FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-12422
INDIANA UNITED BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1562245
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 NORTH BROADWAY GREENSBURG, INDIANA 47240
(Address of principal executive offices) (Zip Code)
(812) 663-0157
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
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
As of September 30, 1997 there were outstanding 1,250,897 shares,
without par value of the registrant.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
Consolidated Condensed Statement of Income 4
Consolidated Condensed Statement of Changes in
Shareholders' Equity 5
Consolidated Condensed Statement of Cash Flows 6
Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Sep 30, Dec 31,
1997 1996
<S> <C> <C>
Assets
Cash and due from banks $ 10,464 $ 13,236
Interest-bearing demand deposits 74 60
Federal funds sold 7,300 5,900
Cash and cash equivalents 17,838 19,196
Short-term investments 0 100
Securities available for sale 71,422 81,187
Loans 244,237 219,483
Less: Allowance for loan losses 2,670 2,506
Net loans 241,567 216,977
Premises and equipment 6,355 5,919
Federal Home Loan Bank stock 1,138 1,138
Core deposit intangibles 83 106
Accrued interest receivable 2,186 1,952
Other real estate - 1,000
Other assets 1,462 771
Total assets $342,051 $328,346
Liabilities
Deposits:
Non-interest bearing $ 25,263 $ 29,001
Interest bearing 260,497 247,401
Total deposits 285,760 276,402
Short-term borrowings 17,885 15,683
Long-term debt 4,625 5,000
Accrued interest payable 1,404 1,272
Other liabilities 2,293 2,240
Total liabilities 311,967 300,597
Shareholders' equity
Preferred stock
Authorized-400,000 shares
Issued and outstanding-None - -
Common stock $1 stated value:
Authorized--3,000,000 shares
Issued and outstanding--1,250,897 shares 1,251 1,251
Paid-in surplus 10,677 10,677
Valuation adjustment-Securities AFS 487 95
Retained earnings 17,669 15,726
Total shareholders' equity 30,084 27,749
Total liabilities and shareholders' equity $342,051 $328,346
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $5,332 $4,639 $15,388 $13,458
Investment securities:
Taxable 1,150 1,323 3,616 3,835
Tax-exempt 46 44 143 141
Federal funds sold 104 62 250 247
Interest-bearing deposits 0 2 1 11
Total interest income 6,632 6,070 19,398 17,692
Interest expense:
Deposits 3,048 2,775 8,832 8,025
Short-term borrowings 177 182 510 500
Long-term debt 95 111 297 343
Total interest expense 3,320 3,068 9,639 8,868
Net interest income 3,312 3,002 9,759 8,824
Provision for loan losses 58 30 183 90
Net interest income after provision
for loan losses 3,254 2,972 9,576 8,734
Noninterest income:
Securities losses (83) - (80) -
Other operating income 426 359 1,450 1,093
Total noninterest income 343 359 1,370 1,093
Noninterest expense 2,097 2,562 6,201 6,608
Income before income tax 1,500 769 4,745 3,219
Income tax expense 594 451 1,877 1,420
Net income $ 906 $ 318 $ 2,868 $ 1,799
Per common share:
Net income $0.72 $0.25 $2.29 $1.40
Cash dividends declared 0.26 0.21 0.74 0.61
Average common shares outstanding 1,250,897 1,250,897 1,250,897 1,250,897
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES TO SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance, January 1 $27,749 $28,245
Net income 2,868 1,799
Net change in unrealized gains (losses)
on securities available for sale 392 (493)
Redemption of preferred stock - (2,000)
Cash dividends:
Preferred stock - (50)
Common stock (925) (763)
Balance, September 30 $30,084 $26,738
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,868 $ 1,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 183 90
Depreciation and amortization 537 495
Premiums and discounts amortization
on investment securities 42 81
Amortization of loan and deposit
fair value adjustments 79 76
Amortization and reduction of
core deposit intangibles 23 27
Securities losses 80 -
Net change in
Income receivable (234) (139)
Interest payable 132 (68)
Other adjustments 186 (705)
Net cash provided by operating activities 3,896 1,656
Cash flows from investing activities:
Net change in short-term investments 86 5,035
Purchases of securities available for sale (2,376) (15,717)
Proceeds from maturities and paydowns
of securities available for sale 10,106 11,326
Proceeds from sales of securities
available for sale 2,035 -
Net change in loans (24,754) (13,674)
Purchases of premises and equipment (973) (396)
Proceeds from other real estate 1,000 45
Other investment activities (638) (141)
Net cash used by
investing activities (15,514) (13,522)
Cash flows from financing activities:
Net change in:
Noninterest bearing, NOW, money market
and savings deposits (1,550) (6,923)
Certificates of deposit 10,908 15,608
Short-term borrowings 2,202 1,538
Payments on long-term debt (375) (500)
Redemption of preferred stock - (2,000)
Cash dividends (925) (814)
Net cash provided by financing activities 10,260 6,909
Net decrease in cash and cash equivalents (1,358) (4,957)
Cash and cash equivalents, beginning of period 19,196 18,929
Cash and cash equivalents, end of period $17,838 $13,972
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars amounts in thousands)
NOTE 1.
The significant accounting policies followed by Indiana United Bancorp
("Company") and its subsidiaries, Union Bank and Trust Company of Indiana
("Union Bank") and Regional Federal Savings Bank ("Regional Bank") for
interim financial reporting are consistent with the accounting policies
followed for annual financial reporting. All adjustments, consisting only
of normal recurring adjustments, which in the opinion of management are
necessary for a fair presentation of the results for the periods reported,
have been included in the accompanying consolidated financial statements.
The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of those expected for the remainder of the year.
NOTE 2:
On October 8, 1997, the Company signed a definitive agreement to acquire
P.T.C. Bancorp ("PTC"), Brookville, Indiana in a proposed transaction
viewed as a merger of equals with the combined entity retaining the name of
Indiana United Bancorp. The definitive agreement provides that PTC
shareholders (including option holders) will receive 1.075 shares of
Company common stock in exchange for each share owned or option held of PTC
common stock.
The consolidated company will hold assets totaling almost $650 million and
will have market capitalization of more than $100 million based upon
current market values. Upon completion of the merger, Indiana United
Bancorp will operate 29 offices in 12 counties throughout the eastern and
southern regions of Indiana.
The proposed transaction is subject to various regulatory approvals and the
approval of the shareholders of both organizations. It is expected that
the transaction will be accounted for as a "pooling of interests".
Although the Company anticipates that the merger will be consummated during
the first quarter of 1998, there can be no assurance that the transaction
will be completed.
Note 3:
The Company is in process of preparing a registration statement to be filed
with the Securities and Exchange Commission ("SEC") for the purpose of
issuing $18,500,000 Cumulative Trust Preferred Securities ("Preferred
Securities"). The Preferred Securities will represent undivided beneficial
interests in the assets of a statutory business trust being established by
the Company. The Company will acquire all the common securities of the
business trust. The assets of the business trust will consist solely of
Subordinated Debentures issued by the Company and purchased with the
proceeds from the issuance of the Preferred Securities. The Company will
guarantee the payment of the Preferred Securities.
Under the risk-based guideline established by the Federal Reserve, a
portion of the proceeds from the sale of Preferred Securities are expected
to qualify as Tier 1 or core capital. These guidelines provide that the
Preferred Securities cannot exceed 25% of total Tier 1 capital of the
Company, however; the amount in excess of the 25% limitation will
constitute Tier 2, or supplementary capital.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
For financial reporting purposes, the business trust will be treated as a
wholly owned subsidiary of the Company and the accounts of the business
trust will be included in the consolidated financial statements of the
Company. The Preferred Securities will be presented as a separate line
item in the consolidated balance sheet and interest on the Preferred
Securities will be recorded as an expense in the consolidated statement of
income. In addition, appropriate disclosures in the footnotes to the
consolidated financial statements describing the Preferred Securities,
Subordinated Debentures, business trust and the guarantee will be
presented.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Item 2. Management's Discussion and Analysis (Table Dollar Amounts in
Thousands)
Forward-Looking Statements
Except for historical information contained herein, the discussion in this
Form 10-Q quarterly report includes certain forward-looking statements
based upon management expectations. Factors which could cause future
results to differ from these expectations include the following: general
economic conditions; legislative and regulatory initiatives; monetary and
fiscal policies of the federal government; deposit flows; the costs of
funds; general market rates of interest; interest rates on competing
investments; demand for loan products; demand for financial services;
changes in accounting policies or guidelines; and changes in the quality or
composition of the Company's loan and investment portfolios.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
Recent Developments
PTC Merger
On October 8, 1997, the Company signed a definitive agreement to acquire
P.T.C. Bancorp ("PTC"), Brookville, Indiana in a proposed transaction
viewed as a merger of equals, with the combined entity retaining the name
of Indiana United Bancorp. The definitive agreement provides that PTC
shareholders (including option holders) will receive 1.075 shares of
Company common stock in exchange for each share owned or option held of PTC
common stock.
The consolidated company will hold assets totaling almost $650 million and
will have market capitalization of more than $100 million based upon
current market values. Upon completion of the merger, Indiana United
Bancorp will operate 29 offices in 12 counties throughout the eastern and
southern regions of Indiana.
The proposed transaction is subject to various regulatory approvals and the
approval of the shareholders of both organizations. It is expected that
the transaction will be accounted for as a "pooling of interests".
Although the Company anticipates that the merger will be consummated during
the first quarter of 1998, there can be no assurance that the transaction
will be completed.
Proposed Issuance of Cumulative Trust Preferred Securities
The Company is in process of preparing a registration statement to be filed
with the SEC for the purpose of issuing $18,500,000 Cumulative Trust
Preferred Securities ("Preferred Securities"). The Preferred Securities
will represent undivided beneficial interests in the assets of a statutory
business trust being established by the Company. The Company will acquire
all the common securities of the business trust. The assets of the
business trust will consist solely of Subordinated Debentures issued by the
Company and purchased with the proceeds from the issuance of the Preferred
Securities. The Company will guarantee the payment of the Preferred
Securities.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Under the risk-based guideline established by the Federal Reserve, proceeds
from the sale of Preferred Securities are expected to qualify as Tier 1 or
core capital. These guidelines provide that the Preferred Securities
cannot exceed 25% of total Tier 1 capital of the Company, however; the
amount in excess of the 25% limitation will constitute Tier 2, or
supplementary capital.
The net proceeds to be received by the Company from these transactions will
be used for financing growth, which may include branch acquisitions, the
establishment of de novo branches and/or acquisitions of other financial
institutions. In addition, a portion of the proceeds may be used for
general corporate purposes, including investments in or advances to Union
Bank and/or Regional Bank and/or, following the completion of the PTC
Merger, People's Trust. Pending any such use, the net proceeds may be
invested in short-to-medium-term investments
Facilities and Technology
In an effort to make its services more accessible and convenient, the
Company intends to relocate the Grantline Branch of Regional Bank.
Construction of the new facility is currently in progress, and should be
completed in the fourth quarter of 1997. The Company is also considering
the relocation of certain Union Bank branches. These potential changes
will increase visibility, enhance drive-thru banking and ATM accessibility,
and improve ingress and egress.
During 1996, many technological improvements were initiated. Certain of
these improvements, such as upgrading communication lines, have provided
faster response time for customer transactions. Others represent capital
investments, which allow the Company to continue to effectively compete
within financial services industry that is becoming increasingly dependent
upon technology. In 1997, several hundred thousand dollars is being
invested in additional technology enhancements, such as an automated voice
response information system, additional ATMs, laser printed deposit
statements, optical disk storage, and an increase in the power and memory
of the AS400 computer system which will allow for improved efficiency in
the management of computer resources.
Results of Operations
Summary. Earnings for the third quarter of 1997 increased 185% to $906,000
compared to the same quarter of 1996. Earnings for the first nine months
of 1997 increased 59% to $2,868,000 compared to the same period in 1996.
Legislation enacted on September 30, 1996 together with companion
legislation enacted earlier in the quarter resulted in a $474,000 reduction
in 1996 net income for the three-month and nine-month periods ended
September 30, 1996. The legislation required a special assessment on thrift
institutions, based on March 1995 deposit levels, in order to recapitalize
the Savings Association Insurance Fund ("SAIF"), resulting in a pre-tax
charge of $545,000. Additionally, a tax advantage thrift institutions
enjoyed in the calculation of allowable tax bad debt reserves was
eliminated, granting forgiveness of any tax liability prior to 1987, but
resulting in an income tax expense of $145,000 on the bad debt reserve
recapture since January 1, 1987.
Before the nonrecurring charges, net income for the first nine months of
1996 would have been $2,273,000 and earnings for the third quarter would
have been $792,000. Compared with adjusted 1996 income, earnings for the
third quarter of 1997 increased 14% and year-to-date earnings increased
26%.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest income in 1997 reflects approximately $179,000 of nonrecurring
income from the sale of other real estate owned. Insurance commissions in
1997 declined due mainly to lower levels of profit sharing income based on
claims experience. Trust income and service charge income for 1997
increased over the prior year period. Noninterest expense reflects
increased salaries and employee benefits and reduced Federal Deposit
Insurance Corporation ("FDIC") assessments (excluding the special 1996
assessment) due to a lower assessment rate.
Net income per common share for the third quarter equaled $.72 in 1997,
compared to $.25 in 1996. Per share earnings for the first nine months of
1997 and 1996 were $2.29 and $1.40 respectively. Net income for 1996 was
reduced by $.38 per common share due to the nonrecurring charges for the
special SAIF assessment and expense related to the tax law change.
Excluding the nonrecurring charges, net income per common share for the
third quarter of 1996 would have equaled $.63 and nine-month net income per
common share would have equaled $1.78.
The Company's return on average total assets for the third quarter was
1.06% in 1997, and .40% in 1996. Year-to-date return on average total
assets was 1.14% and 0.77% for 1997 and 1996. Before the nonrecurring
charges, return on average assets in 1996 would have been .99% for the
third quarter and .97% year-to-date.
Return on average common shareholders' equity for the third quarter was
12.17% in 1997 and 4.66% in 1996. Year-to-date return on average
shareholders' equity was 13.39% and 8.82% for 1997 and 1996. Without the
nonrecurring charges, return on average common shareholders' equity in 1996
would have been 11.69% for the third quarter and 11.21% year-to-date.
Net Interest Income
The volume and yield of earning assets and the cost of interest-bearing
liabilities influence net interest income. Net interest margin reflects
the mix of interest-bearing and noninterest-bearing liabilities that fund
earning assets, as well as interest spreads between the rates earned on
these assets and the rates paid on interest-bearing liabilities. Third
quarter net interest income of $3,312,000 in 1997 increased 10% from
$3,002,000 in 1996. The first nine months of net interest income increased
by $935,000 or 11% over the same period in 1996.
Throughout 1996 and the current year, the Company has employed a deposit-
pricing strategy focused on retaining and attracting lower cost short-to-
moderate term funds. Management correctly anticipated a relatively flat
rate environment throughout 1996 and thus far into 1997. The Company
believes this strategy greatly enhanced 1996 net interest income and has
had a positive effect on the first nine months of 1997 earnings, even
though interest rates have increased slightly since year-end 1996. In the
first nine months of 1997, the Company increased its net interest margin to
4.13% or 15 basis points over the same period last year.
Provision for Loan Losses
This topic is discussed under the heading "Loans, Credit Risk and the
Allowance and Provision for Possible Loan Losses".
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest Income
Noninterest income in the first nine months of 1997 exceeded the prior year
period by $277,000 or 25%. Nonrecurring noninterest income of $179,000 was
realized on the sale of real estate acquired in 1996 in lieu of
foreclosure. Net security losses of $80,000 were realized in the first
nine months of 1997 compared to no gain or loss for the same period in
1996. Third quarter noninterest income declined from the same period last
year by $16,000 primarily as a result of securities losses of $83,000
during the third quarter of 1997.
Service charges on deposit accounts represent the largest component of the
first nine months of 1997 recurring noninterest income, equaling 32% in
1997 and 35% in 1996. Service charges on deposit accounts in the first
nine months of 1997 increased by $84,000, or 22%, primarily due to the
strong growth in a new interest-bearing checking account introduced in
early 1996. Deposit growth, interest rate variables, and NSF charges have
also affected service charge income in 1997. It is anticipated that
throughout the remainder of 1997 the Company will experience additional
deposit growth, generating even higher service charge income. Insurance
commissions declined $27,000 in the first nine months of 1997 compared to
the same period last year. This decline represents the loss of year-end
profit sharing programs from primary carriers due to poor claims experience
and to a lower volume of business. Trust income increased $19,000 over
1996 due to an increase in estate income and assets under management. The
level of estate assets administered may cause trust income to fluctuate
significantly from year to year.
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
Nine Nine
3rd Qtr Months 3rd Qtr Months
<S> <C> <C> <C> <C>
Insurance commissions $102 $ 316 $ 90 $ 343
Trust fees 56 169 50 150
Service charges on deposit accounts 157 462 136 378
Loss on sales of securities (83) (80) - -
Other income 111 503 83 222
$343 $1,370 $359 $1,093
</TABLE>
Noninterest Expense
The largest component of noninterest expense is personnel expense.
Personnel expenses increased in the first nine months of 1997 by $105,000,
or 3%. Improvements in technology implemented in the past 21 months has
enabled the Company to effectively control staffing levels during the
periods presented. Normal staff salary adjustments and increased benefit
costs have been incurred in both 1997 and 1996. Both periods include
amounts accrued in connection with the employee performance incentive
compensation plan. Personnel expenses in 1997 are not expected to change
materially from 1996.
The 1997 omnibus-spending package enacted on September 30, 1996 required
the thrift industry to recapitalize SAIF with a one-time assessment, based
on March 31, 1995 deposits, and delayed a pro rata sharing of the Financing
Corp. bond interest payments for three years. The one-time assessment
imposed on Regional Bank equaled approximately $545,000 and reduced 1996
third quarter earnings.
INDIANA UNITED BANCORP
FORM 10-Q
Deposit insurance premiums (excluding the $545,000 special assessment in
1996) were $87,000 less in 1997 compared to the same prior year period due
to an overall lower rate on which the insurance premium was calculated.
Since the bank insurance fund reached a mandated funding level in 1995, the
1996 assessment rate for the Company's commercial bank was reduced to the
$2,000 per year minimum level permissible increasing to 1.29 cents per $100
of deposits in 1997.
Through the year 1999, thrift institutions will pay approximately five
times higher assessment rates than commercial banks (6.44 cents versus 1.29
cents per $100 of deposits), but this is a significant reduction from the
23 cents per $100 of deposits assessed prior to September 30, 1996.
Commencing in the year 2000, commercial banks and thrifts will pay the same
assessment rate of 2.43 cents per $100 of deposits. Based on current
deposit levels and projected growth, Regional Bank will save approximately
$540,000 in the three-year period through 1999 due to the lower assessment
rate.
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
Nine Nine
3rd Qtr Months 3rd Qtr Months
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,198 $3,483 $1,118 $3,378
Premises and equipment expenses 390 1,168 365 1,124
Professional fees 55 161 54 163
Amortization of core deposit intangibles 7 23 9 27
Deposit insurance/supervisory assessment 35 104 63 191
FDIC special assessment - - 545 545
Stationery, printing, supplies 86 259 73 222
Insurance 25 77 22 80
Postage 43 138 41 140
Other operating expenses 258 788 272 738
$2,097 $6,201 $2,562 $6,608
</TABLE>
Income Taxes
In August 1996, President Clinton signed into law the Small Business Job
Protection Act of 1996. Included within that tax legislation was the
repeal of certain bad debt provisions applicable to thrifts. The percent-
of-taxable-income method for computing additions to the thrift tax bad debt
reserves for years beginning after December 31, 1995 was eliminated. The
bill also required that thrift institutions recapture all or a portion of
their tax bad debt reserves added since December 31, 1987. Accordingly,
the Company recorded a $145,000 income tax expense in the third quarter of
1996 related to the tax bad debt reserve recapture for Regional Bank. The
unrecaptured base year reserve at December 31, 1987 will not be subject to
recapture as long as the institution continues to carry on the business of
banking.
The effective tax rate (excluding the aforementioned bad debt reserve
recapture) for the first nine months was approximately 40% for both 1997
and 1996. The Company and its subsidiaries will file consolidated income
tax returns for 1997.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Financial Condition
Total assets at September 30, 1997 increased $13,705,000 to $342,051,000
from $328,346,000 at December 31, 1996.
Total average loans for the first nine months of 1997 have increased
$27,210,000 or 13% and average instalment loans have increased $14,569,000
or 70% compared to the same period in 1996. Average loans represent
approximately 69% of average assets in the first nine months of 1997
compared to 66% for the same period in 1996. Management intends to
continue to emphasize loan growth throughout the remainder of 1997.
Securities maturities and increased deposits have been used to fund loan
growth in 1997.
Average earning assets represented 95% of average total assets for the
first nine months of 1997 and 1996.
Average noninterest-bearing deposits for the first nine months of 1997
increased 7% compared to the same period in 1996. Average interest-bearing
deposits increased $19,721,000 or 8% for the 1997 period compared to 1996.
Average interest-bearing demand deposits increased $10,098,000 for the nine
months in 1997 compared to 1996, primarily due to the success of a new
interest-bearing checking account introduced early in 1996. Average
savings accounts have decreased slightly for the 1997 period compared to
1996. Average money market investment accounts decreased $5,437,000 or 15%
compared to the prior year due to the shifting of funds to the new interest-
bearing demand deposit. Average certificates of deposit and other time
deposits increased approximately $15,501,000 for the nine months in 1997
compared to the prior year period.
Long-term debt is primarily the balance of the Company's loan for the
purchase of Regional Bank. A principal payment of $375,000 was paid on
June 30, 1997. During the third quarter of 1997, the Company negotiated
the refinancing of the balance of its outstanding debt of $4,625,000, which
was originally due December 31, 1997. The new note will mature on July 1,
2002 and requires a principal payment of $125,000 on January 1, 1998 and
$500,000 semiannual payments thereafter on July 1 and January 1 until
maturity. Interest will be paid quarterly. The loan shall bear interest
at a rate equal to the lender's prime rate, less 25 basis points and at the
Company's option, all or any portion of the outstanding balance may bear
interest at a fixed rate equal to 150 basis points above
LIBOR for one, two, three, six or twelve month interest periods. The loan
is secured by the capital stock of the Company's subsidiaries and the loan
agreement contains restrictions on debt, guarantees and mergers, in
addition to other affirmative and negative covenants. The Company believes
it has complied with all terms and covenants of the loan agreement.
Shareholders' equity was $30,084,000 on September 30, 1997 compared to
$27,749,000 at year-end 1996. Book value per common share increased to
$24.05 or 8% from $22.18 at December 31, 1996 The unrealized gain on
securities available for sale, net of taxes, totaled $487,000 or $.39 per
share at September 30, 1997 compared to an unrealized gain of $95,000 or
$.07 at year end 1996. Excluding the net unrealized gains on securities
available for sale, book value per share was $23.66 at September 30, 1997
or an increase of 7% over the comparable book value at year end 1996. The
Company redeemed $1,000,000 of its preferred stock in March 1996, $500,000
in June 1996 and the remainder in September 1996. Commencing October 1,
1996 all earnings accrue solely to the common shareholders.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Loans, Credit Risk and the Allowance and Provision for Possible Loan Losses
Total loans increased $24,754,000 or 11% since December 31, 1996 primarily
reflecting the expansion of the consumer loan portfolio and management's
emphasis on indirect automobile financing, which began in late 1995 and has
continued to the present. Consumer loans increased to $42,340,000 or 54%
since December 31,1996. The Company's emphasis on increasing consumer loans
provides greater diversification within the portfolio and generates higher
yields than residential real estate loans.
Net chargeoffs were $19,000 at September 30, 1997 compared to net
chargeoffs of $21,000 at September 30, 1996. As a percentage of average
loans, net chargeoffs equaled .01% respectively for September 30, 1997 and
1996. In prior periods, the Company has historically outperformed its peer
group's net loan loss average. Although peer group data for the third
quarter of 1997 is not yet available, that trend should continue.
The adequacy of the allowance for loan losses in each subsidiary is
reviewed at least monthly. The determination of the provision amount in
any period is based on management's continuing review and evaluation of
loan loss experience, changes in the composition of the loan portfolio,
current economic conditions, the amount of loans presently outstanding, and
the amount and composition of growth expectations. The allowance for loan
losses as of September 30, 1997 is considered adequate by management.
<TABLE>
<CAPTION>
Summary of Allowance for Loan Losses
(Dollars in thousands) 1997 Year ended
Through December 31,
Sep 30 1996
<S> <C> <C>
Balance at beginning of period $2,506 $2,754
Chargeoffs (189) (456)
Recoveries 170 58
Provision for loan losses 183 150
Balance at end of period $2,670 $2,506
Ratio of net chargeoffs to average loans
outstanding during the period .01% .19%
Ratio of provision for loan losses to average
loans outstanding during the period .08% .07%
Ratio of allowance to total loans at
end of period 1.09% 1.14%
</TABLE>
Investment Securities
The Company's investment policy prohibits trading activities and does not
allow investment in high-risk derivative products or junk bonds. All
investment securities are classified as "available for sale" ("AFS") and
are carried at fair value with unrealized gains and losses, net of taxes,
excluded from earnings and reported as a separate component of
shareholders' equity. A net unrealized gain of $815,000 was recorded to
adjust the AFS portfolio to current market value at September 30, 1997
compared to a net unrealized gain of $167,000 at December 31, 1996.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
At September 30, 1997, the tax equivalent yield of the investment
securities portfolio was 6.60%, compared to 6.45% at December 31, 1996.
Variable rate securities comprised 49% of the total portfolio on September
30, 1997 compared to 50% on December 31, 1996. The weighted average
repriceable life of the portfolio at quarter end was 2.26 years in 1997
compared to 2.06 years at year-end 1996.
Sources of Funds
Deposits generated within local markets provide the major source of funding
for earning assets. Average total deposits were 90% and 88% of total
earning assets at September 30, 1997 and 1996 respectively. Total interest-
bearing deposits averaged 91% of average total deposits at September 30,
1997 and 1996. Management is continuing efforts to increase the percentage
of transaction-related deposits to total deposits due to the positive
effect on earnings.
Capital Resources
Common shareholders' equity increased $2,335,000 to $30,084,000 at
September 30, 1997 compared to December 31, 1996. The Company redeemed
$1,000,000 of its preferred stock in March 1996, $500,000 in June 1996 and
the remaining $500,000 in September 1996.
The Federal Reserve Board and other regulatory agencies have adopted risk-
based capital guidelines, which assign risk weightings to assets and off-
balance sheet items. The Company's core capital ("Tier 1") consists of
shareholders' equity less goodwill, while total capital consists of core
capital, certain debt instruments and a portion of the allowance for credit
losses. At September 30, 1997, Tier 1 capital to total assets was 8.56%.
Total capital to risk-adjusted assets was 14.62%. Both ratios
substantially exceed all required ratios established for bank holding
companies. Risk-adjusted capital levels of the Company's subsidiary banks
exceed regulatory definitions of well-capitalized institutions.
The Company declared and paid common dividends of $.26 per share in the
third quarter of 1997 and $.21 for the same quarter in 1996. Common
dividends declared and paid year-to-date total $.74 and $.61 per share
respectively for 1997 and 1996. Book value per common share increased to
$24.05 from $22.18 at year-end 1996. The net adjustment for AFS securities
increased book value by $.39 at September 30, 1997 compared to $.07 at
December 31, 1996.
Liquidity
Liquidity management involves maintaining sufficient cash levels to fund
operations and to meet the requirements of borrowers, depositors, and
creditors. Higher levels of liquidity bear higher corresponding costs,
measured in terms of lower yields on short-term, more liquid earning
assets, and higher interest expense involved in extending liability
maturities. Liquid assets include cash and cash equivalents, loans and
securities maturing within one year, and money market instruments. In
addition, the Company holds $69,766,000 of AFS securities maturing after
one year which can be sold to meet liquidity needs.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Liquidity is supported by maintaining a relatively stable funding base,
which is achieved by diversifying funding sources, extending the
contractual maturity of liabilities, and limiting reliance on volatile
short-term purchased funds. Short-term funding needs may arise from
declines in deposits or other funding sources, drawdowns of loan
commitments and requests for new loans. The Company's strategy is to fund
assets to the maximum extent possible with core deposits, which provide a
sizable source of relatively stable and low-cost funds. Average core
deposits funded approximately 90% and 88% of total earning assets at
September 30, 1997 and 1996 respectively.
Management believes the Company has sufficient liquidity to meet all
reasonable borrower, depositor, and creditor needs in the present economic
environment. The Company has not received any recommendations from
regulatory authorities, which would materially affect liquidity, capital
resources or operations.
Interest Rate Risk
At September 30, 1997 the Company held approximately $174,179,000 in assets
comprised of securities, loans, short-term investments, and federal funds
sold, which were interest sensitive in one year or less time horizons. The
Company's interest rate sensitivity analysis at September 30, 1997 appears
below. Core deposits are distributed or spread among the various repricing
categories based upon historical patterns of repricing which are reviewed
periodically by management. The assumptions regarding these repricing
characteristics greatly influence conclusions regarding interest
sensitivity. Management believes its assumptions regarding these
liabilities are reasonable.
Effective asset/liability management requires the maintenance of a proper
ratio between maturing or repriceable interest-earning assets and interest-
bearing liabilities. It is the policy of the Company that rate-sensitive
assets less rate-sensitive liabilities to total assets are kept within a
range of 80% to 130%.
<TABLE>
<CAPTION>
Rate Sensitivity Analysis at September 30, 1997
(Dollars in thousands) Maturing or Repricing
Over 3 -
3 Months 1 Year 3 Years 5 Years
<S> <C> <C> <C> <C>
Rate-sensitive assets $ 97,319 $ 76,860 $ 41,380 $ 40,711
Rate-sensitive liabilities 108,452 96,198 51,308 24,036
Rate sensitivity gap (assets
less liabilities) $(11,133) $(19,338) $( 9,928) $ 16,675
Rate sensitivity gap (cumulative) $(11,133) $(30,471) $(40,399) $(23,724)
Percent of total assets (cumulative) (3.3%) (8.9%) (11.8%) (6.9%)
Rate-sensitive assets/
liabilities (cumulative) 89.7% 85.1% 84.2% 91.5%
</TABLE>
*Interest-bearing transaction and savings accounts are not presented as
immediately repriceable in the above table.
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the
Company, and that address is (http://www.sec.gov).
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Accounting Changes
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, is effective for the Company's 1997 annual financial statements.
This statement simplifies the calculations of earnings per share. The
Company does not expect the new disclosure for basic earnings per share
will be different from primary earnings per share as currently calculated
and disclosed. Additional disclosures related to the potential dilution
that could occur from unexercised stock options will not affect the Company
since it currently has no stock options plans.
SFAS No. 129, Disclosure of Information about Capital Structure, continues
the current requirements to disclose certain information about an entity's
capital structure found in various standards. This statement consolidates
specific disclosure requirements from those standards. SFAS No. 129 is
effective for the Company's 1997 annual financial statements.
Management does not expect adoption of these statements to have any
material effect on 1997 financial statements.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 will also require us to (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position.
This Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods, if
provided for comparative purposes, is required.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for the way public business enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
This Statement does not apply to nonpublic enterprises or to not-for-profit
organizations.
SFAS NO. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
This Statement requires that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items and
segment assets. It requires reconciliation of total segment revenues,
total segment profit or loss, total segment assets and other amounts
disclosed for segments to corresponding amounts in the enterprise's general
purpose financial statements. This Statement also requires that a public
business report descriptive information about the way that the operating
segments used in reporting were determined, the products and services
provided by the operating segments, differences between the measurements
used in reporting segment information and those used in the enterprise's
general purpose financial statements and changes in the measurement of
segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This Statement need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application.
Management has not yet determined the effect of implementing SFAS Nos. 130
and 131.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K.
10.2: First Amendment to Loan Documents dated September 23, 1997
between Indiana United Bancorp and National City Bank of
Indiana (f/k/a Merchants National Bank and Trust Company
of Indianapolis).
10.3: Commercial Note dated September 23, 1997 in the face
principal amount of $4,625,000 made by Indiana United
Bancorp to the order of National City Bank of Indiana.
20: Report to Shareholders - Third Quarter, 1997 and furnished
to Registrant's shareholders is attached to this Form 10-Q.
27: Financial Data Schedule (electronic filing only)
b) No report on Form 8-K was filed during the quarter for which this
Quarterly Report is filed.
No other information is required to be filed under Part II of this form.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INDIANA UNITED BANCORP
November 12, 1997 By: /s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
November 12, 1997 By: /s/Jay B. Fager
Jay B. Fager
Chief Financial Officer,
Treasurer and Principal
Accounting Officer
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
EXHIBIT INDEX
Exhibit Page
10.2 First Amendment to Loan Documents dated 23-27
September 23, 1997 between Indiana United
Bancorp and National City Bank of Indiana
(f/k/a Merchants National Bank and Trust
Company of Indianapolis)
10.3 Commercial Note dated September 23, 1997 in the 28-37
face principal amount of $4,625,000 made by
Indiana United Bancorp to the order of National
City Bank of Indiana
20 Report to Shareholders - Third Quarter, 1997 and 38-39
furnished to Registrant's shareholders is attached
27 Financial Data Schedule (electronic filing only)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from Condensed Balance
Sheet and Statement of Income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 10,464 0
<INT-BEARING-DEPOSITS> 74 0
<FED-FUNDS-SOLD> 7,300 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 70,607 0
<INVESTMENTS-MARKET> 71,422 0
<LOANS> 244,237 0
<ALLOWANCE> 2,670 0
<TOTAL-ASSETS> 342,051 0
<DEPOSITS> 285,760 0
<SHORT-TERM> 17,885 0
<LIABILITIES-OTHER> 3,697 0
<LONG-TERM> 4,625 0
0 0
0 0
<COMMON> 1,251 0
<OTHER-SE> 28,833 0
<TOTAL-LIABILITIES-AND-EQUITY> 342,051 0
<INTEREST-LOAN> 15,388 5,332
<INTEREST-INVEST> 3,759 1,196
<INTEREST-OTHER> 251 104
<INTEREST-TOTAL> 19,398 6,632
<INTEREST-DEPOSIT> 8,832 3,048
<INTEREST-EXPENSE> 9,639 3,320
<INTEREST-INCOME-NET> 9,759 3,312
<LOAN-LOSSES> 183 58
<SECURITIES-GAINS> (80) (83)
<EXPENSE-OTHER> 6,201 2,097
<INCOME-PRETAX> 4,745 1,500
<INCOME-PRE-EXTRAORDINARY> 4,745 1,500
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,868 906
<EPS-PRIMARY> 2.29 .72
<EPS-DILUTED> 2.29 .72
<YIELD-ACTUAL> 8.19 0
<LOANS-NON> 169 0
<LOANS-PAST> 40 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,506 0
<CHARGE-OFFS> 189 0
<RECOVERIES> 170 0
<ALLOWANCE-CLOSE> 2,670 0
<ALLOWANCE-DOMESTIC> 1,182 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,488 1,488
</TABLE>
Report to Shareholders - Third Quarter, 1997
I am very pleased to report a definitive merger agreement has
been finalized with P.T.C. Bancorp. The agreement is consistent with
the agreement in principle announced in June. The process of filing
with multiple regulators has begun and we now expect the merger to be
completed early in 1998.
We remain confident that the merger will be very beneficial to
the shareholders, employees and communities of both organizations.
Upon completion, Indiana United will have consolidated assets
approaching $650 million, market capitalization of approximately $100
million, and will present an even greater financial force with 29
offices in twelve eastern and southern Indiana counties.
Net income of $906,250 in the third quarter was $588,661 or 185%
above the comparable 1996 period. As reported last year, however, the
1996 third quarter included one time tax effected charges of $474,178
associated with structural changes within the thrift industry, as
mandated by Congress. When those non-recurring charges are excluded
from last year's earnings, the current period gain was still a robust
14.5%. Earnings per share of $.72 exceeded normalized earnings of the
prior year period by $.09 or 14.3% and surpassed reported earnings by
$.47 or 188%.
For the nine months ended September 30, 1997, net income was
$2,867,649, compared to $1,798,638 in the similar period in 1996. On
a per share basis, earnings of $2.29 exceeded normalized earnings for
the first nine months of 1996 by $.51 or 28.7%.
Earnings continue to reflect solid loan growth, particularly in
commercial loans and non-residential consumer loans. Loan quality by
all measurements remains comfortably within the highest 5% of latest
available peer group averages. Based on our solid core earnings, some
low yielding investment securities were sold to support our future net
interest margin. The after-tax loss on these sales equaled $.04 per
share in the third quarter.
The comparative year to date performance measurements for the
last three years detailed on page two showcase the strong gains we
have made in every major category. We expect future comparisons to
reflect continued gains.
The months ahead will give birth to a significant event in our
corporate evolution and I am excited about our future. However, we do
not intend to relax our growth strategy with the consummation of the
P.T.C. Bancorp merger. We remain committed to advancing our market
share in the communities we now serve and will aggressively seek to
expand into any new markets we believe will enhance shareholder value.
Every action we take is dedicated to rewarding shareholders,
employees and the communities we serve. Thank you for your trust and
confidence in our vision.
/s/ Robert E. Hoptry
Robert E. Hoptry
Chairman and President
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - Third Quarter 1997
Three Months Ended Percent
September 30 Change
EARNINGS 1997 1996
<S> <C> <C> <C>
Net Income $906,250 $317,589 185.4
Net Income Per Share 0.72 0.25 188.0
Dividends Paid Per Share 0.26 0.21 23.8
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
<S> <C> <C> <C>
Net Income $2,867,649 $1,798,638 59.4
Net Income Per Share 2.29 1.40 63.6
Dividends Paid Per Share .74 .61 21.3
</TABLE>
<TABLE>
<CAPTION>
As of September 30
BALANCE SHEET (In Thousands) 1997 1996
<S> <C> <C> <C>
Total Assets $342,051 $321,397 6.4
Total Loans 244,237 215,028 13.6
Total Deposits 285,760 271,031 5.4
Total Common Equity 30,084 26,738 12.5
</TABLE>
<TABLE>
<CAPTION>
As of September 30
SHARE DATA 1997 1996
<S> <C> <C> <C>
Shares Outstanding 1,250,897 1,250,897
Book Value $24.05 $20.98 14.6
Closing Market Price $41.00 $25.75 59.2
Market/Book Ratio 170% 123%
</TABLE>
SHAREHOLDER INFORMATION
The common shares of the Company are listed on the NASDAQ National
Market System under the symbol IUBC. In newspaper listings, the
Company's shares are frequently listed under IndUtd.
Primary market makers are:
J.J.B. Hilliard / W.L. Lyons, Inc.
NatCity Investments, Inc.
Stifel, Nicolaus & Company, Inc.
<TABLE>
<CAPTION>
GRAPHS
Key Performance Measurements As of September 30*
* Excluding one-time thrift charges in 1996.
Year Percent
<S> <C> <C>
Return on Average Common Equity(%) 1995 9.28
1996 11.21
1997 13.39
</TABLE>
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
Return on Average Assets(%) 1995 0.78
1996 0.97
1997 1.14
</TABLE>
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
Net Interest Margin(%) 1995 3.72
1996 3.98
1997 4.13
</TABLE>
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
Efficiency Ratio(%) 1995 67.99
1996 61.14
1997 55.32
</TABLE>
<PAGE>
FIRST AMENDMENT TO
LOAN DOCUMENTS
THE FIRST AMENDMENT TO LOAN DOCUMENTS (the "First
Amendment") is entered into this 23rd day of September 23, 1997,
by and between INDIANA UNITED BANCORP, an Indiana corporation,
having its principal office at 201 N. Broadway, Greensburg,
Indiana 47240 ("Borrower") and NATIONAL CITY BANK OF INDIANA, a
national banking association f/k/a Merchants National Bank &
Trust Company of Indianapolis, having its principal offices at
101 W. Washington Street, Indianapolis, Indiana 46255 ("Bank");
and
WITNESSETH:
WHEREAS, Borrower and Bank entered into a Loan Agreement,
dated December 31, 1991 (the "Loan Agreement") under which Bank
extended a $14,500,000 secured credit to Borrower which was
refinanced under a $11,200,000 secured term loan evidenced by a
Business Promissory Note, dated January 2, 1992 (the "Prior
Note") and which is secured pursuant to the terms of a Pledge
Agreement, dated December 31, 1991, from Borrower to Bank (the
"Pledge Agreement" and collectively with the Loan Agreement,
Prior Note and all related writings, the "Loan Documents"); and
WHEREAS, Borrower desires that Bank refinance the principal
balance of the Prior Note under a five (5) year secured term
loan; and
WHEREAS, Bank is willing to provide such financing subject
to the terms and conditions of the Loan Documents as modified by
this First Amendment.
NOW, THEREFORE, in consideration of these premises, the
Borrower and Bank hereby agree to amend the Loan Documents as
follows:
1. Unless otherwise defined hereunder shall have the
meanings set forth under the Loan Documents.
2. All references under the Loan Documents to "Merchants"
shall be amended to read "Bank" now meaning National City Bank of
Indiana which is the legal successor in interest to Merchants
National Bank & Trust Company of Indianapolis.
3. The definition of "Union Bank" in Section 1(j) on page
4 of the Loan Agreement shall be deleted in its entirety and the
following substituted therefore:
"(j) "Union Bank" shall mean Union Bank and Trust
Company of Indiana f/k/a Union Bank and Trust Company
of Greensburg."
<PAGE>
4. The definition of "Base Rate" in Section 1(a) on page 2
of the Loan Agreement shall be deleted in its entirety and the
following definition of "Prime Rate" substituted therefore, and
all references in the Loan Agreement to "Base Rate" shall be
amended to read "Prime Rate".
"(a) "Prime Rate" shall mean the fluctuating rate of
interest which is publicly announced from time to time
by Bank at its principal place of business as being its
"prime rate" or "base rate" thereafter in effect, with
each change in the Prime Rate automatically,
immediately and without notice changing the fluctuating
interest rate thereafter applicable hereunder, it being
agreed that the Prime Rate is not necessarily the
lowest rate of interest then available from Bank on
fluctuating rate loans."
5. The following two (2) definitions shall be added to
Section 1 of the Loan Agreement on page 4 as new subparagraphs
(n) and (o).
"(n) "LIBOR" shall mean the rate per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%)
determined by Bank by dividing (a) the rate per annum
determined by Bank to equal the average rate per annum
at which deposits (denominated in United States
dollars) in the applicable amount and with a maturity
similar to the applicable interest period that is
offered to Bank at 11:00 A.M. London time (or as soon
thereafter as practicable) two (2) Eurodollar Banking
Days prior to the first day of the applicable interest
period by banking institutions in any Eurodollar market
selected by Bank by (b) the difference of one (1) less
the Reserve Percentage.
(o) "Reserve Percentage" shall mean the percentage
(expressed as a decimal) which Bank determines to be
the maximum (but in any case less than 1.00) reserve
requirement (including, without limitation, any
emergency, marginal, special, or supplemental reserve
requirement) prescribed for so-called "Eurocurrency
liabilities" (or any other category of liabilities that
includes deposits by reference to which the interest
rate applicable to advances bearing interest based upon
LIBOR is determined) under Regulation D (as amended
from time to time) of the Board of Governors of the
Federal Reserve System or under any successor
regulation which Bank determines to be applicable, with
each change in such maximum reserve requirement
automatically, immediately, and without notice changing
the interest rate thereafter applicable to each advance
bearing interest based upon LIBOR, it being agreed that
LIBOR advances shall be deemed Eurocurrency liabilities
subject to such reserve requirements without the
<PAGE>
benefit of any credit for proration, exceptions, or
offsets."
6. Sections 2 and 3 on pages 5-7 of the Loan Agreement
shall be deleted in their entirety together with Exhibits "A" and
"B" to the Loan Agreement, and the following new Section 2 and
Exhibit "A" shall be substituted therefore.
"2. Term Loan. Bank shall, subject to the terms and
conditions of this Agreement, grant a five (5) year
term loan (the "Loan") to Borrower in the principal
amount of Four Million Six Hundred Twenty-Five Thousand
and No/100 Dollars ($4,625,000.00) which shall be used
to refinance the principal balance of the Prior Note.
The Loan shall bear interest at a fluctuating rate per
annum (based upon a 365-day year and actual days
elapsed) equal to one-quarter of one percent (0.25%)
below the Prime Rate. At Borrower's option, all or any
portion of the Loan (in a minimum amount of $500,000
and $100,000 increments thereafter), may bear interest
at a fixed rate per annum (based upon a 365-day year
and actual days elapsed) equal to one and one-half of
one percent (1.5%) above LIBOR, for one (1), two (2),
three (3), six (6) or twelve (12) month interest
periods. The Loan shall be repaid in semi-annual
payments of principal with the first installment,
commencing January 1, 1998, to be in the amount of One
Hundred Twenty-Five Thousand and No/100 Dollars
($125,000.00), and each installment thereafter to be in
the amount of Five Hundred Thousand and No/100 Dollars
($500,000.00), which shall continue to be due and
payable on the first (1st) day of every July and
January thereafter, until five (5) years from the date
of the First Amendment when the total outstanding
balance of any unpaid principal and interest shall be
finally due and payable. Interest shall be due and
payable quarterly commencing October 1, 1997 and
continuing to be due and payable on the first day of
every third (3rd) month thereafter. The Loan shall be
evidenced by a Commercial Note (the "Note") in the form
of Exhibit "A" attached hereto and made a part hereof.
The Note shall replace the Prior Note. The account
records of Bank shall be prima facie evidence of the
transactions between Bank and Borrower for the purposes
of the Loan. All references hereinafter to "Loan"
shall mean the Loan of this Section. Section 3 of this
Loan Agreement, as well as Exhibit "B" are
intentionally deleted."
7. In Section 8, subparagraphs (j) through (r) beginning
on page 30 of the Loan Agreement shall be deleted in their
entirety and the following subparagraphs shall be substituted
therefore.
<PAGE>
"(j) Borrower shall maintain at all times its Primary
Capital at a level of no less than seven percent (7%)
of total assets or the minimum level required by
governing regulators, whichever is greater. This
covenant shall be tested quarterly or more often if
requested by Bank.
(k) Regional Savings and Union Bank shall respectively
maintain at all times their capital adequacy
requirements at a level which constitutes a "well
capitalized" status in accordance with the requirements
of governing regulators. This covenant shall be tested
quarterly or more often if requested by Bank.
(l) Borrower shall maintain at all times its ratio of
Underperforming Loans to Total Loans at no greater than
2.0:1. This ratio shall be tested quarterly or more
often if requested by Bank.
(m) Borrower shall maintain at all times a minimum
ratio of Loan Loss Reserves to Total Loans of no less
than 0.9:1. This ratio shall be tested quarterly or
more often if requested by Bank.
Subparagraphs 8(n) through 8(r) are intentionally
deleted."
8. Subsequent to the execution of the Loan Agreement,
Peoples Bank has been merged into Union Bank. Section 4(a) on
page 7 of the Loan Agreement shall be deleted and updated by
substituting the following paragraph:
"(a) One Hundred Seventy-Eight Thousand Seven Hundred
Ninety Three (178,793) shares of the common stock of
Union Bank (the "Union Stock") as evidenced by
Certificate #001, which constitutes 100% of the issued
and outstanding shares of the common stock of Union
Bank pursuant to the Pledge Agreement, dated December
31, 1991."
9. The Pledge Agreement shall also be hereby amended by:
(1) deleting in its entirety subparagraph "(2)" on page 1 of the
Pledge Agreement, which references Certificate #282 evidencing
Sixty-Four Thousand (64,000) shares of Peoples Bank stock and
leave this subparagraph "(2)" intentionally blank; and (2)
deleting in its entirety subparagraph "(1)" on page 1 of the
Pledge Agreement, which references Certificate #10 evidencing One
Hundred Fourteen Thousand Nine Hundred Seventy-Three (114,973)
shares of Union Bank and Trust Company of Greensburg, and
substitute the following paragraph:
"(a) One Hundred Seventy-Eight Thousand and Seven
Hundred Ninety-Three (178,793) shares of common stock
<PAGE>
of Union Bank and Trust Company of Indiana which are
evidenced by Certificate #001;
All references to the "Note" under the Pledge Agreement
shall now refer to the Commercial Note, of even date with the
First Amendment, from Borrower to Bank, in the principal amount
of Four Million Six Hundred Twenty-Five Thousand and No/100
Dollars ($4,625,000.00), and all renewals, extensions, amendments
or replacements thereof, and shall be included within the meaning
of "Liabilities" under the Pledge Agreement.
10. All representations and warranties of the Loan
Agreement are hereby effectively rewarranted and all terms and
conditions which are not hereby amended shall continue to be
valid and in full force and effect.
THIS FIRST AMENDMENT is executed and agreed to by the Bank
and the Borrower, as of the date first written above, and shall
amend, become a part of and be attached to the Loan Agreement.
"BORROWER"
INDIANA UNITED BANCORP
By: /s/ Jay B. Fager
Jay B. Fager
Chief Financial Officer
"BANK"
NATIONAL CITY BANK OF INDIANA
f/k/a Merchants National Bank & Trust
Company of Indianapolis
By: /s/ Rafe L. Boldrick
Rafe L. Boldrick
Senior Vice President
COMMERCIAL NOTE: TIME OR TERM SINGLE ADVANCE/PRIME/LIBOR
Amount City, State Date FOR BANK USE
$4,625,000.00 Indianapolis, September 23, ONLY
Indiana 1997
Obligor#
Tax I.D.#
Obligation#
Office
FOR VALUE RECEIVED, INDIANA UNITED BANCORP, an Indiana
corporation ("Borrower"), having its principal office at 201 N.
Broadway, Greensburg, Indiana 47240 hereby promised to pay to the
order of NATIONAL CITY BANK OF INDIANA ("Bank"), a national
banking association having its banking office at 101 W.
Washington Street, Indianapolis, Indiana 46255, at Bank's banking
office (or at such other place as Bank may from time to time
designate by written notice) in lawful money of the United States
of America, the principal sum of
FOUR MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS
$4,625,000.00
together with interest, all as provided below.
1. Interest. The unpaid principal balance of this Note shall
at all times bear interest at a rate equal to the Contract Rate,
provided, that so long as any principal of or accrued interest on
this Note is overdue, all unpaid principal of this Note and all
overdue interest on that principal (but not interest on overdue
interest) shall bear interest at a fluctuating rate equal to two
percent (2%) per annum above the Prime Rate; provided further,
that in no event shall any principal of or interest on this Note
bear interest at any time after Maturity at a lesser rate than
the rate applicable thereto immediately after Maturity. The
"Contract Rate" shall at all times be a fluctuating rate equal to
fluctuating rate per annum (based upon a 365-day year and actual
days elapsed) equal to one-quarter of one percent (0.25%) below
the Prime Rate. At Borrower's option, all or any portion of the
Loan (in a minimum amount of $500,000 and $100,000 increments
thereafter), may bear interest at a fixed rate per annum (based
upon a 365-day year and actual days elapsed) equal to one and one-
half of one percent (1.5%) above LIBOR, for one (1), two (2),
three (3), six (6) or twelve (12) month interest periods.
Interest on this Note shall be payable in arrears on October 1,
1997, and on the first (1st) day of every third (3rd) month
thereafter, until five (5) years from the date of this Note, and
<PAGE>
on demand thereafter, except that interest on each LIBOR Unit
shall be payable in arrears on the last day of the Contract
Period for that Unit, at Maturity, and on demand thereafter, and
in the case of any Contract Period having a term longer than
ninety (90) days, shall also be payable every three (3) months
after the first day of the Contract Period. The principal
comprising each LIBOR Unit shall, at the end of the Contract
Period for that Unit, become part of the Prime Rate Unit unless
and to the extent that Borrower shall have elected otherwise as
hereinbefore provided. Bank shall be entitled to fund and
maintain its funding of all or any part of any LIBOR Unit in any
manner Bank may from time to time deem advisable, Borrower hereby
acknowledging that all determinations relating to LIBOR Units
shall be made as if Bank had actually funded and maintained each
such Unit by the purchase of deposits in an amount similar to the
amount of that Unit, with a maturity similar to the Contract
Period for that Unit, and bearing interest at LIBOR with respect
to that Unit.
2. Ineffective Elections. Notwithstanding any provision or
inference to the contrary, Bank shall have the right in its
discretion, without notice to Borrower, to deem ineffective
Borrower's election of a Contract Rate if (a) at the time of that
election or on the first day of the Contract Period specified in
Borrower's notice thereof, there shall exist or there would occur
any Event of Default, (b) any representation, warranty, or other
statement (other than any expressly made as of a single date)
made by any Person (other than Bank) in any Related Writing
would, if made either as of the time of that election or as of
the first day of the Contract Period specified in Borrower's
notice thereof, by untrue or incomplete in any respect, (c) after
giving effect to that election, more than one Contract Rate would
be applicable to all or any part of any Unit, (d) Bank shall
determine that any governmental authority has asserted that it is
unlawful for Bank to fund, make, or maintain loans bearing
interest based on LIBOR, (e) after giving effect to that
election, the unpaid principal balance of this Note would, on the
first day of the Contract Period specified in Borrower's notice
of that election, be less than the then aggregate amount of all
LIBOR Units, (f) after giving effect to that election, the
aggregate amount of all principal payments scheduled to become
due at any one time during the Contract Period specified in
Borrower's notice of that election would exceed the amount of the
Prime Rate Unit at that time, or (g) the Contract Period
specified in Borrower's notice of that election would end after
the scheduled due date of the last principal payment under this
Note, giving effect to any prepayments. Moreover, Borrower shall
not be entitled to elect a Contract Rate if Bank shall determine
that (i) dollar deposits of the appropriate amount and maturity
are not available in the market selected by Bank for the purpose
of funding the relevant Unit at LIBOR, (ii) circumstances
affecting the market selected by Bank for the purpose of funding
the relevant Unit make it impracticable for Bank to determine
LIBOR, (iii) LIBOR is unlikely to adequately compensate Bank for
<PAGE>
the cost of making, funding or maintaining the relevant Unit for
the Contract Period specified in Borrower's notice of that
election, or (iv) any governmental authority has asserted that it
is unlawful for Bank to fund, make, or maintain loans bearing
interest based on LIBOR. Bank's books and records shall be
conclusive (absent manifest error) as to whether Bank shall have
deemed any election of a Contract Rate ineffective. Except as
hereinbefore provided, there is no limit to the number of
Contract Rates that may be applicable to the unpaid principal
balance of this Note at any one time.
3. Premium: Ineffective Elections; Governmental Acts. If Bank
shall deem ineffective Borrower's election of any Contract Rate,
then, and in each such case, that election shall be ineffective
and Borrower shall pay to Bank, on Bank's demand, a premium based
on the amount of the Unit specified in Borrower's notice of that
election and computed for the Contract Period specified in that
notice at a rate per annum equal to the excess, if any, of the
Contract Rate so elected over the Reinvestment Rate. If Bank
shall determine that any governmental authority has asserted that
it is unlawful for Bank to fund, make, or maintain loans bearing
interest based on LIBOR, then, and in each such case,
notwithstanding any provision or inference to the contrary, the
principal comprising each then outstanding LIBOR Unit shall, upon
Bank's giving Borrower notice of that determination, be added to
and become part of the Prime Rate Unit, and Borrower shall
concurrently with the addition of that principal to the Prime
Rate Unit, pay to bank (a) the accrued interest on the principal
so added and (b) a premium based on the amount of the principal
so added and computed for the remainder of the Contract Period
therefor, at a rate equal to the excess, if any, of the Contract
Rate theretofore applicable over the Reinvestment Rate.
4. Repayment. Subject to section 7, the principal of this Note
shall be due and payable in ten (10) installments, commencing on
January 1, 1998, with the first installment being in the amount
of One Hundred Twenty-Five Thousand and No/100 Dollars
($125,000.00), and installments thereafter continuing to be due
and payable on the first (1st) day of every July and January
thereafter, with each such installment to be in a principal
amount equal to Five Hundred Thousand and No/100 Dollars
($500,000.00), until five (5) years from the date of this Note,
when the total outstanding balance of all unpaid principal and
interest shall be finally due and payable.
Borrower shall have the right to prepay the principal of this
Note in whole or in part, provided, that (a) each such prepayment
shall be in the principal sum of One Hundred Thousand and No/100
Dollars ($100,000.00) or any integral multiple thereof or an
amount equal to the then aggregate unpaid principal balance of
this Note, (b) each such prepayment shall be applied to the
installments of this Note in the inverse order of their
respective due dates, provided, however, so long as no Event of
Default has occurred and is continuing, and with written notice
<PAGE>
from Borrower to Bank which accompanies payment, Borrower may
elect to have prepaid principal applied to installments of this
Note in the present order of their respective due dates, and (c)
concurrently with the prepayment of the entire unpaid principal
balance of this Note, Borrower shall pay the accrued interest on
the principal being prepaid.
Each prepayment of the principal of this Note may be made without
premium or penalty, provided, that if any LIBOR Unit is paid
(whether by way of a prepayment or a payment following any
acceleration of the due date thereof) in whole or in part before
the last day of the Contract Period for that Unit, then, and in
each such case, Borrower shall, concurrently with the payment,
pay to Bank (i) the accrued interest on the principal being
prepaid and (ii) a premium based on the principal amount paid and
computed for the period from the date of payment to the last day
of the Contract Period for that Unit at a rate per annum equal to
the excess, if any, of the Contract Rate theretofore applicable
over the Reinvestment Rate.
5. Definitions. As used in this Note, except where the
context clearly requires otherwise, "Affiliate" means, when used
with reference to any Person (the "subject"), a Person that is in
control of, under the control of, or under common control with,
the subject, the term "control" meaning the possession, directly
or indirectly, of the power to direct the management or policies
of a Person, whether through the ownership of voting securities,
by contract, or otherwise; "Bank Debt" means, collectively, all
Debt to Bank, whether incurred directly to Bank or acquired by it
by purchase, pledge, or otherwise, and whether participated to or
from Bank in whole or in part; "Banking Day" means any day (other
than any Saturday, Sunday or legal holiday) on which Bank's
banking office is open to the public for carrying on
substantially all of its banking functions; "Banking-Office Time"
means, when used with reference to any time, that time determined
at the location of Bank's banking office; "Contract Period"
means, relative to a Unit, a period selected by Borrower,
provided, that each Contract Period shall commence on a
Eurodollar Banking Day and end one (1) month, two (2) months,
three (3) months, six (6) months or twelve (12) months
thereafter, provided, that (a) if any Contract Period otherwise
would end on a day that is not a Eurodollar Banking Day, it shall
end instead on the next following Eurodollar Banking Day unless
that day falls in another calendar month, in which latter case
the Contract Period shall end instead on the next preceding
Eurodollar Banking day and (b) if any Contract Period commences
on a day for which there is no numerical equivalent in the
calendar month in which that Contract Period is to end, it shall
end on the last Eurodollar Banking Day of that calendar month;
"Debt" means, collectively, all obligations of the Person or
Persons in question, including, without limitation, every such
obligation whether owing by one such Person alone or with one or
more other Persons in a joint, several, or joint and several
capacity, whether now owing or hereafter arising, whether owing
<PAGE>
absolutely or contingently, whether created by lease, loan,
overdraft, guaranty of payment, or other contract, or by quasi-
contract, tort, statute, other operation of law, or otherwise;
"Eurodollar Banking Day" means any Banking Day on which banks in
the London Interbank Market deal in United States dollar deposits
and on which banking institutions are generally open for domestic
and international business at the place where Bank's banking
office is located and in new York City; "LIBOR" means, with
respect to a Unit, the rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%) determined by Bank by
dividing (a) the rate per annum determined by Bank to equal the
average rate per annum at which deposits (denominated in United
States dollars) in an amount similar to that Unit and with a
maturity similar to the Contract Period for that Unit are offered
to Bank at 11:00 A.M. London time (or as soon thereafter as
practicable) two (2) Eurodollar Banking Days prior to the first
day of that Contract Period by banking institutions in any
Eurodollar market selected by Bank by (b) the difference of one
(1) less the Reserve Percentage; "LIBOR Unit" means a Unit for
which the Contract Rate is based on LIBOR; "Maturity" means the
date (whether occurring by lapse of time, acceleration, or
otherwise) upon which the last scheduled principal payment under
this Note is due; "Note" means this promissory note (including,
without limitation, each addendum, allonge, or amendment, if any,
hereto); "Obligor" means any Person who, or any of whose
property, shall at the time in question be obligated in respect
of all or any part of the Bank Debt of Borrower and (in addition
to Borrower) includes, without limitation, co-makers, indorsers,
guarantors, pledgors, hypothecators, mortgagors, and any other
Person who agrees, conditionally or otherwise, to make any loan
to, purchase from, or investment in, any other Obligor or
otherwise, to make any loan to, purchase from, or investment in,
any other Obligor or otherwise assure such other Obligor's
creditors or any of them against loss; "Person" means an
individual or entity of any kind, including, without limitation,
any association, company, cooperative, corporation, partnership,
trust, governmental body, or any other form or kind of entity;
"Prime Rate" means the fluctuating rate per annum which is
publicly announced from time to time by Bank as being it so-
called "prime rate" or "base rate" thereafter in effect, with
each change in the Prime Rate automatically, immediately, and
without notice changing the Prime Rate thereafter applicable
hereunder, it being acknowledged that the Prime Rate is not
necessarily the lowest rate of interest then available from Bank
on fluctuating-rate loans; "Prime Rate Unit" means, at any time,
the then aggregate unpaid principal balance of this Note for
which the Contract Rate is based on the Prime Rate; "Proceeding"
means any assignment for the benefit of creditors, any case in
bankruptcy, any marshalling of any Obligor's assets for the
benefit of creditors, any moratorium on the payment of debts, or
any proceeding under any law relating to conservatorship,
insolvency, liquidation, receivership, trusteeship, or any
similar event, condition, or other thing; "Reinvestment Rate"
means, when used with respect to any period, a per annum rate of
<PAGE>
interest equal to the "bond equivalent yield" for the most
actively traded issues of U.S. Treasury Bills, U.S. Treasury
Notes, or U.S. Treasury Bonds for a term similar to the period in
question; "Related Writing" means this Note and any indenture,
note, guaranty, assignment, mortgage, security agreement,
subordination agreement, notice, financial statement, legal
opinion, certificate, or other writing of any kind pursuant to
which all or any part of the Bank Debt of Borrower is issued,
which evidences or secures all or any part of the Bank Debt of
Borrower, which governs the relative rights and priorities of
Bank and one or more other Persons to payments made by, or the
property of, any Obligor, which is delivered to Bank pursuant to
another such writing, or which is otherwise delivered to Bank
pursuant to another such writing, or which is otherwise delivered
to Bank by or on behalf of any Person (or any employee, officer,
auditor, counsel, or agent of any Person) in respect of or in
connection with all or any part of the Bank Debt of Borrower;
"Reporting Person" means each Obligor and each member of any
"Reporting Group" as defined in any addendum to this Note;
"Reserve Percentage" means the percentage (expressed as a
decimal) which Bank determines to be the maximum (but in any case
less than 1.00) reserve requirement (including, without
limitation, any emergency, marginal, special, or supplemental
reserve requirement) prescribed for so-called "Eurocurrency
liabilities" (or any other category of liabilities that includes
deposits by reference to which the interest rate applicable to
LIBOR Units is determined) under Regulation D (as amended from
time to time) of the Board of Governors of the Federal Reserve
System or under any successor regulation which Bank determines to
be applicable, with each change in such maximum reserve
requirement automatically, immediately, and without notice
changing the interest rate thereafter applicable to each LIBOR
Unit, it being agreed that LIBOR Units shall be deemed
Eurocurrency liabilities subject to such reserve requirements
without the benefit of any credit for proration, exceptions, or
offsets; "Unit" means the aggregate unpaid principal balance of
this Note or any part of that balance; and the foregoing
definitions shall be applicable to the respective plurals of the
foregoing defined terms.
6. Default. A default hereunder shall be defined as it is
under the terms of the Loan Agreement, dated December 31, 1997,
between Borrower and Bank. Upon the occurrence of a default, the
holder of this note may, in its sole discretion, declare this
note to be due and payable, and the principal of and interest on
this note shall thereupon become immediately payable in full,
without any presentment, demand or notice of any kind, which
Borrowers hereby waive. Borrowers will pay to Bank all costs and
expenses of, collection of this note, including, without
limitation attorneys fees.
7. Effects of Default. If any default (other than the
commencement of any Proceeding with respect to Borrower) shall
<PAGE>
occur, then, and in each such case, notwithstanding any provision
or inference to the contrary, Bank shall have the right in its
discretion, by giving written notice to Borrower, to declare this
Note to be due, whereupon the entire unpaid principal balance of
this Note (if not already due) shall immediately become due and
payable in full. If any Proceeding shall be commenced with
respect to Borrower, then, notwithstanding any provision or
inference to the contrary, automatically, without presentment,
protest, or notice of dishonor, all of which are waived by all
makers and all indorsers of this Note, now or hereafter existing,
the entire unpaid principal balance of this Note (if not already
due) shall immediately become due and payable in full.
8. Late Charges. If any principal of or interest on this Note
is not paid within ten (10) days after its due date, then, and in
each such case, Bank shall have the right to assess a late
charge, payable by Borrower on demand, in an amount equal to the
greater of twenty dollars ($20.00) or five percent (5%) of the
amount not timely paid.
9. No Setoff. Borrower hereby waives any and all now existing
or hereafter arising rights to recoup or offset any obligation of
Borrower under or in connection with this Note or any Related
Writing against any claim or right of Borrower against Bank.
10. Indemnity: Governmental Costs. If (a) there shall be
enacted any law (including, without limitation, any change in any
law or in its interpretation or administration and any request by
any governmental authority) relating to any interest rate or any
assessment, reserve, or special deposit requirement (except if
and to the extent utilized in computation of the Reserve
Percentage) against assets held by, deposits in, or loans by Bank
or to any tax (other than any tax on Bank's overall net income)
and (b) in Bank's sole opinion any such event increases the cost
of funding or maintaining any LIBOR Unit or reduces the amount of
any payment to be made to Bank in respect thereof, then, and in
each such case, upon Bank's demand, Borrower shall pay Bank an
amount equal to each such cost increase or reduced payment, as
the case may be. In determining any such amount, Bank may use
reasonable averaging and attribution methods. Each determination
by Bank shall be conclusive absent manifest error.
11. Indemnity: Administration and Enforcement. Borrower will
reimburse Bank, on Bank's demand from time to time, for any and
all fees, costs, and expenses (including, without limitation, the
fees and disbursements of legal counsel) incurred by Bank in
administering this Note or in protecting, enforcing, or
attempting to protect or enforce its rights under this Note. If
any amount (other than any principal of this Note and any
interest and late charges) owing under this Note is not paid when
due, then, and in each such case, Borrower shall pay, on Bank's
demand, interest on that amount from the due date thereof until
<PAGE>
paid in full at a fluctuating rate equal to four percent (4%) per
annum plus the Prime Rate.
12. Waivers; Remedies; Application of Payments. Bank may from
time to time in its discretion grant waivers and consents in
respect of this Note or any other Related Writing or assent to
amendments thereof, but no such waiver, consent, or amendment
shall be binding upon Bank unless set forth in a writing (which
writing shall be narrowly construed) signed by Bank. No course
of dealing in respect of, nor any omission or delay in the
exercise of, any right, power, or privilege by Bank shall operate
as a waiver thereof, nor shall any single or partial exercise
thereof preclude any further or other exercise thereof or of any
other, as each such right, power, or privilege may be exercised
either independently or concurrently with others and as often and
in such order as Bank may deem expedient. Without limiting the
generality of the foregoing, neither Bank's acceptance of one or
more late payments or charges nor Bank's acceptance of interest
on overdue amounts at the respective rates applicable thereto
shall constitute a waiver of any right of Bank. Each right,
power, or privilege specified or referred to in this Note is in
addition to and not in limitation of any other rights, powers,
and privileges that Bank may otherwise have or acquire by
operation of law, by other contract, or otherwise. Bank shall be
entitled to equitable remedies with respect to each breach or
anticipatory repudiation of any provision of this Note, and
Borrower hereby waives any defense which might be asserted to bar
any such equitable remedy. Bank shall have the right to apply
payments in respect of the indebtedness evidenced by this Note
with such allocation to the respective parts thereof and the
respective due dates thereof as Bank in its sole discretion may
from time to time deem advisable.
13. Other Provisions. The provisions of this Note shall bind
Borrower and Borrower's successors and assigns and benefit Bank
and its successors and assigns, including each subsequent holder,
if any, of this Note. Except for Borrower and Bank and their
respective successors and assigns, there are no intended
beneficiaries of this Note or the loan evidenced by this Note.
The provisions of sections 9 through 16, both inclusive, shall
survive the payment in full of the principal of and interest on
this Note. The captions to the sections and subsections of this
Note are inserted for convenience only and shall be ignored in
interpreting the provisions thereof. Each reference to a section
includes a reference to all subsections thereof (i.e., those
having the same character or characters to the left of the
decimal point) except where the context clearly does not so
permit. If any provision in this Note shall be or become illegal
or unenforceable in any case, then that provision shall be deemed
modified in that case so as to be legal and enforceable to the
maximum extent permitted by law while most nearly preserving its
original intent, and in any case the illegality or
unenforceability of that provision shall affect neither that
provision in any other case nor any other provision. All fees,
<PAGE>
interest, and premiums for any given period shall accrue on the
first day thereof but not on the last day thereof (unless the
last day is the first day) and in each case shall be computed on
the basis of a 360-day year and the actual number of days in the
period. In no event shall interest accrue at a higher rate than
the maximum rate, if any, permitted by law. Bank shall have the
right to furnish to its Affiliates, and to such other Persons as
Bank shall deem advisable for the conduct of its business,
information concerning the business, financial condition, and
property of Borrower, the amount of the Bank Debt of Borrower,
and the terms, conditions, and other provisions applicable to the
respective parts thereof. This Note shall be governed by the law
(excluding conflict of laws rules) of the jurisdiction in which
Bank's banking office is located.
14. Integration. This Note and, to the extent consistent with
this Note, the other Related Writings, set forth the entire
agreement of Borrower and Bank as to the subject matter of this
Note, and may not be contradicted by evidence of any agreement or
statement unless made in a writing (which writing shall be
narrowly construed) signed by Bank contemporaneously with or
after the execution and delivery of this Note. Without limiting
the generality of the foregoing, Borrower hereby acknowledges
that Bank has not based, conditioned, or offered to base or
condition the credit hereby evidenced or any charges, fees,
interest rates, or premiums applicable thereto upon Borrower's
agreement to obtain any other credit, property, or service other
than any loan, discount, deposit, or trust service from Bank.
15. Notices and Other Communications. Each notice, demand, or
other communication, whether or not received, shall be deemed to
have been given to Borrower whenever Bank shall have mailed a
writing to that effect by certified or registered mail to
Borrower at Borrower's mailing address (or any other address of
which Borrower shall have given Bank notice after the execution
and delivery of this Note); however, no other method of giving
actual notice to Borrower is hereby precluded. Borrower hereby
irrevocably accepts Borrower's appointment as each Obligor's
agent for the purpose of receiving any notice, demand, or other
communication to be given by Bank to each such Obligor pursuant
to any Related Writing. Bank shall be entitled to assume that
any knowledge possessed by any Obligor other than Borrower is
possessed by Borrower. Each communication to be given to Bank
shall be in writing unless this Note expressly permits that
communication to be made orally, and in any case shall be given
to Bank's Corporate Banking Group at Bank's banking office (or
any other address of which Bank shall have given notice to
Borrower after the execution and delivery of this Note).
Borrower hereby assumes all risk arising out of or in connection
with each oral communication given by Borrower and each
communication given or attempted by Borrower in contravention of
this section. Bank shall be entitled to rely on each
communication believed in good faith by Bank to be genuine.
<PAGE>
16. Jurisdiction and Venue; Waiver of Jury Trial. Any action,
claim, counterclaim, crossclaim, proceeding, or suit, whether at
law or in equity, whether sounding in tort, contract, or
otherwise at any time arising under or in connection with this
Note or any other Related Writing, the administration,
enforcement, or negotiation of this Note or any other Related
Writing, or the performance of any obligation in respect of this
Note or any other Related Writing (each such action, claim,
counterclaim, crossclaim, proceeding, or suit, an "Action") may
be brought in any federal or state court located in the city in
which Bank's banking office is located. Borrower hereby
unconditionally submits to the jurisdiction of any such court
with respect to each such Action and hereby waives any objection
Borrower may now or hereafter have to the venue of any such
Action brought in any such court. Borrower HEREBY, AND EACH
HOLDER OF THIS Note, BY TAKING POSSESSION THEREOF, KNOWINGLY AND
VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY Action.
"BORROWER"
INDIANA UNITED BANCORP
By: /s/ Jay B. Fager
Jay B. Fager
Chief Financial Officer
Bank Officer as Witness:
/s/ Rafe L. Boldrick
Rafe L. Boldrick
Senior Vice President
