FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 0-12422
INDIANA UNITED BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1562245
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 NORTH BROADWAY GREENSBURG, INDIANA 47240
(Address of principal executive offices) (Zip Code)
(812) 663-0157
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
As of March 31, 1998 there were outstanding 1,250,897 shares, without
par value of the registrant.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
Consolidated Condensed Statement of Income 4
Consolidated Condensed Statement of Changes in
Shareholders' Equity 5
Consolidated Condensed Statement of Cash Flows 6
Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
Exhibit Index 31
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, Dec 31,
1998 1997
<S> <C> <C>
Assets
Cash and due from banks $ 11,257 $ 12,609
Interest-bearing demand deposits 47 58
Federal funds sold 19,975 31,350
Cash and cash equivalents 31,279 44,017
Securities available for sale 69,524 70,446
Loans 253,573 247,454
Less: Allowance for loan losses 2,803 2,731
Net loans 250,770 244,723
Premises and equipment 6,303 6,402
Federal Home Loan Bank stock 1,138 1,138
Core deposit intangibles 70 76
Accrued interest receivable 2,168 2,074
Other real estate 50 -
Other assets 3,096 2,875
Total assets $364,398 $371,751
Liabilities
Deposits:
Non-interest bearing $ 23,368 $ 37,402
Interest bearing 260,653 252,419
Total deposits 284,021 289,821
Short-term borrowings 12,563 14,669
Federal Home Loan Bank advances 10,000 10,000
Accrued interest payable 1,566 1,430
Other liabilities 2,528 2,629
Total liabilities 310,678 318,549
Guaranteed Preferred Beneficial Interests in
Company's Subordinated Debentures 22,425 22,425
Shareholders' equity
Preferred stock
Authorized-400,000 shares
Issued and outstanding-None - -
Common stock $1 stated value:
Authorized--3,000,000 shares
Issued and outstanding--1,250,897 shares 1,251 1,251
Paid-in surplus 10,677 10,677
Valuation adjustment-Securities AFS 699 611
Retained earnings 18,668 18,238
Total shareholders' equity 31,295 30,777
Total liabilities and shareholders' equity $364,398 $371,751
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
Interest income:
Loans, including fees $5,454 $4,885
Investment securities:
Taxable 1,076 1,250
Tax-exempt 44 48
Federal funds sold 310 37
Interest-bearing deposits 1 2
Total interest income 6,885 6,222
Interest expense:
Deposits 2,958 2,795
Short-term borrowings 126 182
Trust preferred securities 501 -
Long-term debt 134 99
Total interest expense 3,719 3,076
Net interest income 3,166 3,146
Provision for loan losses 123 45
Net interest income after provision
for loan losses 3,043 3,101
Noninterest income:
Securities gains - 3
Other operating income 412 382
Total noninterest income 412 385
Noninterest expense 2,168 2,014
Income before income tax 1,287 1,472
Income tax expense 507 580
Net income $ 780 $ 892
Per common share:
Net income $0.62 $0.71
Cash dividends declared 0.28 0.23
Average common shares outstanding 1,250,897 1,250,897
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES TO SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, January 1 $30,777 $27,749
Net income 780 892
Net change in unrealized gains (losses)
on securities available for sale 88 (254)
Cash dividends on common stock (350) (287)
Balance, March 31 $31,295 $28,100
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 780 $ 892
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 123 45
Depreciation and amortization 182 183
Premiums and discounts amortization on
investment securities 8 17
Accretion of loan and deposit
fair value adjustments 40 23
Amortization and reduction of
core deposit intangibles 6 8
Securities gains - (3)
Net change in
Income receivable (94) (91)
Interest payable 136 (3)
Other adjustments 576 159
Net cash provided by operating activities 1,707 1,230
Cash flows from investing activities:
Net change in short-term investments 11 (6)
Purchases of securities available for sale (1,308) (2,515)
Proceeds from maturities and paydowns
of securities available for sale 350 1,045
Proceeds from sales of securities
available for sale 36 329
Net change in loans (6,119) (9,092)
Purchases of premises and equipment (83) (184)
Other investment activities 924 890
Net cash used by investing activities (6,189) (9,533)
Cash flows from financing activities:
Net change in:
Noninterest bearing, NOW, money market
and savings deposits (9,362) (6,420)
Certificates of deposit 3,562 8,416
Short-term borrowings (2,106) (1,305)
Cash dividends (350) (287)
Net cash provided (used) by
financing activities (8,256) 404
Net decrease in cash and cash equivalents (12,738) (7,899)
Cash and cash equivalents, beginning of period 44,017 19,196
Cash and cash equivalents, end of period $ 31,279 $ 11,297
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars amounts in thousands)
NOTE 1.
The significant accounting policies followed by Indiana United Bancorp
("Company"), its wholly owned bank subsidiaries, Union Bank and Trust
Company of Indiana ("Union Bank") and Regional Federal Savings Bank
("Regional Bank"), and its subsidiary IUB Capital Trust, for interim
financial reporting are consistent with the accounting policies followed
for annual financial reporting. All adjustments, consisting only of normal
recurring adjustments, which in the opinion of management are necessary for
a fair presentation of the results for the periods reported, have been
included in the accompanying consolidated financial statements. The
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of those expected for the remainder of the year.
NOTE 2.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for Sale
at March 31, 1998
Federal agencies $22,968 $ 865 $ 31 $23,802
State and municipal 3,484 77 2 3,559
Corporate and other securities 2,408 9 10 2,407
Mortgage-backed securities 39,496 482 222 39,756
Totals $68,356 $1,433 $265 $69,524
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for Sale
at December 31, 1997
Federal agencies $23,061 $ 813 $ 43 $23,831
State and municipal 3,656 76 3 3,729
Corporate and other securities 1,123 1,123
Mortgage-backed securities 41,583 530 350 41,763
Totals $69,423 $1,419 $396 $70,446
</TABLE>
<TABLE>
<CAPTION>
Beyond
Within 1-5 5-10 10
1 Year Years Years Years Totals
<S> <C> <C> <C> <C> <C>
Maturity Distribution
at March 31, 1998
Federal agencies $3,992 $ 7,758 $12,052 $23,802
State and municipal 251 2,255 827 $ 226 3,559
Corporate and other securities 2,407 2,407
Mortgage-backed securities 63 3,522 4,932 31,239 39,756
Totals $4,306 $13,535 $17,811 $33,872 $69,524
Weighted average yields 5.24% 6.29% 6.77% 6.84% 6.61%
</TABLE>
*Amounts in the table above are based on scheduled maturity or call dates.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
NOTE 3.
<TABLE>
<CAPTION>
March 31 Dec 31
1998 1997
<S> <C> <C>
Loans:
Commercial and industrial loans $ 8,929 $ 10,473
Agricultural production financing 12,141 10,551
Farm real estate 26,530 27,652
Commercial real estate mortgage 27,701 27,538
Residential real estate mortgage 121,898 120,342
Construction and development 8,884 5,288
Consumer 46,176 44,269
Government guaranteed loans purchased 1,314 1,341
Total loans $253,573 $247,454
Underperforming loans:
Nonaccruing loans $200 $255
Accruing loans contractually past due 90 days
or more as to principal or interest payments 20 8
Allowance for loan losses:
Balances, January 1 $2,731 $2,506
Provision for losses 123 283
Recoveries on loans 19 191
Loans charged off (70) (249)
Balances, end of period $2,803 $2,731
NOTE 4.
Deposits:
Noninterest-bearing demand $ 23,368 $ 37,402
Interest-bearing demand 41,987 41,272
Money market deposit accounts 31,996 29,657
Savings 29,252 27,634
Certificates of deposit $100,000 or more 20,046 25,789
Other certificates and time deposits 137,372 128,067
Total deposits $284,021 $289,821
NOTE 5.
Short-term borrowings:
Securities sold under repurchase agreements $11,985 $11,825
U.S. Treasury demand notes 578 2,844
Total short-term borrowings $12,563 $14,669
</TABLE>
<PAGE>
ITEM 2. Management's Discussion and Analysis (Table Dollar Amounts in
Thousands)
Indiana United Bancorp ("Company") is a registered bank holding company
incorporated under the laws of Indiana in 1983, concurrent 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 March 31, 1998, Union Bank held assets totaling $231
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
$132 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. IUB Capital Trust is a business
trust formed in 1997 to issue the guaranteed preferred beneficial interests
in Company's subordinated debentures ("Trust Preferred Securities"). The
Company owns all of the common stock of IUB Capital Trust.
Forward-Looking Statements
Except for historical information contained herein, the discussion in this
Form 10-Q quarterly report includes certain forward-looking statements
based upon management expectations. Factors which could cause future
results to differ from these expectations include the following: general
economic conditions; legislative and regulatory initiatives; monetary and
fiscal policies of the federal government; deposit flows; the costs of
funds; general market rates of interest; interest rates on competing
investments; demand for loan products; demand for financial services;
changes in accounting policies or guidelines; and changes in the quality or
composition the Company's loan and investment portfolios.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
Overview
Strategic Plan
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.
The dynamics of the Plan assure continually evolving goals and 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>
Business Strategy
The Company holds either first or second market share positions as measured
by total deposits in two of the three markets it serves and intends to
pursue growth strategies that result in meaningful market share positions
in other rural or suburban communities. The Company has sought to identify
potential acquisitions in markets that offer prospects of benefiting from
its community banking philosophy and will likely result in meaningful
market share.
In conformity with this strategy, the Company has entered into an agreement
to acquire P.T.C. Bancorp ("PTC"), a bank holding company headquartered in
Brookville, Indiana with total assets of $322 million. The transaction is
regarded by both companies as a merger of equals and will integrate
management and directors of both organizations. The merger is expected to
qualify as a "pooling of interests" for accounting and financial reporting
purposes and is subject to various conditions, including requisite
shareholder and regulatory approvals.
PTC would become a wholly owned subsidiary of the Company, and each
outstanding share of PTC at the effective time of the merger would be
converted into the right to receive 1.075 shares of common stock of the
Company. The Company expects to issue in the aggregate up to 1,136,417
shares of common stock in the merger. The merger is scheduled for closing
on April 30, 1998.
PTC is also community focused, serving rural communities with populations
of 10,000 or less in markets contiguous to the Company's existing locations.
PTC conducts its banking business through 17 offices located in the Indiana
counties of Dearborn, Franklin, Jefferson, Ripley, Rush, Fayette, Decatur,
Switzerland and Wayne.
Many larger midwest banking companies have begun an accelerated program of
branch divestitures. The Company believes many of these branch locations
will be in communities that are compatible with its growth strategies. The
Company intends to bid competitively in seeking to expand through branch
acquisitions.
The Company was recently informed it has been selected, on the basis of a
bidding process, as the purchaser of two such branches in Madison County,
Indiana. Consummation of the branch acquisitions was subject to due
diligence review of the assets of the branches and execution of a
definitive agreement. The definitive agreement, executed in March 1998,
contains customary conditions for transactions of this type. While there
can be no assurance that these branch acquisitions will occur, the Company
expects consummation late in the second quarter 1998. The branch
acquisitions will be integrated into the operations of the Company's
subsidiary, Union Bank, and will include approximately $13.6 million of
loans and approximately $32.2 million of deposits.
Management realized that if the Company was successful in increasing assets
significantly through branch acquisitions, the regulatory capital of the
Company would have been below levels acceptable to management and
regulatory authorities. In preparation for significant growth, the Company
issued $22,425,000 of cumulative Trust Preferred Securities in December
1997. These securities can be used to meet regulatory capital requirements
within prescribed limits. The Company has utilized a portion of the net
proceeds received to retire its long-term debt and intends to employ
remaining funds to finance growth which may include branch acquisitions,
the establishment of de novo branches, acquisitions of other financial
institutions and various other corporate purposes.
<PAGE>
Should the Company be unsuccessful in achieving the growth levels
anticipated or be unable otherwise to substantially deploy the regulatory
capital these funds represent, the interest cost will have an adverse
affect on 1998 results of operations. Even if management achieves its
short-term goals, it is likely that 1998 results of operations will be
adversely affected since the cost of the trust preferred securities will
not be fully offset immediately.
Management believes its growth goals are attainable in the near-term and
that the issuance of the Trust Preferred Securities is in the long-term
best interests of shareholders.
Facilities
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. In an effort to make its services more
accessible and convenient, Regional Bank expended over $600,000 in 1997 to
relocate its Grant Line Branch. In 1998, the Company will relocate the
Westport branch of Union Bank to increase visibility, provide drive-thru
banking and ATM accessibility, and improve ingress and egress. Additional
property improvements are being considered.
Technology
During the past two years, 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 that allow the Company to continue to effectively
compete within a financial service industry that is becoming increasingly
dependent upon technology. The installation of Anytime Access, an
automated voice response information system which allows balance inquiries,
transfers, transaction verification, accesses interest rate and other
product information, was completed in 1997. Also, additional ATMs, laser
printers, optical disk storage and an increase in the power and memory of
the AS400 computer system were acquired.
Year 2000 Computer Issues
In the next two years, many businesses will face a potentially serious
information systems (computer) problem because many software applications
and operational programs written in the past may not properly recognize
calendar dates beginning in the year 2000. This problem could force
computers to either shut down or provide incorrect data or information. In
early 1997, in consultation with software and hardware providers and bank
regulators, the Company began the process of identifying any changes that
may be required to its computer programs and hardware to become year 2000
compliant. While the Company believes it is taking all appropriate steps
to assure year 2000 compliance, it is dependent on vendor compliance to
some extent. The Company is requiring its systems and software vendors to
represent that the services and products provided are, or will be, year 2000
compliant, and contemplates a program of testing compliance. The Company
estimates that its costs related to year 2000 compliance will not be material.
<PAGE>
The "year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two-
digit year value to 00. Consequently, no assurance can be given that year
2000 compliance can be achieved without costs and uncertainties that might
affect future financial results or cause reported financial information not
to be necessarily indicative of future operating results or future
financial condition.
Dividend Reinvestment Plan
In response to shareholder requests, the Company introduced an Automatic
Dividend Reinvestment Plan in early 1997. The plan enables shareholders to
elect to have their cash dividends on all or a portion of shares held
automatically reinvested in additional shares of the Company's common
stock. The stock is purchased on the open market by the Company's transfer
agent and credited to participant accounts at fair value. Dividends are
reinvested on a quarterly basis.
Results of Operations
Earnings for the first quarter of 1998 decreased 13% to $780,000 as compared
to the same quarter of 1997.
Noninterest income in the first quarter of 1998 reflects an increase in
insurance commissions due mainly to higher volume. Trust income and
service charge income increased a total of $12,000 over the prior year
period. Noninterest expense reflects increases in several areas.
Net income per common share for the first quarter equaled $.62 in 1998,
compared to $.71 in 1997.
The Company's return on average total assets for the first quarter was .83%
in 1998 compared to 1.11% in 1997. Return on average common shareholders'
equity for the first quarter was 9.74% in 1998 and 12.96% in 1997.
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. Tax
equivalent first quarter net interest income of $3,186,000 in 1998 increased
slightly from $3,171,000 in 1997.
Throughout the past two years, 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 1997. The Company believes this strategy
greatly enhanced net interest income and will also have a positive effect
on 1998 earnings. Although many of the Company's peer group competitors
reported marginally changed net interest margins for the full year 1997,
the Company increased its net interest margin by 12 basis points.
<PAGE>
Due to the impact of the interest expense associated with the trust
preferred securities issued in December of 1997, net interest margin
decreased to 3.70% or 39 basis points less than the same period last year.
As indicated previously, the interest cost of the regulatory capital these
funds represent will have an adverse effect on 1998 results of operations.
Even if management achieves its short-term growth goals, it is likely that
earnings will be adversely affected since the cost of the trust preferred
securities will not be offset immediately.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(Taxable equivalent basis)(1)
<TABLE>
<CAPTION>
Three months ended
March 31, 1998 March 31, 1997
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ 27 $ 1 5.02% $ 176 $ 2 4.61%
Federal funds sold 22,467 310 5.60% 2,901 37 5.17%
Securities(2):
Taxable 66,189 1,076 6.50% 78,173 1,250 6.40%
Tax-exempt 3,504 64 7.31% 3,941 73 7.41%
Total securities 69,693 1,140 6.54% 82,114 1,323 6.44%
Loans(3):
Commercial 72,284 1,719 9.51% 67,794 1,601 9.58%
Real estate mortgage 129,022 2,576 7.99% 124,212 2,492 8.02%
Instalment 47,007 1,133 9.78% 30,099 761 10.25%
Govt. guaranteed
loans purchased 1,336 26 7.89% 1,605 31 7.83%
Total loans 249,649 5,454 8.76% 223,710 4,885 8.79%
Total earning assets 341,836 6,905 8.10% 308,901 6,247 8.13%
Allowance for loan losses (2,781) (2,500)
Unrealized gains
on securities 1,171 36
Cash and due from banks 9,994 9,586
Premises and equipment 6,349 5,917
Other assets 5,343 4,226
Total assets $361,912 $326,166
LIABILITIES
Interest-bearing deposits:
Interest-bearing
demand deposits $ 41,904 300 2.90% $ 36,635 254 2.81%
Money market
investment accounts 31,155 289 3.76% 30,394 274 3.66%
Savings 27,625 216 3.17% 28,509 226 3.21%
Certificates of
deposit and other
time deposits 158,459 2,153 5.51% 155,449 2,041 5.32%
Total interest-
bearing deposits 259,143 2,958 4.63% 250,987 2,795 4.52%
Short-term borrowings 9,708 126 5.26% 14,274 182 5.17%
Trust preferred securities 22,425 501 9.06%
Long-term debt 10,000 134 5.43% 5,000 99 8.03%
Total interest-
bearing liabilities 301,276 3,719 5.01% 270,261 3,076 4.62%
Noninterest bearing
demand deposits 25,075 24,336
Other liabilities 4,617 3,661
Total liabilities 330,968 298,258
Shareholders' equity 30,944 27,908
Total liabilities
and shareholders'
equity $361,912 3,719 4.40%(4)$326,166 3,076 4.04%(4)
Net interest income $3,186 3.70% $3,171 4.09%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% $20 $25
</TABLE>
(1) Adjusted to reflect income related to securities and loans exempt
from Federal income taxes reduced by nondeductible portion on interest expenses.
(2) Yields for investment securities available for sale are computed
based upon amortized cost.
(3) Nonaccruing loans have been included in the average balances.
(4) Total interest expense divided by total earning assets.
<PAGE>
Provision for Loan Losses
This topic is discussed under the heading "Loans, Credit Risk and the
Allowance and Provision for Possible Loan Losses".
Noninterest Income
First quarter noninterest income in 1998 exceeded the prior year by $27,000
or 7%. Security gains of $3,000 were realized in 1997 compared to no gain
or loss for the current year period.
Service charges on deposit accounts represented the largest component of
first quarter recurring noninterest income, equaling 37% in 1998 and 38% in
1997. Service charges on deposit accounts increased in 1998 by $3,000
primarily due to continued growth in an interest-bearing checking account
introduced in early 1996. Deposit growth and interest rate variables also
affect service charge income. It is anticipated that in 1998 the Company
will experience additional deposit growth, generating higher service charge
income. Insurance commissions increased $13,000 due to an overall higher
level of premiums written. Trust income increased $9,000 over 1997 due to
estate income and a strong stock market. The level of estate assets
administered may cause trust income to fluctuate significantly from year to
year.
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
1st Qtr 1st Qtr
<S> <C> <C>
Insurance commissions $101 $ 88
Trust fees 65 56
Service charges on deposit accounts 151 148
Gain on sales of securities 3
Other income 95 90
$412 $385
</TABLE>
Noninterest Expense
The largest component of noninterest expense is personnel expense.
Personnel expenses increased in the first quarter of 1998 by $88,000, or 8%
as compared to the prior year period. Improvements in technology
implemented throughout the past two years have enabled the Company to
effectively control staffing levels. Normal staff salary adjustments and
increased benefit costs were incurred in both 1998 and 1997.
In the third quarter of 1997, to avert a significant healthcare premium
increase, the Company changed from a "claims paid" plan to a "partially
self-funded" plan. Although the Company-paid portion of the premium
increased, the increase was significantly less than what would have been
absorbed if the old plan were continued. Personnel expenses in 1998 are
expected to increase more than in 1997 due to a corporate-wide initiative
to restructure salary ranges.
<PAGE>
Deposit insurance premiums for the first quarter were $2,000 more in 1998
than the prior year period due to higher levels of deposits. Since the
Bank Insurance Fund ("BIF") reached a mandated funding level in 1995, the
assessment rate for the Company's commercial bank was reduced to the $2,000
minimum level permissible in 1996, and increased to 1.29 cents per $100 of
deposits in 1997 and 1998, which is the lowest prevailing assessment rate.
Through the year 1999, thrift institutions will pay approximately five
times higher assessment rates than commercial banks (6.44 cents versus 1.29
cents per $100 of deposits), but this is a significant reduction from the
23 cents per $100 of deposits assessed against thrifts prior to September
30, 1996. After the period ending in 1999, commercial banks and thrifts
will pay the same assessment rate, currently calculated to be 2.43 cents
per $100 of deposits.
A ratio frequently used to measure the efficiency of a financial
institution is computed by dividing noninterest expense by the total of net
interest income plus noninterest income excluding securities gains or
losses. The lower the ratio, the more efficient the Company is in managing
net interest margin, noninterest income and noninterest expense. The
Company's efficiency ratios were 60.25% for the first quarter of 1998
compared to 56.67% for the same period in 1997. The first quarter
efficiency ratio in 1998 has been adversely impacted by the issuance of the
Trust Preferred Securities in late 1997.
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
1st Qtr 1st Qtr
<S> <C> <C>
Salaries and employee benefits $1,206 $1,118
Premises and equipment expenses 410 391
Professional fees 49 52
Amortization of core deposit intangibles 6 8
Deposit insurance/supervisory assessment 37 35
Stationery, printing, supplies 91 82
Insurance 24 25
Postage 51 33
Other operating expenses 294 270
$2,168 $2,014
</TABLE>
Income Taxes
The effective tax rate for the first quarter was 39% for 1998 and 1997.
The Company and its subsidiaries will file consolidated income tax returns
for 1998.
Financial Condition
Total average assets in the 1998 period increased $35,746,000 over the
comparable period in the prior year.
March 31, 1998 assets decreased to $364,398,000 from $371,751,000 at
December 31, 1997. Securities maturities and repayments, as well as
decreased levels of federal funds sold, funded loan growth and the decline
in total deposits in 1998.
<PAGE>
Average earning assets represented 94% of average total assets for the
first quarter of 1998 compared to 95% last year. Average loans represented
approximately 69% of average assets in the first quarter of 1998 and 1997.
Management intends to continue its emphasis on loan growth throughout 1998.
Average noninterest-bearing deposits at March 31, 1998 increased 3% in 1998
compared to the same period in 1997. Average interest-bearing deposits
increased $8,156,000 or 3% in the first quarter of 1998 compared to the
same period in 1997. Average interest-bearing demand deposits increased
$5,269,000 or 14% in the 1998 period compared to the 1997 period, primarily
due to the continued success of an interest-bearing checking account
introduced early in 1996. Average savings accounts decreased 3%. Average
money market investment accounts increased 3% as compared to the prior
year. Average certificates of deposit and other time deposits increased
approximately 2% at March 31, 1998 compared to the same date in 1997.
Average long-term debt in 1997 represented the Company's loan for the
purchase of Regional Bank in 1991. The remaining balance was paid on
December 31,1997. The Company had negotiated the refinancing of the
remaining balance but elected to pay off the long-term debt with a portion
of the proceeds from the issuance of the Trust Preferred Securities in late
1997. Federal Home Loan Bank ("FHLB") advances represented the balance of
long-term debt in the 1998 period. The FHLB advances were used to fund
loans and other earning assets of Regional Bank.
Trust Preferred Securities in the amount of $22,425,000 were issued on
December 9, 1997. The holders of the Trust Preferred Securities are
entitled to receive preferential cumulative cash distributions, payable
quarterly, at the annual rate of 8.75% of the liquidation amount of $10 per
security. The Company has the right, so long as no default has occurred,
to defer payment of interest at any time, or from time to time for a period
not to exceed 20 consecutive quarters with respect to each deferral period.
Currently, management has no intention of deferring the payment of
interest. The Trust Preferred Securities have a preference under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the common stock. The holders of
the Trust Preferred Securities have no voting rights except in limited
circumstances. The Trust Preferred Securities are traded on the NASDAQ
National Market under the symbol "IUBCP". The Trust Preferred Securities
are not insured by the BIF, SAIF or FDIC, or by any other governmental
agency. The Trust Preferred Securities qualify as Tier 1 capital or core
capital with respect to the Company under the risk based capital guidelines
established by the Federal Reserve. Under such guidelines, the Trust
Preferred Securities cannot constitute more than 25% of the total Tier 1
capital of the Company. The amount of Trust Preferred Securities in excess
of the 25% limitation will constitute Tier 2 capital, or supplementary
capital, of the Company.
Shareholders' equity was $31,295,000 on March 31, 1998 compared to
$28,100,000 on March 31, 1997. Book value per common share increased to
$25.02 or 2% from $24.60 at year-end 1997. The unrealized gain on
securities available for sale, net of taxes, totaled $699,000 or $.56 per
share at March 31, 1998 compared to an unrealized gain of $611,000 or $.49
per share at December 31, 1997. Excluding the net unrealized gains or
losses on securities available for sale, book value per share was $24.46 at
March 31, 1998 or an increase of 1% over the comparable book value at year-
end 1997.
<PAGE>
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 $6,119,000 or 2% since December 31, 1997, primarily
reflecting the expansion of the consumer loan portfolio and management's
emphasis on indirect automobile financing that began in late 1995 and has
continued to the present. Total loans increased $24,998,000 or 11% since
March 31, 1997 and consumer loans increased $15,644,000 or 51% since that
same date. The Company's emphasis on increasing consumer loans provides
greater diversification within the portfolio and generates higher gross
yields than residential real estate loans. Residential real estate loans
continue to represent a significant portion of the total loan portfolio.
Such loans represented 48% and 50% of total loans at March 31, 1998 and
1997. Of the total residential real estate portfolio, approximately 53%
are fixed rate and 47% are variable rate loans at March 31, 1998. The
Company has traditionally made loans only for its own portfolio and has not
followed the practice of many other financial institutions of originating
loans for sale in the secondary market. Although the Company limits its
exposure to long-term fixed rate residential mortgage loans and generally
observes 20% minimum downpayment guidelines, it originated fixed rate loans
and loans with little or no downpayment for a noncompeting mortgage lender
during 1997 and 1996. This program assisted the Company in serving all
segments of the community without incurring unacceptable levels of credit
exposure or interest rate risk and provided additional fee income. To meet
its commitment to serve all segments of the community, the Company intends
to continue originating similar residential mortgage loans for, and on
behalf of, noncompeting lenders.
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 do 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.
The provision for loan losses was $123,000 in 1998 compared to $45,000 in
1997. The provisions in 1998 and 1997 reflected both overall loan growth
and an increase in greater risk-profile consumer loans.
<PAGE>
Net chargeoffs were $51,000 at March 31, 1998 compared to $58,000 on March
31, 1997. As a percentage of average loans, net chargeoffs equaled .02%
and .03% respectively for March 31, 1998 and 1997. In prior years, the
Company outperformed its peer group's net loan loss average and that trend
is expected to continue in 1998. Management is not aware of any trend
which is likely to cause the level of net chargeoffs in 1998 to materially
exceed the level of chargeoffs experienced in 1997, beyond the impact of
loans acquired as the result of the proposed PTC merger or the purchase of
branches.
Foreclosed real estate held by the Company at March 31, 1998 consists of a
single property.
Management maintains a listing of loans warranting either the assignment of
a specific reserve amount or other special administrative attention. The
Board of Directors of each subsidiary reviews this listing monthly,
together with a listing of all classified loans, nonaccrual loans and loans
delinquent 30 days or more.
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.
<PAGE>
Summary of Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 Year ended
thru December 31,
March 31 1997
<S> <C> <C>
Balance at beginning of period $2,731 $2,506
Chargeoffs:
Commercial 26
Commercial real estate mortgage
Residential real estate mortgage 5 26
Consumer 65 197
Total chargeoffs 70 249
Recoveries:
Commercial 3 108
Commercial real estate mortgage
Residential real estate mortgage 1 25
Consumer 15 58
Total recoveries 19 191
Net chargeoffs 51 58
Provision for loan losses 123 283
Balance at end of period $2,803 $2,731
Ratio of net chargeoffs to average loans
outstanding during the period .02% .02%
Ratio of provision for loan losses to
average loans outstanding during
the period .05% .12%
Ratio of allowance to total loans at
end of period 1.11% 1.10%
</TABLE>
<PAGE>
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, 1998 December 31, 1997
% of loans % of loans
in category in category
Amount to total loans Amount to total loans
<S> <C> <C> <C> <C>
Real estate:
Residential $ 139 48% $ 137 49%
Farm real estate 13 10 14 11
Commercial 301 11 300 11
Construction and development 95 4 55 2
Total real estate 548 73 506 73
Commercial:
Agribusiness 157 4 142 4
Other commercial 155 4 169 4
Total commercial 312 8 311 8
Consumer 387 18 369 18
Government guaranteed loans 1 1
Unallocated 1,556 - 1,545 -
Total $2,803 100% $2,731 100%
</TABLE>
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 March 31, 1998 is considered adequate by management.
Investment Securities
Investment securities offer flexibility in the Company's management of
interest rate risk, and is an important source of liquidity as a response
to changing characteristics of assets and liabilities. The Company's
investment policy prohibits trading activities and does not allow
investment in high-risk derivative products, junk bonds or foreign
investments.
As of March 31, 1998, all investment securities are classified as
"available for sale" ("AFS") and are carried at fair value with unrealized
gains and losses, net of taxes, excluded from earnings and reported as a
separate component of shareholders' equity. A net unrealized gain of
$699,000 was recorded to adjust the AFS portfolio to current market value
at March 31, 1998, compared to a net unrealized loss of $159,000 at March
31, 1997.
At March 31, 1998, the tax equivalent yield of the investment securities
portfolio was 6.61%, representing an increase from 6.49% at March 31, 1997.
The increase since 1997 was primarily the result of selling certain lower-
yielding securities at a loss and lengthening the maturity of purchases
compared to the balance of the portfolio.
<PAGE>
Variable rate securities comprised 48% of the total portfolio on March 31,
1998 compared to 49% on March 31, 1997. The reduction of variable rate
securities extended the weighted average repriceable life of the portfolio
to 3.08 years compared to 2.24 years in 1997.
Sources of Funds
The Company relies primarily on customer deposits, securities sold under
repurchase agreements ("Repos") and shareholders' equity to fund earning
assets. FHLB advances are also used to provide additional funding.
Deposits generated within local markets provide the major source of funding
for earning assets. Average total deposits were 83% and 89% of total
earning assets at March 31, 1998 and 1997. Total interest-bearing deposits
averaged 91% of average total deposits at March 31, 1998 and 1997.
Management constantly strives to increase the percentage of transaction-
related deposits to total deposits due to the positive effect on earnings.
Average short-term borrowings decreased $4,566,000 or 32% due mainly to the
decrease in the use of Repos. 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 has utilized large denomination
certificates of deposit since year end 1996 to replace a portion of
customer funds previously invested in Repos.
Average long-term debt increased $5,000,000 at March 31, 1998 compared to
March 31, 1997. FHLB advances that mature in early 1999 represented all
of the increase. The FHLB advances were used to fund loans and other
earnings assets of Regional Bank. Depending upon the level of loan demand,
management may again elect to use additional FHLB advances in 1998 as part
of its cash management strategy. The Company paid off its long-term debt
on December 31, 1997.
Capital Resources
Total shareholders' equity increased $3,195,000 to $31,295,000 at March 31,
1998 as compared to March 31, 1997.
The Federal Reserve Board and other regulatory agencies have adopted risk-
based capital guidelines that 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 March 31, 1998, Tier 1 capital to total average assets was
11.08%. Total capital to risk-adjusted assets was 23.83%. 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.
<PAGE>
The Trust Preferred Securities qualify as Tier 1 capital or core capital
with respect to the Company under the risk-based capital guidelines
established by the Federal Reserve. Under such guidelines, capital
received from the proceeds of the sale of Trust Preferred Securities cannot
constitute more than 25% of the total Tier 1 capital of the Company.
Consequently, the amount of Trust Preferred Securities in excess of the 25%
limitation will constitute Tier 2 capital of the Company.
The Company declared and paid common dividends of $.28 per share in the
first quarter of 1998 and $.23 for the same quarter in 1997. Book value
per common share at quarter end increased to $25.02 from $22.46 in 1997.
The net adjustment for AFS securities increased book value by $.56 at March
31, 1998 and decreased book value by $.13 at March 31, 1997. Depending on
market conditions, the adjustment for AFS securities can cause significant
fluctuations in equity.
Liquidity
Liquidity management involves maintaining sufficient cash levels to fund
operations and to meet the requirements of borrowers, depositors, and
creditors. Higher levels of liquidity bear higher corresponding costs,
measured in terms of lower yields on short-term, more liquid earning
assets, and higher interest expense involved in extending liability
maturities. Liquid assets include cash and cash equivalents, loans and
securities maturing within one year, and money market instruments. In
addition, the Company holds $65,218,000 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 arise from declines in
deposits or other funding sources, funding of loan commitments and requests
for new loans. The Company's strategy is to fund assets to the maximum
extent possible with core deposits that provide a sizable source of
relatively stable and low-cost funds. Average core deposits funded
approximately 83% of total earning assets at March 31, 1998 compared to
approximately 89% at March 31, 1997.
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 that would materially affect liquidity, capital
resources or operations.
Rate Sensitivity and Interest Rate Risk
At March 31, 1998, the Company held approximately $181,342,000 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 quarter ended March
31, 1998 appears below. Core deposits are distributed or spread among the
various repricing categories based upon historical patterns of repricing
which are reviewed periodically by management. The assumptions regarding
these repricing characteristics greatly influence conclusions regarding
interest sensitivity. Management believes its assumptions regarding these
liabilities are reasonable.
<PAGE>
Effective asset/liability management requires the maintenance of a proper
ratio between maturing or repriceable interest-earning assets and interest-
bearing liabilities. It is the policy of the Company that rate-sensitive
assets less rate-sensitive liabilities to total assets are kept within a
range of 80% to 130%. The Company will seek to attain a neutral gap
position in 1998 based upon its the belief that the current interest rate
environment will remain relatively stable throughout 1998. In any event,
the Company does not anticipate that its earnings will be materially
impacted in 1998, regardless of the extent or the direction interest rates
may vary.
Asset/liability management strategies are developed by the Company to
manage market risk. Market risk is the risk of loss in financial
instruments including investments, loans, deposits and borrowings arising
from adverse changes in prices/rates. Interest rate risk is the Company's
primary market risk exposure, and represents the sensitivity of earnings to
changes in market interest rates. Stategies are developed that impact
asset/liability committee activities based on interest rate risk
sensitivity, board policy limits, desired sensitivity gaps and interest
rate trends.
<PAGE>
Rate Sensitivity Analysis at March 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Maturing or Repricing
Over 5
Years or
3 Months 1 Year 3 Years 5 Years Insensitive Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans $ 65,455 $ 56,019 $ 38,914 $ 34,446 $ 58,739 $253,573
Securities 23,436 15,272 7,993 6,817 16,006 69,524
Federal funds sold 19,975 19,975
Interest-bearing
deposits in banks 47 47
FHLB stock 1,138 1,138
Total interest-
earning assets 110,051 71,291 46,907 41,263 74,745 344,257
Other assets 22,944 22,944
Allowance for
loan losses (2,803) (2,803)
Total assets $110,051 $ 71,291 $ 46,907 $ 41,263 $ 94,886 $364,398
Interest-bearing liabilities
Interest-bearing
demand $ 16,794 $ 8,399 $ 8,397 $ 8,397 $ 41,987
Savings 8,574 6,388 7,145 7,145 29,252
Money market 15,999 15,997 31,996
Certificate of
deposit 43,908 57,405 44,234 11,273 $ 598 157,418
Funds borrowed 12,483 10,080 22,563
Trust preferred
securities 22,425 22,425
Total interest-
bearing
liabilities 97,758 98,269 59,776 26,815 23,023 305,641
Demand deposits 23,368 23,368
Other liabilities 4,094 4,094
Stockholders' equity 31,295 31,295
Total liabilities
and Shareholders'
equity $ 97,758 $98,269 $59,776 $26,815 $81,780 $364,398
Rate-sensitive gap (assets
less liabilities) $ 12,293 ($26,978)($12,869) $14,448 $13,106
Rate-sensitive gap
(cumulative) $ 12,293 ($14,685)($27,554)($13,106)
Percent of total
assets (cumulative) 3.4% (4.0%) (7.6%) (3.6%)
Rate-sensitive assets/
liabilities (cumulative) 112.6% 92.5% 89.2% 95.4%
</TABLE>
<PAGE>
The following table provides information about the Company's significant
financial instruments at March 31, 1998 that are sensitive to changes in
interest rates. The table presents principal cash flows and related
weighted average interest rates by maturity dates.
Principal Cash Flows and Weighted Average Interest Rates By Maturity Dates
(Dollars in thousands)
<TABLE>
<CAPTION>
There Fair
March 31 1998 1999 2000 2001 2002 after Total value
(Maturity date)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
securities
Fixed rate $ 2,200 $ 2,673 $ 1,711 $ 4,364 $ 1,660 $24,386 $ 36,994 $ 36,994
Avg interest
rate 5.27% 5.64% 7.00% 6.26% 7.41% 7.16% 6.83%
Variable rate $ 20 $ 3,971 $ 48 $ 68 $28,422 $ 32,530 $ 32,530
Avg interest
rate 7.00% 5.01% 7.00% 7.63% 6.57% 6.38%
Loans
Fixed rate $ 3,588 $ 4,145 $ 6,630 $11,201 $19,820 $85,210 $130,594 $131,395
Avg interest
rate 9.39% 8.80% 9.04% 8.27% 8.75% 9.22% 8.39%
Variable rate $ 14,492 $ 7,595 $ 3,318 $ 2,089 $ 2,066 $93,419 $122,979 $122,979
Avg interest
rate 9.24% 9.19% 8.69% 9.27% 8.31% 8.44% 8.60%
Liabilities
NOW, money
market and
savings
deposits
Variable rate $103,235 $103,235 $103,235
Avg interest
rate 3.08% 3.08%
Certificates
of deposit
Fixed rate $101,297 $34,220 $13,359 $ 4,764 $ 3,176 $ 602 $157,418 $158,384
Avg interest
rate 5.33% 5.78% 5.72% 6.05% 6.05% 6.62% 5.50%
Borrowings
Fixed rate $ 21,985 $ 21,985 $ 21,985
Avg interest
rate 5.27% 5.27%
Variable rate $ 578 $ 578 $ 578
Avg interest
rate 5.40% 5.40%
Trust preferred securities
Fixed rate $22,425 $ 22,425 $ 24,107
Avg interest
rate 8.75% 8.75%
</TABLE>
<PAGE>
The table presents only a static measurement of asset and liability volumes
based on maturity, cash flow estimates and interest rates. It does not
reflect the differences in the timing and degree of repricing of assets and
liabilities due to interest rate changes. In analyzing interest rate
sensitivity, management considers these differences and incorporates other
assumptions and factors, such as balance sheet growth and prepayments, to
better measure interest rate risk. The Company cannot make any assurances
as to the outcome of these assumptions, nor can it assess the impact of
customer product preference changes and competitive factors as well as
other internal and external variables. In addition, this analysis cannot
reflect actions taken by the asset/liability management committees;
therefore, this analysis should not be relied upon as indicative of
expected operating results.
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 Financial Accounting Standards Board ("FASB") issued Statement No. 130,
Reporting Comprehensive Income, establishing standards for the reporting of
comprehensive income and its components in financial statements. Statement
No. 130 is applicable to all entities that provide a full set of financial
statements. Enterprises that have no items of other comprehensive income
in any period presented are excluded from the scope of this Statement.
Statement No. 130 is effective for interim and annual periods beginning
after December 15, 1997. Earlier application is permitted. The Company
will adopt Statement No. 130 during fiscal year 1998.
The FASB issued Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, which supersedes Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement No.
131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas
and major customers. Statement No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker
in deciding how to allocate resources and in assessing performance.
<PAGE>
This standard is effective for financial statement periods beginning after
December 15, 1997, and requires comparative information for earlier years
to be restated. Due to the recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, it may have on the
Company's future financial statement disclosures.
OTHER
The Securities and Exchange Commission ("Commission") maintains a Web site
that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission, including the Company. That address is http://www.sec.gov.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K.
27: Financial Data Schedule (electronic filing only)
b) No report on Form 8-K was filed during the quarter for which this
Quarterly Report is filed.
No other information is required to be filed under Part II of this form.
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INDIANA UNITED BANCORP
April 28, 1998 By:/s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
April 28, 1998 By:/s/Jay B. Fager
Jay B. Fager
Chief Financial Officer,
Treasurer and Principal
Accounting Officer
<PAGE>
INDIANA UNITED BANCORP
FORM 10-Q
EXHIBIT INDEX
Exhibit Page
27 Financial Data Schedule (electronic filing only)
<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>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 11,257 0
<INT-BEARING-DEPOSITS> 47 0
<FED-FUNDS-SOLD> 19,975 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 69,524 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 253,573 0
<ALLOWANCE> 2,803 0
<TOTAL-ASSETS> 364,398 0
<DEPOSITS> 284,021 0
<SHORT-TERM> 12,563 0
<LIABILITIES-OTHER> 26,519 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 1,251 0
<OTHER-SE> 30,044 0
<TOTAL-LIABILITIES-AND-EQUITY> 364,398 0
<INTEREST-LOAN> 5,454 5,454
<INTEREST-INVEST> 1,120 1,120
<INTEREST-OTHER> 311 311
<INTEREST-TOTAL> 6,885 6,885
<INTEREST-DEPOSIT> 2,958 2,958
<INTEREST-EXPENSE> 3,719 3,719
<INTEREST-INCOME-NET> 3,166 3,166
<LOAN-LOSSES> 123 123
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,168 2,168
<INCOME-PRETAX> 1,287 1,287
<INCOME-PRE-EXTRAORDINARY> 1,287 1,287
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 780 780
<EPS-PRIMARY> 0.62 0.62
<EPS-DILUTED> 0.62 0.62
<YIELD-ACTUAL> 8.10 0
<LOANS-NON> 200 0
<LOANS-PAST> 20 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,731 0
<CHARGE-OFFS> 70 0
<RECOVERIES> 19 0
<ALLOWANCE-CLOSE> 2,803 0
<ALLOWANCE-DOMESTIC> 1,247 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,556 0
</TABLE>
