<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended Commission File Number
June 30, 1996 0-17379
INDIANA FEDERAL CORPORATION
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1735820
------------------------------ -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
56 Washington Street
Valparaiso, Indiana 46383
------------------------------ ---------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (219) 462-4131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
----------- -----------
As of August 8, 1996, there were 4,736,330 outstanding shares of the
registrant's Common Stock.
<PAGE>
INDIANA FEDERAL CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial
Statements (unaudited)
Condensed Consolidated Statements of Financial Condition
June 30, 1996 and December 31, 1995 2 - 3
Condensed Consolidated Statements of Income, Three and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flow, Six Months
Ended June 30, 1996 and 1995 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10 - 14
PART II. OTHER INFORMATION 15
SIGNATURES 17
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
ASSETS
<TABLE>
<S> <C> <C>
JUNE 30, DECEMBER 31,
1996 1995
--------------- --------------
Cash $ 30,567,987 $ 22,894,745
Interest-earning deposits in other institutions 39,986 178,207
Federal funds loaned -- 5,375,000
--------------- --------------
Total Cash and Cash Equivalents 30,607,973 28,447,952
Investment securities:
Available-for-sale 64,506,729 72,672,893
Mortgage-backed securities:
Available-for-sale 33,432,670 26,737,343
Loans receivable 559,601,364 529,348,028
Allowance for loan losses (6,716,369) (6,655,071)
--------------- --------------
Loans Receivable, Net 552,884,995 522,692,957
Loans held for sale 1,349,547 16,044,609
Real estate held for sale, acquired through foreclosure 4,162,276 4,413,617
Office properties and equipment 10,566,131 10,919,615
Federal Home Loan Bank stock 7,739,700 7,739,700
Accrued interest receivable 4,930,803 5,005,115
Goodwill and deposit base intangible 4,846,336 5,160,639
Investment in Section 42 properties 6,863,497 6,679,081
Investment in single premium life insurance policies 12,410,213 10,793,759
Other assets 7,968,501 4,025,810
--------------- --------------
TOTAL ASSETS $ 742,269,371 $ 721,333,090
=============== ==============
</TABLE>
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
JUNE 30, DECEMBER 31,
1996 1995
--------------- --------------
Deposits $ 564,217,457 $ 532,895,925
Federal Home Loan Bank advances
and other borrowings 102,632,820 114,105,475
Advance payments by borrowers for
taxes and insurance 3,138,381 1,409,051
Other liabilities 1,997,924 2,192,463
--------------- --------------
TOTAL LIABILITIES 671,986,582 650,602,914
Shareholders' Equity
Serial Preferred Stock, par value $.01
per share; authorized: 5,000,000 shares;
none issued -- --
Common Stock, par value $.01 per share;
authorized: 10,000,000 shares; issued
1996--5,840,329 shares, 1995--5,823,946 shares 58,451 58,239
Additional paid-in capital 27,555,967 27,428,077
Unrealized gain (loss) on available-for-sale securities,
net of deferred income taxes (553,044) 779,343
Retained earnings 52,268,940 51,443,400
Treasury Stock, at cost - June 1996--1,110,000 shares;
December 1995--1,103,000 shares (8,754,075) (8,628,949)
Guaranteed ESOP obligation (293,450) (349,934)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 70,282,789 70,730,176
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 742,269,371 $ 721,333,090
=============== ==============
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Interest income:
Interest on loans $11,830,182 $11,967,507 $23,521,212 $23,232,317
Interest on mortgage-backed securities 432,729 482,436 893,687 972,638
Interest and dividends on investment 1,235,409 1,544,341 2,440,437 3,507,531
----------- ----------- ----------- -----------
Total Interest Income 13,498,320 13,994,284 26,855,336 27,712,486
Interest expense:
Interest on deposits 6,064,473 5,578,486 11,915,245 10,907,454
Interest on FHLB advances and other 1,429,643 1,940,088 2,889,782 3,997,052
----------- ----------- ----------- -----------
Total Interest Expense 7,494,116 7,518,574 14,805,027 14,904,506
----------- ----------- ----------- -----------
Net Interest Income 6,004,204 6,475,710 12,050,309 12,807,980
Provision for loan losses 150,000 30,460 200,000 174,611
----------- ----------- ----------- -----------
Net Interest Income After Provision for 5,854,204 6,445,250 11,850,309 12,633,369
Other income:
Commissions on sales of insurance
and securities 266,963 332,341 630,413 634,496
Gain (loss) on sale of real estate owned 1,059 (352,575) (987) (355,480)
Gain (loss) on sale and valuation of
mortgage loans (291,388) 58,965 (504,129) 64,278
Gain (loss) on sale of securities 2,813 824,026 (17,500) 439,715
Customer service fees 467,277 372,433 843,810 710,523
Other 379,645 430,672 924,296 781,091
----------- ----------- ----------- -----------
Total Other Income 826,369 1,665,862 1,875,903 2,274,623
Other expenses:
Salaries and employee benefits 2,115,271 2,264,397 4,323,413 4,514,922
Net occupancy expense 377,033 348,119 758,736 725,399
Furniture and equipment expense 410,526 407,993 835,500 790,070
Federal insurance premiums 255,000 299,094 517,500 588,927
Marketing 243,662 191,854 362,172 336,778
Other general and administrative expense 1,483,409 1,358,460 2,950,482 2,617,779
----------- ----------- ----------- -----------
Total Other Expenses 4,884,901 4,869,917 9,747,803 9,573,875
----------- ----------- ----------- -----------
Income Before Income Taxes 1,795,672 3,241,195 3,978,409 5,334,117
Income Tax Expense 425,600 1,012,315 971,700 1,564,385
----------- ----------- ----------- -----------
Net Income $ 1,370,072 $ 2,228,880 $ 3,006,709 $ 3,769,732
=========== =========== =========== ===========
Amounts per common share:
Net Income $0.29 $0.46 $0.63 $0.78
===== ===== ===== =====
Cash Dividend Paid $0.18 $0.165 $0.46 $0.53
===== ====== ===== =====
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30,
1996 1995
--------------- --------------
OPERATING ACTIVITIES
Net income $ 3,006,709 $ 3,769,733
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 200,000 174,610
Originations of loans held for sale (21,665,652) (9,268,640)
Cost of loans sold 25,773,437 10,940,310
Provision for depreciation and amortization 1,118,761 872,174
Amortization of premiums and discounts, net 95,723 97,892
Proceeds from sales of trading securities 6,100,938 1,974,760
Purchases of trading securities (6,118,438) (1,975,625)
Deferred federal income taxes (1,054,494) (337,031)
Decrease in interest receivable (74,312) (839,307)
Decrease in interest payable (57,410) (154,410)
Net (gains) losses on sale of securities 17,500 (823,161)
Net losses on real estate owned 987 355,479
Net (gains) losses on sale and valuation of mortgage 504,129 (64,278)
Net change in other assets and liabilities (2,526,513) (1,340,840)
--------------- --------------
Net Cash Provided by Operating Activities 5,321,365 3,381,666
--------------- --------------
INVESTING ACTIVITIES
Purchase of Forrest Holdings, Inc. preferred stock (2,500,000) --
Proceeds from maturities of securities
held-to-maturity -- 550,000
Proceeds from maturities and principal on
securities available-for-sale 13,641,621 --
Proceeds from sales of securities
available-for-sale -- 77,374,156
Purchases of securities available-for-sale (5,475,457) (27,570,044)
Principal payments on mortgage-backed securities
held-to-maturity -- 654,782
Principal payments on mortgage-backed securities
available-for-sale 2,414,194 476,037
Purchases of loans (4,983,190) (260,000)
Loan originations and principal payments on loans (25,208,848) (9,251,200)
Purchases of office properties and equipment (596,405) (806,274)
Proceeds from sale of real estate 146,695 --
Payment for purchase of NCB Corp., net -- (6,467,096)
--------------- --------------
Net Cash Provided (Used) by Investing Activities (22,561,390) 34,700,361
--------------- --------------
FINANCING ACTIVITIES
Net increase (decrease) in non-certificate accounts 9,772,806 (8,537,234)
Net increase (decrease) in certificates of deposit 21,548,726 (7,487,485)
Proceeds from Federal Home Loan Bank advances 50,000,000 25,000,000
Repayments on Federal Home Loan Bank advances (59,265,125) (4,136,900)
Net decrease in other borrowings (2,207,500) (41,891,250)
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30,
1996 1995
--------------- --------------
FINANCING ACTIVITIES (Continued)
Net increase in advance payment by borrowers
for taxes and insurance $ 1,729,330 $ 103,333
Cash dividends (2,181,169) (2,492,158)
Purchase of treasury stock (125,125) (317,059)
Exercise of stock options 128,103 404,868
--------------- --------------
Net Cash Provided (Used) by Financing Activities 19,400,046 (39,353,885)
--------------- --------------
Increase (Decrease) in Cash and Cash Equivalents 2,160,021 (1,271,858)
Cash and Cash Equivalents at Beginning of Year 28,447,952 18,535,270
--------------- --------------
Cash and Cash Equivalents at End of Quarter $ 30,607,973 $ 17,263,412
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION - CASH PAID DURING THE PERIOD:
Interest:
Deposits $ 11,784,832 $ 11,125,603
Federal Home Loan Bank advances and other borrowings 2,947,192 4,196,905
--------------- --------------
$ 14,732,024 $ 15,322,508
=============== ==============
Income Taxes $ 500,000 $ 940,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Loans transferred to real estate owned $ 0 $ 1,000,310
Loans transferred to mortgage-backed securities $ 10,083,148 $ 0
</TABLE>
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INDIANA FEDERAL CORPORATION AND SUBSIDIARIES
June 30, 1996
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and
Article 10 of regulation S-X. Accordingly, such statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996.
NOTE 2 - Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common
stock equivalents outstanding. Common stock options in the calculation
assumes purchase of treasury stock with the option proceeds at the average
market price for the period (when dilutive).
NOTE 3 - Reclassification
Certain amounts in the 1995 condensed consolidated financial statements have
been reclassified to conform with the 1996 presentation.
NOTE 4 - Marketable Debt and Mortgage-Backed Securities
The following is a summary of available-for-sale securities at June 30,
1996:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------- ------------ --------------
Securities available-for-sale:
U.S. Government and agency securities $ 19,663,193 $ 129,795 $ (478,864) $ 19,314,124
Collateralized mortgage obligations 32,525,755 93,432 (523,106) 32,096,081
Municipal securities 1,083,183 38,992 (872) 1,121,303
Corporate debt securities 12,001,180 4,826 (30,785) 11,975,221
-------------- ------------- ------------ --------------
Total investment securities 65,273,311 267,045 (1,033,627) 64,506,729
Mortgage-backed securities 33,581,881 381,584 (530,795) 33,432,670
-------------- ------------- ------------ --------------
Total securities available-for-sale $ 98,855,192 $ 648,629 $ (1,564,422) $ 97,939,399
============== ============= ============ ==============
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Securities
available-for-sale
---------------------------------
Estimated
Amortized Market
Cost Value
-------------- -------------
Due in one year or less $ 10,125,427 $ 10,147,422
Due after one year through five years 15,268,835 15,267,171
Due after five years through ten years 11,783,314 11,320,936
Due after ten years 28,095,735 27,771,200
-------------- -------------
Total investment securities 65,273,311 64,506,729
Mortgage-backed securities 33,581,881 33,432,670
-------------- -------------
Total securities $ 98,855,192 $ 97,939,399
============== =============
</TABLE>
NOTE 5 - Accounting by Creditors for Impaired Loans
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
of a Loan." Under the new standard, the allowance for credit losses related
to loans that are identified for evaluation in accordance with Statement 114
is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for credit losses related to
these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. A loan is considered impaired
when a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
In accordance with Statement 114, a loan is classified as in-substance
foreclosure when the Bank has taken possession of the collateral regardless
of whether formal foreclosure proceedings take place. Loans previously
classified as in-substance foreclosure but which the Company had not taken
possession of the collateral continue to be classified as loans.
At June 30, 1996, the recorded investment in loans that are considered to be
impaired under Statement 114 was $6.2 million of which $4.4 million were on
a non-accrual basis. The average recorded investment in impaired loans
during the six months ended June 30, 1996 was $6.0 million. For the three
and six months ended June 30, 1996, the Bank recognized interest income on
those impaired loans of $15,000 and $55,000, respectively.
NOTE 6 - Accounting for Mortgage Servicing Rights
The Bank originates and purchases mortgage loans for sale in the secondary
market, and sells the loans with servicing either retained or released.
Effective January 1, 1996, the Bank adopted SFAS No. 122 (Accounting for
Mortgage Servicing Rights). For servicing retained, this Statement requires
capitalizing the cost of mortgage servicing rights, regardless of whether
those rights were acquired through origination or purchase activities.
8
<PAGE>
Beginning in 1996, the total cost of mortgage loans purchased or originated
with the intent to sell is allocated between the loan servicing right and
the mortgage loan without servicing, based on their relative fair values at
the date of origination or purchase. The capitalized cost of loan servicing
rights is amortized in proportion to, and over the period of, estimated net
future servicing revenue. Estimated servicing costs include direct costs
associated with performing the servicing function and appropriate
allocations of other costs.
Mortgage servicing rights are periodically evaluated for impairment.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its fair value, and is recognized through a valuation
allowance. The amount capitalized approximated the market value of
servicing rights at June 30, 1996 and, accordingly, no valuation allowance
for servicing rights was established. Quoted market prices were used to
estimate the fair value of servicing rights at June 30, 1996.
The amounts capitalized during the three and six month periods ended June
30, 1996 were $52,652 and $266,789, respectively. The capitalized amount is
being amortized over the estimated lives of the loans and the amortization
in the three and six month periods ended June 30, 1996 were $5,838 and
$14,058, respectively. At June 30, 1996 the fair value of capitalized
mortgage servicing rights totaled $252,731.
NOTE 7 - Investment in Forrest Holdings, Inc.
On February 2, 1996, the Corporation purchased for $2.5 million a one-third
interest in Forrest Holdings, Inc. of Oak Brook, Illinois. Forrest
Holdings, Inc. owns and operates Forrest Financial Corporation, a leasing
company which provides financing for the acquisition of information systems,
including equipment, software, training and maintenance.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INDIANA FEDERAL CORPORATION
FINANCIAL CONDITION
Indiana Federal Corporation (the "Corporation") the parent company of
Indiana Federal Bank for Savings (the "Bank"), had total assets of $742.3
million at June 30, 1996, compared to total assets of $721.3 million at
December 31, 1995.
Total investment securities declined by $8.2 million to $64.5 million at
June 30, 1996 from $72.7 million at December 31, 1995. This decline was due
primarily to normal maturities and principal repayments. In addition, the
investment security balance reflected net unrealized losses of $767,000 at
June 30, 1996 compared to net unrealized gains of $691,000 at December 31,
1995. Mortgage-backed securities increased $6.7 million to $33.4 million at
June 30, 1996 from $26.7 million at December 31, 1995. The increase in
mortgage-backed securities was the result of management's decision to
securitize $10.0 million of fixed-rate, one-to-four family mortgage loans
with the Federal Home Loan Mortgage Corporation.
The net loan portfolio balance at June 30, 1996 increased $30.2 million to
$552.9 million from $522.7 million at December 31, 1995. One- to four-family
mortgage, income producing property, consumer and commercial loans
originated and purchased during the six months ended June 30, 1996 were
$60.0 million, $8.2 million, $24.4 million and $32.0 million, respectively,
totaling $124.6 million or $37.5 million more than the $87.1 million
originated and purchased during the same period a year ago. Loan repayments
totaled $58.5 million for the six months ended June 30, 1996 compared to
$66.9 million for the same period last year. Sales of one- to four-family
fixed-rate mortgage loans increased to $35.9 million for the six months
ended June 30, 1996 from $11.0 million for the same period a year ago.
Of the $60.0 million in one- to four-family mortgage loans originated and
purchased, $24.0 million or 40 percent consisted of adjustable-rate mortgage
loans including $14.1 million in short-term construction loans. The
remaining $36.0 million of one- to four-family mortgage loan volume
represented long-term, fixed-rate loan origination. Included in fixed-rate
loan originations were $8.6 million of 15 year loans which were retained in
the loan portfolio, $5.7 million of 30 year FHA and VA loans which were
purchased from correspondents and $21.7 million which were originated for
sale. Fixed-rate loans held for sale at June 30, 1996 decreased to $1.3
million from $16.0 million at December 31, 1995. The loans held for sale at
June 30, 1996 are all held to be delivered pursuant to forward sales
commitments. Loans held for sale are accounted for on a lower of cost or
market basis. As of June 30, 1996, the Corporation had recorded a net
adjustment of $8,500 to reduce the book value of these loans to their fair
market value.
10
<PAGE>
Deposits increased $31.3 million to $564.2 million at June 30, 1996 from
$532.9 million at December 31, 1995. The increase in deposits occurred
primarily as a result of an increase of $9.8 million in passbook, money
market and other transaction accounts and an increase of $21.5 million in
certificate of deposit balances.
Shareholders' equity decreased to $70.3 million or $14.84 per share at June
30, 1996 from $70.7 million or $14.98 per share at December 31, 1995. The
decline in shareholders' equity was primarily the result of a $1.3 million
decrease in unrealized gains on the available-for-sale securities portfolio
and the payment of dividends.
ASSET/LIABILITY MANAGEMENT
Management attempts to control fluctuations in net interest income which
result from an imbalance in the volume of assets and liabilities repricing
during a period of time. The Bank attempts to mitigate its interest rate
risk exposure by managing the maturity, prepayment and repricing
characteristics of assets and liabilities. The Bank retains certain fixed-
rate and adjustable-rate loans and sells in the secondary market conforming
thirty-year fixed-rate mortgage loans. At June 30, 1996, the volume of
liabilities repricing in one year or less exceeded the volume of assets
repricing in one year or less by $85.3 million or a negative 11.68 percent of
the Bank's total assets. This figure compares to a negative 12.38 percent
one year gap at December 31, 1995.
NON-PERFORMING ASSETS AND LOAN LOSS RESERVES
The Corporation's non-performing assets decreased to $10.6 million or 1.42
percent of total assets at June 30, 1996 from $11.0 million or 1.53 percent
of total assets at December 31, 1995.
Management continuously reviews the various loan portfolios to determine
appropriate loan loss reserve levels. Factors considered in these reviews
include, but are not limited to, general economic conditions, loan mix,
historical charge-offs, condition of the underlying collateral and the
ability of the borrower to repay the loan. Management, as a result of this
review process, recorded provision for loan losses of $150,000 and $200,000,
respectively, for the three and six month periods ended June 30, 1996
compared to $30,000 and $175,000, for the three and six months ended June
30, 1995.
Based on available information, management believes that the allowance for
loan losses is adequate to absorb potential losses in the portfolio;
however, future additions to the allowance may be necessary, based on
changes in economic conditions. In addition, various regulatory agencies
periodically review the allowance for loan losses, and may require that
additions be made based upon their judgement of information available to
them at the time of their examination. At June 30, 1996, the Corporation's
allowance for loan losses totaled $6.7 million or 1.21 percent of net loans
receivable compared to $6.7 million or 1.27 percent of net loans receivable
at December 31, 1995.
11
<PAGE>
RESULTS OF OPERATIONS
The Corporation recorded earnings of $1.4 million or $.29 per share for the
three months ended June 30, 1996 compared to $2.2 million or $.46 per share
for the same period last year. Net income for the six months ended June 30,
1996 was $3.0 million or $.63 per share compared to $3.8 million or $.78 per
share for the same period a year ago. The decline in 1996 net income was
the result of lower net interest income and other income. The return on
average shareholders' equity declined to 8.52 percent for the six months
ended June 30, 1996 compared to 11.41 percent for the same period in 1995.
The return on average assets was .83 percent for the six months ended June
30, 1996 compared to 1.04 percent for the same period last year.
The Corporation's net income is primarily dependent upon the difference
between interest earned on its loans and investments and interest paid on
deposits and borrowings. Indiana Federal's net interest income after
provision for loan losses for the three months ended June 30, 1996 decreased
to $5.9 million compared to $6.4 million for the same period in 1995. Net
interest income after provision for loan losses for the six months ended
June 30, 1996 decreased to $11.9 million from $12.6 million for the same
period last year. The decline in net interest income was a result of higher
interest rates on liability products and lower yields on interest-earning
assets which produced lower net interest margins. The net interest margin
decreased to 3.60 percent for the three months ended June 30, 1996 compared
to 3.85 percent for the same period last year. For the six months ended
June 30, 1996, the net interest margin declined to 3.64 percent compared to
3.75 percent for the same period last year. The decline in the net interest
margin for the three months ended June 30, 1996 was primarily the result of
a 25 basis point decrease in the yield on interest-earning assets. The
decline in net interest margin for the six months ended June 30, 1996 was
primarily due to an increase of 8 basis points in the average cost of
interest-bearing liabilities and a 3 basis point decline in the yield on
interest-earning assets.
Other income declined to $826,000 for the three months ended June 30, 1996
from $1.7 million for the same period a year ago. For the six months ended
June 30, 1996, other income declined to $1.9 million compared to $2.3
million for the same period last year. When excluding gains and losses on
the sale of assets, however, other income remained steady at $1.1 million
for the three months ended June 30, 1996 compared to the same period a year
ago. For the six months ended June 30, 1996, other income excluding gains
and losses on the sale of assets increased by 12.8 percent to $2.4 million
from $2.1 million for the same period last year. The increase in other
income, excluding gains and losses on the sale of assets, for the six month
periods ended June 30, 1996, was primarily the result of increases in
customer service fees and a $200,000 prepayment penalty collected on the
payoff of an income-producing property loan.
During the three months ended June 30, 1996, management chose to reduce the
Corporation's interest rate risk pertaining to its loans held-for-sale
portfolio. As a result, the Corporation sold $31.9 million of loans during
the three months ended June 30, 1996 resulting in net losses on the sale of
mortgage loans of $291,000 compared to gains of
12
<PAGE>
$59,000 for the same period a year ago. At March 31, 1996, the Corporation
had recorded an adjustment of $195,000 reducing the loans held-for-sale at
that time to their fair market value. Losses on the sale and valuation of
mortgage loans held-for-sale totaled $504,000 for the six months ended June
30, 1996 compared to net gains of $64,000 for the same period a year ago.
Other expenses remained relatively unchanged at $4.9 million for the three
months ended June 30, 1996 as compared to the same period a year ago. For
the six months ended June 30, 1996, other expenses increased slightly to
$9.7 million compared to $9.6 million for the same period last year. The
increase in expenses was primarily due to increased depreciation on new
equipment and higher computer service expenses.
The deposits of savings associations such as the Bank are presently insured
by the Savings Association Insurance Fund (the "SAIF"), which, along with
the Bank Insurance Fund (the "BIF"), is one of the two insurance funds
administered by the FDIC. Financial institutions which are members of the
BIF are experiencing substantially lower deposit insurance premiums because
the BIF has achieved its required level of reserves while the SAIF has not
yet achieved its required reserves. A capitalization plan for the SAIF
under consideration by Congress reportedly provides for a special assessment
of 0.60 percent to 0.80 percent of deposits to be imposed on all SAIF
insured institutions to enable the SAIF to achieve its required level of
reserves. If the proposed assessment of 0.60 percent to 0.80 percent was
effected based on deposits as of March 31, 1995 (as proposed), the Bank's
special assessment would amount to approximately $3.2 million to $4.3
million, before taxes, respectively. Accordingly, this special assessment
would significantly increase non-interest expense and adversely affect the
Company's results of operations. Conversely, depending upon the Bank's
capital level and supervisory rating, and assuming the insurance premium
levels for BIF and SAIF members are again equalized, future deposit
insurance premiums are expected to decrease significantly, to as low as .04
percent of deposits from the .23 percent of deposits currently paid by the
Bank, which would reduce non-interest expense for future periods.
Income tax expenses totaled $426,000, an effective tax rate of 23.7 percent
for the three month period ended June 30, 1996 compared to $1.0 million, an
effective tax rate of 31.2 percent for the same period last year. For the
six months ended June 30, 1996, income tax expenses totaled $972,000 or an
effective tax rate of 24.4 percent compared to $1.6 million or an effective
tax rate of 29.3 percent for the same period last year. Provision for
income tax expense for the three and six month periods ended June 30, 1996
included low to moderate income housing tax credits of $306,000 and $627,000
respectively, compared to $237,000 and $574,000, respectively, for the same
period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Bank maintains certain levels of cash and other liquid assets to fund
normal volumes of loan commitments, savings deposit activity and other
obligations. The Office of Thrift Supervision requires thrifts to maintain
their liquidity ratio (cash and cash equivalent
13
<PAGE>
investments to net withdrawable deposits and borrowing due within one year)
in excess of five percent. As of June 30, 1996 and 1995, the Bank's
liquidity ratio was 7.10 percent and 6.51 percent, respectively, which were
both in excess of the minimum regulatory requirement.
The Corporation's primary sources of funds include loan repayments, advances
from the Federal Home Loan Bank of Indianapolis, reverse repurchase
agreements, deposits and loan sales. At June 30, 1996, the Corporation had
commitments to originate $67.3 million of loans (including $17.4 million in
unused lines of credit). At the same date, scheduled maturities of
certificates of deposit during the succeeding 12 months amounted to $252.7
million (including $77.2 million within three months or less) and scheduled
maturities of FHLB advances during such 12-month period amounted to $69.4
million. Management considers its current liquidity and additional sources
of funds adequate to meet outstanding loan commitments.
Current regulatory standards impose the following capital requirements:
risk-based capital standard expressed as a percent of risk-adjusted assets,
a leverage ratio of core capital to total adjusted assets and a tangible
capital ratio expressed as a percent of total adjusted assets. As of June
30, 1996, the Bank substantially exceeded all regulatory capital
requirements.
At June 30, 1996, the Bank's tangible capital was $48.0 million or 6.60
percent of adjusted total assets, which was in excess of the 1.5 percent
requirement by $37.1 million. In addition, at June 30, 1996, the Bank had
core capital of $52.9 million or 7.21 percent of adjusted total assets,
which exceeded the 3.0 percent requirement by $30.9 million. The Bank also
had risk-based capital of $58.6 million at June 30, 1996 or 12.97 percent,
which exceeded the 8.0 percent risk based capital requirement by $20.5
million.
At June 30, 1996, the Corporation had acquired a total of 1,110,000 shares
of its outstanding common shares through its previously announced share
repurchase programs. The Corporation acquired 7,000 shares in the six
months ended June 30, 1996.
The Board of Directors approved a $.18 per share, or $853,619 cash dividend
for the second quarter of 1996.
14
<PAGE>
INDIANA FEDERAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) Proxies for the annual meeting held April 24, 1996 were
solicited pursuant to Regulation 14A under the Securities and
Exchange Act of 1934.
(b) There were no solicitations in opposition to management's
nominees for directors as listed in the proxy statement and
all nominees listed were elected.
Directors elected were Donald A. Lesch, Philip A. Maxwell and
Barbara A. Young.
For Withheld Abstain/Broker Non-Vote
--------- -------- -----------------------
Donald A. Lesch 3,906,630 92,371 -0-
Philip A. Maxwell 3,896,001 103,000 -0-
Barbara A. Young 3,897,566 101,435 -0-
Directors previously in office who continued as directors after
the meeting were Peter R. Candela, James E. Hutton, John R.
Poncher, M.D., Byron Smith III and Fred A. Wittlinger.
(c) Other matter voted upon at the annual meeting along with the
number of affirmative votes and negative votes for each
matter.
15
<PAGE>
Ratification of the appointment of Ernst & Young LLP as auditors
for the Company for the fiscal year ending December 31, 1996.
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
3,936,392 39,964 22,645 -0-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 27 - Financial Data Schedule
B. One 8-K filed by the Registrant
1. A press release dated May 17, 1996 announcing a new
subsidiary, IFB Investment Services, Inc., and a press
release dated June 10, 1996 announcing a realignment of
management responsibilities was filed by the registrant with
the SEC on July 16, 1996.
16
<PAGE>
INDIANA FEDERAL CORPORATION
SIGNATURES
Pursuant to the requirement 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.
Indiana Federal Corporation
---------------------------
Registrant
Date: August 13, 1996 /s/ Peter R. Candela
--------------- ----------------------------------------
Peter R. Candela
President/Chief Operating Officer
Date: August 13, 1996 /s/ George J. Eberhardt
--------------- ----------------------------------------
George J. Eberhardt
Executive Vice President/
Chief Financial Officer
17
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