consumer protections,
including provisions intended to protect privacy of bank customers' financial
information and provisions requiring disclosure of ATM fees imposed by banks on
customers of other banks.
Bank Holding Company Regulation. The Registrant is regulated by the
Pennsylvania Department of Banking and the Federal Reserve. The Registrant files
with the Federal Reserve an annual report and such additional information as the
Federal Reserve may require. The Registrant is also subject to regular
examination by the Federal Reserve.
The Registrant must obtain the prior approval of the Federal Reserve
before it may acquire all or substantially all of the assets of another bank or
bank holding company, merge or consolidate with another bank holding company, or
acquire direct or indirect ownership or control of any voting shares of any bank
or bank holding company if, after such acquisition, the bank holding company
would directly or indirectly own or control more than 5% of such shares.
As a bank holding company, the Registrant is prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of a company that is not a bank or a bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities that, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking or
managing or controlling banks.
The GLB Act greatly expands the scope of business activities
permissible for bank holding companies by enacting authority for "financial
holding companies." Effective March 11, 2000, the GLBA Act permits a bank
holding company, upon classification as a financial holding company and assuming
such holding company's subsidiary banks meet certain requirements, to engage in
activities that are defined by statute as "financial in nature" or are approved
by the Federal Reserve as financial in nature or incidental to a financial
activity. See "-- Financial Modernization Legislation."
16
<PAGE>
Federal statutes impose restrictions on the ability of a bank holding
company and its nonbank subsidiaries to obtain extensions of credit from its
subsidiary bank, on the subsidiary bank's investments in the stock or securities
of the holding company, and on the subsidiary bank's taking of the holding
company's 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 by the subsidiary bank.
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.
The Federal Reserve has adopted capital adequacy guidelines pursuant to
which it assesses the adequacy of capital in examining and supervising a bank
holding company and in analyzing applications to it under the Bank Holding
Company Act. The Federal Reserve's holding company capital adequacy guidelines
are similar to those imposed on the Bank by the FDIC. See "Regulatory Capital
Requirements."
Regulation of the Bank. The Bank is regulated by the Pennsylvania
Department of Banking and the FDIC. The deposits of the Bank are insured by the
FDIC, and the Bank is subject to regulation and regular examination by the
Pennsylvania Department of Banking and the FDIC. The federal and state laws and
regulations applicable to banks regulate, among other things, the scope of their
business, their investments, the reserves required to be kept against deposits,
the timing of the availability of deposited funds and the nature and amount of
and collateral for certain loans. The laws and regulations governing the Bank
are intended primarily for the protection of depositors rather than of
stockholders.
The Bank's deposit accounts are insured by the BIF to a maximum of
$100,000 for each insured account (as defined by statute and regulation). The
Bank is required to pay insurance premiums based on a percentage of its insured
deposits to the FDIC for insurance of its deposits by the BIF. The FDIC also
maintains another insurance fund, the Savings Institution Insurance Fund
("SAIF"), which insures savings association deposits. The FDIC has set the
deposit insurance assessment rates for BIF-member institutions for the first six
months of 2000 at 0% to .027% of insured deposits on an annualized basis, with
the assessment rate for most banks set at 0%. In addition, all FDIC-insured
institutions are required through 2017 to pay assessments to the FDIC at an
annual rate of approximately .0212% of insured deposits to fund interest
payments on bonds issued by the Financing Corporation, an agency of the Federal
government established to recapitalize the predecessor to the SAIF.
Federal laws strictly limit the ability of banks to engage in
transactions with their affiliates, including their bank holding companies. 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.
17
<PAGE>
Regulatory Capital Requirements. The FDIC has promulgated capital
adequacy requirements for state banks that, like the Bank, are not members of
the Federal Reserve System, and the FRB has established substantially similar
capital adequacy guidelines applicable to bank holding companies. These capital
regulations impose two sets of capital requirements: risk-based capital rules,
which require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets, and minimum leverage rules, which require banks and bank
holding companies to maintain a specified minimum ratio of capital to total
assets.
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.
The leverage capital rules of the FDIC and the FRB require
state-chartered banks and bank holding companies, respectively, to maintain a
minimum leverage ratio of Tier 1 capital to total assets of 3% for those banks
and bank holding companies that have the highest regulatory examination ratings
and are not contemplating or experiencing significant growth or expansion. All
other banks and bank holding companies are required to maintain a leverage ratio
of at least 1% to 2% above the 3% stated minimum. At December 31, 1999, the Bank
and the Registrant exceeded all applicable capital requirements.
The Bank is also subject to minimum capital requirements imposed by the
Department on Pennsylvania-chartered depository institution. Under the
Department's regulations, a Pennsylvania bank or savings bank must maintain a
minimum leverage ratio of Tier 1 capital (as defined under the FDIC's capital
adequacy regulation) to total assets of 4%. In addition, the Department has the
supervisory discretion to require a higher leverage ratio for any institution
based on the institution's substandard performance in any of a number of
specified areas. The Bank was in compliance with applicable Pennsylvania capital
requirements at December 31, 1999.
In addition to the federal regulatory capital requirements, the FDIC
has issued a regulation that classifies insured banks by capital levels and
provides that the FDIC will take various prompt corrective actions, including
the imposition of significant operational restrictions, against any bank subject
to its regulation that fails to meet the regulation's capital standards. Under
this prompt corrective action regulation, a "well capitalized" bank is one that
has 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 is not subject
to any order or directive requiring the institution to improve its capital
level. A bank 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. A bank that falls within any of the three undercapitalized
categories is subjected to severe regulatory sanctions under the FDIC prompt
corrective action regulation. At December 31, 1999, the Bank was classified as
"well capitalized."
18
<PAGE>
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.
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 federal prompt corrective action regulations,
the Federal Reserve may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Item 2. Properties
- -------------------
At December 31, 1999, the Registrant 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 Registrant's
investment in premises and equipment at December 31, 1999, was approximately
$4.7 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 1 to 20 years, and all leases contain renewal options for additional
years.
Item 3. Legal Proceedings
- --------------------------
The Registrant is periodically involved as a plaintiff or defendant in
various legal actions, such as actions to enforce liens, condemnation
proceedings on properties in which the Registrant holds mortgage interests,
matters involving the making and servicing of mortgage loans and other matters
incident to the Registrant's business. In the opinion of management, none of
these actions individually or in the aggregate is believed to be material to the
financial condition or results of operations of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
19
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
-------
The information contained under the section captioned "Stock Market
Information" in the 1999 Annual Report to Stockholders (the "Annual Report") is
incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Financial Highlights" in
the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
--------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the section captioned "Market Risk" in the
Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Registrant's financial statements listed in Item 14 herein are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I-- Election of
Directors" and "-- Biographical Information" in the 2000 Proxy Statement are
incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
20
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof -- Security Ownership of Certain
Beneficial Owners" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Voting Securities and
Principal Holders Thereof -- Security Ownership of Certain
Beneficial Owners" and "Proposal I -- Election of Directors"
of the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors" and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed
as part of this report, and are incorporated by reference.
1. The consolidated statements of financial conditions of IBT
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998,
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, 1999, together with
the related notes and the independent auditors' report of
Edwards Leap & Sauer, independent accountants.
2. Schedules omitted as they are not applicable.
<TABLE>
<CAPTION>
3. Exhibits
<S> <C>
3(i) Articles of Incorporation of IBT Bancorp, Inc.*
3(ii) Bylaws of IBT Bancorp, Inc.*
10 Change In Control Severance Agreement with Charles G. Urtin
10.1 Deferred Compensation Plan For Bank Directors
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.2 Retirement Agreement Between Irwin Bank & Trust Co. And
J. Curt Gardner
10.3 Death Benefit Only Deferred Compensation Plan For Bank Directors effective as
of January 1, 1990
10.4 Retirement and Death Benefit Deferred Compensation Plan For
Bank Directors effective as of January 1, 1990
13 Portions of the Annual Report to Shareholders
21 Subsidiaries of IBT Bancorp, Inc.*
27 Financial Data Schedule (electronic filing only)
</TABLE>
-------------------------
* Incorporated by reference to the identically numbered exhibits
of the Registrant's Form 10 (file no. 0-25903)
(b) On November 18, 1999, the Company filed a Form 8-K (Item 5) to
announce a stock repurchase plan.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 22, 2000.
IBT BANCORP, INC.
By: /s/Charles G. Urtin
--------------------------------------------
Charles G. Urtin, Executive Vice President
and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below on March 22, 2000 by the following persons on
behalf of the registrant and in the capacities indicated.
/s/Richard L. Ryan /s/J. Curt Gardner
- ----------------------------------------------- ---------------------------
Richard L. Ryan J. Curt Gardner
Chairman of the Board President and Director
/s/Charles G. Urtin /s/Thomas Beter
- ----------------------------------------------- ---------------------------
Charles G. Urtin, Executive Vice President Thomas Beter
Secretary, Treasurer and Director Director
(Principal Executive, Financial, and Accounting
Officer)
/s/William D. Fawcett /s/Edwin A. Paulone
- ----------------------------------------------- ---------------------------
William D. Fawcett Edwin A. Paulone
Director Director
/s/Robert Rebich, Jr. /s/Grant J. Shevchik
- ----------------------------------------------- ---------------------------
Robert Rebich, Jr. Grant J. Shevchik
Director Director
/s/Robert C. Whisner
- -----------------------------------------------
Robert C. Whisner
Director
EXHIBIT 10
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 19th day of October 1999 ("Effective Date"), by and between Irwin Bank and
Trust Company, Irwin, Pennsylvania, including its parent holding company, IBT
Bancorp, Inc. (the "Bank") and Charles G. Urtin (the "Employee").
WHEREAS, the Employee is currently employed by the Bank as President
and Chief Executive Officer and by IBT Bancorp, Inc. as Executive Vice President
and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Bank and Employee if the Bank should undergo a change in
control (as defined hereinafter in the Agreement) after the Effective Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
President of the Bank and the Executive Vice President of IBT Bancorp, Inc.
("Parent"). The Employee shall render such administrative and management
services to the Bank and Parent as are currently rendered and as are customarily
performed by persons situated in a similar executive capacity. The Employee's
other duties shall be such as the Board of Directors for the Bank and Parent
(the "Board of Directors" or "Board") may from time to time reasonably direct,
including normal duties as an officer of the Bank and Parent.
2. Term of Agreement. The term of this Agreement shall be for the
period commencing on the Effective Date and ending September 21, 2002 ("Term").
Additionally, on, or before, each annual anniversary date from the Effective
Date, the Term of this Agreement may be extended for up to an additional one
year period beyond the then effective expiration date upon a determination and
resolution of the Board of Directors that the performance of the Employee has
met the requirements and standards of the Board, and that the Term of such
Agreement shall be extended.
3. Termination of Employment in Connection with or Subsequent to
a Change in Control.
(a) Notwithstanding any provision herein to the contrary in
the event of the termination of Employee's employment during the Term of this
Agreement, absent Just Cause, in connection with, or within twenty-four (24)
months after any Change in Control of the Bank or Parent, Employee shall be paid
an amount equal to the product of 2.99 times the Employee's "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder. Said sum shall be paid, at
the option of
1
<PAGE>
Employee, either in one (1) lump sum within thirty (30) days of such termination
or in periodic payments over the next 36 months or the remaining term of this
Agreement whichever is less, as if Employee's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Employee would be otherwise entitled to receive. Notwithstanding the
forgoing, all sums payable hereunder shall be reduced in such manner and to such
extent so that no such payments made hereunder when aggregated with all other
payments to be made to the Employee by the Bank or the Parent shall be deemed an
"excess parachute payment" in accordance with Section 280G of the Code and be
subject to the excise tax provided at Section 4999(a) of the Code. The term
"control" shall refer to the ownership, holding or power to vote more than 25%
of the Bank's or Parent's outstanding voting stock by any person, the control of
the election of a majority of the Bank's or Parent's directors, or the exercise
of a controlling influence over the management or policies of the Bank or Parent
by any person or by persons acting as a group within the meaning of Section
13(d) of the Securities Exchange Act of 1934 ("Exchange Act"). The term "person"
means an individual other than the Employee, or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein, other than the Employer or Parent.
(b) Notwithstanding any other provision of this Agreement to
the contrary, except as provided at Sections 4(b), 4(c), 4(d) and 5, Employee
may voluntary terminate his employment during the Term of this Agreement
following a Change in Control of the Bank or Parent, and Employee (or his estate
in the event of death after a Change in Control but prior to payment) shall
thereupon be entitled to receive the payment described in Section 3(a) of this
Agreement, upon the occurrence, or within ninety (90) days thereafter, of any of
the following events, which have not been consented to in advance by the
Employee in writing: (i) if Employee would be required to move his personal
residence or perform his principal executive functions more than thirty-five
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii) if in the organizational structure of the Bank, Employee would
be required to report to a person or persons other than the Board of Directors
of the Bank; (iii) if the Bank should fail to maintain the Employee's base
compensation as in effect as of the date of the Change in Control and existing
employee benefits plans, including material fringe benefit, and retirement
plans, except to the extent that such reduction in benefit programs is part of
an overall adjustment in benefits for all employees of the Bank and does not
disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1, herein; (v) if Employee would not be
elected or reelected to the Board of Directors of the Bank or Parent or (vi) if
Employee's responsibilities or authority have in any way been materially
diminished or reduced;
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, the Board of
Directors may terminate the Employee's employment at any time with or without
Just Cause within its sole
2
<PAGE>
discretion. This Agreement shall not be deemed to give Employee any right to be
retained in the employment or service of the Bank or to interfere with the right
of the Bank to terminate the employment of the Employee at any time. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for Just Cause. Termination for "Just Cause" shall
include termination because of the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Agreement.
(b) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1)
of FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) Notwithstanding anything herein to the contrary, any
payments made to the Employee pursuant to the Agreement, or otherwise, shall be
subject to and conditioned upon compliance with 12 USC ss.1828(k) and any
regulations promulgated thereunder.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may within its discretion
(i) pay the Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Bank which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) The Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank.
3
<PAGE>
7. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
8. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the Commonwealth of Pennsylvania, except to the extent that Federal law
shall be deemed to apply.
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extent that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall reimburse Employee for all reasonable
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, following the delivery of the decision of the
arbitrator finding in favor of the Employee. Further, the settlement of the
dispute to be approved by the Board of the Bank or the Parent may include a
provision for the reimbursement by the Bank to the Employee for all reasonable
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, or the Board of the Bank or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute.
11. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
4
EXHIBIT 10.1
<PAGE>
IRWIN BANK AND TRUST COMPANY
DEFERRED COMPENSATION PLAN
FOR
BANK DIRECTORS
1. Purpose. Irwin Bank and Trust Company, a Pennsylvania banking
corporation (herein "the Bank"), hereby establishes and maintains the bank's
Deferred Compensation Plan for Directors (the "Plan"), under which Directors of
the Bank may defer all or part of the fees payable for services rendered by them
as Directors and certain pre-retirement Death Benefits are provided.
2. Definitions. The following definitions apply to the Plan:
a. Beneficiary means one or more persons or other entities
designated by a Director to receive the benefits provided under this Plan
payable by reason of the Director's death. If a Director makes no valid
designation, or if the designated beneficiary fails to survive the Director or
otherwise fails to elect to receive such benefits, the Director's Beneficiary
shall then be the first of the following persons who survives the Director:
(i) The Director's surviving spouse, if any;
(ii) If there is no surviving spouse, then the
Director's beneficiary shall be the Director's estate.
If there is a surviving spouse but she should die
prior to payment of all benefits due hereunder, then the remaining benefits
hereunder shall be administered and distributed as part of her estate.
The Committee (as hereinafter defined) will provide
each Director with a Beneficiary Designation Form on which the Director may
designate his Beneficiary. The Director may change his designated beneficiary
hereunder by filing written notice of such change with the Committee on the form
specified.
b. Benefit Schedule means the Schedule, attached as Exhibit"A"
and based on guaranteed net rate of return of thirteen percent (13%, pursuant to
which is determined the amount of Deferred Income Benefits to which each
Director is entitled under this Plan.
c. Binder Agreement means the Agreements, attached hereto and
composing Exhibit "B", by which each Director's pre-retirement Death Benefits
are established and each Director (by executive of his individual Binder
Agreement) acknowledges and agrees to certain terms related to such Death
Benefits.
d. Board of Directors means the Board of Directors of the Bank.
<PAGE>
e. Committee means the Committee appointed by the Board of
Directors to administer this Plan, as further described in Section 10 and other
provisions of this Plan.
f. Compensation means the fees payable by the Bank to a
Director for services rendered as a Director. "Compensation" shall include a
Director's retainer fees, regular meeting fees, and committee meeting fees. It
shall not include any compensation or benefits received by a Director as an
employee of the Bank.
g. Bank means the Bank and any successor by merger or
otherwise, as further addressed in Section 14 below.
h. Death Benefit means the Annual Death Benefit described in
Section 5 and as individually determined pursuant to the applicable Binder
Agreement included in Exhibit "B".
i. Deferral Period means the forty-eight (48) consecutive
month period to which a Director's election to defer payment of Compensation
applies, and which commences after the Committee's receipt and acceptance of the
Director's Deferred Election Form.
j. Deferred Income Benefit means the deferred benefit
described in Section 5 and as determined pursuant to Exhibit "A".
k. Director means a member of the Board of Directors of the
Bank, whether or not a full-time employee of the Bank.
l. Plan means this Plan, the Bank's Deferred Compensation Plan
for Director's (the "Plan").
3. Deferral Election.
a. A Director may defer payment of part or all of his
Compensation by filing a completed Deferral Election Form with the Committee
before the first day of the Deferral Period to which the election is to apply. A
Director may not defer less than One Thousand Dollars ($1,000) of Compensation
per Deferral Year (as defined below). A deferral shall apply to Compensation
that is payable to the Director for services rendered after the effective date
of the Deferral Election and after the Deferral Election Form is filed with and
accepted by the Committee. A Director may not elect to defer payment of
Compensation if the Director will have reached age 70 prior to or at the
beginning of the Deferral Period, except with the consent of the Committee,
which consent shall not be withheld if consistent with this Plan. The Committee
will provide Directors with Deferral Election Forms.
b. A Director may not terminate his Deferral Election during
a Deferral Period without the Committee's consent. A termination of a Deferral
Election shall be effective on or after
2
<PAGE>
the date on which the Committee consents to the termination and shall relate
only to Compensation payable for services rendered after the effective date to
such termination.
c. A Director must specify on his Deferral Election Form the
date on which payment of his deferred benefits hereunder will begin, which
commencement date shall be on or after the Director's seventieth (70th)
birthday, except if earlier only with the Committee's prior consent. Thereafter,
such payment date may be changed only with the Committee's prior consent and
such consent may be granted only if a different payment date is for reasons of
administrative convenience. No Director who is a member of the Committee may
vote on a matter regarding change in payment of his deferred benefits.
4. Change in Form of Benefit.
a. The Committee may require that a Director undergo a health
examination as a condition of accepting the Director's election to defer
Compensation. If a Director is not able to provide the Committee with evidence
of good health that is satisfactory to the Committee, then the Committee, in its
sole discretion, shall determine whether (i) the amount of the Director's
Deferred Income Benefits shall be actuarially adjusted to take into account the
condition of the Director's health, or (ii) the Director's Deferral Election
will not be accepted.
b. If, during a Deferral Period, for any reason other than his
death, a participating director in the Plan (i) ceases to be a Director, or (ii)
terminates his title to receive a Deferred Income Benefit with respect to his
Compensation previously deferred during the Deferral Period in which the
foregoing event occurs, (except that if a director is not re-elected to the
Board but continues to contribute the equivalent of the Compensation, with
Committee approval and in its sole discretion, he may be continued as a
participant without a change of form of benefit as herein provided). If the
above events occur and no exception is made, then the Director's sole
entitlement for the Deferral Period shall be to receive a Deferred Cash Benefit
equal to the amount of Compensation that was deferred during the Deferral
Period, plus interest, as if the Compensation had been credited when earned to a
book account. The interest rate applied to each bok account shall be equal to
the rate that would have been payable had the average balance credited to the
book account during the preceding calendar quarter been invested on the first
day of the quarter in a 6 month certificate of deposit of Irwin Bank and Trust
Company (or such other bank as the Committee may determine), issued in
denominations of $10,000. A Director's Deferred Cash Benefit shall be equal to
the amount credited to his book account.
5. Deferred Income Benefits, Death Benefits and Distributions.
a. Except as otherwise provided in Section 4, a Director who
has elected to defer Compensation shall be entitled to a Deferred Income Benefit
and/or a pre-retirement Death Benefit, based on the Benefit Schedule and
applicable Binder Agreement attached as Exhibits "A" and "B" hereto.
3
<PAGE>
b. A Deferral Period is a forty-eight consecutive month
period, or four periods of twelve consecutive months (each such period shall be
known as a "Deferral Year"). If the amount of Compensation deferred by a
Director during the second, third, or fourth Deferral Years exceeds or is less
than the amount of Compensation deferred during the first Deferral Year, then
the Deferred Income Benefit to which the Director shall be entitled with respect
to the Deferral Period shall be actuarially increased or decreased accordingly.
c. A Director shall be entitled to receive the sum of his
Deferred Income Benefits, determined separately with respect to each Deferral
Period, beginning on the date specified by the Director in his Deferral Election
form for such Deferral Period. If payment begins on a date other than the later
of (i) the Director's seventieth (70th) birthday, or (ii) upon the expiration of
the Deferral Period (in the case of a Deferral Period which will expire after
the Director attains seventy (70) years of age), the amount of the Director's
Deferred Income Benefit will remain the amount which would have been payable at
the later of the above two dates. The Deferred Income Benefits shall be paid in
ten (10) equal annual installments, unless the Committee, in its sole
discretion, determines another form of payment which is actuarially equivalent
to such ten-year payment.
d. If a Director who has elected to receive a Deferred Income
Benefit dies other than by suicide prior to his retirement age as set forth in
his applicable Binder Agreement included in Exhibit "B" hereto and before
payment of his Deferred Income Benefit has begun, in lieu of his Deferred Income
Benefit hereunder, his Beneficiary shall receive an Annual Death Benefit as set
forth in the Binder Agreement. The applicable Death Benefit shall be payable in
equal annual installments, unless the Committee, in its sole discretion,
determines another form of payment that is actuarially equivalent to such
ten-year payment. The Annual Payments for individual Directors shall be as set
forth in the Binder Agreements. The total Death Benefits payable shall be equal
to ten (10) years of Annual Payments or Annual Payments until the Director's
Retirement Age, whichever results in the greater total Death Benefit, except
that if the accumulation of principal and interest on the Director's Deferred
Income Benefit exceeds the Death Benefit payable under the above formula, as
applied to the factors applicable to an individual Director as set forth in his
Binder Agreement, then his Beneficiary shall receive an amount equal to the
Total Retirement Benefit in equal annual installments in lieu of the otherwise
applicable Death Benefit.
e. If a Director dies upon or after attaining his retirement
age, his Deferred Income Benefits per Exhibit "A" shall be paid to his
Beneficiary in the manner heretofore provided in lieu of any Death Benefits
hereunder. Where such death occurs after payment of his Deferred Income Benefit
has begun, regardless of the Director's age at the time of such death the
remaining installments of his Deferred Income Benefit will be paid to his
Beneficiary, per Exhibit "A", in lieu of any Death Benefits, for the balance of
the ten year period (or such other period as was fixed by the Committee when
payments began).
6. Natures of Bank's Obligation. The Bank's obligation under the Plan
shall be in the nature of an unfunded and unsecured promise to pay. The Bank
shall not be obligated under any circumstances to fund its financial obligation
sunder the Plan. The Bank may purchase a policy or
4
<PAGE>
policies of insurance on the lives of Directors and will be the owner,
beneficiary and premium payer of any such insurance policies, and neither the
Director nor his Beneficiary(s) shall have any ownership rights in such policies
or any proceeds thereof. Such policies are not earmarked for the payment of any
benefits under this Agreement, provided, however, that the Bank shall not be
required to pay any death benefits if a denial of insurance proceeds is based
upon suicide or pre- existing health conditions not accurately or completely
revealed by the Director. Any other assets which the Bank may acquire to help
cover its financial obligations also are and remain general assets of the Bank
subject to the claims of its creditors. The Bank does not give, nor does the
Plan or the Director (or his Beneficiary) receive, any beneficial ownership
interest in any asset of the Bank. All rights of ownership in any such assets
are and remain in the Bank.
7. Unsecured Promise. The rights of the Director and any designated
Beneficiary(ies) of the Director, or any other person claiming through the
Director under the Plan, shall be solely those of an unsecured general creditor
of the Bank. The Director, or the designated Beneficiary(ies) of the Director,
shall have the right to receive those payments specified under the Plan only
from the Bank, and has no right to look to any general or specific asset or
assets of the Bank, or any specific or special property separate from the Bank,
to satisfy a claim for benefit payments.
The Director agrees that he, his designated Beneficiary, or any other
person claiming through the Director shall have no rights or beneficial
ownership interests whatsoever in any general assets the Bank may acquire or use
to help support its financial obligations under the Plan.
Any such general assets used or acquired by the Bank in connection with
the liabilities it has assumed under the Plan shall not be deemed to be held
under any trust for the benefit of the Director or his designated Beneficiary,
nor shall any such general assets be considered security for the performance of
the obligations of the Bank. Any such asset or assets shall remain general,
unpledged, and unrestricted assets of the Bank.
The Director also understands and agrees that his participation in the
acquisition of any such general asset for the Bank shall not constitute a
representation to the Director, his designated Beneficiary, or any person
claiming through or under the Director, that any of them has a specific or
beneficial interest in such general asset or assets.
8. Independence of Benefits. The Benefits payable under the Plan shall
be independent of, and in addition to, any other benefits or compensation
payable under any other agreements that now exist or may hereafter exist from
time to time between the Bank and the Director. This Agreement shall not be
deemed to constitute a contract of employment between the parties hereto, nor
shall any provision hereof restrict the right of the Bank to dismiss the
Director, with or without cause, nor restrict the right of the Director to
terminate services with the Bank, nor restrict the rights of an employee
Director or the Bank in any way with respect to the employment relationship.
9. Nonassignable Rights. Neither the Director nor his Beneficiary shall
have the right to commute, sell, assign, transfer, or otherwise convey the right
to receive any payments hereunder,
5
<PAGE>
which payments and the rights thereto hereby are expressly declared to be
nonassignable and nontransferable.
10. Committee. The Board of Directors shall appoint a Committee to
administer the Plan. The members of the Committee may, but need not be,
Directors. The Committee shall establish the forms and procedures by which a
Director may make Deferral Elections under this Plan, and the Committee shall
have the complete authority and discretion to administer and interpret the Plan.
The Committee shall exercise its discretion according to its determination of
what is in the best interests of both the Bank and the Directors. No Director
shall have any power to direct how the Committee shall exercise its discretion.
All decisions of the Committee concerning the administration and interpretation
of this Plan shall be final, conclusive, and binding.
11. Claims Procedure.
a. Benefits shall be paid in accordance with the provisions of
this Plan. The Employee, or a designated recipient, or any other person claiming
through the Employee (hereinafter collectively referred to as the "Claimant")
shall make a written request for the benefits provided under this Plan. This
written claim shall be mailed or delivered to the Named Fiduciary specified in
Section 12 below.
b. If a claim is denied, either wholly or partially, notice of
the decision shall be mailed to the Claimant within a reasonable time period.
This time period shall not exceed 90 days after the receipt of the claim by the
Named Fiduciary.
c. The Named Fiduciary shall provide written notice to every
Claimant who is denied a claim for benefits under this Plan. The notice shall
set forth the following information:
(1) the specific reasons for the denial;
(2) the specific reference to pertinent Plan provisions
on which the denial is based on;
(3) a description of any additional material or
information necessary for the Claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(4) appropriate information and explanation of the
claims procedure under this Plan so as to permit the Claimant to submit his
claim for review.
d. The claims procedure under this Plan shall allow the
Claimant a reasonable opportunity to appeal a denial of claim and to receive
fair review of that decision by the Named Fiduciary, as follows:
6
<PAGE>
(1) The Claimant shall exercise his right of appeal
by submitting a written request for a review of the denied claim to the Named
Fiduciary. This written request for review must be submitted to the Named
Fiduciary not less than 60 days after receipt by the Claimant of the written
notice of denial.
(2) The Claimant shall have the following rights
under this appeal procedure:
(i) to request a review upon written
application to the Named Fiduciary;
(ii) to review any other pertinent documents
respecting the Plan;
(iii) to submit issues and comments in
writing;
(iv) to request an extension of time to make
a written submission
of issues and comments; and
(v) to request that a hearing be held to
consider Claimant's appeal.
e. The decision on the review of the denied claim
shall promptly be made by the Named Fiduciary.
(1) not more than 60 days after the receipt
of the request for review if no hearing is held; or
(2) not more than 120 days after the receipt
of the request for review, if an extension of time is necessary in order to hold
a hearing.
(i) If an extension of time is
necessary in order to hold a hearing, the Named Fiduciary shall give the
Claimant written notice of the extension of time and of the hearing. This notice
shall be given prior to any extension.
(ii) The written notice of
extension shall indicate that an extension of time will occur in order to hold a
hearing on Claimant's appeal. The notice also shall specify the place, date, and
time of that hearing and the Claimant's opportunity to participate in the
hearing. It also may include any other information the Named Fiduciary believes
relevant to the Claimant's appeal.
f. The decision to hold a hearing to consider the
Claimant's appeal of the denied claim shall be within the sole discretion of the
Named Fiduciary, whether or not the Claimant requests such a hearing.
7
<PAGE>
g. The Named Fiduciary's decision to review shall be
made in writing and provided to the Claimant within the specified time periods
in Section 11-d above. This written decision on review shall contain the
following information:
(1) the decision;
(2) the reasons for the decision; and
(3) specific references to the provisions
of the Plan on which the decision is based.
12. Named Fiduciary. The Bank is the "Named Fiduciary"
(as herein referenced) under this Plan.
13. Amendment and Termination. The Board of Directors shall
have the right, in its sole discretion, to modify this Plan from time to tome or
to terminate the Plan entirely; provided, however, that no such modification or
termination of the Plan shall divest any Director or his Beneficiary of benefits
hereunder to which the Director is entitled as of the date of such modification
or termination. If at any time the Federal income tax laws as applied to the
Plan make the income tax treatment of the Deferred Income Benefits and/or Death
Benefits substantially less favorable to the Bank and/or a Director that is
contemplated at the time this Plan is established, then a majority of the
members of the Board of Directors may, in their sole discretion, terminate the
Plan or direct the Committee to adjust the benefits accordingly, provided that
in no event shall the total benefits received by a Director and/or his
Beneficiary be less than the amount that would have bee paid had the Director
been entitled to receive, with respect to his deferred Compensation, a Deferred
Cash Benefit in lieu of a Deferred Income Benefit and/or a Death Benefit. The
Committee may adjust Deferred Income Benefits and/or death Benefits payable
pursuant to the authority granted herein. If the Plan is terminated, or if
benefits are adjusted pursuant to this Plan, the Committee may authorize a
Director's deferred benefits hereunder to be paid before the date specified on
the Director's Deferral Election Form.
14. Successor Obligations. This Agreement shall be binding upon and
inure to the benefit of the Bank, its successors and assigns, and the Director
and his heirs, executors, administrators and legal representatives. The Bank
shall not merge or consolidate with any bank or other third party ("entity"), or
reorganize, unless and until such succeeding or continuing entity agrees to
assume and discharge the obligations of the Bank under this Agreement.
15. Effective Date. This Plan shall be effective as of January 1,
1986.
16. Construction. This Plan is created, adopted, and maintained
pursuant to and in accordance with the laws of the Commonwealth of Pennsylvania,
except to the extent that those laws are superseded by, or in conflict with, the
laws of the United States of America. The headings and captions appearing in
this document are only for convenience and are not intended to have
8
<PAGE>
substantive meaning. If a provision of this Plan is at any time determined by a
court of law having jurisdiction to be unenforceable, such unenforceability
shall not affect any other provision of the Plan.
9
EXHIBIT 10.2
<PAGE>
AGREEMENT
---------
Agreement made this 16 day of December 1998, between IRWIN BANK & TRUST
CO. with its principal office in Irwin, Pennsylvania ("Irwin"), and J. CURT
GARDNER, an individual of Westmoreland County, Pennsylvania ("Gardner").
PREAMBLE
Gardner has been employed by Irwin for 36 years. Gardner has most
recently served as president of Irwin. Gardner has announced his retirement, and
Irwin has accepted same effective December 31, 1998. Therefore, the parties
hereto, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. GARDNER's RETIREMENT.
--------------------
The employment relationship between Gardner and Irwin shall
terminate and be of no further force or effect on December 31, 1998 with
Gardner's retirement from Irwin. Thereafter, Gardner will cease accruing time or
credit (vesting or otherwise) with respect to any type of Irwin related
retirement plan.
2. FUTURE PAYMENTS.
---------------
Irwin will pay Gardner the total sum of $100,000. These
payments will be paid on a monthly basis commencing with the effective date of
this Agreement with the first $2,000.00 payment due December 31, 1998 or within
ten (10) days thereafter and shall continue uninterrupted for a period of fifty
(50) consecutive months. Irwin will withhold appropriate federal, state and
local income taxes from these payments.
3. MEDICAL INSURANCE COVERAGE.
--------------------------
Irwin will provide Gardner and his wife with hospital and
major medical insurance coverage in accordance with the terms of such plans in
effect as of the execution date of this Agreement. Irwin shall provide this
coverage until Gardner and his spouse attain age 65.
4. EXPENSES.
--------
Irwin shall pay or reimburse Gardner or cause Gardner to be
paid or reimbursed, upon presentment of suitable vouchers, for all reasonable
business and travel expenses which may be incurred or paid by Gardner hereunder
so long as Gardner has obtained prior approval from the president of Irwin for
said expenses. Gardner shall comply with such restrictions and shall keep such
records as Irwin may deem necessary to meet the requirements of the Internal
Revenue Code and regulations promulgated thereunder.
<PAGE>
5. DIRECTORSHIPS.
-------------
(a) Gardner agrees to continue to serve as a director of
Irwin for as long as Gardner is permitted under Irwin's by-Laws.
(b) Gardner agrees to serve and/or to accept election and to
serve as a director of IBT Bancorp, Inc. ("IBTBI") for so long as he is
permitted under the By-Laws of IBTBI, if elected by the shareholders or
directors of IBTBI.
(c) As compensation for services rendered by Gardner as a
director of Irwin or IBTBI, Gardner shall be paid in accordance with the
director compensation schedule in effect at those institutions.
(d) During the term of this Agreement, Irwin will provide
Gardner with an office which shall be in the third floor office of Irwin's
offices in Irwin, Pennsylvania.
6. GARDNER'S DEATH.
---------------
In the event Gardner dies during the term of this Agreement,
Irwin shall continue to pay the balance of the payments due him as set forth in
2 to this wife, if living, otherwise to his estate, as well as continuing to pay
the hospital and major medical insurance coverage for Gardner's wife until she
attains age 65.
7. AMENDMENT OR ALTERATION.
-----------------------
No amendment or altercation of the terms of this Agreement
shall be valid unless made in writing and signed by both of the parties hereto.
8. GOVERNING LAW.
-------------
This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania applicable to agreements made and to be performed
therein.
9. SEVERITY.
--------
The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
10. NOTICES.
-------
Any notices required or permitted to be given hereunder shall
be sufficient if in writing, and if delivered by hand or courier, or sent by
certified mail, return receipt requested, to the addresses set forth below or
such other addresses as either party may from time to time designate in writing
to the other, and shall be deemed given as of the date of the delivery or at the
<PAGE>
expiration of three days in the event of a mailing.
Irwin Bank & Trust J. Curt Gardner
309 main Street 631 Turnpike Road
Irwin, PA 15642 North Huntingdon, PA 15642
11. WAIVER OR BREACH.
----------------
It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
12. ENTIRE AGREEMENT AND BINDING EFFECT.
-----------------------------------
This Agreement contains the entire agreement of the parties
with respect to the subject matter hereof, supersedes all prior agreements, both
written and oral, between the parties with respect to the subject matter hereof,
and shall be binding upon and inure to the benefit or the parties hereto and
their respective legal representatives, heirs, distributors, successors and
assigns.
13. FURTHER ASSURANCES.
------------------
The parties agree to execute and deliver all such future
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
14. HEADINGS.
--------
The Section headings appearing in this Agreement are for the
purposes of each reference and shall not be considered a part of this Agreement
or in any way modify, demand or affect its provisions.
EXHIBIT 10.3
<PAGE>
IRWIN BANK AND TRUST COMPANY
DEATH BENEFIT ONLY
DEFERRED COMPENSATION PLAN
FOR
BANK DIRECTORS
--------------
1. Purpose. The Irwin Bank and Trust Company, a Pennsylvania banking
corporation (hereinafter referred to as the "Bank"), hereby establishes the
Bank's Death Benefit Only Deferred Compensation Plan (hereinafter referred to as
the "Plan") for the members of its Board of Directors (hereinafter referred to
collectively as the "Directors" and individually as a "Director"), under which
(i) the Directors may defer a portion or all of the fees payable to them for
services rendered by them as Directors, and (ii) certain Death Benefits are
provided. A Director may, but need not be, a full-time employee of the Bank to
participate in this Plan.
2. Definitions.
A. Beneficiary: One or more individuals or entities
designated by a Director to receive the benefits provided under this Plan
payable by reason of the Director's death. If a Director makes no valid
designation, or if the designated Beneficiary(s) fails to survive the Director
or fails to elect to receive such benefits, then the Director's Beneficiary
shall be:
(i) The Director's surviving spouse, if any; or
(ii) If there is no surviving spouse, the Director's
estate.
If there is a surviving spouse, but he or she dies prior to payment of
all of the benefits due hereunder, then the remaining benefits due hereunder
shall be administered and distributed as part of his or her estate.
The Committee (as hereinafter defined) shall provide each Director with
a Beneficiary Designation Form on which the Director may designate his
Beneficiary(s). The Director may change his Designated Beneficiary(s) by filing
written notice of such change with the Committee on the form specified therefor.
B. Board of Directors: The Board of Directors of the Bank.
C. Committee: The committee appointed by the Board of
Directors to administer this Plan, as further described in Section 11 and other
provisions of this Plan.
D. Compensation: The fees payable by the Bank to a Director
for services
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rendered as a Director. "Compensation" shall include a Director's retainer fees,
regular meeting fees and committee meeting fees. It shall not include any
compensation or benefits received by a Director as an employee of the Bank.
E. Bank: The Irwin Bank and Trust Company and any successor by
merger, consolidation or otherwise.
F. Death Benefit: The annual death benefit described in
Section 5 of this Plan and as individually determined pursuant to the
Preliminary Agreements attached hereto as Exhibit "B".
G. Deferral Election. The election by a Director to Defer
Compensation under this Plan, which election my be made only on a Deferral
Election Form provided by the Committee, as provided in Section 4 hereof.
H. Deferral Period: The forty-eight (48) consecutive month
period to which a Director's election to defer payment of Compensation applies,
which commences after the Committee's receipt and acceptance of the Director's
Deferral Election Form.
I. Deferral Year: Each of the four (4) consecutive twelve
(12)-month periods during the Deferral Period.
J. Deferred Income Benefit: The deferred benefit described in
Section 6 of this Plan and as determined pursuant to the Schedule attached
hereto as Exhibit "A".
K. Preliminary Agreement: The Agreements, attached hereto as
Exhibit "A", by which each Director's preretirement Death Benefits are
established and each Director (by execution of his individual Preliminary
Agreement) acknowledges and agrees to certain terms related to such Death
Benefits.
L. Retirement Age. Seventy (70) years of age.
3. Director's Participation in Plan. A DIRECTOR MAY PARTICIPATE IN THIS
PLAN IF AND ONLY IF HE EXECUTES THE "ACKNOWLEDGMENT AND AGREEMENT TO
PARTICIPATE" ON THE LAST PAGE HEREOF. UNLESS AND UNTIL A DIRECTOR EXECUTES THE
SAID "ACKNOWLEDGMENT AND AGREEMENT TO PARTICIPATE," THE EXECUTION BY A DIRECTOR
OF ANY "PRELIMINARY AGREEMENT," "INTERIM DIRECTOR FEES DEFERRAL AGREEMENT" OR
ANY OTHER DOCUMENT SHALL NOT GIVE SUCH DIRECTOR ANY RIGHTS UNDER THIS PLAN.
4. Deferral Election.
A. Election. A Director may elect to defer payment of part or
all of his
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Compensation by filing a completed Deferral Election Form with the Committee
before the first day of the Deferral Period to which the election is to apply. A
Director may not defer less than One Thousand Dollars ($1,000) of Compensation
that is payable to the Director for services rendered after the effective date
of the Deferral Election and after the Deferral Election Form is filed with and
accepted by the Committee.
B. Deferral Election Forms. The Committee shall provide
Deferral Election Forms for use by the Directors in making their deferral
elections under this Plan. THE COMMITTEE SHALL NOT ACCEPT ANY OTHER FORM FOR A
DIRECTOR'S ELECTION TO DEFER COMPENSATION UNDER THIS PLAN.
C. Acceptance by Committee. A Director's completed Deferral
Election Form shall be deemed to have been accepted by the Committee if, within
sixty (60) days after the date on which the Committee receives it, the Committee
does not notify the Director, in writing, that the Deferral Election Form has
not been accepted.
D. Medical Examination. The Committee may require a Director
to undergo a medical examination as a condition of accepting the Director's
election to defer Compensation. If a Director is not able to provide the
Committee with evidence of good health that is satisfactory to the Committee,
then the Committee, in its sole discretion, shall determine whether or not to
accept the Director's Deferral Election.
E. Retirement Age Exception. A Director may not elect to defer
payment of Compensation if the Director will have attained Retirement Age (the
age of seventy (70) years) prior to or at the beginning of the Deferral Period,
except with the consent of the Committee, which consent shall not be withheld if
consistent with this Plan.
F. Termination of Deferral Election. A Director may not
terminate his Deferral Election during a Deferral Period without the Committee's
consent. A termination of a Deferral Election shall be effective on or after the
date on which the Committee consents to the termination and shall relate only to
Compensation payable for services rendered after the effective date of such
termination.
5. Death Benefits.
A. In General. If a Director dies, his Beneficiary shall be
paid the Director's Death Benefits in ten (10) equal annual installments as set
forth in the preliminary Agreement between such Director and the Bank that is
attached hereto as Exhibit "A", unless the Committee, in its sole discretion,
determines that the Director's Death Benefits should be paid in another form
that is actuarially equivalent to such ten (10)-year payment. If the Director
dies more than ten (10) years prior to attaining Retirement Age, such
actuarially equivalent form may include payment in equal annual installments
until the Director would have attained Retirement Age.
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<PAGE>
B. Change in Compensation Deferred. If the amount of
Compensation deferred by a Director during the second, third, or fourth Deferral
Year exceeds or is less than the amount of Compensation deferred during the
first Deferral Year, then the Death Benefit to which the Director shall be
entitled with respect to the Deferral Period shall be actuarially increased or
decreased accordingly.
6. Nature of Bank's Obligation. The Bank's obligation under the Plan
shall be in the nature of an unfunded and unsecured promise to pay. The Bank
shall not be obligated under any circumstances to fund its financial obligations
under the Plan. The Bank may purchase a policy or policies of insurance on the
lives of Directors and will be the owner, beneficiary and premium payer of any
such insurance policies, and neither the Director nor his Beneficiary(s) shall
have any ownership rights in such policies or any proceeds thereof. Such
policies are not earmarked for the payment of any benefits under this Agreement,
provided however that the Bank shall not be required to pay any death benefits
if a denial of insurance proceeds is based upon suicide or pre-existing health
conditions not accurately or completely revealed by the Director. Any other
assets which the Bank may acquire to help satisfy its financial obligations also
are and remain general assets of the Bank subject to the claims of its
creditors. The Bank does not give, nor does the Plan or the Director (or his
Beneficiary) receive, any beneficial ownership interest in any asset of the
Bank. All rights of ownership in any such assets are and remain in the Bank.
7. Unsecured Promise. The rights of the Director and any designated
Beneficiary(ies) of the Director, or any other person claiming through the
Director under this Plan, shall be solely those of an unsecured general creditor
of the Bank. The Director or the designated Beneficiary(ies) of the Director
shall have the right to receive those payments specified under the Plan only
from the Bank and has no right to look to any general or specific asset or
assets of the Bank or any specific or special property separate from the Bank to
satisfy a claim for benefit payments.
The Director agrees that he, his designated Beneficiary or any other
person claiming through the Director shall have no rights or beneficial
ownership interest whatsoever in any general assets that the Bank may acquire or
use to assist it in satisfying its financial obligations under the Plan.
Any such general assets used or acquired by the Bank in connection with
the liabilities it has assumed under the Plan shall not be deemed to be held
under any trust for the benefit of the Director or his designated
Beneficiary(ies), nor shall any such general assets be considered security for
the performance of any obligation of the Bank. Any such asset or assets shall
remain a general, unpledged and unrestricted asset(s) of the Bank.
The Director's participation, if any, in the acquisition of any such
general asset for the Bank shall not constitute a representation to the
Director, his designated Beneficiary or any person claiming through or under the
Director that any of them has a specific or beneficial
4
<PAGE>
interest in such general asset or assets.
8. Independence of Benefits. The Benefits payable under the Plan shall
be independent of and in addition to any other benefits or compensation payable
under any other agreement(s) that now or hereafter may exist from time to time
between the Bank and the Director. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Bank to dismiss the Director, with or
without cause, nor restrict the right of the Director to terminate his services
with the Bank, nor-restrict the rights of an employee Director or the Bank in
any way with respect to the employment relationship.
9. Nonassignable Rights. Except as expressly provided in this Plan,
neither the Director nor his Beneficiary shall have the right to commute, sell,
assign, transfer or otherwise convey the right to receive any payments
hereunder, which payments and the rights thereto hereby are expressly declared
to be nonassignable and nontransferable.
10. Committee. The Board of Directors shall appoint a Committee to
administer the Plan. The members of the Committee may, but need not be,
Directors. The Committee shall establish the forms and procedures by which a
Director may make Deferral Elections under this Plan, and the Committee shall
have the complete authority and discretion to administer and interpret the Plan.
The Committee shall exercise its discretion according to its determination of
what is in the best interests of both the Bank and the Directors. No Director
shall have any power to direct how the Committee shall exercise its discretion.
All decisions of the Committee concerning the administration and interpretation
of this Plan shall be final, conclusive and binding.
11. Claims Procedure.
A. Benefits shall be paid in accordance with the provisions of
this Plan. The Director, Beneficiary or any other person claiming through the
Director (hereinafter collectively referred to as the "Claimant") shall make a
written request for the benefits provided under this Plan. This written claim
shall be mailed or delivered to the Named Fiduciary identified in Section 13,
below.
B. If a claim is denied, either wholly or partially, notice of
the decision shall be mailed to the Claimant within a reasonable time period.
This time period shall not exceed ninety (90) days after the receipt of the
claim by the Named Fiduciary.
C. The Named Fiduciary shall provide written notice to every
Claimant who is denied a claim for benefits under this Plan. The notice shall
set forth the following information:
(1) the specific reasons for the denial;
5
<PAGE>
(2) the specific reference to pertinent Plan
provisions upon which the denial is based;
(3) a description of any additional material or
information necessary for the Claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(4) appropriate information and explanation of the
claims procedure under this Plan so as to permit the Claimant to submit his
claim for review.
D. The claims procedure under this Plan shall allow the
Claimant a reasonable opportunity to appeal a denial of claim and to receive
fair review of that decision by the Named Fiduciary, as follows:
(1) The Claimant shall exercise his right of appeal
by submitting a written request for a review of the denied claim to the Named
Fiduciary. This written request for review must be submitted to the Named
Fiduciary not less than sixty (60) days after receipt by the Claimant of the
written notice of denial.
(2) The Claimant shall have the following rights
under this appeal procedure:
(i) to request a review upon written
application to the Named Fiduciary;
(ii) to review any other pertinent documents
respecting the Plan;
(iii) to submit issues and comments in
writing;
(iv) to request an extension of time to make
a written submission of issues and comments; and
(v) to request that a hearing be held to
consider his appeal.
E. The decision on the review of the denied claim shall be
made promptly by the Named Fiduciary:
(1) not more than sixty (60) days after the receipt
of the request for review if no hearing is held; or
(2) not more than one hundred twenty (120) days
after the receipt of the request for review, if an extension of time is
necessary in order to hold a hearing.
6
<PAGE>
(i) If an extension of time is necessary
in order to hold a hearing, the Named Fiduciary shall give the Claimant written
notice of the extension of time and of the hearing.
(ii) The written notice of extension shall
indicate that an extension of time will occur in order to hold a hearing on
Claimant's appeal. The notice also shall specify the place, date, and time of
that hearing and the Claimant's opportunity to participate in the hearing. It
also may include any other information the Named Fiduciary believes relevant to
the Claimant's appeal.
F. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion of the Named
Fiduciary, whether or not the Claimant requests such a hearing.
G. The Named Fiduciary's decision to review shall be made in
writing and provided to the Claimant within the specified time periods in
section 12(D), above. This written decision on review shall contain the
following information:
(1) the decision;
(2) the reasons for the decision; and
(3) specific references to the provisions of the Plan
upon which the decision is based.
12. Named Fiduciary. The Bank is the "Named Fiduciary" (as herein
referenced) under this Plan.
13. Amendment and Termination. The Board of Directors shall have the
right, in its sole discretion, to modify this Plan from time to time or to
terminate the Plan entirely; provided, however, that no such modification or
termination of the Plan shall divest any Beneficiary of benefits to which such
Beneficiary is entitled as of the date of such modification or termination. If
at any time the Federal income tax laws as applied to the Plan make the income
tax treatment of the Death Benefits substantially less favorable to the Bank
and/or a Director than is contemplated at the time this Plan is established,
then a majority of the members of the Board of Directors may, in their sole
discretion, terminate the Plan or direct the Committee to adjust the benefits
accordingly. The Committee may adjust Death Benefits payable pursuant to the
authority granted herein.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Bank, its successors and assigns, and the Director and his
heirs and personal representatives.
7
<PAGE>
15. Successor Obligations. The Bank shall not merge or consolidate with
any bank or other third party ("entity"), or reorganize, unless and until such
succeeding or continuing entity agrees to assume and discharge the obligations
of the Bank under this Agreement.
16. Severability. If any provision of this Plan is construed by a court
or other tribunal of competent jurisdiction to be invalid, illegal or
unenforceable, then the remaining provisions hereof shall not be affected
thereby and shall be enforceable without regard thereto.
17. Headings. The headings and captions appearing in this document are
only for convenience only and are not intended to have substantive meaning.
18. Controlling Law. This Plan is made under, adopted and maintained
pursuant to and in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, except to the
extent that those laws are superseded by or are in conflict with the laws of the
United States of America.
19. Number and Gender. Regardless of the number and gender specifically
used, words used herein shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
20. Entire Plan. This document and the documents and instruments
executed pursuant hereto constitute the entire plan with respect to the subject
matter hereof and supersede all prior and contemporaneous agreements and
understandings, express or implied, oral or written, with respect to such
subject matter.
21. Effective Date. This Plan shall be effective as of the 1ST day of
January, 1990.
8
EXHIBIT 10.4
<PAGE>
IRWIN BANK AND TRUST COMPANY
RETIREMENT AND DEATH BENEFIT
DEFERRED COMPENSATION PLAN
FOR
BANK DIRECTORS
1. Purpose. The Irwin Bank and Trust Company, a Pennsylvania banking
corporation (hereinafter referred to as the "Bank"), hereby establishes the
Bank's Retirement and Death Benefit Deferred Compensation Plan (hereinafter
referred to as the "Plan") for the members of its Board of Directors
(hereinafter referred to collectively as the "Directors" and individually as a
"Director"), under which (i) the Directors may defer a portion or all of the
fees payable to them for services rendered by them as Directors, and (ii)
certain pre-retirement Death Benefits are provided. A Director may, but need not
be, a full-time employee of the Bank to participate in this Plan.
2. Definitions.
A. Beneficiary: One or more individuals or entities designated
by a Director to receive the benefits provided under this Plan payable by reason
of the Director's death. If a Director makes no valid designation, or if the
designated Beneficiary(s) fails to survive the Director of fails to elect to
receive such benefits, then the Director's Beneficiary shall be:
(i) The Director's surviving spouse, if any; or
(ii) If there is no surviving spouse, the
Director's estate.
If there is a surviving spouse, but he or she dies prior to payment of
all of the benefits due hereunder, then the remaining benefits due hereunder
shall be administered and distributed as part of his or her estate.
The Committee (as hereinafter defined) shall provide each Director with
a Beneficiary Designation Form on which the Director may designate his
Beneficiary(s). The Director may change his Designated Beneficiary(s) by filing
written notice of such change with the Committee on the form specified therefor.
B. Benefit-Schedule: The Schedule, attached hereto as Exhibit
"A" and based on a guaranteed net rate of return of eleven percent (11%),
pursuant to which is determined the Deferred Income Benefits to which each
Director is entitled under this Plan.
C. Board of Directors: The Board of Directors of the Bank.
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<PAGE>
D. Committee: The committee appointed by the Board of
Directors to administer this Plan, as further described in Section 11 and other
provisions of this Plan.
E. Compensation: The fees payable by the Bank to a Director
for services rendered as a Director. "Compensation" shall include a Director's
retainer fees, regular meeting fees and committee meeting fees. It shall not
include any compensation or benefits received by a Director as an employee of
the Bank.
F. Bank: The Irwin Bank and Trust Company and any successor by
merger, consolidation or otherwise.
G. Death Benefit: The Annual Death Benefit described in
Section 6 of this Plan and as individually determined pursuant to the
Preliminary Agreements attached hereto as Exhibit "B".
H. Deferral Election. The election by a Director to Defer
Compensation under this Plan, which election my be made only on a Deferral
Election Form provided by the Committee, as provided in Section 4 hereof.
I. Deferral Period: The forty-eight (48) consecutive month
period to which a Director's election to defer payment of Compensation applies,
which commences after the Committee's receipt and acceptance of the Director's
Deferral Election Form.
J. Deferral Year: Each of the four (4) consecutive twelve
(12)-month periods during the Deferral Period.
K. Deferred Income Benefit: The deferred benefit described in
Section 6 of this Plan and as determined pursuant to the Schedule attached
hereto as Exhibit "A".
L. Preliminary Agreement: The Agreements, attached hereto as
Exhibit "B", by which each Director's preretirement Death Benefits are
established and each Director (by execution of his individual Preliminary
Agreement) acknowledges and agrees to certain terms related to such Death
Benefits.
M. Retirement Age. Seventy (70) years of age.
3. Director's Participation in Plan. A DIRECTOR MAY PARTICIPATE IN THIS
PLAN IF AND ONLY IF HE EXECUTES THE "ACKNOWLEDGMENT AND AGREEMENT TO
PARTICIPATE" ON THE LAST PAGE HEREOF. UNLESS AND UNTIL A DIRECTOR EXECUTES THE
SAID "ACKNOWLEDGMENT AND AGREEMENT TO PARTICIPATE," THE EXECUTION BY A DIRECTOR
OF ANY "PRELIMINARY AGREEMENT," "INTERIM DIRECTOR FEES DEFERRAL AGREEMENT" OR
ANY OTHER DOCUMENT SHALL NOT GIVE SUCH DIRECTOR ANY RIGHTS UNDER THIS PLAN.
2
<PAGE>
4. Deferral Election.
A. Election. A Director may elect to defer payment of part or
all of his Compensation by filing a completed Deferral Election Form with the
Committee before the first day of the Deferral Period to which the election is
to apply. A Director may not defer less than One Thousand Dollars ($1,000) of
Compensation that is payable to the Director for services rendered after the
effective date of the Deferral Election and after the Deferral Election Form is
filed with and accepted by the Committee.
B. Deferral Election Forms. The Committee shall provide
Deferral Election Forms for use by the Directors in making their deferral
elections under this Plan. THE COMMITTEE SHALL NOT ACCEPT ANY OTHER FORM FOR A
DIRECTOR'S ELECTION TO DEFER COMPENSATION UNDER THIS PLAN.
C. Acceptance by Committee. A Director's completed Deferral
Election Form shall be deemed to have been accepted by the Committee if, within
sixty (60) days after the date on which the Committee receives it, the Committee
does not notify the Director, in writing, that the Deferral Election Form has
not been accepted.
D. Retirement Age Exception. A Director may not elect to defer
payment of Compensation if the Director will have attained Retirement Age (the
age of seventy (70) years) prior to or at the beginning of the Deferral Period,
except with the consent of the Committee, which consent shall not be withheld if
consistent with this Plan.
E. Benefit Commencement Date. A Director must specify on his
Deferral Election Form the date on which payment of his deferred benefits
hereunder will begin, which commencement date shall be on or after the
Director's seventieth (70th) birthday, unless the Committee consents, in
writing, to an earlier commencement date. Thereafter, such payment date may be
changed only with the Committee's prior written consent. Such consent shall be
granted only if a different commencement date is permitted for reasons of
administrative convenience. No Director who is a member of the Committee shall
vote on a matter regarding a change in the commencement date for payment of his
deferred benefits.
F. Termination of Deferral Election. A Director may not
terminate his Deferral Election during a Deferral Period without the Committee's
consent. A termination of a Deferral Committee consents to the termination of a
Deferral Committee consents to the termination and shall relate only to
Compensation payable for services rendered after the effective date of such
termination.
5. Change in Form of Benefit.
A. Medical Examination. The Committee may require a Director
to undergo a medical examination as a condition of accepting the Director's
election to defer
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<PAGE>
Compensation. If a Director is not able to provide the Committee with evidence
of good health that is satisfactory to the Committee, then the Committee, in its
sole discretion, shall determine whether (i) the amount of the Director's
Deferred Income Benefit shall be actuarially adjusted to take into account the
condition of the Director's health, or (ii) the Director's Deferral Election
will or will not be accepted.
B. Cessation of Directorship or Termination of Deferral
Election. If, during a Deferral period, for any reason other than his death, a
participating Director in the Plan (i) ceases to be a Director or (ii)
terminates his Deferral Election with the consent of the Committee, then the
Director shall not be entitled to receive a Deferred income Benefit with respect
to his Compensation previously deferred during the Deferral period in which
either of the two (2) aforesaid events occurs. Instead, the Director's sole
entitlement for the Deferral Period shall be to receive a Deferred Cash Benefit
which shall be an amount equal to the amount of Compensation that was deferred
during the Deferral period, plus interest, as if that Compensation had been
credited when earned to a bank account. The interest rate applied to each book
account shall be equal to the rate that would have been payable had t he average
balance credited to the book account during the preceding calendar quarter been
invested on the first day of the quarter in a six (6)-month certificate of
deposit of Irwin Bank and Trust Company, issued in denominations of $10,000 (or
such other interest rate as the Committee may determine). A Director's Deferred
Cash Benefit shall be equal to the amount credited to his book account.
6. Deferred Income Benefits; Death Benefits Distributions.
A. In General. Except as otherwise provided in Section 5 of
this Plan, a Director who has elected to defer Compensation shall be entitled to
a Deferred Income Benefit and/or a pre-retirement Death Benefit based upon the
applicable Benefit Schedules attached as Exhibits "A" and "B" hereto.
B. Change Deferred. If the amount of Compensation deferred by
a Director during the second, third, or fourth Deferral Year exceeds or is less
than the amount of Compensation deferred during the first Deferral Year, then
the Deferred Income Benefit to which the Director shall be entitled with respect
to the Deferral Period shall be actuarially increased or decreased accordingly.
C. Deferred Income Benefit. A Director shall be entitled to
receive the sum of his Deferred Income Benefits, determined separately with
respect to each Deferral Period, beginning on the date specified by the Director
in his Deferral Election form for such Deferral Period. If payment begins on a
date after the later of (i) the Director's seventieth (70th) birthday or (ii)
the expiration of the Deferral Period (in the case of a Deferral Period which
will expire after the Director attains Retirement Age), then the amount of the
Director's Deferred Income Benefit will remain the amount which would have been
payable at the later of the two (2) aforesaid dates. The Deferred Income
Benefits shall be paid in ten (10) equal annual installments, unless the
Committee, in its sole discretion, determines another form of payment
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<PAGE>
which is actuarially equivalent to such ten (10) year payment.
D. Pre-Retirement Death Benefit. If a Director who has elected
to receive a Deferred Income Benefit dies prior to attaining Retirement Age, as
set forth in his Preliminary Agreement included in Exhibit "B" attached hereto,
and before payment of his Deferred Income Benefit has commenced, then in lieu of
such Director's Deferred Income Benefit hereunder, his Beneficiary shall receive
an Annual Death Benefit as set forth in the Preliminary Agreement. The
applicable Death Benefit shall be payable in equal annual installments, unless
the Committee, in its sole discretion, determines that it should be paid in
another form of payment that is actuarially equivalent to such ten (l0)year
payment. The Annual Payment for each Director shall be as set forth in his
aforesaid Preliminary Agreement. The Total Death Benefits payable, as set forth
in the aforesaid Preliminary Agreement, shall be equal to ten (10) years of
Annual Payments, as set forth in the aforesaid Preliminary Agreement, or Annual
Payments until the Director's Retirement Age, whichever results in the greater
total Death Benefit, except that if the accumulation of principal and interest
with respect to the Director's Deferred Income Benefit exceeds the Death Benefit
payable under the above formula, as applied to the factors applicable to such
Director as set forth in his aforesaid Preliminary Agreement, then his
Beneficiary shall receive an amount equal to the Total Retirement Benefit, in
equal annual installments, in lieu of the otherwise applicable Death Benefit.
E. Post-Retirement Benefit in Event of Death. If a Director
dies upon or after attaining Retirement Age, his Deferred Income Benefits per
Exhibit "A" shall be paid to his Beneficiary in the manner heretofore provided
in lieu of any Death Benefits hereunder. If such death occurs after payment of
his Deferred Income Benefit has begun, then regardless of the Director's age at
the time of such death, the remaining installments of his Deferred Income
Benefit shall be paid to his Beneficiary, per Exhibit "A", in lieu of any Death
Benefits, for the balance of the ten (10) year period (or such other period as
was fixed by the Committee when payments began).
7. Nature of Bank's Obligation. The Bank's obligation under the Plan
shall be in the nature of an unfunded and unsecured promise to pay. The Bank
shall not be obligated under any circumstances to fund its financial obligations
under the Plan. The Bank may purchase a policy or policies of insurance on the
lives of Directors and will be the owner, beneficiary and premium payer of any
such insurance policies, and neither the Director nor his Beneficiary(s) shall
have any ownership rights in such policies or any proceeds thereof. Such
policies are not earmarked for the payment of any benefits under this Agreement,
provided however that the Bank shall not be required to pay any death benefits
if a denial of insurance proceeds is based upon suicide or pre-existing health
conditions not accurately or completely revealed by the Director. Any other
assets which the Bank may acquire to help satisfy its financial obligations also
are and remain general assets of the Bank subject to the claims of its
creditors. The Bank does not give, nor does the Plan or the Director (or his
Beneficiary) receive, any beneficial ownership interest in any asset of the
Bank. All rights of ownership in any such assets are and remain in the Bank.
5
<PAGE>
8. Unsecured Promise. The rights of the Director and any designated
Beneficiary(ies) of the Director, or any other person claiming through the
Director under this Plan, shall be solely those of an unsecured general creditor
of the Bank. The Director or the designated Beneficiary(ies) of the Director
shall have the right to receive those payments specified under the Plan only
from the Bank and has no right to look to any general or specific asset or
assets of the Bank or any specific or special property separate from the Bank to
satisfy a claim for benefit payments.
The Director agrees that he, his designated Beneficiary or any other
person claiming through the Director shall have no rights or beneficial
ownership interest whatsoever in any general assets that the Bank may acquire or
use to assist it in satisfying its financial obligations under the Plan.
Any such general assets used or acquired by the Bank in connection with
the liabilities it has assumed under the Plan shall not be deemed to be held
under any trust for the benefit of the Director or his designated
Beneficiary(ies), nor shall any such general assets be considered security for
the performance of any obligation of the Bank. Any such asset or assets shall
remain a general, unpledged and unrestricted asset(s) of the Bank.
The Director's participation, if any, in the acquisition of any such
general asset for the Bank shall not constitute a representation to the
Director, his designated Beneficiary or any person claiming through or under the
Director that any of them has a specific or beneficial interest in such general
asset or assets.
9. Independence of-Benefits. The Benefits payable under the Plan shall
be independent of and in addition to any other benefits or compensation payable
under any other agreement(s) that now or hereafter may exist from time to time
between the Bank and the Director. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Bank to dismiss the Director, with or
without cause, nor restrict the right of the Director to terminate his services
with the Bank, nor-restrict the rights of an employee Director or the Bank in
any way with respect to the employment relationship.
10. Nonassignable Rights. Except as expressly provided in this Plan,
neither the Director nor his Beneficiary shall have the right to commute, sell,
assign, transfer or otherwise convey the right to receive any payments
hereunder, which payments and the rights thereto hereby are expressly declared
to be nonassignable and nontransferable.
11. Committee. The Board of Directors shall appoint a Committee to
administer the Plan. The members of the Committee may, but need not be,
Directors. The Committee shall establish the forms and procedures by which a
Director may make Deferral Elections under this Plan, and the Committee shall
have the complete authority and discretion to administer and interpret the Plan.
The Committee shall exercise its discretion according to its determination of
what is in the best interests of both the Bank and the Directors. No Director
shall have any
6
<PAGE>
power to direct how the Committee shall exercise its discretion. All decisions
of the Committee concerning the administration and interpretation of this Plan
shall be final, conclusive and binding.
12. Claims Procedure.
A. Benefits shall be paid in accordance with the provisions of
this Plan. The Director, Beneficiary or any other person claiming through the
Director (hereinafter collectively referred to as the "Claimant") shall make a
written request for the benefits provided under this Plan. This written claim
shall be mailed or delivered to the Named Fiduciary identified in Section 13,
below.
B. If a claim is denied, either wholly or partially, notice of
the decision shall be mailed to the Claimant within a reasonable time period.
This time period shall not exceed ninety (90) days after the receipt of the
claim by the Named Fiduciary.
C. The Named Fiduciary shall provide written notice to every
Claimant who is denied a claim for benefits under this Plan. The notice shall
set forth the following information:
(1) the specific reasons for the denial;
(2) the specific reference to pertinent Plan
provisions upon which the denial is based;
(3) a description of any additional material or
information necessary for the Claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(4) appropriate information and explanation of the
claims procedure under this Plan so as to permit the Claimant to submit his
claim for review.
D. The claims procedure under this Plan shall allow the
Claimant a reasonable opportunity to appeal a denial of claim and to receive
fair review of that decision by the Named Fiduciary, as follows:
(1) The Claimant shall exercise his right of
appeal by submitting a written request for a review of the denied claim to the
Named Fiduciary. This written request for review must be submitted to the Named
Fiduciary not less than sixty (60) days after receipt by the Claimant of the
written notice of denial.
(2) The Claimant shall have the following rights
under this appeal procedure:
7
<PAGE>
(i) to request a review upon written
application to the Named Fiduciary;
(ii) to review any other pertinent
documents respecting the Plan;
(iii) to submit issues and comments in
writing;
(iv) to request an extension of time to
make a written submission of issues and comments; and
(v) to request that a hearing be held to
consider his appeal.
E. The decision on the review of the denied claim shall be
made promptly by the Named Fiduciary:
(1) not more than sixty (60) days after the
receipt of the request for review if no hearing is held; or
(2) not more than one hundred twenty (120) days
after the receipt of the request for review, if an extension of time is
necessary in order to hold a hearing.
(i) If an extension of time is necessary
in order to hold a hearing, the Named Fiduciary shall give the Claimant written
notice of the extension of time and of the hearing.
(ii) The written notice of extension shall
indicate that an extension of time will occur in order to hold a hearing on
Claimant's appeal. The notice also shall specify the place, date, and time of
that hearing and the Claimant's opportunity to participate in the hearing. It
also may include any other information the Named Fiduciary believes relevant to
the Claimant's appeal.
F. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion of the Named
Fiduciary, whether or not the Claimant requests such a hearing.
G. The Named Fiduciary's decision to review shall be made in
writing and provided to the Claimant within the specified time periods in
section 12(D), above. This written decision on review shall contain the
following information:
(1) the decision;
(2) the reasons for the decision; and
8
<PAGE>
(3) specific references to the provisions of the
Plan upon which the decision is based.
13. Named Fiduciary. The Bank is the "Named Fiduciary" (as herein
referenced) under this Plan.
14. Amendment and Termination. The Board of Directors shall have the
right, in its sole discretion, to modify this Plan from time to time or to
terminate the Plan entirely; provided, however, that no such modification or
termination of the Plan shall divest any Director or his Beneficiary of benefits
to which the Director or such Beneficiary is entitled as of the date of such
modification or termination. If at any time the Federal income tax laws as
applied to the Plan make the income tax treatment of the Deferred Income
Benefits and/or Death Benefits substantially less favorable to the Bank and/or a
Director than is contemplated at the time this Plan is established, then a
majority of the members of the Board of Directors may, in their sole discretion,
terminate the Plan or direct the Committee to adjust the benefits accordingly,
provided that in no event shall the total benefits received by a Director and/or
his Beneficiary be less than the amount that would have been paid had the
Director been entitled to receive, with respect to his deferred Compensation, a
Deferred Cash Benefit (as described in Section 5(B) of this Plan) in lieu of a
Deferred Income Benefit and/or a Death Benefit. The Committee may adjust
Deferred Income Benefits and/or Death Benefits payable pursuant to the authority
granted herein. If the Plan is terminated or if benefits are adjusted pursuant
to this Plan, the Committee may authorize a Director's deferred benefits
hereunder to be paid before the date specified on the Director's Deferral
Election Form.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Bank, its successors and assigns, and the Director and his
heirs and personal representatives.
16. Successor Obligations. The Bank shall not merge or consolidate with
any bank or other third party ("entity"), or reorganize, unless and until such
succeeding or continuing entity agrees to assume and discharge the obligations
of the Bank under this Agreement.
17. Severability. If any provision of this Plan is construed by a court
or other tribunal of competent jurisdiction to be invalid, illegal or
unenforceable, then the remaining provisions hereof shall not be affected
thereby and shall be enforceable without regard thereto.
18. Headings. The headings and captions appearing in this document are
only for convenience only and are not intended to have substantive meaning.
19. Controlling Law. This Plan is made under, adopted and maintained
pursuant to and in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, except to the
extent that those laws are superseded by or are in conflict with the laws of the
United States of America.
9
<PAGE>
20. Number and Gender. Regardless of the number and gender specifically
used, words used herein shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
21. Entire Plan. This document and the documents and instruments
executed pursuant hereto constitute the entire plan with respect to the subject
matter hereof and supersede all prior and contemporaneous agreements and
understandings, express or implied, oral or written, with respect to such
subject matter.
22. Effective Date. This Plan shall be effective as of the IST day of
January, 1990.
10
EXHIBIT 13
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Information
IBT Bancorp, Inc. & Subsidiary
At or for the Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Assets ......................................... $445,721 $412,366 $366,457 $331,416 $299,435
Cash and cash equivalents ...................... 19,264 43,396 27,700 24,853 20,202
Securities available for sale .................. 149,099 118,778 107,801 95,343 86,045
Securities held to maturity .................... -- 2,569 5,855 7,955 8,075
Loans receivable (net) ......................... 260,502 238,304 216,487 194,677 176,998
Deposits ....................................... 368,680 356,383 324,317 292,699 268,654
Repurchase agreements .......................... 6,457 -- -- -- --
Federal funds purchased ........................ 7,000 -- -- -- --
FHLB advances .................................. 22,000 14,000 4,000 4,000 --
Shareholders' equity ........................... 37,905 38,201 34,302 30,090 26,827
Selected Results of Operations:
Interest income .............................. $29,442 $27,528 $25,290 $22,695 $20,995
Net interest income .......................... 15,799 14,942 13,773 12,505 11,482
Provision for loans losses ................... 300 300 300 410 380
Net interest income after provision for loan
losses ................................... 15,499 14,642 13,473 12,095 11,102
Other income ................................. 3,052 2,333 1,792 1,471 1,276
Other expense ................................ 9,233 8,438 7,683 7,076 6,925
Net income ................................... 6,336 5,801 5,193 4,458 3,751
Per Share Data:
Net income
Basic .................................... $ 2.10 $ 1.92 $ 1.72 $ 1.47 $ 1.24
Diluted .................................. 2.10 1.92 1.72 1.47 1.24
Cash dividends declared ...................... .80 .64 .51 .42 .35
Selected Ratios:
Return on average assets ..................... 1.42% 1.47% 1.45% 1.37% 1.27%
Return on average equity ..................... 16.69 15.29 15.57 15.47 14.18
Ratio of average equity to average assets .... 8.53 9.60 9.30 8.86 8.92
Dividend payout .............................. 38.10 33.33 29.65 28.57 28.23
</TABLE>
-1-
<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, year 2000 issues 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.
Overview
IBT Bancorp, Inc. ("IBT Bancorp") is a bank holding company headquartered in
Irwin, Pennsylvania, which provides a full range of deposits, commercial and
retail banking services, and trust services through its wholly owned banking
subsidiary, Irwin Bank & Trust Co. (collectively, the "Company").
During the second quarter of 2000, IBT Bancorp and a third party plan to form
Irwin Bank Financial Services, LLC , which will offer insurance and investment
services to customers and the general public.
Financial Condition
At December 31, 1999, total assets increased $33.3 million, or 8.1%, to $445.7
million from $412.4 million at December 31, 1998. Of this increase, securities
available for sale increased $31.6 million, net loans receivable increased $22.2
million and cash and due from banks increased $8.4 million. Such increases were
primarily offset by a $25.4 million decrease in federal funds sold and a $7.1
million decrease in interest bearing deposits in banks.
In connection with a reassessment of the Company's asset/liability management
strategy, the Company did not maintain a portfolio of securities held to
maturity at December 31, 1999. Federal funds sold of $25.4 million and $10.0
million of long term debt (which consisted of Federal Home Loan Bank advances)
were used to take advantage of the lower interest rate environment by funding
purchases of securities available for sale. At December 31, 1999, securities
available for sale totaled $149.1 million as compared to $117.5 million at
December 31, 1998.
The growth in interest bearing deposits of $13.4 million and the decrease of
$7.1 million of interest -bearing deposits in banks were used primarily to fund
the growth in the loan portfolio. The increase in the loan portfolio was
primarily due to the growth of the fixed rate one- to four- family mortgage loan
and installment loan portfolios of $6.8 million and $9.6 million, respectively.
The Company's loan portfolio continues to grow due to the Company's offering of
competitive market interest rates.
Interest-bearing deposits increased $13.4 million to $311.6 at December 31, 1999
from $298.2 million at December 31, 1998. The most significant areas of increase
were in the Certificate of Deposit and IBMA Gold accounts which reached $168.9
million and $38.3 million at December 31, 1999, respectively, an increase of
$10.3 million and $6.6 million from $158.6 million and $31.7million at December
31, 1998, respectively. Customers continue to be attracted to these products due
to the competitive rates being offered.
-2-
<PAGE>
At December 31, 1999, federal funds purchased totaled $7.0 million. Such
advances were borrowed on an over-night basis and deposited into cash and cash
due from banks to meet potential year 2000 liquidity requirements.
Non-interest bearing deposits decreased $1.1 million to $57.1 million at
December 31, 1999 from $58.2 million at December 31, 1998. Such decreases
reflect additions to non-interest bearing deposits of $5.4 million offset by
$6.5 million in investments in repurchase products. During 1999, the Company
began to offer its corporate customers an investment product fashioned in the
form of a repurchase agreement. Under the terms of the agreement, deposits in
designated demand accounts of the customer are put into an investment vehicle
which is used daily to purchase an interest in designated U.S. Government or
Agencies' securities. The Company in turn agrees to repurchase these investments
on a daily basis and pay the customer the daily interest earned based on the
current market rate. At December 31, 1999, the amount of repurchase agreements
was $6.5 million. See Note 6 to the consolidated financial statements.
At December 31, 1999, total stockholders' equity decreased $300,000 to $37.9
million from $38.2 million at December 31, 1998. The decrease was primarily due
to a $4.1 million loss in accumulated other comprehensive income and dividends
paid of $2.4 million, offset by net income of $6.3 million for the period.
Additionally, on November 18, 1999, the Board of Directors approved a stock
repurchase plan. The Company repurchased approximately 2,600 shares of stock at
an average cost of approximately $33 a share. During fiscal 2000, based on the
availability, the Company plans to repurchase up to 148,000 of its shares.
Accumulated other comprehensive income decreased as a result of changes in the
net unrealized (loss) on the available for sale securities due to fluctuations
in interest rates. Pursuant to generally accepted accounting principles,
securities available for sale are recorded at current market value and net
unrealized gains or losses on such securities are excluded from current earnings
and reported net of income taxes, as part of comprehensive income, until
realized. Because of interest rate volatility, the Company's accumulated other
comprehensive income could materially fluctuate for each interim period and
year-end. The majority of the accumulated unrealized loss resulted from the
Company's investment in U.S. government agencies and mortgage backed securities.
The decrease in market value of the investment securities available for sale is
considered temporary in nature and will not affect the Company's net income
until the securities are sold. The Company plans to hold these securities until
maturity or until the market values of these securities increase.
Analysis of Net Interest Income
The Company's results of operations are primarily dependent on its net interest
income, which is the difference between the interest income earned on assets,
primarily loans and investments, and the interest expense on liabilities,
primarily deposits and borrowings. Net interest income may be affected
significantly by general economic and competitive conditions and policies of
regulatory agencies, particularly those with respect to market interest rates.
The results of operations are also influenced by the level of non-interest
expenses, such as employee salaries and benefits and other income, such as
loan-related fees and fees on deposit-related services.
-3-
<PAGE>
Results of Operations
Net income increased approximately $535,000, or 9.2%, to $6.3 million for the
year ended December 31, 1999 from $5.8 million for the year ended December 31,
1998. At December 31, 1998, net income increased approximately $600,000 or
11.5%, to $5.8 million from $5.2 million for the year ended December 31, 1997.
The increase in net income for 1999 and 1998 was primarily attributable to the
increases in the average balances of interest earning assets of $49.4 million
and $33.9 million, respectively.
Net Interest Income: Net interest income is the most significant component of
the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loan and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
Net interest income increased $900,000, or 6.0%,to $15.8 million for1999
compared to $14.9 million for 1998. The increase was primarily due to the
increase in average loans of $24.6 million and average investment securities
available for sale of $30.4 million coupled with a 27 basis point decrease in
average cost of funds to 4.15% for 1999 from 4.42% for 1998. The increase in
average loans and average investment securities available for sale were
partially funded by the increase in average interest bearing liabilities of
$43.7 million. Offsetting the increase in net interest income was a 46 basis
point decline in the yield on average interest earning assets to 7.22% for 1999
from 7.68% for 1998. The yield on average interest-earning assets declined for
1999 due to a decrease in yields on loans receivable to 7.84% for 1999 from
8.38% for 1998, which was the result of loans refinancing at lower rates.
Net interest income increased $1.1 million, or 8.0%, to $14.9 million for 1998
compared to $13.8 million for 1997. The increase was primarily due to the
increase for average loans of $21.6 million and the increase in average
investment securities available for sale of $12.8 million. Partially offsetting
the increase in net interest income was a 12 basis point decline in the yield on
average interest earning assets to 7.68% for 1998 from 7.80% for 1997. The yield
on average interest-earning assets declined for 1998 primarily due to a 27 basis
point decrease in yields on average investment securities available for sale to
6.67% for 1998 from 6.94% for 1997, which was the result of lower rates of
interest and dividends.
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.
-4-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- --------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)...................... $251,574 $19,711 7.84% $226,984 $19,019 8.38% $205,399 $17,420 8.48%
Investment securities available for
sale(2)................................ 144,544 9,195 6.36 114,078 7,606 6.67 101,301 7,035 6.94
Investment securities held to maturity... 1,208 36 2.98 3,228 143 4.43 7,443 293 3.94
Other interest-earning assets(3)......... 10,319 500 4.85 13,956 760 5.45 10,237 542 5.29
------- ------ ------ ------ ------- ------
Total interest earning assets.......... 407,645 29,442 7.22 358,246 27,528 7.68 324,380 25,290 7.80
Non-interest earning assets................. 18,655 19,033 18,140
------- ------- -------
Total assets........................... $426,300 $377,279 $342,520
======== ======= =======
Interest-bearing liabilities:
Money market accounts..................... $56,731 2,069 3.65 $ 47,023 1,864 3.96 $ 40,347 1,521 3.77
Certificates of deposit................... 162,668 8,418 5.17 149,598 8,322 5.56 140,039 7,851 5.61
Other liabilities......................... 109,061 3,157 2.89 88,180 2,400 2.72 81,233 2,145 2.64
------- ------ ------- ------ ------- -- -----
Total interest-bearing liabilities..... 328,460 13,644 4.15% 284,801 12,586 4.42% 261,619 11,517 4.40%
------ ------ ------
Non-interest-bearing liabilities............ 59,530 56,150 48,982
------ ------- -------
Total liabilities...................... 387,990 340,951 310,601
Retained earnings(4)........................ 38,310 36,328 31,919
------ ------- -------
Total liabilities and stockholders'
equity............................... $426,300 $377,279 $342,520
======== ======= =======
Net interest income......................... $15,798 $14,942 $13,773
====== ====== ======
Interest rate spread(5)..................... 3.07% 3.26% 3.40%
Net yield on interest-earning assets(6)..... 3.88% 4.17% 4.25%
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 124.11% 125.79% 123.99%
</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 (losses) gains on
available for sale 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.
-5-
<PAGE>
The following table shows the effect of changes in volumes and rates on interest
income and interest expense. The changes in interest income and interest expense
attributable to changes in both volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate. Tax
exempt income was not recalculated on a tax equivalent basis due to the
immateriality of the change to the table resulting from a recalculation.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
------------------------------- -------------------------------
199 vs. 1998 1998 vs. 1997
------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------ ------
Volume Rate Net Volume Rate Net
--------- --------- ------- ------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ..................... $ 2,060 $(1,368) $ 692 $ 1,831 $ (232) $ 1,599
Investment securities available for
sale .............................. 2,031 (442) 1,589 887 (316) 571
Investment securities held to maturity (89) (18) (107) (166) 16 (150)
Other interest earning assets ........ (198) (62) (260) 197 21 218
------- ------- ------- ------- ------- -------
Total interest-earning assets ..... 3,804 (1,890) 1,914 2,749 (511) 2,238
------- ------- ------- ------- ------- -------
Interest expense:
Money market accounts ................ 385 (180) 205 252 91 343
Certificates of deposit .............. 727 (631) 96 536 (65) 471
Other liabilities .................... 568 189 757 183 72 255
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 1,680 (622) 1,058 971 98 1,069
------- ------- ------- ------- ------- -------
Net change in interest income .......... $ 2,124 $(1,268) $ 856 $ 1,778 $ (609) $ 1,169
======= ======= ======= ======= ======= =======
</TABLE>
Provision for Loan Losses: The Company recorded a provision for loan losses of
$300,000 for 1999, 1998, and 1997. 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 higher yielding loans (i.e., equity loans, multifamily
(five or more units) buildings, and commercial (non-residential mortgages).
Although the Company maintains its allowance for loan losses at a level that it
considers to be adequate to provide for the inherent risk of loss in its loan
portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods due to the higher degree of credit risk which might
result from the change in the mix of the loan portfolio.
Other Income: Total other income increased approximately $800,000, or 34.8%, to
$3.1 million for the year ended December 31, 1999 from $2.3 million for the year
ended December 31, 1998. This increase was primarily the result of overdraft
service charges on deposit accounts, a larger deposit base, and ATM surcharges
assessed on non-customers of Irwin Bank. The Company began to assess ATM
surcharges in January 1999. Service fees and loan fees increased $400,000 to
$1.8 million for 1999 from $1.4 million for 1998. Other income increased
$300,000 to $1.2 million for 1999 from $900,000 for 1998.
-6-
<PAGE>
For the year ended December 31, 1998, total other income increased approximately
$500,000, or 27.8%, to $2.3 million from $1.8 million for the year ended
December 31, 1997. This increase was primarily the result of overdraft service
charges on deposit accounts, a larger deposit base, gains on sales of loans, and
net investment security gains. Loan fees and service charges increased
approximately $300,000 to $1.4 million for 1998 from $1.1 million for 1997. Net
security gains (losses) increased $65,000 to $40,000 for 1998 from ($25,000) for
1997. Other income increased $162,000 to $863,000 for 1998 from $701,000 for
1997, primarily due to the recognition of $48,000 in gains on sale of loans
originated for sale.
Other Expenses: Total other expenses increased approximately $800,000, or 9.5%,
to $9.2 million for 1999 from $8.4 million for 1998. This increase was the
result of pension and other employee benefits increasing $176,000 to $995,000
for 1999 from $819,000 for 1998. During 1999, pension expense increased due to
the Company's change in accrual assumptions regarding the funding of the plan.
ATM expense increased $49,000 to $348,000 for 1999 from $299,000 for 1998 due to
the increase of seven additional automated teller machines during fiscal 1998.
Other expenses increased $500,000 to $2.8 million for 1999 from $2.3 million for
1998, primarily as a result of normal costs in running a public company. It
should be noted that salaries remained relatively unchanged in 1999 as compared
to1998, primarily due to the retirement on January 1, 1999 of two key officers
of the Company.
Total other expenses increased approximately $700,000, or 9.1%, to $8.4 million
for 1998 from $7.7 million for 1997. This increase was mainly due to an increase
in compensation and employee benefits of $355,000 to $4.4 million for 1998 from
$4.0 million for 1997, as a result of an increase in the staff of the Company.
Data processing fees and ATM expenses increased $52,000 and $32,000 to $505,000
and $299,000, respectively for 1998 from $453,000 and $267,000, respectively for
1997. These increases for 1998 were mainly due to the addition of three new
supermarket branch locations and seven additional automated teller machines.
Year 2000
The Company relies on computers to conduct its business and information systems
processing. Industry experts were concerned that on January 1, 2000, some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking industry experts remain concerned that some computers
may not be able to interpret additional dates in the year 2000 properly. The
Company has operated and evaluated its computer operating systems following
January 1, 2000 and has not identified any errors or experienced any computer
system malfunctions. The Company will continue to monitor its information
systems to assess whether its systems are at risk of misinterpreting any future
dates and will develop, if needed, appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers.
However, it is too soon to conclude that there will not be any problems arising
from the Year 2000 problem. The Company will continue to monitor its significant
vendors of goods and services and customers with respect to any Year 2000
problems they may encounter, as those issues may effect the Company's ability to
continue operations, or might adversely affect its financial position, results
of operations and cash flows. At this time, the Company does not believe that
these potential problems will materially impact the ability to continue its
operations or effect its financial statements. Any delays, mistakes, or failures
could have a significant impact on the Company's financial condition and
profitability.
-7-
<PAGE>
Liquidity And Capital Resources
The Company's primary sources of funds includes savings, deposits, loan
repayments and prepayments, cash flow from operations and borrowing from the
Federal Home Loan Bank. The Company uses its capital resources principally to
fund loan origination and purchases, repay maturing borrowings, purchase
investments, and for short-term liquidity needs. The Company expects to be able
to fund or refinance, on a timely basis, its commitments and long-term
liabilities. As of December 31, 1999, the Company had commitments to extend
credit of $51.9 million.
The Company's liquid assets consist of cash and cash equivalents, which include
investments in short-term investments. The level of these assets are dependent
on the Company's operating financing and investment activities during any given
period. At December 31, 1999, cash and cash equivalents total $19.2 million.
Net cash from operating activities for 1999 totaled $6.4 million, as compared to
$5.7 million for 1998 and $6.1 million for 1997.
Net cash used by investing activities for 1999 totaled $61.8 million, as
compared to cash used of $30.1 million for 1998 and $32.3 million for 1997. The
increase of $31.7 million for 1999 was mainly attributed to net increases in
purchases of available for sale securities. Net cash used to purchase available
for sale securities for 1999 totaled $32.5 million. The decrease of $2.2 million
for 1998 was mainly attributed to a net decrease in purchases of investment
securities available for sale. Net cash used to purchase investment securities
totaled $7.4 million for 1998 compared to cash used of $9.4 million for 1997.
Net cash from financing activities for the year ended December 31, 1999 totaled
$31.2 million, as compared to cash from financing activities of $40.1 million
for 1998 and $29.1 million for 1997. The $8.8 million decrease in cash from
financing activities for 1999 was a result of a $19.8 million decrease in
deposits and repayment of $2.0 million in long term debt. Offsetting such
decrease was the introduction of securities sold under agreements to repurchase
totaling $6.5 million and federal funds purchased which totaled $7.0 million for
the year ended December 31, 1999. The $11.0 million increase in cash from
financing activities for 1998 was a result of net increases in deposits of $1.5
million and long term Federal Home Loan Bank advances of $10.0 million for 1998.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable, based in part on
the Company's commitment to make loans and management's assessment of the
Company's ability to generate funds. The Company is also subject to federal
regulations that impose certain minimum capital requirements.
-8-
<PAGE>
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending, investment and deposit taking activities. The Company's
profitability is affected by fluctuations in interest rates. A sudden and
substantial increase in interest rates may adversely impact the Bank's earnings
to the extent that the interest rates borne by assets and liabilities do not
change at the same speed, to the same extent or on the same basis. To that end,
management actively monitors and manages its interest rate risk exposure.
The principal objective of the Company's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements, and performance
objectives, and mange the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Company seeks to minimize the
vulnerability of its operations to changes in interest rates. The Company's
Board of Directors reviews the interest rate risk position monthly. The
Company's Asset/Liability Committee is comprised of the Company's senior
management under the direction of the Board of Directors, with senior management
responsible for reviewing with the Board of Directors its activities and
strategies, the effect of those strategies on the Company's net interest margin,
the market value of the portfolio and the effect that changes in interest rates
will have on the Company's portfolio and the Company's exposure limits.
The Company utilizes the following strategies to manage interest rate risk:
o when market conditions permit, to originate and hold in its portfolio
adjustable rate loans;
o sell fixed rate mortgage loans that conform to Federal National
Mortgage Association guidelines when sales can be achieved on terms
favorable to the Company;
o lengthen the maturities of its liabilities when deemed cost effective
through the utilization of Federal Home Loan Bank advances;
o purchase mortgage-backed securities for the available for sale
securities portfolio with cash flows that can be reinvested in higher
earning instruments when interest rates rise; and
o generally, maintain securities in the available for sale portfolio that
are short term to offset the risk of long term fixed rate mortgage
loans in a rising rate environment.
-9-
<PAGE>
The following table shows the Company's financial instruments that are sensitive
to changes in interest rates, categorized by expected maturity or repricing
maturity, and the instruments' fair values at December 31, 1999. Market risk
sensitive instruments are generally defined as those instruments that can be
adversely impacted by changes in market interest rates. The Company currently
does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments, but may do so in the future to mitigate interest rate risk.
.Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets, no prepayments are assumed. For interest bearing liabilities, negotiable
order of withdrawal ("NOW") accounts, money market accounts, and similar
interest bearing demand accounts are subject to immediate withdrawal or
repricing and are therefore presented in the earliest period in the table.
Expected Maturity/Principal Repayment at December 31,
<TABLE>
<CAPTION>
Total Book Fair
2000 2001 2002 2003 2004 Thereafter Fair Value
-------- -------- -------- -------- -------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Mortgage loans ............. $ 12,121 $ 6,479 $ 6,505 $ 6,339 $ 6,624 $ 92,280 $130,348 $129,163
Home equity loans,
second mortgage
loans, student loans,
credit cards, other
loans .................... 21,246 11,689 10,427 8,941 6,557 20,166 79,026 80,225
Commercial loans,
municipal loans .......... 22,607 3,963 3,346 2,530 1,953 19,242 53,641 51,011
Investment securities
available for sale ....... 1,398 12,044 14,143 8,098 10,111 108,121 153,915 149,099
Interest-bearing liabilities
NOW and other
transaction accounts ..... 30,963 -- -- -- -- -- 30,963 30,974
Money market and
other savings
accounts ................. 111,688 -- -- -- -- -- 111,688 111,860
Certificates of
deposits ................. 114,991 20,001 11,114 13,475 4,305 5,045 168,931 169,312
Federal home loan
bank of Pittsburgh
advances ................. -- 2,000 -- -- 10,000 10,000 22,000 20,186
</TABLE>
-10-
<PAGE>
EDWARDS Certified Public Accountants A Professional Corporation
LEAP & ----------------------------------------------------------------------
SAUER 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, 1999 and 1998 and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended Decmeber 31,
1999. These consolidated financial statements are the responsibliity 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, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/Edwards, Leap & Sauer
Pittsburgh, Pennsylvania
February 1, 2000
-11-
<PAGE>
CONSOLIDATED BALANCE SHEETS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks .................................................. $ 19,171,977 $ 10,767,316
Interest-bearing deposits in banks ....................................... 92,590 7,196,998
Federal funds sold ....................................................... -- 25,432,000
Certificates of deposit .................................................. 3,000,000 --
Securities available for sale ............................................ 149,098,906 117,469,947
Securities held to maturity (Market value of
$2,554,545 at December 31, 1998) .................................... -- 2,569,215
Federal Home Loan Bank stock, at cost .................................... 1,964,300 1,308,100
Loans, net ............................................................... 260,502,270 238,304,491
Premises and equipment, net .............................................. 4,728,702 4,879,133
Other assets ............................................................. 7,162,670 4,438,743
------------- -------------
Total Assets ................................................................... $ 445,721,415 $ 412,365,943
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing ................................................ $ 57,097,999 $ 58,208,466
Interest-bearing .................................................... 311,582,486 298,174,672
------------- -------------
Total deposits ...................................................... 368,680,485 356,383,138
Repurchase agreements .................................................... 6,456,597 --
Federal funds purchased .................................................. 7,000,000 --
Accrued interest and other liabilities ................................... 3,679,053 3,781,876
Long-term debt ........................................................... 22,000,000 14,000,000
------------- -------------
Total liabilities ........................................................ 407,816,135 374,165,014
Stockholders' Equity
Capital stock, par value $1.25, 50,000,000 shares authorized,
shares issued, 3,021,174 and 3,023,799 shares outstanding at December
31, 1999 and December 31, 1998, respectively ........................ 3,779,749 3,779,749
Surplus .................................................................. 2,073,102 2,073,102
Retained earnings ........................................................ 35,318,637 31,401,922
Accumulated other comprehensive income ................................... (3,178,596) 946,156
------------- -------------
37,992,892 38,200,929
Less: Treasury stock, at cost ........................................... (87,612) --
------------- -------------
Total stockholders' equity ............................................... 37,905,280 38,200,929
------------- -------------
Total Liabilities and Stockholders' Equity ..................................... $ 445,721,415 $ 412,365,943
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-12-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income
Loans ................................ $ 19,711,127 $ 19,019,181 $ 17,419,848
Investment securities ................ 9,231,496 7,748,537 7,328,166
Federal funds sold ................... 499,811 760,495 541,950
------------ ------------ ------------
Total interest income ................ 29,442,434 27,528,213 25,289,964
Interest Expense
Deposits ............................. 12,473,855 12,174,469 11,270,826
Long-term debt ....................... 974,405 411,647 246,440
Repurchase agreements ................ 195,328 -- --
------------ ------------ ------------
Total interest expense ............... 13,643,588 12,586,116 11,517,266
------------ ------------ ------------
Net Interest Income .......................... 15,798,846 14,942,097 13,772,698
Provision for Loan Losses .................... 300,000 300,000 300,000
------------ ------------ ------------
Net Interest Income after Provision .......... 15,498,846 14,642,097 13,472,698
for Loan Losses
Other Income (Losses)
Service fees ......................... 1,786,055 1,430,426 1,116,493
Net investment security gains (losses) 23,507 40,411 (24,890)
Other income ......................... 1,242,698 862,674 701,154
------------ ------------ ------------
Total other income ................... 3,052,260 2,333,511 1,792,757
Other Expenses
Salaries ............................. 3,566,947 3,573,257 3,249,465
Pension and other employee benefits .. 994,960 818,669 787,345
Occupancy expense .................... 949,662 903,112 847,073
Data processing expense .............. 535,108 505,484 452,899
ATM expense .......................... 348,414 298,843 267,071
FDIC insurance ....................... 40,332 38,206 35,988
Other expenses ....................... 2,797,538 2,300,531 2,043,339
------------ ------------ ------------
Total other expenses ................. 9,232,961 8,438,102 7,683,180
------------ ------------ ------------
Income Before Income Taxes ................... 9,318,145 8,537,506 7,582,275
Provision for Income Taxes ................... 2,982,391 2,736,576 2,388,759
------------ ------------ ------------
Net income ................................... $ 6,335,754 $ 5,800,930 $ 5,193,516
============ ============ ============
Net Income per Share of Capital Stock ........ $ 2.10 $ 1.92 $ 1.72
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-13-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
--------------- ---------------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
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 Comprehensive
Income............. 5,748,058
Cash dividends............... (1,536,000) (1,536,000)
--------------- ---------------- ---------------- ---------------- -------- ----------------
Balance at
December 31, 1997............ $ 1,200,000 $ 2,400,000 $ 29,792,223 $ 909,635 - $ 34,301,858
Comprehensive Income
Net income............... 5,800,930 5,800,930
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income tax of
$43,853.............. 85,127 85,127
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$25,039.............. (48,606) (48,606)
--------------
36,521
--------------
Total Comprehensive
Income............. 5,837,451
Cash dividends............... (1,938,380) (1,938,380)
5% stock dividend............ 59,916 2,192,935 (2,252,851)
Three-for-one stock split.... 2,519,833 (2,519,833)
------------- ---------------- ---------------- ---------------- -------- ----------------
Balance at
December 31, 1998............ $ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-14-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------------------------
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----------------- ----------------- ------------------ ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998..........$ 3,779,749 $ 2,073,102 $ 31,401,922 $ 946,156 $ - $ 38,200,929
Comprehensive Income
Net income............. 6,335,754 6,335,754
Other comprehensive
income, net of tax:
Change in net
unrealized holding
gains on securities
available for sale,
net of deferred
income benefit of
$2,034,128......... (3,948,601) (3,948,601)
Less: reclassification
adjustment, net of
deferred income
tax benefit of
$90,744............ (176,151) (176,151)
-------------
(4,124,752)
-------------
Total Comprehensive
Income........... 2,211,002
Cash dividends............. (2,419,039) (2,419,039)
Purchase of Treasury Stock. (87,612) (87,612)
----------------- ----------------- ------------------ ----------------- ------------ ---------------
Balance at
December 31, 1999..........$ 3,779,749 $ 2,073,102 $ 35,318,637 $ (3,178,596) $ (87,612) $ 37,905,280
================= ================= ================== ================= ============ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-15-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 6,335,754 $ 5,800,930 $ 5,193,516
Adjustments to reconcile net cash
from operating activities:
Depreciation ............................................ 499,068 482,000 422,349
Net amortization/accretion of
premiums and discounts .................................. 20,934 971 21,528
Net investment security (gains) losses .................. (23,507) (40,411) 24,890
Provision for loan losses ............................... 300,000 300,000 300,000
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets ............................................ (599,055) (770,061) (117,583)
Accrued interest and other liabilities .................. (102,823) (56,069) 227,984
------------ ------------ ------------
Net Cash From Operating Activities ............................ 6,430,371 5,717,360 6,072,684
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in certificate of deposit .................... (3,000,000) -- --
Proceeds from sales of securities available for sale .... 7,579,149 2,166,459 5,542,274
Proceeds from maturities of securities held to maturity . 2,569,215 3,285,760 2,099,919
Proceeds from maturities of securities available for sale 50,293,783 48,173,553 32,334,987
Purchase of securities available for sale ............... (95,748,942) (61,085,311) (49,392,205)
Net loans made to customers ............................. (22,497,779) (22,117,884) (22,109,893)
Purchases of premises and equipment ..................... (348,637) (433,875) (633,603)
Purchase of Federal Home Loan Bank stock ................ (656,200) (137,400) (149,000)
------------ ------------ ------------
Net Cash Used By Investing Activities ......................... (61,809,411) (30,148,698) (32,307,521)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ................................ 12,297,347 32,065,713 30,617,935
Net increase in securities sold
under agreements to repurchase .......................... 6,456,597 -- --
Federal funds purchased ................................. 7,000,000 -- --
Dividends ............................................... (2,419,039) (1,938,380) (1,536,000)
Proceeds from long-term debt ............................ 10,000,000 10,000,000 --
Repayment of long-term debt ............................. (2,000,000) -- --
Purchase of treasury stock .............................. (87,612) -- --
------------ ------------ ------------
Net Cash From Financing Activities ............................ 31,247,293 40,127,333 29,081,935
------------ ------------ ------------
Net Change in Cash and Cash Equivalents ....................... (24,131,747) 15,695,995 2,847,098
Cash and Cash Equivalents at Beginning
of Year ....................................................... 43,396,314 27,700,319 24,853,221
------------ ------------ ------------
Cash and Cash Equivalents at End of Year ...................... $ 19,264,567 $ 43,396,314 $ 27,700,319
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-16-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest .............................. $ 13,736,652 $ 12,629,351 $ 11,145,980
Income taxes .......................... $ 2,987,643 $ 2,716,954 $ 2,281,582
NON CASH TRANSACTIONS
Recorded unrealized (losses) gains
on securities available for sale
at December 31......................... $ (4,816,056) $ 1,433,568 $ 1,378,233
Deferred income (benefit) taxes on recorded
unrealized (losses) gains on securities
available for sale at December 31 ..... $ (1,637,460) $ 487,412 $ 468,598
Loans transferred to foreclosed real estate
during the year ....................... $ 211,410 $ 178,548 $ 7,200
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
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company
whose principal activity is the ownership and management of its wholly owned
subsidiary, Irwin Bank and Trust Company (the Bank). The Bank is a full service
state chartered commercial banking institution and provides a variety of
financial services to individuals and corporate customers through its five
branch offices, a loan center, four supermarket branches and main office located
in Southwestern Pennsylvania. The Bank's primary deposit products are
non-interest and interest-bearing checking accounts, savings accounts and
certificates of deposit. Its primary lending products are single-family and
multi-family residential loans, installment loans and commercial loans.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation. IBT Bancorp, Inc. transacts no other
material business.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Investment Securities: All investments in debt and equity securities are to be
classified into three categories. Securities which management has positive
intent and ability to hold until maturity are classified as held to maturity.
Securities held to maturity are stated at cost, adjusted for amortization of
premium and accretion of discount computed on a level yield basis. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities. All other securities are classified
as available for sale securities. Unrealized holding gains and losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management has no intention of establishing a trading securities
classification.
Interest and dividends on securities are reported as interest income. Gains and
losses realized on sales of securities represent the differences between net
proceeds and carrying values determined by the specific identification method.
Loans and Allowance for Loan Losses: Loans are stated at unpaid principal
balances, less the allowance for loan losses and net deferred loan fees and
unearned discounts.
Unearned discounts on certain loans are recognized as income over the term of
the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance for loan losses is maintained at a level which, in management's
judgement, is adequate to absorb potential losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans generally are
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on nonaccrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed currently. Cost of major additions or improvements are
capitalized.
Other Real Estate Owned (OREO): Real estate acquired in satisfaction of a loan
and in-substance foreclosures are reported in other assets. In-substance
foreclosures are properties in which a borrower, with little or no equity in the
collateral, effectively abandons control of the property or has no economic
interest to continue involvement in the property. The borrower's ability to
rebuild equity based on current financial conditions also is considered
doubtful. Properties acquired by foreclosure or deed in lieu of foreclosure and
properties classified as in-substance foreclosures are transferred to OREO and
recorded at the lower of cost or fair value less estimated costs to sell. Costs
to maintain the assets, subsequent write-downs to reflect declines in the fair
value of the property and subsequent gains and losses attributable to their
disposal are included in other income and expenses.
Income Taxes: The Bancorp uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established, when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities. The Bancorp files consolidated Federal
income tax returns with its subsidiary.
Earnings per Share: Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. The weighted average shares
outstanding, giving retroactive effect of the stock dividend and stock split,
described in Note 17, was $3,023,770, $3,023,799 and $3,023,799 for the years
ended December 31, 1999, 1998, and 1997, respectively.
Cash Equivalents: For purposes of the Statements of Cash Flows, the Bancorp
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. The Bancorp considers all cash and
amounts due from depository institutions, interest-bearing deposits in other
banks, except certificates of deposit with maturities of more than three months,
and federal funds sold to be cash equivalents for purposes of the statements of
cash flows.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification of Prior Year's Statements: - Certain previously reported items
have been reclassified to conform to the current year's classifications. The
reclassifications have no effect on total assets, total liabilities and
stockholders' equity, or net income.
NOTE 2 -- INVESTMENT SECURITIES
Investment securities available for sale consist of the following:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Obligations of
U.S. Government Agencies $ 93,081,432 $ - $ (2,337,153) $ 90,744,279
Obligations of State and
political sub-divisions 10,855,620 3,791 (323,614) 10,535,797
Mortgage-backed securities 49,245,605 - (2,240,851) 47,004,754
Other securities 577,895 5,713 - 583,608
Equity securities 154,410 76,058 - 230,468
--------------------- -------------------- ------------------- --------------------
$ 153,914,962 $ 85,562 $ (4,901,618) $ 149,098,906
===================== ==================== =================== ====================
</TABLE>
<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>
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
Investment securities held to maturity consist of the following at December 31,
1998. All of these securities matured during 1999.
<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>
Gross realized gains and losses on calls and sales of available-for-sale
securities were:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Gross realized gains:
U.S. Treasury securities.................................. $ 21,143 $ - $ -
Obligations of U.S. Government Agencies................... 9,790 58,191 8,108
Obligations of state and political sub-divisions.......... - 3,121 -
Mortgage-backed securities................................ 22,261 - -
------------------- ------------------ --------------------
$ 53,194 $ 61,312 $ 8,108
=================== ================== ====================
Gross realized losses:
Obligations of U.S. Government Agencies................... $ 29,687 $ - $ -
Mortgage-backed securities................................ - 20,901 32,998
------------------- ------------------ --------------------
$ 29,687 $ 20,901 $ 32,998
=================== ================== ====================
</TABLE>
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 1999, 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.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of the investment securities
available for sale at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
---------------------- ------------------------
<S> <C> <C>
Due in one year or less.............................................. $ 1,398,360 $ 1,393,322
Due after one year through five years................................ 44,396,393 43,639,538
Due after five years through ten years............................... 39,721,291 38,791,345
Due after ten years, includes equity securities...................... 68,398,918 65,274,701
---------------------- ------------------------
$ 153,914,962 $ 149,098,906
====================== ========================
</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 level of assets, residential real estate loans and
outstanding FHLB advances. At December 31, 1999 and 1998, the Bank held
$1,964,300 and $1,308,100, respectively, of FHLB stock.
NOTE 3 -- LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1999 1998
-------------------- ----------------------
<S> <C> <C>
Mortgage............................................................. $ 130,347,599 $ 123,494,185
Home equity credit................................................... 8,885,737 8,588,588
Installment.......................................................... 61,983,558 52,418,443
Commercial........................................................... 47,293,848 45,232,281
PHEAA................................................................ 6,166,194 5,043,415
Municipal............................................................ 6,346,773 3,615,536
Credit cards......................................................... 1,780,360 1,807,547
Other................................................................ 210,097 476,655
---------------------- ------------------------
263,014,166 240,676,650
Less:
Unearned discount - 46
Allowance for loan losses...................................... 2,365,874 2,228,214
Deferred loan fees............................................. 146,022 143,899
---------------------- ------------------------
$ 260,502,270 $ 238,304,491
====================== ========================
</TABLE>
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 3 -- LOANS (CONTINUED)
At December 31, 1999 and 1998, the total recorded investment in impaired loans
amounted to approximately $150,000 and $13,000, respectively. The allowance for
loan losses related to impaired loans amounted to approximately $22,500 and
$2,000 at December 31, 1999 and 1998, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997
------------------- ----------------- ----------------
<S> <C> <C> <C>
Balance, beginning of year................................ $ 2,228,214 $ 2,340,283 $ 2,239,598
Provision charged to operations........................... 300,000 300,000 300,000
Loans charged off......................................... (175,436) (526,117) (207,270)
Recoveries................................................ 13,096 114,048 7,955
------------------- ----------------- ----------------
Balance, end of year...................................... $ 2,365,874 $ 2,228,214 $ 2,340,283
=================== ================= ================
</TABLE>
NOTE 4 -- PREMISES AND EQUIPMENT
Premises and equipment which are stated at cost are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
------------------- -----------------
<S> <C> <C>
Land............................................. $ 450,466 $ 450,466
Buildings and improvements....................... 4,814,040 4,814,040
Furniture and equipment.......................... 4,320,561 3,971,924
------------------- -----------------
9,585,067 9,236,430
Less: Accumulated depreciation 4,856,365 4,357,297
------------------- -----------------
$ 4,728,702 $ 4,879,133
=================== =================
</TABLE>
Depreciation expense was $ 499,068 in 1999, $482,000 in 1998 and $422,349
in 1997.
Seven of the Bank's branch office buildings and/or land are leased by the
Bank. These leases have initial terms of 1 to 20 years, and all contain
renewal options for additional years.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)
The following is a summary of the future minimum lease payments under these
operating leases:
For the year ended December 31,
2000 $ 138,700
2001 140,238
2002 120,150
2003 103,105
2004 and thereafter 723,081
-------------
$ 1,225,274
=============
Rental expense under these operating leases was $130,780, $100,700 and $83,650
for the years ended December 31, 1999 , 1998, and 1997, respectively.
NOTE 5 -- DEPOSITS
Time deposits maturing in years ending December 31, as of December 31, 1999 are
summarized as follows:
2000 $ 114,990,595
2001 20,334,043
2002 11,113,817
2003 13,475,158
2004 and thereafter 9,042,123
---------------
$ 168,955,736
===============
The Bank held related party deposits of approximately $4,541,000 and $3,134,000
at December 31, 1999 and 1998, respectively.
The Bank held time deposits that exceeded $100,000 of $34,132,826 and
$23,584,545 at December 31, 1999 and 1998, respectively.
NOTE 6 -- REPURCHASE AGREEMENT
During 1999, the Bank began offering its corporate customers an investments
product fashioned in the form of a repurchase agreement. Under the terms of the
agreement, deposits in designated demand accounts of the customer are put into
an investment vehicle which is used daily to purchase an interest in designated
U.S. Government or Agencies' securities owned by the Bank. The Bank in turn
agrees to repurchase these investments on a daily basis and pay the customer the
daily interest earned on them. At December 31, 1999, the amount of repurchase
agreements was $6,456,597.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 7 -- PLEDGED ASSETS
At December 31, 1999 and 1998, assets carried at $43,250,000 and $42,000,000,
respectively, were pledged to qualify for fiduciary powers, to secure public
monies as required by law, for repurchase agreements, and for other purposes.
NOTE 8 -- INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Currently payable............................... $ 3,012,368 $ 2,618,602 $ 2,388,935
Deferred tax (benefit).......................... (29,977) 117,974 (176)
------------------- ----------------- ------------------
Total........................................... $ 2,982,391 $ 2,736,576 $ 2,388,759
=================== =================== ==================
</TABLE>
The significant components of temporary differences for 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Provision for loan losses....................... $ (46,906) $ 38,201 $ (34,233)
Depreciation.................................... (5,387) 10,559 20,576
Valuation allowance............................. 553 550 8,621
Pension......................................... 38,301 67,732 (3,461)
Deferred loan fees.............................. (722) 10,222 13,346
Other........................................... (15,816) (9,290) (5,025)
------------------- ------------------- ------------------
Total........................................... $ (29,977) $ 117,974 $ (176)
=================== =================== ==================
</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>
Years Ended December 31,
--------------------------------------------------------------
% of Pretax Income
--------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- ----------------
<S> <C> <C> <C>
Provision at statutory rate...................... 34.0 % 34.0 % 34.0 %
Effect of tax free income........................ (2.0) (2.0) (2.7)
Other............................................ - .1 .2
---------------------- -------------------- ----------------
Effective tax rate............................... 32.0 % 32.1 % 31.5 %
====================== ==================== ================
</TABLE>
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 8 -- INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of December 31,1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- --------------------------------------
Deferred Tax Deferred Tax
------------------------------------------- --------------------------------------
Assets Liabilities Assets Liabilities
------------------- --------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Provision for loan losses.............. $ 600,205 $ - $ 553,299 $ -
Depreciation........................... - 169,192 - 174,579
Pension expense........................ - 36,339 1,962 -
Other.................................. 168,216 - 152,231 -
SFAS 115............................... 1,637,460 - - 487,412
------------------- --------------------- ------------------ -----------------
$ 2,405,881 $ 205,531 $ 707,492 $ 661,991
=================== ===================== ================== =================
</TABLE>
NOTE 9 -- LONG-TERM DEBT
At December 31, 1999, the Bank had the following advances from the Federal Home
Loan Bank (FHLB).
Amount Interest Rate Maturity Date
------------------- ---------------------------------- ----------------
$ 2,000,000 5.88% Fixed March 13, 2001
10,000,000 5.86% Fixed w/Strike Rate July 22, 2004
5,000,000 5.63% Fixed to Float July 21, 2008
5,000,000 4.86% Fixed to Float October 23, 2008
-------------------
$ 22,000,000
===================
Interest only is payable until maturity on all long-term debt. Collateral for
all debt includes all qualifying mortgages.
As of December 31, 1998, the Bank has a line of credit with FHLB of
approximately $11,671,000. During 1999 the FHLB discontinued offering lines of
credit. In addition, the Bank has maximum borrowing capacity with FHLB of
approximately $136,547,000 and $131,856,000 at December 31, 1999 and 1998,
respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Bank maintained one non-contributory defined benefit pension plan for its
employees prior to 1995 (Plan #1). In 1995, various plan assumptions were
changed which resulted in a reduction in benefits for older and long-standing
employees. To compensate for this, a supplemental non-qualified plan was
installed for those employees so affected (Plan #2). The Bank's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes for Plan #1. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future. Assets for the plans were primarily invested in U.S.
Government obligations, corporate obligations and equity securities whose
valuations are subject to fluctuations of the securities' market.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following is a summary of the plans as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year ......................... $ 2,279,047 $ 1,986,373
Service cost .................................................... 180,192 160,189
Interest cost ................................................... 158,453 137,966
Actuarial loss due to settlement ................................ 128,760 --
Benefits paid ................................................... (19,100) (18,667)
Plan settlement ................................................. (840,928) --
Other - net ..................................................... (120,733) 13,186
----------- -----------
Benefit obligation at end of year ......................... $ 1,765,691 $ 2,279,047
=========== ===========
Change in Fair Value of Plan Assets:
Plan assets at estimated
fair value at beginning of year ........................... $ 2,510,141 $ 2,207,486
Actual return on plan assets .................................... 177,449 177,907
Plan settlement ................................................. (840,928) --
Benefits paid ................................................... (19,100) (18,667)
Employer contributions .......................................... 188,679 143,415
----------- -----------
Fair value of plan assets at end of year .................. $ 2,016,241 $ 2,510,141
=========== ===========
Funded status ................................................... $ 250,550 $ 231,094
Unrecognized net loss from actuarial experience ................. 149,953 134,196
Unrecognized prior service cost ................................. (256,748) (275,010)
Unamortized net asset existing at date of adoption of SFAS No. 87 (73,879) (80,912)
Settlement ...................................................... (17,717) --
----------- -----------
Prepaid (accrued) pension cost ............................ $ 52,159 $ 9,368
=========== ===========
</TABLE>
Net pension expense included the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period.......... $ 180,192 $ 160,189 $ 134,087
Interest cost on projected benefit obligation............. 158,453 137,966 115,502
Actual return on plan assets.............................. (177,449) (177,907) (244,191)
Net amortization and deferral............................. (33,025) (6,042) 81,491
------------------ ------------------ -------------------
Net periodic pension cost................................. $ 128,171 $ 114,206 $ 86,889
================== ================== ===================
</TABLE>
The projected benefit obligation was determined using an assumed discount rate
of 7.0% for 1999 and 1998 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 1999
and 1998.
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The Bank also maintains non-qualified deferred compensation plans for certain
directors, which are generally funded by life insurance, the premiums of which
have been paid for by the Bank. The present value of these benefits to be paid
under the programs is being accrued over the estimated remaining service period
of the participants. The liability for these future obligations was $447,836 and
$402,945 at December 31, 1999 and 1998, 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 1999, 1998 and
1997 amounted to $42,228, $42,753 and $37,677, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments and
certain contingent liabilities which are not reflected in the accompanying
financial statements. These commitments and contingent liabilities represent
financial instruments with off-balance-sheet risk. The contract or notional
amounts of those instruments were comprised of commitments to extend credit
approximating $51,851,000 and $41,445,000, as of December 31, 1999 and 1998,
respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance-sheet instruments. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. The terms are typically for a one year period, with an
annual renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements.
The Bancorp and Bank are involved in various legal actions from normal business
activities. Management believes that the liability, if any, arising from such
actions will not have a material adverse effect on the Bancorp and Bank's
financial position.
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 12 -- RELATED-PARTY TRANSACTIONS
At December 31, 1999 and 1998, certain officers and directors of the Bancorp and
the Bank, and companies in which they have beneficial ownership, were indebted
to the Bank in the aggregate amount of approximately $5,651,000 and $6,950,000,
respectively. During 1999, new loans to such related parties were approximately
$1,986,000 and repayments approximated $3,285,000.
NOTE 13 -- CONCENTRATION OF CREDIT
The Bank primarily grants loans to customers in Western Pennsylvania, and
maintains a diversified loan portfolio and the ability of its debtors to honor
their contracts is not substantially dependent on any particular economic
business sector. A substantial portion of the Bank's investments in municipal
securities are obligations of state or political subdivisions located within
Pennsylvania. As a whole, the Bank's loan and investment portfolios could be
affected by the general economic conditions of Pennsylvania. In addition, at
December 31, 1999 and 1998, 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 $3,627,000 and $33,077,000 at December
31, 1999 and 1998, respectively.
NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and cash equivalents: The carrying amount is a reasonable estimate of fair
value.
Certificates of deposit: The carrying amounts of these short term investments
approximate their fair value.
Investment securities: The fair value of securities is equal to the available
quoted market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
Federal Home Loan Bank stock: The carrying value of the FHLB stock is a
reasonable estimate of fair value due to restrictions on the securities.
Loans receivable: For certain homogeneous categories of loans, fair value is
estimated using the quoted market prices for securities backed by similar loans
adjusted for differences in loan characteristics. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers for the same remaining
maturities.
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Short term borrowings: The carrying amounts of federal funds purchased and
borrowings under repurchase agreements are short term borrowings and approximate
their fair values.
Long term debt: The fair value of long term debt (FHLB advances) was determined
using a discounted cash flow analysis based on current FHLB advance rates for
advances with similar maturities.
The estimated fair value of the Bancorp's financial instruments as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
--------------------- ---------------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents............ $ 19,264,567 $ 19,264,567
Certificates of deposit.............. $ 3,000,000 $ 3,000,000
Investment securities................ $ 149,098,906 $ 149,098,906
Federal Home Loan Bank Stock......... $ 1,964,300 $ 1,964,300
Loans receivable..................... $ 260,502,270 $ 260,399,319
Financial liabilities:
Deposits............................. $ 368,680,485 $ 369,243,833
Short term borrowings................ $ 13,456,597 $ 13,456,597
Long term debt....................... $ 22,000,000 $ 20,186,433
</TABLE>
The market values of investments, which are based upon quoted market prices are
contained in Note 2.
NOTE 15 -- REGULATORY MATTERS
The Bank is subject to legal limitations on the amount of dividends that can be
paid to the Bancorp. The Pennsylvania Banking Code restricts the payment of
dividends, generally to the extent of its retained earnings.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 15 -- REGULATORY MATTERS (CONTINUED)
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below, of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1999 and 1998, that the Bank meets all capital adequacy
requirements to which it is subjected.
The Bank's actual capital ratios as of December 31, 1999 and 1998, the minimum
ratios required for capital adequacy purposes, and the ratios required to be
considered well capitalized under the Federal Deposit Insurance Corporation
Improvement Act of 1991 provisions are as follows:
<TABLE>
<CAPTION>
December 31, Minimum Well
----------------------------- Capital Capitalized
1999 1998 Requirements Requirements
------------- ------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Risk-based capital ratio 16.5% 16.4% 8.0% 10.0% or higher
Leverage capital ratio 9.0% 9.2% 3.0% to 4.0% 5.0% or higher
Tier 1 risk-based capital ratio 15.6% 15.4% 4.0% 6.0% or higher
</TABLE>
Included in cash and due from banks are required federal reserves of $5,033,000
and $4,403,000 at December 31, 1999 and 1998, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances. These reserves are held in the form of due from banks.
NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption of this Statement, the transfer of any held to
maturity security into either the available for sale or trading category and the
transfer of any available for sale security into the trading category. Transfers
from the held to maturity portfolio at the date of initial adoption will not
call into question the entity's intent to hold other debt securities to maturity
in the future. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, as amended by FASB No. 137, and is not
expected to have any impact on the Bank. The Bank does not intend to adopt SFAS
No. 133 earlier than required.
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 17 -- CAPITAL STOCK
In January 1998, the Bancorp declared a 5% stock dividend to stockholders of
record at January 15, 1998, payable February 2, 1998. Fractional shares were
paid for in cash, totaling $3,149. The Bancorp issued 47,933 shares of capital
stock in conjunction with this dividend. In addition, on December 28, 1998, the
Bancorp declared a three-for-one stock split on the Bancorp's capital stock,
which was effected in the form of a 200 percent stock dividend.
Two additional shares were issued for each share of capital stock held by
shareholders of record as of the close of business on January 6, 1999. New
shares were distributed on January 29, 1999. Capital stock and surplus as of
December 31, 1998 have been restated to reflect this split. Par value will
remain unchanged at $1.25. The number of shares issued at December 31, 1998,
after giving effect to the split was 3,023,799 (1,007,933 shares issued before
the split). The effect of the stock split has been retroactively reflected as of
December 31, 1998 in the consolidated balance sheet and statement of changes in
stockholders' equity, but prior periods were not restated in those statements.
All references to the number of shares and per share amounts elsewhere in the
consolidated financial statements and related footnotes have been restated as
appropriate to reflect the effect of the split for all periods presented.
NOTE 18 -- TREASURY STOCK
In December 1999, the Bancorp repurchased 2,625 shares of its stock for $87,612
and is being held as treasury stock at December 31, 1999.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
Quarters ended 1999
--------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Interest income $7,020,239 $7,090,176 $7,538,273 $7,793,746
Interest expense 3,228,619 3,189,554 3,547,337 3,678,078
---------- ---------- ---------- ----------
Net interest income 3,791,620 3,900,622 3,990,936 4,115,668
Provision for loan
losses 45,000 45,000 105,000 105,000
Non-interest income 661,019 740,595 806,822 843,824
Non-interest expense 2,099,755 2,257,533 2,329,841 2,545,832
---------- ---------- ---------- ----------
Income before income
taxes 2,307,884 2,338,684 2,362,917 2,308,660
Income tax expense 741,114 747,492 760,121 733,664
---------- ---------- ---------- ----------
Net income $1,566,770 $1,591,192 $1,602,796 $1,574,996
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.52 $ 0.52 $ 0.53 $ 0.53
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 3,023,799 3,023,799 3,023,799 3,023,684
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Quarters ended 1998
-----------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income $6,692,189 $6,837,205 $6,905,949 $7,092,870
Interest expense 3,048,949 3,089,614 3,149,389 3,298,164
---------- ---------- ---------- ----------
Net interest income 3,643,240 3,747,591 3,756,560 3,794,706
Provision for loan losses 105,000 105,000 75,000 15,000
Non-interest income 503,300 567,213 609,828 653,170
Non-interest expense 2,048,583 1,989,057 2,149,467 2,250,995
---------- ---------- ---------- ----------
Income before income
taxes 1,992,957 2,220,748 2,141,921 2,181,881
Income tax expense 617,516 718,261 694,622 706,177
---------- ---------- ---------- ----------
Net income $1,375,441 $1,502,487 $1,447,299 $1,475,704
========== ========== ========== ==========
Net income per Share of
Capital Stock $ 0.45 $ 0.50 $ 0.48 $ 0.49
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 3,023,799 3,023,799 3,023,799 3,023,799
========== ========== ========== ==========
</TABLE>
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 20 -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for IBT Bancorp, Inc. as of December 31,
1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997 is as
follows:
BALANCE SHEETS
December 31,
-------------------------
1999 1998
----------- -----------
ASSETS
Cash in bank................................ $ 770 $ 629
Investment in subsidiary.................... 36,975,372 37,184,369
Securities available for sale............... 733,363 826,348
Other assets................................ 221,634 221,634
----------- -----------
Total Assets................................ $37,931,139 $38,232,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................. $ 25,859 $ 32,051
Stockholders' Equity........................ 37,905,280 38,200,929
----------- -----------
Total Liabilities and Stockholders' Equity.. $37,931,139 $38,232,980
=========== ===========
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income
Dividends from subsidiary................... $2,500,000 $2,100,000 $1,700,000
Other dividends............................. 33,586 32,157 25,062
Expenses
Professional fees........................... 84,781 20,979 13,668
Miscellaneous............................... 16,786 14,729 11,060
---------- ---------- ----------
Income Before Income Taxes
and Equity in Undistributed.................
Earnings of Subsidiary...................... 2,432,019 2,096,449 1,700,334
Equity in Undistributed
Earnings of Subsidiary...................... 3,903,735 3,704,481 3,493,182
---------- ---------- ----------
Net Income........................................ $6,335,754 $5,800,930 $5,193,516
========== ========== ==========
</TABLE>
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IBT BANCORP, INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 6,335,754 $ 5,800,930 $ 5,193,516
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in cash due to changes
in assets and liabilities:
Equity in undistributed earnings
of subsidiary................... (3,903,735) (3,704,481) (3,493,182)
Other assets...................... -- -- (28,822)
----------- ----------- -----------
Net Cash From Operating Activities.................. 2,432,019 2,096,449 1,671,512
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of securities available
for sale................................... 74,773 -- --
Purchase of securities available for sale..... -- (158,861) (135,663)
Dividends paid................................ (2,419,039) (1,938,380) (1,536,000)
Purchase of Treasury Stock.................... (87,612) -- --
----------- ----------- -----------
Net Cash Used by Financing Activities............... (2,431,878) (2,097,241) (1,671,663)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents............. 141 (792) (151)
Cash and Cash Equivalents at Beginning
of Year....................................... 629 1,421 1,572
----------- ----------- -----------
Cash and Cash Equivalents at End of Year............ $ 770 $ 629 $ 1,421
=========== =========== ===========
</TABLE>
-35-
<PAGE>
IBT Bancorp, Inc.
Corporate Profile
IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation, is the
bank holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank
is the principal subsidiary of the Company. During the second quarter of 2000,
the Company and a third party plan to form Irwin Bank Financial Services, LLC ,
which will offer insurance and investment services to customers and the general
public.
Irwin Bank & Trust Company was incorporated in 1922 under the laws of
Pennsylvania as a commercial bank. The Bank is headquartered in Irwin,
Pennsylvania and conducts business through 8 full service branches, 4
supermarket branches, and a loan office, in the Pennsylvania counties of
Westmoreland and Allegheny. Irwin Bank is a diversified financial services
institution providing a broad range of deposits, commercial and retail banking
services, as well as trust services to consumers and businesses. Deposits in
Irwin Bank are insured by the Federal Deposit Insurance Corporation to
applicable limits.
Stock Market Information
The Company's common stock is listed on the OTC Bulletin Board under
the symbol "IBTB". As of February 25, 2000, IBT Bancorp had 650 shareholders of
record and 3,003,003 shares of common stock issued and outstanding. The number
of shareholders does not reflect persons or entities who hold their stock in
nominee or "street" name through various brokerage firms.
The following table sets forth high and low bid prices per share for
the common stock for the calendar quarters indicated, based upon information
obtained from the OTC Bulletin Board. All such bid prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. On February 2, 1998 and January 29, 1999, the
Company paid a 5% stock dividend and a 200% stock dividend (in the form of a
three for one stock split)., respectively. Cash dividend and market prices set
forth in the table below have also been adjusted for the stock dividends
declared and paid by the Company.
Price Range
----------- Cash Dividends
High($) Low ($) Declared Per Share($)
------- ------- ---------------------
1998
- ----
First Quarter 18.33 14.92 .16
Second Quarter 21.83 18.33 .16
Third Quarter 24.92 21.00 .16
Fourth Quarter 27.67 23.67 .16
1999
- ----
First Quarter 40.00 28.33 .20
Second Quarter 34.75 32.00 .20
Third Quarter 34.00 31.75 .20
Fourth Quarter 33.38 29.00 .20
The ability of the Company to pay dividends is dependent upon the
ability of Irwin Bank to pay dividends to the Company. Because Irwin Bank is a
depository institution insured by the FDIC it may not pay dividends or
distribute capital assets if it is in default on any assessment due the FDIC.
Additionally, Irwin Bank is subject to certain state banking regulations that
limit the ability of the Bank to pay dividends to the Company. Under Federal
Reserve
-36-
<PAGE>
policy, the Company is required to maintain adequate regulatory capital and is
expected to act as a source of financial strength to Irwin Bank and to commit
resources to support Irwin Bank in circumstances where it might not do so absent
such a policy. This policy could have the effect of reducing the amount of
dividends declarable by the Company.
-37-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,172
<INT-BEARING-DEPOSITS> 3,093
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,099
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 258,136
<ALLOWANCE> 2,366
<TOTAL-ASSETS> 445,721
<DEPOSITS> 368,680
<SHORT-TERM> 13,457
<LIABILITIES-OTHER> 3,679
<LONG-TERM> 22,000
0
0
<COMMON> 3,780
<OTHER-SE> 34,126
<TOTAL-LIABILITIES-AND-EQUITY> 445,721
<INTEREST-LOAN> 19,711
<INTEREST-INVEST> 9,231
<INTEREST-OTHER> 500
<INTEREST-TOTAL> 29,442
<INTEREST-DEPOSIT> 12,474
<INTEREST-EXPENSE> 1,170
<INTEREST-INCOME-NET> 15,799
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 9,233
<INCOME-PRETAX> 9,318
<INCOME-PRE-EXTRAORDINARY> 9,318
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,336
<EPS-BASIC> 2.10
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 3.07
<LOANS-NON> 150
<LOANS-PAST> 1,590
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,228
<CHARGE-OFFS> 175
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 2,366
<ALLOWANCE-DOMESTIC> 2,366
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
