SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 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 (I.R.S. Employer
incorporation or organization) Identification No.)
201 North Broadway
Greensburg, Indiana 47240
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (812) 663-4711
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common shares, no-par value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate market value (not necessarily a reliable indication of the price
at which more than a limited number of shares would trade) of the voting stock
held by non-affiliates of the registrant was $25,678,500 as of March 20, 1997.
As of March 20, 1997, there were outstanding 1,250,897 common shares, without
par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
1996 Annual Report to Shareholders Part II (Items 5 through 8)
Definitive Proxy Statement fo
Annual Meeting of Shareholders
to be held May 20, 1997 Part III (Items 10 through 13)
EXHIBIT INDEX: Page 9
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FORM 10-K TABLE OF CONTENTS
Page
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Part I
Item 1 - Business 3
Item 2 - Properties 6
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of
Security Holders 6
Part II
Item 5 - Market For the Registrant's Common
Equity and related Stockholder
Matters 6
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Item 8 - Financial Statements and
Supplementary Data 7
Item 9 - Disagreements on Accounting and
Financial Disclosure 7
Part III
Item 10 - Directors and Executive Officers
of the Registrant (See below)
Item 11 - Executive Compensation (See below)
Item 12 - Security Ownership of Certain
Beneficial Owners and
Management (See below)
Item 13 - Certain Relationships and
Related Transactions (See below)
Part IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K 8
Signatures 10
</TABLE>
Pursuant to General Instruction G, the information called for by Items 10,
11, 12 and 13 is omitted by Indiana United Bancorp since Indiana United
Bancorp will file with the Commission a definitive proxy statement pursuant
to regulation 14A not later than 120 days after the close of the fiscal year
containing the information required by Items 10, 11, 12 and 13.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Indiana United Bancorp ("Company") was initially formed in Owensboro, Kentucky,
in 1982 as First Commonwealth Bancorp. The Company reincorporated under the
laws of the State of Indiana under its present name in 1983, and relocated in
Greensburg, Indiana, in anticipation of acquiring Union Bank and Trust Company
of Greensburg. In 1987, Peoples Bank in Portland, Indiana was acquired and as
of December 31, 1991, Regional Federal Savings Bank, New Albany, Indiana
("Regional Bank") was acquired. Effective July 1, 1994, the Company merged
Union Bank and Trust Company of Greensburg into Peoples Bank, Portland, and
renamed the combined bank, Union Bank and Trust Company of Indiana ("Union
Bank"). Through these subsidiaries ("Banks"), the Company operates twelve
offices with 143 full-time equivalent employees in eastern and southern Indiana.
As of December 31, 1996, the Company had consolidated assets of $328 million,
consolidated deposits of $276 million and shareholders' equity of $28 million.
Through its subsidiaries, the Company offers a broad range of financial
services, including: accepting time and transaction deposits; making consumer,
commercial, agri-business and real estate mortgage loans; issuing credit
cards; renting safe deposit facilities; providing general agency personal and
business insurance services; providing personal and corporate trust services;
and providing other corporate services such as payroll processing, letters of
credit and repurchase agreements.
Currently, national retailing and manufacturing subsidiaries, brokerage and
insurance firms, and credit unions are fierce competitors within the financial
services industry. The relaxation of regulatory constraints as to geographic
expansion has also intensified competition among more traditional providers of
banking services. The permissibility of banks and bank holding companies to
acquire thrift institutions will undoubtedly further redefine the competitive
marketplace.
The Company's subsidiaries are located in non-metropolitan areas and their
business is centered in loans and deposits generated within markets considered
to be largely rural in nature. In addition to competing vigorously with other
banks, thrift institutions, credit unions and finance companies located within
their service areas, they also compete, directly and indirectly, with all
providers of financial services.
Employees
As of December 31, 1996, the Company and its subsidiaries had approximately
143 full-time equivalent employees to whom it provides a variety of benefits
and with whom it enjoys excellent relations.
Regulation and Supervision of the Company
The Company is a bank holding company ("BHC") within the meaning of the Bank
Holding Company Act of 1956, as amended ("BHCA"). This Act subjects BHCs to
regulations of the Federal Reserve Board ("FRB") and restricts the business
of BHCs to banking and related activities. In addition, Indiana United is a
nondiversified unitary savings and loan holding company subject to regulations,
examinations, supervision and reporting requirements of the Office of Thrift
Supervision ("OTS").
Under the BHCA, a BHC is, with limited exceptions, prohibited from acquiring
direct or indirect ownership or control of voting stock of any company which
is not a bank or engaging in any activity other than managing or controlling
banks. A BHC may, however, own shares of a company engaged in activities which
the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
<PAGE>
Acquisitions by the Company of banks and savings associations are subject to
federal and state regulation. Any acquisition by the Company of more than
five percent of the voting stock of any bank requires prior approval of the
FRB. Acquisition of savings associations is also subject to the approval of
the OTS.
Indiana law permits BHCs to acquire BHCs and banks out of state on a
reciprocal basis, subject to certain limitations. Under current law, the
Company may acquire banks, and may be acquired by BHCs, located in any state
in the United States which permits reciprocal entry by Indiana BHCs. Under
the BHCA, BHCs may acquire savings associations without geographic restrictions.
A BHC and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with the extension of credit, lease or sale of
property, or the provision of any property or service.
The Company is under the jurisdiction of the Securities and Exchange
Commission ("SEC) and state securities commission for matters relating to the
offering and sale of its securities. The Company is subject to the SEC's
rules and regulations relating to periodic reporting, reporting to shareholders,
proxy solicitation and insider trading.
The Company's income is principally derived from dividends paid on the common
stock of its subsidiaries. The payment of these dividends is subject to certain
regulatory restrictions.
Under FRB policy, the Company is expected to act as a source of financial
strength to, and commit resources to support, its affiliates. As a result of
such policy, the Company may be required to commit resources to its affiliate
banks in circumstances where it might not otherwise do so.
Regulation and Supervision of the Subsidiary Banks
Union Bank is supervised, regulated and examined by the Indiana Department of
Financial Institutions ("DFI") and the Federal Deposit Insurance Corporation
("FDIC"). Regional Bank is supervised, regulated and examined by the OTS. A
cease-and-desist order may be issued against the banks, if the respective
agency finds that the activities of the bank represents an unsafe and unsound
banking practice or violation of law.
The deposits of Union Bank are insured by the Bank Insurance Fund ("BIF") of
the FDIC. The deposits of Regional Bank are insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC. The FDIC has the authority to change
premiums twice per year. Commencing in 1997 through 1999, thrift institutions
will pay approximately five times higher assessment rates than commercial banks
(6.44 cents versus 1.29 cents per $100). After the three year period, BIF and
SAIF-insured institutions will pay the same assessment rate of 2.43 cents per
$100 of deposits. Based on Current deposit levels, Union Bank deposit insurance
expense will increase approximately $22,000 and Regional Bank will save
approximately $155,000 compared to the assessment rates paid in 1996 as a
result of these changes.
Branching by banks in Indiana is subject to the jurisdiction, and requires
the prior approval, of the bank's or savings bank's primary federal regulatory
authority and, if the branching bank is a state bank, of the DFI. Under
Indiana law, the banks may branch anywhere in the state.
The Company is a legal entity separate and distinct from its subsidiary Banks.
There are various legal limitations on the extent to which the Banks can supply
funds to the Company. The principal source of the Company's funds consists of
dividends from its subsidiary Banks. State and Federal law restrict the amount
of dividends which may be paid by banks and savings banks. In addition, the
Banks are subject to certain restrictions on extensions of credit to the
Company, on investments in the stock or other securities of the Company and
in taking such stock or securities as collateral for loans.
<PAGE>
Legislation
The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA") represented
a comprehensive and fundamental change to banking supervision and mandates the
development of additional regulations governing almost every aspect of the
operations, management and supervision of banks and BHCs.
FDICIA also included several supervisory reforms related to the frequency of
regulatory examinations and audit requirements. FDICIA also required the
adoption of safety and soundness standards on matters such as loan underwriting
and documentation, and compensation and other employee benefits; mandated
consumer protection disclosures with respect to deposit accounts; and the
establishment of a risk-based deposit insurance system. To date, many of the
provisions of FDICIA have been implemented.
FDICIA requires banking regulators to take prompt corrective actions with
respect to depository institutions that fall below certain capital levels and
prohibit any depository institution from making a capital distribution that
would cause it to be considered undercapitalized. Banking regulators were
also required to revise their capital standards to take into account interest
rate risk. A policy statement has been proposed providing a supervisory
framework to measure and monitor interest rate risk at individual banks.
Banks may use an internal model which provides a measure of the change in a
bank's economic value. The results of the supervisory and internal models
would be one factor regulators will consider in their assessment of capital
adequacy. Other factors will also be considered.
Certain regulations define relevant capital measures for five capital
categories. A "well capitalized" institution is one that has a total risk-
based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at
least 8%, a leverage ratio of at least 5% and is not subject to regulatory
direction to maintain a specific level for any capital measure. An "adequately
capitalized" institution is one that has ratios greater than 8%, 4% and 4%. An
institution is "undercapitalized" if its respective ratios are less than 8%,
4% and 4%. "Significantly undercapitalized" institutions have ratios of less
than 6%, 3% and 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity to total assets that
is 2% or less. Institutions with capital ratios at levels of "undercapitalized"
or lower are subject to various limitations which, in most situations, will
reduce the competitiveness of the institution.
The Riegle Community Development and Regulatory Improvement Act of 1994 ("Act")
was signed into law in 1994. The Act contains seven titles pertaining to
community development and home ownership protection, small business capital
formation, paperwork reduction and regulatory improvement, money laundering
and flood insurance. No regulations have yet been approved.
In September, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Branching Act") was enacted. In general, the
Branching Act permits BHCs that are adequately capitalized and adequately
managed to acquire banks located in any other state after September 1995,
subject to certain total deposit limitations. The Branching Act permits full
interstate branching after June 1, 1997. States may elect to prohibit
interstate branching and merger transactions if they enact legislation before
June 1, 1997 that applies equally to all out-of-state banks and expressly
prohibits mergers involving out-of-state banks.
The monetary policies of regulatory authorities have a significant effect on
the operating results of banks and BHCs. The nature of future monetary
policies and the effect of such policies on the future business and earnings
of the Company and its subsidiaries cannot be predicted.
The Deposit Insurance Funds Act was enacted in 1996 and contained several
major provisions. The new law recapitalized the SAIF by a one-time
assessment on all SAIF-insured deposits. For 1997 through 1999 the banking
industry will help pay for the Financing Corp. ("FICO") bond interest payments
at an assessment rate that is one-fifth the rate paid by thrifts. Beginning
January 1, 2000, the FICO interest payments will be paid pro-rata by banks and
thrifts. Deposit shifting is prohibited for three years and the $2,000 annual
minimum deposit insurance assessment were repealed. The BIF and SAIF will be
merged on January 1, 1999 providing a law is passed by that date merging the
bank and thrift charters. In addition, there were more than forty regulatory
relief provisions in this bill.
<PAGE>
Capital Requirements
The Company and its subsidiary Banks must meet certain minimum capital
requirements mandated by the FRB, FDIC, OTS and DFI. These regulatory
agencies require BHCs and banks to maintain certain minimum ratios of primary
capital to total assets and total capital to total assets. The FRB requires
BHCN to maintain a minimum Tier 1 leverage ratio to 3 percent capital to total
assets; however, for all but the most highly rated institutions which do not
anticipate significant growth, the minimum Tier 1 leverage ratio is 3 percent
plus an additional cushion of 100 to 200 basis points. As of December 31,
1996, the Company's leverage ratio of capital to total assets was 8.33 percent.
The FRB, OTS and FDIC each have approved the imposition of "risk-adjusted"
capital ratios on BHCs and financial institutions. The Company and its
subsidiaries had capital to assets ratios and risk-adjusted capital ratios at
December 31, 1996, in excess of the applicable regulatory minimum requirements.
ITEM 2. PROPERTIES.
Indiana United Bancorp owns no physical properties and has no need for space
other than is available at the offices of its subsidiaries. Its subsidiaries
own, free of encumbrances, all of the facilities from which they conduct
business, except for a portion of the land upon which the Union Bank has
constructed its principal office and drive-in facility in Portland, which is
under long term lease arrangements and the IGA supermarket branch in Greensburg.
The Company is considering relocating certain Union Bank branches and intends
to relocate the Grantline Branch of Regional Bank. Relocating the Grantline
Branch and the possibility of relocating certain Union Bank branches is
intended to increase visibility, enhance drive-thru banking and ATM
accessibility and improve ingress and egress. The Company has 12 locations
of which Union Bank has 9 locations and Regional Bank has 3 locations. At
December 31, 1996, the Company had $5,919,000 invested in premises and
equipment.
ITEM 3. LEGAL PROCEEDINGS.
The subsidiaries may be parties (both plaintiff and defendant) to ordinary
litigation incidental to the conduct of business. Management is presently not
aware of any such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required under this item is incorporated by reference to the
inside back cover of the Company's Annual Report to Shareholders, Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
The information required under this item is incorporated by reference to
page 4 of the Company's Annual Report to Shareholders, Exhibit 13.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required under this item is incorporated by reference to
pages 4 through 16 of the Company's Annual Report to Shareholders, Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
The financial statements and supplementary data required under this item are
incorporated herein by reference to pages 17 through 27 of the Company's
Annual Report to Shareholders, Exhibit 13.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
In connection with its audits for the two most recent fiscal years ended
December 31, 1996, there have been no disagreements (as defined in Item 4(b)
of Form 8-K) with the Company's independent certified public accountants on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
<PAGE>
PART IV
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ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Annual Report Form 10-K
Page Number Page Number
<S> <C> <C>
(a)1. Financial statements
Indiana United Bancorp and Subsidiary
Independent auditor's report 17 28
Consolidated balance sheet
at December 31, 1996 and 1995 18 29
Consolidated statement of income,
years ended December 31, 1996,
1995 and 1994 19 30
Consolidated statement of cash flows,
years ended December 31, 1996, 1995
and 1994 20 31
Consolidated statement of changes in
shareholders' equity, years ended
December 31, 1996, 1995 and 1994 21 32
Notes to consolidated financial 21-27 32-38
financial statements 21-27 32-38
(a)2. Financial statement schedules
All schedules are omitted because they
are not applicable or not required, or
because the required information is
included in the consolidated financial
statements or related notes.
(a)3. Exhibits:
3.1 Articles of Incorporation
(incorporated by reference to
Registrant's Registration
Statement on Form S-1
(Registration No. 33-06334),
filed June 16, 1986, Exhibit 3.1),
as amended by Articles of
Incorporation and that certain
Statement of Designation of
Rights and Preferences of Series
M-1987 Preferred Shares of Registrant
(incorporated by reference to the
Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1987, Exhibit 3(c) and
Exhibit 3(d), Commission File No.0-
12422)
3.2 Bylaws of the Registrant
(incorporated by reference to
the Registrant's annual Report on
Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 3.2,
Commission File No. 0-12422)
10.1 Loan Agreement dated
December 31, 1991 between
Registrant and Merchants National
Bank and Trust Company,
Indianapolis, Indiana
(incorporated by reference to
the Registrants' Annual Report on
Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 10.1,
Commission File No. 0-12422)
10.2 Employment Agreement dated as of
July 1, 1989 between Registrant's
subsidiary, Regional Federal
Savings Bank, and director and
executive officer Robert E. Kleehamer,
as amended by that Amendment to
Employment Agreement dated as of
September 19, 1991 (incorporated by
reference to the Registrant's
Annual Report on Form 10-K for
the fiscal year ended December 31,
1991, Exhibit 10.2, Commission File
No. 0-12422)
13 1996 Annual Report to Shareholders
(except for the pages and information
thereof expressly incorporated by
reference in this Form 10-K, the
Annual Report to Shareholders is
provided solely for the information
of the Securities and Exchange
Commission and is not deemed
"filed" as part of this Form 10-K) 10-41
21 List of subsidiaries of the Registrant 42
23 Consent of Geo. S. Olive & Co. LLC 43
27 Financial Data Schedule 44
(b) Reports on Form 8-K
No reports on Form 8-K were filed for
the three months ended December 31, 1996
</TABLE>
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1997.
INDIANA UNITED BANCORP
By /s/ Robert E. Hoptry
Robert E. Hoptry, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of
the registrant and in the capacities with the Company and on the dates
indicated.
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<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ William G. Barron Director March 26, 1997
William G. Barron
/s/ Jay B. Fager Treasurer March 26, 1997
Jay B. Fager [Chief Financial
Officer]
/s/ Philip A. Frantz Director March 26, 1997
Philip A. Frantz
/s/ Glenn D. Higdon Director March 26, 1997
Glenn D. Higdon
/s/ Robert E. Hoptry Chairman of the March 26, 1997
Robert E. Hoptry the Board and
President
[Chief Executive
Officer]
/s/ Martin G. Wilson Director March 26, 1997
Martin G. Wilson
/s/ Edward J. Zoeller Director March 26, 1997
Edward J. Zoeller
</TABLE>
FRONT COVER
World class banking . . .
. . . hometown service
Indiana United Bancorp
1996 Annual Report
<PAGE>
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INSIDE FRONT COVER
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Contents
Financial Highlights 1
Message to Shareholders 2
Management's Discussion and Analysis 4
Report of Management on Responsibility
for Financial information 17
Report of Independent Certified
Public Accounts 17
Financial Statements 18
Notes to Financial Statements 21
Management Directory 28
Shareholder Information IBC
</TABLE>
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 December 31, 1996, Union Bank held assets totaling $221 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 $107 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.
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Financial Highlights
(Dollar amounts in thousands, Percent
except per share data) 1996 1995 Change
<S> <C> <C> <C>
For the Year
Net interest income $11,961 $10,983 8.9
Provision for loan losses 150 30 400.0
Net income 2,693 2,529 6.5
Common dividends paid 1,038 863 20.3
Per Common Share
Net income $2.11 $1.91 10.5
Dividends paid .83 .69 20.3
Book value - end of period
Excluding SFAS No. 115 adjustment 22.11 20.83 6.1
Including SFAS No. 115 adjustment 22.18 20.98 5.7
Market price - end of period 29.06 25.00 16.2
At Year End
Total assets $328,346 $313,067 4.9
Total loans 219,483 201,355 9.0
Allowance for loan losses 2,506 2,754 (9.0)
Total deposits 276,402 262,346 5.4
Long-term debt 5,000 6,000 (16.7)
Preferred stock 2,000
Shareholders' equity 27,749 28,245 (1.8)
Financial Ratios
Return on average assets .85% .82% 3.7
Return on average common
shareholders' equity 9.86 9.71 1.5
Allowance for loan losses to
total loans (year end) 1.14 1.37 16.8)
Shareholders' equity to
total assets (year end) 8.45 9.02 (6.3)
Tier 1 capital to total assets 8.33 8.84 (5.8)
Total capital to risk-
adjusted assets 15.60 16.57 (5.9)
Number of common
shares outstanding 1,250,897 1,250,897
Number of common shareholders 1,438 1,452 (1.0)
Number of full-time
equivalent employees 143 154 (7.1)
</TABLE>
<PAGE>
WORLD CLASS BANKING . . . HOMETOWN SERVICE
[Picture of Robert Hoptry]
_____________________________________
" . . . . our vision of world class banking is quickly
becoming a reality within the communities we serve."
_____________________________________
Dear Shareholders and Friends:
If my message included a headline, it would be: Indiana United Bancorp
Exceeded Every Significant Performance Objective It Targeted For 1996.
Our performance steadily improved throughout the year, and finished with
a strong fourth quarter. And like most strong finishes, it was shaped by a
well-conceived strategy, nurtured by a dedicated and focused management team.
A significant event reducing 1996 income was the passage of legislation
in the third quarter which materially diminishes the disparate laws and
regulations between the thrift and banking industries. This legislation
provided for one-time assessments to the thrift industry to recapitalize
the deposit insurance fund and to standardize the tax accounting treatment
between banks and thrifts for the reserve for loan losses.
As a result, Regional Bank's 1996 after-tax earnings were reduced by
$474,000, or $.38 per common share. However, deposit insurance premiums
are greatly reduced in 1997 and beyond and we are very pleased this
long-awaited legislation was finally enacted.
These one-time charges are reflected in financial data throughout the
pages that follow in this report, so my discussion of our performance will
focus on normalized operating results, excluding the effect of these charges.
On this basis, net income increased by 25.3%, fueled by a 23 basis point
gain in our net interest margin. Net income was also favorably impacted
by improving our efficiency ratio from 66.24% to 59.97% Return on average
assets gained 18 basis points while return on average equity increased from
9.71% to 11.58% While these ratios do not yet meet our long-term expectations,
we are pleased that 1996 provided the second consecutive year of progress
toward long-term objectives since we refocused the Company in 1994.
<PAGE>
This performance translates to net earnings of $2.49 per common share and
represents an increase of 30.4% over 1995. Dividends in 1996 increased from
$.69 to $.83 per share, marking the eighth consecutive year dividends have
increased by 15% or more. The Company redeemed the remaining $2,000,000 of
its preferred stock in 1996, allowing all future earnings to accrue
exclusively to common shareholders.
During the first quarter, deposits and loans reflected larger than normal
seasonal declines. Thereafter, balance sheet growth exceeded our projections.
Deposit growth was propelled by our new Foundation account, an above-market
interest-bearing checking account that accesses other products and services
at reduced or fully waived fees. Loan growth reflected gains in commercial
lending at Union Bank and non-real estate consumer lending at Regional Bank.
These "Growing Relationships" are expected to continue in 1997.
At Indiana United, technology remains a high priority, and several hundred
thousand dollars are budgeted for technology investment in 1997. During the
first six months, this investment will improve transaction response times and
increase the power and memory of our data systems. Later in the year,
customers will also benefit from improved deposit statements, additional ATMs
and a new automated voice response system. Future years are likely to
include similar investments in technology, targeted primarily at improving
and expanding the ways in which products and services are accessed by our
customers.
This focus on technology will enhance the personal service upon which our
community banking philosophy is so deeply rooted. Unlike many of the large
super regional banks which are closing branches in record numbers, we believe
it is important to maintain community banking centers staffed with local
lenders, tellers and deposit service personnel. This commitment to service
excellence sets us apart from many of our competitors. When combined with
our technological expansion, our vision of world class banking is quickly
becoming a reality within the communities we serve.
In November, Stifel, Nicolaus and Company, Inc. became a market maker in
Indiana United shares. Based in St. Louis, this highly regarded investment
firm specializes in bank and thrift stocks. We look forward to the advantages
of this expanded distribution base in Indiana United shares and are complimented
by their confidence in our financial future.
In response to shareholder requests, I am pleased to report that Indiana
United will introduce an automatic dividend reinvestment plan during the
first quarter. This plan offers an excellent opportunity to acquire additional
shares without incurring brokerage commissions or other charges.
Most economists agree an economy comprised of modest growth and subdued
inflation is sustainable throughout 1997. Such an outlook suggests interest
rates will fluctuate within a narrow range throughout the year. Indiana
United is well positioned to prosper in such an environment. But more
importantly, even if interest rate volatility is greater than currently
forecast, our risk aversion and liquidity strategies should still provide
improved earnings.
I believe 1997 will be a very important year in Indiana United's history,
with the potential to add significantly to shareholder value.
<PAGE>
Management's Discussion and Analysis (Table Dollar Amounts in
Thousands)
Forward-Looking Statements
Except for historical information contained herein, the discussion in this
Annual 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 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.
<PAGE>
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, during 1994, the Company consolidated the
operations of its two commercial banking subsidiaries to form Union Bank, and
sold three underperforming branches of Regional Bank. The Company believes
each of those actions increased its operating efficiency and the latter
improved its net interest margin. The Plan also focused on improving net
interest margin by reducing the Company's dependence on expensive, non-core
deposits.
During 1995, the Company initiated actions intended to build a stronger
customer base in its primary markets. The Company invested approximately
$500,000 to renovate Regional Bank's main office, providing direct lobby
access of all deposit and loan service personnel, and greatly improving drive-up
and electronic banking services. 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. Accordingly, 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. 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. 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..
The Company initiated a sales philosophy in 1995 supported by a performance-
based employee incentive program. The initial phase of this program included
sales training for all customer service personnel. In 1996, sales training
evolved to encompass all customer contact personnel. Customer service
personnel have now received advanced training, and have become more effective
in cross-selling techniques. The performance-based employee incentive
program earned over $121,000 in 1996 for employees engaged in all facets of
the Company.
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.
<PAGE>
Results of Operations
Annual net income ranged between $2,529,000 and $2,870,000 for the past three
years. Significant non-recurring items impacted net income in 1994 and 1996.
In 1994, earnings included a $1,229,000 gain on the sale of three under-
performing Regional Bank branches and a loss of $154,000 on the sale of
securities. These non-recurring items resulted in additional net income of
$650,000. The Federal omnibus spending package enacted on September 30, 1996,
together with companion legislation enacted earlier in the year, resulted in
a $474,000 reduction of 1996 net income. The legislation imposed a special
assessment on thrift institutions 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 substantially eliminated (see heading
"Income Taxes" for further discussion). Excluding these non-recurring charges,
net income for 1996 was $3,166,727, a 25% increase over the prior year. There
were no significant non-recurring income or expense items in 1995.
Non-interest income in 1996 reflects a decline in insurance commissions due
mainly to lower levels of profit sharing received from participating
companies based on claims experience for the year. Trust income and service
charge income increased over the prior year. Non-interest expense reflects
reduced Federal Deposit Insurance Corporation ("FDIC") assessments, excluding
the special assessment mentioned previously, due to a lower deposit insurance
assessment rate. Professional fees increased in 1996 as compared to the
prior year.
Net income per common share from recurring operations equaled $2.49 in 1996,
compared to $1.91 in 1995, and $1.58 in 1994. Including the FDIC special
assessment and bad debt recapture, 1996 earnings equaled $2.11 per share.
The gain realized on the sale of Regional Banks branches increased 1994 earnings
per share by $0.59.
<PAGE>
The Company's return on average total assets was .85% in 1996, .82% in 1995,
and .86% in 1994. Excluding non-recurring charges, return on average assets
for 1996 was 1.00%. Return on average common shareholders' equity during these
three years was 9.86%, 9.71%, and 12.18%, respectively. Excluding non-recurring
charges, return on average common shareholders' equity for 1996 was 11.58%.
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. Net interest
income of $12,056,000 in 1996 increased 9% from $11,095,000 in 1995, which
was 3% below 1994 (see Tables 2 and 5).
Throughout 1996, the Company 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
into 1997. The Company believes this strategy greatly enhanced 1996 net
interest income and will also have a positive effect on 1997 earnings.
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. Since year-end 1993, the
Company has increased its net interest margin by 48 basis points.
The changes in interest income and interest expense resulting from changes in
volume and rate are summarized in Tables 2 and 3. Variances have been
allocated on the basis of the absolute relationship between volume and rate.
<PAGE>
Provision for Loan Losses
This topic is discussed under the heading "Loans, Credit Risk and the
Allowance and Provision for Possible Loan Losses".
Non-interest Income
Non-interest income normalized in 1996 and 1995 after benefiting from a
gain of $1,229,000 from the sale of branches in 1994. Non-interest income
in 1996 exceeded 1995 by $45,000 or 3%. Excluding the sale of branches, non-
interest income in 1995 exceeded 1994 by $98,000 or 7%. There were no
security gains or losses in 1996, versus a $16,000 gain in 1995 and a loss of
$154,000 in 1994.
Insurance commissions continue to represent the largest component of
recurring non-interest income, equaling 29%, 32% and 37% in 1996, 1995 and
1994. Declines of $36,000 and $71,000 in 1995 and 1994 primarily reflected
reorganization and relocation disruptions of insurance operations in Jay County.
The current year decline of $35,000 represents the loss of year-end profit
sharing programs from primary carriers due to 1996 claims experience. Trust
income increased $43,000 over 1995, fueled by a $12,000 increase in estate
income and a strong stock market in 1996. The level of estate assets
administered may cause trust income to fluctuate significantly from year to
year. Service charges on deposit accounts increased in 1996 by $70,000, or 16%,
primarily due to the strong growth in a new interest-bearing checking account
introduced in early 1996. Service charges on deposit accounts decreased in
both 1995 and 1994 compared to prior years. Deposit growth and interest rate
variables also affected service charge income in 1996. It is anticipated
that in 1997 the Company will experience additional deposit growth,
generating even higher service charge income.
Non-interest Expense
The largest component of non-interest expense is personnel expense. Personnel
expenses increased in 1996 by $15,000, or less than 1%, after declining by
$86,000 in 1995. The average number of full-time equivalent employees in 1996
was four persons less than the average 1995 staffing level, which was fifteen
persons less than 1994. Improvements in technology implemented throughout
1996 enabled the Company to effectively control staffing levels. Normal
staff salary adjustments and increased benefit costs were incurred in both 1996
and 1995, including $121,000 and $53,000 in 1996 and 1995, respectively,
earned by employees in connection with the performance incentive compensation
plan. Although certain employee benefit costs increased in 1996, health care
benefit costs decreased. Personnel expenses in 1997 are not expected to
change materially from 1996.
Deposit insurance, excluding the $545,000 special assessment, was $205,000
less in 1996 than the prior year, due to a lower rate on which the insurance
premium was calculated. In mid 1995, the FDIC reduced deposit insurance
premiums paid by soundly managed banks, including Union Bank, by 83%. Since
the bank insurance fund reached a mandated funding level in 1995, the
assessment rate for the Company's commercial bank was further reduced to the
$2,000 minimum level permissible in 1996.
After two long years of debate, Congress finally agreed to a legislative
package to adequately capitalize the SAIF. This legislation was included in
the Federal omnibus spending package enacted on September 30, 1996. It
required the thrift industry to recapitalize the SAIF with a one-time assessment
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.
For the next three years, 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
three year period, 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 next
three years due to the lower assessment rate.
<PAGE>
Income Taxes
On August 20, 1996 President Clinton signed into law the Small Business Job
Protection Act of 1996. Included within this tax legislation was the repeal
of certain tax advantages to thrifts applicable to tax bad debt provision
calculations. The bill eliminated the percent-of-taxable-income method for
computing tax liability on additions to thrift's bad debt reserves for years
beginning after December 31, 1995. The bill also required that thrift
institutions recapture all or a portion of their tax bad debt reserves added
since December 31, 1987. Accordingly, income tax expense of $145,000 was
recorded on the tax bad debt recapture in 1996, resulting primarily from the
decrease in loans included in the sale of Regional Bank's branches in 1994.
The unrecaptured base year tax reserve will not be subject to recapture, as
long as the institution continues to carry on the business of banking and
meets other criteria.
The effective tax rate was 40% for 1996, 40% in 1995 and 39% in 1994. The
Company and its subsidiaries will file consolidated income tax returns for
1996.
Financial Condition
Total average assets in 1996 increased $9,244,000 over the prior year.
Average assets declined by $27,188,000 in 1995 as compared to 1994, primarily
due to deposit pricing strategies and the sale of branches in October, 1994.
For comparability, average assets in 1994 would have been $20,000,000 less if
the branch sale had occurred on January 1, 1994. Changes in average assets
in 1995 and 1996 reflect normalized operations.
Year-end assets increased to $328,346,000 from $313,067,000 at December 31,
1995. Cash, cash equivalents and short-term investments increased at year-end
1995 to provide funding for loans scheduled to close shortly after December 31,
1995. Securities maturities and repayments, as well as increased levels of
interest-bearing deposits, were used to fund loan growth in 1996.
Average earning assets have represented 95% of average total assets for the
past three years. Average loans represent approximately 66% of average
assets in 1996 compared to 65% in 1995 and 62% in 1994. Management intends
to continue it's emphasis on loan growth in 1997.
Average noninterest-bearing deposits increased less than 1% in 1996 compared
to a 4% increase in 1995. Average interest-bearing deposits increased
$11,981,000 or 5% in 1996 compared to 1995. Average interest-bearing demand
deposits increased $1,924,000, primarily due to the success of a new interest-
bearing checking account introduced early in 1996. Average savings accounts
increased 8% due to the continued success of a premium passbook savings
account introduced in 1995. Average money market investment accounts
decreased 11% as compared to the prior year due to the shifting of funds to
the new interest-bearing demand deposit and the premium savings passbook.
Average certificates of deposit and other time deposits increased approximately
$11,557,000 in 1996, primarily in certificates of deposits of $100,000 and over.
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. The
Company successfully renegotiated the rate with the lender, effective July 1,
1995. 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. The Company prepaid $250,000 on long-term debt in 1996, and
$750,000 in 1995. A principal payment of $375,000 is due 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 $27,749,000 on December 31 1996 compared to $28,245,000
on December 31, 1995. Book value per common share increased to $22.18 or 6% from
$20.98 at year end 1995. The unrealized gain on securities available for sale,
net of taxes, totaled $95,000 or $.07 per share at December 31, 1996 compared
to an unrealized gain of $195,000 or $.15 at December 31, 1995. Excluding the
net unrealized gains or losses on securities available for sale, book value per
share was $22.11 at December 31, 1996, or an increase of 6% over the comparable
book value at year end 1995. The Company redeemed the remaining $2,000,000
of its preferred stock in 1996. In 1995, $400,000 of preferred stock was
redeemed. All future earnings will now 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 9%, 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 50% in 1996. 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 generally
observes 20% minimum downpayment guidelines, it originated both fixed rate
loans and loans with little or no downpayment for a noncompeting mortgage
lender during 1996. This program assisted the Company in serving all segments
of the community without incurring unacceptable levels of credit exposure or
interest rate risk. The origination of these loans 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 chargeoffs were $398,000 in 1996, $60,000 in 1995 and $13,000 in 1994. As
a percentage of average loans, net chargeoffs equaled .19%, .03% and .01% in
1996, 1995 and 1994. The increase in 1996 was caused primarily by the $334,000
chargeoff of portions of two loans currently held by Regional Bank. In each
of the previous two periods, the Company significantly outperformed its peer
group's net loan loss average. Peer group data for year-end 1996 is not yet
available.
Foreclosed real estate held by the Company at December 31, 1996 consisted of
a single property. The property is expected to be sold by mid-year 1997 with
minimal gain or loss realized. After the sale, foreclosed real estate will
decrease to a level more closely mirroring prior years.
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 December 31, 1996,
is considered adequate by management. See Tables 8, 9, 10, 11 and 12 for
quantitative support of this narrative loan analysis.
Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for
Mortgage Servicing Rights, pertains to mortgage banking and financial
institutions that conduct operations that are substantially similar to the
primary operations of a mortgage banking enterprise. The Statement eliminates
the accounting distinction between mortgage servicing rights that are acquired
through loan origination activities and those acquired through purchase
transactions. Under this Statement, if the Company enters into mortgage banking
activities and sells or securitizes loans and retains the mortgage servicing
rights, the Company must allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the rights) based on their
relative fair values.
SFAS No. 122 was effective for the Company in 1996. Since the Company does
not currently engage in mortgage banking activities, the adoption of this
Statement did not have any material effect on 1996 operations or financial
position.
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.
In 1994, the Company adopted new accounting rules for securities. The rules
require that each security must be individually designated as a held to
maturity ("HTM") security or as an available for sale ("AFS") security. Late
in 1995, the Financial Accounting Standards Board ("FASB") allowed an
unprecedented "one time" transition reclassification. While more than 90% of
the Company's investments were already designated AFS, the Company took this
opportunity to reclassify all remaining HTM securities to AFS to provide even
greater management flexibility in responding to changes within financial
markets.
As of December 31, 1996, all investment securities are classified as 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 $95,000 was recorded to adjust the AFS
portfolio to current market value at December 31, 1996, compared to a net
unrealized gain of $195,000 at December 31, 1995.
At year end 1996, the tax equivalent yield of the investment securities
portfolio was 6.45%, representing an increase from 6.33% at year end 1995,
and 6.16% at year end 1994.
In 1994, management began to reduce the variable portion of the investment
securities portfolio. Variable rate securities comprised 50% of the total
portfolio on December 31, 1996 compared to 55% and 65% on December 31, 1995
and 1994. The reduction of variable rate securities extended the year end
weighted average repriceable life of the portfolio to 2.06 years compared to
1.14 years in 1995.
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 88% and 86% of total earning
assets in 1996 and 1995. Total interest-bearing deposits averaged 91%, 90%
and 92% of average total deposits during 1996, 1995 and 1994. 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 utilized large denomination
certificates of deposit in 1996 to replace a portion of customer funds
previously invested in repos.
Even though short-term borrowings temporarily increased 18% at year end 1996
compared to 1995, the Company decreased average repos and other short-term
borrowings in 1996 to $13,316,000 or 17% below 1995. FHLB advances which
matured in early 1996 represented most of the decrease. The FHLB advances
were used to fund loans and other earnings assets of Regional Bank in 1995.
Depending upon the level of loan demand, management may again elect to use
FHLB advances in 1997 as part of its cash management strategy.
The Company continued to prepay long-term debt in 1996. Long-term debt
decreased $1,000,000 in 1996 of which $250,000 represented reductions in
excess of scheduled payments. 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 $1,504,000 to $27,749,000 at December 31,
1996. Total shareholders' equity declined by $496,000 due primarily to the
early redemption of $2,000,000 of preferred stock in 1996. Redemptions in
1995 and 1994 totaled $400,000 and $300,000. 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
December 31, 1996, tier 1 capital to total assets was 8.33%. Total capital
to risk-adjusted assets was 15.60%. 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 $.83 per share in 1996 and
$.69 in 1995. Book value per common share increased to $22.18 from $20.98 in
1995. The net adjustment for AFS securities increased book value by $.07 and
$.15 at December 31, 1996 and 1995. 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% during each of the past
two years.
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 total
$47,810,000, and include cash and cash equivalents, loans and securities
maturing within one year, and money market instruments. In addition, the
Company holds $75,667,000 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 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 89% of total earning assets
at December 31 in each of the last three years.
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 year end 1996, the Company held approximately $169,349,000 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 for the year ended December 31,
1996 appears in Table 14. 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.
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
The FASB has issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed Of. This Statement establishes guidance for recognizing
and measuring impairment losses and requires that the carrying amount of
impaired assets be reduced to fair value. Long-lived assets and certain
identifiable intangibles must be reviewed for impairment whenever events
indicate that the carrying amount of the assets may not be recoverable.
SFAS No. 121 was effective in 1996 for the Company. The adoption of SFAS
No. 121 did not have any material effect on results of operation or financial
condition in 1996.
SFAS No. 123, Stock Based Compensation, was effective for the Company in 1996.
This Statement requires expanded disclosures rather than recognition of
compensation cost as was originally required by the exposure draft of this
Statement for fixed, at the money, options. However, employers are encouraged
to recognize the cost of stock-based compensation plans in their financial
statements. Currently, the Company has no stock-based compensation plans and
adoption of SFAS No. 123 did not have any effect on 1996 financial statements.
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>
<TABLE>
<CAPTION>
Table 1 - Selected Financial Data Summary*
1996 1995 1994 1993 1992
RESULTS OF OPERATIONS
FOR THE YEAR
<S> <C> <C> <C> <C> <C>
Net interest income $11,961 $10,983 $11,301 $11,881 $12,484
Provision for loan losses 150 30 115 357 686
Non-interest income 1,502 1,456 2,588 1,628 1,572
Non-interest expense 8,619 8,229 9,040 9,243 8,834
Income before income tax
and accounting method
change 4,694 4,180 4,734 3,909 4,536
Income tax 2,001 1,651 1,864 1,438 1,674
Income before accounting
method change 2,693 2,529 2,870 2,472 2,862
Accounting method change 450
Net income 2,693 2,529 2,870 2,922 2,862
Dividends paid on
common stock 1,038 863 683 580 478
Dividends paid on
preferred stock 50 139 157 185 190
PER COMMON SHARE
Income before accounting
method change** $2.11 $1.91 $2.17 $1.83 $2.14
Net income** 2.11 1.91 2.17 2.19 2.14
Dividends paid .83 .69 .60 .51 .42
Book value - end of period**
Excluding SFAS No. 115
adjustment 22.11 20.83 19.60 17.99 16.27
Including SFAS No. 115
adjustment 22.18 20.98 17.49
Market price - end
of period** 29.06 25.00 21.00 22.28 19.80
AT YEAR END
Total assets $328,346 $313,067 $306,047 $355,992 $368,924
Securities and other
investments 88,384 94,110 96,270 133,747 146,593
Total loans 219,483 201,355 194,736 205,508 204,000
Allowance for loan losses 2,506 2,754 2,784 2,682 2,686
Total deposits 276,402 262,346 261,371 310,063 323,777
Long-term debt 5,000 6,000 7,500 9,375 10,645
Preferred stock 2,000 2,400 2,700 3,000
Shareholders' equity 27,749 28,245 24,282 25,203 23,347
FINANCIAL RATIOS
Return on average assets .85% .82% .86% .81% .79%
Return on average common
shareholders' equity 9.86 9.71 12.18 12.61 13.88
Allowance for loan losses
to total loans (year end) 1.14 1.37 1.43 1.31 1.32
Shareholders' equity to
total assets (year end) 8.45 9.02 7.93 7.08 6.33
Tier I capital to
total assets 8.33 8.84 8.69 7.01 6.25
Total capital to risk-
adjusted assets 15.60 16.57 17.11 14.12 13.34
Average equity to
average total assets 8.69 8.70 7.39 6.83 6.11
Dividend payout ratio 39.29 36.12 25.15 21.16 17.89
</TABLE>
* The Company sold three of Regional Bank's branches in October, 1994. The
sale affects comparative analysis of certain information in this table.
**Amounts prior to 1994, excluding dividends paid, have been adjusted for
the 10% stock dividend in 1994.
<PAGE>
<TABLE>
<CAPTION>
Table 2 - Changes in Net Interest Income and Net Interest Margin
(Taxable Equivalent Basis)*
Percent Change
1996 1995 1994 1996/95 1995/94
<S> <C> <C> <C> <C> <C>
Interest income
Loans $18,266 $16,938 $15,941 7.8 6.3
Investment securities 5,403 5,655 6,265 (4.5) (9.7)
Federal funds sold 380 305 116 24.6 162.9
Short-term investments 13 49 15 (73.5) 226.7
Total interest income 24,062 22,947 22,337 4.9 2.7
Interest expense
Interest-bearing
demand accounts 868 833 832 4.2 0.1
Money market
investment accounts 1,133 1,297 1,216 (12.6) 6.7
Savings deposits 944 894 742 5.6 20.5
Certificates of deposit
and other time deposits 7,918 7,284 6,997 8.7 4.1
Borrowings 1,143 1,544 1,114 (26.0) 38.6
Total interest expense 12,006 11,852 10,901 1.3 8.7
Net interest income $12,056 $11,095 $11,436 8.7 (3.0)
Net interest margin 4.00% 3.77% 3.57% 6.1 5.6
</TABLE>
*Adjusted to reflect income related to securities and loans exempt from
Federal income taxes reduced by nondeductible portion of interest expense.
<PAGE>
<TABLE>
<CAPTION>
Table 3 - Changes in Net Interest Income and Net Interest Margin
(Taxable Equivalent Basis)*
1996 vs.1995 1995 vs. 1994
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 904 $ 424 $1,328 $ (505) $1,502 $ 997
Investment securities (259) 7 (252) (1,270) 660 (610)
Federal funds sold 104 (29) 75 131 58 189
Short-term investments (29) (7) (36) 17 17 34
Total interest income 720 395 1,115 (1,627) 2,237 610
Interest expense
Interest-bearing
demand accounts 51 (16) 35 (114) 115 1
Money market
investment accounts (136) (28) (164) (255) 33 81
Savings deposits 74 (24) 50 (38) 190 152
Certificates of deposit
and other time deposits 616 18 634 (886) 1,173 287
Borrowings (255) (146) (401) 60 370 430
Total interest expense 350 (196) 154 (1,233) 2,184 951
Changes in net
interest income $ 370 $ 591 $ 961 $ (394) $53 $(341)
Change in taxable
equivalent adjustments 17 23
Change in net interest
income after taxable
equivalent adjustments $ 978 $(318)
</TABLE>
*Adjusted to reflect income related to securities and loans exempt from
Federal income taxes reduced by nondeductible portion of interest expense.
<PAGE>
<TABLE>
<CAPTION>
Table 4 - Non-interest Income and Expense
Percent Change
1996 1995 1994 1996/95 1995/94
<S> <C> <C> <C> <C> <C>
Non-interest income
Insurance commissions $ 438 $ 190 $ 200 (7.4) (7.1)
Fiduciary activities 233 190 200 22.6 (5.0)
Service charges on
deposit accounts 520 450 475 15.6 (5.3)
Securities gains (losses) 16 (154)
Gain on sale of branches 1,229
Other income 311 328 329 (5.2) (0.3)
Total non-
interest income $1,502 $1,457 $2,588 3.1 (43.7)
Non-interest expense
Salaries and
employee benefits $4,482 $4,467 $4,553 0.3 (1.9)
Premises and
equipment expense 1,477 1,469 1,521 0.5 (3.4)
Professional fees 222 205 395 8.3 (48.1)
Deposit insurance 190 395 666 (51.9) (40.7)
FDIC special
assessment 545
Amortization
of intangibles 35 40 46 (12.5) (13.0)
Other expense 1,667 1,653 1,859 0.8 (11.1)
Total non-
interest expense $8,618 $8,229 $9,040 4.7 (9.0)
Net non-interest expense,
excluding non-recurring
items, as a percent of
average assets 2.07% 2.20% 2.29%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 5 - Average Balance Sheet and Net Interest Analysis
(Taxable equivalent basis)*
December 31, 1996
Average Yield/
Balance Interest Rate
<S> <C> <C> <C>
ASSETS
Short-term investments $ 257 $ 13 5.06%
Federal funds sold 7,094 380 5.36
Securities
Taxable 81,971 5,123 6.25
Tax-exempt 3,755 280 7.46
Total securities 85,726 5,403 6.30
Loans**
Commercial 62,983 6,059 9.62
Real estate mortgage 121,232 9,660 7.97
Instalment 22,349 2,392 10.70
Govt. guaranteed loans 1,948 155 7.96
Total loans 208,512 18,266 8.76
Total earning assets 301,589 24,062 7.98
Allowance for loan losses (2,760)
Unrealized losses on securities (224)
Cash and due from banks 9,456
Premises and equipment 5,953
Other assets 2,893
Total assets $316,907
LIABILITIES
Interest-bearing deposits
Interest-bearing demand
accounts $ 32,830 868 2.64
Money market investment
accounts 31,584 1,133 3.59
Savings 29,264 944 3.23
Certificates of deposit
and other time deposits 148,509 7,918 5.33
Total interest-
bearing deposits 242,187 10,863 4.49
Short-term borrowings 13,316 689 5.17
Long-term debt 5,606 454 8.10
Total interest-
bearing liabilities 261,109 12,006 4.60
Noninterest-bearing
demand deposits 24,714
Other liabilities 3,540
Total liabilities 289,363
Shareholders' equity 27,544
Total liabilities and
shareholders' equity $316,907 12,006 3.98***
Net interest income $12,056 4.00%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% $ 95
</TABLE>
* Adjusted to reflect income related to securities and loans exempt from
Federal income taxes.
** Nonaccruing loans have been included in the average balances.
*** Total interest expense divided by total earning assets.
<PAGE>
<TABLE>
<CAPTION>
Table 5 - Average Balance Sheet and Net Interest Analysis
(Taxable equivalent basis)*
December 31, 1995
Average Yield/
Balance Interest Rate
<S> <C> <C> <C>
ASSETS
Short-term investments $ 812 $ 49 6.03%
Federal funds sold 5,196 305 5.87
Securities
Taxable 85,421 5,326 6.24
Tax-exempt 4,327 329 7.60
Total securities 89,748 5,655 6.30
Loans**
Commercial 64,589 6,116 9.47
Real estate mortgage 116,314 8,815 7.58
Instalment 15,760 1,807 11.47
Govt. guaranteed loans 2,383 200 8.39
Total loans 199,046 16,938 8.51
Total earning assets 294,802 22,947 7.79
Allowance for loan losses (2,732)
Unrealized losses on securities (1,054)
Cash and due from banks 7,744
Premises and equipment 5,799
Other assets 3,104
Total assets $307,663
LIABILITIES
Interest-bearing deposits
Interest-bearing
demand accounts $ 30,906 833 2.70
Money market investment
accounts 35,369 1,297 3.67
Savings 26,979 894 3.31
Certificates of deposit
and other time deposits 136,952 7,284 5.32
Total interest-
bearing deposits 230,206 10,308 4.48
Short-term borrowings 15,947 932 5.84
Long-term debt 6,950 612 8.81
Total interest-
bearing liabilities 253,103 11,852 4.68
Noninterest-bearing
demand deposits 24,545
Other liabilities 3,243
Total liabilities 280,891
Shareholders' equity 26,772
Total liabilities and
shareholders' equity $307,663 11,852 4.02***
Net interest income $11,095 3.77%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% $ 112
</TABLE>
* Adjusted to reflect income related to securities and loans exempt
from Federal income taxes.
** Nonaccruing loans have been included in the average balances.
*** Total interest expense divided by total earning assets.
<PAGE>
<TABLE>
<CAPTION>
Table 5 - Average Balance Sheet and Net Interest Analysis
(Taxable equivalent basis)*
December 31, 1994
Average Yield/
Balance Interest Rate
<S> <C> <C> <C>
ASSETS
Short-term investments $ 451 $ 15 3.33%
Federal funds sold 2,751 116 4.22
Securities
Taxable 105,941 5,871 5.54
Tax-exempt 4,916 394 8.01
Total securities 110,857 6,265 5.65
Loans**
Commercial 66,002 5,697 8.63
Real estate mortgage 123,423 8,521 6.90
Instalment 14,179 1,530 10.79
Govt. guaranteed loans 3,064 193 6.30
Total loans 206,668 15,941 7.71
Total earning assets 320,727 22,337 6.97
Allowance for loan losses (2,760)
Unrealized losses on securities (1,471)
Cash and due from banks 7,633
Premises and equipment 6,297
Other assets 4,425
Total assets $334,851
LIABILITIES
Interest-bearing deposits
Interest-bearing
demand accounts $ 35,435 832 2.35
Money market
investment accounts 43,527 1,216 2.79
Savings 28,357 742 2.62
Certificates of deposit
and other time deposits 155,317 6,997 4.50
Total interest-
bearing deposits 262,636 9,787 3.73
Short-term borrowings 11,694 483 4.13
Long-term debt 8,835 631 7.14
Total interest-
bearing liabilities 283,165 10,901 3.85
Noninterest-bearing
demand deposits 23,678
Other liabilities 3,250
Total liabilities 310,093
Shareholders' equity 24,758
Total liabilities and
shareholders' equity $334,851 10,901 3.40***
Net interest income $11,436 3.57%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% $ 135
</TABLE>
* Adjusted to reflect income related to securities and loans exempt
from Federal income taxes.
** Nonaccruing loans have been included in the average balances.
*** Total interest expense divided by total earning assets.
<PAGE>
<TABLE>
<CAPTION>
Table 6 - Average Deposits
1996 1995 1994
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing $ 24,714 $ 24,545 $ 23,678
Interest-bearing
accounts 32,830 2.64% 30,906 2.70% 35,435 2.35%
Money market
investment accounts 31,584 3.59 35,369 3.67 43,527 2.79
Savings 29,264 3.23 26,979 3.31 28,357 2.62
Certificates of
deposit and other
time deposits 148,509 5.33 136,952 5.32 155,317 4.50
Totals $266,901 4.07% $254,751 4.05% $286,314 3.42%
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996, certificates of deposit of $100,000 or more mature
as follows:
3 Months 3-6 6-12 Over 12
or less Months Months Months Total
<S> <C> <C> <C> <C> <C>
Amount $18,001 $6,463 $4,441 $3,178 $32,083
Percent 56% 20% 14% 10% 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 7 - Short-term Borrowings
1996 1995 1994
<S> <C> <C> <C>
Repurchase Agreements
Balance at December 31 $12,989 $10,735 $ 9,977
Maximum outstanding
at any month end 15,903 15,174 16,384
Daily average amount outstanding 11,564 10,162 9,041
Weighted daily average interest rate 5.14% 5.67% 3.99%
Weighted daily interest rate
at December 31 5.12 5.28 5.39
</TABLE>
Information related to repurchase agreements is shown in the table above and
information on other short-term borrowings is not required since the average
balances outstanding during the periods were less than 30% of shareholders'
equity.
<PAGE>
<TABLE>
Table 8 - Loan Portfolio
December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Types of Loans
Commercial $ 7,834 $ 7,796 $ 7,595 $ 11,028 $ 16,300
Agricultural production
financing and other
loans to farmers 11,178 9,996 7,859 8,845 7,471
Commercial real
estate mortgage 27,691 24,129 25,619 27,036 32,645
Residential real
estate mortgage 109,962 103,239 101,455 111,600 101,953
Farm real estate 26,843 28,910 28,358 25,483 22,064
Construction and
development 6,589 6,863 7,161 3,455 1,786
Consumer 27,567 18,342 13,870 14,752 17,992
Government guaranteed
loans purchased 1,819 2,080 2,819 3,309 3,789
Total loans $219,483 $201,355 $194,736 $205,508 $204,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 9 - Maturities and Sensitivities of Commercial and Construction Loans
to Changes in Interest Rates at December 31, 1996
Within 1-5 Over
1 Year Years 5 Years Total
<S> <C> <C> <C> <C>
Maturities by loan type
Commercial $ 6,554 $ 817 $ 463 $ 7,834
Agricultural production financing
and other loans to farmers 10,130 598 450 11,178
Construction 6,310 135 144 6,589
Government guaranteed loans 0 461 1,358 1,819
Totals $22,994 $2,011 $2,415 $27,420
Percent 84% 7% 9% 100%
Rate Sensitivity
Fixed rate $ 2,445 $1,160 $1,057 $ 4,662
Variable rate 20,549 851 1,358 22,758
Totals $22,994 $2,011 $2,415 $27,420
</TABLE>
<PAGE>
<TABLE>
TABLE 10 - Underperforming Loans
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $1,245 $1,569 $1,030 $1,208 $2,543
Accruing loans con-
tractually past due
90 days or more 5 34 113
Restructured loans 16 267
Total $1,250 $1,603 $1,143 $1,224 $2,810
Percent of
total loans .6% .8% .6% .6% 1.4%
</TABLE>
<PAGE>
<TABLE>
TABLE 11 - Summary of Allowance for Loan Losses
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at January 1 $2,754 $2,784 $2,682 $2,686 $3,008
Chargeoffs
Commercial 352 91 6 239 1,123
Real estate mortgage 38 65 189 44
Consumer 104 31 21 17 95
Total chargeoffs 456 160 92 445 1,262
Recoveries
Commercial 33 61 37 52 199
Real estate mortgage 1 27 15 7
Consumer 24 12 27 32 47
Total recoveries 58 100 79 84 253
Net chargeoffs 398 60 13 361 1,009
Provision for loan losses 150 30 115 357 687
Balance at December 31 $2,506 $2,754 $2,784 $2,682 $2,686
Net chargeoffs to
average loans .19% .03% .01% .18% .48%
Provision for loan losses
to average loans .07 .02 .06 .17 .33
Allowance to total loans at
year end 1.14 1.37 1.43 1.31 1.32
</TABLE>
<PAGE>
<TABLE>
Table 12 - Allocation of the Allowance for Loan Losses
1996 1995 1994
December 31 Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Real estate
Residential $ 144 6% $ 134 5% $ 146 5%
Farm real estate 13 1 14 14 1
Commercial 313 12 575 21 702 25
Construction and
development 71 3 75 3 52 2
Total real estate 541 22 798 29 914 33
Commercial
Agribusiness 151 6 117 4 151 5
Other commercial 203 8 445 16 131 5
Total commercial 354 14 562 20 282 10
Consumer 207 8 131 5 66 2
Unallocated 1,404 56 1,263 46 1,522 55
Total $2,506 100% $2,754 100% $2,784 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 12 - Allocation of the Allowance for Loan Losses
1993 1992
December 31 Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Real estate
Residential $ 142 5% $ 87 3%
Farm real estate
Commercial 468 18 705 26
Construction and
development 35 1 16 1
Total real estate 645 24 808 30
Commercial
Agribusiness 182 7 191 7
Other commercial 226 8 323 12
Total commercial 408 15 514 19
Consumer 83 3 109 4
Unallocated 1,546 58 1,255 47
Total $2,682 100% $2,686 100%
</TABLE>
The allocation 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.
<PAGE>
<TABLE>
Table 13 - Investment Securities
(Carrying Values at December 31)
Beyond
Within 1-5 5-10 10
1 Year Years Years Years Totals
<S> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury $2,004 $ 2,004
Federal Agencies 3,087 $10,048 $11,689 24,824
State and Municipal 396 1,586 1,765 $ 328 4,075
Mortgage-backed securities 33 4,670 3,304 42,035 50,042
Corporate and other
securities 242 242
Total available for sale $5,520 $16,304 $17,000 $42,363 $81,187
Weighted average yield* 5.14% 5.87% 6.94% 6.66% 6.45%
</TABLE>
Amounts in the table above are based on scheduled maturity dates. Variable
interest rates are subject to change not less than annually based upon
certain interest rate indexes. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
As of December 31, 1996, there are no corporate bonds and other securities
which represent more than 10% of shareholders' equity.
*Adjusted to reflect income related to securities exempt from Federal income
taxes reduced by nondeductible portion of interest expense.
<PAGE>
<TABLE>
Table 14 - Rate Sensitivity Analysis at December 31, 1996
Maturing or Repricing
Over 5
Years or
Insens-
3 Months 1 Year 3 Years 5 Years itive Total
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive
assets $ 88,660 $ 80,689 $ 42,413 $ 36,530 $80,054 $328,346
Rate-sensitive
liabilities 109,123 79,800 53,989 22,258 63,176 $328,346
Rate sensitivity gap
(assets less
liabilities) $(20,463) $ 889 $(11,576) $ 14,272 $16,878
Rate sensitivity gap
(cumulative) $(20,463) $(19,574) $(31,150) $(16,878)
Percent of total
assets (cumulative) (6.2%) (6.0%) (9.5%) (5.1%)
Rate-sensitive
assets/
liabilities
(cumulative) 81.2% 89.6% 87.2% 93.6%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 15 - Quarterly Financial Information
1996
Fourth Third Second First
<S> <C> <C> <C> <C>
Total interest income $6,275 $6,070 $5,884 $5,737
Total interest expense 3,138 3,068 2,921 2,879
Net interest income 3,137 3,002 2,963 2,858
Provision for loan losses 60 30 33 27
Net interest income after
provision for loan losses 3,077 2,972 2,930 2,831
Non-interest income 409 359 413 321
Non-interest expense 2,010 2,562 2,045 2,001
Income before income tax 1,476 769 1,298 1,151
Income tax 582 451 514 454
Net income 894 318 784 697
Net income per common share .71 .25 .61 .54
Dividends paid per common share .22 .21 .20 .20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 15 - Quarterly Financial Information
1995
Fourth Third Second First
<S> <C> <C> <C> <C>
Total interest income $5,908 $5,784 $5,658 $5,485
Total interest expense 3,047 3,060 2,986 2,758
Net interest income 2,861 2,724 2,672 2,727
Provision for loan losses 12 9 6 3
Net interest income after
provision for loan losses 2,849 2,715 2,666 2,724
Non-interest income 343 334 430 350
Non-interest expense 1,961 2,003 2,103 2,163
Income before income tax 1,231 1,046 993 911
Income tax 485 417 392 357
Net income 746 629 601 554
Net income per common share .57 .47 .45 .41
Dividends paid per common share .20 .17 .16 .16
</TABLE>
<PAGE>
Graphs Included in the Annual Report
<TABLE>
<CAPTION>
Dividends Per Common Share Common Dividend Payout Ratio
(Dollars) (Percent)
Year Dollars Year Percent
<S> <C> <C> <C>
1992 .42 1992 17.9%
1993 .51 1993 21.2
1994 .60 1994 25.2
1995 .69 1995 36.1
1996 .83 1996 39.3
</TABLE>
<TABLE>
<CAPTION>
Common Share Market Value Net Interest Margin
(Dollars) (Percent)
Year Dollars Year Percent
<S> <C> <C> <C>
1992 19.80 1992 3.66%
1993 22.28 1993 3.52
1994 21.00 1994 3.57
1995 25.00 1995 3.77
1996 29.06 1996 4.00
</TABLE>
<TABLE>
<CAPTION>
Overhead Expense to Net Loan Losses to
Average Assets Average Loans
(Percent) (Percent)
Year IUB Peer Year IUB Peer
<S> <C> <C> <C> <C> <C>
1992 2.43 3.76 1992 .48 .62
1993 2.57 3.64 1993 .18 .39
1994 2.70 3.42 1994 .01 .25
1995 2.67 3.39 1995 .03 .20
1996 2.72 * 1996 .19 *
(*1996 Peer Group Data (*1996 Peer Group Data
unavailable unavailable
</TABLE>
<TABLE>
<CAPTION>
Non-Performing Assets Comparison of Income
to Total Assets ($ Millions)
(Percent) Net Recurring
Year IUB Peer Year Income Income
<S> <C> <C> <C> <C> <C>
1992 1.13 1.88 1992 2.862 2.862
1993 .81 1.25 1993 2.922 2.472
1994 .41 .98 1994 2.870 2.125
1995 .52 .75 1995 2.529 2.529
1996 .69 * 1996 2.693 3.167
(*1996 Peer Group Data
unavailable)
</TABLE>
<TABLE>
<CAPTION>
Tier 1 Capital to Total Assets Long-Term Debt
(Percent) ($ Million)
Year Percent Year Dollars
<S> <C> <C> <C>
1992 6.25 1992 10.6
1993 7.01 1993 9.4
1994 8.69 1994 7.5
1995 8.84 1995 6.0
1996 8.33 1996 5.0
</TABLE>
<PAGE>
Report of Management on Responsibility for Financial Information
The consolidated financial statements and related financial information
presented in this annual report have been prepared by the management of
Indiana United Bancorp in accordance with generally accepted accounting
principles, and include amounts based on management's best estimates and
judgments at the time of preparation. In presenting this financial
information, management is responsible for its integrity, content and
consistency of preparation.
To meet this responsibility, management maintains a system of internal
controls, policies, and administrative procedures designed to provide
reasonable assurance that transactions are recorded accurately. As an
integral part of the internal control structure, the Company maintains a
professional staff of internal auditors who monitor compliance with
regulations, policies and procedures, and assess the effectiveness of the
internal control structure. In addition, the Company's audit committee,
which is comprised entirely of outside directors, meets periodically with
management, internal auditors and/or independent auditors to review the scope
and results of audit activities and the responses thereto by management,
internal auditors, independent auditors and banking regulators have
unrestricted access to the audit committee. Management believes the Company's
system provides a basis for the preparation of reliable financial statements.
The Company's consolidated financial statements have been audited by Geo. S.
Olive & Co. LLC. Their responsibility is to express an opinion as to the
integrity of the Company's consolidated financial statements and, in
performing their audit, to evaluate the Company's internal control structure
to the extent they deem necessary in order to issue such opinion. As
described further in their report that follows, their opinion is based on
their audit, which wads conducted in accordance with generally accepted
auditing standards and is believed by them to provide a reasonable basis for
their opinion. The selection of Geo. S. Olive & Co. LLC was approved by the
Board of Directors and ratified by shareholders.
/s/ Robert E. Hoptry /s/ Jay B. Fager
Robert E. Hoptry Jay B. Fager
Chief Executive Officer Chief Financial Officer
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors
Indiana United Bancorp
Greensburg, Indiana
We have audited the consolidated balance sheet of Indiana United Bancorp and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Indiana United Bancorp and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in the notes to the financial statements, the Company changed
its method of accounting for investments in securities in 1994.
/s/ Geo. S. Olive & Co. LLC
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
February 3, 1997
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
December 31 1996 1995
<S> <C> <C>
Assets
Cash and due from banks $ 13,236,256 $ 11,707,236
Interest-bearing demand
deposits 59,658 71,698
Federal funds sold 5,900,000 7,150,000
Cash and cash equivalents 19,195,914 18,928,934
Short-term investments 100,000 5,100,000
Investment securities
available for sale 81,186,867 80,650,912
Loans 219,483,489 201,354,517
Allowance for loan losses (2,505,853) (2,754,227)
Net loans 216,977,636 198,600,290
Premises and equipment 5,918,643 6,024,994
Federal Home Loan Bank
stock 1,137,815 1,137,815
Income receivable 1,951,803 1,974,331
Core deposit intangibles 106,228 141,638
Foreclosed real estate 1,000,000 45,000
Other assets 771,242 463,094
Total assets $328,346,148 $313,067,008
Liabilities
Deposits
Noninterest bearing $ 29,001,245 $ 30,335,037
Interest bearing 247,400,928 232,011,066
Total deposits 276,402,173 262,346,103
Short-term borrowings 13,240,300 15,683,491
Long-term debt 5,000,000 6,000,000
Interest payable 1,271,737 1,388,635
Other liabilities 2,239,784 1,846,551
Total liabilities 300,597,185 284,821,589
Commitments and
Contingencies
Shareholders' Equity
Preferred stock
Authorized-400,000 shares
Issued and
outstanding-20,000 shares
Series M-1987 convertible
preferred shares 2,000,000
Common stock, $1 par value
Authorized-3,000,000
Issued and
outstanding-1,250,897
shares 1,250,897 1,250,897
Paid-in capital 10,677,045 10,677,045
Retained earnings 14,122,382 15,726,495
Net unrealized gain on
securities available for
sale 94,526 195,095
Total shareholders' equity 28,245,419 27,748,963
Total liabilities and
shareholders' equity $328,346,148 $313,067,008
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Income
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Loans receivable $18,266,420 $16,938,330 $15,940,601
Investment securities
Taxable 5,122,743 5,326,297 5,871,583
Tax exempt 185,231 216,816 259,772
Federal funds sold 379,965 304,619 115,626
Short-term investments 12,469 49,002 15,075
Total interest income 23,966,828 22,835,064 22,202,657
Interest Expense
Deposits 10,862,835 10,307,724 9,787,434
Short-term borrowings 689,789 931,944 482,907
Long-term debt 453,527 611,978 630,901
Total interest expense 12,006,151 11,851,646 10,901,242
Net Interest Income 11,960,677 10,983,418 11,301,415
Provision for loan losses 150,000 30,000 115,000
Net Interest Income After
Provision for Loan Losses 11,810,677 10,953,418 11,186,415
Noninterest Income
Insurance commissions 438,405 472,998 508,935
Fiduciary activities 232,494 189,417 200,241
Service charges on deposit
accounts 519,609 450,060 474,896
Net realized gains (losses)
on securities 16,296 (154,297)
Gain on sale of branches 1,228,751
Other income 311,204 328,032 329,346
Total noninterest income 1,501,712 1,456,803 2,587,872
Noninterest Expense
Salaries and employee
benefits 4,481,548 4,467,408 4,552,848
Net occupancy expenses 764,086 804,977 835,351
Equipment expenses 712,683 664,109 685,805
Professional fees 221,927 204,578 395,383
Deposit insurance expense 735,576 394,672 666,402
Amortization of core
deposit intangibles 35,410 40,468 45,527
Other expenses 1,667,259 1,653,251 1,858,864
Total noninterest expense 8,618,489 8,229,463 9,040,180
Income Before Income Tax 4,693,900 4,180,758 4,734,107
Income tax expense 2,001,351 1,651,366 1,863,756
Net Income $2,692,549 $2,529,392 $2,870,351
Net income per common
share $2.11 $1.91 $2.17
Weighted Average Shares
Outstanding 1,250,897 1,250,897 1,250,897
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $2,692,549 $2,529,392 $2,870,351
Adjustments to reconcile
net income to net cash
provided by operating
activities
Provision for loan losses 150,000 30,000 115,000
Depreciation and
amortization 644,673 623,686 621,777
Deferred income tax 188,387 (60,950) (158,955)
Securities amortization,
net 72,066 105,445 128,563
Amortization of fair value
adjustments on loans and
deposits 90,600 81,544 (34,768)
Amortization of core
deposit intangibles 35,410 40,468 45,527
Investment securities
(gains) losses (16,296) 154,297
Net change in
Income receivable 22,528 (78,370) 68,069
Interest payable (116,898) 524,295 52,213
Gain on sale of branches (1,228,751)
Other adjustments (496,966) 44,534 152,967
Net cash provided by
operating activities 3,282,349 3,823,748 2,786,290
Investing Activities
Net change in short-term
investments 5,000,000 (4,952,843) 100,825
Purchases of securities
available for sale (16,850,769) (5,738,936) (24,219,400)
Proceeds from maturities
and paydowns of
securities available
for sale 16,531,638 11,841,444 27,871,655
Proceeds from sales of
securities available for
sale 9,369,943 26,477,204
Purchases of securities
held to maturity (324,520) (2,429,679)
Proceeds from maturities
and paydowns of securities
held to maturity 752,427 791,211
Net change in loans (19,617,946) (6,833,403) (2,475,422)
Purchases of premises and
equipment (556,117) (1,195,505) (454,942)
Proceeds from sale of other
real estate 50,000 63,177 1,579,817
Net cash and cash
equivalents paid in branch
sales (9,019,963)
Other investing activities 17,000 10,000 17,573
Net cash provided
(used) by investing
activities (15,426,194) 2,991,784 18,238,879
Financing Activities
Net change in
Noninterest-bearing, NOW,
money market and savings
deposits 1,534,086 (3,040,069) (7,872,722)
Certificates of deposit 12,521,984 4,036,023 (16,212,020)
Short-term borrowings 4,443,191 439,426 2,331,938
Repayment of long-term debt (1,000,000) (1,500,000) (1,875,000)
Proceeds from FHLB advances 5,190,000
Repayment of FHLB advances (2,000,000) (3,190,000)
Cash dividends (1,088,436) (1,002,599) (839,461)
Redemption of preferred
stock (2,000,000) (400,000) (300,000)
Other financing activities (10,424)
Net cash provided (used) by
financing activities 12,410,825 532,781 (24,777,689)
Net Change in Cash and Cash
Equivalents 266,980 7,348,313 (3,752,520)
Cash and Cash Equivalents,
Beginning of Year 18,928,934 11,580,621 15,333,141
Cash and Cash Equivalents,
End of Year $19,195,914 $18,928,934 $11,580,621
Additional Cash Flows
Information
Interest paid $12,123,049 $11,327,351 $10,931,300
Income tax paid 1,885,288 1,943,281 1,628,500
Loan balances transferred
to foreclosed real estate 1,000,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balances, January 1, 1994 27,000 $2,700,000 1,137,578 $1,137,578
Net income for 1994
Cash dividends
Preferred stock-$6.34
per share
Common stock-$.60 per
share
10% stock dividend 113,319 113,319
Adjustment for cash
paid in lieu of
issuing fractional
shares
Cumulative effect of
change in method of
accounting for
securities
Net change in
unrealized gain
(loss) on securities
available for sale
Redemption of
preferred stock (3,000) (300,000)
Balances, December 31, 1995 24,000 2,400,000 1,250,897 1,250,897
Net income for 1995
Cash dividends
Preferred stock -
$6.34 per share
Common stock - $.69
per share
Net change in
unrealized gain
(loss) on securities
available for sale
Redemption of
preferred stock (4,000) (400,000)
Balances, December 31, 1995 20,000 2,000,000 1,250,897 1,250,897
Net income for 1996
Cash dividends
Preferred stock-$6.34
per share
Common stock-$.83
per share
Net change in
unrealized gain
(loss) on securities
available for sale
Redemption of
preferred stock (20,000) (2,000,000)
Balances, December 31, 1996 1,250,897 $1,250,897
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
Net
Unrealized
Gain (Loss)
on Securities
Paid-in Retained Available
Capital Earnings For Sale Total
<S> <C> <C> <C> <C>
Balances, January 1, 1994 $8,099,038 $13,266,449 $25,203,065
Net income for 1994 2,870,351 2,870,351
Cash dividends
Preferred stock-$6.34
per share (156,915) (156,915)
Common stock-$.60 per
share (682,546) (682,546)
10% stock dividend 2,578,007 (2,691,326)
Adjustment for cash
paid in lieu of
issuing fractional
shares (10,424) (10,424)
Cumulative effect of
change in method of
accounting for
securities $846,177 846,177
Net change in
unrealized gain
(loss) on securities
available for sale (3,487,650) (3,487,650)
Redemption of
preferred stock (300,000)
Balances, December 31, 1994 10,677,045 12,595,589 (2,641,473) 24,282,058
Net income for 1995 2,529,392 2,529,392
Cash dividends
Preferred stock -
$6.34 per share (139,480) (139,480)
Common stock - $.69
per share (863,119) (863,119)
Net change in
unrealized gain
(loss) on securities
available for sale 2,836,568 2,836,568
Redemption of
preferred stock (400,000)
Balances, December 31, 1995 10,677,045 14,122,382 195,095 28,245,419
Net income for 1996 2,692,549 2,692,549
Cash dividends
Preferred stock-$6.34
per share (50,192) (50,192)
Common stock-$.83
per share (1,038,244) (1,038,244)
Net change in
unrealized gain
(loss) on securities
available for sale (100,569) (100,569)
Redemption of
preferred stock (2,000,000)
Balances, December 31, 1996 $10,677,045 $15,726,495 $94,526 $27,748,963
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accounting and reporting policies of Indiana United Bancorp ("Company"),
and its wholly owned subsidiaries, ("Banks"), conform to generally accepted
accounting principles and reporting practices followed by the banking industry.
The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the
ownership and management of the Banks. Union Bank and Trust Company of
Indiana ("Union Bank") headquartered in Greensburg, Indiana operates under
a state charter and is subject to regulation by the Indiana Department of
Financial Institutions ("DFI") and the Federal Deposit Insurance Corporation
("FDIC"). Regional Federal Savings Bank ("Regional Bank"), headquartered in
New Albany, Indiana is a federally-chartered thrift and is subject to
regulation by the Office of Thrift Supervision ("OTS") and the FDIC.
The Banks generate commercial, mortgage and consumer loans and receive
deposits from customers located primarily in Decatur, Floyd, Clark and Jay
Counties, Indiana, and surrounding counties. The Banks' loans are generally
secured by specific items of collateral including real property, consumer
assets and business assets. Although the Banks have diversified loan
portfolios, a substantial portion of their debtors' ability to honor their
contracts is dependent upon economic conditions in the agricultural industry.
<PAGE>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Consolidation-The consolidated financial statements include the accounts of
the Company and the Banks after elimination of all material intercompany
transactions and accounts.
Investment securities-Debt securities are classified as held to maturity
("HTM") when the Company has the positive intent and ability to hold the
securities to maturity. Securities HTM are carried at amortized cost.
Debt securities not classified as HTM are classified as available for sale
("AFS"). Securities AFS are carried at fair value with unrealized gains and
losses reported separately through shareholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value
of $125,081,000 were reclassified as AFS. This reclassification resulted in
an increase in total shareholders' equity, net of tax, of $846,177.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower
may be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received unless
such amounts are applied to principal amounts outstanding. Certain loan fees
and direct costs are being deferred and amortized as an adjustment of yield
on the loans.
Provision for loan losses and the adequacy of the allowance for loan losses
are based on management's continuing review and evaluation of the loan
portfolio, current economic conditions, past loss experience and other
pertinent factors. Impaired loans are measured by the present value of
expected cash flows, or the fair value of the collateral of the loan, if
collateral dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1996, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need
for additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method for premises and the
declining-balance method for equipment based principally on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that
are members of the Federal Home Loan Bank ("FHLB") system. The required
investment in the common stock is based on a predetermined formula.
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any
required adjustment is charged to the allowance for loan losses. All
subsequent activity is included in current operations.
Core deposit intangibles resulting from the value of the future stream of
income allocated to customer deposits acquired in acquisitions is being
amortized over a period of 15 years using accelerated methods.
Income tax in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiaries.
Earnings per share have been computed based upon the weighted average common
shares outstanding during each year.
RESTRICTION ON CASH AND DUE FROM BANKS
The Banks are required to maintain reserve funds in cash and/or on deposit
with the Federal Reserve Bank. The reserve required at December 31, 1996,
was $1,565,000.
INVESTMENT SECURITIES
Securities with a carrying value of $25,009,600 and $23,621,600 were pledged
at December 31, 1996 and 1995 to secure certain deposits and for other
purposes as permitted or required by law.
Proceeds from sales of securities AFS during 1995 and 1994 were $9,369,943
and $26,477,204. Gross gains of $160,945 and $71,348 and gross losses of
$144,649 and $225,645 were realized on those sales in 1995 and 1994,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
INVESTMENT SECURITIES
1996
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
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
Mortgage-backed securities 50,157 489 604 50,042
Corporate obligations 244 2 242
Total investment securities $81,020 $943 $776 $81,187
</TABLE>
<TABLE>
<CAPTION>
1995
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 3,016 $ 12 $ 10 $ 3,018
Federal agencies 12,257 259 104 12,412
State and municipal 3,955 80 1 4,034
Mortgage-backed securities 60,610 582 425 60,767
Corporate obligations 480 60 420
Total investment securities $80,318 $933 $600 $80,651
</TABLE>
The amortized cost and fair value of securities AFS at December 31, 1996 by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Maturity Distribution at December 31, 1996
Amortized Cost Fair Value
<S> <C> <C>
Within one year $ 5,509 $ 5,487
Two through five years 11,703 11,634
Six through ten years 13,327 13,696
After ten years 324 328
Subtotal 30,863 31,145
Mortgage-backed securities 50,157 50,042
Totals $81,020 $81,187
</TABLE>
The tax expense (benefit) for gains (losses) on security transactions for the
years ended December 31, 1995 and 1994 was $6,400 and $(61,100).
<TABLE>
<CAPTION>
LOANS AND ALLOWANCE
December 31 1996 1995
<S> <C> <C>
Commercial and industrial loans $ 7,834 $ 7,796
Agricultural production financing 11,178 9,996
Farm real estate 26,843 28,910
Commercial real estate 27,691 24,129
Residential real estate 109,962 103,239
Construction and development 6,589 6,863
Consumer 27,567 18,342
Government guaranteed loans 1,819 2,080
Total loans $219,483 $201,355
</TABLE>
<TABLE>
<CAPTION>
December 31 1996 1995 1994
Allowance for loan losses
<S> <C> <C> <C>
Balances, January 1 $2,754 $2,784 $2,682
Provision for losses 150 30 115
Recoveries on loans 58 100 79
Loans charged off (456) (160) (92)
Balances, December 31 $2,506 $2,754 $2,784
</TABLE>
Information on impaired loans is summarized below.
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
Impaired loans with an allowance $ 535 $ 573
Impaired loans for which the discounted cash
flows or collateral value exceeds the carrying
value of the loan 613
Total impaired loans $1,148 $573
Allowance for impaired loans (included in the
Company's allowance for loan losses) $120 $250
Year Ended December 31 1996 1995
Average balance of impaired loans $1,996 $148
Interest income recognized on impaired loans 112 20
Cash-basis interest included above 112 20
</TABLE>
The Banks have entered into transactions with certain directors, executive
officers, significant shareholders and their affiliates or associates
(related parties). Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other unfavorable features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
<PAGE>
<TABLE>
<CAPTION>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1996 1995
<S> <C> <C>
Balances, January 1 $5,941 $5,124
Changes in composition of related parties (416) (399)
New loans, including renewals 2,986 2,382
Payments, etc., including renewals (547) (1,166)
Balances, December 31 $7,964 $5,941
</TABLE>
<TABLE>
<CAPTION>
PREMISES AND EQUIPMENT
December 31 1996 1995
<S> <C> <C>
Land $ 909 $ 909
Buildings 7,030 7,054
Equipment 5,115 4,720
Total cost 13,054 12,683
Accumulated depreciation (7,135) (6,658)
Net $ 5,919 $ 6,025
</TABLE>
<TABLE>
<CAPTION>
DEPOSITS
December 31 1996 1995
<S> <C> <C>
Noninterest-bearing $ 29,001 $ 30,335
Interest-bearing demand 67,726 64,649
Savings deposits 28,619 28,828
Certificates and other time deposits of
$100,000 or more 32,083 23,512
Other certificates and time deposits 118,973 115,022
Total deposits $276,402 $262,346
</TABLE>
Certificates and other time deposits maturing in years ending
after December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
1997 $ 98,392
1998 36,087
1999 9,803
2000 4,839
2001 1,462
Thereafter 473
Total $151,056
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS
December 31 1996 1995
<S> <C> <C>
Federal funds purchased $ 750
FHLB advances $ 2,000
Securities sold under repurchase
agreements 12,989 10,735
U. S. Treasury demand notes 1,944 505
Total short-term borrowings $15,683 $13,240
</TABLE>
Securities sold under agreements to repurchase consist of obligations of the
Company to other parties. The obligations are secured by U. S. Treasury
securities and Federal agencies, and such collateral is held by a safekeeping
agent. The maximum amount of outstanding agreements at any month-end during
1996 and 1995 totaled $15,903,000 and $15,174,000 and the daily average of
such agreements totaled $11,564,000 and $10,270,000. The weighted average
yield was 5.12% and 5.19% at December 31, 1996 and 1995 while the weighted
average yield during 1996 and 1995 was approximately 5.14% and 5.84%.
The Company had a FHLB advance of $2,000,000 outstanding at December 31,
1995 which was repaid during 1996.
LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of a $5,000,000 secured term
loan. In January, 1992, the Company converted a line of credit to an
$11,200,000 six-year secured term loan. Interest is payable quarterly and
was at the lender's base rate through June 30, 1995. Commencing July 1, 1995,
the interest rate converted to the lender's base rate, less .25%. Principal
payments are due semiannually. The loan is secured by all stock of the Banks
and the loan agreement contains restrictions on debt, guarantees and mergers,
in addition to other affirmative and negative covenants.
A principal payment of $375,00 is due June 30, 1997 with the remaining loan
balance due December 31, 1997. Management intends to refinance all or a
portion of the remaining balance during 1997.
<TABLE>
<CAPTION>
INCOME TAX
Year Ended December 31 1996 1995 1994
Income tax expense
<S> <C> <C> <C>
Currently payable
Federal $1,408 $1,317 $1,560
State 405 395 463
Deferred
Federal 179 (50) (128)
State 9 (11) (31)
Total income tax expense $2,001 $1,651 $1,864
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of federal statutory
to actual tax expense
<S> <C> <C> <C>
Federal statutory income
tax at 34% $1,596 $1,421 $1,610
Tax exempt interest (57) (63) (77)
Effect of state income taxes 273 253 285
Change in tax law 144
Other 45 40 46
Actual tax expense $2,001 $1,651 $1,864
</TABLE>
A cumulative net deferred tax liability is included in other liabilities.
The components of the liability are as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
Differences in accounting for loans $(223) $(263)
Differences in accounting for securities (39) (49)
Differences in accounting for premises
and equipment (675) (730)
Differences in depreciation methods (210) (160)
Differences in accounting for loan
losses 289 506
Differences in accounting for securities
available for sale (72) (138)
State income tax 15 13
Other (39) (11)
Total $(954) $(832)
Assets $ 304 $ 519
Liabilities (1,258) (1,351)
Total $(954) $(832)
</TABLE>
No valuation allowance was necessary at anytime during 1996, 1995 and 1994.
<PAGE>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Retained earnings include approximately $2,162,000 for which no deferred
income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions as of December 31, 1987 for tax
purposes only. Reduction of amounts so allocated for purposes other than tax
bad debt losses including redemption of bank stock or excess dividends, or
loss of "bank" status, would create income for tax purposes only, which
income would be subject to the then-current corporate income tax rate. The
unrecorded deferred income tax liability on the above amount at December 31,
1996 was approximately $735,000.
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Banks' exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual or
notional amount of those instruments. The Banks use the same credit policies in
making such commitments as they do for instruments that are included in the
consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commitments to extend
credit $26,694 $21,097
Standby letters of credit 222 155
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Collateral held varies
but may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties. Standby letters of credit are
conditional commitments issued by the Banks to guarantee the performance of
a customer to a third party.
The Company and Banks may from time to time be subject to claims and lawsuits
which arise primarily in the ordinary course of business. Management is
presently not aware of any such claims.
PREFERRED SHARES
In 1987, the Company issued 30,000 shares of no-par value, $100 stated value,
convertible preferred stock. The Company redeemed 20,000 shares of preferred
stock in 1996, 4,000 shares in 1995 and 3,000 shares in 1994. The total
redemption price was $2,000,000 in 1996, $400,000 in 1995 and $300,000 in
1994. For 1994 through 1996, cash dividends were paid at the rate of 6.34%
per annum.
The Company's Articles of Incorporation permit the Board of Directors,
without further shareholder approval, to establish the relative rights,
designations, preferences and limitations or restrictions of the Company's
preferred stock prior to the issuance thereof.
RESTRICTIONS ON DIVIDENDS
Without prior approval, Union Bank is restricted by Indiana law and
regulations of the DFI, and the FDIC as to the maximum amount of dividends
Union Bank can pay to the parent in any calendar year to Union Bank's
retained net profits (as defined) for that year and the two preceding years.
The OTS regulations provide that a savings bank which meets fully phased-in
1994 capital requirements and is subjected only to "normal supervision", such
as Regional Bank, may pay out 100% of net income to date over the calendar
year and 50% of surplus capital existing at the beginning of the calendar year
without supervisory approval, but with 30 days prior notice to OTS. As a
result of limitations relating to tax bad debt deductions, Regional Bank's
nontaxable dividends to the Company are limited to an amount approximately
equal to net income commencing in 1997.
At December 31, 1996, total shareholders' equity of the Banks was $31,075,000
of which $29,504,000 was restricted or limited from dividend distribution to
the Company. As a practical matter, the Banks may restrict dividends to a
lesser amount because of the need to maintain an adequate capital structure.
REGULATORY CAPITAL
The Company and Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Banks must meet specific capital guidelines
that involve quantitative measures of the Company's and Banks' assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and Banks' capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
At December 31, 1996, management of the Company believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agencies categorized the Banks as well
capitalized under the regulatory framework for prompt corrective action.
There have been no conditions or events since that notification that
management believes have changed this categorization.
<PAGE>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Company's and Banks' actual and required capital amounts
and ratios are as follows:
<TABLE>
<CAPTION>
1996
Required for To Be Well
Actual Adequate Capital(1) Capitalized
December 31 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Indiana United Bancorp
Total capital (1)
(to risk-weighted
assets) $29,934 15.6% $15,312 8.0% N/A
Tier I capital (1)
(to risk-weighted
assets) 27,540 14.4 7,656 4.0 N/A
Tier I capital (1)
(to average assets) 27,540 8.4 13,152 4.0 N/A
Union Bank
Total capital (1)
(to risk-weighted
assets) 21,224 15.8 10,718 8.0 $13,398 10.0%
Tier I capital (1)
(to risk-weighted
assets) 19,547 14.6 5,359 4.0 8,039 6.0
Tier I capital (1)
(to average assets) 19,547 9.0 8,708 4.0 10,885 5.0
Regional Bank
Total risk-based
capital (1)
(to risk-weighted
assets) 12,076 19.2 5,021 8.0 6,277 10.0
Core capital (1)
(to adjusted
tangible assets) 11,415 10.6 3,219 3.0 6,437 6.0
Core capital (1)
(to adjusted total
assets) 11,415 10.6 3,219 3.0 5,369 5.0
</TABLE>
(1) As defined by regulatory agencies
Regional Bank's tangible capital at December 31, 1996 was $11,415,000, which
amount was 10.6 percent of tangible assets and exceeded the required ratio
of 1.5 percent.
LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of mortgage loans
serviced for others totaled $2,960,000 and $2,302,000 at December 31, 1996
and 1995.
EMPLOYEE BENEFIT PLANS
The Company has a defined-contribution retirement plan in which substantially
all employees may participate. The Company matched employees' contributions
at the rate of $.70 for 1996, $.65 for 1995, and $.60 for 1994 for each dollar
contributed. In addition, the Company contributed 6.5% of total compensation
plus an additional 5.7% of each participant's compensation in excess of $62,700
in 1996, $61,200 in 1995 and $60,600 in 1994. Expense for the plan was
$283,518 in 1996, $295,862 in 1995 and $273,053 in 1994.
DEPOSIT INSURANCE EXPENSE
Regional Bank's deposits are presently insured by the Savings Association
Insurance Fund ("SAIF"). A recapitalization plan for the SAIF was signed
into law on September 30, 1996, which provided for a special assessment on
all SAIF-insured institutions to enable the SAIF to achieve the required level
of reserves. The assessment of .065% was based on March 31, 1995 deposits.
Regional Banks' special assessment totaled $545,000 before taxes, and was
charged against current income and included with deposit insurance expense.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents-The fair value of cash and cash equivalents
approximates carrying value.
Short-term Investments-The fair value of short-term investments approximates
carrying value.
Securities-Fair values are based on quoted market prices.
Loans-For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are
based on carrying values. The fair value for other loans are estimated using
discounted cash flow analyses, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
Income Receivable/Interest Payable-The fair value of these amounts
approximates carrying values.
FHLB Stock-Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Deposits-The fair values of noninterest-bearing, interest-bearing demand,
and savings accounts are equal to the amount payable on demand at the balance
sheet date. The carrying amounts for variable rate, fixed-term certificates
of deposit approximate their fair values at the balance sheet date. Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on such time deposits.
Short-term Borrowings-The interest rates for short-term borrowings
approximate market rates, thus the fair value approximates carrying value.
<PAGE>
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Long-term Debt-Long-term debt consists of an adjustable instrument tied to a
variable market interest rate. Fair value approximates carrying value.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31 1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 19,196 $ 19,196 $ 18,929 $ 18,929
Short-term investments 100 100 5,100 5,100
Securities available
for sale 81,187 81,187 80,651 80,651
Loans, net 216,978 217,690 198,600 199,316
Stock in FHLB 1,138 1,138 1,138 1,138
Income receivable 1,952 1,952 1,974 1,974
Liabilities
Deposits 276,402 277,180 262,346 262,831
Borrowings
Short-term 15,683 15,683 13,240 13,240
Long-term 5,000 5,000 6,000 6,000
Interest payable 1,272 1,272 1,389 1,389
</TABLE>
OTHER MATTERS
In October, 1994, the Company sold three underperforming branches of Regional
Bank including loans, deposits and fixed assets in order to concentrate
Regional Bank's resources in its primary market area. The sale resulted in a
gain of $1,228,751 which is shown separately in the consolidated statement
of income.
CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
<TABLE>
<CAPTION>
Condensed Balance Sheet
December 31 1996 1995
Assets
<S> <C> <C>
Cash on deposit and repurchase
agreements $ 1,584 $ 1,940
Investment in subsidiaries 31,171 32,325
Other assets 186 128
Total assets $32,941 $34,393
Liabilities
Long-term debt $ 5,000 $ 6,000
Other liabilities 192 148
Total liabilities 5,192 6,148
Shareholders' Equity 27,749 28,245
Total liabilities
and shareholders' equity $32,941 $34,393
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Income
Year Ended December 31 1996 1995 1994
Income
<S> <C> <C> <C>
Dividends from subsidiaries $4,500 $4,000 $2,425
Fees from subsidiaries 33 55 88
Other income 102 73 77
Total income 4,635 4,128 2,590
Expenses
Interest expense 454 612 631
Salaries and benefits 682 506 413
Professional fees 94 84 117
Other expenses 224 236 210
Total expenses 1,454 1,438 1,371
Income before income tax and
equity in undistributed income
of subsidiaries 3,181 2,690 1,219
Income tax benefit 565 511 463
Income before equity in
undistributed income of
subsidiaries 3,746 3,201 1,682
Equity in undistributed
income ofsubsidiaries (1,053) (672) 1,188
Net Income $2,693 $2,529 $2,870
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
Year Ended December 31 1996 1995 1994
Operating Activities
<S> <C> <C> <C>
Net income $2,693 $2,529 $2,870
(Undistributed) income
of subsidiaries 1,053 672 (1,188)
Other adjustments 71 52 13
Net cash provided by
operating activities 3,817 3,253 1,695
Investing Activities
Purchase of equipment (102) (17) (34)
Proceeds from sale of equipment 17 18
Net cash used by investing
activities (85) (17) (16)
Financing Activities
Payments on long-term debt (1,000) (1,500) (1,800)
Cash dividends (1,088) (1,003) (839)
Redemption of preferred stock (2,000) (400) (300)
Other financing activities (10)
Net cash used by
financing activities (4,088) (2,903) (2,949)
Net Change in Cash on
Deposit and Repurchase
Agreements (356) 333 (1,270)
Cash on Deposit and
Repurchase Agreements,
Beginning of Year 1,940 1,607 2,877
Cash on Deposit and
Repurchase Agreements,
End of Year $1,584 $1,940 $1,607
</TABLE>
<PAGE>
Indiana United Bancorp Directory
Directors
William G. Barron
Chairman and President
Barron Homes, Inc.
Philip A. Frantz
Attorney; Partner
Coldren and Frantz
Glenn D. Higdon
President
Marlin Enterprises, Inc.
Robert E. Hoptry
Chairman and President
Indiana United Bancorp
Martin G. Wilson
Farmer
Edward J. Zoeller
President
E.M. Cummings Veneer
Officers
Robert E. Hoptry
Chairman and President
Jay B. Fager
Treasurer and Chief Financial Officer
Michael K. Bauer
Vice President
Sue Fawbush
Vice President and Secretary
Dennis M. Flack
Vice President
Dawn M. Schwering
Marketing Coordinator
Daryl R. Tressler
Vice President
Suzanne Kendall
Auditor
Subsidiaries Directory
Union Bank and Trust Company
Directors
William G. Barron
Chairman and President
Barron Homes, Inc.
Philip A. Frantz
Attorney; Partner
Coldren and Frantz
Robert E. Hoptry
Chairman and President
Indiana United Bancorp
Lawrence R. Rueff, D.V.M.
Veterinarian
Daryl R. Tressler
Chairman and President
Union Bank and Trust Company
John G. Young
Chairman and Chief Executive Officer
Jay Garment Co.
Executive Administration
Daryl R. Tressler
Chairman and President
Division Managers
W. Brent Hoptry
Senior Vice President
Lending Division
Glenn R. Raver
Senior Vice President
Retail Services and Operation Division
Dee M. Knueven
Senior Insurance Officer and Manager
Insurance Division
Daniel F. Anderson
Senior Trust Officer
Trust Division
James L. Green
Controller
Financial Planning and Control
Regional Federal Savings Bank
Directors
William G. Barron
Chairman and President
Barron Homes, Inc.
Michael K. Bauer
President and Chairman
Regional Federal Savings Bank
D.J. Hines
President
Schuler Realty, Inc.
Robert E. Hoptry
Chairman and President
Indiana United Bancorp
Michael J. Kapfhammer
President
Buckhead Grill
Charles E. MacGregor
Attorney
Wyatt, Tarrant, Combs and Orbison
Marvin L. Slung
Sales Representative
Jeb Advertising
Edward J. Zoeller
President
E.M. Cummings Veneer
Executive Administration
Michael K. Bauer
Chairman and President
Division Managers
Dennis R. Morrison
Senior Vice President
Lending Division
Carmen L. Glenn
Vice President and Treasurer
Financial Planning and Operations Division
James S. Honour, Jr.
Vice President
Retail Services Division
<PAGE>
Inside Back Cover
Indiana United Bancorp Board of Directors
(Picture) (Picture) (Picture)
William G. Barron Philip A. Frantz Glenn D. Higdon
(Picture) (Picture) (Picture)
Robert E. Hoptry Martin G. Wilson Edward J. Zoeller
Shareholder Information
Annual Meeting
Tuesday, May 20, 1997, 10:00AM
Conference Center, Second Floor
Union Bank and Trust Company
201 N. Broadway
Greensburg, Indiana 47240
Corporate Address
Indiana United Bancorp
201 N. Broadway Street
Post Office Box 87
Greensburg, Indiana 47240
Form 10-K
Copies of the Company's 1996 Form 10-K filed with the Securities and
Exchange Commission are available without charge to all shareholders upon
request. Please direct requests to Jay B. Fager, Treasurer and Chief
Financial Officer.
Transfer Agent
Securities Transfer Department
Mid America Bank of Louisville
Post Office Box 1497
Louisville, Kentucky 40201-1497
(800) 925-0810
Common Shares
The common shares of the Company are listed on the NASDAQ National Market
System. In newspaper listings, company shares are frequently listed as
IndUtd. The trading symbol is IUBC.
Market Makers
Market Makers in the Company's common stock include:
J.J.B. Hilliard/W.L. Lyons, Inc.
NatCity Investments, Inc.
Stifel, Nicolaus & Company, Inc.
The range of known per share prices by calendar quarter, based on actual
transactions, excluding commissions, is shown below.
<TABLE>
1996 Q4 Q3 Q2 Q1
<S> <C> <C> <C> <C>
High 29 1/16 27 25 1/2 26 1/4
Low 25 25 23 1/4 24 1/4
Last Sale 29 1/16 25 3/4 24 1/2 24 1/4
</TABLE>
<TABLE>
<CAPTION>
1995 Q4 Q3 Q2 Q1
<S> <C> <C> <C> <C>
High 28 27 1/2 23 23
Low 25 19 1/2 20 19 1/2
Last Sale 25 27 20 1/2 22 1/2
BACK COVER
Indiana United Bancorp
201 N. Broadway P.O. Box 87
Greensburg, Indiana 47240
</TABLE>
EXHIBIT (21)--SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
Union Bank and Trust Company of Indiana Indiana
Regional Federal Savings Bank United States
Kentucky United Bancorp, Inc. Kentucky
EXHIBIT (23)--CONSENT OF GEO. S. OLIVE & CO. LLC
We consent to the incorporation by reference in the Registration Statement
on Form S-8, File No.33-45395, of our report dated February 3, 1997 contained
in the 1996 Annual Report to Shareholders of Indiana United Bancorp, which is
incorporated by reference in this Form 10-K.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Statement of Income and Balance Sheet and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 13,236 0
<INT-BEARING-DEPOSITS> 160 0
<FED-FUNDS-SOLD> 5,900 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 81,187 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 219,483 0
<ALLOWANCE> 2,506 0
<TOTAL-ASSETS> 328,346 0
<DEPOSITS> 276,402 0
<SHORT-TERM> 15,683 0
<LIABILITIES-OTHER> 3,512 0
<LONG-TERM> 5,000 0
0 0
0 0
<COMMON> 1,251 0
<OTHER-SE> 26,498 0
<TOTAL-LIABILITIES-AND-EQUITY> 328,346 0
<INTEREST-LOAN> 18,266 4,808
<INTEREST-INVEST> 5,308 1,332
<INTEREST-OTHER> 393 135
<INTEREST-TOTAL> 23,967 6,275
<INTEREST-DEPOSIT> 10,863 2,838
<INTEREST-EXPENSE> 12,006 3,138
<INTEREST-INCOME-NET> 11,961 3,137
<LOAN-LOSSES> 150 60
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 8,619 2,010
<INCOME-PRETAX> 4,694 1,476
<INCOME-PRE-EXTRAORDINARY> 4,694 1,476
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,693 894
<EPS-PRIMARY> 2.11 0.71
<EPS-DILUTED> 2.11 0.71
<YIELD-ACTUAL> 7.98 0
<LOANS-NON> 1,245 0
<LOANS-PAST> 5 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,754 0
<CHARGE-OFFS> 456 0
<RECOVERIES> 58 0
<ALLOWANCE-CLOSE> 2,506 0
<ALLOWANCE-DOMESTIC> 1,102 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,404 0
</TABLE>
