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, 1999 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 $80,116,427 as of March 18, 2000.
As of March 18, 2000, there were outstanding 4,855,541 common shares, without
par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
--------- -----------------------
1999 Annual Report to Shareholders Part II (Items 5 through 9)
Definitive Proxy Statement for Annual
Meeting of Shareholders to be held
May 31, 2000 Part III (Items 10 through 13)
EXHIBIT INDEX: Page 9
<PAGE>
FORM 10-K TABLE OF CONTENTS
- ---------------------------------------------------------------------------
Part I Page
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Part II
Item 5 Market For the Registrant's Common Equity and 9
Related Stockholder Matters
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial 9
Condition and Results Of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk 9
Item 8 Financial Statements and Supplementary Data 9
Item 9 Disagreements on Accounting and Financial Disclosure 9
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 See below
and Management
Item 13 Certain Relationships and Related Transactions See below
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports See below
on Form 8-K
Pursuant to General Instruction G, the information called for by Items 10-13 is
omitted by Indiana United Bancorp since Indiana United Bancorp will file with
the Commission a definitive proxy statement to shareholders pursuant to
regulation 14A not later than 120 days after the close of the fiscal year
containing the information required by Items 10-13
2
<PAGE>
PART I
ITEM 1. BUSINESS
- -----------------
(Dollars in thousands except per share data)
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 $300,000 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.
Effective April 1, 1999, the Company acquired the property and casualty
insurance business lines of Andy Anderson Insurance Agency, Inc. d/b/a The
Anderson Group, Owensboro, Kentucky ("The Anderson Group"). The results of
operations have been included in these financial statements since the
acquisition date under the purchase method of accounting. The acquisition was
effected by the purchase of net assets and expertise and The Anderson Group was
integrated into a newly formed subsidiary of the Company, The Insurance Group,
Inc. ("The Insurance Group"). The Company issued 80,913 shares of its common
stock to The Anderson Group shareholders, valued at $1,364. Assets total $2,180
(including cash of $250) and liabilities assumed of $780. Assets acquired
include goodwill of $1,628, which is being amortized over 15 years under the
straight-line method. Under the agreement, the acquirees will obtain additional
shares of company stock as defined in the agreement if certain financial targets
are attained during the measurement period, which ends March 31, 2002.
Subsequently, the Company caused The Insurance Group to become a wholly owned
subsidiary of Union Bank by transferring its ownership in The Insurance Group to
that bank subsidiary. The general lines insurance business previously conducted
by Union Bank in Greensburg and Portland, Indiana will be is now conducted
through The Insurance Group subsidiary.
On November 9, 1999 the Company announced a definitive agreement to acquire
First Affiliated Bancorp ("First Affiliated") of Watseka, Illinois and its
wholly owned banking subsidiary, Capstone Bank N. A. The transaction will be
accounted for using the pooling-of-interests method of accounting. The Company
will issue approximately 1,020,000 shares of its common stock to the in this
acquisition. The conversion rate will be 4.4167shares of Company stock for each
outstanding share of First Affiliated. As of December 31, 1999 First Affiliated
had $131,358 in assets and, $116,520 in deposits with four banking offices in
Illinois and one in Indiana.
The Company operates 40 offices in 15 Indiana counties with 404 employees. As of
December 31, 1999, the Company had consolidated assets of $978,893, consolidated
deposits of $824,385 and shareholders' equity of $59,209.
Through its Banks, the Company offers a broad range of financial services,
including: accepting time and transaction deposits; making consumer, commercial,
agribusiness 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.
3
<PAGE>
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 charge-offs 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 originate for the secondary market as well as continue to grow
their internal portfolios. At December 13, 1999, the Company was servicing a
$181,150 portfolio, which increased from $150,523 and $110,341 at year-end 1998
and 1997. 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 1999 allowing the Company to
grow its portfolio to $79,154. 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 69.5% of total revenues in 1999, 73.7% in 1998 and 74.4% in
1997.
The Company's investment securities portfolio is primarily comprised of U. S.
Treasuries, federal agencies, state and municipal bonds, mortgage-backed
securities and corporate securities. The Company has classified 92.7% 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 20.4% of total revenues in 1999,
14.6% in 1998 and 15.4% in 1997. As of December 31, 1999, 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 deposits, the Banks market various
programs for demand, savings and time deposit accounts. These programs include
interest and non-interest bearing demand and individual retirement accounts. The
Company also purchased four branch facilities and their deposits in the first
quarter of 1999 from a large regional competitors. In all, more than $104,000 in
deposits were acquired, together with approximately $2,000 in consumer and small
business loans. Union Bank purchased two former branch facilities and opened
them "de novo" in April 1999 to expand its market.
4
<PAGE>
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.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries had approximately 404
full-time equivalent employees to whom it provides a variety of benefits and
with whom it enjoys excellent relations.
REGULATION AND SUPERVISION OF THE COMPANY
The Company is a bank holding company ("BHC") within the meaning of the Bank
Holding Company Act of 1956, as amended ("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
non-diversified 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.
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.
5
<PAGE>
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). Beginning
in the year 2000, 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.
6
<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, non-bank 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 on the
operating results of banks and BHCs. The nature of future monetary policies and
the effect of such policies on the future business and earnings of the Company
and its subsidiaries cannot be predicted.
The Deposit Insurance Funds Act was enacted in 1996 and contained several major
provisions. The new law recapitalized the SAIF by a one-time assessment on all
SAIF-insured deposits. For 1997 through 1999 the banking industry will help pay
for the Financing Corp. ("FICO") bond interest payments at an assessment rate
that is one-fifth the rate paid by thrifts. Beginning January 1, 2000, the FICO
interest payments will be paid pro-rata by banks and thrifts. Deposit shifting
is prohibited for three years and the $2,000 annual minimum assessment was
repealed.
The Federal Reserve Board has approved interim procedures, effective March
11, 2000 for bank holding companies and foreign banks with U.S. offices to be
treated as financial holding companies. Financial holding companies may engage
in a broad range of securities, insurance and other financial activities under
the Gramm-Leach-Bliley Act. Bank holding companies and foreign banks that meet
the relevant qualifications may begin filing elections to become financial
holding companies at any time.
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
7
<PAGE>
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, 1999, the Company's leverage ratio of capital to total assets was 6.5%. 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 9.6% and its Total Capital to Risk-Weighted
Assets Ratio was 10.9% at December 31, 1999. The Company's Banks had capital to
asset ratios and risk-adjusted capital ratios at December 31, 1999, 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.
Federal regulators have issued final regulations revising risk-based capital
standards 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
The Company did not encounter any Y2K related problems nor is management aware
of any customers who encountered significant Y2K problems. The effort to assure
such success did not go unnoticed in terms of our employee's time, effort and
dedication to a task. We commend those individuals for their diligence. The
Company incurred approximately $150 in capital and other expenditures for Y2K
preparations. Management is not aware of any remaining uncertainties or
contingencies with respect to Y2K issues.
STATISTICAL DISCLOSURES
The following statistical data should be read in conjunction with Management's
Discussion and Analysis (Item 7), Selected Financial Data (Item 6) and the
Financial Statements and Supplementary Data (Item 8).
The following table analyzes the change in net interest income due to rate and
volume. Changes due to both rate and volume have been allocated in proportion to
the absolute dollar value of rate and volume changes. Volume of loans,
securities and deposits primarily account for the increase in net interest
income of 1999 over 1998 and 1998 over 1997
VOLUME/RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
Volume/Rate Analysis of Changes in Net Interest Income
(Tax Equivalent Basis)
- -----------------------------------------------------------------------------------------------------------------------------
1999 OVER 1998 1998 OVER 1997
- -----------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 7,466 $ (1,952) $ 5,514 $ 4,591 $ (716) $ 3,875
Securities 6,441 (377) 6,064 451 (113) 338
Federal funds sold (557) (205) (762) 944 (64) 880
Short-term investments (21) - (21) (16) 7 (9)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 13,329 (2,534) 10,795 5,970 (886) 5,084
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest-bearing demand 1,313 (553) 760 221 (19) 202
Savings 1,163 (11) 1,152 166 (92) 74
Certificates of deposit 4,050 (1,604) 2,446 1,817 (104) 1,713
Borrowings 857 58 915 184 (266) (82)
Trust preferred securities - (20) (20) 1,913 5 1,918
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,383 (2,130) 5,253 4,301 (476) 3,825
- -----------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 5,946 $ (404) 5,542 $ 1,669 $ (410) 1,259
======================= ===================
Change in tax equivalent adjustment 187 (27)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net interest income before
tax equivalent adjustment $ 5,355 $ 1,286
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table discloses the allocation of the allowance for loan losses to
the major loan categories.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
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 $ 369 48% $ 294 45% $ 181 44% $ 223 45% $ 181 47%
Farm real estate 328 7 275 7 20 8 21 8 20 10
Commercial 737 15 715 18 327 18 348 15 327 14
Construction and
development 1,365 8 830 6 66 3 139 5 66 4
- --------------------------------------------------------------------------------------------------------------------------------
Total real estate 2,799 78 2,114 76 594 73 731 74 594 75
- --------------------------------------------------------------------------------------------------------------------------------
Commercial
Agribusiness 912 2 912 3 186 3 224 4 186 4
Other commercial 360 8 316 8 441 9 677 9 441 10
- --------------------------------------------------------------------------------------------------------------------------------
Total Commercial 1,272 10 1,228 11 627 13 901 13 627 14
- --------------------------------------------------------------------------------------------------------------------------------
Consumer 1,285 12 1,155 13 611 14 514 13 612 12
Unallocated 1,693 1,602 3,619 2,360 2,643
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 7,049 100% $ 6,099 100% $ 5,451 100% $ 4,506 100% $ 4,476 100%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The composition and maturity of the investment portfolio is depicted in the
following table.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Investment Securities
(Carrying Values at December 31)
Beyond
Within 10 Total
1 Year 2-5 Yrs 6-10 Yrs Years 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Available for sale
Federal agencies $14,362 $101,380 $ 22,668 $ - $ 138,410
State and municipal 2,651 6,323 4,150 10,196 23,320
Mortgage-backed securities 1,837 25,599 13,375 - 40,811
Corporate obligations 2,681 5,577 5,720 4,212 18,190
Equity and other securities 162 547 - 4,046 4,755
- ------------------------------------------------------------------------------------------------------------------
Total available for sale $21,693 $139,426 $ 45,913 $18,454 $ 225,486
==================================================================================================================
Weighted average yield* 5.62% 5.93% 6.76% 7.00% 6.16%
Held to Maturity
- ------------------------------------------------------------------------------------------------------------------
State and municipal $ 4,995 $ 9,268 $ 1,175 $ 1,315 $ 16,753
Corporate obligations - 497 - - 497
Other securities - - 538 538
- ------------------------------------------------------------------------------------------------------------------
Total held to maturity $ 4,995 $ 9,765 $ 1,713 $ 1,315 $ 17,788
==================================================================================================================
Weighted average yield* 7.04% 6.81% 6.91% 7.80% 6.96%
</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, 1999, 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
The following table discloses the average deposits for the Company for 1999,
1998 and 1997 and the maturity schedule of the over $100,000 certificates of
deposit.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
Average Deposits
- -------------------------------------------------------------- ------------------------------ -----------------------
1999 1998 1997
- -------------------------------------------------------------- ------------------------------ -----------------------
Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------- ------------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Demand $77,210 $58,407 $49,817
Interest Bearing Demand 179,427 2.63% 131,263 3.01% 123,914 3.03%
Savings 105,170 2.89 64,990 2.91 59,386 3.06
Certificates of Deposit 437,662 5.12 360,295 5.55 327,541 5.58
- ---------------------------------------------- ---------- ----------
Totals $799,469 3.78% $614,955 4.20% $560,658 4.25%
========== ========== ==========
</TABLE>
As of December 31, 1999, certificates of deposit and other time deposits of
$100 or more mature as follows
<TABLE>
<CAPTION>
3 months or less 4-6 months 6-12 months over 12 months Total
---------------- ---------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C>
Amount $36,917 $18,792 $22,496 $20,869 $99,074
Percent 37% 19% 23% 21% 100%
</TABLE>
Maturities and sensitivity to changes in interest rates of commercial and
construction loans at December 31, 1999 are disclosed in the following table.
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES OF COMMERCIAL AND
CONSTRUCTION LOANS AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Maturities and Sensitivity to Changes in Interest Rates of Commercial and Construction Loans at December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Due: Within 1 Year 1 - 5 Years Over 5 years Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Type
Commercial and industrial $23,884 $11,630 $4,025 $39,539
Agricultural production financing and other loans to farmers 12,412 2,095 356 14,863
Construction and development 48,515 2,206 - 50,721
- --------------------------------------------------------------------------------------------------------------------------------
Totals $84,811 $15,931 $4,381 $105,123
- --------------------------------------------------------------------------------------------------------------------------------
Percent 81% 15% 4% 100%
- --------------------------------------------------------------------------------------------------------------------------------
Rate Sensitivity
Fixed Rate $13,792 $8,369 $4,022 $26,183
Variable Rate 71,019 7,562 359 78,940
- --------------------------------------------------------------------------------------------------------------------------------
Totals $84,811 $15,931 $4,381 $105,123
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
ITEM 2. PROPERTIES
- -------------------
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. The Company has 40 locations of which People's Trust has 20, Union
Bank has 14 and Regional Bank has 6. At December 31, 1999, the Company had
$15,015 invested in premises and equipment.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The subsidiaries may be parties (both plaintiff and defendant) to ordinary
litigation incidental to the conduct of business. Management is presently not
aware of any material claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- -------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Company's Annual Report to Shareholders, Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
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
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------
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.
- ---------------------------------------------------
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.
- -------------------------------------------------------------
In connection with its audits for the two most recent fiscal years ended
December 31, 1999, 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.
9
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Included in
(a) 1. Financial statements Annual Report
Indiana United Bancorp and Subsidiary
Independent auditor's report 21
Consolidated balance sheets at December 31, 1999 and 1998 22
Consolidated statements of income, years ended December 31, 23
1999,1998 and 1997.
Consolidated statements of cash flows, years ended December 31, 24
1999, 1998 and 1997
Consolidated statements of shareholders' equity, years ended 25
December 31, 1999, 1998 and 1997
Notes to consolidated financial statements 26-39
(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:
2. Amended and Restated Agreement and Plan of Merger dated as of November 5,
1999, among Registrant, FAB Merger Corporation and First Affiliated Bancorp,
Inc.(incorporated by reference to Appendix A to the Proxy Statement/Prospectus
filed March 29,2000 with the Commission)(Registration No.3333-33032))
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 further amended by Articles of Amendment
to Articles of Incorporation dated July 27,1998(incorporated by reference to
Exhibit 3.1 to the Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31,1998 filed March 29, 1999 with the Commission (Commission
File No. 0-12422)). .
3.2 Amended and Restated Bylaws dated adopted April 28, 1998 (incorporated
by reference to Exhibit 3.1 to the Annual Report on Form 10-K of the Registrant
for the fiscal year ended December 31,1998 filed March 29, 1999 with the
Commission (Commission File No. 0-12422)).
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 (incorporated by reference
to such 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 (incorporated by reference to
to such Agreement 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)).
10
<PAGE>
13 1999 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).
16 Letter re: change in certifying accountant (incorporated by reference
to Exhibit 16 to the Current Report on Form 8-K of Indiana United Bancorp filed
April7, 1999 with the Commission (Commission File No.0-12422))
21 List of subsidiaries of the Registrant.
23.1 Consent of Crowe, Chizek and Company LLP
23.2 Consent of Olive LLP.
27 Financial Data Schedule.
99 Opinion of Olive LLP
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on November 5, 1999 disclosing a
definitive agreement to acquire First Affiliated Bancorp, Inc. Watseka,
Illinois.
11
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized, on the 29th day of March,
2000.
INDIANA UNITED BANCORP
/s/James L. Saner, Sr
----------------------------------
James L. Saner, Sr., President and
Chief Executive 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
- ------------------------------
Eric E. Anderson Director March 21, 2000
- ------------------------------
John E. Back Director March 21, 2000
- ------------------------------
William G. Barron Director March 21, 2000
- ------------------------------
Dale J. Deffner Director March 21, 2000
- ------------------------------
Robert S. Dunevant Director March 21, 2000
- ------------------------------
Philip A. Frantz Director March 21, 2000
- ------------------------------ Director
Robert E. Hoptry Chairman of the Board March 21, 2000
- ------------------------------
Edward J. Zoeller Director March 21, 2000
- ------------------------------President and Chief Executive Officer
James L. Saner Sr. Director March 29, 2000
- ------------------------------
Donald A. Benziger Senior Vice President &
Chief Financial Officer March 29, 2000
- ----------------------------
Douglas D Deppen Vice President & Principal
Accounting Officer March 29, 2000
Exhibit 13
Indiana United Bancorp 1999 Annual Report
Hometown Service World Class Banking
<PAGE>
Indiana United Bancorp is a registered financial services holding company
incorporated under the laws of Indiana. Through its three banking subsidiaries,
People's Trust Company, Brookville, Indiana; Regional Bank, New Albany, Indiana;
and Union Bank, Greensburg, Indiana, it operates 40 offices in 15 eastern and
southeastern Indiana counties. All three banking subsidiaries offer a full array
of competitive commercial and consumer loans and deposit related services, as
well as a full-service trust division. Through its insurance subsidiary, it
operates a total of three agencies in Greensburg and Portland, Indiana as well
as Owensboro, Kentucky.
Contents
Letter to Shareholders 2 [LOCATION MAP APPEARS HERE]
How Are We Different? 4
Management's Discussion and Analysis 9
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
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(Dollar amounts in thousands except share and Percent
per share data) 1999 1998 Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Results of Operations
Net interest income $31,247 $25,892 20.68%
Provision for loan losses 1,641 1,218 34.73
Net income 7,082 6,448 9.83
Per Common Share *
Earnings per share (basic) $1.47 $1.36 8.09%
Earnings per share (diluted) 1.47 1.35 8.89
Cash earnings per share (basic)** 1.71 1.42 20.42
Cash earnings per share (diluted)** 1.71 1.42 20.42
Dividends paid *** 0.64 0.59 8.47
Book value - end of period
Excluding SFAS No.115 adjustment 13.15 12.25 7.35%
Including SFAS No.115 adjustment 12.19 12.40 (1.69)
Market price - end of period 18.75 22.13 (15.27)
- ----------------------------------------------------------------------------------------------------------------------
At Year End
Total assets $978,893 $827,945 18.23%
Loans, excluding held for sale 643,227 539,404 19.25
Allowance for loan losses 7,049 6,099 15.58
Total deposits 824,385 709,871 16.13
Common shareholders' equity 59,209 59,196 0.02
- ----------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets 0.76% 0.89% (14.61%)
Return on average common
shareholders' equity 11.85 11.23 5.57
Tier one capital to average assets*** 6.50 8.30 (21.69)
Total capital to risk-adjusted assets*** 10.90 13.71 (20.50)
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at year end 4,855,541 4,774,628 1.69
Number of common shareholders 2,662 2,517 5.76
Number of full-time equivalent employees 404 360 12.22
</TABLE>
* Adjusted for stock split and dividends
** Net income plus the after tax effect of the amortization of intangible
assets for the period.
*** Dividends paid by Indiana United Bancorp without restatement for pooling
of interests
**** As defined by regulatory agencies
[GRAPHS APPEAR HERE]
<PAGE>
Dear Shareholders and Friends:
Several key events over the course of 1999 have laid the foundation for
the future success of Indiana United Bancorp.
[PHOTO OF JAMES L. SANER, SR. APPEARS HERE]
[PHOTO OF ROBERT E. HOPTRY APPEARS HERE]
There is no doubt that 1999 was filled with growth and expansion for our
Company as we continued our journey toward becoming a complete financial service
provider. In reviewing this report, you will quickly see that every area of the
Company grew.
Branch acquisition and expansion activities filled the first two
quarters of 1999. People's Trust Company completed its acquisition of four
Indiana banking offices in Henry and Wayne counties in February, and Union Bank
opened two de novo banking facilities in Madison County, Indiana in April. These
transactions completed our strategic objective of acquiring a total of eleven
offices from various large regional banks, which began back in the third quarter
of 1998. The Company now operates a total of 40 banking offices in 15 Indiana
counties, and ended the year with $979 million in total assets.
We also began the process of expanding our insurance division. Early in
the second quarter, the Company formed a new subsidiary - The Insurance Group,
Inc., which purchased the Anderson Insurance Company, headquartered in
Owensboro, Kentucky. The new agency, combined with the two other agencies
already operated by the Company, doubled its total premium for The Insurance
Group, Inc. over the previous year. As we move into the year 2000, we envision
broadening our pursuit of offering more non-traditional financial services to
our customers, such as: life insurance, health insurance, and long term care
insurance. The expansion of the existing commercial and personal lines of our
property and casualty insurance business is also part of our strategic planning
for 2000.
This year's growth, while fueled by branch acquisitions on the deposit
side, was outstanding on the loan side as well. Total loans grew by more than
$103 million, which represented a 19.2% increase over the previous year. It is
important to note that with this tremendous amount of growth, the asset quality
remains strong.
As you will see elsewhere in this report, Indiana United continues its
long history of outperforming its peers in both non-performing assets and
chargeoffs. We anticipate no change in this trend for the future. While many
times growth and expansion can stall increased earnings, our Company increased
its overall net profits to $7.082 million compared to $6.448 million for 1998;
representing a 9.8% increase. Earnings per share were $1.47 compared to $1.35
for the 1998 year, an increase of more than 8.8%. We see this bottom line
earnings increase continuing into the next year. Our strategic plan projects our
bottom line earnings to increase a minimum of 10% for each year through at least
2002.
2
<PAGE>
Indiana United just marked its twelfth consecutive year of increasing dividends.
Our 1999 dividend rose to $.64 per share compared to $.59 per share for 1998, an
8.5% increase.
Indiana United just marked its twelfth consecutive year of increasing
dividends. Our 1999 dividend rose to $.64 per share compared to $.59 per share
for 1998, an 8.5% increase.
Then, there was the Y2K issue that seemed to be in every headline and on
everyone's mind as we approached that eventful day of December 31, 1999. Our
Company as well as our entire industry was extremely well prepared and the New
Year came without issue. Our management and employees worked many months to
ensure that smooth transition.
Our Company continues to focus on the future and will be introducing
Internet banking products to both commercial and retail customers during the
second quarter of 2000. This, as well as other product enhancements, will
continue to deploy technology to allow our Company to offer various products and
services through many different delivery channels; thus allowing our customers
access to our services through the Internet, telephone, or ATM's, and yet still
provide personal contact through our extensive branch network.
Indiana United's continued success will include various other
acquisitions and opportunities, such as the acquisition of First Affiliated
Bancorp and its wholly owned subsidiary, Capstone Bank, which is headquartered
in Watseka, Illinois. This $130 million asset, five-office acquisition will
propel the Company to $1.1 billion in assets by the end of the second quarter,
2000. This acquisition also provides entry into the state of Illinois, which has
more independent community bank charters than all of Indiana, Kentucky, and Ohio
combined. Capstone Bank will become the fourth banking affiliate in our Company
and will allow us the opportunity to strategically build a several hundred
million-dollar affiliate in Illinois with additional acquisitions.
We experienced a changing of the guard in May of 1999 as I was appointed
President and Chief Executive Officer of Indiana United Bancorp replacing the
founder of this corporation, Bob Hoptry. While Bob continues to serve as the
Chairman of our Board, he retired officially on June 30, 1999. Bob's wisdom and
strong credit savvy will be difficult to replace in the day-to-day management of
the Company. We wish he and his wife, Norma, well after serving not only this
Company since 1983 but also his many years in the banking industry.
We stand poised for the future. We have an excellent management team in
place. We have laid the foundation for our future success. We have the support
of loyal shareholders. So on behalf of my management staff, officers, directors
and employees, we wish to thank you for your support, trust and confidence in
our company and our vision.
James L. Saner, Sr.
President and Chief Executive Officer
3
<PAGE>
As Indiana United Bancorp continues to grow and expand, it's important to remain
focused on what has sustained us over the past sixteen years: our commitment to
community values and our desire to differentiate ourselves from mega-banking
organizations.
How are we different? The growth of our organization is not dependent
on acquisitions into a larger whole - but, through partnerships with other
independent community banks committed to preserving the elements associated with
home-town service: quality products, local decision making, local loan
servicing, quick response-time - just to name a few. Indiana United Bancorp
("IUB") offers the opportunity for these partners to retain those elements which
are so important while providing the benefits of increased capital and
technological resources.
The increase in mergers and acquisitions within the banking industry
has resulted in a decline in the number of banks with roots in their
communities. This shouldn't mean that the citizens and business interests of
small and medium-sized communities no longer have the right to expect
state-of-the-art banking products and services. The challenge today is not so
much in providing these contemporary conveniences as it is to provide them
without compromising the core values, local flavor and decision-making autonomy
that have traditionally been so important to the clients of these
community-based banks.
IUB is able to offer a strong foundation of resources within our
corporate structure that allows smaller independent banks to eliminate the
red-tape hassles of backroom functions and remain focused on the people and
communities that they so vehemently want to support. Each of these communities
has unique aspects requiring specialized banking products or services to meet
the local needs. Our independent partners can continue to be a major force in
fostering community prosperity. Our strength lies not with the sum of each of
our parts; but, within the diversity and interdependence of each of our banking
and non-banking partners.
People's Trust Company -
People's Trust Company, ("People's"), is IUB's single largest banking
subsidiary. People's is a family of 20 banking offices in nine Indiana counties.
Built through a
[SIDEBAR]
"People's Trust Company prides itself in getting to know its communities and the
people who live there. Because we truly focus on the needs of our customers, I
believe we are able to lift customer service to a new level of excellence and to
offer products that meet the financial needs of those that bank with us. In
exchange, People's Trust Company has gained strong customer relation-ships and a
true belonging in the communities that we serve."
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
www.peoplestrustco.com
Number of Offices: 20
Number of Employees: 220
Total Deposits: $401,931,000
Total Loans: $307,497,
000 Total Assets: $455,541,000
4
<PAGE>
series of partnerships with small community banks, this organization
prides itself on building and fostering strong, long-term relationships with its
customers.
People's success comes from offering customers solutions they do not
get anywhere else. By taking the time to understand each customer's entire
financial picture, People's professionals can respond with complete and
formative financing and investment strategies. This is a primary reason that
People's continues to work with customers who have done business here for many
decades. Some families and businesses have been with People's for generations.
Every day, People's is driven to exceed the expectations of its customers in
terms of value delivered. This is accomplished by strategy, investment and
execution along two paths: 1.) A commitment to listening to customers and asking
the right questions, resulting in the recommendation of specific alternatives
and solutions to their individualized situations, and 2.) Diversification of
products and services that are rich in features and flexibility tailored to meet
the needs and desires of its customers. In addition to the traditional banking
role of facilitating commerce in its communities, People's delivers value in
other ways. People's and its associates contribute both their time and resources
to their communities. Officers are expected to take leadership roles in local
organizations and requests for volunteers are typically met with an overwhelming
response throughout the organization. People's makes charitable contributions to
a broad array of community services and programs with the majority being
allocated to local community enhancements at all levels. Vital, growing
communities with a high quality of life are essential for People's to continue
to excel.
Union Bank and Trust Company of Indiana -
Union Bank and Trust Company of Indiana, ("Union Bank"), is IUB's oldest banking
subsidiary. Union Bank was the first bank purchased by IUB commensurate with the
holding company's inception in 1983. However, Union Bank's history dates back to
1873 with the distinction of having Indiana State Banking Charter #1, issued on
March 1st of the same year. Union Bank's home office is located in Greensburg,
Indiana, along I-74, approximately 55 miles between Indianapolis, Indiana and
Cincinnati, Ohio. Concentrated in three distinct clusters, Union Bank operates
five offices in Decatur County, in southeastern Indiana; three offices in Jay
County, in northeastern Indiana; and six offices in Madison and Hancock
counties, in east central Indiana. Local leadership with the power to make local
decisions makes this unique grouping work.
Small and mid-sized businesses find that Union Bank can serve as a
tremendous resource. Working as a team, branch managers, loan officers, trust
officers and insurance agents strive to meet virtually any financial need a
client may present.
[SIDEBAR]
"With the creation of The Trust Investment Group, Union Bank will be able to
expand our customer service as we continue to become a full service financial
provider with a community based focus. That added benefit definitely brings our
organization to a new level by offering even more financial services without
losing the local orientation vital for community success."
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
www.2unionbank.com
Number of Offices: 14
Number of Employees: 135
Total Deposits: $260,048,000
Total Loans: $200,733,000
Total Assets: $320,881,000.
5
<PAGE>
From business banking services to investments to employee benefit
plans, Union Bank's team of professionals can respond with the flexible,
innovative and personalized solutions that its business clients have come to
expect.
At mid-year, Union Bank expanded its trust department and created The
Trust Investment Group. The re-formation of this division allows Union Bank to
take advantage of the expertise of qualified trust professionals in the area of
trust and investment services and to focus on growth in that area throughout its
various markets. The Trust Investment Group administers assets with a market
value in excess of $90 million. Serving as a financial partner to individuals
and families as well as small to mid-sized businesses, public funds and
foundations, The Trust Investment Group provides integrated solutions from one
trusted source.
Union Bank has long enjoyed strong partnerships with the communities it
serves. Union Bank employees enthusiastically support the whole life of their
communities - from being involved with youth sports to "walking" in support of a
good cause to serving on the boards of various civic, philanthropic and business
organizations. Union Bank is truly a community-oriented organization with
character and history.
Regional Federal Savings Bank -
Regional Federal Savings Bank, ("Regional Bank"), is IUB's most concentrated
banking subsidiary. With six offices in Clark and Floyd counties, Regional Bank
serves Southern Indiana just across the Ohio River from Louisville, Kentucky.
Chartered as a thrift, Regional Bank has struggled to shake its image of
being strictly a mortgage lender and savings bank. During 1999, Regional Bank
adopted a "We Mean Business" marketing campaign. Devised to draw attention to
the competencies of its commercial lending division, this campaign canvassed the
market area with newspaper advertising, direct mail and billboards. The success
of this campaign has seen the formation of new and exciting commercial
relationships which are continuing to change the perception of Regional Bank in
both the business and personal sectors. Looking forward, some of the key areas
of revenue synergies that will propel Regional Bank into the new millennium
include middle-market commercial banking as well as its existing strength in
residential mortgage lending. Regional Bank's customers can benefit greatly from
local decision making by local people. While its size dictates personalized
service on every level, its partnership with Indiana United Bancorp creates the
ability to handle large corporate funding requests with the same attention to
detail and efficiency that is expected with even the smallest loan request. The
end result is always quick credit decisions and personal attention.
[SIDEBAR]
"Regional Bank's decision to devise a strategic marketing campaign has gained
our organization a more positive reputation as being a full service financial
institution. Our strong commitment to local, personalized service has not waned
with our more aggressive approach, but has strengthened our organization against
its competition."
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
www.regionalbank.com
Number of Offices: 6
Number of Employees: 70
Total Deposits: $164,518,000
Total Loans: $134,998,000
Total Assets: $197,947,000.
6
<PAGE>
The hard work and dedication of Regional Bank's nearly 70 employees is
not exhausted at the workplace. Directors, executive management, officers,
department supervisors and front-line associates can all be found volunteering
their time to support various community organizations. The education of area
youth and fund-raising for local and nation research organizations are just a
few of the areas in which Regional Bank employees choose to devote countless
hours of volunteer service.
Doing business with Regional Bank offers a combination of business
savvy, a determination to understand the needs of the customer and a dose of
true Southern Indiana hospitality. You will find that at Regional Bank a
friendly smile and a warm handshake are still the most important part of closing
any deal.
The Insurance Group, Inc. -
In 1999, Indiana United Bancorp announced the acquisition of The Anderson Group,
a full-service, independent insurance agency located in Owensboro, Kentucky.
This acquisition presented the opportunity to expand IUB's insurance operations.
This new venture saw the formation of The Insurance Group, Inc. - a financial
services subsidiary of Union Bank, which consists of three member agencies:
Union Insurance in Greensburg, Indiana; Union Insurance in Portland, Indiana;
and The Anderson Group in Owensboro, Kentucky.
Union Insurance has established a solid insurance line. With the
acquisition of The Anderson Group and the formation of The Insurance Group,
Inc., IUB hopes to expand its non-banking financial services lines of business.
Services provided through The Insurance Group, Inc. and its member agencies
include: property and casualty coverage, consisting of personal lines for home
and auto; commercial lines, including business package policies; worker's
compensation; business auto; employee benefit packages; life; disability; senior
care and many other financial services. The Insurance Group, Inc. is actively
seeking to partner with other independent insurance agencies throughout the
market areas already serviced by the banking subsidiaries of IUB. This
enhancement of products and services and the leadership provided by the
management team of The Anderson Group will create synergies between IUB's
banking and non-banking financial services divisions that will benefit personal
and business customers alike well into the new millennium.
[SIDEBAR]
"The Anderson Group's decision to align with Indiana United Bancorp has helped
our newly formed organization, The Insurance Group to offer a wider array of
services while maintaining our existing level of customer service. Our
overlapping customer oriented philosophies have provided a unique bond that
creates a win-win situation for not only our corporation, but for our customers
as well."
C. Todd Anderson, President and CEO,
The Insurance Group, Inc.
The Insurance Group, Inc.
Main Office Address:
1925 Frederica Street
P.O. Box 1627
Owensboro, KY 42302
Tel: 270-926-4550
Fax: 603-761-1698
Member Agencies: 3
Number of Employees: 35
Partial Listing of Companies Represented:
Reliance Ins. Co., Ohio Casualty,
Indiana Insurance Company,
Cincinnati Ins.,
St. Paul/USF&G, Meridian Mutual Ins.,
Westfield, State Auto, Progressive,
Hastings Mutual, Auto Owners, SAFECO,
and many others.
7
<PAGE>
A Year in Review
February 19 -
o People's Trust Company purchases three banking offices in Henry County and one
office in Wayne County. Total deposits acquired in the purchase equaled $104
million.
March 19 -
o The Board of Directors of IUB paid a $.16 per share dividend for the first
quarter.
April 1 -
o IUB announces that it purchased The Anderson Group - an independent insurance
agency in Owensboro, Kentucky.
April 16 -
o Union Bank and Trust Company of Indiana opens a de novo banking facility in
Chesterfield, Indiana. This brings their total offices in Madison County to
four.
April 23 -
o Union Bank and Trust Company of Indiana opens a second de novo banking
facility in Anderson, Indiana. The Madison County offices now total five.
April 29 -
o Don Benziger is named CFO of Indiana United Bancorp.
May 18 -
o IUB holds its 16th Annual Meeting of Shareholders.
o Following the retirement of Charter Board Member, Martin G. Wilson, after 16
years of service, IUB elects Eric E. Anderson to the Board of Directors.
o IUB promotes James L. Saner, Sr., President and COO to President and CEO
pursuant to the retirement of Robert E. Hoptry on June 30, 1999.
June 21 -
o The Board of Directors of IUB paid a $.16 per share dividend for the second
quarter.
June 30 -
o IUB announces the retirement of President and CEO, Robert E. Hoptry. Hoptry
remains as Chairman of the Board.
September 1 -
o IUB establishes Captive Re-Insurance Company for accident/health and credit
life insurance.
o IUB establishes corporate Information Technology (IT) Department.
September 20 -
o The Board of Directors of IUB paid a $.16 per share dividend for the third
quarter.
November 9 -
o IUB announces that it has entered into a definitive agreement to purchase
First Affiliated Bancorp of Watseka, Illinois and its wholly-owned banking
subsidiary, Capstone Bank.
December 1 -
o IUB chooses a new transfer agent - Registrar and Transfer Company
December 20 -
o The Board of Directors of IUB paid a $.16 per share dividend for the fourth
quarter.
[SIDEBAR]
Donald A. Benziger,
Senior Vice President and CFO,
Indiana United Bancorp.
8
<PAGE>
Management's Discussion and Analysis
(Dollar Amounts in Thousands except Per Share Data)
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 of cumulative trust
preferred securities 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 pay off its long-term loan and
acquired seven branch facilities and related 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 $121,000 in deposits were acquired, together with
approximately $21,000 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 include Madison and Hancock counties in addition
to its traditional base of Decatur and Jay counties in Indiana.
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
$300,000. 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" and the Company's
financial statements include P.T.C. Bancorp for all periods presented.
During 1999, the Company purchased four branches within its target market areas.
These four branches were integrated into People's Trust Company during the first
quarter of 1999 and resulted in the purchase of $104,000 in deposits. The
offices are located in Cambridge City in Wayne County, and Knightstown and New
Castle (2) in Henry County. This acquisition expands People's Trust Company's
Wayne County market share and makes Henry County the bank's ninth county of
operation.
The Company, through its Union Bank subsidiary, purchased two facilities in
Anderson and Chesterfield. The newly renovated structures were opened de novo
and became operational branches in April 1999. The branches will help solidify
the Madison County position for Union Bank.
During the past three years, many technological improvements were initiated.
Certain of these improvements, such as upgrading communication lines, have
provided faster response time for customer transactions. Others represent
capital investments that allow the Company to continue to effectively compete
within the 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 better quality services to its customers.
In 1999, the decision was made to utilize the company's existing software and
mainframe for all affiliates. This decision necessitates conversion of People's
Trust Company's data processing system from a service bureau environment to the
Company's in-house system. This conversion will occur in the fourth quarter of
2000, but planning and certain upgrades have already occurred and staff training
and orientation will accelerate in the months ahead.
2000 will witness the introduction of Internet banking at all of the Company's
affiliates. The company views the Internet as another distribution channel to
provide a wide range of products and services to its customers. By the second
quarter of this year the Company will introduce Corporate Cash Management to all
of its commercial customers via this medium.
The dynamics of the Plan assure continually evolving goals, and the extent of
the Company's success will depend upon how well
9
<PAGE>
Management's Discussion and Analysis
(Dollar Amounts in Thousands except Per Share Data)
Table 1 - Selected Financial Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Net interest income $ 31,247 $ 25,892 $ 24,606 $ 22,260 $ 20,568
Provision for loan losses 1,641 1,218 1,789 978 770
Noninterest income 6,108 5,122 4,501 3,974 3,358
Noninterest expense 25,036 19,672 16,203 15,722 14,868
Income before income tax 10,678 10,124 11,115 9,534 8,288
Income tax 3,596 3,676 3,910 3,565 2,852
Net income 7,082 6,448 7,205 5,969 5,436
Dividends paid on common stock 3,095 2,721 2,104 1,717 1,406
Dividends paid on preferred stock - - - 50 139
- ----------------------------------------------------------------------------------------------------------------------------
Per Common Share *
Earnings per share (basic) $ 1.47 $ 1.36 $ 1.53 $ 1.25 $ 1.13
Earnings per share (diluted) 1.47 1.35 1.52 1.25 1.12
Cash earnings per share (basic)** 1.71 1.42 1.57 1.29 1.14
Cash earnings per share (diluted)** 1.71 1.42 1.56 1.28 1.13
Dividends paid *** 0.64 0.59 0.51 0.42 0.35
Book value - end of period
Excluding SFAS No.115 adjustment 13.15 12.25 11.52 10.44 10.05
Including SFAS No.115 adjustment 12.19 12.40 11.68 10.50 10.13
Market price - end of period 18.75 22.13 22.75 14.53 12.50
- ----------------------------------------------------------------------------------------------------------------------------
At Year End
Total assets $ 978,893 $ 827,945 $ 693,168 $ 624,922 $ 577,779
Investment securities 243,274 197,599 126,104 151,978 152,037
Loans, excluding held for sale 643,227 539,404 472,627 416,016 374,534
Allowance for loan losses 7,049 6,099 5,451 4,506 4,476
Total deposits 824,385 709,871 583,168 547,529 504,080
Notes payable 6,885 - - 5,500 7,000
Federal Home Loan Bank advances 19,900 10,000 10,000 - -
Trust preferred securities 22,425 22,425 22,425 - -
Preferred stock - - - - 2,000
Shareholders' equity 59,209 59,196 55,006 49,402 47,463
- ----------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets 0.76% 0.89% 1.13% 1.02% 0.98%
Return on average common
shareholders' equity 11.85 11.23 13.83 12.57 12.55
Allowance for loan losses to total
loans (year end,excluding held for sale) 1.10 1.13 1.15 1.08 1.20
Shareholders' equity to total assets
(year end) 6.05 7.15 7.94 7.91 8.21
Average equity to average total assets 6.45 7.96 8.18 8.11 8.01
Dividend payout ratio 43.70 42.20 29.22 29.01 26.54
</TABLE>
* Adjusted for stock split and dividends
** Net income plus the after tax effect of the amortization of intangible
assets for the period.
*** Dividends paid by Indiana United Bancorp without restatement for pooling
of interests
10
<PAGE>
it anticipates and responds to competitive changes within its markets, the
interest rate environment and other external forces.
Year 2000 ("Y2K") Computer Issues
The Company did not encounter any Y2K related problems nor is management aware
of any customers who encountered significant Y2K problems. The effort to assure
such success did not go unnoticed in terms of our employee's time, effort and
dedication to a task. We commend those individuals for their diligence. The
Company incurred approximately $150 in capital and other expenditures for Y2K
preparations. Management is not aware of any remaining uncertainties or
contingencies with respect to Y2K.
Business Strategy
The Company holds first or second market share positions as measured by total
deposits in five of the fifteen 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.
Effective April 1, 1999, the Company acquired the property and casualty
insurance business lines of The Anderson Group of Owensboro, Kentucky ("The
Anderson Group"). The acquisition was effected by the purchase of assets and
expertise. The property and casualty insurance business lines of The Anderson
Group were integrated into a newly formed subsidiary of the Company, The
Insurance Group, Inc., ("The Insurance Group") a wholly owned subsidiary of
Union Bank. The general lines insurance business previously managed by Union
Bank in Greensburg and Portland, Indiana will be directed through The Insurance
Group subsidiary as the Company expands its insurance offering capabilities.
This expansion means an increased book of business and additional management
expertise, immediately, and later an increased product line. With this base the
Company anticipates additional insurance acquisitions throughout its marketing
area.
The Company plans to enter the brokerage services arena during 2000 by
integrating brokers into the mainstream of its banking operations.
The Company has also formed The Trust Investment Group that 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 throughout 2000
and beyond into larger market areas of the Company.
On November 9, 1999 the Company announced a definitive agreement to acquire
First Affiliated Bancorp of Watseka, Illinois and its wholly owned banking
subsidiary, Capstone Bank N. A. The transaction will be accounted for using the
pooling-of-interests method of accounting. The Company will issue approximately
1,020,000 shares of its common stock to the shareholders of First Affiliated
Bancorp. The conversion rate will be 4.4167 shares of Company stock for each
outstanding common share of First Affiliated.
As of December 31, 1999 First Affiliated had $131,000 in assets, $116,000 in
deposits with four banking offices in Illinois and one in Indiana. It is
anticipated that this transaction will be concluded in the second quarter of
2000.
Results of Operations
Annual net income was $7,082 in 1999 compared to $6,448 in 1998 and $7,205 in
1997. The major factors impacting 1999's earnings were the purchase of the
branches and deposits and the de novo branch openings. Significant non-recurring
merger expenses of $700 net of taxes impacted 1998 earnings and the Company
recorded $118 after-tax non-recurring income in 1997 from the sale of real
estate property acquired in lieu of foreclosure. Excluding these non-recurring
items, net income of $7,148 would have been recorded in 1998 and $7,087 in 1997.
Net income per common share from recurring operations equaled $1.47 in 1999 and
$1.50 in 1998 and 1997. Including the merger expenses for 1998 and the special
real estate owned income for 1997, actual earnings per share were $ 1.47 for
1999, $1.35 for 1998, and $1.52 for 1997.
Another measure of an organization's performance is "cash earnings per share".
Cash earnings are defined as net income plus the after tax effect of the
amortization of intangible assets for the period. Per share (basic) cash
earnings for 1999 equaled $1.71. For 1998 and 1997 cash earnings per share were
$1.42 and $1.57, respectively.
The Company's return on average total assets was .76% in 1999 compared to .89%
in 1998, and 1.13% in 1997. In planning for the future, management understood
there would be such an impact in the short term, however, they feel that this
expansion will provide greater future earnings potential for the Company.
11
<PAGE>
Management's Discussion and Analysis (Continued)
Table 2 - Non-interest Income and Expense
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Percent Change
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999/98 1998/97
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest income
Insurance commissions $ 1,166 $ 530 $ 515 120.0% 2.9%
Fiduciary activities 310 261 278 18.8 (6.1)
Mortgage banking 1,016 1,356 1,116 (25.1) 21.5
Service charges on deposit accounts 2,316 1,895 1,780 22.2 6.5
Securities losses (8) (13) (76) (38.5) (82.9)
Other 1,308 1,093 888 19.7 23.1
--------------------------------------
Total non-interest income $ 6,108 $ 5,122 $ 4,501 19.3 13.8
======================================
- --------------------------------------------------------------------------------------------------------------------
Non-interest expense
Salaries and employee benefits $13,707 $ 10,852 $ 9,252 26.3% 17.3%
Net occupancy 1,556 1,382 1,284 12.6 7.6
Equipment 1,818 1,457 1,323 24.8 10.1
Data processing 758 855 797 (11.3) 7.3
Deposit insurance 136 129 109 5.4 18.3
Intangible amortization 1,775 459 238 286.7 92.9
Stationary, printing, and supplies 805 635 503 26.8 26.2
Merger - 806 - (100.0) 100.0
Other 4,481 3,097 2,697 44.7 14.8
--------------------------------------
Total non-interest expense $25,036 $ 19,672 $ 16,203 27.3 21.4
======================================
</TABLE>
Net Interest Income
Net interest income and net interest margin are influenced by the volume and
yield on earning assets and the cost of interest-bearing liabilities. Tax
equivalent net interest income of $32,449 in 1999 increased 20.6% from $26,907
in 1998, which was 4.9% above 1997 (See Table 3). This increase is: (1) due to
the increased volume of earning assets obtained with funds received in our
branch acquisitions and (2) to the lower cost of deposits.
Tax equivalent interest income increased $10,795 or 19.4% from 1998 to 1999 and
$5,084 or 10.0% from 1997 to 1998.
Interest expense increased $5,253 or 18.2% from 1998 to 1999 and $3,826 or 15.3%
from 1997 to 1998.
The Company's interest expense as a percent of earning assets was 3.95% in 1999
compared to 4.23% in 1998 or a 6.6% decrease. From 1997 to 1998 the same factor
increased 2.4% from 4.13% to 4.23%.
Throughout the past three years, the Company has 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 to fully deploy the deposits purchased over the last 18 months. With the
rapid influx of deposits due to the branch purchases, the Company's net interest
margin decreased to 3.76% in 1999 from 3.95% in 1998 and 4.25% in 1997. In spite
of this annual decrease in margin, the Company experienced an increase in net
interest margin during the final two quarters of 1999, and the Company foresees
maintaining or improving upon that level in 2000.
Provision for Loan Losses
The Company expensed $1,641 in provision for loan losses in 1999. 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
The increase in mortgage rates over the last six months has slowed the
housing market and has affected the company's volume of saleable new loans. This
increase in rates has impacted our mortgage banking activity to the detriment of
our non-interest income. The increase in non-interest income in 1998 was largely
a result of increased mortgage banking activity, while mortgage banking income
declined $340 in 1999. In spite of this, total non-interest income increased to
$6,108 from $5,122 in 1998 and $4,501 in 1997. The increase in 1999 over 1998
was $986 or 19.3%. Of this increase, $636 was due to our expanded insurance
business as discussed earlier and $421 was attributable to service charges on
newly acquired deposit relationships. The Company also experienced a $215
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 $621 from 1997 to 1998 primarily due to
increases in mortgage banking and service charge income and other income
increases as outlined in the previous paragraph.
12
<PAGE>
Interest Expense
Total interest expense increased from $24,997 in 1997 and $28,823 in 1998 to
$34,076 in 1999. The majority of the increases was the result of the deposit
acquisitions made by the Company in the third and fourth quarters of 1998 and
the first quarter of 1999. The Company also absorbed the 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 $2,855 or 26.3% over 1998's total and
$1,600, or 17.3% in this area over 1997. The 1999 increase was a direct result
of a full year of staffing the seven new branch facilities acquired in 1998,
nine months of the six branches acquired and/or started in 1999 and the
acquisition of the Anderson Group. The number of full-time equivalent employees
at year-end 1999 was 404 compared to 360 in 1998 and 299 in 1997.
All but one area of non-interest expense increased in 1999 over 1998 and in 1998
over 1997. Total non-interest expense to average assets for 1999 was 2.70%
compared to 2.73% in 1998 and 2.54% in 1997. The increases were a direct result
of expanding facilities and personnel related to the acquisitions made
throughout 1999 and 1998. Another impact of expansion is the amortization of
premiums paid for the deposits. In 1999, 1998 and 1997, respectively, the
intangible amortization was $1,775, $459 and $238. Total non-interest expense
reduced by intangible amortization and merger costs expressed as percent-age of
average assets would have been 2.51% for 1999, 2.55% for 1998 and 2.50% for
1997.
The Company historically has been able to control its overhead costs when
compared to its peers (see Table 2 and graph).
Income Taxes
The effective tax rate was 33.7% for 1999, 36.3% for 1998, and 35.2% for 1997.
Generally, the change in income tax expense reflects the change in income before
income tax adjusted for tax-exempt income and non-deductible expenses, such as
certain merger costs. During 1999, tax-exempt income from state and municipal
securities increased. In 1998 the Company incurred $806 in merger expenses of
which nearly $700 were non-deductible. The Company and its subsidiaries file
consolidated income tax returns.
Financial Condition
Total average assets in 1999 increased $204,833 over the prior year and 1998
increased $83,607 over 1997.
Assets increased to $978,893 at year-end 1999 compared to $827,945 at year-end
1998, which compared to $693,168 for 1997. Acquired deposits, repayments of
loans, as well as internal growth of interest-bearing deposits, funded loan and
securities growth in 1999 and 1998.
Average non-interest bearing deposits increased 32.2% in 1999 following a 17.2%
increase in 1998. Average interest-bearing deposits increased $165,711 or 29.8%
in 1999 compared to 8.9% in 1998. The majority of this growth is attributable to
deposit acquisitions made during the third and fourth quarters of 1998 and the
first quarter of 1999.
When comparing deposit growth from December 31, 1998 to December 31, 1999, the
Company experienced a total deposit growth of $114,514 or a 16.1% increase.
Guaranteed Preferred Beneficial Interests in the Company's Subordinated
Debentures ("Preferred Securities") in the amount of $22,425 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 at any time or from time to time, for a period not to exceed 20
consecutive quarters with respect to each deferral period. Currently, management
has no intention of deferring the payment of interest. The 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 constitutes Tier 2 capital, or supplementary capital, of the Company.
Common Shareholders' Equity was $59,209 on December 31, 1999 compared to $59,196
at December 31, 1998. Book value per common share decreased to $12.19 or 1.7%
from $12.40 at year-end 1998.
[CHART APPEARS HERE]
Overhead As Percent of Average Assets
(1999 as of 9/30)
1995 1996 1997 1998 1999
----------------------------
Peer Group Average 2.68 2.68 2.54 2.73 2.70
Indiana United Bancorp 3.44 3.35 3.32 3.26 3.24
13
<PAGE>
Management's Discussion and Analysis (Continued)
Loans, Credit Risk and the Allowance and Provision for Loan Losses.
Loans remain the Company's largest concentration of assets and, by their nature,
carry a higher degree of risk. The loan underwriting standards observed by the
Company's subsidiaries are viewed by management as a means of controlling
problem loans and the resulting chargeoffs.
The Company's conservative loan underwriting standards have historically
resulted in higher loan quality and lower levels of net chargeoffs than peer
bank averages (see graph). The Company also recognizes credit risk is increased
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 loan concentration policy. The Company believes it has no undue
concentrations of loans.
Total loans increased $103,823 or 19.2% over year-end 1998, largely reflecting
the growth and development of real estate mortgages, both commercial and
residential. The Company experienced modest growth in its commercial real estate
portfolio of $3,014 or 3.1% and increased its residential portfolio by $61,141
or 24.8% compared to year-end 1998. The increase was largely the result of
continuing strength in the economy and expansion into new and existing markets.
Non-real estate related commercial lending increased 30.8% as the Company
expanded its efforts in that sector. The Company also increased its construction
and development loans from $30,772 to $50,721 or 64.8% from December 31, 1998 to
December 31, 1999. The Company also experienced an increase in consumer loans
over 1998, with an 11.5% increase. The Company increased its out-standing loans
by $5,698 or 15.4% in farm real estate and decreased its agricultural production
financing slightly compared to 1998. The decrease in tax-free loans is a
function of the market's demand for tax-exempt products rather than any change
in philosophy on the Company's part. (table 4 and graph).
Residential real estate loans continue to represent the largest portion of the
total Management's Discussion and Analysis (Continued) loan portfolio. Such
loans represented 47.8% and 45.7% of total loans at December 31, 1999 and 1998,
respectively. Of the total residential real estate portfolio, 52.2% are fixed
rate and 47.8% are variable rate loans as of December 31, 1999. The Company also
originates and sells loans into the secondary market but retains the portfolio's
servicing rights. As previously discussed, the Company's mortgage banking
non-interest income decreased $340 from 1998 to 1999 having increased $240 or
21.5% from 1997 to 1998.
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 shorter term fixed rate mortgages in its own portfolio during 1997,
1998 and 1999 to help deploy the deposits gained through new products and
acquisitions. This strategy assisted the Company in obtaining its profit goals
for 1999. The Company intends to continue its plan of holding some fixed rate
mortgages without incurring unacceptable levels of interest rate risk.
The Company regards its ability to identify and correct loan quality problems as
one of its greatest strengths. Loans are placed on "non-accrual 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
nonaccrual 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 $1,641 in 1999 compared to $1,218 in 1998 and
$1,789 in 1997. The additional provisions for 1997 through 1999 reflect
increases in the allowance primarily due to the Company's overall loan growth
and to replenish the allowance for chargeoffs incurred.
Net charges were $691 in 1999, $570 in 1998,and $844 in 1997. As a percentage of
average loans, net charges equaled .12%, .11% and .19% in 1999, 1998 and 1997,
respectively. The Company has outperformed its peer group's net loan loss
average and that trend is expected to continue in 2000 (see graph)
14
<PAGE>
Table 3-Average Balance Sheet and Net Interest Analysis
(Taxable Equivalent Basis)*
<TABLE>
<CAPTION>
1999 1998
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ 1,057 $ 60 5.68% $ 1,431 $ 81 5.66%
Federal funds sold 22,451 1,070 4.77 33,713 1,832 5.43
Securities
Taxable 214,727 12,767 5.95 116,262 7,408 6.37
Non-taxable* 35,131 2,697 7.68 27,783 1,992 7.17
- ------------------------------------------------------------------------------------------------------------------------------
Total securities 249,858 15,464 6.19 144,045 9,400 6.53
Loans **
Commercial 245,074 21,246 8.67 200,693 18,266 9.10
Residential real estate 275,457 21,801 7.91 238,594 19,898 8.34
Consumer 68,698 6,884 10.02 62,423 6,253 10.02
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 589,229 49,931 8.47 501,710 44,417 8.85
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 862,595 66,525 7.71 680,899 55,730 8.18
- ------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 23,934 19,189
Unrealized gains (losses) on securities (2,352) 1,657
Allowance for loan losses (6,590) (5,806)
Premises and equipment,net 14,044 11,045
Intangible assets 22,375 2,957
Accrued interest receivable
and other assets 12,604 11,836
- ---------------------------------------------------------- ----------------
Total assets $ 926,610 $ 721,777
========================================================== ================
Liabilities
Interest-bearing deposits
Interest-bearing demand accounts $ 179,427 $ 4,713 2.63 $ 131,263 $ 3,953 3.01
Savings 105,170 3,044 2.89 64,990 1,892 2.91
Certificates of deposit 437,662 22,429 5.12 360,295 19,983 5.55
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 722,259 30,186 4.18 556,548 25,828 4.64
Short-term borrowings 20,087 883 4.40 9,307 429 4.61
Trust preferred securities 22,425 2,004 8.94 22,425 2,024 9.03
Notes payable and FHLB borrrowings 16,352 1,003 6.13 10,000 542 5.42
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 781,123 34,076 4.36 598,280 28,823 4.82
Demand deposits 77,210 58,407
Other liabilities 8,525 7,647
- ---------------------------------------------------------- ----------------
Total liabilities 866,858 664,334
Shareholders' equity 59,752 57,443
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 926,610 34,076 3.95*** $ 721,777 28,823 4.23***
===============---------------------------================-------------------------
Net interest income $ 32,449 3.76**** $ 26,907 3.95****
and net interest margin
- ------------------------------------------------------------------------------------------------------------------------------
Conversion of tax exempt income to a
fully taxable equivalent basis using a
marginal rate of 34% $ 1,202 $ 1,015
</TABLE>
<TABLE>
<CAPTION>
1997
Average Average
Assets Balance Interest Rate
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term investments $ 1,713 $ 90 5.25%
Federal funds sold 16,414 952 5.80
Securities
Taxable 106,557 6,865 6.44
Non-taxable* 30,122 2,197 7.29
- ----------------------------------------------------------------------------------------
Total securities 136,679 9,062 6.63
Loans **
Commercial 180,903 17,063 9.43
Residential real estate 208,869 17,417 8.34
Consumer 59,493 6,062 10.19
- ----------------------------------------------------------------------------------------
Total loans 449,265 40,542 9.02
- ----------------------------------------------------------------------------------------
Total earning assets 604,071 50,646 8.38
- ----------------------------------------------------------------------------------------
Cash and due from banks 18,464
Unrealized gains (losses) on securities 562
Allowance for loan losses (4,621)
Premises and equipment,net 10,014
Intangible assets 1,664
Accrued interest receivable
and other assets 8,016
- --------------------------------------------------------------
Total assets $ 638,170
==============================================================
Liabilities
Interest-bearing deposits
Interest-bearing demand accounts $ 123,914 $ 3,751 3.03
Savings 59,386 1,818 3.06
Certificates of deposit 327,541 18,270 5.58
- ----------------------------------------------------------------------------------------
Total interest-bearing deposits 510,841 23,839 4.67
Short-term borrowings 12,349 630 5.10
Trust preferred securities 1,229 105 8.54
Notes payable and FHLB borrrowings 4,797 423 8.82
- ----------------------------------------------------------------------------------------
Total interest-bearing liabilities 529,216 24,997 4.72
Demand deposits 49,817
Other liabilities 7,032
- --------------------------------------------------------------
Total liabilities 586,065
Shareholders' equity 52,105
- --------------------------------------------------------------
Total liabilities and shareholders' equity $ 638,170 24,997 4.13***
===================--------------------------
Net interest income $ 25,649 4.25****
and net interest margin
- ----------------------------------------------------------------------------------------
Conversion of tax exempt income to a
fully taxable equivalent basis using a
marginal rate of 34% $ 1,042
</TABLE>
* Adjusted to reflect income related to securities and loans exempt from
Federal income taxes.
** Nonaccruing loans have been included in the average balances.
*** Total interest expense divided by total earning assets.
**** Net interest income divided by total earning assets.
<TABLE>
<CAPTION>
Table 4 - Loan Portfolio
- -------------------------------------------------------------------------------------------------------------------------
December 31 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Types of loans
Commercial $39,539 $30,237 $34,442 $32,748 $30,242
Agricultural production
financing and other
loans to farmers 14,863 14,983 15,991 16,073 15,167
Commercial real estate
mortgage 98,814 95,800 81,549 62,501 52,843
Residential real estate
mortgage 307,632 246,491 208,327 188,716 170,590
Farm real estate 42,604 36,906 38,802 35,145 36,188
Construction and development 50,721 30,772 15,797 20,239 16,446
Consumer 79,154 70,966 66,357 52,106 44,651
State and political 9,900 13,249 11,362 8,488 8,407
- -------------------------------------------------------------------------------------------------------------------------
Total loans $ 643,227 $539,404 $472,627 $416,016 $374,534
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Management's Discussion and Analysis (Continued)
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 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,
1999 is considered adequate by management. See Tables 4, 5, and 6 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, 1999, 92.7% 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 share-holders' equity. A net unrealized loss of $7,560 is recorded
to adjust the AFS portfolio to current market value at December 31, 1999
compared to a net unrealized gain of $1,223 at December 31, 1998. The remaining
7.3% 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.
Variable rate securities comprised 13.6% of the total portfolio on December 31,
1999 with the remaining 86.4% invested in fixed rate investments.
Sources of Funds
The Company relies primarily on customer deposits and securities sold under
agreement to repurchase ("repurchase agreements"), along with shareholders'
equity to fund earning assets. Federal Home Loan Bank ("FHLB") advances are used
to provide additional funding. The Company also purchased $104,000 and $121,000
of local deposits during the first quarter of 1999 and the last half of 1998
respectively, 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 92.7% and 90.3% of total average
earning assets in 1999 and 1998. Total interest-bearing deposits averaged 90.3%
and 90.5% of average total deposits during 1999 and 1998, respectively.
Management is continuing efforts to increase the percentage of
transaction-related deposits to total deposits due to the positive effect on
earnings.
Repurchase agreements are high denomination investments utilized by public
entities and commercial customers as an element of their cash management
responsibilities. Repurchase agreements are not subject to FDIC assessment so
they are less costly than large certificates of deposit.
During 1999, short-term borrowings averaged $20,087 with repurchase agreements
representing $17,221 of the total as the strong economy continued and the demand
for short term investments increased combined with the Company's funding needs.
At year-end 1999 the short-term borrowings were $40,064. Even though short-term
borrowings temporarily increased 32% at year-end 1998 compared to 1997, the
Company decreased average repurchase agreements and other short-term borrowings
in 1998 to $9,307 or 25% below 1997. Repurchase agreements comprised 98% of
short-term borrowings on December 31, 1998 and 63.6% of short-term borrowings on
December 31, 1999.
Another source of funding is the Federal Home Loan Bank (FHLB). The Company had
FHLB advances of $19,900 out-standing at December 31, 1999. One $10,000 advance
has a quarterly floating interest rate which was 6.18% at year-end and matures
on December 30, 2002. The other two advances of $4,900 and $5,000 have interest
rates of 5.13% and 5.54% and mature on January 7, 2000. The Company averaged
$10,241 in FHLB advances during 1999 compared to $10,000 during 1998 and $4,797
in 1997.
16
<PAGE>
Table 5 - Non-Performing Loans
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $3,465 $3,709 $755 $3,039 $2,198
Accruing loans contractually past due 90 days or more 373 195 375 39 174
- ------------------------------------------------------------------------------------------------------------------------
Total $3,838 $3,904 $1,130 $3,078 $2,372
- ------------------------------------------------------------------------------------------------------------------------
% of total loans 0.60% 0.72% 0.24% 0.74% 0.63%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 6 - Summary of Allowance for Loan Losses
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $6,099 $5,451 $4,506 $4,476 $4,385
Chargeoffs
Commercial 88 191 695 315 339
Commercial real estate mortgage 458 0 0 334 166
Residential real estate mortgage 72 99 32 10 54
Consumer 461 582 452 523 456
- ---------------------------------------------------------------------------------------------------------------------
Total chargeoffs 1,079 872 1,179 1,182 1,015
- ---------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial 15 83 134 47 121
Residential real estate mortgage 21 25 25 17 46
Consumer 352 194 176 170 169
- ---------------------------------------------------------------------------------------------------------------------
Total recoveries 388 302 335 234 336
- ---------------------------------------------------------------------------------------------------------------------
Net chargeoffs 691 570 844 948 679
Provision for loan losses 1,641 1,218 1,789 978 770
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31 $7,049 $6,099 $5,451 $4,506 $4,476
- ---------------------------------------------------------------------------------------------------------------------
Net chargeoffs to average loans .12% 0.11% 0.19% 0.24% 0.19%
Provision for loan losses to average loans .28 0.24 0.40 0.25 0.21
Allowance to total loans at year end 1.10 1.13 1.15 1.08 1.20
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In February of 1999 the Company borrowed $8,000 from National City Bank at a
floating rate based upon LIBOR. In July, the Company reduced its debt by $1,300
in order to obtain a more favorable interest rate. In addition, the Company
established a $3,000 line of credit as a cash management tool.
Capital Resources
The Federal Reserve Board and other regulatory agencies have adopted risk-based
capital guidelines that assign risk weightings to assets and off-balance sheet
items. The Company's core capital ("Tier 1") consists of common shareholders'
equity adjusted for unrealized gains or losses on available for sale (AFS)
securities 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,
1999, Tier 1 capital to average assets was 6.5%. Tier 1 capital to risk-weighted
assets was 9.7%. Total capital to risk-weighted assets was 11.0%. All ratios
substantially exceed required ratios established for bank holding 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 constitutes Tier 2 capital, or supplementary
capital, of the Company.
Common shareholders' equity is impacted by the Company's decision to categorize
a portion of its securities portfolio as available for sale (AFS). 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 $.64 per share in 1999, $.59
in 1998 and $.51 in 1997. Book value per common share decreased to $12.19 from
$12.40 in 1998. The net adjustment for AFS securities decreased book value by
$.95 and increased book value by $.15 at December 31, 1999 and 1998,
respectively. 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.
17
<PAGE>
Management's Discussion and Analysis (Continued)
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 $203,791 of AFS securities
maturing after one year, which can be sold to meet liquidity needs.
Maintaining a relatively stable funding base, which is achieved by diversifying
funding sources, supports liquidity, extends the contractual maturity of
liabilities, and limits reliance on volatile short-term purchased funds.
Short-term funding needs can arise from declines in deposits or other funding
sources, funding of loan commitments and requests for new loans. The Company's
strategy is to fund assets to the maximum extent possible with core deposits,
which provide a sizable source of relatively stable low-cost funds. Average core
deposits funded approximately 85% of total earning assets during 1999 and
approximately 90% in 1998.
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 1999, the Company held approximately $388,000 in assets comprised of
securities, loans, short-term investments and federal funds sold, which were
interest sensitive in one year or less time horizons. The Company's interest
rate sensitivity analysis for the year ended December 31, 1999 appears in Table
7. 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
<TABLE>
<CAPTION>
Table 7- Rate Sensitivity Analysis at December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
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 $170,234 $160,822 $45,921 $131,973 $134,277 $643,227
Securities 36,633 16,879 37,165 85,219 67,378 243,274
Federal funds sold 400 - - - - 400
Interest-bearing deposits in banks 1,028 - - - - 1,028
FHLB Stock 2,231 - - - - 2,231
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning assets 210,526 177,701 83,086 217,192 201,655 890,160
- --------------------------------------------------------------------------------------------------------------------------------
Other assets - - - - 95,782 95,782
Allowance for loan losses - - - - (7,049) (7,049)
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $210,526 $177,701 $83,086 $217,192 $290,388 $978,893
- --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Interest-bearing demand $53,520 $26,760 $26,760 $26,760 - $133,800
Savings 22,296 14,864 18,580 18,580 - 74,320
Money market 43,234 43,234 - - - 86,468
Certificates of deposit 108,641 189,927 99,218 40,001 7,542 445,329
Short term borrowings 40,064 - - - - 40,064
Notes payable 6,750 75 60 - - 6,885
Federal Home Loan Bank advances 19,900 - - - - 19,900
Trust preferred securities - - - - 22,425 22,425
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing liabilities 294,405 274,860 144,618 85,341 29,967 829,191
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits 84,468 84,468
Other liabilities 6,025 6,025
Stockholders equity 59,209 59,209
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and stockholders' equity $294,405 $274,860 $144,618 $85,341 $179,669 $978,893
- --------------------------------------------------------------------------------------------------------------------------------
Rate sensitivity gap
(assets less liabilities) ($83,879) ($97,159) ($61,532) $131,851
- --------------------------------------------------------------------------------------------------------------------------------
Rate sensitivity gap(cumulative) (83,879) (181,038) (242,570) (49,998)
- --------------------------------------------------------------------------------------------------------------------------------
Percent of total assets (cumulative) (8.57)% (18.49)% (24.78)% (5.11)%
Rate sensitive assets/liabilities
(cumulative) 71.51% 68.20% 66.02% 86.15%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Company that the cumulative GAP divided by total assets shall be plus or minus
20% at the 3-month, 6-month, and 1-year time horizon.
The Company continues to strive to increase its amount of variable rate assets
in what is generally perceived to be a period of rising interest rates. While
interest rates have trended upward since July 1999, the increases have been
relatively mild and have allowed the company the opportunity to react to the
higher rates. Management believes that the company is well positioned in the
current rate environment and does not foresee its earnings materially impacted
in 2000 regardless of the direction interest rates may take.
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 impact asset/liability committee activities based
on interest rate risk sensitivity, board policy limits, desired sensitivity gaps
and interest rate trends.
Table 8 provides information about the Company's significant financial
instruments at December 31, 1999 that are sensitive to changes in interest
rates. The table presents principal cash flows 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.
New Accounting Matters
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. Statement No.
131 is effective for financial statements for periods beginning after December
15, 1997, but the Company operates only one reportable segment, banking.
Accounting for Derivative Instruments and Hedging Activities
In June, 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("Statement") No. 133, "Accounting For Derivative
Instruments and Hedging Activities" which requires all derivatives to be
recorded on the balance sheet at fair value and establishes "special accounting"
for hedges. Statement No. 133 is effective for 2001. The Company believes that
the adoption of Statement No. 133 will not have material impact on the Company's
financial condition or results of operations.
19
<PAGE>
Management's Discussion and Analysis (Continued)
<TABLE>
<CAPTION>
Table 8 Principal Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------
There Fair
December 31 2000 2001 2002 2003 2004 after Total Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment securities
Fixed rate 20,621 37,505 19,887 26,798 41,319 71,348 217,478 210,189
Average interest rate 5.20% 5.51% 5.40% 5.59% 5.56% 6.08% 5.75%
Variable rate 4,000 1,490 - 16 - 27,850 33,356 32,929
Average interest rate 5.03% 6.35% - 7.00% - 6.53% 6.34%
Loans
Fixed rate 31,445 17,920 21,673 34,421 13,528 169,494 288,481 283,939
Average interest rate 8.53% 9.09% 8.74% 8.12% 7.94% 7.72% 8.02%
Variable rate 62,675 5,420 3,333 4,152 5,910 281,137 362,627 360,487
Average interest rate 9.10% 9.01% 8.97% 8.52% 8.34% 7.94% 8.18%
Liabilities
Deposits
NOW, money market and
savings deposits
Fixed rate
Average interest rate
Variable rate 294,588 294,588 294,588
Average interest rate 2.76% 2.76%
Certificates of deposit
Fixed rate 287,138 93,164 27,637 9,440 8,123 556 426,058 431,656
Average interest rate 5.01% 5.36% 5.78% 5.74% 5.43% 4.60% 5.14%
Variable rate 11,433 6,054 1,054 276 409 45 19,271 19,271
Average interest rate 5.14% 5.01% 5.48% 4.95% 4.84% 4.69% 5.11%
Borrowings
Fixed rate 12,926 12,926 12,926
Average interest rate 5.38% 5.38%
Variable rate 27,138 27,138 27,138
Average interest rate 4.73% 4.73%
Federal Home Loan Bank advances
Variable rate 9,900 10,000 19,900 19,900
Average interest rate 5.34% 5.35% 5.35%
Notes payable
Variable rate 6,885 6,885 6,885
Average interest rate 7.10% 7.10%
Trust Preferred Securities
Fixed rate 22,425 22,425 18,781
Average interest rate 8.75% 8.75%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 9 - QUARTERLY FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $17,449 $16,754 $15,937 $15,183 $14,388 $13,826 $13,468 $13,033
Total interest expense 8,846 8,565 8,514 8,151 7,833 7,245 6,907 6,838
Net interest income 8,603 8,189 7,423 7,032 6,555 6,581 6,561 6,195
Net income 1,930 1,850 1,682 1,620 1,806 1,728 1,066 1,848
Earnings per share (basic) 0.40 0.38 0.35 0.34 0.38 0.36 0.23 0.39
Earnings per share (diluted) 0.40 0.38 0.35 0.34 0.38 0.36 0.22 0.39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above quarterly amounts reflect reclassifications which increased net
interest income by $275 for 1998 on an annual basis from amounts previously
reported.
20
<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, he 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 Crowe,
Chizek and Company 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 Crowe,
Chizek and Company LLP was approved by the Board of Directors and ratified by
shareholders.
James L. Saner, Sr.
President and Chief Executive Officer
Donald A. Benziger
Senior Vice President and Chief Financial 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 as of
December 31, 1999, and the related consolidated statements of income,
shareholder's equity and cash flows for the year ended December 31, 1999. 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 audit.
The consolidated financial statements as of December31, 1998, and for the two
years then ended, except for amounts included for P.T.C. Bancorp for the year
ended December 31, 1997, were audited by other auditors whose report dated
January 29, 1999 expressed an unqualified opinion on those statements. The
financial statements for the year ended December 31, 1997 were restated to
reflect the pooling of interests with P.T.C. Bancorp as described in Note 2 to
the financial statements. We audited the 1997 financial statements of P. T. C.
Bancorp, which statements reflected net income of $3,430 for the year ended
December 31, 1997, and our report dated January 22, 1998 expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Indiana United Bancorp as of
December 31, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP.
Indianapolis, Indiana
February 4, 2000.22
21
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- -------------------------------------------------------------------------------------------------
December 31 (In thousands except share and per share data)
- -------------------------------------------------------------------------------------------------
Assets 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 33,530 $ 25,549
Interest-bearing demand deposits 30 31
Federal funds sold 400 19,855
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents 33,960 45,435
Interest bearing time deposits 998 1,498
Investment securities
Available for sale 225,486 178,008
Held to maturity (fair value of $17,632 and $20,016) 17,788 19,591
- -------------------------------------------------------------------------------------------------
Total investment securities 243,274 197,599
Loans held for sale 7,881 10,972
Loans, net of allowance for loan losses of $7,049 and $6,099 636,178 533,305
Premises and equipment (net) 155,015 12,498
Federal Home Loan Bank stock 2,231 2,120
Income receivable 8,532 7,044
Intangible assets 24,135 12,818
Other assets 6,689 4,656
- -------------------------------------------------------------------------------------------------
Total assets $ 978,893 $ 827,945
Liabilities
Deposits
Non-interest bearing $ 84,468 $ 66,102
Interest bearing 739,917 643,769
- -------------------------------------------------------------------------------------------------
Total deposits 824,835 709,871
Short-term borrowings 40,064 20,032
Federal Home Loan Bank advances 19,900 10,000
Notes payable 6,885 -
Interest payable 4,010 4,032
Other liabilities 2,015 2,389
- -------------------------------------------------------------------------------------------------
Total liabilities 897,259 746,324
- -------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in
company's subordinated debentures 22,425 22,425
Shareholders' equity
Preferred stock no par value
Authorized - 400,000
Issued and outstanding - none - -
Common stock $.50 stated value:
Authorized--10,000,000 shares, Issued and
outstanding, 4,855,541 and 4,774,628 shares 2,428 2,387
Paid-in capital 23,065 21,742
Retained Earnings 38,350 34,363
Accumulated other comprehensive income (4,634) 704
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 59,209 59,196
- -------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 978,893 $ 827,945
- -------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
- -----------------------------------------------------------------------------------------------------
Years Ended December 31 (In thousands 1999 1998 1997
except share and per share data)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable
Taxable $ 49,095 $ 43,423 $ 39,674
Tax exempt 551 656 572
Investment securities
Taxable 12,767 7,408 6,865
Tax exempt 1,780 1,315 1,450
Federal funds sold 1,070 1,832 952
Deposits with financial institutions 60 81 90
- -----------------------------------------------------------------------------------------------------
Total interest income 65,323 54,715 49,603
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits 30,186 25,828 23,839
Short-term borrowings 1,412 429 630
Trust preferred securities 2,004 2,024 105
Other borrowings 474 542 423
- -----------------------------------------------------------------------------------------------------
Total interest expense 34,076 28,823 24,997
- -----------------------------------------------------------------------------------------------------
Net interest income 31,247 25,892 24,606
Provision for loan losses 1,641 1,218 1,789
- -----------------------------------------------------------------------------------------------------
Net interest income after
Provision for loan losses 29,606 24,674 22,817
- -----------------------------------------------------------------------------------------------------
Non-interest income:
Insurance commissions 1,166 530 515
Mortgage banking 1,016 1,356 1,116
Fiduciary activities 310 261 278
Service charges on deposit accounts 2,316 1,895 1,780
Net realized losses on securities (8) (13) (76)
Other income 1,308 1,093 888
- -----------------------------------------------------------------------------------------------------
Total non-interest income 6,108 5,122 4,501
- -----------------------------------------------------------------------------------------------------
Non-interest expense
Salaries and employee benefits 13,707 10,852 9,252
Net occupancy expenses 1,556 1,382 1,284
Equipment expenses 1,818 1,457 1,323
Data processing fees 758 855 797
Deposit insurance expense 136 129 109
Intangibles amortization 1,775 459 238
Stationery printing and supplies 805 635 503
Merger expenses - 806 -
Other expenses 4,481 3,097 2,697
- -----------------------------------------------------------------------------------------------------
Total non-interest expense 25,036 19,672 16,203
- -----------------------------------------------------------------------------------------------------
Income before income tax 10,678 10,124 11,115
- -----------------------------------------------------------------------------------------------------
Income tax expense 3,596 3,676 3,910
- -----------------------------------------------------------------------------------------------------
Net income $ 7,082 $ 6,448 $ 7,205
=====================================================================================================
Net income per share (basic) $ 1.47 $ 1.36 $ 1.53
Net income per share (diluted) $ 1.47 $ 1.35 $ 1.52
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Total Comprehen-
(In Thousands Except Share and Per Share Data) Common Stock Paid - in Retained Comprehensive Shareholder's sive
Shares Amount Capital Earnings Income Equity Income
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,1997 4,703,988 $ 2,352 $ 21,222 $25,536 $292 $49,402
Net income 7,205 7,205 $7,205
Unrealized gains on securities net of
reclassification adjustment 470 470 470
------
Total comprehensive income $7,675
======
Cash dividends -$ .51 per share (2,105) (2,105)
Exercise of stock options 4,568 2 32 34
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1997 4,708,556 2,354 21,254 30,636 762 55,006
Net income 6,448 6,448 $6,448
Unrealized gains on securities net of
reclassification adjustment (58) (58) (58)
------
Total comprehensive income $6,390
======
Cash dividends -$ .59 per share (2,721) (2,721)
Exercise of stock options 66,072 33 488 521
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 4,774,628 2,387 21,742 34,363 704 59,196
Net income 7,082 7,082 $7,082
Unrealized gains (losses) net of
reclassification adjustment (5,338) (5,338) (5,338)
------
Total comprehensive income $1,744
======
Cash dividends -$ .64 per share (3,095) (3,095)
Additional shares issued 80,913 41 1,323 1,364
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1999 4,855,541 $ 2,428 $ 23,065 $38,350 $ (4,634) $ 59,209
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------------------------
Years Ended December 31 (In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 7,082 $ 6,448 $7,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,641 1,218 1,789
Depreciation and amortization 1,852 1,198 1,062
Capitalize mortgage servicing rights (470) (690) (469)
Securities amortization, net 172 181 155
Amortization of intangibles 1,775 746 322
Investment securities losses 8 13 76
Foreclosed real estate gains - - (179)
Net loans sold gains (149) (590) (323)
Mortgage loans originated for sale (58,480) (91,194) (38,277)
Proceeds from sale of mortgage loans 61,720 82,392 37,450
Net change in
Income receivable (1,488) (1,363) (420)
Interest payable (22) 351 633
Change on other assets and liabilities 615 (1,423) (403)
- --------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 14,256 (2,713) 8,621
- --------------------------------------------------------------------------------------------------
Investing Activities
Net change in short term investments 500 (499) 998
Purchases of securities held-to-maturity - (2,189) (4,021)
Proceeds from maturities and payments
on securities held-to-maturity 1,766 6,732 4,997
Purchases of securities available for sale (110,734) (109,618) (10,426)
Proceeds from maturities and payments
on securities available for sale 43,369 27,219 20,577
Proceeds from sales of securities available for sale 11,073 6,040 7,075
Purchasing of FHLB Stock (111)
Net change in loans (104,814) (45,976) (57,609)
Purchases of premises and equipment (3,878) (1,851) (2,199)
Proceeds from sale of other real estate 260 146 1,228
Cash received from acquisitions 91,134 86,802 -
Other investment activities 58 143
- --------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (71,435) (33,136) (39,237)
- --------------------------------------------------------------------------------------------------
Financing Activities
Net change in deposits 12,167 5,403 35,834
Short-term borrowings 20,032 4,868 (1,014)
Proceeds from notes payable 8,000 -
Repayment of notes payable (1,300) - (5,500)
Proceeds from FHLB advances 9,900 - 12,500
Repayment of FHLB advances - - (2,500)
Proceeds from issuance of stock - 521 34
Cash dividends (3,095) (2,721) (2,104)
Net proceeds from issuance of trust preferred securities - - 21,198
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 45,704 8,071 58,448
Net change in cash and cash equivalents (11,475) (27,778) 27,832
Cash and cash equivalents, beginning of period 45,435 73,213 45,381
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $33,960 $45,435 $73,213
==================================================================================================
Additional Cash Flows Information
Interest paid $ 34,054 $ 28,472 $ 24,364
Income tax paid 3,541 4,019 4,028
Loan balances transferred to foreclosed real estate 300 - -
</TABLE>
See notes 2 and 3 regarding noncash transactions included in business
combinations and branch acquisitions
See notes to consolidated condensed financial statements.
25
<PAGE>
Notes to Consolidated Financial Statements
(In Thousands Except Per Share Data)
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations Indiana United Bancorp ("Company") is a bank holding
company whose principal activity is the ownership and management of its three
wholly owned subsidiary banks ("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. The Insurance Group ("The
Insurance Group") is a wholly owned subsidiary of Union Bank operating agencies
in Greensburg and Portland, Indiana and Owensboro, Kentucky subject to
regulation by the Kentucky and Indiana Commissioners of Insurance.
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, Henry, 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.
Summary of Significant Accounting Policies
The accounting and reporting policies of the Company, the Banks and 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.
Consolidation - The consolidated financial statements include the accounts of
the Company, Banks, The Insurance Group and IUB Capital Trust after elimination
of all material inter-company transactions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions based upon available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided and future results could differ. The allowance for loan
losses and fair values of financial instruments are particularly subject to
change.
Investment securities - 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. 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. Restricted stocks such as Federal
Home Loan Bank stock and other securities without readily determinable fair
values are carried at cost.
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. Securities are written down to fair value when a
decline in fair value is not temporary.
Cash Flows - Cash and cash equivalents includes cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash flows are
reported for loan and deposit transactions.
Loans held for sale are carried at the lower of aggregate cost or fair value.
Net unrealized losses, if any, are recognized through a valuation allowance by
charges to income based on the difference between estimated fair value 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. Loans with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
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. 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. Allocations of the
allowance may be made for a specific loan, but the entire allowance is
26
<PAGE>
available for any loan that, in management's judgment, should be charged off.
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.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and declining-balance methods
based 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.
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.
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.
Impairment is evaluated based on the fair value of the rights using groupings of
the underlying loans as to interest rates and other prepayment characteristics.
Any impairment of a grouping is reported as a valuation allowance.
Income Taxes - Income tax expense is the total 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 amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces tax assets to the amount expected to be realized. The Company files
consolidated income tax returns with its subsidiaries.
Comprehensive Income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale, which are also recognized as separate components of equity.
The accounting standard that requires reporting comprehensive income first
applies for 1998, with prior information restated to be comparable.
New Accounting Pronouncements - Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise record-ed. This is not expected
to have a material effect but the effect will depend on derivative holdings when
this standard applies.
Loss Contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there are now such matters that will have a material effect on
the financial statements.
Dividend Restriction - Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the banks to the holding company or
by the holding company to shareholders.
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in a separate note.
Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
Earnings per share have been computed based upon the weighted average common and
potential common shares outstanding during each year.
Industry Segments - Internal financial information is reported and aggregated in
one line of business, banking.
Reclassifications of certain amounts in the 1998 and 1997 consolidated financial
statements have been made to conform to the 1999 presentation.
Note 2 -- Business Combinations
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 2,272,834 shares (adjusted for stock split) 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 includes PTC for all periods
presented.
Effective April 1, 1999, the Company acquired the property and casualty
insurance business lines of Andy Anderson Insurance Agency, Inc. d/b/a/ The
Anderson Group, Owensboro, Kentucky ("The Anderson Group"). The results of
operations have been included in these financial statements since the
acquisition date under the purchase method of accounting. The acquisition was
effected by the purchase of net assets and expertise in which The Anderson Group
was integrated into a newly formed subsidiary of the Company, The Insurance
Group, Inc. ("The Insurance Group"). The Company issued 80,913 shares of its
common stock to The Anderson Group shareholders. Assets acquired totaled $2,180
(including cash of $250) and liabilities assumed totaled $780. Assets acquired
included goodwill of $1,628, which is being amortized over 15 years under the
straight-line method. Under the agreement, the
27
<PAGE>
acquirees will obtain additional shares of company stock as defined in the
agreement if certain financial targets are attained during the measurement
period, which ends March 31, 2002.
Subsequently, the Company caused The Insurance Group to become a wholly owned
subsidiary of Union Bank by transfer-ring its ownership in The Insurance Group
to that bank subsidiary. The general lines insurance business previously
conducted by Union Bank in Greensburg and Portland, Indiana will be conducted
through The Insurance Group subsidiary.
On November 9, 1999 the Company announced a definitive agreement to acquire
First Affiliated Bancorp of Watseka, Illinois and its wholly owned banking
subsidiary, Capstone Bank N. A. The transaction will be accounted for using the
pooling-of-interests method of accounting. The Company will issue approximately
1,020,000 shares of its common stock to the shareholders of First Affiliated
Bancorp. The conversion rate will be 4.4167 shares of Company stock for each
outstanding share of First Affiliated.
As of December 31, 1999 First Affiliated had $131,358 in assets and $116,520 in
deposits with four banking offices in Illinois and one in Indiana.
These financial statements exclude the effects of the merger. Unaudited pro
forma results of operations including First Affiliated are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income
Indiana United Bancorp $31,247 $25,892 $24,606
First Affiliated Bancorp 4,570 4,175 4,040
- ----------------------------------------------------------------------------------------------
Combined 35,817 30,067 28,646
- ----------------------------------------------------------------------------------------------
Net income
Indiana United Bancorp 7,082 6,448 7,205
First Affiliated Bancorp 820 1,106 1,024
- ----------------------------------------------------------------------------------------------
Combined 7,902 7,554 8,229
- ----------------------------------------------------------------------------------------------
Basic earnings per share
Indiana United Bancorp 1.47 1.36 1.53
First Affiliated Bancorp n/a n/a n/a
- ----------------------------------------------------------------------------------------------
Combined 1.35 1.32 1.44
- ----------------------------------------------------------------------------------------------
Diluted earnings per share
Indiana United Bancorp 1.47 1.35 1.52
First Affiliated Bancorp n/a n/a n/a
- ----------------------------------------------------------------------------------------------
Combined 1.34 1.31 1.43
- ----------------------------------------------------------------------------------------------
</TABLE>
* First Affiliated net income and earnings per share for 1998 and 1997 reflects
the adjustment of First Affiliated income taxes from S-corporation election
method to C-corporation election method
Note 3 -- Branch Acquisitions
During 1999, the Company purchased four branches within target market areas.
These branch acquisitions were accounted for using the purchase method of
accounting. Total fair value of assets acquired and liabilities assumed was
$104,700 including cash of $90,800, loans of $1,900 and deposits of $104,100.
The results of operations of the branches have been included since their
acquisition dates. Intangible assets of $11,400 were recorded and are being
amortized over estimated useful lives using the straight-line method.
During 1998, the Company purchased seven branches within target market areas.
These branch acquisitions were accounted for using the purchase method of
accounting. Total fair value of assets acquired, and liabilities assumed was
$121,900 including cash of $86,800, loans of $21,300 and deposits of $121,300.
The results of operations of the branches have been included since their
acquisition dates. Intangible assets are being amortized over estimated useful
lives.
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, 1999 and 1998 was
$7,488 and $4,889, respectively.
Note 5 -- Investment Securities
Securities with a carrying value of $45,697 and $28,853 were pledged at December
31, 1999 and 1998 to secure certain deposits and for other purposes as permitted
or required by law.
28
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal Agencies $142,194 $ 132 $ (3,916) $138,410
State and municipal 24,870 66 (1,616) 23,320
Mortgage-backed securities 41,468 243 (900) 40,811
Corporate obligations 19,399 7 (1,216) 18,190
Equity and other securities 5,115 (360) 4,755
- -----------------------------------------------------------------------------------------------------
Total available for sale 233,046 448 (8,008) 225,486
- -----------------------------------------------------------------------------------------------------
Held to maturity
State and municipal 16,753 44 (241) 16,556
Corporate obligations 497 (3) 494
Other securities 538 44 582
- -----------------------------------------------------------------------------------------------------
Total held to maturity 17,788 88 (244) 17,632
- -----------------------------------------------------------------------------------------------------
Total investment securites $250,834 $ 536 $ (8,252) $243,118
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Values
- -----------------------------------------------------------------------------------------------------
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
Equity and other securities 1,162 16 (1) 1,177
- -----------------------------------------------------------------------------------------------------
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>
Contractual maturities of securities for 1999 were as follows. Securities not
due at a single maturity date, primarily mortgage back securities, are shown
separately.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------- ------------------------
Held to Maturity Available for Sale
----------------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C>
Within one year $ 4,995 $ 5,007 $ 19,758 $ 19,694
Two through five years 9,765 9,745 116,406 113,280
Six through ten years 1,713 1,699 34,399 32,538
After ten years 1,315 1,181 15,900 14,408
- --------------------------------------------------------------------------- ------------------------
17,788 17,632 186,463 179,920
Mortgage backed securites - - 41,468 40,811
Equity and other securities - - 5,115 4,755
- --------------------------------------------------------------------------- ------------------------
Total investment securities $ 17,788 $ 17,632 $233,046 $225,486
- --------------------------------------------------------------------------- ------------------------
</TABLE>
Gross proceeds from sales of securities available for sale during 1999, 1998 and
1997 were $11,073, $6,040,and $7,075. Gross gains of $8, $40,and $18 and gross
losses of $16, $53, and $94 were realized on those sales in 1999, 1998 and 1997,
respectively.
The tax expense (benefit) for gains (losses) on security transactions for the
years ended December 31, 1999, 1998 and 1997 was $ (3), $(5), and $(30).30
29
<PAGE>
Notes to Consolidated Financial Statements (Continued)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Note 6 Loans and Allowance
- -----------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial loans $ 39,539 $ 30,237
Agricultural production financing 14,863 14,983
Farm real estate 42,604 36,906
Commercial real estate 98,814 95,800
Residential real estate 307,632 246,491
Construction and development 50,721 30,772
Consumer 79,154 70,966
State and political 9,900 13,249
- -----------------------------------------------------------------------------------------------
Total loans 643,227 539,404
Allowance for loan lossess (7,049) (6,099)
- -----------------------------------------------------------------------------------------------
Net loans $ 636,178 $ 533,305
- -----------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $ 6,099 $ 5,451 $ 4,506
Provision for losses 1,641 1,218 1,789
Recoveries on loans 388 302 335
Loans charged off (1,079) (872) (1,179)
- ---------------------------------------------------------------------------------------------------------------
Balances, December 31 $ 7,049 $ 6,099 $ 5,451
- ---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------
Impaired loans with an allowance $ 2,611 $ 2,635
Impaired loans with no allocated allowances. - 607
- -----------------------------------------------------------------------------------------------
Total impaired loans $ 2,611 $ 3,242
- -----------------------------------------------------------------------------------------------
Allowance allocated for impaired loans $ 77 $ 600
- -----------------------------------------------------------------------------------------------
Average balance of impaired loans $ 2,933 990
Interest income recognized on impaired loans - 57
Cash basis interest included above - 57
</TABLE>
Note 7 Premises & equipment
- -------------------------------------------------------------------
December 31 1999 1998
- -------------------------------------------------------------------
Land $ 2,906 $ 1,943
Buildings 13,973 12,542
Equipment 10,958 9,457
- -------------------------------------------------------------------
Total cost 27,837 23,942
Accumulated depreciation (12,822) (11,444)
- -------------------------------------------------------------------
Net $ 15,015 $ 12,498
- -------------------------------------------------------------------
30
<PAGE>
Note 8 -- Deposits
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing $ 84,468 $ 66,102
Interest-bearing demand 220,268 159,661
Savings deposits 74,320 75,272
Certificates and other time deposits of $100,000 or more 99,074 68,821
Other certificates and time deposits 346,255 340,015
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits $824,385 $ 709,871
- ---------------------------------------------------------------------------------------------------------------------------
Certificates and other time deposits maturing in years ending after December 31, 1999
2000 $298,573
2001 99,218
2002 27,696
2003 9,715
2004 8,566
Thereafter 1,561
- --------------------------------------------------------------------------------------------------------
$445,329
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Note 9 Short Term Borrowings
- ------------------------------------------------------------------------------------------------
December 31 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Fed funds purchased $ 13,200 $ -
Securities sold under repurchase agreements 25,487 19,607
U.S. Treasury demand notes 1,377 425
- ------------------------------------------------------------------------------------------------
Total short-term borrowings $ 40,064 $ 20,032
- ------------------------------------------------------------------------------------------------
</TABLE>
Note 9 -- Short-Term Borrowings
Securities sold under agreements to repurchase ("agreements") consist of
obligations secured by U. S. Treasury and Federal agency securities, and a
safekeeping agent holds such collateral. The maximum amount of outstanding
agreements at any month-end during 1999 and 1998 totaled $25,487 and $19,607.
The daily average of such agreements totaled $17,221 and $8,627. The weighted
average rate was 4.75% and 4.15% at December 31, 1999 and 1998, while the
weighted average rate during 1999 and 1998 was approximately 4.70% and
4.32%,respectively. The majority of the agreements at December 31, 1999 mature
within 30 days.
Note 10 -- Federal Home Loan Bank Advances
The Company had FHLB advances of $19,900 and $10,000 outstanding at December 31,
1999 and 1998. One $10,000 advance outstanding at both year ends has a floating
interest rate which was 6.18% at December 31, 1999 and matures on December 30,
2002. The other two advances outstanding at December 31,1999 of $4,900 and
$5,000 have interest rates of 5.13% and 5.54% and mature on January 7, 2000. The
FHLB advances are secured by first mortgage loans and investment securities
totaling approximately 160% of the advance under a blanket security agreement.
The advance is subject to restrictions or penalties in the event of prepayment.
Note 11 -- Notes payable
include a term note secured by 100% of the common stock of the bank subsidiaries
with a balance of $6,700.The note requires semi-annual principal payments of
$800 plus quarterly interest payments. Interest accrues at LIBOR+1.2%, which
resulted in a rate of 7.10% at year-end. The loan matures July 1, 2005. The
scheduled annual principal reductions will be $1,600 per year in years 2000
through 2003 with a final payment of $300 in 2004.
The Company had a revolving credit facility for $3,000 with a maturity of
December 31, 1999 as a standby for future funding needs. The agreement was
convertible to a five year term loan at the same rate as the loan discussed
previously and had an interest rate of 1/8 of 1% per year on the unused portion.
There was no outstanding balance at December 31, 1999.
The Company has a $200 note payable on demand with $95 outstanding at 12/31/99.
The note requires quarterly interest payments and interest accrues at the prime
rate plus .50%, which resulted in a rate of 9% at year end. The loan is
unsecured.
The Company has various installment loans secured by equipment. Balances
outstanding at 12/31/99 totaled $90. The loans call for monthly payments
totaling $4, with interest accruing at rates ranging from 8.25% to 9.45%.
Maturities range from March 2001 through January 2004. Required principal
payments of $37, $29, $12, $11 and $1 are due in 2000, 2001, 2002, 2003, and
2004.
Note 12 -- 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
31
<PAGE>
Notes to Consolidated Financial Statements (Continued)
(In Thousands Except Per Share Data)
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 8.94%) 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 13 -- 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 $181,150 and $150,523 at December 31, 1999 and 1998. The fair value of
capitalized mortgage servicing rights at December 31, 1999 and 1998 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.
- -----------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------
Mortgage servicing rights
Balance, January 1 $ 924 $ 529 $ 225
Servicing rights capitalized 470 690 469
Amortization of servicing rights (399) (295) (165)
- -----------------------------------------------------------------------
Balance, December 31 $ 995 $ 924 $ 529
- -----------------------------------------------------------------------
Note 14 -- Income Tax
No valuation allowance was necessary at anytime during 1999, 1998 and 1997.
Retained earnings of Regional Bank 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 Regional Federal Savings Bank stock or
excess dividends, or loss of "bank" status for Regional Federal Savings Bank
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 for Regional Federal Savings Bank at December 31,
1999 was approximately $735.
<TABLE>
<CAPTION>
Note 14 -- Income Tax
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense
Currently payable
Federal $ 3,355 $ 2,642 $ 3,271
State 1,009 955 1,080
Deferred
Federal (705) 119 (343)
State (63) (40) (98)
- ----------------------------------------------------------------------------------------------------------------
Total income tax expense $ 3,596 $ 3,676 $ 3,910
- ----------------------------------------------------------------------------------------------------------------
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $ 3,631 $ 3,442 $ 3,779
Tax exempt interest (671) (573) (558)
Effect of state income taxes 625 604 648
Non-deductible expenses 74 234 58
Other (63) (31) (17)
- ----------------------------------------------------------------------------------------------------------------
Actual tax expense $ 3,596 $ 3,676 $ 3,910
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
The components of the net deferred tax asset are as follows:
- --------------------------------------------------------------------------------------------------
December 31 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Allowance for loan losses $ 2,078 $ 1,602
Core deposit intangibles 200 100
Deferred compensation 124 21
Unrealized loss on securities AFS 2,964 -
- --------------------------------------------------------------------------------------------------
Total assets $ 5,366 $ 1,723
- --------------------------------------------------------------------------------------------------
Liabilities
Appreciation on securities (85) (22)
Depreciation (441) (427)
Fair value adjustments in accounting for assets acquired (482) (586)
Goodwill (65) (48)
Mortgage servicing rights (394) (393)
Unrealized gain on securities AFS - (481)
Other (63) (143)
- --------------------------------------------------------------------------------------------------
Total liabilities $ (1,530) $ (2,100)
- --------------------------------------------------------------------------------------------------
$ 3,836 $ (377)
- --------------------------------------------------------------------------------------------------
</TABLE>
Note 15 -- Other Comprehensive Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Before-Tax Tax (Expense)/ Net-of-Tax
Year Ended December 31, 1999 Amount Benefit Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities
Unrealized holding losses arising during the year $ (8,791) $ 3,448 $ (5,343)
Less: reclassification adjustment for losses realized in net income (8) 3 (5)
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (8,783) 3,445 (5,338)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Before-Tax Tax (Expense)/ Net-of-Tax
Year Ended December 31, 1998 Amount Benefit Amount
- ---------------------------------------------------------------------------------------------------------------------------
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 $ (96) $ 38 $ (58)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Before-Tax Tax (Expense)/ Net-of-Tax
Year Ended December 31, 1997 Amount 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 $ 778 $ (308) $ 470
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 16 -- 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:
- ---------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------
Commitments to extend credit $92,942 $84,352
Standby letters of credit 624 517
33
<PAGE>
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. Commitments are normally short-term and variable in
rate. 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
that arise primarily in the ordinary course of business. Management is presently
not aware of any such material claims.
Note 17 -- Stock Split
On July 31, 1998, the Company approved a 2-for-1 stock split n 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 18 -- Dividends and Capital Restrictions
Without prior approval, the Banks are restricted by Indiana law and regulatory
agencies as to the maximum amount of dividends the Banks can pay to the parent
in any calendar year to their retained net profits (as defined) for that year
and the two preceding years.
At December 31, 1999, total shareholders' equity of the Banks was $82,279 of
which $72,775 was restricted or limited from dividend distribution to the
Company. As a practical matter, the Banks may restrict dividends to a lesser
amount because of the need to maintain an adequate capital structure.
Note 19 -- 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 20 -- 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, 1999 and 1998, the Banks are
categorized as well capitalized and met all subject capital adequacy
requirements.
34
<PAGE>
Note 20 -- Regulatory Capital
<TABLE>
<CAPTION>
Required for To Be Well
Actual Adequate Capital Capitalized
- ------------------------------------------------------------------------------------------------------------------
December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Indiana United Bancorp
Total capital (to risk-weighted assets) 68,941 10.9 50,641 8.0 N/A N/A
Tier 1 capital (to risk-weighted assets) 60,678 9.6 25,320 4.0 N/A N/A
Tier 1 capital (to average assets) 60,678 6.5 37,502 4.0 N/A N/A
People's
Total capital (to risk-weighted assets) 32,798 11.7 22,444 8.0 28,055 10.0
Tier 1 capital (to risk-weighted assets) 29,410 10.5 11,222 4.0 16,833 6.0
Tier 1 capital (to average assets) 29,410 6.8 17,246 4.0 21,558 5.0
Union Bank
Total capital (to risk-weighted assets) 22,810 11.0 16,596 8.0 20,745 10.0
Tier 1 capital (to risk-weighted assets) 20,656 10.0 8,298 4.0 12,447 6.0
Tier 1 capital (to average assets) 20,656 6.7 12,395 4.0 15,494 5.0
Regional
Total risk-based capital (to risk-weighted assets) 14,213 10.9 10,410 8.0 13,012 10.0
Core capital (to adjusted tangible assets) 12,707 6.5 7,806 4.0 11,709 6.0
Core capital (to adjusted total assets) 12,707 6.5 7,806 4.0 9,758 5.0
- ------------------------------------------------------------------------------------------------------------------
Regional Bank's tangible capital at December 31, 1999 was $12,707, which amount
was 6.5 percent of tangible assets and exceeded the required ratio of 1.5
percent
Required for To Be Well
Actual Adequate Capital Capitalized
- ------------------------------------------------------------------------------------------------------------------
December 31, 1998 Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------
Indiana United Bancorp
Total capital (to risk-weighted assets) 74,199 13.7 43,285 8.0 N/A N/A
Tier 1 capital (to risk-weighted assets) 65,171 12.1 21,642 4.0 N/A N/A
Tier 1 capital (to average assets) 65,171 8.3 31,365 4.0 N/A N/A
People's
Total capital (to risk-weighted assets) 28,324 12.5 18,102 8.0 22,628 10.0
Tier 1 capital (to risk-weighted assets) 25,495 11.2 9,051 4.0 13,577 6.0
Tier 1 capital (to average assets) 25,495 7.8 13,006 4.0 16,258 5.0
Union Bank
Total capital (to risk-weighted assets) 20,969 11.4 14,707 8.0 18,384 10.0
Tier 1 capital (to risk-weighted assets) 18,993 10.3 7,354 4.0 11,030 6.0
Tier 1 capital (to average assets) 18,993 6.9 11,063 4.0 13,829 5.0
Regional
Total risk-based capital (to risk-weighted assets) 14,174 12.9 8,792 8.0 10,990 10.0
Core capital (to adjusted tangible assets) 13,135 7.3 7,240 4.0 10,860 6.0
Core capital (to adjusted total assets) 13,135 7.3 7,240 4.0 9,050 5.0
- ------------------------------------------------------------------------------------------------------------------
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
</TABLE>
35
<PAGE>
Note 21 -- 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 $951 in 1999, $736 in 1998, and $529 in 1997.
Note 22 -- 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, 1999 $3,000
Changes in composition of related parties (161)
New loans, including renewals and advances 1,133
Payments etc., including renewals (1,926)
- ------------------------------------------------------
Balances, December 31, 1999 $2,046
- ------------------------------------------------------
Deposits from related parties held by the company at December 31, 1999 and 1998
totaled $1,126 and $763
Note 23 -- 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 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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Assumptions applicable to options in 1996
- -------------------------------------------------------------------------------------
<S> <C>
Risk-free interest rates 6.50%
Dividend yields 2.31%
Volatility factors of expected market price of commons stock 1.00%
Weighted-average expected life of the options 9 years
Fair value of options granted in 1996 $3.23
</TABLE>
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense of the options
vesting period. The pro forma effect on net income and earnings per share of
this statement as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $ 7,082 $ 6,448 $ 7,205
Pro forma 7,082 6,433 7,194
Basic earnings per share As reported 1.47 1.36 1.53
Pro forma 1.47 1.35 1.53
Diluted earnings per share As reported 1.47 1.35 1.52
Pro forma 1.47 1.35 1.52
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998
- -------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year - - 66,072 7.88
Granted - - -
Exercised - - (66,072) 7.88
--------------
---------------
Outstanding, end of year -
Options exercisable at year end -
- -------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Note 24 - Earnings Per Share Earnings per share were computed as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Weighted
Average Per- Share
Year Ended December 31, 1999 Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income available to common shareholders $ 7,082 4,822,069 $ 1.47
Effect of dilutive stock options -
---------------
Diluted Earnings Per Share
Net income available to common shareholders
and assumed conversions $ 7,082 4,822,069 $ 1.47
---------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
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
---------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
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
---------------------------------------------------
</TABLE>
37
<PAGE>
Note 25 -- 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 non-interest-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 and Notes Payable - The interest rates for short-term
borrowings and variable rate notes payable 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 for 1999.
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:
Note 25 Fair Values of Financial Instruments
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 33,960 $ 33,960 $ 45,435 $45,435.00
Interest-bearing time deposits 998 998 1,498 1,498
Securities available for sale 225,486 225,486 178,008 178,008
Securities held to maturity 17,788 17,632 19,591 20,016
Loans including loans held for sale, net 644,059 637,377 544,277 546,419
Stock in FHLB 2,231 2,231 2,120 2,120
Income receivable 8,532 8,532 7,044 7,044
Deposits (824,385) (829,983) (709,871) (713,412)
Borrowings
Short-term (40,064) (40,064) (20,032) (20,032)
FHLB advances (19,900) (19,900) (10,000) (10,270)
Long term (6,885) (6,885) - -
Interest payable (4,010) (4,010) (4,032) (4,032)
Trust preferred secutities (22,425) (18,781) (22,425) (23,827)
</TABLE>
Note 26 -- Condensed Financial Information (Parent only) Presented on the
opposite page is condensed financial information as to financial position,
results of operations and cash flows of the Company:.
38
<PAGE>
Condensed Statement of Cash Flows Parent Only
<TABLE>
<CAPTION>
Year Ended December 31 (In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 7,082 $ 6,448 $7,205
(Undistributed) income of subidiaries (1,724) (7,738) (3,867)
Changes in other assets and liabilities (1,589) (177) 120
-----------------------------------
Net cash provided (used) by operating activities 3,769 (1,467) 3,458
Investing Activities
Capital contributed to subsidiary (13,500) (7,000) -
Purchases of equipment (218) (154) (15)
Proceeds from sale of equipment 14 - -
Proceeds from sale of security AFS - 1,087 -
Purchase of security AFS - - (1,087)
-----------------------------------
Net cash provided (used) by investing activities (13,704) (6,067) (1,102)
Financing Activities
Payments on notes payable (1,300) - (5,500)
Proceeds from notes payable 8,000 - -
Net proceeds from issuance of debentures - - 21,892
Purchase of IUB Capital Trust common shares - - (694)
Proceeds from issuance of stock - 521 34
Cash dividends (3,095) (2,721) (2,104)
-----------------------------------
Net cash provided (used) by financing activities 3,605 (2,200) 13,628
Net change in cash and cash equivalents (6,330) (9,734) 15,984
Cash and cash equivalents, beginning of period 8,167 17,901 1,917
-----------------------------------
-----------------------------------
Cash and cash equivalents, end of period $1,837 $8,167 $17,901
===================================
</TABLE>
39
<PAGE>
Officers and Directors
Indiana United Bancorp
Directors
Robert E. Hoptry
Chairman
Indiana United Bancorp
Robert S. Dunevant
Vice Chairman
Indiana United Bancorp
President
Unity Company
James L. Saner, Sr.
President and CEO
Indiana United Bancorp
Eric E. Anderson
President and CEO
Anderson Insurance and
Financial Services
John E. Back
Retired
William G. Barron
Chairman and President
Wm. G. Barron Enterprises, Inc.
Dale J. Deffner
Retired
Philip A. Frantz
Attorney at Law; Partner
Coldren and Frantz
Edward J. Zoeller
President
E.M. Cummings Veneer, Inc.
Officers
Robert E. Hoptry
Chairman
James L. Saner, Sr.
President and CEO
Michael K. Bauer
Vice President
Donald A. Benziger
Senior Vice President and CFO
C. Brian Coy
Chief Information Officer
B. Sue Fawbush
Vice President,
Director of Human Resources
Dennis M. Flack
Vice President, Director of
Training and Sales Management
Lynn T. Gordon
Vice President
Suzanne Kendall
Corporate Auditor
Dawn M. Schwering
Director of Marketing
Daryl R. Tressler
Vice President
Union Bank
Directors
Daryl R. Tressler
Chairman, President and CEO
Union Bank and Trust Company
of Indiana
William G. Barron
Chairman and President
Wm. G. Barron Enterprises
Philip A. Frantz
Attorney at Law; Partner
Coldren and Frantz
Robert E. Hoptry
Chairman
Indiana United Bancorp
David L. Miers
Manager
Miers Farm Corporation
Lawrence R. Rueff, D.V.M.
President
Swine Veterinary Services
John G. Young
Retired
Division Managers
W. Brent Hoptry
Senior Vice President
Lending Division
Glenn R. Raver
Senior Vice President
Retail Services Divisions
Daniel F. Anderson
Vice President
Senior Trust Officer
People's Trust Company
Directors
Dale J. Deffner
Chairman
People's Trust Company
Retired
Lynn T. Gordon
President and CEO
People's Trust Company
Mark W. Dunevant
Senior Vice President,
Retail Lending
People's Trust Company
Dieter Johnsen
Owner
Dieter K.H. Johnsen, Inc.
Larry A. Johnson
Retired
James L. Saner, Sr.
President and CEO
Indiana United Bancorp
John G. Seale
Partner
Rettig, Blankman, Mack and Seale
Accounting Firm
Norman Winkler
Farmer
Division Managers
Elaine Cook
Senior Vice President
Retail /Deposit Services Division
Mark W. Dunevant
Senior Vice President
Retail Lending Division
L. Les Estep
Senior Vice President
Commercial Lending Division
John C. Parker
Senior Vice President
Data Processing and
Operations Division
Regional Bank
Directors
Michael K. Bauer
Chairman, President and CEO
Regional Federal Savings Bank
William G. Barron
Chairman and President
Wm. G. Barron Enterprises
D.J. Hines
President
Schuler Bauer Realty
Michael J. Kapfhammer
President
Buckhead Mountain Grill
Charles E. MacGregor
Attorney at Law
Wyatt, Tarrant and Combs
Edward J. Zoeller
President
E.M. Cummings Veneer, Inc.
Division Managers
Larry W. Brumley
Senior Vice President
Lending Division
James S. Honour, Jr.
Vice President
Retail Services Division
The Insurance Group, Inc.
Directors
James L. Saner, Sr.
Chairman
The Insurance Group, Inc.
President and CEO
Indiana United Bancorp
C. Todd Anderson
President
The Insurance Group, Inc.
Daryl R. Tressler
Chairman, President and CEO
Union Bank and Trust Company
of Indiana
Michael K. Bauer
Chairman, President and CEO
Regional Federal Savings Bank
Lynn T. Gordon
President and CEO
People's Trust Company
Division Managers
Doug Loy
Coordinator
Union Insurance Agency -
Portland, IN
Dee Knueven
Coordinator
Union Insurance Agency -
Greensburg, IN
Lisa Rudd
Coordinator
The Anderson Group -
Owensboro, KY.
Report designed by Black & White Design, Louisville, Kentucky
<PAGE>
Shareholder Information
Annual Meeting
Wednesday, May 31, 2000, 10:00 AM
Conference Center, Second Floor
Union Bank and Trust Company
201 N. Broadway
Greensburg, IN 47240
Corporate Address
Indiana United Bancorp
201 N. Broadway
PO Box 87
Greensburg, IN 47240-9979
Tel: 812-663-0157
Fax: 812-663-4812
www.2iub.com
Form 10-K
Copies of the Company's 1999 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
Investor Relations Department
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-9982
Tel: (800) 368-5948
Common Shares
The Common shares of the Company are listed on The Nasdaq Stock Market(R). The
trading symbol is IUBC. In newspaper listings, Company shares are frequently
listed as IndUtd.
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.
Sandler O'Neill & Partners, L.P.
The range of known per share prices by calendar quarter, based on actual
transactions, excluding commissions, is shown below.
1999 Q4 Q3 Q2 Q1
- -------------------------------------------------------------
High $20.69 $23.00 $21.13 $23.50
Low $17.13 $18.13 $17.00 $21.00
Last Sale $18.75 $20.63 $18.88 $21.00
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
The following dividends per share were paid by Indiana United Bancorp.
1999 Q4 Q3 Q2 Q1
- -----------------------------------------------------------------
$ .160 $ .160 $ .160 $ .160
1998 Q4 Q3 Q2 Q1
- -----------------------------------------------------------------
$ .155 $ .145 $ .145 $ .140
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
Tel: 812-663-0157
Fax: 812-663-4812
www.2iub.com201
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
Regional Pioneer Indiana
IUB Reinsurance Co., Ltd., a Turks and Caicos Islands corporation
EXHIBIT (23.1)--CONSENT OF CROWE, CHIZEK AND COMPANY LLP
We consent to the incorporation by reference in the Registration Statements on
Form S-8 and Form S-4 of Indiana United Bancorp, File Nos. 33-45395 and
333-33032, respectively, of our report, dated February 4, 2000, on the
consolidated financial statements of Indiana United Bancorp as of and for the
year ended December 31, 1999, which report is incorporated by reference in this
Form 10-K.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
March 30, 2000
EXHIBIT (23.2)--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 1999 Annual Report on Form 10-K of Indiana United Bancorp.
Olive LLP
Indianapolis, Indiana
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999
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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 33,530
<INT-BEARING-DEPOSITS> 1,028
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 225,486
<INVESTMENTS-CARRYING> 17,788
<INVESTMENTS-MARKET> 17,632
<LOANS> 643,227
<ALLOWANCE> 7,049
<TOTAL-ASSETS> 978,893
<DEPOSITS> 824,385
<SHORT-TERM> 40,064
<LIABILITIES-OTHER> 48,350
<LONG-TERM> 6,885
0
0
<COMMON> 2,428
<OTHER-SE> 56,781
<TOTAL-LIABILITIES-AND-EQUITY> 978,893
<INTEREST-LOAN> 49,646
<INTEREST-INVEST> 14,547
<INTEREST-OTHER> 1,130
<INTEREST-TOTAL> 65,323
<INTEREST-DEPOSIT> 30,186
<INTEREST-EXPENSE> 34,076
<INTEREST-INCOME-NET> 31,247
<LOAN-LOSSES> 1,641
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 25,036
<INCOME-PRETAX> 10,678
<INCOME-PRE-EXTRAORDINARY> 7,082
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,082
<EPS-BASIC> 1.47
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 3.76
<LOANS-NON> 3,465
<LOANS-PAST> 373
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,099
<CHARGE-OFFS> 1,079
<RECOVERIES> 388
<ALLOWANCE-CLOSE> 7,049
<ALLOWANCE-DOMESTIC> 5,357
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,692
</TABLE>
EXHIBIT (99)--OPINION OF OLIVE LLP
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 the related consolidated statements of
income, shareholders' equity and cash flows for each of the two 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 year
then ended have been restated to reflect the pooling of interest with P.T.C.
Bancorp as described in Note 2 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 for the year 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 year 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 the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Olive LLP
Indianapolis, Indiana
January 29, 1999
