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, 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 (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) 663-0157
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 $76,949,900 as of March 10, 1999.
As of March 10, 1999, there were outstanding 4,774,628 common shares, without
par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
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1998 Annual Report to Shareholders Part II (Items 5 through 8)
Definitive Proxy Statement for
Annual Meeting of Shareholders
to be held May 18, 1999 Part III (Items 10 through 13)
EXHIBIT INDEX: Page 9
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FORM 10-K TABLE OF CONTENTS
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Page
Part I
Item 1 - Business 3
Item 2 - Properties 7
Item 3 - Legal Proceedings 7
Item 4 - Submission of Matters to a Vote of Security Holders 7
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6 - Selected Financial Data 8
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7A - Quantitative and Qualitative Disclosures About
Market Risk 8
Item 8 - Financial Statements and Supplementary Data 8
Item 9 - Disagreements on Accounting and Financial Disclosure 8
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 9 - 10
Signatures 11
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.
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PART I
ITEM 1. BUSINESS.
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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 to
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").
On April 30, 1998, the Company completed a merger of equals with P.T.C. Bancorp,
Brookville, Indiana. People's Trust Company, ("People's Trust") the wholly owned
subsidiary of P.T.C. Bancorp had more than $300 million in assets. This
transaction was regarded by both companies as a merger of equals and was
accounted for as a "pooling of interests" for accounting and financial reporting
purposes.
The Company operates 35 offices in 14 Indiana counties with 360 employees. As of
December 31, 1998, the Company had consolidated assets of $828 million,
consolidated deposits of $710 million and shareholders' equity of $59 million.
Through its Banks, 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 letters of credit and repurchase agreements.
The lending activities of the Banks are separated into primarily the categories
of commercial/agricultural, real estate and consumer. Loans are originated by
the lending officers of the Banks subject to limitations set forth in lending
policies. The Board of Directors reviews and approves loans up to the Banks'
legal lending limit, monitors concentrations of credit, problem and past due
loans and chargeoffs of uncollectible loans and formulates loan policy.
The Banks maintain conservative loan policies and underwriting practices in
order to address and manage loan risks. These policies and practices include
granting loans on a sound and collectible basis, serving the legitimate needs of
the community and the general market area while obtaining a balance between
maximum yield and minimum risk, ensuring that primary and secondary sources of
repayment are adequate in relation to the amount of the loan, developing and
maintaining adequate diversification of the loan portfolio as a whole and of the
loans within each category and developing and applying adequate collection
policies.
Commercial loans include secured and unsecured loans, including real estate
loans, to individuals and companies and to governmental units within the market
area of the Banks for a myriad of business purposes.
Agricultural loans are generated in the Banks markets. Most of the loans are
real estate loans on farm properties. Loans are also made for agricultural
production and such loans, are generally reviewed annually.
Residential real estate lending has been the largest component of the loan
portfolio for many years. All affiliate banks have generated residential
mortgages for their own portfolios. In addition, People's Trust has been
originating residential mortgages for sale into the secondary market since 1990
and has extended its expertise to the other affiliates so that in 1999 all
affiliates will originate for the secondary market as well as continue to grow
their internal portfolios. At December 13, 1998, People's Trust was servicing a
$150 million portfolio which was increased from $109 million and $86 million at
year end 1997 and 1996. By originating loans for sale in the secondary market,
the Company can more fully satisfy customer demand for fixed rate residential
mortgages and increase fee income.
Consumer lending includes secured and unsecured loans for personal, family or
household purposes, such as automobile installment loans and personal lines of
credit. Consumer lending has increased throughout 1998 allowing the Company to
grow its portfolio to approximately $71 million. In addition to providing
greater diversification within the loan portfolio, consumer loans also provide a
higher gross yield than residential real estate mortgages.
The principal source of revenues for the Company is interest and fees on loans,
which accounted for 73.7% of total revenues in 1998, 74.4% in 1997 and 71.8% in
1996.
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The Company's investment securities portfolio is comprised of U. S. Treasuries,
federal agencies, state and municipal bonds, mortgage-backed securities and
corporate securities. The Company has classified 90% of its investment portfolio
as available for sale, with market value changes reported separately in
shareholders' equity. Funds invested in the investment portfolio generally
represent funds not immediately required to meet loan demand. The Company's
investment portfolio accounted for 14.6% of total revenues in 1998, 15.4% in
1997 and 18.2% in 1996. As of December 31, 1998, the Company had not identified
any securities as being "high risk" as defined by the FFIEC Supervisory Policy
Statement on Securities Activities.
The primary sources of funds for the Banks are deposits generated in local
market areas. To attract and retain stable depositors, the Banks market various
programs for demand, savings and time deposit accounts. These programs include
interest and noninterest bearing demand and individual retirement accounts. The
Company also purchased seven branch facilities and their correlating deposits in
the third and fourth quarters of 1998 from large regional competitors. In all,
more than $121 million in deposits were acquired, together with approximately
$21 million in consumer and small business loans.
Currently, national retailing and manufacturing subsidiaries, brokerage and
insurance firms and credit unions are fierce competitors within the financial
services industry. Mergers between financial institutions within Indiana and
neighboring states, which became permissible under the Interstate Banking and
Branching Efficiency Act of 1994, have added competitive pressure. The
permissibility of banks and bank holding companies to acquire thrift
institutions will undoubtedly further redefine the competitive marketplace.
The Company's Banks are located in predominantly non-metropolitan areas and
their business is centered in loans and deposits generated within markets
considered 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.
BRANCH PURCHASES
The Company has signed an agreement with Bank One to acquire four branch banking
facilities in Henry and Wayne counties, Indiana. The Company will integrate
these offices into People's Trust. The Company expects the consummation of this
purchase to occur in the first quarter of 1999. The branch acquisitions will
include approximately $2 million of loans and $100 million of deposits. In
addition, The Company has signed a loan agreement for two loans. The first is a
70 month term loan for $8 million calling for quarterly interest and ten equal
semi-annual principal payments beginning in December, 1999. The second loan is a
$3 million line which can be drawn upon for general corporate and cash flow
needs. Both loans are tied to the "libor" rate and are considered adjustable.
The Company leveraged itself in order that all affiliate banks could maintain a
"well-capitalized" tier 1 capital rating by the FDIC.
EMPLOYEES
As of December 31, 1998, the Company and its subsidiaries had approximately 360
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 ("ACT"). 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, the Company 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 ACT, a BHC is, with limited exceptions, prohibited from acquiring
direct or indirect ownership or control of voting stock of any company that 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. These activities include: operating a
savings association, mortgage company, finance company, credit card or factoring
company; performing certain data processing operations; providing investment and
financial advice; and, acting as an insurance agent for certain types of
credit-related insurance.
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.
4
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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 that permits reciprocal entry by Indiana BHCs. Under the ACT, 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 and People's Trust are 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 represent an
unsafe and unsound banking practice or violation of law.
The deposits of Union Bank and People's Trust 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, thrift
institutions paid approximately five times higher assessment rates than
commercial banks (6.44 cents versus 1.29 cents per $100 of deposits). After a
three-year period, BIF and SAIF-insured institutions will pay the same
assessment rate of 2.43 cents per $100 of deposits.
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, 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.
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. The federal banking
agencies have issued guidelines establishing standards for safety and soundness,
for operational and managerial standards and compensation standards. The federal
banking agencies have issued guidelines for asset quality and earnings.
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 that provides a measure of the change in a bank's economic value.
5
<PAGE>
The results of the supervisory and internal models would be one factor
regulators would 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 that, in most situations, will reduce the competitiveness of the
institution.
The Riegle Community Development and Regulatory Improvement Act of 1994 ("1994
Act") made several changes in existing law affecting bank holding companies.
These include a reduction in the minimum post-approval antitrust review waiting
period for depository institution mergers and acquisitions, and the substitution
of a notice for an application when a bank holding company proposes to engage
in, or acquire a company to engage in, nonbank activities. The 1994 Act also
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.
The Riegle-Neal interstate Banking and Branching Efficiency Act of 1994
("Branching Act") substantially changed the geographic constraints applicable to
the banking industry. In general, the Branching Act permits BHCs that are
adequately capitalized and adequately managed to acquire banks located in any
other state, subject to certain total deposit limitations. Effective June 1,
1997, the Branching Act also allows banks to establish interstate branch
networks through acquisitions of other banks. Establishment of de novo
interstate branches or the acquisition of individual branches of a bank in
another state is also allowed if authorized by state law. Institutions must
maintain a loan activity-to-deposit ratio within a state at least equal to
one-half of the average percentage for all banks in the state or the
institution's federal regulator may close the branch and restrict the
institution from opening new branches in the state. The Branching Act allowed
individual states to "opt out" of certain provisions by enacting appropriate
legislation prior to June 1, 1997.
The monetary policies of regulatory authorities have a significant effect of 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 assessment was
repealed.
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 BHCs to
maintain a minimum Tier 1 leverage ratio of 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, 1998, the
Company's leverage ratio of capital to total assets was 8.3%.
The FRB, OTS and FDIC each have approved the imposition of "risk-adjusted"
capital ratios on BHCs and financial institutions. The Company's Tier 1 Capital
to Risk-Weighted Assets Ratio was 12.1% and its Total Capital to Risk-Weighted
Assets Ratio was 13.7% at December 31, 1998. The Company's Banks had capital to
asset ratios and risk-adjusted capital ratios at December 31, 1998, in excess of
the applicable regulatory minimum requirements.
An assessment of a bank's exposure to declines in the economic value of its
capital due to changes in interest rates is included in evaluations of capital
adequacy by federal regulators. A joint policy statement has been issued by
federal regulators to provide guidance on sound practices for managing interest
rate risk. The policy statement contains the various factors to be considered
and describes the board of directors' responsibilities in implementing a risk
management process. The requirements of a bank's senior management in ensuring
the effective management of interest rate risk is described and the elements to
be contained in a risk management process are specified.
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Federal regulators have issued final regulations revising risk-based capital
standard and the regulatory framework for measuring market risk. Any BHC or bank
with significant exposure to market risk must measure such risk internally and
maintain adequate capital to support that exposure.
YEAR 2000 ("Y2K") COMPUTER ISSUES
In the next year, many large companies will face a potentially serious
information systems (computer) problem because many software application 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. The Company began the
process of identifying the changes required to its computer programs and
hardware, in consultation with software and hardware providers and bank
regulators, in early 1997. The Company has developed and implemented a Y2K Plan
calling for a review of all computer-based equipment, software and services.
While the Company is taking all appropriate steps to assure Y2K compliance, it
is dependent on vendor compliance to some extent. The Company has required its
systems and software vendors to represent that the services and products
provided are Y2K compliant. The Company has begun a testing program for its own
compliance satisfaction. The Company has allocated hundreds of man-hours over
the past two years to ensure compliance. The Company expended $30 thousand in
capital expenditures in 1997 and 1998 to ensure all systems are compliant and
expects to spend an additional $120 thousand in 1999 to complete the process.
The Company's subsidiaries have been reviewed by their regulators to ensure the
Company's plan and testing is timely and addressing all systems.
The Y2K 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 Y2K 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.
ITEM 2. PROPERTIES.
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Indiana United Bancorp owns no physical properties and has no need for space
other than what is available at the offices of its subsidiaries. Its
subsidiaries own, or lease, all of the facilities from which they conduct
business. During 1998, the Company relocated the Westport Branch of Union Bank
and in 1999 is considering relocating certain People's Trust branches.
Relocating the Westport Branch and the possibility of relocating certain
People's Trust branches is intended to increase visibility, enhance
drive-through banking and ATM accessibility and improve ingress and egress. The
Company has 35 locations of which People's Trust has 17, Union Bank has 12 and
Regional Bank has 6. At December 31, 1998, the Company had $12.5 million
invested in premises and equipment.
ITEM 3. LEGAL PROCEEDINGS.
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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 material claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted during the fourth quarter of 1998 to a vote of
security holders, through the solicitation of proxies or otherwise.
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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The information required under this item is incorporated by reference to the
Company's Annual Report to Shareholders, Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
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The information required under this item is incorporated by reference to the
Company's Annual Report to Shareholders, Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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The information required under this item is incorporated by reference to the
Company's Annual Report to Shareholders, Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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The information required under this item is incorporated by reference to the
Company's Annual Report to Shareholders, Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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The financial statements and supplementary data required under this item are
incorporated herein by reference to the Company's Annual Report to Shareholders,
Exhibit 13.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
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In connection with its audits for the two most recent fiscal years ended
December 31, 1998, 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.
8
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PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
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<TABLE>
<CAPTION>
Included In
Annual
Report
------------
<S> <C>
(a)1. Financial statements
Indiana United Bancorp and Subsidiary
Independent auditor's report 21
Consolidated balance sheet at December 31, 1998 and 1997 22
Consolidated statement of income, years ended December 31,
1998, 1997 and 1996 23
Consolidated statement of cash flows, years ended December 31,
1998, 1997 and 1996 25
Consolidated statement of shareholders' equity,
years ended December 31, 1998, 1997 and 1996 24
Notes to consolidated financial statements 26 - 39
</TABLE>
(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 Exhibit 3.1 to
the Registration Statement on Form S-1 of the Registrant filed June 16,
1986 with the Commission (Registration Statement No. 33-06334), as
amended by Articles of Amendment to Articles of Incorporation
incorporated by reference to Exhibit 3 (c) to the Annual Report on Form
10-K of the Registrant for the fiscal year ended December 31, 1987
filed on or about March 30, 1988 with the Commission (Commission File
No. 0-12422)), and as amended by Articles of Amendment to Articles of
Incorporation effective August 6, 1998.
3.2 Bylaws adopted April 28, 1998.
4.1 Form of Indenture dated as of December 12, 1997 between Registrant and
State Street Bank and Trust Company, as Trustee, with respect to 8.75%
Subordinated Debentures due 2027 (incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-2 of the Registrant filed
November 19, 1997 with the Commission (Registration No. 333-40579)).
4.2 Form of Subordinated Debenture Certificate (included as an exhibit to
Exhibit 4.1 to the Registration Statement on Form S-2 of the Registrant
filed November 19, 1997 with the Commission (Registration No.
333-40579)).
4.3 Form of IUB Capital Trust Amended and Restated Trust Agreement dated as
of December 12, 1997 among the Registrant, as Depositor, State Street
Bank and Trust Company, as Property Trustee, Wilmington Trust Company,
as Delaware Trustee and the Administrative Trustees named therein
(incorporated by reference to Exhibit 4.5 to the Registration Statement
on Form S-2 of the Registrant filed November 19, 1997 with the
Commission (Registration No. 333-40579)).
4.4 Form of Preferred Securities Guarantee Agreement dated as of December
12, 1997 between the Registrant and State Street Bank and Trust Company
(incorporated by reference to Exhibit 4.7 to the Registration Statement
on Form S-2 of the Registrant filed November 19, 1997 with the
Commission (Registration No. 333-40579)).
4.5 Form of Agreement as to Expenses and Liabilities dated as of December
12, 1997 between Registrant and IUB Capital Trust (included as an
exhibit to Exhibit 4.5 to the Registration Statement on Form S-2 of the
Registrant filed November 19, 1997 with the Commission (Registration
No. 333-40579)), which is incorporated by reference.
9
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10 Employment Agreement between the Registrant and James L. Saner
(included as an exhibit to Annex A to the Joint Proxy
Statement/Prospectus on Form S-4 filed March 17, 1998 with the
Commission (Registration No. 333-48057) which is incorporated by
reference.
13 1998 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).
21 List of subsidiaries of the Registrant.
23 Consent of Olive LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on March 2, 1999 disclosing its
acquisition of four banking offices from Bank One, Indiana N.A.
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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 22nd day of March,
1999.
INDIANA UNITED BANCORP
By /s/ James L. Saner, Sr.
--------------------------------
James L. Saner, Sr., President and
Chief Operating Officer
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.
Signature Capacity Date
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John E. Back Director March 22, 1999
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William G. Barron Director March 22, 1999
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Dale J. Deffner Director March 22, 1999
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Robert S. Dunevant Director March 22, 1999
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Philip A. Frantz Director March 22, 1999
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Robert E. Hoptry Chairman of the Board March 22, 1999
and Chief Executive Officer
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Martin G. Wilson Director March 22, 1999
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Edward J. Zoeller Director March 22, 1999
11
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
INDIANA UNITED BANCORP
Pursuant to the provisions of IC 23-1-38-6, Articles of Amendment to
the Articles of Incorporation of Indiana United Bancorp (the "Corporation") are
hereby adopted:
FIRST: The name of the Corporation is Indiana
United Bancorp.
SECOND: The amendment adopted amends Section 1 and
Section 2.A of Article V of the Articles of
Incorporation to read in their entirety as
follows:
"ARTICLE V
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES
The total number of shares which the Corporation is to have authority
to issue is 10,400,000.
A. The number of authorized shares the Corporation designates as
having a par value is none.
B. The number of authorized shares the Corporation designates as
without par value is 10,400,000.
SECTION 2. TERMS OF SHARES
A. PREFERRED AND COMMONS SHARES. The 10,400,000 authorized shares
which the Corporation shall have the authority to issue shall be divided into
two classes designated as follows:
1. 10,000,000 Common Shares; and
2. 400,000 Preferred Shares."
THIRD: The amendment does not provide for an
exchange, reclassification or cancellation
of issued shares.
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FOURTH: The above-described amendment was adopted on
June 23, 1998 at a meeting of the
shareholders of the Corporation held upon
written notice as provided in the Indiana
Business Corporation Law.
FIFTH: Of the 2,387,314 Common Shares of the
Corporation outstanding and entitled to
vote on the above-described amendment,
1,783,353.805 Common Shares were represented
at the meeting, and 1,736,478.754 votes were
cast in favor of the amendment, 40,944.189
votes were cast against the amendment and
5,930.862 Common Shares abstained from the
vote. The number of votes cast for approval
of the above-described amendment was
sufficient for approval thereof.
Dated: July 27, 1998
INDIANA UNITED BANCORP
By: /s/ ROBERT E. HOPTRY
-----------------------------
Robert E. Hoptry, Chairman
and Chief Executive
Officer
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
INDIANA UNITED BANCORP
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the Corporation shall be
located in Greensburg, Indiana. The Corporation may have such other offices,
either within or outside the State of Indiana, as the business of the
Corporation may require from time to time.
1.2 REGISTERED OFFICE. The registered office of the Corporation shall
be 201 N. Broadway, Greensburg, Indiana 47240. The address of the registered
office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL MEETINGS. The annual meeting of the shareholders shall be
held at such time, place and on such date as the Board of Directors shall
designate and as stated in the notice of the meeting, said date to be no later
than six months following the end of the Corporation's fiscal year. The purpose
of such meeting shall be the election of directors and the transaction of such
other business as may properly come before it. If the election of directors
shall not be held on the day designated for an annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders to be held as soon thereafter as may be
practicable. Failure to hold the annual meeting at or within the designated
time, or to elect directors at or within such time, shall not work any
forfeiture or a dissolution of the Corporation, and shall not otherwise affect
valid corporate acts.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called by the
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Chairman of the Board or the Chief Executive Officer of the Corporation, and
shall be called by the Chairman of the Board at the written request of a
majority of the members of the Board of Directors, or upon delivery to the
Corporation's Secretary of a signed and dated written demand for a special
meeting from the holders of at least 25% of all the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting.
2.3 PLACE OF SPECIAL MEETINGS. The Board of Directors may designate any
place within or outside the State of Indiana as the place for any special
meeting of shareholders called by the Board of Directors. If no designation is
properly made, or if a special meeting is otherwise called, the place of meeting
shall be at the principal office of the Corporation in the State of Indiana.
2.4 NOTICE OF ANNUAL OR SPECIAL MEETINGS. The Corporation shall give
notice to shareholders of record of the date, time and place of each annual or
special shareholders meeting to be held, and, in case of a special meeting, the
purpose or purposes for which the meeting is called, no less than 10 days nor
more than 60 days before the date of the meeting. Notice shall be given in
written form, delivered personally or by telegraph, teletype, any other form of
wire or wireless written communication or by mail or private carrier, by or at
the direction of the Chairman of the Board or the Secretary. If notice is given
by mail, such notice shall be deemed to be delivered when deposited in the
United States mail correctly addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, with postage prepaid. If
notice is given by private carrier, such notice shall be deemed to be delivered
upon delivery of such notice to a private carrier, in any envelope required by
such private carrier for delivery without charge to the shareholder, correctly
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation. If notice is given by telegraph, teletype or any other
form of wire or wireless written communication, notice shall be deemed to be
delivered upon proper transmission of such written communication to the
shareholder's address as it appears on the stock transfer books of the
Corporation or through a wireless communication telephone number for a
shareholder's business or residence address known to the Corporation that the
Corporation reasonably believes will result in the receipt of such written
communication (or all material information as to its contents) by the
shareholder. An affidavit (a) of mailing of notice of a meeting of shareholders,
executed by
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the Secretary, any Assistant Secretary or any transfer agent of the Corporation,
(b) of delivery of notice, executed by any private carrier or any independent
company engaged in the transmission and delivery of telegraphs, and (c) of
proper transmission of notice by teletype or any other form of wire or wireless
written communication, executed by any officer of the Corporation, shall be
prima facie evidence of the giving of such notice.
2.5 ADVANCE NOTICE OF SHAREHOLDER BUSINESS. At any annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal office of the Corporation,
not less than 60 nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's stock transfer books, of the shareholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder and (d) any material interest of
the shareholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.5. The chairman of
the annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2.5, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
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2.6 CLOSING TRANSFER BOOKS AND FIXING OF A RECORD DATE. The Board of
Directors of the Corporation may close its stock transfer books for a period not
exceeding 70 days, immediately prior to the date of any meeting of shareholders,
or the date for the payment of any dividend or for the allotment of rights, or
the date when any exchange or reclassification of shares shall be effective; or
in lieu thereof, may fix in advance a date, not exceeding 70 days prior to the
date of any meeting of shareholders, or to the date for the payment of any
dividend or for the allotment of rights, or to the date when any exchange or
reclassification of shares shall be effective, as the record date for the
determination of shareholders entitled to notice of, or to vote at, such
meeting, or shareholders entitled to receive payment of any such dividend or to
receive any such allotment of rights, or to exercise rights in respect of any
exchange or reclassification of shares. The shareholders of record on such
record date shall be the shareholders entitled to notice of, and to vote at,
such meeting, or to receive payment of such dividend or to receive such
allotment of rights, or to exercise such rights, in the event of an exchange or
reclassification of shares, as the case may be. If the transfer books are not
closed and no record date is fixed by the Board of Directors, the date on which
notice of the meeting is mailed, or the date on which the resolution of the
Board of Directors declaring such dividend is adopted or such other action is
taken, as the case may be, shall be deemed to be the record date for the
determination of the shareholders of the Corporation and the number of shares
owned by them for all of the purposes set forth in the immediately preceding
sentence. When a record date has been established as provided herein, such
record date shall be effective for any adjournment of the meeting for which such
record date was established, unless the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting, in which case the Board
of Directors shall establish a new record date in accordance with these Bylaws.
2.7 VOTING RECORD. The officer or agent having charge of the
Corporation's stock transfer books shall make, at least 5 business days before
every meeting of shareholders, a list of the shareholders entitled to notice of
the shareholders' meeting, arranged in alphabetical order. The list shall be
further arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
shareholder. Such shareholders' list shall be available for inspection by any
shareholder, beginning 5 business days before the meeting for which the list was
prepared and continuing through the meeting, at the Corporation's principal
office
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or at a place identified in the meeting notice in the city where the meeting
will be held. A shareholder, his agent or attorney may on written demand inspect
and copy the list during regular business hours and at the shareholder's
expense, during the period it is available for inspection, subject to the
provisions of the Indiana Business Corporation Law (including, without
limitation, provisions concerning the Corporation's ability to refuse to permit
such inspection or copying without a court order). The Corporation shall make
the shareholders' list available at the meeting, and any shareholder, his agent
or attorney shall be entitled to inspect the list at any time during the meeting
or any adjournment.
2.8 QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
of the shareholders for all purposes unless a greater or lesser quorum shall be
provided by law or the Corporation's Articles of Incorporation and in such case
the representation of the number so required shall constitute a quorum. Once a
share is represented for any purpose at a meeting, it shall be deemed present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting, unless a new record date is or must be set for that adjourned
meeting. In the absence of a quorum, the shareholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 2.9 of these Bylaws.
2.9 ADJOURNMENTS. Any meeting of shareholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof is announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.
2.10 ORGANIZATION. The Chairman of the Board, or such other person as
may have been designated for the purpose by the Board of Directors, or if no
such designation shall have been made, a chairman elected by the shareholders
present, shall act as chairman of meetings of shareholders. The Secretary of the
Corporation shall act as secretary of meetings of shareholders, but in the
absence of the Secretary the chairman of the meeting may appoint any person to
act as secretary of the meeting.
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2.11 VOTING. Unless otherwise required by the Indiana Business
Corporation Law, the Corporation's Articles of Incorporation or these Bylaws,
(a) any question brought before any meeting of shareholders shall be decided by
the vote of the holders of a majority of the shares represented and entitled to
vote on the matter and (b) each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share entitled to vote
on the matter held by such shareholder. The Board of Directors, in its
discretion, or the chairman presiding at a meeting of shareholders, in his
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
2.12 PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
11 months from the date of its execution, unless otherwise expressly provided in
the proxy. A proxy may be revoked in writing at any time unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest. The effective time of such revocation shall be the time the
Secretary of the Corporation receives the written notice of revocation.
2.13 VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares standing in the name of another corporation may be
voted by that corporation's president or by proxy appointed by him or by such
other person as the board of directors of such other corporation may determine.
(b) Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name.
(c) Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name if authority
so to do is contained in an appropriate order of the court by which such
receiver was appointed.
(d) Where shares are held jointly by two or more fiduciaries,
unless the Secretary of the Corporation is given written notice to the contrary
by any of such fiduciaries, the vote of one or more of such
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fiduciaries shall be presumed to be the vote of all such fiduciaries. Where
shares are held jointly by two or more fiduciaries and written notice is given
to the Secretary of the Corporation that the vote of one or more of such
fudiciaries may not be presumed to be the vote of all such fiduciaries, the vote
of the majority of such fiduciaries (or both in the case of two fiduciaries)
shall control the manner of voting or the giving of a proxy unless the
instrument or order appointing the fiduciaries otherwise directs. Where, in any
case, fiduciaries are equally divided upon the manner of voting shares jointly
held by them, any court of competent jurisdiction may, upon petition filed by
any of the fiduciaries, or by any beneficiary, appoint an additional person to
act with the fiduciaries in determining the manner in which the shares shall be
voted upon the particular questions as to which the fiduciaries are divided.
(e) A shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter, the pledgee shall be entitled to vote the shares so
transferred.
(f) Neither treasury shares of its own stock held by the
Corporation, nor shares held by another corporation if a majority of the shares
entitled to vote for the election of directors of such other corporation is held
by the Corporation, shall be voted at any meeting or counted in determining the
total number of outstanding shares at any given time.
(g) The Secretary or any shareholder may demand written proof
that the person asserting the right to vote shares pursuant to this Section 2.13
holds the position he claims to hold and has been properly authorized to vote
the shares he represents. Such proof, if demanded, shall be presented prior to
the voting of such shares by such person.
2.14 INSPECTORS OF ELECTIONS. The Board of Directors or the chairman of
the meeting may appoint two or more inspectors to tally and certify each vote
required to be tallied and certified by them as provided in the resolution of
the Board of Directors appointing them or in their appointment by the chairman
of the meeting, and to perform such other acts or duties as may be requested by
the chairman of the meeting or required by law. On request of the chairman of
the meeting or as otherwise required by law, the inspectors shall make and
execute a written report to the chairman of the meeting certifying any facts
found by them and matters determined by them. The report shall be prima
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facie evidence of the facts stated and of the vote certified by the inspectors.
2.15 ATTENDANCE AT MEETING AS WAIVER. Attendance by a shareholder at a
meeting of shareholders (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting; and (b)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
ARTICLE III
DIRECTORS
3.1 GENERAL POWERS. The business affairs of the Corporation shall be
managed by its Board of Directors.
3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the
Corporation shall be not less than five (5) and no more than fifteen (15), as
fixed by resolution of the Board of Directors from time to time. Each director
shall hold office for the term for which he was elected and until his successor
shall be elected and qualified, whichever period is longer, or until his death
or until he shall resign or shall have been removed in the manner hereinafter
provided.
3.3 REMOVAL AND RESIGNATIONS. Subject to the rights of the holders of
any series of Preferred Shares then outstanding, at a meeting of shareholders
called expressly for the purpose of removing one or more directors, any director
or the entire Board of Directors may be removed, with or without cause, by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors. Whenever any voting group is entitled to elect one or
more directors by the provisions of the Articles of Incorporation, the
provisions of this Section shall apply, in respect to the removal of a director
or directors so elected by such voting group, to the vote of the voting group
and not to the vote of the outstanding shares as a whole. Any member of the
Board of Directors may resign from the Board of Directors at any time by giving
written notice to the Chairman of the Board or Secretary of the Corporation, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
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3.4 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide by resolution the time and place, either within or outside
the State of Indiana, for the holding of regular meetings without other notice
than such resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by, or at the request of, the Chairman of the Board or by any two
directors. All special meetings of the Board of Directors shall be held at the
principal office of the Corporation unless some other place shall be specified
in the notice of the meeting.
3.6 NOTICE. Notice of any special meeting shall be given at least 48
hours prior thereto, either in person or by telephone, or in written form
delivered personally or by telegraph, teletype, any other form of wire or
wireless written communication or by mail or private carrier, to each director
at such business address (and business wire or wireless communication telephone
number, if any) as he shall register with the Secretary of the Corporation. If
mailed, such notice shall be deemed to be delivered at the earliest of the
following: (a) when received, (b) five days after its deposit in the United
States mail, as evidenced by the postmark, if mailed postpaid and correctly
addressed, or (c) on the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt is signed by or on
behalf of the director. If notice is given by a private carrier, such notice
shall be deemed to be delivered upon delivery of such notice to a private
carrier, in any envelope required by such private carrier for delivery without
charge to the director, correctly addressed to the director at his business
address. If notice is given by telegraph, teletype or any other form of wire or
wireless written communication, notice shall be deemed to be delivered when
receipt of such written communication is confirmed (whether by telephone or
otherwise) by any person present at the director's business address to which
such written communication has been transmitted. Any director may waive notice
of any meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director at the beginning of
the meeting (or promptly upon the director's arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
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3.7 QUORUM. A majority of the number of directors determined in
accordance with Section 3.2 of these Bylaws shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, provided, if
less than a majority of the directors are present at said meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice.
3.8 ORGANIZATION. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, or in his absence the Vice-Chairman, if any,
or in the absence of the Vice Chairman, if any, the President, or in his absence
by a chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
3.9 MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless otherwise required by the Articles of Incorporation.
3.10 PARTICIPATION BY TELEPHONIC MEANS. Members of the Board of
Directors, or of any committee designated by the Board of Directors, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear and speak to each other at the same time,
and participation in a meeting pursuant to this provision shall constitute
presence in person at the meeting.
3.11 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the
holders of any series of Preferred Shares then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
shall, and any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may, be filled by a majority of the remaining directors then in office, and
directors so chosen shall serve for a term expiring at the next annual meeting
of shareholders and until his successor shall have been duly elected and
qualified, or until his earlier resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
3.12 COMPENSATION. Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a stated
salary as director, a
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fixed sum for attendance at each meeting of the Board of Directors or some
combination thereof. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
3.13 ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken
by the Board of Directors at a meeting may be taken without a meeting if the
action is taken by all directors. Any such action shall be evidenced by one (1)
or more written consents describing the action taken, signed by each director,
and included in the minutes or filed with the corporate records reflecting the
action taken.
3.14 NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are nominated
in accordance with the procedures set forth in this Section 3.14 shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of shareholders
by or at the direction of the Board of Directors or by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.14. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal office of the Corporation not less than
60 days nor more than 90 days prior to the meeting; provided, however, that in
the event that less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholders' notice shall set forth (a)
as to each director whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including,
without limitation, such persons' written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as
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to the shareholder giving the notice, (i) the name and address, as they appear
on the Corporation's stock transfer books, of such shareholder and (ii) the
class and number of shares of the Corporation which are beneficially owned by
such shareholder. At the request of the Board of Directors any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 3.14. The chairman
of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the full Board of Directors, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of the
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all of the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
4.2 COMMITTEE RULES. Unless the Board of Directors otherwise provides,
each committee designated by the Board of Directors may make, alter and repeal
rules for the conduct of its business. In the absence of such rules, each
committee shall conduct its business in the same manner as
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the Board of Directors conducts its business pursuant to Article III of these
Bylaws.
ARTICLE V
OFFICERS
5.1 CLASSES. The officers of the Corporation shall be chosen by the
Board of Directors and shall consist of a Chairman of the Board of Directors, a
Chief Executive Officer, a President, a Secretary and a Treasurer. Further, the
Board of Directors may elect or appoint a Vice Chairman (which position the
Board of Directors may designate by resolution as a non-officer, honorary
position), one or more Vice Presidents (whose titles may be modified by one or
more words such as "Executive," "Senior," "Finance," "Operations" or words of
similar ranking or descriptive import), a Controller, Assistant Secretaries,
Assistant Treasurers and such other officers and assistants to offices as it
from time to time deems necessary. Any two or more offices may be held by the
same person.
5.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation shall
be elected by the Board of Directors at its first meeting held after the Annual
Meeting of Shareholders. If the election of officers is not held at any such
meeting, such election shall be held as soon thereafter as is practicable.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until his successor is duly
elected or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided.
5.3 REMOVAL AND RESIGNATIONS. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever, in
its judgment, the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. Any officer of the Corporation may resign at any
time by giving written notice to the President or Secretary of the Corporation,
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
5.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
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<PAGE>
5.5 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board shall
be a director and shall preside at meetings of the Board of Directors and
meetings of shareholders. The Chairman of the Board shall be responsible for (a)
board and shareholder governance, (b) external relations with industry, cities
and communities, (c) corporate wide business management and (d) implementation
of business plans with other team members. The Chairman of the Board shall share
with the Chief Executive Officer responsibility for (a) external relations with
the financial community, (b) corporate governance, (c) setting the agenda for
all meetings of the Board of Directors (and committees thereof) and (d)
enterprise support. The Chairman of the Board shall be a member of any Executive
Committee of the Board and an ex officio member of all standing committees.
5.6 VICE-CHAIRMAN. The Vice Chairman, if any, shall have such duties
and powers as from time to time may be assigned by these Bylaws or the Board of
Directors.
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be a
director, shall submit a report of the operations of the Company for the fiscal
year to the shareholders at their annual meeting and from time to time shall
report to the Board of Directors all matters within his knowledge that the
interests of the Company may require be brought to their notice. The Chief
Executive Officer shall be responsible for (a) the strategic direction,
development and oversight of the Company, (b) the growth of the Company and (c)
the deployment of strategic assets of the Company (including executive
management and other personnel employed by the Corporation (excluding personnel
employed solely by any subsidiary of the Corporation)). The Chief Executive
Officer shall share with the Chairman of the Board responsibility for (a)
external relations with the financial community, (b) corporate governance, (c)
setting the agenda for all meetings of the Board of Directors (and committees
thereof) and (d) enterprise support. The Chief Executive Officer shall be a
member of any Executive Committee of the Board. The Chief Executive Officer will
report directly to the Board of Directors.
5.8 PRESIDENT. The President shall be the Chief Operating Officer of
the Corporation. Subject to the direction of the Board of Directors and the
Chief Executive Officer of the Corporation, the President shall have general
supervision over the administration and business operations of the Corporation
as conducted through its operating subsidiaries.
14
<PAGE>
5.9 VICE-PRESIDENTS. Any Vice-President shall have such duties and
powers as shall be designated from time to time by the Board of Directors.
5.10 SECRETARY. The Secretary shall (a) keep the minutes of the
shareholders' meetings and of the Board of Directors' meetings and (unless
otherwise directed) all committees thereof in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal, if any, of the Corporation; (d) keep a
register of the mailing address of each shareholder; (e) sign with the President
or Vice-President certificates for shares of stock of the Corporation; (f) have
general charge of the stock transfer books of the Corporation (which may,
however, be kept by any transfer agent or agents of the Corporation); and, (g)
in general, perform all duties incident to the office of Secretary, and have
such other duties and powers as may be designated from time to time by the
Chairman of the Board (provided he is the Chief Executive Officer) or the
President.
5.11 TREASURER. The Treasurer shall be the Chief Financial Officer of
the Corporation unless the Board of Directors expressly designates another
officer as such by resolution. The Treasurer shall supervise and conduct the
routine financial business of the Corporation and shall have care and custody of
its funds, securities and property subject to the supervision of the President.
The Treasurer shall keep permanent records of the funds and property of the
Corporation and shall have authority to receive all monies and to pay out and
disburse such monies under the direction and control of the Board of Directors.
The Treasurer shall deposit daily to the credit of the Corporation all monies
not required for the convenience of the Corporation's business, in such banks,
trust companies or other depositories as the Board of Directors may from time to
time direct. The Treasurer shall in general perform all the duties incident to
the office of Treasurer, and have such other duties and powers as may be
designated from time to time by the Chairman of the Board (provided he is the
Chief Executive Officer), the President or any officer who is designated the
Chief Financial Officer of the Corporation.
5.12 CONTROLLER. The controller shall be the Chief Accounting Officer
of the Corporation and shall be in charge of its books of account, accounting
records and accounting procedures. He shall have such other duties and powers as
may be designated from time to time by the Chairman of the
15
<PAGE>
Board (provided he is the Chief Executive Officer) or the President.
5.13 OTHER OFFICERS; ASSISTANT OFFICERS. If the Board of Directors
elects or appoints (i) other officers or (ii) assistants to any other officers,
such officers and assistant officers shall exercise such powers and perform such
duties as pertain to their respective offices, or as may be conferred upon, or
assigned to, them by the Chairman of the Board (provided he is the Chief
Executive Officer) or the President and, in the case of assistant officers, the
respective officer to whom they are assistants.
5.14 COMPENSATION. The compensation of the Chairman of the Board, the
Vice-Chairman of the Board, if any, the Chief Executive Officer and the
President of the Corporation shall be fixed from time to time by the Board of
Directors. The compensation of the other officers of the Corporation may be
fixed by the President, although such compensation shall be reviewed at least
annually by the Board of Directors and may be altered by the Board of Directors.
No officer shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation.
ARTICLE VI
CLERKS, AGENTS AND EMPLOYEES
The Board of Directors may appoint, from time to time, such clerks,
agents and employees as it may deem advisable for the prompt and orderly
transaction of the business of the Corporation, define their duties, fix the
salaries to be paid them and dismiss them. Subject to the authority of the Board
of Directors, the President, or any other officer of the Corporation authorized
by him, may appoint and dismiss all or any of such clerks, agents and employees
and prescribe their duties and the conditions of their employment, and from time
to time fix their compensation.
ARTICLE VII
CONTRACTS, LOANS,
CHECKS AND DEPOSITS
7.1 CONTRACTS. The Board of Directors may authorize any officer or
officers, or agent or agents, to enter into any contract and execute and deliver
any instruments in the
16
<PAGE>
name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances.
7.2 LOANS AND EVIDENCES OF INDEBTEDNESS. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors. Such authorization may be
general or confined to specific instances. Loans so authorized by the Board of
Directors may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors shall authorize. When so authorized by the Board of
Directors, any part of or all of the properties, including contract rights,
assets, business or goodwill of the Corporation, whether then owned or
thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or
assigned in trust as security for the payment of such bonds, debentures, notes
and other obligations or evidences of indebtedness of the Corporation, and of
the interest thereon, by instruments executed and delivered in the name of the
Corporation.
7.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, issued in the name of the Corporation, shall be signed by such
person or persons and in such manner as may from time to time be designated by
the Board of Directors. Such designations may be general or confined to specific
instances.
7.4 DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited, from time to time, to the credit of the Corporation in such banks,
trust companies and other depositories as the Board of Directors may authorize.
The Board of Directors may make such special rules and regulations with respect
to such bank accounts, not inconsistent with the provisions of these Bylaws, as
it may deem expedient. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts and other orders
for the payment of money that are payable to the order of the Corporation shall
be endorsed, assigned and delivered by such person or persons and in such manner
as may from time to time be authorized by the Board of Directors.
17
<PAGE>
ARTICLE VIII
CERTIFICATES FOR
SHARES AND THEIR TRANSFER
8.1 CERTIFICATES FOR SHARES. Every shareholder shall be entitled to
have a certificate certifying the number and type of shares of the Corporation
owned by him, signed by, or in the name of the Corporation by the Chairman of
the Board, or Vice-Chairman, President or a Vice-President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation (except that when any such certificate is countersigned by a
transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee the signature of any such officers
may be facsimiles). Such certificates shall be in such form as may be determined
by the Board of Directors and by the laws of the State of Indiana. If the
Corporation shall be authorized to issue more than one class of shares or more
than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of each class of shares or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate that the Corporation shall issue to represent such
class or series of shares, provided that, except in the case of restrictions on
transfer of securities which are required to be noted on the certificate, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the Corporation shall issue to represent such class or
series of shares, a statement that the Corporation will furnish without charge
to each shareholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of shares or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.2 TRANSFER OF SHARES. Transfer of shares of the Corporation shall be
made only on the books of the Corporation by the registered holder thereof, or
by his legal representative who shall furnish proper evidence of authority to
transfer, or by his attorney-in-fact thereunto authorized by power of attorney
duly executed and filed with the Corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.
18
<PAGE>
8.3 LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate or
certificates may be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of shares to be lost, stolen or destroyed. When issuing a new
certificate or certificates, the Corporation, acting through its officers or
agents, including any transfer agent or registrar, may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative, to
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
8.4 REGULATIONS. The Board of Directors shall have the power and
authority to take such action and make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation, including, without limitation, the appointment of a
transfer agent and registrar for the Corporation.
ARTICLE IX
EMERGENCY BYLAWS
The Board of Directors may adopt, either before or during an emergency,
as that term is defined by the Indiana Business Corporation Law, any emergency
regulations permitted by the Indiana Business Corporation Law which shall be
operative only during such emergency. In the event the Board of Directors does
not adopt any such emergency regulations the special rules provided in the
Indiana Business Corporation Law shall be applicable during such emergency.
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
10.1 GENERAL. The Corporation shall, to the fullest extent permitted by, and
in accordance with the provisions of, the Indiana Business Corporation Law, as
it presently exists or may hereafter be amended, indemnify each director and
officer of the Corporation against expenses (including attorneys' fees),
judgments, taxes, fines, and amounts paid in settlement, incurred by him in
connection with, and shall
19
<PAGE>
advance expenses (including attorneys' fees) incurred by him in defending, any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) to which he is, or is threatened to
be made, a party by reason of the fact that he is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, employee, or agent of another domestic or foreign
corporation, partnership, joint venture, trust or other enterprise. Advancement
of expenses shall be made upon receipt of an undertaking, with such security, if
any, as the Board of Directors or shareholders may reasonably require, by or on
behalf of the person seeking indemnification to repay amounts advanced if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized herein.
10.2 NON-EXCLUSIVE RIGHT. The indemnification provided for by Section 10.1
shall not be deemed exclusive of any other rights to which directors or officers
of the Corporation may be entitled under any statute, provision in the
Corporation's Articles of Incorporation, agreement or action of the Board of
Directors or shareholders of the Corporation, or otherwise, and shall continue
as to a person who has ceased to be a director or officer of the Corporation,
and shall inure to the benefit of the heirs, executors, and administrators of
such a person.
10.3 INSURANCE. Without in any way limiting the Corporation's power to
purchase and maintain insurance for any other purpose or on behalf of any other
person, the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
partner, employee, or agent of another domestic or foreign corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in such capacity or arising out of his
status as such, whether or not the Corporation would have the power or be
obligated to indemnify him against such liability under the provisions of
Section 10.1 of these Bylaws or the Indiana Business Corporation Law.
ARTICLE XI
MISCELLANEOUS
11.1 AMENDMENTS. The Board of Directors shall have the power and authority
to alter, amend or repeal these Bylaws,
20
<PAGE>
and to make new Bylaws, by the vote of a majority of the entire Board of
Directors, subject always to the power of the shareholders to change or repeal
such Bylaws.
11.2 FISCAL YEAR. The Board of Directors shall have the power to fix, and
from time to time change, the fiscal year of the Corporation.
11.3 SEAL. The Board of Directors may adopt a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the state of incorporation, and the word "SEAL".
11.4 WAIVER OF NOTICE. Whenever any notice is required to be given under the
provisions of these Bylaws, the Articles of Incorporation, or the Indiana
Business Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice.
11.5 VOTING OF SHARES HELD BY CORPORATION. Unless otherwise ordered by the
Board of Directors, the Chief Executive Officer of the Corporation may from time
to time appoint an attorney or attorneys, or any agent or agents, to exercise in
the name and on behalf of the Corporation the powers and rights that the
Corporation may have, as the holder of shares or other securities in any other
corporation, to vote or to consent in respect of such shares or other
securities; and the Chief Executive Officer may instruct the person or persons
so appointed as to the manner of exercising such powers and rights; and the
Chief Executive Officer may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, all such
written proxies, powers of attorney or other written instruments as he may deem
necessary in order that the Corporation may exercise such powers and rights.
11.6 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
11.7 STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders
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<PAGE>
entitled to examine the stock ledger and the list of the shareholders entitled
to vote at every meeting of shareholders or the books of the Corporation, to
vote in person or by proxy at any meeting of shareholders, to receive notice of
any meeting of shareholders and to receive distributions on shares of the
Corporation. The Corporation shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice there of, except as
otherwise provided by the laws of the State of Indiana.
11.8 CONSTRUCTION. Unless the context specifically requires otherwise,
any reference in these Bylaws to any gender shall include all other genders; any
reference to the singular shall include the plural; and any reference to the
plural shall include the singular.
The above Amended and
Restated Bylaws of the
Corporation were adopted by
the Corporation's Board of
Directors at a meeting held
on April 28,
1998.
/s/ SUE FAWBUSH
-----------------------------
Sue Fawbush, Secretary
22
Indiana United Bancorp 1998 Annual Report
Blueprint for Success
<PAGE>
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 at the end of 1991. In 1994, Peoples
Bank merged with Union Bank to form Union Bank and Trust Company of Indiana,
retaining state banking charter #1. On April 30, 1998, the Company completed a
merger of equals with P.T.C. Bancorp, Brookville, Indiana. Through its three
banking subsidiaries, the Company operates 35 offices in 14 Indiana counties
(see map).
All three banking subsidiaries offer a full array of competitive
commercial and consumer loan and deposit related services. The Company provides
28 ATMs as well as 24-hour, 7 day a week telephone banking services. In
addition, the Company operates two general line, independent insurance agencies
and a full-service trust division.
IUB stock trades on the NASDAQ exchange under the symbol IUBC. There are
4,774,628 shares outstanding, held by 2,517 shareholders residing in 38 states
and two foreign countries.
CONTENTS
Letter to Shareholders 2
Building for the Future 4
Management's Discussion and Analysis 7
Management's Report 21
Auditor's Report 21
Financial Statements 22
Notes to Financial Statements 26
Directors and Officers 40
Corporate and Investor Information 41
Map of the state of Indiana appears here. Within the state the various locations
of Union Bank Offices, People's Trust Company Offices and Regional Bank Offices
are shown.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(Dollar amounts in thousands except per share data) 1998 1997 Percent Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Results of Operations
Gross revenues $59,837 $54,104 10.60
Net interest income 25,892 24,606 5.23
Provision for loan losses 1,218 1,789 (31.92)
Net income 6,448 7,205 (10.51)
Per Common Share*
Earnings per share (basic) $1.36 $1.53 (11.11)
Earnings per share (diluted) 1.35 1.52 (11.18)
Dividends paid** 0.59 0.51 15.69
Book value - end of period
Excluding SFAS No. 115 adjustment 12.25 11.52 6.34
Including SFAS No. 115 adjustment 12.40 11.68 6.16
Market price - end of period 22.13 22.75 (2.73)
At Year End
Total assets $827,945 $693,168 19.44
Total loans 539,404 472,627 14.13
Allowance for loan losses 6,099 5,451 11.89
Total deposits 709,871 583,168 21.73
Common shareholders' equity 59,196 55,006 7.62
Financial Ratios
Return on average assets 0.89% 1.13% (20.87)
Return on average common shareholders' equity 11.23 13.83 (18.84)
Tier 1 capital to average assets 8.31 10.71 (22.41)
Total capital to risk-adjusted assets 13.70 24.00 (42.92)
- ----------------------------------------------------------------------------------------------------
Shares outstanding at year end 4,774,628 4,708,556 1.40
Number of common shareholders 2,517 2,604 (3.34)
Number of full-time equivalent employees 360 299 20.40
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for stock split and dividends
** Dividends paid by Indiana United Bancorp
Note: Prior amounts have been restated as appropriate to reflect a
pooling-of-interests transaction with P.T.C. Bancorp.
[CHARTS]
<PAGE>
THE
FOUNDATION
IS SET.
Dear Shareholders and Friends:
1998 was a very special year for Indiana United Bancorp. Last year's
annual shareholder message described 1998 as a critical period in an ambitious
growth strategy.
Our plan heavily relied on attaining two goals: completing the merger of P.T.C.
Bancorp into Indiana United and; investing the $22.4 million of newly issued
trust preferred securities in branch acquisitions, complimentary to our
community banking philosophy. We are pleased to report each of these priorities
in our Blueprint for Success has been achieved. The merger was completed on
April 30, 1998 and, during the remainder of the year, seven branches with
deposits totaling $121.3 million were integrated into Indiana United
subsidiaries.
Even though our corporate focus in 1998 was primarily on revenue growth
and market expansion, our banking subsidiaries did not lose sight of net
earnings growth. As a result, net income from our banking subsidiaries increased
more than $600,000, or 7.5% over the prior year. However, when corporate
overhead, including the one time expenses of the merger and the annual expense
of the trust preferred securities, is factored into results, consolidated net
income per share declined to $1.35, which was in line with expected results. We
expect 1999 to produce a solid gain over 1998 earnings, setting the stage for
our return to high performance banking in the new millennium.
We are also very pleased that our financial performance in 1998 supported
a 15.7% increase in common dividends paid per share, marking the tenth
consecutive year dividends have increased by at least 15%.
Our emphasis on growth was not, and is not, without risk. The annual
pre-tax interest cost of our new securities equals $.42 per share. If we had not
correctly anticipated the intentions of our large competitors to retreat from
many small communities, or if we had bid timidly on key branch acquisition
opportunities, we could have incurred a negative arbitrage on these funds for
five
page two
<PAGE>
years or more. That risk has now been eliminated by our success in acquiring
targeted branches. The risk we face over the next twelve to eighteen months
relates to the level of success we can attain in leveraging these deposits into
high quality loan growth to offset acquired deposit premiums. In this regard, we
believe we have an excellent staff of lenders capable of realizing this goal
without undermining our long history of maintaining a high performance loan
portfolio.
Our focus in 1998 was, and again in 1999 will be, on achieving revenue
growth. By expanding our top line growth now, we are confident that our bottom
line performance will accelerate in the years ahead. In 1998, gross revenues
increased by $5.7 million or 10.6%,and we expect another significant increase in
1999.
In our continued pursuit of this objective, our top line growth will be
boosted during the first quarter of 1999 by four additional branch acquisitions
with deposits totaling in excess of $100 million. It is also our intent to open
two de novo branches by early spring. When completed, Indiana United will
operate 40 banking offices in 15 Indiana counties, and will have assets totaling
approximately $925 million. While these actions will complete our branch
expansion strategy until the new millennium, we will continue to consider other
appropriate bank acquisitions or mergers, as opportunities may occur.
Our growth in 1999 will not be limited to increases in loans and deposits.
As of January 1, all trust services have been consolidated into The Trust
Investment Group under the leadership of Dan Anderson. During 1999, we expect to
introduce a full range of trust and money management services throughout our
organization. Experienced trust officers will provide local services in many of
the communities we serve. This is in sharp contrast to many of our larger
competitors who have moved their trust administration to Chicago or Cleveland or
some other distant city.
In 1999, you will also see a significant expansion of insurance products
and services. Our plans include expanding our insurance division by 200% and
adding a broad range of new insurance products. These services will be available
through our newly created subsidiary, The Insurance Group, and will be locally
available in many of our banking subsidiaries' larger locations. And finally,
plans are underway to offer investment brokerage services in the third or fourth
quarter.
Technology will play a large role in our expansion of markets, products
and services. Before year-end, customers will have access to a range of delivery
channels rivaling our large city competitors. We will offer internet and
telephone banking options, as well as continue our commitment to personal
service. This means customer friendly lobby and drive-up hours, quick responses
and customized approvals for loan requests, a full range of insurance and money
management services and a willingness to "bring the bank to you" if an in-bank
visit is not convenient. In addition, depositors throughout Indiana United will
have unlimited free access to the ATMs of any Indiana United banking subsidiary.
We enthusiastically embrace the changes now impacting the banking industry
and we are confident our responses to these new challenges and opportunities
portend a bright future for Indiana United Bancorp. We believe attainment of our
goal to establish "one stop" financial centers in small communities will
differentiate us positively from all of our competitors, large or small.
A vital element of our success is the support of our shareholders. On
behalf of all of our officers, directors and employees, we appreciate and thank
you for your trust and confidence in our vision of the future.
/s/ Robert E. Hoptry
Robert E. Hoptry,
Chairman and CEO
/s/ James L. Saner, Sr.
James L. Saner, Sr.,
President and COO
[PHOTO APPEARS HERE]
Robert E. Hoptry, Chairman and James L. Saner, Sr., President
page three
<PAGE>
1998 was a period of change and opportunity! It was a year of increased
volatility in the banking industry. And it was also a year of opportunity for
Indiana United Bancorp.
Mergers across the industry were completed to create the critical volume
necessary to offset the costs of creating alternative delivery channels. But, in
the process, many large competitors forgot one critical element... THE CUSTOMER!
The very large super-regional and nationwide banks appear to be reducing
their commitment to service in favor of electronic delivery systems.
Increasingly, these banks are selling branches in small communities across
America. IUB chose to seize this opportunity. Our increase in size, resulting
from strategically targeted branch acquisitions, provided the deposit base
needed to explore new advances in technology while remaining steadfast in our
commitment to superior customer service and participation as an active community
business partner.
A Carefully Planned Balance...
Short-Term Commitments and
Long-Term Earnings Growth
The Indiana United approach involves a carefully planned balance of expansion
and commitment to core values. The plan was to use technology not as a
substitute but as an enhancement to customer service. The decisions were tough.
We had to make major short-term financial commitments to assure strong long-term
earnings growth. The considerable short-term expenses relative to branch
acquisitions has created the critical mass desired to effectively implement new
technologies like internet banking, and the introduction or refinement of a
broad range of non-banking services. At the same time, we have not wavered in
our commitment to those who helped get us where we are... the communities, the
shareholders and the customers we serve.
[PHOTO APPEARS HERE]
"During 1998, we entered a new and exciting market for Union Bank. Expanding
into both Madison and Hancock counties allows us the chance to preserve
community banking values that are quickly being abandoned by larger institutions
currently operating in this market."
Daryl R. Tressler, Chairman, President and CEO, Union Bank and Trust
Company of Indiana
Union Bank and Trust
Company of Indiana
Main Office Address:
201 North Broadway
P.O. Box 87
Greensburg, IN 47240-0087
Tel: 812-663-4711
Fax: 812-663-4904
Number of Offices: 12
Number of Employees: 146
Total Deposits: $255,094,000
Total Loans: $174,578,000
Total Assets: $301,758,000
page four
<PAGE>
That commitment became the basis of our Blueprint for Success!
The Right Fit
The defining event in launching our Blueprint for Success was the merger of
Indiana United Bancorp and P.T.C. Bancorp. The time was right... the geography
was right... the people were right, and most importantly, the philosophies were
right. After months of careful planning, this one step nearly doubled the size
of IUB, bringing us closer to the critical mass we were seeking.
Simultaneously, we initiated an aggressive campaign to identify and
acquire small branches being sold by large regional banks. As always, we looked
for "The Right Fit" in locations, people, financial strength and potential.
Through the end of 1998, we acquired seven branches across the state, with four
more scheduled for the first quarter of 1999.
Product... Price... Promotion...
Place... People!
To assure success in the future, we have identified and are concentrating on
five specific operational areas:
Product:
Our goal is to continuously improve upon existing products, refine them when
necessary, and add new ones, including internet banking and a variety of
improved and new non-banking services. The market for our products and services
is an increasingly complex one and, with our growth comes the capacity to
respond more quickly with products and services that serve our customers' ever
changing needs.
Price:
Our continuous focus on our customers means that we will strive to provide the
BEST VALUE of financial services in our communities. We will deliver the
services our customers want at rates which will make us the obvious choice to be
their primary financial institution.
Promotion:
There's no question that, today, making the right banking decisions is more
complicated. There are more options... more products and services. More than
ever before, our customers rely on us for the information they need to make the
right choices. We also know that, for most people, time is at a premium. That's
why we focus on the needs of our customers and develop the products that
[PHOTO APPEARS HERE]
"We are determined to offer a variety of innovative products that meet the needs
of our customers and quickly respond to changes in the Southern Indiana market
that we serve. Managing the growth we have encountered in 1998 will be our
primary focus in 1999."
Michael K. Bauer, Chairman,
President and CEO, Regional Federal
Savings Bank
Regional Federal Savings Bank
Main Office Address:
100 East Spring Street
P.O. Box 1207
New Albany, IN 47151-1207
Tel: 812-948-5500
Fax: 812-948-5537
Number of Offices: 6
Number of Employees: 63
Total Deposits: $155,582,000
Total Loans: $116,562,000
Total Assets: $187,373,000
page five
<PAGE>
meet those needs. We're the "solution" people. That means that we strive to take
a much more proactive approach. We listen. Then we respond by providing a
complete package of product and service options and the information our
customers need to make decisions, all available from the one convenient source
they know and trust.
Place:
Planning for IUB expansion involves a careful selection of locations. As we
expand, the geography must make sense from an operational standpoint, and the
locations must make sense from a customer service standpoint. Upgrades and
relocations, such as the new Union Bank facility in Westport, Indiana, that
opened during the summer of 1998, have resulted in increased deposits and
customer traffic. We will continuously strive to be where we can best serve our
customers.
People:
Our plan for the future is aggressive and our people are up to the challenge. We
are where we are today because, unlike large, impersonal financial competitors,
when our customers do business with us, they are dealing with people they know
and trust. We will always maintain our emphasis on customer service and
supplement that effort with the new product and service training our people need
to get the job done.
The Future...
1999 and beyond will be a time of further CHANGE... and OPPORTUNITY! The
industry is evolving at an unprecedented pace. While it is impossible to predict
exactly what it will take to meet the needs of our customers in the future, we
have all the pieces in place. Our plans for fiscally responsible growth will
make it possible to implement the technology required to deliver the right
banking products and services in the future. At the same time, we'll always be
"customer driven". We'll use technology not to replace, but to enhance the
customer service that helped get us where we are today. Our strong management
team, along with a committed, knowledgeable team of associates, will deliver
what our customers want, when and where they want it at rates which will assure
profitable growth for IUB.
For our customers, shareholders, associates and the communities in which we
operate, our Blueprint for Success defines an exciting future for 1999... and
beyond!
[PHOTO APPEARS HERE]
"People's Trust Company has a strong commitment to community banking ideals. Our
partnership with Indiana United provides an even better opportunity to expand
that philosophy into the next millennium."
Lynn T. Gordon, President and CEO,
People's Trust Company
People's Trust Company
Main Office Address:
9014 State Road 101
P.O. Box 7
Brookville, IN 47012-0007
Tel: 765-647-3591
Fax: 765-647-3531
Number of Offices: 17
Number of Employees: 184
Total Deposits: $305,326,000
Total Loans: $259,236,000
Total Assets: $337,294,000
page six
<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 of the Company's loan and investment portfolios.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
OVERVIEW
The Company operates under the broad tenets of a long-term strategic plan
("Plan") designed to improve the Company's financial performance, expand its
competitive ability and enhance long-term shareholder value. The Plan is
premised on the belief of the Company's board of directors that the Company can
best promote long-term shareholder interests by pursuing strategies which will
continue to preserve its community-focused philosophy.
In conformance with the Plan, the Company issued $22.425 million of cumulative
trust preferred security in December, 1997. The net proceeds received by the
Company were anticipated to be used for financing growth which would include
branch acquisitions, the establishment of de novo branches and/or acquisitions
of other financial institutions, and for general corporate purposes. To that
end, the Company immediately deployed these funds to payoff its long-term loan
and acquired seven branch facilities and their correlating deposits in the third
and fourth quarters of 1998. The Company integrated three of these branches into
its Regional Bank subsidiary and four were integrated into its Union Bank
subsidiary. In all, more than $121 million in deposits were acquired, together
with approximately $21 million in consumer and small business loans.
These acquisitions allowed Regional Bank to improve its market share and
penetration within its two-county geographical area of Floyd and Clark counties
in Indiana. Union Bank entered two new counties with its purchases and spread
its geographical boundaries to Madison and Hancock counties in addition to its
traditional base of Decatur and Jay counties in Indiana.
The Company, through its Union Bank subsidiary, also agreed to purchase two
existing facilities in Madison County and will renovate these buildings to
create two de novo branches which are expected to be operational in the second
quarter of 1999.
In April, 1998, the Company merged with P.T.C. Bancorp, a one bank holding
company headquartered in Brookville, Indiana with total assets of more than $300
million. People's Trust Company, the wholly owned subsidiary of P.T.C. Bancorp
had seventeen office locations spread throughout eight counties in eastern and
southeastern Indiana. These counties were contiguous to the Company's existing
locations. The transaction was regarded by both companies as a merger of equals
and the management and directors of both organizations have been integrated.
This transaction was accounted for as a "pooling of interests" for accounting
and financial reporting purposes.
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 which allow the Company to continue to effectively compete
within a financial services industry that is becoming increasingly dependent
upon technology. In 1997, a significant investment was made in 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 allows for improved
efficiency in the management of computer resources. In 1998, additional
investments were made to expand and upgrade the use of personal computers
throughout the Company as well as upgrading communication lines for speed of
data delivery. These improvements allow the Company to improve efficiency as
well as provide quality services to its customers.
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.
YEAR 2000 ("Y2K") COMPUTER ISSUES
In the next year, many large companies 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. The Company began the
process of identifying
page seven
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Table Dollar Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
TABLE 1 - SELECTED FINANCIAL DATA SUMMARY
- -------------------------------------------------------------------------------------------------------------------------
December 31 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income $25,892 $24,606 $22,260 $20,568 $19,984
Provision for loan losses 1,218 1,789 978 770 565
Non-interest income 5,122 4,501 3,974 3,358 4,464
Non-interest expense 19,672 16,203 15,722 14,868 15,669
Income before income tax 10,124 11,115 9,534 8,288 8,214
Income tax 3,676 3,910 3,565 2,852 2,943
Net income 6,448 7,205 5,969 5,436 5,271
Dividends paid on common stock 2,721 2,105 1,717 1,406 1,075
Dividends paid on preferred stock 50 139 157
- -------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE *
Earnings per share (basic) $1.36 $1.53 $1.25 $1.13 $1.12
Earnings per share (diluted) 1.35 1.52 1.25 1.12 1.11
Dividends paid ** 0.59 0.51 0.42 0.35 0.30
Book value - end of period
Excluding SFAS No.115 adjustment 12.25 11.52 10.44 10.05 8.79
Including SFAS No.115 adjustment 12.40 11.68 10.50 10.13 8.03
Market price - end of period 22.13 22.75 14.53 12.50 10.50
AT YEAR END
Total assets $827,945 $693,168 $624,922 $577,779 $547,624
Investment securities 197,599 126,104 151,978 152,037 152,195
Loans 539,404 472,627 416,016 374,534 353,832
Allowance for loan losses 6,099 5,451 4,506 4,476 4,385
Total deposits 709,871 583,168 547,529 504,080 483,670
Long-term debt 5,500 7,000 8,908
Federal Home Loan Bank advances 10,000 10,000
Trust preferred securities 22,425 22,425
Preferred stock 2,000 2,400
Shareholders' equity 59,196 55,006 49,402 47,463 40,049
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 0.89% 1.13% 1.02% 0.98% 0.94%
Return on average common
shareholders' equity 11.23 13.83 12.57 12.55 14.00
Allowance for loan losses to total
loans (year end) 1.13 1.15 1.08 1.20 1.24
Shareholders' equity to total assets (year end) 7.15 7.94 7.91 8.21 7.31
Average equity to average total assets 7.96 8.16 8.17 8.02 6.99
Dividend payout ratio 42.20 29.22 29.01 26.54 21.02
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for stock split and dividends
** Dividends paid by Indiana United Bancorp
Note: Prior amounts have been restated as appropriate to reflect a
pooling-of-interests transaction with P.T.C. Bancorp.
page eight
<PAGE>
the changes required to its computer programs and hardware, in consultation with
software and hardware providers and bank regulators, in early 1997. The Company
has developed and implemented a Y2K Plan calling for a review of all
computer-based equipment, software and services. While the Company is taking all
appropriate steps to assure Y2K compliance, it is dependent on vendor compliance
to some extent. The Company has required its systems and software vendors to
represent that the services and products provided are Y2K compliant. The Company
has begun a testing program for its own compliance satisfaction. The Company has
allocated hundreds of man-hours over the past two years to ensure compliance.
The Company expended $30 thousand in capital expenditures in 1997 and 1998 to
ensure all systems are compliant and expects to spend an additional $120
thousand in 1999 to complete the process.
The Company's subsidiaries have been reviewed by their regulators to ensure the
Company's plan and testing is timely and addressing all systems.
The Y2K 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 Y2K 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.
BUSINESS STRATEGY
The Company holds first or second market share positions as measured by total
deposits in five of the fourteen counties it serves and intends to pursue growth
strategies that result in meaningful market share positions in other rural or
suburban communities. The Company is seeking to identify potential whole bank
acquisitions in markets that offer opportunities to benefit from its community
banking philosophy and that will likely result in meaningful market share. In
addition, the Company believes it needs to expand other financial services and
products in an attempt to offer a full array of financial services to its
customer base.
In conformance with this strategy, the Company has entered into an agreement
with Bank One to purchase four bank branches located in Cambridge City in Wayne
County and Knightstown and New Castle in Henry County, Indiana. The purchase is
for more than $100 million in deposits and $2 million in loans. These four
locations will be integrated into the People's Trust Company subsidiary and will
allow it to expand its market share in Wayne County and penetrate the Henry
County area.
The Company has also formed The Trust Investment Group which operates as a
division of Union Bank. The Trust Investment Group is comprised of the former
Union Bank trust department and the trust business acquired from People's Trust
Company. The Trust Investment Group plans to expand its services through-out
1999 and beyond into larger market areas of the Company including Madison,
Henry, Wayne, Jefferson, Floyd, and Clark counties.
[CHART APPEARS HERE]
RESULTS OF OPERATIONS
Annual net income was $6.448 million in 1998 compared to $7.205 million in 1997
and $5.969 million in 1996. Significant non-recurring merger expense of $700
thousand net of taxes impacted 1998 earnings. The Company recorded $118 thousand
after-tax non-recurring income in 1997 from the sale of real estate property
acquired in lieu of foreclosure and a $329 thousand after-tax charge in 1996 to
recapitalize the Savings Association Insurance Fund (SAIF). Excluding these
non-recurring items, net income of $7.148 million would have been recorded in
1998, $7.087 million in 1997 and $6.298 million in 1996.
Net income per common share from recurring operations equaled $1.50 in 1998 and
1997 and $1.33 in 1996. Including the merger expenses for 1998, the special real
estate owned income for 1997and the SAIF assessment for 1996, the earnings per
share were$1.35 for 1998, $1.52 for 1997 and $1.25 for 1996.
The Company's return on average total assets was .89% in 1998, 1.13% in 1997 and
1.02% in 1996. Excluding non-recurring items for the three years, return on
average assets for 1998 was.99%, 1.11% for 1997 and 1.07% for 1996. Return on
average common shareholders' equity during these years were 11.23% for 1998,
13.83% for 1997 and 12.57% for 1996. Excluding non-recurring items, the ratio
for 1998 was 12.44%, 13.60% for 1997 and 13.27% for 1996.
NET INTEREST INCOME
Net interest income is influenced by the volume and yield of earning assets and
the cost of interest-bearing liabilities. Net interest margin reflects the mix
of interest-bearing and noninterest-bearing liabilities that fund earning
assets, as well as interest spreads between the rates earned on these assets and
the rates paid on interest-bearing liabilities. Tax equivalent total interest
income of $55.730 million in 1998 increased 10.0% from $50.646 million in 1997,
which was 9.7% above 1996 (see Table 5). The largest amount of this increase
(76.2%) was directly attributed to the increased volume of loans held within the
Company's portfolio. The remaining 23.8% of the increase over 1997 was the
volume
page nine
<PAGE>
Management's Discussion and Analysis (Continued)
<TABLE>
<CAPTION>
TABLE 2 - VOLUME/RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Taxable Equivalent Basis)*
- -----------------------------------------------------------------------------------------------------------
1998 over 1997 1997 over 1996
- -----------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $4,591 $(716) $3,875 $5,193 $(232) $4,961
Securities 451 (113) 338 (757) 171 (586)
Federal funds sold 944 (64) 880 116 23 139
Short-term investments (16) 7 (9) (44) (9) (53)
- -----------------------------------------------------------------------------------------------------------
Total interest income 5,970 (886) 5,084 4,508 (47) 4,461
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing demand accounts 221 (19) 202 305 63 368
Money market investment accounts 0 0 0 0 0 0
Savings deposits 166 (92) 74 31 (23) 8
Certificates of deposit 1,817 (104) 1,713 1,726 37 1,763
Borrowings 184 (266) (82) (160) 10 (150)
Trust preferred securities 1,913 5 1,918 106 0 106
- -----------------------------------------------------------------------------------------------------------
Total interest expense 4,301 (476) 3,825 2,008 87 2,095
- -----------------------------------------------------------------------------------------------------------
Changes in net interest income $1,669 $(410) 1,259 $2,500 $(134) 2,366
Change in taxable equivalent adjustments 27 (20)
- -----------------------------------------------------------------------------------------------------------
Change in net interest income
after taxable equivalent adjustments $1,286 $2,346
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted to reflect income related to securities and loans exempt from Federal
income taxes.
increase in the investment securities portfolio and federal funds sold which was
directly attributed to the increase of deposits purchased through acquisitions.
The increase in 1997 over 1996 was also due to loan volume.
Throughout the past two years, the Company employed a deposit-pricing strategy
focused on retaining and attracting lower cost short-to-moderate term funds. In
addition, the Company has competed more aggressively for high quality loans.
While management correctly anticipated a relatively flat to lower rate
environment throughout 1996, 1997,and 1998, the Company's net interest margin
decreased 30 basis points from 1997 to 3.95%. The decrease in this margin was
caused by two factors: 1) The Company's purchase of $121.3 million of deposits,
and 2) The twelve months of interest expense related to the Trust Preferred
Securities. The Company's net interest margin had increased from 4.17% to 4.25%
from 1996 to 1997. The Company believes that continued growth in loans
throughout 1999 will permit the net interest margin to improve by year end.
The changes in interest income and interest expense resulting from changes in
volume and rate are summarized in Table 2. Variances have been allocated on the
basis of the absolute relationship between volume and rate.
PROVISION FOR LOAN LOSSES
The Company expensed $1.218 million in provision for loan losses throughout
1998. This level of provision allowed the Company to maintain its allowance for
loan losses in proportion to its risk and growth of gross loans. This topic is
discussed in detail under the heading "Loans, Credit Risk and the Allowance and
Provision for Loan Losses".
NON-INTEREST INCOME
Non-interest income increased from $4.501 million in 1997 to $5.122 million in
1998, an increase of $621 thousand or 13.8%. Of this total, $115 thousand was
attributable to service charges on newly acquired deposit relationships. The
primary increase was a direct result of increased mortgage banking activity and
the selling of residential mortgages into the secondary market. The Company
holds the servicing rights on these mortgages. Mortgage banking income increased
$240 thousand over 1997. The Company also experienced a $205 thousand increase
from other income which includes fee income from its debit cards, surcharges of
foreign card users on its ATMs and fees generated from several cash dispensers
distributed throughout the Company's trade area.
Non-interest income increased by $527 thousand from 1996 to 1997 primarily due
to increases in mortgage banking and service charge income.
INTEREST EXPENSE
Total interest expense increased from $22.903 million in 1996 to $24.997 million
in 1997 and $28.823 million in 1998. The majority of the increase from 1997 to
1998 was the result of the deposit acquisitions made by the Company in the third
and fourth quarters of the year. The Company also absorbed the
page ten
<PAGE>
interest expense on the Trust Preferred Securities for twelve months in 1998 as
compared to less than a month in 1997.
NON-INTEREST EXPENSE
The largest component of non-interest expense is personnel and benefits cost.
The Company experienced an increase of $1.6 million, or 17.3% in this area over
1997 after increasing by $634 thousand or 7.4% over 1996. The 1998 increase was
a direct result of purchasing the seven new branch facilities and retaining all
the personnel associated with them. The number of full-time equivalent employees
at year end in 1998 was 360 compared to 299 in 1997 and 292 in 1996.
All other areas of non-interest expense increased in 1998 over 1997. All of
these expenses were a direct result of expanding facilities and personnel
related to the acquisitions made through-out 1998. Total non-interest expense to
average assets for 1998 was 2.73% compared to 2.54% in 1997 and 2.68% in 1996.
The Company historically has been able to control its overhead costs when
compared to its peers (see Table 3 and graph).
INCOME TAXES
The effective tax rate was 36.3% for 1998, 35.2% for 1997 and 37.4% for 1996.
Generally, the change in income tax expense reflects the change in income before
income tax as the level of tax-exempt income remained relatively constant from
1996 to 1998. The Company and its subsidiaries file consolidated income tax
returns.
FINANCIAL CONDITION
Total average assets in 1998 increased $83.607 million over the prior year.
Average assets increased by $50.923 million in 1997 as compared to 1996.
Year-end assets increased to $827.945 million in 1998 from $693.168 million for
1997. Acquired deposits, repayments of loans, as well as internal growth of
interest-bearing deposits, funded loan and securities growth in 1998.
Average non-interest bearing deposits increased 17.2% in 1998 compared to an
11.1% increase in 1997. Average interest-bearing deposits increased $45.707
million or 8.9% in 1998 compared to 9.0% in 1997. The majority of this growth is
attributable to deposit acquisitions made during the third and fourth quarters
of 1998.
When comparing deposit growth from December 31, 1998 to December 31, 1997, the
Company experienced a total deposit growth of $126.703 million or a 21.7%
increase (see Table 4).
Guaranteed Preferred Beneficial Interests in the Company's Subordinated
Debentures ("Preferred Securities") in the amount of $22.425 million were issued
on December 9,1997. The holders of the 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 Preferred Security.
The Company has the right, so long as no default has occurred, to defer payment
of interest
TABLE 3 - NON-INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Percent Change
- -------------------------------------------------------------------------------------------------------
1998 1997 1996 1998/97 1997/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-INTEREST INCOME
Insurance commissions $ 530 $ 515 $ 540 2.9 (4.6)
Fiduciary activities 261 278 264 (6.1) 5.3
Mortgage banking income 1,356 1,116 795 21.5 40.4
Service charges on deposit accounts 1,895 1,780 1,656 6.5 7.5
Securities gains (losses) (13) (76) 104 82.9 (173.1)
Other income 1,093 888 615 23.1 44.4
-----------------------------
Total non-interest income $ 5,122 $ 4,501 $ 3,974 13.8 13.3
=============================
- -------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits $10,852 $ 9,252 $ 8,618 17.3 7.4
Net occupancy expenses 1,382 1,284 1,185 7.6 8.4
Equipment expenses 1,457 1,323 1,124 10.1 17.7
Data processing expense 855 797 654 7.3 21.9
Deposit insurance expense 129 109 738 18.3 (85.2)
Intangible amortization 459 238 229 92.9 3.9
Stationery, printing, and supplies 635 503 438 26.2 14.8
Merger expense 806 - -
Other expense 3,097 2,697 2,736 14.8 (1.4)
-----------------------------
Total non-interest expense $19,672 $16,203 $15,722 21.4 3.1
=============================
- -------------------------------------------------------------------------------------------------------
</TABLE>
page eleven
<PAGE>
Management's Discussion and Analysis (Continued)
TABLE 4 - AVERAGE DEPOSITS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 58,407 $ 49,817 $ 44,850
Interest-bearing demand 131,263 3.01% 123,914 3.03% 113,816 2.97%
Savings 64,990 2.91 59,386 3.06 58,385 3.10
Certificates of deposit 360,295 5.55 327,541 5.58 296,594 5.57
Totals $614,955 4.20% $560,658 4.25% $513,645 4.23%
- -----------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, certificates of deposit and other time deposits of
$100,000 or more mature as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
3 Months or Less 3 - 6 Months 6 -12 Months Over 12 Months Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount $24,884 $17,798 $13,343 $12,796 $68,821
Percent 36% 26% 19% 19% 100%
- -----------------------------------------------------------------------------------
</TABLE>
at anytime, 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 repayment of interest. The Preferred Securities have
a preference under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise of the common stock. The
holders of the Preferred Securities have no voting rights except in limited
circumstances. The Preferred Securities are traded on the NASDAQ National Market
under the symbol "IUBCP" and are not insured by the BIF, SAIF or FDIC, or by any
other government agency. The 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 Preferred
Securities cannot constitute more than 25% of the total Tier 1 capital of the
Company. Consequently, the amount of Preferred Securities in excess of the 25%
limitation will constitute Tier 2 capital, or supplementary capital, of the
Company.
[CHART APPEARS HERE]
Common Shareholders' Equity was $59.196 million on December 31, 1998 compared to
$55.006 million at December 31, 1997. Book value per common share increased to
$12.40 or 6.2% from $11.68 at year end 1997.
LOANS, CREDIT RISK AND THE ALLOWANCE AND
PROVISION FOR 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 charge offs than peer
bank averages. (see graph) 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 $66.777 million or 14.1% over year-end 1997, primarily
reflecting the growth and development of real estate mortgages, both commercial
and residential. The Company increased its commercial real estate portfolio by
$14.251 million or 17.5% and increased its residential portfolio by $38.164
million or 18.3% compared to year-end 1997. The Company also increased its
construction and development loans from $15.797 million to $30.772 million or
94.8% from December 31, 1997 to December 31, 1998. The Company experienced a
moderate growth in consumer loans over 1997, showing a 6.9% increase. The
Company decreased its outstanding loans by $1.896 million or 4.9% in farm real
estate and $1.008 million or 6.3% in agricultural production financing compared
to 1997 (see graph).
page twelve
<PAGE>
TABLE 5 - AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(Taxable Equivalent Basis)*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $ 1,431 $ 81 5.66% $ 1,713 $ 90 5.25% $ 2,531 $130 5.14%
Federal funds sold 33,713 1,832 5.43 16,414 952 5.80 14,411 813 5.64
Securities
Taxable 116,262 7,408 6.37 106,557 6,865 6.44 120,195 7,576 6.30
Non-taxable 27,783 1,992 7.17 30,122 2,197 7.29 28,504 2,085 7.31
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 144,045 9,400 6.53 136,679 9,062 6.63 148,699 9,661 6.50
Loans**
Commercial 200,693 18,266 9.10 180,903 17,063 9.43 159,016 15,223 9.57
Mortgage 238,594 19,898 8.34 208,869 17,417 8.34 188,040 15,467 8.23
Installment 62,423 6,253 10.02 59,493 6,062 10.19 45,908 4,891 10.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 501,710 44,417 8.85 449,265 40,542 9.02 392,964 35,581 9.05
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 680,899 55,730 8.18 604,071 50,646 8.38 558,605 46,185 8.27
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 19,189 18,464 16,448
Unrealized gains (losses) on
securities 1,657 562 (249)
Allowance for loan losses (5,806) (4,621) (4,736)
Premises and equipment, net 11,045 10,014 9,199
Intangible assets 2,957 1,664 1,678
Accrued interest receivable and
other assets 11,836 8,016 6,302
- ------------------------------------------ ---------- ---------
Total assets $721,777 $638,170 $587,247
========================================== ========== =========
LIABILITIES
Interest-bearing deposits
Interest-bearing demand
accounts $131,263 $3,953 3.01 $123,914 $ 3,751 3.03 $113,816 $ 3,383 2.97
Savings 64,990 1,892 2.91 59,386 1,818 3.06 58,385 1,810 3.10
Certificates of deposit 360,295 19,983 5.55 327,541 18,271 5.58 296,594 16,507 5.57
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 556,548 25,828 4.64 510,841 23,840 4.67 468,795 21,700 4.63
Short-term borrowings 9,307 429 4.61 12,349 630 5.10 14,098 690 4.89
Trust preferred securities 22,425 2,024 9.03 1,229 105 8.54
Long-term debt 10,000 542 5.42 4,797 423 8.82 5,606 513 9.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 598,280 28,823 4.82 529,216 24,998 4.72 488,499 22,903 4.69
Demand deposits 58,407 49,817 44,850
Other liabilities 7,647 7,032 5,936
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 664,334 586,065 539,285
Shareholders' equity 57,443 52,105 47,957
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and shareholders'
equity $721,777 28,823 4.23*** $638,170 24,998 4.13*** $587,242 22,903 4.10***
==========------------------------===========-----------------------==========--------------------
Net interest income $26,907 3.95 $25,648 4.25 $23,282 4.17
- -----------------------------------------------------------------------------------------------------------------------------------
Conversion of tax exempt income
to a fully taxable equivalent
basis using a marginal rate
of 34% $ 1,015 $ 1,042 $1,022
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted to reflect income related to securities and loans exempt from
Federal income taxes.
** Non accruing loans have been included in the average balances. The mortgage
category includes primarily residential mortgages.
*** Total interest expense divided by total earning assets.
TABLE 6 - LOAN PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
December 31 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Types of loans
Commercial $ 29,084 $ 33,101 $ 30,929 $ 28,162 $ 20,513
Agricultural production financing and
other loans to farmers 14,983 15,991 16,073 15,167 13,538
Commercial real estate mortgage 95,800 81,549 62,501 52,843 55,007
Residential real estate mortgage 246,491 208,327 188,716 170,590 164,988
Farm real estate 36,906 38,802 35,145 36,188 34,843
Construction and development 30,772 15,797 20,239 16,446 13,092
Consumer 70,966 66,357 52,106 44,651 42,333
State and political 13,249 11,362 8,488 8,407 6,699
Government guaranteed loans 1,153 1,341 1,819 2,080 2,819
- ---------------------------------------------------------------------------------------------
Total loans $539,404 $472,627 $416,016 $374,534 $353,832
- ---------------------------------------------------------------------------------------------
</TABLE>
page thirteen
<PAGE>
Management's Discussion and Analysis (Continued)
TABLE 7 - MATURITIES AND SENSITIVITIES OF COMMERCIAL AND CONSTRUCTION LOANS
TO CHANGES IN INTEREST RATES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Within 1 Year 1-5 Years Over 5 Years Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOAN TYPE
Commercial $17,205 $ 7,885 $3,994 $29,084
Agricultural production financing and
other loans to farmers 10,593 2,676 1,714 14,983
Construction 30,326 446 - 30,772
Government guaranteed loans 70 303 780 1,153
- ------------------------------------------------------------------------------------------------
Totals $58,194 $11,310 $6,488 $75,992
- ------------------------------------------------------------------------------------------------
Percent 77% 15% 8% 100%
- ------------------------------------------------------------------------------------------------
RATE SENSITIVITY
Fixed rate $13,462 $ 7,672 $2,332 $23,466
Variable rate 44,732 3,638 4,156 52,526
- ------------------------------------------------------------------------------------------------
Totals $58,194 $11,310 $6,488 $75,992
- ------------------------------------------------------------------------------------------------
</TABLE>
Residential real estate loans continue to represent the largest portion of the
total loan portfolio. Such loans represented 45.7% and 44.1% of total loans at
December 31, 1998 and 1997, respectively. Of the total residential real estate
portfolio, 54.58% are fixed rate and 45.42% are variable rate loans at December
31, 1998. The Company also originates and sells loans into the secondary market
but maintains the portfolio's servicing rights. The Company's mortgage banking
activity non-interest income increased $240 thousand from 1997 representing a
21.5% increase and $321 thousand in 1997 from 1996 or a 40.4% increase.
The Company limits its exposure to long-term fixed rate residential mortgage
loans and generally observes 20% minimum down payment guidelines. The Company
held some of the shorter term fixed rate mortgages in its own portfolio during
1997 and 1998 to help offset the growth in deposits through new products and
acquisitions. This strategy assisted the Company in obtaining its profit goals
for 1998. The Company intends to continue its plan of holding some fixed rate
mortgages without incurring unacceptable levels of interest rate risk.
[CHART APPEARS HERE]
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's principal balance, as circumstances warrant.
The provision for loan losses was $1.218 million in 1998 compared to $1.789
million in 1997 and $978 thousand in 1996. A portion of the increase from 1996
to 1997 was to more closely align the level of the allowance of the Company's
new subsidiary under the Company's procedures based on the composition of its
loan portfolio and did not reflect any significant loan quality deterioration.
The additional provisions for 1996 through 1998 reflect increases in the
allowance primarily due to the Company's overall loan growth and to replenish
the allowance for chargeoffs incurred.
Net chargeoffs were $570 thousand in 1998, $844 thousand in 1997 and $948
thousand in 1996. As a percentage of average loans, net chargeoffs equaled .11%,
.19% and .24% in 1998, 1997 and 1996. The Company has outperformed its peer
group's net loan loss average and that trend is expected to continue in 1999.
Management is not aware of any trend which is likely to cause the level of net
chargeoffs in 1999 to materially exceed the average level of chargeoffs over the
past three years (see graph).
Management maintains a list of loans warranting either the assignment of a
specific reserve amount or other special administrative attention. This list,
together with a listing of all classified loans, nonaccrual loans and delinquent
loans, 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
page fourteen
<PAGE>
TABLE 8 - UNDERPERFORMING LOANS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $3,709 $ 755 $3,039 $2,198 $1,229
Accruing loans contractually past due
90 days or more 195 375 39 174 210
Restructured loans
Total $3,904 $1,130 $3,078 $2,372 $1,439
- ----------------------------------------------------------------------------------------
% of total loans 0.72% 0.24% 0.74% 0.63% 0.41%
- ----------------------------------------------------------------------------------------
</TABLE>
TABLE 9 - SUMMARY OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $5,451 $4,506 $4,476 $4,385 $4,041
Chargeoffs
Commercial 191 695 315 339 17
Commercial real estate mortgage 0 0 334 166 18
Residential real estate mortgage 99 32 10 54 95
Consumer 582 452 523 456 349
- --------------------------------------------------------------------------------------------
Total chargeoffs 872 1,179 1 1,182 1,015 479
- --------------------------------------------------------------------------------------------
Recoveries
Commercial 83 134 47 121 91
Residential real estate mortgage 25 25 17 46 29
Consumer 194 176 170 169 138
- --------------------------------------------------------------------------------------------
Total recoveries 302 335 234 336 258
- --------------------------------------------------------------------------------------------
Net chargeoffs 570 844 948 679 221
Provision for loan losses 1,218 1,789 978 770 565
- --------------------------------------------------------------------------------------------
Balance at December 31 $6,099 $5,451 $4,506 $4,476 $4,385
- --------------------------------------------------------------------------------------------
Net chargeoffs to average loans 0.11% 0.19% 0.24% 0.19% 0.06%
Provision for loan losses to average loans 0.24 0.40 0.25 0.21 0.16
Allowance to total loans at year end 1.13 1.15 1.08 1.19 1.24
- --------------------------------------------------------------------------------------------
</TABLE>
TABLE 10 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
to total to total to total to total to total
December 31 Amount loans Amount loans Amount loans Amount loans Amount loans
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
Residential $ 294 46% $ 181 44% $ 223 45% $ 181 45% $ 222 47%
Farm real estate 275 7 20 8 21 9 20 10 20 10
Commercial 715 18 327 18 348 15 327 14 723 15
Construction and
development 830 6 66 3 139 5 66 4 56 4
- ------------------------------------------------------------------------------------------------------------------------------
Total real estate 2,114 77 594 73 731 74 594 73 1,021 76
- ------------------------------------------------------------------------------------------------------------------------------
Commercial
Agribusiness 912 3 186 3 224 4 186 4 206 4
Other commercial 316 5 441 7 677 7 441 8 277 6
- ------------------------------------------------------------------------------------------------------------------------------
Total Commercial 1,228 8 627 10 901 11 627 12 483 10
- ------------------------------------------------------------------------------------------------------------------------------
Consumer 1,155 13 611 14 514 13 612 12 412 12
Other 2 3 2 3 2
Unallocated 1,602 3,619 2,360 2,643 2,469
- ------------------------------------------------------------------------------------------------------------------------------
Total $6,099 100 $5,451 100 $4,506 100 $4,476 100 $4,385 100
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
page fifteen
<PAGE>
TABLE 11 - INVESTMENT SECURITIES
(Carrying Values at December 31)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Beyond 10 Total
1 Year 2-5 Yrs 6-10 Yrs Years 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Available for sale
Federal agencies $ 4,019 $ 73,110 $ 20,846 $ -- $ 97,975
State and municipal 726 6,440 2,606 50 9,822
Mortgage-backed securities 251 1,017 14,463 25,098 40,829
Corporate obligations 2,035 10,537 -- 15,633 28,205
Other securities -- 98 156 173 427
Equity securities -- -- -- 750 750
- -----------------------------------------------------------------------------------------------
Total available for sale $ 7,031 $ 91,202 $ 38,071 $ 41,704 $178,008
- -----------------------------------------------------------------------------------------------
Weighted average yield* 5.84% 5.90 6.34% 7.09% 6.26%
Held to maturity
- -----------------------------------------------------------------------------------------------
State and municipal $ 5,255 $ 13,067 $ 276 $ 11 $ 18,609
Corporate obligations -- 497 -- -- 497
Other securities -- -- 485 -- 485
- -----------------------------------------------------------------------------------------------
Total held to maturity $ 5,255 $ 13,564 $ 761 $ 11 $ 19,591
- -----------------------------------------------------------------------------------------------
Weighted average yield* 6.89% 6.85% 7.80% 7.58% 6.90%
- -----------------------------------------------------------------------------------------------
</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, 1998, 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.
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 quarterly. 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 with general allocations made
by loan type, classified loans including non-accrual and impaired loans, current
economic conditions, the amount of loans presently outstanding, and the amount
and composition of loan growth. The Allowance for Loan Losses as of December 31,
1998, is considered adequate by management. See Tables 6, 7, 8, 9, and 10 for
quantitative support of this narrative loan analysis.
INVESTMENT SECURITIES
Investment securities offer flexibility in the Company's management of interest
rate risk, and are 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.
As of December 31, 1998, 90% of the 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 $704 thousand was
recorded to adjust the AFS portfolio to current market value at December 31,
1998, compared to a net unrealized gain of $762 thousand at December 31, 1997.
The remaining 10% of the investment portfolio is classified as "held to
maturity" ("HTM") and is carried at book value. The majority of the Company's
HTM portfolio consists of tax-exempt municipal bonds.
For 1998, the tax equivalent yield of the investment securities portfolio was
6.53%, compared to 6.63% and 6.50% at year end 1997 and 1996, respectively.
Variable rate securities comprised 20.17% of the total portfolio on December 31,
1998 with the remaining 79.83% invested in fixed rate investments.
page sixteen
<PAGE>
SOURCES OF FUNDS
The Company relies primarily on customer deposits and securities sold under
repurchase agreements ("REPOs"),along with shareholders' equity to fund earning
assets. Federal Home Loan Bank ("FHLB") advances are used to provide additional
funding. The Company also purchased $121.3 million of local deposits during the
last half of 1998 from major regional banks exiting smaller markets.
Deposits generated within local markets provide the major source of funding for
earning assets. Average total deposits were 90% and 93% of total average earning
assets in 1998 and 1997. Total interest-bearing deposits averaged 91% of average
total deposits during 1998, 1997 and 1996. Management is continuing efforts to
increase the percentage of transaction-related deposits to total deposits due to
the positive affect on earnings.
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 1997 and 1998 to replace a portion
of customer funds previously invested in REPOs.
Even though short-term borrowings temporarily increased 32% at year end 1998
compared to 1997, the Company decreased average REPOs and other short-term
borrowings in 1998 to $9.307 million or 25% below 1997. REPOs comprised 98% of
short-term borrowings on December 31, 1998.
CAPITAL RESOURCES
Total common shareholders' equity increased $4.190 million to $59.196 million at
December 31, 1998.
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 common shareholders'
equity plus limited amounts of Preferred Securities less core deposit and
goodwill intangibles. Total capital consists of core capital, certain debt
instruments and a portion of the allowance for loan losses. At December 31,
1998, tier 1 capital to average assets was 8.3%. Total capital to risk-adjusted
assets was 13.7%.Both ratios substantially exceed all required ratios
established for bankholding companies. Risk-adjusted capital levels of each of
the Company's subsidiary banks exceed regulatory definitions of well-capitalized
institutions.
The 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 these securities cannot constitute more than 25% of the total Tier 1
capital of the Company. Consequently, the amount of Preferred Securities in
excess of the 25% limitation will constitute Tier 2 capital, or supplementary
capital, of the Company.
[CHART APPEARS HERE]
Common shareholders' equity is impacted by the Company's decision to categorize
a portion of its securities portfolio as AFS under accounting rules adopted
January 1, 1994. Securities in this category are carried at fair value, and
common shareholders' equity is adjusted to reflect unrealized gains and losses,
net of taxes.
The Company declared and paid common dividends of $.59 per share in 1998, $.51
in 1997 and $.42 in 1996. Book value per common share increased to $12.40 from
$11.68 in 1997. The net adjustment for AFS securities increased book value by
$.15 and $.16 at December 31, 1998 and 1997. Depending on market conditions, the
adjustment for AFS securities can cause significant fluctuations in equity.
The Company declared a 2 for 1 common stock split for those shareholders of
record as of August 17, 1998. All financial information used throughout this
report has been adjusted to reflect this stock split.
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 $170.977 million 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
page seventeen
<PAGE>
Management's Discussion and Analysis (Continued)
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, which provide a sizable source of relatively stable low-cost
funds. Average core deposits funded approximately 90%of total earning assets at
December 31, 1998 and approximately 93% in 1997 and 92% in 1996.
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 directives from regulatory authorities which would
materially affect liquidity, capital resources or operations.
INTEREST RATE RISK
At year end 1998, the Company held approximately $381.4 million 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, 1998 appears
in Table 12. 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 the ratio of rate-sensitive
assets to rate-sensitive liabilities be kept within a range of 80% to 130%.
The Company will continue to strive for a more neutral gap position in 1999
based upon its the belief that the current interest rate environment will remain
relatively stable throughout 1999. In any event, the Company does not anticipate
that its earnings will be materially impacted in 1999, regardless of the
direction interest rates may trend.
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.
Strategies are developed that
TABLE 12 - RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Over 5
Years or
3 Months 1 Year 2 Years 5 Years Insensitive Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 125,456 $ 153,441 $ 51,654 $ 99,856 $ 108,997 $ 539,404
Securities 43,131 35,912 26,897 63,278 28,381 197,599
Federal funds sold 19,855 19,855
Interest-bearing deposits in banks 1,498 1,498
FHLB stock 2,120 2,120
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 192,060 189,353 78,551 163,134 137,378 760,476
- ----------------------------------------------------------------------------------------------------------------------------------
Other assets 73,568 73,568
Allowance for loan losses (6,099) (6,099)
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 192,060 $ 189,353 $ 78,551 $ 163,134 $ 204,847 $ 827,945
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand $ 50,188 $ 25,094 $ 25,094 $ 25,095 $ 125,471
Savings 22,580 15,054 18,819 18,819 75,272
Money market 17,095 17,095 34,190
Certificates of deposit 131,686 188,853 58,398 29,225 $ 674 408,836
Short term borrowings 20,032 20,032
Federal Home Loan Bank advances 10,000 10,000
Trust preferred securities 22,425 22,425
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 241,581 246,096 112,311 73,139 23,099 696,226
- ----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 66,102 66,102
Other liabilities 6,421 6,421
Stockholders' equity 59,196 59,196
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 241,581 $ 246,096 $ 112,311 $ 73,139 $ 154,818 $ 827,945
- ----------------------------------------------------------------------------------------------------------------------------------
Rate sensitivity gap (assets less liabilities) $ (49,521) $ (56,743) $ (33,760) $ 89,995
- ----------------------------------------------------------------------------------------------------------------------------------
Rate sensitivity gap (cumulative) (49,521) (106,264) (140,024) (50,029)
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of total assets (cumulative) (5.98)% (12.83)% (16.91)% (6.04)%
Rate sensitive assets/liabilities (cumulative) 79.50% 78.21% 76.66% 92.57%
</TABLE>
page eighteen
<PAGE>
TABLE 13 - PRINCIPAL CASH FLOWS AND WEIGHTED AVERAGE INTEREST RATES BY
MATURITY DATES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
There Fair
December 31 1999 2000 2001 2002 2003 after Total Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities
Fixed rate $12,300 $18,906 $33,006 $23,327 $23,617 $45,608 $156,764 $157,577
Average interest rate 5.11% 5.36% 5.67% 5.66% 5.74% 6.73% 5.91%
Variable rate $ 10 $4,006 $ 1,512 $ 23 $ 30 $34,030 $ 39,611 $40,447
Average interest rate 5.21% 5.02% 5.36% 5.19% 6.19% 6.57% 6.37%
Loans
Fixed rate $24,544 $9,554 $17,002 $25,968 $23,116 $162,820 $263,004 $264,810
Average interest rate 8.84% 9.81% 9.01% 8.80% 8.50% 7.69% 8.14%
Variable rate $44,747 $6,424 $ 4,708 $ 4,555 $5,552 $221,386 287,372 287,708
Average interest rate 8.56% 8.13% 8.91% 8.66% 8.42% 8.15% 8.24%
LIABILITIES
Deposits
NOW, money market and savings deposits
Fixed rate
Average interest rate
Variable rate $234,933 $234,933 $234,933
Average interest rate 2.62% 2.62%
Certificates of deposit
Fixed rate $287,861 $61,589 $22,392 $ 7,363 $ 6,356 $ 713 $386,274 $389,815
Average interest rate 5.36% 5.54% 5.60% 6.08% 5.67% 5.99% 5.43%
Variable rate $ 13,603 $ 5,275 $ 2,795 $ 476 $ 311 $ 102 $22,562 $ 22,562
Average interest rate 5.67% 5.20% 5.47% 5.73% 5.09% 5.65% 5.32%
Borrowings
Fixed rate $ 1,540 $ 1,540 $ 1,540
Average interest rate 4.38% 4.38%
Variable rate $ 18,492 $18,492 $ 18,492
Average interest rate 4.15% 4.15%
Federal Home Loan Bank advances
Fixed rate $10,000 $10,000 $ 10,270
Average interest rate 5.35% 5.35%
Trust Preferred Securities
Fixed rate $22,425 $22,425 $ 23,827
Average interest rate 8.75% 8.75%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
impact asset/liability committee activities based on interest rate risk
sensitivity, board policy limits, desired sensitivity gaps and interest rate
trends.
Table 13 provides information about the Company's significant financial
instruments at December 31, 1998 that are sensitive to changes in interest
rates. The table presents principal cashflows and related weighted average
interest rates by maturity dates.
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.
page nineteen
<PAGE>
NEW ACCOUNTING MATTERS
REPORTING COMPREHENSIVE INCOME
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. Enterprises
that have no items of other comprehensive income in any period presented are
excluded from the scope of this Statement.
Statement No. 130 stipulates that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement, but does require that an enterprise display an amount representing
total comprehensive income for the period in that financial statement.
Upon implementing this new statement, an enterprise will classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Statement No. 130 is effective for interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. The Company adopted
Statement No. 130 for 1998.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION
Statement No. 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in financial reports issued to shareholders. It also
established standards for related disclosures about 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 operation decision-maker in deciding how to allocate
resources and in assessing performance.
Statement No. 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company was not required to report segment
information.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES
Statement No. 133 requires companies to record derivatives on the balance sheet
at their fair value. Statement No. 133 also acknowledges that the method of
recording a gain or loss depends on the use of the derivative. If certain
conditions are met, a derivative may be specifically designed as (a) a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an AFS security, or a foreign-currency-denominated forecasted
transaction.
The new Statement applies to all entities. If hedge accounting is elected by the
entity, the method of assessing the effectiveness of the hedging derivative and
the measurement approach of determining the hedge's ineffectiveness must be
established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supercedes Statement Nos. 80, 105,
and 119. Statement No. 107 is amended to include the disclosure provision about
the concentrations of credit risk from Statement No. 105. Several Emerging
Issues Task Force consensuses are also changed or nullified by the provisions of
Statement No.133.
Statement No. 133 will be effective for all fiscal years beginning after June
15, 1999.
TABLE 14 - QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $14,388 $13,826 $13,468 $13,033 $13,085 $12,498 $12,312 $11,708
Total interest expense 7,833 7,245 6,907 6,838 6,682 6,301 6,166 5,848
Net interest income 6,555 6,581 6,561 6,195 6,403 6,197 6,146 5,860
Net income 1,806 1,728 1,066 1,848 1,636 1,868 1,934 1,767
Earnings per share (basic) 0.38 0.36 0.22 0.39 0.35 0.40 0.41 0.37
Earnings per share (diluted) 0.38 0.36 0.22 0.39 0.35 0.39 0.41 0.37
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The above quarterly amounts reflect reclassifications which increased net
interest income by $275 for 1998 and $284 for 1997 on an annual basis from
amounts previously reported.
page twenty
<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
control, policies and administrative procedures designed to provide reasonable
assurance that transactions are recorded accurately. As an integral part of the
internal control, the Company maintains a professional staff of internal
auditors who monitor compliance with regulations, policies and procedures, and
assess the effectiveness of internal control. In addition, the Company's audit
committee, which is comprised entirely of outside directors, meets periodically
with management, internal auditors and/or 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 Olive
LLP. 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 to the extent they deem necessary in
order to issue such an opinion. As described further in their report that
follows, their opinion is based on their audit, which was conducted in
accordance with generally accepted accounting standards and is believed by them
to provide a reasonable basis for their opinion. The selection of Olive LLP was
approved by the Board of Directors and ratified by shareholders.
/s/ Robert E. Hoptry
Robert E. Hoptry
Chief Executive Officer
/s/ James L. Saner, Sr.
James L. Saner, Sr.
President and Chief Operating Officer
INDEPENDENT AUDITOR'S REPORT
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, 1998 and 1997,and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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.
The consolidated financial statements as of December 31,1997, and for the
two years then ended have been restated to reflect the pooling of interest with
P.T.C. Bancorp as described in Note2 to the consolidated financial statements.
We did not audit the 1997 financial statements of P.T.C. Bancorp, which
statements reflect total assets of $321,993 as of December 31, 1997, and total
revenues of $26,118 and $23,668 for the two years then ended. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for P.T.C. Bancorp as of
December 31, 1997,and for the two years then ended, is based solely on the
report of the other auditors.
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, based on our audits and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the consolidated financial position of Indiana
United Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Olive LLP
Indianapolis, Indiana
January 29, 1999
page twenty-one
<PAGE>
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------
December 31 (In Thousands Except Share Data) 1998 1997
- -----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 25,549 $ 22,405
Interest-bearing demand deposits 31 58
Federal funds sold 19,855 50,750
- -----------------------------------------------------------------------------
Cash and cash equivalents 45,435 73,213
Interest-bearing time deposits 1,498 999
Investment securities
Available for sale 178,008 101,922
Held to maturity (fair value of $20,016
and $24,575) 19,591 24,182
- -----------------------------------------------------------------------------
Total investment securities 197,599 126,104
Loans held for sale 10,972 1,580
Loans, net of allowance for loan losses of
$6,099 and $5,451 533,305 467,176
Premises and equipment 12,498 10,384
Federal Home Loan Bank stock 2,120 2,024
Income receivable 7,044 5,681
Intangible assets 12,818 1,705
Other assets 4,656 4,302
- -----------------------------------------------------------------------------
Total assets $827,945 $693,168
- -----------------------------------------------------------------------------
LIABILITIES
Deposits
Noninterest bearing $ 66,102 $ 63,204
Interest bearing 643,769 519,964
- -----------------------------------------------------------------------------
Total deposits 709,871 583,168
Short-term borrowings 20,032 15,164
Federal Home Loan Bank advances 10,000 10,000
Interest payable 4,032 3,681
Other liabilities 2,389 3,724
- -----------------------------------------------------------------------------
Total liabilities 746,324 615,737
- -----------------------------------------------------------------------------
Guaranteed preferred beneficial interests in
Company's subordinated debentures 22,425 22,425
- -----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity
Preferred stock, no-par value
Authorized - 400,000 shares
Issued and outstanding - none
Common stock, $.50 stated value
Authorized - 10,000,000 shares
Issued and outstanding - 4,774,628 and
4,708,556 shares 2,387 2,354
Paid-in capital 21,742 21,254
Retained earnings 34,363 30,636
Accumulated other comprehensive income 704 762
- -----------------------------------------------------------------------------
Total shareholders equity 59,196 55,006
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $827,945 $693,168
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
page twenty-two
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
Year Ended December 31 (In Thousands Except Share Data)
1998 1997 1996
- --------------------------------------------------------------------------------
INTEREST INCOME
Loans receivable
Taxable $43,423 $39,674 $34,661
Tax exempt 656 572 607
Investment securities
Taxable 7,408 6,865 7,576
Tax exempt 1,315 1,450 1,376
Federal funds sold 1,832 952 813
Deposits with financial institutions 81 90 130
- --------------------------------------------------------------------------------
Total interest income 54,715 49,603 45,163
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 25,828 23,839 21,700
Short-term borrowings 429 630 690
Trust preferred securities 2,024 105
Long-term debt 542 423 513
- --------------------------------------------------------------------------------
Total interest expense 28,823 24,997 22,903
- --------------------------------------------------------------------------------
NET INTEREST INCOME 25,892 24,606 22,260
Provision for loan losses 1,218 1,789 978
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 24,674 22,817 21,282
- --------------------------------------------------------------------------------
NON-INTEREST INCOME
Insurance commissions 530 515 540
Mortgage banking 1,356 1,116 795
Fiduciary activities 261 278 264
Service charges on deposit accounts 1,895 1,780 1,656
Net realized gains (losses) on securities (13) (76) 104
Other income 1,093 888 615
- --------------------------------------------------------------------------------
Total non-interest income 5,122 4,501 3,974
- --------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 10,852 9,252 8,618
Net occupancy expenses 1,382 1,284 1,185
Equipment expenses 1,457 1,323 1,124
Data processing fees 855 797 654
Deposit insurance expense 129 109 738
Intangibles amortization 459 238 229
Stationery, printing and supplies 635 503 438
Merger expenses 806
Other expenses 3,097 2,697 2,736
- --------------------------------------------------------------------------------
Total non-interest expense 19,672 16,203 15,722
- --------------------------------------------------------------------------------
Income Before Income Tax 10,124 11,115 9,534
Income tax expense 3,676 3,910 3,565
- --------------------------------------------------------------------------------
Net Income $ 6,448 $ 7,205 $ 5,969
- --------------------------------------------------------------------------------
Basic Earnings per Share $ 1.36 $ 1.53 $ 1.25
Diluted Earnings per Share 1.35 1.52 1.25
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
page twenty-three
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------ Paid-in Comprehensive Retained
(In Thousands Except Share Data) Shares Amount Shares Amount Capital Income Earnings
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 20,000 $2,000 4,488,542 $2,244 $18,517 $24,330
Net income $5,969 5,969 5,969
Unrealized losses on securities,
net of reclassification
adjustment (80)
-------
Total comprehensive income $5,889
=======
Cash dividends
Preferred stock-$6.34 per share (50)
Common stock-$.42 per share (1,717)
Redemptions
Preferred stock (20,000) (2,000)
Common stock (48,662) (24) (666)
Stock dividend 199,784 100 2,896 (2,996)
Stock issued 61,166 31 455 486
Exercise of stock options 3,158 1 20 21
- -------------------------------------------------------------------------------------- ---------
Balances, December 31, 1996 - - 4,703,988 2,352 21,222 25,536
Net income $7,205 7,205
Unrealized gains on securities,
net of reclassification
adjustment 470
-------
Total comprehensive income $7,675
=======
Cash dividends-$.51 per share (2,105)
Exercise of stock options 4,568 2 32
- -------------------------------------------------------------------------------------- ---------
Balances, December 31, 1997 4,708,556 2,354 21,254 30,636
Net income $6,448 6,448
Unrealized losses on securities,
net of reclassification
adjustment (58)
-------
Total comprehensive income $6,390
=======
Cash dividends-$.59 per share (2,721)
Exercise of stock options 66,072 33 488
- -------------------------------------------------------------------------------------- ---------
Balances, December 31, 1998 4,774,628 $2,387 $21,742 $34,363
- -------------------------------------------------------------------------------------- ---------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
(In Thousands Except Share Data) Income Total
- ----------------------------------------------------------------
<S> <C> <C>
Balances, January 1, 1996 $372 $47,463
Net income
Unrealized losses on securities,
net of reclassification
adjustment (80) (80)
Total comprehensive income
Cash dividends
Preferred stock-$6.34 per share (50)
Common stock-$.42 per share (1,717)
Redemptions
Preferred stock (2,000)
Common stock (690)
Stock dividend
Stock issued
Exercise of stock options 486
21
----------------------
Balances, December 31, 1996 292 49,402
Net income 7,205
Unrealized gains on securities,
net of reclassification
adjustment 470 470
Total comprehensive income
Cash dividends-$.51 per share (2,105)
Exercise of stock options 34
----------------------
Balances, December 31, 1997 762 55,006
Net income 6,448
Unrealized losses on securities,
net of reclassification
adjustment (58) (58)
Total comprehensive income
Cash dividends-$.59 per share (2,721)
Exercise of stock options 521
----------------------
Balances, December 31, 1998 $704 $59,196
----------------------
</TABLE>
See notes to consolidated financial statements.
page twenty-four
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31 (In Thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,448 $ 7,205 $ 5,969
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Provision for loan losses 1,218 1,789 978
Depreciation and amortization 1,198 1,062 927
Deferred income tax 79 (441) 200
Securities amortization, net 181 155 187
Amortization of fair value adjustments
and intangibles 746 322 310
Investment securities (gains) losses 13 76 (104)
Foreclosed real estate gains (179)
Net loans sold gains (590) (323) (246)
Mortgage loans originated for sale (91,194) (38,277) (28,690)
Proceeds from sale of mortgage loans 82,392 37,450 30,623
Net change in
Income receivable (1,363) (420) (759)
Interest payable 351 633 (98)
Other adjustments (2,192) (431) (432)
- -------------------------------------------------------------------------------------------
Net cash provided (used) by
operating activities (2,713) 8,621 8,865
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in short-term investments (499) 998 5,489
Purchases of securities available for sale (109,618) (10,426) (34,466)
Proceeds from maturities and paydowns of
securities available for sale 27,219 20,577 30,453
Proceeds from sales of securities available
for sale 6,040 7,075 3,737
Purchases of securities held to maturity (2,189) (4,021) (12,807)
Proceeds from maturities and paydowns of
securities held to maturity 6,732 4,997 7,121
Net change in loans (45,976) (57,609) (45,639)
Purchases of premises and equipment (1,851) (2,199) (1,283)
Proceeds from sale of other real estate 146 1,228 50
Cash received in branch acquisitions 86,802
Other investing activities 58 143 17
- -------------------------------------------------------------------------------------------
Net cash used by investing
activities (33,136) (39,237) (47,328)
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, NOW, money market and
savings deposits 6,033 4,870 9,853
Certificates of deposit (630) 30,964 3,595
Short-term borrowings 4,868 (1,014) 3,943
Repayment of long-term debt (5,500) (1,000)
Proceeds from FHLB advances 12,500
Repayment of FHLB advances (2,500) (2,000)
Cash dividends (2,721) (2,104) (1,767)
Redemption of preferred stock (2,000)
Redemption of common stock (690)
Proceeds from issuance of stock 521 34 507
Net proceeds from issuance of trust
preferred securities 21,198
- -------------------------------------------------------------------------------------------
Net cash provided by financing
activities 8,071 58,448 40,441
- -------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (27,778) 27,832 1,978
Cash and Cash Equivalents, Beginning of Year 73,213 45,381 43,403
- -------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 45,435 $ 73,213 $ 45,381
- -------------------------------------------------------------------------------------------
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 28,472 $ 24,364 $ 23,002
Income tax paid 4,019 4,028 3,607
Loan balances transferred to foreclosed
real estate 1,000
</TABLE>
See notes to consolidated financial statements.
page twenty-five
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Share Data)
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Indiana United Bancorp("Company"), its
wholly owned bank subsidiaries("Banks") and its subsidiary, IUB Capital Trust,
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 reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. 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. People's Trust Company ("People's"), headquartered
in Brookville, Indiana, and Union Bank and Trust Company of Indiana("Union
Bank"), headquartered in Greensburg, Indiana, operate under state charters and
are 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.
IUB Capital Trust is a business trust formed in 1997 to issue the guaranteed
preferred beneficial interests in the Company's subordinated debentures ("Trust
Preferred Securities"). The Company owns all of the common stock of IUB Capital
Trust.
The Banks generate commercial, mortgage and consumer loans and receive deposits
from customers located primarily in Clark, Dearborn, Decatur, Fayette, Floyd,
Franklin, Hancock, Jay, Jefferson, Madison, Ripley, Rush, Switzerland and Wayne
counties, Indiana, and surrounding counties. The Banks' loans are generally
secured by specific items of collateral including real property, consumer assets
and business assets.
CONSOLIDATION-The consolidated financial statements include the accounts of the
Company, Banks and IUB Capital Trust after elimination of all material
intercompany transactions.
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
as accumulated other comprehensive income.
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.
LOANS HELD FOR SALE are carried at the lower of aggregate cost or market. Market
is determined using the aggregate method.Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income based on the
difference between estimated sales proceeds and aggregate cost.
LOANS are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Company will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delay snot
exceeding 90 days outstanding are not considered impaired. Certain non accrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investment in one-to-four family residential loans and consumer
loans to be homogeneous and therefore excluded from separate identification of
evaluation of impairment. 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 when considered uncollectible. Interest income is subsequently
recognized only to the extent cash payments are received unless such amounts are
applied to principal amounts outstanding. Certain net loan fees are being
deferred and amortized as an adjustment of yield on the loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future 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, 1998 the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Banks operate would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
page twenty-six
<PAGE>
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and declining-balance methods
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 ASSETS are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired, any required adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.
INTANGIBLE ASSETS consist of core deposit intangibles and goodwill. Core deposit
intangibles are being amortized using accelerated and straight-line methods over
10 to 15 years; goodwill is being amortized using the straight-line method over
15 to 20 years. Such assets are periodically evaluated as to the recoverability
of their carrying value.
MORTGAGE SERVICING RIGHTS on originated loans are capitalized by allocating the
total costs of the mortgage loans between the mortgage servicing rights and the
loans based on their relative fair values. Capitalized servicing rights are
amortized in proportion to and over the period of estimated servicing revenues.
STOCK OPTIONS were granted for a fixed number of shares with an exercise price
equal to the fair value of the shares at the date of grant. The Company
accounted for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and, accordingly, recognized no
compensation expense for the stock option grants.
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 and
potential common shares outstanding during each year.
RECLASSIFICATIONS of certain amounts in the 1997 and 1996 consolidated financial
statements have been made to conform to the 1998 presentation.
NOTE 2 -- BUSINESS COMBINATION
On April 30, 1998, the Company completed a merger with P.T.C. Bancorp ("PTC"),
Brookville, Indiana, in which PTC was merged with and into the Company. The
transaction was accounted for using the pooling-of-interests method of
accounting. The Company issued 1,136,417 (or 2,272,834 after stock split)shares
of its common stock to the shareholders of PTC. Each outstanding share of PTC at
the effective date of the merger was exchanged for 1.075 shares of common stock
of the Company. Merger and related costs were charged against net income during
1998.
The financial information contained herein reflects the merger and reports the
financial condition and results of operations as though the merger occurred as
of January 1, 1996. Separate operating results of the combined enterprises for
the periods prior to the merger were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income
Indiana United Bancorp $21,835 $13,144 $11,961
P.T.C. Bancorp 4,057 11,462 10,299
- ----------------------------------------------------------------------------------------
Combined $25,892 $24,606 $22,260
- ----------------------------------------------------------------------------------------
Net income
Indiana United Bancorp $ 4,979 $ 3,775 $ 2,693
P.T.C. Bancorp 1,469 3,430 3,276
- ----------------------------------------------------------------------------------------
Combined $ 6,448 $ 7,205 $ 5,969
- ----------------------------------------------------------------------------------------
Basic earnings per share
Indiana United Bancorp $ 1.05 $ .80 $ .56
P.T.C. Bancorp .31 .73 .69
- ----------------------------------------------------------------------------------------
Combined $ 1.36 $ 1.53 $ 1.25
- ----------------------------------------------------------------------------------------
Diluted earnings per share
Indiana United Bancorp $ 1.04 $ .80 $ .56
P.T.C. Bancorp .31 .72 .69
- ----------------------------------------------------------------------------------------
Combined $ 1.35 $ 1.52 $ 1.25
- ----------------------------------------------------------------------------------------
</TABLE>
page twenty-seven
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands Except Share Data)
NOTE 3 -- BRANCH ACQUISITIONS
During 1998, the Company purchased seven branches within target market areas.
These branch acquisitions were accounted for using the purchase method of
accounting. Total assets acquired, including cash of $86,802 and loans of
$21,300, and total liabilities assumed, including deposits of $121,300, amounted
to $121,880. The results of operations of the branches have been included since
their acquisition dates. Intangible assets are being amortized over estimated
useful lives.
The Company has further agreed to purchase an additional four branches within
target market areas. Consummation is expected to occur in early 1999. Deposits
expected to be purchased are estimated at $105,000.
NOTE 4 -- 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, 1998, was $4,889.
NOTE 5 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 96,903 $1,451 $ 379 $ 97,975
State and municipal 9,627 210 15 9,822
Mortgage-backed securities 40,665 421 257 40,829
Corporate obligations 28,428 370 593 28,205
Other securities 412 16 1 427
Equity securities 750 750
- ---------------------------------------------------------------------------------------------
Total available for sale 176,785 2,468 1,245 178,008
- ---------------------------------------------------------------------------------------------
Held to maturity
State and municipal 18,609 327 18,936
Corporate obligations 497 23 520
Other securities 485 75 560
- ---------------------------------------------------------------------------------------------
Total held to maturity 19,591 425 20,016
- ---------------------------------------------------------------------------------------------
Total investment securities $196,376 $2,893 $1,245 $198,024
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 45,036 $ 972 $ 54 $ 45,954
State and municipal 7,063 145 3 7,205
Mortgage-backed securities 45,179 598 383 45,394
Corporate obligations 2,621 2 2,619
Equity securities 750 750
- ---------------------------------------------------------------------------------------------
Total available for sale 100,649 1,715 442 101,922
- ---------------------------------------------------------------------------------------------
Held to maturity
State and municipal 22,741 272 1 23,012
Corporate obligations and other
securities 1,441 122 1,563
- ---------------------------------------------------------------------------------------------
Total held to maturity 24,182 394 1 24,575
- ---------------------------------------------------------------------------------------------
Total investment securities $124,831 $2,109 $ 443 $126,497
- ---------------------------------------------------------------------------------------------
</TABLE>
page twenty-eight
<PAGE>
The amortized cost and fair value of securities HTM and AFS at December 31, 1998
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>
- ---------------------------------------------------------------------------------------
Held to Maturity Available for Sale
- ---------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 5,255 $ 5,282 $ 6,763 $ 6,780
Two through five years 13,564 13,863 89,821 90,087
Six through ten years 276 294 22,413 23,453
After ten years 11 17 15,961 15,682
- ---------------------------------------------------------------------------------------
19,106 19,456 134,958 136,002
Mortgage backed securities 40,665 40,829
Other securities 485 560 412 427
Equity securities 750 750
- ---------------------------------------------------------------------------------------
Total investment securities $19,591 $20,016 $176,785 $178,008
- ---------------------------------------------------------------------------------------
</TABLE>
Securities with a carrying value of $28,853 and $26,839 were pledged at December
31, 1998 and 1997 to secure certain deposits and for other purposes as permitted
or required by law.
Proceeds from sales of securities AFS during 1998, 1997 and 1996 were $6,040,
$7,075, and $3,737. Gross gains of $40, $18, and $122 and gross losses of $53,
$94, and $18 were realized on those sales in 1998, 1997 and 1996, respectively.
The tax expense (benefit) for gains (losses) on security transactions for the
years ended December 31, 1998, 1997 and 1996 was $(5), $(30), and $41.
NOTE 6 -- LOANS AND ALLOWANCE
- --------------------------------------------------------------------
December 31 1998 1997
- --------------------------------------------------------------------
Commercial and industrial loans $ 29,084 $ 33,101
Agricultural production financing 14,983 15,991
Farm real estate 36,906 38,802
Commercial real estate 95,800 81,549
Residential real estate 246,491 208,327
Construction and development 30,772 15,797
Consumer 70,966 66,357
State and political 13,249 11,362
Government guaranteed loans 1,153 1,341
- --------------------------------------------------------------------
Total loans 539,404 472,627
Allowance for loan losses (6,099) (5,451)
- --------------------------------------------------------------------
Net loans $533,305 $467,176
- --------------------------------------------------------------------
- --------------------------------------------------------------------
December 31 1998 1997 1996
- --------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $5,451 $4,506 $4,476
Provision for losses 1,218 1,789 978
Recoveries on loans 302 335 234
Loans charged off (872) (1,179) (1,182)
- --------------------------------------------------------------------
Balances, December 31 $6,099 $5,451 $4,506
- --------------------------------------------------------------------
page twenty-nine
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands Except Share Data)
Information on impaired loans is summarized below.
- ----------------------------------------------------------------------------
December 31 1998 1997
- ----------------------------------------------------------------------------
Impaired loans with an allowance $2,635 $ 113
Impaired loans for which the discounted cash flows
or collateral value exceeds the carrying value of
the loan 607 238
- ----------------------------------------------------------------------------
Total impaired loans $3,242 $ 351
- ----------------------------------------------------------------------------
Allowance for impaired loans (included in the
Company's allowance for loan losses) $ 600 $ 20
- ----------------------------------------------------------------------------
Year Ended December 31 1998 1997
- ----------------------------------------------------------------------------
Average balance of impaired loans $ 990 $1,351
Interest income recognized on impaired loans 57 92
Cash-basis interest included above 57 92
NOTE 7 -- PREMISES AND EQUIPMENT
- ----------------------------------------------------------------------------
December 31 1998 1997
- ----------------------------------------------------------------------------
Land $ 1,943 $ 1,326
Buildings 12,542 11,378
Equipment 9,457 8,589
- ----------------------------------------------------------------------------
Total cost 23,942 21,293
Accumulated depreciation (11,444) (10,909)
- ----------------------------------------------------------------------------
Net $ 12,498 $ 10,384
- ----------------------------------------------------------------------------
NOTE 8 -- DEPOSITS
- ----------------------------------------------------------------------------
December 31 1998 1997
- ----------------------------------------------------------------------------
Noninterest-bearing $ 66,102 $ 63,204
Interest-bearing demand 159,661 129,043
Savings deposits 75,272 58,102
Certificates and other time deposits of
$100,000 or more 68,821 59,140
Other certificates and time deposits 340,015 273,679
- ----------------------------------------------------------------------------
Total deposits $709,871 $583,168
- ----------------------------------------------------------------------------
Certificates and other time deposits
maturing in years ending after December 31, 1998
1999 $315,656
2000 52,771
2001 25,199
2002 7,839
2003 6,622
Thereafter 749
- ----------------------------------------------------------------------------
$408,836
- ----------------------------------------------------------------------------
NOTE 9 -- SHORT-TERM BORROWINGS
- ----------------------------------------------------------------------------
December 31 1998 1997
- ----------------------------------------------------------------------------
Securities sold under repurchase agreements $19,607 $12,320
U. S. Treasury demand notes 425 2,844
- ----------------------------------------------------------------------------
Total short-term borrowings $20,032 $15,164
- ----------------------------------------------------------------------------
Securities sold under agreements to repurchase ("agreements") consist of
obligations of the Company to other parties. The obligations are secured by U.
S. Treasury and Federal agency securities, and such collateral is held by a
safekeeping agent. The maximum amount of outstanding agreements at any month-end
during 1998 and 1997 totaled $19,607 and 12,533 and the daily average of such
agreements totaled $8,627 and $9,516. The weighted average yield was 4.15% and
5.21% at
page thirty
<PAGE>
December 31, 1998 and 1997, while the weighted average yield during 1998 and
1997 was approximately 4.40% and 5.21%. The majority of the agreements at
December 31, 1998 mature within 30 days.
NOTE 10 -- FEDERAL HOME LOAN BANK ADVANCES
The Company had an FHLB advance of $10,000 outstanding at December 31, 1998. The
advance has an interest rate of 5.35% and matures on December 30, 2002.
The FHLB advance is secured by first mortgage loans and investment securities
totaling $99,113. The advance is subject to restrictions or penalties in the
event of prepayment.
NOTE 11 -- GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED
DEBENTURES
On December 12, 1997, Trust Preferred Securities totaling $22,425 were issued.
On such date, IUB Capital Trust completed the public offering of 2,242,500
shares of Trust Preferred Securities with a liquidation preference of $10 per
security. The proceeds of the offering were loaned to the Company in exchange
for subordinated debentures with terms that are similar to the Trust Preferred
Securities, which subordinated debentures are the sole asset of IUB Capital
Trust. Issuance costs of $1,227 paid from the proceeds are being amortized over
the life of the securities. The securities and distributions are guaranteed by
the Company. Distributions on the securities are payable quarterly in arrears at
the annual rate of 8.75% (with an effective rate of 9.03%) of the liquidation
preference and are included in interest expense in the consolidated statement of
income.
The Trust Preferred Securities, which mature December 31, 2027, are subject to
mandatory redemption, in whole or in part, upon repayment of the subordinated
debentures at maturity or their earlier redemption at the liquidation
preference. The subordinated debentures are redeemable prior to the maturity
date at the option of the Company on or after December 31, 2002. The
subordinated debentures are also redeemable in whole at any time or in part from
time-to-time, or at any time, in whole, but not in part, upon the occurrence of
specific events defined within the trust indenture. The Company has the option
to defer distributions on the subordinated debentures from time-to-time for a
period not to exceed 20 consecutive quarters.
NOTE 12 -- LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of loans serviced for others
totaled $150,523, $110,341 and $89,455 at December 31, 1998, 1997 and 1996.
The fair value of capitalized mortgage servicing rights at December 31, 1998 and
1997 is based on comparable market values and expected cash flows, with
impairment assessed based on portfolio characteristics including product type,
investor type and interest rates.
- ---------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------
Mortgage servicing rights
Balances, January 1 $ 529 $ 225
Servicing rights capitalized 690 469 $ 258
Amortization of servicing rights (295) (165) (33)
- ---------------------------------------------------------------------------
Balances, December 31 $ 924 $ 529 $ 225
- ---------------------------------------------------------------------------
NOTE 13 -- INCOME TAX
- ---------------------------------------------------------------------------
Year Ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $2,642 $3,271 $2,541
State 955 1,080 824
Deferred
Federal 119 (343) 188
State (40) (98) 12
- ---------------------------------------------------------------------------
Total income tax expense $3,676 $3,910 $3,565
- ---------------------------------------------------------------------------
Reconciliation of federal statutory to actual
tax expense
Federal statutory income tax at 34% $3,442 $3,779 $3,242
Tax exempt interest (573) (558) (509)
Effect of state income taxes 604 648 552
Non-deductible expenses 234 58 52
Change in tax law 144
Other (31) (17) 84
- ---------------------------------------------------------------------------
Actual tax expense $3,676 $3,910 $3,565
- ---------------------------------------------------------------------------
page thirty-one
<PAGE>
A cumulative net deferred tax liability is included in other liabilities. The
components of the liability are as follows:
- -----------------------------------------------------------------------------
December 31 1998 1997
- -----------------------------------------------------------------------------
Assets
Allowance for loan losses $ 1,602 $ 1,215
Core deposit intangibles 100 81
Deferred compensation 21 77
State income tax 2
- -----------------------------------------------------------------------------
Total assets 1,723 1,375
- -----------------------------------------------------------------------------
Liabilities
Accretion on securities (22) (19)
Depreciation (427) (328)
Fair value adjustments in accounting for
assets acquired (586) (772)
Goodwill (48)
Mortgage servicing rights (393)
State income tax (67)
Unrealized gain on securities AFS (481) (511)
Other (76) (73)
- -----------------------------------------------------------------------------
Total liabilities (2,100) (1,703)
- -----------------------------------------------------------------------------
$ (377) $ (328)
- -----------------------------------------------------------------------------
No valuation allowance was necessary at anytime during 1998, 1997 and 1996.
Retained earnings include approximately $2,162 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, 1998 was approximately $735.
NOTE 14 -- OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
Year Ended December 31, 1998 Amount (Expense)/Benefit Amount
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities
Unrealized holding losses arising
during the year $(109) $43 $(66)
Less: reclassification adjustment
for losses realized in net income (13) 5 (8)
- --------------------------------------------------------------------------------------
Other comprehensive income-net
unrealized losses on securities $ (96) $38 $(58)
- --------------------------------------------------------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended December 31, 1997 Amount (Expense)/Benefit Amount
- --------------------------------------------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising
during the year $ 702 $(278) $424
Less: reclassification adjustment
for losses realized in net income (76) 30 (46)
- --------------------------------------------------------------------------------------
Other comprehensive income-net
unrealized gains on securities $ 778 $(308) $470
- --------------------------------------------------------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended December 31, 1996 Amount (Expense)/Benefit Amount
- --------------------------------------------------------------------------------------
Unrealized losses on securities
Unrealized holding losses arising
during the year $ (28) $ 11 $(17)
Less: reclassification adjustment
for gains realized in net income 104 (41) 63
- --------------------------------------------------------------------------------------
Other comprehensive income-net
unrealized losses on securities $(132) $52 $(80)
- --------------------------------------------------------------------------------------
</TABLE>
page thirty-two
<PAGE>
NOTE 15 -- 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:
1998 1997
- -----------------------------------------------------------------------
Commitments to extend credit $84,352 $67,375
Standby letters of credit 517 736
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 material claims.
NOTE 16 -- AUTHORIZED SHARES AND STOCK SPLIT
In June 1998, the Company's shareholders approved an amendment to the Articles
of Incorporation to increase the number of authorized shares of common stock
from 3,000,000 to 10,000,000 shares.
On July 31, 1998, the Company approved a 2-for-1 stock split in which each share
of its common stock outstanding at the close of business on August 17, 1998, was
converted into two shares of common stock. The additional 2,387,314 shares were
distributed to shareholders on August 31, 1998. The stated value of shares was
changed from $1 to $.50. Share, per share and stock option data have been
restated for the 2-for-1 stock split.
NOTE 17 -- PREFERRED SHARES
In 1987, the Company issued 30,000 shares of no-par value, $100 stated value,
convertible preferred stock. The Company redeemed the remaining 20,000 shares of
preferred stock in 1996. Cash dividends for 1996 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.
NOTE 18 -- YEAR 2000
Like all entities, the Company and subsidiaries are exposed to risks associated
with the Year 2000 Issue, which affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent upon microchips. The Company has begun, but not yet completed, the
process of identifying and remediating potential Year 2000 problems. It is not
possible for any entity to guarantee the results of its own remediation efforts
or to accurately predict the impact of the Year 2000 Issue on third parties with
which the Company and subsidiaries do business. If remediation efforts of the
Company or third parties with which the Company and subsidiaries do business are
not successful, the Year 2000 Issue could have negative effects on the Company's
financial condition and results of operations in the near term.
The Company has not estimated the ultimate cost of addressing the Year 2000
Issue. It is reasonably possible that the Company's belief that it will recover
the carrying amount of certain existing hardware and software could change
materially in the near term as a result of the Company's Year 2000 resolution
decisions.
NOTE 19 -- DIVIDENDS AND CAPITAL RESTRICTIONS
Without prior approval, People's and Union Bank are restricted by Indiana law
and regulations of the DFI and the FDIC as to the maximum amount of dividends
People's and Union Bank can pay to the parent in any calendar year to People's
and 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 payout 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, 1998, total shareholders' equity of the Banks was $71,030 of
which $59,540 was restricted or limited from dividend distribution to the
Company. As a practical matter,
page thirty-three
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands Except Share Data)
The Banks may restrict dividends to a lesser amount because of the need to
maintain an adequate capital structure.
NOTE 20 -- DIVIDEND REINVESTMENT PLAN
The Company approved an Automatic Dividend Reinvestment Plan in February 1997.
The plan enabled 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 by the Company's transfer agent
on the open market and credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis commencing with the March 1997
dividend payment.
NOTE 21 -- REGULATORY CAPITAL
The Company and Banks are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations. The ratios are intended to
measure capital relative to assets and credit risk associated with those assets
and off-balance sheet exposures. The capital category assigned to an entity can
also be affected by qualitative judgments made by regulatory agencies about the
risk inherent in the entity's activities that are not part of the calculated
ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification in any of the
undercapitalized categories can result in actions by regulators that could have
a material effect on operations. At December 31, 1998 and 1997, the Banks are
categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since December 31, 1998 that
management believes have changed the Company's or Banks' classification.
The Company's and Banks' capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Required for To Be Well
Actual Adequate Capital(1) Capitalized(1)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Indiana United Bancorp
Total capital(1) (to risk-weighted assets) $74,199 13.7% $43,285 8.0% N/A
Tier 1 capital(1) (to risk-weighted assets) 65,171 12.1 21,642 4.0 N/A
Tier 1 capital(1) (to average assets) 65,171 8.3 31,365 4.0 N/A
People's
Total capital(1) (to risk-weighted assets) 28,324 12.5 18,102 8.0 $22,628 10.0%
Tier 1 capital(1) (to risk-weighted assets) 25,495 11.2 9,051 4.0 13,577 6.0
Tier 1 capital(1) (to average assets) 25,495 7.8 13,006 4.0 16,258 5.0
Union Bank
Total capital(1) (to risk-weighted assets) 20,969 11.4 14,707 8.0 18,384 10.0
Tier 1 capital(1) (to risk-weighted assets) 18,993 10.3 7,354 4.0 11,030 6.0
Tier 1 capital(1) (to average assets) 18,993 6.9 11,063 4.0 13,829 5.0
Regional Bank
Total risk-based capital(1) (to risk-weighted assets) 14,174 12.9 8,792 8.0 10,990 10.0
Core capital(1) (to adjusted tangible assets) 13,135 7.3 7,240 4.0 10,860 6.0
Core capital(1) (to adjusted total assets) 13,135 7.3 7,240 4.0 9,050 5.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Regional Bank's tangible capital at December 31, 1998 was $13,135, which amount
was 7.3 percent of tangible assets and exceeded the required ratio of 1.5
percent.
(1) As defined by regulatory agencies
page thirty-four
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Required for To Be Well
Actual Adequate Capital(1) Capitalized(1)
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Indiana United Bancorp
Total capital(1) (to risk-weighted assets) $55,246 24.0% $18,416 8.0% N/A
Tier 1 capital(1) (to risk-weighted assets) 40,120 17.4 9,208 4.0 N/A
Tier 1 capital(1) (to average assets) 40,120 10.7 14,979 4.0 N/A
P.T.C. Bancorp
Total capital(1) (to risk-weighted assets) 25,099 11.8 16,961 8.0 N/A
Tier 1 capital(1) (to risk-weighted assets) 22,449 10.6 8,481 4.0 N/A
Tier 1 capital(1) (to average assets) 22,449 7.0 12,813 4.0 N/A
People's
Total capital(1) (to risk-weighted assets) 24,219 11.3 17,097 8.0 $21,371 10.0%
Tier 1 capital(1) (to risk-weighted assets) 21,547 10.1 8,548 4.0 12,823 6.0
Tier 1 capital(1) (to average assets) 21,547 6.7 12,766 4.0 15,958 5.0
Union Bank
Total capital(1) (to risk-weighted assets) 23,074 16.2 11,392 8.0 14,240 10.0
Tier 1 capital(1) (to risk-weighted assets) 21,294 15.0 5,696 4.0 8,544 6.0
Tier 1 capital(1) (to average assets) 21,294 9.5 8,992 4.0 11,240 5.0
Regional Bank
Total risk-based capital(1) (to risk-weighted assets) 12,376 14.5 6,811 8.0 8,514 10.0
Core capital(1) (to adjusted tangible assets) 11,433 8.4 4,082 3.0 8,165 6.0
Core capital(1) (to adjusted total assets) 11,433 8.4 4,082 3.0 6,804 5.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Regional Bank's tangible capital at December 31, 1997 was $11,433, which amount
was 8.4 percent of tangible assets and exceeded the required ratio of 1.5
percent. 1 As defined by regulatory agencies
NOTE 22 -- EMPLOYEE BENEFIT PLANS
The Company has a defined-contribution retirement plan in which substantially
all employees may participate. The Company matches a portion of employees'
contributions and makes additional Company contributions based on employee
compensation. Expense was $736 in 1998, $529 in 1997 and $442 in 1996.
NOTE 23 -- RELATED PARTY TRANSACTIONS
The Company has entered into transactions with certain directors, executive
officers, significant stockholders 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:
Balances, January 1, 1998 $ 3,245
Changes in composition of related parties (470)
New loans, including renewals 1,766
Payments, etc., including renewals (1,541)
- ---------------------------------------------------------------------
Balances, December 31, 1998 $ 3,000
- ---------------------------------------------------------------------
Deposits from related parties held by the Company at December 31, 1998 and 1997
totaled $763 and $700.
NOTE 24 -- STOCK OPTION PLANS
Under the stock option plans effective through April 30, 1998 which were
accounted for in accordance with Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and related interpretations,
options were
page thirty-five
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands Except Share Data)
granted to selected executive officers and directors which vested and became
fully exercisable generally at the end of four years of continued employment.
The exercise price of each option was equal to the fair value of the Company's
stock on the date of grant; therefore, no compensation expense was recognized.
Although the Company has elected to follow APB No. 25, Statement of Financial
Accounting Standards (SFAS) No. 123 requires pro forma disclosures of net income
and earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant was estimated
on the grant date using a present value calculation with the following
assumptions:
- --------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------
Risk-free interest rates 6.50%
Dividend yields 2.31%
Volatility factors of expected market price of common stock 1.00%
Weighted-average expected life of the options 9 years
- --------------------------------------------------------------------------
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
- ------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------
Net income As reported $6,448 $7,205 $5,969
Pro forma 6,433 7,194 5,957
Basic earnings per share As reported 1.36 1.53 1.25
Pro forma 1.35 1.53 1.25
Diluted earnings per share As reported 1.35 1.52 1.25
Pro forma 1.35 1.52 1.24
- ------------------------------------------------------------------------
The following is a summary of the status of the stock option plans and changes
in the plans as of and for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 66,072 $7.88 70,640 $7.77 68,714 $7.36
Granted 5,084 12.68
Exercised (66,072) 7.88 (4,568) 6.78 (3,158) 6.78
------- ------ ------
Outstanding, end of year 0 66,072 7.88 70,640 7.77
------- ------ ------
Options exercisable at year end 56,818 47,382
Weighted-average fair value of options
granted during the year $3.23
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
page thirty-six
<PAGE>
NOTE 25 -- EARNINGS PER SHARE
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Weighted
Average Per-Share
Year Ended December 31, 1998 Income Shares Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income available to common shareholders $ 6,448 4,753,268 $1.36
Effect of dilutive stock options 12,446
-------------------------
Diluted Earnings Per Share
Net income available to common shareholders and
assumed conversions $ 6,448 4,765,714 $1.35
====================================
Weighted
Average Per-Share
Year Ended December 31, 1997 Income Shares Amount
- --------------------------------------------------------------------------------------------
Basic Earnings Per Share
Net income available to common shareholders $ 7,205 4,705,699 $1.53
Effect of dilutive stock options 32,596
-------------------------
Diluted Earnings Per Share
Net income available to common shareholders and
assumed conversions $ 7,205 4,738,295 $1.52
====================================
Weighted
Average Per-Share
Year Ended December 31, 1996 Income Shares Amount
- --------------------------------------------------------------------------------------------
Basic Earnings Per Share
Net income $5,969
Less: Preferred stock dividends (50)
--------
Net income available to common shareholders $5,919 4,720,426 $1.25
Effect of dilutive stock options 31,102
----------------------
Diluted Earnings Per Share
Net income available to common shareholders and
assumed conversions $5,919 4,751,528 $1.25
- --------------------------------------------------------------------------------------------
</TABLE>
page thirty-seven
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands Except Share Data)
NOTE 26 -- 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 -- The 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.
FHLB STOCK -- The fair value of FHLB stock is based on the price at which it may
be resold to the FHLB.
INCOME RECEIVABLE/INTEREST PAYABLE -- The fair value of these amounts
approximates carrying values.
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.
FHLB ADVANCES -- The fair value of this borrowing is established using a
discounted cash flow calculation, based on current rates for similar debt. Fair
value approximates carrying value.
TRUST PREFERRED SECURITIES -- The fair value is based on quoted market values.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
Carrying Carrying
December 31 Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 45,435 $ 45,435 $ 73,213 $ 73,213
Interest-bearing time deposits 1,498 1,498 999 999
Securities available for sale 178,008 178,008 101,922 101,922
Securities held to maturity 19,591 20,016 24,182 24,575
Loans including loans held for sale, net 544,277 546,419 468,756 469,793
Stock in FHLB 2,120 2,120 2,024 2,024
Income receivable 7,044 7,044 5,681 5,681
Liabilities
Deposits 709,871 713,412 583,168 585,060
Borrowings
Short-term 20,032 20,032 15,164 15,164
FHLB advances 10,000 10,270 10,000 10,000
Interest payable 4,032 4,032 3,681 3,681
Trust preferred securities 22,425 23,827 22,425 22,705
- ------------------------------------------------------------------------------------------
</TABLE>
NOTE 27 -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
Presented on the opposite page is condensed financial information as to
financial position, results of operations and cash flows of the Company:
page thirty-eight
<PAGE>
CONDENSED BALANCE SHEET
December 31 1998 1997
- ------------------------------------------------------------------------------
ASSETS
Cash on deposit and repurchase agreements $ 2,467 $17,901
Short-term investments with subsidiaries 5,700
- ------------------------------------------------------------------------------
Total cash and cash equivalents 8,167 17,901
Investment security-AFS 750 1,837
Investment in subsidiaries 71,724 57,043
Other assets 1,946 2,133
- ------------------------------------------------------------------------------
Total assets $82,587 $78,914
- ------------------------------------------------------------------------------
LIABILITIES
Subordinated debentures payable to IUB Capital Trust $23,119 $23,119
Other liabilities 272 789
- ------------------------------------------------------------------------------
Total liabilities 23,391 23,908
Shareholders' Equity 59,196 55,006
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $82,587 $78,914
- ------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
Year Ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------
INCOME
Dividends from subsidiaries $ 975 $4,275 $5,963
Fees from subsidiaries 139 45 33
Other income 971 216 307
- ------------------------------------------------------------------------------
Total income 2,085 4,536 6,303
- ------------------------------------------------------------------------------
EXPENSES
Interest expense 2,085 513 514
Salaries and benefits 1,015 786 682
Professional fees 149 126 119
Other expenses 1,255 373 337
- ------------------------------------------------------------------------------
Total expenses 4,504 1,798 1,652
- ------------------------------------------------------------------------------
Income (loss) before income tax and equity in
undistributed income of subsidiaries (2,419) 2,738 4,651
Income tax benefit 1,129 600 553
- ------------------------------------------------------------------------------
Income (loss) before equity in undistributed
income of subsidiaries (1,290) 3,338 5,204
Equity in undistributed income of subsidiaries 7,738 3,867 765
- ------------------------------------------------------------------------------
Net Income $ 6,448 $7,205 $5,969
- ------------------------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Year Ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 6,448 $7,205 $5,969
(Undistributed) income of subsidiaries (7,738) (3,867) (765)
Other adjustments (177) 120 128
- ------------------------------------------------------------------------------
Net cash provided (used) by
operating activities (1,467) 3,458 5,332
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital contributed to subsidiary (7,000)
Purchase of equipment (154) (15) (102)
Proceeds from sale of equipment 17
Proceeds from sale of security AFS 1,087 135
Purchase of security AFS (1,087)
- ------------------------------------------------------------------------------
Net cash provided (used) by
investing activities (6,067) (1,102) 50
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (5,500) (1,500)
Cash dividends (2,721) (2,104) (1,767)
Redemptions of stock (2,690)
Net proceeds from issuance of debentures 21,892
Purchase of IUB Capital Trust common shares (694)
Proceeds from issuance of stock 521 34 507
- ------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (2,200) 13,628 (5,450)
- ------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (9,734) 15,984 (68)
Cash and Cash Equivalents, Beginning of Year 17,901 1,917 1,985
- ------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 8,167 $17,901 $1,917
- ------------------------------------------------------------------------------
page thirty-nine
<PAGE>
OFFICERS AND DIRECTORS
INDIANA UNITED BANCORP
DIRECTORS OFFICERS
Robert E. Hoptry Robert E. Hoptry
Chairman and CEO Chairman and CEO
Indiana United Bancorp
James L. Saner, Sr.
James L. Saner, Sr. President and COO
President and COO
Indiana United Bancorp Michael K. Bauer
Vice President
John E. Back
Retired Jay B. Fager
Treasurer and CFO
William G. Barron
Chairman and President B. Sue Fawbush
Wm. G. Barron Enterprises Vice President and Secretary,
Director of Human Resources
Dale J. Deffner
Partner Dennis M. Flack
Deffner and Tebbe Accounting Firm Vice President, Director of
Training and Sales
Robert S. Dunevant
Vice Chairman Lynn T. Gordon
Indiana United Bancorp Vice President
President
Unity Company Daryl R. Tressler
Vice President
Philip A. Frantz
Attorney at Law; Partner Suzanne Kendall
Coldren and Frantz Corporate Auditor
Dale E. Smith Dawn M. Schwering
Owner Director of Marketing
Smith's Realty and Insurance
Martin G. Wilson
Farmer
Edward J. Zoeller
President
E.M. Cummings Veneer, Inc.
REGIONAL BANK
DIRECTORS
Michael K. Bauer Marvin L. Slung
Chairman, President and CEO Sales Representative
Regional Federal Savings Bank Jeb Advertising
William G. Barron Edward J. Zoeller
Chairman and President President
Wm. G. Barron Enterprises E.M. Cummings Veneer, Inc.
D.J. Hines DIVISION MANAGERS
President
Schuler Realty Inc. Larry W. Brumley
Senior Vice President
Robert E. Hoptry Commercial Lending Division
Chairman and CEO
Indiana United Bancorp Dennis R. Morrison
Senior Vice President
Michael J. Kapfhammer Retail Lending Division
President
Buckhead Mountain Grill James S. Honour, Jr.
Vice President
Charles E. MacGregor Retail Services Division
Attorney at Law
Wyatt, Tarrant and Combs
UNION BANK
DIRECTORS DIVISION MANAGERS
Daryl R. Tressler W. Brent Hoptry
Chairman, President and CEO Senior Vice President
Union Bank and Trust Company Lending Division
of Indiana
Glenn R. Raver
William G. Barron Senior Vice President
Chairman and President Retail Services and Operations
Wm. G. Barron Enterprises Divisions
Philip A. Frantz Daniel F. Anderson
Attorney at Law; Partner Vice President
Coldren and Frantz Senior Trust Officer
Robert E. Hoptry Dee M. Knueven
Chairman and CEO Manager
Indiana United Bancorp Insurance Division
David L. Miers Duane D. Sautbine
Manager President
Miers Farm Corporation Jay County Division
Lawrence R. Rueff, D.V.M.
President
Swine Veterinary Services
John G. Young
Chairman
Jay Garment Corporation
PEOPLE'S TRUST COMPANY
DIRECTORS
Dale J. Deffner Dale E. Smith
Chairman Owner
People's Trust Company Smith's Realty and Insurance
Partner
Deffner and Tebbe Norman Winkler
Accounting Firm Farmer
Lynn T. Gordon DIVISION MANAGERS
President and CEO
People's Trust Company Elaine Cook
Senior Vice President
John E. Back Retail /Deposit Services Division
Retired
Mark W. Dunevant
Mark W. Dunevant Senior Vice President
Senior Vice President, Retail Lending Division
Retail Lending
People's Trust Company L. Les Estep
Senior Vice President
Dieter Johnsen Commercial Lending Division
Owner
Dieter K.H. Johnsen, Inc. John C. Parker
Senior Vice President
Larry A. Johnson Data Processing and
Retired Operations Division
James L. Saner, Sr.
President and COO
Indiana United Bancorp
John G. Seale
Partner
Rettig, Blankman, Mack and
Seale Accounting Firm
page forty
<PAGE>
SHAREHOLDER INFORMATION
ANNUAL MEETING
Tuesday, May 18, 1999, 10:00 AM
Conference Center, Second Floor
Union Bank and Trust Company
201 N. Broadway
Greensburg, IN
CORPORATE ADDRESS
Indiana United Bancorp
201 N. Broadway
PO Box 87
Greensburg, IN 47240-9979
FORM 10-K
Copies of the Company's 1998 Form 10-K filed with the Securities and Exchange
Commission are available without charge to all shareholders upon request. Please
direct requests to the attention of the Chief Financial Officer.
TRANSFER AGENT
Reliance Trust Company
3295 Northcrest Road, NE
Atlanta, GA 30340-4099
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: Stifel, Nicolaus & Company,
Inc. J.J.B. Hilliard/W.L. Lyons, Inc. NatCity Investments, Inc.
The range of known per share prices by calendar quarter, based on actual
transactions, excluding commissions, is shown below.
1998 Q4 Q3 Q2 Q1
- -------------------------------------------------
High $26.50 $28.00 $30.38 $32.47
Low $21.00 $23.00 $26.75 $21.25
Last Sale $22.13 $25.75 $27.63 $29.06
1997 Q4 Q3 Q2 Q1
- -------------------------------------------------
High $23.13 $20.75 $20.50 $17.00
Low $20.25 $18.75 $15.88 $14.25
Last Sale $22.75 $20.50 $19.00 $16.63
The following dividends per share were paid by Indiana United Bancorp.
1998 Q4 Q3 Q2 Q1
- -------------------------------------------------
$ .155 $ .145 $ .145 $ .140
1997 Q4 Q3 Q2 Q1
- -------------------------------------------------
$ .135 $ .130 $ .125 $ .115
Amounts have been adjusted to reflect a 2 for 1 stock split to shareholders of
record as of August 17, 1998.
<PAGE>
Indiana
United
Bancorp
201 North Broadway
P.O. Box 87
Greensburg, Indiana 47240
EXHIBIT (21)--SUBSIDIARIES OF THE REGISTRANT
- --------------------------------------------
State of
Name Incorporation
People's Trust Company Indiana
Union Bank and Trust Company of Indiana Indiana
Regional Federal Savings Bank United States
Kentucky United Bancorp, Inc. Kentucky
IUB Capital Trust Delaware
The Insurance Group, Inc. Indiana
EXHIBIT (23)--CONSENT OF OLIVE LLP
- ----------------------------------
We consent to the incorporation by reference in the Registration Statement on
Form S-8, File No. 33-45395, of our report dated January 29, 1999 contained in
the 1998 Annual Report to Shareholders of Indiana United Bancorp, which is
incorporated by reference in this Form 10-K.
/s/ Olive LLP
Indianapolis, Indiana
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AND THE CONSOLIDATED CONDENSED
INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 25,549
<INT-BEARING-DEPOSITS> 1,529
<FED-FUNDS-SOLD> 19,855
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 178,008
<INVESTMENTS-CARRYING> 19,591
<INVESTMENTS-MARKET> 20,016
<LOANS> 539,404
<ALLOWANCE> 6,099
<TOTAL-ASSETS> 827,945
<DEPOSITS> 709,871
<SHORT-TERM> 20,032
<LIABILITIES-OTHER> 28,846
<LONG-TERM> 10,000
0
0
<COMMON> 2,387
<OTHER-SE> 56,809
<TOTAL-LIABILITIES-AND-EQUITY> 827,945
<INTEREST-LOAN> 44,079
<INTEREST-INVEST> 8,723
<INTEREST-OTHER> 1,913
<INTEREST-TOTAL> 54,715
<INTEREST-DEPOSIT> 25,828
<INTEREST-EXPENSE> 28,823
<INTEREST-INCOME-NET> 25,892
<LOAN-LOSSES> 1,218
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 19,672
<INCOME-PRETAX> 10,124
<INCOME-PRE-EXTRAORDINARY> 6,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,448
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 8.04
<LOANS-NON> 3,709
<LOANS-PAST> 195
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,451
<CHARGE-OFFS> 872
<RECOVERIES> 302
<ALLOWANCE-CLOSE> 6,099
<ALLOWANCE-DOMESTIC> 4,497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,602
</TABLE>
