<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 7, 2000
IBT Bancorp, Inc.
----------------------
(Exact name of registrant as specified in its charter)
Michigan 0-18415 38-2830092
----------- ---------- --------------
State of Incorporation Commission File No. IRS Employer ID Number
200 East Broadway, Mt. Pleasant, MI 48858
------------------------------------------------------
Address, including zip code, of registrant's principal executive office
(517) 772-9471
--------------------------------------------------------------
Registrant's telephone number, including area code
This amendment is filed to include the financial statements of the acquired
business and the pro forma financial statements reflecting the acquisition.
<PAGE> 2
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On April 7, 2000, IBT Bancorp ("IBT") and FSB Bancorp, Inc. ("FSB") signed
a Definitive Agreement to combine companies. IBT is the holding company for
Isabella Bank and Trust and FSB is the holding company for Farmers State Bank.
Both banks will continue to operate as stand alone banks. The transaction will
involve FSB merging with and into IBT and Farmers State Bank becoming a wholly
owned subsidiary of IBT. It is intended that the merger be accounted for as a
"pooling of interest." FSB shareholders will receive 2.1362 shares of IBT common
stock for each share of FSB stock.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statement of Business Acquired. The financial statements
of FSB Bancorp, Inc. as of and for the year ended December 31, 1999
are included with this report.
(b) Pro Forma Financial Information. Pro forma financial statements
reflecting the merger of FSB Bancorp, Inc. are included with this
report.
(c) Exhibits
No. Description
2 Agreement and Plan of Merger dated as of April 7, 2000
between IBT Bancorp, Inc. and FSB Bancorp, Inc.*
23 Consent of Andrews, Hooper & Pavlik P.L.C.
99 Press release dated April 10, 2000 announcing the merger
between IBT Bancorp, Inc. and FSB Bancorp, Inc. as filed
with the Securities and Exchange Commission on April 10,
2000 pursuant to rule 425 is herein incorporated by
reference.*
* Incorporated by reference through Form 8K dated April 18,
2000.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Company has caused the current report to be signed on its behalf by the
Undersigned duly authorized person.
Date: June 16, 2000 IBT Bancorp, Inc.
By: /s/ Dennis P. Angner
---------------------------
Dennis P. Angner
Its: Chief Financial Officer
--------------------------
<PAGE> 4
ITEM 7(a)
FSB AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Board of Directors and Shareholders
FSB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of FSB Bancorp,
Inc. and its wholly owned subsidiary, Farmers State Bank of Breckenridge, as of
December 31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of FSB Bancorp, Inc.
and its wholly owned subsidiary, Farmers State Bank of Breckenridge, as of
December 31, 1999 and 1998, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
January 19, 2000
<PAGE> 5
FSB Bancorp, Inc.
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,549 $ 4,172
Federal funds sold 4,550 2,450
Investment securities (Note 3):
Securities held to maturity (market value $7,520
in 1999 and $9,389 in 1998) 7,573 9,317
Securities available for sale 3,607 6,392
----------------------
Total investment securities 11,180 15,709
Loans (Note 4):
Commercial 8,834 8,852
Agricultural 30,639 28,016
Real estate mortgage 29,978 26,045
Installment 9,673 9,292
----------------------
Total loans 79,124 72,205
Less allowance for loan losses 1,412 1,435
----------------------
Net loans 77,712 70,770
Premises and equipment (Note 5) 1,229 1,252
Accrued interest receivable 1,724 1,742
Other real estate and other assets 343 819
Federal Home Loan Bank stock 292 286
======================
Total assets $ 101,579 $ 97,200
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 6):
Noninterest bearing $ 10,682 $ 8,607
Interest bearing:
Time deposits over $100 2,565 2,773
Demand deposit NOW accounts 8,274 7,601
Other 67,920 67,720
----------------------
Total interest-bearing deposits 78,759 78,094
----------------------
Total deposits 89,441 86,701
Advances from Federal Home Loan Bank (Note 7) 1,000
Accrued interest payable and other liabilities 628 664
Deferred federal income taxes (Note 8) 81 184
----------------------
Total liabilities 91,150 87,549
Shareholders' equity (Notes 2, 10 and 11):
Common stock--no par value:
Authorized--600,000 shares in 1999 and 400,000 shares
in 1998; Issued and Outstanding--408,237 shares in
1999 and 386,567 shares in 1998
Capital surplus 4,583 3,649
Retained earnings 5,864 5,974
Accumulated other comprehensive income, net of taxes (18) 28
----------------------
Total shareholders' equity 10,429 9,651
----------------------
Total liabilities and shareholders' equity $ 101,579 $ 97,200
======================
</TABLE>
See accompanying notes.
<PAGE> 6
FSB Bancorp, Inc.
Consolidated Statements of Income
(dollars in thousands except for per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
----------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,124 $6,867
Interest on investment securities:
Held to maturity (non-taxable interest $235 in 1999
and $259 in 1998) 449 440
Available for sale 297 422
----------------------
Total interest on investment securities 746 862
Interest on federal funds sold 73 124
----------------------
Total interest income 7,943 7,853
Interest on deposits 3,329 3,583
----------------------
Net interest income 4,614 4,270
Provision for loan losses 200 210
----------------------
Net interest income after provision for loan losses 4,414 4,060
OTHER INCOME
Service charges and fees 337 335
Gain on sale of mortgage loans 20
Other 189 143
----------------------
Total other income 546 478
OPERATING EXPENSES
Salaries, wages and benefits 1,591 1,437
Net occupancy expense 146 141
Furniture and equipment expense 304 307
FDIC insurance premiums 14 13
Data processing expense 146 137
Other 1,013 939
----------------------
Total operating expenses 3,214 2,974
----------------------
Income before federal income taxes 1,746 1,564
Federal income taxes (Note 8) 553 497
----------------------
Net income $1,193 $1,067
======================
Net income per share (Note 2) $ 2.94 $ 2.64
======================
</TABLE>
See accompanying notes.
<PAGE> 7
FSB Bancorp, Inc.
Consolidated Statements of Shareholders' Equity
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $2,864 $5,998 $ 8 $ 8,870
Comprehensive income:
Net income for 1998 1,067 1,067
Other comprehensive income, net
of tax:
Change in unrealized gains
(losses) on securities available
for sale, net of taxes of
$10 20 20
---------
Total comprehensive income 1,087
Cash dividends declared--$1.02
per share (416) (416)
Stock dividend and related transfer
to capital surplus 675 (675)
Issuance of 3,192 shares of
common stock under dividend
reinvestment plan 110 110
----------------------------------------------------------------------------------
Balance at December 31, 1998 3,649 5,974 28 9,651
Comprehensive income:
Net income for 1999 1,193 1,193
Other comprehensive income, net
of tax:
Change in unrealized gains
(losses) on securities
available for sale, net of
taxes of $(24) (46) (46)
---------
Total comprehensive income 1,147
Cash dividends declared--$1.12
per share (462) (462)
Stock dividend and related transfer
to capital surplus 841 (841)
Issuance of 2,410 shares of
common stock under dividend
reinvestment plan 93 93
----------------------------------------------------------------------------------
Balance at December 31, 1999 $4,583 $5,864 $ (18) $10,429
==================================================================================
</TABLE>
See accompanying notes.
<PAGE> 8
FSB Bancorp, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,193 $ 1,067
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 214 246
Deferred federal income tax credit (80) (75)
Provision for loan losses 200 210
Net loss (gain) on sale of other real estate (31) 2
Net amortization on investment securities 73 68
Gain on sale of mortgage loans (20)
Proceeds from sales of mortgage loans 1,955
Loans originated for sale (1,935)
(Increase) decrease in accrued interest receivable 17 (239)
(Increase) decrease in other real estate and other assets 469 (276)
Increase (decrease) in accrued interest payable and other liabilities (35) 137
---------------------------
Net cash provided by operating activities 2,020 1,140
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 3,308 3,095
Purchases of investment securities held to maturity (1,872) (5,987)
Proceeds from maturities of investment securities available for sale 4,750 5,260
Purchases of investment securities available for sale (2,056) (2,964)
Principal collected on Collateralized Mortgage Obligations 256 203
Net increase in loans (7,142) (3,140)
Proceeds from sale of premises and equipment 22
Purchases of premises and equipment (152) (165)
Purchase of Federal Home Loan Bank stock (6) (13)
---------------------------
Net cash used by investing activities (2,914) (3,689)
FINANCING ACTIVITIES
Net increase in deposits 2,740 983
Advances from Federal Home Loan Bank 4,500
Repayment of Federal Home Loan Bank advances (3,500)
Cash dividends declared (462) (417)
Proceeds from issuance of common stock under dividend reinvestment plan 93 110
---------------------------
Net cash provided by financing activities 3,371 676
---------------------------
Increase (decrease) in cash and cash equivalents 2,477 (1,873)
Cash and cash equivalents at beginning of year 6,622 8,495
---------------------------
Cash and cash equivalents at end of year $ 9,099 $ 6,622
===========================
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest $ 3,347 $ 3,565
Cash paid during the year for income taxes 621 584
</TABLE>
See accompanying notes.
<PAGE> 9
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
(dollars in thousands except per share amounts)
1. ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
FSB Bancorp, Inc. (the Corporation) is the parent of its 100% wholly owned
subsidiary, Farmers State Bank of Breckenridge (the Bank). Significant
intercompany transactions and accounts have been eliminated upon consolidation.
NATURE OF OPERATIONS
The Bank provides a variety of financial services to individuals and corporate
customers through its three offices in Breckenridge, Hemlock and Ithaca,
Michigan, which are primarily agricultural areas. The Bank's primary deposit
products are interest-bearing checking and saving accounts and certificates of
deposit. Its primary lending products are residential-mortgage loans,
installment loans and commercial loans. Agricultural loans represent
approximately 39% of the Bank's loan portfolio.
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 amounts reported in the financial statements and accompanying notes.
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 other real estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for losses on
loans and foreclosed real estate, management obtains independent appraisals for
significant properties. While management uses available information to recognize
loan losses, further reductions in the carrying amounts of loans may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the estimated loan losses. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is possible that
the estimated loan losses may change in the near term. However, the amount of
the change cannot be estimated.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, interest-bearing deposits with other banks and
federal funds sold. The Bank reports customer loan and deposit transactions on a
net cash flow basis.
<PAGE> 10
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES
The Bank has classified its investment securities as trading (none),
available-for-sale or held-to-maturity securities.
Investment securities held to maturity are those securities for which the Bank
has the positive intent and ability to hold to maturity. These securities are
reported at cost, adjusted for premiums and discounts that are recognized in
interest income using the straight-line method over the period to maturity.
Investment securities available for sale are those securities not classified as
trading or held-to-maturity securities. Unrealized holding gains and losses, net
of tax, are reported as a net amount in a separate component of shareholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Premiums and
discounts are recognized in interest income using the straight-line method over
the period to maturity.
FEDERAL HOME LOAN BANK STOCK
Federal Home Loan Bank (FHLB) stock is recorded and traded at cost and can only
be sold to the FHLB or another member institution. The Bank is required to
maintain an investment in FHLB stock equal to one percent of the net permanent
home mortgage loan portfolio. At December 31, 1999 and 1998, the Bank's
investment in FHLB stock exceeded the required amount.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb losses on loans. Management determines the
adequacy of the allowance for loan losses based on an evaluation of the loan
portfolio, past and recent loan loss experience, current economic conditions,
including agricultural land and equipment values, current commodity prices, and
other pertinent factors.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation. For
financial reporting purposes, the provision for depreciation is computed
principally by the straight-line method based upon the useful lives of the
assets.
OTHER REAL ESTATE
Other real estate includes assets that have been acquired in satisfaction of
debt. Recorded values of other real estate are periodically reviewed and carried
at the lower of cost or fair market value less estimated costs to sell.
<PAGE> 11
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INTEREST ON LOANS
Interest on loans is generally accrued based upon the principal amount
outstanding. Loans are placed on nonaccrual status whenever the collectibility
of principal or interest is considered doubtful. When this occurs, previously
accrued but unpaid interest is reversed from current earnings and such loans are
placed on a cash basis for future recognition of interest income. Cash-basis
loans are restored to an accrual basis whenever interest and principal payments
are current and it is believed that the financial condition of the borrower has
improved to the extent that future principal and interest payments will be met.
MORTGAGE BANKING ACTIVITIES
The Bank originates and sells all mortgage loans with fixed rates and maturities
of 15 and 30 years and retains the servicing rights. The Bank estimates the cost
of servicing to approximate the servicing income received. The Bank does not
have any loans available for sale at December 31, 1999.
EMPLOYEE BENEFITS
The profit sharing plan of the Bank covers substantially all employees.
Contributions to the plan, which are discretionary, totaled $95 in 1999 and $75
in 1998.
FEDERAL INCOME TAXES
The provision for federal income taxes is based on amounts reported in the
consolidated financial statements (after exclusion of nontaxable interest
income) and reflects deferred federal income taxes on temporary differences
between financial statement and income tax accounting.
NET INCOME PER SHARE
Net income per share of common stock has been computed on the basis of the
weighted average number of shares of common stock outstanding and reflects a 5%
stock dividend in the current year (See Note 2).
ADVERTISING COSTS
The Bank expenses advertising costs as incurred. The total amount of advertising
costs charged to expense during 1999 and 1998 was approximately $75 and $76,
respectively. The Bank has no direct-response advertising.
<PAGE> 12
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
2. SHAREHOLDERS' EQUITY
On October 15, 1999 and September 15, 1998, the Corporation distributed shares
of common stock in connection with 5% stock dividends. As a result of the stock
dividends, capital surplus was increased by $841 in 1999 and $675 in 1998 and
retained earnings was decreased by the same amounts. All per share amounts have
been restated to reflect the stock dividends.
During 1999 and 1998, the Corporation issued 2,410 and 3,192 shares of common
stock in conjunction with the Corporation's dividend reinvestment plan.
3. INVESTMENT SECURITIES
Investment securities have been classified in the consolidated financial
statements according to management's intent. The carrying amount of investment
securities and their approximate market values at December 31, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
1999
States and political subdivisions $ 4,650 $ 10 $ (34) $ 4,626
Corporate and other securities 1,851 (12) 1,839
Collateralized mortgage obligations 1,072 (17) 1,055
-----------------------------------------------
$ 7,573 $ 10 $ (63) $ 7,520
===============================================
1998
States and political subdivisions $ 5,210 $ 65 $ (3) $ 5,272
Corporate and other securities 2,781 9 2,790
Collateralized mortgage obligations 1,326 3 (2) 1,327
-----------------------------------------------
$ 9,317 $ 77 $ (5) $ 9,389
===============================================
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
1999
U.S. Treasury, U.S. agency, States and
political subdivisions and corporate
securities $ 3,556 $ (28) $ 3,528
Federal Reserve stock 79 79
-----------------------------------------------
$ 3,635 $ (28) $ 3,607
===============================================
1998
U.S. Treasury, U.S. agency and corporate
securities $ 6,271 $ 43 $ (1) $ 6,313
Federal Reserve stock 79 79
-----------------------------------------------
$ 6,350 $ 43 $ (1) $ 6,392
===============================================
</TABLE>
<PAGE> 13
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and approximate market value of debt securities at December
31, 1999 by contractual maturity are shown below. Actual maturities could differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------------- --------------------
<S> <C> <C> <C> <C>
Due in one year or less $2,840 $2,833 $1,581 $1,579
Due after one year through five years 2,898 2,877 2,054 2,028
Due after five years 763 755
------------------- --------------------
6,501 6,465 3,635 3,607
Collateralized mortgage obligations 1,072 1,055
------------------- --------------------
$7,573 $7,520 $3,635 $3,607
=================== ====================
</TABLE>
Investment securities with a carrying value of approximately $1,003 at December
31, 1999 and $2,008 at December 31, 1998 were pledged to secure overnight
investments.
4. LOANS
The following summarizes the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
Balance at beginning of year $ 1,435 $ 1,435
Charge-offs and recoveries:
Losses (deduction) (283) (355)
Recoveries 60 145
----------------------
Net charge-offs (223) (210)
Provision for loan losses 200 210
----------------------
Balance at end of year $ 1,412 $ 1,435
======================
</TABLE>
Certain directors and executive officers of the Corporation and the Bank
(including their immediate families and companies in which they have 10% or more
ownership) were loan customers during 1999 and 1998. Such loans were made in the
ordinary course of business at normal credit terms, including interest rates and
collateralization, and do not represent more than a normal risk of collection.
Total loans to these customers aggregated $1,512 and $1,335 at December 31, 1999
and 1998, respectively.
<PAGE> 14
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
4. LOANS (CONTINUED)
Nonperforming loans include nonaccrual loans, restructured loans and loans past
due 90 days or more. These loans aggregated $779 and $458 at December 31, 1999
and 1998, respectively. Additional interest income that would have been recorded
on nonaccrual loans, if the loans had been current in accordance with their
original terms, was approximately $48 in 1999 and $56 in 1998.
The Bank grants loans to customers generally in their geographic area. Although
the Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their loan agreements is dependent upon the agriculture
industry. These loans are primarily secured by residential and farm real estate,
equipment and crops.
5. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
1999 1998
--------------------
<S> <C> <C>
Premises $1,277 $1,258
Equipment 1,766 1,636
--------------------
3,043 2,894
Less accumulated depreciation 1,814 1,642
--------------------
$1,229 $1,252
====================
</TABLE>
6. DEPOSITS
Deposit account balances at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Noninterest bearing $10,682 $ 8,607
Interest bearing:
NOW 8,274 7,601
Savings 10,644 10,518
Certificates of deposit 43,096 44,881
Money market 16,745 15,094
---------------------
Total interest bearing 78,759 78,094
---------------------
$89,441 $86,701
=====================
</TABLE>
<PAGE> 15
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
6. DEPOSITS (CONTINUED)
Certificates of deposit maturing in years ending December 31 are as follows:
<TABLE>
<S> <C>
2000 $21,432
2001 10,902
2002 6,533
2003 3,213
2004 and thereafter 1,016
-----------
$43,096
===========
</TABLE>
The Bank held related party deposits of approximately $2,900 at December 31,
1999.
7. ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)
During 1999, the Bank received $4,500 in advances from the FHLB and repaid
$3,500 leaving $1,000 outstanding at December 31, 1999. Pursuant to collateral
agreements with the FHLB, advances are secured by the FHLB stock and qualifying
first year mortgage loans. The outstanding balance was paid in full in January
2000.
8. FEDERAL INCOME TAXES
The components of federal income tax expense are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Current $633 $572
Deferred credit (80) (75)
------------------------
$553 $497
========================
</TABLE>
A reconciliation between federal income taxes and the amount computed by
applying the statutory federal income tax rate (34%) to income before federal
income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------
<S> <C> <C>
Income tax on pretax income $594 $531
Effect of nontaxable interest income (44) (40)
Other 3 6
=======================
$553 $497
=======================
</TABLE>
<PAGE> 16
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
8. FEDERAL INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal income tax purposes. Significant
temporary differences which comprise the deferred tax assets and liabilities of
the Bank as of December 31 are approximately as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------
<S> <C> <C>
Deferred tax assets:
Other real estate tax gains in excess of book gains $ 4 $ 4
Net unrealized depreciation on investment securities available
for sale 9
Other 32 27
-----------------
Total deferred tax assets 45 31
Deferred tax liabilities:
Allowance for loan losses 10 78
Tax over book depreciation 79 73
Net unrealized appreciation on investment securities
available for sale 14
Other 37 50
-----------------
Total deferred tax liabilities 126 215
-----------------
Net deferred tax liability $ 81 $184
=================
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are various outstanding commitments and
contingent liabilities, such as commitments to extend credit and guarantees,
which are not reflected in the accompanying financial statements. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses. Historically, the
majority of the commitments have not been drawn upon, and therefore do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank
generally to guarantee the performance of a customer to a third party. These
arrangements have credit risk essentially the same as that involved in extending
loans to customers and are subject to the Bank's normal credit policies.
Outstanding loan commitments, lines of credit and standby letters of credit
aggregated $7,814, $701, and $493, respectively at December 31, 1999. Management
does not anticipate any losses as a result of these transactions.
<PAGE> 17
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
10. OTHER MATTERS
The Bank is subject to limitations under the Federal Reserve Act on the amount
of loans or advances to the parent corporation and on the amount of dividends
that can be paid to the parent corporation. Approval is needed if total
dividends declared in any calendar year exceed the retained "net profit" (as
defined in the Federal Reserve Act) of that year plus the retained "net profit"
of the preceding two years. The amount that was not subject to this restriction
was $1,358 at January 1, 2000.
Banking regulations require that banks maintain cash reserves and cash balances
with the Federal Reserve or certain other qualifying banks. At December 31,
1999, the average cash reserve requirement was $269.
There were no material noncancelable lease commitments outstanding at December
31, 1999.
11. CAPITAL REQUIREMENTS
The Bank is subjected 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 (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
adjusted assets (as defined). Management believes that as of December 31, 1999
the Bank meets all capital adequacy requirements to which it is subject.
As of January 1999, the most recent notification from the Federal Reserve Bank
of Chicago, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
<PAGE> 18
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
11. CAPITAL REQUIREMENTS (CONTINUED)
The Bank's actual capital amounts and ratios are also presented in the following
tables:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Total risk-based Capital (to
risk-weighted assets) $11,174 15.5% $ 5,771 8.0% $ 7,214 10.0%
Tier I Capital (to risk-
weighted assets) 10,266 14.2% 2,886 4.0% 4,328 6.0%
Tier I Capital (to average
adjusted assets) 10,266 10.4% 3,933 4.0% 4,917 5.0%
DECEMBER 31, 1998
Total risk-based Capital (to
risk-weighted assets) $10,273 14.7% $ 5,608 8.0% $ 7,010 10.0%
Tier I Capital (to risk-
weighted assets) 9,390 13.4% 2,804 4.0% 4,206 6.0%
Tier I Capital (to average
adjusted assets) 9,390 9.7% 3,862 4.0% 4,828 5.0%
</TABLE>
12. FAIR VALUE DISCLOSURES
In 1999, the Corporation adopted Financial Accounting Standards Board (FASB)
Statement No. 107, Disclosures About Fair Value of Financial Instruments, which
requires disclosures about the estimated fair value of the Bank's financial
instruments. The following table presents the carrying amount and estimated fair
values of the Bank's financial instruments as of December 31, 1999. These
estimates of fair value are significantly affected by the assumptions made, and
accordingly, do not necessarily indicate amounts which could be realized in a
current market exchange. It is also the Bank's general practice and intent to
hold the majority of its financial instruments until maturity; therefore, the
Bank does not expect to realize the estimated amount below. In addition, the
estimated fair values shown below do not include any value for assets and
liabilities which are not financial instruments as defined by FASB Statement No.
107, such as the value of property and equipment, other assets, the Bank's
customer base or anticipated future business.
<PAGE> 19
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUE DISCLOSURES (CONTINUED)
<TABLE>
<CAPTION>
1999
-----------------------
CARRYING FAIR
AMOUNT VALUE
-----------------------
<S> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 4,549 $ 4,549
Federal funds sold 4,550 4,550
Securities held to maturity 7,573 7,520
Securities available for sale 3,607 3,607
Net loans 77,712 78,954
Accrued interest receivable 1,724 1,724
FHLB stock 292 292
FINANCIAL LIABILITIES
Deposits 89,441 89,623
Advance from FHLB 1,000 1,000
Accrued interest payable 288 288
</TABLE>
The following are the major methods and assumptions used in estimating the fair
value of financial instruments.
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, FHLB
STOCK, ADVANCE FROM FHLB, AND ACCRUED INTEREST PAYABLE
For these short-term instruments the fair value approximates their carrying
amount.
INVESTMENT SECURITIES
The fair values of investment securities are based on quoted market prices.
NET LOANS
For variable rate loans that reprice frequently with no significant change in
credit risk, fair values are based on carrying values. The fair values for all
other loans are estimated using discounted cash flow analysis at interest rates
currently offered for loans with similar terms to borrowers of similar credit
quality.
DEPOSITS
The fair values disclosed for deposit accounts with no defined maturities are,
by definition, equal to the amount payable on demand at the reporting date. Fair
values for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
<PAGE> 20
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
13. FSB BANCORP, INC. (PARENT ONLY) STATEMENTS
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------
<S> <C> <C>
ASSETS
Investment in bank subsidiary $ 10,429 $ 9,637
Receivable from bank 14
--------------------------
Total assets $ 10,429 $ 9,651
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Capital surplus $ 4,583 $ 3,649
Retained earnings 5,864 5,974
Unrealized net gain (loss) on securities available for sale (18) 28
--------------------------
Total liabilities and shareholders' equity $ 10,429 $ 9,651
==========================
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
-----------------------
<S> <C> <C>
Cash dividends from bank subsidiary $ 355 $ 315
Equity in undistributed earnings of bank subsidiary 838 752
-----------------------
Net income $1,193 $1,067
=======================
</TABLE>
<PAGE> 21
FSB Bancorp, Inc.
Notes to Consolidated Financial Statements (continued)
13. FSB BANCORP, INC. (PARENT ONLY) STATEMENTS (CONTINUED)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
----------------------
<S> <C> <C>
Operating activities
Net income $ 1,193 $ 1,067
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of bank subsidiary (838) (752)
(Increase) decrease in receivable from bank 14 (9)
----------------------
Net cash provided by operating activities 369 306
FINANCING ACTIVITIES
Dividends declared (462) (416)
Proceeds from issuance of common stock under dividend reinvestment
plan 93 110
----------------------
Net cash used by financing activities (369) (306)
Change in cash
Cash at beginning of year ----------------------
Cash at end of year ======================
</TABLE>
<PAGE> 22
ITEM 7(b)
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of March
31, 2000 and the unaudited pro forma condensed combined statements of income for
the three month period ending March 31, 2000 for each of the three year periods
covering December 31, 1999, 1998, and 1997 give effect to the pending merger,
accounted for as a pooling of interests.
The unaudited pro forma condensed combined financial information is based on the
historical consolidated statements of IBT and FSB under the assumptions and
adjustments set forth below and in the accompanying notes to the unaudited pro
forma condensed combined financial statements. The audited pro forma condensed
combined financial information does not give effect to any cost savings that may
occur in connection with the merger. Estimated merger costs are reflected as a
pro forma adjustment in the unaudited pro forma condensed combined balance
sheet. The nonrecurring expenses have been excluded from the unaudited pro forma
condensed combined statements of income.
Under generally accepted accounting principles, the transaction will be
accounted for as a pooling of interests and, as such, the assets of FSB will be
combined with those of IBT at book value. The statements of income of FSB will
be combined with those of IBT for all periods presented. The unaudited pro forma
condensed statements of income give effect to the merger as if the merger had
occurred at the beginning of the earliest period presented. The unaudited pro
forma condensed combined balance sheet assumes the merger was consummated on
March 31, 2000.
The accounting policies of both companies are in the process of being reviewed
for consistency. As a result of this review, certain conforming accounting
adjustments may be necessary. The nature and extent of these adjustments have
not been determined but are not expected to be significant.
<PAGE> 23
IBT BANCORP AND FSB BANCORP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2000
<TABLE>
<CAPTION>
(dollars in thousands) Pro Forma
---------
IBT FSB
Bancorp Bancorp Adjustments Combined
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and demand deposits due from banks $ 15,519 $ 1,917 $ 0 $ 17,436
Federal funds sold 0 1,300 0 1,300
Securities available for sale 80,737 4,146 0 84,883
Securities held to maturity 6,772 7,512 0 14,284
Loans, net of allowance for loan losses 276,724 81,215 0 357,939
Property and equipment, net 8,919 1,256 0 10,175
Accrued interest receivable 2,551 1,677 0 4,228
Acquisition intangibles, net 3,610 171 0 3,781
Other assets 6,278 519 10,771 (a)
(10,77)(b) 6,797
-------- ------- --------- ---------
TOTAL ASSETS $401,110 $99,713 $ 0 $ 500,823
======== ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $357,027 $88,069 $ 0 $ 445,096
Federal funds purchased and
short term borrowing 2,000 0 0 2,000
Accrued interest and other liabilities 4,479 873 132 (c) 5,484
-------- ------- --------- ---------
Total liabilities 363,506 88,942 132 452,580
-------- ------- --------- ---------
Shareholders' Equity
Common stock - no par value 25,894 4,583 4,583 (a)
(4,583)(b) 30,477
Retained earnings 12,675 6,207 6,207 (a)
(6,207)(b)
(132)(c) 18,750
Accumulated other comprehensive loss (965) (19) (19)(b)
19 (c) (984)
-------- ------- --------- ---------
Total shareholders' equity 37,604 10,771 (132) 48,243
-------- ------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $401,110 $99,713 $ --- $ 500,823
======== ======= ========= =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
<PAGE> 24
IBT BANCORP AND FSB BANCORP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the three month period ended March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
---------
IBT FSB
Bancorp Bancorp Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 5,740 $ 1,953 $ 0 $ 7,693
Investment securities
Taxable 952 120 0 1,072
Nontaxable 289 38 0 327
Federal funds sold and other 40 31 0 71
---------- --------- -------- ----------
Total interest income 7,021 2,142 0 9,163
Interest expense
Deposits 3,275 834 0 4,109
Federal funds purchased 19 0 0 19
---------- --------- -------- ----------
Total interest expense 3,294 834 0 4,128
---------- --------- -------- ----------
Net interest income 3,727 1,308 0 5,035
Provision for loan losses 50 75 125
---------- --------- -------- ----------
Net interest income after
provision for loan losses 3,677 1,233 0 4,910
Noninterest income 910 118 0 1,028
Noninterest expenses 3,247 850 0 4,097
---------- --------- -------- ----------
Income before federal income tax 1,340 501 0 1,841
Federal income taxes 344 158 0 502
---------- --------- -------- ----------
Net income $ 996 $ 343 $ 0 $ 1,339
========== ========= ======== ==========
Weighted average common shares outstanding 2,980,169 408,237 463,839 3,852,245
Net income per basic share of common stock $0.33 $0.35
===== =====
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
<PAGE> 25
IBT BANCORP AND FSB BANCORP
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME
Year Ended December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
---------
IBT FSB
Bancorp Bancorp Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 21,364 $ 7,124 $ 0 $ 28,488
Investment securities
Taxable 4,488 591 0 5,079
Nontaxable 987 155 0 1,142
Federal funds sold and other 662 73 0 735
---------- ---------- --------- ----------
Total interest income 27,501 7,943 0 35,444
Interest expense
Deposits 12,868 3,300 0 16,168
Federal funds purchased 30 29 0 59
---------- ---------- --------- ----------
Total interest expense 12,898 3,329 0 16,227
---------- ---------- --------- ----------
Net interest income 14,603 4,614 0 19,217
Provision for loan losses 309 200 0 509
---------- ---------- --------- ----------
Net interest income after
provision for loan losses 14,294 4,414 0 18,708
Noninterest income 3,844 546 0 4,390
Noninterest expenses 12,597 3,214 0 15,811
---------- ---------- --------- ----------
Income before federal income tax 5,541 1,746 0 7,287
Federal income taxes 1,490 553 0 2,043
---------- ---------- --------- ----------
Net income $ 4,051 $ 1,193 $ 0 $ 5,244
========== ========== ========= ==========
Weighted average common shares outstanding 2,942,422 406,026 461,327 3,809,775
Net income per basic share of common stock $1.38 $1.38
===== =====
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
<PAGE> 26
IBT BANCORP AND FSB BANCORP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
---------
IBT FSB
Bancorp Bancorp Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 19,986 $ 6,867 $ 0 $ 26,853
Investment securities
Taxable 4,422 603 0 5,025
Nontaxable 871 259 0 1,130
Federal funds sold and other 520 124 0 644
---------- ---------- ------- ----------
Total interest income 25,799 7,853 0 33,652
Interest expense
Deposits 12,466 3,578 0 16,044
Federal funds purchased 16 5 0 21
---------- ---------- ------- ----------
Total interest expense 12,482 3,583 0 16,065
---------- ---------- ------- ----------
Net interest income 13,317 4,270 0 17,587
Provision for loan losses 321 210 0 531
---------- ---------- ------- ----------
Net interest income after
provision for loan losses 12,996 4,060 0 17,056
Noninterest income 2,951 478 0 3,429
Noninterest expenses 10,942 2,974 0 13,916
---------- ---------- ------- ----------
Income before federal income tax 5,005 1,564 0 6,569
Federal income taxes 1,371 497 0 1,868
---------- ---------- ------- ----------
Net income $ 3,634 $ 1,067 $ 0 $ 4,701
========== ========== ======= ==========
Weighted average common shares outstanding 2,890,444 404,108 459,147 3,753,699
Net income per basic share of common stock $1.26 $1.25
===== =====
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
<PAGE> 27
IBT BANCORP AND FSB BANCORP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
---------
IBT FSB
Bancorp Bancorp Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 18,772 $ 6,524 $ 0 $ 25,296
Investment securities
Taxable 2,796 809 0 3,605
Nontaxable 638 199 0 837
Federal funds sold and other 524 135 0 659
---------- ---------- -------- ----------
Total interest income 22,730 7,667 0 30,397
Interest expense
Deposits 10,534 3,666 0 14,200
Federal funds purchased 0 0 0 0
---------- ---------- -------- ----------
Total interest expense 10,534 3,666 0 14,200
---------- ---------- -------- ----------
Net interest income 12,196 4,001 0 16,197
Provision for loan losses 386 90 0 476
---------- ---------- -------- ----------
Net interest income after
provision for loan losses 11,810 3,911 0 15,721
Noninterest income 2,100 477 0 2,577
Noninterest expenses 8,811 2,886 0 11,697
---------- ---------- -------- ----------
Income before federal income tax 5,099 1,502 0 6,601
Federal income taxes 1,490 462 0 1,952
---------- ---------- -------- ----------
Net income $ 3,609 $ 1,040 $ 0 $ 4,649
========== ========== ======== ==========
Weighted average common shares outstanding 2,857,939 400,130 454,628 3,712,697
Net income per basic share of common stock $1.26 $1.25
===== =====
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1
FSB is the sole shareholder of Farmers State Bank. The transaction will
result in FSB merging with and into IBT and Farmers State Bank of Breckenridge
becoming a wholly owned subsidiary of IBT. It is intended that the merger be
accounted for as a "pooling of interest." FSB shareholders will receive 2.1362
shares of IBT common stock for each share of FSB.
Note 2
The following are the pro forma adjustments to the condensed combined
balance sheet dated March 31, 2000.
(a) To reflect the issuance of 875,075 shares of IBT common stock to
acquire all outstanding shares of FSB common stock. The number of
shares issued is based on an exchange ratio of 2.1362 applied to
shares outstanding at March 31, 2000.
(b) To eliminate IBT investment in FSB for consolidation purposes.
(c) To reflect accrued and unpaid merger expenses. Reflects management's
estimate of accrued and unpaid nonrecurring legal, accounting,
consultant, and other costs associated with the merger and is recorded
net of taxes. These nonrecurring charges are a preliminary estimate
and are subject to change as more information is made available.
Note 3
Earnings per share for IBT is based on the historical average number of
common shares outstanding during the period. For purposes of the pro forma
earnings per share computation, the common shares for FSB have been adjusted by
the exchange ratio.
<PAGE> 29
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
23 Consent of Andrews, Hooper & Pavlik P.L.C.
</TABLE>
