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 March 31, 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 - 2,713,524 shares as of May 7, 1999
Voting - 264,096 shares as of May 7, 1999
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 and December
31, 1998.......................................................... 2
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 .......................................... 3
Consolidated Statements of Changes in Shareholders' Equity........ 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 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)
March 31, December 31,
1999 1998
--------- ---------
Assets
Cash and due from banks 20,699 $ 30,336
Federal funds sold 4,000 4,800
--------- ---------
Total cash and equivalents 24,699 35,136
Available-for-sale securities 146,861 132,216
Loans held for sale 1,575 2,346
Total loans 464,798 452,065
Allowance for loan losses (8,263) (7,684)
--------- ---------
Loans, net 456,535 444,381
Premises and equipment, net 8,031 8,105
Accrued income and other assets 12,744 12,321
--------- ---------
Total assets $ 650,445 $ 634,505
========= =========
Liabilities
Non interest-bearing deposits $ 91,837 $ 98,851
Interest-bearing deposits 473,894 452,178
--------- ---------
Total deposits 565,731 551,029
Borrowings 24,595 22,918
Accrued expenses and other liabilities 7,683 8,533
--------- ---------
Total liabilities 598,009 582,480
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 - 2,736,716 shares (1999)
- 2,758,794 shares (1998) 10,561 11,384
Retained earnings 40,554 39,008
Accumulated other comprehensive income 425 737
--------- ---------
Total shareholders' equity 52,436 52,025
--------- ---------
Total liabilities and shareholders' equity $ 650,445 $ 634,505
========= =========
See accompanying notes.
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
(Dollar amounts in thousands, except per share data)
Three months ended
March 31,
1999 1998
-------- --------
Interest income
Loans, including related fees $ 9,434 $ 9,008
Federal funds sold 98 105
Securities 2,060 2,388
Total interest income 11,592 11,501
Interest expense
Deposits 5,100 5,225
Borrowings 255 162
-------- --------
Total interest expense 5,355 5,387
-------- --------
Net interest income 6,237 6,114
Provision for loan losses 500 3,000
-------- --------
Net interest income after provision for loan losses 5,737 3,114
Non-interest income
Trust and Investment Management 742 504
Service charges and fees 622 658
Mortgage banking revenue 178 179
Net gain/(loss) on securities 6 6
Other 240 213
-------- --------
Total non-interest income 1,788 1,560
Non-interest expense
Salaries and employee benefits 2,723 2,617
Occupancy (net) 431 372
Equipment 407 380
Other 983 1,318
-------- --------
Total non-interest expense 4,544 4,687
-------- --------
Income before income taxes 2,981 (13)
Income tax expense 1,000 (68)
-------- --------
Net income $ 1,981 $ 55
======== ========
Per share data
Earnings per share $ 0.66 $ 0.02
======== ========
Earnings per share, assuming dilution $ 0.64 $ 0.02
======== ========
See accompanying notes.
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
================================================================================
(Dollar amounts in thousands)
1999 1998
-------- --------
Balance at January 1 $ 52,025 $ 48,817
Comprehensive income
Net income 1,981 55
Change in net unrealized gain/(loss) (312) 13
-------- --------
Total comprehensive income 1,669 68
Cash dividends (435) (385)
Exercise of stock options 83 3
Redemption of common stock (906) (5)
-------- --------
Balance at March 31 $ 52,436 $ 48,498
======== ========
<PAGE>
PEOPLES BANK CORPORATION OF INDIANAPOLIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 1,981 $ 55
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 263 300
Provision for loan losses 500 3,000
Net (gain)/loss on securities (6) (6)
Net amortization/(accretion) on investments (4) 20
Net change in
Interest receivable and other assets (217) (3,357)
Interest payable and other liabilities (850) 836
Loans held for sale 771 (1,538)
-------- --------
Net cash from operating activities 2,438 (690)
Cash flows from investing activities
Proceeds from maturities of available-for-sale securities 28,794 13,038
Purchase of available-for-sale securities (43,946) (12,692)
Loans made to customers, net of principal
collections thereon (12,654) (13,735)
Property and equipment expenditures, net (189) (369)
-------- --------
Net cash from investing activities (27,995) (13,758)
Cash flows from financing activities
Net change in deposits 14,702 22,573
Net change in short-term borrowings 1,677 (18,650)
Federal Home Loan Bank Advances 0 6,000
Proceeds from exercise of stock options 82 3
Redemption of common shares (906) (5)
Dividends paid (435) (385)
-------- --------
Net cash from financing activities 15,120 9,536
-------- --------
Net change in cash and cash equivalents (10,437) (4,912)
Cash and cash equivalents at beginning of year 35,136 25,462
-------- --------
Cash and cash equivalents at March 31 $ 24,699 $ 20,550
======== ========
</TABLE>
<PAGE>
Peoples Bank Corporation of Indianapolis
Notes to Consolidated Financial Statements
March 31, 1999
1. Accounting Policies
Except as noted in Note 3, 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:
Three Months ended
At March 31,
1999 1998
--------- ---------
Weighted average shares outstanding 3,013,384 3,076,867
Dilutive effect of potential shares 74,570 84,444
--------- ---------
Shares used to compute diluted earnings per share 3,087,954 3,161,311
3. Accounting Changes
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.
4. 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 Quarter 1999 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income 2,222 3,730 688 69 (472) 6,237
Other Revenue 200 1,038 188 586 (224) 1,788
Segment Profit 956 700 330 171 (176) 1,981
Segment Assets 233,086 153,934 100,524 89 162,812 650,445
First Quarter 1998 Trust and
Commercial Retail Mortgage Investment Other Consolidated
Banking Banking Banking Management
------------- ------------ ----------- --------------- ----------- ---------------
Net Interest Income 1,795 3,538 597 57 127 6,114
Other Revenue 3 1,030 240 480 (193) 1,560
Segment Profit 614 810 332 106 (1,807) 55
Segment Assets 188,661 148,936 96,901 468 173,950 608,916
</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 11 branch locations, a twelve-story office in downtown
Indianapolis, and an operations center. Peoples has announced plans to close
three branches during 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 March 31,
1999, a total of 205,853 shares had been repurchased at an average price of
$27.18.
The book value per share of Peoples' nonvoting common shares at March 31, 1999,
was $17.47. For the first quarter, the low trading price per share was $32, and
the high trading price per share was $36.
On March 18, 1999, Peoples declared a cash dividend in the amount of $.145 per
share, payable April 15, 1999, to shareholders of record March 31, 1999. This
dividend represents a 16% increase over the first quarter 1998 dividend and is
the eleventh consecutive quarter in which Peoples has declared an increase in
dividends.
Selected ratios and summary data.
At or for the Three Months Ended
March 31,
1999 1998
--------- ---------
Assets $650,445 $608,916
Loans (includes loans held for sale) 466,373 420,544
Deposits 565,731 530,884
Shareholders Equity 52,436 48,498
Book value per share 17.47 15.76
Earnings per share (basic) $0.66 $0.02
Earnings per share (diluted) $0.64 $0.02
Dividends per share $0.145 $0.125
Net Interest Margin (FTE) 4.29% 4.44%
Return on Average Assets 1.26% 0.04%
Return on Average Equity 15.29% 0.46%
Average Shares Outstanding
- Basic 3,013,384 3,067,867
- Diluted 3,087,954 3,161,311
Total Shares Outstanding 3,000,812 3,076,930
Net Income
Net income for the first quarter of 1999 was $1,981 compared to $55 for the
first quarter of 1998, an increase of 3,501% or $1,926. Basic net income per
share for the first quarter of 1999 was $0.66, an increase of $0.64 or 3,200%
from $0.02 for the first quarter of 1998.
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 March 31, net interest income was $6,237 and $6,114 for 1999 and 1998,
respectively. This reflects an increase of $123, or 2.01%.
Interest income on loans, including related fees, increased from $9,008 for the
first quarter of 1998 to $9,434 for that period in 1999, an increase of $426 or
4.73%. These increases are attributable to an increase in loans outstanding.
Total loans were $466,373 at March 31, 1999, compared to $420,544 at March 31,
1998, an increase of $45,829 or 10.90%.
<PAGE>
Total interest expense was $5,355 and $5,387 for the three months ended March
31, 1999 and 1998, respectively, a decrease of $32, or 0.59%. The decrease in
interest expense is attributable to lower rates paid on certificates of deposit.
The Company's net interest margin, or margin on earning assets, decreased from
4.33% for the first quarter of 1998 to 4.18% for the first quarter of 1999. On a
tax equivalent basis, the Company's net interest margin decreased from 4.44% for
the first quarter of 1998 to 4.29% for the first 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 higher-priced 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 first quarter of 1999 as compared
to $3,000 for the first quarter of 1998, a decrease of $2,500 or 83.33%. The
allowance for loan losses at March 31, 1999, was $8,263 or 1.77% of total loans
compared to $7,684 or 1.69% of total loans at December 31, 1998. Gross
charge-offs during the first quarter of 1999 were $30 and recoveries were $109.
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 March 31,1999, 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 $1,788 for the first quarter of 1999, compared to
$1,560 for that period of 1998, an increase of $228 or 14.62%. This increase is
primarily attributable to an increase in revenue from Trust and investment
management.
Trust and investment management income was $742 and $504 for the first quarter
of 1999 and 1998, respectively, an increase of $238 or 47.22%. The increase in
revenue from Peoples' Trust and Investment Management Group in the first quarter
of 1999 reflected continuing sales efforts within the trust department. Peoples
also experienced strong growth in revenues from the sale of investment products,
which began in 1997.
Service charges and fees on deposit accounts, which comprise the largest
component of non-interest income, were down slightly for the first quarter of
1999 compared with the same period of 1998. For the three month periods ending
March 31, 1999, and 1998, service charges and fees income was $622 and $658
respectively, a decrease of $36 or 5.47%.
<PAGE>
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
first quarter of 1999 was $178, reflecting a decrease of $1 or 0.56%, compared
to $179 for the same period in 1998.
Other Non-interest income increased during the first quarter of 1999 to $240
from $213 for the same period in 1998, an increase of $27 or 12.68%. This
increase was associated primarily with increases in fees received from the use
of ATMs and an increase in revenue from the servicing of merchant credit cards.
Non-interest Expense
Total Non-interest expense was $4,544 for the three months ended March 31,1999,
compared with $4,687 for that period in 1998. This represents a decrease of
$143, or 3.05%. Salary and employee benefits expense was $2,723 for the three
months ended March 31,1999, an increase of $106 or 4.05% from $2,617 for the
same period of 1998. This increase was primarily associated with salary and wage
rate increases.
Occupancy expense was $431 for the first quarter of 1999, an increase of $59, or
15.86% from $372 for the first quarter of 1998. This increase was primarily
associated with increased snow removal costs during January. Equipment expense
was $407 and $380, respectively, for the first quarter of 1999 and 1998, an
increase of $27 or 7.11%. This cost reflects the implementation of new
technology, particularly the costs of platform automation and a PC network.
Other non-interest expense was $983 and $1,318 for the first quarter of 1999 and
1998, respectively, a decrease of $335 or 25.42%. The principal reason for this
decrease was an expense associated with an investment in a low-income housing
project of $333 during the first quarter of 1998. Due to continued losses, this
project was completely written-off during the remainder of 1998. The developers
were unable to secure tax credits associated with this investment by December
31, 1998 as required in the partnership agreement. During April 1999, the
Company recovered its entire initial investment of $648,000 as required in the
partnership agreement. This recovery should not be expected to produce a
significant increase in net income for the Company during the second quarter of
1999 as the Company expects this recovery to be off-set by weak net interest
income associated with an ongoing deposit campaign, increases in certain
non-interest expenses, and increases in tax expense. See "Forward-Looking
Statements," below.
Income Taxes
Income tax expense was $1,000 for the first quarter of 1999 and ($68) for the
first quarter of 1998. The increase in tax expense can be primarily attributed
to increased income recognized during the first quarter.
<PAGE>
Balance sheet
Total assets were $650,445 at March 31, 1999, and $634,505 at December 31, 1998,
an increase of $15,940, or 2.51%. The portfolio of available-for-sale securities
increased from $132,216 at December 31, 1998, to $146,861 at March 31, 1999, an
increase of $14,645 or 11.08%. Total loans, excluding loans held for sale,
increased during the first quarter of 1999 from $452,065 at December 31, 1998,
to $464,798 at March 31, 1999. This reflects an increase of $12,733 or 2.82%.
Commercial and commercial real estate loans increased $12,258 or 5.81% from
$211,115 at December 31, 1998, to $223,373 at March 31, 1999. Residential
mortgage loans decreased $1,477 or 1.51% from $97,755 at December 31, 1998, to
$96,278 at March 31, 1999. Construction loans increased $3,095 or 8.88% from
$34,840 at December 31, 1998 to $37,935 at December 31, 1999. Consumer loans
decreased $830 or 0.78% from $106,431 at December 31, 1998, to $105,601 at March
31, 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 $1,575 at March 31, 1999. The
amount of loans outstanding (excluding loans held for sale) is reflected in the
following table.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Commercial and Commercial Real Estate $ 223,373 $ 211,115 $ 188,531
Residential Mortgage 96,278 97,755 95,648
Construction 37,935 34,840 34,022
Consumer 105,601 106,431 100,333
Tax-exempt 1,611 1,924 2,010
--------- --------- ---------
Gross loans 464,798 452,065 420,544
Less: Allowance for Loan Losses (8,263) (7,684) (6,333)
========= ========= =========
$ 456,535 $ 444,381 $ 414,211
========= ========= =========
</TABLE>
Deposits represent the primary source of funds for the Company. Total deposits
increased $14,702 or 2.67%, from $551,029 at December 31,1998, to $565,731 at
March 31, 1999. Non-interest-bearing deposits decreased $7,014, or 7.10%, from
$98,851 at December 31, 1998, to $91,837 at March 31, 1999. Interest-bearing
deposits increased $21,716 or 4.80% from $452,178 at December 31, 1998, to
$473,894 at March 31, 1999. The Company's deposit balances are reflected in the
following table.
March 31, December 31, March 31,
1999 1998 1998
-------- -------- --------
Deposits:
Non-interest-bearing $ 91,837 $ 98,851 $ 86,733
Interest-bearing 473,894 452,178 444,151
-------- -------- --------
Total deposits $565,731 $551,029 $530,884
-------- -------- --------
Total deposits/total assets 86.98% 86.84% 87.19%
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 $24,595 at March 31, 1999, as compared to $22,918 at December 31, 1998.
This represents an increase of $1,677 or 7.32%. At March 31, 1999, the bank had
$15,125 in overnight repurchase agreements, $0 in federal funds purchased,
$6,000 in Federal Home Loan Bank advances, and $3,470 in borrowings through the
Treasury Tax and Loan Note Option program.
Total shareholders' equity increased $411 or 0.79% for the three months ended
March 31, 1999, to $52,436, from $52,025 at December 31, 1998. The increase in
shareholders' equity was the result of net income of $1,981, less dividends paid
of $435, plus the adoption of FAS No. 115 resulted in a $312 increase in equity,
less the repurchase of $906 of common stock, plus the issue of $83 of common
stock due to the exercise of stock options.
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, as a result of its delinquent status or significant concern about the
ultimate collectibility of the loan, management typically ceases to recognize
interest income with respect to such loan and places it on nonaccrual status.
At March 31, 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.
<PAGE>
The following table shows the composition of nonperforming loans.
March 31, December 31, March 31,
1999 1998 1998
--------- ------------ ---------
Nonperforming loans:
Total nonaccrual loans $ 785 $ 356 $2,496
Loans past due more than
ninety days and still accruing 0 105 346
====== ====== ======
Total $ 785 $ 461 $2,842
====== ====== ======
At March 31, 1999, nonperforming loans were comprised of $519 of commercial
loans, $266 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 March 31, 1998, nonperforming loans
consisted of $2,074 of commercial loans, $766 of real estate loans and $2 of
consumer loans. Asset quality continues to be an important area of focus for the
Company. Nonperforming loans as a percent of assets were 0.12% at March 31,1999,
and 0.73% at December 31, 1998. The Company maintains asset quality through the
use of well-defined policies, underwriting criteria, and review processes.
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 March 31, 1999, the Company's Tier I and total risk-based capital ratios
were 10.35% and 11.60%, respectively. The Company's leverage ratio was 8.10% at
March 31, 1999. As of March 31, 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
March 31, 1999.
<PAGE>
The following table provides the capital ratios for the entities.
At March 31, 1999
Consolidated
Bank Only Company
Total assets $647,240 $650,445
Risked-based assets $499,971 $502,195
Tier I capital $ 48,656 $ 51,956
Total risk-based capital $ 54,930 $ 58,258
Leverage ratio 7.62% 8.10%
Tier I risk-based capital ratio 9.73% 10.35%
Total risk-based capital 10.99% 11.60%
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.
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 outside the control of the Company, such as the failure of
power or communications technologies. 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.
Forward Looking Statements
The above discussion contains a number of statements which constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements 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-Q 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.
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders 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 84% percent of the outstanding voting shares.
No shares were voted in person.
Nominee For Against or Broker
Withheld Abstain Non-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
At the annual meeting, the voting shareholders also ratified an amendment to the
Peoples Bank Corporation of Indianapolis 1998 Stock Option Plan to increase the
number of shares reserved under the plan from 50,000 to 100,000 with 196,586
shares voting in favor of the amendment and 26,440 shares voting against. There
were no abstentions or broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits -
27 Financial Data Schedule
B. Form 8-K - No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
<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: May ___, 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 MARCH 31, 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
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<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
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<CASH> 20,699
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<LOANS-NON> 785
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