UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number 0-23134
PEOPLES BANK CORPORATION OF INDIANAPOLIS
(Exact name of registrant as specified in its charter)
Indiana 35-1681096
- --------------------------------------------------------------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) identification no.)
130 East Market Street Indianapolis, Indiana 46204
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(317) 237-8121
(Registrant's telephone number, including area code)
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. X Yes ___ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Shares, without par value
Nonvoting - 2,836,244 shares as of August 4, 1999
Voting - 264,096 shares as of August 4, 1999
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998................................................. 2
Consolidated Statements of Income for the six months ended
June 30, 1999 and 1998............................................ 3
Consolidated Statements of Changes in Shareholders' Equity........ 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998........................................... 5
Notes to Consolidated Financial Statements...................... 6-7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................ 8-16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............17
Item 6. Exhibits and Reports on Form 8-K................................. 17
Signatures ................................................................. 18
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED BALANCE SHEETS
================================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
Assets
<S> <C> <C>
Cash and due from banks $ 20,286 $ 30,336
Federal funds sold 6,800 4,800
-------- --------
Total cash and equivalents 27,086 35,136
Available-for-sale securities 137,827 132,216
Loans held for sale 239 2,346
Total loans 495,113 452,065
Allowance for loan losses (8,004) (7,684)
-------- --------
Loans, net 487,109 444,381
Premises and equipment, net 7,666 8,105
Accrued income and other assets 14,597 12,321
-------- --------
Total assets $674,524 634,505
======== ========
Liabilities
Non interest-bearing deposits $ 94,823 98,851
Interest-bearing deposits 492,468 452,178
-------- --------
Total deposits 587,291 551,029
Borrowings 27,264 22,918
Accrued expenses and other liabilities 7,551 8,533
-------- --------
Total liabilities 622,106 582,480
Shareholders' equity
Common shares, no par value:
Authorized:
Voting - 300,000 shares
Nonvoting - 4,000,000 shares
Issued:
Voting - 264,096 shares (1999)
- 264,096 shares (1998) 896 896
Nonvoting - 2,715,701 shares (1999)
- 2,758,794 shares (1998) 9,760 11,384
Retained earnings 42,637 39,008
Accumulated other comprehensive income (875) 737
-------- --------
Total shareholders' equity 52,418 52,025
-------- --------
Total liabilities and shareholders' equity $674,524 $634,505
======== ========
</TABLE>
See accompanying notes.
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income
Loans, including related fees $9,940 $9,360 $19,374 $18,368
Federal funds sold 133 126 231 231
Securities 2,120 2,382 4,180 4,770
------ ------ ------ ------
Total interest income 12,193 11,868 23,785 23,369
Interest expense
Deposits 5,494 5,462 10,594 10,687
Borrowings 263 213 518 375
------ ------ ------ ------
Total interest expense 5,757 5,675 11,112 11,062
------ ------ ------ ------
Net interest income 6,436 6,193 12,673 12,307
Provision for loan losses 500 500 1,000 3,500
------ ------ ------ ------
Net interest income after provision for loan losses 5,936 5,693 11,673 8,807
Non-interest income
Trust and Investment Management 844 629 1,586 1,133
Service charges and fees 682 728 1,304 1,386
Mortgage banking revenue 101 178 279 357
Net gain/(loss) on securities 0 1 6 7
Other 926 221 1,166 434
------ ------ ------ ------
Total non-interest income 2,553 1,757 4,341 3,317
Non-interest expense
Salaries and employee benefits 2,950 2,728 5,673 5,475
Occupancy (net) 384 378 815 750
Equipment 433 446 840 828
Other 957 1,213 1,940 2,399
------ ------ ------ ------
Total non-interest expense 4,724 4,765 9,268 9,452
------ ------ ------ ------
Income before income taxes 3,765 2,685 6,746 2,672
Income tax expense 1,243 848 2,243 780
------ ------ ------ ------
Net income $2,522 $1,837 $4,503 $1,892
====== ====== ====== ======
Per share data
Earnings per share $0.85 $0.60 $1.50 $0.62
====== ====== ====== ======
Earnings per share, assuming dilution $0.82 $0.58 $1.46 $0.60
====== ====== ====== ======
</TABLE>
See accompanying notes.
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
================================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Balance at January 1 $52,025 $48,817
Comprehensive income
Net income 4,503 1,892
Change in net unrealized gain/(loss) (1,612) (5)
----------- ----------
Total comprehensive income 2,891 1,887
Cash dividends (874) (784)
Exercise of stock options 113 3
Redemption of common stock (1,737) (306)
----------- ----------
Balance at June 30 $52,418 $49,617
=========== ==========
</TABLE>
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net Income $4,503 $1,892
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 572 546
Provision for loan losses 1,000 3,500
Net (gain)/loss on securities (6) (7)
Net amortization/(accretion) on investments 42 (33)
Net change in
Interest receivable and other assets (1,218) (5,461)
Interest payable and other liabilities (982) 1,446
Loans held for sale 2,107 98
---------- -----------
Net cash from operating activities 6,018 1,981
Cash flows from investing activities
Proceeds from maturities of available-for-sale securities 47,691 32,614
Purchase of available-for-sale securities (56,007) (26,281)
Loans made to customers, net of principal
collections thereon (43,728) (33,764)
Property and equipment expenditures, net (134) (1,119)
---------- -----------
Net cash from investing activities (52,178) (28,550)
Cash flows from financing activities
Net change in deposits 36,262 59,928
Net change in short-term borrowings 4,346 (13,197)
Federal Home Loan Bank Advances 0 6,000
Proceeds from exercise of stock options 113 3
Redemption of common shares (1,737) (306)
Dividends paid (874) (784)
---------- -----------
Net cash from financing activities 38,110 51,644
---------- -----------
Net change in cash and cash equivalents (8,050) 25,075
Cash and cash equivalents at beginning of year 35,136 25,462
---------- -----------
Cash and cash equivalents at June 30 $27,086 $50,537
========== ===========
</TABLE>
<PAGE>
Peoples Bank Corporation of Indianapolis
Notes to Consolidated Financial Statements
June 30, 1999
1. Accounting Policies
The significant accounting policies followed by Peoples Bank
Corporation of Indianapolis ("The Corporation") for interim financial reporting
are consistent with the accounting policies followed for annual financial
reporting. The consolidated interim financial statements have been prepared in
accordance with instructions to Form 10-Q and may not include all information
and footnotes normally shown for full annual financial statements. All
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods reported have been included in the
accompanying unaudited consolidated financial statements and all such
adjustments are of a normal recurring nature.
2. Earnings Per Share
The following table presents share data used to compute earnings per
share:
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---------- ---------
<S> <C> <C>
Weighted average shares outstanding 2,995,811 3,076,354
Dilutive effect of potential shares 80,136 85,365
--------- ---------
Shares used to compute diluted earnings per share 3,075,947 3,161,719
Six months ended
June 30,
1999 1998
---------- ---------
Weighted average shares outstanding 2,978,431 3,075,848
Dilutive effect of potential shares 80,400 81,968
--------- ---------
Shares used to compute diluted earnings per share 3,058,831 3,157,816
</TABLE>
3. Segment Reporting
For 1999, the Company intends to present segment information for four
segments: Commercial Banking, Retail Banking, Mortgage Banking, and Trust and
Investment Management. Trust and Investment Management was not broken out as a
separate segment during 1998.
<TABLE>
<CAPTION>
First six months 1999 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income 4,414 7,421 1,284 168 (615) 12,673
Other Revenue 411 1,913 328 1,585 103 4,341
Segment Profit 1,932 1,512 562 325 173 4,503
Segment Assets 259,062 155,346 100,047 97 159,972 674,524
First six months 1998 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
Net Interest Income 3,708 7,074 1,130 148 246 12,307
Other Revenue 7 2,159 484 1,133 (465) 3,317
Segment Profit 1,290 1,595 603 155 (1,750) 1,892
Segment Assets 203,826 154,806 98,614 953 176,306 634,505
<PAGE>
Second Quarter 1999 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
Net Interest Income 2,192 3,691 597 100 (144) 6,436
Other Revenue 211 874 140 999 327 2,553
Segment Profit 976 812 231 155 348 2,522
Second Quarter 1998 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
Net Interest Income 1,913 3,536 533 91 120 6,193
Other Revenue 4 1,129 244 653 (272) 1,757
Segment Profit 676 785 271 49 56 1,837
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
(Dollar amounts in thousands, except per share data)
General
The business of Peoples Bank Corporation of Indianapolis ("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 personal property
and loans to businesses generally secured by liens on business assets. Peoples
also offers trust and investment management services to individuals, businesses
and institutions.
The Company operates 8 branch locations, a twelve-story office in downtown
Indianapolis, and an operations center. Peoples closed three branches in May
1999 as part of its ongoing evaluation of its business activities. Peoples
occupies six floors of the downtown office building and leases five floors to
tenants. The top floor houses the boardroom and a training area.
Leased tenant space at the downtown office remains at near capacity.
The Board of Directors of the Company approved on July 18, 1996, the repurchase,
from time to time, of 200,000 common shares on the open market. On March
18,1999, the Board approved the additional repurchase of 150,000 voting or
nonvoting shares on the open market. The Board believed that the shares had been
at times undervalued in the market and that it was in the best interest of the
shareholders and the Company to effect such share repurchases. At June 30, 1999,
a total of 229,045 shares had been repurchased at an average price of $28.06.
Such repurchases have been discontinued as of April, 13, 1999.
The book value per share of The Company's nonvoting common shares at June 30,
1999, was $17.59. For the second quarter, the low trading price per share was
$36.00, and the high trading price per share was $39.75.
On June 17, 1999, The Company declared a cash dividend in the amount of $.150
per share, payable July 16, 1999, to shareholders of record June 30, 1999. This
dividend represents a 15% increase over the second quarter 1998 dividend and is
the twelfth consecutive quarter in which The Company has declared an increase in
dividends.
Recent Developments
On July 12, 1999, Fifth Third Bancorp ("Fifth Third") and Peoples Bank
Corporation of Indianapolis entered into an Affiliation Agreement ("Merger
Agreement"), pursuant to which The Company will merge with and into Fifth Third
through a tax-free, stock-for-stock exchange, with Fifth Third as the surviving
corporation (the "Merger"). Under the terms of the Merger Agreement, upon
consummation of the Merger each share of The Company's voting and non-voting
common stock shall be converted into the right to receive 1.09 share of Fifth
Third common stock
The Merger, which is expected be accounted for as a pooling of interests, is
expected to close during the fourth quarter of 1999. The Merger Agreement has
been approved by the board of directors of both companies. Consummation of the
Merger is subject to certain customary conditions, including, among others, the
adoption of the Merger Agreement by the Company's shareholders and reciept of
regulatory approvals. The Company's shareholders will vote on the Merger
Agreement at a shareholder meeting scheduled for October 27, 1999 at 10:30 AM in
Indianapolis, Indiana. Additional information regarding the Merger, the Merger
Agreement and the Shareholder Support Agreement executed by William McWhirter,
Susan McWhirter and Hezekiah Limited Partnership in connection with the Merger
will be provided to shareholders in a prospectus/proxy statement which will be
delivered in advance of the shareholder meeting, and in the Registration
Statement on Form S-4 that Fifth Third will file with the Securities and
Exchange Commission.
Selected ratios and summary data.
<TABLE>
<CAPTION>
At or for the Six months Ended
June 30,
1999 1998
--------- ---------
<S> <C> <C>
Assets $674,524 $653,453
Loans (includes loans held for sale) 495,352 439,362
Deposits 587,291 568,239
Shareholders' Equity 52,418 49,617
Book value per share 17.59 16.17
Earnings per share (basic) $1.50 $0.62
Earnings per share (diluted) $1.46 $0.60
Dividends per share $0.295 $0.255
Net Interest Margin (FTE) 4.22% 4.37%
Return on Average Assets 1.39% 0.62%
Return on Average Equity 17.34% 7.91%
Average Shares Outstanding
- Basic 2,995,811 3,076,354
- Diluted 3,075,947 3,161,719
Total Shares Outstanding 2,979,797 3,022,890
</TABLE>
Net Income
Net income for the second quarter of 1999 was $2,522 compared to $1,837 for the
second quarter of 1998, an increase of 37.29% or $685. Basic net income per
share for the second quarter of 1999 was $0.85, an increase of $0.25 or 41.67%
from $0.60 for the second quarter of 1998. The increase in net income during the
second quarter of 1999 was substantially due to the recovery of $648 associated
with an investment in a low-income housing partnership. Peoples invested $648 as
a limited partner in a low-income housing partnership during 1997. The project
was projected to generate significant tax credits over a ten year period
following renovation of the property. During 1997 and 1998, the project incurred
losses equaling the original investment. Therefore, management of Peoples
properly took expenses against the investment during 1997 and 1998 to reduce the
book value of the investment to zero. When the project's Developer and General
Partners were unable to secure tax credits from the Indiana Housing Finance
Authority, the General Partners became obligated to repurchase Peoples
interests. Since the investment had been carried at a book value of zero, the
Company experienced recovery of $648, which is included in Other Income.
While the recovery of the limited partnership drove the increase in earnings,
net interest income and other non-interest income were also up, and non-interest
expenses were closely controlled.
Net income for the first six months of 1999 was $4,503 compared to $1,892 for
the same period of 1998, an increase of 138.00% or $2,611. Basic net income per
share for the first six months of 1999 was $1.50, an increase of $0.88 or
141.94% from $0.62 for the first six months of 1998. In addition to the factors
previously mentioned, Peoples recorded a $3,000 provision for loan losses during
the first quarter of 1998 as compared to a $500 provision during the first
quarter of 1999.
Net Interest Income
Net interest income is the principal component of net income for the Company and
represents the difference between interest earned on loans and investments and
the interest cost of deposits and other borrowed funds. For the three months
ended June 30, net interest income was $6,436 and $6,193 for 1999 and 1998,
respectively. This reflects an increase of $243, or 3.92%. For the six months
ended June 30, net interest income was $12,673 and $12,307 for 1999 and 1998,
respectively. This reflects an increase of $366, or 2.97%.
Interest income on loans, including related fees, increased from $9,360 for the
second quarter of 1998 to $9,940 for that period in 1999, an increase of $580 or
6.20%. Interest income on loans, including related fees, increased from $18,368
for the first six months of 1998 to $19,374 for that period in 1999, an increase
of $1,006 or 5.48%. These increases are attributable to an increase in loans
outstanding. Total loans were $495,352 at June 30, 1999, compared to $439,362 at
June 30, 1998, an increase of $55,990 or 12.74%. Offsetting the increase in
loans outstanding was a decrease in the level of interest rates in the economy.
The Prime rate fell from 8.50% to 7.75% during the fourth quarter of 1998.
Total interest expense was $5,757 and $5,675 for the three months ended June 30,
1999 and 1998, respectively, a increase of $82, or 1.44%. Total interest expense
was $11,112 and $11,062 for the six months ended June 30, 1999 and 1998,
respectively, a increase of $50, or 0.45%. During the first quarter, Peoples
initiated a deposit campaign to attract money market deposits at a premium rate
through the end of the second quarter. This campaign had the effect of raising
the overall cost of deposits for the bank through the second quarter. The
increase in money market deposit rates was offset by reductions in rates on time
certificates of deposit.
The Company's net interest margin, or margin on earning assets, decreased from
4.26% for the second quarter of 1998 to 4.11% for the second quarter of 1999. On
a tax equivalent basis, the Company's net interest margin decreased from 4.37%
for the second quarter of 1998 to 4.22% for the second quarter of 1999. The
primary reason for this decrease in the net interest margin in 1999 was lower
yields on loan growth funded by growth in deposits resulting in a thinner net
interest margin on new business.
Provision & Allowance for Loan Losses
The provision for loan losses was $500 for the second quarter of 1999 and $500
for the second quarter of 1998. The provision for loan losses was $1,000 for the
first six months of 1999 as compared to $3,500 through the second quarter of
1998, a decrease of $2,500 or 71.43%. The allowance for loan losses at June 30,
1999, was $8,004 or 1.62% of total loans compared to $7,684 or 1.69% of total
loans at December 31, 1998. Gross charge-offs during the second quarter of 1999
were $770 and recoveries were $11. Net recoveries of $79 were recorded during
the first quarter of 1999.
The adequacy of the allowance for loan loss is evaluated at least quarterly by
management based upon the review of identified loans with more than a normal
degree of risk, historical loan loss percentages, and present and forecasted
economic conditions. During the first quarter of 1998, provision expense of
$3,000 was necessitated by net charge-offs of $2,183. Management's analysis
indicated that the allowance for loan losses at June 30,1999, was adequate to
cover potential losses on identified loans with credit problems and potential
losses on the remaining loan portfolio based on historical percentages.
Non-interest Income
Non-interest income totaled $2,553 for the second quarter of 1999, compared to
$1,757 for that period of 1998, an increase of $796 or 45.30%. Non-interest
income totaled $4,341 for the first six months of 1999, compared to $3,317 for
that period of 1998, an increase of $1,024 or 30.87%. This increase is
attributable to an increase in revenue from Trust and investment management and
a recovery, during the second quarter of 1999, of an investment of $648 in a low
income housing partnership, as previously discussed.
Trust and investment management income was $844 and $629 for the second quarter
of 1999 and 1998, respectively, an increase of $215 or 34.18%. Trust and
investment management income was $1,586 and $1,133 for the first six months of
1999 and 1998, respectively, an increase of $453 or 39.98%. The increase in
revenue from Peoples' Trust and Investment Management Group in the second
quarter of 1999 reflected continuing growth in traditional trust sales and
service as well as growth in revenues from the sale of investment products,
which began in 1997.
For the three month periods ending June 30, 1999, and 1998, service charges and
fees income were $682 and $728 respectively, a decrease of $46 or 6.32%. For the
six month periods ending June 30, 1999, and 1998, service charges and fees
declined to $1,304 from $1,386, a decrease of $82 or 5.92%. The decrease in
service charges and fees is primarily associated with a reduction in charges for
insufficient funds.
Mortgage banking revenue includes 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 for the
second quarter of 1999 was $101, reflecting a decrease of $77 or 43.26%,
compared to $178 for the same period in 1998. Mortgage banking revenue for the
first six months of 1999 was $279, reflecting a decrease of $78 or 21.85%,
compared to $357 for the same period in 1998. The decrease in revenues from
mortgage banking reflects the very strong activity experienced in 1998 which has
not been replicated during 1999.
Other Non-interest income increased during the second quarter of 1999 to $926
from $221 for the same period in 1998, an increase of $705 or 319.00%. Other
Non-interest income increased during the first six months of 1999 to $1,166 from
$434 for the same period in 1998, an increase of $732 or 168.66%. This increase
was associated primarily with a recovery during the second quarter of 1999 of
$648 from a low income housing investment.
Non-interest Expense
Total Non-interest expense was $4,724 for the three months ended June 30,1999,
compared with $4,765 for that period in 1998. This represents a decrease of $41,
or 0.86%. Total Non-interest expense was $9,268 for the six months ended June
30,1999, compared with $9,452 for that period in 1998. This represents a
decrease of $184, or 1.95%. Salary and employee benefits expense was $2,950 for
the three months ended June 30,1999, an increase of $222 or 8.14% from $2,728
for the same period of 1998. Salary and employee benefits expense was $5,673 for
the six months ended June 30,1999, an increase of $198 or 3.62% from $5,475 for
the same period of 1998. This increase was primarily associated with salary and
wage rate increases.
Occupancy expense was $384 for the second quarter of 1999, an increase of $6, or
1.59% from $378 for the second quarter of 1998. Occupancy expense was $815 for
the first six months of 1999, an increase of $65 or 8.67% from $750 for the same
period of 1998. Equipment expense was $433 and $446, respectively, for the
second quarter of 1999 and 1998, a decrease of $13 or 2.91%. Equipment expense
was $840 and $828, respectively, for the first six months of 1999 and 1998, an
increase of $12 or 1.45%. During the second quarter of 1999, Peoples closed
three branch locations. The cost savings associated with this decision will
become evident during the fourth quarter of 1999.
Other non-interest expense was $957 and $1,213 for the second quarters of 1999
and 1998, respectively, a decrease of $256 or 21.10%. Other non-interest expense
was $1,940 and $2,399 for the first six months of 1999 and 1998, respectively, a
decrease of $459 or 19.13%. During the second quarter of 1998, Peoples took an
expense of $355 associated with the write-down of its investment in the
low-income housing partnership previously discussed.
Income Taxes
Income tax expense was $2,243 and $780 for the first six months of 1999 and
1998, respectively. The increase in tax expense can be primarily attributed to
increased income recognized during the first six months of 1999.
Balance sheet
Total assets were $674,524 at June 30, 1999, and $634,505 at December 31, 1998,
an increase of $40,019, or 6.31%. The portfolio of available-for-sale securities
increased from $132,216 at December 31, 1998, to $137,827 at June 30, 1999, an
increase of $5,611 or 4.24%. Total loans, excluding loans held for sale,
increased during the first six months of 1999 from $452,065 at December 31,
1998, to $495,113 at June 30, 1999. This reflects an increase of $43,048 or
9.52%. Commercial and commercial real estate loans increased $33,866 or 16.04%
from $211,115 at December 31, 1998, to $244,981 at June 30, 1999. Residential
mortgage loans increased $816 or 0.83% from $97,755 at December 31, 1998, to
$98,571 at June 30, 1999. Construction loans increased $5,727 or 16.44% from
$34,840 at December 31, 1998 to $40,567 at December 31, 1999. Consumer loans
increased $1,968 or 1.85% from $106,431 at December 31, 1998, to $108,399 at
June 30, 1999. Loans held for sale consist of conforming fixed rate mortgage
loans that Peoples sells in the secondary market (having retained servicing
rights with respect to such loans) and that are pending funding. Loans held for
sale were $2,346 at December 31,1998, compared to $239 at June 30, 1999. The
amount of loans outstanding (excluding loans held for sale) is reflected in the
following table.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
Commercial and Commercial Real Estate
$244,981 $211,115 $204,001
Residential Mortgage 98,571 97,755 99,102
Construction 40,567 34,840 28,982
Consumer 108,399 106,431 104,836
Tax-exempt 2,595 1,924 1,978
---------- ---------- ----------
Gross loans 495,113 452,065 438,899
Less: Allowance for Loan Losses 8,004 7,684 7,258
========== ========== ==========
$487,109 $444,381 $431,641
========== ========== ==========
</TABLE>
Deposits represent the primary source of funds for the Company. Total deposits
increased $36,262 or 6.58%, from $551,029 at December 31,1998, to $587,291 at
June 30, 1999. Non-interest-bearing deposits decreased $4,028, or 4.07%, from
$98,851 at December 31, 1998, to $94,823 at June 30, 1999. Interest-bearing
deposits increased $40,290 or 8.91% from $452,178 at December 31, 1998, to
$492,468 at June 30, 1999. The Company's deposit balances are reflected in the
following table.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
---------- ---------- -----------
<S> <C> <C> <C>
Deposits:
Non-interest-bearing $ 94,823 $ 98,851 $ 86,801
Interest-bearing 492,468 452,178 481,438
---------- ---------- -----------
Total deposits $587,291 $551,029 $ 568,239
---------- ---------- -----------
Total deposits/total assets 87.07% 86.84% 86.96%
</TABLE>
Borrowings in the form of Federal funds, Federal Home Loan Bank advances, and
repurchase agreements are acquired, as needed, to satisfy temporary liquidity
needs. Overnight repurchase agreements continue to be a source of funds for
Peoples. These funds are from businesses with large cash balances. Borrowings
were $27,264 at June 30, 1999, as compared to $22,918 at December 31, 1998. This
represents an increase of $4,346 or 18.96%. At June 30, 1999, the bank had
$12,375 in overnight repurchase agreements, $0 in federal funds purchased,
$6,000 in Federal Home Loan Bank advances, and $8,889 in borrowings through the
Treasury Tax and Loan Note Option program.
Total shareholders' equity increased $393 or 0.76% for the six months ended June
30, 1999, to $52,418 from $52,025 at December 31, 1998. The increase in
shareholders' equity was primarily the result of net income of $4,503, reduced
by dividends paid of $874, net unrealized holding losses on available-for-sale
securities of $1,612 and the repurchase of common shares for $1,737.
Credit Quality
Nonaccrual loans are loans on which the Company no longer accrues interest.
Management places a loan on nonaccrual status when the collection of additional
interest is unlikely and the loan is not considered to be well secured and in
the process of collection. Nonperforming loans consist of loans that are on
nonaccrual status, that are 90 days or more past due as to principal or
interest, or that are restructured. If a loan is designated as a nonperforming
loan, management, as a result of delinquent status or significant concern about
the ultimate collectibility of the loan, typically ceases to recognize interest
income with respect to such loan and places it on nonaccrual status.
At June 30, 1999, Management designated $3,500 in loans as "impaired" for the
purpose of FAS No. 114. Management has further determined that all loans with
outstanding balances exceeding $500 and rated as "Doubtful" will be considered
impaired. Further, the Company evaluates all Substandard Loans with balances
exceeding $500 for classification as impaired.
The following table shows the composition of nonperforming loans.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
Nonperforming loans:
<S> <C> <C> <C>
Total nonaccrual loans $3,933 $356 $ 1,770
Loans past due more than
ninety days and still accruing 0 105 127
=========== =========== =========
Total $3,933 $461 $ 1,897
=========== =========== =========
</TABLE>
At June 30, 1999, nonperforming loans were comprised of $183 of commercial
loans, $3,750 of real estate loans and $0 of consumer loans. Nonperforming loans
were comprised of $144 of commercial loans, $315 of real estate loans and $2 of
consumer loans at December 31, 1998. At June 30, 1998, nonperforming loans
consisted of $1,778 of commercial loans, $119 of real estate loans and $0 of
consumer loans. Asset quality continues to be an important area of focus for the
Company. Nonperforming loans as a percent of assets were 0.58% at June 30,1999,
and 0.07% at December 31, 1998. The Company maintains asset quality through the
use of well-defined policies, underwriting criteria, and review processes.
During the second quarter of 1999, the bank experienced a $750,000 charge-off on
a single commercial loan. This customer also had a loan of approximately $3.5
million secured by commercial real estate which has been placed on non-accrual.
Capital
The Company and Peoples are required to comply with capital requirements
promulgated by their primary regulators that affect their ability to pay
dividends and that can affect their operations. Those regulations require the
maintenance of specified levels of capital to total assets (leverage ratio) and
to risk weighted assets (the risk-based capital ratios). These regulations
require the maintenance of a leverage ratio of at least 3.00% and a total
risk-based capital ratio of at least 8.00%. A financial institution's deposit
insurance assessment and, in certain circumstances, operations will be affected
by its capital level. Institutions with leverage ratios of 5.00% or more and
total risk-based capital ratios of 10.00% or more are deemed to be "well
capitalized," and accordingly, pay the lowest deposit insurance assessment and
are not subject to operational restrictions as outlined within the regulation.
As of June 30, 1999, the Company's Tier I and total risk-based capital ratios
were 10.00% and 11.25%, respectively. The Company's leverage ratio was 7.84% at
June 30, 1999. As of June 30, 1999, Peoples was in excess of the minimum capital
and leverage requirements necessary to be considered a "well capitalized"
banking company as defined by Federal regulators. The Company and Peoples were
in full compliance with all regulatory capital requirements at June 30, 1999.
<PAGE>
The following table provides the capital ratios for the entities.
<TABLE>
<CAPTION>
At June 30, 1999
Consolidated
Bank Only Company
<S> <C> <C>
Total assets $671,623 $674,524
Risked-based assets 530,957 532,202
Tier I capital 50,724 53,219
Total risk-based capital 57,378 59,888
Leverage ratio 7.50% 7.84%
Tier I risk-based capital ratio 9.55% 10.00%
Total risk-based capital 10.81% 11.25%
</TABLE>
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.
Management has completed 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. 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 withdrawals 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.
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held April 15, 1999.
The following members were elected to the Company's Board of Directors to hold
office for a period of one year or until their successors are duly chosen and
qualified. Proxy votes comprised 83 percent of the outstanding voting shares. A
total of 2,998 shares were voted in person.
Against or Broker Non-
Nominee For Withheld Abstain Votes
- ------- --- -------------------- -------------
William E. McWhirter 223,026 0 0 0
Gerald R. Francis 223,026 0 0 0
Charles R. Farber 223,026 0 0 0
Robert B. Hirschman 223,026 0 0 0
Ethan Jackson 223,026 0 0 0
David W. Knall 223,026 0 0 0
Mary Ellen Rodgers 223,026 0 0 0
Stephen R. West 223,026 0 0 0
Darell E. Zink, Jr. 223,026 0 0 0
The shareholders also ratified an amendment to the Peoples Bank Corporation of
Indianapolis 1998 Stock Option Plan increasing the number of shares authorized
from 50,000 to 100,000 shares with 196,586 shares voting in favor of the
resolution and 26,440 shares voting against.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits -
27 Financial Data Schedule
B. Form 8-K was filed on July 12, 1999 to report the execution of
the affiliation agreement between Fifth Third Bancorp and Peoples
Bank Corporation of Indianapolis and to disclose the terms of the
merger described therein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANK CORPORATION
OF INDIANAPOLIS
By: /s/ William. E. McWhirter
------------------------------------------
William E. McWhirter
Chairman and Chief Executive Officer
By: /s/ Charles R. Hageboeck
------------------------------------------
Charles R. Hageboeck
Senior Vice President and Chief
Financial Officer
DATE: August ___, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000796322
<NAME> Peoples Bank Corp. of Indianapolis
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 20,286
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 137,827
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 495,352
<ALLOWANCE> 8,004
<TOTAL-ASSETS> 674,524
<DEPOSITS> 587,291
<SHORT-TERM> 21,264
<LIABILITIES-OTHER> 7,551
<LONG-TERM> 6,000
<COMMON> 10,656
0
0
<OTHER-SE> 41,762
<TOTAL-LIABILITIES-AND-EQUITY> 674,524
<INTEREST-LOAN> 19,374
<INTEREST-INVEST> 4,180
<INTEREST-OTHER> 231
<INTEREST-TOTAL> 23,785
<INTEREST-DEPOSIT> 10,594
<INTEREST-EXPENSE> 11,112
<INTEREST-INCOME-NET> 12,673
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 9,268
<INCOME-PRETAX> 6,746
<INCOME-PRE-EXTRAORDINARY> 6,746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,503
<EPS-BASIC> 1.50
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 7.65
<LOANS-NON> 3,933
<LOANS-PAST> 0
<LOANS-TROUBLED> 3,500
<LOANS-PROBLEM> 33,769
<ALLOWANCE-OPEN> 7,684
<CHARGE-OFFS> 800
<RECOVERIES> 120
<ALLOWANCE-CLOSE> 8,004
<ALLOWANCE-DOMESTIC> 5,555
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,449
</TABLE>
