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, 1998
or
For the transition period from ________________ to ________________
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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. [ ]
The aggregate market value of the shares of the issuer's voting stock held by
non-affiliates, as of March 12, 1999, was $1,283,363 (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 12, 1999, was 2,734,194 shares. The number of Voting
Common Shares of the Registrant, without par value, as of such date was 264,096.
<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. The Company has two classes of common
stock - Voting Common Shares and Nonvoting Common Shares. The Nonvoting Common
Shares began trading on the NASDAQ National market following an initial public
offering in February, 1994. The Company has experienced significant growth in
the five years since its intial public offering. Total assets have increased
from $366 million on December 31, 1993 to $635 million on December 31, 1998.
Peoples offers a broad range of lending, deposit, loan servicing and trust
services to individual, governmental and commercial customers. The Company
operates under a conservative management philosophy and is dedicated to
providing personal service coupled with competitive products and pricing.
Management believes that Peoples' position as the largest locally owned and
headquartered commercial bank in Indianapolis distinguishes it from its
competitors based on its established reputation, local ownership and local
decision making authority. With an emphasis on developing strong, primary
banking relationships with businesses and individuals in its market area,
Peoples focuses its commercial lending efforts on small and medium-sized
independent companies and its real estate lending efforts 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 conducts its business through its
downtown Indianapolis headquarters and through 12 offices located throughout the
greater Indianapolis area. In March 1999, Peoples announced its intention to
close three branches during 1999. At December 31, 1998, Company had 223
full-time equivalent employees.
The Company's principal office is located at 130 East Market Street,
Indianapolis, Indiana, 46204.
Competition
Peoples' market area is the greater Indianapolis area, which includes Marion
County, Indiana and certain contiguous townships of surrounding counties. This
market area is highly competitive. Peoples has a relatively small share of the
market, which management currently estimates as being between 2% and 3% of
aggregate 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 the customer.
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, no foreign loans, and no "highly leveraged
transactions," as defined by the banking regulators. 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 that
Peoples can loan to one borrower, generally to 15% of capital and unimpaired
surplus, or $8.1 million at December 31, 1998. The amount of loans outstanding
(excluding loans held for sale) and the percent of the total represented by each
type of loan on the dates indicated are reflected in the following table.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction ... $ 34,840 7.71% $ 25,364 6.23% $ 23,644 7.10% $ 31,965 11.79% $ 19,162 8.94%
Mortgage ....... 97,755 21.62 94,276 23.17 75,247 22.60 72,852 26.87 48,021 22.40
Commercial ..... 211,115 46.70 185,089 45.49 156,755 47.08 97,914 36.12 78,870 36.79
Consumer ....... 106,431 23.54 100,139 24.61 75,187 22.58 66,132 24.40 65,722 30.66
Tax-exempt loans 1,924 .43 2,025 .50 2,120 0.64 2,230 0.82 2,615 1.21
Total loans .... 452,065 100.00% 406,893 100.00% 332,953 100.00% 271,093 100.00% 214,390 100.00%
Less:
Allowance for
loan losses..... 7,684 5,516 3,900 3,290 2,704
-------- -------- -------- -------- --------
Net loans....... $444,381 $401,377 $329,053 $267,803 $211,686
======== ======== ======== ======== ========
</TABLE>
A classification of amounts due in the periods indicated for commercial and real
estate construction loans as of December 31, 1998 is indicated in the following
table. 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.
<TABLE>
<CAPTION>
After 1
But
Within Within After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial...................................... $103,427 $95,236 $12,452 $211,115
Real estate -- construction..................... 26,552 7,137 1,151 34,840
------ ----- ----- ------
Total $129,979 $102,373 $13,603 $245,955
======== ======== ======= ========
Interest sensitivity: loans maturing after 1 year with:
Fixed rates..................................... $33,980 $1,546
Variable rates.................................. 68,393 12,057
------ ------
Total........................... $102,373 $13,603
======== =======
</TABLE>
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 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.
The following table presents information concerning the activity in the
allowance for loan losses for the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at
beginning of period .......... $ 5,516 $ 3,900 $ 3,290 $ 2,704 $ 2,513
Recoveries of loans previously
charged off:
Commercial loans ............. 1,420 255 36 83 113
Consumer loans ............... 39 49 41 92 66
Mortgage loans ............... 0 0 15 0 0
------- ------- ------- ------- -------
Total recoveries 1,459 304 92 175 179
Loans charged off:
Commercial loans ............. 2,647 382 257 103 275
Consumer loans ............... 144 106 350 74 136
Mortgage loans ............... 0 0 0 (52) 105
------- ------- ------- ------- -------
Total charge-offs 2,791 488 607 125 516
------- ------- ------- ------- -------
Net charge-offs . (1,332) (184) (515) 50 (337)
Provision for loan losses .... 3,500 1,800 1,125 536 528
------- ------- ------- ------- -------
Balance of allowance at
end of period ................ $ 7,684 $ 5,516 $ 3,900 $ 3,290 $ 2,704
======= ======= ======= ======= =======
Net charge-offs to average
loans outstanding for period . .31% .05% 0.17% (0.02)%
0.18%
Allowance at end of period to
loans at end of period ....... 1.69 1.35 1.17 1.20 1.26
Allowance to underperforming
loans at end of period ....... 1,074.69 141.15 1,378.09 256.43 164.38
</TABLE>
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,
1998 1997 1996
---------------------------------- ------------------------------------- ---------------------------------------
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 $4,552 59.24% 54.84% $2,597 47.08% 52.22% $1,124 28.82% 54.82%
Consumer loans .. 1,588 20.67 23.54 528 9.57 24.61 398 10.21 22.58
Mortgage loans .. 267 3.47 21.62 237 4.30 23.17 378 9.69 22.60
Unallocated ..... 1,277 16.62 N/A 2,154 39.05 N/A 2,000 51.28 N/A
------ ------ ------ ------ ------ ------ ------ ------ ------
Total ........... $7,684 100.00% 100.00% $5,516 100.00% 100.00% $3,900 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
1995 1994
---------------------------------- -------------------------------------
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 $ 839 25.50% 48.73% $ 709 26.22% 46.94%
Consumer loans . 350 10.64 24.40 594 21.97 30.66
Mortgage loans . 377 11.46 26.87 121 4.47 22.40
Unallocated .... 1,724 52.40 N/A 1,280 47.34 N/A
------ ------ ------ ------ ------ ------
Total .......... $3,290 100.00% 100.00% $2,704 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
Underperforming 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.
Underperforming loans include those loans that are on nonaccrual status, are 90
days or more past due as to principal or interest or those that are
restructured. Problem assets consist of underperforming loans and other real
estate (more fully described below). The following table shows the principal
balance of problem assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual ......................... $ 356 $ 3,626 $ 234 $ 838 $ 970
Contractually past due 90
days or more as to
principal or interest .............. 105 16 49 445 675
Restructured ....................... 254 266 0 0 0
-------- -------- -------- -------- --------
Total underperforming loans ........ 715 3,908 283 1,283 1,645
Other real estate .................. 0 209 236 240 0
-------- -------- -------- -------- --------
Total problem assets ............... $ 715 $ 4,117 $ 519 $ 1,523 $ 1,645
======== ======== ======== ======== ========
Total loans, including loans
held for sale ...................... $454,412 $407,454 $333,374 $273,650 $215,151
Allowance for loan losses .......... 7,684 5,516 3,900 3,290 2,704
Underperforming loans to total loans .16% .96% 0.09% 0.47% 0.76%
Problem assets to total
loans plus other real estate
owned .............................. .16% 1.01% 0.16% 0.56% 0.76%
Allowance for loan losses
to underperforming loans ........... 1,074.69% 141.15% 1,378.09% 256.43% 164.38%
</TABLE>
Other Real Estate. Other real estate ("ORE") are properties of which Peoples has
taken possession. The carrying value of ORE was $0 at December 31, 1998,
$209,000 at December 31, 1997, and $236,000 at December 31, 1996. ORE is carried
at the lower of cost (fair value at foreclosure) or fair value, less expected
disposition cost.
Management typically evaluates loss exposure on loans are loans which have
deteriorated to the point that the borrower is no longer paying as agreed and
have 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) based on
the liquidation value of the underlying collateral. The relatively large volume
of nonaccrual loans in 1997 was primarily attributable to a single large credit
which was subsequently charged-off in March of 1998. At December 31, 1998,
excluding nonaccrual loans, loans which were 60 days or more past due were as
follows:
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in thousands)
Commercial Mortgage Consumer
<C> <C> <C> <C>
60-89 days past due............... $0 $0 $1,299
More than 90 days past due........ 0 0 105
</TABLE>
Impaired 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. All commercial
loans exceeding $500,000 and rated as doubtful are considered impaired. All
commercial loans exceeding $500,000 and rated as substandard are individually
considered for impairment. Residential mortgage loans and consumer credits are
not typically individually considered for the purpose of assessing any
impairment. 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
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 1998,
Peoples identified loans with an average balance of $3,081,000 as impaired. At
year end, $0 of loans were so designated and none 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. 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, change in an industry which could
adversely affect a borrower, 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.
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. 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. 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 loans.
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. At December 31, 1998, the Company had a total of
$16.6 million of loans on its commercial loan watch list.
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. Peoples' securities policy is established by the Board of
Directors and monitored by the Investment Policy Committee, which consists of
three 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. Securities are designated as "available-for-sale" because they
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 are carried at amortized cost. At
December 31, 1998, all securities were considered "available for sale." The
following table presents, by category of investment and designation, the
carrying value of securities at the dates indicated.
<TABLE>
<CAPTION>
Carrying Value
December 31,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Available-for sale securities:
U.S. Treasury securities..................... $ 0 $7,093 $7,031
Obligations of U.S. Government
agencies and government
sponsored agencies........................... 8,520 13,855 8,989
Obligations of states and
political subdivisions....................... 24,855 27,846 32,634
Mortgage-backed investments:
Issued by U.S. Government
agencies....................... 91,785 100,932 41,620
Issued by other corporate
entities....................... 0 0 731
Debt securities issued by foreign
governments.................................. 75 75 75
Corporate securities......................... 6,981 4,069 3,509
-------- -------- -------
Total securities............... $132,216 $153,870 $94,589
======== ======== =======
</TABLE>
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, the amortized cost and the weighted average yield of securities held
as of December 31, 1998. 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.
<TABLE>
<CAPTION>
Less than 1 to 5 5 to 10 More than
1 Year Years Years 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Obligation of U.S.
government agencies and
government sponsored agencies $ 1,695 6.92% $ 6,826 6.51% -- -- -- -- $ 8,520 6.59%
Obligations of states
and political
subdivisions ................ 2,972 6.04% 5,031 5.99 12,826 5.63 4,025 5.10 24,855 5.67
Debt securities issued
by foreign governments ...... -- -- 75 7.95 -- -- -- -- 75 7.95
Corporate securities ........ 2,782 8.43 1,699 6.30 -- -- 2,500 8.00 6,981 7.76
Mortgage-backed investments 59,728 6.52 31,456 6.44 601 6.24 -- -- 91,785 6.49
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total ....................... $ 67,177 6.58 $ 45,087 6.39 $ 13,427 5.66 $ 6,525 6.21 $132,216 6.41
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</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 noninterest-bearing and interest-bearing components
of deposits at the dates indicated.
December 31,
1998 1997 1996
---- ---- ----
(In thousands)
Deposits:
Non-interest bearing.......... $ 98,851 $82,132 $83,911
Interest-bearing.............. 452,178 426,179 327,894
------- ------- -------
Total deposits................ $551,029 $508,311 $411,805
======= ======== ========
Total deposits/total assets... 86.84% 84.93% 87.34%
<PAGE>
Peoples regularly accepts time deposits issued in denominations of $100,000 or
more. The contractual maturity of such deposits was as follows at the dates
indicated:
December 31,
1998 1997
---- ----
(In thousands)
Maturity distribution of time
certificates in amounts of $100,000 or more:
Three months or less............................... $28,543 $39,571
Over three months to six months.................... 10,191 9,281
Over six months.................................... 9,008 3,018
Over twelve months................................. 8,246 17,603
----- ------
Total............................... $55,988 $69,473
======= =======
Borrowings. Repurchase agreements comprised the single largest form of
non-deposit borrowings of Peoples during 1998. 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, are
exclusively made with corporate customers, and have been a relatively stable
source of funds for Peoples. Peoples also borrows from the Federal Home Loan
Bank of Indianapolis ("FHLB"). Long-term FHLB advances are secured by a blanket
pledge of Peoples' assets and mature during January 2008, but are convertible to
a LIBOR-based rate at the option of the FHLB in January 2003. If converted,
Peoples has the option to pay off the advance. Peoples also occasionally
borrowed from the FHLB on an overnight basis during 1998. Peoples also borrows
from the U.S. Treasury through the Treasury Tax & Loan program. These borrowings
are due on demand and bear interest at market rates.
No category of borrowings had average balances outstanding during 1998 of more
than 30% of shareholders' equity at the end of the period.
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.
Under the BHCA, a bank holding company must obtain Federal Reserve approval to
acquire or hold more than a 5% voting interest in any bank or bank holding
company. The BHCA also restricts non-banking activities of a bank holding
company to those activities which are closely related to banking. Permissible
activities include 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. Amendments to the BHCA, which
took effect September 29, 1995, allow bank holding companies 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.
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.
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.
The payment of dividends from Peoples to the Company may be restricted if income
or capital fall below certain prescribed levels. The payment of dividends by the
Company to shareholders may also be restricted by the Federal Reserve and FDIC
if income is not deemed sufficient.
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. Also,
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.
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. 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 enacted legislation
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.
Capital Adequacy Guidelines for Bank Holding Companies. The Company is subject
to regulatory capital requirements promulgated by its various regulators - the
Federal Reserve, the FDIC, and the DFI. 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%.This
establishes a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations. 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 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 was in full compliance with all regulatory capital requirements at
December 31, 1998. The following table indicates the Company's actual capital
levels at the dates indicated:
At December 31,
1998 1997 1996
(Dollars in thousands)
Total assets (1) ....................... $633,283 $597,861 $471,192
Risk-based assets ...................... 482,817 428,689 346,971
Tier I capital ......................... 51,235 48,192 45,063
Total capital .......................... 57,291 53,553 48,963
Leverage ratio ......................... 8.01% 8.26% 9.62%
Tier I risk-based capital ratio......... 10.61 11.24 12.99
Total risk-based capital ratio ......... 11.87 12.49 14.11
(1) Adjusted to exclude net unrealized gain/loss on available-for-sale
securities.
The FDIC has adopted risk-based capital ratio guidelines to which Peoples is
subject. The FDIC has established a regulatory minimum for total risk-based
capital ratio of 8% of risk-weighted assets and a minimum Tier I leverage ratio
of 4% for all but the most highly-rated institutions, which are subject to a
leverage ratio of 3%. Capital ratios for Peoples at December 31, 1998 are shown
below:
Peoples
Total Risk-Based Capital to Risk-Weighted Assets..................11.07%
Tier I Capital to Risk-Weighted Assets............................ 9.82
Tier I Leverage Ratio............................................. 7.40
The most stringent capital requirements affecting Peoples, however, are those
established by the prompt corrective action provisions of FDICIA, which
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 may order a bank
that has insufficient capital to take corrective actions. Peoples currently is
categorized as "well capitalized," meaning that 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.
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.
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.
Forward Looking Statements
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company or Peoples or their directors
or officers, primarily with respect to future events and the future financial
performance of the Company. The Company may also make other written or oral
forward looking statements from time to time. Any such forward looking
statements are not guarantees of future events or performance, involve risks and
uncertainties and are subject to important factors that may cause actual results
to differ materially from those projected or suggested in the forward looking
statements. The accompanying information contained in this Form 10-K identifies
important factors that could cause such differences. These factors include
changes in interest rates; competition, including the risk of loss of deposits
and loan demand to other financial institutions; substantial changes in
financial markets; changes in real estate values and the real estate market;
regulatory changes; or unanticipated results in pending legal proceedings.
Item 2. Properties.
The Company's executive offices are located at Peoples' main office building,
which is a twelve story building located in downtown Indianapolis owned by
Peoples Building Corporation, a wholly-owned subsidiary of Peoples Bank & Trust
Company. The main office, executive offices, and other administrative offices
occupy seven floors of this building, and the remaining five floors are leased
to other tenants. At December 31, 1998, Peoples operated 13 customer service
offices, 8 of which are owned (including the main office) and 5 of which are
leased under lease agreements with remaining terms (including renewal options)
ranging from .6 to 21.2 years. The Company has announced plans to close three of
its service offices during 1999. The Company will develop plans and analyze
opportunities to expand or contract the number of locations if the opportunity
appears profitable. Peoples' operations center on the north side of Indianapolis
is leased for a term (including renewal options) ending 2010. The Company's
total investment in premises and equipment at December 31, 1998 was $8,105,000.
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 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.
No matters were submitted during the fourth quarter of 1998 to a vote of
security holders, through the solicitation of proxies or otherwise.
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 5, 1999.
Trading Period High Low
01/01/95 - 12/31/95 12 5/8 9 1/2
01/01/96 - 12/31/96 18 3/8 12 1/8
01/01/97 - 03/31/97 22 1/4 17 1/2
04/01/97 - 06/30/97 26 1/4 21 3/4
07/01/97 - 09/30/97 35 1/4 25 1/2
10/01/97 - 12/31/97 37 3/4 29 3/4
01/01/98 - 03/31/98 403/4 351/4
04/01/98 - 06/30/98 38 3/8 32
07/01/98 - 09/30/98 36 27 5/8
10/01/98 - 12/31/98 34 3/8 28
01/01/99 - 3/5/99 343/4 32
As of March 12, 1999, there were 208 holders of record of the Company's
Nonvoting Common Shares, of which 2,734,194 were issued and outstanding. As of
such date, there were 35 holders of record of the Company's Voting Common
Shares, of which 264,096 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.
In the fiscal year ended December 31, 1998, the Company issued Nonvoting Common
Shares to certain individuals upon the exercise of options granted under the
Company's option plans. The Company issued 200 shares to a former director of
the Company in respect of options exercised pursuant to the Directors Plan, and
issued 500 shares and 2,460 shares, respectively, to two executive officers in
respect of options exercised pursuant to the 1996 Plan. All of such shares were
issued pursuant to the exemption provided in Section 4(2) of the Securities Act
of 1933, as amended.
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 1997 are as follows:
Cash Dividends
Per Common Share
Calandar Quarter
1997
First Quarter................................... $0.105
Second Quarter.................................. 0.11
Third Quarter................................... 0.115
Fourth Quarter.................................. 0.12
1998
First Quarter................................... $0.125
Second Quarter.................................. 0.13
Third Quarter................................... 0.135
Fourth Quarter.................................. 0.14
On March 18, 1999, the Company declared a dividend of $0.145 per share payable
to shareholders of record March 31, 1999. 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.
On June 19, 1997, the Board of Directors of the Company approved a split of the
Company's Voting Common Shares and Nonvoting Common Shares, on the basis of two
shares for each one of the issued and outstanding shares of each class, as of
the close of business on June 30, 1997. The foregoing data give retroactive
effect to such 2-for-1 share split.
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, 1998. 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.
<PAGE>
<TABLE>
<CAPTION>
As Of and For The
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Income Data:
Interest income.............................. $47,554 $39,729 $32,251 $31,034 $24,806
Interest expense............................. 22,601 18,119 14,044 14,869 10,462
------ ------ ------ ------ ------
Net interest income.......................... 24,953 21,610 18,207 16,165 14,344
Provision for loan losses.................... 3,500 1,800 1,125 536 528
----- ----- ----- --- ---
Net interest income after
provision for loan losses......... 21,453 19,810 17,082 15,629 13,816
Non-interest income.......................... 6,981 5,953 5,437 4,868 4,819
Non-interest expense......................... 19,028 16,469 14,794 15,316 14,885
------ ------ ------ ------ ------
Income before income taxes................... 9,406 9,294 7,725 5,181 3,750
Income taxes................................. 2,999 3,016 2,316 1,295 865
----- ----- ----- ----- ---
Net income........................ $ 6,407 $6,278 $5,409 $3,886 $2,885
======= ====== ====== ====== ======
Consolidated Balance Sheets Data:
Assets....................................... $ 634,505 $598,476 $471,478 $417,019 $425,075
Held-to-maturity securities.................. 0 -- -- -- 113,823
Available-for-sale securities................ 132,216 153,870 94,589 107,745 55,177
Loans held for sale.......................... 2,346 561 421 2,557 761
Total loans.................................. 452,065 406,893 332,953 271,093 214,390
Allowance for loan losses.................... 7,684 5,516 3,900 3,290 2,704
Deposits..................................... 551,029 508,311 411,805 351,762 346,577
Shareholders' equity......................... 52,025 48,817 45,349 41,636 38,477
Average shares outstanding basic............. 3,061,172 3,112,319 3,168,260 3,190,644 3,364,042
Average shares outstanding diluted........... 3,137,880 3,153,051 3,178,202 3,190,644 3,364,042
Per Share Data:
Net Income basic............................. 2.09 2.02 1.71 1.22 0.86
diluted...................................... 2.04 1.99 1.70 1.22 0.86
Cash dividends declared...................... .53 0.45 0.38 0.35 0.33
Book value (1)............................... 17.21 15.87 14.42 13.10 11.82
Other Statistics and Operating Data:
Return on average assets..................... 1.02% 1.18% 1.21% 0.89% 0.73%
Return on average equity..................... 12.90 13.40 12.62 9.70 7.56
Net interest margin (2)...................... 4.34 4.48 4.67 4.27 4.21
Efficiency ratio (3)......................... 57.19 57.90 60.06 69.18 73.48
Average loans to average deposits............ 79.15 75.80 76.27 70.65 57.75
Dividend payout ratio........................ 25.27 22.24 21.91 28.64 38.37
Allowance for loan losses to loans
at the end of period......................... 1.69 1.35 1.17 1.20 1.26
Allowance for loan losses to
Underperforming loans........................ 1,074.69 141.15 1,378.09 256.43 164.38
Underperforming loans to loans
at the end of period......................... .16 0.96 0.09 0.47 0.76
Net charge-offs to average loans............. .31 .05 0.17 (0.02) 0.18
Number of offices............................ 13 13 13 15 15
Capital Ratios:
Average shareholders' equity to
average assets............................... 7.94% 8.78% 9.61% 9.14% 9.62%
Leverage ratio............................... 8.01 8.26 9.62 9.93 9.26
Total risk-based capital ratio............... 11.87 12.49 14.11 14.83 15.34
</TABLE>
(1) Based on Common Shares outstanding at the end of the period.
(2) Net interest income as a percentage of average interest-earning assets, on
a fully tax equivalent basis.
(3) 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.
<PAGE>
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 and investment services to individuals, businesses and
institutions. Peoples operates 12 banking offices in Indianapolis and an
operations center on the north side of Indianapolis. Peoples has announced plans
to close three branches during 1999 as part of its ongoing evaluation of its
business activities. The Company will develop plans and analyze opportunities to
expand or further contract its number of locations if the expansion or
contraction appears to represent a profitable opportunity.
Earnings Summary
The Company's net income for 1998 was $6,407,000 compared with net income for
1997 of $6,278,000, an increase of $129,000 or 2.1%. Net income for 1996 was
$5,409,000. Earnings per share assuming full dilution were $2.04 in 1998, $1.99
in 1997, and $1.70 for 1996. The fully diluted number of shares used in the
computation of earnings per common share were 3,137,880 shares in 1998,
3,153,051 shares in 1997, and 3,178,202 shares in 1996.
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, 1998,
1997, and 1996, net interest income was $24,953,000, $21,610,000, and
$18,207,000, respectively. This represents an increase in 1998 of $3,343,000
(15.5%), and an increase in 1997 of $3,403,000 (18.7%). Increased net interest
income contributed significantly to the net income growth during the period.
Average earning assets increased to $590,906,000 in 1998 from $502,485,000 in
1997, an increase of $88,421,000 (17.6%). Average loans increased $68,633,000
(18.7%) to $434,788,000 in 1998. Increasing loan balances were a primary driver
for the increase in net interest income during 1998. Increases in investment
security balances were also a source of growth in net interest income, as
investment securities increased $24,148,000 to $145,862,000 in 1998. As part of
its efforts to balance interest rate risk, the Company increased the balances in
fixed rate investment securities during 1997. As interest rates declined during
1998, this contributed to an increase in the unrealized gain on investment
securities (net of tax) to $737,000 at December 31, 1998 from $615,000 at
December 31, 1997. Increases in loans and securities were funded through
significant increases in time deposits. Average interest bearing liabilities
increased $82,777,000 (20.7%) to $483,439,000 in 1998 from $400,662,000 in 1997.
The following table 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.
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ------------------------ -------------------------------- ------------------------------- ---------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-earning deposits $ -- $ -- 0.00% $ -- $ -- 0.00% $ 833 $ 45 5.40%
Federal funds sold 10,256 557 5.43% 14,616 730 4.99% 15,995 844 5.28%
Investment securities
Taxable 122,710 7,938 6.47% 87,529 5,758 6.58% 62,814 3,372 5.37%
Tax-exempt 23,152 1,248 5.39% 34,185 1,577 4.61% 35,167 1,779 5.06%
Loans 432,812 37,686 8.71% 364,081 31,532 8.66% 294,141 26,074 8.86%
Tax-exempt loans 1,976 125 6.33% 2,074 132 6.35% 2,169 137 6.32%
------------------------ ------------------------- ------------------------
Total interest-
earning assets 590,906 47,554 8.05% 502,485 39,729 7.91% 411,119 32,251 7.84%
Non-earning assets:
Cash and due from banks
21,819 21,570 24,571
Bank premises and
equipment, net 6,853 6,515 7,127
Other non-earning assets 12,123 7,722 6,957
Allowance for loan
losses (6,616) (4,739) (3,634)
------------ ------------ -------------
Total Assets $ 625,085 $ 533,553 $ 446,140
============ ============ =============
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Transaction accounts $ 37,695 465 1.23% $ 36,262 574 1.58% $ 37,342 772 2.07%
Savings deposits 188,789 7,638 4.05% 180,701 6,826 3.78% 168,726 6,483 3.84%
Time deposits 233,501 13,371 5.73% 171,281 10,163 5.93% 103,597 6,216 6.00%
Short-term borrowings 23,454 1,127 4.81% 12,418 556 4.48% 12,222 573 4.69%
------------------------ ------------------------- ------------------------
Total interest-bearing 483,439 22,601 4.68% 400,662 18,119 4.52% 321,887 14,044 4.36%
liabilities
Non-interest-bearing liabilities:
Demand deposits 87,133 82,367 78,825
Other liabilities 4,862 3,656 2,556
Shareholders' equity 49,651 46,868 42,872
------------ ------------ -------------
Total liabilities and
shareholders' equity $625,085 $533,553 $ 446,140
============ ============ =============
Net interest income
24,953 21,610 18,207
Net interest spread 3.37% 3.39% 3.48%
Net interest margin 4.22% 4.30% 4.43%
Tax-equivalent data:
Tax-equivalent adjustment 707 880 987
------------ ------------- -----------
Adjusted net interest income $ 25,660 $ 22,490 $ 19,194
============ ========== ===========
Net interest spread 3.49% 3.56% 3.72%
Net interest margin 4.34% 4.48% 4.67%
</TABLE>
The spread between the rate paid on interest-earning assets and the rate paid on
interest-bearing liabilities was roughly unchanged, decreasing to 3.37% in 1998
from 3.39% in 1997. On a tax-adjusted basis, the spread decreased to 3.49% in
1998 from 3.56% in 1997. 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 decreased
to 4.22% in 1998 from 4.30% in 1997. On a tax-adjusted basis, the net interest
margin decreased to 4.34% in 1998 from 4.48% in 1997. The decrease in the
tax-adjusted margin can be attributed to the maturity of municipal bonds and to
the increasing reliance on interest-bearing deposits, rather than on
non-interest bearing deposits and equity, to fund loan growth.
The table below 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 $2,738,000 during 1998 as both investments
and loans grew and were funded by growth in time deposits and, to some extent,
savings deposits and borrowings. Savings rates were somewhat higher while
certificate of deposit and interest-bearing transaction account rates were
somewhat lower during 1998.
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1998 vs. 1997 1997 vs. 1996
Change Change Change
Total Due to Total Due to Due to
Change Volume Change Volume Rate
(Dollars in Thousands) (Dollars in Thousands)
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold & Interest -$173 -$227 $54 -$159 -$118 -$41
Earning Deposits
Securities $1,851 1,488 363 2,184 1,248 936
Loans 6,147 5,952 195 5,453 6,191 -738
Total Interest Income 7,825 7,213 612 7,478 7,321 157
Interest Expense:
Transaction Deposits -109 20 -129 -198 -22 -176
Savings Deposits 812 316 496 343 460 -117
Time Deposits 3,208 3,627 -419 3,947 4,061 114
Short-Term Borrowings 571 512 59 -17 9 -26
Total Interest Expense 4,482 4,475 7 4,075 4,508 -$433
Net Interest Income $3,343 2,738 605 $3,403 $2,813 $590
</TABLE>
Non-Interest Income
Non-interest income was $6,981,000 in 1998, $5,953,000 in 1997, and $5,437,000
in 1996. This reflected an increase in 1998 of $1,028,000 (17.3%) following an
increase of of $516,000 (9.5%) in 1997. Trust and investment management fees
increased both in 1998 and 1997, $701,000 (40.5%), and 389,000 (29.0%),
respectively. The increase in revenue from Peoples' Trust and Investment
Management Group in 1998 reflected continuing sales efforts within the trust
department. Peoples also experienced strong growth in revenues from the sale of
investment products, which began during 1997. 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 decreased $70,000 to $2,893,000
during 1998 following an increase of $452,000 to $2,963,000 during 1997.
Mortgage banking revenues included net gains and losses realized when mortgage
loans are sold into the secondary market, and service fee revenue earned from
servicing those loans after they are sold. 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 $699,000 in 1998, $430,000 in
1997, and $713,000 in 1996. This reflects an increase in 1998 of $269,000
(62.6%) against a decrease in 1997 of $283,000 (39.7%). The strong growth in
mortgage banking revenues during 1998 can be attributed to a focus on pricing
and high performance service rather than on volume. The decrease in mortgage
banking revenue during 1997 reflected a change in strategy which focused on less
volume and which placed an emphasis on loans that would not be sold into the
secondary market but would remain on the balance sheet. At December 31, 1998 the
Company serviced mortgage loans with an aggregate outstanding principal balance
of approximately $99,120,000.
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 1998, such sales, as
well as gains and losses realized when securities were called prior to their
maturity, generated net gains of $47,000, compared to net losses of $50,000
during 1997.
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 1998, 1997, and 1996, was $19,028,000, $16,469,000, and
$14,794,000, respectively. This reflects an increase of $2,559,000 (15.5%) in
1998 compared to an increase of $1,675,000 (11.3%) in 1997. More than half of
total non-interest expense was comprised of salaries and employee benefits.
Salaries and employee benefit expense increased $2,030,000 (22.6%) compared to
an increase of $965,000 (12.0%) in 1997. During 1997 and 1998, Peoples added
staff in critical areas to enhance its sales and service capacity to accommodate
its strong growth. Advertising expense decreased $151,000 in 1998 following an
increase of $147,000 in 1997. The variability of advertising costs was related
to the costs of direct mail required to originate second mortgages. Peoples has
been a relatively large investor in low-income housing partnerships. These
partnerships are intended to generate significant benefits in the form of tax
credits over a ten year period. Peoples accounts for these investments by
amortizing the cost of the partnerships over the same period as the benefits are
received. During 1998, Peoples recognized expense of $785,000, as compared to
expenses of $195,000 in 1997 and $129,000 in 1996. During 1997, Peoples invested
in a partnership to renovate an existing property in Indianapolis. The project
did not meet financial expectations. Since the project's inception, its losses
have exceeded Peoples' investment. Therefore, during 1997 and 1998, Peoples was
required to write-down the value of this investment to zero. At this time,
Peoples does not anticipate that the project will generate any tax credits. The
Company believes that it is entitled to recover its investment of $648,000, but
there can be no assurance that such recovery will ultimately be realized.
Income Taxes
Tax expense for 1998 decreased $17,000 due to slight growth in net income,
following an increase in tax expense of $700,000 during 1997. The Company from
time to time purchases tax-free securities and originates tax-free loans as a
means of generating tax-free income, effectively mitigating tax expense. As
previously mentioned, 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, 1998 and 1997 , were $2,981,000 and
$1,963,000. 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, 1998.
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.
<TABLE>
<CAPTION>
At December 31, 1998 Repriceable or Maturing Within
- ------------------------------------------------------------------------------------------------------------------------------------
0 to 3 3 to 6 6 Months 1 to 5 After 5
Months Months to 1 Year Years Years Total
------------- ------------- ------------- ------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 207,469 $ 33,270 $ 54,022 $152,497 $ 7,153 $454,411
Available for sale securities 35,458 15,954 23,237 47,971 9,596 132,216
------------- ------------- ----------- ------------- ------------- ----------
Total interest-earning assets 242,927 49,224 77,259 200,468 16,749 586,627
Interest-bearing liabilities:
Savings accounts 234,430 234,430
-
Time deposits 57,345 47,017 48,255 64,820 217,748
311
Short-term borrowings 16,918 6,000 22,918
------------- ------------- ----------- ------------- ------------- ----------
Total interest-bearing liabilities 308,693 47,017 48,255 70,820 475,096
311
------------- ------------- ----------- ------------- ------------- ----------
Asset (liability) gap $ (65,766) $ 2,207 $ 29,004 $129,648 $ 16,438 $111,531
============= ============= =========== ============= ============= ==========
Cumulative asset (liability) gap $ (65,766) $ (63,559) $(34,555) $ 95,093 $111,531
Cumulative gap to total assets -10.36% -10.02% -5.45% 14.99% 17.58%
</TABLE>
As of December 31, 1998, 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.
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 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 $452,065,000 at December 31, 1998 from $406,893,000
at December 31, 1997, an increase of $45,172,000 (11.1%). Increases in deposits
provided funding for loan growth in 1998. Total deposits at December 31, 1998
were $551,029,000, an increase of $42,718,000 from balances of $508,311,000, at
December 31, 1997.
A common measure of liquidity is the loan to deposit ratio. As of December 31,
the net loan to deposit ratio was 82.0% in 1998, and 80.1% in 1997. At these
levels, management believes that Peoples had adequate liquidity to meets it
current and future needs.
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, 1998 and 1997, such commitments totaled $156,562,000 and
$114,769,000, 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, 1998 and 1997, non-performing loans totaled
$416,000, and $3,642,000, respectively. As a percent of total loans,
non-performing loans were 0.10% at December 31, 1998, and .89% at December 31,
1997.
The provision for loan losses is a charge to earnings to provide for potential
future loan losses. The provision for loan losses was $3,500,000 in 1998,
$1,800,000 in 1997, and $1,125,000 in 1996. The significant increase in the
provision for loan losses in 1998 was considered appropriate by management in
response to higher net charge-offs and continued growth in the loan portfolio.
Management believes that Peoples' loan portfolio is less diversified than those
of similarly-sized community banks operating in smaller communities since the
competitive landscape of the Indianapolis marketplace requires Peoples to make
loans to corporate entities whose size may exceed those typically serviced by
community banks with assets of less than $1 billion. 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
$7,684,000 for 1998, and $5,516,000 for 1997. As a percent of total loans, the
allowance for loan losses was 1.69% at December 31, 1998, and 1.35% at December
31, 1997. Management's analysis indicates that the allowance for loan losses at
December 31, 1998 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 1998, 1997, and 1996, were $2,791,000, $488,000, and
$607,000, respectively. As a percentage of average loans, gross loan charge-offs
were .64%, .13%, and .21% for those periods. During the first quarter of 1998,
the Company recognized loan charge-offs of $2,211,000, which were related
primarily to a single borrower. A significant portion of this charge-off was
recovered during the remainder of the year. Gross recoveries in 1998, 1997, and
1996 were $1,459,000, $304,000, and $92,000. Net charge-offs for 1998 were
$1,332,000, compared to net charge-offs for 1997 of $184,000.
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 Company includes all loans
with outstanding balances exceeding $500,000 and rated as "Doubtful" as
impaired. Further, the Company evaluates all Substandard Loans with balances
exceeding $500,000 for classification as impaired. The Company's average
investment in impaired loans during 1998 and 1997 was $3,081,000 and $4,253,000
respectively. At December 31, 1998, $0 of loans were deemed to be impaired and
$0 of the allowance for loan losses was allocated to those loans. Generally,
impaired loans are placed on non-accrual status. 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.
Capital Position
In February, 1994, the Company completed an initial public offering of its
Non-Voting Common Shares. The shares were registered for trading on the NASDAQ
National Market System. Between 1994 and 1997 the Company repurchased a total of
373,134 of such shares. During 1998, 57,120 shares were repurchased. 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 Tier I leverage ratio of 4% for all but the most
highly-rated institutions, which are subject to a leverage ratio of 3%, and they
require a total risk-based capital ratio of at least 8%. The Company and Peoples
were in full compliance with all regulatory capital requirements at December 31,
1998. The following table indicates the Company's actual capital levels at the
dates indicated.
At December 31, 1998 1997 1996
Tier I capital $51,235 $48,192 $45,063
Total capital $57,291 $53,553 $48,963
Leverage ratio 8.01% 8.26% 9.62%
Tier 1 risk-based capital ratio 10.61% 11.24% 12.99%
Total risk-based capital ratio 11.87% 12.49% 14.11%
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issues Financial Accounting
Standards ("FAS") that affect Peoples.
FAS NO. 133, "Accounting for Derivative Instruments and Hedging Activities,"
will become effective January 1, 2000. FAS 133 will require all derivatives to
be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains, and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. Upon adoption of this Standard, entities may redesignate
securities as either available-for-sale or held-to-maturity. Management does not
expect adoption of this Standard to have a material effect but the effect will
depend upon derivative holdings upon adoption.
Year 2000 Compliance
Because computer memory was so expensive on early mainframe computers, some
computer programs used only the final two digits for the year in the date field
and assumed that the first two digits were "19". As a result, some computer
applications may be unable to interpret the change from year 1999 to year 2000.
In 1997, the Company established a Year 2000 ("Y2K") initiative to address the
issues associated with the Year 2000 date change. The Company relies on third
party data processing servicers or purchased applications software and hardware
for its technology needs. The Company's initiative involves five separate and
distinct steps - awareness, assessment, renovation, validation and
implementation.
The awareness phase defined the Y2K problem for management, and gained support
for the resources needed to successfully complete the project. During this
phase, Peoples installed a risk assessment system, established a Y2K project
team, and began gathering vendor information. The awareness phase, which was
completed in January 1998, involved a complete inventory of all systems
including software, hardware. firmware, and environmental. Each item in the
inventory was assigned a system significance rating. Corporate clients were also
contacted to assess their program Year 2000 compliance. The assessment phase was
completed in April 1998.
The renovation phase consisted of ongoing discussions and monitoring of vendor
progress toward Y2K compliance. As of December 31, 1998, all of the Company's
systems and applications are Year 2000 compliant. The final two phases,
validation and implementation, are substantially completed, with over 90% of
Peoples' mission-critical technology solutions tested and accepted by their
respective business units.
By June 30, 1999, management will complete business resumption plans for all
systems and applications to address any potential system failures caused by
actions or influences, such as the failure of power or communications
technologies outside the control of the Company. Estimated costs associated with
the Y2K initiative total slightly over $100,000. Most of these expenses
represent capital expenditures for software and hardware that will be amortized
over five years. Therefore, management believes that the financial impact of the
Y2K initiative is immaterial.
On the other hand, the risks for the Company in the event that either certain
mission-critical systems are not Year 2000 compliant or outside influences
prevent Peoples' systems from being fully operational are substantial. As a
financial institution, Peoples' largest volume of transactions involve
loan-related matters (such as loan origination, the acceptance of loan payments,
escrow-handling, and related matters) and deposit accounts (new account
openings, additions and withdrawls from accounts, interest crediting, checking
account transactions and related matters). Peoples' inability to process these
transactions in an efficient and timely manner would greatly impact its
operations. No estimate is available concerning possible lost revenue in the
event of a material Year 2000 problem. However, such loss of revenue would
likely be a material amount which could have a materially adverse effect on the
Company's financial performance and operations.
Federal and state bank regulators have reviewed the Company's plans and progress
in 1998 and early 1999 to verify that critical computer systems are modified and
tested, and that they will run smoothly when the year 2000 arrives.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. At March 12, 1999, Peoples had entered into variable pay
interest rate swaps in the notional amount of $80 million with other financial
institutions. This means that Peoples receives a fixed rate of interest
calculated on $80 million and pays a variable rate of interest, based on indices
such as LIBOR or the prime rate, calculated on $80 million. A total of $50
million of these swaps have delayed start features. The agreements expire
between September 1999 and December 2000. Only $30 million of these swaps are
currently active. These swaps were purchased to hedge risk because Peoples had
funded growth in variable rate assets with fixed rate CD's. If interest rates
had declined, bank earnings would have decreased on variable rate loans, which
would have been offset with earnings on the swaps. The Board of Directors has
approved a policy regarding derivative financial instruments, and has included
limits on the use of these instruments tied to the term of the swap and the
credit risk of the other financial institution. Peoples is also a party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of customers. These financial instruments
include commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require collateral from the
borrower if deemed necessary by Peoples. Standby letters of credit are
conditional commitments issued by Peoples to guarantee the performance of a
customer to a third party up to a stipulated amount and with specified terms and
conditions. Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the Company until the instrument is
exercised. Peoples' exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximize income. Management realizes that certain risks are inherent, and the
goal is to identify and minimize the risks. Tools used by management include the
standard GAP report and an interest rate shock simulation report. Peoples has no
market risk-sensitive instruments held for trading purposes. Management believes
that Peoples' market risk is reasonable at this time. The condensed GAP report
summarizing the Company's interest rate sensitivity is as follows:
TABLE OF MARKET RISK SENSITIVE INSTRUMENTS
The following table presents (dollars in thousands) the scheduled maturity of
market risk sensitive instruments at December 31, 1998:
<TABLE>
<CAPTION>
Fair
Maturing in: 1999 2000 2001 2002 2003 2004+ Total Value
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Securities $ 66,838 $ 27,153 $ 13,981 $ 6,769 $ 2,697 $ 5,397 $122,835 $122,835
Rate 6.70% 6.84% 6.24% 5.81% 5.45% 5.85% 6.55%
Variable Securities $ 3,287 $ 1,440 $ 1,879 $ 275 $ -- $ 2,500 $ 9,381 $ 9,381
Rate 6.87% 5.95% 6.28% 6.65% 0.00% 8.00% 6.91%
Fixed Rate Loans $ 55,212 $ 35,741 $ 19,702 $ 6,679 $ 3,572 $ 1,235 $122,141 $126,584
Rate 8.19% 8.30% 8.26% 8.08% 7.74% 7.31% 8.19%
Variable Rate Loans $ 76,423 $ 27,862 $ 13,876 $11,254 $ 9,562 $36,365 $175,343 $176,049
Rate 8.40% 8.51% 8.44% 8.42% 7.97% 8.35% 8.40%
Adjustable Rate Loans $ 49,340 $ 32,240 $ 21,330 $15,153 $10,383 $26,134 $154,581 $156,354
Rate 7.92% 7.82% 7.70% 7.65% 7.47% 7.24% 7.69%
Total $251,101 $124,437 $ 70,768 $40,129 $26,214 $71,630 $584,280 $591,203
Rate 7.79% 7.88% 7.68% 7.62% 7.48% 7.72% 7.75%
LIABILITIES
Savings, NOW, MMKT deposits $234,430 $ - $ -- $ -- $ -- $ -- $234,430 $234,430
Rate 3.37% -- -- -- -- -- 3.37%
CD's $152,617 $ 57,232 $ 4,020 $ 2,956 $ 612 $ 311 $217,748 $217,748
Rate 5.56% 5.24% 5.61% 6.04% 4.83% 7.44% 5.48%
Borrowings $ 16,918 $ -- $ -- $ -- $ 6,000 $ - $ 22,918 $ 24,374
Rate 3.98% -- -- -- 5.53% -- 4.39%
Total $403,965 $ 57,232 $ 4,020 $ 2,956 $ 6,612 $ 311 $475,096 $476,552
Rate 4.22% 5.24% 5.61% 6.04% 5.47% 7.44% 4.39%
</TABLE>
The following table presents (dollars in thousands) the scheduled maturity of
market risk sensitive instruments at December 31, 1997:
Maturing in:
<TABLE>
<CAPTION>
Fair
1998 1999 2000 2001 2002 2003+ Total Value
---- ---- ---- ---- ---- ----- ----- -----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Securities............ 48,221 35,398 23,925 13,145 9,271 8,841 138,801 138,801
Rate........................ 6.48% 6.44% 6.52% 6.39% 6.12% 6.16% 6.42%
Variable Securities......... 4,519 3,528 2,478 1,100 725 2,719 15,069 15,069
Rate........................ 6.62% 6.59% 6.65% 6.67% 6.70% 7.76% 6.83%
Fixed Rate Loans............ 43,899 22,232 11,309 5,056 1,472 1,388 85,356 86,518
Rate........................ 8.63% 8.68% 8.83% 8.88% 8.12% 8.13% 8.66%
Fixed Rate Loans............ 90,068 29,361 15,250 10,006 8,054 29,615 182,354 182,480
Rate........................ 9.06% 9.17% 9.17% 9.11% 9.11% 9.14% 9.11%
Adjustable Rate Loans....... 43,527 29,214 21,096 14,030 9,743 22,134 139,744 140,456
Rate........................ 8.16% 8.11% 8.02% 7.96% 7.91% 9.59% 8.32%
----- ----- ----- ----- ----- ----- -----
Total....................... 230,234 119,733 74,058 43,337 29,265 64,697 561,324 563,324
Rate........................ 8.16% 7.94% 7.85% 7.83% 7.65% 8.81% 8.12%
LIABILITIES
Savings, NOW,
MMKT Deposits............... 215,295 215,295 (215,295)
Rate........................ 3.60% 3.60%
CD's........................ 99,398 78,555 26,859 3,013 2,752 307 210,884 (211,773)
Rate........................ 5.36% 5.99% 6.09% 5.86% 6.09% 7.45% 5.71%
Short-Term Borrowings....... 34,380 34,380 (34,380)
Rate........................ 5.44% 5.44%
----- -----
Total....................... 349,073 78,555 26,859 3,013 2,752 307 460,559 (461,448)
Rate........................ 4.67% 5.99% 6.09% 5.86% 6.09% 7.45% 4.70%
</TABLE>
<PAGE>
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, 1998 and 1997, 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, 1998. 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 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, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
February 4, 1999
<PAGE>
Consolidated Balance Sheets
December 31, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Assets 1998 1997
<S> <C> <C>
Cash and cash equivalents $35,136 $25,462
Available-for-sale securities 132,216 153,870
Loans held for sale, net 2,346 561
Loans (net of allowance of $7,684 and $5,516) 444,381 401,377
Premises and equipment, net 8,105 7,482
Accrued income and other assets 12,321 9,724
------ -----
$634,505 $598,476
======== ========
Liabilities and Shareholders' Equity
Liabilities
Deposits
Non interest-bearing accounts $98,851 $82,132
Savings and NOW 234,430 215,295
Time deposits 217,748 210,884
------- -------
Total deposits 551,029 508,311
Borrowings 22,918 34,380
Accrued expenses and other liabilities 8,533 6,968
----- -----
Total liabilities 582,480 549,659
------- -------
Shareholders' equity Common shares, no par value:
Authorized:
Voting - 300,000 shares
Non-voting - 4,000,000 shares
Issued:
Voting - 264,096 shares (1998)
and 264, 216 shares (1997) 896 897
Non-voting - 2,758,794 shares (1998)
and 2,812,634 shares (1997) 11,384 13,085
Retained earnings 39,008 34,220
Accumulated other comprehensive income 737 615
--- ---
Total shareholders' equity 52,025 48,817
------ ------
$634,505 $598,476
======== ========
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
Interest income
<S> <C> <C> <C>
Loans, including related fees $37,811 $31,664 $26,211
Federal funds sold 557 730 889
Securities
Taxable 7.938 5,758 3,372
Tax exempt 1,248 1,577 1,779
----- ----- -----
Total interest income 47,554 39,729 32,251
Interest expense
Deposits 21,474 17,563 13,471
Borrowings 1,127 556 573
----- --- ---
Total interest expense 22,601 18,119 14,044
------ ------ ------
Net interest income 24,953 21,610 18,207
Provision for loan losses 3,500 1,800 1,125
----- ----- -----
Net interest income after provision for loan losses 21,453 19,810 17,082
Non-interest income
Trust and Investment Management 2,432 1,731 1,342
Service charges and fees 2,893 2,963 2,511
Mortgage banking revenue 699 430 713
Net gain/loss on securities 47 (50) (63)
Other 910 879 934
--- --- ---
Total non-interest income 6,981 5,953 5,437
Non-interest expense
Salaries and employee benefits 11,024 8,994 8,029
Occupancy (net) 1,634 1,546 1,602
Equipment 1,714 1,078 1,010
Advertising 370 521 374
Other 4,286 4,330 3,779
----- ----- -----
Total non-interest expense 19,028 16,469 14,794
------ ------ ------
Income before income taxes 9,406 9,294 7,725
Income tax expense 2,999 3,016 2,316
----- ----- -----
Net income $6,407 $6,278 $5,409
====== ====== ======
Per share data
Earnings per share $2.09 $2.02 $1.71
===== ===== =====
Earnings per share, assuming dilution $2.04 $1.99 $1.70
===== ===== =====
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Changes
in Shareholders' Equity
Years ended December 31, 1998, 1997 and
1996 (Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Retained Accumulated Other
Shares Earnings Comprehensive Income Total
<S> <C> <C> <C> <C>
Balance January 1, 1996 $16,284 $25,114 $238 $41,636
Comprehensive income
Net income - 5,409 - 5,409
Change in net unrealized gain/(loss) - - 48 48
- - - -
Total comprehensive income 5,457
Cash dividends ($.38 per share) - (1,185) - (1,185)
Redemption of 33,560 non-voting shares (559) - (559)
------- ------- ---- -------
Balance December 31, 1996 15,725 29,338 286 45,349
Comprehensive income
Net income - 6,278 - 6,278
Change in net unrealized gain/(loss) - - 329 329
- - ---
Total comprehensive income 6,607
Cash dividends ($.45 per share) - (1,396) - (1,396)
Redemption of 15,784 voting and - -
53,790 non-voting shares (1,743) - - (1,743)
------- ------- ---- -------
Balance December 31, 1997 13,982 34,220 615 48,817
Comprehensive income
Net income - 6,407 - 6,407
Change in net unrealized gain/(loss) - - 122 122
- - ---
Total comprehensive income 6,529
Cash dividends ($.53 per share) - (1,619) - (1,619)
Exercise of stock options
3,160 non-voting shares 45 45
Redemption of 120 voting and
57,000 non-voting shares (1,747) - - (1,747)
------- ------- ---- -------
Balance December 31, 1998 $12,280 $39,008 $737 $52,025
======= ======= ==== =======
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 6,407 $ 6,278 $ 5,409
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 1,182 1,067 1,032
Provision for loan losses 3,500 1,800 1,125
Net loss(gain) on securities (47) 50 63
Net amortization on securities 18 104 362
Net change in
Interest receivable and other assets (2,663) (2,699) (447)
Interest payable and other liabilities 1,565 2,910 462
Loans held for sale (1,785) (140) 2,136
--------- --------- ---------
Net cash from operating activities 8,177 9,370 10,142
Cash flows from investing activities
Proceeds from sales of available-for-sale securities 5,068 16,707 8,605
Proceeds from maturities of available-for-sale
securities 77,471 24,066 49,771
Purchase of available-for-sale securities (60,668) (99,664) (45,566)
Loans made to customers, net of principal
collections thereon (46,504) (74,124) (62,375)
Property and equipment expenditures, net (1,805) (626) (211)
--------- --------- ---------
Net cash from investing activities (26,438) (133,641) (49,776)
Cash flows from financing activities
Net change in deposits 42,718 96,506 60,043
Net change in short-term borrowings (17,462) 24,114 (9,790)
Federal Home Loan Bank Advances 6,000
Proceeds from exercise of stock options 45
Redemption of common shares (1,747) (1,743) (559)
Dividends paid (1,619) (1,396) (1,185)
--------- --------- ---------
Net cash from financing activities 27,935 117,481 48,509
--------- --------- ---------
Net change in cash and cash equivalents 9,674 (6,790) 8,875
Cash and cash equivalents at beginning of year 25,462 32,252 23,377
--------- --------- ---------
Cash and cash equivalents at end of year $ 35,136 $ 25,462 $ 32,252
========= ========= =========
Cash paid during the year for:
Interest $ 22,274 $ 16,985 $ 13,903
Income taxes 3,840 3,591 2,870
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in thousands, except per
share amounts) Note 1 - Summary of
Significant Accounting Policies
Basis of Reporting
The consolidated financial statements include Peoples Bank Corporation of
Indianapolis ("the Company"), its wholly-owned subsidiary, Peoples Bank & Trust
Company ("Peoples") and Peoples' wholly-owned subsidiaries, PIC, Ltd., Peoples
Building Corporation and Peoples Investment Services, Inc. Intercompany
transactions are eliminated in consolidation.
Description of Business
Peoples provides commercial and retail banking and trust services to its
customers from its main office and branches located in Marion County, Indiana.
The majority of 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. Peoples Investment Services,
Inc. sells investment products to customers. PIC, Ltd. is a Bermuda Corporation
formed to hold certain securities. Peoples Building Corporation owns the main
office building.
Use of Estimates
Management makes 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. The allowance for loan losses and the fair values of financial
instruments are particularly subject to change.
Securities
Available-for-sale securities might be sold before maturity and are carried at
fair value with the net unrealized holding gain or loss is included in other
comprehensive income. Securities are written down to fair value when a decline
in fair value is not temporary. 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
Loans held for sale are carried at the lower of cost or estimated fair value
determined on an aggregate basis. 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.
Servicing rights represent the allocated value of servicing rights retained on
loans sold. 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.
Loans
Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are significantly past due. Payments received on such loans
are reported as principal reductions.
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.
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 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, or at the fair
value of collateral if repayment is expected solely from the collateral.
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.
Foreclosed Assets
Assets acquired through or instead of loan foreclosure are initially recorded at
fair value when acquired, establishing a new cost basis. If fair value declines,
a valuation allowance is recorded through expense. Costs after acquisition are
expensed.
Long-term Assets
These assets are reviewed for impairment when events indicate their carrying
amount may not be recoverable from future undiscounted cash flows. If impaired,
the assets are recorded at discounted amounts.
Repurchase Agreements
Substantially all repurchase agreement liabilities represent amounts advanced by
various customers. Securities are pledged to cover these liabilities, which are
not covered by federal deposit insurance.
Income Taxes
Income tax expense is the sum of the current year income tax due, plus or minus
the change in deferred taxes. Deferred tax liabilities and assets are the
expected future tax consequences of temporary differences between the carrying
values and tax bases of assets and liabilities computed using enacted rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
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.
Stock Options
No expense for stock options is recorded, as the grant price equals the market
price of the stock at grant date. Pro forma disclosures show the effect on
income and earnings per share had the options' fair value been recorded using an
option pricing model. The pro-forma effect is expected to increase in the
future.
Derivatives
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company enters into interest
rate swap agreements as a means of managing the interest rate exposure on
certain variable rate loans. The interest rate swaps are accounted for under the
accrual method. Under this method, the differential to be paid or received on
the swap agreements is recognized over the lives of the agreements in interest
income. Changes in fair value of interest rate swaps accounted for under the
accrual method are not reflected in the accompanying financial statements.
Realized gains and losses on terminated interest rate swaps are deferred as an
adjustment to the carrying amount of the designated instruments and amortized
over the remaining original life of the agreements.
If the designated instruments are disposed of, the fair values of the interest
rate swap or unamortized deferred gains or losses are included in the
determination of the gain or loss on disposal. To qualify for such accounting,
the interest rate swap is designated to specific pools of loans and alters their
interest rate characteristics.
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.
Cash Flow Reporting
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, interest-bearing balances with banks, and short-term
borrowings with maturities of 90 days or less.
Dividend Restriction
Banking regulations require the maintenance of certain capital levels and may
limit the amount of dividends which may be paid by the bank to the holding
company or by the holding company to shareholders.
Per Share Data
Earnings per share is based on weighted average common shares outstanding.
Diluted earnings per share further assumes issue of any dilutive potential
common shares. All share and per share data are restated for subsequent stock
dividends and splits.
Future Accounting Changes
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there now are such matters that will have a material effect on
the financial statements.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale which are also recognized as a separate component of equity.
The accounting standard that requires reporting comprehensive income first
applies for 1998, with prior information restated to be comparable.
New Accounting Pronouncements
Beginning January 1, 2000, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise recorded. This is not expected to have a material effect
but the effect will depend on derivative holdings when this standard applies.
Industry Segment
Internal financial information is primarily reported and aggregated in three
lines of business, Commercial Banking, Retail Banking, and Mortgage Banking.
Note 2 - Securities
The amortized cost and fair value of available-for-sale securities at year-end
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $ 8,426 $ 99 $ (5) $ 8,520
States and municipal 24,135 723 (3) 24,855
Mortgage-backed 91,430 398 (43) 91,785
Other 7,019 37 - 7,056
----- -- ----- --------
$131,010 $1,257 $(51) $132,216
======= ====== ===== ========
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
U.S. Government and federal agencies $ 20,841 $ 127 $(20) $ 20,948
State and municipal 27,233 619 (6) 27,846
Mortgage-backed 100,640 386 (94) 100,932
Other 4,138 6 - 4,144
-------- ------ ----- --------
$152,852 $1,138 $(120) $153,870
======== ====== ====== ========
</TABLE>
The amortized cost and fair value of available-for-sale securities at December
31, 1998 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 7,422 $ 7,449
Due after one year through five years 13,204 13,631
Due after five years through ten years 12,458 12,826
Due after ten years 6,496 6,525
Mortgage-backed 91,430 91,785
------ ------
$131,010 $132,216
======== ========
</TABLE>
Sales of available-for-sale securities during 1998, 1997 and 1996 resulted in
gross gains of $39, $7 and $0 and gross losses of $0, $52 and $63. During 1998
and 1997 securities were called resulting in net gains of $8 and net losses of
$5 respectively.
Securities with a carrying value of $37,462 and $29,013 at December 31, 1998 and
1997, respectively, were pledged to secure public deposits and repurchase
agreements and for other purposes required or permitted by law.
Note 3 - Loans
Year-end loans, excluding loans held for sale, are comprised of the following:
December 31, 1998 1997
Commercial and Commercial Real Estate $211,115 $185,089
Residential Mortgage 97,755 94,276
Construction 34,840 25,364
Consumer 106,431 100,139
Tax-exempt 1,924 2,025
----- -----
Gross loans 452,065 406,893
Less allowance for loan losses (7,684) (5,516)
------- --------
$444,381 $401,377
======== ========
Peoples 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, 1998
and 1997 was $99,120 and $101,168.
Activity for loan servicing rights and the related valuation allowance was as
follows:
1998 1997 1996
Balance as of January 1 $ 253 $ 177 $ --
Additions 332 104 193
Amortization (77) (28) (16)
Valuation allowance -- -- --
----- ----- -----
Balance as of December 31 $ 508 $ 253 $ 177
===== ===== =====
Certain of the Company's directors were loan customers of Peoples. A schedule of
the aggregate activity in these loans follows:
1998
Balance as of January 1 $2.814
Change in persons included 300
New loans/credit line draws 1,210
Loan reductions (151)
-----
Balance as of December 31 $4,173
======
<PAGE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Beginning balance $5,516 $3,900 $3,290
Provision charged to operations 3,500 1,800 1,125
Loans charged off (2,791) (488) (607)
Recoveries 1,459 304 92
----- --- --
Ending balance $7,684 $5,516 $3,900
====== ====== ======
</TABLE>
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Average investment in impaired
loans during the year $3,081 $4,253 $1,068
====== ====== ======
Interest income recognized
on impaired loans including
interest income recognized
on cash basis of $0, $329 and $173 0 $ 329 $ 173
====== ====== ======
Balance of impaired loans at year end 0 $5,241 $ 743
Less portion for which no allowance for loan
losses is allocated 0 613 159
------ ------ ------
Portion for which an allowance for loan losses is allocated 0 $4,628 $ 584
====== ====== ======
Portion of allowance for loan losses allocated $ 0 $1,145 $ 155
====== ====== ======
</TABLE>
Note 4 - Premises and Equipment
Year-end premises and equipment are as follows:
December 31, 1998 1997
Land $ 1,103 $ 1,103
Buildings and improvements 11,017 11,109
Furniture and equipment 7,557 7,788
-------- --------
Total 19,677 20,000
Accumulated depreciation (11,572) (12,518)
-------- --------
Net premises and equipment $ 8,105 $ 7,482
======== ========
Note 5 - Interest-Bearing Deposits
Time deposits of $100 or greater totaled $55,988 and $69,473 at December 31,
1998 and 1997. Interest expense in 1998, 1997 and 1996 for such deposits totaled
$4,183, $2,840 and $965, respectively.
At December 31, 1998, stated maturities of time deposits were:
Year Amount
1999 $152,617
2000 57,232
2001 4,020
2002 2,956
2003 612
Thereafter 311
--------
$217,748
========
Note 6 - Borrowings
Borrowings are comprised of the following:
1998 1997
Repurchase agreements $14,526 $12,180
Overnight borrowings from the
Federal Home Loan
Bank (FHLB) -- 22,200
Long-term FHLB advances 6,000 --
Note payable -U.S. Government 2,392 --
------- -------
$22,918 $34,380
======= =======
Repurchase agreements outstanding as of December 31, 1998 had maturities of one
day. Long-term FHLB advances are secured by a blanket pledge of Peoples' assets
and mature during January 2008, but are convertible to a LIBOR-based rate at the
option of the FHLB in January 2003. If converted, Peoples has the option to pay
off the advance. The note payable to the U.S. Government is due on demand and
bears interest at market rates. Information about repurchase agreements for the
year follows:
1998 1997
Average balance during the year $12,100 $11,064
Weighted average interest rate during the year 4.18% 4.32%
Maximum month-end balance during the year $14,526 $12,180
Note 7 - Retirement Plans
Information about the pension plan was as follows.
1998 1997
------- -------
Change in benefit obligation:
Beginning benefit obligation $ 4,940 $ 4,521
Service cost 315 306
Interest cost 318 314
Actuarial gain 192 314
Benefits paid and expenses (166) (515)
------- -------
Ending benefit obligation 5,599 4,940
------- -------
Change in plan assets, at fair value:
Beginning plan assets 5,623 5,111
Actual return 790 1,027
Employer contribution -- --
Benefits paid and expenses (166) (515)
------- -------
Ending plan assets 6,247 5,623
------- -------
Funded status 648 683
Unrecognized net actuarial (gain)/loss (1,277) (1,238)
Unrecognized prior service cost 119 130
------- -------
Accrued benefit cost $ (510) $ (425)
======= =======
The components of pension expense and related actuarial assumptions were as
follows.
1998 1997 1996
----- ----- -----
Service cost $ 315 $ 306 $ 344
Interest cost 318 314 327
Expected return on plan assets (474) (431) (407)
Amortization of prior service cost 11 11 11
Recognized net actuarial (gain) loss (86) (71) (65)
----- ----- -----
Net $ 84 $ 129 $ 210
===== ===== =====
Discount rate on benefit obligation 6.50% 6.50% 7.00%
Long-term expected rate of return
on plan assets 8.50 8.50 8.50
Rate of compensation increase 5.00 5.00 5.50
Peoples also maintains a voluntary 401(k) plan in which substantially all
employees may participate. Peoples matches employees' contributions at up to 50
percent (25% in 1996) of each participant's contributions subject to certain
limits.
Expense for the plan was $139, $108 and $46 for 1998, 1997 and 1996.
Note 8 - Income Tax Expense
Income tax expense consists of the following components:
1998 1997 1996
Income tax/(benefit)
Current $ 4,083 $ 3,848 $ 2,715
Deferred (1,084) (832) (399)
------- ------- -------
Total $ 2,999 $ 3,016 $ 2,316
======= ======= =======
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:
1998 1997 1996
Statutory rate applied to income before
income taxes $ 3,198 $ 3,160 $ 2,625
Add/(deduct)
Tax exempt interest income (465) (579) (646)
Non-deductible interest 57 64 68
State tax expense (net of federal tax benefit) 525 545 450
Affordable housing credit (253) (155) (190)
Other (63) (19) 9
------- ------- -------
Total income taxes $ 2,999 $ 3,016 $ 2,316
======= ======= =======
The net deferred tax asset at year-end is comprised of the following components:
1998 1997
Deferred tax assets from:
Loan loss provisions $ 2,841 $ 1,925
Deferred compensation 692 446
Pension 198 164
Other 59 7
------- -------
3,790 2,542
Deferred tax liabilities for:
Depreciation (57) (2)
Accretion (12) (11)
Net unrealized gain on available-for-sale securities (469) (403)
Mortgage servicing rights (201) (100)
Other (70) (63)
------- -------
(809) (579)
Valuation allowance -- --
------- -------
$ 2,981 $ 1,963
======= =======
Note 9 - Earnings Per Share
The following table presents share data used to compute earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average shares outstanding during the year 3,061,172 3,112,319 3,168,260
Dilutive effect of potential shares 76,708 40,732 9,942
--------- --------- ---------
Shares used to compute diluted earnings per share 3,137,880 3,153,051 3,178,202
========= ========= =========
</TABLE>
Note 10 - Commitments and Contingencies
Peoples is committed under various non-cancelable lease contracts for certain
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.
Expense for leased premises was $390, $387 and $489 for 1998, 1997 and 1996.
Minimum lease payments at December 31, 1998 for all non-cancelable leases are as
follows:
Year Amount
1999 $360
2000 204
2001 97
2002 87
2003 90
Thereafter 124
---
Total minimum lease payments 962
===
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 year-end, these financial instruments
are summarized as follows:
December 31, 1998 1997
Financial instruments whose contract amount
represents credit risk:
Unused commercial lines of credit $52,309 $39,431
Unused home equity lines of credit 77,922 59,020
Standby letters of credit 6,389 4,518
Commitments to make loans 19,942 11,800
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, 1998, these commitments included $ 11,327 of fixed rate loan commitments at
a weighted average rate of 7.38%. 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.
At December 31, 1998, the Company was party to interest rate swap agreements
with a notional principal balance of $60,000. The agreements require the Company
to make variable rate payments, based on indices such as LIBOR and the prime
rate. They entitle the Company to receive fixed rate payments, and serve to
manage the Company's interest rate exposure on variable rate loans tied to
similar indices. Some of the agreements have delayed start features. The
agreements expire between September 1999 and November 2000. The Company is
exposed to credit loss in the event that the counterparty does not perform under
the agreement in an amount equal to the interest rate differential when the
fixed rate exceeds the variable rate. Information about outstanding swaps at
December 31, 1998 follows:
Notional Average Average
Principal Rate Rate
Balance Received Payable
All agreements $ 60,000 6.53% 5.79%
Delayed start 30,000 5.45 4.89
Currently active 30,000 7.60 6.68
At December 31, 1998, Peoples was required to have $6,544 on deposit with the
Federal Reserve or as cash on hand as reserve.
During 1997, the Company entered into an employment contract with its Chief
Operating Officer. The agreement has an initial term of three years and an
additional year is added at each anniversary date, subject to certain
conditions. The contract provides for severance payments and other benefits, the
amount of which depend upon the nature of the separation. No amount is accrued
at December 31, 1998 under this agreement.
Note 11 - Stock Based Compensation Plans
The Company has granted stock options to directors and key members of
management. A total of 270,000 shares was 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 agreement are determined by the Compensation Committee at the date of
the grant.
A summary of the Company's stock option activity, and related per share
information follows: (restated for stock splits)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Outstanding beginning of year 190,246 $ 17.27 112,020 $ 13.28 -- $-
Granted 12,707 36.33 78,226 22.98 112,020 13.28
Exercised 3,160 14.09 -- -- -- --
Forfeited -- -- -- -- -- --
------- ------- -------
Outstanding at end of year 199,793 18.53 190,246 17.27 112,020 13.28
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Options exercisable at year end 128,846 85,028 45,592
Weighted average price of options exercisable $16.22 $15.30 $ 12.76
Weighted average remaining life (years) of
options outstanding 7.6 8.5 9.0
Range of exercise price (per share) of options outstanding:
High $39.63 $26.06 $ 15.13
Low 12.44 12.44 12.44
</TABLE>
During 1997, the Company entered into a cash award agreement with its Chief
Operating Officer. The amount payable under the agreement is based upon the
value of the Company's stock at the time of payment and the award vests and
becomes payable only after the achievement of specified performance targets. The
term of the award is ten years and the timing of the payment is at the
executive's discretion. The Company accrues its current obligation under the
plan. At December 31, 1998, a total of $338 has been accrued toward this
obligation.
<PAGE>
The estimated per share fair value of options granted during 1998, 1997, and
1996 was $14.03, $9.02, and $4.14. Fair value is 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 amount and are not
subsequently changed. The fair value estimates used the following
weighted-average assumptions:
1998 1997 1996
Risk free interest rate 5.73% 7.03% 6.74%
Dividend yield 1.38% 1.82% 2.62%
Expected volatility of stock price .22 .21 .22
Expected life (years) 10.0 10.0 9.7
The following pro forma information presents net income and earnings per share
had the fair value method been used to measure compensation cost for stock
option plans.
1998 1997 1996
Net income as reported $6,407 $6,278 $5,409
Pro forma net income 6,182 6,055 5,157
Diluted earnings per share as reported 2.04 1.99 1.70
Pro forma diluted earnings per share 1.98 1.93 1.63
Note 12 - 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, 1998 and 1997, Peoples' capital level results in it being designated as
"well capitalized."
The Company's consolidated and Peoples' (bank only) capital amounts and ratios
at December 31, 1998 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 $57,291 11.87% $38,625 8% $48,282 10%
Peoples 53,160 11.07 38,405 8 48,007 10
Tier I Capital
(to Risk Weighted Assets)
Consolidated $51,235 10.61 $19,313 4 $28,969 6
Peoples 47,138 9.82 19,203 4 28,804 6
Tier 1 Capital
(to Average Assets)
Consolidated $51,235 8.01 $25,581 4 $31,976 5
Peoples 47,138 7.40 25,465 4 31,831 5
</TABLE>
Note 13 - Disclosures About Fair Value of Financial Instruments
Carrying value and fair value of the Company's financial instruments at year-end
were as follows:
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Value Value Value Value
Financial assets
<S> <C> <C> <C> <C>
Cash and equivalents $35,136 $35,136 $25,462 $25,462
Available-for-sale securities 132,216 132,216 153,870 153,870
Loans and loans held for sale (net) 446,727 451,303 401,938 403,938
Accrued interest receivable 3,882 3,882 3,642 3,642
Financial liabilities
Deposits (551,029) (552,065) (508,311) (509,200)
Borrowings (22,918) (24,374) (34,380) (34,380)
Accrued interest payable (2,805) (2,805) (2,478) (2,478)
Off-balance-sheet instruments
Interest rate swaps 0 499 0 44
</TABLE>
The estimated fair value approximates carrying amount for all items except those
described below. Estimated fair value for loans is based on the rates charged at
year end for new loans with similar maturities, applied until the loan is
assumed to reprice or be paid. Estimated fair value for time deposits is based
on the rates paid at year-end for new deposits or borrowings, applied until
maturity. Estimated fair value of the interest rate swaps is based on the amount
the Company would have to pay to enter into an equivalent agreement at year-end.
Estimated fair value for other off-balance-sheet loan commitments is considered
nominal.
<PAGE>
Note 14 - Parent Company Financial Statements
Presented below are condensed balance sheets and the related condensed
statements of income and cash flows for the parent company:
<TABLE>
<CAPTION>
Condensed Balance Sheets - December 31, 1998 1997
Assets
<S> <C> <C>
Cash on deposit $2,075 $2,604
Investment in Peoples 47,869 43,099
Available-for-sale securities 1,624 2,884
Other assets 2,083 1,037
----- -----
Total assets $53,651 $49,624
======= =======
Liabilities $1,626 $807
Shareholders' equity 52,025 48,817
------ ------
Total liabilities and shareholders' equity $53,651 $49,624
======= =======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income -
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Operating income
Dividends from Peoples $1,621 $1,395 $1,186
Other operating income 223 263 292
--- --- ---
Total operating income 1,844 1,658 1,478
Operating expenses 42 41 59
-- -- --
Income before income tax benefit and equity
in undistributed income of Peoples 1,802 1,617 1,419
Income tax expense 44 38 20
-- -- --
Income before equity in undistributed
income of Peoples 1,758 1,579 1,399
Equity in undistributed income of Peoples 4,649 4,699 4,010
----- ----- -----
Net income $6,407 $6,278 $5,409
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows -
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income $6,407 $6,278 $5,409
Adjustments to reconcile net income to net
cash from operating activities:
Equity in undistributed income of Peoples (4,649) (4,699) (4,010)
Net amortization on securities 32 57 83
Change in other assets (1,046) (507) (13)
Change in other liabilities 818 254 236
--- --- ---
Net cash from operating activities 1,562 1,383 1,705
Cash flows from investing activities
Sales and maturities of available-for-sale
securities 1,230 1,075 2,750
----- ----- -----
Net cash from investing activities 1,230 1075 2,750
Cash flows from financing activities
Dividends paid (1,619) (1,396) (1,185)
Redemption of shares (1,747) (1,743) (559)
Proceeds from exercise of stock options 45 - -
-- - -
Net cash from financing activities (3,321) (3,139) (1,744)
---------------------------------- ------- ------- -------
Net change in cash (529) (681) 2,711
Cash at beginning of year 2,604 3,285 574
----- ----- ---
Cash at end of year $2,075 $2,604 $3,285
====== ====== ======
</TABLE>
NOTE 15 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
1998 1997 1996
----- ----- -----
Unrealized holding gains and losses on
available-for-sale securities $ 235 $ 494 $ 16
Less reclassification adjustments for gains
and losses later recognized in income (47) 50 63
----- ----- -----
Net unrealized gains and losses 188 544 79
Tax effect (66) (215) (31)
----- ----- -----
Other comprehensive income $ 122 $ 329 $ 48
===== ===== =====
NOTE 16 - SEGMENT INFORMATION
Peoples operates three principal segments, determined by the products and
services offered and the customers served. These three segments are Commercial
Banking, Retail Banking, and Mortgage Banking. Commercial Banking derives its
revenues from lending to middle market businesses, generally in the Indianapolis
metropolitan area. Retail Banking derives its revenues from lending to small
business customers, lending to retail households primarily through home equity
loans, and depository services provided to both business and retail households.
Mortgage banking derives its revenues from the origination, sale, and servicing
and of residential real estate loans. Other activities not included in one of
these three principal segments include Trust and Investment Management services.
Segment performance is evaluated using net interest income. Net interest income
is determined for assets as the difference between the actual interest income
and an estimate of the cost of funding the asset as of the date that the asset
last repriced. Likewise, net interest income for deposits is determined as the
difference between the actual interest expense and an estimate of the rate at
which those deposits might have been invested on the date that the deposit last
repriced. Provision expense for each segment is based on historical charge-off
experience across the banking industry. A portion of the provision is not
allocated to any segment. Non-interest income measures actual service charges
and fees earned on customer relationships for each segment. Indirect expenses
are allocated to lines of business based on various methodologies. The
accounting policies used are the same as those described in the summary of
significant accounting policies. Income taxes are assessed to each segment at
40% of pre-tax profit. Equity is allocated based on regulatory requirements and
on the perceived risk of each business unit. Items not allocated to any segment
are presented in the "other" column. Assets not allocated are primarily
securities. Income and expense not allocated include interest income/expense
related to these assets, unallocated provision expense and the related tax
benefit, and the tax benefits associated with other tax advantaged investments
in low income housing partnerships. Unallocated net interest income includes
income received on municipals bonds, which was not accounted for on a fully
taxable equivalent basis for internal accounting purposes. For 1998, unallocated
net interest income also included the amortized expenses associated with the
origination of consumer loans in prior periods. FAS 91 is not used for internal
accounting purposes. Unallocated net interest income also includes the effects
of allocating funding expense against loans and interest income against actual
deposit expense. If the net of these effects is negative, it suggests that the
costs allocated to fund actual loans exceed the costs allocated against actual
deposits, which would be associated with the balance sheet of a bank which has
more short-term deposits and long-term assets. Unallocated "other revenue" in
1996 and 1997 was primarily attributable to the expense associated with
write-downs on low income housing partnerships which offset the tax benefits
obtained. These expenses were reclassified as an expense for 1998. Information
reported internally for performance assessment follows.
1998 Commercial Retail Mortgage Total
Banking Banking Banking Segments
------- ------- --------- --------
Net Interest Income 8,054 14,442 2,604 25,100
Other Revenue 12 3,890 699 4,601
Noncash Items:
Depreciation 30 502 46 578
Provision for Loan Losses 855 298 99 1,252
Net Gain on Loan Sale -- -- 389 389
Income Tax Expense 1,858 2,220 919 4,997
Segment Profit 2,921 3,384 1,400 7,705
Segment Assets 221,292 155,021 102,255 478,568
Reportable Other Consolidated
Segments Segments Other Totals
Net Interest Income 25,100 254 (401) 24,953
Other Revenue 4,601 2,432 (52) 6,981
Provision for Loan Losses 1,252 -- 2,248 3,500
Net Gain on Loan Sale 389 -- -- 389
Income Tax Expense 4,997 205 (2,203) 2,999
Profit 7,705 311 (1,609) 6,407
Assets 478,568 1,794 154,143 634,505
1997 Commercial Retail Mortgage Total
Banking Banking Banking Segments
------- ------- --------- --------
Net Interest Income 7,494 11,811 1,909 21,214
Other Revenue 18 3,681 726 4,425
Noncash Items:
Depreciation 41 333 64 438
Provision for Loan Losses 801 112 86 999
Net Gain on Loan Sale -- -- 117 117
Income Tax Expense 1,721 2,024 523 4,268
Segment Profit 2,722 3,083 796 6,601
Segment Assets 190,372 131,773 97,953 420,098
Reportable Other Consolidated
Segments Segments Other Totals
Net Interest Income 21,214 210 186 21,610
Other Revenue 4,425 1,731 (203) 5,953
Provision for Loan Losses 999 -- 801 1,800
Net Gain on Loan Sale 117 -- -- 117
Income Tax Expense 4,268 21 (1,273) 3,016
Profit 6,601 32 (355) 6,278
Assets 420,098 1,353 177,025 598,476
1996 Commercial Retail Mortgage Total
Banking Banking Banking Segments
------- ------- --------- --------
Net Interest Income 6,169 10,136 1,958 18,263
Other Revenue 22 3,278 1,010 4,310
Noncash Items:
Depreciation 44 386 73 503
Provision for Loan Losses 449 264 78 791
Net Gain on Loan Sale -- -- 313 313
Income Tax Expense 1,492 1,308 360 3,160
Segment Profit 2,389 1,990 545 4,924
Segment Assets 148,743 103,955 75,426 356,761
<PAGE>
Reportable Other Consolidated
Segments Segments Other Totals
-------- --------- ----- ------------
Net Interest Income 18,263 209 (265) 18,207
Other Revenue 4,310 1,342 (215) 5,437
Provision for Loan Losses 791 -- 334 1,125
Net Gain on Loan Sale 313 -- -- 313
Income Tax Expense 3,160 167 (1,011) 2,316
Profit 4,924 252 233 5,409
Assets 356,761 762 113,955 471,478
Amounts included in the "other" column are as follows.
Net Interest Income
1998 1997 1996
----- ----- -----
Investment Portfolio $ 702 $ 548 $ 417
Amortized Fees on Loan
Originations (251) (91) --
Other (852) (271) (682)
----- ----- -----
$(401) $ 186 $(265)
===== ===== =====
Income Tax Expense
Tax Benefit on State &
Municipal Securities $ (93) $ (114) $ (126)
Tax Benefit on Low Income
Housing Partnerships (588) (245) (52)
Other (1,522) (914) (833)
------- ------- -------
$(2,203) $(1,273) $(1,011)
======= ======= =======
Profit
Unallocated Provision for Loan
Losses $(1,343) $ (433) $ (318)
Other (266) 78 551
------- ------- -------
$(1,609) $ (355) $ 233
======= ======= =======
Assets
Parent Company $ 3,253 $ 3,533 $ 4,164
Securities and Federal Funds Sold 135,392 150,986 95,594
Non-Earning Assets 15,498 22,506 14,197
-------- -------- --------
$154,143 $177,025 $113,955
======== ======== ========
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, 1999 and their respective positions with the Company and Peoples are
listed below:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position*
William E. McWhirter 48 Director, Chairman of the Board and Chief Executive
Officer of the Company and Peoples
Gerald R. Francis 55 Director, President and Chief Operating Officer of the Company and Peoples
Charles R. Farber 49 Director, Executive Vice President of the Company and Peoples
Robert B. Hirschman, D.D.S. 64 Director
Ethan Jackson 62 Director
David W. Knall 54 Director
Mary Ellen Rodgers 46 Director
Stephen R. West 67 Director
Darell E, Zink, Jr. 52 Director
C. William Butcher 34 Senior Vice President, Retail Banking for Peoples
Stephen J. Beck 54 Senior Vice President, Senior Commercial Lender of Peoples
Robert R. Connors 49 Senior Vice President, Director of Operations and Cashier of Peoples
Thomas J. Flynn 52 Senior Vice President, Senior Commercial Real Estate Lender for Peoples
Charles R. Hageboeck 36 Senior Vice President and CFO of the Company and Peoples
John S. Loeber 54 Senior Vice President, Senior Credit Officer of Peoples
Craig G. Stilwell 43 Senior Vice President, Director of Sales & Marketing of Peoples
Terry L. Young 52 Senior Vice President, Senior Trust Officer of Peoples
</TABLE>
Effective February 26, 1999, Senior Vice President Elliot Lese retired from
Peoples. Mr. Lese had served Peoples as the Senior Credit Officer until 1998.
During 1998, Mr. Lese assisted with the transition of duties of the Senior
Credit Officer to Mr. Loeber.
Mr. Mac McWhirter became Chairman of the Board of the Company and Peoples in
April 1997. He has been Chief Executive Officer of the Company since its
formation in 1986. He has served Peoples in various capacities since 1969,
including the position of President from 1984 to 1997. Mr. McWhirter is also
Chairman of Peoples Building Corporation and Peoples Investment Services, Inc.,
and serves on the Board of PIC, Ltd. 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 and the Audit Committee,
described below. He is Chairman of the Investment Committee. Mr. McWhirter is
currently servicing as Vice-Chairman of the Indiana Bankers Association. Mr.
McWhirter serves as a director of the United Way of Central Indiana, the
Salvation Army, St. Vincent Hospital Foundation, Crossroads Rehabilitation
Center, Goodwill Industries Foundation, and the Kiwanis Club of Indianapolis
Foundation. 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 a
member of Tabernacle Presbyterian Church and the Young Presidents Organization.
Mr. Francis was elected President of the Company and Peoples in April 1997. He
joined the Company in February of 1996 as an Executive Vice-President. He also
serves as the Chief Operating Officer for the Company and Peoples. 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 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. Farber joined Peoples in 1972. He is Executive Vice President in charge of
the Commercial Services of the Company. He is a member of the Board of Directors
of the Company and Peoples and serves on the Loan Committee and the
Asset/Liability Management Committee.
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. Jackson joined the Company's Board of Directors in 1998. Mr. Jackson is
Chairman and CEO of Basic American Financial, Inc. He is the founder and
Chairman of Indiana Sports Outreach, Inc., and Chairman of the Ethan and Joyce
Jackson Foundation. He is a member of the International Public Affairs Center in
Brussels, Belgium. He serves on the Board of Directors for Unisurge Holdings,
Inc. of Atlanta, Georgia; Tier 4 Partners of Bloomington, Indiana; and Master
Golf, Inc. of Scottsdale, Arizona. He serves the Company as a member of the
Audit Committee and Board Related Affairs Committee.
Mr. Knall is Senior Managing Director of McDonald Investments, Inc., a KeyCorp
Company. He joined McDonald in 1969; in 1975 was elected a General Partner; and
in 1983, upon that firm's initial public offering, became a Managing Director
and was appointed to the Board of Directors. Prior to joining McDonald, Mr.
Knall was a First Lieutenant in the United States Army. He is a member of the
Indianapolis Society of Securities Analysts and holds directorship with
Indianapolis Zoological Foundation, T.M. Englehart, Regenstrief Institute,
Goodwill Industries Foundation and the Indianapolis Public Library Foundation.
He is also a trustee of the Indianapolis Museum of Art, Wabash College, the
Christian Theological Seminary and is a member of the Board of Arbitrators of
the National Association of Securities Dealers (NASD). Mr. Knall joined People's
Board of Directors in 1991.
Ms. Rodgers currently serves as a consultant to American Home Patient, Inc.
("AHOM"), a diversified home health care company based in Brentwood, Tennessee.
She had served as Senior Vice President, Chief Financial Officer and Secretary
of AHOM from April 1996 to December 1998. From 1981 through 1995 Ms. Rodgers was
employed with Eli Lilly in various financial capacities. She had been Controller
of Lilly Research Laboratories, Assistant Treasurer of Eli Lilly and Company,
and Treasurer of Lilly International Corporation and was Controllor for the
Information Technology Division just prior to departure from Lilly. She joined
the Board of Directors in 1991, currently chairs the Asset/Liability Management
Committee, and serves on the Investment Policy Committee of Peoples.
Mr. West has been on the Board of Directors since 1984 and currently chairs the
Corporation's Audit Committee. During the past ten years, he has served as the
President and Treasurer of West Baking, Inc., Indianapolis, Indiana. From 1957
to 1987, he was an officer of West Baking Company, Inc., and served as vice
president and treasurer from 1960 until its sale in 1987. He continued with this
company's subsidiary, Dunes Transport, Inc., as vice president and treasurer
until its liquidation in 1990. In addition, from 1972 to 1995, he was a six-term
elected member of the Indianapolis City-County Council. Since 1996, Mr. West has
been appointed as trustee of Indiana Health and Hospital Corporation of Marion
County.
Mr. Zink joined the Company's Board of Directors in 1998. Mr. Zink is currently
Executive Vice-President and Chief Financial Officer of Duke Realty Investments,
Inc. where he is also a Director. In addition, Mr. Zink is a director of the
Indianapolis Chamber of Commerce and the Corporate Community Council, and the
CICOA Operating Board. He is Chairman of the Pleasant Run Foundation, the CICOA
Foundation, and the Park Tudor Endowment. In addition, he is past President of
the Park Tudor School Board of Trust. Mr. Zink holds an MBA from the University
of Hawaii and a J.D. from Indiana University. Mr. Zink serves the Company as a
member of the Trust Policy Committee and the Pension and Retirement Committee.
Mr. Beck joined Peoples Bank Corporation in September 1997 as Senior Vice
President of Commercial Lending. Prior to joining Peoples, Mr. Beck served as
Senior Vice President-Marketing for First of America Bank from April 1996 to
September 1997, and as Senior Vice President-Commercial Banking for Huntington
Bank from April 1986 to April 1996. He is a founder of the Indiana Statewide
Certified Development Corp., where he is currently on the Board of Directors. He
is also a founder and Board Member of the Venture Club of Indiana, Inc. Mr. Beck
is a director for the Indiana State Chamber of Commerce Small Business, the
Indianapolis Small Business Development Center, and The Midwest Entrepreneurial
Education Center, Star Alliance, Inc.. He currently serves as Chairman of the
Board of Directors of the U.S. Small Business Administration - Indiana Advisory
Council.
Mr. Butcher joined Peoples Bank Corporation in February 1998 as Senior
Vice-President of Retail Banking. Prior to joining Peoples, Mr. Butcher was a
Vice-President with Bank One of Cincinnati from November, 1988 to January, 1998.
He holds an M.B.A. from Indiana University. He serves Peoples Bank Corporation
as a member of the Asset/Liability Management Committee, and the Product Pricing
Committee.
Mr. Connors has served as Senior Vice President and Director of Operations since
he came to Peoples in 1984. He has 28 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
Chairman of the Research and Development Committee and the Technology
Maximization Group. Mr. Connors is currently on the Executive Committee of the
Comprehensive Banking System Users Group, a computer software users group which
consists of over 100 financial institutions around the world.
Mr. Flynn joined Peoples Bank Corporation in September 1997 as Senior Vice
President of Commercial Real Estate Lending. Prior to joining Peoples, Mr. Flynn
was Senior Vice-President and Manager of the Commercial Real Estate Division for
Bank One Cincinnati from September, 1991 until August, 1997. He is a former
member of the advisory Board, College of Real Estate, University of Cincinnati .
Mr. Hageboeck has been CFO of the Company and Peoples since 1995. He is also
Secretary to the Board of Directors for the Company and Peoples. Mr. Hageboeck
was formerly 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, and the Board of Directors
of Peoples Building Corporation, Peoples Investment Services, Inc., and PIC,
Ltd.. Mr. Hageboeck holds a Ph.D. in Economics at Indiana University. Mr.
Hageboeck serves on the Board of Directors of the Indianapolis Arts Council and
on the faculty of the American Bankers Association Graduate School of Bank
Investments and Financial Management.
Mr. Loeber joined the Company in May, 1998 as the Chief Credit Officer. Prior to
joining the Company, Mr. Loeber was employed by First Union National Bank and
its predecessor Signet Bank, Baltimore Maryland as the Executive Vice-President
of the Secured Lending Division between 1992 and 1998. Between 1990 and 1992,
Mr. Loeber served as Executive Vice President responsible for Risk Management at
First American Metro Corporation, McLean, Virginia (now First Union). Between
1976 and 1990, Mr. Loeber served as Senior Vice President at Fleet National
Bank, Providence, Rhode Island, where he held various positions of
responsibility including Commercial and Retail Banking. Before joining Fleet
Bank, Mr. Loeber served as a commercial lender at Citizens & Southern National
Bank, Atlanta, Georgia (now BankAmerica) from 1974 to 1976.
Mr. Stilwell has been Senior Vice President, Director of Marketing for Peoples
since 1988. He first came to Peoples in September, 1978. During his 20 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
Asset/Liability Management Committee and the Board of Directors of Peoples
Investment Services, Inc. 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 and the Indiana Communities for Drug Free Youth.
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 Policy Committee. Mr. Young is the past Chairman of the Indiana
Bankers Association Trust Committee and Past President of the Central Indiana
Corporate Fiduciaries Association.
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, 1998, 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, 1996, 1997, and
1998, information with respect to William E. McWhirter, Gerald R. Francis,
Charles R. Farber, Thomas J. Flynn and Stephen J. Beck, the five highest paid
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(3)
<S> <C> <C> <C> <C> <C>
Mac McWhirter....................... 1998 $247,538 $86,400 0 $5,163
Chairman and CEO............ 1997 212,519 86,800 0 3,499
........................... 1996 186,673 74,632 32,260(4) 500
Gerald R. Francis................... 1998 $205,077 $70,600 0 $4,435
President and .............. 1997 167,363 74,000 66,000(5) 1,260
Chief Operating Officer..... 1996 101,077 39,776 20,000(6) 3,700
Charles R. Farber................... 1998 $136,404 $44,300 495(7) $ 235
Executive Vice President.... 1997 125,143 49,000 0 1,752
............................ 1996 113,779 40,824 20,000(6) 500
Thomas J. Flynn..................... 1998 $116,770 $55,500 444(7) $13,927(9)
Senior Vice President...... 1997 33,000 $11,000 4,400(8) $ 8,946(9)
Stephen J. Beck..................... 1998 $116,770 $12,000 444(7) $ 2,179
Senior Vice President...... 1997 31,731 $10,789 4,400(8) $15,574(10)
</TABLE>
(1) Salary figures shown above for 1998 include directors' fees of $4,500
for each of Mr. McWhirter, Mr. Farber, and 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. Peoples pays its employees on a bi-weekly
schedule. During 1998, there were 27 pay periods as compared to 26 pay
periods in each of the prior two years. For fiscal year 1997, Mr.
Francis deferred his bonus of $74,000 earned for performance during
1997 and paid in 1998. Mr. Flynn elected to defer $18,000 of his bonus
earned for performance in 1998 and paid in 1999.
(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) Includes 401(k) matching contributions for Mr. McWhirter, Mr. Farber,
Mr. Francis, Mr.Flynn and Mr. Beck.
(4) Mr. McWhirter's incentive stock option for 7,308 shares and his
non-qualified stock option for 24,952 shares were granted in March
1996 and became exercisable in September 1996.
<PAGE>
(5) In April, 1997, Mr. Francis was granted stock options for 66,000
shares in three installments. The first installment for 20,000 shares
became exercisable in October, 1997 upon the attainment of a $30 share
price for 20 consecutive days. The second installment for 22,000
shares became exercisable in January, 1998 upon the attainment of a
$35 share price for 20 consecutive days. The third installment for
24,000 shares will become exercisable only upon the attainment of a
$40 share price for 20 consecutive days. As of March 12, 1999 the
third installment had not become exercisable. In 1997, the Company
granted Mr. Francis a free-standing stock appreciation award, the
value of which is based on 60% of the value of the difference between
the fair market value of the shares subject to the award at the time
of exercise and a base price of $22.63 per share. The stock
appreciation award is granted in three spearate installments which
vest and become exercisable upon the achievement of certain stock
price appreciation levels that correspond to the exercisability
triggers for Mr. Francis' non-qualified stock option installments
awarded in April, 1997. The term of the award is 10 years. The first
installment became exercisable in October, 1997 upon the attainment of
a $30 per share price for 20 consecutive days. The second installment
became exercisable in January, 1998 upon the attainment of a $35 share
price for 20 consecutive days. The third installment will become
exercisable only upon the attainment of a $40 share price for 20
consecutive days. As of March 12, 1999 the third installment had not
become exercisable.
(6) Mr. Farber and Mr. Francis were granted stock options for an aggregate
of 20,000 shares each in January 1996, which options became
exercisable in three installments. The first installment for 6,666
shares became exercisable on December 1, 1996, the second installment
for 6,666 shares on December 1, 1997, and the third installment for
6,668 shares January 1, 1998.
(7) Incentive stock options granted in February 1998 which become
exercisable in three equal installments in February 2000, 2002, and
2004.
(8) Incentive stock options awarded in September 1997 as part of a hiring
package for Mr. Flynn and Mr. Beck, which options become exercisable
in equal installments in September 1999, 2001, 2003.
(9) Mr. Flynn received a sign-on bonus of $5,000 in September of 1997 and
$10,000 in January of 1998. In addition, the Company paid Mr. Flynn
additional amounts of $2,910 and $962 during 1997 and 1998,
respectively, for certain temporary housing expenses.
(10) A sign-on bonus was granted in September 1997 to Mr. Beck in the
amount of $15,000.
The following table sets forth information concerning individual grants of stock
options made during the fiscal year ended December 31, 1998 to the executive
officers identified in the compensation table (the "Named Executive Officers").
Stock Option Grants in Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
Individual Grants
% of Total
Securities Un- Options Granted Exercise or Value Using
derlying Options to Employees in Base Price Expiration Option Pricing
Name Granted (#) Fiscal Year 1996 ($/Sh) Date Model (1)
---- ----------- ---------------- ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Farber 495 3.97% $39.63 2/25/08 $15.86/share
Thomas J. Flynn 444 3.56% $39.63 2/25/08 $15.86/share
Stephen J. Beck 444 3.56% $39.63 2/25/08 $15.86/share
</TABLE>
(1) Options are valued at the date of grant using a standard option
pricing model. The value of the options represents value on the date
of grant based on the underlying stock price, its expected
volatility, the length of the options, the dividend rate, and the
risk-free rate of return at the time of the grant. The value of the
options was computed using a volatility of .22, a dividend yield of
1.38%, a term of 10 years, and a risk-free rate of return of 5.73%.
The following table sets forth certain information regarding the total number of
stock options held by each of the Named Executive Officers, and the aggregate
value of such stock options, as of December 31, 1998. None of such stock options
had been exercised as of such date.
Aggregated Option Exercises in Fiscal Year Ended December 31, 1998
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of In-the-Money
Shares Unexcercised Options Unexercised Options at
Acquired on Value Realized at Fiscal Year-End Fiscal Year-End ($)(5)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mac McWhirter --- --- 32,260(1) 0 $686,517 ---
Charles R. Farber --- --- 20,000(2) 495 $431,250 ---
Gerald Francis --- --- 62,000(3) 24,000(3) $892,750 $272,880
Thomas J. Flynn --- --- 0(4) 4,844(4) --- $ 34,925
Steven J. Beck --- --- 0(4) 4,844(4) --- $ 34,925
</TABLE>
(1) Mr. McWhirter's incentive stock option for 7,308 shares and his
non-qualified stock option for 24,952 shares were granted in March
1996 and became exercisable in September 1996.
(2) Mr. Farber and Mr. Francis were granted stock options for an aggregate
of 20,000 shares each in January 1996, which options became
exercisable in three installments. The first installment for 6,666
shares became exercisable on December 1, 1996, the second installment
for 6,666 on December 1, 1997, and the third installment for 6,668
shares January 1, 1998. Mr. Farber was also granted stock options for
495 shares in 1998.
(3) In April 1997, Mr. Francis was granted stock options for 66,000 shares
in three installments. The first installment for 20,000 shares became
exercisable in October 1997 upon the attainment of a $30 share price
for 20 consecutive days. The second installment for 22,000 shares
became exercisable in January 1998 upon the attainment of a $35 share
price for 20 consecutive days. The third installment for 24,000 shares
will become exercisable only upon the attainment of a $40 share price
for 20 consecutive days. As of March 12, 1999 the third installment
has not become exercisable.
(4) Incentive stock options for 4,400 shares each were granted to Mr.
Flynn and Mr. Beck in September 1997 and become exercisable in three
equal installments in September 1999, September 2001, and September
2003. Additionally, each Mr. Beck and Mr. Flynn were awarded options
for 444 shares in February 1998, which options are exercisable in
three equal installments in February of 2000, 2002, and 2004.
(5) Based on the fair market value for the Nonvoting Common Shares on the
last business day of the fiscal year ended December 31, 1998, which
was $34 per share.
Stock Appreciation Award. In 1997, the Company granted to Mr. Francis a
free-standing stock appreciation award, the value of which is based on 60% of
the value of the difference between the fair market value of the shares subject
to the award at the time of exercise and a base price of $22.63 per share. The
stock appreciation award is granted in three separate installments which vest
and become exercisable upon the achievement of certain stock price appreciation
levels that correspond to the exercisability triggers for Mr. Francis'
non-qualified stock option installments awarded in April, 1997. The term of the
award is 10 years, and the timing of exercise is generally at Mr. Francis'
discretion once an installment has become exercisable. Upon a Change of Control,
as defined in the plan, the stock appreciation award becomes immediately
exercisable in its entirety. In addition, the first installment becomes
immediately exercisable in its entirety if Mr. Francis' employment with Peoples
is terminated without Cause or with Good Reason, as defined in Peoples'
employment agreement with Mr. Francis dated as of April 17, 1997. The first
installment expires and is terminated on the date thirty days following
termination of Mr. Francis' employment for any reason other than retirement,
disability, or death. In the event of retirement, disability or death, there are
various periods of exerciability for the first installment that are triggered
immediately upon Mr. Francis' termination of employment for any reason or cause
if those installments are not then exercisable. The Company accrues its current
obligation under the plan. Through 1998, the Company accrued and expensed a
total of $338,000 related to the plan. During 1999, the Company anticipates an
accrual of $300,000 related to this plan.
Stock Option Plan. The Company's Board of Directors has adopted the Peoples Bank
Corporation of Indianapolis Stock Option Plan (the "1996 Plan") effective
January 1, 1996. The Plan was approved by the shareholders of the Company at the
annual meeting in April, 1996. During 1998, the Company's Board of Directors
adopted the Peoples Bank Corporation of Indianapolis 1998 Stock Option Plan (the
"1998 Plan") effective January 1, 1998. The 1998 Plan was approved the the
shareholders of the Company at the annual meeting in April, 1998. The purpose of
the Plans 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.
Each of the Plans 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"). However, the 1998 Plan
contains special provisions authorizing the full Board of Directors to make
grants on certain occasions and for a special committee to grant options of less
than 1,000 shares to officers who are not subject to Section 16 of the 1934 Act.
Stock options granted under the Plans 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 200,000 Nonvoting Common Shares have been reserved for
issuance under the 1996 Plan, of which options for 196,597 Nonvoting Common
Shares had been granted to officers and key employees through December 31, 1998.
A total of 50,000 Nonvoting Common Shares have been reserved for issuance under
the 1998 Plan, of which no options had been granted through December 31, 1998.
The Board of Directors has adopted an amendment to the 1998 Plan in order to
increase the number of Nonvoting Common Shares that are reserved for issuance
thereunder to 100,000 shares, and has recommended this amendment to the
shareholders for approval at the annual meeting to be held in April, 1999.
During 1998, the BRAC granted an aggregate of 12,455 options to purchase
Nonvoting Common Shares to members of the senior management team, with
expiration dates ranging from 2/25/00 through 5/19/06, and at exercise prices
ranging from $34.50 to $39.63 per share. Charles R. Farber was awarded incentive
stock options for 495 shares, and Mr. Beck and Mr.
Flynn were each awarded options for 444 shares.
Other senior officers received options totaling 11,072, collectively, all of
which are incentive stock options. Such options generally become exercisable in
installments over a period of years ranging from 2000 to 2006.
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 $8,392 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 $4,500 per year. Additionally, outside directors receive a fee of $450 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. Pursuant to Peoples' Deferred Compensation Plan, as amended and
restated, directors may participate in such plan and, in accordance with its
terms, defer payment of any portion of their directors' fees until the
termination of their service on the Board of Directors.
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 was approved at
the annual meeting of shareholders 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 20,000 Nonvoting Common Shares have been reserved
for issuance under the Directors Plan, of which options for 6,356 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. The
Directors Plan provides that, 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.
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 benefits to be received at least 5 years in the
future. The benefits payable under the plan are to be paid from Peoples' general
assets. The plan has been amended to allow participants to elect to invest a
portion of their deferred benefits for a given plan year at a fixed rate of
return or at a rate of return tied to the adjusted S&P 500 Index for such year.
Peoples maintains insurance policies on the lives of Mac McWhirter, Charles R.
Farber, Gerald R. Francis, Thomas J. Flynn, 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. The Plan was initiated in 1993. Under the plan,
Peoples makes a matching contribution of 50% of each participating employee
contribution up to the first 6% of compensation. Vested portions of the benefits
under the 401(k) Plan are payable upon the employee's retirement, death,
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:
Years of Service
10 20 30 40 50
-- -- -- -- --
Remuneration
$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
Annual compensation of Mr. McWhirter, Mr. Francis, Mr. Farber, Mr. Flynn, and
Mr. Beck 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. Francis, Mr. Farber, Mr. Flynn, and Mr. Beck under the Pension
Plan as of December 31, 1998 were 25.50, 2.92, 26.33, 1.624, and 1.6
respectively.
SERP. 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 Mr. McWhirter, Mr. Farber, and
Mr. Francis are SERP participants at this time, but additional key executives
may be added by the Board of Directors.
Employment Agreement with Mr. Francis. The Company entered into an employment
agreement with Mr. Francis dated as of April 17, 1997. The term of the agreement
is for an initial term of three years, but may be extended for an additional one
year on each annual anniversary of the effective date unless either party gives
written notice to the other not to extend the term within ninety days prior to
the anniversary. In such a case, no further extension occurs and the agreement
ends two years subsequent to the annual anniversary that immediately follows the
date on which notice not to extend is given. The agreement provides that Mr.
Francis is to receive an annual salary of $185,000, subject to increase from
time to time at the discretion of Peoples. In addition, Mr. Francis is entitled
to participate in all present and future employee benefit, retirement and
compensation plans generally available to employees of Peoples, consistent with
his base compensation and his position as President and Chief Operating Officer
of Peoples. If Mr. Francis is involuntarily separated from Peoples without
cause, he is entitled to receive a severance benefit of one year's salary and
benefits for one year, and the first installment of options granted to him in
April, 1997 becomes immediately exercisable. The agreement provides that in the
event Mr. Francis is terminated following a Change of Control (as defined in the
Plan), he is entitled to receive a severance benefit equal to 299% of his annual
compensation, with such severance benefit calculated in a manner intended to
comply with Section 280G of the Internal Revenue Code of 1986, as amended. Mr.
Francis is entitled to additional perquisites, including vacation benefits,
reimbursement of reasonable business expenses and office space on terms no less
favorable than those in effect prior to the effectiveness of the agreement. The
agreement also provides that, for a period of one year following termination,
Mr. Francis will not compete with Peoples in the financial services industry.
Peoples' obligations under the employment agreement are guaranteed by the
company pursuant to a certain Guaranty Agreement dated as of April 17, 1997.
Split Dollar Insurance Agreements. Peoples has entered into a Split-Dollar
Insurance Agreement with each of Mr. McWhirter, Mr. Francis and Mr. Farber as an
inducement to each of them to continue his employment with Peoples by assisting
him with personal life insurance needs. Each of these agreements provides that
Peoples is the owner of the life insurance policy subject to agreement and pays
all premiums with respect thereto. Each agreement provides that the death
benefits payable under the terms of the policy entitle the employee to the
lesser of a certain dollar threshold or the total death benefits then available
under the policy, and entitle the bank to receive the death benefits, if any, in
excess of the designated threshold. The threshold amount of benefits in each
case is $250,000 for each of Mr. Francis and Mr. Farber, and $600,000 for Mr.
McWhirter.
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 1998. 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 12, 1999. 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.
<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>
Steven J. Beck --- 694
130 E. Market St. (3)
Indianapolis, Indiana 46204
Charles R. Farber 20,005 (2)
130 East Market Street 0.7%
Indianapolis, Indiana 46204
Thomas J. Flynn --- 3,424 (1)
130 E. Market St. 0.1%
Indianapolis, Indiana 46204
Gerald R. Francis 103 94,253 (4)
130 East Market Street (3) 3.3%
Indianapolis, Indiana 46204
Robert B. Hirschman, D.D.S. 2,800 4,914 (5)
5104 Plantation Drive 1.1% 0.2%
Indianapolis, Indiana 46250
Ethan Jackson --- 1,000
6900 South Gray Road (3)
Indianapolis, IN 46237
David W. Knall --- 41,857 (5)
One American Square 1.5%
Suite 2615
Indianapolis, Indiana 46282
Luella M. Martin 24,808 (6) 107,598 (6)
3738 Bay Road. South Drive 9.4% 3.8%
Indianapolis, Indiana 46240
William E. McWhirter 169,930 (7) 34,772 (7)
130 E. Market Street 64.3% 1.2%
Indianapolis, Indiana 46204
Felix T. McWhirter --- 544,365 (8)
130 E. Market Street 19.0%
Indianapolis, Indiana 46204
Mary Ellen Rodgers --- 1,714(10)(5)
5272 McGavock Road (3)
Brentwood, Tennessee 37027
Evans McWhirter Rust 26,440 (9) 338,328 (9)
6917-B East Osborn 10.0% 11.8%
Scottsdale, Arizona 85251
Stephen R. West --- 14,722 (5)
4120 North Illinois Street 0.5%
Indianapolis, Indiana 46208
Darell E. Zink, Jr. --- 4,400
8888 Keystone Crossing, Suite 1200 0.2%
Indianapolis, IN 46240
All Directors and Executive 173,736 371,576
Officers, as a group (17 persons) 65.8% 13.0%
(footnotes on next page)
</TABLE>
<PAGE>
(1) Included 4,844 shares subject to incentive stock options granted under
the 1996 Plan, none of which are currently exercisable.
(2) Includes 20,495 shares subject to incentive stock options granted
under the Company's 1996 Plan, of which 20,000 are currently
exercisable.
(3) Less than 0.1%.
(4) Includes 86,000 shares subject to incentive stock options granted
under the Company's 1996 Plan, of which 62,000 are currently
exercisable. Also includes 844 shares held in trusts, of which Mr.
Francis is trustee, for the benefit of Mr. Francis' three children.
(5) Includes 914 shares subject to options granted exerciseable under the
Directors Plan.
(6) Includes 80 Voting Common Shares and 69,128 shares Nonvoting Common
Shares held by Peoples as trustee for Luella M. Martin. Also includes
38,470 Nonvoting Common Shares held in trustee by Wesley P. Martin,
husband of Luella M. Martin, as trustee.
(7) Of the Voting Common Shares, 21,148 shares are held by Susan
McWhirter, wife of William E. McWhirter. Of the Nonvoting Common
Shares, 1,595 shares are held by Mr. McWhirter's three children.
Includes 7,308 shares subject to an incentive stock option and 24,952
shares subject to a non-qualified stock option granted under the
Company's 1996 Plan, which options are currently exercisable in
accordance with their terms.
(8) Includes 364,000 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 94,094
shares held by Margaret J. McWhirter, Mr. McWhirter's spouse. Includes
872 shares subject to options granted under the Directors Plan.
(9) All Voting Common Shares and 257,128 Nonvoting Common Shares are held
in trust by Evans McWhirter Rust as trustee. Also includes 81,200
shares held by Peoples as trustee, as to which Mr. Rust disclaims
beneficial ownership.
(10) Held jointly with spouse.
Item 13. Certain Relationships and Related Transactions.
From time to time Peoples makes loans to its directors and significant
shareholders. At December 31, 1998, such loans and extensions of credit amounted
to approximately $4,173,000. 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 collection 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 Senior Managing Director of
McDonald Investments, 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 Investments, Inc.
Darrell E, Zink, Jr., one of the Company's directors, is the Chief Financial
Officer of Duke Realty Investments, Inc. ("Duke Realty"). Duke Realty currently
serves as the property manager for space leased to Peoples as its Operations
Center, and Duke Realty Limited Partnership, of which Duke Realty is the general
partner, is the indirect owner of the building where such space is located.
<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, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ending December 31,
1998.
(c) The exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit Index.
<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 Chairman, Chief)
- ---------------------------- Executive Officer)
William E. McWhirter )
)
)
(2) Principal Financial/ )
Accounting Officer: )
)
By: /s/ Charles R. Hageboeck )
- ------------------------ Senior Vice President, )
Charles R. Hageboeck Chief Financial Officer)
)
(3) A Majority of the )
Board of Directors: )
)
/s/ Charles R. Farber Director)
- ------------------------ )
Charles R. Farber ) March 30, 1999
)
/s/ Gerald R. Francis Director)
- ------------------------ )
Gerald R. Francis )
)
Director)
- ------------------------ )
Robert B. Hirschman )
)
)
- ------------------------ )
Eathan Jackson )
)
/s/ David W. Knall Director)
- ------------------------ )
David W. Knall )
)
/s/ William E. McWhirter Director)
- ------------------------ )
William E. McWhirter )
)
Director)
- ------------------------ )
Mary Ellen Rodgers )
)
/s/ Stephen R. West Director)
- ------------------------ )
Stephen R. West )
)
Director)
- ------------------------ )
Darell E. Zink, Jr. )
<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 Employment Agreement between Registrant and **
Gerald R. Francis, dated April 17, 1997 (10.1)
10.2 Guaranty Agreement between Registrant and **
Gerald R. Francis, dated April 17, 1997 (10.2)
10.3 Incentive Stock Option Agreement between **
Registrant and Gerald R. Francis, dated April
17, 1997 (10.3)
10.4 Stock Appreciation Award for Gerald R. Francis **
(10.4(a))
10.5 Second amendment and complete restatement of **
the Registrant's Unfunded Supplemental
Executive Retirement Plan (10.4(b))
10.6 Split Dollar Insurance Agreement between **
Registrant and Gerald R. Francis (10.6)
10.7 Split Dollar Insurance Agreement between **
Registrant and William E. McWhirter (10.7)
10.8 Split Dollar Insurance Agreement between **
Registrant and Charles R. Farber
10.9 Lease Agreement by and between Park 100 Joint
Venture and Peoples Bank & Trust Company dated
November 17, 1989, as amended * (10.1)
10.10 Property Management Agreement between Peoples
Building Corporation and F.C. Tucker Company,
Inc. dated September 30, 1986 *(10.2)
<PAGE>
10.11(a) Peoples Bank & Trust Company Executives
Deferred Compensation Plan *(10.4(a))
10.11(b) Restated Peoples Bank & Trust Company
Executives Deferred Compensation Plan
(Effective December 1, 1998)
10.12(a) Peoples Bank & Trust Company Directors
Deferred Fees Plan *(10.4(b))
10.12(b) First Amendment to Peoples Bank & Trust Company
Directors Deferred Fees Plan
10.13 Peoples Bank & Trust Company Board and Senior
Management Profit Sharing Plan *(10.6)
10.14 Peoples Bank Corporation of Indianapolis Stock
Option Plan ****(10.7)
10.15 Peoples Bank Corporation of Indianapolis
Directors Stock Option Plan ***(10.8)
10.16 Peoples Bank Corporation of Indianapolis 1998
Stock Option Plan
21 Subsidiaries of the Registrant
23 Consent of Crowe Chizek
27 Financial Data Schedule
* Incorporated by reference to the corresponding exhibit
number (or the exhibit number indicated above in the
right hand column) 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 (or the exhibit number indicated above in the
right hand column) of the Registrant's quarterly report
on Form 10-Q for the fiscal quarter ended September 30,
1997.
*** Incorporated by reference to the corresponding exhibit
number (or the exhibit number indicated above in the
right hand column) of the Registrant's annual report
on Form 10-K for the fiscal year ended December 31,
1996.
**** Incorporated by reference to the corresponding exhibit
number (or the exhibit number indicated above in the
right hand column) of the Registrant's annual report
on Form 10-K for the fiscal year ended December 31,
1995.
RESTATED
PEOPLES BANK & TRUST COMPANY
EXECUTIVES DEFERRED COMPENSATION PLAN
(EFFECTIVE DECEMBER 1, 1988)
PREAMBLE
This Plan is an unfunded supplemental retirement plan for a select group of
management employees and, after December 31, 1997, members of the Board of
Directors, of Peoples Bank & Trust Company and is designed to meet applicable
exemptions under sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of the
Employee Retirement Income Security Act of 1974, as amended, and under
Department of Labor Regulation Section 2520.104-23. The purpose of this Plan is
to provide retirement benefits to eligible employees who are employed by the
Company on or after December 31, 1997, members of the Company's Board of
Directors and their Beneficiaries. ARTICLE I DEFINITIONS Section 1.01. Actuarial
Standard. The term "Actuarial Standard" means a standard adopted for any Plan
Year by the Committee for all Participants, based on health, life expectancy,
medical history, dangerous avocation or other appropriate references or factors,
by which the applicability of the Full Survivor Benefit to each Deferral of each
Participant is determined. Except for the Plan Year beginning January 1, 1989,
the Committee shall provide notice to each eligible employee regarding the terms
of the Actuarial Standard applicable and his eligibility for Full Survivor
Benefits with respect to amounts, deferred in the subsequent Plan Year, on or
before the fifteenth (15th) day of December immediately preceding the Plan Year
during which the Actuarial Standard is to apply.
Section 1.02. Beneficiary. The term "Beneficiary" means the person
designated in the Participant's last duly executed Participation Agreement to
receive death benefits or the remainder
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retirement benefits in the event of the Participant's death. "Contingent
Beneficiary" means the person designated in the Participant's last duly executed
Participation Agreement to receive such benefits if the Beneficiary should die
before receiving all benefit payments to which the Beneficiary would otherwise
be entitled.
Section 1.03. Cause. The term "Cause" means (i) personal dishonesty, (ii)
willful misconduct, (iii) breach of fiduciary duty involving personal profit,
(iv) intentional failure to perform stated duties, (v) conviction of a violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or cease-and-desist order, (vi) moral turpitude reflecting adversely
on the reputation of the Company, or (vii) any material breach of any term,
condition or covenant of this Agreement. Section 1.04. "Change of Control". The
term "Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than William E. "Mac" McWhirter, or his
spouse or lineal descendants, becomes the beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the voting stock of the Company or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors. "Continuing Directors" means, as of any
date of determination, any member of the Board of Directors
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of the Company who (i) was a member of such Board of Directors January 24, 1996
or (ii) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination.
Section 1.05. Committee. The term "Committee" means the committee
administering the Plan, consisting of at least three (3) persons appointed from
time to time by the Company's Board of Directors. Section 1.06. Company. The
term "Company" means Peoples Bank & Trust Company, and any successor thereto.
Section 1.07. Compensation. The term "Compensation" means for each Participant
in any Plan Year the total amount of cash remuneration (inclusive of bonuses)
for employment or director services paid to such Participant by the Company for
such Plan Year. Section 1.08. Deferral. The term "Deferral" means, for each
Participant in each Plan Year, the amount of Compensation to be deferred in such
Plan Year by such Participant and allocated to such Participant's Participation
Account. Section 1.09. Effective Date. The term "Effective Date" means December
1, 1988. Section 1.10. Participant. The term "Participant" means any individual
who fulfills the eligibility requirements contained in Article II hereof.
Section 1.11. Participation Account. The term "Participation Account" means the
account maintained for each Participant in this Plan which is credited in each
Plan Year with a Deferral based on the amount designated in the Participation
Agreement executed by such Participant and subsequently credited with earnings
or reduced by losses in respect of such Deferral, depending on the investment
option(s) applicable to the Deferral.
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Section 1.12. Participation Agreement. The term "Participation Agreement"
means for a Participant the agreement executed by such Participant for each Plan
Year signifying his desire to become (or to continue to be) a Participant in
this Plan, signifying the amount of his Compensation which is to be deferred
during a subsequent Plan Year pursuant to the terms of this Plan and making
related binding elections. Section 1.13. Plan. The term "Plan" means the plan
embodied by this instrument, as now in effect or hereafter amended. Section
1.14. Plan Year. The term "Plan Year" means the calendar year. Section 1.15.
Retirement Age. The term "Retirement Age" means the date on which a Participant
attains age sixty-five (65).
ARTICLE II
PARTICIPATION IN THE PLAN
Section 2.01. Eligibility. Highly compensated and management employees of
the Company under Retirement Age whose participation is approved by the Board of
Directors of the Company in writing and members of the Board of Directors of the
Company shall be eligible to become Participants in this Plan.
Section 2.02. Deferral Amounts.
(a) Amount of Deferral. The amount of each Deferral to be
deferred in any Plan Year shall be designated by each Participant in the
Participation Agreement executed by such Participant for such Plan Year before
the beginning of a Plan Year; provided, however, that the amount of Compensation
to be deferred by any Participant in any Plan Year under this Plan shall not
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be less than One Thousand Dollars ($1,000) and, not less than Three Thousand
Dollars ($3,000) for any Plan Year after 1998. The amount of Compensation to be
deferred by any employee Participant in any Plan Year after 1998 shall not be
more than (i) one hundred percent (100%) of the Participant's Compensation for
such Plan Year less (ii) the lesser of (a) ten percent (10%) of the
Participant's Compensation for such Plan Year or (b) Ten Thousand Dollars
($10,000). No Participant may defer any portion of his Compensation subject to
garnishment.
(b) Modification of Deferral Amount. A Participant shall be
permitted to modify the amount of his Compensation to be deferred in any Plan
Year under this Plan by written notice provided to the Committee before the
beginning of the Plan Year during which the modification is to become effective.
(c) Discontinuation of Participation. A Participant shall be
permitted to discontinue his participation in this Plan by written notice
provided to the Committee before the beginning of the Plan Year in which the
discontinuation is to be effective or by failing to execute a Participation
Agreement for such Plan Year. Any amounts previously deferred before any such
discontinuance shall be paid in accordance with the provisions of this Plan.
(d) Manner of Payout of a Participant's Account. If the
balance in a Participant's Participation Account attributable to a Deferral is
to be paid out in the event of the retirement of such Participant as provided in
this Plan, it shall be paid out in the manner and at the times specified in the
Participation Agreement applicable to the Deferral, either: (i) in a single lump
sum payment; (ii) in substantially equal quarterly installments over a period of
not more than 15 years identified in the Participation Agreement, or (iii) in
substantially equal annual installments over a period of not more than 15 years
identified in the Participation Agreement. In the absence of an applicable
election in
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the Participation Agreement governing the Deferral, the attributable balance
shall be paid out in substantially equal quarterly installments over a period of
15 years. The balance of the Participant's Participation Account shall be fixed
as of the date of retirement under Section 4.01 and shall no longer be deemed
invested under Section 3.02. If retirement benefits are payable other than in a
lump sum, the Company shall pay interest on payout installments, in the case of
Deferrals under Investment Option I, at the rate per annum that applied to such
Deferrals at the time of deferral, and, in the case of Deferrals under
Investment Option II, at the rate that applied to Deferrals under Investment
Option I for Deferrals made in the Plan Year in which the first such payout
installment is to be made.
(e) Early Payout. A Participant may designate in his
Participation Agreement that a fixed amount or percentage of the Deferral
covered by such Participation Agreement shall be paid out (together with
earnings or less losses attributable thereto pursuant to Article III) in a lump
sum on a date (not earlier than the date five years after the date of such
Participation Agreement) specified in the Participation Agreement.
(f) Special Request. Subject to the consent of the Company's
Board of Directors (without the participation of the Participant), benefits
under this Plan to be paid out subsequent to Participant's retirement may be
paid at a time or times different from that provided in the applicable
Participant's Participation Agreement, but only if such Participant delivers a
written request for such an alternative payout specifying the alternative
time(s) for payment to the Committee after Participant's 54th birthday but
before the first day of the Plan Year in which Participant retires under Section
4.01; provided, further, that under no circumstances shall alternative payment
be granted by the Board of Directors unless the Participant certifies in writing
to the Committee that he does not
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own beneficially, directly or indirectly, shares of voting capital stock of the
Company or its parent representing more than ten percent (10%) of the aggregate
voting power of such stock. Whether to grant such a request for alternative
payment is subject to the absolute discretion of the Board of Directors.
ARTICLE III
ACCOUNTS
Section 3.01. Purpose of Participation Accounts. The Committee shall cause
a Participation Account to be established in the name of each Participant. The
Participation Account of each Participant shall be credited each Plan Year with
such Participant's Deferral for such Plan Year and with earnings or losses
deemed attributable thereto in accordance with the Plan and the applicable
Participation Agreement. The purpose of establishing such Participation Accounts
is solely as a record-keeping device to provide a mechanism for determining the
Participants' benefits under this Plan. No amount allocated to a Participation
Account shall earn or generate interest or income of any kind. It is the intent
of the Company that the Participants shall have no title to or beneficial
ownership of any cash, investments or insurance contracts which the Company may
purchase, set aside or allocate to any Participation Account. It is the further
intent of the Company that the title to and beneficial ownership of any assets
allocated or related to any Participation Account, whether cash, insurance
contracts or any other form of investments, shall at all times remain with the
Company.
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Section 3.02. Allocation of Deferrals and Investment Options.
(a) The Committee shall in each Plan Year allocate to the
Participation Account of a Participant his Deferral for such Plan Year.
(b) Each Deferral shall be deemed invested, subject to the
terms and conditions of this Plan, in one of the following two investment
options to be specified in the Participation Agreement. In the absence of such
an election in the applicable Participation Agreement, Deferrals shall be deemed
invested pursuant to Investment Option I:
Investment Option I: Fixed rate of return equal to 7.5% per
annum or such other rate (higher or lower) as may be
determined by the Committee for a Plan Year to be set forth in
the applicable Participation Agreement. The rates of return
applicable to Deferrals in Plan Years prior to 1994 are as
follows:
1989-1991 10.0%
1992-1993 9.0%
Investment Option II: Deemed investment in securities
represented by the S&P 500 Index Plan Year. The value of
Deferrals shall be adjusted annually at the beginning of each
Plan Year to (i) account for changes (increases or decreases)
in the S&P 500 Index during the preceding year and (ii) to
reduce the value of Deferrals by 1% of the balance thereof at
the beginning of the preceding Plan Year.
(c) The allocation of a Participant's Deferral Allocation for
a Plan Year to such Participant's Participation Account shall be made as of the
first (lst) calendar day of such Plan Year; provided, however, that the actual
amount of Compensation deferred shall be deducted proportionately by the Company
from such Participant's Compensation throughout the Plan Year. A Participant's
Participant Account balance shall be adjusted at the beginning of each Plan Year
to give effect to earnings or (if applicable, in the case of Investment Option
II) losses accruing pursuant
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to the Participant's applicable investment elections under paragraph (b) above.
If a Participant retires or his employment or service otherwise terminates
before the end of a Plan Year, (i) his Deferral for such Plan Year shall be
recomputed based on the amount of Compensation actually deferred before his
termination, rather than on the amount of Compensation designated in his
Participation Agreement for such Plan Year, and such recomputed amount shall be
the amount allocated to his Participation Account for such Plan Year; and (ii)
his Participation Account shall be adjusted based on the investment option(s)
applicable to the balance therein to reflect earnings or (if applicable, in the
case of Investment Option II) losses to the date of termination.
Section 3.03. Change of Investment Option. As of the first day of any Plan
Year beginning after a Participant's 55th birthday, and Participant may, by duly
executed written election delivered to the Committee prior to such date, shift
any portion of the balance of his or her Participation Account that is deemed
invested under Investment Option II to Investment Option I. The portion of the
balance of the Participation Account for which such election is made shall be
deemed to have been invested as of and after such date under Investment Option
I.
ARTICLE IV
BENEFITS
Section 4.01. Retirement and Early Retirement. If and when a Participant
terminates his employment with the Company or service on the Board of Directors
upon or after attaining fifty-five (55), the Company shall pay to such
Participant the balance contained in his Participation Account as of the date of
his termination of employment or service with the Company (in the manner and at
the times determined in accordance with Section 2.02(d) hereof and the
applicable Participation Agreement). If a Participant should die before
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receiving all payments of benefits to which the Participant is entitled, the
Company shall continue to pay such benefits to the Beneficiary designated in
such Participant's last duly executed Participation Agreement in the amounts and
at the times the Participant would have been entitled to receive them. Payments
under this Section 4.01 shall commence no later than the first (1st) calendar
day of the first (1st) calendar month following the month in which such
Participant's employment or service terminates.
Section 4.02. Death Benefits.
(a) If a Participant dies before the commencement of payment of his benefits
under this Article IV and such Participant meets the Actuarial Standard at the
time of allocation of a Deferral, the Beneficiary of such Participant, as
determined pursuant to such Participant's last duly executed Participation
Agreement, shall be entitled to receive full Survivor Benefit payments from the
Company in respect of such Deferral as follows: The "Full Survivor Benefit" with
respect to a Deferral shall be the amount that the Participant would have been
entitled (regardless of the actual investment and payment elections governing
such Deferral) to receive following termination of employment due to retirement
after attaining Retirement Age, had the Participant (i) elected Investment
Option I for such Deferral at the time of the Deferral, and; (ii) elected to
receive payments for such Deferral in monthly installments over a period of 15
years following termination due to retirement. (b) If a Participant dies before
the commencement of payment of his benefits under this Article IV, but such
Participant did not meet the Actuarial Standard at the time of allocation of any
Deferral, the survivor benefits otherwise payable annually in respect of such
Deferral (calculated under Section 4.02(a))shall be reduced to the percentage of
such annual survivor benefit set forth on Table 1 of this Plan for the age
closest to the age of such Participant at the time of his death. The
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Participant's Beneficiary shall then be entitled only to receive an annual
Survivor Benefit from the Company as provided in this Section 4.02 in the amount
equal to such reduced annual Survivor Benefit. Such reduced annual Survivor
Benefit is sometimes referred to as the "Limited Survivor Benefit".
(c) If a Participant dies as a result of suicide, no Survivor
Benefit shall be payable in respect of any Deferral allocated to such
Participant's Participation Account attributable to any Participation Agreement
executed within two (2) calendar years before such Participant's death. The
Company shall have no obligation under this Plan to purchase or maintain in
force any insurance contract. Subject to the foregoing, the Participant's
Beneficiary shall be entitled to receive the Full Survivor Benefit or the
Limited Survivor Benefit, as applicable, for a period of 15 years. Subject to
delivery to the Committee of the Participant's death certificate, beginning no
later than sixty (60) calendar days following the date of such Participant's
death, the Full Survivor Benefit or the Limited Survivor Benefit, whichever is
applicable, to which such Participant's Beneficiary is entitled, shall be paid
out in one hundred and eighty (180) equal monthly installments over a period of
15 years. Payment may also be made in a single lump sum payment of the total
Full Survivor Benefit or Limited Survivor Benefit, as applicable, if (i) so
requested in writing by the Beneficiary; (ii) such request is approved by the
Company's Board of Directors; and (iii) the Beneficiary is not and the
Participant was not a beneficial owner of more than 10% of the voting stock of
the Company or its parent.
(d) The Survivor Benefit shall be the only benefit to which a
Participant's Beneficiary shall be entitled if Participant dies prior to
termination of employment or service on the Board of Directors. No Survivor
Benefit shall be payable if Participant dies after termination of employment or
service.
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Section 4.03. Other Termination of Employment.
(a) If a Participant's employment with the Company or service
on the Board of Directors terminates for any reason other than death before age
fifty-five (55), the Company shall pay to such Participant not later than sixty
(60) calendar days following the date of such termination, in a single lump sum
payment, an amount equal to the lesser of (i) the balance of the Participants'
Participation Account as of the date of termination, as adjusted under Article
III, and (ii) the sum of such Participant's Deferrals under this Plan prior to
such termination, plus interest at an average annual rate (subject to the
following sentence) of 5% per annum or such other rate (higher or lower) as may
be determined by the Committee for a Plan Year to be set forth in the applicable
Participation Agreement compounded annually from the time of the actual
deduction of such deferred amounts from such Participant's Compensation, and not
from the time of, and without reference to, any allocation to his Participation
Account. With respect to Deferrals in Plan Years prior to 1994, the interest
rate set forth in the foregoing sentence, instead of 5%, is the rate set forth
below:
1989-1991 8.0%
1992 7.0%
1993 7.0%
(b) Notwithstanding the foregoing, if a Participant's
employment with the Company or service on the Board of Directors is terminated
by the Company without Cause before age fifty-five (55) but following the
occurrence of a Change of Control, the Company shall make payment to the
Participant not later than sixty (60) calendar days following the date of such
termination, in a lump sum equal to the balance of the Participant's
Participation Account as of the date of termination, as adjusted under Article
III.
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ARTICLE V
ADMINISTRATION
Section 5.01. Administration of Plan. The Committee shall represent the
Company in all matters concerning the administration of this Plan. The Committee
shall have full power and authority to adopt rules and regulations for the
administration of this Plan; provided, however, that such rules and regulations
shall not be inconsistent with the provisions of this Plan.
Section 5.02. Delegation of Responsibility. The Committee may delegate
duties involved in the administration of this Plan to such person or persons
whose services are deemed by it to be necessary or convenient, including, but
not limited to, any committee of the Board of Directors of the Company with
oversight responsibility for any of its employee benefits.
Section 5.03. Payment of Benefits. The amounts allocated to a
Participant's Participation Account and payable as benefits under this Plan
shall be paid solely from the general assets of the Company. No Participant
shall have any interest in any specific assets of the Company under the terms of
this Plan. This Plan shall not be considered to create an escrow account, trust
fund or other funding arrangement of any kind or a fiduciary relationship
between any Participant and the Company. The Company's obligation under this
Plan is purely contractual and shall not be funded or secured in any way.
Section 5.04. Construction of Plan. The Committee shall have the power
to construe this Plan and to determine all questions of fact or law arising
under it. It may correct any defect, supply any omission or reconcile any
inconsistency in this Plan in such manner and to such extent as it may deem
appropriate.
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Section 5.05. Committee Members Unable to Act. A Committee member who
is also a Participant in this Plan shall not participate in any decision or
action by the Committee which directly or indirectly affects only such member of
the Committee.
Section 5.06. Removal of Committee Members. The Company may remove a
member of the Committee, with or without cause, by providing the member with ten
(10) calendar days' prior written notice and may fill any vacancies created by
any such removal. Notice may be waived in writing by the member.
Section 5.07. Insurance Contracts. An insurance contract on the life of
any Participant may be applied for by the Committee, but such insurance contract
shall be the sole, unrestricted property of the Company and the Company shall be
the designated beneficiary thereof. The Company shall have no obligation to
apply for, purchase or maintain in force any insurance contract.
ARTICLE VI
AMENDMENT OR TERMINATION OF PLAN
Section 6.01. Termination. The Company may at any time terminate this
Plan. Upon the effective date of the termination of this Plan, no additional
amounts shall be deferred from any Participant's Compensation. Upon termination
the Company shall pay each Participant within 60 days after the effective date
of the termination of this Plan the amount equal to the balance in the
Participant's Participation Account as of such date. Termination of this Plan
shall not, however, affect the benefits otherwise payable to a Participant whose
employment or service terminates before the effective date of the termination of
this Plan, whether by reason of death or otherwise, or to such a Participant's
Beneficiary.
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Section 6.02. Amendment. The Company may amend the provisions of this
Plan at any time; provided, however, that no amendment shall adversely affect
the rights of Participants or, if deceased, of their Beneficiaries with respect
to benefits to which such Participants or Beneficiaries are otherwise entitled
to receive with respect to Compensation actually deferred immediately before
such amendment.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Successors. This Plan shall be binding upon the
successors of the Company.
Section 7.02 Duration of Plan. Subject to Section 6.01 hereof, this
Plan shall terminate on the date on which each Participant's benefits have been
distributed in full pursuant to the terms of this Plan.
Section 7.03. Choice of Law. This Plan shall be construed and
interpreted pursuant to, and in accordance with, the laws of the State of
Indiana.
Section 7.04. No Employment Contract. This Plan shall not be construed
as an agreement, consideration or inducement of employment or as affecting in
any manner the rights or obligations of the Company or of any Participant to
continue or to terminate the employment relationship at any time.
Section 7.05. Non-Alienation. No Participant or his Beneficiary shall
have any right to anticipate, pledge, alienate or assign any of his rights under
this Plan, and any attempt to do so shall be null and void. The benefits payable
under this Plan shall be exempt from the claims of creditors or other claimants
and from all orders, decrees, levies and executions and any other legal process
to the fullest extent than permitted by law.
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Section 7.06. Gender and Number. Words in one (1) gender shall be
construed to include the other genders where appropriate; words in the singular
or plural shall be construed as being in the plural or singular where
appropriate.
Section 7.07. Headings. The headings in this Plan are solely for
convenience of reference and shall not affect its interpretation.
Section 7.08. Disclaimer. The Company makes no representations or
assurances and assumes no responsibility as to the performance by any parties,
solvency, compliance with state and federal securities regulation or state and
federal tax consequences of this Plan or participation therein. It shall be the
responsibility of the respective Participants to determine such issues or any
other pertinent issues to their own satisfaction.
Section 7.09. Designation of Beneficiaries. Each Participant shall
designate in his Participation Agreement his Beneficiary and his Contingent
Beneficiary to whom any death benefits or any unpaid installments or monthly
benefits otherwise due hereunder at the date of such Participant's death shall
be paid; provided, however, that the Beneficiary and Contingent Beneficiary
designated by a Participant in his last duly executed Participation Agreement
shall supersede all other Beneficiary or Contingent Beneficiary designations
made by such Participant in any earlier Participation Agreement. If any
Participant fails to designate a Beneficiary or if the designated Beneficiary
predeceases any Participant, any death benefits or any remaining installments or
monthly benefits due hereunder at that Participant's death shall be paid to his
Contingent Beneficiary or, if none, to such deceased Participant's surviving
spouse, if any, and if none to such deceased Participant's estate.
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The adoption of this Executives Deferred Compensation Plan and the terms
and conditions thereof was approved by the Company at a meeting had on November
14, 1988. This amendment and restatement was approved December 18, 1997 and
November 19, 1998. Pursuant to such authorization, the officers of the Company
have executed this Restated Plan on this 19th day of November, 1998, but this
Plan shall be retroactively effective as of December 1, 1988.
PEOPLES BANK & TRUST COMPANY
By: /s/ William E. McWhirter
Its: Chairman
Attest:
By: /s/ Charles E. Hageboeck
Its: Secretary
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TABLE 1
LIMITED SURVIVOR BENEFITS
LIMITED SURVIVOR BENEFIT
AS % OF
AGE AT DEATH FULL SURVIVOR BENEFIT
- ------------ ------------------------
64 79.00%
63 71.33%
62 64.41%
61 58.15%
60 52.51%
59 48.20%
58 44.25%
57 40.62%
56 37.28%
55 34.23%
54 32.03%
53 29.97%
52 28.04%
51 26.24%
50 24.55%
49 22.79%
48 21.15%
47 19.63%
46 18.22%
45 16.91%
44 15.66%
43 14.50%
42 13.42%
41 12.43%
40 11.51%
39 10.65%
38 9.85%
37 9.11%
36 8.42%
35 7.79%
34 7.24%
33 6.73%
32 6.26%
31 5.82%
30 5.41%
FIRST AMENDMENT TO
PEOPLES BANK & TRUST COMPANY
DIRECTORS DEFERRED FEES PLAN
This First Amendment to Peoples Bank &Trust Company Directors Deferred
Fees Plan ("Plan") is effective as of the 31st day of December, 1998, pursuant
to Section 6.01 of the Plan, modifies and amends the Plan as set forth herein.
ARTICLE I
AMENDMENT
Section 2.02(a) of the Plan is hereby amended by adding the following
at the end of such section:
"After December 31, 1998, no further deferral of Fees shall be
permitted under the Plan by any Participant."
ARTICLE II
CONFIRMATION
Except as modified and amended hereby, the Plan remains in full force
and effect.
EXECUTED this 19th day of November, 1998 and EFFECTIVE as of December
31, 1998.
PEOPLES BANK & TRUST COMPANY
By: /s/ William E. McWhirter
-----------------------------------
Its: Chairman
-----------------------------------
PEOPLES BANK CORPORATION OF INDIANAPOLIS
1998 STOCK OPTION PLAN
1. Purpose. The purpose of the Peoples Bank Corporation of Indianapolis
1998 Stock Option Plan (the "Plan") is to provide to officers and other key
employees of Peoples Bank Corporation of Indianapolis (the "Company") and its
majority-owned and wholly-owned subsidiaries (individually a "Subsidiary" and
collectively the "Subsidiaries"), including, but not limited to, Peoples Bank &
Trust Company and Peoples Building Corporation, who are materially responsible
for the management or operation of the business of the Company or a Subsidiary
and have provided valuable service to the Company or a Subsidiary, a favorable
opportunity to acquire Nonvoting Common Shares, without par value (the
"Nonvoting Common Shares"), of the Company, thereby providing them with an
increased incentive to work for the success of the Company and its Subsidiaries
and better enabling each such entity to attract and retain capable executive
personnel.
2. Administration of the Plan.
(a) The Committee. The Plan shall be administered, construed
and interpreted by a committee consisting of at least two members of
the Board of Directors of the Company, each of whom is a disinterested
person within the meaning of the definition of that term contained in
Reg. ss. 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "1934 Act") and an outside director under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The members of the Committee shall be designated from time to time by
the Board of Directors of the Company. ("Committee" as used herein
refers to the committee so designated, and, as the context requires,
may also refer to the full Board of Directors or the Special Option
Committee acting under Section 2(c).) In the absence of such
designation, the Committee shall be the Board Related Affairs Committee
of the Corporation as long as such committee shall consist solely of
non-employee directors. The decision of a majority of the members of
the Committee shall constitute the decision of the Committee, and the
Committee may act either at a meeting at which a majority of the
members of the Committee is present or by a written consent signed by
all members of the Committee.
(b) Authority of the Committee. The Committee shall have the
final and conclusive authority to determine, consistent with and
subject to the provisions of the Plan:
(i) the individuals ("Optionees or Awardees") to whom
options or cash awards (collectively, "Awards") shall be granted
under the Plan;
(ii) the time when Awards shall be granted hereunder;
(iii) the number of Nonvoting Common Shares to be covered
under each option and the amount of any cash awards;
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(iv) the option price to be paid upon the exercise of each
option;
(v) the period within which each such option may be
exercised;
(vii) the extent to which an option is an incentive stock
option or a non- qualified stock option; and
(viii) the terms and conditions of the respective agreements
by which Awards shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and
rescind rules and regulations relating to the Plan, to accelerate the
vesting of any stock options or cash awards made hereunder and to make
all other determinations necessary or advisable in the administration
of the Plan.
(c) Special Authority. Notwithstanding the above paragraph
2(b),
(i) The full Board of Directors shall have the
special authority from time to time to grant awards
and to make the determinations described in paragraph
2(b)(i)-(viii) with respect to such grants.
(ii) A special option committee of the Board (the
"Special Option Committee") shall have the special
authority from time to time to grant options and to
make the determinations described in paragraph
2(b)(i)-(viii) with respect to such options where the
number of Nonvoting Common Shares to be covered under
the option is less than one thousand (1000) and the
Optionee is a person not subject to Section 16 of the
1934 Act. Such special committee shall consist of at
least one member of the Board of Directors of the
Company. The member(s) of the special committee may
be designated from time to time by the Board of
Directors of the Company and may include the
President or Chief Executive Officer of the Company.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant Awards to officers and other key employees of the Company or of a
Subsidiary who in the opinion of the Committee are from time to time materially
responsible for the management or operation of the business of the Company or of
a Subsidiary and have provided valuable services to the Company or a Subsidiary;
provided, however, that in no event may any employee who owns (after application
of the ownership rules in ss. 425(d) of the Code) shares of stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or any of its Subsidiaries be granted an incentive stock option
hereunder unless at the time such option is granted the option price is at least
110% of the fair market value of the stock subject to the option and such option
by its terms is not exercisable after the expiration of five (5) years from the
date such option is granted.
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Subject to the foregoing and the provisions of Section 7 hereof, an Optionee, if
he is otherwise eligible, may be granted additional Awards if the Committee
shall so determine.
4. Stock Subject to the Plan. A total of 50,000 Nonvoting Common Shares
of the Company shall be reserved for issuance pursuant to Awards granted under
the Plan. Such reserved shares may be authorized but unissued shares or treasury
shares of the Company. Subject to Section 7 hereof, the shares for which options
may be granted under the Plan shall not exceed that number. If any option shall
expire or terminate or be surrendered for any reason without having been
exercised in full, or if an award of restricted shares shall be forfeited, the
unpurchased shares subject thereto shall (unless the Plan shall have terminated)
become available for other options under the Plan. Notwithstanding the forgoing,
no Awardee shall be granted more than 25,000 Nonvoting Common Shares under the
Plan.
5. Terms of Options. Each option granted under the Plan shall be subject to
the following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each case:
(a) Option Price. The price to be paid for shares of stock
upon the exercise of each option shall be determined by the Committee
at the time such option is granted, but such price in the case of an
incentive stock option shall not be less than the fair market value, as
determined by the Committee consistent with Treas. Reg. ss. 20.2031-2
and any requirements of ss. 422A of the Code, of such stock on the date
on which such option is granted; and provided, further, that the
Committee may in no event award non-qualified stock options at a price
less than 85% of the fair market value of the Nonvoting Common Shares
on the date of grant, as determined by the Committee consistent with
Treas. Reg. ss. 20.2031-2.
(b) Period for Exercise of Option. An option shall not be
exercisable after the expiration of such period as shall be fixed by
the Committee at the time of the grant thereof, but such period in no
event shall exceed ten (10) years and one day from the date on which
such option is granted; provided, that incentive stock options granted
hereunder shall have terms not in excess of ten (10) years. Options
shall be subject to earlier termination as hereinafter provided.
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full at the time
of such exercise. Payment may be made:
(i) in cash;
(ii) if the Optionee may do so in conformity with
Regulation T (12 C.F.R. ss. 220.3(e)(4)) without
violating ss. 16(b) or ss. 16(c) of the 1934 Act,
pursuant to a broker's cashless exercise procedure,
by delivering a properly executed exercise notice
together with irrevocable instructions to a broker to
promptly deliver to the Company the total option
price in cash and, if desired, the
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amount of any taxes to be withheld from the
Optionee's compensation as a result of any
withholding tax obligation of the Company or any of
its Subsidiaries, as specified in such notice; or
(iii) with the approval of the Committee, by
tendering whole shares of the Company's Nonvoting
Common Shares owned by the Optionee 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, any shares so tendered
by an Optionee shall be deemed to have a fair market
value equal to the mean between the highest and
lowest quoted selling prices for the shares on the
date of exercise of the option (or if there were no
sales on such date the weighted average of the means
between the highest and lowest quoted selling prices
on the nearest date before and the nearest date after
the date of exercise of the option as prescribed by
Treas. Reg. ss. 20.2031-2), provided if there were no
sales during a reasonable period before and after the
exercise date, the fair market value shall be
determined by taking the mean between the bid and
asked prices on the exercise date (or, if none, the
weighted average of the means between the bid and
asked prices on the nearest trading date before and
the nearest trading date after the exercise date on
which bid and asked quotations exist) as reported in
The Wall Street Journal or a similar publication
selected by the Committee.
The Committee shall have the authority to grant options exercisable in
full at any time during their term, or exercisable in such installments
at such times during their term as the Committee may determine.
Installments not purchased in earlier periods shall be cumulated and be
available for purchase in later periods. Subject to the other
provisions of this Plan, 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 or the Plan, but not at any time as to fewer than one
hundred (100) shares unless the remaining shares which have become
subject to purchase are fewer than one hundred (100) shares. An option
may be exercised only by written notice to the Company, mailed to the
attention of its Secretary, signed by the Optionee (or such other
person or persons as shall demonstrate to the Company his or their
right to exercise the option), specifying the number of shares in
respect of which it is being exercised, and accompanied by payment in
full in either cash or by check in the amount of the aggregate purchase
price therefor, by delivery of the irrevocable broker instructions
referred to above, or, if the Committee has approved the use of the
stock swap feature provided for above, followed as soon as practicable
by the delivery of the option price for such shares.
(d) 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 shares of stock subject
to an option until the date of issuance of a stock certificate to him
for such shares. In no case
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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 Company shall pay cash in lieu thereof.
(e) Termination of Option.
(i) Unless an earlier date of termination is
specified by the Committee, any option granted to an
Optionee shall expire and terminate on the date
thirty (30) days following Optionee's termination of
employment for any reason other than retirement,
disability or death. In the event of Optionee's
termination of employment due to retirement,
disability or death, this Option shall become
exercisable but shall expire as indicated in the
following table.
================================================================================
Circumstance of
Termination Expiration Date
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Retirement 3 months after termination of employment
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Disability or
Death while employed 1 year after termination of employment
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Death within 3 months after
Retirement OR Within One 1 year after date of death
Year after Termination due
to Disability
================================================================================
(ii) For purposes of this Plan,
(x) "Disability" means permanent and total disability as defined
in ss. 22(e)(3) of the Code.
(y) "Retirement" means such termination of
employment as shall entitle such individual
to early or normal retirement benefits under
any then existing pension plan of the
Company or a Subsidiary.
(z) Leave of absence approved by the
Committee shall not constitute cessation of
employment.
(iii) If the Optionee's employment is terminated due
to death, the option shall be exercised 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,
whether or not the option was otherwise exercisable
at the date of his death.
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(iv) In no circumstances, shall the Option be
exercisable later than the date on which it would
otherwise expire.
(f) Nontransferability of Option. No option may be transferred
by the Optionee otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations
thereunder, and during the lifetime of the Optionee options shall be
exercisable only by the Optionee or his guardian or legal
representative; provided, however, that non-qualified stock options may
be transferred to members of the Optionee's immediate family, to trusts
for the benefit of such immediate family members, and to trusts for the
benefit of the Optionee, to the extent permitted by the stock option
agreement between the Optionee and the Company.
(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 in the employ or service of the Company or its
Subsidiaries or affect any rights of the Company, a Subsidiary, or the
shareholders of the Company may have to terminate his service at any
time.
(h) Maximum Incentive Stock Options. The aggregate fair market
value of stock with respect to which incentive stock options (within
the meaning of ss. 422A of the Code) are exercisable for the first time
by an Optionee during any calendar year under the Plan or any other
plan of the Company or its Subsidiaries shall not exceed $100,000. For
this purpose, the fair market value of such shares shall be determined
as of the date the option is granted and shall be computed in such
manner as shall be determined by the Committee, consistent with the
requirements of ss. 422A of the Code.
(i) Agreement. Each option shall be evidenced by an agreement
between the Optionee and the Company which shall provide, among other
things, that, with respect to incentive stock options, the Optionee
will advise the Company immediately upon any sale or transfer of the
Nonvoting Common Shares received upon exercise of the option to the
extent such sale or transfer takes place prior to the later of (a) two
(2) years from the date of grant or (b) one (1) year from the date of
exercise.
(j) 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 the sale in connection with, any distribution thereof, and 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
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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.
(k) The Committee may provide in any Option Agreement that
options granted to an Optionee and not yet exercisable, shall become
exercisable automatically upon a Change of Control. "Change of Control"
means the occurrence of any of the following: (i) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company, (iii) the consummation
of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined
above), other than William E. "Mac" McWhirter, or his spouse or lineal
descendants, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the voting stock of the Company or (iv)
the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors. "Continuing
Directors" means, as of any date of determination, any member of the
Board of Directors of the Company who (i) was a member of such Board of
Directors January 24, 1996 or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of
the Continuing Directors who were members of such Board at the time of
such nomination or election.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options. All options granted hereunder will be clearly
identified as either incentive stock options or non-qualified stock options. In
no event will the exercise of an incentive stock option affect the right to
exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Company 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 Company, the Committee shall determine what changes, if any, are
appropriate in the number and kind of shares reserved under the Plan, and the
Committee shall determine what changes, if any, are
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appropriate in the option price under and the number and kind of shares covered
by outstanding Awards granted under the Plan. Any determination of the Committee
hereunder shall be conclusive.
8. Cash Awards. The Committee may, at any time and in its discretion,
grant to any Optionee who is granted a non-qualified stock option the right to
receive, at such times and in such amounts as determined by the Committee in its
discretion, a cash amount (cash award) which is intended to reimburse the
Optionee for all or a portion of the federal, state and local income taxes
imposed upon such Optionee as a consequence of the exercise of a non-qualified
stock option and the receipt of a cash award.
9. Replacement and Extension of the Terms of Options and Cash Awards.
The Committee from time to time may permit an Optionee under the Plan or any
other stock option plan heretofore or hereafter adopted by the Company or any
Subsidiary to surrender for cancellation any unexercised outstanding stock
option and receive from his employing corporation in exchange therefor an option
for such number of Nonvoting Common Shares as may be designated by the
Committee. Such Optionees also may be granted related cash awards as provided in
Section 8 hereof.
10 Tax Withholding. Whenever the Company proposes or is required to
issue or transfer Nonvoting Common Shares under the Plan, the Company shall have
the right to require the Optionee or Awardee or his or her legal representative
to remit to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares, and whenever under the Plan
payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee or Awardee may make a written election
to have Nonvoting Common Shares having an aggregate fair market value, as
determined by the Committee, consistent with the requirements of Treas. Reg. ss.
20.2031-2 sufficient to satisfy the applicable withholding taxes, withheld from
the shares otherwise to be received upon the exercise of a non-qualified option
or vesting of a restricted share Award.
11. Amendment. The Board of Directors of the Company may amend the Plan
from time to time and, with the consent of the Optionee or Awardee, the terms
and provisions of his or her Award, except that without the approval of the
holders of at least a majority of the voting shares of the Company voting in
person or by proxy at a duly constituted meeting or adjournment thereof:
(a) the number of shares of stock which may be reserved for
issuance under the Plan may not be increased except as provided in
Section 7 hereof;
(b) the period during which an option may be exercised may not
be extended beyond ten (10) years and one day from the date on which
such option was granted; and
(c) the class of persons to whom Awards may be granted under
the Plan shall not be modified materially.
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No amendment of the Plan, however, may, without the consent of the
Optionees or Awardees, make any changes in any outstanding Award theretofore
granted under the Plan which would adversely affect the rights of such persons.
12. Termination. The Board of Directors of the Company may terminate
the Plan at any time and no Award shall be granted thereafter. Such termination,
however, shall not affect the validity of any Award theretofore granted under
the Plan. In any event, no incentive stock option may be granted under the Plan
after the date which is ten (10) years from the effective date of the Plan or,
if earlier, the date the Plan is approved by the Company's shareholders.
13. Successors. This Plan shall be binding upon the successors and
assigns of the Company.
14. Governing Law. The terms of any Awards granted hereunder and the
rights and obligations hereunder of the Company, the Optionees and Awardees and
their successors in interest shall, except to the extent governed by federal
law, be governed by Indiana law.
15. Government and Other Regulations. The obligations of the Company to
issue or transfer and deliver shares under Awards granted under the Plan or make
cash awards shall be subject to compliance with all applicable laws,
governmental rules and regulations, and administrative action.
16. Effective Date. The Plan shall be effective as of January 1, 1998;
provided, however, that any grant of Awards pursuant to the Plan shall be
subject to the approval of the Plan by the holders of at least a majority of the
shares of the Company entitled to vote thereon voting in person or by proxy at a
duly constituted meeting or adjournment thereof, and any options granted
pursuant to the Plan may not be exercised until the Company has been advised by
counsel that such approval has been obtained and all other applicable legal
requirements have been met.
Subsidiaries of the Registrant
1. Peoples Bank & Trust Company
2. Peoples Building Corporation
3. Peoples Investment Services, Inc.
4. PIC, Ltd.
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
Report of Independent Auditors, dated February 4, 1999, on the consolidated
balance sheets of Peoples Bank Corporation of Indianapolis as of December 31,
1998 and 1997 and on the consolidated statements of income, changes in
shareholders' equity and cash flow for each of the three years in the period
ended December 31, 1998, which report is included in Form 10-K of Peoples Bank
Corporation of Indianapolis for the year ended December 31, 1998.
/s/ Crowe, Chizek and Company LLP
Indianapolis, Indiana
March 30, 1999
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000796322
<NAME> Peoples Bank Corporation of Indianapolis
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<S> <C>
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