UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
|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_____________
Commission File Number 0-22469
LAFAYETTE BANCORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1605492
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
133 North 4th Street, Lafayette, Indiana 47902
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(765) 423-7100
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
NONE Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Common Shares, No Par Value
(Title of Class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant (assuming solely for purposes of this calculation that all directors
and executive officers of the Registrant are affiliates) valued at the price of
the last trade price of $19.00 reported on the OTC Bulletin Board as of March
15, 2000, was approximately $66,673,650.
As of March 15, 2000, there were outstanding 3,586,140 common shares, no par
value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders of Lafayette
Bancorporation for 1999, to the extent stated herein, are incorporated by
reference into Parts I and II.
(2) Portions of the Proxy Statement of Lafayette Bancorporation for the
Annual Meeting of its Shareholders to be held April 10, 2000, to the extent
stated herein, are incorporated by reference into Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) 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. [ ]
<PAGE>
PART I
ITEM 1. Business.
General
Lafayette Bancorporation (the "Corporation") is a registered one-bank
holding company that holds all the outstanding stock of Lafayette Bank and Trust
Company (the "Bank"). The Corporation was incorporated under Indiana law on
February 16, 1984, at the direction of the Board of Directors of the Bank to
facilitate the Bank's adoption of a one-bank holding company structure. The Bank
became a wholly-owned subsidiary of the Corporation on April 30, 1985, pursuant
to a Plan of Exchange in which all the outstanding stock of the Bank was
exchanged for stock of the Corporation. Prior to its acquisition of the Bank's
stock, the Corporation conducted no business or operations. The Corporation's
principal executive offices are located at 133 North 4th Street, Lafayette,
Indiana 47902 and its telephone number is (765) 423-7100.
As a bank holding company, the Corporation engages in commercial
banking through its sole banking subsidiary, the Bank, and can engage in certain
non-banking activities and own certain other business corporations that are not
banks, subject to applicable laws and regulations. All references hereinafter to
the activities or operations of the Corporation reflect the Corporation's acting
or operating through the Bank.
On March 12, 1999, the Bank completed the acquisition of three branches
from Bank One Indiana, National Association. The three branches are located in
DeMotte, Remington and Rensselaer, in Jasper County, Indiana. This branch
purchase added approximately $117 million in deposits and represented
approximately 30% of the deposits in Jasper County. The branch acquisition
expanded the Bank's market area into an additional county in northwestern
Indiana.
The Bank was chartered as an Indiana state-chartered bank in 1899. The
Bank's principal executive offices are also located at 133 North 4th Street,
Lafayette, Indiana 47902 and its telephone number is (765) 423-7100. At December
31, 1999, the Bank was the largest bank headquartered in Tippecanoe County with
total assets of $645,149,000 and total deposits of $522,247,000.
Competition
The banking business is highly competitive. The Corporation's market
area consists principally of Tippecanoe, White and Jasper Counties in Indiana,
although the Bank also competes with other financial institutions in surrounding
counties in Indiana in obtaining deposits and providing many types of financial
services. The Corporation competes with larger regional banks for the business
of companies located in the Corporation's market area.
The Bank also competes with savings and loan associations, credit
unions, production credit associations and federal land banks and with finance
companies, personal loan companies, money market funds and other non-depository
financial intermediaries. Many of these financial institutions have resources
many times greater than those of the Bank. In addition, financial intermediaries
such as money-market mutual funds and large retailers are not subject to the
same regulations and laws that govern the operation of traditional depository
institutions.
<PAGE>
Recent changes in federal and state law have resulted in and are
expected to continue to result in increased competition. The reductions in legal
barriers to the acquisition of banks by out-of-state bank holding companies
resulting from implementation of interstate banking legislation and other recent
and proposed changes are expected to continue to further stimulate competition
in the markets in which the Bank operates, although it is not possible to
predict the extent or timing of such increased competition.
Employees
The Corporation has no compensated employees. At December 31, 1999, the
Bank employed 247 full-time employees and 47 part-time employees. The Bank is
not a party to any collective bargaining agreements, and employee relations are
considered to be good.
Regulation and Supervision
The Bank is chartered under the banking laws of the State of Indiana
and is subject to the supervision of, and is regularly examined by, the
Department of Financial Institutions (the "DFI") and the Federal Deposit
Insurance Corporation (the "FDIC"). The Corporation is a bank holding company
within the meaning of the Bank Holding Company Act (the "BHC Act") and is
registered as such with, and is subject to the supervision of, the Federal
Reserve Board (the "FRB"). Certain legislation and regulations affecting the
businesses of the Corporation and the Bank are discussed below.
General.
As a bank holding company, the Corporation is subject to the BHC Act.
The Corporation reports to, registers with, and is examined by the FRB. The FRB
also has the authority to examine the Corporation's subsidiaries which includes
the Bank.
The FRB requires the Corporation to maintain certain levels of capital.
See "Capital Standards" herein. The FRB also has the authority to take
enforcement action against any bank holding company that commits any unsafe or
unsound practice, violates certain laws, regulations, or conditions imposed in
writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms" herein.
Under the BHC Act, a company generally must obtain the prior approval
of the FRB before it exercises a controlling influence over, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Corporation is
required to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank, or bank holding company. Any company seeking to
acquire, merge or consolidate with the Corporation also would be required to
obtain the FRB's approval.
<PAGE>
The Corporation is generally prohibited under the BHC Act from
acquiring ownership or control of more than 5% of the voting shares of any
company that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than banking, managing banks, or providing
services to affiliates of the holding company. A bank holding company, with the
approval of the FRB, may engage or acquire the voting shares of companies
engaged, in activities that the FRB has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. A
bank holding company must demonstrate that the benefits to the public of the
proposed activity will outweigh the possible adverse effects associated with
such activity. Legislation enacted in December 1999 provides for bank holding
companies that satisfy certain conditions to qualify as "financial holding
companies" and thereby be permitted to engage in a much broader range of
financial activities. See "Recent Legislation" below.
The FRB generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
FRB's policy is that a bank holding company should not continue its existing
rate of cash dividends on its common stock unless its net income is sufficient
to fully fund each dividend and its prospective rate of earnings retention
appears consistent with its capital needs, asset quality and overall financial
condition.
Transactions between the Corporation, the Bank and any future
subsidiaries of the Corporation are subject to a number of other restrictions.
FRB policies forbid the payment by bank subsidiaries of management fees which
are unreasonable in amount or exceed the fair market value of the services
rendered (or, if no market exists, actual costs plus a reasonable profit).
Additionally, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit, sale or lease of property, or furnishing of services. See also
"Inter-Corporate Borrowings" below for a discussion of additional restrictions.
Capital Standards.
The FRB, FDIC and other federal banking agencies have risk-based
capital adequacy guidelines intended to provide a measure of capital adequacy
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets, and
transactions, such as letters of credit and recourse arrangements, which are
reported as off-balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off-balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. government securities, to
100% for assets with relatively higher credit risk, such as business loans. On
March 2, 1999, the four federal banking agencies published in the Federal
Register uniform final rules that amended the leverage capital standards to make
them more uniform and streamlined and amended the risk-based standards
applicable to three types of assets. The new standards became effective on April
1, 1999.
<PAGE>
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets and
off-balance sheet items. The regulators measure risk-adjusted assets and
off-balance sheet items against both total qualifying capital (the sum of Tier 1
capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1
capital consists of common stock, retained earnings, noncumulative perpetual
preferred stock and minority interests in certain subsidiaries, less most other
intangible assets. Tier 2 capital may consist of a limited amount of the
allowance for loan losses and certain other instruments with some
characteristics of equity. The inclusion of elements of Tier 2 capital are
subject to certain other requirements and limitations of the federal banking
agencies. Since December 31, 1992, the federal banking agencies have required a
minimum ratio of qualifying total capital to risk-adjusted assets and
off-balance sheet items of 8%, and a minimum ratio of Tier 1 capital to
risk-adjusted assets and off-balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%; all other institutions are required to have a minimum ration of 4%. In
addition to these uniform risk-based capital guidelines and leverage ratios that
apply across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
For a detailed discussion of the regulatory capital requirements and
the Corporation's and Bank's compliance with those requirements, see "Capital
Adequacy" in Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 14 of Notes to Consolidated Financial Statements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required the federal financial institution agencies to prescribe
standards for assessing interest rate risk, which is the exposure of a bank's
earnings and capital arising from adverse movements in interest rates. The
banking agencies issued a joint policy statement on interest rate risk in May
1996 that describes prudent methods for monitoring such risk that rely primarily
on the maintenance of adequate internal risk measurement systems and active
oversight of risk management activities by the Board of Directors and senior
management.
<PAGE>
Prompt Corrective Action and Other Enforcement Mechanisms.
FDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more of the prescribed minimum
capital ratios. The law requires each federal banking agency to promulgate
regulations defining the following five categories in which an insured
depository institution will be placed, based on the level of its capital ratios:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
The federal banking agencies have issued uniform regulations
implementing the prompt corrective action provisions of FDICIA. An insured
depository institution generally will be classified in the following categories
based on capital measures indicated below:
"Well-Capitalized":
Total risk-based capital of 10% or more; Tier 1 risk-based
ratio capital of 6% or more; and Leverage ratio of 5% or more.
"Adequately Capitalized":
Total risk-based capital of at least 8%; Tier 1 risk-based
capital of at least 4%; and Leverage ratio of at least 4%.
"Undercapitalized":
Total risk-based capital less than 8%; Tier 1 risk-based
capital less than 4%; or Leverage ratio less than 4%.
"Significantly Undercapitalized":
Total risk-based capital less than 6%; Tier 1 risk-based
capital less than 3%; or Leverage ratio less than 3%.
"Critically Undercapitalized":
Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as
well-capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
<PAGE>
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions may be required to submit an acceptable capital restoration plan
with a guarantee of performance issued by the holding company. Further
restrictions and sanctions are required to be imposed on insured depository
institutions that are critically undercapitalized. The most important additional
measure is that the appropriate federal banking agency is required to either
appoint a receiver for the institution within 90 days or obtain the concurrence
of the FDIC in another form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a prima facie showing by the agency that such relief is
appropriate. Additionally, a holding company's inability to serve as a source of
strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company.
As discussed in the "Capital Adequacy" section of Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Annual Report to Shareholders and Note 18 to the Corporation's Financial
Statements, which are incorporated herein by reference, the consolidated and
bank-only capital levels were significantly reduced as a result of the Bank's
acquisition of the three Jasper County branches on March 12, 1999. In response,
the Corporation borrowed $14,000,000 and contributed $13,000,000 of capital to
the Bank in order for the Bank to maintain its well-capitalized status. As of
December 31, 1999, the Bank was categorized as well-capitalized under the
regulatory framework for prompt corrective action. However, the Corporation was
categorized as undercapitalized as of December 31, 1999, as the total capital
ratio was 7.99%, slightly below the 8% minimum. Although slightly below the
minimum, no corrective regulatory action has been initiated, and management
anticipates that the Corporation will return to adequately capitalized status in
the first quarter of 2000. The Federal Reserve Bank considers holding company
capital adequacy in connection with any application for an activity which
requires FRB approval. Further, since the Corporation's capital levels are below
the well-capitalized category, the use of expedited FRB procedures in any
application activity which requires FRB approval would not be available to the
Corporation until it once again becomes well capitalized. See Items 7 and 8
below.
<PAGE>
Safety and Soundness Standards.
FDICIA also implemented certain specific restrictions on transactions
and required the regulators to adopt overall safety and soundness standards for
depository institutions related to internal control, loan underwriting and
documentation, and asset growth. Among other things, for undercapitalized
institutions FDICIA limits the interest rates paid on deposits, the use of
brokered deposits and the aggregate extension of credit by a depository
institution to an executive officer, director, principal stockholder or related
interest, and reduces deposit insurance coverage for deposits offered by
undercapitalized institutions for deposits by certain employee benefits
accounts.
The FDICIA also required the agencies to establish safety and soundness
standards for insured financial institutions covering (1) internal controls,
information systems and internal audit systems; (2) loan documentation; (3)
credit underwriting; (4) interest rate exposure; (5) asset growth; (6)
compensation, fees and benefits; (7) asset quality, earnings and stock
valuation; and (8) excessive compensation for executive officers, directors or
principal shareholders which could lead to material financial loss. The agencies
have adopted guidelines covering most of these items.
Restrictions on Dividends and Other Distributions.
The power of the board of directors of an insured depository
institution to declare a cash dividend or other distribution with respect to
capital is subject to statutory and regulatory restrictions which limit the
amount available for such distribution depending upon the earnings, financial
condition and cash needs of the institution, as well as general business
conditions. FDICIA prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions, including dividends, if, after such transaction,
the institution would be undercapitalized.
An FRB policy statement provides that a bank holding company should not
declare or pay a cash dividend to its stockholders if the dividend would place
undue pressure on the capital of its subsidiary banks or if the dividend could
be funded only through additional borrowings or other arrangements that might
adversely affect the financial position of the bank holding company.
Specifically, a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each consistent with its capital needs, asset quality, and overall
financial condition. Further, the Corporation is expected to act as a source of
financial strength for the Bank and to commit resources to support the Bank in
circumstances when it might not do so absent such policy.
The Corporation's ability to pay dividends depends in large part on the
ability of the Bank to pay dividends to the Corporation. The ability of the Bank
to pay dividends is subject to restrictions set forth in the Indiana banking
laws and regulations of the FDIC.
<PAGE>
Under Indiana law, the Bank may declare a dividend in an amount deemed
expedient by the Board of Directors of the Bank. Any such dividend, however, may
not (i) impair the capital stock of the Bank, (ii) be in an amount greater than
the remainder of undivided profits then on hand after deducting losses, bad
debts, depreciation, and all other expenses, or (iii) constitute a withdrawal of
any portion of the capital stock of the Bank. In addition, the Bank must obtain
the prior approval of the DFI for the payment of any dividend if the total of
all dividends declared by the Bank during the calendar year, including the
proposed dividend would exceed the sum of (i) the total of the net profits of
the Bank and (ii) the retained net profits of the Bank for the previous two
years. The amount of "net profits" is determined by subtracting all current
operating expenses, actual losses, and all federal, state and local taxes from
all earnings from current operations plus actual recoveries on loans,
investments and other assets.
Additionally, under FDICIA, the Bank may not make any capital
distribution, including the payment of dividends, if after making such
distribution the Bank would be in any of the "under-capitalized" categories
under the FDIC's Prompt Corrective Action regulations.
Also, under the Financial Institution's Supervisory Act, the FDIC also
has the authority to prohibit the Bank from engaging in business practices which
the FDIC considers to be unsafe or unsound. It is possible, depending upon the
financial condition of the Bank and other factors, that the FDIC could assert
that the payment of dividends or other payments in some circumstances might be
such an unsafe or unsound practice and thereby prohibit such payment.
FDIC Insurance Assessments.
The FDIC has established several mechanisms to increase funds to
protect deposits insured by the Bank Insurance Fund ("BIF") and the Savings
Association Insurance Fund ("SAIF"), both of which are administered by the FDIC.
The Bank's deposits are insured through BIF except for those deposits the Bank
acquired from the Resolution Trust Corporation in December, 1990. This
acquisition consisted of two branches of the former Hometown Federal Savings
Bank in Delphi, Indiana, and these deposits remain insured through SAIF.
As required by FDICIA, the FDIC has adopted a risk-based assessment
system for deposit insurance premiums. Under this system, depository
institutions are charged anywhere from zero to $.27 for every $100 in insured
domestic deposits, based on such institutions' capital levels and supervisory
subgroup assignment. The FDIC's rules set forth which supervisory subgroup
assignments are made by the FDIC, the assessment classification review
procedure, provide for the assignment of new institutions to the
"well-capitalized" assessment group, set forth when an institution is to make
timely adjustments as appropriate, and set forth the basis, and report data, on
which capital group assignments are made for insured branches of foreign banks,
and expressly address the treatment of certain lifeline accounts for which
special assessment treatment is given.
The BIF reached its required 1.25 reserve ratio in 1995, and in
response the FDIC reduced deposit insurance assessment rates on BIF-insured
deposits to historic low levels. Legislation enacted in September, 1996 included
provisions for the recapitalization of the SAIF. The legislation imposed a
one-time assessment in the amount of 65.7 basis points on all SAIF-insured
deposits held as of March 31, 1996. The Bank paid an assessment in the amount of
$31,000 on the small portion of its deposits that are SAIF-insured. As a result
of the payment of the special assessment and the adoption of regulations
implementing the legislation, rates for deposits insured through SAIF have been
brought into parity with BIF rates. The BIF and SAIF deposit insurance
assessment rates currently in effect range from zero to $.27 per $100 of insured
deposits, with the healthiest financial institutions, including the Bank, not
being required to pay any deposit insurance premiums.
<PAGE>
Interstate Banking and Branching.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. The
Interstate Act effectively permits nationwide banking. As of September 30, 1995,
the Interstate Act provides that adequately capitalized and adequately managed
bank holding companies may acquire banks in any state, even in those
jurisdictions that had previously barred acquisitions by out-of-state
institutions, subject to deposit concentration limits. The deposit concentration
limits provide that regulatory approval by the Federal Reserve Board may not be
granted for a proposed interstate acquisition if after the acquisition, the
acquiror on a consolidated basis would control more than 10% of the total
deposits nationwide or would control more than 30% of deposits in the state
where the acquiring institution is located. The deposit concentration state
limit does not apply for initial acquisitions in a state and, in every case, may
be waived by the state regulatory authority. Interstate acquisitions are subject
to compliance with the Community Reinvestment Act ("CRA"). States are permitted
to impose age requirements not to exceed five years on target banks for
interstate acquisitions.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Interstate branching by consolidation of banks
was permitted beginning in June 1, 1997, except in states that passed
legislation prior to that date "opting-out" of interstate branching. Banks
located in states that opted out of interstate branching may not participate in
interstate branching. The laws of the host state regarding community
reinvestment, fair lending, consumer protection (including usury limits) and
establishment of branches apply to the interstate branches.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits. Effective March 14, 1996, Indiana "opted
in" to the interstate branching provision of the Interstate Act.
Community Reinvestment Act.
A comprehensive revision of the regulations implementing the Community
Reinvestment Act ("CRA"), enacted in 1977 to promote lending by financial
institutions to individuals and businesses located in low and moderate income
areas, became effective on July 1, 1995. The revised CRA regulations emphasize
an assessment of actual performance rather than of the procedures followed by a
bank, to evaluate compliance with the CRA. Overall CRA compliance continues to
be rated across a four-point scale from "outstanding" to "substantial
noncompliance," and continues to be a factor in review of applications to merge,
establish new branches or form bank holding companies. In addition, any bank
rated in "substantial noncompliance" with the revised CRA regulations may be
subject to enforcement proceedings. Different evaluation methods are used
depending on the asset size of the bank.
<PAGE>
The "lending, investments and service test method" is applicable to all
banks with more than $250 million in assets which are not wholesale or limited
purpose banks and do not elect to be evaluated by the "strategic plan assessment
method" which is discussed below. Central to this method is the requirement that
such banks collect and report to their primary federal banking regulators
detailed information regarding home mortgage, small business and farm and
community development loans which is then used to evaluate CRA compliance. At
the bank's option, data regarding consumer loans and any other loan distribution
it may choose to provide also may be collected and reported.
Using such data, a bank will be evaluated regarding its (i) lending
performance according to the geographic distribution of its loans, the
characteristics of its borrowers, the number and complexity of its community
development loans, the innovativeness or flexibility of its lending practices to
meet low and moderate income credit needs and, at the bank's election, lending
by affiliates or through consortia or third-parties in which the bank has an
investment interest; (ii) investment performance by measure of the bank's
"qualified investments," that is, the extent to which the bank's investments,
deposits, membership shares in a credit union, or grants primarily to benefit
low or moderate income individuals and small businesses and farms, address
affordable housing or other needs not met by the private market, or assist any
minority or women-owned depository institution by donating, selling on favorable
terms or provisioning on a rent-free basis any branch of the bank located in a
predominately minority neighborhood; and (iii) service performance by evaluating
the demographic distribution of the bank's branches and ATMs, its record of
opening and closing them, the availability of alternative retail delivery
systems (such as telephone banking, banking by mail or at work, and mobile
facilities) in low and moderate income geographies and to low and moderate
income individuals, and (given the characteristics of the bank's service area(s)
and its capacity and constraints) the extent to which the bank provides
"community development services" (services which primarily benefit low and
moderate income individuals or small farms and businesses or address affordable
housing needs not met by the private market) and their innovativeness and
responsiveness.
Any bank may request to be evaluated by the "strategic plan assessment
method" by submitting a strategic plan for review and approval. Such a plan must
involve public participation in its preparation, and contain measurable goals
for meeting low and moderate income credit needs through lending, investments
and provision of services. Such plans generally will be evaluated by measuring
strategic plan goals against standards similar to those which will be applied in
evaluating a bank according to the "lending, investments and service test
method."
The federal financial institution regulatory agencies issued a final
rule effective as of January 1, 1996, to make certain technical corrections to
the revised CRA regulations. Among other matters, the rule clarifies the
transition from the former CRA regulations to the revised CRA regulations by
confirming that when an institution either voluntarily or mandatorily becomes
subject to the performance tests and standards of the revised regulations, the
institution must comply with all of the requirements of the revised regulations
and is no longer subject to the provisions of the former CRA regulations.
<PAGE>
The Bank is evaluated under the "lending, investment and service" test
method. The Bank's most recent CRA exam was conducted by the FDIC on November 1,
1999. The Bank was given the CRA rating of "outstanding."
Inter-Corporate Borrowings.
Bank holding companies also are restricted as to the extent to which
they and their subsidiaries may borrow or otherwise obtain credit from one
another or engage in certain other transactions. The "covered transactions" that
an insured depository institution and its subsidiaries are permitted to engage
in with their nondepository affiliates are limited to the following amounts: (1)
in the case of any one such affiliate, the aggregate amount of covered
transactions of the insured depository institution and its subsidiaries cannot
exceed 10% of the capital stock and the surplus of the insured depository
institution; and (ii) in the case of all affiliates, the aggregate amount of
covered transactions of the insured depository institution and its subsidiaries
cannot exceed 20% of the capital stock and surplus of the insured depository
institution. In addition, extensions of credit that constitute covered
transactions must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or
extension of credit to the affiliate, a purchase of securities issued by an
affiliate, a purchase of assets from the affiliate (unless otherwise exempted by
the Federal Reserve Board), the acceptance of securities issued by the affiliate
as collateral for a loan and the issuance of a guarantee, acceptance, or letter
of credit for the benefit of an affiliate. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
Impact of Monetary Policies.
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other borrowings, and the interest rate earned by banks on loans, securities and
other interest-earning assets comprises the major source of banks' earnings.
Thus, the earnings and growth of banks are subject to the influence of economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the FRB. The
FRB implements national monetary policy, such as seeking to curb inflation and
combat recession, by its open-market dealings in United States government
securities, by adjusting the required level of reserves for financial
institutions subject to reserve requirements and through adjustments to the
discount rate applicable to borrowings by banks which are members of the FRB.
The actions of the FRB in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates. The nature and timing
of any future changes in such policies and their impact on the Corporation
cannot be predicted. In addition, adverse economic conditions could make a
higher provision for loan losses a prudent course and could cause higher loan
loss charge-offs, thus adversely affecting the Bank's net earnings.
<PAGE>
Recent Legislation.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (previously known as the Financial Services Modernization
Act of 1999). The Gramm-Leach-Bliley Act permits bank holding companies to
qualify as "financial holding companies" that may engage in a broad range of
financial activities, including underwriting, dealing in and making a market in
securities; insurance underwriting and agency activities; and merchant banking.
The FRB is authorized to expand the list of permissible activities. The
Gramm-Leach-Bliley Act also authorizes banks to engage through financial
subsidiaries in nearly all of the activities permitted for financial holding
companies.
The Gramm-Leach-Bliley Act also imposes significant new financial
privacy obligations and reporting requirements on banks as well as on other
financial institutions. Among other things, financial institutions are required
to (a) establish privacy policies and disclose them to customers both at the
time of establishing the customer relationship and on an annual basis, and (b)
permit customers to opt out of the financial institution's disclosure of
customer nonpublic personal information to third parties that are not affiliated
with the financial institution. The federal financial regulators are required to
promulgate regulations implementing these provisions by May 12, 2000, and the
statute's privacy requirements will become effective on November 12, 2000. It is
not possible to predict the impact this new legislation will have on the
Corporation and the Bank.
FORWARD-LOOKING STATEMENTS
This Form 10-K and future filings made by the Corporation with the
Securities and Exchange Commission, as well as other filings, reports and press
releases made or issued by the Corporation and the Bank, and oral statements
made by executive officers of the Corporation and Bank, may include
forward-looking statements relating to such matters as (a) assumptions
concerning future economic and business conditions and their effect on the
economy in general and on the markets in which the Corporation and the Bank do
business, and (b) expectations for increased revenues and earnings for the
Corporation and Bank through growth resulting from acquisitions, attraction of
new deposit and loan customers and the introduction of new products and
services. Such forward-looking statements are based on assumptions rather than
historical or current facts and, therefore, are inherently uncertain and subject
to risk.
The Corporation notes that a variety of factors could cause the actual
results or experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Corporation's and Bank's business include the following: (a) the
risk of adverse changes in business conditions in the banking industry generally
and in the specific markets in which the Bank operates; (b) changes in the
legislative and regulatory environment that negatively impact the Corporation
and Bank through increased operating expenses; (c) increased competition from
other financial and non-financial institutions; (d) the impact of technological
advances; and (e) other risks detailed from time to time in the Corporation's
filings with the Securities and Exchange Commission. The Corporation and Bank do
not undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
ITEM 2. Properties.
The Corporation, through the Bank, currently operates from its main
office in downtown Lafayette and from 17 additional locations in Tippecanoe,
White and Jasper Counties in Indiana. Effective March 29, 1999, the Bank closed
its branch location in Chalmers, Indiana. Information about the Bank's locations
is set forth in the table below:
<PAGE>
<TABLE>
<S> <C> <C>
======================================== ======================================== ==================================
ADDITIONAL
BANKING
LOCATION/ FUNCTIONS
NAME OF OFFICE TELEPHONE NO. OFFERED
-------------- ------------- -------
- ---------------------------------------- ---------------------------------------- ----------------------------------
Downtown Main Office 133 North 4th Street oTrust Department
Lafayette, Indiana oMortgage Loan Department
(765) 423-7100 oCommercial Loan
Department
- ---------------------------------------- ---------------------------------------- ----------------------------------
Downtown Motor Bank 401 North 4th Street o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
Elston Branch 2862 U.S. 231 South o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
Lafayette Square 2504 Teal Road o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
Market Square Branch 2200 Elmwood Avenue oInstallment Loan Department
Lafayette, Indiana o24-Hour MAC Automatic
(765) 423-7163 Teller Machine
- ---------------------------------------- ---------------------------------------- ----------------------------------
Tippecanoe Court Pay Less Super Market o24-Hour MAC Automatic
Branch 2513 Maple Point Drive Teller Machine
Lafayette, Indiana
(765) 423-3821
- ---------------------------------------- ---------------------------------------- ----------------------------------
West Lafayette Branch 2329 North Salisbury Street o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
26 East Branch 3901 S.R. 26 East oInvestment Center
Lafayette, Indiana oInsurance Department
(765) 423-7167 o24-Hour MAC Automatic
Teller Machine
- ---------------------------------------- ---------------------------------------- ----------------------------------
Elmwood Avenue Pay Less Super Market o24-Hour MAC Automatic
Branch 1904 Elmwood Avenue Teller Machine
Lafayette, Indiana
(765) 423-3831
- ---------------------------------------- ---------------------------------------- ----------------------------------
Valley Lakes Branch 1803 East 350 South o24-Hour MAC Automatic
Lafayette, Indiana Teller Machine
(765) 423-3841
- ---------------------------------------- ---------------------------------------- ----------------------------------
Brookston Branch S.R. 18 West and HWY 43 o24-Hour MAC Automatic
Brookston, Indiana Teller Machine
(765) 563-6400
- ---------------------------------------- ---------------------------------------- ----------------------------------
Monticello Branch 116 East Washington St. o24-Hour MAC Automatic
Monticello, Indiana Teller Machine
(219) 583-4666
- ---------------------------------------- ---------------------------------------- ----------------------------------
Broadway Street Branch Super Wal-Mart Supercenter o24-Hour MAC Automatic
1088 West Broadway Street Teller Machine
Monticello, Indiana
(219) 583-3078
- ---------------------------------------- ---------------------------------------- ----------------------------------
Reynolds Branch U.S. 24 West o24-Hour MAC Automatic
Reynolds, Indiana Teller Machine
(219) 984-5471
- ---------------------------------------- ---------------------------------------- ----------------------------------
DeMotte Branch 437 North Halleck o24-Hour MAC Automatic
DeMotte, Indiana 46310 Teller Machine
(219) 987-5812
- ---------------------------------------- ---------------------------------------- ----------------------------------
Remington Branch 101 East Division Street o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
Rensselaer Branch 200 West Washington Street o24-Hour MAC Automatic
- ---------------------------------------- ---------------------------------------- ----------------------------------
Rensselaer Motor Bank 200 North Van Rensselaer
Rensselaer, Indiana 47978
(219) 866-1455
======================================== ======================================== ==================================
</TABLE>
<PAGE>
The Bank owns its main office and all its branch offices, except the
Market Square, Tippecanoe Court Pay Less, Elmwood Pay Less, Valley Lakes and
Wal-Mart Supercenter branches, all of which are leased. The West Lafayette and
26 East branch facilities are owned by the Bank; however, both are subject to
land leases. The main office facility, which is used predominantly by the
Corporation and the Bank, contains approximately 63,000 square feet. The
remaining space is leased to various unrelated business operations. The other
branches range in size from nearly 12,225 square feet down to approximately 450
square feet. The Bank's Data Center is located at 320 North Street in Lafayette,
Indiana, and houses the Bank's data processing operations in addition to the
proof and checking departments.
ITEM 3. Legal Proceedings.
There are no material pending legal proceedings, other than routine
litigation incidental to their business, to which the Corporation or the Bank is
a party or of which any of its property is subject.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There was no matter submitted during the fourth quarter of 1999 to a
vote of security holders, by solicitation of proxies or otherwise.
Special Item. Executive Officers of the Registrant.
<TABLE>
<S> <C> <C>
Name Age Offices Held
Joseph A. Bonner 68 Chairman of the Board of the Corporation and the Bank
Robert J. Weeder 62 Chief Executive Officer and President of the
Corporation and the Bank
Robert J. Ralston 58 Executive Vice President/Senior Operations Officer
and Secretary/Treasurer of the Bank
Tony S. Albrecht 36 Senior Vice President and Manager,
Commercial Loan Department
Lawrence A. Anthrop 55 Senior Vice President and Senior Trust Officer of the Bank
E. James Brisco 47 Senior Vice President and Manager,
Mortgage Loan Department of the Bank
Daniel J. Gick 42 Senior Vice President and Manager, Retail Banking
Hal D. Job 56 Regional President, Jasper County Market
Michelle D. Turnpaugh 34 Secretary/Treasurer of the Corporation and Assistant
Secretary of the Bank
Marvin S. Veatch 35 Vice President and Controller of the Bank
Charles E. Wise 53 Senior Vice President and Branch Manager of the
Reynolds and Monticello offices of the Bank
</TABLE>
<PAGE>
Officers are elected annually by the Board of Directors and serve for a
one-year period and until their successors are elected. No officers have
employment contracts. There are no family relationships between any of the
officers of the Corporation.
Except as indicated below, each of the officers has held the same or
similar position with the Corporation or the bank or the past five (5) years.
Mr. Bonner retired as President and Chief and Executive Officer of the
Corporation and the Bank effective January 31, 1997.
Mr. Weeder has served as President of the Bank since August, 1996 and as
President of the Corporation since September, 1996. He assumed the positions of
Chief Executive Officer of the Corporation and the Bank upon Mr. Bonner's
retirement in January, 1997.
Mr. Albrecht became Senior Vice President and Manager of Commercial Loans
of the Bank in April 1999, prior to which time he had served as Vice President
of the Bank. Prior to his employment by the Bank in August 1998, he was employed
by Bank One, Indiana as Vice President of Commercial Lending.
Mr. Brisco became Senior Vice President of the Bank in December, 1996,
prior to which time he had served as Vice President of the Bank. Prior to his
employment by the Bank in April, 1995, he was employed by Huntington Bank of
Indiana as Vice President, Secondary Market Operations.
Mr. Job became Regional President of the Jasper County Market in March 1999
resulting from the Jasper County branch acquisition in March 1999. Prior to his
employment by the Bank in March 1999, he was employed by Bank One, Indiana as
Market President, Rensselaer.
Mr. Gick became Senior Vice President and Manager of Retail Banking in
November 1999, prior to which time he had served as Regional Senior Vice
President resulting from the Jasper County branch acquisition in March 1999.
Prior to his employment by the Bank in March 1999, he was employed by Bank One,
Indiana as Senior Vice President, Rensselaer Market.
Mr. Ralston became Executive Vice President of the Bank in December, 1996,
and was appointed Secretary/Treasurer of the Bank in September, 1996.
Ms. Turnpaugh was appointed Secretary/Treasurer of the Corporation in
September, 1996.
Mr. Wise became Senior Vice President of the Bank in December, 1996.
<PAGE>
PART II
The information in Part II of this report is incorporated by reference
to the indicated sections of the Registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1999.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Annual Report to
Shareholders
Page
(a) Market 37
(b) Holders 37
(c) Dividends 37
ITEM 6. Selected Financial Data.
Annual Report to
Shareholders
Page
Selected Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Annual Report to
Shareholders
Pages
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10-23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Annual Report to
Shareholders
Page
Management's Discussion and
Analysis of Financial Condition
and Results of Operations -
Quantitative and Qualitative
Disclosures About Market Risk 20
<PAGE>
ITEM 8. Financial Statements and Supplementary Data.
Annual Report to
Shareholders
Pages
Financial Statements and
Supplementary Data 24-36
ITEM 9. Changes in and Disagreement with Accountants on Accounting and Financial
Disclosure.
Not applicable.
PART III
Except as set forth below in "Directors and Executive Officers of the
Corporation," the information for Items 10 through 13 of this Report is
incorporated herein by reference from the Corporation's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held April 10, 2000,
which was filed with the Commission pursuant to Regulation 14A on March 6, 2000.
ITEM 10. Directors and Executive Officers of the Corporation.
The information required by this item relating to Executive Officers is
found under the heading "Special Item. Executive Officers of the Registrant" in
Part I of this Report and the information required by this item relating to
Directors is included under the caption "Election of Director" in the
Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held April 10, 2000, which has been filed with the Commission and is
incorporated herein by reference in this Form 10-K.
ITEM 11. Executive Compensation.
The information required by this item is included under the caption
"Executive Compensation" in the Corporation's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held April 10, 2000, which has been filed
with the Commission and is incorporated by reference in this Form 10-K.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is included under the caption
"Election of Director" in the Corporation's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held April 10, 2000, which has been filed
with the Commission and is incorporated by reference in this Form 10-K.
ITEM 13. Certain Business Relationships and Related Transactions.
The information required by this item is included under the caption
"Certain Business Relationships and Transactions" in the Corporation's
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
April 10, 2000, which has been filed with the Commission and is incorporated by
reference in this Form 10-K.
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The documents listed below are either filed as a part of this Report or
incorporated by reference from the Annual Report to Shareholders or the
Corporation's Registration Statement as indicated.
(a)1. Financial Statements.
Annual Report to
Shareholders
Page
Report of Independent Auditors 24
Consolidated Balance Sheets as of
December 31, 1999 and 1998 25
Consolidated Statements of Income for
the years ended December 31, 1999,
1998 and 1997 26
Consolidated Statements of Changes
in Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997 27
Consolidated Statements of Cash Flows
for the years ended December 31,
1999, 1998 and 1997 28
Notes to Consolidated Financial
Statements 29-36
All other schedules have been omitted because the required information
is either inapplicable or has been included in the Corporation's consolidated
financial statement or notes thereto.
<PAGE>
(a)2. Schedules.
All schedules have been omitted because the required information is
either inapplicable or has been included in the Corporation's consolidated
financial statements or notes thereto.
(a)3. Exhibits.
The exhibits filed as part of this Report on Form 10-K are identified
in the Exhibit Index, which Exhibit Index specifically identifies those exhibits
that describe or evidence all management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Report. Such Exhibit Index
is incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this amended report to be signed on its behalf, by the undersigned,
thereunto duly authorized.
Dated: March 23 , 2000 LAFAYETTE BANCORPORATION
By:/s/ Marvin S. Veatch
Marvin S. Veatch, Vice President and
Controller (Principal Accounting Officer
and Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
3.1 Restated Articles of Incorporation of the Corporation
are incorporated by reference to Exhibit 3.1 to
Registrant's Form 10, which became effective on
June 30, 1997.
3.2 Bylaws of the Corporation, as amended, are
incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10, which became effective June 30,
1997.
10.1* Lafayette Bancorporation Non-Qualified Stock
Option Plan, including schedule identifying
material terms of options granted to Directors and
named executive officers, is incorporated by reference
to Exhibit 10.1 in the Registrant's Form 10, which
became effective on June 30, 1997.
10.2* Lafayette Bancorporation Officers' Stock
Appreciation Rights Plan, including schedule
identifying material terms of stock appreciation rights
granted to named executive officers, is incorporated
by reference to Exhibit 10.2 in the Registrant's Form 10,
which became effective on June 30, 1997.
10.3* Lafayette Bank and Trust Company Directors Deferred
Compensation Plan and Form of Agreement(1987) are
incorporated by reference to Exhibit 10.3 of
Registrant's Form 10, which became effective on
June 30, 1997.
10.4* Lafayette Bank and Trust Company Directors Deferred
Compensation Form of Agreement (1994) is incorporated
by reference to Exhibit 10.4 of Registrant's Form 10,
which became effective on June 30, 1997.
10.5* Lafayette Bancorporation 1998 Nonqualified Stock Option
Plan is incorporated by reference to Exhibit 10.5 of the
Registrant's Form 10-K for the year ended December 31,
1998.
10.6* Lafayette Bancorporation Director Emeritus Supplemental
Retirement Benefits Plan is incorporated by reference to
Exhibit 10.6 of the Registrant's Form 10-K filed for the
year ended December 31, 1998.
13 Registrant's 1999 Annual Report to Shareholders (includes
only portions incorporated by reference).
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors
27 Financial Data Schedule.
* Indicates Exhibits that describe or evidence management contracts or
compensatory plans or arrangements required to be filed as Exhibits to
this Form 10-K.
EXHIBIT 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION AND OVERVIEW
Lafayette Bancorporation (Corporation) is a one-bank holding company located in
Lafayette, Indiana. The Corporation's wholly-owned subsidiary, Lafayette Bank
and Trust Company (Bank), conducts business in sixteen offices located in
Tippecanoe, White, and Jasper Counties, Indiana. The Bank is engaged in a
variety of financial services, including accepting deposits; making commercial
and consumer loans; originating mortgage loans; providing personal and corporate
trust services; providing investment advisory and brokerage services; and
providing auto, homeowners, and other insurance products.
The information in this Management's Discussion and Analysis is presented as an
analysis of the major components of the Corporation's operations for the three
years ended December 31, 1999, 1998, and 1997, and financial condition as of
December 31, 1999 and 1998. This information should be read in conjunction with
the accompanying consolidated financial statements and footnotes contained
elsewhere in this report. The tables contained in the Management's Discussion
and Analysis included dollar amounts expressed in thousands.
MERGERS AND ACQUISITIONS
In March 1999, the Bank purchased three branches in Jasper County, Indiana,
located in the towns of DeMotte, Remington, and Rensselaer.
The fair value of assets acquired was $71,749,000, which consisted primarily of
commercial loans, the physical facilities, goodwill, and core deposit
intangibles. The fair value of liabilities assumed was $117,015,000, which
consisted primarily of customer deposits. Since the Bank acquired more
liabilities than assets in the transaction, the Bank received $45,266,000 of
cash as of the settlement date. See Note 18 for additional information regarding
this acquisition.
This transaction had a significant effect on the Corporation's results of
operations and statement of condition for the year ended December 31, 1999, due
to the size of the acquisition and the approximate 9 1/2 months the Corporation
managed the purchased assets and liabilities.
RESULTS OF OPERATIONS
The major components of the Corporation's operating results for the past five
years are summarized in Table 1 - Five Year Financial Summary.
<PAGE>
Table 1 - FIVE YEAR FINANCIAL SUMMARY
<TABLE>
For the years ended December 31,
1999 1998 1997 1996 1995
-------------- -------------- --------------- -------------- --------------
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Interest income - tax equivalent (1) $45,196 $35,329 $32,415 $28,739 $26,267
Interest expense 21,543 16,963 15,525 14,012 13,115
-------------- -------------- --------------- -------------- --------------
Net interest income - tax equivalent (1) 23,653 18,366 16,890 14,727 13,152
Tax equivalent adjustment (1) (806) (604) (504) (524) (376)
-------------- -------------- --------------- -------------- --------------
Net interest income 22,847 17,762 16,386 14,203 12,776
Provision for loan losses (1,060) (980) (620) (240) (180)
Noninterest income 5,125 4,916 4,168 3,422 2,790
Noninterest expense 17,534 13,610 12,557 11,191 10,220
-------------- -------------- --------------- -------------- --------------
Income before income taxes 9,378 8,088 7,377 6,194 5,166
Income tax expense 3,027 2,711 2,569 2,103 1,791
-------------- -------------- --------------- -------------- --------------
NET INCOME $6,351 $5,377 $4,808 $4,091 $3,375
============== ============== =============== ============== ==============
PER SHARE DATA (2)
Net income $1.77 $1.50 $1.34 $1.14 $0.94
Cash dividends 0.43 0.37 0.34 0.28 0.22
Shareholders' equity, end of year 12.79 11.90 10.75 9.68 8.91
SELECTED ACTUAL YEAR-END BALANCES
Total assets $645,149 $483,969 $439,029 $414,391 $372,265
Earning assets 580,775 449,539 406,954 378,345 333,153
Investment securities available-for-sale 79,722 76,956 66,577 88,206 90,881
Investment securities held-to-maturity 4,712 4,879 5,268 6,156 2,161
Loans held for sale 3,174 10,086 7,640 5,877 2,473
Loans 489,070 353,828 312,227 268,940 228,643
Allowance for loan losses (4,618) (4,241) (3,464) (3,198) (3,200)
Total deposits 522,247 395,546 355,195 341,550 308,652
Noninterest-bearing demand deposits 63,206 48,657 42,752 43,579 43,950
Interest-bearing demand deposits 67,729 54,294 47,054 47,945 46,940
Savings deposits 161,573 116,014 96,974 87,938 77,287
Time deposits 229,739 176,581 168,415 162,088 140,475
FHLB advances 30,027 23,854 19,886 9,265 8,905
Note payable 12,950 - - - -
Shareholders' equity 45,785 42,614 38,469 34,646 31,875
SELECTED AVERAGE BALANCES
Total assets $600,451 $455,268 $416,957 $377,623 $351,782
Earning assets 554,423 422,772 387,277 348,218 323,495
Securities 98,489 76,928 80,606 91,802 90,749
Loans held for sale 5,967 6,095 5,522 4,989 1,092
Loans 440,615 327,412 289,197 242,286 220,117
Allowance for loan losses (4,319) (3,766) (3,254) (3,210) (3,269)
Total deposits 486,489 371,067 345,739 313,621 293,916
Noninterest-bearing demand deposits 51,229 39,312 35,728 35,655 35,822
Interest-bearing demand deposits 62,858 48,777 47,945 45,086 45,614
Savings deposits 157,618 108,019 94,360 82,535 71,406
Time deposits 214,784 174,959 167,706 150,345 141,074
FHLB advances 23,359 22,101 13,940 8,458 9,216
Note payable 10,863 - - - -
Shareholders' equity 44,499 40,814 36,530 33,133 30,125
<PAGE>
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits (3) 90.57% 88.24% 83.65% 77.25% 74.89%
Return on average assets 1.06% 1.18% 1.15% 1.08% 0.96%
Return on average equity 14.27% 13.17% 13.16% 12.35% 11.20%
Dividend payout ratio 24.25% 24.94% 24.98% 24.18% 23.05%
Leverage capital ratio 5.42% 8.82% 8.76% 8.59% 8.77%
Efficiency ratio (4) 60.93% 58.46% 59.63% 61.66% 64.11%
OTHER DATA
Number of employees (FTE) 275 220 213 205 192
Average common shares outstanding (2 3,580,981 3,581,080 3,578,356 3,578,488 3,578,629
Cash dividends declared $1,540 $1,341 $1,201 $989 $778
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with generally accepted accounting principles (GAAP), as reflected in the
consolidated financial statements.
(2) Per share data has been retroactively adjusted to reflect stock dividends
and splits. Amounts do not consider the dilutive effect of stock options
outstanding.
(3) The loan to deposit ratio calculation excludes loans held for sale.
(4) The efficiency ratio is calculated by dividing noninterest expense by the
sum of net interest income, on a fully tax equivalent basis, and noninterest
income.
The Corporation earned $6,351,000, $5,377,000, and $4,808,000, or $1.77, $1.50,
and $1.34 per share for the years ended December 31, 1999, 1998, and 1997,
respectively. The increase in net interest income accounted for a significant
portion of the 18.1% and 11.8% earnings increases recorded by the Corporation in
1999 and 1998, respectively. Earnings in 1999 were enhanced by increases in
trust, NSF, and ATM fee income, while being partially offset by increases in net
realized loss on securities, the Corporation's provision for loan losses,
salaries and benefits, intangible amortization, and other general operating
expenses primarily attributable to the acquisition of the three branch offices.
Net gains of loans sold in the secondary mortgage market and fees generated by
the Bank's investment brokerage department aided earnings in 1998, while
increases in the Corporation's provision for loan losses and salaries and
benefits partially offset those revenue increases.
Return on average assets (ROA) was 1.06%, 1.18%, and 1.15% for the periods
ending December 31, 1999, 1998, and 1997, respectively, while return on average
equity (ROE) was 14.27%, 13.17%, and 13.16% for those same time periods.
<PAGE>
NET INTEREST INCOME
Net interest income is the most significant component of the Corporation's
earnings. Net interest income is the difference between interest and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed funds. The net interest margin is this difference
expressed as a percentage of average earning assets. Net interest income is
determined by several factors, including the volume of earning assets and
liabilities, the mix of earning assets and liabilities, and the overall level of
interest rates. Although there are a certain number of these factors which can
be controlled by management policies and actions, certain other factors, such as
the general level of credit demand, Federal Reserve Board monetary policy, and
changes in tax laws are beyond the control of management. Tables 1 through 4 are
an integral part in analyzing the components of net interest income and the
changes which have occurred between the time periods presented. Table 1 shows
the Corporation's net interest income from 1995 through 1999. Table 2 - Average
Balance Sheets and Interest Rates represent the major components of
interest-earning assets and interest-bearing liabilities. For analytical
purposes, interest income presented in the table has been adjusted to a tax
equivalent basis assuming a 34% tax rate for all years. The tax equivalent
adjustment recognizes the income tax savings when comparing taxable and
tax-exempt assets.
Table 2 - Average Balance Sheets and Interest Rates
<TABLE>
Years ended December 31,
1999 1998 1997
------------------------------------- -------------------------------------- -------------------------------
Average Average Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- --------
Interest earning assets
Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable $66,538 $3,831 5.76% $55,973 $3,217 5.75% $64,119 $3,857 6.02%
Tax-exempt (1) 33,438 2,317 6.93% 20,978 1,502 7.16% 17,160 1,185 6.91%
Unrealized loss on (23)
AFS securities (1,487) - - (673) -
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total securities 98,489 6,148 6.24% 76,928 4,719 6.13% 80,606 5,042 6.26%
Loans (1)(2)
Commercial 251,732 21,951 8.72% 153,030 13,916 9.09% 121,295 11,206 9.24%
Real estate 138,295 11,587 8.38% 129,380 11,012 8.51% 118,156 10,173 8.61%
Installment and
other consumer 56,555 5,000 8.84% 51,097 4,975 9.74% 55,254 5,311 9.61%
Other - - - - 0.00% 14 1 7.14%
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total loans 446,582 38,538 8.63% 333,507 29,903 8.97% 294,719 26,691 9.06%
Interest-bearing balances
with other financial
institutions 344 18 5.23% 153 8 5.23% - -
FHLB stock 1,808 145 8.02% 1,464 117 7.99% 1,210 96 7.93%
Federal funds sold 7,200 347 4.82% 10,720 582 5.43% 10,742 586 5.46%
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total earning assets 554,423 $45,196 8.15% 422,772 35,329 8.36% 387,277 $32,415 8.37%
=========== ========== ====================== ========== =========
Noninterest earning
assets
Allowance for loan (4,319) (3,766) (3,254)
Premises and equipment 9,087 6,417 6,177
Cash and due from banks 21,830 16,309 15,520
Accrued interest and
other assets 19,430 13,536 11,237
------------ ------------ ----------
Total assets $600,451 $455,268 $416,957
============ ============ ==========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing
demand deposits $62,858 $714 1.14% $48,777 $610 1.25% $47,945 $657 1.37%
Savings deposits 157,618 5,994 3.80% 108,019 4,339 4.02% 94,360 3,702 3.92%
Time deposits 214,784 11,316 5.27% 174,959 9,957 5.69% 167,706 9,578 5.71%
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total interest-
bearing deposits 435,260 18,024 4.14% 331,755 14,906 4.49% 310,011 13,937 4.50%
Borrowed funds
Short-term
borrowings 30,168 1,358 4.50% 15,581 712 4.57% 15,129 711 4.70%
FHLB advances 23,359 1,412 6.04% 22,101 1,345 6.09% 13,940 877 6.29%
Note payable 10,863 749 6.89% - - 0.00% - - 0.00%
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total borrowed
Funds 64,390 3,519 5.47% 37,682 2,057 5.46% 29,069 1,588 5.46%
------------ ----------- ---------- ------------ ---------------------- ---------- ----------- ---------
Total interest-bearing
liabilities 499,650 $21,543 4.31% 369,437 $16,963 4.59% 339,080 $15,525 4.58%
=========== ========== ====================== =========== =========
Noninterest-bearing
liabilities
Noninterest-bearing
demand deposits 51,229 39,312 35,728
Accrued interest and
other liabilities 5,073 5,705 5,619
Shareholders' equity 44,499 40,814 36,530
----------- ------------ ----------
Total liabilities and
shareholders' equity $600,451 $455,268 $416,957
============ ============ ==========
Interest margin recap
Net interest income and
interest rate spread $23,653 3.84% $18,366 3.76% $16,890 3.79%
=========== ========== ====================== =========== =========
Net interest income 4.27% 4.34% 4.36%
margin ========== ============= =========
</TABLE>
<PAGE>
(1) Interest income on tax-exempt securities and loans has been adjusted to a
tax equivalent basis using a marginal federal income tax rate of 34% for
all years.
(2) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income. Loan fees were $1,192 for 1999, $1,090 for
1998, and $912 for 1997.
Table 3 - Net Interest Earning Assets illustrates net interest-earning assets
and liabilities for 1999, 1998, and 1997.
<TABLE>
Table 3 - Net Interest-Earning Assets
illustrates net interest-earning assets and liabilities for 1999, 1998, and 1997.
1999 1998 1997
<S> <C> <C> <C>
--------------------- --------------------- --------------------
Average interest-earning assets....... $554,423 $422,772 $387,277
Average interest-bearing liabilities.. 499,650 369,437 339,080
--------------------- --------------------- --------------------
Net interest-earning assets $54,773 $53,335 $48,197
===================== ===================== ====================
</TABLE>
Table 4 - Volume and Rate Analysis depicts the dollar effect of volume and rate
changes from 1997 through 1999. Variances which were not specifically
attributable to volume or rate were allocated proportionately between rate and
volume using the absolute values of each as a basis for the allocation.
Nonaccrual loans were included in the average loan balances used in determining
the yields.
Table 4 - Volume/Rate Analysis
<TABLE>
1999-1998 1998-1997
----------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change Change Change Change
Total Due To Due To Total Due To Due To
INTEREST INCOME Change Volume Rate Change Volume Rate
- ---------------
----------------------------------------- ------------------------------------------
Loans $8,635 $9,796 ($1,161) $3,212 $3,480 ($268)
Securities
Taxable 614 534 80 (640) (439) ( 201)
Tax-exempt 815 865 (50) 317 272 45
Interest-bearing balances with
other financial institutions 10 10 - 8 8 -
FHLB stock 28 28 - 21 20 1
Federal funds sold and overnight
balances (235) (175) (60) (4) (1) (3)
----------------------------------------- ------------------------------------------
Total interest income $9,867 $11,058 ($1,191) $2,914 $3,340 ($426)
========================================= ==========================================
</TABLE>
<PAGE>
INTEREST EXPENSE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing DDA $104 $164 ($60) ($47) $11 ($58)
Savings deposits 1,655 1,897 (242) 637 547 90
Time deposits 1,359 2,140 (781) 379 413 (34)
Short-term borrowings 646 657 (11) 1 21 (20)
FHLB advances 67 76 (9) 468 498 (30)
Note payable 749 749 - - - -
----------------------------------------- ------------------------------------------
Total interest expense $4,580 $5,683 ($1,103) $1,438 $1,490 ($52)
========================================= ==========================================
Net Interest income $5,287 $5,375 ($88) $1,476 $1,850 ($374)
========================================= ==========================================
</TABLE>
Net interest income on a tax equivalent basis for 1999 was 28.8% higher than
that for 1998, while the net interest margin for 1999 was 4.27%, or 7 basis
points lower than the prior year. Tax equivalent net interest income was 8.7%
higher in 1998 compared to 1997, as the net interest margin decreased 2 basis
points to 4.34% from that of 1997.
The growth experienced by the Corporation, predominately through the branch
acquisition in mid-March 1999, led to higher net interest income in 1999. The
key element in the branch acquisition was the successful deployment of funds
obtained in that transaction. Virtually all of the $45,266,000 cash received in
the branch acquisition had been shifted into the loan portfolio, primarily
commercial loans, as of June 30, 1999. Even though the interest rate environment
remained relatively low during the first half of the year, the yields associated
with loans were at a higher rate than any other investment alternative. The
interest rate environment increased slightly during the latter half of the year,
with the most significant increase of the year occurring on November 16th, when
the Federal Open Market Committee (FOMC) raised interest rates 50 basis points.
However, the lower and more stable interest rate environment that existed during
the first 10 1/2 months led to a lower net interest margin for the year.
Overall, the increase in net interest-earning asset volume during the year more
than adequately compensated for the lower yields.
While the 1999 interest rate environment was stable for most of the year, the
interest rate environment for 1998 was moving downward to lower levels. This
declining trend in the interest rate environment resulted in earning assets
repricing at a faster pace and at a lower interest rate than the repricing and
maturity of certain interest-bearing liabilities, which led to a lower net
interest margin. However, the increase in net interest-earning assets more than
offset the effect of declining rates, resulting in an increased net interest
income.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The provision for loan losses represents charges made to earnings to maintain an
adequate allowance for loan losses. The allowance is maintained at an amount
believed to be sufficient to absorb possible losses that may be experienced in
the credit portfolio. Factors considered in establishing an appropriate
allowance include: a careful assessment of the financial condition of the
borrower; a realistic determination for the value and adequacy of underlying
collateral; the condition of the local economy and the condition of the specific
industry of the borrower; a comprehensive analysis of the levels and trends of
loan categories; and a review of delinquent and classified loans.
The Corporation maintains a comprehensive loan review program to evaluate loan
administration, credit quality, and loan documentation. This program also
includes a regular review of problem loan reports, delinquencies, and
charge-offs. The adequacy of the allowance for loan losses is evaluated on a
quarterly basis. This evaluation focuses on specific loan reviews, changes in
the type and volume of the loan portfolio given the current and forecasted
economic conditions, and historical loss experience. Any one of the following
conditions may necessitate a review of a specific loan: a question has been
raised whether the customer's cash flow or net worth are sufficient to repay the
loan; the loan has been criticized in a regulatory examination; the accrual of
interest has been suspended; or other reasons where either the ultimate
collectibility of the loan is in question, or the loan has other special or
unusual characteristics which require special monitoring.
<PAGE>
Activity in the allowance for loan losses is reflected in Table 5 - Analysis of
Allowance for Loan Losses. The recorded values of loans and leases actually
removed from the consolidated balance sheets are referred to as charge-offs and,
after netting out recoveries on previously charged-off assets, become net
charge-offs. The Corporation's policy is to charge-off loans when, in
management's opinion, the loan is deemed uncollectible, although concerted
efforts continue to be made to maximize recovery.
Table 5 - Analysis of Allowance for Loan Losses
<TABLE>
1999 1998 1997 1996 1995
----------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $4,241 $3,464 $3,198 $3,200 $3,309
Loans charged-off
Commercial and agricultural (363) (37) (126) (202) (294)
Real estate (114) 0 0 0 0
Installment (352) (374) (424) (343) (262)
----------------- ----------------- ------------------ ----------------- -----------------
Total charge-offs (829) (411) (550) (545) (556)
----------------- ----------------- ------------------ ----------------- -----------------
Charge-offs recovered
Commercial and agricultural 49 124 126 250 190
Real estate 35 0 0 0 0
Installment 62 84 70 53 77
----------------- ----------------- ------------------ ----------------- -----------------
Total recoveries 146 208 196 303 267
----------------- ----------------- ------------------ ----------------- -----------------
Net loans charged-off (683) (203) (354) (242) (289)
Current year provision 1,060 980 620 240 180
----------------- ----------------- ------------------ ----------------- -----------------
Balance at end of year $4,618 $4,241 $3,464 $3,198 $3,200
================= ================= ================== ================= =================
Loans at year end, excluding
loans held for sale $489,070 $353,828 $312,227 $268,940 $228,643
Ratio of allowance to loans
at year end 0.94% 1.20% 1.11% 1.19% 1.40%
Average loans $440,615 $327,412 $289,197 $242,286 $220,117
Ratio of net loans charged-off
to average loans 0.16% 0.06% 0.12% 0.10% 0.13%
</TABLE>
<TABLE>
Allocation of allowance for loan losses at December 31,
1999 1998 1997 1996 1995
----------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $2,430 $2,499 $1,200 $1,245 $942
Real estate 293 486 340 50 50
Installment 601 570 560 550 550
Unallocated 1,294 686 1,364 1,353 1,658
----------------- ----------------- ------------------ ----------------- -----------------
Total $4,618 $4,241 $3,464 $3,198 $3,200
================= ================= ================== ================= =================
</TABLE>
<PAGE>
Nonperforming assets and their relative percentages to loan balances are
presented in Table 6 - Nonperforming Assets. The level of nonperforming loans
and leases is an important element in assessing asset quality and the relevant
risk in the credit portfolio. Nonperforming loans include nonaccrual loans,
restructured loans and loans delinquent 90 days or more. Loans are evaluated for
nonaccrual when payments are past due over 90 days. Another element associated
with asset quality is other real estate owned (OREO), which represents
properties acquired by the Corporation through loan defaults by customers.
<TABLE>
Table 6 - Nonperforming Assets
As of December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ----------------- ---------------- ------------- -------------
Principal balance
<S> <C> <C> <C> <C> <C>
Nonaccrual $622 $1,468 $127 $178 $381
Restructured 114 197 350 482 661
90 days or more past due 584 775 505 735 796
------------- ----------------- ---------------- ------------- -------------
Total nonperforming loans $1,320 $2,440 $982 $1,395 $1,838
============= ================= ================ ============= =============
Nonperforming loans as a percent
of loans 0.27% 0.69% 0.31% 0.52% 0.80%
Other real estate owned $487 $22 $230 $116 $436
OREO as a percent of loans 0.10% 0.01% 0.07% 0.04% 0.19%
Allowance as a percent of
nonperforming loans 349.85% 173.81% 352.75% 229.25% 174.10%
For nonaccrual and restructured loans
for the years ended December 31:
Interest income under
original terms $53 $146 $55 $74 $113
Interest income which
was recorded 20 17 27 56 50
</TABLE>
The consolidated provision for loan losses was $1,060,000, $980,000, and
$620,000 for 1999, 1998, and 1997, respectively. Despite gross and net
charge-offs during 1999 being at their highest level in the last five years,
management believes the charge-off levels to be reasonable for the size and
composition of the portfolio, and that overall asset quality is good, as
indicated by the decline in nonperforming loan totals and lower delinquency
ratios at year-end, as further explained below.
In connection with the loans acquired in the branch acquisition, a credit
valuation account was established by the Corporation. This account is a purchase
accounting adjustment and was recorded as a contra asset in the loan principal
balance section of the balance sheet. The purpose of this account is to absorb
losses realized with respect to the actual loans purchased in the transaction.
The balance of the credit valuation account was $562,000 at December 31, 1999.
<PAGE>
During the first half of 1999, the loan loss reserve process was refined, which
included the implementation of a revised loan grading system, a more detailed
analysis of impaired loans, and a more comprehensive watch list. This improved
process also led to the Corporation taking a more aggressive approach in
charging-off loans, as evidenced by approximately $476,000, or 70%, of the total
net charge-offs during the year occurring by June 30, 1999. The majority of the
increased charge-off activity during the year occurred in the commercial and
mortgage loan portfolios.
Management increased the provision for loan losses to $1,060,000 for 1999 due to
loan growth and increased charge-offs. Although the ratio of allowance to loans
at year-end declined to .94% (adjusted to 1.06% with the inclusion of the
aforementioned credit valuation balance), the allowance as a percent of
nonperforming loans, along with the unallocated portion of the allowance for
loan losses remain at satisfactory levels.
The unallocated portion of the allowance for loan losses increased from the
prior year, primarily due to the lower nonaccrual loan totals and the reduced
pork producer risks as a result of improved hog prices.
The $360,000 increase in the 1998 provision for loan losses was primarily as a
result of continued loan growth and increasing nonperforming loan totals. The
combination of higher nonaccrual loan balances and the identification of the
potential risks associated with pork producer credits led to a shift in the
allocation of the allowance for loan losses from the unallocated to the
commercial and agricultural category.
Total nonperforming loans declined 45.9% at December 31, 1999 as compared to
December 31, 1998. Although three commercial loan borrowers with loans totaling
approximately $69,000 were added to the nonaccrual list, eight borrowers were
removed from the nonaccrual list as a result of charge-offs totaling
approximately $276,000; transferring assets to other real estate owned totaling
approximately $465,000; and pay-offs which totaled approximately $250,000. Loans
past due 90 days or more declined $191,000 due to one mortgage loan customer
bringing the credit to current status.
Management believes six credits totaling approximately $646,000 as of December
31, 1999 met the criteria for an impaired loan. A specific reserve allocation
has been made in the allowance for loan losses for the excess of the loan
balance over the estimated discounted future cash flows in accordance with
Statements of Financial Accounting Standards No. 114 and 118. Application of
these accounting statements has not had a material effect on the Corporation's
financial statements.
As mentioned above, the $465,000 increase in 1999 in OREO related to the
foreclosure of three properties from two customers. As of December 31, 1999,
there were a total of five parcels of other real estate held by the Corporation
with a remaining total book value of $487,000.
Management believes loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that are not included in nonperforming or
impaired loans do not represent or result from trends or uncertainties which
will have a material impact on future operating results, liquidity, or capital
resources.
In addition to loans classified for regulatory purposes, management also
designates certain loans for internal monitoring purposes in a watch category.
Loans may be placed on management's watch list as a result of delinquent status,
concern about the borrower's financial condition, or the value of the collateral
securing the loan, substandard classification during regulatory examinations, or
simply as a result of management's desire to monitor more closely a borrower's
financial condition and performance. Watch category loans may include loans with
loss potential that are still performing and accruing interest and may be
current under the terms of the loan agreements; however, management may have a
significant degree of concern about the borrowers' ability to continue to
perform according to the terms of the loans. Loss exposure on these loans is
typically evaluated based primarily upon the estimated liquidation value of the
collateral securing the loans. Also, watch category loans may include credits
which, although adequately secured and performing, reflect past delinquency
problems or unfavorable financial trends exhibited by the borrowers.
<PAGE>
All watch list loans are subject to additional scrutiny and monitoring. The
Corporation's philosophy encourages loan officers to identify borrowers that
should be monitored in this fashion and believes this process ultimately results
in the identification of problem loans in a more timely fashion.
As of December 31, 1999, the Corporation had loans totaling $5,204,000 on its
watch list which were not included in impaired or nonperforming loans.
NONINTEREST INCOME AND EXPENSE
A listing of noninterest income and expense from 1997 through 1999 and
percentage changes between years is included in Table 7 - Noninterest Income and
Expense.
Table 7 - NONINTEREST INCOME & EXPENSE
<TABLE>
% change % change
1999 from '98 1998 from '97 1997
---------------- ---------------- ------------------ -------------------------------
Noninterest Income
<S> <C> <C> <C> <C> <C>
Income from fiduciary activities $1,134 17.63% $964 8.93% $885
Service charges on deposit accounts 1,581 20.78% 1,309 4.39% 1,254
Other operating income 1,612 16.64% 1,382 9.16% 1,266
---------------- ---------------- ------------------ ------------ ------------------
4,327 18.39% 3,655 7.34% 3,405
Net gain on loan sales 942 -24.94% 1,255 70.52% 736
Net realized gain/(loss) on securities (144) -2500.00% 6 -77.78% 27
---------------- ---------------- ------------------ ------------ ------------------
Total noninterest income $5,125 4.25% $4,916 17.95% $4,168
================ ================ ================== ============ ==================
</TABLE>
<TABLE>
% change % change
1999 from '98 1998 from '97 1997
---------------- ---------------- ------------------ -------------------------------
Noninterest Expense
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $9,836 19.86% $8,206 9.65% $7,484
Occupancy expenses, net 1,073 20.43% 891 1.02% 882
Equipment expenses 1,314 24.67% 1,054 8.66% 970
Other operating expenses 5,311 53.54% 3,459 7.39% 3,221
---------------- ---------------- ------------------ ------------ ------------------
Total noninterest expense $17,534 28.83% $13,610 8.39% $12,557
================ ================ ================== ============ ==================
</TABLE>
Nearly all noninterest income and expense categories were significantly impacted
by the Jasper County branch acquisition, as the Corporation operated these new
locations for 9 1/2 months during 1999.
Noninterest income increased 4.3% to $5,125,000 in 1999 compared to $4,916,000
in 1998. Primary sources of noninterest income were income from fiduciary
activities, service charges on deposit accounts, and net gain on secondary
market mortgage loan sales. Excluding the net loss on securities, noninterest
income increased 7.2% to $5,269,000.
<PAGE>
Income from fiduciary activities increased 17.6% during 1999. The majority of
the increase was attributed to the following: another strong year in the stock
market gave rise to the increase in overall market values of trust assets, an
adjustment in the departmental fee structure, and an increasing number of high
market value accounts obtained throughout the year. Service charges on deposit
accounts increased 20.8% during 1999. Approximately 90% of the increase was
accounted for by the expansion into the Jasper County market. Other operating
income rose 16.6% during the year primarily due to the continuing increases in
ATM fee income, as total ATM transactions increased 19.3% from the prior year.
Also, the secondary market mortgage department recorded an increase of $78,000
as a result of certain investor volume incentives. And while the Jasper County
market contributed an approximate 10.0% increase in this category, it was more
than offset by the 10.8% decline in gross fees recorded by the Bank's Investment
Center, a full service brokerage operation offered through Raymond James
Financial Services, Inc., member NASD/SIPC.
Net gain on secondary market mortgage loan sales declined 24.9% during 1999
compared to the previous year. The rising interest rate environment slowed new
home growth as well as refinancing activities, which led to an 11.2% reduction
in annual sales volume. Any increase from the origination and sales of mortgage
loans is extremely dependent upon the current interest rate environment as well
as customer demand. The Corporation has been developing relationships with
builders and real estate agents, and, given a stable or declining interest rate
environment, management expects this area of activity to be a continued source
of significant income. The statement in this paragraph relating to the secondary
market mortgage department and its operations is a forward-looking statement
which may or may not be accurate due to the impossibility of predicting future
economic and business events, and the level of future interest rates.
As explained in more detail in the "Securities" section, the Corporation
executed two bond swaps which resulted in net losses, but enabled the
Corporation to generate higher yields and improve its asset/liability management
position.
Noninterest income during 1998 increased 17.9% compared to 1997. The same areas
of growth that occurred in 1999 occurred in 1998 as well. New accounts, an
increase in the fee structure, and the exceptional year in the stock market led
to an 8.9% increase in income from fiduciary activities. In a similar fashion,
service charges on deposit accounts increased 4.4% due to growth in the deposit
base and a higher number of accounts being assessed fees. Other operating income
rose 9.2% during 1998 due to higher gross investment center fees and ATM income.
Total noninterest expense rose 28.8% to $17,534,000 in 1999 compared to the 8.4%
increase recorded in 1998. However, as a percentage of total average assets,
total noninterest expense remained constant at approximately 2.9% for 1999 and
1998. Salaries and employee benefits increased 19.9% during 1999. The Jasper
County acquisition accounted for approximately 70% of the $1,630,000 increase,
while the remaining portion was attributable to additional overtime costs
associated with acquisition-related activities, such as pre and post settlement
issues, data conversion, and training. Additional personnel and increases in
health insurance costs were also contributing factors in the remaining portion
of the increase.
Net occupancy expense rose 20.4% during 1999 primarily as a result of higher
maintenance costs and upward adjustments in branch rent expense. The Jasper
County market accounted for approximately 36% of the total $182,000 increase.
Equipment expense increased 24.7% in 1999 predominately due to higher
depreciation expense associated with the various technology upgrades implemented
during the year. In addition to laying the infrastructure foundation for network
systems, the Corporation also installed new communication systems, an imaging
system, teller systems, the equipment necessary to operate the Jasper County
branches, and made ongoing upgrades for Y2K compliance.
Other operating expenses increased 53.5% in 1999 when compared to the prior
year. In general, most overhead expense increases, including the $516,000
increase in the intangible amortization expense, was attributable to the
transition and ongoing operational costs associated with the operation of the
newly acquired Jasper County branches.
<PAGE>
Total noninterest expense increased 8.4% in 1998 compared to 1997 predominately
due to higher salary and employee benefit costs. The full year effect of
personnel gained in the Monticello branch acquisition, in addition to added
personnel in the secondary market department, along with higher commissions paid
to secondary market loan originators and Investment Center personnel were the
leading factors in this category. Higher maintenance costs along with an
increased marketing and advertising campaign were the most significant items
leading to the increases in equipment and other operating expenses during 1998.
INCOME TAXES
The Corporation records a provision for income taxes currently payable, along
with a provision for those taxes payable in the future. Such deferred taxes
arise from differences in timing of certain items for financial statement
reporting rather than income tax reporting. The major difference between the
effective tax rate applied to the Corporation's financial statement income and
the federal statutory rate of 34% is the result of interest on tax-exempt
securities and loans.
The Corporation had regular tax and alternative minimum tax net operating loss
carryforwards which were fully utilized during 1998.
The Corporation's effective tax rate was 32.3%, 33.5%, and 34.8% in 1999, 1998,
and 1997, respectively. Further tax information regarding the Corporation can be
found in Note 1 and Note 12 to the consolidated financial statements.
INTERIM FINANCIAL DATA
Table 8 - Interim Financial Data is a detailed summary on a quarterly basis of
the results of operations for the years ended December 31, 1999 and 1998. For a
fair and consistent presentation, these results contain all necessary
restatements in connection with stock splits and dividends that occurred in the
periods presented.
<TABLE>
Table 8 - INTERIM FINANCIAL DATA
Quarter Ended
-------------------------------------------------------------------------
December September June March
1999 31 30 30 31
-----
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income $11,947 $11,693 $11,267 $9,483
Interest expense 5,848 5,671 5,452 4,572
---------------- ----------------- ----------------- -----------------
Net interest income 6,099 6,022 5,815 4,911
Provision for loan losses 420 270 190 180
Noninterest income 1,221 1,359 1,349 1,196
Noninterest expense 4,904 4,473 4,500 3,657
---------------- ----------------- ----------------- -----------------
Income before income taxes 1,996 2,638 2,474 2,270
Income taxes 564 888 824 751
---------------- ----------------- ----------------- -----------------
Net income $1,432 $1,750 $1,650 $1,519
================ ================= ================= =================
Net income per share
Basic earnings per share $0.40 $0.49 $0.46 $0.42
Diluted earnings per share $0.39 $0.48 $0.45 $0.41
Weighted average shares (1)
Weighted average shares 3,585,221 3,581,221 3,579,033 3,578,501
Diluted average shares 3,669,330 3,672,149 3,669,961 3,671,903
Stock price (2) $26.25 $26.83 $26.67 $27.33
<PAGE>
1998
Interest income $9,189 $8,794 $8,490 $8,252
Interest expense 4,370 4,387 4,177 4,029
---------------- ----------------- ----------------- -----------------
Net interest income 4,819 4,407 4,313 4,223
Provision for loan losses 440 180 180 180
Noninterest income 1,129 1,354 1,212 1,221
Noninterest expense 3,682 3,357 3,321 3,250
---------------- ----------------- ----------------- -----------------
Income before income taxes 1,826 2,224 2,024 2,014
Income taxes 581 758 683 689
---------------- ----------------- ----------------- -----------------
Net income $1,245 $1,466 $1,341 $1,325
================ ================= ================= =================
Net income per share
Basic earnings per share $0.35 $0.41 $0.37 $0.37
Diluted earnings per share $0.34 $0.40 $0.37 $0.36
Weighted average shares (1)
Weighted average shares 3,581,080 3,581,080 3,581,080 3,581,080
Diluted average shares 3,660,862 3,635,234 3,630,245 3,623,108
Stock price (2) $25.50 $24.85 $24.24 $20.91
</TABLE>
(1) - All share amounts have been restated to reflect stock dividend activity
in each of the periods presented.
(2) - The stock price above represents the sales price of the last actual
trade in each respective quarter as adjusted for stock dividends.
FINANCIAL CONDITION
SECURITIES
Securities held-to-maturity are those which the Corporation has both the
positive intent and ability to hold to maturity, and are reported at amortized
cost. Securities available-for-sale are those which the Corporation may decide
to sell if needed for liquidity, asset/liability management, or other reasons.
Securities available-for-sale are reported at fair value, with unrealized gains
and losses included as a separate component of equity, net of tax. The
Corporation does not maintain any securities for trading purposes.
Table 9 - Securities and Securities Maturity Schedule summarizes the carrying
values of securities from 1997 through 1999 and the maturity distribution at
December 31, 1999, by classification. Interest on tax-exempt securities has been
adjusted to a tax equivalent basis using a marginal federal tax rate of 34% for
all years.
<PAGE>
Table 9 - SECURITIES
<TABLE>
At December 31,
-------------------------------------------------------
1999 1998 1997
-------------------------- -----------
Securities available-for-sale
<S> <C> <C> <C>
U.S. Government & agencies $5,005 $14,110 $21,906
States and political subdivisions 27,268 23,637 9,981
Corporate obligations 1,973 2,513 250
Mortgage-backed and asset-backed 42,888 36,696 34,440
Other securities 2,588 - -
-------------------------- -----------
Total securities available-for-sale $79,722 $76,956 $66,577
Securities held-to-maturity
States and political subdivisions $4,712 $4,879 $5,268
-------------------------- -----------
Total securities held-to-maturity $4,712 $4,879 $5,268
-------------------------- -----------
Total securities $84,434 $81,835 $71,845
========================== ===========
</TABLE>
<TABLE>
SECURITIES MATURITY SCHEDULE
1 Year and Less 1 to 5 Years 5 to 10 Years Over 10 Years
--------------------------------------------------------------------------------------------------------
Available-for-sale Balance Rate Balance Rate Balance Rate Balance Rate
- ------------------ --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $0 $0 - - $0 - $0 -
Federal agencies - - 1,167 6.50% 3,838 6.40% - -
State and municipal (1) 320 6.15% 2,740 4.86% 6,456 6.73% 17,752 7.35%
Corporate obligations - - 1,973 7.00% - - - -
Mortgage-backed and asset-backed - - 2,201 6.15% 603 5.47% 40,084 6.38%
Other securities - - - - 1,020 5.79% 1,568 5.97%
------------ ----------- ----------- ------------
Total available-for-sale $320 $8,081 $11,917 $59,404
============ =========== =========== ============
Held-to-maturity
State and municipal (1) $200 6.86% $840 7.88% $2,575 7.96% $1,097 8.91%
------------ ----------- ----------- ------------
Total held-to-maturity $200 $840 $2,575 $1,097
============ =========== =========== ============
</TABLE>
(1) - Average rates were calculated on a tax equivalent basis using a marginal
federal income tax rate of 34%.
<PAGE>
The majority of the securities portfolio is comprised of federal agency
securities, state municipal securities (tax-exempt), mortgage-backed and
asset-backed securities.
The securities portfolio carries varying degrees of risk. Investments in U.S.
Treasury securities and federal agency securities have little or no credit risk.
Mortgage-backed and asset-backed securities are substantially issues of federal
agencies. Obligations of states and political subdivisions and corporate
securities are the areas of highest potential credit exposure in the portfolio.
This risk is minimized through the purchase of high quality investments. The
Corporation's investment policy requires that obligations of states and
political subdivisions and corporate bonds must have a rating of A or better
when purchased. The vast majority of these investments were rated A or better at
December 31, 1999. The risk of non-rated municipal bonds is minimized by
limiting the amounts invested and by investing in local issues. Management
believes the non-rated securities in the Corporation's portfolio are of high
quality. No securities of an individual issuer, excluding U.S. Government and
its agencies, exceeded 10% of the Corporation's shareholders' equity as of
December 31, 1999. The Corporation does not use off-balance sheet derivative
financial instruments as defined in SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments."
Total securities were $84,434,000 and $81,835,000 as of December 31, 1999 and
1998, respectively. Although the total securities balance increased 3.2% during
1999, the average balance actually increased $21,561,000, or 28.0%. This
increase in the average balance was mainly attributed to the short-term
investments made with the proceeds received in connection with the branch
acquisition, which were ultimately utilized to fund the ongoing loan growth of
the Corporation. As U.S. Government and agency securities matured or were called
during the year, their proceeds were reinvested into other sectors, mainly
states and political subdivisions and mortgage-backed and asset-backed
securities. While the states and political subdivision securities were not
subject to the run-up in prices and corresponding reduction in yield, adjustable
rate mortgage-backed and asset-backed securities were purchased to strengthen
the Corporation's overall asset/liability position.
Management's security strategy includes utilizing short-term securities,
adjustable rate instruments, and easily marketable securities primarily to fund
the continuing growth of the loan portfolio. Tax-free and intermediate taxable
bonds are used to further enhance earnings. As of December 31, 1999,
approximately 94% of the total investment security portfolio was classified in
the available-for-sale category, which allows flexibility in the asset/liability
management function. Sell strategies are executed, on occasion, when the
interest rate environment provides the opportunity to boost the overall
portfolio performance. The increasing interest rate environment during the last
quarter contributed to lower returns on bonds. In response to the interest rate
environment that existed during this period, management executed two separate
bond swaps. Although the swaps resulted in net losses, the transactions enabled
the Corporation to improve its asset/liability position, in addition to
generating additional earnings through higher yields.
As of December 31, 1999 and 1998, the security portfolio held structured notes
totaling $3,997,000 and $1,995,000, respectively. The investment policy has
specific guidelines describing total holdings, maturity, and price volatility
parameters regarding these types of security instruments. All structured notes
are U.S. Government agency issues.
The change which occurred in the unrealized gain/loss on securities between 1999
and 1998 was a result of the swing in the interest rate environment during that
time period, in conjunction with the change in the portfolio mix. Although the
Corporation did record net losses in its investment activity during 1999, it is
not likely the Corporation will realize any future losses in the security
portfolio to satisfy loan growth or liquidity needs. The change in equity due to
market value fluctuations in the available-for-sale portfolio are not used in
the regulatory capital calculation. This paragraph includes forward-looking
statements that are based on management's assumptions regarding future economic
and business conditions. Such economic and business assumptions are inherently
uncertain and subject to risk and may prove to be invalid, causing management to
respond to the present circumstances and conditions.
<PAGE>
LOANS
The loan portfolio constitutes the major earning asset of the Corporation and
offers the best alternative for maximizing interest spread above the cost of
funds. The Corporation's loan personnel have the authority to extend credit
under guidelines established and approved by the Board of Directors. Any credit
which exceeds the authority of the loan officer is forwarded to the Bank's loan
committee for approval. The loan committee is comprised of various experienced
loan officers and three bank directors -- the President, and two outside
directors, one of which is the Chairman. Each outside director participates on
this committee on a monthly rotating basis. All credits which exceed the loan
committee's lending authority are presented to the full Board of Directors for
ultimate approval or denial. The loan committee not only acts as an approval
body to ensure consistent application of the Corporation's loan policy, but also
provides valuable insight through communication and pooling of knowledge,
judgment, and experience of its members.
The Corporation's primary lending area generally includes Tippecanoe, White,
Jasper, and contiguous counties in Northwest Indiana. The Corporation extends
out-of-area credit only to borrowers who are considered to be low risk, and only
on a very limited basis.
Table 10 - Loans Outstanding reflects outstanding balances by loan type for the
past five years. Additional loan information is presented in Note 3 to the
consolidated financial statements.
<TABLE>
Table 10 - Loans Outstanding
At December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $192,760 $115,198 $112,586 $96,276 $75,317
Real estate - construction 47,375 28,043 17,117 12,194 10,472
Real estate - mortgage 197,181 160,655 127,574 104,547 87,637
Installment 51,754 49,932 54,950 54,924 55,217
Other 0 0 0 999 0
----------------- ----------------- ---------------- ------------------ -------------------
Total loans $489,070 $353,828 $312,227 $268,940 $228,643
================= ================= ================ ================== ===================
</TABLE>
<TABLE>
Composition of loan portfolio by type at December 31,
1999 1998 1997 1996 1995
----------------- ----------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Commercial and agricultural 39.41% 32.56% 36.06% 35.80% 32.94%
Real estate - construction 9.69% 7.93% 5.48% 4.54% 4.58%
Real estate - mortgage 40.32% 45.40% 40.86% 38.87% 38.33%
Installment 10.58% 14.11% 17.60% 20.42% 24.15%
Other 0.00% 0.00% 0.00% 0.37% 0.00%
----------------- ----------------- ---------------- ------------------ -------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
================= ================= ================ ================== ===================
</TABLE>
The Corporation's continued growth of the loan portfolio during 1999 was
assisted, in large part, by the expansion into the Jasper County market.
Approximately 54.0% of the $135,242,000 total loan growth, including the loans
acquired at the date of acquisition, occurred in the Jasper County market. The
remaining $62,228,000, or 46.0% of the growth, took place in the existing
Tippecanoe and White County markets.
While all loan categories have benefited from the Jasper County growth, which is
primarily agriculturally oriented, the commercial and agricultural sector
increased $77,562,000, or 67.3% - the largest of any loan category. In general,
the overall loan increase in the loan portfolio continued to be directly related
to the ongoing economic prosperity, particularly in the Tippecanoe market, where
the unemployment rate is below both the state and national averages.
<PAGE>
Total installment loan balances increased slightly during 1999, as management
continued to monitor and control the indirect automobile line of business in an
ongoing effort to reduce net charge-offs. As a result, indirect charge-offs were
reduced $43,000 during the year to $84,000. As loan totals have continued to
escalate during the last few years, the loan portfolio has remained diversified
by loan type, borrower, and industry. As of December 31, 1999, there were no
concentrations of credits in excess of 10.0%.
The real estate-mortgage category remained the largest segment of the loan
portfolio as of December 31, 1999. While the only real estate charge-offs in the
last five years occurred in 1999, this loan type continues to carry a lower
degree of risk because of the nature of the loan. Management believes the degree
of risk assumed on any loan is commensurate with the interest rate assessed, and
is thereby able to receive a higher rate of return on commercial and real
estate-construction loans as compared to residential real estate loans. Although
these loan types usually possess increased elements of risk, the Corporation's
lending practices, policies, and procedures that are in place are intended to
mitigate certain risks associated with such loans.
Table 11 - Loan Liquidity and Sensitivity to Changes in Interest Rates reflects
the maturity schedule of commercial and agricultural loans. Also indicated are
fixed and variable rate loans maturing after one year for the same loan
categories.
<TABLE>
Table 11 - Loan Liquidity
Loan Maturities at December 31, 1999
----------------------------------------------------------------------
1 Year 1 - 5 Over 5
and Less Years Years Total
--------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Commercial and agricultural $87,125 $96,534 $9,101 $192,760
Real estate - construction 39,148 7,380 847 47,375
--------------- ------------------ ----------------- -----------------
Total selected loans $126,273 $103,914 $9,948 $240,135
=============== ================== ================= =================
</TABLE>
<TABLE>
Sensitivity to Changes in Interest Rates
<S> <C> <C>
Fixed rates $18,526 $9,163
Variable rates 85,388 785
------------------ -----------------
Total selected loans $103,914 $9,948
================== =================
</TABLE>
DEPOSITS
The Corporation offers a wide variety of deposit services to individual and
commercial customers, such as noninterest-bearing and interest-bearing checking
accounts, savings accounts, money market accounts, and certificates of deposit.
The deposit base provides the major funding source for earning assets. Total
deposits grew $126,701,000, or 32.0%, in 1999, of which approximately
$109,008,000, or 86.0% of the net growth occurred as a result of the Jasper
County branch acquisition. Although not desirable, it is typical for an
institution to experience a certain degree of deposit run-off after a branch
acquisition transaction has been consummated. As of December 31, 1999 the
Corporation experienced an approximate 6.8% run-off in the deposits acquired in
this new market. Time deposits remain the largest single source of the
Corporation's funds.
A three year schedule of average deposits by type, and maturities of time
deposits greater than $100,000 is presented in Table 12 - Deposit Information.
<PAGE>
<TABLE>
Table 12 - Deposit Information
1999 1998 1997
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C>
Noninterest-bearing $51,229 $39,312 $35,728
Interest-bearing demand 62,858 1.14% 48,777 1.25% 47,945 1.37%
Savings deposits 157,618 3.80% 108,019 4.02% 94,360 3.92%
Time deposits 214,784 5.27% 174,959 5.69% 167,706 5.71%
Total deposits $486,489 3.70% $371,067 4.02% $345,739 4.03%
</TABLE>
<TABLE>
Maturity Ranges of Time Deposits
with Balances of $100,000 or More at December 31,
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
3 months or less $12,638 $9,273 $7,015
3 through 6 months 4,422 4,287 2,423
6 through 12 months 6,372 4,230 3,676
Over 12 months 15,233 10,438 11,648
-------------- --------------
---------------
Total $38,665 $28,228 $24,762
=============== ============== ==============
</TABLE>
To provide temporary liquidity and as an alternative to borrowing federal funds,
the Corporation will acquire, from time to time, large balance certificates of
deposit, generally from public entities, for short-term time periods. The
Corporation had such funds totaling $5,514,000, $500,000, and $2,000,000 as of
December 31, 1999, 1998, and 1997, respectively.
BORROWINGS
Aside from the core deposit base and large denomination certificates of deposit
mentioned above, the Corporation's remaining funding sources include short-term
and long-term borrowings. Short-term borrowings consist of federal funds
purchased from other financial institutions on an overnight basis, retail
repurchase agreements which generally mature within thirty days, and U.S.
Treasury demand notes.
<PAGE>
Table 13 - Short-term Borrowings
<TABLE>
As of December 31,
------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Repurchase agreements outstanding $24,645 $15,788 $17,340
Treasury tax and loan open-end note 2,628 614 3,032
-------------- ------------- -------------
Total short-term borrowings $27,273 $16,402 $20,372
============== ============= =============
Average balance of repurchase agreements
during year $28,428 $14,671 $13,926
Maximum month-end balance of repurchase
agreements during year 33,192 17,223 17,621
Weighted-average interest rate of
repurchase agreements during year 4.36% 4.47% 4.67%
Weighted-average interest rate of
repurchase agreements at end of year 4.87% 4.20% 4.98%
</TABLE>
As presented in Table 13 - Short-term Borrowings, the balance of the
Corporation's short-term borrowings were comprised of retail repurchase
agreements and a treasury tax and loan open-end note as of December 31, 1999,
1998, and 1997. For the years presented, the retail repurchase agreements
accounted for substantially the entire outstanding balance.
The Bank became a member of the Federal Home Loan Bank of Indianapolis (FHLBI)
in 1992 and has the authority of the Board of Directors to borrow up to $40
million. All current and any future borrowings are secured by a blanket
collateral pledge of the Bank's U.S. Government and U.S. Government agency
securities, along with one-to-four family residential loans. FHLB advances as of
December 31, 1999 and 1998 were $30,027,000 and $23,854,000, respectively. The
Corporation increased its net FHLB advance borrowings during 1999 primarily to
fund the continued loan growth. The attractive interest rates along with the
fixed rate feature of the advances made this a more desirable source of funds,
as opposed to the short-term nature of certain repurchase agreement contracts.
The Corporation executed an unsecured long-term borrowing agreement on March 15,
1999 with The Northern Trust Company, located in Chicago, Illinois. The purpose
of the note was to contribute additional capital to the subsidiary bank in order
for the subsidiary bank to acquire the Jasper county branches and maintain its
well-capitalized capital status. The Corporation made a $13,000,000 capital
contribution to the subsidiary bank on March 15, 1999. Under the terms of the
agreement, the Corporation is required to make quarterly principal payments of
$350,000, with a final balloon payment due March 31, 2006. Interest is payable
monthly at an interest rate currently indexed to the federal funds rate plus an
applicable margin determined by the Corporation's existing capital ratios. The
note is also subject to various covenants, including a defined minimum return on
average assets, tangible net worth, capital ratios, indebtedness ratio, loan
loss allowance to loans ratio, and nonperforming asset ratios. Management
believes the Corporation is in compliance with all covenants of the loan
agreement as of December 31, 1999. The outstanding principal balance of the note
payable at December 31, 1999 was $12,950,000. Additional information regarding
short-term borrowings, FHLB advances, and the note payable can be found in Note
7 and Note 8 of the consolidated financial statements.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk of the Corporation encompasses exposure to both liquidity risk and
interest rate risk and is reviewed quarterly by the asset/liability committee
(ALCO) and the Board of Directors.
The liquidity of the parent company is dependent on the receipt of dividends
from the banking subsidiary. Certain restrictions exist regarding the transfer
of funds from the subsidiary as explained in Note 14 to the consolidated
financial statements. Management expects that in the aggregate, the banking
subsidiary will continue to have the ability to dividend adequate funds to the
parent company. The statement in this paragraph relating to the parent company
continuing to receive dividends from the subsidiary bank is a forward-looking
statement which may or may not be accurate due to the impossibility of
predicting future economic and business events, and in particular, the future
profitability of the Corporation's banking subsidiary.
The banking subsidiary's source of funding is predominantly core deposits
consisting of both commercial and individual deposits, maturities of securities,
repayments of loan principal and interest, federal funds purchased, securities
sold under agreements to repurchase, and FHLBI advances. The deposit base is
diversified between individual and commercial accounts which helps avoid
dependence on large concentrations of funds. The Corporation does not solicit
certificates of deposit from brokers. Table 14 - Funding Uses and Sources
details the main components of cash flows for 1999 and 1998.
<TABLE>
Table 14 - Funding Uses and Sources
1999 1998
--------------------------------------- --------------------------------------
Average Increase/(decrease) Average Increase/(decrease)
------------------- -------------------
Balance Amount Percent Balance Amount Percent
-------------- ------------- ---------- -------------- ------------- ---------
FUNDING USES
<S> <C> <C> <C> <C> <C> <C>
Loans, total $446,582 $113,075 33.90% $333,507 $38,788 13.16%
Taxable securities 66,538 10,565 18.88% 55,973 (8,146) -12.70%
Tax-exempt securities 33,438 12,460 59.40% 20,978 3,818 22.25%
Interest-bearing balances with
other financial institutions 344 191 - 153 153 #DIV/0!
FHLB stock 1,808 344 23.50% 1,464 254 20.99%
Federal funds sold and overnight balances 7,200 (3,520) -32.84% 10,720 (22) -0.20%
-------------- ------------- ---------- -------------- ------------- ---------
Total uses $555,910 $133,115 31.48% $422,795 $34,845 8.98%
============== ============= ========== ============== ============= =========
FUNDING SOURCES
Noninterest-bearing deposits $51,229 $11,917 30.31% $39,312 $3,584 10.03%
Interest-bearing demand 62,858 14,081 28.87% 48,777 832 1.74%
Savings deposits 157,618 49,599 45.92% 108,019 14.48%
Time deposits 214,784 39,825 22.76% 174,959 7,253 4.32%
Short-term borrowings 30,168 14,587 93.62% 15,581 452 2.99%
FHLB advances 23,359 1,258 5.69% 22,101 8,161 58.54%
Note payable 10,863 10,863 #DIV/0! - - #DIV/0!
-------------- ------------- ---------- -------------- ------------- ---------
Total sources $550,879 $142,130 34.77% $408,749 $33,941 9.06%
============== ============= ========== ============== ============= =========
</TABLE>
The Corporation's interest rate risk is measured by computing estimated changes
in net interest income and the net portfolio value (NPV) of its cash flows from
assets and liabilities in the event of adverse movements in interest rates.
Interest rate risk exposure is measured using an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates. Another method also used to enhance the overall process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Corporation's assets and liabilities.
<PAGE>
NPV represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities. This particular analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and sustained 1% - 2% increase and decrease in interest rates. The
Corporation's Board of Directors adopted an interest rate risk policy which
established a 45% minimum and maximum increase and decrease in the NPV in the
event of a sudden and sustained 1% - 2% increase or decrease in interest rates.
The following table represents the Corporation's projected change in NPV for the
various rate shock levels as of December 31, 1999.
<TABLE>
----------------------- Net Portfolio Value --------------------
<S> <C> <C> <C>
Change Dollar Dollar Percentage
in Rates Amount Change Change
+ 200 $ 19,059 $ (24,522) (56.27) %
+ 100 30,698 (12,883) (29.56)
Base 43,581 - -
- 100 57,891 14,310 32.84
- 200 72,172 28,591 65.60
</TABLE>
The above table indicates that as of December 31, 1999, the Corporation's
estimated NPV would be expected to decrease in the event of sudden and sustained
increases in prevailing interest rates. Conversely, in the event of sudden and
sustained decreases in prevailing interest rates, the Corporation's estimated
NPV would be expected to increase. As of December 31, 1999, the Corporation's
estimated changes in NPV were outside the approved guidelines established by the
Board of Directors and were reported to the Board of Directors as an exception
to policy. Management does not believe the violation of policy presents a
significant risk to the institution; however, management will continue to
monitor this condition and will attempt to address this issue through strategies
implemented by the Corporation's ALCO committee. The primary reason for the
change in the NPV during 1999 was a combination of the rising interest rate
environment that existed during the latter part of the year, in conjunction with
the duration and mix of the Corporation's assets and liabilities. During a
period of rising interest rates, loan refinancings and prepayments on
mortgage-related assets tend to slow down resulting in longer term assets.
During 1999, the duration of assets increased more than four times the pace of
liabilities.
Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate any
actions management may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of discounted cash flows
utilizing certain prepayment assumptions and market interest rates.
Certain shortcomings are inherent in the method of computing the estimated NPV.
Actual results may differ from that information presented in the table above
should market conditions vary from the assumptions used in preparation of the
table information. If interest rates remain or decrease below current levels,
the proportion of adjustable rate loans in the loan portfolio could decrease in
future periods due to refinancing activity. Also, in the event of an interest
rate change, prepayment and early withdrawal levels would likely be different
from those assumed in the table. Lastly, the ability of many borrowers to repay
their adjustable rate debt may decline during a rising interest rate
environment.
Used in conjunction with the NPV analysis is the interest rate sensitivity gap
analysis. This analysis monitors the relationship between the maturity and
repricing of interest-earning assets and interest-bearing liabilities while
maintaining an acceptable interest rate spread. Interest rate sensitivity gap is
defined as the difference between the amount of maturing or repricing of
interest-earning assets and interest-bearing liabilities within specific and
defined time frames. A positive gap occurs when the amount of interest rate
sensitive assets exceed the amount of interest rate sensitive liabilities.
Conversely, a gap is considered negative when the amount of interest rate
sensitive liabilities exceed the interest rate sensitive assets. Generally,
during a time of rising interest rates, a negative gap would adversely affect
net interest income, while a positive gap would enhance net interest income. On
the other hand, during a time period of falling interest rates, a negative gap
would increase net interest income, while a positive gap would decrease net
interest income. It is the ALCO's responsibility to maintain a reasonable
balance between the exposure to interest rate fluctuations and earnings.
<PAGE>
CAPITAL ADEQUACY
The Corporation and Bank are subject to various regulatory capital guidelines as
required by federal and state banking agencies. These guidelines define the
various components of core capital and assign risk weights to various categories
of assets.
Tier 1 capital consists of shareholders' equity less goodwill and core deposit
intangibles, as defined by bank regulators. The definition of Tier 2 capital
includes the amount of allowance for loan losses which does not exceed 1.25% of
gross risk weighted assets. Total capital is the sum of Tier 1 and Tier 2
capital.
The minimum requirements under the capital guidelines are a 4.00% leverage ratio
(Tier 1 capital divided by average assets less intangible assets and unrealized
gains/losses), a 4.00% Tier 1 risk-based capital ratio (Tier 1 capital divided
by risk-weighted assets), and a 8.00% total capital ratio (Tier 1 capital plus
Tier 2 capital divided by risk-weighted assets).
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required federal regulatory agencies to define capital tiers. These tiers are:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, and a total risk-based capital ratio of at least 10.00%, and a
leverage ratio of at least 5.00% and not be under a capital directive order.
Failure to meet capital requirements can result in the initiation of regulatory
action by the appropriate regulatory agency. If an institution is only
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, the institution may be required to limit capital
distributions, limit asset growth and expansion, and submit a capital
restoration plan.
Consolidated capital amounts and ratios are presented in Table 15 - Capital
Ratios. Bank capital ratios appear in Note 14 of the consolidated financial
statements. In connection with the Bank's acquisition of the three Jasper County
branches on March 15, 1999, the consolidated and bank-only capital levels were
significantly reduced. In response, the Corporation borrowed $14,000,000 and
contributed $13,000,000 of capital to the Bank in order for the Bank to maintain
its well-capitalized status. As of December 31, 1999, the Bank was categorized
as well-capitalized under the regulatory framework for prompt corrective action.
However, the Corporation was categorized as undercapitalized as of December 31,
1999, as the total capital ratio was 7.99%; slightly below the 8% minimum.
Although slightly below the minimum, no corrective regulatory action has been
initiated, and management anticipates the Corporation will return to adequately
capitalized status in the first quarter of 2000. The Federal Reserve Bank
considers holding company capital adequacy in connection with any application
activity which requires their approval. Further, since the Corporation's capital
levels are below the well-capitalized category, the use of expedited Federal
Reserve Bank procedures in any application activity which requires their
approval will not be available to the Corporation until it once again becomes
well-capitalized. The statement in this paragraph relating to the Corporation's
return to adequately capitalized status is a forward-looking statement which may
or may not be accurate due to the impossibility of predicting future economic
and business events, including the profitability of the Bank and the ability of
the Corporation to raise additional capital, if needed, as well as other factors
that are beyond the control of the Corporation.
Exclusive of the effect of the unrealized gains/losses on securities component,
which is driven by the interest rate environment, the Corporation's
shareholders' equity increased $5,085,000, or 11.9% in 1999 compared to the
$4,097,000, or 10.6% increase posted in 1998. The amount of dividends paid by
the Corporation increased to $1,540,000, which was $199,000, or 14.8% above the
prior year amount. The increased dollar dividend payout, in addition to the
continued stock splits and dividends declared in the past few years, reflect
management's continued effort to increase the value and return of each
shareholder's investment in the Corporation.
At December 31, 1999, management was not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material effect on the Corporation's
consolidated liquidity, capital resources or operations.
<PAGE>
Table 15 - Capital Ratios
<TABLE>
At December 31,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Tier 1 capital
Shareholders' equity $45,785 $42,614
Less: Intangibles (13,737) (806)
Add: Unrealized loss on securities 1,956 42
--------------------- ---------------------
Total Tier 1 capital $34,004 $41,850
===================== =====================
Total risk-based capital
Tier 1 capital $34,004 $41,850
Allowance for loan losses 4,618 4,241
--------------------- ---------------------
Total risk-based capital $38,622 $46,091
===================== =====================
Risk weighted assets $483,307 $353,215
===================== =====================
Average assets, fourth quarter $627,045 $475,438
===================== =====================
Risk-based ratios
Tier 1 7.04% 11.85%
===================== =====================
Total risk-based capital 7.99% 13.05%
===================== =====================
Leverage Ratios 5.42% 8.82%
===================== =====================
</TABLE>
INFLATION
For a financial institution, effects of price changes and inflation vary
considerably from an industrial organization. Changes in the prices of goods and
services are the primary determinant of an industrial company's profit, whereas
changes in interest rates have a major impact on a financial institution's
profitability. Inflation affects the growth of total assets, but it is difficult
to assess its impact because neither the timing nor the magnitude of the changes
in the consumer price index directly coincide with changes in interest rates.
During periods of high inflation there are normally corresponding increases in
the money supply. During such times, financial institutions often experience
above average growth in loans and deposits. Also, general increases in the price
of goods and services will result in increased operating expenses. Over the last
few years the inflation rate has been relatively low, and its impact on the
balance sheets and levels of income and expense has been nominal.
<PAGE>
YEAR 2000
The Corporation spent an estimated $1.6 million from mid-1997 through December
31, 1999 to address matters relating to Y2K, primarily comprised of hardware and
software upgrades and related personnel costs. The Corporation updated all
contingency plans on an ongoing basis and performed a test-run in the fourth
quarter to ensure all departments were equipped in the event implementation of
the contingency plans was necessary. In the event customers desired to withdraw
large amounts of cash from their accounts, the Corporation increased its cash
position in order to meet those needs.
Management was on-site to monitor the date rollover at year-end 1999, and there
were no problems encountered with any of the Corporation's systems. The
Corporation's Board of Directors was updated in a timely manner as to the
results of the Y2K rollover.
The Corporation did not experience any unusual cash requests from customers,
either from the time leading up to December 31, 1999, or in the first few weeks
of 2000.
While the true effects, as they relate to any of the Corporation's customers,
may not be fully known until a future date, management is not aware of any
customers who have encountered any problems relating to the Y2K issue.
Therefore, management does not expect any remaining uncertainties or
contingencies with respect to Y2K.
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
<PAGE>
LAFAYETTE BANCORPORATION
Lafayette, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
CONTENTS
REPORT OF INDEPENDENT AUDITORS................................................
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS..............................................
CONSOLIDATED STATEMENTS OF INCOME........................................
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY...................................................
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Lafayette Bancorporation
Lafayette, Indiana
We have audited the accompanying consolidated balance sheets of Lafayette
Bancorporation as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lafayette
Bancorporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 26, 2000
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollar amounts in thousands)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 28,370 $ 17,368
Federal funds sold 2,200 1,400
------------ ------------
Total cash and cash equivalents 30,570 18,768
Interest-bearing balances with other financial institutions - 671
Securities available-for-sale 79,722 76,956
Securities held-to-maturity (fair value
$4,709 and $5,063) 4,712 4,879
Loans held for sale 3,174 10,086
Loans 489,070 353,828
Less: Allowance for loan losses (4,618) (4,241)
------------- ------------
Net loans 484,452 349,587
FHLB stock, at cost 1,897 1,539
Premises, furniture and equipment, net 10,583 7,953
Intangible assets 13,747 827
Accrued interest receivable and other assets 16,292 12,703
------------ ------------
Total assets $ 645,149 $ 483,969
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 63,206 $ 48,657
Interest-bearing demand and savings deposits 229,302 170,308
Interest-bearing time deposits 229,739 176,581
------------ ------------
Total deposits 522,247 395,546
Short-term borrowings 27,273 16,402
FHLB advances 30,027 23,854
Note payable 12,950 -
Accrued interest payable and other liabilities 6,867 5,553
------------ ------------
Total liabilities 599,364 441,355
Shareholders' equity
Common stock, no par value: 5,000,000 shares
authorized; 3,586,140 and 2,394,035 shares issued;
and 3,586,140 and 2,380,427 shares outstanding 3,586 2,394
Additional paid-in capital 32,886 32,620
Retained earnings 11,269 7,747
Accumulated other comprehensive income (1,956) (42)
Less: Treasury stock, at cost (13,608 shares in 1998) - (105)
------------ ------------
Total shareholders' equity 45,785 42,614
------------ ------------
Total liabilities and shareholders' equity $ 645,149 $ 483,969
============ ============
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
1999 1998 1997
---- ---- ----
Interest income
<S> <C> <C> <C>
Loans, including related fees $ 38,520 $ 29,810 $ 26,590
Taxable securities 3,831 3,217 3,857
Tax exempt securities 1,529 991 782
Other 510 707 682
------------ ------------ ------------
Total interest income 44,390 34,725 31,911
Interest expense
Deposits 18,024 14,906 13,937
Short-term borrowings 1,358 712 711
Other borrowings 2,161 1,345 877
------------ ------------ ------------
Total interest expense 21,543 16,963 15,525
------------ ------------ ------------
Net interest income 22,847 17,762 16,386
Provision for loan losses 1,060 980 620
------------ ------------ ------------
Net interest income after provision for loan losses 21,787 16,782 15,766
Non-interest income
Fiduciary activities 1,134 964 885
Service charges on deposit accounts 1,581 1,309 1,254
Net realized gain/(loss) on securities (144) 6 27
Net gain on loan sales 942 1,255 736
Other service charges and fees 923 727 645
Other 689 655 621
------------ ------------ ------------
Total noninterest income 5,125 4,916 4,168
Non-interest expense
Salaries and employee benefits 9,836 8,206 7,484
Occupancy, net 1,073 891 882
Equipment 1,314 1,054 970
Intangible amortization 597 81 81
Other 4,714 3,378 3,140
------------ ------------ ------------
Total noninterest expenses 17,534 13,610 12,557
------------ ------------ ------------
Income before income taxes 9,378 8,088 7,377
Income taxes 3,027 2,711 2,569
------------ --------- ----------
Net income $ 6,351 $ 5,377 $ 4,808
============= ========== ==========
Basic earnings per share $ 1.77 $ 1.50 $ 1.34
============= ========== ==========
Diluted earnings per share $ 1.73 $ 1.47 $ 1.33
============= ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
- -------------------------------------------------------------------------------
<TABLE>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Income Stock Equity
----- ------- -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 1,976 $ 19,368 $ 13,705 $ (311) $ (92) $ 34,646
Comprehensive income
Net income 4,808 4,808
Change in net unrealized
gain/(loss) on securities
available-for-sale 221 221
-----------
Total comprehensive
income 5,029
10% Stock dividend
197,597 shares 198 5,187 (5,385) -
Cash dividends
($.34 per share) (1,201) (1,201)
Purchase 185 treasury
shares (5) (5)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,174 24,555 11,927 (90) (97) 38,469
Comprehensive income
Net income 5,377 5,377
Change in net unrealized
gain/ (loss) on securities
available-for-sale 48 48
-----------
Total comprehensive
income 5,425
Issue 2,825 shares under
stock option plan 2 67 69
10% Stock dividend
217,640 shares 218 7,998 (8,216) -
Cash dividends
($.37 per share) (1,341) (1,341)
Purchase 188 treasury
shares (8) (8)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 2,394 32,620 7,747 (42) (105) 42,614
Comprehensive income
Net income 6,351 6,351
Change in net unrealized
gain/ (loss) on securities
available-for-sale (1,914) (1,914)
------------
Total comprehensive
income 4,437
Issue 11,884 shares under
stock option plan 12 266 278
3-2 stock split
1,200,738 shares 1,201 (1,201) -
Cash dividends
($.43 per share) (1,540) (1,540)
Purchase 105 treasury
shares (4) (4)
Retirement of 20,517
Treasury shares (21) (88) 109 -
------------ ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1999 $ 3,586 $ 32,886 $ 11,269 $ (1,956) $ - $ 45,785
=========== =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands)
- -------------------------------------------------------------------------------
<TABLE>
1999 1998 1997
---- ---- ----
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 6,351 $ 5,377 $ 4,808
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 948 646 631
Net amortization 726 311 271
Provision for loan losses 1,060 980 620
Net realized (gain)/loss on securities 144 (6) (27)
Net realized (gain) loss on sale of
other real estate - (43) 21
Change in assets and liabilities
Loans originated for sale (67,547) (86,291) (52,206)
Loans sold 74,459 83,845 50,443
Accrued interest receivable
and other assets (1,947) (1,402) (1,241)
Accrued interest payable
and other liabilities 1,314 446 698
------------ ------------ ------------
Net cash from operating activities 15,508 3,863 4,018
Cash flows from investing activities
Change in interest-bearing balances with
other financial institutions 671 (671) -
Purchase of securities available-for-sale (172,049) (54,270) (19,798)
Proceeds from sales of securities available-for-sale 56,027 3,592 17,453
Proceeds from maturities of securities
available-for-sale 109,826 40,176 24,155
Purchase of securities held-to-maturity (2,000) (2,532) (2,370)
Proceeds from maturities of securities
held-to-maturity 2,160 2,906 3,242
Loans made to customers, net of payments collected (78,085) (41,804) (43,641)
Purchase of Federal Home Loan Bank stock (358) (297) (126)
Property and equipment expenditures (3,578) (2,416) (459)
Proceeds from sales of other real estate - 251 136
------------ ------------ ------------
Net cash from investing activities (87,386) (55,065) (21,408)
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(Dollar amounts in thousands)
- -------------------------------------------------------------------------------
<TABLE>
1999 1998 1997
---- ---- ----
Cash flows from financing activities
<S> <C> <C> <C>
Net change in deposit accounts $ 9,686 $ 40,351 $ 13,645
Cash received in branch acquisition for
liabilities assumed, net of assets acquired 45,266 - -
Net change in short-term borrowings 10,871 (3,970) (4,149)
Proceeds from other borrowings 30,000 4,800 16,500
Payments on other borrowings (10,877) (832) (5,879)
Common stock issued 278 69 -
Dividends paid (1,540) (1,341) (1,201)
Purchase of treasury stock (4) (8) (5)
------------- ------------- -------------
Net cash from financing activities 83,680 39,069 18,911
------------ ------------ ------------
Net change in cash and cash equivalents 11,802 (12,133) 1,521
Cash and cash equivalents at beginning of year 18,768 30,901 29,380
------------ ------------ ------------
Cash and cash equivalents at end of year $ 30,570 $ 18,768 $ 30,901
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 20,765 $ 16,824 $ 15,477
Income taxes 3,168 2,939 2,757
Non-cash investing activity
Loans transferred to other real estate $ 465 $ - $ -
Non-cash financing activity
See Note 18 regarding branch acquisition in 1999
</TABLE>
See accompanying notes.
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated financial
statements include the accounts of Lafayette Bancorporation (Corporation) and
its wholly-owned subsidiary, Lafayette Bank and Trust Company (Bank), after
elimination of significant intercompany transactions and accounts.
The Corporation provides financial services to its customers, primarily
commercial and retail banking and trust services, with operations conducted
through its main office and 15 branches located in Tippecanoe, White, and Jasper
Counties in Indiana. The majority of the Corporation's revenue is derived from
commercial and retail business lending activities and investments. Although the
overall loan portfolio is diversified, the economy of Tippecanoe County is
heavily dependent on Purdue University, one of the area's largest employers, and
the economy of White and Jasper County is heavily dependent on the agricultural
industry. The majority of the Bank's loans are secured by specific items of
collateral including business assets, real property and consumer assets.
Use of Estimates: Management must make estimates and assumptions in preparing
financial statements that affect the amounts reported therein and the
disclosures provided. These estimates and assumptions may change in the future
and future results could differ from these estimates. Estimates that are more
susceptible to change in the near term include the allowance for loan losses,
the fair value of certain securities and other financial instruments, and the
determination and carrying value of impaired loans.
Securities: Securities are classified as held-to-maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available-for-sale when they might be
sold before maturity. Securities available-for-sale are reported at fair value,
with unrealized gains or losses included in other comprehensive income.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
Loans Held for Sale: The Bank sells certain fixed-rate first mortgage loans in
the secondary market on a servicing-released basis. Mortgage loans held for sale
are carried at the lower of cost or estimated market value determined on an
aggregate basis.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Interest on real estate, commercial and most installment loans is accrued
over the term of the loans based on the principal outstanding. The recognition
of interest income is discontinued when, in management's judgment, the interest
will not be collectible in the normal course of business. Loans are evaluated
for non-accrual when the loan is impaired or payments are past due over 90 days.
Interest received is recognized on the cash basis or cost recovery method until
qualifying for return to accrual status. Accrual is resumed when all
contractually due payments are brought current and future payments are
reasonably assured. The Bank defers loan fees, net of certain direct loan
origination costs. The net amount deferred is reported in the balance sheet as
part of loans and is recognized into interest income over the term of the loan
using a method which approximates a level-yield.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loan impairment is recognized if a loan's full principal or interest payments
are not expected to be received. Loans considered to be impaired are reduced to
the present value of expected future cash flows using the loans' existing rate
or to the fair value of collateral if repayment is expected solely from the
collateral, by allocating a portion of the allowance for loan losses to such
loans. Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential real estate loans secured by one to four family
residences and installment loans to individuals for household, family and other
personal expenditures. Commercial and agricultural loans are evaluated
individually for impairment.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is recognized over
the estimated useful lives of the assets, principally on the straight-line
method.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Holding costs after acquisition are expensed.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-term Assets: These assets are reviewed for impairment when events indicate
their carrying amounts may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance. The Bank
retains possession of and control over pledged securities.
Intangibles: Intangibles include goodwill and core deposit intangibles. Goodwill
is amortized on the straight-line method over 15 to 25 years, and core deposit
is amortized on an accelerated method over 10 years. Intangibles are assessed
for impairment based on estimated undiscounted cash flows, and written down if
necessary.
Stock Compensation: Expense for employee compensation under stock option plans
is based on Opinion 25, with expense reported only if options are granted below
market price at grant date. Pro forma disclosures of net income and earnings per
share are provided as if the fair value method of Financial Accounting Standard
No. 123 were used for stock-based compensation.
Income Taxes: Deferred tax liabilities and assets are determined at each balance
sheet date. They are measured by applying enacted tax laws to future taxable
income or expense resulting from differences in the financial statement and tax
basis of assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Earnings Per Share: Basic earnings per share is net income divided by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share includes the dilutive effect of additional potential common
shares issuable under stock options. Earnings and dividends per share are
restated for all stock splits and dividends through the date of issue of the
financial statements.
Statement of Cash Flows: Cash and cash equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. The Corporation reports
net cash flows for customer loan transactions, deposit transactions, and
short-term borrowings.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are now such matters that will have
a material effect on the financial statements.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale, which are also recognized as separate
components of equity.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.
Industry Segments: Internal financial information is primarily reported and
aggregated in three lines of business, banking, mortgage banking and trust
services.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect, but the effect will depend on derivative holdings when
this standard applies.
Reclassifications: Some items in the prior financial statements were
reclassified to conform to the current presentation.
<PAGE>
NOTE 2 - SECURITIES
The amortized cost and fair values of securities are as follows at December 31,
1999:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities Available-for-Sale
<S> <C> <C> <C> <C>
U.S. Government and its agencies $ 5,207 $ - $ (202) $ 5,005
Obligations of states and political
subdivisions 28,785 10 (1,527) 27,268
Corporate obligations 2,000 - (27) 1,973
Mortgage-backed and other
asset-backed securities 44,402 35 (1,549) 42,888
Other securities 2,567 21 - 2,588
------------ ------------ ------------ ------------
$ 82,961 $ 66 $ (3,305) $ 79,722
============ ============ ============= ============
Securities Held-to-Maturity
Obligations of states and political
subdivisions $ 4,712 $ 40 $ (43) $ 4,709
============ ============ ============= ============
The amortized cost and fair values of securities are as follows at December 31,
1998:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities Available-for-Sale
U.S. Government and its agencies $ 14,039 $ 76 $ (5) $ 14,110
Obligations of states and political
subdivisions 23,526 309 (198) 23,637
Corporate obligations 2,520 1 (8) 2,513
Mortgage-backed and other
asset-backed securities 36,940 84 (328) 36,696
------------ ------------ ------------ ------------
$ 77,025 $ 470 $ (539) $ 76,956
============ ============ ============ ============
Securities Held-to-Maturity
Obligations of states and political
subdivisions $ 4,879 $ 186 $ (2) $ 5,063
============ ============ ============ ============
</TABLE>
Gross gains of $35, $6 and $95 and gross losses of $179, $0 and $68 were
realized on sales of securities available-for-sale in 1999, 1998 and 1997.
<PAGE>
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated market value of securities at December 31,
1999, by contractual maturity, are shown below. Securities not due at a single
maturity date are shown separately.
<TABLE>
Available-for-Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in 1 year or less $ 320 $ 320 $ 200 $ 200
Due after 1 year through
5 years 5,969 5,880 840 847
Due after five years through
10 years 11,691 11,314 2,575 2,589
Due after 10 years 20,579 19,320 1,097 1,073
------------ ------------ ------------ ------------
Subtotal 38,559 36,834 4,712 4,709
Mortgage-backed and other asset-
backed securities 44,402 42,888 - -
------------ ------------ ------------ ------------
Total $ 82,961 $ 79,722 $ 4,712 $ 4,709
============ ============ ============ ============
</TABLE>
Securities with a carrying value of $28,206 and $19,747 at December 31, 1999 and
1998 were pledged to secure public deposits and repurchase agreements. See Note
8 regarding additional securities pledges.
At December 31, 1999 and 1998, mortgage-backed securities include collateralized
mortgage obligations (CMO's) and real estate mortgage investment conduits
(REMIC's) with an amortized cost of $20,256 and $18,000 and fair value of
$19,144 and $17,721, all of which are issued by U.S. Government agencies. At
December 31, 1999 and 1998, approximately $8,432 and $10,782 are variable rate,
with the remainder fixed rate.
<PAGE>
NOTE 3 - LOANS
Loans are comprised of the following as of December 31:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Commercial and agricultural loans $ 192,760 $ 115,198
Real estate construction 47,375 28,043
Residential real estate loans 197,181 160,655
Installment loans to individuals 51,754 49,932
------------ ------------
Total $ 489,070 $ 353,828
============ ============
Non-performing loans consist of the following at December 31:
1999 1998
---- ----
Loans past due 90 days or more $ 584 $ 775
Non accrual loans 622 1,468
Restructured loans 114 197
------------ ------------
Total $ 1,320 $ 2,440
============ ============
Information regarding impaired loans is as follows:
1999 1998
---- ----
Year end impaired loans
With no allowance for loan losses allocated $ 70 $ -
With allowance for loan losses allocated 576 748
Amount of the allowance allocated 151 145
Average balance of impaired loans during the year 697 160
Interest income recognized during impairment 3 -
Cash-basis interest income recognized 3 -
</TABLE>
The Bank had $14 and $720 loans on non-accrual at December 31, 1999 or 1998 that
management did not deem to be impaired.
<PAGE>
NOTE 3 - LOANS (Continued)
Certain directors and officers of the Corporation and Bank were customers of the
Bank in the ordinary course of business. Loan activity with these related
parties is as follows:
Balance as of January 1, 1999 $ 1,562
Change in persons included 36
New loans 78
Loan payments (687)
-------------
Balance as of December 31, 1999 $ 989
============
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, January 1 $ 4,241 $ 3,464 $ 3,198
Provision charged to operations 1,060 980 620
Loans charged-off (829) (411) (550)
Recoveries on loans previously charged-off 146 208 196
------------ ------------ ------------
Balance, December 31 $ 4,618 $ 4,241 $ 3,464
============ ============ ============
</TABLE>
NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT
A summary of premises, furniture and equipment by major category follows:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Land $ 870 $ 789
Buildings and improvements 8,468 7,833
Leasehold improvements 1,296 1,296
Furniture and equipment 9,922 7,218
------------ ------------
Total 20,556 17,136
Accumulated depreciation (9,973) (9,183)
------------- ------------
Premises, furniture and equipment, net $ 10,583 $ 7,953
============ ============
</TABLE>
<PAGE>
NOTE 6 - INTEREST-BEARING TIME DEPOSITS
Time deposits of $100 or greater totaled $38,665 and $28,228 at December 31,
1999 and 1998.
At December 31, 1999, the scheduled maturities of time deposits are as follows:
2000 $ 118,066
2001 53,022
2002 42,790
2003 13,122
2004 2,346
Thereafter 393
------------
Total $ 229,739
============
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following at year end:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Balance of repurchase agreements outstanding $ 24,645 $ 15,788
Balance of treasury tax and loan open-end note 2,628 614
------------ ------------
Total short-term borrowings $ 27,273 $ 16,402
============ ============
</TABLE>
At December 31, 1999 and 1998, the Corporation had $240 and $446 in related
party repurchase agreements.
<PAGE>
NOTE 8 - FHLB ADVANCES AND NOTE PAYABLE
FHLB advances and note payable outstanding at December 31 consist of the
following:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Federal Home Loan Bank advances; annual principal payments; various
maturities with final maturity May 15, 2008; interest payable monthly
at various fixed interest rates from 5.45% - 6.82%; secured by a
blanket pledge of the Bank's obligations of the U.S. Government and
U.S. Government agencies and one-to-four family residential mortgage
loans. $ 9,527 $ 10,354
Federal Home Loan Bank advances; principal payments due at maturity;
various maturities during the year 2000, with final maturity December
16, 2000; interest payable monthly at various fixed interest rates
from 4.05%-6.17%; secured by a blanket pledge of the Bank's
obligations of the U.S. Government and U.S. Government agencies and
one-to-four family residential mortgage loans. 20,500 13,500
Total FHLB advances 30,027 23,854
Note payable to Northern Trust Company; quarterly principal payments
of $350 required; matures March 31, 2006; interest payable monthly at
a variable rate, which is currently 6.36% based on the Federal Funds
rate plus an applicable margin based on the Corporation's existing
capital ratios; obligation is unsecured but subject to various
covenants, including defined minimum return on average assets,
tangible net worth, capital ratios, loan loss allowance to
non-performing loans ratio, and maximum non-performing assets. At year
end,the Corporation was in compliance with all covenants. 12,950 -
------------ ------------
Total $ 42,977 $ 23,854
============= ============
</TABLE>
Annual principal payments required are as follows:
2000 22,690
2001 2,155
2002 2,399
2003 4,426
2004 1,479
Thereafter 9,828
------------
Total FHLB advances and notes payable $ 42,977
============
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLANS
The following sets forth the defined benefit pension plan's funded status and
amount recognized in the balance sheet at December 31 (amounts computed as of
September 30, 1999 and 1998):
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Change in benefit obligation:
Beginning benefit obligation $ 12,240 $ 11,252
Service cost 647 612
Interest cost 812 803
Actuarial gain (648) -
Benefits paid (425) (427)
---------------- --------------
Ending benefit obligation 12,626 12,240
Change in plan assets, at fair value:
Beginning plan assets 15,199 14,675
Actual return 1,829 951
Employer contribution - -
Benefits paid (425) (427)
---------------- --------------
Ending plan assets 16,603 15,199
--------------- --------------
Funded status 3,977 2,959
Unrecognized net actuarial gain (1,134) (43)
Unrecognized prior service cost 20 22
Unrecognized transition asset (782) (933)
---------------- --------------
Prepaid benefit cost $ 2,081 $ 2,005
=============== ==============
</TABLE>
The components of pension expense and related actuarial assumptions were as
follows.
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Service cost $ 647 $ 612 $ 511
Interest cost 812 803 743
Expected return on plan assets (1,386) (1,341) (1,126)
Amortization of prior service cost 2 2 2
Amortization of transition asset (151) (151) (151)
-------------- --------------- --------------
$ (76) $ (75) $ (21)
=============== =============== ==============
Discount rate on benefit obligation 7.50% 6.75% 7.25%
Long-term expected rate of return
on plan assets 9.25 9.25 9.25
Rate of compensation increase 4.00 4.00 4.00
</TABLE>
At December 31, 1999 and 1998, the plan's assets include Lafayette
Bancorporation common stock of $1,028 and $1,038. At December 31, 1999 and 1998
the plan's assets also included Lafayette Bank and Trust Company certificates of
deposit of $421 and $409.
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)
The Bank maintains a retirement savings plan covering substantially all
employees. The plan requires employees to complete 1 year of service and be 21
years of age before entering the plan. Employee contributions are limited to a
maximum of 15% of their salary. The plan allows for a matching percentage
determined annually by the Board of Directors of the first 4% of employee salary
contributions and an annual discretionary contribution. Participants are fully
vested in salary deferral contributions and employer matching contributions.
Total 401(k) contributions charged to expense were $140, $116 and $106 for 1999,
1998 and 1997.
The Bank maintains a deferred compensation plan for the benefit of certain
directors. Under the plan, the Bank agrees, in return for the directors
deferring the receipt of a portion of their current compensation, to pay a
retirement benefit computed as the amount of the compensation deferred plus
accrued interest at a variable rate. Accrued benefits payable totaled $1,049 and
$858 at December 31, 1999 and 1998. Deferred compensation expense was $90 for
1999, 1998 and 1997. In conjunction with the plan formation, the Bank purchased
life insurance on the directors. The cash surrender value of that insurance is
carried as an other asset on the consolidated balance sheet, and was
approximately $3,678 and $3,522 at December 31, 1999 and 1998.
NOTE 10 - POSTRETIREMENT BENEFITS
The Bank sponsors a postretirement benefit plan which provides defined medical
benefits. Retirees contribute an amount equal to their individual applicable
premium to provide the coverage, less 30%, which is paid monthly by the Bank.
Retirees must pay 100% of medical premiums for all dependent coverage. The plan
is not funded and has no assets.
<PAGE>
NOTE 10 - POSTRETIREMENT BENEFITS (Continued)
The following sets forth the plan's benefit obligation and amounts recognized in
the balance sheet at December 31:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Change in postretirement benefit obligation:
Beginning benefit obligation $ 494 $ 443
Service cost 31 28
Interest cost 34 31
Benefits paid (9) (8)
------------- ------------
Ending benefit obligation 550 494
Unrecognized net gain 153 165
------------ ------------
Accrued benefit obligation $ 703 $ 659
============ ============
</TABLE>
Components of net periodic postretirement benefit cost as of December 31:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $ 31 $ 28 $ 24
Interest cost 34 31 28
Amortization of unrecognized gain (11) (14) (15)
------------- ------------ ------------
Benefit cost $ 54 $ 45 $ 37
============ ============ ============
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost of
covered health care benefits assumed was 11.5% for 1999, 1998 and 1997, with the
rate assumed to decrease to 5.5% over the next two years. The health care cost
trend is a significant assumption. However, either an increase or decrease in
the assumed health care cost trend rates by 1% in each year would affect the
accumulated postretirement benefit obligation as of December 31, 1999 and the
aggregate service and interest cost components of net periodic postretirement
benefit cost for the year then ended by amounts not considered to be material.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% for 1999, 1998 and 1997.
<PAGE>
NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN
The Corporation maintains an Officers' Stock Appreciation Rights Plan for
granting rights to certain officers, under which all available rights have been
granted. Upon exercise of a stock appreciation right, the holder may receive
cash equal to the excess of the fair market value of common stock at the date of
exercise over the option price. Stock appreciation rights are vested at 20% per
year and must be exercised within 10 years of grant. The plan expires May 2002.
Granted rights outstanding were fully-vested and consisted of 49,641 at an
option price of $4.03 for 1999 and 44,094 at an option price of $6.05 for 1998.
In 1999, prior to the 3-for-2 stock split, 11,000 rights were exercised at
$40.62 per share. Compensation expense charged to operations in 1999, 1998 and
1997 was $14, $450, and $657 and is based on an increase in market value. The
liability at December 31, 1999 and 1998 was $1,053 and $1,420.
The Corporation has established two nonqualified stock option plans to provide
stock options to directors and key members of management. One plan was adopted
in 1995 ("1995 Plan") and the other in 1998 ("1998 Plan"). The total number of
shares of common stock remaining available for grant to directors and management
are shown below:
1998 1995
Plan Plan Total
Directors 6,766 7,182 13,948
Management 47,868 7,871 55,739
------------ ------------ ------------
Totals 54,634 15,053 69,687
============ ============ ============
All shares for both plans were available for grant at a price equal to the
market price of the stock at the date of grant.
Under the 1995 Plan, options granted to directors at the effective date are
exercisable any time after the date of grant, and options granted to directors
elected after the effective date are exercisable after two years. Under the 1998
Plan, options granted to directors at the effective date and directors elected
after the effective date are exercisable after two years. Options granted to
management under both plans become 20% exercisable after one year and 20% each
subsequent year. Both plans are effective for five years and options must be
exercised within ten years from the date of grant.
<PAGE>
NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN (Continued)
A summary of the Corporation's stock option activity, and related information
for the years ended December 31, follows (adjusted for stock dividends and
splits):
<TABLE>
----------1 9 9 9--------- -----------1 9 9 8------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding beginning of year 206,752 $ 14.18 176,176 $ 12.50
Granted 13,485 27.17 35,238 22.29
Exercised (15,605) 12.39 (4,662) 12.12
Forfeited (8,871) 16.19 - -
------------ ------------ ----------- ---------------
Outstanding end of year 195,761 $ 15.12 206,752 $ 14.18
=========== ============ =========== ==============
Exercisable at end of year 122,099 $ 13.20 102,245 $ 11.86
=========== ============ =========== ==============
Weighted average fair value per
option granted during the year $ 4.38 $ 3.52
</TABLE>
Options outstanding at December 31, 1999 have a weighted average remaining life
of 7.4 years, with exercise prices ranging from $11.43 to $27.17.
Pro forma information regarding net income and earnings per share has been
determined as if the Corporation had accounted for its stock options under the
fair value method. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for the years 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.4%, 5.6% and 6.6%; dividend yields of 2%; volatility factors
of the expected market price of the Corporation's common stock of .13, .16 and
.16, and a weighted average expected life of the options of five years for
management options and two years for directors' options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Corporation's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $ 6,270 $ 5,242 $ 4,706
Pro forma earnings per share
Basic $ 1.75 $ 1.46 $ 1.32
Diluted $ 1.71 $ 1.43 $ 1.30
</TABLE>
In future years, the pro forma effect of not applying this standard may increase
if additional options are granted.
<PAGE>
NOTE 12 - INCOME TAXES
Income taxes consist of the following:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Currently payable $ 3,004 $ 3,085 $ 2,626
Deferred income taxes (benefit) (50) (385) (57)
Non-qualified stock option benefit
allocated to additional paid-in capital 73 11 -
------------ ------------ ------------
Total $ 3,027 $ 2,711 $ 2,569
============ ============ ============
</TABLE>
The following is a reconciliation of statutory federal income taxes and the
amount computed by applying the statutory rate of 34% to income before income
taxes:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate applied to income before
income taxes $ 3,188 $ 2,750 $ 2,508
Add/(deduct)
Tax exempt interest income (430) (337) (303)
State tax expense (net of federal benefit) 417 358 405
Other (148) (60) (41)
------------- ------------ ------------
Total $ 3,027 $ 2,711 $ 2,569
============ ============ ============
</TABLE>
The net deferred tax asset reflected in the consolidated balance sheet is
comprised of the following components as of December 31:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Deferred tax assets
Allowance for loan losses $ 1,053 $ 817
Accrued stock appreciation rights 417 562
Accrued post-retirement benefit obligation 372 319
Deferred compensation 381 307
Deferred loan fees 42 79
Net unrealized loss on securities available-for-sale 1,283 27
------------ ------------
Total tax assets 3,548 2,111
Deferred tax liabilities
Depreciation (280) (219)
Net pension benefit (825) (794)
Other (255) (216)
------------- ------------
Total deferred tax liabilities (1,360) (1,229)
Valuation allowance - -
------------ ------------
Net deferred tax asset $ 2,188 $ 882
============ ============
</TABLE>
<PAGE>
NOTE 13 - PER SHARE DATA
The following table illustrates the computation of basic and diluted earnings
per share. Weighted average shares outstanding have been restated for all
periods for stock splits and dividends.
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Basic earnings per share
Net income $ 6,351 $ 5,377 $ 4,808
Weighted average shares outstanding 3,580,981 3,581,080 3,578,356
-------------- --------------- --------------
Basic earnings per share $ 1.77 $ 1.50 $ 1.34
============== ================ ==============
Diluted earnings per share
Net income $ 6,351 $ 5,377 $ 4,808
Weighted average shares outstanding 3,580,981 3,581,080 3,578,356
Diluted effect of assumed exercise
of Stock Options 84,109 79,782 35,009
-------------- --------------- --------------
Diluted average shares outstanding 3,665,090 3,660,862 3,613,365
-------------- --------------- --------------
Diluted earnings per share $ 1.73 $ 1.47 $ 1.33
============== ============== ==============
</TABLE>
NOTE 14 - CAPITAL REQUIREMENTS
The Corporation and Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Capital adequacy guidelines
and prompt corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgements by regulators. Failure to meet capital
requirements can initiate regulatory action.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined).
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, the institution may be required to limit capital
distributions, limit asset growth and expansion, and prepare capital restoration
plans.
<PAGE>
NOTE 14 - CAPITAL REQUIREMENTS (Continued)
On March 12, 1999 the Corporation's wholly-owned subsidiary bank acquired three
branches in Jasper County, Indiana. As a result of this transaction consolidated
and bank-only capital levels were reduced. The Corporation borrowed $14,000 and
contributed $13,000 to the Bank in order for the bank to maintain its
well-capitalized status. As of December 31, 1999, the Bank was categorized as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. The Corporation was categorized as undercapitalized as of December 31,
1999 as the total capital ratio was slightly below the minimum required level
for capital adequacy purposes. Although slightly below the minimum, no
corrective regulatory action has been initiated, and management expects the
Corporation to become adequately capitalized in the first quarter of 2000.
The actual consolidated capital amounts and ratios are presented in the
following table (in millions) for the Corporation and the Bank.
<TABLE>
Minimum Required To
Minimum Required Be Well-Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
1999
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets
Consolidated $ 38.6 7.99% $ 38.7 8.00% $ 48.3 10.00%
Lafayette Bank and Trust 50.2 10.33 38.9 8.00 48.6 10.00
Tier 1 capital to risk weighted assets
Consolidated 34.0 7.04 19.3 4.00 29.0 6.00
Lafayette Bank and Trust 45.6 9.38 19.4 4.00 29.1 6.00
Tier 1 capital to average assets
Consolidated 34.0 5.42 25.1 4.00 31.4 5.00
Lafayette Bank and Trust 45.6 7.22 25.2 4.00 31.5 5.00
1998
Total capital to risk weighted assets
Consolidated $ 46.1 13.05% $ 28.2 8.00% $ 35.3 10.00%
Lafayette Bank and Trust 45.9 12.92 28.4 8.00 35.5 10.00
Tier 1 capital to risk weighted assets
Consolidated 41.9 11.85 14.1 4.00 21.2 6.00
Lafayette Bank and Trust 41.7 11.73 14.2 4.00 21.3 6.00
Tier 1 capital to average assets
Consolidated 41.9 8.80 19.0 4.00 23.8 5.00
Lafayette Bank and Trust 41.7 8.74 19.1 4.00 23.8 5.00
</TABLE>
<PAGE>
The Bank is also subject to state regulations restricting the amount of
dividends payable to the Corporation. At December 31, 1999, the Bank had $7,640
of retained earnings available for dividends under these regulations.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank leases branch facilities under operating leases expiring in various
years through 2007. Expense for leased premises was $244, $219 and $188 for
1999, 1998 and 1997. Future minimum lease payments are as follows:
2000 $ 288
2001 270
2002 266
2003 242
2004 202
Thereafter 212
------------
Total $ 1,480
============
In the ordinary course of business, the Bank has loans, commitments and
contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the consolidated balance sheet. The Bank's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the
same credit policy to make such commitments as it uses for on-balance sheet
items.
At December 31, off-balance sheet financial instruments whose contract amount
represents credit risk are summarized as follows:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Unused lines of credit $ 59,753 $ 43,239
Commitments to make loans 10,987 14,976
Standby letters of credit 4,235 2,759
Commercial letters of credit 21 59
</TABLE>
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items. These commitments are generally variable rate or carry a term of
one year or less.
The cash balance required to be maintained on hand or on deposit with the
Federal Reserve was $9,434 and $5,955 at December 31, 1999 and 1998. These
reserves do not earn interest.
<PAGE>
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair values of the Corporation's financial
instruments as of December 31 are as follows:
<TABLE>
-----------1 9 9 9--------- -----------1 9 9 8---------
Carrying Fair Carrying Fair
Value Value Value Value
Financial assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 30,570 $ 30,570 $ 18,768 $ 18,768
Interest-bearing balances with
other financial institutions - - 671 671
Securities available-for-sale 79,722 79,722 76,956 76,956
Securities held-to-maturity 4,712 4,709 4,879 5,063
Loans held for sale 3,174 3,204 10,086 10,264
Loans, net 484,452 479,127 349,587 351,685
FHLB stock 1,897 1,897 1,539 1,539
Accrued interest receivable 6,833 6,833 4,592 4,592
Financial liabilities
Deposits $ (522,247) $ (522,033) $ (395,546) $ (398,747)
Short-term borrowings (27,273) (27,273) (16,402) (16,402)
FHLB advances (30,027) (29,602) (23,854) (24,527)
Note payable (12,950) (12,950) - -
Accrued interest payable (2,249) (2,249) (1,471) (1,471)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. The carrying amount is considered to estimate fair value for cash and
short-term instruments, demand deposits, short-term borrowings, accrued
interest, and variable rate loans, deposits and note payable that reprice
frequently and fully. Securities fair values are based on quoted market prices
or, if no quotes are available, on the rate and term of the security and on
information about the issuer. For loans held for sale, the fair value of loans
held for sale is based on quoted market prices. For commercial, real estate,
consumer, and other loans, fair value is estimated by discounting future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. FHLB stock is
restricted in nature and is not actively traded on a secondary market and the
carrying amount is a reasonable estimate of fair value. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. For FHLB advances, fair
value is estimated using rates currently available to the Corporation for debt
with similar terms and remaining maturities. The estimated fair value for
off-balance sheet loan commitments approximates carrying value and are not
considered significant to this presentation.
<PAGE>
NOTE 17 - PARENT COMPANY STATEMENTS
Presented below are condensed balance sheets, statements of income and cash
flows for the parent company:
CONDENSED BALANCE SHEETS
December 31
<TABLE>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary $ 2,568 $ 1,488
Investment in bank 57,350 42,463
Other assets 490 559
------------ -----------
$ 60,408 $ 44,510
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $ 12,950 $ -
Other liabilities 1,673 1,896
Shareholders' equity 45,785 42,614
------------ ------------
$ 60,408 $ 44,510
============ ============
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years ended December 31
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Operating income
Dividends received from subsidiary bank $ 2,960 $ 1,850 $ 1,714
Interest income 75 26 10
------------ ------------ ------------
3,035 1,876 1,724
Operating expenses
Interest expense 749 - -
Other operating expenses 125 543 742
------------ ------------ ------------
874 543 742
Income before income taxes and equity in
undistributed earnings of bank 2,161 1,333 982
Income tax benefit 389 205 290
------------ ------------ ------------
Income before equity in undistributed earnings of bank 2,550 1,538 1,272
Equity in undistributed earnings of bank 3,801 3,839 3,536
------------ ------------ ------------
Net income 6,351 5,377 4,808
Other comprehensive income, net of tax (1,914) 48 221
------------- ------------ ------------
Comprehensive income $ 4,437 $ 5,425 $ 5,029
============ ============ ============
</TABLE>
<PAGE>
NOTE 17 - PARENT COMPANY STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Net income $ 6,351 $ 5,377 $ 4,808
Adjustments to reconcile net income to net cash
from operating activities
Amortization of deferred costs 6 6 6
Equity in undistributed earnings of bank (3,801) (3,839) (3,536)
Other assets and other liabilities (160) 466 (36)
------------- ------------ ------------
Net cash from operating activities 2,396 2,010 1,242
Cash flows from financing activities
Proceeds from note payable 14,000 - -
Principal payments on note payable (1,050) - -
Capital contribution to subsidiary bank (13,000) - -
Common stock issued 278 69 -
Dividends paid (1,540) (1,341) (1,201)
Purchase of treasury shares (4) (8) (5)
------------- ------------ ------------
Net cash from financing activities (1,316) (1,280) (1,206)
------------- ------------ ------------
Net change in cash and cash equivalents 1,080 730 36
Cash and cash equivalents at beginning of year 1,488 758 722
------------- ------------ ------------
Cash and cash equivalents at end of year $ 2,568 $ 1,488 $ 758
============ ============ ============
</TABLE>
NOTE 18 - BRANCH ACQUISITION
In March 1999, the Bank purchased three branches located in DeMotte, Remington,
and Rensselaer, Indiana.
The fair value of assets acquired was $71,749 (consisting primarily of goodwill
and core deposit intangibles of $13,510, and commercial loans, net of a $563
purchase adjustment for credit quality), the fair value of liabilities assumed
was $117,015 (consisting primarily of customer deposits), and the Bank received
$45,266 of cash at settlement.
<PAGE>
NOTE 19 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Unrealized holding gains and losses on
available-for-sale securities $ (3,314) $ 85 $ 394
Less: reclassification adjustments for gains
and losses later recognized in income 144 (6) (27)
-------------- --------------- --------------
Net unrealized gains and losses (3,170) 79 367
Tax effect 1,256 (31) (146)
-------------- --------------- --------------
Other comprehensive income $ (1,914) $ 48 $ 221
=============== ================ ==============
</TABLE>
NOTE 20 - SEGMENT INFORMATION
The Corporation's operations include three primary segments: banking, mortgage
banking, and trust. Through its banking subsidiary's locations in Tippecanoe,
Jasper and White Counties, the Corporation provides traditional community
banking services, such as accepting deposits and making commercial, residential
and consumer loans. Mortgage banking activities include the origination of
residential mortgage loans for sale on a servicing released basis to various
investors. The Corporation's trust department provides both personal and
corporate trust services.
The Corporation's three reportable segments are determined by the products and
services offered. Loans, investments and deposits comprise the primary revenues
and expenses of the banking operation, net gains on loans sold account for the
revenues in the mortgage banking segment, and trust administration fees provide
the primary revenues in the trust department.
The following segment financial information has been derived from the internal
profitability reporting system utilized by management to monitor and manage the
financial performance of the Corporation. The accounting policies of the three
segments are the same as those described in the summary of significant
accounting policies. The Corporation evaluates segment performance based on
profit or loss before income taxes. The evaluation process for the mortgage
banking and trust segments include only direct expenses, while certain indirect
expenses, including goodwill, are absorbed by the banking operation.
<PAGE>
NOTE 20 - SEGMENT INFORMATION (Continued)
<TABLE>
<S> <C> <C> <C> <C>
1999 Mortgage Total
- ---- Banking Banking Trust Segments
Net interest income $ 23,310 $ 211 $ - $ 23,521
Net gain on loan sales - 942 - 942
Other revenue 2,959 90 1,134 4,183
Noncash items:
Depreciation 868 42 38 948
Provision for loan loss 1,060 - - 1,060
Segment profit 9,328 459 390 10,177
Segment assets 641,132 3,325 202 644,659
1998 Mortgage Total
- ---- Banking Banking Trust Segments
Net interest income $ 17,239 $ 497 $ - $ 17,736
Net gain on loan sales - 1,255 - 1,255
Other revenue 2,685 12 964 3,661
Noncash items:
Depreciation 594 27 25 646
Provision for loan loss 980 - - 980
Segment profit 7,636 760 209 8,605
Segment assets 473,019 10,224 167 483,410
1997 Mortgage Total
- ---- Banking Banking Trust Segments
Net interest income $ 15,974 $ 402 $ - $ 16,376
Net gain on loan sales - 736 - 736
Other revenue 2,531 16 885 3,432
Noncash items:
Depreciation 588 21 22 631
Provision for loan loss 620 - - 620
Segment profit 7,451 469 189 8,109
Segment assets 430,357 7,796 157 438,310
</TABLE>
<PAGE>
NOTE 20 - SEGMENT INFORMATION (Continued)
Significant segment totals are reconciled to the financial statements as
follows:
<TABLE>
<S> <C> <C> <C>
Reportable Consolidated
1999 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 23,521 $ (674) $ 22,847
Provision for loan loss 1,060 - 1,060
Net gain on loan sales 942 - 942
Other revenue 4,183 - 4,183
Profit 10,177 (3,826) 6,351
Assets 644,659 490 645,149
Reportable Consolidated
1998 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 17,736 $ 26 $ 17,762
Provision for loan loss 980 - 980
Net gain on loan sales 1,255 - 1,255
Other revenue 3,661 - 3,661
Profit 8,605 (3,228) 5,377
Assets 483,410 559 483,969
Reportable Consolidated
1997 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 16,376 $ 10 $ 16,386
Provision for loan loss 620 - 620
Net gain on loan sales 736 - 736
Other revenue 3,432 - 3,432
Profit 8,109 (3,301) 4,808
Assets 438,310 719 439,029
</TABLE>
<PAGE>
NOTE 20 - SEGMENT INFORMATION (Continued)
Amounts included in the "other" column are as follows.
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Income:
Holding company net interest
income (expense) $ (674) $ 26 $ 10
Profit:
Holding company net interest
income (expense) (674) 26 10
Holding company expenses (125) (543) (742)
Income tax expense (3,027) (2,711) (2,569)
Assets:
Holding company assets 490 559 719
</TABLE>
STOCK INFORMATION
The common stock of Lafayette Bancorporation, Lafayette, Indiana, is traded on
the OTC Bulletin Board under the trading symbol of LAYB (Cusip No. 505893-10-7).
At the close of business on December 31, 1999, there were 3,586,140 shares
outstanding held by approximately 500 shareholders.
Management does not have knowledge of the prices paid in all transactions and
has not verified the accuracy of those prices that have been reported. Because
of the lack of an established market for the common shares of the Corporation,
these prices would not necessarily reflect the prices which the shares would
trade in an active market.
<TABLE>
Price Per Share Dividend
High Low Declared
1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $27 5/16 $25 1/2 $ .09
Second Quarter 27 5/16 26 .09
Third Quarter 27 1/2 25 11/16 .10
Fourth Quarter 27 1/4 25 .15
1998
- ------------------------------------------------------------------------------------------------------
First Quarter $23 1/16 $19 1/4 $ .08
Second Quarter 24 1/4 21 3/16 .08
Third Quarter 24 7/8 22 5/16 .08
Fourth Quarter 27 1/8 24 .13
</TABLE>
<PAGE>
o - Data adjusted for all stock splits and dividends, including a 3-for-2
stock split to shareholders of record on September 30, 1999, paid on
November 1, 1999.
The following firms have transacted business in Lafayette Bancorporation common
stock during the past year:
o Chicago Corporation
o City Securities Corporation
o JJB Hilliard, WL Lyons, Inc.
o McDonald & Company Securities, Inc.
o Merrill Lynch
o Monroe Securities, Inc.
o Raymond James Financial Services, Inc.
located at Lafayette Bank and Trust Company
o Solomon Smith Barney
TRANSFER AGENT
Lafayette Bancorporation
133 North Fourth Street
P.O. Box 1130
Lafayette, IN 47902-1130
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
NAME STATE OF INCORPORATION
- ---- ----------------------
Lafayette Bank and Trust Company Indiana
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 of Lafayette Bancorporation (No. 333-89851), of our report, dated
January 26, 2000, on the consolidated financial statements of Lafayette
Bancorporation as of December 31, 1999 and 1998 and for each of the three years
in the period ended December 31, 1999, which report is incorporated by reference
in this Form 10-K.
/s/ Crowe, Chisek and Company LLP
Crowe, Chisek and Company LLP
March 20, 2000
Indianapolis, Indiana
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001035373
<NAME> LAFAYETTE BANCORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 28,370
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,722
<INVESTMENTS-CARRYING> 4,712
<INVESTMENTS-MARKET> 4,709
<LOANS> 489,070
<ALLOWANCE> 4,618
<TOTAL-ASSETS> 645,149
<DEPOSITS> 522,247
<SHORT-TERM> 27,273
<LIABILITIES-OTHER> 6,867
<LONG-TERM> 42,977
0
0
<COMMON> 3,586
<OTHER-SE> 42,199
<TOTAL-LIABILITIES-AND-EQUITY> 645,149
<INTEREST-LOAN> 38,520
<INTEREST-INVEST> 5,360
<INTEREST-OTHER> 510
<INTEREST-TOTAL> 44,390
<INTEREST-DEPOSIT> 18,024
<INTEREST-EXPENSE> 21,543
<INTEREST-INCOME-NET> 22,847
<LOAN-LOSSES> 1,060
<SECURITIES-GAINS> (144)
<EXPENSE-OTHER> 17,534
<INCOME-PRETAX> 9,378
<INCOME-PRE-EXTRAORDINARY> 9,378
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,351
<EPS-BASIC> 1.77
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 4.27
<LOANS-NON> 622
<LOANS-PAST> 584
<LOANS-TROUBLED> 114
<LOANS-PROBLEM> 5,204
<ALLOWANCE-OPEN> 4,241
<CHARGE-OFFS> 829
<RECOVERIES> 146
<ALLOWANCE-CLOSE> 4,618
<ALLOWANCE-DOMESTIC> 3,324
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,294
</TABLE>
