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 September 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 - 2,838,011 shares as of November 12, 1999
Voting - 264,096 shares as of November 12, 1999
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998........................................... 2
Consolidated Statements of Income for the nine months
ended September 30, 1999 and 1998............................... 3
Consolidated Statements of Changes in Shareholders' Equity...... 4
Consolidated Statements of Cash Flows for the nine
months ended September 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>
Sept 30, December 31,
1999 1998
-------- --------
Assets
<S> <C> <C>
Cash and due from banks $ 17,820 $ 30,336
Federal funds sold 3,900 4,800
-------- --------
Total cash and equivalents 21,720 35,136
Available-for-sale securities 132,281 132,216
Loans held for sale 187 2,346
Total loans 489,998 452,065
Allowance for loan losses (8,044) (7,684)
-------- --------
Loans, net 481,954 444,381
Premises and equipment, net 6,866 8,105
Accrued income and other assets 15,550 12,321
-------- --------
Total assets $658,558 634,505
======== ========
Liabilities
Non interest-bearing deposits $107,806 98,851
Interest-bearing deposits 464,197 452,178
-------- --------
Total deposits 572,003 551,029
Borrowings 22,891 22,918
Accrued expenses and other liabilities 7,990 8,533
-------- --------
Total liabilities 602,884 582,480
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 - 2,837,711 shares (1999)
- 2,758,794 shares (1998) 11,761 11,384
Retained earnings 44,461 39,008
Accumulated other comprehensive income (1,444) 737
-------- --------
Total shareholders' equity 55,674 52,025
-------- --------
Total liabilities and shareholders' equity $658,558 $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 Nine months ended
September 30, September 30,
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
Interest income
Loans, including related fees $10,236 $9,666 $29,610 $28,034
Federal funds sold 126 255 357 486
Securities 2,126 2,271 6,306 7,041
------- ------ ------- -------
Total interest income 12,488 12,192 36,273 35,561
Interest expense
Deposits 5,531 5,823 16,125 16,510
Borrowings 234 193 752 568
------- ------ ------- -------
Total interest expense 5,765 6,016 16,877 17,078
------- ------ ------- -------
Net interest income 6,723 6,176 19,396 18,483
Provision for loan losses 150 0 1,150 3,500
------- ------ ------- -------
Net interest income after provision for loan losses 6,573 6,176 18,246 14,983
Non-interest income
Trust and Investment Management 625 638 2,211 1,771
Service charges and fees 683 795 1,987 2,181
Mortgage banking revenue 34 114 313 471
Net gain/(loss) on securities 0 40 6 47
Other 242 260 1,408 694
------- ------ ------- -------
Total non-interest income 1,584 1,847 5,925 5,164
Non-interest expense
Salaries and employee benefits 3,087 2,830 8,760 8,305
Occupancy (net) 314 394 1,129 1,144
Equipment 404 445 1,244 1,273
Other 950 1,379 2,890 3,778
------- ------ ------- -------
Total non-interest expense 4,755 5,048 14,023 14,500
------- ------ ------- -------
Income before income taxes 3,402 2,975 10,148 5,647
Income tax expense 1,105 973 3,348 1,753
------- ------ ------- -------
Net income $2,297 $2,002 $6,800 $3,894
======= ====== ======= =======
Per share data
Earnings per share $0.74 $0.65 $2.25 $1.27
======= ====== ======= =======
Earnings per share, assuming dilution $0.73 $0.63 $2.19 $1.24
======= ====== ======= =======
</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 6,800 3,894
Change in net unrealized gain/(loss) (2,181) 341
-------- --------
Total comprehensive income 4,619 4,235
Cash dividends (1,340) (1,198)
Exercise of stock options 2,106 3
Redemption of common stock (1,736) (811)
-------- --------
Balance at September 30 $ 55,674 $ 51,046
======== ========
</TABLE>
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 6,800 $ 3,894
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 863 902
Provision for loan losses 1,150 3,500
Net (gain)/loss on securities (6) (47)
Net amortization/(accretion) on investments 68 (89)
Net change in
Interest receivable and other assets (1,797) (4,468)
Interest payable and other liabilities (543) 1,648
Loans held for sale 2,159 186
-------- --------
Net cash from operating activities 8,694 5,526
Cash flows from investing activities
Proceeds from sales of available-for-sale securities 0 5,068
Proceeds from maturities of available-for-sale securities 77,664 46,069
Purchase of available-for-sale securities (81,404) (40,462)
Loans made to customers, net of principal
collections thereon (38,723) (48,647)
Property and equipment expenditures, net 376 (1,270)
-------- --------
Net cash from investing activities (42,087) (39,242)
Cash flows from financing activities
Net change in deposits 20,974 29,693
Net change in borrowings (27) 472
Proceeds from exercise of stock options 2,106 3
Redemption of common shares (1,736) (1,195)
Dividends paid (1,340) (811)
-------- --------
Net cash from financing activities 19,977 28,162
-------- --------
Net change in cash and cash equivalents (13,416) (5,554)
Cash and cash equivalents at beginning of year 35,136 25,462
-------- --------
Cash and cash equivalents at September 30 $ 21,720 $ 19,908
======== ========
</TABLE>
<PAGE>
Peoples Bank Corporation of Indianapolis
Notes to Consolidated Financial Statements
September 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>
Nine months ended
September 30,
1999 1998
--------- ---------
<S> <C> <C>
Weighted average shares outstanding 3,028,037 3,071,429
Dilutive effect of potential shares 75,454 86,696
--------- ---------
Shares used to compute diluted earnings per share 3,103,491 3,158,125
Three months ended
September 30,
1999 1998
--------- ---------
Weighted average shares outstanding 3,091,439 3,061,738
Dilutive effect of potential shares 40,912 77,286
--------- ---------
Shares used to compute diluted earnings per share 3,132,351 3,139,024
</TABLE>
3. Segment Reporting
Subsequent to announcing the merger of the Company with Fifth Third
Bancorp, as discussed below, the Company discontinued internal reporting by
business segments.
<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 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 book value per share of The Company's nonvoting common shares at September
30, 1999, was $17.95. For the third quarter, the low trading price per share was
$39.75, and the high trading price per share was $73.125.
On September 17, 1999, The Company declared a cash dividend in the amount of
$.155 per share, payable October 15, 1999, to shareholders of record September
30, 1999. This dividend represents a 14.81% increase over the third quarter 1998
dividend and is the thirteenth consecutive quarter in which The Company has
declared an increase in dividends.
Recent Developments
On July 12, 1999, Fifth Third Bancorp (Fifth Third) and the Company 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 (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 would 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
<PAGE>
adoption of the Merger Agreement by The Company's shareholders and receipt of
regulatory approvals. The Company's shareholders approved the Merger Agreement
at a shareholder meeting on October 27, 1999 at 10:30 AM in Indianapolis,
Indiana. The merger of the Company with and into Fifth Third is expected to
close on November 19, 1999.
Selected ratios and summary data.
<TABLE>
<CAPTION>
At or for the Nine months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Assets $658,558 $632,518
Loans (includes loans held for sale) 490,185 453,972
Deposits 572,003 538,005
Shareholders' Equity 55,674 51,046
Book value per share 17.95 16.73
Earnings per share (basic) $2.25 $1.27
Earnings per share (diluted) $2.19 $1.24
Dividends per share $0.45 $0.39
Net Interest Margin (FTE) 4.24% 4.29%
Return on Average Assets 1.37% 0.83%
Return on Average Equity 17.23% 10.73%
Average Shares Outstanding
- Basic 3,028,037 3,071,429
- Diluted 75,454 3,158,125
Total Shares Outstanding 3,101,807 3,051,730
</TABLE>
Net Income
Net income for the third quarter of 1999 was $2,297 compared to $2,002 for the
third quarter of 1998, an increase of 14.74% or $295. Basic net income per share
for the third quarter of 1999 was $0.74, an increase of $0.09 or 13.85% from
$0.65 for the third quarter of 1998.
Net income for the first nine months of 1999 was $6,800 compared to $3,894 for
the same period of 1998, an increase of 74.63% or $2,906. Basic net income per
share for the first nine months of 1999 was $2.25, an increase of $0.98 or
77.17% from $1.27 for the first nine months of 1998.
<PAGE>
Peoples took a $3,500 provision for loan losses during the first nine months of
1998 as compared to a $1,150 provision during the first nine months of 1999.
Another significant explanation for the increase in net income was the recovery
of $648,000 associated with an investment in a low-income housing partnership.
Peoples invested $648,000 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 $648,000, which is
shown as Other Income.
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 September 30, net interest income was $6,723 and $6,176 for 1999 and 1998,
respectively. This reflects an increase of $547, or 8.86%. For the nine months
ended September 30, net interest income was $19,396 and $18,483 for 1999 and
1998, respectively. This reflects an increase of $913, or 4.94%.
Interest income on loans, including related fees, increased from $9,666 for the
third quarter of 1998 to $10,236 for that period in 1999, an increase of $570 or
5.90%. Interest income on loans, including related fees, increased from $28,034
for the first nine months of 1998 to $29,610 for that period in 1999, an
increase of $1,576 or 5.62%. These increases are attributable to an increase in
loans outstanding. Total loans were $490,185 at September 30, 1999, compared to
$453,972 at September 30, 1998, an increase of $36,213 or 7.98%. Offsetting the
increase in loans outstanding was a decrease in the level of interest rates in
the economy. The Prime rate averaged approximately 0.64% lower during the first
nine months of 1999 as compared to the same period in 1998.
Total interest expense was $5,765 and $6,016 for the three months ended
September 30, 1999 and 1998, respectively, a decrease of $251, or 4.17%. Total
interest expense was $16,877 and $17,078 for the nine months ended September 30,
1999 and 1998, respectively, a decrease of $201, or 1.18%. The decrease in
interest expense was attributable to lower interest rates in the economy, partly
offset by an increase in deposits outstanding.
The Company's net interest margin, or margin on earning assets, decreased from
4.18% for the third quarter of 1998 to 4.16% for the third quarter of 1999. On a
tax equivalent basis, the Company's net interest margin decreased from 4.29% for
the third quarter of 1998 to 4.24% for the third 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.
<PAGE>
Provision & Allowance for Loan Losses
The provision for loan losses was $150 for the third quarter of 1999 and $0 for
the third quarter of 1998. The provision for loan losses was $1,150 for the
first nine months of 1999 as compared to $3,500 for the third quarter of 1998, a
decrease of $2,350 or 67.14%. The allowance for loan losses at September 30,
1999, was $8,044 or 1.64% of total loans compared to $7,684 or 1.69% of total
loans at December 31, 1998. Gross charge-offs during the third quarter of 1999
were $175 and recoveries were $65.
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. Management's analysis indicated that the allowance for loan
losses at September 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 $1,584 for the third quarter of 1999, compared to
$1,847 for that period of 1998, a decrease of $263 or 14.24%. Non-interest
income totaled $5,925 for the first nine months of 1999, compared to $5,164 for
that period of 1998, an increase of $761 or 14.74%. Decreases in the third
quarter of 1999 were due to lower mortgage revenues and lower revenues for
overdrawn deposit accounts.
Trust and investment management income was $625 and $638 for the third quarter
of 1999 and 1998, respectively, a decrease of $13 or 2.04%. Trust and investment
management income was $2,211 and $1,771 for the first nine months of 1999 and
1998, respectively, an increase of $440 or 24.84%. The increase in revenue from
Peoples' Trust and Investment Management Group in 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 September 30, 1999, and 1998, service charges
and fees income were $683 and $795 respectively, a decrease of $112 or 14.09%.
For the nine-month periods ending September 30, 1999, and 1998, service charges
and fees declined from $2,181 to $1,987, a decrease of $194 or 8.90%. 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
third quarter of 1999 was $34, reflecting a decrease of $80 or 70.18%, compared
to $114 for the same period in 1998. Mortgage banking revenue for the first nine
months of 1999 was $313, reflecting a decrease of $158 or 33.55%, compared to
$471 for the same period in 1998. The decrease in revenues from mortgage banking
reflects the very strong activity experienced in 1998 that has not been
replicated during 1999.
<PAGE>
Other Non-interest income decreased during the third quarter of 1999 to $242
from $260 for the same period in 1998, a decrease of $18 or 6.92%. Other
Non-interest income increased during the first nine months of 1999 to $1,408
from $694 for the same period in 1998, an increase of $714 or 102.88%. This
increase was associated primarily with a recovery during the third quarter of
1999 of $648 from a low income housing investment.
Non-interest Expense
Total Non-interest expense was $4,755 for the three months ended September
30,1999, compared with $5,048 for that period in 1998. This represents a
decrease of $293, or 5.80%. Total Non-interest expense was $14,023 for the nine
months ended September 30,1999, compared with $14,500 for that period in 1998.
This represents a decrease of $477, or 3.29%. Salary and employee benefits
expense was $3,087 for the three months ended September 30, 1999, an increase of
$257 or 9.08% from $2,830 for the same period of 1998. Salary and employee
benefits expense was $8,760 for the nine months ended September 30,1999, an
increase of $455 or 5.48% from $8,305 for the same period of 1998. This increase
was primarily associated with salary and wage rate increases and an increased
accrual for year-end bonuses.
Occupancy expense was $314 for the third quarter of 1999, a decrease of $80, or
20.30% from $394 for the third quarter of 1998. Occupancy expense was $1,129 for
the first nine months of 1999, a decrease of $15 or 1.31% from $1,144 for the
same period of 1998. Equipment expense was $404 and $445, respectively, for the
third quarter of 1999 and 1998, a decrease of $41 or 9.21%. Equipment expense
was $1,244 and $1,273, respectively, for the first nine months of 1999 and 1998,
a decrease of $29 or 2.28%. These expense reductions are associated with the
closure of three branches during the second quarter of 1999.
Other non-interest expense was $950 and $1,379 for the third quarters of 1999
and 1998, respectively, a decrease of $429 or 31.11%. Other non-interest expense
was $2,890 and $3,778 for the first nine months of 1999 and 1998, respectively,
a decrease of $888 or 23.50%. During the third quarter of 1998, The largest
reason for the expense reductions was the additional expenses taken in 1998 to
write down the Low-Income Housing Investment which was subsequently recovered.
Income Taxes
Income tax expense was $3,348 and $1,753 for the first nine months of 1999 and
1998, respectively. The increase in tax expense can be primarily attributed to
increased income recognized during the first nine months of 1999.
Balance sheet
Total assets were $658,558 at September 30, 1999, and $634,505 at December 31,
1998, an increase of $24,053, or 3.79%. The portfolio of available-for-sale
<PAGE>
securities increased from $132,216 at December 31, 1998, to $132,281 at
September 30, 1999, an increase of $65 or 0.05%. Total loans, excluding loans
held for sale, increased during the first nine months of 1999 from $452,065 at
December 31, 1998, to $489,998 at September 30, 1999. This reflects an increase
of $37,933 or 8.39%. Commercial and commercial real estate loans increased
$33,789 or 16.01% from $211,115 at December 31, 1998, to $244,904 at September
30, 1999. Residential mortgage loans decreased $3,238 or 3.31 from $97,755 at
December 31, 1998, to $94,517 at September 30, 1999. Construction loans
increased $6,780 or 19.46% from $34,840 at December 31, 1998 to $41,620 at
December 31, 1999. Consumer loans decreased $41 or 0.04% from $106,431 at
December 31, 1998, to $106,390 at September 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 $187 at September 30, 1999. The amount of loans outstanding
(excluding loans held for sale) is reflected in the following table.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
Commercial and Commercial Real Estate
<S> <C> <C> <C>
$244,904 $211,115 $211,872
Residential Mortgage 94,517 97,755 100,473
Construction 41,620 34,840 31,962
Consumer 106,390 106,431 107,332
Tax-exempt 2,567 1,924 1,960
-------- -------- --------
Gross loans 489,998 452,065 453,599
Less: Allowance for Loan Losses 8,044 7,684 7,075
-------- -------- --------
$481,954 $444,381 $446,524
======== ======== ========
</TABLE>
Deposits represent the primary source of funds for the Company. Total deposits
increased $20,974 or 3.81%, from $551,029 at December 31,1998, to $572,003 at
September 30, 1999. Non-interest-bearing deposits increased $8,955 or 9.06%,
from $98,851 at December 31, 1998, to $107,806 at September 30, 1999.
Interest-bearing deposits increased $12,019 or 2.66% from $452,178 at December
31, 1998, to $464,197 at September 30, 1999. The Company's deposit balances are
reflected in the following table.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Deposits:
Non-interest-bearing $107,806 $ 98,851 $ 80,045
Interest-bearing 464,197 452,178 457,960
-------- -------- --------
Total deposits $572,003 $551,029 $538,005
-------- -------- --------
Total deposits/total assets 86.86% 86.84% 85.05%
</TABLE>
<PAGE>
Borrowings in the form of Federal funds, Federal Home Loan 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 $22,891 at September 30, 1999, as compared to $22,918 at December 31, 1998.
This represents a decrease of $27 or 0.12%. At September 30, 1999, the bank had
$9,491 in overnight repurchase agreements, $0 in federal funds purchased, $6,000
in Federal Home Loan Bank advances, and $7,400 in borrowings through the
Treasury Tax and Loan Note Option program.
Total shareholders' equity increased $3,649 or 7.01% for the nine months ended
September 30, 1999, to $55,674 from $52,025 at December 31, 1998. The increase
in shareholders' equity was the result of net income of $6,800, reduced by
dividends paid of $1,340, net unrealized holding losses on available-for-sale
securities of $2,181, the repurchase of common stock of $1,736, and the exercise
of stock options of $2,106.
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 September 30, 1999, Management designated $0 in loans as "impaired" for the
purpose of FAS No. 114. Management has further determined that all loans with
outstanding balances exceeding $500,000 and rated as "Doubtful" will be
considered impaired. Further, the Company evaluates all Substandard Loans with
balances exceeding $500,000 for classification as impaired.
The following table shows the composition of nonperforming loans.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Nonperforming loans:
Total nonaccrual loans $3,674 $ 356 $1,879
Loans past due more than 10
ninety days and still accruing 0 105
------ ------ ------
Total $3,674 $ 461 $1,889
====== ====== ======
</TABLE>
<PAGE>
At September 30, 1999, nonperforming loans were comprised of $3,674 of
commercial loans, $0 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 September 30,
1998, nonperforming loans consisted of $1,562 of commercial loans, $327 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 0.56% at September 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 that 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 September 30, 1999, the Company's Tier I and total risk-based capital
ratios were 10.82% and 12.07%, respectively. The Company's leverage ratio was
8.41% at September 30, 1999. As of September 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
September 30, 1999.
<PAGE>
The following table provides the capital ratios for the entities.
<TABLE>
<CAPTION>
At September 30, 1999
Consolidated
Bank Only Company
<S> <C> <C>
Total assets $657,039 $658,558
Risked-based assets 526,834 527,411
Tier I capital 52,525 57,067
Total risk-based capital 59,128 63,678
Leverage ratio 7.76% 8.41%
Tier I risk-based capital ratio 9.97% 10.82%
Total risk-based capital 11.22% 12.07%
</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.
<PAGE>
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 $100,000. 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 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.
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.
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 27, 1999, a special meeting of the holders of the Company's voting
and non-voting shares of common stock was held to consider and vote upon a
proposal to adopt and approve the Affiliation Agreement, dated as of July 12,
1999, by and between Fifth Third Bancorp and the Company, and the transactions
contemplated thereby, including the merger of the Company with and into Fifth
Third Bancorp upon the terms and subject to the conditions set forth in the
Affiliation Agreement. The Proposal was approved by the following votes:
<TABLE>
<CAPTION>
% of Total % of Total % of Total
Voting Shares: For Voting Shares Against Voting Shares Abstain Voting Shares
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
230,305 87.21%
% of Total % of Total % of Total
Nonvoting Shares: For Nonvoting Shares Against Nonvoting Shares Abstain Nonvoting Shares
--------- ---------------- ------- ---------------- ------- ----------------
1,799,511 63.45% 172,143 6.07% 3,650 0.13%
</TABLE>
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 affiliation
agreement between Fifth Third Bancorp and Peoples Bank Corporation
of Indianapolis.
<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: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 17,820
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,281
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 490,185
<ALLOWANCE> 8,044
<TOTAL-ASSETS> 658,558
<DEPOSITS> 572,003
<SHORT-TERM> 16,891
<LIABILITIES-OTHER> 7,990
<LONG-TERM> 6,000
<COMMON> 12,657
0
0
<OTHER-SE> 43,017
<TOTAL-LIABILITIES-AND-EQUITY> 658,558
<INTEREST-LOAN> 29,610
<INTEREST-INVEST> 6,306
<INTEREST-OTHER> 357
<INTEREST-TOTAL> 36,273
<INTEREST-DEPOSIT> 16,125
<INTEREST-EXPENSE> 16,877
<INTEREST-INCOME-NET> 19,396
<LOAN-LOSSES> 1,150
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 14,023
<INCOME-PRETAX> 10,148
<INCOME-PRE-EXTRAORDINARY> 10,148
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,800
<EPS-BASIC> 2.25
<EPS-DILUTED> 2.19
<YIELD-ACTUAL> 7.73
<LOANS-NON> 3,674
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 32,945
<ALLOWANCE-OPEN> 7,684
<CHARGE-OFFS> 975
<RECOVERIES> 185
<ALLOWANCE-CLOSE> 8,044
<ALLOWANCE-DOMESTIC> 5,427
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,617
</TABLE>
