FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
or
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission File Number 0-23134
PEOPLES BANK CORPORATION OF INDIANAPOLIS
(Exact name of registrant as specified in its charter)
INDIANA 35-1681096
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification Number)
130 East Market Street, Indianapolis, Indiana 46204
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(317) 237-8059
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Nonvoting Common Shares, without par value
(Title of Class)
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405,
Regulation S-K (ss. 229.405 of this chapter) 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. o
The aggregate market value of the 17,628 shares of the issuer's voting stock
held by non-affiliates, as of March 24, 1997, was $758,004 (assuming the Voting
Common Shares have a value equal to the Nonvoting Common Shares).
The number of Nonvoting Common Shares of the Registrant, without par value,
outstanding as of March 24, 1997, was 1,431,042 shares. The number of Voting
Common Shares of the Registrant, without par value, as of such date was 140,000.
Exhibit Index on Page 62
Page 1 of 50 Pages
1
<PAGE>
PART I
Item 1. Business
Overview
Peoples Bank Corporation of Indianapolis (the "Company") is a one bank
holding company which owns Peoples Bank & Trust Company ("Peoples"). Peoples has
operated continuously since 1891 and its business activities are concentrated in
the greater Indianapolis, Indiana area. Peoples offers a broad range of lending,
deposit, loan servicing and trust services to individual, governmental and
commercial customers. Peoples conducts its business through its downtown
Indianapolis headquarters and through 12 offices located throughout the greater
Indianapolis area. Peoples is the largest and oldest locally owned and
headquartered commercial bank in Indianapolis.
The Company operates under a conservative management philosophy and is
dedicated to providing personal service coupled with competitive products and
pricing. Management believes that the acquisition of the three largest
Indianapolis-based commercial banks by out-of-state holding companies during the
last several years enables the Company to distinguish itself from competitors
based on its established reputation, local ownership and local decision making
authority.
Focusing on developing strong, primary banking relationships with
businesses and individuals in its market area, Peoples generally limits its
lending activities to the greater Indianapolis area. Peoples focuses its
commercial lending efforts on small and medium-sized independent companies and
its real estate lending on owner-occupied commercial properties and one-to-four
family residential properties. Peoples' loan underwriting and review functions
are centralized to provide consistency and timely asset quality monitoring.
Peoples' loan portfolio is diversified, locally oriented and does not include
any foreign loans.
The Company's principal office is located at 130 East Market Street,
Indianapolis, Indiana, 46204.
Market Area
Peoples' market area is the greater Indianapolis area which includes
Marion County, Indiana and certain contiguous townships. Indianapolis has
experienced significant employment growth in recent years. According to the 1990
Census, Marion County had a total population of approximately 800,000,
representing an increase of over 4% since 1980. Employment in Marion County is
concentrated in the following industries: durable and nondurable goods
manufacturing, retail, financial and real estate services, health, education and
professional services, public administration and transportation.
Peoples' service area is highly competitive. The four largest banks in
Marion County, each of which is controlled out-of-state, carry a substantial
majority of the total deposits of banks and thrifts in the County. Management
estimates that Peoples' market share is currently between 2% and 3% of deposits
with financial institutions in Marion County. In addition to competition from
commercial banks and savings associations, Peoples also competes with numerous
credit unions, finance companies, insurance companies, mortgage companies,
securities and brokerage firms, money market mutual funds, loan production
offices and other providers of financial services generally. Some of Peoples'
competitors, including certain regional bank holding companies which have
operations in Peoples' market area, have substantially greater resources than
Peoples, may have higher lending limits and may offer other services not
available through Peoples. Peoples also faces significant competition,
particularly with respect to interest rates paid on deposit accounts, from
certain local thrift institutions. Peoples competes on the basis of rates of
interest charged on loans, the rates of interest paid for funds, the
availability, quality and diversity of services and responsiveness to the needs
of its customers.
Lending Activities
Focusing on developing strong, primary banking relationships with
businesses and individuals in its market area, Peoples generally limits its
lending activities to the greater Indianapolis area. Peoples focuses its
commercial lending efforts on small and medium-sized companies and its real
estate lending on owner-occupied commercial properties and one-to-four family
residential properties.
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Loans
Peoples provides loans to both individuals and businesses principally
within the greater Indianapolis area. Peoples has no material concentration of
loans to any single borrower or industry nor does it have any foreign loans.
The amount of loans outstanding (excluding loans held for sale) and the
percent of the total represented by each type on the dates indicated are
reflected in the following table.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction............. $ 23,644 7.10% $ 31,965 11.79% $ 19,162 8.94% $ 9,978 5.81% $ 6,522 4.30%
Mortgage................. 75,247 22.60 72,852 26.87 48,021 22.40 34,287 19.95 35,999 23.74
Commercial loans......... 156,755 47.08 97,914 36.12 78,870 36.79 68,394 39.80 57,173 37.70
Consumer................. 75,187 22.58 66,132 24.40 65,722 30.66 56,094 32.64 48,372 31.90
Tax-exempt loans......... 2,120 0 .64 2,230 0.82 2,615 1.21 3,080 1.80 3,573 2.36
------ ------ ------ ----- ------ ----- -------- ----- ------ -----
Total loans......... 332,953 100.00% 271,093 100.00% 214,390 100.00% 171,833 100.00% 151,639 100.00%
======= ====== ====== ====== =======
Less: Allowance for
loan losses......... $ 3,900 3,290 2,704 2,513 2,288
------ ------ ------ -------- ------
Net loans................ $329,053 $267,803 $211,686 $169,320 $149,351
======== ======= ======= ======= =======
</TABLE>
3
<PAGE>
The loan portfolio, excluding loans held for sale, at December 31, 1996
was comprised of approximately 54.82% commercial loans, 22.60% mortgage loans
and 22.58% consumer loans. Peoples had no "highly leveraged transactions," as
defined by the banking regulators, and no foreign loans. Peoples generally does
not lend outside its market area and historically has not acquired participation
interests from other financial institutions. State law restricts the amount
Peoples can loan to one borrower, generally to 15% of capital and unimpaired
surplus, or $6.2 million at December 31, 1996.
Commercial Loans. Commercial loans account for the largest portion of
the loan portfolio. Commercial lending is generally considered to have higher
credit risk than other forms of credit because of the higher average dollar
amount of individual credits and the risk associated with potential diminution
of the value of special purpose collateral (which often serves as security on
commercial loans) in economic downturns. Commercial loans are made to a diverse
group of professional, industrial, and service business customers. Commercial
loans include working capital lines of credit, revolving credit loans, term
loans (generally not to exceed 7 years), single payment or short-term loans,
Small Business Administration loans (on which the SBA guarantees between 75% and
90% of the principal of the loans made to eligible borrowers) and, occasionally,
commercial letters of credit and lease financing. Commercial loans may be
secured or unsecured depending on the quality of the credit.
The Company's commercial loan category also includes commercial real
estate loans. Such loans are loans to businesses or individuals where the
Company relies upon the underlying real estate for collateral and repayment. The
basis for these loans includes income-producing properties, such as office
buildings, warehouses, shopping centers or apartment buildings and construction
loans. The Company will also provide land acquisition and development loans,
such as loans to purchase land for the development of a subdivision or
condominium project. Interest rates on loans in excess of five years must be
adjustable. Construction loan terms are limited to one year and land development
loan terms are limited to two years. Peoples' policy establishes limits on the
loan-to-value ratio for loans on improved properties, construction loans and
land development loans.
Residential Real Estate Loans. Residential real estate loans consist of
loans secured by one-to-four family residential properties. During the twelve
months ended December 31, 1996, Peoples originated $59.3 million in real estate
mortgage loans. Residential real estate loans do not include loans made to
businesses to develop residential real estate, which are considered commercial
real estate loans.
Residential real estate loans originated for Peoples' portfolio are
generally adjustable rate mortgages and certain fixed rate loans. Peoples offers
one-, two-, three- and five-year adjustable rate mortgage loans with initial
fixed rate periods of one, two, three, and five years. Certain fixed rate loans
may be considered for the portfolio from time to time. These could include loans
with one rate adjustment after seven years (7/23) and 15-year fixed rate loans.
Peoples also offers residential construction loans. The construction/permanent
loan program offers combined construction and permanent financing through a
single closing. Other construction loans are made in which the borrower obtains
permanent financing through another lender.
Peoples' residential lending department is responsible for the
origination and closing of all of Peoples' residential real estate loans. In
addition to the loans described above originated for Peoples' portfolio, the
bank originates fixed-rate loans with terms up to 30 years, adjustable rate
mortgage loans with terms up to 30 years and, occasionally, seven-year balloon
loans for resale into the secondary market, generally to the Federal National
Mortgage Association ("FNMA"). Peoples retains servicing rights on substantially
all the mortgage loans it sells. At December 31, 1996, Peoples serviced, for
both its own portfolio and for others, $179.9 million in residential mortgage
loans.
In 1996, Peoples' restructured its residential lending department in
order to improve profitability within the residential mortgage loan origination
process. The staff was reduced from 22 to 9 employees, two offices were closed,
and the remaining staff was relocated to existing space at the Operations
Center.
Consumer Loans. Consumer loans offered by Peoples include home equity
line of credit loans, home improvement loans, automobile and motor vehicle loans
and other secured and unsecured personal loans. Consumer loans generally involve
a higher level of risk than residential mortgage loans, and have correspondingly
higher yields. Home equity loans are generally initiated on the same
underwriting standards as portfolio real estate mortgage loans. They generally
bear interest at adjustable rates and will only be made on the basis of a first
or second mortgage. Peoples directly reviews all loan applications and does not
engage in indirect lending through auto dealers, building contractors or similar
third parties.
Asset Quality and Provision for Loan Losses
Loan Quality. Peoples seeks to maintain a high level of asset quality
through careful underwriting and by emphasizing loan originations in its market
area. Peoples focuses its commercial lending efforts on small and medium-sized,
local, independent, commercial and professional firms, manufacturing companies
and individuals who are the owners and principals of such firms. Commercial
loans are subjected to a detailed review of the borrower's financial
performance, the value of the collateral and guarantees. Appraisals are
generally required for all real estate loans including residential mortgages and
home equity loans exceeding $10,000. Commercial loans may be approved by
Peoples' officers up to their established loan limits. Beyond these limits, the
officer responsible for the account will recommend the loan to one or more
senior executive officers.
The primary functions of loan portfolio management are assuring loan
quality, maintaining portfolio diversification and monitoring potential problem
loans. Each of Peoples' commercial loan officers is accountable for the
performance of his or her loan
4
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accounts. Each loan officer monitors his or her borrowers' performance and
compliance and receives a daily report of any loan payment on which payment is
past due. On the basis of these reports they proceed to make appropriate
contacts with any delinquent borrowers. A weekly report to management is
prepared showing the past due loans for which each officer is responsible. The
commercial loan department then meets each month to discuss the status of every
loan that is more than 15 days past due.
Through a loan rating process monitored by the credit analysis staff,
and the loan officers' ongoing monitoring of borrowers, Peoples develops its
loan "watch list." A loan may be placed on the watch list for a variety of
reasons, including an existing or continuing past due status, a change in the
borrower's financial condition, a change in an industry which could adversely
affect a borrower, a loan mentioned or classified by a regulatory agency or
independent auditor, a loan in which the collateral has been affected or any
other loan that management desires to monitor specifically.
Any loan with a rating of five through eight or with any other basis
for concern as to security or collectibility, is placed on the watch list, which
is updated weekly. Each loan officer with a loan that appears on the watch list
is responsible for preparing a plan of action for such loan. The commercial loan
department then meets quarterly to review the status of handling the past due
loans. Based on this meeting, allowance for loan losses is reviewed to determine
its adequacy. The allowance for loan losses is also reviewed by the President
monthly and the adequacy of the allowance for loan losses is evaluated quarterly
by the Board of Directors. The ongoing evaluation of potential losses includes a
review of the current financial status and credit standing of borrowers and
their prior history, an evaluation of available collateral, a review of loss
experience in relation to outstanding loans and management's judgment as to
prevailing and anticipated economic conditions, among other relevant factors.
To provide assurance that the watch list is complete and loan grades
assigned are reasonable and consistent, Peoples engages an independent loan
review provider to annually review a sample of commercial loans larger than
$350,000. During 1996, 36.05% of commercial loan dollars were subject to such a
review (using the 1996 beginning portfolio balance as the denominator).
Peoples' collection department is responsible for past due mortgage
and consumer loans. Telephone contact is made once such loans are between 5 and
10 days past due. The senior vice president for loan administration, the manager
of consumer lending and the supervisor of collections meet monthly to discuss
delinquent real estate and consumer loan accounts. At this meeting they discuss
potential foreclosures. Following this meeting the collection department
prepares plans of action for all cited problem loan accounts. Recommendations
for charge-offs based on collateral value versus loan balance and the likelihood
of continued non-payment are prepared and the decision whether to foreclose is
made.
In 1996, Peoples recorded net charge-offs of $515,000 (0.17% of average
loans) as compared to net recoveries of $50,000 (0.02% of average loans) in
1995. Peoples' ratio of nonperforming loans to total loans improved and was
0.09% of total loans at December 31, 1996 compared to 0.47% at December 31,
1995. At December 31, 1996 and December 31, 1995, Peoples' allowance for loan
losses was 1.17% and 1.20%, respectively, of total loans. The allowance for loan
losses as a percentage of nonperforming loans at December 31, 1996 and December
31, 1995 was 1,378.09% and 256.43%, respectively. See "Item 6. Selected
Consolidated Financial Data" and "Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition" for supplemental information.
Loans. During 1996, total loans increased $61.86 million or 22.82%.
During that period, commercial loans increased $50.4 million or 38.16%, consumer
loans increased $9.06 million or 13.69% and mortgage loans increased $2.40
million or 3.29%. During 1995, total loans increased $56.7 million or 26.4%.
During that period, commercial loans increased $31.46 million or 31.26%,
mortgage loans increased $24.83 million or 51.7%, and consumer loans were
relatively flat.
<PAGE>
A classification of amounts due in the periods indicated for commercial
and real estate construction loans is indicated in the following table as of
December 31, 1996. Amounts due are based on remaining scheduled repayments of
principal. Amounts due after one year are also classified according to their
sensitivity to changes in interest rates.
After 1
But
Within Within After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
Commercial....................... $59,033 $61,161 $36,561 $156,755
Real estate -- construction...... 20,407 3,237 0 23,644
------ ------- ------- --------
Total $79,440 $64,398 $36,561 $180,399
====== ====== ====== =======
Interest sensitivity:
With fixed rates............ 26,945 5,824
With variable rates......... 37,453 30,737
------ ------
Total.................. $64,398 $36,561
====== ======
Allowance for Loan Losses. The allowance for loan losses is a valuation
allowance providing for losses inherent in the loan portfolio. The allowance for
loan losses is reduced by the charge-off of loans and increased by the provision
for loan losses and by
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<PAGE>
recoveries of loans previously charged-off. The appropriate level of the
valuation allowance is determined in an ongoing process involving the credit
analysis staff, the loan officers and senior management. Specific loans are
monitored on an on-going basis and included on the watch list.
The allowance for loan losses is determined based upon characteristics
of particular groups of loans. Those characteristics include past due amounts,
historical loss trends and any other determinations made by management, credit
analysis and the loan officers. For larger loans, when any reasonable concern
exists as to the collectibility of interest or principal, the potential loss
exposures are estimated as part of the reserve analysis process. The allowance
for loan losses also includes an amount that is not specifically allocated to
particular loan categories in the event of unanticipated losses. An evaluation
of the adequacy of the level of the allowance for loan losses is performed by
the loan review officer at least quarterly. That analysis is reviewed by the
Board and senior management and an appropriate level of monthly provision for
loan losses is identified. The senior manager of lending reviews delinquent
loans with loan officers monthly or more frequently if deemed necessary.
6
<PAGE>
The following table presents information concerning the activity in the
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at
beginning of period.............. $3,290 $2,704 $2,513 $2,288 $1,710
Recoveries of loans previously
charged off:
Commercial loans................. 36 83 113 98 225
Consumer loans................... 41 92 66 69 78
Mortgage loans................... 15 0 0 0 0
----- ------ ------ ------ ------
Total recoveries............ 92 175 179 167 303
Loans charged off:
Commercial loans................. 257 103 275 199 470
Consumer loans................... 350 74 136 292 365
Mortgage loans................... 0 (52) 105 57 0
------- ------ ------ ------ ------
Total charge-offs........... 607 125 516 548 835
------ ------ ------ ------ ------
Net charge-offs............. (515) 50 (337) (381) (532)
Provision for loan losses........ 1,125 536 528 606 1,110
----- ------ ------ ------ ------
Balance of allowance at
end of period.................... $3,900 $3,290 $2,704 $2,513 $2,288
===== ===== ===== ===== =====
Net charge-offs to average
loans outstanding for period..... 0.17% (0.02)% 0.18% 0.23% 0.36%
Allowance at end of period to
loans at end of period........... 1.17 1.20 1.26 1.42 1.48
Allowance to nonperforming
loans at end of period........... 1,378.09 256.43 164.38 117.98 148.48
</TABLE>
<PAGE>
As part of its evaluation process, management allocates portions of the
allowance for loan losses to certain segments of the loan portfolio based upon
the specific review of credits and historical loss experience. The following
table presents a breakdown of the portions of the allowance for loan losses
allocated to each category of loans, the percentage of total loans that the
category comprises at the dates indicated, and the percentage of the allowance
for loan losses allocated to that category.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------ ----------------------------------- ------------------------------------
Percent of Percent of Percent of
Percent Loan Percent Loan Percent Loan
Reserve of Category to Reserve of Category to Reserve of Category to
Allocated Reserve Total Loans Allocated Reserve Total Loans Allocated Reserve Total Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans... $1,124 28.82% 54.82% $ 839 25.50% 48.73% $ 709 26.22% 46.94%
Consumer loans..... 398 10.21 22.58 350 10.64 24.40 594 21.97 30.66
Mortgage loans..... 378 9.69 22.60 377 11.46 26.87 121 4.47 22.40
Unallocated........ 2,000 51.28 N/A 1,724 52.40 N/A 1,280 47.34 N/A
------ ----- ----- ------ ------- ------ ------ ------ ------
Total.............. $3,900 100.00% 100.00% $3,290 100.00% 100.00% $2,704 100.00% 100.00%
====== ====== ====== ===== ====== ====== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
1993 1992
------------------------------------------ -----------------------------------------
Percent of Percent of
Percent Loan Percent Loan
Reserve of Category to Reserve of Category to
Allocated Reserve Total Loans Allocated Reserve Total Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans.............. $ 784 31.20% 47.41% $ 891 38.94% 44.36%
Consumer loans................ 589 23.44 32.64 677 29.59 31.90
Mortgage loans................ 194 7.72 19.95 196 8.57 23.74
Unallocated................... 946 37.64 N/A 524 22.90 N/A
------ ------- ------ ------ ------- ------
Total......................... $2,513 100.00% 100.00% $2,288 100.00% 100.00%
===== ====== ====== ===== ====== ======
</TABLE>
Management allocates the largest portion of the allowance for loan
losses to the commercial loan portfolio. The unallocated reserve increased from
$1,280,000 at December 31, 1994 to $1,724,000 at December 31, 1995, and to
$2,000,000 at December 31, 1996. This unallocated portion was 47.34% at December
31, 1994, 52.40% at December 31, 1995 and 51.28% at December 31, 1996.
Other Real Estate. Other real estate ("ORE") are properties of which
Peoples has taken possession. The carrying value of ORE was $236,000 at December
31, 1996, $240,000 at December 31, 1995 and $0 at December 31, 1994. ORE is
carried at the lower of
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cost (fair value at foreclosure) or fair value, less expected disposition cost.
All carrying costs (e.g., taxes, insurance) are expensed. Peoples generally has
annual appraisals performed on all ORE. An amount required to write down the
carrying value to appraised value is charged to income. Peoples utilizes the
services of an outside manager for ORE properties. That person maintains the
properties, provides for repairs and improvements and pursues the disposition.
Nonperforming Loans. Loans on which the Company no longer accrues
interest are referred to as "nonaccrual loans." Management places a loan on
nonaccrual status when collection of additional interest is unlikely and the
loan is not considered to be well secured and in the process of collection. When
a loan is placed on nonaccrual status, interest recognized but not received is
reversed from interest income to the extent the interest was recognized during
the current year. Interest recognized but not received in prior years is charged
against the allowance for loan losses. For the year ended December 31, 1996, the
Company recorded $3,119 of interest on loans that were on nonaccrual status at
December 31, 1996, and would have recorded approximately $27,481 had they been
accruing all year at their contractual rates.
Nonperforming loans are those loans that are on nonaccrual status, are
90 days or more past due as to principal or interest or those that are
restructured. Nonperforming assets consist of nonperforming loans and ORE. The
following table shows the principal balance of nonperforming assets at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual............................ $ 234 $ 838 $ 970 $ 1,762 $ 1,232
Contractually past due 90
days or more as to
principal or interest............ 49 445 675 368 309
Restructured.......................... 0 0 0 0 0
-------- -------- -------- -------- --------
Total nonperforming loans............. 283 1,283 1,645 2,130 1,541
Other real estate..................... 236 240 0 101 302
--- ------- -------- ------- -------
Total nonperforming assets............ $ 519 $ 1,523 $ 1,645 $ 2,231 $ 1,843
======= ======= ======= ======= =======
Total loans, including loans
held for sale.................... $333,374 $273,650 $215,151 $176,840 $154,537
Allowance for loan losses............. 3,900 3,290 2,704 2,513 2,288
Nonperforming loans to total loans.... 0.09% 0.47% 0.76% 1.20% 1.00%
Nonperforming assets to total
loans plus other real estate
owned............................ 0.16 0.56 0.76 1.26 1.19
Allowance for loan losses
to nonperforming loans........... 1,378.09 256.43 164.38 117.98 148.48
</TABLE>
As of December 31, 1996, nonperforming loans have decreased $1,000,000
or 76.93% to $0.3 million from $1.3 million at December 31, 1995. When a loan is
determined to be of such concern that nonaccrual status is warranted, management
will charge off any portion of the loan believed to be uncollectible at that
time.
<PAGE>
At December 31, 1996, excluding nonaccrual loans, loans which were 60
days or more past due were as follows:
December 31, 1996
----------------------------------------------
Commercial Mortgage Consumer
(Dollars in thousands)
60-89 days past due......... $583 $178 $101
More than 90 days
past due............... 49 0 0
Nonperforming loans have deteriorated to the point that the borrower is
no longer paying as agreed and has become 90 days or more past due or where
management, as a result of delinquent status or significant concern about the
ultimate collectibility of the loan, has ceased recognizing interest income
(nonaccrual status) on the loan. Management typically evaluates loss exposure on
these credits based on the liquidation value of the underlying collateral.
Impaired Loans. Beginning January 1, 1995, Peoples implemented
Financial Accounting Standard No. 114 ("FAS 114") which required recognition of
loan impairment and changed the accounting for such loans. Loans are considered
impaired when management determines that it is probable that the customer will
not comply with the contractual terms of the note. Peoples evaluates the
commercial business and commercial real estate loans considered during its
quarterly allowance for loan loss analysis for impairment. Residential mortgage
loans and consumer credits are not typically individually considered in that
analysis. Impaired loans are carried at the present
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<PAGE>
value of expected cash flows, discounted at the loan's effective interest rate
or at the fair value of collateral if such loans are deemed to be collateral
dependent. A portion of the allowance for loan losses is allocated to impaired
loans and changes in that allowance are elements of People's provision for loan
losses. During 1996, Peoples identified loans with an average balance of $1.1
million as impaired. At year end, $743,000 of loans were so designated and
$155,000 of the allowance was allocated to such loans. Generally, only income
received in cash is recorded as interest income after a loan has been designated
as impaired.
Other Loans of Concern. Watch category loans may include loans with
loss potential that are still performing and accruing interest and may be
current under the terms of the loan agreement. However, management has a
significant degree of concern about the borrowers' ability to continue to
perform according to the terms of the loan. Loss exposure on these loans is
also, typically, evaluated based primarily upon the estimated liquidation value
of the collateral securing the loan. Also, watch category loans include credits
which, although adequately secured and performing, reflect a past delinquency
problem or unfavorable financial trends exhibited by the borrower.
All watch list loans are subject to additional scrutiny and monitoring.
The Company's philosophy encourages loan officers to identify borrowers that
should be monitored in this fashion and believes that this process ultimately
results in the identification of problem loans in a more timely fashion.
At December 31, 1996, the Company had a total of $12.7 million of loans
on its commercial loan watch list. Loans may be placed on the watch list as a
result of delinquent status, concern about the borrower's financial condition or
the value of the collateral securing the loan, substandard classification during
regulatory examinations or simply as a result of management's desire to monitor
more closely a borrower's financial condition and performance.
Securities
Peoples' securities portfolio is maintained in high quality, liquid,
short to medium-term securities. The goal of Peoples' investment policy is to
maximize return over the long term in a manner consistent with Peoples'
liquidity requirements, its asset and liability management strategies and safety
of principal. Peoples seeks to maintain a relatively short overall portfolio
maturity to reflect interest-earning characteristics more consistent with its
deposit base. Generally, no securities are purchased with maturities greater
than seven years, except that municipal obligations with terms up to (or a put
feature exercisable after) 15 years are allowed.
Peoples' securities policy is established by the Board of Directors and
monitored by the Investment Policy Committee consisting of four executive
officers and a Board member.
The Company's securities portfolio includes U.S. Treasury securities,
obligations of U.S. government agencies, obligations of states and political
subdivisions, corporate investments and mortgage-backed investments issued by
U.S. government agencies and other intermediaries. Effective January 1, 1994,
the Company was required by Financial Accounting Standard No. 115 to designate
as "available-for-sale" securities that might be sold in response to liquidity
needs or for asset/liability management purposes. Such securities are required
to be carried at fair value, with the resultant unrealized gain or loss
reflected, net of tax, as a component of shareholders' equity. All other
securities are designated as held-to-maturity securities because management has
the positive intent and ability to hold such securities until maturity. Such
securities continue to be carried at amortized cost. At December 31, 1996, all
securities were considered "available for sale."
The maturities of securities are a principal source of funds for loan
growth and other liquidity needs. The following table illustrates, based on the
date of maturity or repricing, the amortized cost and the weighted average yield
of securities held as of December 31, 1996. As of such date, the Company held no
securities with maturities over ten years. The maturity classification for
mortgage-backed investments is determined by the estimated average life. Refer
to Note 2 of the Company's consolidated financial statements for additional
information.
9
<PAGE>
<TABLE>
<CAPTION>
Less than 1 to 5 5 to 10 More than
1 Year Years Years 10 Years
---------------- ------------------ ------------------ -----------------
Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligation of U.S.
government
agencies and
government
sponsored agencies... $15,997 5.79% $ --- ---% $ --- ---% $ --- ---% $15,997
Obligations of states
and political
subdivisions......... 4,949 4.65 20,616 5.55 6,650 5.38 --- --- 32,215
Debt securities issued
by foreign
governments.......... 75 8.01 --- --- --- --- --- --- 75
Corporate securities...... 3,507 6.98 --- --- --- --- --- --- 3,507
Mortgage-backed
investments.......... 29,711 6.07 12,610 6.51 --- --- --- --- 42,321
------ ---- ------ ---- ------- ------- ------- ------- ------
Total..................... $54,239 5.92% $33,226 5.9% $6,650 5.38% $ --- ---% $94,115
====== ====== ====== ======== ======
</TABLE>
The following tables present, by category of investment and
designation, the carrying value of securities at the dates indicated.
Carrying Value
December 31,
------------------------
1994
Held-to-maturity securities: (Dollars in thousands)
Obligations of U.S. government agencies
and government-sponsored agencies................ $ 29,420
Obligations of states and political subdivisions...... 34,702
Debt securities issued by foreign governments......... 75
Corporate securities.................................. 4,412
Mortgage-backed investments:
Issued by U.S. government agencies............... 42,182
Issued by other corporate entities............... 3,032
-------
Total $113,823
========
10
<PAGE>
<TABLE>
<CAPTION>
Carrying Value
December 31,
----------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Available-for sale securities:
U.S. Treasury securities.................... $ 7,031 $ 19,100 $46,172
Obligations of U.S. Government
agencies and government
sponsored agencies..................... 8,989 8,980 ---
Obligations of states and
political subdivisions................. 32,634 38,173 9,005
Mortgage-backed investments:
Issued by U.S. Government
agencies.......................... 41,620 35,589 ---
Issued by other corporate
entities.......................... 731 2,289 ---
Debt securities issued by foreign
governments............................ 75 70 ---
Corporate securities........................ 3,509 3,544 ---
------- ------- -------
Total securities.................. $94,589 $107,745 $55,177
====== ======= ======
</TABLE>
The Company has no concentration in securities of any single issuer
except that a majority of the municipal portfolio consists of issuers of bonds
with taxing authority on properties in the State of Indiana. The Company's
investment in U.S. Government securities and government agencies exceeds 10% of
its shareholders' equity.
Sources of Funds
Deposits. Deposits represent the primary source of funds for Peoples.
Deposits are attracted principally from within the greater Indianapolis area
through the offering of a broad selection of deposit instruments including
non-interest-bearing and interest-bearing checking accounts, money market
accounts, fixed and variable rate certificates of deposit, individual retirement
accounts and regular savings accounts. Peoples does not actively solicit or
advertise for deposits outside the greater Indianapolis area. Deposit account
terms vary with principal differences being the minimum balance required, the
amount of time the funds remain on deposit and the interest rate, if any.
Interest rates are established by Peoples generally on a weekly basis. The
determination of rates and other terms (such as maturities, service fees and
withdrawal penalties) is predicated on rates paid and terms offered by
competitors and Peoples' funds acquisition and liquidity requirements.
The following reflects the non-interest-bearing and interest-bearing
components of deposits at the respective dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Deposits:
<S> <C> <C> <C>
Non-interest bearing........... $ 83,911 $ 67,966 $ 74,190
Interest-bearing............... 327,894 283,796 272,387
------- ------- -------
Total deposits...................... $411,805 $351,762 $346,577
======= ======= =======
Total deposits/total assets......... 87.34% 84.35% 81.53%
</TABLE>
<PAGE>
Peoples regularly accepts interest-bearing deposits issued in
denominations of $100,000 or more. Balances of certificates of deposit of
$100,000 or more were $13.6 million at December 31, 1996 and $15.5 million at
December 31, 1995. The time remaining until maturity of time certificates of
deposit of $100,000 or more at such dates was as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
---- ----
(In thousands)
Maturity distribution of time certificates in amounts of $100,000 or more:
<S> <C> <C>
Three months or less......................................... $ 5,196 $ 5,361
Over three months to six months.............................. 2,000 2,213
Over six months.............................................. 2,599 2,781
Over twelve months........................................... 3,811 5,165
------ -------
Total................................................... $13,606 $15,520
====== ======
</TABLE>
Short-Term Borrowings. Summary information regarding repurchase
agreements, which comprised the majority of Peoples' short-term borrowings
during 1996, is presented below. Such agreements provide customers with the
opportunity to make short-term investments of sums, usually in excess of
$100,000, secured by obligations of the U.S. Treasury or a U.S.
government-sponsored agency. These agreements are generally short-term and have
been a relatively stable source of funds for Peoples.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Repurchase agreements:
Average for the year:
<S> <C> <C> <C>
Amount outstanding.......................................... $11,964 $26,413 $30,314
Weighted average interest rate......................... 4.69% 5.95% 4.19%
At year-end:
Amount outstanding..................................... $10,266 $16,056 $17,361
Weighted average interest rate......................... 4.38% 4.95% 5.32%
Maximum amount outstanding at any
month-end during the year.............................. $14,052 $46,578 $40,910
</TABLE>
Trust Operations
Peoples' Trust and Investment Management Group offers a variety of
fiduciary and trust services and provides a growing source of fee income to
Peoples. Trust fees were $1,342,000 in 1996, $1,304,000 in 1995 and $1,213,000
in 1994. This reflects increases for 1996 and 1995 of $38,000 (2.9%) and $91,000
(7.5%), respectively. Trust assets were $427 million at December 31, 1996,
$376.1 million at December 31, 1995 and $325.8 million at December 31, 1994.
Peoples' Trust and Investment Management Group serves as trustee or agent for
over 200 employee benefit plans, is trustee for over 500 personal trust
accounts, estates and guardianships and provides a variety of corporate trust
and agency services. The Trust and Investment Management Group obtains referrals
from existing customers, attorneys and accountants, and is actively seeking to
develop new business, especially among non-profit corporations and employee
benefit plans. The Company believes that opportunities exist for growth in Trust
and Investment Management activities.
Employees
As of December 31, 1996, the Company and Peoples had approximately 188
full-time and 27 part-time employees. During the third quarter of 1995, Peoples
developed new procedures and reorganized some operations to lower overall
non-interest expense. The improvements were based on recommendations from staff
members throughout the organization, and resulted in the elimination of some
positions. While many of these positions were vacant, several employees were
displaced. As a result, the overall number of employees has declined by
approximately 10% since December 31, 1994. The Company also implemented a profit
sharing initiative during 1995 designed to share increases in profitability with
eligible employees. While payment under the plan is entirely at management's
discretion, specific goals are established for all departments which are tied to
the overall profitability of the bank. Due to an increase of $2,544,000 in
pre-tax profits during 1996, management paid out awards to all qualified
employees totaling nearly $263,000. Bankwide employee turnover decreased from
32% to 28% in 1996, with teller turnover decreasing from 55% to 45%. Several
employee benefits were improved upon in 1996, including long-term disability and
health insurance in order to remain competitive in the marketplace and to enable
the bank to attract and retain qualified employees. Additional improvements are
planned for Peoples' 401(k) Profit Sharing Plan.
The Company considers its employee relationships to be good.
<PAGE>
Electronic Data Processing
In 1990, Peoples purchased two IBM AS400 computers and new banking
software when it established its Operations Center on the north side of
Indianapolis. These changes have enabled Peoples to achieve substantial
efficiencies in electronic data processing ("EDP") and to keep pace with
developments in the financial services industry by continuing to offer new
competitive financial services and products. An example is Peoples' "Cash
Manager" account which offers both checking and investment features through a
"sweep" arrangement. Peoples has enhanced this commercial service by adding the
first Windows based PC-based cash management service. This product has proven to
be attractive to business customers.
The Company has an established technology maximization committee to
keep abreast of technological developments and to consider new products and more
efficient ways to employ the technological capabilities.
Peoples offers 24-hour telephone banking that provides balance inquiry
and funds transfer. Peoples Bank has 12 ATMs and is affiliated with the MAC
network which affords Peoples' customers access to MAC ATMs nationwide as well
as all Cirrus ATMs worldwide. Peoples has introduced a check card affording
customers the ability to use their ATM cards at all merchants accepting VISA.
This capability is expected to increase usage of the ATM card and generate
additional fee revenues.
11
<PAGE>
The primary focus in continually improving the Company's technological
capabilities is to provide better response to customers and those involved in
providing service to customers. In that regard, Peoples also continually
develops its PC-based technology so that many operational functions can be
performed without utilizing valuable mainframe time. Peoples continually
utilizes several PC-based networks and plans to expand "on-line" capabilities in
the future for customer access.
Peoples owns substantially all of its EDP equipment and performs all of
its own data processing services. Its existing EDP capabilities will accommodate
substantial expansion of Peoples' operations.
Supervision and Regulation
Bank Holding Company Regulation. The Company is registered as a bank
holding company, and is subject to the regulations of the Board of Governors of
the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956, as amended ("BHCA"). Bank holding companies are required to file
periodic reports with and are subject to periodic examination by the Federal
Reserve. The Federal Reserve has issued regulations under the BHCA requiring a
bank holding company to serve as a source of financial and managerial strength
to its subsidiary banks. It is the policy of the Federal Reserve that, pursuant
to this requirement, a bank holding company should stand ready to use its
resources to provide adequate capital funds to its subsidiary banks during
periods of financial stress or adversity. Additionally, under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" (as defined in the
statute) with the terms of any capital restoration plan filed by such subsidiary
with its appropriate federal banking agency up to the lesser of (i) an amount
equal to 5% of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount that is necessary (or would have been
necessary) to bring the institution into compliance with all applicable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under the BHCA, the Federal Reserve has the authority to
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
Under the BHCA, a bank holding company must obtain Federal Reserve
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
Prior to September 29, 1995, the BHCA prohibited the Federal Reserve
from approving any direct or indirect acquisition by a bank holding company of
more than 5% of the voting shares, or of all or substantially all of the assets,
of a bank located outside of the state in which the operations of the bank
holding company's banking subsidiaries are principally located unless the laws
of the state in which the bank to be acquired is located specifically authorize
such an acquisition. Pursuant to amendments to the BHCA which took effect
September 29, 1995, the Federal Reserve may now allow a bank holding company to
acquire banks located in any state of the United States without regard to
geographic restriction or reciprocity requirements imposed by state law, but
subject to certain conditions, including limitations on the aggregate amount of
deposits that may be held by the acquiring holding company and all of its
insured depository institution affiliates and state law provisions requiring the
target bank to have existed for some period of time (not exceeding five years)
prior to the date of acquisition.
The BHCA also prohibits the Company, with certain exceptions noted
below, from acquiring direct or indirect ownership or control of more than 5% of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the Federal Reserve to be "so closely related to banking . .
. as to be a proper incident thereto." Under current regulations of the Federal
Reserve, the Company and any non-bank subsidiaries it may control are permitted
to engage in, among other activities, such banking-related businesses as the
operation of a thrift, the operation of a trust company, sales, and consumer
finance, equipment leasing, the operation of a computer service bureau,
including software development, and mortgage banking and brokerage. The BHCA
does not place territorial restrictions on the activities of non-bank
subsidiaries of bank holding companies.
<PAGE>
Capital Adequacy Guidelines for Bank Holding Companies. The Federal
Reserve is the federal regulatory and examining authority for bank holding
companies. The Federal Reserve has adopted capital adequacy guidelines for bank
holding companies.
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines which require a minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities
such as standby letters of credit) of 8%. At least half of the total required
capital must be "Tier I capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier II
Capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier I (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier I
capital to average
12
<PAGE>
total consolidated assets of 3% in the case of bank holding companies which have
the highest regulatory examination ratings and are not contemplating significant
growth or expansion. All other bank holding companies are expected to maintain a
ratio of at least 1% to 2% above the stated minimum.
The Company and Peoples are required to comply with capital
requirements promulgated by their primary regulators that affect their ability
to pay dividends and can affect their operations. Those regulations require the
maintenance of specified levels of capital (as defined) to total assets (the
leverage ratio) and to risk weighted assets (the risk-based capital ratio).
These regulations require the maintenance of a leverage ratio of at least 3.00%
(only for the most sound institutions, others will be required to maintain 4% or
5%) and a total risk-based capital ratio of at least 8.00%.
Further, regulations promulgated by the FDIC identify five levels of
capitalization. A financial institution's deposit insurance assessment and, in
certain circumstances, operations will be affected by their capital level.
Institutions with leverage ratios of 5.00% or greater and total risk-based
capital ratios of 10.00% or more are deemed to be "well capitalized," and
accordingly, pay the lowest deposit insurance assessment and are not subject to
operational restrictions as outlined within the regulation. Under those
regulations, financial institutions with leverage and total risk-based capital
ratios less than 4.00% and 8.00%, respectively, are subject to expanded
regulatory oversight.
The Company and Peoples were in full compliance with all regulatory
capital requirements at December 31, 1996. The following table indicates the
Company's actual capital levels at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Total assets (1).............................. $471,192 $416,781 $426,058
Risk-based assets............................. 346,971 301,426 274,940
Tier I capital................................ 45,063 41,398 39,460
Total capital................................. 48,963 44,688 42,164
Leverage ratio................................ 9.62% 9.93% 9.26%
Tier I risk-based capital ratio............... 12.99 13.73 14.35
Total risk-based capital ratio................ 14.11 14.83 15.34
</TABLE>
(1) Adjusted to exclude net unrealized gain/loss on available-for-sale
securities.
Bank Regulation. Peoples is organized under the laws of Indiana and as
such is subject to the supervision of the Indiana Department of Financial
Institutions ("DFI"), whose examiners conduct periodic examinations of state
banks. Peoples is not a member of the Federal Reserve System, so its primary
Federal regulator is the FDIC, which also conducts periodic examinations of the
bank. Peoples' deposits are insured by the Bank Insurance Fund ("BIF")
administered by the FDIC and are subject to FDIC's rules and regulations
respecting the insurance of deposits. See "--Deposit Insurance."
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things, to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging
as principal in activities that are not permitted for national banks, unless:
(i) the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards. The Company does not
believe that these restrictions will have a material adverse effect on its
current operations.
<PAGE>
Federal Home Loan Bank System. During 1994, Peoples was approved for
membership in the Federal Home Loan Bank ("FHLB") System. FHLB membership will
provide Peoples with a ready source from which to borrow short-term funds from
time to time. The FHLB System consists of 12 regional banks. The Federal Housing
Finance Board ("FHFB"), an independent agency, controls the FHLB System
including the FHLB of Indianapolis. The FHLB System provides a central credit
facility primarily for member savings and loan associations and savings banks
and other member financial institutions. Peoples is required to hold shares of
capital stock in the FHLB of Indianapolis in an amount at least equal to the
greater of 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations at the end of
each calendar year, 0.3% of its assets or 1/20 (or such greater fraction
established by the FHLB) of outstanding FHLB advances, commitments, lines of
credit and letters of credit. Peoples is currently in compliance with this
requirement. At December 31, 1996, Peoples' investment in stock of the FHLB of
Indianapolis was $1.7 million.
In past years, Peoples has received dividends on its FHLB stock. All 12
FHLBs are required by law to provide funds for the resolution of troubled
savings associations and to establish affordable housing programs through direct
loans or interest subsidies on advances to members to be used for lending at
subsidized interest rates for low- and moderate-income, owner-occupied housing
projects, affordable rental housing, and certain other community projects. These
contributions and obligations could adversely affect the FHLBs'
13
<PAGE>
ability to pay dividends and the value of FHLB stock in the future. For the year
ended December 31, 1996, dividends paid to Peoples by the FHLB of Indianapolis
totaled $133,708 for an annual rate of 7.83%.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Eligible collateral includes first mortgage loans less
than 90 days delinquent or securities evidencing interests therein, securities
(including mortgage-backed securities) issued, insured or guaranteed by the
federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. Other forms of collateral may be accepted as
over collateralization or, under certain circumstances, to renew outstanding
advances. All long-term advances must be used to provide funds for residential
home financing and the FHLB has established standards of community service that
members must meet to maintain access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the
cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.
Bank Capital Requirements. The FDIC has adopted risk-based capital
ratio guidelines to which Peoples is subject. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations.
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet commitments to four risk weighted categories, with higher
levels of capital being required for the categories perceived as representing
greater risk.
Like the capital guidelines established by the Federal Reserve for the
Company, these guidelines divide a bank's capital into two tiers. The first tier
("Tier I") includes common equity, certain non-cumulative perpetual preferred
stock (excluding auction rate issues) and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets
(except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary ("Tier II") capital includes,
among other items, cumulative perpetual and long-term limited life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debt and the allowance for loan and lease losses, subject to
certain limitations, less required deductions. Banks are required to maintain a
total risk-based capital ratio of 8%, of which 4% must be Tier I capital. The
FDIC may, however, set higher capital requirements when a bank's particular
circumstances warrant. Banks experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions, well
above the minimum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier
I leverage ratio (Tier I capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
Certain regulatory capital ratios under the FDIC's risk-based capital
guidelines for Peoples at December 31, 1996 are shown below:
December 31, 1996
Tier I Capital to Risk-Weighted Assets..................... 10.94%
Total Risk-Based Capital to Risk-Weighted Assets........... 12.07
Tier I Leverage Ratio...................................... 8.14
14
<PAGE>
Dividend Limitations. Under Federal Reserve supervisory policy, a bank
holding company generally should not maintain its existing rate of cash
dividends on common shares unless (i) the organization's net income available to
common shareholders over the past year has been sufficient to fully fund the
dividends and (ii) the prospective rate of earnings retention appears consistent
with the organization's capital needs, asset quality, and overall financial
condition. The Company's Board of Directors has adopted a policy consistent with
these guidelines. The FDIC also has authority under the Financial Institutions
Supervisory Act to prohibit a bank from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice in light of
the financial condition of the bank.
Under Indiana law, the Company is precluded from paying cash dividends
if, after giving effect to such dividends, the Company would be unable to pay
its debts as they become due or the Company's total assets would be less than
its liabilities and obligations to preferential shareholders. Under Indiana law,
Peoples may pay dividends so long as its capital is unimpaired and it has
unimpaired retained surplus equal to 25% of capital. Dividends may not exceed
undivided profits on hand (less losses, bad debts and expenses). The most
stringent capital requirements affecting Peoples, however, are those established
by the prompt corrective action provisions of FDICIA, which are discussed below.
Peoples' capital levels currently exceed the criteria established to be
designated as a "well capitalized" institution. Such institutions are required
to have a total risk-based capital ratio of 10% or greater, a Tier I risk-based
capital ratio of 6% or greater and a leverage ratio of 5% or greater. At
December 31, 1996, Peoples' total risk-based capital, Tier I risk-based capital
and leverage capital exceeded the amounts required to be designated "well
capitalized" by $7.1 million, $17.1 million and $14.6 million, respectively.
Lending Limits. Under Indiana law, the total loans and extensions of
credit by an Indiana-chartered bank to a borrower outstanding at one time and
not fully secured may not exceed 15% of such bank's capital and unimpaired
surplus. An additional amount up to 10% of the bank's capital and unimpaired
surplus may be loaned to the same borrower if such loan is fully secured by
readily marketable collateral having a market value, as determined by reliable
and continuously available price quotations, at least equal to the amount of
such additional loans outstanding.
Limitations on Rates Paid for Deposits. Regulations promulgated by the
FDIC pursuant to FDICIA place limitations on the ability of insured depository
institutions to accept, renew or roll over deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institution's normal market area. Under these
regulations, "well-capitalized" depository institutions may accept, renew or
roll such deposits over without restriction, "adequately capitalized" depository
institutions may accept, renew or roll such deposits over with a waiver from the
FDIC (subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew or roll such
deposits over. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definition adopted by the agencies to implement the corrective action
provisions of FDICIA. Peoples does not believe that these regulations will have
a materially adverse effect on its current operations.
Safety and Soundness Standards. On August 9, 1995, the federal banking
agencies final safety and soundness standards for all insured depository
institutions became effective. The standards, which were issued in the form of
guidelines rather than regulations, relate to internal controls, information
systems, internal audit systems, loan underwriting and documentation,
compensation and interest rate exposure. In general, the standards are designed
to assist the federal banking agencies in identifying and addressing problems at
insured depository institutions before capital becomes impaired. If an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan may result in enforcement proceedings. Additional
standards on earnings and classified assets are expected to be issued in the
near future.
Branching and Acquisitions or Dispositions. Establishment of branches
is subject to approval of the DFI and FDIC and geographic limits established by
state laws. Indiana branch banking law permits a bank having its principal place
of business in the State of Indiana to establish branch offices in any county in
Indiana without geographic restrictions. A bank may also merge with any national
or state chartered bank located anywhere in the State of Indiana without
geographic restrictions.
<PAGE>
Indiana banks and savings associations are permitted to acquire other
Indiana banks and savings associations and to establish branches throughout
Indiana. In addition, The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to
acquire banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion. The Indiana Branching Law became effective March 15, 1996,
provided that prior to June 1, 1997 interstate mergers and de novo branches are
not permitted to out-of-state banks unless the laws of their home states permit
Indiana banks to merge or establish de novo branches on a reciprocal basis.
Transactions with Affiliates. Peoples is subject to Sections 22(h), 23A
and 23B of the Federal Reserve Act which restrict financial transactions between
banks and affiliated companies. The statute limits credit transactions between a
bank and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
FDICIA. FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, FDICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC adopted regulations to implement the prompt corrective action
provisions of FDICIA, effective December 19, 1992. Among other things, the
regulations define the relevant capital measures for the five capital
categories. An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
I risk-based capital ratio of 4% or greater, and generally a leverage ratio 4%
or greater. An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%; and (d)
"significantly undercapitalized" if it has a total risk-based capital ratio of
less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage
ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. If an "undercapitalized" bank
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. "Significantly undercapitalized" banks are subject to one or
more of a number of requirements and restrictions, including an order by the
FDIC to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cease receipt of deposits from
correspondent banks, and restrictions on compensation of executive officers.
"Critically undercapitalized" institutions may not, beginning 60 days after
becoming "critically undercapitalized", make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
Deposit Insurance. Peoples' deposits are insured up to $100,000 per
insured account by the Bank Insurance Fund ("BIF") of the FDIC. As an
institution whose deposits are insured by the BIF, Peoples is required to pay
deposit insurance premiums to the BIF.
The FDIC administers two separate insurance funds, the BIF for
commercial banks and state savings banks and the Savings Association Insurance
Fund ("SAIF") for savings associations and banks that have acquired deposits
from savings associations. The FDIC is required to maintain designated levels of
reserves in each fund. As of September 30, 1996, the reserves of the SAIF were
below the level required by law, primarily because a significant portion of the
assessments paid into the SAIF has been used to pay the cost of prior thrift
failures, while the reserves of the BIF met the level required by law in May,
1995.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and members of the SAIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to the target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk- based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. Such risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because of the differing reserve levels of the SAIF and the BIF, the deposit
insurance assessments paid by healthy BIF-insured institutions were reduced over
time so as to be significantly lower than the level paid by healthy SAIF-insured
institutions. However, in 1996, provisions designed to recapitalize the SAIF and
eliminate the premium disparity between the BIF and SAIF were signed into law.
On September 30, 1996, President Clinton signed into law legislation
which included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
members of SAIF were charged a one-time special assessment based on assessable
deposits at March 31, 1995. BIF institutions pay only 20% of the rate being paid
by SAIF institutions on their deposits with respect to obligations issued by the
federally-chartered corporation which provided financing to resolve the thrift
crisis in the 1980's ("FICO"). As a result, BIF institutions such as Peoples pay
lower assessments than comparable SAIF institutions.
15
<PAGE>
Federal Securities Law. The Nonvoting Common Shares of the Company are
registered with the SEC under the 1934 Act. The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC thereunder.
Community Reinvestment Act Matters. Federal law requires that ratings
of depository institutions under the Community Reinvestment Act of 1977 ("CRA")
be disclosed. The disclosure includes both a four-unit descriptive rating --
outstanding, satisfactory, needs to improve, and substantial noncompliance --
and a written evaluation of each institution's performance. Each FHLB is
required to establish standards of community investment or service that its
members must maintain for continued access to long-term advances from the FHLBs.
The standards take into account a member's performance under the CRA and its
record of lending to first-time home buyers. The examiners have determined that
Peoples has a satisfactory record of meeting community credit needs.
Limitations on Repurchase of Common Stock of Holding Company.
Regulations promulgated by the Federal Reserve provide that a bank holding
company must file written notice with the Federal Reserve prior to any
repurchase of its equity securities if the gross consideration for the purchase,
when aggregated with the net consideration paid by the bank holding company for
all repurchases during the preceding 12 months, is equal to 10% or more of the
bank holding company's consolidated net worth. This notice requirement is not
applicable, however, to a bank holding company that exceeds the thresholds
established for a well capitalized state member bank and that satisfies certain
other regulatory requirements.
Under Indiana law, the Company will be precluded from repurchasing its
equity securities if, after giving effect to such repurchase, the Company would
be unable to pay its debts as they become due or the Company's assets would be
less than its liabilities and obligations to preferential shareholders.
Additional Matters. In addition to the matters discussed above, the
Company and Peoples are subject to additional regulation of their activities,
including a variety of consumer protection regulations affecting their lending,
deposit and collection activities and regulations affecting secondary mortgage
market activities.
The earnings of financial institutions, including the Company and
Peoples, are also affected by general economic conditions and prevailing
interest rates, both domestic and foreign and by the monetary and fiscal
policies of the U.S. Government and its various agencies, particularly the
Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, the Indiana General
Assembly and various regulatory agencies, including those referred to above. It
cannot be predicted with certainty whether such legislation or administrative
action will be enacted or the extent to which the banking industry in general or
the Company and Peoples in particular would be affected thereby.
16
<PAGE>
Item 2. Properties.
The Company's executive offices are located at Peoples' main office
building. Peoples owns the main office building through a wholly-owned
subsidiary. The main office building is a twelve story building located in
downtown Indianapolis. The main office branch is located on the first level of
the building and, in addition, Peoples occupies the second, third, fourth and
fifth floors. The Board Room and training area are located on the twelfth floor.
All other areas are leased to other tenants.
At December 31, 1996, Peoples operated 13 customer service offices, 8
of which are owned (including the main office) and 6 of which are leased under
lease agreements with remaining terms (including renewal options) ranging from
0.6 to 23.3 years. The Company will develop plans and analyze opportunities to
expand its number of locations if the expansion appears to represent a
profitable opportunity. Peoples also leases its operations center on the north
side of Indianapolis for a term (including renewal options) ending 2010. During
1996, Peoples closed its southside mortgage office. The northside mortgage
office was closed on January 17, 1997.
The following table provides certain information with respect to
Peoples' properties as of December 31, 1996. All offices listed are located in
Indianapolis, Indiana.
Approximate
Year Opened "ART" ATM Square
Description and Address or Acquired Location Footage
Main Office
130 East Market Street 1905 ATM 3,500
Castleton Office
6071 East 82nd Street 1983 ATM 3,400
Chapel Hill Office (1)
7365 West 10th Street 1965 ATM 3.200
College Park Office (2)
8910 Wesleyan Road 1985 ATM 6,647
Lafayette Road Office (1)
2802 Lafayette Road 1956 ATM 3,200
Greenwood Place Office
7921 South U.S. Hwy. 31 1986 ATM 3.520
Lawrence Office
6909 East 38th Street 1951 ATM 3,275
Madison/Thompson Office
4940 Madison Avenue 1963 ATM 2,800
71st & Keystone Office
2411 East 71st Street 1967 ATM 2.000
West 86th Street Office
1851 West 86th Street 1970 ATM 3.525
Winona Office (1)
3266 North Meridian 1970 2,000
Washington Square Office (1)
10001 East Washington Street 1995 ATM 2,801
Operations Center (1)
5840 West 74th Street 1990 21,905
Peoples Mortgage Office-Northside 1994 7,380
9002 Purdue Road, Suite 100
(1) Leased facility.
(2) Includes 2,927 square feet leased to a tenant through July 1998
Peoples has 24-hour automatic teller machines ("ATMs") at eleven of its
branches as indicated above. The automatic teller machines operate under the
trade name "ART". Peoples' ATMs participate in the nationwide CIRRUS and MAC ATM
networks. See "Item 1. Business--Electronic Data Processing."
Peoples owns substantially all of its computer and data processing
equipment used for transaction processing, accounting, financial forecasting,
loan documentation and all other data processing and reporting services. The
main data processing facility is at the Operations Center.
Item 3. Legal Proceedings.
From time to time the Company or Peoples is subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted in the
ordinary course of business. While any litigation involves an element of
uncertainty, in the opinion of
17
<PAGE>
management, liabilities, if any, arising from such litigation or threat thereof
will not have a material effect on the financial position or results of
operations of the Company or Peoples.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Nonvoting Common Shares are quoted on the Nasdaq National Market under
the symbol "PPLS." The following table sets forth the high and low bid prices
per Nonvoting Common Share between January 1, 1995 and March 10, 1997.
Trading Period High Low
- -------------- ---- ---
1/1/95 - 3/27/95 21 7/8 19
4/1/95 - 6/30/95 20 1/2 19
7/1/95 - 9/30/95 24 19
10/1/95 - 12/31/95 25 1/4 23 1/4
1/1/96 - 3/31/96 29 1/2 24 1/4
4/1/96 - 6/30/96 30 1/4 24 3/4
7/1/96 - 9/30/96 34 1/4 28 1/2
10/1/96 - 12/31/96 36 3/4 33
1/1/97 - 3/10/97 44 35
As of March 10, 1997, there were 224 holders of record of the Company's
Nonvoting Common Shares, of which 1,430,962 were issued and outstanding. As of
such date, there were 37 holders of record of the Company's Voting Common
Shares, of which 140,000 were issued and outstanding. The market for Voting
Common Shares is inactive and management has no plans to list the Voting Common
Shares on Nasdaq or any exchange.
The Company has paid cash dividends on its Common Shares every year
since it was formed in 1986 and Peoples paid regular dividends for many years
prior thereto. The per share amount of cash dividends declared for each quarter
since the first quarter of 1995 are as follows:
Cash Dividends
Calendar Quarter Per Common Share
- ---------------- ----------------
1995
First Quarter........................................ $0.1700
Second Quarter....................................... 0.1700
Third Quarter........................................ 0.1800
Fourth Quarter....................................... 0.1800
1996
First Quarter........................................ $0.1800
Second Quarter....................................... 0.1800
Third Quarter........................................ 0.1900
Fourth Quarter....................................... 0.2000
On March 20, 1997, the Company declared a dividend of $0.21 per share
payable to shareholders of record March 31, 1997. The Company currently
anticipates paying quarterly cash dividends at the rate indicated above,
although the payment of dividends is subject to the discretion of the Board of
Directors. The declaration of future dividends will depend on, among other
things, the earnings, financial condition and cash requirements of the Company
at the time such payment is considered, and on the ability of the Company to
receive dividends from Peoples the amount of which is subject to regulatory
limitations.
Item 6. Selected Consolidated Financial Data.
The following table sets forth certain selected financial information
reflecting the operations and financial condition of the Company for each year
in the five year period ended December 31, 1996. This data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" included elsewhere herein.
18
<PAGE>
<TABLE>
<CAPTION>
As Of and For The
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Consolidated Statements of Income Data:
<S> <C> <C> <C> <C> <C>
Interest income.............................. $32,251 $31,034 $24,806 $23,132 $25,169
Interest expense............................. 14,044 14,869 10,462 8,747 10,315
------ ------ ------ ----- ------
Net interest income........................ 18,207 16,165 14,344 14,385 14,854
Provision for loan losses.................... 1,125 536 528 606 1,110
------ ------- ------- ------- -----
Net interest income after
provision for loan losses............... 17,082 15,629 13,816 13,779 13,744
Other operating income....................... 5,437 4,868 4,819 4,912 4,651
Other operating expense 14,794 15,316 14,885 13,293 13,195
------ ------ ------ ------ ------
Income before income taxes
and cumulative effect of change in
accounting method (1)................... 7,725 5,181 3,750 5,398 5,200
Income taxes................................. 2,316 1,295 865 1,676 1,730
----- ----- ------ ----- -----
Income before cumulative effect of
change in accounting method (1)......... 5,409 3,886 2,885 3,722 3,470
Cumulative effect of change in
accounting method (1)...................... 0 0 0 100 0
------- ------- ------- ------- -------
Net income.............................. $5,409 $3,886 $2,885 $3,822 $3,470
===== ===== ===== ===== =====
Consolidated Balance Sheets Data:
Assets....................................... $471,478 $417,019 $425,075 $366,304 $350,741
Held-to-maturity securities.................. --- --- 113,823 100,349 114,066
Available-for-sale securities................ 94,589 107,745 55,177 43,939 44,402
Loans held for sale.......................... 421 2,557 761 5,007 2,898
Total loans.................................. 332,953 271,093 214,390 171,833 151,639
Allowance for loan losses.................... 3,900 3,290 2,704 2,513 2,288
Deposits..................................... 411,805 351,762 346,577 315,074 308,562
Shareholders' equity......................... 45,349 41,636 38,477 29,216 25,842
Average shares outstanding................... 1,584,130 1,595,322 1,682,021 1,274,012 1,370,740
Per Share Data:
Income before cumulative effect of
change in accounting method (1)............ $3.41 $2.44 $1.72 $2.92 $2.53
Net income................................... $3.41 2.44 1.72 3.00 2.53
Cash dividends declared...................... 0.75 0.70 0.66 0.35 0.21
Book value (2)............................... 28.83 26.19 23.63 22.93 20.28
Other Statistics and Operating Data:
Return on average assets..................... 1.22% 0.89% 0.73% 1.05% 1.01%
Return on average equity..................... 12.92 9.70 7.56 14.16 13.86
Net interest margin (3)...................... 4.64 4.27 4.21 4.61 4.92
Efficiency ratio (4)......................... 60.32 69.18 73.48 66.01 65.81
Average loans to average deposits............ 76.27 70.65 57.75 54.02 50.97
Dividend payout ratio........................ 21.91 28.64 38.37 11.66 8.30
Allowance for loan losses to loans
at the end of period....................... 1.17 1.20 1.26 1.42 1.48
Allowance for loan losses to non-
performing loans........................... 1,378.09 256.43 164.38 117.98 148.48
Nonperforming loans to loans
at the end of period....................... 0.09 0.47 0.76 1.20 1.00
Net charge-offs to average loans............. 0.17 (0.02) 0.18 0.23 0.36
Number of offices.......................... 13 15 15 13 13
Capital Ratios:
Average shareholders' equity to
average assets............................. 9.41% 9.14% 9.62% 7.45% 7.27%
Leverage ratio............................... 9.62 9.93 9.26 7.98 7.37
Total risk-based capital ratio............... 14.11 14.83 15.34 14.44 14.03
- --------------------
</TABLE>
(footnotes on following page)
19
<PAGE>
- ----------------
(1) Effective January 1, 1993, the Company adopted Financial Accounting
Standard No, 109, Accounting for Income Taxes.
(2) Based on Common Shares outstanding at the end of the period.
(3) Net interest income as a percentage of average interest-earning assets,
on a fully tax equivalent basis.
(4) The efficiency ratio is calculated by dividing non-interest expense by
the sum of net interest income, on a fully tax equivalent basis, and
recurring non-interest income.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The business of Peoples Bank Corporation ("the Company") consists of holding
and administering its interest in Peoples Bank & Trust Company ("Peoples"). The
principal business of Peoples consists of attracting deposits from consumer and
commercial customers and making loans to individuals and businesses. Peoples
offers various products for depositors, including checking and savings accounts,
certificates of deposit and safe deposit boxes. Loans consist principally of
loans to individuals secured by mortgage liens on residential properties,
consumer loans generally secured by liens on personal property, and loans to
businesses generally secured by liens on business assets such as inventory,
accounts receivable, commercial real estate and other property. Peoples also
offers trust services to individuals, businesses and institutions. Peoples
operates 12 banking offices in Indianapolis, and an operations center on the
north side of Indianapolis. The Company will develop plans and analyze
opportunities to expand its number of locations if the expansion appears to
represent a profitable opportunity.
Earnings Summary
The Company's net income for 1996 was $5,409,000, compared with net income
for 1995 of $3,886,000, an increase of $1,523,000 or 39.2%. Net income for 1994
was $2,885,000. Earnings per share were $3.41 in 1996, $2.44 for 1995, and $1.72
for 1994. The number of shares used in the computation of earnings per common
share were 1,584,130 shares in 1996, 1,595,322 shares in 1995, 1,682,021 and
shares in 1994.
Net Interest Income
Net interest income is the principal component of net income for the Company
and is determined by the relative size and characteristics of interest-earnings
assets and interest-bearing liabilities. For the years ended December 31, 1996,
1995, and 1994, net interest income was $18,207,000, $16,165,000, and
$14,344,000, respectively. This represents an increase in 1996 of $2,042,000
(12.6% ), and an increase in 1995 of $1,821,000 (12.7%). Increased net interest
income contributed significantly to the net income growth during the period.
Average earning assets increased to $411,119,000 in 1996 from $404,590,000
in 1995, an increase of $6,529,000 (1.6%). Average loans increased $37,815,000
(14.6%) to $296,310,000 in 1996. Increasing loan balances drove the increase in
net interest income during 1996. The increase in average loan balances continues
management's strategy of redeploying earning assets from the securities
portfolio into the higher yielding loan portfolio. The average yield on loans
remained stable, at 8.86% for 1996 compared to 8.91% for 1995. The following
table (next page) sets forth, for the periods indicated, information regarding
the average balances of interest-earning assets and interest-bearing
liabilities, the dollar amount of interest income and interest expense, and the
resulting yield on average earning assets and rates on average interest-bearing
liabilities. Average balances are also provided for non-earning assets,
non-interest-bearing liabilities and shareholders' equity.
Net interest income also depends on the rates earned on assets and paid on
liabilities. The net interest margin represents net interest income as a percent
of average earning assets. The net interest margin increased to 4.43% in 1996
from 4.00% in 1995, and 3.91% in 1994. The most significant reason for the
ongoing improvement in net interest margin was the shift in asset mix toward
loans. In addition, during 1996 the rates paid on savings deposits were reduced,
and that was accomplished without significant loss of balances.
20
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-earning
deposits..... $ 833 $ 45 5.40% $ 384 $ 22 5.73% $ 0 $ 0 0.00%
Federal funds sold 15,995 844 5.28 7,530 444 5.90 7,591 300 3.96
Securities:
Taxable...... 62,814 3,372 5.37 99,280 5,614 5.65 129,651 7,013 5.41
Tax-exempt... 35,167 1,779 5.06 38,901 1,984 5.10 39,413 1,973 5.01
Loans (net of
unearned
income) (1). 294,141 26,074 8.86 256,035 22,805 8.91 187,128 15,371 8.21
Tax-exempt
loans........ 2,169 137 6.32 2,460 165 6.71 2,846 149 5.24
--------- -------- --------- -------- ------- --------
Total interest-
earning assets 411,119 32,251 7.84 404,590 31,034 7.67 366,629 24,806 6.77
Nonearning assets:
Cash and due
from banks.. 24,571 22,743 20,143
Bank premises
and equipment,
net.......... 7,127 8,461 7,819
Other Nonearning
assets....... 5,957 5,782 4,872
Allowance for
loans losses. (3,634) (3,091) (2,723)
----- ------- -------
Total assets. $445,140 $438,485 $396,740
======= ======= =======
LIABILITIES AND
EQUITY
Interest-bearing
liabilities:
Transaction
accounts..... $ 37,342 $772 2.07% $ 37,488 $778 2.08 $ 41,684 $859 2.06%
Savings
deposits..... 168,726 6,483 3.84 147,281 6,087 4.13 149,480 4,879 3.26
Time
deposits 103,597 6,216 6.00 106,279 6,305 5.93 73,719 3,333 4.52
Short-term
borrowings... 12,222 573 4.69 29,941 1,699 5.67 32,937 1,391 4.22
------- ------ -------- ------- -------- --------
Total interest
bearing
liabilities - 321,887 14,044 4.36 320,989 14,869 4.63 297,820 10,462 3.51
------ ------ ------
Non-interest-bearin
liabilities:
Demand deposits. 78,825 74,816 58,877
Other liabilities 2,556 2,612 1,863
Shareholder's equity 41,872 40,068 38,180
------ ------ ------
Total liabilities
and share-
holders' equity $445,140 $438,485 $396,740
======= ======= =======
Net interest income 18,207 16,165 14,344
Net interest spread 3.48% 3.04% 3.26%
Net interest margin 4.43 4.00 3.91
Tax-equivalent
data: (2)
Tax-equivalent
adjustment... 880 1,107 1,093
-------- ------- -------
Adjusted net
net interest
income....... $ 19,087 $ 17,272 $ 15,437
========= ========= =========
Net interest
spread....... 3.70% 3.31% 3.55%
Net interest 4.64 4.27 4.21
margin.......
- --------------------
</TABLE>
21
<PAGE>
(1) Average total loans include non-accrual loans and loan income includes
loan fee income on loans held in the loan portfolio.
(2) Tax-equivalent adjustment is computed using a 34% effective tax rate
for all periods presented.
The following table presents information regarding the Company's
interest income and interest expense for the periods indicated. The table
presents the change in interest income or interest expense which is attributable
to the change in the average balance (volume) and the change in interest income
or interest expense which is related to change in rates. Changes in balances
were responsible for an increase in net interest income of $1,864,000 during
1996 as asset balances shifted from the securities portfolio to the loan
portfolio and changes in rates resulted in an increase of $178,000 in net
interest income as declines in pricing on deposits more than offset lower rates
on loans and investments.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------- -------------------------------
Change Change Change Change
Total Due To Due To Total Due To Due To
Change Volume Rate Change Volume Rate
(In thousands)
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits .... $ 23 $ 24 $ (1) $ 22 $ 22 $ 0
Federal funds sold ........... 400 451 (51) 144 (2) 146
Securities:
Taxable ................. (2,242) (1,970) (272) (1,399) (1,686) 287
Tax exempt .............. (205) (189) (16) 11 (26) 37
Loans ........................ 3,269 3,378 (109) 7,434 5,649 1,785
Tax exempt loans ............. (28) (19) (9) 16 (23) 39
------- ------- ------- ------- ------- -------
Total interest income.... 1,217 1,675 (458) 6,228 3,934 2,294
======= ======= ======= ======= ======= =======
Interest expense:
Transaction accounts .......... (6) (3) (3) (81) (85) 4
Savings deposits .............. 396 844 (448) 1,208 (73) 1,281
Time deposits ................. (89) (160) 71 2,972 1,473 1,499
Short-term borrowings ......... (1,126) (870) (256) 308 (126) 434
------- ------- ------- ------- ------- -------
Total interest expense.... (825) (189) (636) 4,407 1,189 3,218
------- ------- ------- ------- ------- -------
Net interest income ........... $ 2,042 $ 1,864 $ 178 $ 1,821 $ 2,745 $ (924)
======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
Non-Interest Income
Non-interest income was $5,437,000 in 1996, $4,868,000 in 1995, and
$4,819,000 in 1994. This reflected an increase in 1996 of $569,000 (11.7%) and
an increase in 1995 of $49,000 (1.0%). Trust fees increased both in 1996 and
1995, $38,000 (2.9%) and $91,000 (7.5%), respectively. The increase in revenue
from the Trust and Investment Management Group is reflective of the continuing
sales effort and the increased focus on growth. Management believes that the
Trust & Investment Management Group possesses a competitive advantage by
offering customers local service and management of customers' funds. Service
charges on deposit accounts and other retail related fees increased $463,000 to
$2,511,000 during 1996 compared to an increase of $74,000 during 1995. Fee
income increased for a variety of services. Fees charged to customers for
overdrawn accounts were up in 1996, as were fees charged to business customers
who did not maintain significant balances but utilized a variety of cash
management related services. Peoples Bank & Trust Company provides free access
to automated teller machines to customers who maintain checking accounts with
the bank, but implemented a fee for non-customers who use Peoples Bank automated
teller machines. This new fee produced $105,000 in revenue during 1996.
Mortgage banking revenues included net gains and losses realized when
mortgage loans were sold into the secondary market, service fee revenue earned
from servicing those loans after they are sold and, in 1995, a gain on the sale
of loan servicing rights. Mortgage banking revenue, as reflected in the
Company's financial statements, has not been reduced by the associated costs,
such as compensation expense, which is shown elsewhere within non-interest
expense. Mortgage banking revenue was $713,000 in 1996, $843,000 in 1995, and
$738,000 in 1994. This reflects a decrease in 1996 of $130,000 (15.4%) and an
increase in 1995 of $105,000 (14.2%). The sale of loan servicing rights during
1995 generated $380,000. At December 31, 1996, the Company serviced mortgage
loans with an aggregate outstanding principal balance of approximately $104
million.
The Company does not engage in the purchase and sale of securities with
the intent to generate gains. The Company may sell available-for-sale securities
for liquidity or to manage its asset/liability position. During 1996, such
sales, as well as gains and losses realized when securities were called prior to
their maturity, generated net losses of $63,000 compared to net losses in 1995
of $112,000 and net gains of $271,000 in 1994.
Non-Interest Expense
Non-interest expense, or overhead, includes the costs of personnel,
occupancy, equipment, insurance, and other costs of sustaining operations.
Overhead for the years ended December 31, 1996, 1995, and 1994, was $14,794,000,
$15,316,000, and $14,885,000, respectively. This reflects a decrease of $522,000
(3.4%) in 1996 compared to an increase of $431,000 (2.9%) in 1995. The decrease
in non-interest expense, which was accomplished while net interest income was
growing, was an important contributor to the increase in net income for 1996.
More than half of total non-interest expense is comprised of salaries and
employee benefits. Salaries and employee benefit expense decreased $564,000
(6.6%) in 1996 compared to an increase of $714,000 (9.1%) in 1995. During the
third quarter of 1995, Peoples developed new procedures and reorganized certain
operations with a goal of improving process efficiency and lowering overall
non-interest expense. The improvements were based on recommendations from staff
members throughout the organization, and were a major driver of lower
non-interest expense. Advertising expense decreased $106,000 in 1996 following a
decrease of $385,000 in 1995. During 1994, the Company conducted an image
campaign to increase local awareness and to support its sales efforts. Since
that time, advertising had been targeted to selected audiences and growth has
continued at strong rates. FDIC
23
<PAGE>
insurance expense was $2,000 during 1996, down from $386,000 during 1995 and
$703,000 during 1994. This decline occurred due to a significant reduction in
the assessment rate during 1995 and 1996. However, that rate will be increased
in 1997 and FDIC insurance expense will increase, though it is anticipated to be
less than 1995's level.
Income Taxes
The Company's income tax expense was affected primarily by the level of
pre-tax income. As income increased, tax expense did as well. Tax expense for
1996 increased $1,021,000 in 1996 following an increase of $430,000 during 1995.
The Company can and does purchase tax-free securities and originates tax-free
loans as a means of generating tax-free income, effectively mitigating tax
expense. The Company also has invested in several low income housing tax
partnerships with the intent of generating lower income tax expense in future
years in addition to serving the community by providing subsidized housing for
lower income families.
Net deferred tax assets at December 31, 1996 and 1995, were $1,346,000
and $980,000. Deferred tax assets result, primarily, from book bad debt
deductions in excess of those deductible for tax purposes. The asset will be
realized as loans are charged off in future periods. Based on the Company's
historical levels of taxable income and the relatively small size of the
deferred tax assets recorded, management does not believe a valuation allowance
for those assets was needed at December 31, 1996.
Asset and Liability Management
The Company engages in a formal process of measuring and defining the
amount of interest rate risk. Interest rate risk is the effect on net interest
income resulting from changes in interest rates. The goal of the asset and
liability management process is to maintain a high, yet stable, net interest
margin by identifying the degree of interest rate risk and developing tactics
and strategies to mitigate the extent to which net interest income will be
affected by changes in interest rates.
The following tables illustrate the repricing opportunities, or "rate
sensitivity" of interest-earning assets and interest-bearing liabilities. A
repricing may occur if the rate on the asset or liability changes as interest
rates change, or, when the rate is fixed, at the time they mature. The "gap" is
the difference between rate sensitive assets and rate sensitive liabilities
within a specific time frame. Gap is considered an indicator of the effect a
change in interest rates may have on net interest income.
<PAGE>
As of December 31, 1996, the Company's rate sensitive liabilities
exceeded rate sensitive assets through one year. This would indicate that when
rates increase, net interest income may decline. In order to accurately
determine the effect of changes in interest rates, the repricing effect of each
type of interest-earning asset and interest-bearing liability must be measured.
Assets and liabilities have different characteristics and the magnitude of
change differs for each. Management continually monitors the changes to net
interest income which may result from changing interest rates.
<TABLE>
<CAPTION>
At December 31, 1996
Repriceable or Maturing Within
----------------------------------------------------------------------------------
6 Months
0 to 3 3 to 6 to 1 to 5 After 5
Months Months 1 Year Years Years Total
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans........................... $166,285 $22,887 $35,264 $102,952 $5,986 $333,374
Available for sale securities... 32,410 7,647 6,262 36,380 11,890 94,589
------ ----- ----- ------ ------ ------
Total interest-earning assets 198,695 30,534 41,526 139,332 17,876 427,963
Interest-bearing liabilities:
Transaction accounts............ 216,146 -- -- -- -- 216,146
Time deposits................... 23,741 12,133 18,080 57,480 314 111,748
Short-term borrowings........... 10,091 -- -- 175 -- 10,266
------- ------- ---- -------- ------- ------
Total interest-bearing
liabilities........... 249,978 12,133 18,080 57,655 314 $338,160
------- ------ ------ ------ ----- -------
Assets (liability) gap.......... $(51,283) $18,401 $23,446 $81,677 $17,562 $ 89,803
======= ====== ======= ====== ====== ========
Cumulative asset
(liability gap)............ $(51,283) $(32,882) $(9,436) $72,241 $89,803
Cumulative gap to total assets.. -10.88% -6.97% -2.00% 15.32% 19.05%
</TABLE>
A significant assumption that creates the large negative gap in the 0
to 3 month category is that all interest-bearing demand and savings accounts are
subject to immediate repricing. While it is true that contractually, those
accounts are subject to immediate repricing, the rates paid on those accounts
are not generally tied to specific indices and are influenced by market
conditions and other factors. Accordingly, a general movement in interest rates,
either up or down, may not have any immediate effect on the rates paid on these
deposit accounts. The foregoing table illustrates only one source of information
about sensitivity to interest rate movements. The core of the
24
<PAGE>
Company's asset and liability management process consists of simulations that
take into account the time that various assets and liabilities may reprice and
the degree to which various categories of such assets and liabilities will
respond to general interest rate movements. Interest rate risk can only be
represented by a measurement of the effects of changing interest rates given the
capacity for and magnitude of change on specific assets and liabilities.
Liquidity
Liquidity refers to the availability of funds to meet deposit
withdrawals, fund loan commitments and pay expenses. The Company's loan
portfolio, excluding loans held for sale, increased to $332,953,000 at December
31, 1996 from $271,093,000 at December 31, 1995, an increase of $61,860,000 or
22.8%. Increases in deposits provided funding for loan growth in 1996. Total
deposits at December 31, 1996 were $411,805,000, an increase of $60,043,000 from
balances of $351,762,000 at December 31, 1995.
A common measure of liquidity is the loan to deposit ratio. As of
December 31, the loan to deposit ratio was 80.9% in 1996, and 77.1% in 1995.
Increasing this ratio was an important goal for the Company's management during
1996, and significantly added to the Company's profitability by shifting assets
from lower yield securities to higher yield loans.
Loan commitments include unfunded portions of lines of credit and
commercial letters of credit. These unfunded commitments may or may not require
funding. At December 31, 1996 and 1995, such commitments totaled $94,293,000 and
$80,830,000, respectively. Loan commitments generate fee income for the Company.
Loan Quality
The Company has maintained a high level of quality in the loan
portfolio. Non-performing loans are those loans which are past due more than 90
days and still accruing interest and those loans on which the Company no longer
accrues interest. As of December 31, 1996 and 1995, non-performing loans totaled
$283,000 and $1,283,000, respectively. As a percent of total loans, including
loans held for sale, non-performing loans were .09% at December 31, 1996 and
.47% at December 31, 1995.
The provision for loan losses is a charge to earnings to provide for
potential future loan losses. The provision for loan losses was $1,125,000 in
1996, $536,000 in 1995, and $528,000 in 1994. The increase in the provision for
loan losses in 1996 had a negative impact on profitability, but was considered
necessary by management to maintain the allowance at a desirable level and
provide for the substantial loan growth during the year. The adequacy of the
allowance for loan losses is evaluated at least quarterly by management based
upon a review of identified loans with more than a normal degree of risk,
historical loss percentages, and present and forecast economic conditions
affecting borrowers. At December 31, the allowance for loan losses was
$3,900,000 for 1996, and $3,290,000 for 1995. As a percent of total loans,
including loans held for sale, the allowance for loan losses was 1.17% at
December 31, 1996 and 1.20% at December 31, 1995. Management's analysis
indicates that the allowance for loan losses at December 31, 1996 was adequate
to cover potential losses on identified loans with credit problems and on the
remaining portfolio based on historical percentages.
Gross loan charge-offs in 1996 ,1995, and 1994, were $607,000,
$125,000, and $516,000, respectively. As a percentage of average loans, gross
loan charge-offs were .21%, .05%, and .28% for those periods.
Effective January 1, 1995, the Company was required to adopt Financial
Accounting Standard No. 114 (FAS 114) which required recognition of loan
impairment. Loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. The effect of adopting
this standard is included in the provision for loan losses and was not material.
The Company's average investment in impaired loans during 1996 and 1995 was
$1,068,000 and $1,394,000 respectively. At December 31, 1996, $743,000 of loans
were deemed to be impaired and $155,000 of the allowance for loan losses was
allocated to those loans. The loans that are classified as impaired and are
still accruing interest are generally collateralized and currently making
payments. However, based on past experience with the customer and their analysis
of the situation, management believes that it is not probable that these loans
will be repaid in accordance with the contractual terms of the loan agreement.
As a result, management has classified these loan relationships as impaired.
<PAGE>
Capital Position
Both the Company and Peoples are required to comply with capital
requirements promulgated by their primary regulators. Those regulations require
the maintenance of specified levels of capital to total assets (the leverage
ratio) and to risk-weighted assets (the risk- based capital ratio). These
regulations require maintaining a minimum leverage ratio of 4% and a total
risk-based capital ratio of at least 8%.
In February, 1994, the Company completed an initial public offering of
its non-voting common shares. The net proceeds after commissions and expenses
from the sale of 450,980 shares were approximately $10.6 million. The shares
were registered for trading on the NASDAQ National Market System. During 1994
and 1995, the Company repurchased a total of 135,000 shares at prices below book
value which has the effect of enhancing book value per share for the remaining
shares. During 1996, a total of 16,780 shares were repurchased.
25
<PAGE>
The Company and Peoples were in full compliance with all regulatory capital
requirements at December 31, 1996. The following table indicates the Company's
actual capital levels at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Tier I capital........................ $45,063 $41,398 $39,460
Total capital......................... 48,963 44,688 42,164
Leverage ratio........................ 9.62% 9.93% 9.26%
Tier I risk-based capital ratio....... 12.99% 13.73% 14.35%
Total risk-based capital ratio........ 14.11% 14.83% 15.34%
</TABLE>
New Accounting Pronouncements
Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," was issued by
the Financial Accounting Standards Board in 1996. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. Management does not expect adoption of
this Standard to have a significant effect on the Company's financial position
or results of operations.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Peoples Bank Corporation of Indianapolis
Indianapolis, Indiana
We have audited the consolidated balance sheets of Peoples Bank Corporation of
Indianapolis as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Bank
Corporation of Indianapolis as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed its
methods of accounting for certain loans in 1995 and for mortgage servicing
rights in 1996.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
February 14, 1997
1.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 32,252 $ 23,377
Available-for-sale securities (Note 2) 94,589 107,745
Loans held for sale, net 421 2,557
Total loans (Note 3) 332,953 271,093
Allowance for loan losses (Note 4) (3,900) (3,290)
---------------- ---------------
Loans, net 329,053 267,803
Premises and equipment, net (Note 5) 7,923 8,744
Accrued income and other assets 7,026 6,568
Gold, at fair value 214 225
---------------- ---------------
$ 471,478 $ 417,019
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing accounts $ 83,911 $ 67,966
Savings and NOW 216,146 191,957
Time deposits (Note 6) 111,748 91,839
---------------- ---------------
Total deposits 411,805 351,762
Short-term borrowings (Note 7) 10,266 20,056
Accrued expenses and other liabilities 4,058 3,565
---------------- ---------------
Total liabilities 426,129 375,383
---------------- ---------------
Commitments and contingencies (Note 11)
Shareholders' equity Common shares, no par value:
Authorized:
Voting - 300,000 shares
Nonvoting - 4,000,000 shares
Issued:
Voting - 140,000 shares 950 950
Nonvoting - 1,433,212 shares (1996),
and 1,449,992 shares (1995) 14,775 15,334
Retained earnings 29,338 25,114
Unrealized gain on available-for-sale securities,
net of tax of $(188) and $(155) 286 238
---------------- ---------------
Total shareholders' equity 45,349 41,636
---------------- ---------------
$ 471,478 $ 417,019
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Interest income
<S> <C> <C> <C>
Loans, including related fees $ 26,211 $ 22,970 $ 15,520
Federal funds sold 889 466 300
Securities
Taxable 3,372 5,614 7,013
Tax exempt 1,779 1,984 1,973
----------- ----------- -----------
Total interest income 32,251 31,034 24,806
Interest expense
Deposits 13,471 13,170 9,071
Short-term borrowings 573 1,699 1,391
----------- ----------- -----------
Total interest expense 14,044 14,869 10,462
----------- ----------- -----------
Net interest income 18,207 16,165 14,344
Provision for loan losses (Note 4) 1,125 536 528
----------- ----------- -----------
Net interest income after provision for loan losses 17,082 15,629 13,816
Noninterest income
Trust fees 1,342 1,304 1,213
Service charges and fees 2,511 2,048 1,974
Mortgage banking revenue 713 843 738
Net gain/(loss) on securities (Note 2) (63) (112) 271
Other 934 785 623
----------- ----------- -----------
Total noninterest income 5,437 4,868 4,819
Noninterest expense
Salaries and employee benefits (Note 8) 8,029 8,593 7,879
Occupancy (net) 1,602 1,427 1,322
Equipment 1,010 1,248 1,113
FDIC insurance 2 386 703
Advertising 374 480 865
Other 3,777 3,182 3,003
----------- ----------- -----------
Total noninterest expense 14,794 15,316 14,885
----------- ----------- -----------
Income before income taxes 7,725 5,181 3,750
Income tax expense (Note 9) 2,316 1,295 865
----------- ----------- -----------
Net income $ 5,409 $ 3,886 $ 2,885
=========== =========== ===========
Net income per share (Note 10) $ 3.41 $ 2.44 $ 1.72
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net
Unrealized
Gain/(Loss) on
Common Retained Available- for-
Shares Earnings Sale Securities Total
<S> <C> <C> <C> <C>
Balance January 1, 1994 $ 8,645 $20,571 $ - $29,216
Implementation of FAS No. 115 - - 612 612
Sale of common shares (Note 1) 10,558 - - 10,558
Net income - 2,885 - 2,885
Cash dividends ($.66 per share) - (1,115) - (1,115)
Redemption of 96,376 nonvoting
shares (2,084) - - (2,084)
Change in net unrealized gain/(loss)
on available-for-sale securities - - (1,595) (1,595)
------ ------ ------ ------
Balance December 31, 1994 17,119 22,341 (983) 38,477
Net income - 3,886 - 3,886
Cash dividends ($.70 per share) - (1,113) - (1,113)
Redemption of 38,624 nonvoting
shares (835) - - (835)
Change in net unrealized gain/(loss)
on available-for-sale securities - - 1,221 1,221
------ ------ ------ ------
Balance December 31, 1995 16,284 25,114 238 41,636
Net income - 5,409 - 5,409
Cash dividends ($ .75 per share) - (1,185) - (1,185)
Redemption of 16,780 nonvoting
shares (559) - - (559)
Change in net unrealized gain/(loss)
on available-for-sale securities - - 48 48
------ ------ ------ ------
Balance December 31, 1996 $15,725 $29,338 $ 286 $45,349
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 5,409 $ 3,886 $ 2,885
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 1,032 1,252 1,136
Provision for loan losses 1,125 536 528
Net (gain)/loss on securities 63 112 (271)
Net amortization on securities 362 540 1,090
Net gain on sale of loans (488) (238) (471)
Loans originated for sale, net of sales proceeds 2,624 (1,558) 4,717
Deferred tax benefit (399) (346) (321)
Change in assets and liabilities
Interest receivable 383 298 (578)
Interest payable 141 384 222
Income tax payable 38 546 (57)
Other liabilities 321 1,121 (631)
Other assets (469) (1,138) (768)
----------- ----------- -----------
Net cash from operating activities 10,142 5,395 7,481
Cash flows from investing activities
Proceeds from maturities of held-to-maturity
securities - 21,013 37,598
Purchase of held-to-maturity securities - - (53,001)
Proceeds from sales of available-for-sale securities 8,605 36,104 13,289
Proceeds from maturities of available-for-sale
securities 49,771 16,590 14,418
Purchase of available-for-sale securities (45,566) (11,085) (39,461)
Loans made to customers, net of principal
collections thereon (62,375) (56,653) (42,948)
Property and equipment expenditures, net (211) (1,044) (1,164)
----------- ----------- -----------
Net cash from investing activities (49,776) 4,925 (71,269)
Cash flows from financing activities
Net change in deposits 60,043 5,185 31,503
Net change in short-term borrowings (9,790) (17,905) 18,416
Redemption of nonvoting shares (559) (835) (2,084)
Sale of common shares - - 10,558
Dividends paid (1,185) (1,113) (1,115)
----------- ----------- -----------
Net cash from financing activities 48,509 (14,668) 57,278
----------- ----------- -----------
Net change in cash and due from banks 8,875 (4,348) (6,510)
Cash and due from banks at beginning of year 23,377 27,725 34,235
----------- ----------- -----------
Cash and due from banks at end of year $ 32,252 $ 23,377 $ 27,725
=========== =========== ===========
Cash paid during the year for:
Interest $ 13,904 $ 14,485 $ 10,240
Income taxes (net) 2,870 1,495 1,243
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: The consolidated financial statements include the accounts
of Peoples Bank Corporation of Indianapolis ("the Company"), its wholly-owned
subsidiary, Peoples Bank & Trust Company ("Peoples") and Peoples' wholly-owned
subsidiary, Peoples Building Corporation. Upon consolidation, all significant
intercompany accounts and transactions have been eliminated.
Description of Business: The Company operates primarily in the banking industry
which accounts for more than 90% of its revenues, operating income and assets.
Peoples provides commercial and retail banking and trust services to its
customers from its main office and 12 branches located in Marion County,
Indiana. The majority of the Peoples' income is derived from commercial and
retail business lending activities and investments. The loan portfolio is
diversified and the ability of debtors to repay loans is not dependent upon any
single industry. The majority of Peoples' loans are secured by specific items of
collateral including business assets, real property and consumer assets.
Use of Estimates in Preparation of Financial Statements: Management must make
estimates and assumptions in preparing financial statements that affect the
amounts reported therein and the disclosures provided. These estimates and
assumptions may change in the future and future results could differ.
Significant areas involving the use of management's estimates and assumptions
that are more susceptible to change in the near term include the allowance for
loan losses, the fair values of certain securities, the determination and
carrying value of impaired loans and the carrying value of loans held for sale.
Sale of Common Shares: In February, 1994, the Company completed an initial
public offering of its non-voting common shares. 450,980 shares were sold at a
price of $25.50 per share. After the deduction of $942 of offering costs, the
Company received net proceeds of $10,558.
Securities: The Company identifies its securities as either held-to-maturity
securities or available-for-sale securities. Only those securities which
management has the positive intent and the Company has the ability to hold to
maturity, may be carried at amortized cost. All other securities must be
classified as "available-for-sale". Available-for-sale securities are carried at
fair value with the net unrealized holding gain or loss reflected, net of tax,
as an adjustment to shareholders' equity.
Available-for-sale securities are those securities which might be sold in the
indefinite future in connection with the execution of asset/liability management
strategies, in response to changes in interest rates, as a result of
prepayments, or for similar reasons.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: (Continued) Premium amortization is deducted from and discount
accretion is added to interest income using the level yield method. The cost of
securities sold is computed on the identified securities method.
Mortgage Banking Activities: Peoples sells certain fixed rate first mortgage
loans on the secondary market. Loans held for sale are carried at the lower of
cost or estimated fair value determined on an aggregate basis. At December 31,
1996 and 1995, the estimated fair value of loans held for sale exceeded their
cost. Mortgage banking revenue includes gains/losses realized when such loans
are sold and service fee revenue earned after the sale, offset by the
amortization of capitalized loan servicing rights.
Effective January 1, 1996, the Company adopted Financial Accounting Standard No.
122 "Accounting for Mortgage Servicing Rights". The total cost of mortgage loans
originated with the intent to sell is allocated between the loan servicing right
and the mortgage loan without servicing based on their relative fair values at
the date of origination (or date of sale). Servicing rights are expensed in
proportion to, and over the period of, estimated net servicing revenues.
Impairment is evaluated based on the fair value of the rights, using groupings
of the underlying loans as to interest rates and then, secondarily, as to
geographic and prepayment characteristics. Any impairment of a grouping is
reported as a valuation allowance.
Interest Income on Loans: Interest income is accrued over the term of the loans
based on the principal outstanding. Loans are placed on nonaccrual status when
the collection of interest becomes doubtful. Loan fees, net of certain direct
loan origination costs, are deferred and recognized as an element of interest
income over the term of the loan using the level yield method.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: (Continued) Loan impairment is reported when full
payment under the loan terms is not expected. Impairment is evaluated
collectively for smaller-balance loans of similar nature such as residential
mortgage, consumer, and credit card loans, and on an individual loan basis for
other loans. If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate. Management evaluates all loans selected
for specific review during their analysis of the allowance for loan losses for
impairment. In general, loans classified as doubtful or loss are considered
impaired while loans classified as substandard are individually evaluated for
impairment. Depending on the relative size of the credit relationship, late or
insufficient payments of 30 to 90 days will cause management to reevaluate the
credit under its normal evaluation procedures.
The carrying value of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
included in the provision for loan losses expense.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and equipment are depreciated on the
straight-line and declining-balance methods over the estimated useful lives of
the assets. Maintenance and repairs are expensed and major improvements are
capitalized.
Other Real Estate: Other real estate acquired through foreclosure is carried at
the lower of cost (fair value at foreclosure) or fair value less estimated
selling costs. Expenses incurred in carrying other real estate are charged to
operations as incurred.
Income Taxes: Deferred tax liabilities and assets are determined at each balance
sheet date. They are measured by applying enacted tax laws to future amounts
that will result from differences in the financial statement and tax basis of
assets and liabilities. Recognition of deferred tax assets is limited by the
establishment of a valuation reserve unless management concludes that they are
more likely than not going to result in future tax benefits to the Company.
Income tax expense represents the amount paid for current year income tax
liabilities plus or minus the change in deferred taxes.
Pension Plan: Peoples maintains a defined benefit pension plan for all qualified
employees. The benefits are based primarily on years of service and employees'
pay near retirement. Peoples' funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation: Expense for employee compensation under stock option plans
is based on Opinion 25, with expense reported only if options are granted below
market price at grant date. Pro forma disclosures of net income and earnings per
share are provided as if the fair value method of Financial Accounting Standard
No. 123 were used for stock-based compensation.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. 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. The fair value estimates of existing on- and off-balance sheet
financial instruments do not include the value of anticipated future business or
the values of assets and liabilities not considered financial instruments.
Statement of Cash Flows: For purposes of this statement, cash and cash
equivalents include cash on hand, amounts due from banks, and daily federal
funds sold. The Company reports net cash flows for customer loan and deposit
transactions, and interest-bearing balances with banks.
Financial Statement Presentation: Certain items in the 1994 and 1995 financial
statements have been reclassified to correspond with the 1996 presentation and
terminology. These reclassifications did not affect shareholders' equity or net
income.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 2 - SECURITIES
The amortized cost and fair value of available-for-sale securities are as
follows at the date indicated:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government
and its agencies $15,997 $ 26 $ (3) $16,020
Obligations of states and
political subdivisions 32,215 535 (116) 32,634
Mortgage-backed investments:
U.S. Government agencies 41,584 119 (83) 41,620
Other corporate entities 737 - (6) 731
Debt securities issued by
foreign governments 75 - - 75
Corporate securities 3,507 2 - 3,509
------- ---- ----- -------
$94,115 $682 $(208) $94,589
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government
and its agencies $ 28,079 $ 90 $ (89) $ 28,080
Obligations of states and
political subdivisions 37,677 693 (197) 38,173
Mortgage-backed investments:
U.S. Government agencies 35,740 90 (241) 35,589
Other corporate entities 2,274 21 (6) 2,289
Debt securities issued by
foreign governments 75 - (5) 70
Corporate securities 3,507 37 - 3,544
-------- ---- ----- --------
$107,352 $931 $(538) $107,745
======== ==== ===== ========
</TABLE>
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair value of available-for-sale securities at December
31, 1996 are shown below by contractual maturity. Expected maturities may differ
from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized
Cost Fair Value
Due in one year or less $10,713 $10,733
Due after one year through five years 25,154 25,416
Due after five years through ten years 11,854 12,011
Due after ten years 4,073 4,078
------- -------
Subtotal 51,794 52,238
Mortgage-backed investments 42,321 42,351
------- -------
$94,115 $94,589
======= =======
The securities portfolio includes mortgage-backed investments which are
collateralized by residential mortgage loans and are repaid as the underlying
loans are repaid. The majority of the mortgage-backed investments consist of
Collateralized Mortgage Obligations (CMOs) with projected average lives between
1 and 5 years and underlying mortgages which are guaranteed by U.S. Government
agencies or government sponsored entities.
Sales of available-for-sale securities during 1996, 1995 and 1994 resulted in
gross gains of $0, $130 and $261 and gross losses of $63, $246 and $0. During
1995 and 1994, held-to-maturity securities were called resulting in net gains of
$4 and $10.
During December 1995, securities with an amortized cost of $81,807 and an
unrealized gain of $358 were transferred from held-to-maturity to
available-for-sale in accordance with the Financial Accounting Standards Board's
Special Report on Implementation of FAS 115.
Securities with a carrying value of $26,193 and $26,944 at December 31, 1996 and
1995, respectively, were pledged to secure public deposits and repurchase
agreements and for other purposes required or permitted by law.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 3 - LOANS
Loans excluding loans held for sale, are comprised of the following:
December 31,
1996 1995
Commercial $156,755 $ 97,914
Real estate 75,247 72,852
Construction 23,644 31,965
Consumer 75,187 66,132
Tax-exempt 2,120 2,230
-------- --------
$332,953 $271,093
======== ========
The Bank services mortgage loans sold to the Federal National Mortgage
Association. These loans are not included in the accompanying consolidated
balance sheets. The unpaid principal balance of these loans at December 31, 1996
and 1995 was $104,084 and $95,049.
Following is an analysis of the activity for loan servicing rights and the
related valuation allowance for 1996:
Balance at January 1 $ -
Additions 193
Amortizations (16)
Valuation allowance -
--------------
Carrying value at December 31 $ 177
==============
On December 19, 1994, Peoples entered into an agreement to sell the servicing
rights to loans with aggregate unpaid principal balances of approximately
$34,000. The sale consummated during the first quarter of 1995 and resulted in a
gain of $380.
Certain of the Company's directors were loan customers of Peoples. A schedule of
the aggregate activity in these loans follows:
Balance as of January 1, 1996 $ 1,835
New loans -
Loan reductions (175)
--------------
Balance as of December 31, 1996 $ 1,660
==============
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Beginning balance $ 3,290 $ 2,704 $ 2,513
Provision charged to operations 1,125 536 528
Loans charged off (607) (125) (516)
Recoveries 92 175 179
------------- -------------- -------------
Ending balance $ 3,900 $ 3,290 $ 2,704
============= ============== =============
</TABLE>
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Average investment in impaired loans during the year $1,068 $1,394
====== ======
Interest income recognized on impaired loans including
interest income recognized on cash basis of $173 and $84 $ 173 $ 84
====== ======
Balance of impaired loans at year end $ 743 $1,343
Less portion for which no allowance for loan losses is allocated 159 233
------ ------
Portion for which an allowance for loan losses is allocated $ 584 $1,110
====== ======
Portion of allowance for loan losses allocated $ 155 $ 306
====== ======
</TABLE>
Nonperforming loans, defined as those on nonaccrual status and those accruing,
but past due greater than 90 days, at December 31, 1996 and 1995 were $283 and
$1,283. The Company had $3 and $152 of loans on nonaccrual at December 31, 1996
and 1995 that management did not deem to be impaired under FAS 114.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment by major category follows:
December 31,
1996 1995
Land $ 1,103 $ 1,103
Buildings and improvements 10,991 10,993
Furniture and equipment 7,410 7,590
--------------- -------------
Total 19,504 19,686
Accumulated depreciation (11,581) (10,942)
--------------- -------------
Net premises and equipment $ 7,923 $ 8,744
=============== =============
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits issued in denominations of $100 or greater totaled
$13,606 and $15,520 at December 31, 1996 and 1995. Interest expense in 1996,
1995 and 1994 for interest-bearing deposits in denominations of $100 or greater
totaled $965, $2,243 and $787, respectively.
At December 31, 1996, stated maturities of time deposits were:
1997 $ 53,954
1998 27,563
1999 23,180
2000 3,716
2001 3,021
Thereafter 314
---------------
$ 111,748
===============
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of retail repurchase agreements and federal
funds purchased. Repurchase agreements, essentially, represent borrowings by
Peoples from its customers and are accounted for as such. Peoples pledges
certain of its securities as collateral for those borrowings but maintains
control over all such securities. Repurchase agreements outstanding as of
December 31, 1996 had maturities ranging from one day to 14 months. Federal
funds purchased are generally acquired for one day periods and bear interest at
market rates. The following presents information about short-term borrowings at
the dates indicated:
December 31,
1996 1995
Balance of repurchase agreements at year end $10,266 $16,056
Average balance during the year 11,964 26,413
Weighted average interest rate during the year 4.69% 5.95%
Maximum month-end balance during the year 14,052 46,578
Balance of federal funds at year end -- 4,000
Weighted average interest rate -- 5.75%
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 8 - RETIREMENT PLANS
Peoples has a defined benefit pension plan which covers a majority of its
employees.
The following sets forth the Plan's funded status and the amount recognized in
the balance sheet at December 31, 1996 and 1995.
1996 1995
------- -------
Accumulated benefit obligation (including
vested benefits of $3,051 and $3,324) $ 3,272 $ 3,502
======= =======
Plan assets at fair value (primarily listed stocks) $ 5,110 $ 4,831
Projected benefit obligation for service
rendered to date (4,521) (5,071)
Unrecognized (gain) loss (422) 684
Unrecognized transition asset, amortized over 18 years (463) (530)
------- -------
Accrued pension cost $ (296) $ (86)
======= =======
Net pension expense for the year included the following:
1996 1995 1994
----- ----- -----
Service cost for the year $ 344 $ 293 $ 263
Interest cost on projected benefit
obligation 327 294 267
Actual return on plan assets (731) (922) (17)
Net amortization and deferral 270 535 (394)
----- ----- -----
$ 210 $ 200 $ 119
===== ===== =====
Significant assumptions made in computing pension liability and expense were as
follows:
1996 1995 1994
---- ---- ----
Weighted average discount rate 7.00% 6.50% 7.25%
Increase in future compensation 5.50 5.50 5.50
Long-term rate of return 8.50 8.50 8.50
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 8 - RETIREMENT PLANS (Continued)
Peoples also maintains a voluntary 401(k) plan in which substantially all
employees may participate. Peoples matches employees' contributions at the rate
of 25 percent of each participant's contributions subject to certain limits.
Peoples' total contributions under the plan were $46, $45 and $45 for 1996, 1995
and 1994.
NOTE 9 - INCOME TAX EXPENSE
Income tax expense consists of the following components for the years ended
December 31:
1996 1995 1994
------- ------- -------
Income tax/(benefit)
Current $ 2,715 $ 1,641 $ 1,186
Deferred (399) (346) (321)
------- ------- -------
Total $ 2,316 $ 1,295 $ 865
======= ======= =======
The following is a reconciliation of income tax expense and the amount computed
by applying the effective federal income tax rate of 34% to income before income
taxes:
1996 1995 1994
------- ------- -------
Statutory rate applied to income before
income taxes $ 2,625 $ 1,762 $ 1,275
Add/(deduct)
Tax exempt interest income (646) (729) (721)
Non-deductible interest 68 77 62
State tax expense (net of federal tax
benefit) 450 306 211
Affordable housing credit (190) (140) --
Other 9 19 38
------- ------- -------
Total income taxes $ 2,316 $ 1,295 $ 865
======= ======= =======
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 9 - INCOME TAXES (Continued)
The net deferred tax asset at December 31, 1996 and 1995 is comprised of the
following components:
1996 1995
------- -------
Deferred tax assets from:
Loan loss provisions $ 1,209 $ 957
Deferred compensation 369 238
Other 47 84
------- -------
1,625 1,279
Deferred tax liabilities for:
Depreciation (67) (94)
Accretion (10) (36)
Net unrealized gain on
available-for-sale securities (188) (155)
Other (14) (14)
------- -------
(279) (299)
------- -------
$ 1,346 $ 980
======= =======
NOTE 10 - EARNINGS PER SHARE
Earnings per common share have been computed based upon the weighted average
number of shares outstanding during the years presented adjusted for the effect
of common stock equivalents, if dilutive. The stock options are considered
common stock equivalents. The weighted average number of shares outstanding were
1,584,130 shares in 1996, 1,595,322 shares in 1995 and 1,682,021 shares in 1994.
The options were not dilutive.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Peoples is committed under various non-cancelable lease contracts for certain
branch facilities which expire at various dates through the year 2005. Most of
the leases contain renewal provisions at Peoples' option and contain no
restrictive provisions of consequence.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Expense for leased premises was $489, $488 and $374 for 1996, 1995 and 1994.
Minimum lease payments at December 31, 1996 for all non-cancelable leases are as
follows:
1997 $ 377
1998 338
1999 340
2000 204
2001 97
Thereafter 301
--------------
Total minimum lease payments $ 1,657
==============
In the ordinary course of business, Peoples has loans, commitments, and
contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the accompanying consolidated balance sheets.
Peoples' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans, standby letters
of credit, and financial guarantees is represented by the contractual amount of
those instruments. Peoples uses the same credit policy to make such commitments
as it used for on-balance-sheet items. At December 31, 1996 and 1995 these
financial instruments are summarized as follows:
1996 1995
------- -------
Financial instruments whose contract
amount represents credit risk:
Unused commercial lines of credit $41,460 $44,968
Unused home equity lines of credit 50,147 33,612
Standby letters of credit 2,686 2,250
Commitments to make loans 12,253 21,079
The unused home equity and commercial lines of credit are predominantly variable
rate agreements. Loan commitments are agreements to lend to a customer, provided
they accept the terms and conditions offered by Peoples. These commitments are
generally extended for terms of up to 60 days and, in many cases, allow the
customer to select from one of several financing options offered. At December
31, 1996, these commitments included $237 of fixed rate loan commitments at a
weighted average rate of 8.92%. Since many commitments to make loans expire
without being used, the amount does not necessarily represent future cash
commitments. Collateral obtained upon exercise of the commitment is determined
using management's credit evaluation of the borrower, and may include accounts
receivable, inventory, property, land and other items.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 1996, Peoples was required to have $6,694 on deposit with the
Federal Reserve or as cash on hand as reserve.
The Company is also subject to claims and lawsuits which arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the financial position of the Company.
NOTE 12 - STOCK OPTION PLAN
During 1996, the Company established a nonqualified stock option plan and
granted stock options to directors and key members of management. A total of
100,000 shares were made available for grant at a price equal to the market
price of the stock at the date of grant. The specific terms of each option
agreement are determined by the Compensation Committee at the date of the grant.
Generally, options granted to management have a ten year term and vest and
become exercisable in three equal portions over a three or a six year term.
Options granted to directors also have a ten year term but are exercisable six
months after shareholder approval, which will be put to a vote at the 1997
shareholders meeting scheduled for April 17, 1997.
A summary of the Company's stock option activity, and related per share
information for 1996 follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Exercise Fair Value
Options Price of Grants
<S> <C> <C> <C>
Outstanding beginning of year - $ - $ -
Granted 56,010 26.56 8.28
Exercised - - -
Forfeited - - -
------------- -------------- -------------
Outstanding at end of year 56,010 $ 26.56 $ 8.28
============= ============== =============
Exercisable at end of year 22,796 $ 25.51
============= =============
</TABLE>
Options outstanding at December 31, 1996 have a 8.95 year weighted average
remaining life and exercise prices ranging from $24.88 to $30.25 per share.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 12 - STOCK OPTION PLAN (Continued)
Financial Accounting Standard No. 123, which became effective for 1996, requires
pro forma disclosures for companies that do not adopt its fair value accounting
method for stock-based employee compensation. Accordingly, the following pro
forma information presents net income and earnings per share had the Standard's
fair value method been used to measure compensation cost for stock option plans.
Compensation cost actually recognized for stock options was $0 for 1996.
1996
Net income as reported $ 5,409
Pro forma net income 5,157
Earnings per share as reported $ 3.41
Proforma earnings per share 3.28
The fair value of options granted are estimated based upon assumptions about a
stock's dividend yield, the expected time until exercise, the volatility of a
company's stock price and the risk-free interest rate. Fair values are
determined at the date of grant and estimates are not subsequently changed. The
1996 fair value estimates used the following weighted-average assumptions:
risk-free interest rate of 6.74%; dividend yield of 2.62%; expected volatility
of stock price of .22, and expected life of 9.67 years.
NOTE 13 - CAPITAL REQUIREMENTS
The Company and Peoples are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. These guidelines and the regulatory
framework for prompt corrective action involve quantitative measures of capital,
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices as well as qualitative judgments by the
regulators about components, risk weightings, and other factors.
Compliance with these regulations can limit dividends paid by either entity.
Both entities must comply with regulations that establish minimum levels of
capital adequacy. Peoples must also comply with capital requirements promulgated
by the FDIC under its "prompt corrective action" rules. Peoples' deposit
insurance assessment rate is based, in part, on these requirements. At December
31, 1996, Peoples' capital level results in it being designated as "well
capitalized".
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 13 - CAPITAL REQUIREMENTS (Continued)
The Company's consolidated and Peoples' (bank only) capital amounts and ratios
at December 31, 1996 are presented below:
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to Risk
Weighted
Assets)
Consolidated $ 48,963 14.11% $ 27,763 8% $ 34,703 10%
Peoples 41,690 12.07% 27,633 8% 34,541 10%
Tier I Capital
(to Risk
Weighted
Assets)
Consolidated $ 45,063 12.99% $ 13,881 4% $ 20,822 6%
Peoples 37,790 10.94% 13,816 4% 20,725 6%
Tier 1 Capital
(to Average
Assets)
Consolidated $ 45,063 9.62% $ 18,730 4% $ 23,412 5%
Peoples 37,790 8.14% 18,563 4% 23,204 5%
</TABLE>
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and the fair value of the
Company's financial instruments at December 31, 1996 and 1995. Items which are
not financial instruments are not included.
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 32,252 $ 32,252 $ 23,377 $ 23,377
Available-for-sale securities 94,589 94,589 107,745 107,745
Loans and loans held for sale (net) 329,474 331,878 270,360 272,642
Financial liabilities
Deposits (411,805) (411,679) (351,762) (352,600)
Short-term borrowings (10,266) (10,266) (20,056) (20,056)
Off-balance sheet items -- -- -- --
</TABLE>
For purposes of these fair value disclosures, the following assumptions were
used:
o The fair value for cash and cash equivalents is considered to approximate
cost.
o The fair value for securities is based on quoted market values for the
individual securities or for equivalent securities.
o The fair value for loans is based on estimates of the difference in
interest rate that Peoples would charge the borrowers for similar such
loans with similar maturities made at December 31, 1996 and 1995, applied
for an estimated time period until the loan is assumed to reprice or be
paid. The fair value of loans held for sale is estimated using quoted
market prices for similar loans.
o The fair value for demand and savings deposits is based on their carrying
value.
o The fair value for certificates of deposit is based on estimates of the
rate that Peoples would pay on such deposits at December 31, 1996 and 1995,
applied for the time period until maturity.
o The carrying amount of short-term borrowings is a reasonable estimate of
their fair value.
o The carrying value (which is zero) of off-balance sheet items is considered
to be a reasonable estimate of fair value as these instruments are
generally variable rate and short-term in nature, with minimal fees
charged.
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed balance sheets and the related condensed
statements of income and cash flows for the parent company:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash on deposit $ 3,285 $ 574
Investment in Peoples 38,084 34,046
Available-for-sale securities 3,994 6,794
Other assets 530 530
------------- -------------
Total assets $ 45,893 $ 41,944
============= =============
LIABILITIES $ 544 $ 308
SHAREHOLDERS' EQUITY 45,349 41,636
------------- -------------
Total liabilities and shareholders' equity $ 45,893 $ 41,944
============= =============
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years ended December 31,
1996 1995 1994
Operating income
Dividends from Peoples $ 1,186 $ 1,130 $ 1,127
Other operating income 292 290 335
------- ------- -------
Total operating income 1,478 1,420 1,462
Operating expenses 59 43 78
------- ------- -------
Income before income tax benefit and equity
in undistributed income of Peoples 1,419 1,377 1,384
Income tax benefit/(expense) (20) (1) 17
------- ------- -------
Income before equity in undistributed
income of Peoples 1,399 1,376 1,401
Equity in undistributed income of Peoples 4,010 2,510 1,484
------- ------- -------
Net income $ 5,409 $ 3,886 $ 2,885
======= ======= =======
<PAGE>
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 5,409 $ 3,886 $ 2,885
Adjustments to reconcile net income to net
cash from operating activities:
Equity in undistributed income of Peoples (4,010) (2,510) (1,484)
Net loss on securities -- 8 --
Net amortization on securities 83 121 110
Change in other assets (13) (45) (162)
Change in other liabilities 236 31 86
-------- -------- --------
Net cash from operating activities 1,705 1,491 1,435
Cash flows from investing activities
Purchase of available-for-sale securities -- -- (11,225)
Sales and maturities of available-for-sale
securities 2,750 2,145 2,100
Investment in Peoples -- (1,000) --
-------- -------- --------
Net cash from investing activities 2,750 1,145 (9,125)
Cash flows from financing activities
Dividends paid (1,185) (1,113) (1,115)
Redemption of nonvoting shares (559) (835) (2,084)
Sale of common shares -- -- 10,558
-------- -------- --------
Net cash from financing activities (1,744) (1,948) 7,359
-------- -------- --------
Net change in cash 2,711 688 (331)
Cash at beginning of year 574 (114) 217
-------- -------- --------
Cash at end of year $ 3,285 $ 574 $ (114)
======== ======== ========
</TABLE>
NOTE 16 - PENDING ACCOUNTING CHANGE
Financial Accounting Standard No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, was issued by the Financial
Accounting Standards Board in 1996. It revises the accounting for transfers of
financial assets, such as loans and securities, and for distinguishing between
sales and secured borrowings. It is effective for some transactions in 1997 and
others in 1998. Management does not expect adoption of this Standard to have a
significant effect on the Company's financial position or results of operations.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company, their respective ages
at March 1, 1996 and their respective positions with the Company and Peoples are
listed below:
Name Age Position*
Felix T. McWhirter 80 Chairman of the Board of the Company and
Peoples
Mac McWhirter 46 Director, President and Chief Executive
Officer of the Company and Peoples
Charles R. Farber 47 Director, Executive Vice President of
the Company and Peoples
Gerald R. Francis 53 Director, Executive Vice President of
the Company and Peoples
Elbert L. Bradshaw 69 Director
Robert B. Hirschman, D.D.S. 62 Director
David W. Knall 52 Director
Mary Ellen Rodgers 44 Director
Henry C. Ryder 69 Director
Stephen R. West 65 Director
Robert R. Connors 47 Secretary and Treasurer of the Company,
Senior Vice President, Director of
Operations & Cashier of Peoples
Charles R. Hageboeck 34 Senior Vice President and CFO,
Director of Finance of Peoples
Elliott R. Lese 63 Senior Vice President, Director of Loan
Administration of Peoples
Craig G. Stilwell 41 Senior Vice President, Director of Sales
& Marketing of Peoples
Terry L. Young 50 Senior Vice President, Senior Trust
Officer of Peoples
Mr. Felix T. McWhirter has been Chairman of the Board of the Company
since its formation and Chairman of the Board of Peoples since 1972. In 1984 he
retired as President of Peoples after serving in that capacity for 25 years. He
has served Peoples in various capacities since 1938. Felix T. McWhirter is Mac
McWhirter's father.
Mr. Mac McWhirter has been President of the Company since its formation
in 1986 and President and Chief Executive Officer of Peoples since 1984. He has
served Peoples in various capacities since 1969, including the position of
Executive Vice President from 1976 to 1984. Mr. McWhirter is also Chairman of
Peoples Building Corporation. In addition to serving on the Board of Directors
of Peoples and the Company, Mr. McWhirter serves on all committees of the Board,
except the Board Related Affairs Committee, described below. He is Chairman of
the Investment Committee. Mr. McWhirter serves as a director of the United Way
of Central Indiana, the Salvation Army, St. Vincent Hospital Foundation,
Crossroads Rehabilitation Center, the Kiwanis Club of Indianapolis Foundation
and the Greater Indianapolis Progress Committee. Mr. McWhirter is Past President
of the Kiwanis Club of Indianapolis, Past Treasurer of the United Way of Central
Indiana and Past Director and Treasurer of the Community Bankers Association of
Indiana. Mr. McWhirter is currently a member of the Indiana Bankers Association
Governmental Relations Committee, and the Young Presidents Organization. Mac
McWhirter is Felix T. McWhirter's son.
Mr. Farber joined Peoples in 1972 and headed its commercial loan
department from 1977 to 1984. Since May, 1984, he has been Peoples' Executive
Vice President. He also serves as Executive Vice President of the Company and
Peoples Building Corporation. Mr. Farber is a member of the Board of Directors
of Peoples, the Company and President of Peoples Building Corporation and serves
on the Loan Committee, the Asset/Liability Management Committee and the
Compliance Council. Mr. Farber is currently the President of the Indianapolis
Athletic Club.
Mr. Francis joined the Company in February of 1996 as an Executive
Vice-President. He is directly responsible for all aspects of retail banking at
Peoples, including the branch system, mortgage banking, marketing, and
operations. Prior to joining the Company, Mr. Francis was employed by Bank One,
Cincinnati N.A., where he was the Chairman of the Board and Chief Executive
Officer between 1992 and 1995. Between 1989 and 1992, Mr. Francis served as
Regional President for Bank One Ohio Corporation. Between 1982 and
28
<PAGE>
1989, Mr. Francis was President of Metropolitan Bank in Lima, Ohio. Before
joining Metropolitan Bank, Mr. Francis was Senior Vice President and Senior Loan
Officer with the First National Bank of Dayton, Ohio, having joined the bank in
1971.
Mr. Bradshaw, now semi-retired, owns and operates E. Bradshaw
Enterprises, Inc., a consulting firm serving primarily small businesses. He has
been a member of the Board of Directors since 1967.
Dr. Hirschman has served on the Board of Directors since 1967. In 1991,
he retired from a thirty-year practice as an orthodontist in the Indianapolis
area.
Mr. Knall is a Managing Director of McDonald & Company Securities,
Inc., a position he has held since 1983. Mr. Knall first joined McDonald &
Company Securities, Inc. in 1969, and he became the manager of that firm's
Indianapolis office in 1976. He joined the Board of Directors of the Company in
1991.
Ms. Rodgers has served as Senior Vice President, Chief Financial
Officer and Secretary of American Home Patient, a diversified home health care
company based in Brentwood, Tennessee, since April, 1996. Prior to 1996, Ms.
Rodgers worked as a self-employed consultant, after having retired in 1995 from
Eli Lilly & Co. Ms. Rodgers had served as Controller for Management Information
Services for Eli Lilly & Co. and its affiliates in various other capacities
since 1981. She had been Controller of Lilly Research Laboratories, Assistant
Treasurer of Eli Lilly and Company, and Treasurer of Lilly International
Corporation. She joined the Board of Directors in 1991 and currently chairs the
Asset/Liability Management Committee and the Investment Policy Committee of
Peoples.
Mr. Ryder joined the Board of Directors in 1986 and currently chairs
the Compliance Council Committee and the Pension and Retirement Committee. He
founded the firm of Roberts & Ryder in 1960, and came to the law firm of Barnes
& Thornburg as a partner in 1987 as a result of the merger of the two firms.
Since January 1, 1996, Mr. Ryder has been of counsel at Barnes & Thornburg. Mr.
Ryder is involved in numerous professional, civic, philanthropic, and social
organizations throughout Indiana.
Mr. West has been on the Company's and Peoples' Board of Directors
since 1984 and currently chairs the Peoples' Examination and Audit Committee.
During the past five years, Mr. West has served as the President and Treasurer
of West Baking, Inc., Indianapolis, Indiana. Between 1988 and 1990, Mr. West
served as Senior Vice President and Treasurer of Dunes Transport, Inc.,
Indianapolis, Indiana. In addition, from 1988 to 1995, Mr. West served as the
Vice President of the Indianapolis City-County Council. Since January, 1996, Mr.
West has served as an appointed trustee of Indiana Health and Hospital
Corporation of Marion County, Indiana.
Mr. Connors has served as Senior Vice President and Director of
Operations since he came to Peoples in 1984. He has 26 years of banking
experience which includes 13 years with the Federal Reserve. His last position
with the Federal Reserve was that of Regional Manager for the Indianapolis
office. Mr. Connors is Secretary/Treasurer for Peoples Bank Corporation and is
Chairman of the Research and Development Committee and the Technology
Maximization Group. Mr. Connors is currently on the Strategic Direction
Committee of the Comprehensive Banking System Users Group, a computer software
users group which consists of over 100 financial institutions around the
country.
Mr. Charles R. Hageboeck joined the Company in August of 1995 as Chief
Financial Officer and Director of Finance. He also serves as Secretary to the
Board of Directors for Peoples. From January, 1992 to August, 1995, Mr.
Hageboeck was the Chairman of the Asset/Liability Committee for NBD Bank, N.A.
in Indiana, as well as manager of that bank's funding and ALCO departments. Mr.
Hageboeck also serves the Company on the Asset/Liability Management Committee,
Investment Committee, Product and Pricing Committee, Audit Committee, and the
Board of Directors of Peoples Building Corporation. Mr. Hageboeck holds a Ph.D.
in Economics at Indiana University.
Mr. Lese came to Peoples from Marquette National Bank in Chicago,
Illinois, where he served as a Senior Vice President from 1985 to 1989. Since
December, 1989, Mr. Lese has served as Senior Vice President in charge of Loan
Administration for Peoples. Mr. Lese has over 30 years of banking experience
including the areas of loan administration, executive management, finance,
operations and planning. Mr. Lese serves on the Loan Committee, the Investment
Committee, the Asset and Liability Management Committee and the ORE Committee.
Mr. Lese has served as the Vice President of the Notre Dame Club of Indianapolis
and is a member of the Indiana CPA Society and the Rotary Club of Indianapolis.
Mr. Stilwell has been Senior Vice President, Director of Marketing for
Peoples since 1988. He first came to Peoples in September, 1978. During his 16
years with Peoples, Mr. Stilwell has been the Assistant Cashier, a branch
manager and the Director of Marketing, a position he has held since 1984. Mr.
Stilwell currently serves as Chairman of the Product and Pricing Committee and
the CRA Committee and as Secretary of the Compliance Council. He also serves on
the Research and Development Committee and the Asset/Liability Management
Committee. Mr. Stilwell is a member of the Indiana Chapter of the Bank Marketing
Association and is a board member of the Community Bankers Association Insurance
Agency.
Mr. Young joined Peoples in 1980 and has had more than 20 years of
banking experience, primarily in the areas of lending and trust. He currently
serves on the Trust Committee. Mr. Young is the past Chairman of the Indiana
Bankers Association Trust Committee and Past President of the Central Indiana
Corporate Fiduciaries Association.
29
<PAGE>
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's directors and executive officers and
beneficial owners of more than 10% of the Company's equity securities to file
with the SEC certain reports regarding the ownership of the Company's securities
or any changes in such ownership. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for such persons, the Company believes that, during the fiscal
year ended December 31, 1996, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were complied with.
Item 11. Executive Compensation.
The following table sets forth, for the years ended December 31, 1994,
1995, and 1996, information with respect to William E. McWhirter, the Chief
Executive Officer, and Charles R. Farber and Gerald R. Francis, the only other
executive officers of the Company whose aggregate compensation and bonus from
Peoples exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------------------------------------------
Name and Long-Term
Principal Position Compensation
Securities Underlying All Other
Year Salary(1) Bonus(2) Option Awards (#) Compensation(5)
<S> <C> <C> <C> <C> <C>
Mac McWhirter....................... 1996 $186,673 $17,425 16,130(3) $500
President and 1995 178,680 5,425 --- 500
Chief Executive Officer 1994 175,185 0 --- 500
Charles R. Farber................... 1996 $113,779 $13,729 10,000(4) $500
Executive Vice President 1995 112,680 3,379 --- 500
1994 110,830 0 --- 500
Gerald Francis...................... 1996 $101,077 $13,856 10,000(4) $3,700
Executive Vice President
</TABLE>
- --------------------
(1) Salary figures shown above include directors' fees of $4,000 for each
of Mr. McWhirter and Mr. Farber and $2,000 for Mr. Francis, and amounts
deferred at the election of the respective officers pursuant to
Peoples' Deferred Compensation Plan, more fully described below, for
the year in which earned. For fiscal year 1996, Mr. McWhirter deferred
none of his director's fees and $15,000 of his regular salary, and Mr.
Farber deferred none of his directors fees and $7,000 of his regular
salary.
(2) Bonuses are based on discretionary guidelines established by the Board
Related Affairs Committee and are contingent upon, among other things,
individual performance reviews and the attainment of strategic
financial goals. The bonus figures shown were awarded for performance
in the fiscal year shown and paid in the subsequent fiscal year
pursuant to the Board and Senior Management Profit Sharing Plan.
(3) Mr. McWhirter's incentive stock option for 3,654 shares and his
non-qualified stock option for 12,476 shares were granted in March 1996
and became exercisable in September 1996.
(4) The incentive stock options held by each of Mr. Farber and Mr. Francis
were granted in January 1996. They become exercisable in three
installments. The first installment for 3,333 shares became exercisable
on December 1, 1996. The remaining installments for 3,333 and 3,334
shares become exercisable on December 1, 1997 and January 1, 1998,
respectively.
(5) 401(k) matching contributions for Mr. McWhirter and Mr. Farber. Other
compensation for Mr. Francis also included temporary housing expenses
paid by the Company.
30
<PAGE>
Stock Option Grants in Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
Individual Grants
% of Total
Securities Un Options Granted Exercise or
derlying Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year 1996 ($/Sh) Date 5%($)(1) 10%($)(4)
---- ----------- ---------------- ------ ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mac McWhirter 3,654(1) 6.87% 27.3625 03/01/01 $62,879.04 $150,342.23
12,476(2) 23.45% 24.875 03/22/06 $195,173.14 $494,589.65
Charles R. Farber 10,000(3) 18.79% 24.875 03/22/06 $156,438.88 $396,432.88
Gerald Francis 10,000(3) 18.79% 26.50 01/24/06 $166,658.50 $422,330.50
</TABLE>
- --------------------
(1) Include incentive stock option shares granted in March 1996 which
became exercisable in September 1996.
(2) Includes non-qualified stock option shares granted in March 1996 which
become exercisable in September 1996.
(3) The incentive stock options held by each of Mr. Farber and Mr. Francis
were granted in January 1996. They become exercisable in three
installments. The first installment for 3,333 shares became exercisable
on December 1, 1996. The remaining installments for 3,333 and 3,334
shares become exercisable on December 1, 1997 and January 1, 1998,
respectively.
(4) These gains are based upon assumed rates of annual compound stock
appreciation of 5% and 10% from the date the options were granted over
the full option term. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on option exercises are
dependent upon the future performance of the Nonvoting Common Shares
and overall stock market conditions. There can be no assurance that the
amounts reflected on this table will be achieved.
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executive Officers, and the
aggregate value of such stock options, as of March 31, 1996. None of such stock
options had been exercised as of such date.
Aggregated Option Exercises in Fiscal Year Ended December 31, 1996
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of In-the-Money
Acquired on Value Realized Unexercised Options at Unexercised Options at
Name Exercise (#) ($) Fiscal Year-End Fiscal Year-End ($)(3)
---- ------------ --- --------------- ----------------------
<S> <C> <C> <C> <C>
Mac McWhirter --- --- 16,130(1) $168,340.67
Charles R. Farber --- --- 10,000(2) $109,950.00
Gerald Francis --- --- 10,000(2) $ 93,750.00
</TABLE>
- --------------------
(1) Mr. McWhirter's incentive stock option for 3,654 shares and his
non-qualified stock option for 12,476 shares were granted in March 1996
and became exercisable in September 1996.
(2) The incentive stock options held by each of Mr. Farber and Mr. Francis
were granted in January 1996. They become exercisable in three
installments. The first installment for 3,333 shares became exercisable
on December 1, 1996. The remaining installments for 3,333 and 3,334
shares become exercisable on December 1, 1997 and January 1, 1998,
respectively.
(3) Based on the fair market value for the Nonvoting Common Shares on the
last business day of the fiscal year ended December 31, 1996, which was
$35.875 per share.
Stock Option Plan. The Company's Board of Directors has adopted the
Peoples Bank Corporation of Indianapolis Stock Option Plan (the "Plan")
effective January 1, 1996. The Plan was approved by the shareholders of the
Company at the annual meeting in April, 1996. The purpose of the Plan is to
provide to officers and other key employees of the Company and Peoples a
favorable opportunity to acquire Nonvoting Common Shares, thereby providing them
with an increased incentive to work for the success of the Company and Peoples
and better enabling each such entity to attract and retain capable executive
personnel.
31
<PAGE>
The Plan authorizes the granting of both incentive stock options and
non-qualified stock options to officers and other key employees of the Company
and its subsidiaries by a committee of disinterested directors, which is
currently the Board Related Affairs Committee ("BRAC"). Stock options granted
under the Plan will be exercisable at such times (not after ten years and one
day from the date of grant) and at such exercise prices (not less than 85% of
the fair market value per share of the Nonvoting Common Shares at date of grant)
as the BRAC determines and will, except in limited circumstances, terminate if
the grantee's employment terminates prior to exercise. A total of 100,000
Nonvoting Common Shares have been reserved for issuance under the Plan, of which
options for 53,210 Nonvoting Common Shares have been granted to officers and key
employees to date.
During 1996, the BRAC granted an aggregate of 53,210 options to
purchase Nonvoting Common Shares to members of the senior management team, with
expiration dates ranging from March 21, 2001 through June 11, 2006, and at
exercise prices ranging from $24.88 to $28.04 per share. William E. McWhirter
was granted options for 16,130 shares, consisting of 3,654 shares subject to an
incentive stock option and 12,476 shares subject to a non-qualified stock
option. Charles R. Farber and Gerald R. Francis were each awarded incentive
stock options for 10,000 shares. Mr. McWhirter's options became exercisable in
September, 1996. The options held by each of Mr. Farber and Mr. Francis become
exercisable in three installments of 3,333 shares each on December 1, 1996 and
December 1, 1997, and 3,334 shares on January 1, 1998. Such grants were made to
provide significant incentives for future performance and to align the
executive's interest with those of the shareholders and, in the case of Mr.
McWhirter and Mr. Farber, as a reward for prior performance. Other senior
officers received options totaling 17,080, collectively, all of which are
incentive stock options. Such options generally become exercisable in
installments over a period of years ranging from 1998 to 2002.
Consulting Agreement. Felix T. McWhirter entered into a consulting
agreement with Peoples on January 15, 1987 for a ten- year term to allow him to
serve as a consultant upon the termination of his full-time active employment on
that date. Mr. Felix T. McWhirter's obligations with Peoples were completed as
of January 15, 1997. The terms of his consulting agreement called for payments
during the remainder of his life. Mr. McWhirter currently receives $8,122
monthly, subject to the following adjustments: (i) a ten percent reduction every
five years, and (ii) an annual adjustment to reflect cost-of-living increases.
In the event of his death, Mr. McWhirter's surviving spouse is entitled to the
payments for the remainder of her life.
Compensation of Directors. All directors of the Company receive a
retainer fee of $4,000 per year. Additionally, outside directors receive a fee
of $420 per board or committee meeting. Board members are also eligible to
receive bonuses pursuant to the Board and Senior Management Profit Sharing Plan,
further discussed below.
Directors Stock Option Plan. The Company's Board of Directors has
adopted the Peoples Bank Corporation of Indianapolis 1996 Directors Stock Option
Plan (the "Directors Plan") effective June 20, 1996. The Directors Plan is
subject to shareholder approval, which is expected to be obtained at the annual
meeting of shareholders to be held in April, 1997. The purpose of the Directors
Plan is to provide directors of the Company who are not employed by the Company
("Outside Directors") a favorable opportunity to acquire Nonvoting Common
Shares, thereby better enabling the Company to attract and retain capable
Outside Directors.
The Directors Plan provides for the granting of non-qualified stock
options to Outside Directors. A total of 50,000 Nonvoting Common Shares have
been reserved for issuance under the Directors Plan, of which options for 2,800
Nonvoting Common Shares have been granted to seven Outside Directors to date.
Stock options granted under the Plan are exercisable for a period beginning on
the date of grant and ending on the day immediately following the tenth year
anniversary of the date of grant, and at an exercise price equal to the fair
market value per share of the Nonvoting Common Shares on the date of grant. On
the date the Directors Plan was adopted, each Outside Director was granted an
option for 400 shares with an exercise price of $30.25. If the Directors Plan is
approved by the shareholders, such options will become exercisable on October
17, 1997. The Directors Plan further provides that, on April 1, 1997 and on each
April 1 thereafter while there are still shares reserved under the Directors
Plan for which options have not been granted, the Company will grant to each
Outside Director who is serving as a director of the Company on such grant date
a non-qualified option to purchase a number of Nonvoting Common Shares pursuant
to a formula based on directors' fees. is subject to shareholder approval.
Deferred Compensation Plan. Pursuant to Peoples' Deferred Compensation
Plan, selected employees are given the opportunity to defer irrevocably the
receipt of income in anticipation of future monthly benefits, payable either to
the employee upon retirement at age 65 or to the employee's survivor in the
event of the employee's death prior to the normal retirement date. The benefits
payable under the plan are to be paid from Peoples' general assets. Peoples
maintains insurance policies on the lives of Mac McWhirter, Charles R. Farber
and all other plan participants to provide for eventual payment of their
deferred benefits. Peoples is the sole owner and beneficiary of these policies.
Peoples has the right to amend or terminate the plan at any time.
Profit Sharing Plan. Peoples has adopted the Board and Senior
Management Profit Sharing Plan. Pursuant to the plan, members of senior
management and the Board of Directors are eligible to receive discretionary
bonuses based on, among other factors, profits achieved by Peoples in excess of
those budgeted for a given fiscal year. The schedule serves only as a
discretionary guideline and does not represent a contractual obligation.
401(k) Plan. Employees who have attained age 21 are entitled to
participate in the 401(k) Profit Sharing Plan. Under the plan, commencing in
1993 Peoples makes a matching contribution on behalf of each participating
employee up to $500 based on 25% of the employee's deferred amount. Vested
portions of the benefits under the 401(k) Plan are payable upon the employee's
retirement, death,
32
<PAGE>
disability or other termination of employment. In late 1995, Peoples amended the
401(k) Plan to permit participants to direct the investment of their plan
account balances in Nonvoting Common Shares.
Pension Plan. The "Peoples Bank & Trust Company Employees' Pension
Plan" is a tax-qualified defined benefit pension plan. People's employees are
eligible to participate in the plan once they have completed one year of service
and are 21 years of age. Continued eligibility requires completion of 1,000
hours of service in a calendar year. Participants are not required or permitted
to make contributions under the plan. An employee's pension benefits are 100%
vested after five years of service.
The plan provides for monthly retirement benefits determined on the
basis of the employee's highest five-year average salary and years of service.
Early retirement, disability and death benefits are also payable under the plan.
The estimated base annual retirement benefits presented on a straight-line
annuity basis payable at normal retirement age (65) under the plan to a person
in specified remuneration and years of service classifications are as follows:
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------------------------------------------------
10 20 30 40 50
-- -- -- -- --
Remuneration
<C> <C> <C> <C> <C> <C>
$ 100,000................ $ 20,000 $ 40,000 $ 60,000 $ 80,000 $100,000
120,000................ 24,000 48,000 72,000 96,000 120,000
140,000................ 28,000 56,000 84,000 112,000 140,000
160,000................ 32,000 64,000 96,000 128,000 160,000
180,000................ 36,000 72,000 108,000 144,000 180,000
200,000................ 40,000 80,000 120,000 160,000 200,000
</TABLE>
Annual compensation of Mr. McWhirter, Mr. Farber, and Mr. Francis
covered by the Pension Plan is the same as their salary compensation illustrated
in the Annual Compensation Table (excluding directors fees). Benefits are
payable as a monthly life annuity and are not subject to deduction for Social
Security or other offset. The years of service credited to Mr. McWhirter, Mr.
Farber, and Mr. Francis, under the Pension Plan as of December 31, 1996 were
23.50, 24.33, and .92 respectively. Peoples has adopted a Supplemental Executive
Retirement Plan ("SERP") which supplements the amount of benefits otherwise
available to Mr. McWhirter, Mr. Farber, and Mr. Francis under the Pension Plan
upon their retirement. Annual SERP benefits equal 2% of pay per year subject to
the maximum of 75% of the executive's average annual compensation in the three
highest years with Peoples, less the executive's annual benefit payable (i) on a
single life basis under the Pension Plan and (ii) under Social Security. Only
Mac McWhirter, Mr. Farber, and Mr. Francis are SERP participants at this time,
but additional key executives may be added by the Board of Directors.
Compensation Committee Interlocks and Insider Participation. The Board
Related Affairs Committee of the Board of Directors served as the board's
compensation committee during fiscal 1996. There are no interlocks between the
Company's or Peoples' boards of directors or compensation committee on the one
hand and those of any other company on the other hand.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Shares by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding Voting Common Shares
(ii) each director and executive officer named in the executive compensation
table, and (iii) all executive officers and directors of the Company as a group
as of March 10, 1997. Except as otherwise indicated, based on information
furnished by such owners, the beneficial owners of the Common Shares listed
below have sole investment and voting power with respect to such Common Shares,
subject to community property laws where applicable.
33
<PAGE>
<TABLE>
<CAPTION>
Voting Common Shares Nonvoting Common
Name and Address Beneficially Owned Shares Beneficially Owned
of Beneficial Owner and Percentage or Class and Percentage or Class
- ------------------- ----------------------- -----------------------
<S> <C> <C>
Elbert L. Bradshaw 1,400 1,500
13843 Driftwood Drive 1.0% 0.1%
Carmel, Indiana 46033
Charles R. Farber 536 (1) 4,394 (1)(8)
130 E. Market Street 0.4% 0.3%
Indianapolis, Indiana 46204
Gerald R. Francis 5,603 (9)
130 East Market Street 0.4%
Indianapolis, Indiana 46204
Robert B. Hirschman, D.D.S. 1,400 2,000
5104 Plantation Drive 1.0% 0.1%
Indianapolis, Indiana 46250
Estate of Margaret Rose Zapf King 10,396 (11) --- (11)
8890 Pickwick Drive 7.4%
Indianapolis, Indiana 46260
David W. Knall --- 16,740
One American Square 1.2%
Suite 2615
Indianapolis, Indiana 46282
Luella M. Martin 12,404 (3) 60,197 (3)
3738 Bay Road. South Drive 8.9% 4.2%
Indianapolis, Indiana 46240
William E. McWhirter 82,616 (4) 18,850 (4)
130 E. Market Street 59.0% 1.3%
Indianapolis, Indiana 46204
Felix T. McWhirter --- 284,380 (5)
130 E. Market Street 19.9%
Indianapolis, Indiana 46204
Mary Ellen Rodgers --- 400 (1)
10639 Windjammer Circle (2)
Indianapolis, Indiana 46236
Evans McWhirter Rust 13,220 (6) 169,164 (6)
6917-B East Osborn 9.4% 11.8%
Scottsdale, Arizona 85251
Henry C. Ryder --- 5,800 (7)
11 South Meridian Street 0.4%
Indianapolis, Indiana 46204
Stephen R. West --- 6,904
4120 North Illinois Street 0.5%
Indianapolis, Indiana 46208
All Directors and Executive 99,572 150,146
Officers, as a group (15 persons) 71.1% 10.5%
</TABLE>
- --------------------
(footnotes on next page)
34
<PAGE>
- --------------------
(1) Held jointly with spouse.
(2) Less than 0.1%.
(3) Includes forty (40) Voting Common Shares held in trust by Luella M.
Martin as trustee. Of the Nonvoting Common Shares, 44,564 shares are
held in trust by Luella M. Martin as trustee and additional 11,085
shares are registered in the name of Wesley P. Martin, husband of
Luella M. Martin.
(4) Of the Voting Common Shares, 696 shares are held by Susan McWhirter,
wife of William E. McWhirter. Of the Nonvoting Common Shares, 1,936 are
held by Susan McWhirter, and 784 shares are held by William E.
McWhirter. Also includes 3,654 Shares subject to an incentive stock
option and 12,476 Shares subject to a non-qualified stock option
granted under the Company's Stock Option Plan, which options are
currently exercisable in accordance with their terms.
(5) Includes 182,000 shares held by Peoples as trustee of the Felix M.
McWhirter Trust for Children and Grandchildren. Pursuant to such trust,
Felix T. McWhirter holds voting power and shares with Peoples
dispositive power with respect to the shares. Also includes 55,912
shares held by Margaret J. McWhirter, Mr. McWhirter's spouse.
(6) All Voting Common Shares and 128,564 Nonvoting Common Shares are held
in trust by Evans McWhirter Rust as trustee. Also includes 40,600
Shares held by Peoples as trustee as to which Mr. Rust disclaims
beneficial ownership.
(7) Includes 5,400 shares held by Society National Bank as trustee of Mr.
Ryder's 401 (k) Plan.
(8) Includes 661 Shares (rounded to the nearest whole share) held in
Peoples' 401(k) Profit Sharing Plan. Also includes 3,333 Shares subject
to an incentive stock option granted under the Company's Stock Option
Plan, the first installment of which became exercisable on December 1,
1996.
(9) Includes 2,270 Shares held in Mr. Francis' IRA and 3,333 Shares subject
to an incentive stock option granted under the Company's Stock Option
Plan, the first installment of which became exercisable on December 1,
1996.
(10) Held in Robert B. Hirschman D.D.S. Retirement Plan.
(11) Ms. King passed away in January, 1997 and her estate has not been
closed. The share amounts indicated are based on information provided
by the Personal Representative of Ms. King's estate
Item 13. Certain Relationships and Related Transactions.
From time to time Peoples makes loans to its directors and significant
shareholders. At December 31, 1996, such loans and extensions of credit amounted
to approximately $1,660,000. Such loans and all similar loans or advances
outstanding during any of the three prior years, were made (i) in the ordinary
course of business, (ii) on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and (iii) did not involve more than the normal
risk of collectibility or present other unfavorable features. Peoples does not
generally make any loans to executive officers.
David W. Knall, one of the Company's directors, is a Managing Director
of McDonald & Company Securities, Inc., one of the underwriters in the Company's
initial public offering. From time to time, the Company and Peoples utilize
investment advisory and brokerage services provided by McDonald & Company
Securities, Inc.
Henry C. Ryder, one of the Company's directors, is a partner in the law
firm of Barnes & Thornburg. Such firm provides legal services to the Company and
Peoples on a regular basis.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Financial Statements -- Included Under Item 8:
Report of Crowe, Chizek and Company LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
(b) Reports on Form 8-K
35
<PAGE>
Registrant filed no reports on Form 8-K during the quarter ending
December 31, 1996.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page 38.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized.
PEOPLES BANK CORPORATION OF INDIANAPOLIS
By: /s/ William E. McWhirter
------------------------------------
William E. McWhirter
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
Signature Title Date
---------------------------- ---------------- -----------
(1) Principal Executive Officer:
By: /s/ William E. McWhirter President, Chief )
William E. McWhirter Executive Officer )
)
(2) Principal Financial/ )
Accounting Officer: )
)
By: /s/ Charles R. Hageboeck Senior Vice President.)
------------------------ )
Charles R. Hageboeck Director of Finance)
)
(3) A Majority of the )
Board of Directors: )
)
/s/ Felix T. McWhirter Director )
------------------------ )
Felix T. McWhirter )
)
/s/ Elbert L. Bradshaw Director )
------------------------ )
Elbert L. Bradshaw )
)
/s/ Charles R. Farber Director )
------------------------ )
Charles R. Farber )March 31, 1997
)
/s/ Robert B. Hirschman Director )
------------------------ )
Robert B. Hirschman )
)
/s/ David W. Knall Director )
------------------------ )
David W. Knall )
)
/s/ William E. McWhirter Director )
------------------------ )
William E. McWhirter )
)
/s/ Mary Ellen Rodgers Director )
------------------------ )
Mary Ellen Rodgers )
)
/s/ Henry C. Ryder Director )
------------------------ )
Henry C. Ryder )
)
/s/ Stephen R. West Director )
------------------------ )
Stephen R. West )
37
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Registrant's Articles of Incorporation, as amended *
3.2 Registrant's Code of By-Laws, as amended *
3.3 Form of Share Certificate *
4.1 Articles V, VI, and VII and Sections 1, 2, and 4 of Article *
IX of the Registrant's Articles of Incorporation respecting
the terms of Common Shares, are incorporated by reference to
the Registrant's Articles of Incorporation filed as Exhibit
3.1
4.2 Articles I and VII of the Registrant's Code of By-Laws *
respecting the terms of Common Shares, are incorporated by
reference to the Registrant's Code of By-Laws filed as
Exhibit 3.2
10.1 Lease Agreement by and between Park 100 Joint Venture and *
Peoples Bank & Trust Company dated November 17, 1989, as
amended
10.2 Property Management Agreement between Peoples Building *
Corporation and F.C. Tucker Company, Inc. dated September
30, 1986
10.3 Consulting Agreement between F.T. McWhirter and Peoples Bank *
& Trust Company dated January 15, 1987
10.4(a) Peoples Bank & Trust Company Executives Deferred Compensation *
Plan
10.4(b) Peoples Bank & Trust Company Directors Deferred Fees Plan *
10.5 First Amendment to Complete Restatement of the Peoples Bank & *
Trust Company Unfunded Supplemental Retirement Plan for a
Select Group of Management Employees
10.6 Peoples Bank & Trust Company Board and Senior Management *
Profit Sharing Plan
10.7 Peoples Bank Corporation of Indianapolis Stock Option Plan **
10.8 Peoples Bank Corporation of Indianapolis Directors Stock
Option Plan 39
21 Subsidiaries of the Registrant *
23 Consent of Crowe Chizek 49
27 Financial Data Schedule 50
* Incorporated by reference to the corresponding exhibit number of the
Registrant's registration statement on Form S-1, effective January 18,
1994, under the Securities Act of 1933, Reg. No. 33-71988.
** Incorporated by reference to the corresponding exhibit number of the
Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1995.
38
PEOPLES BANK CORPORATION OF INDIANAPOLIS
1996 DIRECTORS STOCK OPTION PLAN
1. Purpose. The purpose of the Peoples Bank Corporation of
Indianapolis 1996 Directors Stock Option Plan (the "Plan") is to provide to
outside directors of Peoples Bank Corporation of Indianapolis (the
"Corporation") the opportunity to acquire Nonvoting Common Stock, without par
value, of the Corporation ("Nonvoting Common Shares"), thereby better enabling
the Corporation to attract and retain capable directors.
2. Interpretation of the Plan. The Plan shall be construed and
interpreted by the members of the Board of Directors of the Corporation (the
"Board") who are also employees of the Corporation or employees of a subsidiary
of the Corporation. (Such members shall be referred to as the "Committee"). The
decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act (a) at a meeting at which a
majority of the members of the Committee is present, (b) by simultaneous
telephonic communication, or (c) by a written consent signed by all members of
the Committee. The Committee shall also have authority to prescribe, amend and
rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable in the interpretation and construction of
the Plan.
3. Option Grant Formula. Directors of the Corporation who are not
employed by the Corporation ("Outside Directors") shall be
-1-
<PAGE>
eligible for grants of non-qualified stock options under this Plan. Upon the
date on which this Plan is adopted, the Corporation shall provide to each
Outside Director still serving as a director of the Corporation on such date a
non-qualified option to purchase four hundred (400) shares of Nonvoting Common
Shares. On April 1, 1997 and on each April 1 thereafter while there are still
shares reserved under the Plan for which options have not been granted (the
initial date on which non-qualified stock options are granted under this Plan
and each April 1 thereafter shall each be referred to as a "Grant Date"), the
Corporation shall grant to each Outside Director serving as a director of the
Corporation on each Grant Date on and after April 1, 1997 a non-qualified option
to purchase a number of shares of Nonvoting Common Shares with an aggregate fair
market value (as determined below at the Grant Date) equal to the amount
determined by multiplying:
(a) 15%, by
(b) the sum of:
(i) the Outside Director's annual retainer in
effect on the Grant Date; and
(ii) fourteen (14) times the Board's regular
meeting fee in effect on the Grant Date,
rounded to the nearest whole share. The option price per share shall be equal to
the fair market value of a share of the Nonvoting Common Shares on the Grant
Date. For purposes of this Plan, fair market value of a Nonvoting Common Share
shall be equal to the mean between the high and low sales prices of the
Nonvoting Common
-2-
<PAGE>
Shares as reported in The Wall Street Journal for the applicable Grant Date;
provided, however, that notwithstanding anything contained in this Plan to the
contrary, if a Grant Date falls on a day on which Nonvoting Common Shares are
not traded, such Grant Date shall instead be the first day following such Grant
Date on which shares of Nonvoting Common Shares are traded; provided, further,
that if on a Grant Date the number of remaining shares available for option
grants is not large enough to grant each Outside Director with an option to
acquire a number of Nonvoting Common Shares determined under the formula above,
the number of shares covered by the final option for each Outside Director shall
be reduced proportionately to the nearest whole share so that the number of
shares granted under the Plan does not exceed the number of shares reserved
under Section 4 hereof.
4. Stock Subject to the Plan. There shall be reserved for issuance
upon the exercise of options granted under the Plan, Ten Thousand (10,000) of
the Corporation's Nonvoting Common Shares which may be authorized but unissued
shares of the Corporation. Subject to Section 6 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject thereto shall (unless the Plan shall have
terminated) become available for other options under the Plan.
-3-
<PAGE>
5. Terms of Option. Each option granted under the Plan
shall be subject to the following terms and conditions.
(a) Period for Exercise of Option. An option shall only be
exercisable for the period beginning on the Grant Date of the date of
grant and ending on the day immediately following the tenth (10th) year
anniversary of the date of grant; provided, however, that no option
shall be exercisable prior to the six (6) month anniversary of the date
on which the Plan is approved by the voting shareholders of the
Corporation.
(b) Exercise of Options. The option price of each share of
stock purchased upon exercise of an option shall be paid in full (1) in
cash at the time of such exercise, (2) if the optionee may do so
without violating ss. 16(b) of the 1934 Act and subject to approval by
the Committee, by delivering a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly
to the Corporation the total option price in cash, or (3) by tendering
to the Corporation whole shares of the Nonvoting Common Shares owned by
him or any combination of whole shares of Nonvoting Common Shares owned
by him and cash, having a fair market value equal to the cash exercise
price of the shares with respect to which the option is being
exercised. For this purpose, the fair market value of the shares
tendered by the optionee shall be computed as of the exercise date in
-4-
<PAGE>
the same manner as set forth in Section 3 with respect to the
determination of the option price. An option may be exercised at any
time or from time to time during the term of the option as to any or
all whole shares which have become subject to purchase pursuant to the
terms of the option.
(c) Termination of Option. If an optionee ceases to be a
director of the Corporation for any reason other than the optionee's
death, and except as provided below, any option granted to the optionee
may be exercised by him in whole or in part at any time until the
expiration of the period prescribed by subsection (a) of this Section
5. In the event of the death of an optionee before the expiration of
the term of any outstanding options, any unexpired option granted to
the optionee may be exercised in whole or in part at any time after the
date of such death by the executor or administrator of his estate or by
the person or persons entitled to the option by will or by applicable
laws of descent and distribution until the expiration of a one (1) year
period immediately following the date of his or her death, but in no
event may the option be exercised after the expiration of the option
term as prescribed by subsection (a) of this Section 5. An option shall
terminate if this Plan is not approved by the shareholders of the
Corporation within one (1) year of the date on which the Plan is
adopted.
-5-
<PAGE>
(d) Nontransferability of Option. An option may not be
transferred by the optionee otherwise than by will or the laws of
descent and distribution during his lifetime, and shall be exercisable
by the optionee only.
(e) Agreement. Each option grant shall be evidenced by
an agreement between the optionee and the Corporation.
(f) Certificates. The certificate or certificates for the
shares issuable upon an exercise of an option shall be issued as
promptly as practicable after such exercise. An optionee shall not have
any rights of a shareholder in respect to the Nonvoting Common Shares
subject to an option until the date of issuance of a stock certificate
to him for such shares. In no case may a fraction of a share be
purchased or issued under the Plan, but if, upon the exercise of an
option, a fractional share would otherwise be issuable, the Corporation
shall pay cash in lieu thereof.
(g) No Right to Continued Service. Nothing in this Plan or in
any agreement entered into pursuant hereto shall confer on any person
any right to continue his or her status as a director of the
Corporation or affect any rights the shareholders of the Corporation
may have to terminate his status as a director at any time.
-6-
<PAGE>
6. Adjustment of Shares. In the event of any change after the
effective date of the Plan in the outstanding stock of the Corporation by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination of shares, exchange of shares, merger or consolidation, liquidation,
or any other change after the effective date of the Plan in the nature of the
shares of stock of the Corporation, the Committee shall determine what changes,
if any, are appropriate in the number and kind of shares reserved under the
Plan, and in the option price under and the number and kind of shares covered by
outstanding options granted under the Plan. Any such determination of the
Committee hereunder shall be conclusive.
7. Amendment. The Board of Directors of the Corporation may amend the
Plan from time to time and, with the consent of the optionee, the terms and
provisions of his option, except that without approval by the voting
shareholders of the Corporation:
(a) amendments will not be made which would cause the Plan or
transaction by directors thereunder to cease to comply with Rule 16b-3
promulgated under the 1934 Act, or any successor rule; and
(b) the number of shares subject to options to be granted to
Outside Directors or the date of grant or the exercise price and other
terms thereof shall not be changed
-7-
<PAGE>
except as provided in Section 6 hereof; provided, further, that if and
only to the extent required by Rule 16b-3 under the 1934 Act, as in
effect from time to time, under no circumstances may the Plan be
amended more than once every six (6) months.
No amendment of the Plan, however, may, without the consent of the
optionees, make any changes in any outstanding options theretofore granted under
the Plan which would adversely affect the rights of such optionees.
8. Termination. The Board of Directors of the Corporation may terminate
the Plan at any time and no option shall be granted thereafter; provided,
however, that the Plan shall automatically terminate when options covering all
shares reserved under the Plan have been granted. Such termination, however,
shall not affect the validity of any option theretofore granted under the Plan.
9. Successors. The Plan shall be binding upon the successors and
assigns of the Corporation.
10. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Corporation, the optionees and their
successors in interest shall, except to the extent governed by federal law, be
governed by Indiana law.
-8-
<PAGE>
11. Government and Other Regulations. The obligations of the
Corporation to issue or transfer and deliver shares under options granted under
the Plan shall be subject to compliance with all applicable laws, governmental
rules and regulations, and administrative action.
12. Investment Representations. Unless the shares subject to an option
are registered under applicable federal and state securities laws, each Optionee
by accepting an option shall be deemed to agree for himself and his legal
representatives that any option granted to him and any and all Nonvoting Common
Shares purchased upon the exercise of the option shall be acquired for
investment and not with a view to, or for sale in connection with, any
distribution thereof. Unless the shares subject to an option are registered
under applicable federal and state securities laws, each notice of the exercise
of any portion of an option shall be accompanied by a representation in writing,
signed by the Optionee or his legal representatives, as the case may be, that
the Nonvoting Common Shares are being acquired in good faith for investment and
not with a view to, or for sale in connection with, any distribution thereof
(except in case of the Optionee's legal representatives for distribution, but
not for sale, to his legal heirs, legatees and other testamentary
beneficiaries). Any shares issued pursuant to an exercise of an option may bear
a legend evidencing such representations and restrictions.
-9-
<PAGE>
13. Effective Date. The Plan shall become effective when it shall have
been approved by the Corporation's Board; provided, however, that the granting
of any options under the Plan is conditional upon the approval of the Plan by
the holders of at least a majority of the voting common shares of the
Corporation voting in person or by proxy at a duly constituted meeting, or
adjournment thereof, held before the one (1) year anniversary of the date on
which this Plan is adopted by the Board, and the options granted pursuant to the
Plan may not be exercised until the Board has been advised by counsel that such
approval has been obtained and all other applicable legal requirements have been
met; provided, further, that if such shareholder approval does not occur before
the one (1) year anniversary of the date on which the Board approves the Plan,
the Plan and all outstanding options shall be deemed terminated.
This Plan has been approved by the Board of Directors of Peoples Bank
Corporation of Indianapolis on this 20th day of June, 1996.
PEOPLES BANK CORPORATION OF
INDIANAPOLIS
By: /s/ William E. McWhirter
-----------------------------
William E. McWhirter,
President and Chief
Executive Officer
-10-
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Peoples Bank Corporation of Indianapolis
Indianapolis, Indiana
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Reg. 33- 98772) of Peoples Bank Corporation of Indianapolis of our
Independent Auditor's Report, dated February 14, 1997, on the consolidated
balance sheets of Peoples Bank Corporation of Indianapolis as of December 31,
1995 and 1996 and on the consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, which report is included in Form 10-K of Peoples Bank
Corporation for the year ended December 31, 1996.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Indianapolis, Indiana
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000796322
<NAME> Peoples Bank Corporation of Indianapolis
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 32,252
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,589
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 333,374
<ALLOWANCE> 3,900
<TOTAL-ASSETS> 471,478
<DEPOSITS> 411,805
<SHORT-TERM> 10,266
<LIABILITIES-OTHER> 4,058
<LONG-TERM> 0
<COMMON> 15,725
0
0
<OTHER-SE> 29,624
<TOTAL-LIABILITIES-AND-EQUITY> 471,478
<INTEREST-LOAN> 26,211
<INTEREST-INVEST> 5,151
<INTEREST-OTHER> 889
<INTEREST-TOTAL> 32,251
<INTEREST-DEPOSIT> 13,471
<INTEREST-EXPENSE> 14,044
<INTEREST-INCOME-NET> 18,207
<LOAN-LOSSES> 1,125
<SECURITIES-GAINS> (63)
<EXPENSE-OTHER> 14,794
<INCOME-PRETAX> 7,725
<INCOME-PRE-EXTRAORDINARY> 5,409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,409
<EPS-PRIMARY> 3.41
<EPS-DILUTED> 3.41
<YIELD-ACTUAL> 7.82
<LOANS-NON> 234
<LOANS-PAST> 49
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<LOANS-PROBLEM> 12,700
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