<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number: 0-18415
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IBT BANCORP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2830092
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 East Broadway Street, Mt. Pleasant, Michigan 48858
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (517) 772-9471
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $0.00 Par Value
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(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. [X] Yes [ ] 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. [X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $89,309,000 as of March 3, 2000.
The number of shares outstanding of the registrant's Common Stock ($6 par value)
was 2,976,975 as of March 3, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
(Such documents are incorporated herein only to the extent specifically set
forth in response to an item herein.)
Documents Part of Form 10-K Incorporated into
--------- -----------------------------------
IBT Bancorp, Inc. Proxy Statement
for its Annual Meeting of Part III
Shareholders to be held
April 18, 2000
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
IBT Bancorp, Inc. (the Corporation) is a registered bank holding company
incorporated under Michigan law in September 1988. The Corporation has three
subsidiaries: Isabella Bank and Trust, IBT Financial Services, and IBT Loan
Production. Isabella Bank and Trust has two wholly owned subsidiaries, IBT
Agency and IBT Title. Its principal subsidiary, Isabella Bank and Trust has
fifteen banking offices located throughout Isabella County, northeastern
Montcalm County, and southern Clare County, all of which are located in central
Michigan. IBT Financial Services is a full service retail brokerage offering
stocks, bonds and mutual funds to individuals. IBT Agency is authorized to sell
life insurance, casualty insurance, and fixed and variable annuities. IBT Title
provides title insurance, abstract searches, and closes loans in Isabella County
and Mecosta County. IBT Loan Production originates residential real estate
mortgages. Its principle products are 15 and 30 year fixed rate loans. All loans
originated are sold with servicing to Isabella Bank and Trust. The principal
city in which the Corporation operates is Mount Pleasant, which has a population
of approximately 24,000. Central Michigan University, with enrollment of 18,000
students, is the area's largest employer and provides a stable source of
employment and income. Mount Pleasant, as a result of having a large state
supported university within its boundaries and being centrally located between 4
cities of similar size, has a sizable retail shopping industry. Mt. Pleasant is
also the base for the state's oil and gas production; Michigan is the 12th
largest producer of oil and gas in the United States. Other economic activity in
Isabella County includes farming, light industrial manufacturing and gaming at
the Saginaw Chippewa Indian Tribe Reservation. The area's unemployment rate is
approximately 1.9% and the average household income is $34,500.
COMPETITION
The Corporation competes with other commercial banks, many of which are
subsidiaries of other bank holding companies, savings and loan associations,
finance companies, credit unions, and retail brokerage firms. The Bank is a
community bank and focuses on providing high-quality, personalized service at a
fair price. Based on deposits maintained by all financial institutions, the
Bank's market share exceeded 50% of the total for Isabella County in both 1999
and 1998. The Bank offers a broad array of banking services to businesses,
institutions, and individuals. Deposit services offered include checking
accounts, savings accounts, certificates of deposit, and direct deposits.
Lending activity includes loans made pursuant to lines of credit, real estate
loans, consumer loans, student loans, and charge card loans. Other financial
related products include trust services, title insurance, stocks, investment
securities, bond, mutual fund sales, 24 hour banking service locally and
nationally through shared automatic teller machines, and safe deposit box
rentals.
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LENDING
The Bank limits lending activity to its local market and has not purchased any
loans from the secondary market. The Bank does not make loans to fund leveraged
buyouts, has no foreign corporate or government loans, and no corporate debt
securities. The general lending philosophy of the Bank is to avoid
concentrations to individuals and business segments. The following table sets
forth the composition of the Bank's loan portfolio, as of December 31, 1999.
LOANS BY MAJOR LENDING CATEGORY
(in thousands)
<TABLE>
<CAPTION>
Amount %
------ ---
<S> <C> <C>
Real Estate
One to four family residential $127,115 46.0
Commercial and other 62,897 22.7
Construction & land development 17,525 6.3
--------- ------
Total Real Estate 207,537 75.0
Commercial
Farmland & agricultural production 10,885 3.9
State and political subdivisions 4,272 1.5
Commercial and other 28,650 10.4
--------- -----
Total Commercial 43,807 15.8
Personal
Credit cards 2,023 0.7
Other 23,355 8.5
--------- ------
Total Personal 25,378 9.2
--------- ------
TOTAL $276,722 100.0
========= ======
</TABLE>
First and second residential mortgages are the single largest category of loans
(46.0% of total loans). The Bank offers 3 and 5 year fixed rate balloon
mortgages with a maximum 30 year amortization, and 15 and 30 year amortized
fixed rate loans. Fixed rate loans with an amortization greater than 15 years
are sold upon origination to the Federal Home Loan Mortgage Association. Fixed
rate residential mortgage loans with an amortization of 15 years or less may be
held for future sale or sold upon origination. Factors used in determining when
to sell these mortgages include management's judgement about the direction of
interest rates, the Corporation's need for fixed rate assets in the management
of its interest rate sensitivity, and overall loan demand. The Corporation has a
policy that these loans may not exceed 5% of its total assets.
The Bank's lending policies generally limit the maximum loan-to-value ratio on
residential mortgages to 95% of the lower of appraised value of the property or
the purchase price, with the condition that private mortgage insurance is
required on loans with loan-to-value
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ratios in excess of 80%. The majority of the Bank's loans have a loan-to-value
ratio of less than 80%. When underwriting residential real estate loans, the
Bank evaluates the borrower's ability to make monthly payments and the value of
the property securing the loan. The Bank requires that the payment of principal,
interest, taxes, and hazard insurance does not exceed 28% of a borrower's gross
income and that all debt servicing does not exceed 36% of income. In addition to
the above requirements, the Bank reviews credit reports and verifies employment,
income, and financial information. Appraisals are performed by independent
appraisers. The Bank requires an escrow account for taxes and insurance on all
loans with loan-to-value in excess of 80%. All mortgage loan requests are
reviewed by a mortgage loan committee; loans in excess of $200,000 require the
approval of either the Bank's Board of Directors or its loan committee.
Construction and land development loans consisted mostly of 1 to 4 family
residential properties. These loans have a 6 to 9 month maturity and are made
using the same underwriting criteria as residential mortgages. Loan proceeds are
disbursed in increments as construction progresses and as inspections warrant.
Construction loans are either converted to permanent loans at the completion of
construction or are paid off from financing through another financial
institution.
Commercial lending, which includes loans for farmland and agricultural
production, state and political subdivisions, commercial real estate, and
commercial loans equaled 15.8% of the Bank's loan portfolio at December 31,
1999. Repayment of commercial loans is often dependent upon the successful
operation and management of a business; thus, these loans generally involve
greater risk than other types of lending. The Bank minimizes its risk by
generally limiting the amount of loans to any one borrower to $3.5 million.
Borrowers with credit needs of more than $3.5 million are serviced through the
use of loan participations with other commercial banks. All commercial real
estate loans require loan-to-value limits of less than 80%. Depending upon the
type of loan, past credit history, and current operating results, the Bank may
require the borrower to pledge accounts receivable, inventory, and fixed assets.
Personal guarantees are generally required from the owners of closely held
corporations, partnerships, and proprietorships. In addition, the Bank requires
annual financial statements, prepares cash flow analysis, and reviews credit
reports. All commercial loan requests require the approval of two senior loan
officers if the amount exceeds $200,000. Loan requests in excess of $200,000
require the approval of either the Bank's Board of Directors or its loan
committee.
Consumer loans granted by the Bank include automobile loans, secured and
unsecured personal loans, credit cards, student loans, and overdraft protection.
The Bank does not offer revolving home equity loans nor does it purchase dealer
paper. Loan amortization is generally for a period of up to 5 years; except home
improvement loans, which are amortized for up to 10 years. The Bank places
underwriting emphasis on a borrower's ability to pay rather than collateral
value. Except for student loans, no installment loans are sold in the secondary
market. All student loans are sold in the secondary market upon reaching a
payout status.
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SUPERVISION AND REGULATION
The Corporation is subject to supervision and regulation by the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended. A bank holding
company and its subsidiaries are able to conduct only the business of commercial
banking and activities closely related or incidental to it. (See Regulation
below.)
Isabella Bank is chartered by the State of Michigan. The Bank is a member of the
Federal Reserve System, its deposits are insured by the Federal Deposit
Insurance Corporation to the extent provided by law, and is a member of the
Federal Home Loan Bank of Indianapolis. The Bank and IBT Loan Production are
supervised and regulated by the Financial Institutions Bureau of the State of
Michigan and the Federal Reserve Board. (See Regulation below)
IBT Financial Services, Inc., is a broker-dealer, registered and subject to
regulation by the Securities and Exchange Commission under federal securities
laws. This subsidiary is also subject to regulation under state securities laws.
The Bank's non-banking subsidiaries, IBT Agency and IBT Title, are licensed
insurance agencies and are subject to regulation by the Michigan Insurance
Bureau.
PERSONNEL
As of December 31, 1999, the Corporation had one full-time employee, the Bank
had 180 full-time equivalent employees, IBT Financial Services had four
full-time employees, IBT Agency has a dual employee arrangement with IBT
Financial Services, IBT Title had fourteen full-time equivalent employees, and
IBT Loan Production had two full-time employees. The Corporation and the Bank
provide group life, health, accident, disability and other insurance programs
for employees and a number of other employee benefit programs. The Corporation
believes its relationship with its employees to be good.
LEGAL PROCEEDINGS
There are various claims and law suits in which the Bank is periodically
involved, such as claims to enforce liens, condemnation proceedings on making
and servicing of real property loans and other issues incident to the Bank's
business. However, neither the Corporation nor the Bank is involved in any
material pending litigation.
REGULATION
The earnings and growth of the banking industry and therefore the earnings of
the Corporation and the earnings of the Bank are affected by the credit policies
of monetary authorities, including the Federal Reserve System. An important
function of the Federal Reserve System is to regulate the national supply of
bank credit in order to combat recession and curb inflationary pressures. Among
the instruments of monetary policy used by the Federal Reserve to implement
these objectives are open market operations in U.S. Treasury securities, changes
in the discount rate on member bank borrowing, and
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changes in reserve requirements against member bank deposits. These methods are
used in varying combinations to influence overall growth of bank loans,
investments and deposits and may also affect interest rates charged on loans or
paid for deposits. The monetary policies of the Federal Reserve System have had
a significant effect on the operating results of commercial banks and related
financial service providers in the past and are expected to continue to do so in
the future. The effect of such policies upon the future business and earnings of
the Corporation and the Bank cannot be predicted.
THE CORPORATION
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended ("BHC Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). The Corporation is registered as a bank holding company with the
Federal Reserve Board and is required to file with the Federal Reserve Board an
annual report and such additional information as the Federal Reserve Board
requires. The Federal Reserve Board may also make inspections and examinations
of the Corporation and its subsidiaries.
Under the BHC Act, bank holding companies such as the Corporation are
prohibited, with certain limited exceptions, from engaging in activities other
than those of banking or of managing or controlling banks and from acquiring or
retaining direct or indirect ownership or control of voting shares or assets of
any company which is not a bank or bank holding company, other than subsidiary
companies furnishing services to or performing services for its subsidiaries,
and other subsidiaries engaged in activities which the Federal Reserve Board
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under the BHC Act, bank holding companies
may not (subject to certain limited exceptions) directly or indirectly acquire
the ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company, including a bank or bank holding
company, without the prior written approval of the Federal Reserve Board.
The BHC Act prohibits the Federal Reserve Board (subject to certain limited
exceptions) from approving the acquisition, by a bank holding company, such as
the Corporation, the principal banking operations of which are conducted in one
state, of control of a bank or bank holding company conducting its principal
banking operations in another state, unless the statutory laws of the state in
which are conducted the principal banking operations of the bank holding company
or bank to be acquired, explicitly authorize such an acquisition. Under existing
Michigan law and with the approval of the Commissioner of the Michigan Financial
Institutions Bureau, a Michigan-based bank and bank holding company (such as the
Corporation) may now be acquired by a bank holding company located in any state,
if the laws of such state would grant Michigan-based banks or bank holding
companies the right to acquire one or more banks or bank holding companies
located in such state under conditions which are not unduly restrictive. Under
the Michigan statute, the Commissioner of the Michigan Financial Institutions
Bureau must not approve any such transaction without first determining among
other things that the other state's law satisfies the reciprocity requirement
imposed by the Michigan statute.
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<PAGE> 7
Most states have adopted legislation that permits out-of-state bank holding
companies to acquire local banks and bank holding companies subject, in most
cases, to reciprocity requirements.
Under Federal Reserve Board policy, the Corporation is expected to act as a
source of financing strength to its subsidiary bank and to commit resources to
support its subsidiary. This support may be required at times when, in the
absence of such Federal Reserve Board policy, the Corporation would not
otherwise be required to provide it.
Under Michigan law, if the capital of a Michigan state chartered bank (such as
the Corporation's bank subsidiary) has become impaired by losses or otherwise,
the Commissioner of the Michigan Financial Institutions Bureau may require that
the deficiency in capital be met by assessment upon the Bank's stockholders pro
rata on the amount of capital stock held by each, and if any such assessment is
not paid by any stockholder within 30 days of the date of mailing of notice
thereof to such stockholder, cause the sale of the stock of such stockholder to
pay such assessment and the costs of sale of such stock.
Any capital loans by a bank holding company to any of its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. This priority would apparently
apply to guarantees of capital plans under the Federal Deposit Insurance
Corporation Improvement Act of 1991.
Certain additional information concerning regulatory guidelines for capital
adequacy and other regulatory matters is presented herein under the caption
"Capital" on page 23 and "Note I - Commitments and Other Matters" and "Note K -
Regulatory Capital Matters" on pages 44, 45, and 46, respectively.
ISABELLA BANK & TRUST
The Bank is subject to regulation and examination primarily by the Michigan
Financial Institutions Bureau. As an insured state bank, which is a member of
the Federal Reserve Bank of Chicago, the subsidiary is also subject to
regulation and examination by the FDIC and the Federal Reserve.
The agencies and federal and state law extensively regulate various aspects of
the banking business including, among other things, permissible types and
amounts of loans, investments and other activities, capital adequacy, branching,
interest rates on loans and on deposits and the safety and soundness of banking
practices.
Banking laws and regulations also restrict transactions by insured banks owned
by a bank holding company, including loans to and certain purchases from the
parent holding company, non-bank and bank subsidiaries of the parent holding
company, principal shareholders, officers, directors and their affiliates, and
investments by the subsidiary
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<PAGE> 8
banks in the shares or securities of the parent holding company (or any of the
other non-bank or bank affiliates), acceptance of such share or securities as
collateral security for loans to any borrower.
The Bank is also subject to legal limitations on the frequency and amount of
dividends that can be paid to the Corporation. For example, a Michigan state
bank may not declare a cash dividend or a dividend in kind except out of net
profits then on hand after deducting all losses and bad debts, and then only if
it will have a surplus amounting to not less than 20% of its capital after the
payment of the dividend. Moreover, a Michigan state bank may not declare or pay
any cash dividend or dividend in kind until the cumulative dividends on its
preferred stock, if any, have been paid in full. Further, if the surplus of a
Michigan state bank is at any time less than the amount of its capital, before
the declaration of a cash dividend or dividend in kind, it must transfer to
surplus not less than 10% of its net profits for the preceding half-year (in the
case of quarterly or semi-annual dividends) or the preceding two consecutive
half-year periods (in the case of annual dividends).
The payment of dividends by the Corporation and the Bank is also affected by
various regulatory requirements and policies, such as the requirement to
maintain adequate capital above regulatory guidelines. Recently enacted
legislation will impose further restrictions on the payment of dividends by
insured banks which fail to meet specified capital levels. The FDIC may prevent
an insured bank from paying dividends if the bank is in default of payment of
any assessment due to the FDIC. In addition, payment of dividends by a bank may
be prevented by the applicable federal regulatory authority if such payment is
determined, by reason of the financial condition of such bank, to be an unsafe
and unsound banking practice. The Federal Reserve Board and the FDIC have issued
policy statements providing that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
These regulations and restrictions may limit the Corporation's ability to obtain
funds from the Bank for its cash needs, including payment of dividends and
operating expenses.
The activities and operations of the Bank are also subject to other federal and
state laws and regulations, including usury and consumer credit laws, the
Federal Trust-in-Lending Act, Truth-in-Saving and Regulation Z of the Federal
Reserve Board and the Federal Bank Merger Act.
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ITEM 2. PROPERTIES
The Corporation's offices are located in the main office building of the Bank.
The Bank owns and operates 15 facilities and leases one. IBT Title owns one
facility. The Corporation's facilities current, planned, and best use is for
conducting its current activities with the exception of approximately 8% of the
main office, and 45% of the Clare office, which is leased to tenants. In
management's opinion, each facility has excess capacity and is in good
condition. The following table sets forth the location of the Corporation's
offices, as well as certain additional information relating to those offices as
of December 31, 1999.
<TABLE>
<CAPTION>
Year Approximate Net
Facility Square Book Value
Opened Footage 12/31/99 (1)
-------- ---------------- ------------
<S> <C> <C> <C>
Isabella Bank and Trust
Main Office
200 East Broadway (2)
Mt. Pleasant, Michigan 1903 27,640 $213,401
Main Office Extension
Customer Service Center
139 East Broadway
Mt. Pleasant, Michigan 1985 16,736 498,266
Isabella County Branch Offices
1416 East Pickard (3)
Mt. Pleasant, Michigan 1983 1,450 504,013
2133 South Mission (6)
Mt. Pleasant, Michigan 1976 1,560 397,702
200 South University (4)
Mt. Pleasant, Michigan 1964 1,795 58,905
1402 West High
Mt. Pleasant, Michigan 1973 2,150 49,734
401 East Main Street (5)
Blanchard, Michigan 1911 6,561 14,562
500 East Wright Avenue
Shepherd, Michigan 1980 1,830 184,194
3388 N. Woodruff Road
Weidman, Michigan 1975 5,400 73,987
</TABLE>
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<TABLE>
<CAPTION>
Year Net
Facility Approximate Book Value
Opened Sq. Footage 12/31/99 (1)
-------- --------------- ------------
<S> <C> <C> <C>
1867 Winn Road
Beal City, Michigan 1977 1,100 $50,548
Montcalm County Branch Office
313 W. Bridge Street (6)
Six Lakes, Michigan 1966 1,527 421,267
Clare County Branch Offices
532 N. McEwan Street
Clare, Michigan 1993 7,300 387,119
1125 N. McEwan Street
Clare, Michigan 1997 525 415,253
Mecosta County Branch Offices
220 W. Wheatland Street
Remus, Michigan 1998 4,273 313,184
240 E. Northern Avenue
Barryton, Michigan 1998 4,273 257,337
8529 - 100th Avenue
Stanwood, Michigan 1998 2,665 22,687
IBT Title
209 E. Broadway
Mt. Pleasant, Michigan 1998 2,640 225,556
</TABLE>
(1) includes land and buildings
(2) substantially remodeled in 1986
(3) substantially remodeled in 1990
(4) partially remodeled in 1986 and 1988
(5) substantially remodeled in 1976 and partially
remodeled in 1986
(6) substantially remodeled in 1992 and 1996
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ITEM 3. LEGAL PROCEEDINGS
The Corporation and the Bank are not involved in any material pending legal
proceedings. The Bank, because of the nature of its business, is at times
subject to numerous pending and threatened legal actions which arises out of the
normal course of their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF REGISTRANT
Pursuant to instruction G(3), the following information is included as an
unnumbered item under Part I of this report in lieu of being included in the
Proxy Statement for the Annual Shareholders Meeting to be held on April 18,
2000.
The names, ages, corporate positions, and years of service of the executive
officers of the Corporation are as follows:
<TABLE>
<CAPTION>
YEARS OF
NAME AGE POSITION SERVICE
---- --- -------- -------
<S> <C> <C> <C>
David W. Hole 62 President and CEO 40
Mary Ann Breuer 60 Secretary 40
Dennis P. Angner 44 Treasurer 16
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
There is no established market for the Corporation's common stock or public
information with respect to its market price. There are occasional sales by
shareholders of which the management of the Corporation is aware. From January
1, 1998 through December 31, 1999 there were, so far as management knows, 78
sales of the Corporation's common stock. These sales involved 58,807 shares, as
adjusted for a 3.3 for 1 stock split declared in December 1999 paid in February
2000. The prices were reported to management in only some of the transactions,
and management cannot confirm the prices which were reported during this period.
The highest known price paid for the Bank's stock was $27.27 per share in both
the third and fourth quarters of 1999, and the lowest price was $17.91 per share
in the first quarter of 1998. The following is a summary of all known transfers
since January 1, 1998. All of the information has been adjusted to reflect the
stock dividend referred to above.
<TABLE>
<CAPTION>
Number of Number of Low High
Date Sales Shares Bid Bid
---- --------- --------- --- ----
<S> <C> <C> <C> <C>
1998
First Quarter 3 743 $17.91 $17.91
Second Quarter 5 7,039 21.82 21.82
Third Quarter 11 7,187 21.82 23.33
Fourth Quarter 7 2,904 23.33 23.33
1999
First Quarter 12 27,430 $23.33 $24.85
Second Quarter 7 4,376 23.79 25.76
Third Quarter 18 4,704 24.24 27.27
Fourth Quarter 15 3,704 27.27 27.27
</TABLE>
The following table sets forth the cash dividends paid for the following
quarters, adjusted for the 3.3 for 1 stock split.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
First Quarter $0.08 $0.08
Second Quarter 0.08 0.08
Third Quarter 0.08 0.08
Fourth Quarter 0.26 0.23
----- -----
TOTAL $0.50 $0.47
===== =====
</TABLE>
IBT Bancorp's authorized common stock consists of 4,000,000 shares, of which
2,976,436 shares are issued and outstanding as of December 31, 1999 (as adjusted
for the stock split paid February 18, 2000). As of year end 1999, there were 895
shareholders of record.
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ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total interest income $27,501 $ 25,799 $ 22,730 $ 21,698 $ 19,852
Net interest income 14,603 13,317 12,196 11,741 10,855
Provision for loan losses 309 321 386 500 475
Net income 4,051 3,634 3,609 3,340 2,958
BALANCE SHEET DATA
End of year assets $402,018 $388,783 $318,731 $298,742 $281,505
Daily average assets 397,194 358,207 303,088 289,308 265,860
Daily average deposits 356,596 322,297 270,311 259,240 238,761
Daily average loans/net 252,755 226,997 213,757 196,783 177,109
Daily average equity 35,356 32,349 29,591 26,954 24,313
PER SHARE DATA (1)
Net income $1.38 $ 1.26 $ 1.26 $ 1.18 $ 1.06
Cash dividends 0.50 0.47 0.45 0.42 0.36
Book value (at year end) 12.32 11.87 10.76 9.85 9.19
FINANCIAL RATIOS
Shareholders' equity to assets 9.12% 8.88% 9.71% 9.37% 9.17%
Net income to average equity 11.46 11.23 12.20 12.39 12.17
Cash dividend payout to net income 36.24 37.64 35.38 35.60 34.27
Net income to average assets 1.02 1.01 1.19 1.15 1.11
</TABLE>
(1) Retroactively restated for the 3.3 for 1 stock split declared on December
14, 1999, paid February 18, 2000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the financial condition
and results of operations for IBT Bancorp (the Corporation). This discussion and
analysis is intended to provide a better understanding of the financial
statements and statistical data included elsewhere in the Annual Report.
TABLE 1. DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY;
INTEREST RATE AND INTEREST DIFFERENTIAL
(Dollars in thousands)
The following schedules present the daily average amount outstanding for each
major category (at historical cost) of interest earning assets, nonearning
assets, interest bearing liabilities, and noninterest bearing liabilities. This
schedule also presents an analysis of interest income and interest expense for
the periods indicated. All interest income is reported on a fully taxable
equivalent (FTE) basis using a 34% tax rate. Nonaccruing loans, for the purpose
of the following computations, are included in the average loan amounts
outstanding.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ---------------------------- ------------------------------
Tax Average Tax Average Tax Average
Average Equivalent Yield/ Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- ---------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $255,907 $21,486 8.40% $229,966 $20,112 8.75% $216,612 $18,865 8.71%
Taxable investment securities 73,997 4,363 5.90 71,104 4,305 6.05 42,438 2,688 6.33
Nontaxable investment securities 21,118 1,494 7.07 18,677 1,318 7.06 14,053 967 6.88
Federal funds sold 13,679 662 4.84 9,828 520 5.29 9,700 524 5.40
Other 1,804 125 6.93 1,610 117 7.27 1,441 108 7.49
-------- ------- ---- -------- ------- ---- -------- ------- ----
TOTAL EARNING ASSETS 366,505 28,130 7.68 331,185 26,372 7.96 284,244 23,152 8.15
NONEARNING ASSETS
Allowance for loan losses (3,152) (2,969) (2,855)
Cash and due from banks 14,480 12,984 10,380
Premises and equipment 8,395 7,044 5,727
Accrued income and other assets 10,966 9,963 5,592
-------- -------- --------
TOTAL ASSETS $397,194 $358,207 $303,088
======== ======== ========
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $55,797 1,343 2.41 $ 47,364 1,259 2.66 $ 38,875 1,044 2.69
Savings deposits 100,988 3,085 3.05 85,541 2,738 3.20 70,517 2,291 3.25
Time deposits 155,212 8,440 5.44 146,143 8,469 5.80 122,525 7,199 5.88
Federal funds purchased 543 30 5.52 274 16 5.84 --- --- ---
-------- ------- ---- -------- ------ ---- -------- ------- ------
TOTAL INTEREST BEARING LIABILITIES 312,540 12,898 4.13 279,322 12,482 4.47 231,917 10,534 4.54
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 44,599 42,975 38,394
Other 4,699 3,561 3,186
Shareholders' equity 35,356 32,349 29,591
-------- -------- --------
TOTAL LIABILITIES AND EQUITY $397,194 $358,207 $303,088
======== ======== ========
NET INTEREST INCOME (FTE)
$15,232 $13,890 $12,618
======= ======= =======
NET YIELD ON INTEREST EARNING ASSETS (FTE) 4.16% 4.19% 4.44%
===== ===== =====
</TABLE>
14
<PAGE> 15
RESULTS OF OPERATIONS
The Corporation achieved record net income for the thirteenth consecutive year
in 1999 with earnings of $4,051,000, versus $3,634,000 in 1998. Earnings per
share was $1.38, an increase of $0.12 from 1998 and 1997.
Two key measures of earnings performance commonly used in the banking industry
are return on average assets and return on average shareholders' equity. Return
on average assets measures the ability of a corporation to profitably and
efficiently employ its resources. The Corporation's return on average assets
equaled 1.02% in 1999, 1.01% in 1998, and 1.19% in 1997. Return on average
equity indicates how effectively a corporation is able to generate earnings on
capital invested by its shareholders. The Corporation's return on average
shareholders' equity equaled 11.46% in 1999, 11.23% in 1998, and 12.20% in 1997.
The Corporation's subsidiary bank, Isabella Bank and Trust, completed the
purchase of three branches from Old Kent Bank on March 31, 1998. The purchase
included approximately $43.1 million in deposits and $233,000 in loans. IBT
Title, a wholly owned subsidiary of Isabella Bank and Trust, acquired Isabella
County Abstract Company on July 31, 1998 and Mecosta County Abstract and Title
on June 30, 1999. The acquisitions included premises, equipment, and abstract
title plants. The purchase prices were less than 1% of the Corporation's assets.
The Results of Operations and Changes in Financial Position include the
operating results from the dates of purchase.
NET INTEREST INCOME
The Corporation derives the majority of its income from interest earned on loans
and investments, while its most significant expense is the interest cost
incurred for funds used. Net interest income is the amount by which interest
income on earning assets exceeds the interest cost of deposits. Net interest
income is influenced by changes in the balance and mix of assets and
liabilities, and market interest rates. Management exerts some control over
these factors however, Federal Reserve monetary policy and competition have a
significant impact. Interest income includes loan fees of $789,000 in 1999;
$879,000 in 1998; and $599,000 in 1997. For analytical purposes, net interest
income is adjusted to a "taxable equivalent" basis by adding the income tax
savings from interest on tax-exempt loans and securities, thus making
year-to-year comparisons more meaningful.
TABLE 2. VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in thousands)
The following table details the dollar amount of changes in FTE net interest
income for each major category of interest earning assets and interest bearing
liabilities and the amount of change attributable to changes in average balances
(volume) or average rates. The change in interest due to both volume and rate
has been allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------- ------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
CHANGES IN INTEREST INCOME
Loans $2,202 $(828) $1,374 $1,168 $ 79 $1,247
Taxable investment securities 172 (114) 58 1,740 (123) 1,617
Nontaxable investment securities 173 3 176 326 25 351
Federal funds sold 189 (47) 142 7 (11) (4)
Other 14 (6) 8 12 (3) 9
------ ----- ------ ------ ----- ------
TOTAL CHANGES IN INTEREST INCOME 2,750 (992) 1,758 3,253 (33) 3,220
CHANGES IN INTEREST EXPENSE
Interest bearing demand deposits 210 (126) 84 226 (11) 215
Savings deposits 476 (129) 347 481 (34) 447
Time deposits 509 (538) (29) 1,370 (100) 1,270
Federal funds purchased 15 (1) 14 16 -- 16
------ ----- ------ ------ ----- ------
TOTAL CHANGES IN INTEREST EXPENSE 1,210 (794) 416 2,093 (145) 1,948
------ ----- ------ ------ ----- ------
NET CHANGE IN FTE NET INTEREST INCOME $1,540 $(198) $1,342 $1,160 $ 112 $1,272
====== ====== ====== ====== ===== ======
</TABLE>
15
<PAGE> 16
As shown in Tables 1 and 2, when comparing year ending December 31, 1999 to
1998, fully taxable equivalent (FTE) net interest income increased $1.34 million
or 9.7%. An increase of 10.7% in average interest earning assets provided $2.75
million of FTE interest income. The majority of this growth was funded by a
11.9% increase in interest bearing deposits, resulting in $1.21 million of
additional interest expense. Overall, changes in volume resulted in $1.54
million in additional FTE interest income. The average FTE interest rate earned
on assets decreased by 0.28%, decreasing FTE interest income by $992,000, and
the average rate paid on deposits decreased by 0.34%, decreasing interest
expense by $794,000 The net change related to interest rates earned and paid was
a $198,000 decrease in FTE net interest income.
The Corporation's FTE net yield as a percentage of average assets declined 0.03%
to 4.16% in 1999. A $90,000 decrease in loan fees included in interest income
accounted for 0.02% of the decline. Other factors affecting the Corporation's
net interest margin are the increasing reliance on higher cost deposits such as
certificates of deposit and money market accounts to fund asset growth, and
intense rate competition for new commercial and installment loans. Management
expects the Corporation's reliance on higher cost deposits to fund asset growth
to continue and for rates charged for loans in relation to deposit costs to
continue declining.
Net interest income increased $1.27 million to $13.9 million in 1998 from $12.6
million in 1997. As shown in Tables 1 and 2, in 1998 (FTE) interest income
increased $3.25 million, from a 16.5% increase in the volume of average earning
assets. The growth of interest earning assets was funded primarily by a 20.4%
increase in interest bearing deposits that resulted in additional interest
expense of $2.09 million. Overall, the Corporation earned an additional $1.16
million in FTE interest income as a result of volume. The average rate earned in
1998 decreased by 0.19%, decreasing FTE interest income by $33,000 and the
average rate paid on deposits decreased by 0.07%, decreasing interest expense by
$145,000. The net result of the lower interest rates earned and paid increased
FTE net interest income by $112,000.
The Corporation's FTE net interest yield as a percentage of average earning
assets equaled 4.19% during 1998 versus 4.44% in 1997. The 0.25% decrease in the
net interest yield was primarily a result of the Bank's purchase of the Old Kent
branches. The net proceeds (due to the assumption of the deposit liabilities)
were invested in investment securities. The overall net FTE interest yield on
these additional funds was approximately 2.20%, and lowered the yield by an
estimated 0.18% in 1999.
PROVISION FOR LOAN LOSSES
The viability of any financial institution is ultimately determined by its
management of credit risk. Total loans outstanding represent 77.8% of the
Corporation's total year end deposits, and is the Corporation's single largest
concentration of risk. Inevitably, poor operating performance may result from
the failure to control credit risk. Given the importance of maintaining sound
underwriting practices, both the Board of Directors and senior management spend
a large portion of their time and effort in loan review. The provision for loan
losses is the amount added to the allowance for loan losses on a monthly basis.
The allowance for loan losses is management's estimation of potential future
losses inherent in the loan portfolio, and is maintained at a level considered
by management to be adequate to absorb potential future losses. Evaluation of
the allowance for loan losses and the provision for loan losses is based on a
continuous review of the changes in the type and volume of the loan portfolio,
reviews of specific loans to evaluate their collectibility, recent loan loss
history, financial condition of borrowers, the amount of impaired loans, overall
economic conditions, and other factors. This evaluation is inherently subjective
as it requires material estimates, including the amounts and timing of future
cash flows expected to be received on impaired loans that may be subject to
significant change.
As shown in Table 3, total loans outstanding increased 12.2% in 1999 and 13.6%
in 1998. The provision for loan losses in 1999 was $309,000, a $12,000 decrease
from 1998 and a $77,000 decrease from 1997. The allowance for loan losses as a
percentage of total outstanding loans at year end 1999 was 1.16% compared to
1.21% at December 31, 1998. The Corporation's net charged off loans as a
percentage of average loans was 0.03% in 1999 and 0.01% in 1998. The provision
was reduced in 1999 due to a decrease in nonperforming loans, as shown in Table
4, and an extremely moderate amount of net charged off loans of $76,000.
16
<PAGE> 17
TABLE 3. SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
The following is a summary of loan balances at the end of each period and their
daily average balances, changes in the allowance for possible loan losses
arising from loans charged off and recoveries on loans previously charged off,
and additions to the allowance which have been expensed.
<TABLE>
<CAPTION>
December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at the end of year $276,722 $246,708 $217,249 $215,455 $185,996
======== ======== ======== ======== ========
Average amount of gross loans
outstanding for the year $255,907 $229,966 $216,612 $199,277 $179,355
======== ======== ======== ======== ========
Summary of changes in allowance
Allowance for loan losses - January 1 $ 2,977 $2,677 $ 2,621 $ 2,248 $ 2,083
Loans charged off
Commercial and agricultural 93 42 230 166 334
Real estate mortgage 62 70 181 36 4
Personal 208 152 164 173 161
-------- -------- -------- -------- --------
TOTAL LOANS CHARGED OFF 363 264 575 375 499
Recoveries
Commercial and agricultural 57 128 124 146 109
Real estate mortgage 92 13 2 --- ---
Personal 138 102 119 102 80
-------- -------- -------- -------- --------
TOTAL RECOVERIES 287 243 245 248 189
-------- -------- -------- -------- --------
Net charge offs 76 21 330 127 310
Provision charged to income 309 321 386 500 475
-------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES - DECEMBER 31 $ 3,210 $ 2,977 $ 2,677 $ 2,621 $ 2,248
======== ======== ======== ======== ========
Ratio of net charge offs during the
year to average loans outstanding 0.03% 0.01% 0.15% 0.06% 0.17%
===== ===== ===== ===== =====
Ratio of the allowance for loan losses
to loans outstanding at year end 1.16% 1.21% 1.23% 1.22% 1.21%
===== ===== ===== ===== =====
</TABLE>
As shown in Table 4, the percentage of loans classified as nonperforming by the
Corporation as of December 31, 1999 and 1998 equaled 0.28% and 0.38% of total
loans, respectively. The Bank's policy, including a loan considered impaired
under SFAS No. 118, is to transfer a loan to nonaccrual status whenever it is
determined that interest should be recorded on the cash basis instead of the
accrual basis because of a deterioration in the financial position of the
borrower, it is determined that payment in full of interest or principal cannot
be expected, or the loan has been in default for a period of 90 days or more,
unless it is both well secured and in the process of collection. Restructured
loans are loans whose terms have been renegotiated to provide a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower.
17
<PAGE> 18
TABLE 4. NONPERFORMING LOANS
(Dollars in thousands)
The following loans are all the credits which require classification for state
or federal regulatory purposes.
<TABLE>
<CAPTION>
December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $279 $ 99 $292 $--- $262
Accruing loans past due 90 days or more 505 847 235 441 590
Restructured loans --- --- --- 107 ---
----- ----- ----- ----- -----
TOTAL NONPERFORMING LOANS $784 $946 $527 $548 $852
===== ===== ===== ===== =====
</TABLE>
As of December 31, 1999, there were no other interest bearing assets which
required classification. Management is not aware of any recommendations by
regulatory agencies which, if implemented, would have a material impact on the
Corporation's liquidity, capital, or operations.
In management's opinion, the allowance for loan losses is adequate as of
December 31, 1999. Management has allocated, as shown in Table 5, the allowance
for loan losses to the following categories: 57.1% to commercial and
agricultural loans; 24.5% to real estate loans; 14.1% to installment loans; and
4.3% unallocated. When analyzing the adequacy of the allowance for loan losses
at December 31, 1999, management reclassified commercial installment loans from
the installment category to the commercial category, resulting in a shift of
allocated allowance from installment to commercial and agricultural loans. The
above allocation is not intended to imply limitations on usage of the allowance.
The entire allowance is available for any future loans without regard to loan
type.
TABLE 5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
The allowance for loan losses has been allocated according to the amount deemed
to be reasonably necessary to provide for the possibility of losses being
incurred within the following categories:
<TABLE>
<CAPTION>
December 31
1999 1998 1997 1996 1995
------------------- ------------------- ------------------- -------------------- -------------------
% of Each % of Each % of Each % of Each % of Each
Category Category Category Category Category
Allowance to Total Allowance to Total Allowance to Total Allowance to Total Allowance to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------- --------- ---------- --------- --------- --------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $1,832 17.4% $1,014 18.2% $1,093 17.0% $1,110 18.6% $1,079 18.1%
Real estate mortgage 788 67.9 864 67.1 584 66.0 384 64.0 278 62.2
Installment 452 14.7 869 14.7 782 17.0 928 17.4 707 19.7
Impaired loans --- --- --- --- --- --- --- --- 5 ---
Unallocated 138 --- 230 --- 218 --- 199 --- 179 ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL $3,210 100.0% $2,977 100.0% 2,677 100.0% $22,621 100.0% $2,248 100.0%
====== ====== ====== ====== ====== ====== ======= ====== ====== ======
</TABLE>
18
<PAGE> 19
NONINTEREST INCOME
Noninterest income consists of trust fees, deposit service charges, fees for
other financial services, gain on the sale of mortgage loans, title insurance
revenue, and gains and losses on investment securities available for sale. There
was an $893,000 increase in fees earned from these sources during 1999.
Significant changes during 1999 include a $670,000 increase in the sale of title
insurance and related services, a $101,000 increase in ATM access fees, a
$42,000 increase in brokerage commissions, a $35,000 increase in overdraft fees,
a $64,000 increase in mortgage servicing fees, a $68,000 decline in gains on the
sale of real estate mortgages, and a $37,000 decline in gains on the sale of
investment securities available for sale.
Included in noninterest income is a $277,000 gain from the sale of $35.8 million
in mortgages during 1999 versus a $345,000 gain on the sale of $55.8 million for
1998. The Corporation has established a policy that all 30-year fixed rate
mortgage loans will be sold. During 1999, most 15 and 30 year fixed rate
mortgage loans granted were sold on the secondary market. These loans were sold
without recourse, with servicing retained.
Noninterest income increased $851,000 or 40.5% in 1998 when compared to 1997.
Significant changes in 1998 include $318,000 of revenue from IBT Title, a
$49,000 increase in brokerage commissions, a $38,000 increase in trust fees, a
$64,000 increase in gains on the sale of investment securities available for
sale, and a $214,000 increase in the gain on the sale of mortgage loans.
NONINTEREST EXPENSES
Noninterest expense increased $1.66 million or 15.1% during 1999. The dollar
amount and percent of increase, but not the overall operating efficiency of the
Corporation were significantly impacted by the acquisition of the Old Kent
branches in March 1998, Isabella County Abstract in July 1998, and Mecosta
County Abstract in July 1999. Net noninterest expense less noninterest income
divided by average total assets equalled 2.20% in 1999, 2.23% in 1998, and 2.21%
in 1997.
The largest component of noninterest expense is salaries and employee benefits,
which increased $620,000 or 10.3%. Salary expenses related to the acquisitions
are estimated to equal $300,000. The remaining increase is related to normal
merit and promotional salary increases and additional staffing.
Occupancy and furniture and equipment expenses increased $301,000 or 16.4% in
1999. Approximately half of the increase is related to depreciation, service
contracts, and computer costs related to the installation of a teller terminal
system late in 1998. Other significant increases include property taxes and
utilities related to the aforementioned acquisitions. All other operating
expenses increased $734,000, a 23.6% increase. The amortization of acquisition
intangibles accounted for $142,000 of the increase. Telephone, consultant fees,
donations, printing and office supplies, marketing, and educational expenses
accounted for the majority of the remaining increase.
Noninterest expense increased $2.13 million or 24.2% in 1998. The additional
expenses related to the 1998 acquisition was approximately $1.3 million. During
1998, salaries and benefits increased $1.15 million, occupancy and furniture and
equipment expenses increased $288,000 and all other operating expenses increased
$691,000.
FEDERAL INCOME TAXES
Federal income tax expense for 1999 was $1.49 million or 26.9% of pre-tax income
compared to $1.37 million or 27.4% of pre-tax income in 1998 and $1.49 million
or 29.2% in 1997. The decrease in income tax expense as a percentage of income
in 1999 is attributable to an increase in non taxable municipal income as a
percentage of the Corporation's pretax net income. A reconcilement of federal
income tax expense and the amount computed at the federal statutory rate of 34%
is found in Note E, Federal Income Taxes, in the accompanying consolidated
financial statements.
19
<PAGE> 20
ANALYSIS OF CHANGES IN THE STATEMENT OF CONDITION
Total assets were $402.0 million at December 31, 1999, an increase of $13.2
million or 3.4% over year end 1998. Asset growth was primarily funded by a $5.6
million increase in deposits, a $5.0 million increase in federal funds
borrowing, and a $2.2 million increase in shareholders' equity. A discussion of
changes in balance sheet amounts by major categories follows.
INVESTMENT SECURITIES
The primary objective of the Corporation's investing activities is to provide
for safety of the principal invested. Secondary considerations include the need
for earnings, liquidity, and the Corporation's overall exposure to changes in
interest rates. During 1999, the Corporation's net holding of investment
securities decreased $6.4 million. Table 6 shows the carrying value of
investment securities available for sale and held to maturity. Securities held
to maturity, which are stated at amortized cost, consist mostly of local
municipal bond issues, U.S. Agencies, and restricted securities. Securities not
classified by management as held to maturity are classified as available for
sale and are stated at fair value.
TABLE 6. INVESTMENT PORTFOLIO
(Dollars in thousands)
The following is a schedule of the carrying value of investment securities
available for sale and held to maturity:
<TABLE>
<CAPTION>
December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Available for sale
U.S. Treasury and U.S. government agencies $52,151 $59,630 $42,682
States and political subdivisions 30,677 27,842 14,709
Commercial paper --- 2,014 ---
------- ------- -------
TOTAL $82,828 $89,486 $57,391
======= ======= =======
Held to maturity
U.S. Treasury and U.S. government agencies $ 656 $1,425 $3,306
States and political subdivisions 4,430 3,509 2,388
Restricted securities 1,736 1,614 1,466
------ ------ ------
TOTAL $6,822 $6,548 $7,160
====== ====== ======
</TABLE>
Excluding those holdings of the investment portfolio in U.S. Treasury and U.S.
government agency securities, there were no investments in securities of any one
issuer which exceeded 10% of shareholders' equity. Restricted securities consist
solely of Federal Reserve Bank and Federal Home Loan Bank stock, which have no
contractual maturity. The Corporation has a policy prohibiting investments in
securities that it deems are unsuitable due to their inherent credit or market
risks. Prohibited investments include stripped mortgage backed securities,
collateralized mortgage obligations, zero coupon bonds, nongovernment agency
asset backed securities, and structured notes.
20
<PAGE> 21
The following is a schedule of maturities of each category of investment
securities (at carrying value) and their weighted average yield as of December
31, 1999. The weighted average interest rates have been computed on a fully
taxable equivalent basis, based on amortized cost. The rates shown on securities
issued by states and political subdivisions are stated on a taxable equivalent
basis using a 34% tax rate.
TABLE 7. SCHEDULE OF MATURITIES OF INVESTMENT SECURITIES AND WEIGHTED AVERAGE
YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------------------------------------
After Ten After One After Five
Years But Years But Years But
Within Within Within Investments with no
One Year Five Years Ten Years contractual maturity
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury and U.S.
government agencies $10,971 5.83% $40,178 5.83% $1,002 6.06% $ --- ---%
States and political
subdivisions 2,665 6.58 18,211 6.58 8,886 7.17 915 6.40
------- ----- ------- ----- ------ ----- ---- -----
TOTAL $13,636 5.98% $58,389 6.06% $9,888 7.06% $915 6.40%
======= ===== ======= ===== ====== ===== ==== =====
Held to maturity
U.S. Treasury and U.S
government agencies $ 308 5.48% $ 293 6.31% $ 56 7.52% $ --- ---%
States and political
subdivisions 2,400 6.09 1,865 7.51 164 7.58 --- ---
Restricted securities --- --- --- --- --- 1,736 7.46
------ ----- ------ ----- ---- ----- ------ -----
TOTAL $2,708 6.02% $2,158 7.35% $220 7.56% $1,736 7.46%
====== ===== ====== ===== ==== ===== ====== =====
</TABLE>
LOANS
The largest component of earning assets is loans. The proper management of
credit and market risk inherent in loans is critical to the financial well-being
of the Corporation. To control these risks, the Corporation has adopted strict
underwriting standards. The standards include prohibitions against lending
outside the Corporation's defined market area, lending limits to a single
borrower, and strict loan to collateral value limits. The Corporation also
monitors and limits loan concentrations extended to volatile industries. The
Corporation has no foreign loans and there were no concentrations greater than
10% of total loans that are not disclosed as a separate category in Table 8.
TABLE 8. LOAN PORTFOLIO
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $ 48,156 $ 44,917 $ 36,978 $ 40,068 $ 33,585
Real estate mortgage 188,016 165,553 143,424 137,998 115,718
Installment 40,550 36,238 36,847 37,389 36,693
-------- --------- --------- --------- ---------
TOTAL LOANS $276,722 $246,708 $217,249 $215,455 $185,996
======== ======== ======== ======== ========
</TABLE>
Total loans increased $30.0 million in 1999. The increase was primarily in
residential real estate mortgages. During 1999, a total of 6,493 new loans were
granted for a total of $171.9 million.
21
<PAGE> 22
DEPOSITS
Total deposits increased $5.6 million and were $355.6 million at year end 1999,
a 1.6% increase over 1998. Average deposits increased 10.6% in 1999 and 19.3% in
1998. During 1999, average noninterest bearing deposits increased 3.8%, interest
bearing demand deposits increased 17.8%, savings deposits increased 18.1%, and
time deposits increased 6.0%. Time deposits over $100,000 as a percentage of
total deposits equaled 7.0% and 5.4% as of December 31, 1999 and 1998,
respectively.
TABLE 9. AVERAGE DEPOSITS
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 44,599 $ 42,975 $ 38,394
Interest bearing demand deposits 55,797 2.41% 47,364 2.66% 38,875 2.69%
Savings deposits 100,988 3.05 85,541 3.20 70,517 3.25
Time deposits 155,212 5.44 146,417 5.80 122,525 5.88
-------- -------- --------
TOTAL $356,596 $322,297 $270,311
======== ======== ========
</TABLE>
TABLE 10. MATURITIES OF TIME CERTIFICATES OF DEPOSIT OVER $100,000
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Maturity
Within 3 months $10,163 $ 5,651 $ 9,406
Within 3 to 6 months 4,039 5,471 6,523
Within 6 to 12 months 3,106 4,530 2,439
Over 12 months 7,702 3,119 2,777
------- ------- -------
TOTAL $25,010 $18,771 $21,145
======= ======= =======
</TABLE>
Within the banking industry there is agreement that competition from mutual
funds and annuities has had a significant impact on deposit growth. In response,
the Corporation's subsidiaries now offer mutual funds and annuities to its
customers. The Bank's trust department also offers a variety of financial
products in addition to traditional estate services. Competition from other
financial institutions in Isabella County, the Bank's primary market, has an
impact on both the amount of and the cost of deposits. Isabella County has a
population of less than 60,000 people and is serviced by eight financial
institutions with 24 locations. This competition results in a higher cost of
funds than would otherwise exist. Generally, deposit rates in Isabella County
are higher than in the major metropolitan areas in the state. Currently, the
Bank's market share of deposits in Isabella County is slightly in excess of 50%.
22
<PAGE> 23
CAPITAL
The capital of the Corporation consists solely of common stock, capital surplus,
retained earnings, and accumulated other comprehensive income. Total capital
increased approximately $2.2 million in 1999. The Corporation offers a dividend
reinvestment and employee stock purchase plan. Under the provisions of these
Plans, the Corporation issued 19,917 shares of common stock generating $429,000
of capital during 1999, and 32,878 shares of common stock generating $597,000 of
capital in 1998. An additional 47,328 shares were issued in conjunction with the
acquisition of Mecosta County Abstract and Title Company. These shares were
valued at $1.13 million. Total capital decreased $1.98 million due to unrealized
losses on investment securities available for sale in 1999.
The Federal Reserve Board's current recommended minimum primary capital to
assets requirement is 6.0%. The Corporation's primary capital to assets, which
consists of shareholders' equity plus the allowance for loan losses less
acquisition intangibles, was 9.0% at year end 1999. There are no commitments for
significant capital expenditures.
The Federal Reserve Board has established a minimum risk based capital standard.
Under this standard, a framework has been established that assigns risk weights
to each category of on and off-balance-sheet items to arrive at risk adjusted
total assets. Regulatory capital is divided by the risk adjusted assets with the
resulting ratio compared to the minimum standard to determine whether a
corporation has adequate capital. The minimum standard is 8%, of which at least
4% must consist of equity capital net of goodwill. The following table sets
forth the percentages required under the Risk Based Capital guidelines and the
Corporation's values at December 31, 1999:
Percentage of Capital to Risk Adjusted Assets:
<TABLE>
<CAPTION>
Required IBT Bancorp
<S> <C> <C>
Equity Capital 4.00% 13.31%
Secondary Capital 4.00 1.25
------- --------
Total Capital 8.00% 14.56%
======= ========
</TABLE>
IBT Bancorp's secondary capital includes only the allowance for loan losses. The
percentage for the secondary capital under the required column is the maximum
amount allowed from all sources.
The Federal Reserve also prescribes minimum capital requirements for the
Corporation's subsidiary bank, Isabella Bank and Trust. At December 31, 1999,
Isabella Bank and Trust exceeded these minimums. For further information
regarding Isabella Bank and Trust's capital requirements, refer to Note K,
Regulatory Capital Matters.
LIQUIDITY
Liquidity management is designed to have adequate resources available to meet
depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and payment of
cash dividends. The primary sources of the Corporation's liquidity are cash and
cash equivalents and available for sale investment securities.
As of December 31, 1999 and 1998, cash and cash equivalents equaled 4.4% and
7.8% of total assets, respectively. Net cash provided from operations was $9.5
million in 1999 and $853,000 in 1998. Net cash provided by financing activities
equaled $10.7 million in 1999 and $21.6 million in 1998. The Corporation's
investing activities used $33.1 million in 1999 and $20.4 million in 1998. The
accumulated effect of the Corporation's operating, investing, and financing
activities on cash and cash equivalents was a $12.9 million decrease in 1999 and
a $2.0 million increase in 1998.
In addition to cash and cash equivalents, investment securities available for
sale are another source of liquidity. Securities available for sale equaled
$82.8 million as of December 31, 1999 and $89.5 million as of December 31, 1998.
In addition to these primary sources of liquidity, the Corporation has the
ability to borrow in the federal funds market and at both the Federal Reserve
Bank and the Federal Home Loan Bank. The Corporation's liquidity is considered
adequate by the management of the Corporation.
23
<PAGE> 24
INTEREST RATE SENSITIVITY
Interest rate sensitivity management aims at achieving reasonable stability in
the net interest margin through periods of changing interest rates. Interest
rate sensitivity is determined by the amount of earning assets and interest
bearing liabilities repricing within a specific time period, and their relative
sensitivity to a change in interest rates. One tool used by management to
measure interest rate sensitivity is gap analysis. As shown in Table 11, the gap
analysis depicts the Corporation's position for specific time periods and the
cumulative gap as a percentage of total assets.
Investment securities and other investments are scheduled according to their
contractual maturity. Nonvariable rate loans are included in the appropriate
time frame based on their scheduled amortization. Variable rate loans are
included in the time frame of their earliest repricing. Of the $276.7 million in
total loans, $17.7 million are variable rate loans. Time deposit liabilities are
scheduled based on their contractual maturity except for variable rate time
deposits in the amount of $1.2 million which are included in the 0 to 3 month
time frame. Money market accounts reprice monthly and are included in the 0 to 3
month time frame.
Passbook savings, statement savings, and NOW accounts have no contractual
maturity date and are believed to be predominantly noninterest rate sensitive by
management. These accounts have been classified in the gap table according to
their estimated withdrawal rates based upon management's analysis of deposit
runoff over the past five years. Management believes this runoff experience is
consistent with its expectation for the future. As of December 31, 1999, the
Corporation had $68.0 million more in liabilities than assets maturing within
one year. A negative gap position results when more liabilities, within a
specified time frame, mature or reprice than assets.
TABLE 11. INTEREST RATE SENSITIVITY
(Dollars in thousands)
The following table shows the time periods and the amount of assets and
liabilities available for interest rate repricing as of December 31, 1999. For
purposes of this analysis, nonaccrual loans and the allowance for loan losses
are excluded.
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 5 Over 5
Months Months Years Years
<S> <C> <C> <C> <C>
Interest Sensitive Assets
Investment securities $ 1,402 $14,942 $ 60,547 $12,759
Loans 48,197 45,925 172,060 10,540
------- ------- -------- -------
TOTAL $49,599 $60,867 $232,607 $23,299
======= ======= ======== =======
Interest Sensitive Liabilities
Federal funds purchased $ 5,000 $ --- $ --- $ ---
Time Deposits 31,520 52,946 66,867 5
Savings 64,360 2,902 18,255 14,949
Interest bearing demand 16,742 5,010 26,097 6,779
-------- ------- -------- -------
TOTAL $117,622 $60,858 $111,219 $21,733
======== ======= ======== =======
Cumulative gap $(68,023) $(68,014) $ 53,374 $54,940
Cumulative gap as a % of assets (16.92)% (16.92)% 13.28% 13.67%
</TABLE>
24
<PAGE> 25
TABLE 12. LOAN MATURITY AND INTEREST RATE SENSITIVITY
(Dollars in thousands)
The following table shows the maturity of commercial and agricultural loans
outstanding at December 31, 1999. Also provided are the amounts due after one
year, classified according to the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Due in
1 Year 1 to 5 Over 5
or Less Years Years Total
-------- ------- ------ -------
<S> <C> <C> <C> <C>
Commercial and agricultural $21,825 $25,193 $1,138 $48,156
======== ======= ====== =======
Interest Sensitivity:
Loans maturing after one year which have:
Fixed interest rates $24,583 $1,138
Variable interest rates 610 ---
------- ------
TOTAL $25,193 $1,138
======= ======
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risks are interest rate risk and, to a lesser
extent, liquidity risk. The Corporation has no foreign exchange risk, holds
limited loans outstanding to agricultural and oil and gas concerns, holds no
trading account assets, nor does it utilize interest rate swaps or derivatives
in the management of its interest rate risk. Any changes in foreign exchange
rates or commodity prices would have an insignificant impact, if any, on the
Corporation's interest income and cash flows.
Interest rate risk ("IRR") is the exposure to the Corporation's net interest
income, its primary source of income, to changes in interest rates. IRR results
from the difference in the maturity or repricing frequency of a financial
institution's interest earning assets and its interest bearing liabilities. IRR
is the fundamental method in which financial institutions earn income and create
shareholder value. Excessive exposure to IRR could pose a significant risk to
the Corporation's earnings and capital.
The Federal Reserve, the Corporation's primary Federal regulator, has adopted a
policy requiring the Board of Directors and senior management to effectively
manage the various risks that can have a material impact on the safety and
soundness of the Corporation. The risks include credit, interest rate,
liquidity, operational, and reputational. The Corporation has policies,
procedures and internal controls for measuring and managing these risks.
Specifically, the IRR policy and procedures include defining acceptable types
and terms of investments and funding sources, liquidity requirements, limits on
investments in long term assets, limiting the mismatch in repricing opportunity
of assets and liabilities, and the frequency of measuring and reporting to the
Board of Directors.
The Corporation uses several techniques to manage IRR. The first method is gap
analysis. Gap analysis measures the cash flows and/or the earliest repricing of
the Corporation's interest bearing assets and liabilities. This analysis is
useful for measuring trends in the repricing characteristics of the balance
sheet. Significant assumptions are required in this process because of the
imbedded repricing options contained in assets and liabilities. A substantial
portion of the Corporation's assets are invested in loans and mortgage backed
securities. These assets have imbedded options that allow the borrower to repay
the balance prior to maturity without penalty. The amount of prepayments is
dependent upon many factors, including the interest rate of a given loan in
comparison to the current interest rate for residential mortgages, the level of
sales of used homes, and the overall availability of credit in the market place.
Generally, a decrease in interest rates will result in an increase in the
Corporation's cash flows from these assets. Investment securities, other than
those that are callable, do not have any significant imbedded options. Saving
and checking deposits may generally be withdrawn on request without prior
notice. The timing of cash flow from these deposits are estimated based on
historical experience. Time deposits have penalties which discourage early
withdrawals.
25
<PAGE> 26
The second technique used in the management of IRR is to combine the projected
cash flows and repricing characteristics generated by the gap analysis and the
interest rates associated with those cash flows and projected future interest
income. By changing the amount and timing of the cash flows and the repricing
interest rates of those cash flows, the Corporation can project the effect of
changing interest rates on its interest income. Based on the projections
prepared for the year ended December 31, 1999 the Corporation's net interest
income would increase during a period of decreasing interest rates.
The following tables provide information about the Corporation's assets and
liabilities that are sensitive to changes in interest rates as of December 31,
1999 and 1998. The Corporation has no interest rate swaps, futures contracts, or
other derivative financial options. The principal amounts of assets and time
deposits maturing were calculated based on the contractual maturity dates.
Savings and NOW accounts are based on management's estimate of their future cash
flows.
QUANTITATIVE DISCLOSURES OF MARKET RISK
<TABLE>
<CAPTION>
Fair Value
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets
Fixed interest rate securities $16,344 $17,988 $24,745 $11,448 $6,366 $12,759 $89,650 $89,641
Average interest rates 5.46% 5.79% 5.59% 5.76% 5.42% 5.33% 5.58%
Fixed interest rate loans $76,470 $55,921 $48,556 $32,078 $35,505 $10,540 $259,070 $258,106
Average interest rates 8.04% 8.01% 7.89% 7.82% 7.71% 7.68% 7.92%
Variable interest rate loans $15,526 $1,826 $249 $51 --- --- $17,652 $17,652
Average interest rates 10.05% 10.55% 8.89% 9.27% --- --- 10.08%
Rate sensitive liabilities
Federal funds purchased $5,000 --- --- --- --- --- $5,000 $5,000
Average interest rates 5.50% --- --- --- --- --- 5.50%
Savings and NOW accounts $89,014 $14,340 $11,226 $10,077 $8,710 $21,728 $155,095 $155,095
Average interest rates 3.54% 2.15% 2.15% 2.15% 2.15% 2.15% 2.95%
Fixed interest rate time deposits $83,251 $24,102 $19,858 $12,196 $10,711 $5 $150,123 $149,980
Average interest rates 5.10% 5.97% 6.01% 5.76% 5.63% 5.34% 5.45%
Variable interest rate time deposits $814 $392 $9 --- --- --- $1,215 $1,215
Average interest rates 5.29% 5.29% 5.29% --- --- --- 5.29%
Fair Value
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
-------------------------------------------------------------------------------------
Rate sensitive assets
Other interest bearing assets $15,000 --- --- --- --- --- $15,000 $15,000
Average interest rates 4.70% --- --- --- --- --- 4.70%
Fixed interest rate securities $18,672 $22,641 $16,576 $13,662 $9,696 $14,787 $96,034 $96,151
Average interest rates 5.59% 5.90% 5.81% 5.83% 5.91% 5.44% 5.74%
Fixed interest rate loans $75,146 $45,466 $53,079 $18,705 $26,555 $11,780 $230,731 $236,328
Average interest rates 7.97% 8.37% 8.00% 8.24% 7.80% 7.38% 8.03%
Variable interest rate loans $12,937 $2,241 $628 $171 --- --- $15,977 $15,977
Average interest rates 9.04% 10.04% 8.96% 9.39% --- --- 9.18%
Rate sensitive liabilities
Savings and NOW accounts $87,299 $14,374 $11,448 $9,472 $8,598 $23,509 $154,700 $154,700
Average interest rates 3.38% 2.24% 2.24% 2.24% 2.24% 2.23% 2.88%
Fixed interest rate time deposits $84,180 $20,895 $17,261 $13,342 $12,097 $122 $147,897 $149,859
Average interest rates 5.35% 5.95% 6.33% 6.35% 5.75% 6.38% 5.67%
Variable interest rate time deposits $770 $319 $5 --- --- --- $1,094 $1,094
Average interest rates 4.67% 4.67% 4.67% --- --- --- 5.29%
</TABLE>
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the registrant and reports of
independent auditors are set forth on pages 28 through 47 of this report:
Reports of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The supplementary data regarding quarterly results of operations set forth under
the table named "Summary of Selected Financial Data" on Page 13 of this report.
27
<PAGE> 28
Report of Independent Auditors
Board of Directors and Shareholders
IBT Bancorp
We have audited the accompanying consolidated balance sheets of IBT Bancorp and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Corporation'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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of IBT
Bancorp and subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Rehmann Robson, P.C.
Saginaw, Michigan
January 21, 2000
28
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and demand deposits due from banks $ 17,610 $ 15,497
Federal funds sold --- 15,000
--------- ---------
CASH AND CASH EQUIVALENTS 17,610 30,497
Investment securities
Securities available for sale (amortized cost of
$84,363 in 1999 and $88,015 in 1998) 82,828 89,486
Securities held to maturity (fair value of
$6,813 in 1999 and $6,665 in 1998) 6,822 6,548
--------- ---------
TOTAL INVESTMENT SECURITIES 89,650 96,034
Loans
Commercial 48,156 44,917
Real estate mortgage 188,016 165,553
Installment 40,550 36,238
--------- ---------
TOTAL LOANS 276,722 246,708
Less allowance for loan losses 3,210 2,977
--------- ---------
NET LOANS 273,512 243,731
Premises and equipment 8,980 7,890
Accrued interest receivable, net 2,588 2,571
Acquisition intangibles, net 3,752 4,327
Other assets 5,926 3,733
--------- ---------
TOTAL ASSETS $402,018 $388,783
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 49,203 $ 46,348
NOW accounts 54,628 57,990
Certificates of deposit and other savings 226,794 226,930
Certificates of deposit over $100 25,010 18,771
--------- ---------
TOTAL DEPOSITS 355,635 350,039
Federal funds purchased 5,000 ---
Accrued interest and other liabilities 4,705 4,221
--------- ---------
TOTAL LIABILITIES 365,340 354,260
Shareholders' equity
Common stock -- no par value:
4,000,000 shares authorized;
2,976,436 shares issued and outstanding
(2,909,191 shares at December 31, 1998) 25,739 24,184
Retained earnings 11,952 9,369
Accumulated other comprehensive (loss) income (1,013) 970
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 36,678 34,523
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $402,018 $388,783
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of year 2,909,191 2,615,102 2,585,408
10% stock dividend --- 261,211 ---
Issuance of common stock 67,245 32,878 29,694
--------- --------- ---------
BALANCE END OF YEAR 2,976,436 2,909,191 2,615,102
========= ========= =========
COMMON STOCK
Balance at beginning of year $24,184 $18,442 $17,963
10% stock dividend --- 5,145 ---
Issuance of common stock 1,555 597 479
------- ------- --------
BALANCE END OF YEAR 25,739 24,184 18,442
RETAINED EARNINGS
Balance at beginning of year 9,369 12,248 9,916
Net income 4,051 3,634 3,609
10% stock dividend --- (5,145) ---
Cash dividends ($0.50 per share in 1999,
$0.47 in 1998, and $0.45 in 1997) (1,468) (1,368) (1,277)
------- ------- --------
BALANCE END OF YEAR 11,952 9,369 12,248
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of year 970 268 121
Unrealized (losses) gains on securities available
for sale, net of income taxes and reclassification
adjustment (1,983) 702 147
------- ------- --------
BALANCE END OF YEAR (1,013) 970 268
TOTAL SHAREHOLDERS' EQUITY END OF YEAR $36,678 $34,523 $30,958
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $21,364 $19,986 $18,772
Investment securities
Taxable 4,488 4,422 2,796
Tax exempt 987 871 638
Federal funds sold and other 662 520 524
------- ------- -------
TOTAL INTEREST INCOME 27,501 25,799 22,730
------- ------- -------
INTEREST EXPENSE
Deposits 12,868 12,466 10,534
Federal funds purchased 30 16 --
------- ------- -------
TOTAL INTEREST EXPENSE 12,898 12,482 10,534
------- ------- -------
NET INTEREST INCOME 14,603 13,317 12,196
Provision for loan losses 309 321 386
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,294 12,996 11,810
NONINTEREST INCOME
Trust fees 436 409 371
Service charges on deposit accounts 317 316 285
Other service charges and fees 1,283 1,076 902
Gain on sale of mortgage loans 277 345 131
Title insurance revenue 988 318 --
Other 543 487 411
------- ------- -------
TOTAL NONINTEREST INCOME 3,844 2,951 2,100
NONINTEREST EXPENSES
Salaries, wages, and employee benefits 6,618 5,998 4,846
Occupancy 811 735 628
Furniture and equipment 1,326 1,101 920
Amortization of acquisition intangibles 575 433 --
Other 3,267 2,675 2,417
------- ------- -------
TOTAL NONINTEREST EXPENSES 12,597 10,942 8,811
------- ------- -------
INCOME BEFORE FEDERAL INCOME TAXES 5,541 5,005 5,099
Federal income taxes 1,490 1,371 1,490
------- ------- -------
NET INCOME $ 4,051 $ 3,634 $ 3,609
======= ======= =======
Net income per basic share of common stock $ 1.38 $ 1.26 $ 1.26
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 32
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 4,051 $ 3,634 $ 3,609
Other comprehensive (loss) income before income taxes
Unrealized (losses) gains on securities
available for sale
Unrealized holding (losses) gains arising
during year (3,018) 1,113 208
Reclassification adjustment for realized
(gain) loss included in net income (12) (49) 15
------- ------- -------
Other comprehensive (loss) income before income
taxes (3,006) 1,064 223
Income tax (benefit) expense related to
comprehensive (loss) income (1,023) 362 76
------- ------- -------
OTHER COMPREHENSIVE (LOSS) INCOME NET OF
INCOME TAXES (1,983) 702 147
------- ------- -------
TOTAL COMPREHENSIVE INCOME $ 2,068 $ 4,336 $ 3,756
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Interest and fees collected on loans and investments $ 27,844 $ 25,515 $ 22,957
Other fees and income received 3,720 2,877 2,052
Interest paid (12,943) (12,517) (10,465)
Cash paid to suppliers and employees (11,129) (9,676) (8,173)
Decrease (increase) in loans originated for sale 3,992 (4,032) (5)
Federal income taxes paid (1,971) (1,314) (1,557)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,513 853 4,809
INVESTING ACTIVITIES
Activity in available for sale securities
Maturities, calls, and sales 27,940 30,669 19,889
Purchases (25,527) (63,617) (26,745)
Activity in held to maturity securities
Maturities and calls 829 2,591 3,036
Purchases (222) (350) (702)
Net increase in loans (34,081) (25,216) (2,119)
Purchases of premises and equipment (922) (929) (894)
Acqusitions of branch offices, less cash received -- 37,874 --
Acquisition of title office -- (1,471) --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (31,983) (20,449) (7,535)
FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing deposits 2,856 (103) 1,284
Net increase in interest bearing deposits 2,740 22,462 15,625
Federal funds purchased 5,000 -- --
Cash dividends (1,468) (1,368) (1,277)
Proceeds from issuance of common stock 455 597 479
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,583 21,588 16,111
(DECREASE) INCREASE IN CASH AND CASH -------- -------- --------
EQUIVALENTS (12,887) 1,992 13,385
Cash and cash equivalents beginning of year 30,497 28,505 15,120
-------- -------- --------
CASH AND CASH EQUIVALENTS END OF YEAR $ 17,610 $ 30,497 $ 28,505
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE A - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION: The consolidated financial statements
include the accounts of IBT Bancorp (the "Corporation") and its wholly owned
subsidiaries, Isabella Bank and Trust (the "Bank"), IBT Title, IBT Agency, IBT
Financial Services, and IBT Loan Production. All intercompany transactions and
accounts have been eliminated.
NATURE OF OPERATIONS: IBT Bancorp is a registered bank holding company offering
a wide array of financial products and services in mid Michigan. Its principal
subsidiary, Isabella Bank and Trust, offers banking services through 15
locations to businesses, institutions, and individuals. Lending services offered
include commercial real estate loans and lines of credit, residential real
estate loans, consumer loans, student loans, and credit cards. Deposit services
include interest and noninterest bearing checking accounts, savings accounts,
money market accounts, and certificates of deposit. Other related financial
products include trust services, 24-hour banking services locally and nationally
through shared automatic teller machines, safe deposit box rentals, credit life
insurance, and direct deposits. Active competition, principally from other
commercial banks, savings banks and credit unions, exists in all of the Bank's
principal markets. The Corporation's results of operations can be significantly
affected by changes in interest rates or changes in the local economic
environment.
IBT Title does business under the names Isabella County Abstract and Title, and
Mecosta County Abstract and Title. IBT Title provides title insurance, abstract
searches, and closes real estate loans. The Corporation purchased the assets of
Mecosta County Abstract and Title in a non-cash transaction for $1.1 million
(14,014 shares) of IBT Bancorp common stock on June 30, 1999.
IBT Financial Services is a full service retail brokerage offering stocks,
bonds, and mutual fund sales to individuals.
IBT Agency, an insurance agency, is authorized to sell life insurance, casualty
insurance, and fixed and variable rate annuities.
IBT Loan Production is a mortgage loan origination company. Principal loan
products include 15 and 30 year fixed rate mortgage loans. All loans originated
are sold to Isabella Bank and Trust.
USE OF ESTIMATES: The preparation of consolidated 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 at the date of the consolidated 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 in
the near term 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 allowance for
loan losses and foreclosed real estate, management obtains independent
appraisals for significant properties.
SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK. Most of the Corporation's
activities are with customers located within the central Michigan area. A
significant amount of its outstanding loans are secured by real estate. Other
than real estate, there is no significant concentration to any other industry or
customer.
34
<PAGE> 35
CASH AND CASH EQUIVALENTS: For purposes of the statement of cash flows, the
Corporation considers cash, demand deposits due from banks, and federal funds
sold as cash and cash equivalents. Generally, federal funds are sold for a one
day period. The Corporation maintains deposit accounts in various financial
institutions which at times may exceed FDIC insured limits or not be insured.
Management believes the Corporation is not exposed to any significant interest
rate or other financial risk on these deposits.
SECURITIES: Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities are classified as held to
maturity when the Corporation has the positive intent and ability to hold the
securities to maturity. Securities held to maturity are stated at amortized
cost. Debt securities not classified as held to maturity are classified as
available for sale and are stated at fair value, with the unrealized gains and
losses, net of taxes, reported in other comprehensive income.
The amortized cost of debt securities classified as either held to maturity or
available for sale is adjusted for amortization of premiums and accretion of
discounts to maturity, and is computed using a method that approximates the
level yield method. Gains or losses on the sale of securities available for sale
are calculated using the adjusted cost for the specific securities sold.
ALLOWANCE FOR LOAN LOSSES: Management determines the adequacy of the allowance
for loan losses based on evaluation of the loan portfolio, past and recent loan
loss experience, current economic conditions and other pertinent factors. The
allowance is increased by a charge to income for provisions for loan losses.
Loans deemed to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the allowance. The
allowance for loan losses on loans classified as impaired is based on discounted
cash flows using the loans initial interest rate or the fair value of the
collateral for certain collateral dependent loans.
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 which generally range from 5 to 30 years. Maintenance
repairs and minor alterations are charged to current operations as expenditures
occur and major improvements are capitalized. Management annually reviews these
assets to determine whether carrying values have been impaired.
A summary of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Premises $7,207 $7,024
Equipment 9,275 7,467
------ ------
16,482 14,491
Less accumulated depreciation 7,502 6,601
------ ------
NET PREMISES AND EQUIPMENT $8,980 $7,890
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was
$933, $790, and $685, respectively.
35
<PAGE> 36
LOANS AND RELATED INCOME: Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal adjusted for any charge offs, the
allowance for loans losses, and any deferred fees or costs on originated loans.
Interest on loans is accrued over the term of the loan based on the principal
amount outstanding. The accrual of interest on impaired loans is discontinued
when, in the opinion of management, the borrower may be unable to meet payments
as scheduled. When the accrual of interest is discontinued, all uncollected
accrued interest is reversed. Interest income on such loans is subsequently
recognized only to the extent cash payment is received. For impaired loans not
classified as nonaccrual, interest income continues to be accrued over the term
of the loan based on the principal amount outstanding.
Loan origination fees and certain direct loan origination costs are capitalized
and recognized as a component of interest income over the term of the loan using
the constant yield method.
CREDIT RELATED FINANCIAL INSTRUMENTS: In the ordinary course of business, the
Corporation has entered into commitments to extend credit, including credit card
arrangements, home equity lines of credit, commercial letters of credit, and
standby letters of credit. Such instruments are recorded when funded.
MORTGAGE BANKING ACTIVITIES: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Gains or losses on sales of such loans are recognized at the
time of sale and are determined by the difference between the net sales proceeds
and the unpaid principal balance of the loans sold, adjusted for any yield
differential, servicing fees, and servicing costs applicable to future years.
Net unrealized losses are recognized in a valuation allowance by charges to
income. Mortgage servicing rights ("MSR") are amortized in proportion to, and
over the period of, estimated net servicing income. To determine the fair value
of MSR, the Corporation estimates the present value of future cash flows
incorporating a number of assumptions including servicing income, cost of
servicing, discount rates, and prepayment rates.
The Corporation has established a valuation allowance for the excess of book
value of the capitalized MSR over estimated fair value. For purposes of
measuring impairment, the rights are stratified based on their predominant risk
characteristics, primarily period of origination, interest rate, and current
prepayment rates.
FEDERAL INCOME TAXES: Federal income taxes have been provided based on amounts
reported in the consolidated statements of income (after the exclusion of
nontaxable interest income) and include deferred federal income taxes on
temporary differences between financial statement and income tax reporting. The
Corporation and its subsidiaries file a consolidated federal income tax return
on a calendar year basis.
PER SHARE AMOUNTS: Net income per share amounts were computed by dividing net
income by the weighted average number of shares outstanding. All shares and per
share amounts have been adjusted for the 3.3 for 1 stock split declared on
December 14, 1999 and paid February 18, 2000. The weighted average number of
common shares outstanding were 2,942,422 in 1999; 2,890,444 in 1998; and
2,857,939 in 1997.
36
<PAGE> 37
ACQUISITION INTANGIBLES: The Bank acquired branch facilities and related
deposits in a business combination accounted for as a purchase. Results of
operations are included in the accompanying consolidated financial statements
since March 31, 1998, the date of acquisition and are not significant. The
allocation of the purchase price of assets acquired and liabilities assumed in
1998 is as follows:
<TABLE>
<S> <C>
Deposits acquired $43,123
Accrued interest payable 144
Purchased loans (233)
Core deposit premium paid and acquisition expenses (4,484)
Purchases of equipment and premises (676)
--------
Cash received $37,874
========
</TABLE>
The acquisition of the branches includes amounts related to the value of
customer deposit relationships (core deposit intangibles). The deposit
intangible of $4,180 is amortized over the expected life of the acquired
relationship.
RECLASSIFICATION: Certain amounts reported in the 1998 and 1997 consolidated
financial statements have been reclassified to conform with the 1999
presentation.
NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board adopted
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS #133") in June 1998. SFAS #133
requires companies to record derivatives on the balance sheet as assets and
liabilities measured at fair value. The accounting for changes in value of
derivatives will depend upon the use of derivatives and whether they qualify for
hedge accounting.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000 with earlier applications allowed and is to be applied
prospectively. The Corporation does not use interest rate swaps or other
derivatives in its management of risk and accordingly this statement is not
expected to have a material impact on the Corporation's financial statements.
37
<PAGE> 38
NOTE B - INVESTMENT SECURITIES
The following is a summary of securities available for sale and held to
maturity. Other securities include only the stock of the Federal Reserve Bank
and the Federal Home Loan Bank, which are restricted investments and have no
contractual maturities.
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Securities available for sale
U.S. Treasury and U.S.
government agencies $53,298 $ 17 $(1,164) $52,151
States and political
subdivisions 31,065 38 (426) 30,677
------- ------- ------- -------
TOTAL $84,363 $ 55 $(1,590) $82,828
======= ======= ======= =======
Securities held to maturity
U.S. Treasury and U.S.
government agencies $ 656 $--- $ (21) $ 635
States and political
subdivisions 4,430 29 (17) 4,442
Restricted investments 1,736 --- --- 1,736
------- ------- ------- -------
TOTAL $ 6,822 $ 29 $ (38) $ 6,813
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
DECEMBER 31,1998
Securities available for sale
U.S. Treasury and U.S.
government agencies $58,716 $ 924 $ (10) $59,630
States and political
subdivisions 27,281 568 (7) 27,842
Commercial paper 2,018 --- (4) 2,014
------- ------- ------- -------
TOTAL $88,015 $ 1,492 $ (21) $89,486
======= ======= ======= =======
Securities held to maturity
U.S. Treasury and U.S.
government agencies $ 1,425 $ 19 $ --- $1,444
States and political
subdivisions 3,509 98 --- 3,607
Restricted investments 1,614 --- --- 1,614
------- ------- ------- -------
$ 6,548 $ 117 $ --- $ 6,665
======= ======= ======= =======
</TABLE>
38
<PAGE> 39
The following table summarizes the fair value, realized gains, and realized
losses on sales of securities available for sale.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fair value of securities sold
at the date of sale $8,372 $11,055 $5,016
Gross realized gains
U.S. Treasury and U.S.
government agencies 23 54 ---
Gross realized losses
U.S. Treasury and U.S.
government agencies 11 5 15
</TABLE>
The following table shows the amortized cost and estimated fair value of
securities owned at December 31, 1999 by contractual maturity. Expected
maturities will differ from contractual maturities because the issuers of
securities may have the right to prepay obligations without prepayment penalty.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Due within one year or less $12,674 $12,652 $ 2,400 $ 2,394
Due after 1 year thru 5 years 48,989 47,814 1,864 1,882
Due after 5 years thru 10 years 15,733 15,530 165 166
Due after 10 years 461 451 -- --
------- ------- ------- -------
77,857 76,447 4,429 4,442
Restricted investments -- -- 1,736 1,736
Mortgage backed securities 6,506 6,381 657 635
------- ------- ------- -------
TOTAL $84,363 $82,828 $ 6,822 $ 6,813
======= ======= ======= =======
</TABLE>
Investment securities with a carrying value of approximately $9,512 and $5,133
were pledged to secure public deposits and for other purposes as necessary or
required by law at December 31, 1999 and 1998, respectively.
NOTE C - LOANS
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $2,977 $2,677 $2,621
Loans charged off (363) (264) (575)
Recoveries 287 243 245
Provision charged to income 309 321 386
------ ------ ------
BALANCE AT END OF YEAR $3,210 $2,977 $2,677
====== ====== ======
</TABLE>
At December 31, 1999 and 1998, nonaccrual and other impaired loans were not
significant. Based on collateral values, no specific allowance for loan losses
has been allocated to these loans.
Certain directors and executive officers (including their families and companies
in which they have 10% or more ownership) of the Corporation and the Bank were
loan customers of the Bank. Total loans to these customers aggregated $6,659 and
$7,293 at December 31, 1999 and 1998, respectively. During 1999, $4,527 of new
loans were made and repayments totalled $5,161. All such loans and commitments
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions and in
the opinion of management do not involve more than normal risk of
collectibility.
39
<PAGE> 40
Residential mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal balances of
mortgages serviced for others was $103,024 and $86,299 at December 31, 1999 and
1998, respectively. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to investors
and taxing authorities, and foreclosure processing.
The following table summarizes the fair value of mortgage servicing rights
included in other assets as of December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 100 $ 50 $ 27
Mortgage servicing rights capitalized 237 210 87
Amortization (99) (64) (9)
Impairment valuation allowance (98) (96) (55)
----- ----- -----
BALANCE AT END OF YEAR $ 140 $ 100 $ 50
===== ===== =====
</TABLE>
Residential mortgages committed for sale were $951 as of December 31, 1999 and
$4,943 as of December 31, 1998.
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation utilizes quoted market prices, where available, to compute the
fair value of its financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Certain financial instruments and all nonfinancial
instruments are excluded from the disclosure requirements. Accordingly, the
aggregate of the fair value amounts presented are not necessarily indicative of
the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in estimating
fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and demand deposits due from banks and federal funds sold approximate
those assets' fair value.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are unavailable, fair
values are based on quoted market prices of comparable instruments.
Loans: Fair values for variable rate loans that reprice at least quarterly and
have no significant change in credit risk are assumed to equal recorded book
value. Fixed rate loans are valued using present value discounted cash flow
techniques. The discount rate used in these calculations was the U.S. government
bond rate for securities with similar maturities adjusted for servicing costs,
credit loss, and prepayment risk.
Deposit liabilities: Demand, savings, and money market deposits have no stated
maturities and are payable on demand; thus their estimated fair value is equal
to their recorded book balance. Fair values for variable rate certificates of
deposit approximate their recorded book balance. Fair values for fixed rate
certificates of deposit are determined using discounted cash flow techniques
that apply interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
40
<PAGE> 41
Off balance sheet instruments: Fair values for off balance sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into consideration the remaining terms of the agreements and
the counterparties' credit standings. The Bank does not charge fees for lending
commitments; thus it is not practicable to estimate the fair value of these
instruments. The following sets forth the estimated fair value and recorded book
balance of the Corporation's financial instruments as of December 31.
<TABLE>
<CAPTION>
1999 1998
---- ----
Estimated Fair Recordede Book Estimated Fair Recorded Book
Value Balance Value Balance
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and demand deposits
due from banks $ 17,610 $ 17,610 $ 15,497 $ 15,497
Federal funds sold -- -- 15,000 15,000
Investment securities 89,641 89,650 96,151 96,034
Net loans 275,758 273,512 252,305 243,731
Accrued interest receivable 2,588 2,588 2,571 2,571
Deposits with no stated
maturities 204,297 204,297 201,048 201,048
Deposits with stated maturities 151,195 151,338 150,953 148,991
Federal funds purchased 5,000 5,000 -- --
Accrued interest payable 725 725 771 771
</TABLE>
NOTE E - FEDERAL INCOME TAXES
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 income tax
purposes. Significant components of the Corporation's deferred tax
assets and liabilities, included in other assets, as of December 31 are
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 851 $ 772
Deferred directors' fees 426 366
Employee benefit plans 387 352
Core deposit premium and acquisition expenses 157 70
Net unrealized loss on available for sale securities 522 ---
Other 47 24
------ ------
TOTAL DEFERRED TAX ASSETS 2,390 1,584
Deferred tax liabilities
Premises and equipment 225 196
Accretion on securities 38 51
Prepaid pension expense 418 338
Net unrealized gain on available for sale securities --- 500
Other 19 5
------ ------
TOTAL DEFERRED TAX LIABILITIES 700 1,090
------ ------
NET DEFERRED TAX ASSETS $1,690 $ 494
====== ======
</TABLE>
Components of the consolidated provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $ 1,664 $ 1,627 1,495
Deferred credit (174) (256) (5)
------- ------- -------
PROVISION FOR FEDERAL INCOME TAXES $ 1,490 $ 1,371 $ 1,490
======= ======= =======
</TABLE>
41
<PAGE> 42
The reconciliation of the provision for federal income taxes and the amount
computed at the federal statutory tax rate of 34% of income before federal
income tax expense is as follows.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax on pretax income $ 1,884 $ 1,702 $ 1,734
Effect of nontaxable interest income (415) (378) (277)
Other 21 47 33
------- ------- -------
PROVISION FOR FEDERAL INCOME TAXES $ 1,490 $ 1,371 $ 1,490
======= ======= =======
</TABLE>
The income tax effects on realized securities gains or (losses) were $4 in 1999,
$17 in 1998, and $(5) in 1997.
NOTE F - BENEFIT PLANS
The Bank has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employees' average
compensation over their last five years of service. The funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed to services to date but also for those expected to be earned in the
future. The defined pension plan's assets are primarily invested in mutual
funds.
Changes in the projected benefit obligation and plan assets during each year,
the funded status of the plan and a reconciliation to the amount recognized in
the Corporation's consolidated balance sheets are summarized as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Change in projected benefit obligation
Benefit obligation January 1 $ 4,952 $ 4,392 $ 3,813
Service cost 189 145 115
Interest cost 337 310 285
Actuarial (gain) loss (419) 320 375
Benefits paid (220) (215) (196)
------- ------- -------
BENEFIT OBLIGATION, DECEMBER 31 $ 4,839 $ 4,952 $ 4,392
======= ======= =======
Change in plan assets
Fair value of plan assets, January 1 $ 4,590 $ 4,001 $ 3,409
Investment return 436 433 457
Corporation contribution 424 371 331
Benefits paid (220) (215) (196)
------- ------- -------
FAIR VALUE OF PLAN ASSETS, DECEMBER 31 $ 5,230 $ 4,590 $ 4,001
======= ======= =======
Reconciliation of funded status
Funded status $ 390 $ (362) (391)
Unrecognized net transition asset (88) (111) (133)
Unrecognized prior service cost 161 179 197
Unrecognized net loss from experience
different than that assumed and
effects of changes in assumptions 766 1,288 1,114
------- ------- -------
PREPAID PENSION COST $ 1,229 $ 994 $ 787
======= ======= =======
</TABLE>
42
<PAGE> 43
Net pension expense consists of the following components for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost on benefits earned for
services rendered during the year $ 189 $ 145 $ 115
Interest cost on projected benefit
obligation 337 310 285
Expected return on plan assets (381) (329) (279)
Amortization of unrecognized transition asset (23) (22) (22)
Amortization of unrecognized prior service cost 18 18 18
Amortization of unrecognized actuarial net loss 48 43 33
----- ----- -----
NET PENSION EXPENSE $ 188 $ 165 $ 150
===== ===== =====
</TABLE>
Actuarial assumptions used in determining the projected benefit obligation and
the net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.50% 6.75% 7.00%
Rate of increase in future compensation 4.50% 4.50% 4.50%
Expected long-term rate of return 8.00% 8.00% 8.00%
</TABLE>
The Corporation maintains a nonqualified supplementary retirement plan for
officers to provide supplemental retirement benefits and preretirement death
benefits to each participant. Insurance policies, designed primarily to fund
preretirement benefits, have been purchased on the life of each participant with
the Corporation as the sole owner and beneficiary of the policies. Expenses
related to this program for 1999, 1998, and 1997 were $37, $48, and $35,
respectively, and are being recognized over the participants' expected years of
service.
The Corporation maintains an employee stock ownership plan (ESOP) which covers
substantially all of its employees. Contributions to the Plan are discretionary
and are approved by the Board of Directors and recorded as compensation expense.
Compensation expense related to this Plan for 1999, 1998, and 1997 was $100,
$40, and $70 respectively. Total shares outstanding at December 31, 1999 and
1998 were 164,399 and 160,680 respectively, and were included in the computation
of dividends and earnings per share in each of the respective years.
NOTE G - CONSOLIDATED STATEMENTS OF CASH FLOWS
The reconciliation of net income to net cash provided by operating activities is
as follows.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income 4,051 $ 3,634 $ 3,609
Reconciliation of net income to net
cash provided by operations:
Provision for loan losses 309 321 386
Provision for depreciation 933 790 685
Net amortization on investment
securities 358 288 173
Amortization of acquisition intangibles 575 433 --
Deferred income tax benefit (174) (256) (5)
Gain on sale of mortgage loans (277) (345) (131)
Proceeds from sale of mortgage loans 35,798 55,808 24,758
Loans originated for sale (31,529) (59,495) (24,632)
(Increase) decrease in:
Accrued interest receivable (17) (571) 59
Other assets (998) (566) (216)
Accrued interest and other liabilities 484 812 123
-------- -------- --------
Net cash provided by operating activities $ 9,513 $ 853 $ 4,809
======== ======== ========
</TABLE>
43
<PAGE> 44
NOTE H - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is party to financial instruments with off-balance-sheet risk.
These instruments are entered into in the normal course of business to meet the
financing needs of its customers. These financial instruments, which include
commitments to extend credit and standby letters of credit, involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets. The contract or notional amounts
of these instruments reflect the extent of involvement the Corporation has in a
particular class of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Corporation uses the same credit policies in deciding to
make these commitments as it does for extending loans to customers.
Commitments to extend credit, which totalled $34,603 at December 31, 1999, 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 and may require the payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. At December 31,
1999, the Corporation had a total of $636 in outstanding standby letters of
credit.
Generally, these commitments to extend credit and letters of credit mature
within one year. The credit risk involved in these transactions is essentially
the same as that involved in extending loans to customers. The Corporation
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Corporation upon the
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 other income producing commercial properties.
NOTE I - COMMITMENTS AND OTHER MATTERS
There were no material noncancelable lease commitments outstanding at December
31, 1999.
Banking regulations require banks to maintain cash reserve balances in currency
or as deposits with the Federal Reserve Bank. The Bank's requirement was
approximately $6,246 at December 31, 1999 and $5,717 at December 31, 1998.
Banking regulations also limit the transfer of assets in the form of dividends,
loans, or advances from the Bank to the Corporation. At December 31, 1999,
substantially all of the Bank's assets were restricted from transfer to the
Corporation in the form of loans or advances. Consequently, Bank dividends are
the principal source of funds for the Corporation. Payment of dividends without
regulatory approval is limited to the current year's retained net income plus
retained net income for the preceding two years, less any required transfers to
capital surplus. At January 1, 2000, the amount available for dividends without
regulatory approval was approximately $3,433.
The Corporation maintains a self-funded medical plan under which the Corporation
is responsible for the first $30 per year of claims made by a covered individual
with a maximum of $654. Claims in excess of these amounts are insured through an
"excess loss" policy up to $1,000. Medical claims are subject to a lifetime
maximum of $2,000 per covered individual. Expenses are accrued based on
estimates of the aggregate liability for claims incurred and the Corporation's
experience. Expenses were $565 in 1999, $619 in 1998, and $378 in 1997.
44
<PAGE> 45
The Corporation offers a dividend reinvestment and employee stock purchase plan.
The dividend reinvestment plan allows shareholders to purchase previously
unissued IBT Bancorp common shares. The employee stock purchase plan allows
employees to purchase IBT Bancorp common stock through payroll deduction. The
number of shares authorized for issue under the plan is 155,000 with 114,392
shares unissued.
During 1998, the Bank obtained approval to borrow up to $50,000 from the Federal
Home Loan Bank (FHLB) of Indianapolis. Under the terms of the agreement, the
Bank may obtain advances at the stated rate at the time of the borrowings. The
Bank has agreed to pledge eligible mortgage loans as collateral for any such
borrowings. No borrowings were outstanding at December 31, 1999 or 1998.
Certain directors and executive officers (including their families and companies
in which they have 10% or more ownership) of the Corporation and the Bank were
deposit customers of the Bank. Total deposits of these customers aggregated
approximately $2,963 and $3,223 at December 31, 1999 and 1998, respectively.
During 1999, the Corporation eliminated the par value of its common stock. As a
result, amounts previously recorded as capital surplus were reclassified to
common stock in the accompanying balance sheets.
NOTE J - DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
2000 $84,065
2001 24,494
2002 19,867
2003 12,196
2004 10,711
Thereafter 5
</TABLE>
NOTE K - REGULATORY CAPITAL MATTERS
The Corporation (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by their primary regulator, the
Federal Reserve Bank. Failure to meet minimum capital requirements can initiate
mandatory and/or discretionary actions by the Federal Reserve. These actions
could have a material effect on the Corporation's and Bank's financial
statements. Under the Federal Reserve's capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the Bank
must meet specific capital guidelines that include quantitative measures of
their assets, certain off-balance-sheet items, and capital, as calculated under
regulatory accounting standards. The Bank's required capital is also subject to
regulatory qualitative judgement regarding the Bank's interest rate risk
exposure and credit risk. Prompt corrective action provisions are not applicable
to bank holding companies.
Measurements established by regulation to ensure capital adequacy require the
Corporation and the Bank to maintain minimum total capital to risk weighted
assets (as defined in the regulations), Tier 1 capital to risk weighted assets
(as defined), and Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1999, that the Corporation and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Federal Reserve
Bank categorized the Bank as well capitalized. To be categorized as well
capitalized, the Bank must maintain total risk based capital, Tier 1 risk based,
and Tier 1 leverage ratios as set forth in the following table. There have been
no conditions or events since that notification that management believes has
changed the institution's category.
45
<PAGE> 46
The Corporation's and Bank's actual capital amounts (in thousands) and ratios
are also presented in the table.
<TABLE>
<CAPTION>
Minimum
To Be Well Capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Action Provisions
------ ------------ -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
TOTAL capital to risk weighted assets
Isabella Bank and Trust $32,210 12.70% $20,349 8.0% $25,436 10.0%
Consolidated 37,111 14.6 20,389 8.0 N/A N/A
Tier 1 capital to risk weighted assets
Isabella Bank and Trust 29,030 11.4 10,175 4.0 15,262 6.0
Consolidated 33,925 13.3 10,195 4.0 N/A N/A
Tier 1 capital to average assets
Isabella Bank and Trust 29,030 7.4 15,687 4.0 19,608 5.0
Consolidated 33,925 8.6 15,863 4.0 N/A N/A
AS OF DECEMBER 31, 1998
Total capital to risk weighted assets
Isabella Bank and Trust $30,060 13.30% $18,048 8.0% $22,560 10.0%
Consolidated 32,056 14.2 18,086 8.0 N/A N/A
Tier 1 capital to risk weighted assets
Isabella Bank and Trust 27,238 12.1 9,024 4.0 13,536 6.0
Consolidated 29,216 12.9 9,043 4.0 N/A N/A
Tier 1 capital to average assets
Isabella Bank and Trust 27,238 7.7 14,158 4.0 17,697 5.0
Consolidated 29,216 8.2 14,195 4.0 N/A N/A
</TABLE>
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash on deposit at subsidiary bank $ 2,674 $ 1,307
Securities available for sale 1,511 519
Investments in subsidiaries 32,373 32,580
Premises and equipment 93 114
Other assets 36 12
------- -------
TOTAL ASSETS $36,687 $34,532
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 9 $ 9
Shareholders' equity 36,678 34,523
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $36,687 $34,532
======= =======
</TABLE>
46
<PAGE> 47
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $2,900 $1,500 $3,550
Interest income 82 78 97
Other 6 6 6
------ ------ ------
TOTAL INCOME 2,988 1,584 3,653
Expenses 203 191 173
------ ------ ------
Income before income tax benefit and equity in
undistributed earnings of subsidiaries 2,785 1,393 3,480
Federal income tax benefit 56 48 36
------ ------ ------
2,841 1,441 3,516
Undistributed earnings of subsidiaries 1,210 2,193 93
------ ------ ------
NET INCOME $4,051 $3,634 $3,609
====== ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Interest on investments $ 71 $ 113 $ 62
Dividends from subsidiaries 2,900 1,500 3,550
Cash paid to suppliers (172) (166) (142)
Other operating activities 59 43 35
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,858 1,490 3,505
INVESTING ACTIVITIES
Proceeds from the maturities of investments
available for sale 650 1,500 --
Purchases of investment securities available for sale (1,678) (101) (1,906)
Investment in subsidiaries (550) (3,000) (50)
Purchases of equipment and premises -- -- (26)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,578) (1,601) (1,982)
FINANCING ACTIVITIES
Cash dividends (1,468) (1,368) (1,279)
Issuance of common stock 1,555 597 479
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES 87 (771) (798)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,367 (882) 725
Cash and cash equivalents at beginning of year 1,307 2,189 1,464
------- ------- -------
CASH AND CASH EQUIVALENTS AT YEAR END $ 2,674 $ 1,307 $ 2,189
======= ======= =======
</TABLE>
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Part III incorporated by reference from the Corporation's Definitive Proxy
Statement pursuant to instruction G(3). The Corporation will file with the SEC a
definitive Proxy Statement pursuant to Schedule 14A involving the election of
directors no later than 120 days after the close of the calendar year (April 29,
2000).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of IBT Bancorp are
incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders'
Equity
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules are omitted because they are neither applicable nor
required, or because the required information is either included
in the consolidated financial statements or related notes.
3. Exhibits:
<TABLE>
<S> <C>
3(a) Amended Articles of Incorporation*
3(b) Amendment to the Articles of Incorporation***
3(c) Amendment to the Articles of Incorporation
3(d) Amended Bylaws*
3(e) Amendment to the Bylaws**
3(f) Amendment to the Bylaws***
10(a) Isabella Bank & Trust Executive Supplemental Income
Agreement***(1)
10(b) Isabella Bank & Trust Deferred Compensation Plan****(1)
21 Subsidiaries of the Registrant
</TABLE>
48
<PAGE> 49
ITEM 14 (CONTINUED)
23 Consent of Rehmann Robson, P.C., Independent Certified
Public Accountants
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended December 31,
1999.
(c) The index to exhibits is on page 50 of this report.
(d) There are no financial statement schedules filed with this report.
* Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-K,
dated March 12, 1991, and incorporated herein by reference.
** Previously filed as an Exhibit to the IBT Bancorp, Inc. Form 10-K,
dated March 13, 1990, and incorporated herein by reference.
*** Previously filed as an Exhibit to IBT Bancorp, Inc. Form 10-K, dated
March 26, 1994, and incorporated herein by reference.
**** Previously filed as an Exhibit to IBT Bancorp, Inc. Form 10-K, dated
March 26, 1996, and incorporated herein.
(1) Management's Contract or Compensatory Plan or Arrangement.
49
<PAGE> 50
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IBT BANCORP, INC.
(Registrant)
by:/s/David W. Hole Date: March 9, 2000
------------------------- -----------------------------
David W. Hole
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
/s/L.A. Johns Chairman of the Board March 9, 2000
- ------------------------------ and Director
L.A. Johns
/s/Frederick L. Bradford Director March 9, 2000
- ------------------------------
Frederick L. Bradford
/s/Gerald D. Cassel Director March 9, 2000
- ------------------------------
Gerald D. Cassel
/s/James C. Fabiano Director March 9, 2000
- ------------------------------
James C. Fabiano
/s/Ronald E. Schumacher Director March 9, 2000
- ------------------------------
Ronald E. Schumacher
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
/s/Robert O. Smith Director March 9, 2000
- ------------------------------
Robert O. Smith
/s/Dean Walldorff Director March 9, 2000
- ------------------------------
Dean Walldorff
/s/David W. Hole President March 9, 2000
- ------------------------------ Chief Executive Officer
David W. Hole and Director
(Principal Executive Officer)
/s/Dennis P. Angner Treasurer March 9, 2000
- ------------------------------ (Principal Financial Officer)
Dennis P. Angner
</TABLE>
51
<PAGE> 52
IBT Bancorp
FORM 10-K
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Form 10-K
Number Exhibit Page Number
- ------- ------- -----------
<S> <C> <C>
3(c) Amendment to the Articles Incorporation 49
21 Subsidiaries of the Registrant 54
23 Consent of Rehmann Robson P.C. 55
Independent Certified Public Accountants
27 Financial Data Schedule 56
</TABLE>
52
<PAGE> 1
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
1. The present name of the corporation is: IBT Bancorp, Inc.
2. The identification number assigned by the Bureau is: 346-543
3. Article III of the Articles of Incorporation is hereby amended to read as
follows:
THE TOTAL AUTHORIZED CAPITAL STOCK OF THE CORPORATION IS FOUR MILLION
(4,000,000) SHARES OF COMMON STOCK WITH NO PAR VALUE, ALL OF ONE CLASS WITH
VOTING RIGHTS.
4. The foregoing amendment to the Articles of Incorporation was duly adopted
on the 21st day of June, 1999, by the board of a profit corporation
pursuant to section 611(2).
Signed this 21st day of June, 1999
By /s/ David W. Hole
--------------------------------
David W. Hole, President
--------------------------------
53
<PAGE> 1
IBT Bancorp
Form 10-K
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT:
Isabella Bank and Trust
Wholly owned
IBT Financial Services, Inc.
Wholly owned
IBT Loan Production, Inc.
Wholly owned
54
<PAGE> 1
Exhibit 23
CONSENT OF REHMANN ROBSON, P.C.
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-61590) pertaining to the Dividend Reinvestment Plan and (Form S-8 No.
33-61596) pertaining to the Employees' Stock Purchase Plan of IBT Bancorp, of
our report dated January 21, 2000, which appears on page 28 of this Annual
Report (Form 10-K) for the years ended December 31, 1999, 1998 and 1997.
Rehmann Robson, P.C.
Saginaw, Michigan
March 14, 2000
55
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,610
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,828
<INVESTMENTS-CARRYING> 6,822
<INVESTMENTS-MARKET> 6,813
<LOANS> 276,722
<ALLOWANCE> 3,210
<TOTAL-ASSETS> 402,018
<DEPOSITS> 355,635
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 4,705
<LONG-TERM> 0
0
0
<COMMON> 25,739
<OTHER-SE> 10,939
<TOTAL-LIABILITIES-AND-EQUITY> 402,018
<INTEREST-LOAN> 21,364
<INTEREST-INVEST> 5,475
<INTEREST-OTHER> 662
<INTEREST-TOTAL> 27,501
<INTEREST-DEPOSIT> 12,868
<INTEREST-EXPENSE> 12,898
<INTEREST-INCOME-NET> 14,603
<LOAN-LOSSES> 309
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 12,597
<INCOME-PRETAX> 5,541
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,051
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 4.16
<LOANS-NON> 505
<LOANS-PAST> 279
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,977
<CHARGE-OFFS> 363
<RECOVERIES> 287
<ALLOWANCE-CLOSE> 3,210
<ALLOWANCE-DOMESTIC> 3,210
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,210
</TABLE>
