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 JUNE 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 June 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 9-22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
<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>
June 30, Dec 31,
1997 1996
<S> <C> <C>
Assets
Cash and due from banks $ 9,043 $ 13,236
Interest-bearing demand deposits 69 60
Federal funds sold 5,800 5,900
Cash and cash equivalents 14,912 19,196
Short-term investments 0 100
Securities available for sale 76,466 81,187
Loans 238,086 219,483
Less: Allowance for loan losses 2,635 2,506
Net loans 235,451 216,977
Premises and equipment 6,138 5,919
Federal Home Loan Bank stock 1,138 1,138
Core deposit intangibles 90 106
Accrued interest receivable 2,060 1,952
Other real estate 25 1,000
Other assets 1,303 771
Total assets $337,583 $328,346
Liabilities
Deposits:
Non-interest bearing $ 33,210 $ 29,001
Interest bearing 251,391 247,401
Total deposits 284,601 276,402
Short-term borrowings 15,884 15,683
Long-term debt 4,625 5,000
Accrued interest payable 1,315 1,272
Other liabilities 2,047 2,240
Total liabilities 308,472 300,597
Shareholders' equity
Preferred stock
Authorized-400,000 shares
Issued and outstanding--0 shares 0 0
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 96 95
Retained earnings 17,087 15,726
Total shareholders' equity 29,111 27,749
Total liabilities and shareholders' equity $337,583 $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 Six months ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $5,170 $4,460 $10,056 $ 8,819
Investment securities:
Taxable 1,216 1,284 2,466 2,512
Tax-exempt 49 48 97 97
Federal funds sold 108 91 145 185
Interest-bearing deposits 1 1 2 9
Total interest income 6,544 5,884 12,766 11,622
Interest expense:
Deposits 2,990 2,660 5,785 5,250
Short-term borrowings 151 151 333 318
Long-term debt 102 110 201 232
Total interest expense 3,243 2,921 6,319 5,800
Net interest income 3,301 2,963 6,447 5,822
Provision for loan losses 80 33 125 60
Net interest income after
provision for loan losses 3,221 2,930 6,322 5,762
Noninterest income:
Securities gains - - 3 -
Other operating income 641 413 1,023 734
Total noninterest income 641 413 1,026 734
Noninterest expense 2,090 2,045 4,104 4,047
Income before income tax 1,772 1,298 3,244 2,449
Income tax expense 703 514 1,283 968
Net income $1,069 $ 784 $ 1,961 $ 1,481
Per common share:
Net income $0.86 $0.61 $1.57 $1.15
Cash dividends declared 0.25 0.20 0.48 0.40
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
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 1,961 1,481
Net change in unrealized gains (losses)
on securities available for sale 1 (777)
Redemption of preferred stock - (1,500)
Cash dividends:
Preferred stock - (42)
Common stock (600) (501)
Balance, June 30 $29,111 $26,906
</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>
Six months ended
June 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,961 $ 1,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 125 60
Depreciation and amortization 358 329
Premiums and discounts amortization
on investment securities 31 55
Accretion of loan and deposit
fair value adjustments 53 46
Amortization and reduction of
core deposit intangibles 16 18
Securities gains (3) -
Net change in
Income receivable (108) (75)
Interest payable 43 (112)
Other adjustments 336 (888)
Net cash provided by operating activities 2,812 914
Cash flows from investing activities:
Net change in short-term investments 91 5,003
Purchases of securities available for sale (2,376) (15,717)
Proceeds from maturities and paydowns
of securities available for sale 6,609 9,039
Proceeds from sales of securities
available for sale 488 -
Net change in loans (18,603) (5,723)
Purchases of premises and equipment (577) (263)
Proceeds from other real estate 975 45
Other investment activities (726) (1,011)
Net cash used by
investing activities (14,119) (8,627)
Cash flows from financing activities:
Net change in:
Noninterest bearing, NOW, money market
and savings deposits 2,840 (3,693)
Certificates of deposit 5,359 14,356
Short-term borrowings (201) (43)
Payments on long-term debt (375) (500)
Redemption of preferred stock - (1,500)
Cash dividends (600) (543)
Net cash provided by financing activities 7,023 8,077
Net decrease in cash and cash equivalents (4,284) 364
Cash and cash equivalents, beginning of period 19,196 18,929
Cash and cash equivalents, end of period $14,912 $19,293
</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 six months ended June 30, 1997 are not
necessarily indicative of those expected for the remainder of the year.
NOTE 2.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for
Sale at June 30, 1997
U.S. Treasury $ 1,002 $ 1 $ 1,001
Federal Agencies 26,258 $337 225 26,370
State and municipal 3,964 49 9 4,004
Corporate and other securities 137 6 131
Mortgage-backed securities 44,935 516 491 44,960
Totals $76,296 $902 $732 $76,466
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for
Sale at December 31, 1996
U.S. Treasury $ 2,006 $ 3 $ 5 $ 2,004
Federal Agencies 24,556 416 148 24,824
State and municipal 4,057 35 17 4,075
Corporate and other securities 244 2 242
Mortgage-backed securities 50,157 489 604 50,042
Totals $81,020 $943 $776 $81,187
</TABLE>
<TABLE>
<CAPTION>
Beyond
Within 1-5 5-10 10
1 Year Years Years Years Totals
<S> <C> <C> <C> <C> <C>
Maturity Distributions
at June 30, 1997
U.S. Treasury $1,001 $ 1,001
Federal Agencies 2,001 $11,833 $12,536 26,370
State and municipal 476 2,319 876 $ 333 4,004
Corporate and
other securities 131 131
Mortgage-backed
securities 340 2,044 4,148 38,428 44,960
Totals $3,818 $16,196 $17,691 $38,761 $76,466
Weighted average yields 5.19% 6.06% 6.94% 6.68% 6.53%
</TABLE>
*Amounts in the table above are based on scheduled maturity or call dates.
<PAGE>
NOTE 3.
<TABLE>
<CAPTION>
June 30 Dec 31
1997 1996
<S> <C> <C>
Loans:
Commercial $ 13,505 $ 7,834
Agricultural production financing
and other loans to farmers 11,049 11,178
Commercial real estate mortgage 26,463 27,691
Residential real estate mortgage 116,209 109,962
Farm real estate 27,647 26,843
Construction and development 5,996 6,589
Consumer 35,712 27,567
Government guaranteed loans purchased 1,505 1,819
Total loans $238,086 $219,483
Underperforming loans:
Nonaccruing loans $ 113 $1,245
Accruing loans contractually past due 90 days
or more as to principal or interest payments 41 5
Allowance for loan losses:
Balances, January 1 $2,506 $2,754
Provision for losses 125 150
Recoveries on loans 129 58
Loans charged off (125) (456)
Balances, end of period $2,635 $2,506
NOTE 4.
Deposits:
Noninterest-bearing demand $ 33,210 $ 29,001
Interest-bearing demand 36,799 36,514
Money market deposit accounts 29,857 31,212
Savings 28,569 28,619
Certificates of deposit $100,000 or more 28,270 32,083
Other certificates and time deposits 127,896 118,973
Total deposits $284,601 $276,402
NOTE 5.
Short-term borrowings:
Federal funds purchased $ 2,450 $ 750
Securities sold under repurchase agreements 11,176 12,989
U.S. Treasury demand notes 2,258 1,944
Total short-term borrowings $15,884 $15,683
</TABLE>
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Item 2. Management's Discussion and Analysis (Table Dollar Amounts in
Thousands)
Indiana United Bancorp ("Company") is a registered bank holding company
incorporated under the laws of Indiana in 1983, commensurate with its
acquisition of Union Bank and Trust Company of Greensburg, Indiana. The
Company acquired The Peoples Bank, Portland, Indiana in 1987, and Regional
Federal Savings Bank, New Albany, Indiana ("Regional Bank") at the end of
1991. Union Bank and Trust Company of Indiana ("Union Bank") was created
by the consolidation of the Greensburg and Portland operations in 1994.
It's history traces back to 1873, and it holds Indiana state banking
charter #1. As of June 30, 1997, Union Bank held assets totaling $222
million and through its nine banking offices, ranked first in market share
in Decatur County and second in Jay County. Regional Bank's assets totaled
$115 million, held by three banking offices in Floyd and Clark counties.
Both subsidiaries offer competitive commercial and consumer loan and
deposit related services. Union Bank also operates general line insurance
agencies in both Decatur and Jay counties and offers a broad range of
personal and business trust services.
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.
Overview
The Company operates under the broad tenets of a long-term strategic plan
("Plan") designed to improve the Company's financial performance, expand
its competitive ability and enhance long-term shareholder value. The Plan
is premised on the belief of the Company's board of directors that the
Company can best promote long-term shareholder interests by pursuing
strategies which will continue to preserve it's community-focused
philosophy.
In conformance with the Plan, the Company initiated actions in 1995
intended to build a stronger customer base in its primary markets. Unlike
many of the large super regional banks, which are closing branches in
record numbers, the Company believes it is important to maintain community
banking centers. The Company invested approximately $500,000 to renovate
Regional Bank's main office, providing direct lobby access of all customer
service and loan personnel, and greatly improving drive-up and electronic
banking services. An additional $500,000 was invested to create two new
branch offices. The Allison Lane branch in Jeffersonville was opened by
Regional Bank to provide greater access to present and prospective
customers in Clark County.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Union Bank opened the IGA supermarket branch in Greensburg, exclusively
providing seven-day banking and extended hours to the community. 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
third 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.
A continuing tenet of the Plan is to establish and cultivate more proactive
relationships with financial analysts and market makers in the Company's
stock. As a result of our relationship-building efforts, Stifel, Nicolaus
& Company, Incorporated, based in St. Louis, Missouri, became a market
maker in Indiana United Bancorp shares in November, 1996, joining current
market makers J.J.B. Hilliard/W.L. Lyons, Inc. and NatCity Investments,
Inc..
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 a financial services industry that is becoming increasingly
dependent upon technology. In 1997, several hundred thousand dollars are
budgeted for 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.
The dynamics of the Plan assure continually evolving goals, and the extent
of the Company's success will depend upon how well it anticipates and
responds to competitive changes within its markets, the interest rate
environment and other external forces.
Proposed Transaction
In May, 1997, the Company signed an agreement in principle to acquire
P.T.C. Bancorp ("PTC"), Brookville, Indiana in a proposed transaction
viewed as a merger of equals. The agreement in principle 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 proposed transaction is subject to the execution of a definitive
agreement, 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 fourth quarter
of 1997, there can be no assurance that the transaction will be completed.
Results of Operations
Earnings for the second quarter of 1997 increased 36% to $1,069,000
compared to the same quarter of 1996. Earnings for the first half of 1997
increased 32% to $1,961,000 compared to the same period in 1996.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest income in 1997 reflects approximately $179,000 of nonrecurring
income. Insurance commissions declined due mainly to lower levels of
profit sharing received from participating companies based on claims
experience. Trust income and service charge income increased over the
prior year period. Non-interest expense reflects reduced Federal Deposit
Insurance Corporation ("FDIC") assessments due to a lower deposit insurance
assessment rate.
Net income per common share for the second quarter equaled $.86 in 1997,
compared to $.61 in 1996. Per share earnings for the first half of 1997
and 1996 were $1.57 and $1.15 respectively.
The Company's return on average total assets for the second quarter was
1.27% in 1997, and 1.01% in 1996. Year-to-date return on average total
assets was 1.19% and 0.96% for 1997 and 1996. Return on average common
shareholders' equity for the second quarter was 15.07% in 1997 and 11.53%
in 1996. Year-to-date return on average shareholders' equity was 14.04%
and 10.96% for 1997 and 1996.
Net Interest Income
Net interest income is influenced by the volume and yield of earning assets
and the cost of interest-bearing liabilities. 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. Second
quarter net interest income of $3,301,000 in 1997 increased 11% from
$2,963,000 in 1996. The first six months of net interest income increased
by $625,000 or 11% over the same period in 1996
Throughout 1996 and into 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 six months of 1997
earnings, even though interest rates have increased slightly since year-end
1996. Although many of the Company's peer group competitors reported flat
or marginally changed net interest margins for the full year 1996, the
Company increased its net interest margin by 23 basis points. In the first
half of 1997, the Company increased its net interest margin to 4.12%, or 14
basis points over the same period last year.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
(Taxable equivalent basis)(1)
Six months ended
June 30, 1997 June 30, 1996
Avg. Yield/ Avg. Yield/
Bal. Interest Rate Bal. Interest Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ 156 $ 2 2.59% $ 371 $ 10 5.42%
Federal funds sold 5,379 146 5.47% 6,922 184 5.35%
Securities(2):
Taxable 76,759 2,466 6.43% 80,952 2,512 6.21%
Tax-exempt 3,960 145 7.32% 3,903 147 7.53%
Total securities 80,719 2,611 6.47% 84,855 2,659 6.27%
Loans(3):
Commercial 69,556 3,334 9.67% 61,532 2,928 9.57%
Real estate mortgage 124,876 5,022 8.04% 119,484 4,757 7.96%
Instalment 32,427 1,638 10.19% 19,247 1,054 11.01%
Govt. guaranteed
loans purchased 1,566 62 7.98% 2,012 80 8.00%
Total loans 228,425 10,056 8.84% 202,275 8,819 8.74%
Total earning assets 314,679 12,815 8.17% 294,423 11,672 7.94%
Allowance for loan losses (2,513) (2,769)
Unrealized losses
on securities (134) (121)
Cash and due from banks 9,786 9,461
Premises and equipment 6,031 5,967
Other assets 4,232 2,698
Total assets $332,081 $309,659
LIABILITIES
Interest-bearing deposits:
Interest-bearing
demand deposits $ 36,923 516 2.82% $ 28,749 345 2.41%
Money market
investment accounts 30,395 553 3.67% 35,354 634 3.61%
Savings 29,268 463 3.19% 29,125 469 3.24%
Certificates of deposit
and other time deposits 160,099 4,253 5.36% 142,762 3,802 5.36%
Total interest-
bearing deposits 256,685 5,785 4.54% 235,990 5,250 4.47%
Short-term borrowings 12,698 333 5.29% 12,324 318 5.19%
Long-term debt 4,997 201 8.11% 5,717 232 8.16%
Total interest-
bearing liabilities 274,380 6,319 4.64% 254,031 5,800 4.59%
Noninterest bearing
demand deposits 25,891 24,381
Other liabilities 3,633 3,445
Total liabilities 203,904 281,857
Shareholders' equity 28,177 27,802
Total liabilities and
shareholders' equity $332,081 6,319 4.05%(4)$309,659 5,800 3.96%(4)
Net interest income $ 6,496 4.12% $ 5,872 3.98%
Adjustment to convert tax
exempt securities and
loans to a fully taxable
equivalent basis using
a marginal rate of 34% $ 49 $ 50
</TABLE>
(1) Adjusted to reflect income related to securities and loans exempt
from Federal income taxes reduced by nondeductible portion on interest
expenses.
(2) Yields for investment securities available for sale are computed
based upon amortized cost.
(3) Nonaccruing loans have been included in the average balances.
(4) Total interest expense divided by total earning assets.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Provision for Loan Losses
This topic is discussed under the heading "Loans, Credit Risk and the
Allowance and Provision for Possible Loan Losses".
Noninterest Income
Noninterest income in the first six months of 1997 exceeded the prior year
period by $292,000 or 40%. Nonrecurring noninterest income of $179,000 was
realized on the sale of real estate acquired in 1996 in lieu of
foreclosure. Security gains of $3,000 were realized in the first half of
1997 compared to no gain or loss for the same period in 1996.
Second quarter noninterest income exceeded the same period last year by
$228,000 and as previously mentioned, was impacted by nonrecurring
noninterest income of $179,000.
Service charges on deposit accounts represent the largest component of the
first six months of 1997 recurring noninterest income, equaling 36% in 1997
and 33% in 1996. Service charges on deposit accounts in the first six
months of 1997 increased by $62,000, or 26%, 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 $39,000 in the first six 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 claims experience, and to an
overall lower level of premiums written. Trust income increased $13,000
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
Six Six
2nd Qtr Months 2nd Qtr Months
<S> <C> <C> <C> <C>
Insurance commissions $126 $ 214 $155 $253
Trust fees 56 113 50 100
Service charges on deposit accounts 157 304 126 242
Gains on sales of securities - - - -
Other income 302 392 82 139
$641 $1,023 $413 $734
</TABLE>
Noninterest Expense
The largest component of noninterest expense is personnel expense.
Personnel expenses increased in the first half of 1997 by $24,000, or 1%.
Improvements in technology implemented in the past 18 months has enabled
the Company to effectively control staffing levels. Normal staff salary
adjustments and increased benefit costs have been incurred in both 1997 and
1996, including amounts accrued in connection with the employee performance
incentive compensation plan. Personnel expenses in 1997 are not expected
to change materially from 1996.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Deposit insurance premiums were $58,000 less in 1997 as 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, but in 1997 has increased to 1.29 cents per $100 of deposits.
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. After
the period ending in 1999, 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
Six Six
2nd Qtr Months 2nd Qtr Months
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,166 $2,284 $1,146 $2,260
Premises and equipment expenses 388 778 377 759
Professional fees 53 106 58 109
Amortization of core
deposit intangibles 8 16 9 18
Deposit insurance/
supervisory assessment 34 69 64 127
Stationery, printing, supplies 91 172 82 149
Insurance 27 52 28 58
Postage 46 95 47 99
Other operating expenses 277 532 234 468
$2,090 $4,104 $2,045 $4,047
</TABLE>
Income Taxes
The effective tax rate for the first six months was 40% for both 1997 and
1996. The Company and its subsidiaries will file consolidated income tax
returns for 1997.
Financial Condition
Total average assets in 1997 increased $22,422,000 over the prior year.
June 30, 1997 total assets increased to $337,583,000 from $328,346,000 at
December 31, 1996.
Total average loans have increased $26,150,000 or 13% and average
instalment loans have increased $13,180,000 or 68% as compared to last
year. Average loans represent approximately 69% of average assets in the
first six months of 1997 compared to 65% in 1996 for the same period.
Management intends to continue it's emphasis on loan growth throughout the
remainder of 1997. Securities maturities and repayments have been used to
fund loan growth in 1997.
Average earning assets represented 95% of average total assets for the
first six months of 1997 and 1996.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Average noninterest-bearing deposits at June 30, 1997 increased 6% in 1997
compared to June 30, 1996. Average interest-bearing deposits increased
$20,695,000 or 9% at June 30, 1997 compared to the same date in 1996.
Average interest-bearing demand deposits increased $8,174,000 since June
30, 1996, primarily due to the success of a new interest-bearing checking
account introduced early in 1996. Average savings accounts have remained
stable since June 30, 1996. Average money market investment accounts
decreased $4,959,000 or 14% as 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
$17,337,000 at June 30, 1997 compared to the prior year.
Long-term debt is primarily the Company's loan for the purchase of Regional
Bank and is secured by the capital stock of the Company's subsidiaries.
Interest adjusts quarterly to the lender's prime rate, less 25 basis
points. The Company believes it has complied with all terms and covenants
of the loan agreement. A principal payment of $375,000 was paid on June
30, 1997 and the balance of the loan is due December 31, 1997. Prior to
that time, the Company intends to negotiate the refinancing of its long-
term borrowing needs.
Shareholders' equity was $29,111,000 on June 30, 1997 compared to
$26,906,000 on June 30, 1996. Book value per common share increased to
$23.27 or 10% from $21.11 at June 30, 1996 The unrealized gain on
securities available for sale, net of taxes, totaled $96,000 or $.07 per
share at June 30, 1997 compared to an unrealized loss of $582,000 or $.47
at June 30, 1996. Excluding the net unrealized gains and losses on
securities available for sale, book value per share was $23.20 at June 30,
1997, or an increase of 8% over the comparable book value at quarter 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.
Loans, Credit Risk and the Allowance and Provision for Possible Loan Losses
Loans remain the Company's largest concentration of assets and continue to
represent the greatest risk. The loan underwriting standards observed by
each of the Company's subsidiaries are viewed by management as a deterrent
to the emergence of an abnormal level of problem loans and a subsequent
increase in net chargeoffs.
The Company's conservative loan underwriting standards have historically
resulted in higher loan quality and lower levels of net chargeoffs than
peer bank averages. The Company also believes credit risks may be elevated
if undue concentrations of loans in specific industry segments and to out
of area borrowers are incurred. Accordingly, the Company's board of
directors regularly monitors such concentrations to determine compliance
with its restrictive loan allocation policy. The Company believes it has
no undue concentrations of loans.
Total loans increased $18,603,000 or 8% 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. Total loans increased $31,009,000 or 15%, since
June 30, 1996 and consumer loans increased $14,386,000 or 67% since that
same date. The Company's emphasis on increasing consumer loans provides
greater diversification within the portfolio and generate higher yields
than residential real estate loans. Although the Company limits its
exposure to long-term, fixed-rate, residential mortgage loans and
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
generally observes 20% minimum downpayment guidelines, it does take
applications for both fixed rate loans and loans with little or no
downpayment for a noncompeting mortgage lender. This program assisted the
Company in serving all segments of the community without incurring
unacceptable levels of credit exposure or interest rate risk. This
activity provides fee income.
The Company regards its ability to identify and correct loan quality
problems as one of its greatest strengths. Loans are placed in a
nonaccruing status when in management's judgment the collateral value
and/or the borrower's financial condition does not justify accruing
interest. As a general rule, commercial and real estate loans are
reclassified to nonaccruing status at or before becoming 90 days past due.
Interest previously recorded but not deemed collectible is reversed and
charged against current income. Subsequent interest payments collected on
nonaccrual loans may thereafter be recognized as interest income or may be
applied as a reduction of the loan balance, as circumstances warrant. Non-
real estate secured consumer loans are not placed in nonaccruing status,
but are charged off when policy-determined delinquent status is reached.
Net recoveries were $4,000 at June 30, 1997 compared to net chargeoffs of
$7,000 on June 30, 1996. As a percentage of average loans, net chargeoffs
(recoveries) equaled less than .01% respectively for June 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 second
quarter of 1997 is not yet available, that trend should continue.
In the second quarter of 1997, a single piece of foreclosed real estate
held by the Company since December 1996 was sold for a gain of $179,000.
Management maintains a listing of loans warranting either the assignment of
a specific reserve amount or other special administrative attention. This
listing, together with a listing of all classified loans, nonaccrual loans
and loans delinquent 30 days or more, is reviewed monthly by the board of
directors of each subsidiary.
The ability to absorb loan losses promptly when problems are identified is
invaluable to a banking organization. Most often, losses incurred as a
result of prompt, aggressive collection actions are much lower than losses
incurred after prolonged legal proceedings. Accordingly, the Company
observes the practice of quickly initiating stringent collection efforts in
the early stages of loan delinquency.
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 June 30, 1997, is considered adequate by management.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
<TABLE>
<CAPTION>
Summary of Allowance for Loan Losses
(Dollars in thousands)
1997 Year ended
thru December 31,
June 30 1996
<S> <C> <C>
Balance at beginning of period $2,506 $2,754
Chargeoffs:
Commercial 17 352
Real-estate mortgage 30 -
Consumer 78 104
Total chargeoffs 125 456
Recoveries:
Commercial 2 33
Real-estate mortgage 94 1
Consumer 33 24
Total recoveries 129 58
Net chargeoffs (recoveries) (4) 398
Provision for loan losses 125 150
Balance at end of period $2,635 $2,506
Ratio of net chargeoffs to average loans
outstanding during the period N/A .19%
Ratio of provision for loan losses to average
loans outstanding during the period .05% .07%
Ratio of allowance to total loans at
end of period 1.11% 1.14%
</TABLE>
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
(Dollars in thousands)
June 30, 1997 December 31, 1996
% of loans % of loans
in category in category
Amount to total loans Amount to total loans
<S> <C> <C> <C> <C>
Real estate:
Residential $ 135 49% $ 144 50%
Farm real estate 14 12 13 12
Commercial 285 11 313 13
Construction and development 63 2 71 3
Total real estate 497 74 541 78
Commercial:
Agribusiness 148 5 151 5
Other commercial 208 6 203 4
Total commercial 356 11 354 9
Consumer 286 15 207 13
Unallocated 1,496 - 1,404 -
Total $2,635 100% $2,506 100%
</TABLE>
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
The allocation presented in the preceding table is based primarily on
previous credit loss experience, adjusted for changes in the risk
characteristics of each category. Additional amounts are allocated based
on an evaluation of the loss potential of individual troubled loans and the
anticipated effect of economic conditions on both individual loans and loan
categories. Because the allocation is based on estimates and subjective
judgment, it is not necessarily indicative of the specific amounts or loan
categories in which losses may ultimately occur.
Investment Securities
Investment securities offer flexibility in the Company's management of
interest rate risk, and is the primary means by which the Company provides
liquidity and responds to changing maturity characteristics of assets and
liabilities. 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 $96,000 was recorded to
adjust the AFS portfolio to current market value at June 30, 1997, compared
to a net unrealized loss of $582,000 at June 30, 1996.
At June 30, 1997, the tax equivalent yield of the investment securities
portfolio was 6.53%, representing an increase from 6.36% at June 30, 1996.
Variable rate securities comprised 49% of the total portfolio on June 30,
1997 compared to 48% on June 30, 1996. The weighted average repriceable
life of the portfolio at quarter end was 2.20 years in 1997 compared to
2.00 years in 1996.
Sources of Funds
The Company relies primarily on customer deposits and securities sold under
repurchase agreements, along with shareholders' equity to fund earning
assets. On an infrequent basis, Federal Home Loan Bank ("FHLB") advances
are used to provide additional 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 June 30, 1997 and 1996 respectively. Total interest-
bearing deposits averaged 91% of average total deposits at June 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.
Securities sold under repurchase agreements ("repos") are high denomination
investments utilized by public entities and commercial customers as an
element of their cash management responsibilities. Repos are not subject
to FDIC assessment so they are less costly than large certificates of
deposit. With the reduction in the FDIC assessment, repos do not offer as
much cost advantage as previously experienced. Management is utilizing
large denomination certificates of deposit to replace a portion of customer
funds previously invested in repos.
Average short-term borrowings increased 3% at June 30, 1997 compared to
June 30, 1996.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
On June 30, 1997 a $375,000 principal payment on long-term debt was made
and on December 31, 1997, the remaining balance is due. Prior to that
time, the Company intends to negotiate the refinancing of its long-term
borrowing needs.
Capital Resources
Common shareholders' equity increased $2,705,000 to $29,111,000 at June 30,
1997 as compared to June 30, 1996. Total shareholders' equity increased by
$2,205,000 after the redemption of $1,500,000 of preferred stock in 1996.
All of the preferred shares have now been redeemed.
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 June 30, 1997, tier 1 capital to total assets was 8.50%. Total
capital to risk-adjusted assets was 14.73%. 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.
Shareholders' equity is impacted by the Company's decision to categorize
its entire securities portfolio as AFS under accounting rules adopted
January 1, 1994. Securities in this category are carried at fair value,
and shareholders' equity is adjusted to reflect unrealized gains and
losses, net of taxes.
The Company declared and paid common dividends of $.25 per share in the
second quarter of 1997 and $.20 for the same quarter in 1996. Common
dividends declared and paid year-to-date total $.48 and $.40 per share
respectively for 1997 and 1996. Book value per common share increased to
$23.27 from $21.11 in 1996. The net adjustment for AFS securities
increased book value by $.07 at June 30, 1997 and decreased book value by
$.47 at June 30, 1996. Depending on market conditions, the adjustment for
AFS securities can cause significant fluctuations in equity. The dividend
payment rate on preferred stock was 6.34% in 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 $72,648,000 of AFS securities maturing after
one year which can be sold to meet liquidity needs.
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 can 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
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
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 June 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 June 30, 1997 the Company held approximately $174,911,000 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 June 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 be kept within a
range of 80% to 130%.
The Company will seek to attain a more neutral gap position in 1997 based
upon its the belief that the current interest rate environment will remain
relatively stable throughout 1997. In any event, the Company does not
anticipate that its earnings will be materially impacted in 1997,
regardless of the direction interest rates may trend.
<TABLE>
<CAPTION>
Rate Sensitivity Analysis at June 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 $ 92,396 $ 82,515 $ 40,752 $ 40,211
Rate-sensitive liabilities 101,779 95,881 48,934 22,238
Rate sensitivity gap (assets
less liabilities) $ (9,383) $(13,366) $( 8,182) $ 17,973
Rate sensitivity gap
(cumulative) $ ( 9,383) $(22,749) $(30,931) $(25,958)
Percent of total assets
(cumulative) (2.8%) (6.7%) (9.2%) (3.8%)
Rate-sensitive assets/
liabilities (cumulative) 90.8% 88.5% 87.5% 95.2%
</TABLE>
*Interest-bearing transaction and savings accounts are not presented as
immediately repriceable in the above table.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
Effects of Changing Prices
The Company's asset and liability structure is substantially different from
that of an industrial company in that most of its assets and liabilities
are monetary in nature. Management believes the impact of inflation on
financial results depends upon the Company's ability to react to changes in
interest rates and, by such reaction, reduce the inflationary impact on
performance. Interest rates do not necessarily move in the same direction
at the same time, or at the same magnitude, as the prices of other goods
and services. As discussed previously, management relies on its ability to
manage the relationship between interest-sensitive assets and liabilities
to protect against wide interest rate fluctuations, including those
resulting from inflation.
Accounting Changes
Statement of Financial Accounting Standard ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are considered secured
borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over
transferred assets only if certain conditions are met.
This statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes
implementation guidance for assessing isolation of transferred assets and
for accounting for transfers of many specific types of transactions.
Except as amended by SFAS No. 127, this statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. Earlier or retroactive application is not permitted. SFAS
No. 127 defers for one year the effective date (a) of paragraph 15 of SFAS
No. 125 and (b) for repurchase agreement, dollar-roll, securities lending,
and similar transactions, of paragraphs 9-12 and 237(b) of SFAS No. 125.
SFAS No. 127 provides additional guidance on the types of transactions for
which the effective date of SFAS No. 125 has been deferred. It also
requires that if it is not possible to determine whether a transfer
occurring during calendar-year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-
12 of SFAS No. 125 should be applied to that transfer.
Management does not expect adoption of these statements to have any
material effect on 1997 financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
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.
<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.
20: Report to Shareholders - Second Quarter, 1997 and furnished to
Registrant's shareholders is attached to this Form 10-Q.
27: Financial Data Schedule (electronic filing only)
b) The Company filed a Form 8-K as of June 2, 1997, disclosing a proposed
transaction whereby the Company would acquire all of the outstanding stock
of P.T.C. Bancorp in Brookville, Indiana in a transaction viewed as a
merger of equals.
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
August 11, 1997 By: /s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
August 11, 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
20 Report to Shareholders - Second Quarter, 1997 and 26-27
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>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 9,043 0
<INT-BEARING-DEPOSITS> 69 0
<FED-FUNDS-SOLD> 5,800 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 76,296 0
<INVESTMENTS-MARKET> 76,466 0
<LOANS> 238,086 0
<ALLOWANCE> 2,635 0
<TOTAL-ASSETS> 337,583 0
<DEPOSITS> 284,601 0
<SHORT-TERM> 15,884 0
<LIABILITIES-OTHER> 3,362 0
<LONG-TERM> 4,625 0
0 0
0 0
<COMMON> 1,251 0
<OTHER-SE> 27,860 0
<TOTAL-LIABILITIES-AND-EQUITY> 337,583 0
<INTEREST-LOAN> 10,056 5,170
<INTEREST-INVEST> 2,563 1,265
<INTEREST-OTHER> 147 109
<INTEREST-TOTAL> 12,766 6,544
<INTEREST-DEPOSIT> 5,785 2,990
<INTEREST-EXPENSE> 6,319 3,243
<INTEREST-INCOME-NET> 6,447 3,301
<LOAN-LOSSES> 125 80
<SECURITIES-GAINS> 3 0
<EXPENSE-OTHER> 4,104 2,090
<INCOME-PRETAX> 3,244 1,772
<INCOME-PRE-EXTRAORDINARY> 3,244 1,772
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,961 1,069
<EPS-PRIMARY> 1.57 .86
<EPS-DILUTED> 1.57 .86
<YIELD-ACTUAL> 8.17 0
<LOANS-NON> 113 0
<LOANS-PAST> 41 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,506 0
<CHARGE-OFFS> 125 0
<RECOVERIES> 129 0
<ALLOWANCE-CLOSE> 2,635 0
<ALLOWANCE-DOMESTIC> 1,139 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,496 0
</TABLE>
Report to Shareholders - Second Quarter, 1997
The most significant event occurring during the second quarter was our
joint announcement with P.T.C. Bancorp in Brookville, Indiana, that we
had agreed in principle to merge our two community-based banking
organizations. Both parties view the proposed transaction as a merger
of equals with the consolidated company retaining the name of Indiana
United Bancorp and its Greensburg headquarters. The transaction, which
is subject to regulatory approval, the execution of a definitive merger
agreement, and the approval of each organization's shareholders, is
expected to be completed by year end.
I will remain as CEO and will retain the title of Chairman of the Board.
Jim Saner, who is currently the CEO of P.T.C. Bancorp, will become
President and Chief Operating Officer of the consolidated company. Each
subsidiary will continue to operate with its present management and each
bank will retain its name and charter.
When completed, Indiana United is expected to have assets approaching
$650 million and market capitalization in excess of $90 million. We
expect the merger will add to earnings per share, beginning in the first
quarter of 1998. We believe this merger will enhance shareholder value,
provide additional capital and management to invest in our communities,
and expand career opportunities for our employees.
Net income in the second quarter totaled $1,069,566, which was $285,401,
or 36.4% above the second quarter of 1996, and $177,733, or 19.9% above
the first quarter of 1997. Earnings per share of $.86 were 41.0% higher
than the prior year period, and surpassed first quarter results by
21.1%.
For the six months ended June 30, 1997, net income of $1,961,399 was
32.4% above first half, 1996. On a per share basis, six months earnings
totaled $1.57, surpassing the first six months of 1996 by 36.5%.
This very strong increase in earnings has been fueled by loan growth of
$31 million over the last twelve months. During this period, commercial
loans grew 20.6% and consumer loans grew 71.7%, significantly reducing
our dependency on lower yielding residential mortgage loans. Loans now
represent 83.6% of deposits, compared to 75.8% a year ago.
Earnings were also favorably impacted by the sale of real estate
acquired in 1996 in lieu of foreclosure. The gain of nearly $180,000 on
this property elevated earnings by $.09 per share. Excluding this gain,
per share earnings in the second quarter were $.77, or 26.2% ahead of
the similar 1996 period.
Loan quality is excellent. Underperforming loans represent only 0.05%
of total loans and our reserve for possible loan losses is more than 23
times greater than total underperforming loans. These ratios suggest
our loan quality is among the very best of all banks throughout the
country.
We are very pleased with the continued strong trend of performance
improvement of Indiana United and expect this trend to carry into 1998
and beyond. We also believe additional growth opportunities exist.
Over the next several months, we expect not only to aggressively pursue
branch expansion, but will seek to forge additional mergers to create
even greater shareholder value.
On behalf of our entire staff, thank you for believing in our vision of
the future. We sincerely appreciate your continued confidence and
support.
/s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - Second Quarter 1997
Three Months Ended
June 30
Percent
EARNINGS 1997 1996 Change
<S> <C> <C> <C>
Net Income $1,069,566 $784,165 36.4
Net Income Per Share 0.86 0.61 41.0
Dividends Paid Per Share 0.25 0.20 25.0
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
<S> <C> <C> <C>
Net Income $1,961,399 $1,481,049 32.4
Net Income Per Share 1.57 1.15 36.5
Dividends Paid Per Share 0.48 0.40 20.0
</TABLE>
<TABLE>
<CAPTION>
As of June 30
BALANCE SHEET (In Thousands) 1997 1996
<S> <C> <C> <C>
Total Assets $337,583 $321,129 15.1
Total Loans 238,086 207,077 15.0
Total Deposits 284,601 273,009 4.2
Total Common Equity 29,111 26,906 8.2
</TABLE>
<TABLE>
<CAPTION>
As of June 30
SHARE DATA 1997 1996
<S> <C> <C> <C>
Shares Outstanding 1,250,897 1,250,898
Book Value $23.27 $21.11 10.2
Closing Market Price $38.00 $24.50 55.1
Market/Book Ratio 1.63% 1.16%
Price/Earnings Ratio 13.0x 10.7x
</TABLE>
(*Trailing twelve months, excluding non-recurring items.)
GRAPHS
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
Return on Average Common Equity(%) 1995 9.21
1996 10.96
1997 14.04
Return on Average Assets(%) 1995 0.76
1996 0.96
1997 1.19
Net Interest Margin(%) 1995 3.71
1996 3.98
1997 4.12
Efficiency Ratio(%) 1995 69.17
1996 61.73
1997 54.94
</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.
