SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 1, 2000
INDIANA UNITED BANCORP
(Exact Name of Registrant as Specified in its Charter)
Indiana
(State or Other Jurisdiction of Incorporation)
0-12422 35-1562245
(Commission File Number) (I.R.S. Employee Identification No.)
201 N. Broadway, Greensburg, Indiana 47240
(Address of principal executive offices) (Zip Code)
(812) 663-0157
Registrant's telephone number, including area code
<PAGE>
Item 2. Acquisition or Disposition of Assets
On May 1, 2000, the Registrant consummated its previously announced merger
transaction with First Affiliated Bancorp, Inc (the "Merger"). In the Merger,
First Affiliated Bancorp, Inc was merged into the Registrant and the Registrant
acquired a fourth banking subsidiary, Capstone Bank N.A., Watseka, Illinois. The
Registrant has issued in connection with the Merger, 1,018,359 additional Common
Shares.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. As referenced in the Current
Report on Form 8-K filed with the Securities and Exchange Commission (the
"Commission") on May 15, 2000, Indiana United Bancorp is hereby filing this Form
8-K/A to submit the following financial statements for First Affiliated Bancorp,
Inc.:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31, 1999 and 1998.
(iii) Consolidated Statements of Income for the years ended December 31,
1999 and 1998.
(iv) Consolidated Statements Shareholders' Equity for the
years ended December 31, 1999 and 1998
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998
(vi) Notes to Consolidated Financial Statements
(vii) Consolidated Condensed Balance Sheet as of March 31, 2000
(unaudited).
(viii) Consolidated Condensed Statements of Income for the three months
ended March 31, 2000 and 1999 (unaudited).
(ix) Consolidated Condensed Statements of Change in Stockholders' Equity
for the three months ended March 31, 2000 and 1999 (unaudited).
(x) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited).
(xi) Notes to Consolidated Condensed Financial Statements (unaudited).
(b) Pro Forma Financial Information. As referenced in the Current Report on Form
8-K filed with the Commission on May 15, 2000, Indiana United Bancorp is hereby
filing this Form 8-K/A to submit the following pro forma financial information:
(i) Pro Forma Condensed Combined Financial Information including Statements
of Income for each of the years in the three-year period ended December 31,
1999.
(ii) Pro Forma Condensed Combined Financial Information including Balance
Sheet as of March 31, 2000 and Statement of Income for the three months
ended March 31, 2000.
(c) Exhibits:
(23) Consent of Crowe, Chizek and Company LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 13, 2000 INDIANA UNITED BANCORP
/s/ James L. Saner Sr.
----------------------
Chairman and Chief Executive Officer
<PAGE>
INDEX OF FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31, 1999 and 1998.
(iii) Consolidated Statements of Income for the years ended December 31,
1999 and 1998.
(iv) Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999 and 1998
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998
(vi) Notes to Consolidated Financial Statements
(vii) Consolidated Condensed Balance Sheet as of March 31, 2000
(unaudited).
(viii) Consolidated Condensed Statements of Income for the three months
ended March 31, 2000 and 1999 (unaudited).
(ix) Consolidated Condensed Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 and 1999 (unaudited).
(x) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited).
(xi) Notes to Consolidated Condensed Financial Statements (unaudited).
(b) Pro Forma Financial Information.
(i) Pro Forma Condensed Combined Financial Information including Balance
Sheet as of March 31, 2000 and Statement of Income for the three months
ended March 31, 2000.
(ii) Pro Forma Condensed Combined Financial Information including
Statements of Income for each of the years in the three-year period ended
December 31, 1999.
(c) Exhibits:
(23) Consent of Crowe, Chizek and Company LLP
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
First Affiliated Bancorp, Inc.
Watseka, Illinois
We have audited the accompanying consolidated balance sheets of First Affiliated
Bancorp, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Affiliated
Bancorp, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 29, 2000
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In thousands except share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,919 $ 5,538
Federal funds sold -- 2,000
Money market fund investment -- 9,911
--------- ---------
Total cash and cash equivalents 7,919 17,449
Interest-bearing deposits in other financial institutions 1,121 1,223
Securities available-for-sale 47,283 34,188
Loans, less allowance for loan losses of $669 and
$501, respectively 66,799 67,935
Cash surrender value of life insurance policies 4,322 4,117
Accrued interest receivable 1,292 1,306
Leased equipment, net -- 130
Premises and equipment, net 2,325 2,542
Other assets 297 309
--------- ---------
Total assets $ 131,358 $ 129,199
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing demand $ 11,676 $ 11,992
NOW and money market accounts 56,045 45,658
Savings 6,893 8,212
Time, $100,000 and over 8,413 6,339
Time, other 33,493 41,697
--------- ---------
Total deposits 116,520 113,898
Advances from the Federal Home Loan Bank 4,584 3,710
Securities sold under agreements to repurchase -- 10
Notes payable -- 425
Accrued interest payable 303 384
Other liabilities 988 905
--------- ---------
Total liabilities 122,395 119,332
Shareholders' equity
Common stock - $.01 par value: 1,000,000 shares
authorized; 226,662 and 226,031 shares issued and
outstanding, respectively 2 2
Capital surplus 2,996 2,981
Retained earnings 6,425 6,256
Accumulated other comprehensive income (loss) (460) 628
--------- ---------
Total shareholders' equity 8,963 9,867
--------- ---------
Total liabilities and shareholders' equity $ 131,358 $ 129,199
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999 and 1998
(In thousands except per share data)
1999 1998
---- ----
Interest income
Loans $5,895 $6,055
Deposits in other financial institutions 60 60
Federal funds sold 61 82
Money market fund 196 350
Securities
Taxable 2,218 1,511
Exempt from federal income tax 477 456
------ ------
Total interest income 8,907 8,514
Interest expense
Deposits 4,099 4,062
Note payable 8 69
Other borrowed funds 230 208
------ ------
Total interest expense 4,337 4,339
------ ------
Net interest income 4,570 4,175
Provision for loan losses 185 75
------ ------
Net interest income after provision for loan losses 4,385 4,100
Non-interest income
Service charges on deposit accounts 628 607
Trust department income 145 118
Increase in cash surrender value
of insurance policies, net of premium expense 205 135
Rental income on leased equipment 128 249
Securities gains, net 1 2
Other service fees, commissions, and income 390 356
------ ------
Total non-interest income 1,497 1,467
Non-interest expense
Salaries and employee benefits 2,908 1,940
Occupancy and equipment expenses, net 611 630
Depreciation expense on leased equipment 96 274
Other expenses 1,252 1,261
------ ------
Total non-interest expense 4,867 4,105
------ ------
Income before income taxes 1,015 1,462
Income tax expense 9 279
------ ------
Net income $1,006 $1,183
====== ======
Basic earnings per share 4.44 5.30
Diluted earnings per share 4.40 5.29
See accompanying notes to consolidated financial statements.
6
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
(In thousands except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Common Other
Stock Stock and Comprehensive Total
Shares Capital Retained Income Shareholders'
Outstanding Surplus Earnings (Loss) Equity
----------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 221,004 $ 2,792 $ 5,533 $ 391 $ 8,716
Comprehensive income
Net income - - 1,183 - 1,183
Net unrealized gains on securities available-for-sale,
net of reclassification and tax effects - - - 237 237
Total comprehensive income 1,420
Cash dividends - - (460) - (460)
Issuance of common stock 5,973 236 - - 236
Retirement of common stock (946) (45) - - (45)
-------- -------- -------- --------- ---------
Balance at December 31, 1998 226,031 2,983 6,256 628 9,867
Comprehensive income
Net income - - 1,006 - 1,006
Net unrealized losses on securities available-for-sale,
net of reclassification effect - - - (1,088) (1,088)
Total comprehensive loss (82)
Cash dividends - - (837) - (837)
Issuance of common stock 2,968 150 - - 150
Retirement of common stock (2,337) (135) - - (135)
-------- -------- -------- --------- ---------
Balance at December 31, 1999 226,662 $ 2,998 $ 6,425 $ (460) $ 8,963
======== ======== ======== ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,006 $ 1,183
Adjustments to reconcile net income to
net cash from operating activities
Discount accretion/premium amortization
on securities, net 128 176
Provision for loan losses 185 75
Depreciation 370 548
Increase in cash surrender value of
life insurance policies (205) (135)
Securities gains (1) (2)
Real estate loans originated for sale (1,844) (2,557)
Sales of real estate loans 1,833 2,585
Gains on sales of real estate loans (23) (28)
Net loss (gain) on sales of real estate owned 11 (1)
Change in interest receivable and other assets 76 53
Change in interest payable and other liabilities 2 248
-------- --------
Net cash provided by operating activities 1,538 2,145
Cash flows from investing activities
Change in interest-bearing deposits
in other financial institutions 102 (104)
Maturities and paydowns of securities available-for-sale 11,222 17,914
Sales of securities available-for-sale 1,001 683
Purchases of securities available-for-sale (26,533) (22,279)
Sales of real estate owned 36 146
Net decrease (increase) in loans 922 (2,962)
Investment in life insurance policies -- (451)
Property and equipment purchases (57) (89)
-------- --------
Net cash used in investing activities (13,307) (7,142)
Cash flows from financing activities
Net increase in deposits 2,622 12,026
Change in repurchase agreements (10) --
Repayment of Federal Home Loan Bank advances (1,126) (113)
Proceeds from Federal Home Loan Bank advances 2,000 --
Repayment of notes payable (425) (825)
Issuance of common stock 150 236
Retirement of common stock (135) (45)
Dividends paid (837) (460)
-------- --------
Net cash provided by financing activities 2,239 10,819
-------- --------
</TABLE>
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
(In thousands)
1999 1998
---- ----
Net change in cash and cash equivalents $ (9,530) $ 5,822
Cash and cash equivalents at beginning of year 17,449 11,627
-------- --------
Cash and cash equivalents at end of year $ 7,919 $ 17,449
======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 4,418 $ 4,336
Income taxes 123 75
Schedule of noncash investing activities
Real estate acquired through foreclosure on
property held as collateral $ 97 $ 192
Transfer of receivable to loans 34 --
See accompanying notes to consolidated financial statements.
9
<PAGE>
FIRST AFFILIATED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(TABLE AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Financial Statement Presentation: The consolidated
financial statements of First Affiliated Bancorp, Inc. (the Company) include the
accounts of the Company and its wholly-owned subsidiary, Capstone Bank, N.A.
(Capstone) and WFNB Service Corporation, which is a wholly-owned subsidiary of
Capstone. Significant inter-company balances and transactions have been
eliminated in consolidation.
Nature of Operations: The Company is engaged in the business of commercial and
retail banking and trust and investment services conducted through its
subsidiary bank. Capstone's main office and three branch offices are located in
Iroquois and Kankakee Counties in Illinois, and Newton County in Indiana.
Customers in Iroquois, Kankakee, and Newton Counties are the primary source of
the Company's deposit, loan, and trust activities. The majority of the Company's
income is derived from commercial and retail lending, deposit activities, and
investments.
Use of Estimates in Preparation of the Financial Statements: 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 at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. The
collectibility of loans, fair values of financial instruments, and status of
contingencies are particularly subject to change. Actual results could differ
from those estimates.
Securities: Securities available-for-sale are carried at fair value. Securities
available-for-sale are those which the Company may decide to sell if needed for
liquidity, asset/liability management, or other reasons. Unrealized gains and
losses are charged or credited to a valuation allowance included as a separate
component of shareholders' equity.
Gains and losses on disposition are based on the net proceeds and the amortized
cost of the securities sold, using the specific identification method.
Loans and Loan Income: Loans are stated net of unearned discount and the
allowance for loan losses. Interest is accrued over the term of the loan based
on the amount of principal outstanding. Income on installment loans, as well as
purchase discount on real estate loans, is recognized on the interest method.
Where serious doubt exists as to the collectibility of a loan, the accrual of
interest is discontinued.
Statement of Financial Accounting Standards No. 91 (SFAS No. 91) requires that
loan origination fees and certain direct origination costs be capitalized and
recognized as an adjustment of the yield on the related loan. The Company
complies with SFAS No. 91 in all material respects.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost, net of deferred loan fees, or estimated fair value
in the aggregate.
10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. The allowance is reduced by
loan charge-offs, net of recoveries. Estimating the risk of loss and the amount
of loss on any loan is necessarily subjective. Accordingly, the allowance is
maintained by management at a level considered adequate to cover losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial position and collateral values, and other factors and estimates which
are subject to change over time. A loan is charged off by management as a loss
when deemed uncollectible, although collection efforts continue and future
recoveries may occur.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral by allocating a portion of
the allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is reported as
part of the provision for loan losses. A loan is considered to be impaired if it
is probable that the creditor will be unable to collect all principal and
interest under the contractual terms of the loan.
Leased Assets: Leased assets are stated at cost less accumulated depreciation.
Rental income is recognized as it accrues and the associated assets are
depreciated on the straight-line method over their estimated useful lives.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and equipment are depreciated primarily on
the straight-line method over their estimated useful lives. Maintenance and
repairs are expensed as incurred, while major improvements are capitalized.
Intangible Assets: The value of depositor relationships purchased from the
Resolution Trust Corporation in September of 1990 is being amortized over ten
years. The carrying value, which is included in other assets on the balance
sheet, was $63,000 and $122,000 at December 31, 1999 and 1998, respectively.
Amortization charged to expense was $59,000 in 1999 and 1998, respectively.
Other Real Estate: Real estate owned, other than that used in the normal course
of business, is carried at the lower of cost (fair value at the date of
foreclosure) or fair value less estimated costs to sell. Any reduction to fair
value from the related loan basis at the time of acquisition/foreclosure is
accounted for as a loan loss. Any subsequent reductions in fair value less
estimated costs to sell are recorded by charges to expense.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
11
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effective January 1, 1998, the Company elected to be taxed under Subchapter S of
the Internal Revenue Code. Consequently, taxable income of the Company is
reported on the tax returns of the individual shareholders. Income tax expense
in 1998 is primarily due to eliminating the deferred tax assets and liabilities
relating to temporary differences at January 1, 1998. This charge to 1998
earnings is a result of the Subchapter S election.
The state of Illinois taxes Subchapter S companies at a rate of 1.5% of taxable
income, as defined. Income taxes paid in 1999 are primarily due to management's
decision to amend prior year income tax returns to improve tax benefits for
shareholders after the Subchapter S election.
Earnings Per Share: Basic earnings per share is based on net income divided by
the weighted average number of shares outstanding during the period. Diluted
earnings per share shows the dilutive effect of additional common shares
issuable upon exercise of stock options.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income or loss consists of unrealized
gains and losses on securities available-for-sale, which are also recognized as
a separate component of shareholders' equity.
Statement of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, non-interest-bearing amounts due from banks,
federal funds sold, and money market fund investments. Generally, federal funds
are sold for one-day periods. The Company reports net cash flows for customer
loan and deposit transactions.
NOTE 2 - SECURITIES
The amortized cost and fair value of securities at year end follow:
<TABLE>
<CAPTION>
-------------------1999------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government agencies $ 21,796 $ 29 $ (413) $ 21,412
States and political subdivisions 10,297 299 (95) 10,501
Mortgage-backed 13,846 23 (291) 13,578
Trust preferred stock 1,250 - - 1,250
Corporate and other 554 - (12) 542
-------- ------- -------- --------
$ 47,743 $ 351 $ (811) $ 47,283
======== ======= ======== ========
</TABLE>
12
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
-------------------1998------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 1,000 $ 1 $ - $ 1,001
U.S. government agencies 14,541 127 (23) 14,645
States and political subdivisions 9,606 609 (6) 10,209
Mortgage-backed 7,859 48 (120) 7,787
Corporate and other 554 - (8) 546
-------- ------- -------- --------
$ 33,560 $ 785 $ (157) $ 34,188
======== ======= ======== ========
</TABLE>
The amortized cost and fair value of securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
--------- -----
Securities available-for-sale
Due in one year or less $ 1,202 $ 1,193
Due after one year through five years 20,654 20,352
Due after five years through ten years 5,295 5,431
Due after ten years 5,496 5,479
---------- ---------
32,647 32,455
Mortgage-backed 13,846 13,578
Trust preferred stock 1,250 1,250
---------- ---------
$ 47,743 $ 47,283
========== =========
Securities with a carrying value of approximately $18,965,000 and $11,943,000 at
December 31, 1999 and 1998, respectively were pledged to secure public deposits,
repurchase agreements, and for other purposes as permitted or required by law.
Information about sales of securities available-for-sale follows:
1999 1998
---- ----
Proceeds from sales $ 1,001 $ 683
Gross gains 1 2
Gross losses - -
13
<PAGE>
NOTE 3 - LOANS
The Company makes loans to customers primarily in Iroquois County, Illinois;
Kankakee County, Illinois; Newton County, Indiana; and the respective
surrounding areas. Most loans are secured by specific items of collateral,
including commercial, agricultural, and residential real estate and other
business and consumer assets.
Loans at year end consisted of the following:
1999 1998
---- ----
Commercial $ 25,887 $ 21,816
Agricultural 7,244 8,670
Residential real estate 19,122 19,489
Commercial and agricultural real estate 7,099 9,482
Installment 8,116 8,979
---------- ----------
Total loans 67,468 68,436
Allowance for loan losses (669) (501)
---------- ----------
$ 66,799 $ 67,935
========== ==========
Certain officers and directors and companies with which they are affiliated have
borrowed money from the Company. Loans to these related parties were
approximately $1,073,000 and $1,210,000 at December 31, 1999 and 1998,
respectively.
Included in residential real estate loans were loans held for sale of
approximately $34,000 at December 31, 1999. No loans were held for sale at
December 31, 1998.
As discussed in Note 7, residential real estate loans were pledged to secure
other borrowed funds at December 31, 1999 and 1998.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include standby letters of credit and unused lines
of credit. The Company's exposure to credit loss in the event of nonperformance
by the other parties to these financial instruments is represented by the
contractual amount of the instruments. The Company uses the same credit policy
to make such commitments as it uses for on-balance-sheet items.
The contract amount of these financial instruments is summarized as follows at
December 31:
1999 1998
---- ----
Financial instruments whose contract
amounts represent credit risk
Unused lines of credit $ 15,525 $ 13,215
Letters of credit 1,197 383
14
<PAGE>
NOTE 3 - LOANS (Continued)
Since many commitments to make loans expire without being used, the amounts
above do not necessarily represent future cash commitments. Collateral obtained
upon exercise of the commitment is determined using management's credit
evaluation of the borrower and may include commercial and residential real
estate and other business and consumer assets.
Activity in the allowance for loan losses is summarized below:
1999 1998
---- ----
Balance at beginning of year $ 501 $ 521
Provision for loan losses 185 75
Recoveries on loans previously charged off 349 138
Loans charged off (366) (233)
----- -----
Balance at end of year $ 669 $ 501
===== =====
Information regarding impaired loans follows:
1999 1998
---- ----
Average investment in impaired loans $ 593 $ 430
Interest income recognized on impaired loans,
all on the cash basis 97 58
Information regarding impaired loans at year end follows:
1999 1998
---- ----
Total impaired loans $ 723 $ 386
Less impaired loans for which no allowance for
loan losses is allocated -- --
----- -----
Portion of impaired loan balance for which an
allowance for loan losses is allocated $ 723 $ 386
===== =====
Portion of allowance for loan losses allocated to
impaired loans $ 120 $ 77
===== =====
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at year end:
1999 1998
---- ----
Land $ 247 $ 247
Building and improvements 2,475 2,475
Furniture and equipment 2,849 2,795
------- -------
Total cost 5,571 5,517
Accumulated depreciation (3,246) (2,975)
------- -------
$ 2,325 $ 2,542
======= =======
Depreciation expense was $274,000 in both 1999 and 1998.
15
<PAGE>
NOTE 5 - DEPOSITS
At December 31, 1999, scheduled maturities of certificates of deposit are as
follows:
2000 $ 31,062
2001 7,484
2002 1,508
2003 1,265
2004 587
----------
$ 41,906
==========
NOTE 6 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) at year end were:
1999 1998
---- ----
Advance due August 6, 1999, 5.98% $ - $ 1,000
Advance due August 8, 2002, 5.40% 2,000 2,000
Advance due November 5, 2002, 6.65% 210 280
Advance due August 27, 2004, 5.40% 2,000 -
Advance due March 15, 2006, 6.20% 374 430
-------- --------
$ 4,584 $ 3,710
======== ========
At year-end 1999, scheduled principal reductions on long-term debt were:
2000 $ 51
2001 116
2002 2,112
2003 38
2004 2,034
Thereafter 233
--------
$ 4,584
========
16
<PAGE>
NOTE 6 - ADVANCES FROM THE FEDERAL HOME LOAN BANK (Continued)
Capstone maintains a collateral pledge agreement with the FHLB of Chicago
covering secured advances whereby Capstone has agreed to retain residential real
estate loans with unpaid principal balances aggregating no less than 167% of the
outstanding advances from the FHLB of Chicago. Capstone also maintains a
collateral pledge agreement with the FHLB of Indianapolis covering secured
advances whereby Capstone has agreed to retain home mortgage loans with unpaid
principal balances and eligible securities aggregating no less than 160% of the
outstanding advances from the FHLB of Indianapolis.
NOTE 7 - RETIREMENT PLANS
Substantially all full-time employees are included in the 401(k) salary deferral
plan maintained by the Company. Eligible employees may elect to contribute a
percentage of their compensation, as defined, in the plan. The employer
contributions to the plan are based upon matching a specific percentage of
compensation as determined at the discretion of the Board of Directors. Annual
contributions are charged to expense and were $72,000 and $66,000 in 1999 and
1998, respectively.
The Company has nonqualified deferred compensation and salary continuation plans
covering certain executive officers and directors. Deferred compensation and
salary continuation plan liabilities were $861,000 and $698,000 at December 31,
1999 and 1998, respectively. The Company is the beneficiary of life insurance
policies on the executive officers and directors covered by these plans.
NOTE 8 - INCOME TAXES
Income tax expense consists of the following:
1999 1998
---- ----
Currently payable tax $ 9 $ 135
Deferred tax - 144
------- --------
Income tax expense $ 9 $ 279
======= ========
No deferred tax assets and liabilities exist at December 31, 1999 and 1998 due
to the Subchapter S election in 1998.
NOTE 9 - STOCK OPTIONS
In November 1997, the Company's Board of Directors approved the issuance of
stock options for 10,842 shares of the Company's common stock. All of these
options were issued to former shareholders of the Company who held their shares
in individual retirement accounts (IRAs) and sold their Company stock to the
Company at $47.00 per share. The purchase of these shares and issuance of
options was part of the Company's plans to become a Subchapter S corporation for
income tax purposes effective January 1, 1998. IRAs cannot be S corporation
shareholders. Thus, the Company could not become an S corporation effective
January 1, 1998 if any of its stock were held by IRAs as of December 31, 1997.
The options will expire on November 15, 2007 if not exercised, and none of these
options had been exercised as of December 31, 1999. The exercise price for each
option is $47.00 per share. Since the options were issued to former shareholders
in exchange for their stock, the pro forma disclosures of Statement of Financial
Accounting Standards No. 123 regarding stock-based compensation are not
applicable.
NOTE 10 - CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Since the Company is a one-bank
holding company and has consolidated assets of less than $150 million,
regulatory minimum capital requirements tests are applied primarily to the Bank
subsidiary. Capital adequacy guidelines and prompt corrective action regulations
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors. Failure to meet various capital requirements can initiate regulatory
action that could have a direct material effect on the financial statements of
the Company and the Bank.
17
<PAGE>
NOTE 10 - CAPITAL REQUIREMENTS (Continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. The minimum requirements are:
<TABLE>
<CAPTION>
Capital to Risk- Tier 1
------Weighted Assets---- Capital to
Total Tier 1 Average Assets
----- ------ --------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Under capitalized 6% 3% 3%
</TABLE>
The Bank's actual capital amounts and ratios, together with the minimum
regulatory requirements, were:
<TABLE>
<CAPTION>
Minimum Required
for Capital Minimum Required
Actual Adequacy Purposes to Be Well Capitalized
------ ----------------- ----------------------
As of December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
----------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $9,636 12.1% $6,571 8% $8,214 10%
Tier 1 capital (to risk-weighted assets) $9,267 11.3% $3,286 4% $4,928 6%
Tier 1 capital (to average assets) $9,267 6.9% $5,355 4% $6,693 5%
As of December 31, 1998
-----------------------
Total capital (to risk-weighted assets) $9,879 11.3% $6,974 8% $8,718 10%
Tier 1 capital (to risk-weighted assets) $9,378 10.8% $3,487 4% $5,231 6%
Tier 1 capital (to average assets) $9,378 7.4% $5,052 4% $6,315 5%
</TABLE>
The Bank was categorized by its regulator as well capitalized at December 31,
1999. There are no conditions or events since the most recent notification that
management believes would change the Bank's category.
Dividends payable by the Bank without prior regulatory approval approximate
year-to-date net income in 2000 less $219,000.
The Bank is required to maintain vault cash and non-interest-bearing balances
with the Federal Reserve Bank as reserves. The required reserves at December 31,
1999 were $2,093,000.
18
<PAGE>
NOTE 11 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in unrealized gains (losses) on securities
available-for-sale $ (1,087) $ 37
Less reclassification adjustments for gains
recognized in income (1) (2)
---------- --------
Net unrealized gains (losses) (1,088) 35
Tax effects - change in tax status - 202
---------- --------
Other comprehensive (loss) income $ (1,088) $ 237
========== ========
</TABLE>
NOTE 12 - EARNINGS PER SHARE
The factors used in the basic and diluted earnings per share computations
follow.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Basic
Net income $ 1,006 $ 1,183
========== ==========
Weighted average common shares
outstanding 226,540 223,064
========== ==========
Basic earnings per common share $ 4.44 $ 5.30
========== ==========
Diluted
Net income $ 1,006 $ 1,183
========== ==========
Weighted average common shares
outstanding for basic earnings per
common share 226,540 223,064
Add: Dilutive effects of assumed
exercise of stock options 2,286 466
---------- --------
Average shares and dilutive potential
common shares 228,826 223,530
---------- --------
Diluted earnings per common share $ 4.40 $ 5.29
========== ==========
</TABLE>
NOTE 13 - PARENT COMPANY STATEMENTS
Presented below are the condensed balance sheets and condensed statements of
income and cash flows for First Affiliated Bancorp, Inc.
CONDENSED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
---- ----
ASSETS
Cash on deposit at Bank $ 148 $ 113
Investment in Bank 8,876 10,134
Other assets -- 57
------- -------
Total assets $ 9,024 $10,304
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable $ -- $ 425
Other liabilities 61 12
------- -------
Total liabilities 61 437
Shareholders' equity 8,963 9,867
------- -------
Total liabilities and shareholders' equity $ 9,024 $10,304
======= =======
19
<PAGE>
NOTE 13 - PARENT COMPANY STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1999 and 1998
1999 1998
---- ----
Operating income
Dividends from Bank $ 2,025 $ 1,225
Interest income 2 2
Other income -- 56
------- -------
2,027 1,283
Operating expenses
Interest expense 8 69
Salaries and employee benefits 764 --
Other expenses 79 27
------- -------
851 96
------- -------
Income before income taxes and equity in
earnings of Bank 1,176 1,187
Income tax benefit -- 45
------- -------
Income before equity in earnings of Bank 1,176 1,232
Dividends from Bank in excess of Bank net income (170) (49)
------- -------
Net income $ 1,006 $ 1,183
======= =======
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
1999 1998
---- ----
Cash flows from operating activities
Net income $ 1,006 $ 1,183
Adjustments to reconcile net income to net
cash from operating activities
Dividends from Bank in excess of Bank net income 170 49
Change in other assets 57 18
Change in other liabilities 49 (88)
------- -------
Net cash provided by operating activities 1,282 1,162
Cash flows from financing activities
Repayment on notes payable (425) (825)
Issuance of common stock 150 236
Retirement of common stock (135) (45)
Dividends paid (837) (460)
------- -------
Net cash used in financing activities (1,247) (1,094)
------- -------
Net increase in cash 35 68
Cash at beginning of year 113 45
------- -------
Cash at end of year $ 148 $ 113
======= =======
20
<PAGE>
NOTE 14 - CONTINGENCIES
From time to time, the Company and the Bank are involved in legal actions
arising in the normal course of their business. Management believes that the
ultimate liability from such actions, if any, will not have a material effect on
the financial condition of the Company or the Bank.
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented below do not represent
the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments.
Short-Term Financial Instruments: Cash and cash equivalents and interest-bearing
deposits in other financial institutions are valued at their carrying amounts
included in the balance sheets, which are reasonable estimates of fair value due
to the relatively short period to maturity for these instruments.
Securities: Fair value for these instruments equals quoted market prices or
dealer quotes, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices of similar securities.
Loans: The fair value of loans is estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Cash Surrender Value of Life Insurance Policies: These instruments are valued at
their carrying amounts included in the balance sheets, which are reasonable
estimates of fair value.
Deposits and Repurchase Agreements: The fair value of demand deposits, NOW
accounts, money market deposits, and savings accounts is the amount payable on
demand at the reporting date. The fair value of certificates of deposit and
repurchase agreements is estimated by discounting future cash flows using the
current rates for liabilities of similar remaining maturities.
Notes Payable: For these variable rate notes, the carrying amount is a
reasonable estimate of the fair value.
21
<PAGE>
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
FHLB Advances: FHLB advances are at fixed rates and the fair value is estimated
using the current rates for advances of similar remaining maturities.
Accrued Interest: The carrying amounts of accrued interest approximate fair
value.
Commitments to Extend Credit and Standby Letters of Credit: The fair value of
these instruments is not material.
The carrying values and estimated fair values of the Company's financial
instruments at year end are as follows:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 7,919 $ 7,919 $ 17,449 $ 17,449
Interest-bearing deposits in other
financial institutions 1,121 1,121 1,223 1,223
Securities available-for-sale 47,283 47,283 34,188 34,188
Loans, less allowance for loan losses 66,799 65,577 67,935 68,754
Cash surrender value of life insurance
policies 4,322 4,322 4,117 4,117
Accrued interest receivable 1,292 1,292 1,306 1,306
Financial liabilities
Deposits with no stated maturities $ 74,614 $ 74,614 $ 65,862 $ 65,862
Deposits and repurchase agreements
with stated maturities 41,906 41,920 48,046 48,418
Notes payable - - 425 425
Advances from the Federal Home
Loan Bank 4,584 4,346 3,710 3,748
Accrued interest payable 303 303 384 384
</TABLE>
NOTE 16 - MERGER
On November 5, 1999, the Company entered into a merger agreement with Indiana
United Bancorp (IUB). On February 29, 2000 the merger agreement was amended and
restated. Under the terms of the merger, the Company's shareholders will
exchange their Company stock and options for common stock of IUB. The merger is
intended to qualify as a reorganization under Section 368 of the Internal
Revenue Code. For financial reporting purposes, the merger is intended to be
accounted for under the pooling-of-interests method. The merger, which is
expected to close by May 31, 2000, is subject to regulatory and shareholder
approval.
The terms of the merger agreement restrict the Company from purchasing and
retiring any of its stock. The merger agreement also limits the Company's
regular quarterly cash dividends to $.30 per share. Tax related distributions to
shareholders, which are made separately from the $.30 quarterly dividend, cannot
exceed 42.6% of the Company's taxable income.
22
<PAGE>
(vii), (viii),(ix), (x) & (xi) CONSOLIDATED CONDENSED FINANCIALS - MARCH 31,
2000
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in thousands except share and per share data)
March 31
2000
--------
Assets
Cash and due from banks $ 8,049
---------
Cash and cash equivalents 8,049
Interest bearing time deposits 1,171
Securities available for sale 48,098
Loans 69,345
Less: Allowance for loan losses (831)
Net loans 68,514
Premises and equipment (net) 2,270
Intangible assets 53
Other assets 5,912
---------
Total assets $ 134,067
=========
Liabilities
Deposits $ 117,505
Short-term borrowings 6,465
Other liabilities 1,395
---------
Total liabilities $ 125,365
---------
Shareholders' equity Common stock $.01 par value:
Authorized--1,000,000 shares, Issued and
outstanding, 226,662 shares 2
Capital surplus 2,996
Retained Earnings 6,861
Accumulated other comprehensive (loss) (1,157)
---------
Total shareholders' equity 8,702
---------
Total liabilities and shareholders' equity $ 134,067
=========
See notes to consolidated condensed financial statements.
23
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands except share and per share data)
Three months ended
March 31
--------
2000 1999
---- ----
Interest income
Loans, including fees $ 1,502 $ 1,584
Securities 797 614
Other 21 36
------- -------
Total interest income 2,320 2,234
Interest expense
Deposits 1,085 1,023
Other borrowings 51 60
------- -------
Total interest expense 1,136 1,083
------- -------
Net interest income 1,184 1,151
Provision for loan losses 20 --
------- -------
Net interest income after provision for loan losses 1,164 1,151
Non-interest income
Other operating income 322 342
------- -------
Total non-interest income 322 342
------- -------
Non-interest expense 982 980
------- -------
Income before income tax 504 513
Income tax expense (benefit) -- (24)
------- -------
Net income $ 504 $ 537
======= =======
Net income per share (basic) $ 2.22 $ 2.38
Net income per share (diluted) $ 2.02 $ 2.16
Cash dividends declared $ .30 $ .30
See notes to consolidated condensed financial statements.
24
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands except share and per share data)
2000 1999
-------- --------
Balance, January 1 $8,963 $9,867
Comprehensive income
Net income 504 537
Unrealized losses on available for sale securities,
net of reclassification adjustments (697) (176)
------ ------
Comprehensive income (loss) (193) 361
Cash dividends on common stock (68) (246)
------ ------
Balance, March 31 $8,702 $9,982
====== ======
See notes to consolidated condensed financial statements.
25
<PAGE>
FIRST AFFILIATED BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands except share and per share data)
Three months ended
March 31
--------
2000 1999
---- ----
Cash flows from operating activities
Net income $ 504 $ 524
Adjustments to reconcile net income to net cash
Provided by operating activities
Provision for loan losses 20 --
Depreciation and amortization 87 168
Amortization of intangibles 15 15
Change in other assets and liabilities 35 46
-------- --------
Net cash provided by operating activities 661 753
-------- --------
Cash flows from investing activities
Change in interest bearing time deposits (50) 77
Purchases of securities available for sale (1,534) (13,459)
Proceeds from maturities and paydowns
of securities available for sale
Proceeds from sales of securities available for sale -- --
Net change in loans (1,735) 1,552
Purchases of premises and equipment (10) (15)
-------- --------
Net cash used by investing activities (3,329) (11,845)
-------- --------
Cash flows from financing activities
Net change in deposits 985 618
Short-term borrowings 1,881 (66)
Cash dividends (68) (233)
-------- --------
Net cash provided by financing activities 2,798 319
-------- --------
Net increase (decrease) in cash and cash equivalents 130 (10,773)
Cash and cash equivalents, beginning of period 7,919 17,449
-------- --------
Cash and cash equivalents, end of period $ 8,049 $ 6,676
======== ========
See notes to consolidated condensed financial statements.
26
<PAGE>
First Affiliated Bancorp, Inc.
Notes to Consolidated Condensed Financial Statements (Dollars in thousands,
except per share data) March 31,2000 (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts
of First Affiliated Bancorp, Inc. ("the Company") and its wholly-owned
subsidiary, Capstone Bank, N.A. ("the Bank"), and WFNB Service Corporation,
which is a wholly-owned subsidiary of the Bank. All material intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations for
reporting on Form 10-QSB. Accordingly, certain disclosures and footnote
information normally accompanying the annual financial statements have been
omitted. These interim statements should be read in conjunction with the
Company's annual consolidated financial statements and notes thereto..
Interim statements are subject to possible adjustment in connection
with the annual audit of the Company for the year ended December 31, 1999. In
the opinion of management of the Company, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for the
periods presented.
The results of operations for the three-month periods ended March
31, 2000 and 1999 are not necessarily indicative of the results to be expected
for the full year.
Note 2 - Merger
On November 5, 1999, the Company entered into a merger agreement with Indiana
United Bancorp (IUB). On February 29, 2000 the merger agreement was amended and
restated. Under the terms of the merger, the Company's shareholders will
exchange their Company stock and options for common stock of IUB. The merger is
intended to qualify as a reorganization under Section 368 of the Internal
Revenue Code. For financial reporting purposes, the merger is intended to be
accounted for under the pooling-of-interests method. The merger, which is
expected to close by May 31, 2000, is subject to regulatory and shareholder
approval.
The terms of the merger agreement restrict the Company from purchasing and
retiring any of its stock. The merger agreement also limits the Company's
regular quarterly cash dividends to $.30 per share. Tax related distributions to
shareholders, which are made separately from the $.30 quarterly dividend, cannot
exceed 42.6% of the Company's taxable income.
NOTE 3 - Earnings per share
<TABLE>
<CAPTION>
Three months ended March 31 March 31
2000 1999
---- ----
Weighted Per Weighted Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
--------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $504 226,662 $2.22 $537 225,784 $2.38
Diluted earnings per share
Income available to common
shareholders $504 249,069 $2.02 $537 248,191 $2.16
</TABLE>
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
March 31, 2000 and the unaudited pro forma condensed combined statement of
income for the three months ended March 31, 2000 and for each of the years in
the three-year period ended December 31, 1999, give effect to the merger,
accounted for as a pooling of interests.
The unaudited pro forma condensed combined financial information is based
on the historical consolidated financial statements of Indiana United Bancorp
(IUB) and First Affiliated Bancorp, Inc. (FAB) under the assumptions and
adjustments set forth here and in the accompanying notes to the unaudited pro
forma condensed combined financial statements. The unaudited pro forma condensed
combined financial statements do not give effect to any cost savings that may
occur in connection with the merger. Merger costs are reflected as a pro forma
adjustment in the unaudited pro forma condensed combined balance sheet. These
nonrecurring expenses have been excluded from the unaudited pro forma condensed
combined statements of income.
The transaction was accounted for as a pooling of interests. In financial
statements subsequent to the merger, the assets and liabilities of FAB will be
combined with those of IUB at book value, and the statements of income of FAB
will be combined with the statements of income of IUB as of the earliest period
presented. The unaudited pro forma condensed combined statements of income give
effect to the merger as if the merger occurred at the beginning of the earliest
period presented. The unaudited pro forma condensed combined balance sheet
assumes the merger was consummated on March 31, 2000. Certain reclassifications
have been included in the unaudited pro forma condensed combined balance sheet
and unaudited pro forma condensed combined statements of income to conform
presentation.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the consolidated historical financial statements of IUB
and FAB, including the respective notes to these statements. The pro forma
information is not necessarily indicative of the combined financial position or
the results of operations in the future or of the combined financial position or
the results of operations that would have been realized had the merger been
consummated during the periods or as of the dates for which the pro forma
information is presented.
28
<PAGE>
Indiana United Bancorp and First Affiliated Bancorp, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
Indiana First Pro Forma Pro Forma
United Affiliated Adjustments Combined
------ ---------- ----------- --------
(In Thousands)
--------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 25,951 $ 8,049 $ - $ 34,000
Federal funds sold and interest-bearing
deposits 5,629 1,171 0 6,800
Securities available for sale 222,526 48,098 0 270,624
Securities held to maturity 17,986 0 0 17,986
Loans held for sale 9,421 0 0 9,421
Loans, net of unearned income and 653,726 68,514 0 722,240
allowance
Premises and equipment 14,847 2,270 0 17,117
Intangible assets 23,676 53 0 23,729
Other assets 15,846 5,912 8,702 (1)
(8,702) (2) 21,758
--------- -------- ------ ----------
Total assets $ 989,608 $134,067 $ -- $1,123,675
========= ======== ====== ==========
Liabilities:
Deposits $ 851,443 $117,505 $ -- $ 968,948
Federal funds purchased and repurchase
agreements 32,106 3,950 -- 36,056
Other borrowings 16,888 2,515 0 19,403
Other liabilities 6,775 1,395 405 (3) 8,575
--------- -------- ------ ----------
Total liabilities 907,212 125,365 405 1,032,982
Guaranteed Preferred Beneficial Interests in
Company's Subordinated Debentures 22,425 0 0 22,425
Shareholders' Equity:
Preferred stock 0 0 0 0
Common stock 2,428 2 509 (1)
(2) (2) 2,937
Paid-in capital 23,065 2,981 2,474 (1)
(2,981) (2) 25,539
Retained earnings 39,405 6,876 6,876 (1)
(6,876) (2)
(405) (3) 45,876
Accumulated other comprehensive income (loss) (4,927) (1,157) (1,157) (1)
1,157 (2) (6,084)
--------- -------- ------ ----------
Total shareholders' equity 59,971 8,702 (405) 68,268
Total liabilities and shareholders' equity $ 989,608 $134,067 $ - $1,123,675
========= ======== ====== ==========
</TABLE>
(1) To reflect issuance of 1,018,359 shares of IUB common stock to acquire all
outstanding shares of FAB common stock and to redeem outstanding FAB stock
options.
(2) To eliminate IUB investment in FAB for consolidation purposes.
(3) To accrue merger expenses.
29
<PAGE>
Indiana United Bancorp and First Affiliated Bancorp, Inc.
Unaudited Pro Forma Condensed Combined Income Statement
For the three months ended March 31, 2000
<TABLE>
<CAPTION>
Indiana First Pro Forma Pro Forma
United Affiliated Adjustments Combined
------ ---------- ----------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $ 13,933 $ 1,502 $ - $ 15,435
Securities 3,665 797 0 4,462
Other interest earning assets 68 21 0 89
-------- -------- -------- --------
Total interest income 17,666 2,320 0 19,986
-------- -------- -------- --------
Interest Expense
Deposits 8,057 1,085 0 9,142
Borrowings 1,241 51 0 1,292
-------- -------- -------- --------
Total interest expense 9,298 1,136 0 10,434
-------- -------- -------- --------
Net Interest Income 8,368 1,184 0 9,552
Provision for Loan Losses 353 20 0 373
-------- -------- -------- --------
Net Int Income after Prov for Loan Losses 8,015 1,164 0 9,179
Non-interest Income 1,565 322 0 1,887
Non-interest Expense 6,771 975 0 7,746
-------- -------- -------- --------
Income Before Income Taxes 2,809 511 0 3,320
Income Taxes 978 7 129 ** 1,114
-------- -------- -------- --------
Net Income $ 1,831 $ 504 $ (129) $ 2,206
======== ======== ======== ========
Earnings per Common Share:
Basic* $ 0.38 $ 0.38
======== ========
Diluted* $ 0.38 $ 0.38
======== ========
Weighted Average Shares Outstanding:
Basic* 4,855,541 226,462 5,855,756
========= =========
Diluted* 4,855,541 228,748 5,873,034
========= =========
</TABLE>
* Pro forma basic earnings per share include FAB weighted average shares
outstanding multiplied by the exchange ratio of 4.4167.
In addition to the foregoing, pro forma diluted earnings per share also includes
17,278 shares issued to redeem FAB stock options outstanding.
**To adjust FAB income taxes from S-Corp to C-Corp.
30
<PAGE>
Indiana United Bancorp and First Affiliated Bancorp, Inc.
Unaudited Pro Forma Condensed Combined Income Statement
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Indiana First Pro Forma Pro Forma
United Affiliated Adjustments Combined
------ ---------- ----------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $ 49,646 $ 5,895 $ - $ 55,541
Securities 14,547 2,695 0 17,242
Other interest earning assets 1,130 317 0 1,447
-------- -------- -------- --------
Total interest income 65,323 8,907 0 74,230
-------- -------- -------- --------
Interest Expense
Deposits 30,186 4,099 0 34,285
Borrowings 3,890 238 0 4,128
-------- -------- -------- --------
Total interest expense 34,076 4,337 0 38,413
-------- -------- -------- --------
Net Interest Income 31,247 4,570 0 35,817
Provision for Loan Losses 1,641 185 0 1,826
-------- -------- -------- --------
Net Int Income after Prov for Loan Losses 29,606 4,385 0 33,991
Non-interest Income 6,108 1,497 0 7,605
Non-interest Expense 25,036 4,867 0 29,903
-------- -------- -------- --------
Income Before Income Taxes 10,678 1,015 0 11,693
Income Taxes 3,596 9 141 ** 3,746
-------- -------- -------- --------
Net Income $ 7,082 $ 1,006 $ (141) $ 7,947
Earnings per Common Share:
Basic* $ 1.47 $ 1.36
======== ========
Diluted* $ 1.47 $ 1.36
======== ========
Weighted Average Shares Outstanding:
Basic* 4,822,069 226,540 5,822,628
========= ======= =========
Diluted* 4,822,069 228,826 5,839,906
========= ======= =========
</TABLE>
* Pro forma basic earnings per share include FAB weighted average shares
outstanding multiplied by the exchange ratio of 4.4167.
In addition to the foregoing, pro forma diluted earnings per share also includes
17,278 shares issued to redeem FAB stock options outstanding.
**To adjust FAB income taxes from S-Corp to C-Corp.
31
<PAGE>
Indiana United Bancorp and First Affiliated Bancorp, Inc.
Unaudited Pro Forma Condensed Combined Income Statement
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Indiana First Pro Forma Pro Forma
United Affiliated Adjustments Combined
------ ---------- ----------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $ 44,079 $ 6,055 $ - $ 50,134
Securities 8,723 1,967 0 10,690
Other interest earning assets 1,913 492 0 2,405
-------- -------- -------- --------
Total interest income 54,715 8,514 0 63,229
-------- -------- -------- --------
Interest Expense
Deposits 25,828 4,062 0 29,890
Borrowings 2,995 277 0 3,272
-------- -------- -------- --------
Total interest expense 28,823 4,339 0 33,162
-------- -------- -------- --------
Net Interest Income 25,892 4,175 0 30,067
Provision for Loan Losses 1,218 75 0 1,293
-------- -------- -------- --------
Net Int Income after Prov for Loan 24,674 4,100 0 28,774
Losses
Non-interest Income 5,122 1,467 0 6,589
Non-interest Expense 19,672 4,105 0 23,777
-------- -------- -------- --------
Income Before Income Taxes 10,124 1,462 0 11,586
Income Taxes 3,676 279 74 ** 4,029
-------- -------- -------- --------
Net Income $ 6,448 $ 1,183 $ (74) $ 7,557
Earnings per Common Share:
Basic* $ 1.36 $ 1.32
======== ========
Diluted* $ 1.35 $ 1.31
======== ========
Weighted Average Shares Outstanding:
Basic* 4,753,268 223,064 5,738,475
========= ======= =========
Diluted* 4,765,714 223,530 5,768,199
========= ======= =========
</TABLE>
* Pro forma basic earnings per share include FAB weighted average shares
outstanding multiplied by the exchange ratio of 4.4167.
In addition to the foregoing, pro forma diluted earnings per share also includes
17,278 shares issued to redeem FAB stock options outstanding.
**To adjust FAB income taxes from S-Corp to C-Corp.
32
<PAGE>
Indiana United Bancorp and First Affiliated Bancorp, Inc.
Unaudited Pro Forma Condensed Combined Income Statement
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Indiana First Pro Forma
United Affiliated Combined
------ ---------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 40,246 $ 5,667 $ 45,913
Securities 8,315 1,969 10,284
Other interest earning assets 1,042 299 1,341
-------- -------- --------
Total interest income 49,603 7,935 57,538
-------- -------- --------
Interest Expense
Deposits 23,839 3,672 27,511
Borrowings 1,158 223 1,381
-------- -------- --------
Total interest expense 24,997 3,895 28,892
-------- -------- --------
Net Interest Income 24,606 4,040 28,646
Provision for Loan Losses 1,789 190 1,979
-------- -------- --------
Net Int Income after Prov for Loan 22,817 3,850 26,667
Losses
Non-interest Income 4,501 1,342 5,843
Non-interest Expense 16,203 3,788 19,991
-------- -------- --------
Income Before Income Taxes 11,115 1,404 12,519
Income Taxes 3,910 380 4,290
-------- -------- --------
Net Income $ 7,205 $ 1,024 $ 8,229
Earnings per Common Share:
Basic* $ 1.53 $ 1.44
======== ========
Diluted* $ 1.52 $ 1.43
======== ========
Weighted Average Shares Outstanding:
Basic* 4,705,699 231,306 5,727,308
========= ======= =========
Diluted* 4,738,295 231,306 5,759,904
========= ======= =========
</TABLE>
* Pro forma earnings per share include FAB weighted average shares outstanding
multiplied by the exchange ratio of 4.4167.
FAB stock options were not outstanding at the beginning of 1997, and have no
effect on earnings per share.
33
<PAGE>
Exhibit(23) Consent of Crowe, Chizek and Company LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 8-K/A of Indiana United Bancorp of our
report dated February 29, 2000 on the consolidated financial statements of First
Affiliated Bancorp, Inc. as of December 31, 1999 and 1998 and for the years then
ended.
/s/ Crowe, Chizek and Company LLP
Oak Brook, Illinois
July 12, 2000
